<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO. 333-28303
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EAGLE GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE 1382 76-0522659
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
50 BRIAR HOLLOW LANE
6TH FLOOR WEST
HOUSTON, TEXAS 77027
(713) 881-2800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAY N. SILVERMAN, PRESIDENT
EAGLE GEOPHYSICAL, INC.
50 BRIAR HOLLOW LANE
6TH FLOOR WEST
HOUSTON, TEXAS 77027
(713) 881-2800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<C> <C>
N. L. STEVENS III
W. MARK YOUNG JOSEPH W. ARMBRUST
GARDERE WYNNE SEWELL & RIGGS, L.L.P. BROWN & WOOD LLP
333 CLAY AVENUE, SUITE 800 ONE WORLD TRADE CENTER
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10048
(713) 308-5500 (212) 839-5300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 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
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 JULY 11, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
5,880,000 SHARES
EAGLE GEOPHYSICAL, INC.
[EAGLE GEOPHYSICAL, INC. LOGO] COMMON STOCK
- --------------------------------------------------------------------------------
Of the 5,880,000 shares of common stock, $0.01 par value (the "Common Stock"),
offered hereby, 4,000,000 shares are being sold by Eagle Geophysical, Inc. (the
"Company") and 1,880,000 shares are being sold by a selling stockholder (the
"Selling Stockholder"). The Company will not receive any of the proceeds from
the sale of the shares of Common Stock by the Selling Stockholder. See
"Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $14.00 and $16.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Company has applied to have the Common Stock approved
for inclusion in The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "EGEO."
SEE "RISK FACTORS" ON PAGES 8 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN 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 Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholder
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $ $
=======================================================================================================================
</TABLE>
(1) The Company, the parent corporation of the Selling Stockholder, the Selling
Stockholder, certain officers, directors and employees of the Company and
certain corporations beneficially owned by such officers, directors and
employees of the Company (the "Additional Selling Stockholders") have agreed
to indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company, the Selling Stockholder and the Additional Selling Stockholders
have granted the Underwriters 30-day over-allotment options to purchase, in
the aggregate, up to 882,000 additional shares of the Common Stock on the
same terms and conditions set forth above. If such options are exercised in
full, the total Price to Public will be $ , the total Underwriting
Discounts and Commissions will be $ , the total Proceeds to Company
will be $ and the total Proceeds to Selling Stockholder and
Additional Selling Stockholders will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholder (and, if applicable, the
Additional Selling Stockholders) and acceptance by the Underwriters, to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. Delivery of the shares to the Underwriters is expected to be made at the
office of Prudential Securities Incorporated, One New York Plaza, New York, New
York, on or about , 1997.
<TABLE>
<S> <C>
PRUDENTIAL SECURITIES INCORPORATED SIMMONS & COMPANY
INTERNATIONAL
</TABLE>
, 1997
<PAGE> 3
Photo #1 AIRBOAT
The Company's use of radio frequency telemetry data acquisition systems allows
for seismic data collection in logistically challenging swamp and marsh
environments.
Photo #2 ROAD
The radio telemetry field recording box (called a seismic acquisition remote,
or "SAR") uses radio frequency transmission rather than cable connections to
deliver seismic data from the field to the recording system, thus allowing
surveys where there are numerous topographical obstructions such as highways,
rivers and towns.
Photo #3 TRUCK
The central recording system, located in the "Dog House," collects seismic data
via radio signal from the SAR's. Since the data is transmitted after every shot,
the potential for lost or corrupt data is greatly limited.
Photo #4 DOGHOUSE
The seismic observer stationed in the "Dog House" is provided with total and
continuous control of every aspect of the recording process.
Graphic -- map of U.S. Gulf Coast showing locations of onshore and offshore 3D
geophysical surveys
Back Cover of the Prospectus -- Photo #5 VESSELS
The Company has considerable experience in dual vessel techniques employing
GPS-based synchronization techniques and wide bandwidth transmission systems
for greater 3D survey coverage in congested offshore areas with dense marine
traffic, production platforms and other obstructions.
_______________
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes an initial
public offering price of $15.00 per share, the midpoint of the price range set
forth on the cover page of this Prospectus, and that the Underwriters'
over-allotment options will not be exercised. All references to the Common Stock
give effect to the 3,400-for-one stock split effected May 22, 1997. This
Prospectus contains certain forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
of the factors set forth under "Risk Factors" and elsewhere in this Prospectus.
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.
Eagle Geophysical, Inc. currently owns 19.0% of the outstanding shares of
Energy Research International. Prior to or contemporaneously with the
consummation of the Offering, Eagle Geophysical, Inc. will acquire the remaining
81.0% of the outstanding shares of Energy Research International in exchange for
600,000 shares of Common Stock of Eagle Geophysical, Inc. Such acquisition is a
condition to the consummation of the Offering, and the Offering will not be
consummated unless such acquisition is completed. Unless the context indicates
otherwise, all references herein to the "Company" mean Eagle Geophysical, Inc.
and its subsidiaries, including Energy Research International, assuming the
consummation of such acquisition, and all pro forma financial data given is for
such combined entity unless specified otherwise.
THE COMPANY
Eagle Geophysical, Inc. (the "Company") is a highly-focused international
oilfield service company engaged in the acquisition of seismic information, with
a specialization in the acquisition of high definition three-dimensional ("3D")
seismic data in logistically difficult wetland environments and in congested
offshore areas. Seismic data is used by oil and gas companies in the exploration
for new oil and gas reserves and the development of existing reserves. The
Company was formed to combine the onshore seismic data acquisition business
conducted by Seitel Geophysical, Inc. ("SGI") with the offshore seismic data
acquisition business conducted by Energy Research International ("ERI") and its
operating subsidiaries (the "Horizon Companies"), both of which were commenced
in 1993.
The Company's crews and equipment have been configured for the technically
and logistically demanding operations they conduct. The Company operates three
onshore 1,850 channel Opseis(R) radio telemetry seismic data acquisition crews
in the U.S. Gulf Coast region and four towed-streamer seismic data acquisition
vessels, primarily in the North Sea and the U.S. Gulf of Mexico. The Company is
currently pursuing opportunities to expand its wetland seismic data acquisition
activities internationally, primarily into Latin America. The Company's wetland
crews and equipment, which use radio signals rather than traditional cables to
collect seismic data, are specifically designed to work in environmentally
sensitive and operationally challenging swamp and marsh environments, where the
Company has completed over fifty-five 3D surveys since 1993. Because these
Opseis systems use radio signals to transmit data, they can be operated more
efficiently than cable-based systems, particularly in wetland areas and highly
populated areas where there are numerous topographic obstructions, such as
rivers, bays, highways and towns. These systems also excel in environmentally
sensitive areas where physical intrusion must be minimized.
The Company believes that it has developed particular expertise in both the
front-end planning and the execution of complex onshore 3D surveys. Front-end
planning involves obtaining permits from the numerous land and mineral owners
required in large onshore 3D acquisition projects and refining such projects to
capitalize on the capabilities of the Company's radio telemetry systems. The
Company believes that the combination of its superior permitting, planning and
project management skills and the capabilities of the Company's equipment to
acquire data around obstacles and areas where permission from land owners cannot
be obtained provides the Company with a competitive advantage in seeking data
acquisition work in the wetland regions of the U.S. Gulf Coast.
3
<PAGE> 5
The Company also operates four seismic data acquisition vessels under
charter or lease, each of which is currently configured to tow either two or
three streamers. These vessels are well equipped to work in congested offshore
areas with dense marine traffic, production platforms and other obstructions,
where vessels towing more streamers are ill-suited to work due to their lack of
maneuverability. The configuration of the Company's vessels is also optimal for
conducting small and medium sized high definition seismic surveys around
offshore platforms. These surveys may be used by oil and gas companies to
delineate the extent of or enhance the production from existing fields. The
Company plans to expand the streamer towing capacity of one of its vessels from
three to between four and six streamers at the end of 1997, significantly
increasing the vessel's data acquisition capabilities. This will enable the
Company to further increase flexibility and efficiency in its offshore seismic
data acquisition operations. The Company believes that the greater financial
resources available to its offshore operations following the Offering will
better enable it to satisfy existing customer demand for its services and to
mobilize its seismic acquisition vessels to new geographic markets, such as
Latin America, Africa and Southeast Asia, as opportunities arise outside its
primary areas of operation in the U.S. Gulf of Mexico and the North Sea.
Approximately 52% of the Company's 1996 pro forma combined revenues was
derived from its onshore operations, and the remaining 48% of revenues was
derived from offshore operations. All onshore revenues in 1996 were attributable
to 3D data acquisition activities. Offshore revenues in 1996 were attributable
approximately 85% to 3D data acquisition activities and 15% to two-dimensional
("2D") data acquisition activities. See "Description of Business -- Business
Strategies" for a discussion of the Company's business objectives.
INDUSTRY OVERVIEW
Seismic data is used by oil and gas companies to identify and image
underground geological structures likely to trap hydrocarbons, both to aid in
the exploration for new hydrocarbon reservoirs and to enhance production from
existing reservoirs. A seismic data acquisition project generally consists of
designing and planning the survey, obtaining permission from mineral and land
owners to perform the survey (if on land) and acquiring the seismic data. Such
data, when processed, is then used to produce computer generated three-
dimensional images or two-dimensional cross sections of subsurface geologic
formations. These cross sections and images are then used by oil and gas
companies to evaluate the potential for successful drilling for or production of
oil and gas.
Historically, 2D surveys were the primary technique used to acquire seismic
data. However, advances in computer technology in the last five to ten years
have made 3D seismic data, which provides a more comprehensive geophysical
image, a practical and capable oil and gas exploration and development tool. 3D
seismic data is proving to be more accurate and effective than 2D data at
identifying potential hydrocarbon-bearing geological formations. The use of 3D
seismic data to identify locations to drill both exploration and development
wells has improved the economics of finding and producing oil and gas. The
success and acceptance of 3D seismic data has in turn created increased demand
for 3D seismic surveys in recent years. The Company anticipates that demand for
3D seismic data will continue to increase both in the Company's current primary
areas of operations and in other areas internationally.
RELATIONSHIP WITH SEITEL, INC.
The Company, formed in December 1996, is a combination of the onshore
seismic data acquisition business conducted by SGI, which is a wholly-owned
subsidiary of Seitel, Inc. ("Seitel"), and the offshore seismic data acquisition
business conducted by the Horizon Companies. After consummation of the Offering,
Seitel will retain indirect ownership of 18.9% of the outstanding shares of
Common Stock (16.5% if the Underwriters' over-allotment options are exercised in
full). In 1996, seismic data acquisition services provided to Seitel and its
subsidiaries accounted for approximately 52% of the Company's pro forma combined
revenues. The Company currently has contracts with Seitel and its subsidiaries
to perform certain specific seismic data acquisition projects, representing 28%
of the Company's backlog as of July 10, 1997. The Company anticipates that
Seitel will continue to be a significant customer after the Offering. See
"Certain Transactions."
4
<PAGE> 6
THE OFFERING
Common Stock Offered by the Company..... 4,000,000 shares
Common Stock Offered by the Selling
Stockholder............................. 1,880,000 shares
Common Stock to be Outstanding after the
Offering................................ 8,025,000 shares(1)
Use of Proceeds......................... The net proceeds to the Company
from the Offering will be used to
repay $35.4 million of debt and
capital lease obligations of the
Company, including certain debt
owed to or guaranteed by Seitel,
approximately $5.0 million will be
deposited as additional security
for a capital lease obligation that
the Company does not intend to
repay, and the remaining $14.5
million of such proceeds will be
used to fund a portion of the
capital expenditures required to
increase the streamer capacity of
one of the offshore seismic data
acquisition vessels operated by the
Company. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.................................. EGEO
Risk Factors............................ For a discussion of certain factors
relevant to an investment in the
Common Stock, see "Risk Factors."
- ---------------
(1) Does not include 704,450 shares issuable upon exercise of stock options to
be granted to management, employees and directors effective upon
consummation of the Offering, all of which will have an exercise price per
share equal to the initial public offering price set forth on the cover page
of this Prospectus. See "Management -- Independent Directors Stock Option
Plan" and "-- Stock Option Plan."
5
<PAGE> 7
SUMMARY SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA
The Summary Selected Financial Data below has been taken or derived from
the audited consolidated financial statements and the unaudited consolidated
condensed financial statements of Eagle Geophysical, Inc. (referred to herein as
"Eagle" for periods prior to the acquisition of the remaining interest in ERI)
and ERI, the parent corporation of the Horizon Companies, or the unaudited pro
forma consolidated financial statements of the Company, included elsewhere in
this Prospectus. This summary financial data should be read in conjunction with
Eagle's Consolidated Financial Statements, ERI's Consolidated Financial
Statements, the Pro Forma Consolidated Financial Statements and the accompanying
notes contained elsewhere in this Prospectus. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The following unaudited pro forma consolidated balance sheet as of March
31, 1997 and the consolidated statements of operations for the year ended
December 31, 1996 and the three month periods ended March 31, 1996 and 1997 give
effect to certain transactions that will take place upon the closing of the
Offering, including the acquisition by the Company, accounted for as a purchase
transaction, of the remaining 81% of the outstanding shares of ERI in exchange
for the issuance by the Company of 600,000 shares of Common Stock (the "ERI
Acquisition") and the application of the net proceeds of the Offering to repay
certain indebtedness of the Company, as if such transactions had taken place on
March 31, 1997 in the case of the unaudited pro forma consolidated balance sheet
and January 1, 1996 in the case of the unaudited pro forma consolidated
statements of operations.
PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED MARCH 31,
-------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996 1996 1997
----------------------------------------------------------- -------------- --------------
EAGLE ENERGY PRO FORMA PRO FORMA PRO FORMA
GEOPHYSICAL, RESEARCH COMBINED AS COMBINED AS COMBINED AS
INC. INTERNATIONAL ADJUSTMENTS(1) ADJUSTED(2) ADJUSTED(1)(2) ADJUSTED(1)(2)
------------ ------------- -------------- ----------- -------------- --------------
(HISTORICAL) (HISTORICAL) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.......................... $48,136 $43,607 $ (828) $90,915 $13,674 $23,626
------- ------- ------- ------- ------- -------
Expenses:
Operating expenses(3).......... 34,917 37,601 (828) 71,690 12,250 16,557
Depreciation and
amortization................. 3,409 4,615 1,323(4) 9,347 2,024 3,010
Selling, general and
administrative expenses...... 2,680 2,619 1,601(5) 6,900 1,228 1,367
Interest expense, net.......... 531 1,649 (1,529)(6) 651 110 34
------- ------- ------- ------- ------- -------
Total expenses............. 41,537 46,484 567 88,588 15,612 20,968
------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes............... 6,599 (2,877) (1,395) 2,327 (1,938) 2,658
Provision (benefit) for income
taxes.......................... 2,420 -- (677) 1,743 65 451
------- ------- ------- ------- ------- -------
Net income (loss)(7)............. $ 4,179 $(2,877) $ (718) $ 584 $(2,003) $ 2,207
======= ======= ======= ======= ======= =======
Earnings (loss) per share(7)..... $ .07 $ (.25) $ .28
======= ======= =======
Pro forma shares outstanding..... 8,025 8,025 8,025
======= ======= =======
Statement of Cash Flow Data:
Operating activities............. $ 4,640 $ 4,315 $ 9,560 $(2,096) $ 5,195
Investing activities............. (7,928) (3,113) (11,041) (253) (7,258)
Financing activities............. 3,230 (1,313) 1,917 2,252 1,341
Other Financial Data:
EBITDA(8)........................ $10,539 $ 3,387 $12,325 $ 196 $ 5,702
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------
PRO FORMA
PRO FORMA COMBINED
COMBINED(1) AS ADJUSTED(1)(2)
----------- -----------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 1,304 $21,204
Total assets.............................................. 85,490 99,581
Total debt, capital lease obligations and due to
affiliate............................................... 49,239 14,489
Stockholders' equity...................................... 18,833 67,741
</TABLE>
- ---------------
(1) Reflects pro forma adjustments for the ERI Acquisition and adjustments to
reflect the consummation of the Offering and the sale of 25,000 shares of
Common Stock, at the initial public offering price, to Jay N. Silverman,
President of the Company, for a note.
(2) Reflects the combination of the adjustments and the historical financial
statements.
(3) As used herein, operating expenses exclude depreciation and amortization.
(4) Reflects the amortization of goodwill associated with the acquisition of ERI
over a 15-year estimated useful life.
(5) Represents identifiable additions to selling, general and administrative
expenses the Company estimates it will incur when operating as a public
registrant.
(6) Reflects a reduction in interest expense as a result of the application of
estimated net proceeds from the Offering to reduce debt and capital lease
obligations.
(7) Excludes the effect of a $600,000 extraordinary gain for early
extinguishment of debt on ERI's historical 1996 financial statements.
(8) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. EBITDA is used by management of the Company as a supplemental
financial measurement in the evaluation of its business and should not be
considered as an alternative to net income as an indicator of the operating
performance of the Company or as an alternative to cash flow as a measure of
liquidity. EBITDA is presented here to provide additional information about
the Company. See Note 7 to Selected Pro Forma Financial Information.
6
<PAGE> 8
SUMMARY SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA -- (CONTINUED)
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1996 1997
------------ -------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EAGLE GEOPHYSICAL, INC.(1)(2)
Statement of Operations Data:
Revenue.............................................. $ 5,650 $25,721 $29,275 $48,136 $ 5,974 $12,981
------- ------- ------- ------- ------- -------
Expenses:
Operating expenses................................. 3,596 20,070 20,986 34,917 4,336 9,286
Depreciation and amortization...................... 409 1,817 2,471 3,409 657 1,302
Selling, general and administrative................ 108 1,673 2,874 2,680 361 450
Interest expense, net.............................. 147 384 408 531 136 158
------- ------- ------- ------- ------- -------
Total expenses................................. 4,260 23,944 26,739 41,537 5,490 11,196
------- ------- ------- ------- ------- -------
Income before provision for income taxes............. 1,390 1,777 2,536 6,599 484 1,785
Provision for income taxes........................... 509 651 933 2,420 178 655
------- ------- ------- ------- ------- -------
Net income........................................... $ 881 $ 1,126 $ 1,603 $ 4,179 $ 306 $ 1,130
======= ======= ======= ======= ======= =======
Statement of Cash Flow Data:
Operating activities................................. $ 1,939 $ 603 $ 633 $ 4,640 $(3,012) $ 6,481
Investing activities................................. (4,791) (234) (289) (7,928) (232) (6,710)
Financing activities................................. 2,877 (365) (315) 3,230 3,233 229
Other Financial Data:
EBITDA............................................... $ 1,946 $ 3,978 $ 5,415 $10,539 $ 1,277 $ 3,245
Consolidated Balance Sheet Data:
Cash and cash equivalents............................ $ 25 $ 29 $ 58 $ -- $ 47 $ --
Total assets......................................... 7,063 14,413 17,960 26,721 20,997 35,792
Total debt and capital lease obligations............. 3,989 8,034 5,932 10,902 5,832 17,800
Stockholder's equity................................. 881 2,007 3,610 7,789 3,916 8,919
</TABLE>
- ---------------
(1) Had the sale pursuant to the Offering of shares of Common Stock (841 in 1996
and 1,333 in 1997) at $15 per share occurred at the beginning of 1996 and
1997, and the net proceeds therefrom been used to repay long-term debt,
earnings per share would have been $1.07 for the year ended December 31,
1996 and $.28 for the three-month period ended March 31, 1997.
(2) Eagle was incorporated in December 1992 and had no material operations in
1992.
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- -----------------
1993(1) 1994 1995 1996 1996 1997
------------ -------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ENERGY RESEARCH INTERNATIONAL
Statement of Operations Data:
Revenue.............................................. $ 9,591 $19,457 $29,423 $43,607 $ 7,700 $11,079
------- ------- ------- ------- ------- -------
Expenses:
Operating expenses................................. 8,360 16,360 27,075 37,601 7,914 7,705
Depreciation....................................... 78 1,683 3,856 4,615 1,036 1,377
Selling, general and administrative................ 690 1,703 2,196 2,619 467 517
Interest expense, net.............................. 90 528 1,456 1,649 406 536
------- ------- ------- ------- ------- -------
Total expenses................................. 9,218 20,274 34,583 46,484 9,823 10,135
------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes and
extraordinary item................................. 373 (817) (5,160) (2,877) (2,123) 944
Provision for income taxes........................... 63 11 -- -- -- --
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item.............. 310 (828) (5,160) (2,877) (2,123) 944
Extraordinary item................................... -- -- -- 600 -- --
------- ------- ------- ------- ------- -------
Net income (loss).................................... $ 310 $ (828) $(5,160) $(2,277) $(2,123) $ 944
======= ======= ======= ======= ======= =======
Statement of Cash Flow Data:
Operating activities................................. $ 1,376 $ 990 $ (1) $ 4,315 $ 771 $ (620)
Investing activities................................. (1,154) (7,556) (2,758) (3,113) (21) (548)
Financing activities................................. -- 6,629 2,830 (1,313) (981) 1,112
Other Financial Data:
EBITDA............................................... $ 541 $ 1,394 $ 152 $ 3,387 $ (681) $ 2,857
Consolidated Balance Sheet Data:
Cash................................................. $ 155 $ 266 $ 373 $ 813 $ 306 $ 1,304
Total assets......................................... 7,884 28,920 28,040 28,057 25,113 30,421
Total debt and capital lease obligations............. -- 21,712 24,543 21,072 23,333 23,236
Stockholders' equity (deficit)....................... 307 (491) (5,626) (11,231) (7,694) (9,935)
</TABLE>
- ---------------
(1) ERI was incorporated in July 1993, and no prior operations are included in
the 1993 data above.
7
<PAGE> 9
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Prospective investors should carefully consider the risk factors described
below, in addition to the other information set forth in this Prospectus, in
connection with an investment in the securities offered hereby.
All statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future are based on
certain assumptions and analyses made by the Company in light of its experience
and its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including the risk factors discussed below, general economic and business
conditions, the business opportunities (or lack thereof) that may be presented
to and pursued by the Company, changes in laws or regulations and other factors,
many of which are beyond the control of the Company. Prospective investors are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in such forward-looking statements.
ABSENCE OF COMBINED OPERATING HISTORY. The Company is a combination of the
businesses conducted by SGI and the Horizon Companies (the "Combined
Businesses"). The Combined Businesses have been operating separately and neither
the historical results of their separate operations nor their pro forma
financial information is necessarily indicative of the results that would have
been achieved had the Combined Businesses been operated on an integrated basis
or the results that may be realized in the future. In addition, prior to the
Offering, Eagle has been a subsidiary of Seitel and has relied on Seitel for
certain financial, management, administrative and other resources. See "Certain
Transactions." A number of significant changes will occur in the funding and
operations of the Company in connection with the consummation of the Offering.
These changes include the contemplated establishment of the Company's bank
revolving credit facility and its own incentive compensation and stock option
plans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management." These changes may have a substantial
impact on the financial position and future results of operations of the
Company. As a result, the historical financial information included in this
Prospectus does not necessarily reflect the financial position and results of
operations of the Company in the future or what the financial position and
results of operations of the Company would have been had it been operated as a
combined stand-alone entity during the periods presented.
Although certain members of management of the Company have extensive
experience in providing onshore and offshore seismic data acquisition services
and in managing businesses that provide such services, there can be no assurance
that the Company will be able to integrate the Combined Businesses into a
combined entity on an economically efficient basis or that the Company's
management group will be able to manage effectively the combined entity and
implement the Company's business strategies. See "Management."
INFLUENCE OF SEITEL ON THE COMPANY. Approximately 52% of the pro forma
combined revenues of the Company for the year ended December 31, 1996 were
derived from seismic data acquisition services provided to Seitel and its
subsidiaries. Such revenues, in the case of Eagle, are based on prices charged
to unaffiliated parties for similar work. Such revenues are not necessarily
indicative of the revenues Eagle would have earned had it provided these
services to unrelated third parties. The Horizon Companies charged Seitel for
these services at an amount believed by management of the Horizon Companies to
be equal to amounts it would have charged unrelated third parties for such
services. The loss of Seitel as a customer would have a material adverse effect
on the Company's financial condition and results of operations. There can be no
assurance that Seitel will enter into any material contracts with the Company
for seismic data acquisition services in the future. See "Description of
Business -- Customers," "Certain Transactions," Note G to Consolidated Financial
Statements of Eagle and Note E to Consolidated Financial Statements of ERI.
8
<PAGE> 10
In the past, Seitel has guaranteed certain indebtedness of the Company and
has made loans to the Company. Of the approximately $54.9 million estimated net
proceeds to the Company from the Offering, approximately $7.7 million will be
used to repay debt owed by the Company to Seitel and an additional approximately
$16.7 million will be used to repay debt of the Company that has been guaranteed
by Seitel. Such funds will not be available to the Company for other uses such
as capital expenditures, funding acquisitions or working capital. The Company's
borrowing costs may increase in the future as a result of having to obtain
financing based on its own creditworthiness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Upon completion of the Offering, Seitel will indirectly own 18.9% of the
outstanding Common Stock (16.5% if the underwriters' over-allotment options are
exercised in full). In addition, Paul A. Frame, the President and Chief
Executive Officer and a director of Seitel, will serve as a director of the
Company, will serve as Chairman of the Executive Committee of the Board of
Directors of the Company, will be actively involved in the management of the
Company with respect to marketing and expansion of the Company's business and
will receive stock options to acquire shares of Common Stock from the Company.
See "Management -- Stock Option Plan." Consequently, in addition to its current
position as a significant customer of the Company, Seitel will be able to
exercise significant influence over the management of the Company. Such
influence will extend to matters such as the election of directors of the
Company, the approval of matters submitted for stockholder approval and
responding to any potential takeover of the Company.
Mr. William Lurie is also currently a director of Seitel. Mr. Lurie, who is
Chairman of the Board of Directors of the Company, will retire from the Seitel
board at or prior to the consummation of the Offering. Mr. Jay Silverman, who is
the President and Chief Executive Officer and a director of the Company, is
currently an executive officer of Seitel. Mr. Silverman will cease to be an
executive officer of Seitel upon consummation of the Offering. A substantial
portion of Mr. Silverman's present personal assets is comprised of common stock
and other equity interests in Seitel. Mr. Silverman is not under any obligation
to reduce his economic interests in Seitel as he assumes his role as Chief
Executive Officer of the Company.
POTENTIAL CONFLICTS OF INTEREST. Conflicts of interest may arise in the
future between Seitel and the Company in a number of areas relating to their
past and ongoing relationships, including potential acquisitions of businesses
or properties, other business opportunities, the election of new or additional
directors, the payment of dividends, incurrence of indebtedness, tax matters,
financial commitments, registration rights and issuances and sales of capital
stock of the Company. Although the Company and Seitel do not currently compete
against each other in any material respect, there can be no assurance that
Seitel and the Company will not in the future compete against each other. Any
officer or director of Seitel who serves as a director of the Company, such as
Mr. Frame, may have conflicts of interest in addressing business opportunities
and strategies as to which Seitel's and the Company's interests differ. Although
the Company intends to follow the procedures provided by the Delaware General
Corporation Law regarding conflicts of interest with respect to agreements and
transactions between Seitel and the Company, the Company has not adopted any
formal procedures to ensure that conflicts of interest will not occur or to
resolve any such conflicts of interest that do occur. See "Certain
Transactions." There can be no assurance that any such conflicts of interest
will be resolved in favor of the Company.
The Company and Seitel have entered into a number of agreements for the
purpose of defining their ongoing relationship and providing for an orderly
separation of the companies. See "Certain Transactions." These agreements were
negotiated in the context of a parent-subsidiary relationship and are therefore
not the result of negotiations between independent parties. In addition, the
Company did not retain separate legal counsel from the counsel retained by
Seitel in connection with the negotiation of these agreements. It is the
intention of the Company and Seitel that such agreements and the transactions
provided for therein, taken as a whole, should accommodate the parties'
interests in a manner that is fair to both parties, while continuing certain
mutually beneficial arrangements. The parties intend that such agreements and
transactions provide fair market value to them on terms no less favorable to the
Company than would otherwise be available from unaffiliated parties. Because of
the complexity of the various relationships between the Company and Seitel,
however, there can be no assurance that each of such agreements, or the
transactions provided for therein, will
9
<PAGE> 11
be effected on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
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 and development 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, 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 exploration activities. This decline
resulted in a significant reduction in the overall demand for seismic services.
Since reaching a high in 1981, the number of companies providing seismic
services has declined dramatically. Notwithstanding recent increases in oil and
gas exploration activity, 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.
RISKS IN INTERNATIONAL OPERATIONS. Approximately 25% of the Company's pro
forma combined 1996 revenues were derived from operations outside the U.S., and
the Company is subject to the risks inherent in doing business internationally.
In addition, the Company intends to expand its international operations. Since
the Company has an established presence in the North Sea through the Horizon
Companies, the Company does not view its offshore operations in the North Sea as
being subject to undue risks of this type. However, as the Company expands the
scope and extent of its onshore and offshore operations outside of their current
locations in the U.S. Gulf Coast, the North Sea and the Gulf of Mexico, these
risks may become more significant. Such risks include the possibility of
unfavorable changes in tax or other laws, partial or total expropriation,
currency exchange rate fluctuations and restrictions on currency repatriation,
the disruption of operations from labor and political disturbances, insurrection
or war, and the effect of requirements of partial local ownership of operations
in certain countries. See "Description of Business -- Geographic Operations."
OPERATING RISKS. 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. Each of the Company's vessels is taken out
of service for approximately two to four weeks each year, generally at different
off-season times of the year, for routine maintenance and service. Fixed costs,
including costs associated with operating leases, labor costs and depreciation,
account for a significant portion of the Company's costs and expenses. As a
result, low productivity resulting from weather interruptions, equipment
failures or other causes can result in significant operating losses,
particularly when the Company is performing its services under a turnkey
contract. For example, one of the Company's vessels suffered an engine failure
in the fourth quarter of 1996, which adversely affected the Company's 1996 pro
forma combined results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." 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,
expropriation or other extreme events. The Company does not carry business
interruption insurance with respect to its operations.
SUBSTANTIAL COMPETITION. The offshore and onshore seismic data acquisition
business is highly competitive. The Company believes that it has five major
competitors for its offshore seismic data acquisition business worldwide and six
major competitors for its wetland seismic data acquisition business in the U.S.
Gulf Coast region. Competitive factors include price, experience, availability,
technological expertise, performance and reputation for dependability. Certain
of the Company's major competitors operate more data acquisition crews than the
Company, provide integrated data acquisition, processing and interpretation
services, have substantially greater revenues than the Company or are
subsidiaries or divisions of major industrial enterprises having far greater
financial and other resources than the Company and more extensive relationships
with major integrated and multinational oil and gas companies. Such resources
may enable these competitors to maintain
10
<PAGE> 12
technological 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 having greater financial resources than the Company may take
an economic interest in the seismic data acquired or in oil and gas exploration
and development projects in exchange for the services they perform for their
customers. See "Description of Business -- Competition."
CONCENTRATION OF CREDIT RISK. The Company generally provides services to a
relatively small group of key customers that account for a significant
percentage of the accounts receivable of the Company at any given time. The
Company's key customers vary over time, but have historically included Seitel
and its subsidiaries. The Company extends credit to various companies in the oil
and gas industry, including its key customers, for the acquisition of seismic
data, which results in a concentration of credit risk. See "Description of
Business -- Customers." This concentration of credit risk may be affected by
changes in the economic or other conditions of the Company's key customers and
may accordingly impact the Company's overall credit risk. However, management
believes that the risk is mitigated by the number, size, reputation and
diversified nature of the companies to which they extend credit. Historical
credit losses incurred on receivables by the Company have been immaterial.
CAPITAL INTENSIVE BUSINESS; OBSOLESCENCE OF TECHNOLOGY. The Company
competes in a capital intensive industry. The development of seismic data
acquisition equipment has been characterized by rapid technological advancements
in recent years and this trend may 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 capital
expenditures to maintain its competitive position. The Company's strategy is to
upgrade its vessels and data acquisition systems as often as necessary to
maintain its competitive position. However, to do so may require large
expenditures of capital. There can be no assurance that the Company will have
the capital necessary to upgrade its equipment to maintain its competitive
position or that any required financing therefor will be available on favorable
terms. If the Company is unable to raise the capital necessary to update its
data acquisition systems to the extent necessary, it may be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of Business."
The Company's ability to compete is highly dependent upon, among other
things, its ability to provide seismic data of a competitive quality. Because of
the significant technological changes that have already taken place with respect
to 3D seismic data acquisition and those that may occur in the future, the
Company is, like other seismic companies, generally dependent on its ability to
keep pace with changes and improvements in data acquisition technologies and to
acquire advanced equipment and vessels. Any significant technological
developments affecting seismic surveying could adversely affect the Company.
Over time, the value of and demand for seismic vessels and onshore seismic data
acquisition equipment can be expected to fluctuate, depending upon a variety of
factors including alternative types, sizes and technical abilities of competing
vessels and equipment.
RELIANCE ON KEY SUPPLIERS. The Company is dependent on Georex, Inc., a
subsidiary of Compagnie Generale de Geophysique, S.A. ("CGG"), which is a
competitor of the Company, for additions to and replacements for its Opseis
seismic data acquisition systems, and Opseis is a registered trademark of CGG.
The Company is also dependent on Input/Output, Inc. and Syntron, Inc., a
subsidiary of GeoScience Corporation, for additions to and replacements for its
offshore seismic data acquisition systems. Although these companies are not the
only suppliers of seismic data acquisition systems, they are the Company's
primary suppliers. In addition, the Company considers the Opseis system to be
the state-of-the-art seismic data equipment for performing 3D seismic surveys in
marshes and swamps. In the event of any disruption in the supply of repair
services or replacement parts from the Company's primary suppliers, the Company
may be unable to obtain such services or parts 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 its primary
suppliers in the future, should it be unable to do so, the Company's anticipated
revenues or operating margins could be reduced significantly and the amount of
cash needed for capital expenditures could be increased significantly.
11
<PAGE> 13
ENVIRONMENTAL AND OTHER REGULATIONS. The Company's operations are
materially affected by government regulation in the form of international
conventions, national, state and local laws and regulations in force in the
jurisdictions in which the Company operates, as well as in the country or
countries of registration of the Company's vessels. The Company is required by
various governmental and quasi-governmental agencies to obtain certain permits,
licenses and certificates with respect to its operations. In particular, the
United States Oil Pollution Act of 1990 sets forth technical and operational
requirements for vessels operating in the U.S. Gulf of Mexico. The Company
believes that it possesses all permits, licenses and certificates material to
the operation of its business. The modification of existing laws or regulations
or the adoption of new laws or regulations curtailing drilling for oil and gas
or imposing more stringent restrictions on seismic operations could adversely
affect the Company.
RELIANCE ON KEY PERSONNEL. The Company's operations are dependent on the
efforts of Messrs. Paul A. Frame, Director and Chairman of the Executive
Committee, Jay N. Silverman, President, and Gerald M. Harrison, Executive Vice
President. 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. The Company will have
employment agreements with automatic renewal features with Messrs. Silverman and
Harrison. The Company will have a bonus agreement with Mr. Frame that will
expire December 31, 1999. See "Management."
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active public market for the Company's Common Stock will
develop, or if a trading market does develop, that it will continue after the
Offering. Consequently, the initial public offering price of the Common Stock
will be determined by negotiations among the Company and the representatives of
the several Underwriters (the "Representatives") and may bear no relation to the
market price for the Common Stock after the Offering. See "Underwriting" for
factors to be considered in determining the initial public offering price. There
can be no assurance that the price so determined will be representative of the
current or future market value of the Common Stock offered hereby. The Company
has applied to have the Common Stock approved for quotation on the Nasdaq
National Market.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will experience immediate and substantial dilution of approximately $9.03
per share in the pro forma net tangible book value per share of Common Stock
from the initial public offering price set forth on the cover page of this
Prospectus. See "Dilution."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon completion of the Offering, the Company will have 8,025,000 shares
of Common Stock outstanding. The 5,880,000 shares to be sold in the Offering
(6,762,000 shares if the Underwriters' over-allotment options are exercised in
full) will be freely tradeable in the public market without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by affiliates of the Company.
The Selling Stockholder (which will beneficially own 18.9% of the outstanding
shares of Common Stock after the Offering) and the executive officers, directors
and the other current stockholders of the Company (who will beneficially own
approximately 7.8% of the outstanding shares of Common Stock after the Offering
and who will hold options exercisable at the initial public offering price for
an additional 600,000 shares of Common Stock) have agreed that, for a period of
180 days from the date of this Prospectus, they will not, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or other capital stock
of the Company or any securities convertible into or exchangeable for any shares
of Common Stock or other capital stock of the Company without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without notice, release all or any portion of the shares of Common Stock subject
to such agreement. The Company has granted certain registration rights to Seitel
with respect to the shares of Common Stock it will retain after the Offering
that will effectively allow Seitel to sell up to 50% of such shares
approximately one year after the Offering and the balance two years after the
Offering and to participate as a selling stockholder, subject to certain
limitations, in
12
<PAGE> 14
future public offerings of Common Stock by the Company. See "Certain
Transactions -- Registration Rights Agreement" and "Shares Eligible for Future
Sale."
Prior to the Offering, there has been no public market for the Common
Stock, and 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 "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 Company's Certificate of Incorporation and By-Laws and of the Delaware
General Corporation Law 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."
13
<PAGE> 15
THE COMPANY
The Company is a highly-focused international oilfield service company
engaged in the acquisition of seismic information, with a specialization in the
acquisition of high definition 3D seismic data in logistically difficult wetland
environments and in congested offshore areas. The Company was formed in December
1996 to combine the onshore seismic data acquisition business conducted by SGI
with the offshore seismic data acquisition business conducted by the Horizon
Companies, both of which were commenced in 1993.
Prior to the Offering, ERI, the holding company of the Horizon Companies,
was owned 19.0% by the Company and 81.0% by certain members of management of the
Horizon Companies ("Horizon Management"). Contemporaneously with the
consummation of the Offering, the Company will issue 600,000 shares of its
Common Stock to Horizon Management in exchange for the remaining 81.0% of the
issued and outstanding shares of ERI, whereby ERI and the Horizon Companies will
become wholly-owned subsidiaries of the Company. The Horizon Companies are not
in any way associated with Horizon Resources, Inc., a Delaware corporation based
in Houston, Texas, or any of its affiliated companies.
After consummation of the Offering, Seitel will retain indirect ownership
of 18.9% of the outstanding shares of Common Stock (16.5% if the Underwriters'
over-allotment options are exercised in full), and Horizon Management will
collectively own 7.5% of the outstanding shares of Common Stock (4.9% if the
Underwriters' over-allotment options are exercised in full).
The executive office of the Company is located at 50 Briar Hollow Lane, 6th
Floor West, Houston, Texas 77027, and its phone number at that address is (713)
881-2800.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
4,000,000 shares of Common Stock offered by the Company hereby are estimated to
be $54.9 million after deducting underwriting discounts and commissions and
estimated offering expenses, assuming an initial public offering price of $15.00
per share (the midpoint of the price range set forth on the cover page of this
Prospectus). The Company intends to use the net proceeds approximately as
follows: (i) $35.4 million to repay indebtedness as set forth in the table
below; (ii) $5.0 million to be deposited with the Royal Bank of Scotland ("RBS")
as additional security for the capital lease obligation relating to the
Company's offshore seismic data acquisition vessel Simon Labrador; and (iii)
$14.5 million to fund a portion of the capital expenditures required to increase
the streamer capacity of the Simon Labrador. The Company operates the Simon
Labrador under a capital lease with Simon-Horizon Limited ("Simon"), which in
turn leases the vessel from RBS under a capital lease. Pursuant to the
arrangement between the Company and Simon, the Company is required to use its
best endeavors to obtain the release of Simon from all obligations in connection
with the lease of this vessel. The Company is currently negotiating with RBS to
enter into a capital lease for the vessel directly with RBS, the effect of which
would be to release Simon from its obligations with respect to the vessel. The
current state of negotiations suggests that RBS will require the Company to
deposit $5 million as additional security to release Simon from its obligations
and enter into a capital lease with the Company directly. If RBS will not enter
into a lease for this vessel directly with the Company or will not agree to
other arrangements that will release Simon from its obligations with respect to
this vessel, the Company may be required to exercise its purchase option under
the capital lease, which would currently require a payment of approximately
$12.5 million. If the Company is required to exercise such purchase option and
is unable to obtain financing for such purchase price, the Company would be
required to apply funds set aside for capital expenditures or other funds from
operations or borrow funds under the Company's proposed $20 million credit
facility to pay such purchase price. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Pending use thereof, the Company intends to invest the net proceeds from
the Offering in short term, investment grade or government securities. The
Company will not receive any of the proceeds from the sale of the Common Stock
being sold by the Selling Stockholder and the Additional Selling Stockholders.
See "Principal and Selling Stockholders."
The following table sets forth certain information concerning the
indebtedness to be paid with a portion of the net proceeds of the Offering:
<TABLE>
<CAPTION>
PRINCIPAL
OUTSTANDING AT ANNUAL
NAME OF LENDER MAY 1, 1997(1) INTEREST RATE MATURITY DATE
-------------- --------------- --------------- --------------
<S> <C> <C> <C>
The Bank of N.T. Butterfield & Son Ltd.(2).... $ 7,867,000 8.50% On demand-
September 1997
NationsBanc Leasing Corporation of North
Carolina(1)(3).............................. 13,438,000 7.73%-8.06% August 1999-
April 2002
Compass Bank.................................. 1,074,000 7.61% June 1998
MetLife Capital Corporation................... 264,000 7.52% March 1999
MetLife Capital, Limited Partnership.......... 1,658,000 5.00%-6.00% July 1997-
July 1999
GE Capital Fleet Services..................... 268,000 5.00%-6.00% July 1997-
March 1999
Teledyne Industries, Inc.(4).................. 490,000 11.25%-12.00% September
1997-October
1997
Input/Output, Inc.(5)......................... 2,659,000 10.00% September 1999
Seitel, Inc.(6)............................... 7,657,000 5.35%-9.50% On demand-
December 2001
-----------
Total............................... $35,375,000
===========
</TABLE>
15
<PAGE> 17
- ---------------
(1) Does not include accrued interest, but does include prepayment penalties,
which are immaterial in amount except with respect to NationsBanc Leasing
Corporation of North Carolina. The prepayment penalty for the NationsBanc
Leasing Corporation indebtedness is estimated to be approximately $200,000.
(2) The exchange rate of British pounds to U.S. dollars assumed for purposes of
calculating these amounts is $1.70 per pound. This indebtedness is comprised
of a revolving credit facility with an outstanding balance of $7,667,000 and
a term loan with an outstanding balance of $200,000. The revolving credit
facility and the term loan bear interest at the rate of LIBOR plus 2.0%. The
revolving credit facility is payable on demand, and the term loan matures in
September 1997.
(3) This indebtedness is comprised of four term loans with outstanding principal
amounts of $4,988,000, $1,016,000, $6,718,000, and $516,000, with fixed
interest rates of 8.0%, 8.06%, 7.98%, and 7.73%, respectively, maturing July
2001, August 1999, April 2002, and March 2000, respectively. The proceeds of
these loans were used to acquire one Opseis seismic data acquisition system
and related equipment and various offshore seismic data acquisition
equipment.
(4) This indebtedness is comprised of two promissory notes with outstanding
principal amounts of $160,000 and $330,000, bearing interest at 11.25% and
12.00%, respectively, and maturing September and October 1997, respectively.
The proceeds of these loans were used to acquire offshore seismic data
acquisition equipment. The $330,000 indebtedness was incurred after May 1,
1997.
(5) Capital lease of offshore seismic data acquisition equipment.
(6) This indebtedness is comprised of term loans of $2,679,000 and $2,000,000
owed to Seitel by ERI maturing December 2001 and July 1998, respectively and
intercompany advances of $2,978,000 by Seitel to Eagle. Interest on the
$2,679,000 loan accrues at a variable rate of interest equal to 5.35% until
December 31, 1997, increasing to 8.0% from January 1, 1998 through December
31, 1998, and then at the prime rate of interest plus 1% from January 1,
1999 through December 31, 2001. Interest on the $2,000,000 loan accrues at
the prime rate of interest plus 1%. The proceeds of these loans were used to
repay $2,000,000 of existing indebtedness of ERI and to pay consideration
upon the repurchase by ERI of certain of its shares from Seitel. The
intercompany advances relate to amounts advanced on behalf of Eagle for
expenses incurred with respect to third party projects and taxes and
allocable overhead with respect to third-party projects. These advances are
payable on demand and bear interest at a rate equal to Seitel's cost of
funds, which is currently 7.25%.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth Eagle's capitalization at March 31, 1997 on
an historical basis and the Company's capitalization at March 31, 1997 on a pro
forma combined basis to reflect the ERI Acquisition. The pro forma combined as
adjusted gives effect to (i) the sale by the Company of 4,000,000 shares of the
Common Stock offered hereby at an assumed initial public offering price and the
application of the net proceeds therefrom for planned repayments of indebtedness
as of March 31, 1997, (ii) the sale of 25,000 shares to the President of the
Company at the assumed initial public offering price for a note and (iii) the
planned dividend to Seitel, Inc. See "Dividend Policy." The data set forth below
should be read in conjunction with the other financial information presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
PRO FORMA
PRO FORMA COMBINED
ACTUAL COMBINED AS ADJUSTED(1)
------- --------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt, capital lease
obligations and due to affiliate........................ $ 4,952 $18,752 $ 4,618
======= ======= =======
Long-term obligations(2):
Long-term debt.......................................... 12,933 12,933 --
Capital lease obligations............................... 1,319 12,875 9,871
Due to affiliate........................................ -- 4,679 --
------- ------- -------
Total long-term obligations..................... 14,252 30,487 9,871
------- ------- -------
Stockholders' equity(3):
Preferred stock, $0.01 par value; authorized 5,000,000
shares; no shares issued and outstanding............. -- -- --
Common stock, $0.01 par value; authorized 25,000,000
shares; issued and outstanding: 3,400,000 shares
actual; 4,025,000 shares pro forma combined;
8,025,000 shares pro forma combined as adjusted...... 34 40 80
Additional paid-in capital................................ 7,755 18,038 68,169
Retained earnings (deficit)(4)............................ 1,130 1,130 (133)
Note receivable from stockholder.......................... -- (375) (375)
------- ------- -------
Total stockholders' equity...................... 8,919 18,833 67,741
------- ------- -------
Total capitalization............................ $23,171 $49,320 $77,612
======= ======= =======
</TABLE>
- ---------------
(1) Adjusted to reflect the Offering and the application of the net proceeds to
reduce indebtedness of $34,750,000 as of March 31, 1997. However, as of June
30, 1997, the Company's total long-term obligations and due to affiliate,
which is to be repaid from a portion of the proceeds of the Offering, was
$35,375,000. Upon the application of the net proceeds from the Offering, the
current portion of long-term debt, capital lease obligations and due to
affiliate is expected to be $5,660,000 and total long-term obligations is
expected to be $9,496,000.
(2) See Note 3 under "Use of Proceeds."
(3) Excludes 704,450 shares of Common Stock issuable upon exercise of stock
options to be granted to management, employees and directors effective upon
consummation of the Offering, all of which will have an exercise price per
share equal to the initial public offering price set forth on the cover page
of this Prospectus. See "Management -- Independent Directors Stock Option
Plan" and " -- Stock Option Plan."
(4) The "pro forma combined as adjusted" balance reflects a $133,000 after tax
prepayment penalty on the early extinguishment of debt.
17
<PAGE> 19
DIVIDEND POLICY
Prior to the ERI Acquisition and the Offering, Eagle has been a
wholly-owned, indirect subsidiary of Seitel. The revenues of Eagle generated by
work performed for Seitel and its other subsidiaries were based on prices
charged to unaffiliated third parties for similar work and included a profit.
Because Eagle was a wholly-owned subsidiary of Seitel, the profits generated by
such intercompany work were eliminated from Seitel's financial statements upon
consolidation. Upon consummation of the ERI Acquisition and the Offering, Eagle
will no longer be a wholly-owned subsidiary of Seitel. Because Seitel does not
intend to fund any payables to the Company which resulted from such intercompany
work and which are still outstanding at the time the Offering is completed, the
Company will declare a dividend prior to the Offering to eliminate any remaining
intercompany receivables from Seitel. Prior to consummation of the Offering,
Eagle will declare a dividend to its sole stockholder, a wholly-owned, indirect
subsidiary of Seitel, of Eagle's receivable from Seitel for profits attributable
to work performed by Eagle for Seitel and its subsidiaries since inception to
the date of consummation of the Offering, less taxes and allocable overhead
attributable to such intercompany work. As of June 30, 1997, the amount of such
net intercompany receivable was approximately $6.5 million. See "Certain
Transactions."
The Company does not currently intend to declare or pay dividends on the
Common Stock after the Offering and expects that after the Offering it will
retain funds generated by operations for the development and growth of the
Company's business. The Company's future dividend policy will be determined by
the Company's Board of Directors on the basis of various factors, including,
among other things, the Company's financial condition, cash flows from
operations, the level of its capital expenditures, its future business
prospects, the requirements of Delaware law and any restrictions imposed by the
Company's credit facilities. The Company anticipates that the proposed working
capital line of credit will impose restrictions on the Company's ability to pay
dividends.
18
<PAGE> 20
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of the Common
Stock from the initial public offering price. As of March 31, 1997, the pro
forma net tangible deficit per share of the Common Stock was $0.25, after giving
effect to the ERI Acquisition. Net tangible book value per share represents the
Company's total tangible assets less total liabilities divided by the total
number of shares of Common Stock outstanding. After further giving effect to the
sale by the Company of the 4,000,000 shares of Common Stock to be sold by the
Company in the Offering (at an assumed initial public offering price of $15.00
per share, and after deducting underwriting discounts and commissions and
estimated expenses of the Offering to be paid by the Company), and the
application of the net proceeds as set forth for planned repayments of
indebtedness, the Company's as adjusted pro forma net tangible book value per
share of Common Stock as of March 31, 1997 would have been $5.97, representing
an immediate increase of $6.22 in pro forma net tangible book value per share to
existing stockholders and an immediate dilution of $9.03 per share to persons
purchasing shares in the Offering. The following table illustrates this dilution
per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $15.00
------
Pro forma net tangible deficit per share before the
Offering............................................... $(0.25)
------
Increase per share attributable to new investors.......... 6.22
------
Adjusted pro forma net tangible book value per share after
the Offering.............................................. 5.97
------
Dilution per share to new investors......................... $ 9.03
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1997,
the difference between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company and the total
cash consideration and average price per share paid to the Company (based upon
an assumed initial offering price of $15.00 per share for new investors) without
giving effect to underwriting discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)................. 4,025,000 50.2% $18,833,000 23.9% $ 4.68
New investors............................ 4,000,000 49.8% 60,000,000 76.1% $15.00
--------- ------ ----------- ------
8,025,000 100.0% $78,833,000 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) The number of shares disclosed for the existing stockholders includes
1,880,000 shares being sold by the Selling Stockholder in the Offering. The
number of shares disclosed for the new investors does not include the
1,880,000 shares being purchased by the new investors from the Selling
Stockholder in the Offering.
(2) The total consideration paid by existing stockholders represents the
combined stockholders' equity after the ERI Acquisition and before the
Offering. See "Pro Forma Financial Information."
19
<PAGE> 21
SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated financial statements summarized below
and included elsewhere in this Prospectus are derived from the historical
consolidated financial statements of Eagle and ERI included elsewhere in this
Prospectus.
The unaudited pro forma consolidated balance sheet as of March 31, 1997 and
the consolidated statements of operations for the year ended December 31, 1996
and the three month periods ended March 31, 1996 and 1997 give effect to certain
transactions which will take place upon the closing of the Offering, including
the acquisition by the Company, accounted for as a purchase transaction, of the
remaining 81% of the outstanding shares of ERI in exchange for the issuance by
the Company of 600,000 shares of Common Stock and the application of the net
proceeds of the Offering to repay certain indebtedness of the Company, as if the
transactions had taken place on March 31, 1997 in the case of the unaudited pro
forma consolidated balance sheet and January 1, 1996 in the case of the
unaudited pro forma consolidated statements of operations.
The unaudited pro forma consolidated statements of operations may not be
indicative of actual results that would have been achieved had the transactions
to be effected at the closing of the Offering actually been completed as of the
dates indicated. In addition, the unaudited pro forma consolidated financial
statements are not necessarily indicative of the results of future operations of
the Company and should be read in conjunction with Eagle and ERI's historical
and consolidated financial statements and notes thereto contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE QUARTER
FOR THE YEAR ENDED MARCH 31,
ENDED DECEMBER 31, 1996 -------------------------------
----------------------------------------------------------- 1996 1997
PRO FORMA -------------- --------------
EAGLE ENERGY COMBINED PRO FORMA PRO FORMA
GEOPHYSICAL, RESEARCH AS COMBINED AS COMBINED AS
INC. INTERNATIONAL ADJUSTMENTS(1) ADJUSTED(2) ADJUSTED(1)(2) ADJUSTED(1)(2)
------------ ------------- -------------- ----------- -------------- --------------
(HISTORICAL) (HISTORICAL) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue......................... $48,136 $43,607 $ (828) $90,915 $13,674 $23,626
------- ------- ------- ------- ------- -------
Expenses:
Operating expenses............ 34,917 37,601 (828) 71,690 12,250 16,557
Depreciation and
amortization................ 3,409 4,615 1,323(3) 9,347 2,024 3,010
Selling, general and
administrative expenses..... 2,680 2,619 1,601(4) 6,900 1,228 1,367
Interest expense, net......... 531 1,649 (1,529)(5) 651 110 34
------- ------- ------- ------- ------- -------
Total expenses............ 41,537 46,484 567 88,588 15,612 20,968
------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes.............. 6,599 (2,877) (1,395) 2,327 (1,938) 2,658
Provision (benefit) for income
taxes......................... 2,420 -- (677) 1,743 65 451
------- ------- ------- ------- ------- -------
Net income (loss)(6)............ $ 4,179 $(2,877) $ (718) $ 584 $(2,003) $ 2,207
======= ======= ======= ======= ======= =======
Earnings (loss) per share(6).... $ .07 $ (.25) $ .28
======= ======= =======
Pro forma shares outstanding.... 8,025 8,025 8,025
======= ======= =======
Statement of Cash Flow Data:
Operating activities............ $ 4,640 $ 4,315 $ 9,560 $(2,096) $ 5,195
Investing activities............ (7,928) (3,113) (11,041) (253) (7,258)
Financing activities............ 3,230 (1,313) 1,917 2,252 1,341
Other Financial Data:
EBITDA(7)....................... $10,539 $ 3,387 $12,325 $ 196 $ 5,702
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------
PRO FORMA
PRO FORMA COMBINED AS
COMBINED(1) ADJUSTED(1)(2)
----------- --------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 1,304 $21,204
Total assets.............................................. 85,490 99,581
Total debt, capital lease obligations and due to
affiliate............................................... 49,239 14,489
Stockholders' equity...................................... 18,833 67,741
</TABLE>
- ---------------
(1) Reflects pro forma adjustments for the ERI Acquisition and adjustments to
reflect the consummation of the Offering and the sale of 25,000 shares of
Common Stock, at the initial public offering price, to Jay N. Silverman,
President of the Company, for a note.
(2) Reflects the combination of the adjustments and the historical financial
statements.
(3) Reflects the amortization of goodwill associated with the acquisition of ERI
over a 15-year estimated useful life.
(4) Represents identifiable additions to selling, general and administrative
expenses the Company estimates it will incur when operating as a public
registrant.
(5) Reflects a reduction in interest expense as a result of the application of
estimated net proceeds from the Offering to reduce debt and capital lease
obligations.
(6) Excludes the effect of a $600,000 extraordinary gain for early
extinguishment of debt on ERI's historical 1996 financial statements.
(7) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principles, management
believes that securities analysts use EBITDA as a measure to evaluate
oilfield service companies. The Company believes that EBITDA may provide
additional information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working capital,
although such future cash outlays are not included in the determination of
EBITDA. The amount and trends in EBITDA should not be considered as
alternatives to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a better measure of the
Company's profitability or liquidity. Because EBITDA excludes some, but not
all, items that affect net income and its computation may vary among
companies, the EBITDA calculation presented above may not be comparable to
similarly titled measures of other companies.
20
<PAGE> 22
SELECTED FINANCIAL INFORMATION
The selected financial information set forth below for Eagle has been
derived from the audited Consolidated Financial Statements and the unaudited
consolidated condensed financial statements of Eagle. Such Consolidated
Financial Statements for the years ended December 31, 1994, 1995 and 1996 have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere herein. The selected financial
information set forth below for ERI has been derived from the audited
Consolidated Financial Statements and the unaudited consolidated condensed
financial statements of ERI. Such Consolidated Financial Statements for the
years ended December 31, 1994, 1995 and 1996 have been audited by KPMG,
independent public accountants, as indicated in their report included elsewhere
herein. The financial information set forth below as of March 31, 1997 and for
the three month periods ended March 31, 1996 and 1997, is derived from Eagle and
ERI's unaudited consolidated condensed financial statements, which, in the
opinion of management of the individual companies, include all adjustments
necessary for a fair presentation of the financial condition and results of
operations of Eagle and ERI for such periods. The results of operations for
interim periods are not necessarily indicative of a full year's operations. This
information should be read in conjunction with the Consolidated Financial
Statements of Eagle and ERI, the notes related thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------ -----------------
1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
EAGLE GEOPHYSICAL, INC.(1)(2)
Statement of Operations Data:
Revenue................................................... $5,650 $25,721 $29,275 $48,136 $ 5,974 $12,981
------ ------- ------- ------- ------- -------
Expenses:
Operating expenses...................................... 3,596 20,070 20,986 34,917 4,336 9,286
Depreciation and amortization........................... 409 1,817 2,471 3,409 657 1,302
Selling, general and administrative..................... 108 1,673 2,874 2,680 361 450
Interest expense, net................................... 147 384 408 531 136 158
------ ------- ------- ------- ------- -------
Total expenses...................................... 4,260 23,944 26,739 41,537 5,490 11,196
------ ------- ------- ------- ------- -------
Income before provision for income taxes.................. 1,390 1,777 2,536 6,599 484 1,785
Provision for income taxes................................ 509 651 933 2,420 178 655
------ ------- ------- ------- ------- -------
Net income................................................ $ 881 $ 1,126 $ 1,603 $ 4,179 $ 306 $ 1,130
====== ======= ======= ======= ======= =======
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 25 $ 29 $ 58 $ -- $ 47 $ --
Total assets.............................................. 7,063 14,413 17,960 26,721 20,997 35,792
Total debt and capital lease obligations.................. 3,989 8,034 5,932 10,902 5,832 17,800
Stockholders' equity...................................... 881 2,007 3,610 7,789 3,916 8,919
</TABLE>
- ---------------
(1) Had the sale pursuant to the Offering of shares of Common Stock (841 in 1996
and 1,333 in 1997) at $15 per share occurred at the beginning of 1996 and
1997, and the net proceeds therefrom been used to repay long-term debt,
earnings per share would have been $1.07 for the year ended December 31,
1996 and $.28 for the three-month period ended March 31, 1997.
(2) Eagle was incorporated in December 1992 and had no material operations in
1992.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------
1993(1) 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ENERGY RESEARCH INTERNATIONAL
Statement of Operations Data:
Revenue................................................... $9,591 $19,457 $29,423 $43,607 $ 7,700 $11,079
------ ------- ------- ------- ------- -------
Expenses:
Operating expenses...................................... 8,360 16,360 27,075 37,601 7,914 7,705
Depreciation............................................ 78 1,683 3,856 4,615 1,036 1,377
Selling, general and administrative..................... 690 1,703 2,196 2,619 467 517
Interest expense, net................................... 90 528 1,456 1,649 406 536
------ ------- ------- ------- ------- -------
Total expenses...................................... 9,218 20,274 34,583 46,484 9,823 10,135
------ ------- ------- ------- ------- -------
Income (loss) before provision for income taxes and
extraordinary item...................................... 373 (817) (5,160) (2,877) (2,123) 944
Provision for income taxes................................ 63 11 -- -- -- --
------ ------- ------- ------- ------- -------
Income (loss) before extraordinary item................... 310 (828) (5,160) (2,877) (2,123) 944
Extraordinary item........................................ -- -- -- 600 -- --
------ ------- ------- ------- ------- -------
Net income (loss)......................................... $ 310 $ (828) $(5,160) $(2,277) $(2,123) $ 944
====== ======= ======= ======= ======= =======
Consolidated Balance Sheet Data:
Cash...................................................... $ 155 $ 266 $ 373 $ 813 $ 306 $ 1,304
Total assets.............................................. 7,884 28,920 28,040 28,057 25,113 30,421
Total debt and capital lease obligations.................. -- 21,712 24,543 21,072 23,333 23,236
Stockholders' equity (deficit)............................ 307 (491) (5,626) (11,231) (7,694) (9,935)
</TABLE>
- ---------------
(1) ERI was incorporated in July 1993, and no prior operations are included in
the 1993 data above.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides general information for, and the results
of operations of, the onshore operations that were conducted by Eagle and the
offshore operations that were conducted by the Horizon Companies prior to the
consummation of the Offering. The primarily forward-looking discussion of
liquidity and capital resources of the combined entity gives effect to the
Offering and the intended use of proceeds. See "Use of Proceeds." The following
discussion should be read in connection with Eagle's Consolidated Financial
Statements, ERI's Consolidated Financial Statements, the Company's Pro Forma
Combined Financial Statements and the related Notes thereto included elsewhere
in this Prospectus. All such financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
The following information contains certain forward-looking statements. For a
discussion of certain limitations inherent in forward-looking statements, see
the second paragraph under "Risk Factors."
GENERAL
The Company's revenues are generated from the sale of onshore and offshore
seismic data acquisition services. The Company focuses its onshore operations in
logistically difficult wetland environments along the U.S. Gulf Coast, and
focuses its offshore operations in congested areas in the North Sea and the U.S.
Gulf of Mexico. The Company generally provides its onshore seismic data
acquisition services under fixed fee contracts with its customers. The Company
provides its offshore seismic data acquisition services under either distance-
or time-based contracts (or a combination of both methods) or turnkey contracts
that provide for a fixed fee. The Company generally does not retain rights to
the data acquired. Onshore operations accounted for approximately 52% of the
Company's pro forma combined revenues for the year ended December 31, 1996, with
offshore operations accounting for the remaining 48% of pro forma combined
revenues.
ONSHORE OPERATIONS
With respect to its onshore operations, the Company's prices, and therefore
its revenues, vary depending primarily on demand for the Company's services, the
number of acquisition crews of the Company, the acquisition capacity of each
crew, the utilization rates of the Company's crews and the complexity and
difficulty of the projects undertaken by each crew. The Company began its
onshore operations in 1993 with one crew operating a 1,300 channel Opseis radio
telemetry system. The Company added a second 1,300 channel Opseis onshore crew
in May 1994, and incrementally upgraded the channel capacity of both crews in
1995 and 1996 to a total of 1,850 channels per crew. The Company added a third
1,850 channel Opseis crew in January 1997. Thus, the Company has increased the
number of crews operated and the acquisition capacities of its crews from year
to year for the periods presented in the financial statements, which has
contributed substantially to the increased revenues from year to year.
Revenues for less complex, easier to perform seismic acquisition projects
tend to be lower than revenues for more complex, difficult to perform projects,
even when the projects take the same amount of time for a crew to perform. The
mix of more and less complex projects results in variations from year to year
for revenues attributable to each crew. The projects performed by the Company's
two onshore crews operating in 1996 were weighted more heavily towards complex
projects than in 1995, resulting in substantially increased revenues per crew
over 1995 levels. The Company anticipates that the mix of project complexity for
its onshore crews in 1997 will more closely approximate 1995 levels.
OFFSHORE OPERATIONS
Similar to the Company's onshore operations, prices and revenues with
respect to offshore operations vary depending primarily on demand, the number of
vessels operated by the Company, the acquisition capacity of each vessel,
utilization rates and the complexity and difficulty of the projects undertaken
by each vessel. In 1994, the Company operated one vessel for the entire year,
one vessel for six months, and two other vessels for two and four months,
respectively. In 1995, the Company operated three vessels for the entire year
and one vessel for four months, and in 1996 the Company operated three vessels
for the entire year and one vessel for nine months. Two of these vessels were
upgraded from two to three streamers in mid-1996. Thus, the Company has
increased the number of vessels operated and the acquisition capacities of its
vessels from year
22
<PAGE> 24
to year for the periods presented in the financial statements, which has
contributed substantially to the increased revenues from year to year.
In April 1997, one of the Simon Labrador's streamers suffered a mechanical
failure and was damaged. The Company estimates that the cost of repairing such
damage is unlikely to exceed $175,000. The Company believes that any damage in
excess of its $250,000 insurance deductible would be covered by the Company's
insurance. The Company estimates that the net income earned by the Company on
the project that was being performed when such damage occurred was approximately
$350,000 less than the Company had expected for that project. This decrease was
the result of the project taking longer to complete after such damage since the
vessel was operating with two instead of three streamers, the vessel earning a
reduced dayrate as a result of operating with fewer streamers and the Company
incurring the estimated cost of repair.
The Company currently intends to increase the streamer capacity of the
Simon Labrador beginning in the fourth quarter of 1997 and carrying over into
the first quarter of 1998 at an estimated capital cost of approximately $18
million, a portion of which will be funded from the proceeds of the Offering.
This vessel will be taken out of service for a period of approximately 90 days
to accomplish these modifications, which will reduce the Company's revenues
during these quarters. The Company anticipates that revenues and income
generated by this vessel will increase as a result of these upgrades.
Because the Company derives a portion of its offshore revenues from sales
internationally, the Company is subject to risks relating to fluctuations in
currency exchange rates. The Company's costs and revenues from offshore
operations have historically been evenly divided between the U.S. dollar and the
British pound. The Company's financial statements are prepared using the U.S.
dollar as the functional currency, and, therefore, fluctuations in the exchange
rate between the U.S. dollar and the British pound affect the Company's costs
and revenues. Historically, fluctuations in exchange rates have not had a
material impact on the Company's results of operations. As the Company expands
its operations into new geographic markets, such as Latin America, Africa and
Southeast Asia, which may involve more extensive currency risks, the Company
intends to protect itself against foreign currency fluctuations by generally
attempting to match foreign currency revenues and expenses in order to balance
its net position of receivables and payables denominated in foreign currencies,
by endeavoring to require its customers to pay for services in U.S. dollars and,
to a lesser extent, by purchasing foreign exchange contracts and other foreign
exchange instruments and implementing other procedures to counteract currency
fluctuations.
RESULTS OF OPERATIONS
The following discussion of the Results of Operations is divided into a
discussion of the Company's onshore operations, which were conducted by Eagle,
and the Company's offshore operations, which were conducted by the Horizon
Companies prior to the consummation of the Offering. These discussions are
presented based on the revenues and expenses of the separate companies prior to
the ERI Acquisition, which will occur contemporaneously with the Offering. The
revenues of Eagle include intercompany profits from work performed for Seitel
and its subsidiaries. See "Risk Factors -- Influence of Seitel, Inc. on the
Company," "Certain Transactions" and Note G to Eagle's Consolidated Financial
Statements.
The ERI Acquisition has been accounted for in the Pro Forma Combined
Financial Statements under the purchase method of accounting. As a result, the
assets and liabilities of ERI have been recorded at their estimated fair values
as of the date of this Prospectus. The purchase price in excess of such net
assets has been recorded as goodwill and will be amortized over a 15-year
period. Accordingly, the Company's depreciation and amortization will increase
by approximately $1.3 million per year in future periods as a result of
amortization of this goodwill. The Company expects the principal effects of the
ERI Acquisition on future results of operations to be this increase in
depreciation and amortization costs associated with goodwill and the decrease in
interest expense resulting from the repayment of debt with the proceeds of the
Offering. See "-- Liquidity and Capital Resources."
23
<PAGE> 25
ONSHORE OPERATIONS
First Quarter 1997 Compared to First Quarter 1996
Revenue increased 117.3% from $6.0 million in the first quarter of 1996 to
$13.0 million in the first quarter of 1997, primarily due to the addition of a
third Opseis crew in January 1997. In the first quarter of 1997, Eagle operated
three crews, whereas in the first quarter of 1996, Eagle operated two crews.
Additionally, the surveys performed by the Company's crews in the 1997 period
were in more difficult logistical and environmental areas, providing higher
contract prices per crew, than the surveys performed in the 1996 period.
Although the surveys performed by the Company's onshore crews during 1996 were
generally more logistically demanding than in prior years, the surveys performed
in the first quarter of 1996 were not as logistically demanding as the surveys
performed during the last three quarters of 1996.
Operating costs increased 114.2% from $4.3 million in the first quarter of
1996 to $9.3 million in the first quarter of 1997, primarily due to the addition
of the third crew in the 1997 period. Operating margin percentage (revenues less
operating costs, as a percentage of revenues) increased slightly from 27.4% to
28.5% in the first quarter of 1997.
Depreciation and amortization increased 98.2% from $0.7 million in the
first quarter of 1996 to $1.3 million in the first quarter of 1997, resulting
from operating three crews in the 1997 period versus two in the 1996 period and
from depreciation of marine seismic equipment purchased by Eagle in July 1996
and leased to the Horizon Companies. Selling, general and administrative
expenses increased 24.7% from $0.4 million in the first quarter of 1996 to $0.5
million in the first quarter of 1997, primarily due to the addition of
administrative staff to support the expanded operations. Net interest expense
increased from $0.1 million in the 1996 period to $0.2 million in the 1997
period due to financing costs associated with the third crew.
1996 Compared to 1995
Onshore revenues increased 64.4% from $29.3 million for 1995 to $48.1
million for 1996. This increase in revenue was primarily due to increased
production from the two crews operating in 1996 and higher prices due to these
crews performing a greater proportion of higher definition seismic data
acquisition services than in 1995 and performing seismic data acquisition
services in logistically and environmentally more difficult areas than in 1995.
The Company increased the channel capacity of both crews during 1996 by
approximately 20% over their 1995 channel capacity. This enabled each crew to
acquire more seismic data, resulting in higher revenues.
Operating costs increased 66.4% from $21.0 million for 1995 to $34.9
million for 1996, reflecting the higher costs associated with performing
services in logistically and environmentally difficult areas. These higher costs
were primarily attributable to additional subcontract service and labor costs.
Operating margin percentage changed only slightly from 28.3% for 1995 to 27.5%
for 1996.
Depreciation and amortization increased 38.0% from $2.5 million in 1995 to
$3.4 million in 1996, primarily as a result of depreciation related to
additional equipment costs from the increased channel capacity of both crews in
addition to new capital purchases of geophones for both crews during 1996.
Selling, general and administrative expenses decreased slightly, from $2.9
million in 1995 to $2.7 million in 1996, primarily due to cost saving measures
implemented in 1996. Net interest expense increased from $0.4 million in 1995 to
$0.5 million in 1996, reflecting additional financing costs for equipment
purchases made during 1996.
1995 Compared to 1994
Onshore revenue increased 13.8% from $25.7 million for 1994 to $29.3
million for 1995. This increase resulted from two acquisition crews operating
for all of 1995 compared to 1994 when one crew was in operation for the entire
year and the second acquisition crew, which was added in May 1994, was in
operation for only eight months during the year.
Operating costs increased 4.6% from $20.1 million for 1994 to $21.0 million
for 1995 due to the increase in revenues from 1994 to 1995. Operating margin
percentage increased from 22.0% for 1994 to 28.3% for 1995.
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The improved operating margin resulted from the expansion of the crews' channel
capacity, which yielded a higher return on revenues.
Depreciation and amortization increased from $1.8 million in 1994 to $2.5
million in 1995, reflecting the depreciation for the two crews operating for a
full year in 1995 compared with one crew operating for a full year and one for a
partial year in 1994. The Company's selling, general and administrative expenses
increased from $1.7 million in 1994 to $2.9 million in 1995 due primarily to
variable compensation expenses related to the increased level of business as
well as legal fees associated with a contract dispute with a customer. Net
interest expense increased 6.3% from 1994 to 1995 due to financing costs
associated with additional equipment purchases.
OFFSHORE OPERATIONS
First Quarter 1997 Compared to First Quarter 1996
Revenue increased 43.9% from $7.7 million in the first quarter of 1996 to
$11.1 million in the first quarter of 1997, primarily due to improved vessel
utilization in the 1997 period. In the first quarter of 1997, the Simon Labrador
operated in the Falkland Islands for the entire quarter, whereas in the first
quarter of 1996, this vessel operated in the North Sea and had lower earnings
due to seasonal weather conditions. Additionally, the Discoverer and Abshire
Tide operated for the entire first quarter of 1997, whereas in the first quarter
of 1996, they were in startup mode in the U.S. Gulf of Mexico and therefore
operated for only a part of the quarter.
Operating expenses decreased slightly from $7.9 million in the first
quarter of 1996 to $7.7 million in the first quarter of 1997, primarily due to
lower variable operating costs of vessel operations and due to the Pacific
Horizon being in drydock one month in the 1997 quarter. Operating margins
increased from negative 2.8% to 30.5% due to the increase in revenue.
Depreciation increased 32.9% from $1.0 million in the first quarter of 1996
to $1.4 million in the first quarter of 1997, resulting from operating four
vessels in the 1997 period versus three in the 1996 period and from the purchase
of additional capital equipment in late 1996 with corresponding depreciation
beginning in 1997. Selling, general and administrative expenses increased
slightly due to additional legal and administrative costs. Interest expense
increased from $0.4 million in the 1996 period to $0.5 million in the 1997
period due to financing costs associated with additional working capital
requirements.
No provision was made for United States and United Kingdom income taxes in
either quarter due to operating losses and operating loss carry-forwards from
the offshore operations.
1996 Compared to 1995
Offshore revenues increased 48.2% from $29.4 million in 1995 to $43.6
million in 1996, primarily due to additional months of vessel operations coupled
with vessel streamer upgrades. In 1996, three vessels operated for the entire
year and one vessel for nine months, whereas in 1995, three vessels operated for
the entire year and one vessel for four months. Additionally, the streamer
capabilities of two of the vessels were upgraded in mid-1996 from two to three
streamers, providing expanded revenue capacity. In the fourth quarter of 1996,
one vessel was inactive due to a major engine failure that resulted in reduced
revenues of approximately $1.8 million and adversely affected operating margins.
Operating costs increased 38.9% from $27.1 million in 1995 to $37.6 million
1996. This increase was primarily due to company growth, increased vessel
operations and the additional streamer capacity of the vessels in service.
Operating margins improved from 8.0% in 1995 to 13.8% in 1996 due to more
profitable contracts and improved vessel utilization. A significantly
unprofitable contract in the Gulf of Mexico contributed to the lower operating
margins in 1995.
Depreciation increased 19.7% from $3.9 million in 1995 to $4.6 million in
1996, primarily due to additional vessels and equipment upgrades put into
service in 1996. Selling, general and administrative expenses increased 19.3%
from $2.2 million in 1995 to $2.6 million in 1996, primarily due to additional
legal costs of $0.1 million incurred by ERI in connection with Seitel's
investment in ERI and additional personnel
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costs of $0.2 million to accommodate ERI's growth. Net interest expense
increased from $1.5 million in 1995 to $1.6 million in 1996 due to the increased
borrowing by the Company.
No provision was made for United States and United Kingdom income taxes in
either 1996 or 1995 due to operating losses from the offshore operations.
1995 Compared to 1994
Revenue increased 51.2% from $19.5 million for 1994 to $29.4 million for
1995 due to additional vessel capacity in service in 1995. In 1995 three vessels
operated for the entire year and one vessel operated for four months, whereas
during 1994 one vessel operated for the entire year, one vessel operated for six
months, one vessel operated for four months and one vessel operated for two
months.
Operating costs increased 65.5% from $16.4 million in 1994 to $27.1 million
in 1995 due to the additional vessel capacity in 1995 and the costs associated
with the startup of these additional vessels. Operating margins decreased from
15.9% in 1994 to 8.0% in 1995, primarily due to a significantly unprofitable
contract in the U.S. Gulf of Mexico.
Depreciation increased from $1.7 million in 1994 to $3.9 million in 1995 as
a result of equipment purchases made in mid- to late-1994 to equip the new
vessels placed in service during 1994. Selling, general and administrative
expenses increased 28.9% from $1.7 million for 1994 to $2.2 million for 1995.
During 1994, Horizon Management, who owned stock of ERI, elected to receive
reduced salaries. Net interest expense increased from $0.5 million to $1.5
million due to additional working capital requirements and additions to ERI's
vessel fleet.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offering, Eagle has been a wholly-owned subsidiary of Seitel.
In the past, Seitel has guaranteed certain indebtedness of Eagle and has made
loans to Eagle. Therefore, the historical liquidity and capital resources of
Eagle may not be indicative of the Company's future liquidity and capital
resources.
The revenues of Eagle generated by work performed for Seitel and its other
subsidiaries were based on prices charged to unaffiliated third parties for
similar work and included a profit. Because Eagle was a wholly-owned subsidiary
of Seitel, the profits generated by such intercompany work were eliminated from
Seitel's financial statements upon consolidation. Upon consummation of the ERI
Acquisition and the Offering, Eagle will no longer be a wholly-owned subsidiary
of Seitel. Because Seitel does not intend to fund any payables to the Company
which resulted from such intercompany work and which are still outstanding at
the time the Offering is completed, the Company will declare a dividend prior to
the Offering to eliminate any remaining intercompany receivables from Seitel.
Prior to consummation of the Offering, Eagle will declare a dividend to its sole
stockholder, a wholly-owned, indirect subsidiary of Seitel, of Eagle's
receivable from Seitel for profits attributable to work performed by Eagle for
Seitel and its subsidiaries since inception to the date of consummation of the
Offering, less taxes and allocable overhead attributable to such intercompany
work. As of June 30, 1997, the amount of such net intercompany receivable was
approximately $6 million. See "Certain Transactions."
The Company's pro forma working capital as of March 31, 1997, after giving
effect to the consummation of the ERI Acquisition and the application of the net
proceeds from this Offering, was $18.3 million. See "Use of Proceeds." The pro
forma indebtedness of the Company as of such date consisted of a capital lease
obligation totaling approximately $12.2 million relating to the capital lease of
the vessel Simon Labrador.
The Company will repay $35.4 million of existing indebtedness with a
portion of the net proceeds of the Offering, which will significantly decrease
the Company's interest expenses and will eliminate the Company's obligation to
make payments on the principal of such debt in the future. See "Use of
Proceeds." This will allow the Company to apply the cash generated from
operations towards its capital requirements rather than to service such debt.
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The Company currently plans to expand its existing data acquisition
capabilities through the expansion of the streamer towing capacity of one of its
vessels beginning in the fourth quarter of 1997 and carrying over into the first
quarter of 1998, at a capital cost of approximately $18 million. A portion of
this capital expenditure will be funded from the net proceeds of the Offering.
See "Use of Proceeds." The Company anticipates that the portion of this capital
expenditure not funded from the net proceeds of the Offering will be funded from
cash from operations and additional borrowing. In 1998, the Company intends to
charter and equip one additional offshore seismic vessel, at a capital cost of
approximately $20 to $30 million. The Company intends to fund these capital
costs with a combination of cash from operations and additional debt or equity
financing.
The Company operates the Simon Labrador under a capital lease with Simon,
which in turn leases the vessel from RBS under a capital lease. Pursuant to the
arrangement between the Company and Simon, the Company is required to use its
best endeavors to obtain the release of Simon from all obligations in connection
with the lease of this vessel. The Company is currently negotiating with RBS to
enter into a capital lease for the vessel directly with RBS, the effect of which
would be to release Simon from its obligations with respect to the vessel. The
current state of negotiations suggests that RBS will require the Company to
deposit $5 million as additional security to release Simon from its obligations
and enter into a capital lease with the Company directly. If RBS will not enter
into a lease for this vessel directly with the Company or will not agree to
other arrangements that will release Simon from its obligations with respect to
this vessel, the Company may be required to exercise its purchase option under
the capital lease, which would currently require a payment of approximately
$12.5 million. If the Company is required to exercise such purchase option and
is unable to obtain financing for such purchase price, the Company would be
required to apply funds set aside for capital expenditures or other funds from
operations towards such purchase price.
The Company is also currently pursuing opportunities to expand its wetland
seismic data acquisition activities internationally, primarily into Latin
America. Any such expansion will likely require the addition of another onshore
crew at a capital cost of approximately $5 to $7 million. The Company currently
intends to fund any such required capital costs with a combination of cash from
operations and additional debt financing.
The Company is continually evaluating the practical applications of new
seismic technology and equipment in order to maintain its competitive
technological position; however, the Company does not have any current
arrangement or agreement to acquire or employ any such new technology. The
Company may revise its plans with respect to capital expenditures in response to
future changes in the seismic data acquisition industry in general and the
demand for its services in particular, its results of operations, its other
capital requirements and other relevant factors.
As of March 31, 1997, the Company had capital commitments to purchase
approximately $1.4 million of additional marine seismic data acquisition
equipment as part of its scheduled routine replacement of existing equipment. As
of June 30, 1997, the Company had purchased approximately $1.1 million of such
equipment, which was financed with vendor financing, $330,000 of which the
Company intends to repay with a portion of the net proceeds of the Offering. See
"Use of Proceeds." The purchase price of the balance of such equipment will be
funded with cash from operations and vendor financing.
In the past, Seitel has guaranteed certain indebtedness of the Company and
has made loans to the Company. All of such debt owed to Seitel is being repaid
with a portion of the net proceeds of the Offering. The Company's borrowing
costs may increase in the future as a result of having to obtain financing based
on its own creditworthiness.
The Company has obtained a commitment from Bank One, Texas, N.A. with
respect to a $20,000,000 revolving credit facility to be secured by the
Company's accounts receivable. The amount the Company may borrow under the
revolving credit facility will be limited to a borrowing base that will be equal
to 90% of eligible U.S. and U.K. investment grade accounts receivable, 100% of
receivables secured by acceptable letters of credit and 80% of eligible
investment grade foreign receivables, non-graded U.S. receivables and other
eligible receivables approved by the bank. Interest only will be payable monthly
or at the end of LIBOR interest periods, and the credit facility will be payable
in full in three years. Mandatory prepayments will be required if borrowings
exceed the borrowing base. Interest will accrue under the credit facility at the
bank's base rate or at LIBOR plus a spread of 1.375% if the Company's debt to
net worth ratio is less than 1 to 1, and
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1.625% if such ratio is equal to or greater than 1 to 1. The Company expects to
finalize such credit agreement before or shortly after consummation of the
Offering. However, the bank's commitment is subject to negotiation of definitive
loan agreements, and there can be no assurance that the Company will enter into
such arrangement, or that any credit facility the Company does obtain will be on
these terms.
The Company believes that its planned capital expenditures and operating
requirements through the end of 1997 will be funded from a portion of the net
proceeds of this Offering and the Company's cash flow from operations. The
Company anticipates that its cash flow from operations will be sufficient to
fund its operating requirements for the foreseeable future, and that any
additional capital expenditures will be funded from the Company's cash flow from
operations and additional debt or equity financing. If the Company is not able
to obtain additional financing, it will be unable to make such capital
expenditures and the Company's financial position and results of operations may
be materially and adversely affected as a result.
SEASONALITY
The onshore and offshore seismic data acquisition operations of the Company
are subject to seasonal fluctuation, with the greatest volume of data
acquisition occurring during the summer and fall. This is due primarily to
adverse weather conditions, which are more prevalent in the winter and spring.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," effective for
interim and annual periods after December 15, 1997. This statement replaces
primary earnings per share with a newly defined basic earnings per share and
modifies the computation of diluted earnings per share. The application of this
statement will not have any impact on earnings per share for the three years
ended December 31, 1996, as there were no common stock equivalent shares
outstanding.
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DESCRIPTION OF BUSINESS
GENERAL
The Company is a highly-focused international oilfield service company
engaged in the acquisition of seismic information, with a specialization in the
acquisition of high definition 3D seismic data in logistically difficult wetland
environments and in congested offshore areas. The Company was formed in December
1996 to combine the onshore seismic data acquisition business conducted by SGI
with the offshore seismic data acquisition business conducted by the Horizon
Companies, both of which were commenced in 1993.
INDUSTRY OVERVIEW
Seismic data is used by oil and gas companies to identify and image
underground geological structures likely to trap hydrocarbons, both to aid in
the exploration for new hydrocarbon reservoirs and to enhance production from
existing reservoirs. A seismic data acquisition project generally consists of
designing and planning the survey, obtaining permission from mineral and land
owners to perform the survey (if on land) and acquiring the seismic data. Such
data, when processed, is then used to produce computer generated three-
dimensional images or two-dimensional cross sections of subsurface geologic
formations. These cross sections and images are then used by oil and gas
companies to evaluate the potential for successful drilling for or production of
oil and gas.
Historically, 2D surveys were the primary technique used to acquire seismic
data. However, advances in computer technology in the last five to ten years
have made 3D seismic data, which provides a more comprehensive geophysical
image, a practical and capable oil and gas exploration and development tool. 3D
seismic data is proving to be more accurate and effective than 2D data at
identifying potential hydrocarbon-bearing geological formations. The use of 3D
seismic data to identify locations to drill both exploration and development
wells has improved the economics of finding and producing oil and gas. This in
turn has created increased demand for 3D seismic surveys in recent years.
Seismic data is acquired on land by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the seismic
survey. An energy source, such as subsurface dynamite or truck mounted
vibrators, is used to generate seismic waves that move through the geological
formations under the area and are reflected by various subsurface strata back to
the surface, where they are detected by the geophones. The geophones and energy
sources must be deployed over the survey area, which will cover many square
miles, in a specified configuration. For 2D data, the ideal configuration of
geophones and energy sources is a straight line with an energy source and small
groups of geophones, or geophone stations, placed evenly every few hundred feet
along the line. For 3D data, the ideal configuration is generally a grid of
perpendicular lines spaced a few hundred to a few thousand feet apart, with
geophone stations spaced evenly every few hundred feet along one set of parallel
lines, and energy sources spaced evenly every few hundred feet along the
perpendicular lines. This configuration must be carefully designed to provide
optimal imaging of the targeted geological structures while taking into account
surface obstructions such as water wells and oil and gas wells, pipelines and
areas where permission to enter upon the land cannot be obtained. Typically,
between four and six geophone stations are connected by relatively short wires
to electronic field recording boxes, which collect the seismic data from those
geophones. These boxes are in turn connected to a central recording unit that
records the data from all of the deployed geophones. Once the network of
geophones and field recording boxes is deployed over a portion of the area to be
surveyed, one of the energy sources is activated, the reflected seismic waves
are detected by the geophones, the signals from the geophones are collected and
digitized by the recording boxes, and the boxes send the seismic data to the
central recording system. The geophones and recording boxes from one end of the
single line in the case of 2D data, or one end of the multiple lines being
recorded in the case of 3D data, are then removed from that end of the line or
lines, and are moved to locations at the other end of the line or lines. An
energy source again generates seismic waves that are recorded, and the process
is repeated, moving one step of a few hundred feet at a time, until the entire
area to be surveyed has been covered.
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Conventional land-based seismic data acquisition systems use cumbersome
cables, which can be many miles long, to connect the recording boxes to the
central recording unit. The Company's radio telemetry systems, on the other
hand, use radio signals to transmit seismic data to the central recording unit.
Radio signals can go over and through obstructions that cables must go around,
which makes the Company's data acquisition systems more efficient in wetland
environments where there are numerous geographic obstacles. In addition, by
eliminating these lengthy cables, the Company's data acquisition systems are
less intrusive on the environment, making them better suited for work in
ecologically sensitive areas.
Each geophone station in an onshore seismic data acquisition system,
whether a traditional cable system or a radio telemetry system, requires a
separate channel in the recording system. The number of channels required for a
particular seismic data acquisition project will depend on the number of "live"
geophone stations that are required to collect data for each discharge from an
energy source. Generally, the higher the resolution of the data to be acquired,
the more live channels that are required in conducting the survey. Most advanced
3D surveys being conducted by the Company's wetland crews utilize between 1,000
and 1,400 live channels. In order to operate efficiently, an onshore acquisition
system should have more total channels than are required to record the seismic
waves from any given energy source discharge. This allows additional geophones
and recording boxes to be deployed along the geophone lines in advance, which
can increase efficiency in acquiring data, and allows for a certain portion of
the system to undergo repairs and maintenance without interrupting data
acquisition activities.
The conventional method of acquiring offshore seismic data involves
releasing acoustic energy, normally generated by a burst of compressed air, into
the water. The energy, in the form of a pressure wave, travels through the water
into the sea bed and is reflected from various subsurface strata back to
hydrophones towed behind the seismic acquisition vessel. Hydrophones are
sensitive pressure sensors, many thousands of which are deployed in towed
streamer arrays behind the seismic vessel. The reflected energy is detected by
the hydrophones in the streamers, and the data from the hydrophones is
transmitted by wire or optical fibers to sophisticated recording equipment on
the vessel. Navigation and positioning equipment, including global positioning
systems ("GPS"), lasers and acoustic and azimuth devices, are used to accurately
determine the positions of the vessel, energy sources and streamer arrays as
they traverse the survey area. A recording of seismic data is made at regular
intervals over the sea bed as the vessel traverses the survey area along
predetermined paths. To acquire 2D data, independent lines of data are acquired
and recorded. To acquire 3D data, a dense grid of lines of data is acquired and
recorded. The density of data required for 3D data is most efficiently achieved
by using multiple energy sources and streamers. However, some geological
structures can be better imaged by limiting the lateral distance from the
streamers to the energy source, and in these situations fewer streamers are more
effective at collecting the data. Vessels towing fewer streamers are generally
more maneuverable than vessels towing more streamers, and are therefore better
suited to conduct 3D surveys in congested areas offshore with dense marine
traffic and numerous obstacles such as drilling rigs, supply vessels and
platforms. Conversely, vessels towing more streamers are generally more
efficient at conducting larger, wide-swathe 3D surveys in open water.
Similar to onshore seismic data acquisition systems, the channel capacity
of offshore seismic data acquisition systems is governed by the number of
hydrophone groups deployed in the streamers, the number of digitizing modules
available, and the capability of the onboard recording system. The vessels
operated by the Company have either 1,024 or 1,440 channels and can be
incrementally upgraded by adding a combination of additional hydrophone groups,
digitizing modules and more recording capacity as appropriate for the specific
requirements of a seismic data acquisition project.
After the raw seismic data has been acquired, it is sent to a data
processing facility where it is processed using sophisticated computer hardware
and software. The processed data can then be manipulated and viewed on computer
workstations by geoscientists to map the structures of the subsurface to
determine if formations exist where hydrocarbons are likely to have accumulated
and where such formations are located.
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BUSINESS OVERVIEW
The Company performs seismic data acquisition services for its customers,
which include major and independent oil companies and seismic data marketing
companies, on a contract basis. Historically, the Company generally has not
retained any interest in the data it acquires for its customers, although in the
future the Company may perform its services in exchange for an ongoing interest
in the data in response to customer proposals. The Company's geotechnical staff
works closely with its customers to design seismic surveys to meet the
customers' specific requirements while working within the confines imposed by
permits, topographical obstructions and manmade structures. The Company applies
its experience and expertise with its knowledge of the capabilities of its
equipment to optimize its customer's seismic surveys within these confines. The
Company performs limited processing of seismic data for quality control purposes
and delivers the seismic data it acquires to third-party processors selected by
its customers for complete processing.
The Company's crews and equipment have been configured for the technically
complex and logistically demanding operations they conduct. The Company operates
three onshore 1,850 channel Opseis radio telemetry seismic data acquisition
crews in the U.S. Gulf Coast region and four towed-streamer seismic data
acquisition vessels, primarily in the North Sea and the U.S. Gulf of Mexico. The
Company's wetland crews and equipment, which use radio signals rather than
traditional cables to collect seismic data, are specifically designed to work in
environmentally sensitive and operationally challenging swamp and marsh
environments. Because these systems use radio signals to transmit data, they can
be operated more efficiently than cable-based systems, particularly in wetland
areas and highly populated areas where there are numerous topographic
obstructions, such as rivers, bays, highways and towns. These systems also excel
in environmentally sensitive areas where physical intrusion must be minimized.
The Company believes that it has developed particular expertise in both the
front-end planning and the execution of complex onshore 3D surveys. Front-end
planning involves obtaining permits from the numerous land and mineral owners
required in large onshore 3D acquisition projects and refining such projects to
capitalize on the capabilities of the Company's radio telemetry systems. The
Company believes it has developed expertise in the execution of complex 3D
acquisition projects, including its ability to efficiently manage the surveying,
drilling and permit compliance for the thousands of geophone and source points
required in large 3D acquisition projects. The Company believes that the
combination of its superior permitting, planning and project management skills
and the capabilities of the Company's equipment to acquire data around obstacles
and areas where permission from land owners cannot be obtained provides the
Company with a competitive advantage in seeking data acquisition work in the
wetland regions of the U.S. Gulf Coast.
The Company operates four seismic data acquisition vessels under charter or
lease, each of which is currently configured to tow either two or three
streamers. These vessels are well equipped to work in congested offshore areas
with dense marine traffic, production platforms and other obstructions, where
vessels towing more streamers are ill-suited to work due to their lack of
maneuverability. The configuration of the Company's vessels is also optimal for
conducting small and medium sized high definition seismic surveys around
offshore platforms. These surveys may be used by oil and gas companies to
delineate the extent of or enhance the production from existing fields.
Approximately 52% of the Company's 1996 pro forma revenues was derived from
its onshore operations, and the remaining approximately 48% of revenues was
derived from offshore operations. All onshore revenues in 1996 were attributable
to 3D data acquisition activities. Offshore revenues in 1996 were attributable
approximately 85% to 3D data acquisition activities and approximately 15% to 2D
data acquisition activities.
BUSINESS STRATEGIES
The Company's objective is to increase stockholder value by enhancing its
market position as a specialized provider of seismic acquisition services
through the following business strategies:
BUILD ON STRONG INDUSTRY REPUTATION. The Company believes that it has a
strong industry reputation within its specialized wetland and offshore markets
for providing high quality seismic data to its customers in a
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timely and cost-efficient manner through the use of advanced seismic
technologies. The Company plans to capitalize on its strong industry reputation
to expand its customer base within its niche markets.
CONTINUE TO FOCUS ON WETLAND REGIONS. The Company believes that the focused
application of radio telemetry technology is key to the Company's current and
future success in wetland and populated areas. The Company's wetland crews and
equipment have been configured to optimize performance in these areas. The
Company intends to continue to focus its onshore seismic data acquisition
activities in wetland and populated regions, where it has completed over
fifty-five 3D surveys.
ENHANCE OFFSHORE ACQUISITION CAPABILITIES. The Company plans to expand the
streamer towing capacity of one of its vessels from three to between four and
six streamers at the end of 1997, significantly increasing the vessel's data
acquisition capabilities. This will enable the Company to further increase
flexibility and efficiency in its offshore seismic data acquisition operations.
ACQUIRE ADDITIONAL EQUIPMENT. The Company intends to charter additional
offshore seismic vessels and acquire additional onshore equipment to meet
customer demand. The Company believes that sufficient customer demand currently
exists to add another seismic data acquisition vessel to its fleet and to add
more wetland seismic acquisition crews. The Company will evaluate the
acquisition of additional equipment and crews as its resources permit and as
customer demand dictates.
EXPAND INTERNATIONALLY. The Company is currently pursuing opportunities to
expand its wetland seismic data acquisition activities internationally,
primarily into Latin America. The Company believes that demand for seismic data
acquisition services will continue to grow in this and other regions
internationally. The Company intends to take advantage of the international
reputation and experience, including the previous onshore operating experience,
of the Horizon Companies as it expands its wetland activities internationally.
The Company believes that the greater financial resources available to its
offshore operations following the Offering will better enable it to satisfy
existing customer demand and to mobilize its seismic acquisition vessels to new
geographic markets, such as Latin America, Africa and Southeast Asia, as
opportunities arise outside its primary areas of operation in the U.S. Gulf of
Mexico and the North Sea.
ONSHORE SEISMIC OPERATIONS
The Company acquires onshore seismic data using seismic recording crews
employed by the Company and operating equipment owned or leased by the Company.
Onshore seismic crews generally range in size from 40 to 60 persons, depending
on the terrain involved and the complexity of the project. The equipment
utilized by Company crews includes the Opseis recording systems, which are made
up of radio telemetry field recording boxes (called seismic acquisition remotes,
or "SARs"), a truck-based central recording unit, trailer-based mobile
maintenance and repair facilities and equipment, and various spare parts, along
with geophones, trailers used for transporting the system from project to
project, vibroseis trucks, and off-road trucks, swamp buggies, all terrain
vehicles ("ATVs"), conventional boats and air boats used to deploy geophones and
SARs. The Company subcontracts the surveying services used to determine the
exact placement of geophones and energy sources and the drilling services for
dynamite shot holes. Company crews deploy and maintain the geophones and SARs,
oversee the operation of the energy sources and operate all of the recording
system components relating to seismic data recording activities.
The Company currently operates three onshore acquisition crews, each
utilizing an 1,850 channel 24 bit Opseis 3D seismic data acquisition system. The
Company believes that these systems are the best currently available for
conducting complex 3D seismic surveys in difficult and environmentally sensitive
wetland environments. These systems use radio signals to transmit seismic data
from the SARs to the central recording system and are therefore more efficient
in swamps and marshes and in areas of numerous man-made obstacles than systems
that use cables to transmit data. The SARs are waterproof and are designed to be
used in a wet environment.
Prior to acquiring onshore seismic data in the field, the specifications of
the survey must be designed to optimize the imaging of the targeted geologic
strata, permits must be obtained from the mineral owners of the survey area and
permits to enter onto the land must be obtained from surface owners or lessees
whose
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<PAGE> 34
property will be traversed in the acquisition operations. The specifications of
the seismic surveys are generally designed by the Company's customers, with
varying degrees of input from the Company. A typical 3D survey conducted by the
Company in the U.S. Gulf Coast region will require permits from hundreds or even
thousands of mineral and land owners. Although some customers obtain these
permits themselves, many contract with the Company, as part of the acquisition
project, to obtain these permits. The Company has developed proprietary computer
software to track which permits have been obtained and the conditions imposed by
the various permits. Once permitted, surveys frequently require modifications to
take into account surface obstructions, such as water wells and oil and natural
gas wells, highways, towns and areas where permits cannot be obtained. The
Company combines its experience in conducting onshore surveys in areas with many
obstructions with its knowledge of the capabilities of its radio telemetry
systems to modify surveys after permitting to optimize the quality of the data
obtained within the physical limitations imposed. The Company believes that the
combination of its superior permitting, planning and project management skills
and the capabilities of the Company's equipment to acquire data around obstacles
and areas where permission from land owners cannot be obtained provides the
Company with a competitive advantage in seeking data acquisition work in the
wetland regions of the U.S. Gulf Coast.
OFFSHORE SEISMIC OPERATIONS
The Company acquires offshore seismic data using seismic crews employed by
the Company and operating chartered or leased vessels that have been modified
and outfitted with a full complement of data acquisition, recording, navigation
and communications equipment owned or leased by the Company. The Company's
seismic crews generally range in size from 12 to 20 persons, excluding the
ship's captain and vessel crew. Seismic crews live aboard the ship during their
tours of duty and work staggered shifts to permit continuous operations. Company
crews direct the positioning of the vessel using sophisticated navigation
equipment, deploy and retrieve streamers and energy sources and operate all of
the systems relating to seismic activities. Company crews are not responsible
for the vessels or for vessel crews, who are employees of the vessel owner or a
contract operator. Each vessel has an equipment complement consisting of
recording instrumentation, digital recording streamers, location systems,
multiple navigation systems, and, except for the recording vessel Abshire Tide,
a seismic energy source and control system. Seismic reflections detected by the
hydrophones on the streamers are digitized and partially processed before they
are transmitted to recording instruments for storage on magnetic media.
Two of the Company's vessels, the Discoverer and the Abshire Tide,
currently work together as a single seismic data acquisition crew in the U.S.
Gulf of Mexico. The subsalt surveys currently being recorded in the U.S. Gulf of
Mexico require a greater distance between the energy source and the hydrophones,
or longer offset, than ordinary surveys. This can be accomplished either by a
single vessel towing very long streamers, or by two vessels working in tandem
towing shorter streamers. When vessels work in tandem, only one vessel is
required to have an energy source. Vessels working together can also
"undershoot" obstructions such as platforms and drilling rigs, where the energy
source is discharged on one side of the obstruction and the hydrophone streamers
are towed on the other side of the obstruction.
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<PAGE> 35
The following table sets forth certain information as of June 30, 1997
concerning the seismic vessels operated by the Company. As of such date, all of
these vessels were operating or mobilizing to committed projects.
<TABLE>
<CAPTION>
LAST TOTAL DATA
SIGNIFICANT LENGTH BEAM STREAMER ACQUISITION CHARTER/LEASE CURRENT
VESSEL NAME UPGRADE (FEET) (FEET) CAPABILITY SYSTEM EXPIRATION LOCATION
----------- ----------- ------ ------ ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Simon Labrador....... 1991 263 55 3 Syntron 2001(1) North Sea
1,440 Channel
16 Bit
Discoverer(2)........ 1996 236 52 3 Syntron 1998(3) Gulf of
1,440 Channel Mexico
16 Bit
Abshire Tide(2)...... 1996 194 40 3 Syntron 1997(4) Gulf of
1,440 Channel Mexico
16 Bit
Pacific Horizon...... 1996 251 41 2 Input/Output 2001(5) North Sea
1,024 Channel
24 Bit
</TABLE>
- ---------------
(1) The Simon Labrador is leased under a capital lease expiring in 2001, with a
ten-year renewal option. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(2) The Discoverer and Abshire Tide work in tandem as a single seismic crew.
(3) Pursuant to a one year extension option, this charter can be extended to
1999.
(4) The Company is currently negotiating to extend the term of this charter for
one year.
(5) This charter can be terminated by the Company on one-month's notice.
The Company believes that maintaining a combination of short-term vessel
charters with long-term capital leases and other arrangements provides
flexibility to manage the risks associated with the fixed costs of charters by
adjusting the size of its fleet according to market demand while also providing
stability in the Company's vessel fleet. The Company generally believes that
chartering vessels maintains vessel and financial flexibility and reduces to
some extent the Company's exposure to technological change and obsolescence of
the vessels. Although several of the Company's vessels are under short-term
charters, the Company believes that there is a sufficient supply of suitable
vessels available for charter at acceptable rates that can be outfitted or
modified within a reasonable period of time to meet its needs for such vessels.
All of the vessels in the Company's vessel fleet are operated under charter
agreements or leases expiring from 1997 to 2001, with provisions for extensions
ranging from a month to ten years.
The Company generally operates its offshore seismic data vessels on a
24-hours-a-day, seven-days-a-week basis. Each of the Company's vessels is taken
out of service for approximately two to four weeks each year, generally at
different off-season times of the year, for routine maintenance and service.
The Company intends to upgrade the seismic data acquisition capabilities of
the Simon Labrador in late 1997 or early 1998 to increase its streamer
capability from three to between four and six streamers and to upgrade its data
acquisition system from a 16 bit to a 24 bit resolution system. This upgrade
will significantly increase the seismic data acquisition capabilities of the
Simon Labrador, which will enable the Company to further increase efficiency in
difficult operational and technically demanding areas. This vessel will be taken
out of service for a period of approximately 90 days to accomplish these
modifications, which will reduce the Company's revenues during this period. In
addition, the Company is evaluating the potential charter of an additional
seismic acquisition vessel in mid-1998, subject to financing and sustained
customer demand, to further increase its offshore seismic data acquisition
capabilities.
CAPITAL EXPENDITURES
The Company has numerous competitors for both its onshore and offshore
seismic data acquisition business, and substantial financial and other resources
are required to maintain the state-of-the-art technology
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<PAGE> 36
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. Sophisticated seismic data acquisition equipment
and related crew training are very costly. For example, the cost of equipping a
crew with a state-of-the-art system, such as the 1,850 channel Opseis systems
the Company currently operates onshore (including training and ancillary
equipment), ranges from approximately $5.0 to $7.0 million, the largest
component of which is attributable to the SARs. Similarly, the cost of equipping
a modern seismic data acquisition vessel with between four and six streamers
would range from approximately $20.0 to $30.0 million plus vessel charter costs.
The Company's strategy is to update its onshore and offshore data acquisition
systems to maintain its competitive position. This may require large capital
expenditures in addition to the Company's planned capital expenditures. There
can be no assurance that the Company will have or otherwise be able to obtain
the capital necessary to upgrade its equipment or to acquire any additional
required equipment.
The Company currently intends to expand the data acquisition capabilities
of the seismic acquisition vessel Simon Labrador in late 1997 or early 1998 at
an estimated capital cost of approximately $18.0 million. This upgrade will
significantly expand the seismic data acquisition capabilities of this vessel by
increasing its streamer capacity from three to between four and six streamers
and updating its recording equipment from a 16 bit system to a 24 bit system.
The Company also intends to charter and equip an additional seismic acquisition
vessel during 1998 at a projected cost ranging from $20.0 to $30.0 million. As
the Company expands its onshore operations internationally, it is likely that
the Company will need to acquire additional onshore acquisition systems at an
estimated capital cost of approximately $5.0 to $7.0 million per crew. The
Company anticipates that the funds for such expenditures will come from a
portion of the net proceeds of the Offering, cash from operations and additional
bank financing. However, there can be no assurance that funds from operations
will be sufficient, or that additional bank financing will be available on terms
acceptable to the Company. The Company may revise its plans in response to
future changes in the oil and gas industry in general and in the demand for its
services in particular, its results of operations, its other capital
requirements and other 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 "Description of Business -- Competition."
KEY SUPPLIERS
The Company acquires its Opseis seismic data acquisition systems from
Georex, Inc., a subsidiary of CGG. The Company acquires its offshore seismic
data acquisition systems primarily from Input/Output, Inc. and Syntron, Inc., a
subsidiary of GeoScience, Inc. Although these companies are not the only
suppliers of seismic data acquisition systems, they are the Company's primary
suppliers, and the Company is dependent on these suppliers with respect to
additions and repairs to its current systems. In addition, the Company considers
the Opseis system to be the state-of-the-art seismic data equipment for
performing 3D surveys in marshes and swamps. See "Risk Factors -- Reliance on
Key Suppliers."
GEOGRAPHIC OPERATIONS
ONSHORE. During 1996, onshore 3D seismic data acquisition contract revenues
were $47.3 million, or 52.0% of the Company's pro forma combined revenues. For
the first three months of 1997, onshore 3D seismic data acquisition contract
revenues were $12.5 million, or 53.1% of the Company's pro forma combined
revenues. The revenues in both 1996 and the first three months of 1997 were
generated from surveys conducted in the U.S. Gulf Coast region. The Company
expects in the near term to continue to focus its onshore surveys in this
region, although the Company intends to seek opportunities for contract revenues
in other areas, primarily Latin America, where oil and gas exploration and
production activities exist.
OFFSHORE. During 1996, offshore seismic data acquisition contract revenues
were $43.6 million, or 48.0% of the Company's pro forma combined revenues. These
revenues were generated primarily from surveys conducted in the North Sea and
the U.S. Gulf of Mexico. For the first three months of 1997, offshore seismic
data acquisition contract revenues were $11.1 million, or 46.9% of the Company's
pro forma combined revenues. These revenues were generated primarily from
surveys conducted in the Falkland Islands and the
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<PAGE> 37
U.S. Gulf of Mexico. The Company expects in the near term to continue to focus
its offshore surveys in the North Sea and the U.S. Gulf of Mexico, although the
Company may take advantage of opportunities for contract revenues in other areas
of the world where offshore oil and gas exploration and production activities
exist.
SALES AND MARKETING
MARKETING. The Company's services traditionally have been marketed by the
Company's principal executive officers. After the Offering, the Company intends
to maintain this marketing approach in order to preserve long-term relationships
established by the Company's executive officers. As the Company's geographical
and technical capabilities expand, the Company currently intends to continue to
implement its marketing efforts from its principal offices in Houston, Texas and
Sevenoaks, England.
ONSHORE SEISMIC DATA ACQUISITION CONTRACTS. When the Company acquires
seismic data onshore, its customer specifies the area to be surveyed, directs
the scope and extent of the survey and retains ownership of the data obtained.
The Company generally contracts to acquire onshore seismic data under contracts
that provide for a fixed fee for performing the survey. These contracts are
often awarded on a competitive bid basis. Under fixed fee contracts, the Company
generally bears the risk of delays that are beyond its control. See "Risk
Factors -- Operating Risks." The Company frequently seeks to pass some of this
risk to the customer by negotiating for the customer to pay standby charges for
delays not caused by the Company, such as adverse weather. The Company's
contracts generally provide for progress payments unless the Company anticipates
completing the survey in a short time period.
OFFSHORE SEISMIC DATA ACQUISITION CONTRACTS. When the Company acquires
offshore seismic data, the customer directs the scope and extent of the survey
and retains ownership of the data obtained. Contracts for offshore seismic data
acquisition, which are often awarded on a competitive bid basis, are either
distance- or time-based contracts (or a combination of both methods) or turnkey
contracts that provide for a fixed fee. Under the distance method, payments are
based upon the number of seismic lines or kilometers of data collected. When
operating on a time basis, payments are based on agreed rates per unit of time,
which may be expressed in periods ranging from hours to months. Under both of
these methods, most of the risk of business interruption (except for
interruption caused by failure of the Company's equipment) is borne by the
customer, except in winter months when the Company assumes greater
responsibility for weather-related interruption. For both of these types of
contracts, progress payments are generally required unless it is expected that
the survey can be completed in a brief period of time. Turnkey contracts
generally provide more profit potential for the Company, but involve more risk
due to the potential for weather-related and other types of delays. See "Risk
Factors -- Operating Risks." Before entering into these types of contracts, the
Company attempts to evaluate the cost and associated risk involved through an
analysis of the likelihood of weather-related delays, the size of the survey and
the expected period of time required to complete the survey.
MULTI-CLIENT DATA. The Company has generally performed its seismic data
acquisition services for its customers on a contract basis without retaining any
interest in the data it acquires for its customers. The Company has begun to
receive more requests from its customers to perform its services for lower fees
but where the Company would retain certain rights to the data it acquires. If
the Company were to retain such rights, it would be permitted to license the
data to multiple clients, which could potentially result in higher returns than
if the Company were to perform its services for a higher fixed fee, but also
presents the risk of a lower return. The Company may in the future perform its
services in exchange for an ongoing interest in the acquired data in response to
customer proposals.
BACKLOG. The Company's backlog represents commitments for seismic data
acquisition services from both its onshore and offshore seismic data acquisition
businesses. All backlog consists of commitments believed to be firm. However,
backlog estimates are based on a number of assumptions and estimates, including
assumptions as to exchange rates between the U.S. dollar and the British pound
and other currencies and estimates of the percentage of completion of contracts.
Contracts for services are occasionally varied or modified by mutual consent and
in certain instances may be canceled by the customers on short notice 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.
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<PAGE> 38
As of July 10, 1997, the Company estimates that its total backlog was
approximately $68 million. Backlog for its onshore crews was approximately $39
million in future gross revenues from existing customer commitments, and backlog
for its offshore seismic acquisition crews was approximately $29 million in
future gross revenues from existing customer commitments. Of these backlog
amounts, approximately $10 million of the onshore backlog and approximately $9
million of the offshore backlog is attributable to work to be performed for
Seitel and its subsidiaries.
COMPETITION
The acquisition of onshore and offshore seismic data for oil and gas
companies is highly competitive worldwide. Competition for available seismic
surveys is based on a number of competitive factors, including crew
availability, price, performance, dependability and technology.
As a result of changing technology and capital requirements, the seismic
industry, both for onshore and offshore seismic data acquisition services, has
consolidated substantially since the early 1980s, thereby reducing the number of
competitors in the industry. Although dozens of companies perform onshore
seismic data acquisition services, only a few companies compete actively to
perform complex 3D surveys in the difficult wetland regions along the U.S. Gulf
Coast. The Company's primary competitors in the wetland onshore seismic data
acquisition business in the U.S. Gulf Coast region are Acadian Geophysical
Services, Inc., Boone Geophysical, Inc. (a subsidiary of Venture Seismic, Inc.),
Geco-Prakla (a subsidiary of Schlumberger Limited), Signature Geophysical
Services, Inc., Veritas DGC, Inc. and Western Atlas Inc. The Company's primary
competitors in the offshore seismic data acquisition business are Compagnie
Generale de Geophysique, S.A., Geco-Prakla, Petroleum Geo-Services ASA, Veritas
DGC, Inc. and Western Atlas Inc.
CUSTOMERS
ONSHORE. The Company's major customers for its onshore operations include
primarily independent oil and gas companies and seismic data marketing
companies. For the year ended December 31, 1996, Seitel and its subsidiaries
accounted for approximately 57% and Fina Oil and Chemical Company accounted for
approximately 20% of Eagle's consolidated gross revenues from onshore
operations. For the year ended December 31, 1995, Seitel and its subsidiaries
accounted for approximately 53% and Broughton Associates, J.V. accounted for
approximately 22% of Eagle's consolidated gross revenues from onshore
operations, and for the year ended December 31, 1994, Seitel and its
subsidiaries accounted for approximately 56% and Greenhill Petroleum Corporation
accounted for approximately 28% of Eagle's consolidated gross revenues from
onshore operations.
OFFSHORE. The Company's major customers for its offshore operations include
primarily multi-national oil and gas companies, foreign national oil and gas
companies, and seismic data marketing companies. For the year ended December 31,
1996, Seitel and its subsidiaries accounted for approximately 46% and Clyde
Petroleum Exploratie BV accounted for approximately 26% of ERI's consolidated
gross revenues from offshore operations. For the year ended December 31, 1995,
Seitel and its subsidiaries accounted for approximately 8% and Amerada Hess Ltd.
and British Gas Exploration and Production Ltd. accounted for approximately 37%
and 26%, respectively, of ERI's consolidated gross revenues from offshore
operations, and for the year ended December 31, 1994, Seitel and its
subsidiaries accounted for approximately 21% and British Gas Exploration and
Production Ltd., Amerada Hess Ltd. and Chevron Europe Ltd. accounted for
approximately 16%, 13% and 10%, respectively, of ERI's consolidated gross
revenues from offshore operations.
Due to the nature of the Company's operations, it is likely that
significant portions of future consolidated revenues may continue to be
attributable to a few customers, although it is possible that the identity of
such customers will change from period to period. See "Risk Factors -- Influence
of Seitel, Inc. on the Company."
EMPLOYEES
At June 30, 1997, the Company employed approximately 330 full-time
personnel. The Company has not experienced any material work stoppages related
to union activities and considers the relations with its employees to be good.
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<PAGE> 39
PROPERTIES
The Company occupies eight leased facilities that are principally used for
general administrative functions, maintenance, storage and warehouse space.
Three of these facilities are located in Texas, one is located in Louisiana and
four are located in England. These properties range in size from approximately
1,000 to approximately 9,000 square feet, the terms of the leases range from
month-to-month to leases that expire in 2001 and the leases provide for annual
rents ranging from approximately $12,000 to approximately $182,000. The
Company's annual lease expense under these leases totals approximately $500,000.
The Company will sublease one of these properties, which serves as the Company's
executive offices, from Seitel and its subsidiaries under a sublease that will
expire in August 2000 and which will provide for annual rental of approximately
$85,000, which amount is included in the $500,000 total lease expense referred
to above. See "Certain Transactions."
ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION
The Company's operations are subject to a variety of laws and regulations,
including laws and regulations relating to the protection of the environment.
Such laws and regulations govern various aspects of operations, including the
handling of explosives and the discharge of explosives into the environment, the
entry onto and restoration of wetlands, the removal and cleanup of materials
that may harm the environment or otherwise relating to the protection of the
environment (both onshore and offshore) and the access to private and public
lands to perform seismic surveys. The Company is required to invest financial
and managerial resources to comply with such laws and related permit
requirements in its operations and anticipates that it will continue to do so in
the future. Although such expenditures historically have not been material to
the Company, the fact that such laws or regulations are changed frequently makes
it impossible for the Company to predict the cost or impact of such laws and
regulations on its future operations.
The adoption of laws and regulations that have the effect of limiting
exploration or production activities by oil and gas companies could adversely
affect the Company's operations by reducing the demand for its services. Certain
import and export regulations may also limit the Company's ability to operate in
certain areas.
In addition, the Company's offshore operations are influenced by licensing
activities and lease sales of governmental authorities. The timing and extent of
licensing and leasing of areas for exploration and production influences the
level of seismic data acquisition activity within a particular country.
LEGAL PROCEEDINGS
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from any such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
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<PAGE> 40
MANAGEMENT
The following table sets forth the executive officers and directors of the
Company and their ages as of June 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William L. Lurie....................... 66 Chairman of the Board of Directors
Jay N. Silverman....................... 44 President, Chief Executive Officer and
Director
Gerald M. Harrison..................... 43 Executive Vice President and Director
George Purdie.......................... 41 Senior Vice President -- Offshore Operations
and Director
Richard W. McNairy..................... 56 Vice President -- Chief Financial Officer and
Secretary
Neil A.M. Campbell..................... 42 Vice President -- International Finance
Paul A. Frame.......................... 50 Director
</TABLE>
WILLIAM L. LURIE is the Chairman of the Board of Directors of the Company.
Mr. Lurie has been a director and a member of the Audit Committee and
Compensation Committee of Seitel since November 1995 and will retire from such
positions prior to consummation of the Offering. He has been Co-Chairman of The
Foundation for the Prevention & Early Resolution of Conflicts since April 1996.
He was President of Prevention and Early Resolution of Conflicts, a consulting
firm, from 1994 until April 1996. Mr. Lurie has been a Director of Minerals
Technologies, Inc., a mining and minerals company listed on the New York Stock
Exchange, since 1993 and is a member of its Compensation Committee. He was
Executive Consultant to the Chairman of The Business Roundtable from 1993 to
1994 and President of The Business Roundtable from 1984 to 1993. Prior to that
time, Mr. Lurie was Vice President -- General Counsel of International Paper
Company, a global paper and forest products company listed on the New York Stock
Exchange. He has been a Director of Intersystems, Inc., a manufacturing company
listed on the American Stock Exchange, since November 1995.
JAY N. SILVERMAN is the President and Chief Executive Officer and a
Director of the Company. Mr. Silverman has served as President of Eagle
Geophysical Onshore, Inc., the Company's onshore crew operations subsidiary,
since its formation in December 1996, and served as President of SGI from July
1993 until May 1997. From July 1993 until February 1996, he was Seitel's Vice
President of Operations, and from August 1990 to July 1993, he was Seitel's
Manager of Field Operations. From January 1988 to July 1990, Mr. Silverman was
Vice President of Operations of East Coast Drilling and Boring, Inc., a private
drilling company. Between August 1976 and January 1988, Mr. Silverman served as
Crew Chief, Operations Supervisor and Manager for Western Geophysical Company.
GERALD M. HARRISON is the Executive Vice President and a Director of the
Company. Mr. Harrison has been Chairman and Managing Director of the Horizon
Companies since 1993. From 1991 to 1993, Mr. Harrison was Managing Director of
Simon-Horizon Limited and President and Chairman of Simon-Horizon Inc.,
predecessors of the Horizon Companies. From 1988 to 1990, Mr. Harrison was
Operations Director of Simon-Horizon Limited, overseeing both onshore and
offshore seismic operations. Between 1980 and 1988, Mr. Harrison served as Field
Crew Manager and Manager of Domestic and International Operations for
predecessor companies of the Horizon Companies.
GEORGE PURDIE is the Senior Vice President -- Offshore Operations and a
Director of the Company. Mr. Purdie has been Operations Director of the Horizon
Companies since 1993, and from 1990 to 1993 was Operations Director of
Simon-Horizon Limited. From 1980 to 1989, he served in various onshore and
offshore field management posts for predecessor companies of the Horizon
Companies.
RICHARD W. MCNAIRY is the Vice President -- Chief Financial Officer and
Secretary of the Company. Mr. McNairy served as Vice President and Chief
Financial Officer of Veritas Energy Service, Inc. from February 1994 through
March 1997, prior to which he was corporate controller of Halliburton Energy
Services Group for three years and Vice President-Finance for its geophysical
services subsidiary for the preceding two
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<PAGE> 41
years. Prior to 1989 and since 1974, he was employed in various financial and
operational management capacities with predecessor companies acquired by
Halliburton.
NEIL A.M. CAMPBELL is the Vice President -- International Finance of the
Company. Mr. Campbell has been Finance Director, Chief Financial Officer, and
Company Secretary of the Horizon Companies since 1993. Mr. Campbell served as
Finance Director and Company Secretary of Simon-Horizon Limited from 1990 to
1993, and as Chief Accountant and Company Secretary of Simon-Horizon Limited and
its predecessors from 1987 to 1990. Mr. Campbell served in various accounting
positions for predecessors of the Horizon Companies from 1984 to 1987, and in
various accounting positions for British Petroleum from 1972 to 1984.
PAUL A. FRAME has been a Director of the Company since its formation in
December 1996. Mr. Frame has been Chief Executive Officer of Seitel since July
1992, President of Seitel since January 1987 and a director of Seitel since May
1986. Mr. Frame was Executive Vice President of Seitel from January 1985 through
January 1987 and was Vice President of Marketing of Seitel from August 1984
through January 1985.
All directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Executive
officers are generally elected annually by the Board of Directors to serve,
subject to the discretion of the Board of Directors, until their successors are
elected or appointed.
COMPENSATION OF DIRECTORS
Each director who is not also an officer of the Company (an "Outside
Director") will receive an annual director's fee of $25,000 plus meeting fees of
$2,500 for each meeting of the Board of Directors or committee thereof in which
such director participates. If such Outside Director serves as Chairman of the
Board of Directors, such director will receive an annual director's fee of
$50,000 plus meeting fees. Outside Directors will also be reimbursed for
reasonable out-of-pocket expenses incurred in connection with attendance of
meetings of the Board of Directors or committees thereof.
The Company intends to establish a Deferred Compensation Plan for Directors
whereby each Outside Director may elect to defer cash compensation for annual
director's fees or meeting fees to a date subsequent to such director's death,
retirement, disability or termination of services as a director. Earnings with
respect to such deferred compensation may be calculated, at the election of the
director, as if the amount deferred had been invested in Common Stock or as if
the amount deferred had been invested in an account bearing interest at the
prime rate minus 1.5%.
INDEPENDENT DIRECTORS STOCK OPTION PLAN
The Company intends to adopt an Independent Directors Stock Option Plan
(the "Directors Option Plan"). The purposes of the Directors Option Plan will be
to promote ownership of a greater proprietary interest in the Company by
independent directors of the Company, thereby aligning such Directors' interests
more closely with the interests of the stockholders of the Company, and to
assist the Company in attracting and retaining highly qualified persons to serve
as independent directors. The maximum number of shares of Common Stock that may
be subject to awards granted under the Directors Option Plan is 100,000 shares,
which may be authorized and unissued shares, treasury shares, or shares acquired
by the Company for purposes of the Directors Option Plan. Shares of Common Stock
which are attributable to awards which have expired, terminated or been
cancelled or forfeited during any calendar year will be available for issuance
or use in connection with future awards.
The Directors Option Plan will generally provide for an automatic grant of
options to independent directors upon their initial election to serve as a
director of the Company and upon each successive reelection to the Board of
Directors. Upon each such election or reelection, options to purchase 5,000
shares will be automatically granted to each independent director. The exercise
price for such options will be equal to the closing price of the Common Stock on
the date of such election or reelection. The options will become exercisable one
year after the date of grant and will expire at the earlier of five years after
the date of grant,
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<PAGE> 42
12 months after the optionee ceases to serve as a director due to death,
disability or retirement after age 65, or 60 days after the optionee ceases to
serve as a director for any other reason.
Pursuant to the Directors Option Plan, the Company will grant Mr. Lurie,
the Chairman of the Board of Directors, effective as of the date of the
consummation of the Offering, options to purchase up to 25,000 shares of Common
Stock at an exercise price equal to the initial public offering price set forth
on the cover page of this Prospectus. This grant will be in lieu of the grant of
options generally provided under the Directors Option Plan upon initial election
to the Board. These options will vest in cumulative installments of one-third of
the number of shares subject thereto on each of the first, second, and third
anniversaries of the date of grant, and will expire on the tenth anniversary of
the date of grant, subject to earlier expiration 12 months after Mr. Lurie
ceases to be a director.
An independent director for purposes of the Directors Option Plan is a
director who receives no compensation from the Company and its subsidiaries
other than annual directors fees, meeting fees, reimbursement of expenses and
options under the Directors Option Plan and has not, during the three months
prior to any grant, been an employee of the Company or any of its subsidiaries.
Mr. Lurie is the only current director of the Company eligible to receive grants
of options under the Directors Option Plan.
The Directors Option Plan will be administered by the Board of Directors,
provided that any action by the Board shall be taken only if approved by a
majority of the directors of the Company who are not then eligible to receive
grants of options under the plan. The Directors Option Plan may be amended,
altered, suspended, discontinued or terminated by the Board without stockholder
approval, unless such approval is required by law or regulation or applicable
rules of the Nasdaq National Market or any other stock market on which the
Common Stock is then quoted or listed. The Directors Option Plan will expire ten
years after adoption or such earlier date as the number of shares reserved for
issuance thereunder becomes insufficient for the automatic grants of options
provided therein. The Board may terminate the Directors Option Plan at any time
in its sole discretion. No options may be granted under the Directors Option
Plan after it is terminated. The termination of the Directors Option Plan, or
any amendment thereto, shall not affect any shares previously issued to an
option holder or any option previously granted under the Directors Option Plan.
Options to be granted under the Directors Option Plan will be nonqualified
stock options. An option holder will not recognize taxable income on the grant
of options under the Directors Option Plan, but will recognize taxable ordinary
income upon exercise of the options equal to the amount that the fair market
value of the underlying stock on the date of exercise exceeds the aggregate
exercise price. The income tax treatment of any gain or loss realized upon a
holder's disposition of shares received upon exercise of the options will depend
on the timing of such disposition. If the holder holds the shares received upon
exercise for at least one year from the date of exercise, the difference, if
any, between the amount realized from such sale and the holder's tax basis
(generally the aggregate exercise price plus the amount of income recognized
upon exercise of the options) will be taxed as long-term capital gain or loss.
If the holder disposes of such shares in less than one year, the gain or loss
will generally be taxed as short-term capital gain or loss.
The Company is entitled to a deduction for federal income tax purposes with
respect to the exercise of options under the Directors Option Plan (but not the
disposition of shares acquired upon exercise) in an amount equal to the ordinary
income recognized by the option holder, to the extent it is reasonable
compensation.
INDEPENDENT DIRECTORS; BOARD COMMITTEES
Nasdaq National Market rules require that a Nasdaq listed company have two
or more independent directors on its board of directors. Mr. Lurie, Chairman of
the Board of Directors, will not be employed by the Company and will retire from
his position as an independent director of Seitel at or prior to consummation of
the Offering. Therefore, he will qualify as an independent director. The Company
is in the process of identifying other potential independent directors, and the
Board of Directors intends to appoint at least one additional independent
director as soon as possible after the Offering.
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<PAGE> 43
Nasdaq National Market rules also require that listed companies have an
established audit committee, the majority of the members of which are to be
independent directors. The Board of Directors intends to establish an audit
committee when the additional independent directors are appointed to the Board
of Directors. The audit committee will recommend to the Board the appointment of
the independent public accountants to serve as auditors for the Company, and
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 Company also intends to establish a compensation committee, all of the
members of which will be outside directors as such term is defined in Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
compensation committee will meet periodically to determine the compensation of
certain of the Company's executive officers and other significant employees and
the Company's personnel policies and will administer the Stock Option Plan and
other executive compensation plans and arrangements. The compensation committee
will also be empowered to approve compensation payable to the Company's
executive officers for the purposes of Section 162(m) of the Code, which limits
the deductability of compensation in excess of $1 million if not approved
pursuant to the provisions of such section and the regulations thereunder. In
the event compensation payable by the Company to an executive officer is in
excess of $1 million in any year and has not been approved as required by
Section 162(m), the compensation in excess of $1 million may not be deductible
by the Company for federal income tax purposes.
The Company has established an Executive Committee, which consists of
Messrs. Frame (Chairman) and Lurie. The Executive Committee has the authority to
exercise all of the powers of the Board of Directors in the management of the
business and affairs of the Company, subject to certain limitations under the
Delaware General Corporation Law.
EXECUTIVE COMPENSATION
The Company was incorporated in December 1996 and began operations in
January 1997. No salaries were paid during 1996 by the Company. Compensation to
be paid to the Company's chief executive officer and the four other most highly
compensated executive officers during 1997 is disclosed below under
"-- Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers, the terms of which are described below.
The Company intends to enter into employment agreements with Messrs.
Silverman and McNairy that provide for annual base salaries of $260,000 and
$150,000, respectively. The employment agreement with Mr. Silverman will also
provide for a quarterly bonus equal to 25.0% of his base salary if the gross
margin (revenues less all expenses except for depreciation, amortization,
interest, taxes and overhead) for the onshore operations for such quarter is at
least 17% and an incentive bonus of 4% or 5% of the Company's pre-tax profits
(which percentage varies based on the Company's profit margin). The Company
calculates all bonuses without taking into account the expenses of the bonuses
paid to its officers and directors. Mr. Silverman, who received total cash
compensation in 1996 of $726,336 from SGI under his former employment
arrangement, would have received total cash compensation in 1996 of $613,080
under the above-described employment agreement based on the Company's pro forma
combined results for 1996. The employment agreement with Mr. McNairy will
provide for an incentive bonus equal to one-third of the base annual salary. Mr.
Silverman's employment agreement will be for an original term of three years,
and will automatically renew for successive one-year terms unless either party
gives notice otherwise at least 90 days prior to expiration of the then-current
term. Mr. McNairy's employment agreement will be for a term of two years. The
employment agreement with Mr. Silverman will contain a covenant not to compete
during his employment with the Company or its subsidiaries, and for one year
thereafter if the Company terminates his employment for cause or he terminates
42
<PAGE> 44
his employment without cause. In the event the Company terminates Mr.
Silverman's employment without cause, as such term will be defined in his
employment agreement, the Company will be required to pay Mr. Silverman
severance payments each year for two years equal to the average of his total
cash compensation for the previous three years, to vest all options previously
granted to Mr. Silverman that are not then vested, and to forgive outstanding
indebtedness owed by Mr. Silverman to the Company relating to his purchase of
25,000 shares of Common Stock to the extent the value of such shares at the date
of such termination is less than the outstanding indebtedness. See "Certain
Transactions." The terms of the employment agreement between Mr. Silverman and
the Company cannot be considered to have been determined through arms-length
negotiations.
Each of Messrs. Harrison, Purdie and Campbell have existing employment
agreements with the Horizon Companies, which employment agreements will be
amended upon consummation of the ERI Acquisition and the Offering. Such
employment agreements, as amended, will provide for base annual salaries of
$221,000 (L134,000) for Mr. Harrison and $205,000 (L124,000) for Messrs. Purdie
and Campbell. These employment agreements require the Company and the employee
to give twenty-four months advance notice of termination (other than for
termination with cause). If the Company terminates the employment of Messrs.
Harrison, Purdie or Campbell other than in accordance with the terms of such
agreement (i.e., without giving twenty-four months advance notice, other than
for termination with cause), the options granted to such employee set forth
under "-- Stock Option Plan" will become fully vested, and the Company may be
liable to such employee for breach of contract. The employment agreements
provide for an annual incentive bonus equal to 50.0% of the annual base salary
if performance criteria established by the Company are met (which criteria for
the year to end December 31, 1997 are that the operating profit margin (revenues
less cost of sales, expressed as a percentage of revenues) from the Company's
offshore operations equal or exceed 24.0%, and provide for an additional
incentive bonus of between 2.0% and 3.0% of the net after-tax profits of the
Company from its offshore operations in excess of 5.0% of gross revenues from
offshore operations. The employment agreements also provide for a bonus of 3% of
the excess, if any, of net after-tax profits of the Company's offshore business
for a fiscal year over the greater of (i) net after-tax profits of the Company's
offshore business for the prior fiscal year or (ii) 5% of the gross revenues of
the Company's offshore business for the prior fiscal year, if the Company's
gross revenues from its offshore business increase by at least 20% as compared
to the prior fiscal year and the net after-tax profits of the Company's offshore
business equal or exceed 5% of gross revenues from its offshore business.
In addition to the employment agreements with the Company's executive
officers described above, the Company will enter into a bonus agreement with Mr.
Frame, who will serve as a director of the Company and as Chairman of the
Executive Committee of the Board of Directors. In addition to his other duties
as a director of the Company, Mr. Frame will be responsible for strategic
planning, marketing, and domestic and international growth of the Company's
business. The Board of Directors of Seitel has agreed to allow Mr. Frame, who is
the President and Chief Executive Officer of Seitel, to devote up to 20% of his
time to the Company until December 31, 1999. Pursuant to the bonus agreement,
the Company will pay Mr. Frame bonuses each year during the term of the bonus
agreement equal to 1% of the increase in the Company's gross revenues for such
year over the Company's gross revenues for the prior year (excluding revenues
attributable to mergers and acquisitions in the year of such merger or
acquisition unless it is the final year of the term of the bonus agreement) and
4% of the Company's net after tax profits in excess of its 1996 pro forma
combined net after-tax profits of $0.8 million. The bonus agreement with Mr.
Frame will be for a fixed term expiring December 31, 1999. Mr. Frame will also
receive annual director's fees and meeting fees as an outside director. The
terms of the bonus agreement between Mr. Frame and the Company cannot be
considered to have been determined through arms-length negotiations.
STOCK OPTION PLAN
The Company intends to adopt a Stock Option Plan (the "Option Plan"), the
purpose of which will be 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
43
<PAGE> 45
the Option Plan will be 1,100,000 shares, which may be authorized and unissued
shares, treasury shares or shares acquired by the Company for purposes of the
Option Plan. Shares of Common Stock that are attributable to awards that have
expired, terminated or been cancelled or forfeited during any calendar year will
be available for issuance or use in connection with future awards.
The Compensation Committee or such other committee of the Board of
Directors as may be appointed by the Board (the "Committee") will be empowered
to administer the Option Plan. The Board has not yet established a Compensation
Committee, and therefore the Option Plan will be administered initially by the
Board of Directors as a whole.
Options granted under the Option Plan will be either incentive stock
options within the meaning of Section 422 of the Code or non-qualified stock
options, as designated at the time of the grant of the options. If options
granted under the Option Plan are not designated as incentive stock options or
nonqualified stock options, they will be deemed to be incentive stock options to
the extent they comply with the requirements of the Code applicable for
incentive stock option treatment and as non-qualified options to the extent they
do not satisfy such requirements.
Any employee of the Company or a subsidiary, including directors who are
not eligible to receive grants of options under the Directors Option Plan, will
be eligible to receive grants of options under the Option Plan. Actual
participation in the Option Plan will be determined in the sole discretion of
the Committee.
The exercise price for incentive stock options under the Option Plan shall
not be less than 100% of the fair market value per share on the date of grant of
such option. In the event that an incentive stock option is granted under the
Option Plan to any person who, at the time such incentive stock option is
granted, owns more than 10.0% of the total combined voting power of classes of
shares of the Company or of any subsidiary of the Company (a 10.0% stockholder),
then the exercise price of the incentive stock options shall not be less than
110% of the fair market value of the shares on the date such option is granted.
Fair market value as used in the Option Plan means the closing sales price of
Common Stock per share as reported in the Wall Street Journal as of the date of
the grant. Pursuant to the terms of the Option Plan, there are no restrictions
applicable to the exercise price of non-qualified stock options. Payment for the
shares acquired upon exercise of an option under the Option Plan shall be made
in cash or other property deemed acceptable by the Committee.
Options granted under the Option Plan will be exercisable at such times,
under such conditions (including, without limitation, performance criteria with
respect to the Company and/or the optionee), in such amounts and during such
period or periods as the Committee determines on the date of the grant of such
options. Such options, however, shall not be exercisable after the expiration of
ten years from the date such option is granted. In the case of an incentive
stock option granted to a more than 10.0% stockholder, such incentive stock
options shall not be exercisable after the expiration of five years from the
date such incentive stock options are granted.
The aggregate fair market value (determined as of the time an incentive
stock option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by any participant during any
calendar year, under the Option Plan and all of the Company's other plans, may
not exceed $100,000. Any options granted in excess of this limit will be
non-qualified options.
In general, if an optionee ceases to be an employee or director of the
Company or its subsidiaries for reasons other than disability or death, he or
she will have, with respect to incentive stock options, until the earlier of
three months from the date of such termination or the date the option expires to
exercise the option, to the extent the optionee was entitled to exercise the
option on the date of termination. If an optionee is unable to continue to
perform services for the Company or any of its subsidiaries as a result of
disability, he or she will have until the earlier of 12 months from the date of
such disability or the date the option expires to exercise the option, in whole
or in part, to the extent the optionee was entitled to exercise the option on
such date. In addition, the optionee must have been an employee since the date
of grant and must be an employee on the date of disability to take advantage of
this provision. These same rules apply to the exercise of options in the event
of the death of an optionee. Unless provided otherwise in a specific option
grant, an option granted
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<PAGE> 46
under the Option Plan may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder, and will not be assignable by
operation of law or subject to execution, attachment or similar process.
The Option Plan will expire ten years after its date of adoption. The Board
may terminate the Option Plan at any time in its sole discretion. No options may
be granted under the Option Plan after it is terminated. The termination of the
Option Plan, or any amendment thereto, shall not affect any shares previously
issued to a participant or any option previously granted under the Option Plan.
The Option Plan will not be qualified under the provisions of Section
401(a) of the Code, and it is not intended to be subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
The Board of Directors intends to approve the grant, effective as of the
date of consummation of the Offering, of options to acquire a total of 679,450
shares under the Option Plan to directors, officers and employees of the
Company. The options that will be granted under the Option Plan, other than the
options granted to Mr. Frame, will vest in cumulative installments of one-third
of the number of shares subject thereto on each of the first, second and third
anniversaries of the grant date and will expire on the tenth anniversary of the
date of the grant. Mr. Frame's options will vest on the fifth anniversary of the
date of grant or, if earlier, in cumulative installments of one-third of the
total shares subject thereto when the Company's gross revenues reach $150
million, $175 million and $200 million, respectively, if the Company's after tax
profit is at least 4% of gross revenues upon attainment of such revenue targets.
The options granted to Mr. Frame will expire 10 years from the date of grant.
The exercise price of each such option will be equal to the initial public
offering price per share set forth on the cover page of this Prospectus.
Included in these options are stock options to be granted to directors and
executive officers of the Company in the amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF OFFICER/DIRECTOR COVERED BY OPTIONS
------------------------ ------------------
<S> <C>
Mr. Silverman.......................................... 150,000
Mr. Frame.............................................. 100,000
Mr. Harrison........................................... 75,000
Mr. Purdie............................................. 75,000
Mr. Campbell........................................... 75,000
Mr. McNairy............................................ 25,000
</TABLE>
Certain options granted under the Option Plan are intended to be incentive
stock options within the meaning of Section 422 of the Code. An option holder
will not recognize taxable income upon the grant of incentive stock options
under the Option Plan. In addition, an option holder will not recognize taxable
income with respect to the excess of the fair market value of stock received on
exercise of an incentive stock option over the exercise price under the Option
Plan. The income tax treatment of any gain or loss recognized upon an option
holder's disposition of shares received upon exercise of incentive stock options
granted under the Option Plan depends on the timing of the disposition. If the
option holder holds the shares received upon exercise of such incentive stock
options for the longer of two years from the date such incentive stock option
was granted or one year from the date of exercise, the difference (if any)
between the amount realized from the sale of such shares and the holder's tax
basis (i.e., generally the exercise price) will be taxed as long-term capital
gain or loss.
If an option holder disposes of the shares acquired upon exercise of an
incentive stock option before the end of the applicable holding periods
described above (i.e., he or she makes a "disqualifying disposition"), such
holder may be deemed to be in receipt of taxable income in the year of the
disqualifying disposition, depending on the selling price. If the selling price
exceeds the fair market value of the stock on the date of exercise, the excess
of the fair market value on the date of exercise over the exercise price will be
taxable to the holder as ordinary income, and the excess of the selling price
over the fair market value on the date of
45
<PAGE> 47
exercise will be taxable to the holder as capital gain. If the selling price
exceeds the exercise price but not the fair market value of the stock on the
date of exercise, the excess of the selling price over the exercise price will
be taxable to the holder as ordinary income. If the selling price is less than
the exercise price, the difference will be treated as capital loss.
The Company is not entitled to a deduction for federal income tax purposes
with respect to the grant or exercise of incentive stock options under the
Option Plan or the disposition of shares acquired upon exercise of incentive
stock options if the applicable holding periods have been met. In the event of a
disqualifying disposition, however, the Company will be entitled to a federal
income tax deduction in an amount equal to the ordinary income recognized by the
holder, to the extent it is reasonable compensation.
Options granted under the Option Plan that are not incentive stock options
within the meaning of Section 422 of the Code will be non-qualified stock
options. An option holder will not realize taxable income upon the grant of
non-qualified stock options. An option holder will recognize taxable ordinary
income upon the exercise of non-qualified stock options equal to the amount that
the fair market value of the underlying stock on the date of exercise exceeds
the aggregate exercise price. The income tax treatment of any gain or loss
realized upon an option holder's disposition of shares received upon exercise of
non-qualified stock options depends on the timing of the disposition. If the
option holder holds the shares received upon exercise of such non-qualified
stock options for at least one year from the date of exercise, the difference
(if any) between the amount realized from the sale of such shares and the
holder's tax basis (i.e., generally the exercise price plus the amount of
ordinary income recognized by the holder on exercise of the option) will be
taxed as long-term capital gain or loss. If an option holder disposes of the
shares acquired upon exercise of a non-qualified stock option within one year
from the date of exercise of the option, such holder will generally recognize
short term capital gain or loss.
The Company is entitled to a deduction for federal income tax purposes with
respect to the exercise of nonqualified stock options, but not the disposition
of shares acquired upon exercise of such non-qualified stock options, in an
amount equal to the ordinary income recognized by the option holder, to the
extent it is reasonable compensation.
HORIZON PENSION PLAN
The Horizon Pension Plan (the "Pension Plan") provides defined retirement
benefits to employees of Horizon Exploration Ltd. who are members. The Pension
Plan operates in accordance with UK Pensions Legislation and is approved by the
UK Inland Revenue, and in accordance with a Trust Deed, the Trustees are
responsible for its management. The Trustees under the Pension Plan are Messrs.
Harrison, Purdie and Campbell and one other employee of Horizon Exploration Ltd.
The Trustees have appointed independent advisors, administrators and investment
managers, auditors and solicitors to assist them in administering the Pension
Plan.
The Pension Plan originated in 1975 and was most recently revised in July
1993, when Horizon Exploration Ltd. became independent of the Simon Group.
The benefits provided by the Pension Plan are precisely defined in the
Trust Deed. Generally, the Pension Plan provides an income, at the normal
retirement age of 60, of one sixtieth of final salary for every year in the
Pension Plan, up to a maximum of forty-sixtieths. Recent UK legislation requires
the retirement income to be increased annually at the rate of 5% or the UK
retail price index, whichever is the lower, on benefits accruing from April
1997. Retirement income for benefits accrued prior to this date may be increased
at the Trustees' discretion.
All UK employees of Horizon Exploration Ltd. and Exploration Holdings Ltd.,
also a subsidiary of ERI, who are at least 20 years of age are eligible to join
the Pension Plan. Current membership is 116 out of 139 eligible employees plus
four retirees. During the next five years, one existing employee should reach
retirement age.
According to the most recent review of the value of the Pension Plan Fund
by an independent actuary employed by the Pension Plan's independent advisors,
which was completed in early 1997 and which
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<PAGE> 48
determined such value as of April 1996, such fund is sufficient to meet existing
accrued benefits. The current funding levels are 10.2% from the employer and
3.5% from the employee, and these levels were deemed adequate to meet the
anticipated benefits and obligations of the Pension Plan in the most recent plan
review. The funding level is, by UK legislation, subject to review no less
frequently than every three years.
The Company is not bound to accept any Trustee recommendations on the
future level of Company contributions, and the Trustees are not bound to accept
any Company recommendations on the future level of employee contributions.
However, the Trustees, in a role of stewardship, are obliged to monitor funding
levels and maintain them at adequate levels while insuring that, in the event
future funding is not available, the Pension Plan can be wound up and meet its
then current liabilities.
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<PAGE> 49
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the following information as of June 30,
1997, with respect to the beneficial ownership of the Company's Common Stock by
(i) each stockholder known by the Company to own beneficially more than 5.0% of
the outstanding Common Stock, (ii) each director and executive officer of the
Company, (iii) all executive officers and directors of the Company as a group,
(iv) the Selling Stockholder and (v) the Additional Selling Stockholders. Except
as otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by him as set forth opposite his name.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
---------------------- ----------------------
NUMBER OF NUMBER OF SHARES NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE BEING OFFERED SHARES PERCENTAGE
---------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
EHI Holdings, Inc.(2)(3).............. 3,400,000 84.5% 1,880,000 1,520,000 18.9%
50 Briar Hollow Lane,
7th Floor West
Houston, Texas 77027
Gerald M. Harrison(3)(4).............. 188,000 4.7% -- 188,000 2.3%
George Purdie(3)(5)................... 188,000 4.7% -- 188,000 2.3%
Neil A.M. Campbell(3)(6).............. 188,000 4.7% -- 188,000 2.3%
David Burns(3)(7)..................... 36,000 * -- 36,000 *
William L. Lurie(8)................... -- -- -- -- --
Paul A. Frame(2)(9)................... -- -- -- -- --
Jay N. Silverman(10).................. 25,000 * -- 25,000 *
Richard W. McNairy(11)................ -- -- -- -- --
All executive officers and directors
as a group (7 persons)(3)........... 589,000 14.6% -- 589,000 7.3%
</TABLE>
- ---------------
(*) Less than 1.0%
(1) Beneficial ownership includes shares over which the indicated beneficial
owner exercises voting and/or investment power.
(2) EHI Holdings, Inc. is a wholly-owned, indirect subsidiary of Seitel, Inc.
Mr. Frame is a Director and is Chief Executive Officer of Seitel, Inc. As a
result of this relationship, Mr. Frame may be deemed to be the beneficial
owner of the shares owned by EHI Holdings, Inc., although Mr. Frame
disclaims any such beneficial ownership, and no such beneficial ownership
is reflected in this table.
(3) In the event the Underwriters exercise in full the over-allotment options
to purchase up to 882,000 shares of Common Stock, the Company will sell
602,000 shares, the Selling Stockholder will sell 100,000 shares, and
Oliveira Limited (Gerald Harrison), Dormera Limited (George Purdie),
Balmedie Limited (Neil Campbell) and Larlane Limited (David Burns) (the
"Additional Selling Stockholders") will sell 56,400 shares, 56,400 shares,
56,400 shares and 10,800 shares, respectively, of Common Stock in
connection with the Underwriters' exercise of such over-allotment options.
See "Underwriting."
(4) Includes 188,000 shares of Common Stock to be acquired in connection with
the ERI Acquisition. These shares are owned of record by Oliveira Limited,
which is beneficially owned by Mr. Harrison. Does not include 75,000 shares
of Common Stock issuable upon exercise of options to be granted to Mr.
Harrison upon consummation of the Offering, none of which are exercisable
until one year after grant. See "Management -- Stock Option Plan."
(5) Includes 188,000 shares of Common Stock to be acquired in connection with
the ERI Acquisition. These shares are owned of record by Dormera Limited,
which is beneficially owned by Mr. Purdie. Does not include 75,000 shares
of Common Stock issuable upon exercise of options to be granted to Mr.
Purdie upon consummation of the Offering, none of which are exercisable
until one year after grant. See "Management -- Stock Option Plan."
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<PAGE> 50
(6) Includes 188,000 shares of Common Stock to be acquired in connection with
the ERI Acquisition. These shares are owned of record by Balmedie Limited,
which is beneficially owned by Mr. Campbell. Does not include 75,000 shares
of Common Stock issuable upon exercise of options to be granted to Mr.
Campbell upon consummation of the Offering, none of which are exercisable
until one year after grant. See "Management -- Stock Option Plan."
(7) Includes 36,000 shares of Common Stock to be acquired in connection with
the ERI Acquisition. These shares are owned of record by Larlane Limited,
which is beneficially owned by Mr. Burns. Does not include 75,000 shares of
Common Stock issuable upon exercise of options to be granted to Mr. Burns
upon consummation of the Offering, none of which are exercisable until one
year after grant. See "Management -- Stock Option Plan."
(8) Does not include 25,000 shares of Common Stock issuable upon exercise of
stock options to be granted to Mr. Lurie upon consummation of the Offering,
none of which are exercisable until one year from the date of grant. See
"Management -- Non-employee Directors Stock Option Plan."
(9) Does not include 100,000 shares of Common Stock issuable upon exercise of
stock options to be granted to Mr. Frame, upon consummation of the
Offering, which will vest on the fifth anniversary of the date of grant or,
if earlier, in cumulative installments of one-third of the total shares
subject thereto when the Company's gross revenues reach $150 million, $175
million and $200 million, respectively, if the Company's after tax profit
is at least 4% of gross revenues upon attainment of such revenue targets.
See "Management -- Stock Option Plan."
(10) Includes 25,000 shares of Common Stock that Mr. Silverman intends to
purchase from the Company prior to the Offering. In connection therewith,
Mr. Silverman will borrow the purchase price for such shares from the
Company. See "Certain Transactions." Does not include 150,000 shares of
Common Stock issuable upon exercise of stock options to be granted to Mr.
Silverman upon consummation of the Offering, none of which are exercisable
until one year from the date of grant. See "Management -- Stock Option
Plan."
(11) Does not include 25,000 shares of Common Stock issuable upon exercise of
stock options to be granted to Mr. McNairy upon consummation of the
Offering, none of which are exercisable until one year from the date of
grant. See "Management -- Stock Option Plan."
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CERTAIN TRANSACTIONS
Seitel founded SGI in 1993, and founded Eagle in 1996 to acquire all of the
operations and assets of SGI. Seitel is therefore the founder of the Company.
Prior to the ERI Acquisition and the Offering, Eagle has been an indirect,
wholly-owned subsidiary of Seitel. As the sole stockholder, Seitel was
responsible for providing Eagle with financial, management, administrative and
other resources. Furthermore, Seitel had exercised substantial control over the
operation of Eagle. Accordingly, Eagle has no history of operating as an
independent entity.
Prior to the Offering, Seitel provided Eagle with significant management
functions and services, including treasury, accounting, tax, internal audit,
legal, human resources and other support services. Eagle was charged and/or
allocated expenses of $1.2 million, $0.7 million and $0.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively, and $0.3 million for the
three months ended March 31, 1997. The costs of these services were directly
charged and/or allocated using methods that Eagle's management believed were
reasonable. Such charges and allocations are not necessarily indicative of the
costs Eagle would have incurred to obtain these services had it been a separate
entity. Neither Seitel nor the Company has conducted any study or obtained any
estimates from third parties to determine what the cost of obtaining such
services from third parties may have been. See Note G to Eagle's Consolidated
Financial Statements.
Prior to the Offering, Seitel has advanced expenses on behalf of Eagle with
respect to its third-party work, including amounts attributable to taxes and
allocable overhead relating to such third-party work. As of June 30, 1997, Eagle
owed Seitel approximately $3.0 million for such expenses. This intercompany
balance accrues interest at a rate equal to Seitel's cost of funds, which is
currently 7.25%. Pursuant to the Master Separation Agreement described below,
the Company will repay Seitel the then current amount of such advances relating
to third-party work at the time of closing of the Offering with a portion of the
net proceeds therefrom.
Prior to the Offering, a significant portion of the total seismic data
acquisition services performed by Eagle were provided to Seitel. Revenues for
these services were based on prices charged to unaffiliated third parties for
similar work. The revenues to Eagle provided by work performed for Seitel were
$14.3 million in 1994, or 55.5% of Eagle's total revenues, $15.4 million for
1995, or 52.6% of Eagle's total revenues, $27.2 million for 1996, or 56.5% of
Eagle's total revenues, and $8.1 million for the three months ended March 31,
1997, or 62.3% of Eagle's total revenues from onshore services for such period.
Such revenues are not necessarily indicative of the revenues Eagle would have
earned had it provided these services to unrelated third parties.
Prior to the ERI Acquisition and the Offering, Eagle has been a
wholly-owned, indirect subsidiary of Seitel. The revenues of Eagle generated by
work performed for Seitel and its other subsidiaries were based on prices
charged to unaffiliated third parties for similar work and included a profit.
Because Eagle was a wholly-owned subsidiary of Seitel, the profits generated by
such intercompany work were eliminated from Seitel's financial statements upon
consolidation. Upon consummation of the ERI Acquisition and the Offering, Eagle
will no longer be a wholly-owned subsidiary of Seitel. Because Seitel does not
intend to fund any payables to the Company which resulted from such intercompany
work and which are still outstanding at the time the Offering is completed, the
Company will declare a dividend prior to the Offering to eliminate any remaining
intercompany receivables from Seitel. At the close of business on the day
preceding the consummation of the Offering, Eagle will declare a dividend to its
sole stockholder, a wholly-owned, indirect subsidiary of Seitel, of Eagle's
receivable from Seitel for profits attributable to work performed by Eagle for
Seitel and its subsidiaries since inception, less taxes and allocable overhead
attributable to such intercompany work. As of June 30, 1997, the amount of such
net intercompany receivable was approximately $6.5 million.
In July 1996, Seitel acquired 50.0% of the outstanding shares of ERI from
Oliveira Limited, Dormera Limited, and Balmedie Limited, companies beneficially
owned by Messrs. Harrison, Purdie and Campbell, respectively. Messrs. Harrison,
Purdie and Campbell guaranteed the obligations of these companies for any breach
of the representations, warranties and covenants made by such companies in
connection with such transaction, which obligations will survive until July
1998. In connection with this acquisition, Seitel loaned $2 million to ERI,
which debt will be repaid to Seitel from a portion of the net proceeds of the
Offering. See
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"Use of Proceeds." In November 1996, ERI repurchased a portion of these shares
from Seitel, as a result of which Seitel's ownership was reduced to 19.0% of the
outstanding shares of ERI. ERI issued a note for $2.7 million to Seitel in
consideration of such repurchase of shares, which note will be repaid to Seitel
from the net proceeds of the Offering. See "Use of Proceeds." Seitel contributed
these shares of ERI to the Company in May 1997. Therefore, from July 1996 until
the consummation of the Offering, Seitel has held an equity interest in ERI, the
parent corporation of the Horizon Companies. Prior to the Offering, a
significant portion of the total seismic data acquisition services performed by
the Horizon Companies were provided to Seitel. See Note E to Consolidated
Financial Statements of ERI. The Horizon Companies charged Seitel for these
services at an amount believed by management of the Horizon Companies to be
equal to amounts it would have charged unrelated third parties for such
services. The revenues to the Horizon Companies provided by work performed for
Seitel in 1996 were $20.0 million, or 46.0% of the Horizon Companies' total
revenues for that year, and $5.4 million for the three months ended March 31,
1997, or 48.6% of ERI's total revenues from offshore services for such period.
Contemporaneously with the consummation of the Offering, the Company will
issue an aggregate of 600,000 shares of Common Stock to Oliveira Limited,
Dormera Limited, Balmedie Limited, and Larlane Limited (the "Sellers") in
exchange for the 81.0% of the outstanding shares of ERI owned by such entities.
Messrs. Harrison, Purdie, and Campbell, who will be directors or executive
officers of the Company after the Offering, and David Burns, who will be an
employee of the Company after the Offering, are the beneficial owners of
Oliveira Limited, Dormera Limited, Balmedie Limited, and Larlane Limited,
respectively. Messrs. Harrison, Purdie, Campbell and Burns have guaranteed the
obligations of the Sellers for any breach of the representations, warranties and
covenants made by the Sellers in connection with such transaction, which
obligations will survive until one year after the date of consummation of the
Offering. Messrs. Harrison, Purdie, Campbell and Burns and the Sellers have
agreed not to sell or otherwise dispose of the acquired shares of Common Stock
for one year after consummation of the ERI acquisition or more than 50% of such
shares of Common Stock prior to two years after consummation of the ERI
Acquisition, except for dispositions pursuant to the exercise (if any) of the
over-allotment options granted to the Underwriters by the Sellers in the
Offering or pledges of such shares of Common Stock pursuant to bona fide lending
transactions (subject to the lock-up agreements with the Underwriters).
Prior to the consummation of the Offering, the Company intends to lend Jay
Silverman an amount equal to the initial public offering price per share set
forth on the cover page of this Prospectus multiplied by 25,000 shares. Mr.
Silverman will use the proceeds of such loan to purchase 25,000 shares of Common
Stock from the Company prior to consummation of the Offering at the initial
public offering price per share set forth on the cover page of this Prospectus.
Interest will accrue under such loan at a fixed rate of 6.0% per annum. Interest
only will be payable under such loan for three years, and thereafter Mr.
Silverman will repay such loan in 60 equal monthly installments of principal and
interest. Such loan will be secured by a pledge of the 25,000 shares of Common
Stock purchased with the proceeds of such loan in favor of the Company. See
"Management -- Employment Agreements."
The Company and Seitel intend to enter into a number of agreements for the
purpose of defining their continuing relationship. These agreements will be
negotiated in the context of a parent-subsidiary relationship and therefore will
not be the result of negotiations between independent parties. It is the
intention of the Company and Seitel that such agreements and the transactions
provided for therein, taken as a whole, should accommodate the parties'
interests in a manner that is fair to both parties, while continuing certain
mutually beneficial arrangements. The parties intend that such agreements and
transactions provide fair market value to them on terms no less favorable to the
Company than would otherwise be available from unaffiliated parties. Because of
the complexity of the various relationships between the Company and Seitel,
however, there can be no assurance that each of such agreements, or the
transactions provided for therein, will be effected on terms at least as
favorable to the Company as could have been obtained from unaffiliated third
parties. The Company intends to follow the procedures provided by the Delaware
General Corporation Law, which include a vote to affirm any such future
agreements by a majority of the Company's directors who are not employees,
officers or directors of Seitel. There can be no assurance that any such
arrangements or transactions will be the same as those that would be negotiated
between independent parties.
The following is a summary of certain prospective arrangements between the
Company and Seitel.
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MASTER SEPARATION AGREEMENT. The Master Separation Agreement will provide
for the Company and Seitel to enter into a Sublease, a Registration Rights
Agreement, a Tax Indemnity Agreement, an Employee Benefits Allocation Agreement
and an Administrative Services Agreement. In addition, the Master Separation
Agreement will require the Company to repay $7.7 million of indebtedness owed by
the Company and its subsidiaries to Seitel and to repay $16.7 million of
indebtedness owed by the Company and its subsidiaries to third parties
guaranteed by Seitel (or obtain the release of Seitel's guaranty)
contemporaneously with the consummation of the Offering. See "Use of Proceeds."
Under the Master Separation Agreement, Seitel and its subsidiaries and the
Company and its subsidiaries will indemnify each other with respect to
liabilities arising in connection with the operations of their respective
businesses prior to and after the date of consummation of the Offering,
including liabilities under the Securities Act with respect to the Offering. The
Master Separation Agreement will also provide for continued access by the
Company to historical financial and operational information relating to the
Company and its subsidiaries maintained by Seitel.
SUBLEASE. The Sublease between the Company and Seitel will provide for the
Company to lease its principal corporate offices, comprising approximately 7,600
square feet, from Seitel for a term of three years at an annual rent of
approximately $85,000. The Sublease will also provide for the Company to utilize
certain shared office equipment, such as phone systems and central computer
systems, for an additional charge.
REGISTRATION RIGHTS AGREEMENT. Pursuant to the Registration Rights
Agreement, the Company will agree to register the offer and sale by Seitel on a
delayed and continuous basis from time to time of the shares of Common Stock
owned by Seitel after the Offering (1,520,000 shares, or 1,420,000 if the
Underwriters' over-allotment options are exercised in full) at the expense of
the Company. The Company will agree to file a shelf registration statement
within 370 days after consummation of the Offering and to use its best efforts
to secure the effectiveness of such shelf registration statement as soon as
possible thereafter. Seitel will agree in the Registration Rights Agreement not
to sell more than 50.0% of such shares pursuant to such registration prior to
the date two years after the consummation of the Offering. In addition, the
Company will grant Seitel the right to participate as a selling stockholder in
future underwritten public offerings of the Company's Common Stock, subject to
certain restrictions. The Company and Seitel will each agree to indemnify the
other against, or to contribute to losses arising out of, certain liabilities in
connection with any such registration, including liabilities under the
Securities Act.
TAX INDEMNITY AGREEMENT. Prior to the Offering, Eagle has been a member of
the Seitel affiliated group and has filed its tax returns on a consolidated
basis with such group. After the Offering, the Company will no longer be a
member of the Seitel affiliated group. The Company and Seitel will enter into a
Tax Indemnity Agreement to define their respective rights and obligations
relating to federal, state and other taxes for periods before and after the
Offering. Pursuant to the Tax Indemnity Agreement, Eagle will be required to pay
Seitel (to the extent not already paid) its share of federal income taxes prior
to the date of consummation of the Offering, and the Company shall be
responsible for federal income taxes from its operations on and after the date
of consummation of the Offering. Any subsequent refunds, additional taxes or
penalties or other adjustments relating to Eagle's federal income taxes for
periods prior to the date of consummation of the Offering shall be for the
benefit of or be borne by Seitel. Similar provisions apply under the Tax
Indemnity Agreement to other taxes, such as state and local income taxes.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT. Seitel and the Company intend to
enter into an Employee Benefits Allocation Agreement pursuant to which the
Company will agree to establish its own 401(k) plan, into which Seitel will
transfer those assets that are currently held in Seitel's 401(k) plan for the
benefit of Company employees. In addition, the Employee Benefits Allocation
Agreement will provide for the Company to establish its own health and
disability insurance and related plans to provide insurance coverage to Company
employees after the consummation of the Offering. The Company will assume all
obligations of Seitel with respect to vacation and severance for Company
employees, and the parties will agree to indemnify each other with respect to
their obligations under the Employee Benefits Allocation Agreement.
ADMINISTRATIVE SERVICES AGREEMENT. Seitel and the Company intend to enter
into an Administrative Services Agreement pursuant to which Seitel will provide
the Company with administrative services, primarily accounting services, at up
to the same levels as provided prior to the Offering. Seitel will provide these
services for a 90-day transition period to allow the Company adequate time to
build an internal administrative staff. The Company will pay Seitel for these
services at Seitel's actual cost of providing these services.
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DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 25,000,000 shares of
Common Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock, $0.01
par value. Prior to the Offering, there were outstanding 4,025,000 shares of
Common Stock (including the effects of the sale of shares of Common Stock to Mr.
Silverman and the ERI Acquisition) and no shares of Preferred Stock.
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued and paid for will be, fully paid and
nonassessable. All holders of Common Stock have full voting rights and are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. Votes may not be cumulated in the election of
directors. Stockholders have no preemptive or subscription rights. The Common
Stock is neither redeemable nor convertible, and there are no sinking fund
provisions. Holders of Common Stock are entitled to dividends when, as and if
declared by the Board of Directors from funds legally available therefor and are
entitled, upon liquidation, to share ratably in all assets remaining after
payment of liabilities. See "Dividend Policy." The rights of holders of Common
Stock will be subject to any preferential rights of any Preferred Stock that may
be issued in the future.
The transfer agent and registrar for the Common Stock is
.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences of any series established by the Board of
Directors, and to increase or decrease the number of shares within each such
series. The Board of Directors may issue Preferred Stock for such consideration
and on such terms as it deems desirable. Satisfaction of any dividend
preferences of outstanding Preferred Stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of Common Stock. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. The Board of Directors of the Company, without stockholder
approval, may issue Preferred Stock with voting and conversion rights which
could adversely affect the holders of Common Stock. The Company has no present
intention to issue any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BY-LAWS AND
DELAWARE GENERAL CORPORATION LAW
The Certificate of Incorporation contains certain provisions, some of which
are described below, that in addition to the authorization of the Preferred
Stock may reduce the likelihood of a change in management or voting control of
the Company without the consent of the Company's Board of Directors. These
provisions could have the effect of delaying, deterring or preventing tender
offers or takeover attempts that some or a majority of the Company's
stockholders might consider to be in the stockholders' best interest, including
offers or attempts that might result in a premium over the market price for the
Common Stock.
Stockholder Action. Unless limited by the Certificate of Incorporation of a
corporation, the Delaware General Corporation Law permits stockholder action
without a meeting, without prior notice and without a vote upon the written
consent of the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. The
Certificate of Incorporation prohibits stockholder action without a meeting,
except when there are ten or fewer stockholders. The affirmative vote of holders
of at least 80.0% of the Company's outstanding voting stock will be required to
amend this provision.
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Fair Price Provision. The Certificate of Incorporation includes a "fair
price" provision that requires the affirmative vote of the holders of at least
80.0% of the outstanding voting stock of the Company to approve a merger with,
or disposition of assets or the issuance of securities having a fair market
value of $5.0 million or more to, an interested stockholder (as defined below),
a liquidation proposed by an interested stockholder or the reclassification of
the Company's securities or a similar transaction that increases the interested
stockholder's proportionate ownership in the Company. An "interested
stockholder" is anyone who owns or controls, directly, indirectly or together
with others, 10.0% or more of the Company's voting stock. However, a transaction
with an interested stockholder will not require stockholder approval if a
majority of disinterested directors (as defined in the Certificate of
Incorporation) approves the transaction or if the transaction involves the
distribution to the stockholders of cash or other consideration that satisfies
the "fair price" criteria set forth in the Certificate of Incorporation, which
generally require that all stockholders receive equal treatment, an adequate
price and adequate disclosure. The fair price provision of the Certificate of
Incorporation may not be amended without the affirmative vote of at least 80.0%
of all shares entitled to vote.
Evaluation Factors. The Certificate of Incorporation contains a provision
that allows the Board of Directors to evaluate factors other than the price
offered when considering a proposed acquisition of the Company. The Certificate
of Incorporation permits the Board of Directors to consider the social, legal
and economic effects of the proposed acquisition upon the Company's employees,
suppliers, customers and the communities in which the Company operates. The
Board of Directors can also consider any other factors it deems relevant,
including not only the consideration offered in the proposed transaction
relative to the market price of the Common Stock but also the value of the
Company in a freely negotiated transaction and in relation to the estimate by
the Board of Directors of the future value of the Company as an independent
entity. The affirmative vote of the holders of two-thirds or more of the
outstanding voting stock of the Company will be required to amend this
provision.
Anti-Takeover Legislation. Section 203 of the Delaware General Corporation
Law (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 that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85.0% 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 at least two-thirds of the outstanding voting stock that 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 15.0% 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 stockholder 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,
and therefore the Company will be subject to the provisions of Section 203. 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 that results in the stockholder becoming an interested
stockholder.
LIMITATIONS ON LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Certificate of Incorporation limits the liability of directors to the
extent allowed by the Delaware General Corporation Law. Specifically, directors
will not be held liable to the Company or its stockholders for
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an act or omission in such capacity as a director, except for liability as a
result of (i) a breach of the duty of loyalty to the Company or its
stockholders, (ii) actions or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of the Company's stock under Section
174 of the Delaware General Corporation Law, or (iv) actions or omissions
pursuant to which the director will receive an improper personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Certificate of Incorporation does not eliminate the directors' duty of
care. The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care. The affirmative vote of the holders of two-thirds or more of the
outstanding voting stock of the Company will be required to amend this
provision.
The Certificate of Incorporation and By-laws provide that the Company is
generally required to indemnify its directors and officers for all judgments,
fines, settlements, legal fees and other expenses incurred in connection with
pending or threatened legal proceedings because of the director's or officer's
position with the Company or another entity that the director or officer serves
at the Company's request, subject to certain conditions, and to advance funds to
its directors and officers to enable them to defend against such proceedings. To
receive indemnification, the director or officer must have been successful in
the legal proceeding or acted in good faith and in what was reasonably believed
to be a lawful manner and in the Company's best interest. The affirmative vote
of the holders of two-thirds or more of the outstanding voting stock of the
Company will be required to amend this provision.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,025,000 shares of
Common Stock outstanding. The 5,880,000 shares to be sold in the Offering
(6,762,000 shares if the Underwriters' over-allotment options are exercised in
full) will be 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. The Selling Stockholder (which will beneficially
own 18.9% of the outstanding shares of Common Stock after the Offering) and the
executive officers, directors and the remaining stockholders of the Company (who
will beneficially own approximately 7.8% of the outstanding shares of Common
Stock after the Offering and who will hold options exercisable at the initial
public offering price for an additional 600,000 shares of Common Stock) have
agreed that, for a period of 180 days from the date of this Prospectus, they
will not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any securities convertible into or exchangeable
for any shares of Common Stock or other capital stock of the Company without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters. Prudential Securities Incorporated may, in its sole discretion, at
any time and without notice, release all or any portion of the shares of Common
Stock subject to such agreement. These contractual restrictions cover 2,145,000
shares (1,865,000 shares if the Underwriters' over-allotment options are
exercised in full).
All of the currently outstanding shares of Common Stock of the Company that
are not being sold in the Offering are "restricted securities" within the
meaning of Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are required to be
aggregated) who has beneficially owned, for at least one year, shares of Common
Stock that have not been registered under the Securities Act or that were
acquired from an "affiliate" of the Company, is entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (a) 1.0% of the then-outstanding shares of Common Stock (80,000
shares upon completion of the Offering) and (b) the average weekly reported
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 also are subject to certain notice and manner-of-sale
requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who has not been an
"affiliate" of the Company (in general, a person who is not a director, officer
or principal stockholder of the Company) during the three months prior to resale
and who has beneficially owned restricted securities for at least two years is
entitled to sell such restricted securities under Rule 144 without regard to the
requirements discussed above. Of the 2,145,000 shares of Common Stock of the
Company that are restricted securities within the meaning of Rule 144, 1,520,000
shares will be eligible for sale on December 18, 1997 and 600,000 shares will be
eligible for sale one year from the consummation of the Offering, pursuant to
Rule 144 and subject to the volume, manner of sale and other limitations of Rule
144.
In connection with the ERI Acquisition, the Company will issue 600,000
shares of Common Stock to the Additional Selling Stockholders. The Additional
Selling Stockholders have agreed not to dispose of any of such shares for one
year after the consummation of the ERI Acquisition, and not to dispose of more
than 50% of such shares prior to two years after such consummation, other than
sales pursuant to exercise (if any) of the over-allotment options granted to the
Underwriters by the Additional Selling Stockholders in the Offering or pledges
pursuant to bona fide lending transactions (subject to the lock-up agreements
with the Underwriters).
The Company has agreed to register the offer and sale by Seitel on a
delayed and continuous basis from time to time of the shares of Common Stock
owned by Seitel after the Offering (1,520,000 shares, or 1,420,000 if the
Underwriters' over-allotment options are exercised in full) at the expense of
the Company. The Company has agreed to file a shelf registration statement
within 370 days after consummation of the Offering and to use its best efforts
to secure the effectiveness of such shelf registration statement as soon as
possible thereafter and maintain the effectiveness of such registration
statement for a period of two years thereafter. Seitel has agreed in the
Registration Rights Agreement not to sell more than 50.0% of such shares
pursuant to such registration prior to the date two years after the consummation
of the Offering. In addition, the Company has granted Seitel the right to
participate as a selling stockholder in future underwritten public offerings of
the Company's Common Stock, subject to certain restrictions.
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The Company intends to grant, effective as of the date of consummation of
the Offering, options to purchase up to 704,450 shares of Common Stock to its
officers, directors and employees, none of which are currently exercisable. See
"Management -- Independent Directors Stock Option Plan" and "-- Stock Option
Plan." Except for the options granted to Mr. Frame, one third of such options
will become exercisable one year from the consummation of the Offering, and
another one third of such options will become exercisable on the second and
third anniversaries of the consummation of the Offering. Mr. Frame's options
will vest on the fifth anniversary of the date of grant or, if earlier, in
cumulative installments of one-third of the total shares subject thereto when
the Company's gross revenues reach $150 million, $175 million and $200 million,
respectively, if the Company's after tax profit is at least 4% of gross revenues
upon attainment of such revenue targets. In addition, 495,550 shares remain
available under the Option Plan and the Directors Option Plan for the grant of
future options. The Company intends to file a registration statement on Form S-8
registering its sale of any shares pursuant to the exercise of such options to
such officers, directors, and employees, and the resale of shares obtained upon
such exercise by officers and directors prior to the date any such options
become exercisable.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, may adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to raise capital through an offering of equity
securities.
57
<PAGE> 59
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Simmons & Company International are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholder the number of shares of Common Stock set
forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..........................
Simmons & Company International.............................
---------
Total............................................. 5,880,000
=========
</TABLE>
The Company and the Selling Stockholder are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholder that they propose to offer the shares of Common
Stock initially at the initial public offering price set forth on the cover page
of this Prospectus; that the Underwriters may allow to selected dealers a
concession of $ per share; and that such dealers may reallow a concession
of $ per share to certain other dealers. After the public offering, the
offering price and the concessions may be changed by the Representatives.
The Company, the Selling Stockholder and the Additional Selling
Stockholders have granted to the Underwriters over-allotment options,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
additional 882,000 shares of Common Stock at the initial public offering price
less the underwriting discounts and commissions as set forth on the cover page
of this Prospectus. Such additional shares will be purchased first from the
Additional Selling Stockholders (up to a total of 180,000 shares of Common
Stock), next from the Company (up to a total of 602,000 shares of Common Stock)
and then from the Selling Stockholder (up to a total of 100,000 shares of Common
Stock). The Underwriters may exercise such options solely for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby. To the extent such options to purchase are exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to 5,880,000
shares.
The Company, together with each of its executive officers and directors and
all of the Company's current stockholders, have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) any shares of Common Stock or any securities
convertible into or exchangeable or exercisable therefor for a period of 180
days from the date of this Prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
shares offered pursuant to the Offering and issuances pursuant to the exercise
of options granted under employee benefit plans existing as of the date of
consummation of the Offering or pursuant to the terms of warrants of the Company
outstanding as of the date of consummation of the Offering. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to lock-up
agreements.
The Company, the parent corporation of the Selling Stockholder, the Selling
Stockholder, certain officers, directors and employees of the Company and the
Additional Selling Stockholders have agreed to
58
<PAGE> 60
indemnify the several Underwriters or contribute to losses arising out of
certain liabilities, including liabilities under the Securities Act.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives and will not be
based upon any independent appraisal or valuation of the Company. Among the
factors to be considered in determining the initial public offering price are
the economic outlook for the industry in which the Company operates, the
Company's position in the industry, the Company's earnings prospects, the
Company's financial position, the ability and experience of the Company's
management, the prevailing conditions of the securities market at the time of
the Offering and the stock prices of publicly traded companies which the Company
and the Representatives believe to be comparable to the Company.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M promulgated by the Securities and Exchange
Commission (the "Commission") pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholder, and
in such case may purchase Common Stock in the open market following completion
of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
882,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or any selling group member participating in the Offering) for the account of
the other Underwriters, the selling concession with respect to Common Stock that
is distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere Wynne Sewell & Riggs,
L.L.P., Houston, Texas, and for the Underwriters by Brown & Wood LLP, New York,
New York.
EXPERTS
The audited consolidated financial statements of Eagle and subsidiary
included in this prospectus and elsewhere in this registration statement, to the
extent and for the periods indicated in their report, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
59
<PAGE> 61
The audited consolidated financial statements of ERI and subsidiaries as of
December 31, 1995 and 1996 and for each of the years in the three years ended
December 1996 have been included in this prospectus and elsewhere in this
registration statement in reliance upon the report of KPMG, independent public
accountants, upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information concerning the Company and the Common Stock,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith, copies of which may be inspected at the Commission's
principal office, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, or copies of which may be obtained from the Commission at such office
upon payment of the fees prescribed by the Commission. Copies of the
Registration Statement may also be inspected at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. In addition, the Common Stock will be listed on the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006-1500, where such material
may also be inspected and copied.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the Commission. Such periodic
reports, proxy statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and stock
exchange referred to above. In addition, these reports, proxy statements and
other information may also be obtained from the web site that the Commission
maintains at http://www.sec.gov. The summaries in this Prospectus of additional
information included in the Registration Statement or any exhibit thereto are
qualified in their entirety by reference to such information or exhibit filed
with the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
60
<PAGE> 62
GLOSSARY
16 BIT, 24 BIT
The resolution available for the process of converting analog hydrophone or
geophone signals into digital form.
GEOPHONE
A type of seismic receiver placed on land or on the sea floor that records
seismic waves by detecting particle movement.
GLOBAL POSITIONING SYSTEM (GPS)
A satellite navigation and positioning system utilized in seismic
operations.
HIGH DEFINITION SURVEYS
Surveys designed to optimize the degree to which subsurface geology and
faulting can be resolved. In general, high definition surveys require a denser
grid of seismic data recordings to be made over a given area and closer
deployment of energy sources and geophones (if on land) or hydrophone streamers
(if offshore).
HYDROPHONE
An offshore seismic receiver that records seismic waves by detecting
pressure changes.
OFFSET
Offset is the distance along the surface between energy source and receiver
positions. Long offsets are generally required for imaging deep geological
targets and for subsalt recording in the Gulf of Mexico in order to record
seismic reflections from subsalt strata with less of the reflected signal
distortion normally associated with salt formations.
POSITIONING
The accurate computing of the geographical position of source and receiver
locations onshore and of the vessel and all equipment deployed in the water
during data collection. To produce accurate seismic images, the positions of
hydrophone groups and sources must be known within a few meters throughout the
survey.
RADIO TELEMETRY SYSTEM
A seismic data acquisition system using radio signals rather than cables to
transmit seismic data to the system's central recording equipment. Because these
systems use radio signals to transmit data, they can be operated more
efficiently than cable-based systems, particularly in wetland areas and highly
populated areas where there are numerous topographic obstructions, such as
rivers, bays, highways and towns. These systems also are well-suited to work in
environmentally sensitive areas where physical intrusion must be minimized.
SAR
A radio telemetry field recording box, or a seismic acquisition remote
(SAR). SARs collect seismic data from groups of geophones, or geophone stations,
digitize the seismic data from the geophones and transmit the digitized data to
the central recording equipment of the seismic data acquisition system using
radio waves.
SOURCE (OR ENERGY SOURCE)
A device that emits acoustic energy. The most common type of source for
offshore seismic operations is known as an airgun, which releases a burst of
compressed air into the water, thereby generating an acoustic
61
<PAGE> 63
shock wave. Airguns are towed behind the vessel slightly below the surface of
the water. Onshore energy sources include dynamite and truck mounted vibrators.
STREAMER
A streamer, used in offshore seismic data acquisition operations, consists
of a cable that is several kilometers in length, is filled with liquid to
provide near neutral buoyancy, and contains many hundreds of pressure sensitive
recording instruments, known as hydrophones. The hydrophones detect pressure
changes associated with reflected seismic energy and transmit this information,
as electrical signals, along the streamer to the recording vessel. A streamer is
normally towed behind the vessel slightly below the surface of the water.
SUBSALT
The geological strata beneath salt deposits. Many of the offshore 3D
seismic data acquisition projects currently being performed in the U.S. Gulf of
Mexico are designed to image subsalt strata. Because the salt deposits have a
tendency to distort seismic wave reflections, these projects require longer
offsets to reduce such distortion.
TWO-DIMENSIONAL (2D) SEISMIC DATA
Data acquired along a single line used to generate a cross sectional view
of subsurface geological strata. 2D data is less costly to acquire than 3D data,
but does not provide as detailed an image of the subsurface.
THREE-DIMENSIONAL (3D) SEISMIC DATA
Data generally acquired simultaneously along multiple parallel lines used
to generate a three dimensional picture of subsurface geological strata, rather
than a mere cross section. To provide this three dimensional picture, much more
data must be acquired than for a two dimensional cross section, so 3D data is
significantly more expensive than 2D data. However, the use of 3D data can
significantly improve drilling results, which can make 3D data more economically
efficient than 2D data.
VIBROSEIS TRUCK
A truck mounted vibration generator that can be used to create seismic
energy on dry land.
WETLAND ENVIRONMENTS
An area subject to constant or periodic immersion in water, such as a
swamp, marsh, rice field, shallow bay or lake. The coastal areas of the U.S.
Gulf Coast contain a high proportion of wetlands. Acquisition of seismic data in
these wetland environments requires specialized equipment and techniques.
62
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
EAGLE GEOPHYSICAL, INC. Unaudited Pro Forma Consolidated
Financial Statements
Unaudited Pro forma Consolidated Balance Sheet as of March
31, 1997............................................... F-3
Unaudited Pro forma Consolidated Statement of Operations
for the three month period ended March 31, 1997........ F-4
Unaudited Pro forma Consolidated Statement of Operations
for the year ended December 31, 1996................... F-5
Notes to the Unaudited Pro forma Consolidated Financial
Statements............................................. F-6
EAGLE GEOPHYSICAL, INC.
Report of Independent Public Accountants.................. F-8
Consolidated Balance Sheets -- December 31, 1995, 1996 and
unaudited March 31, 1997............................... F-9
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995, 1996 and unaudited for the
three month periods ended March 31, 1996 and 1997...... F-10
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1994, 1995, 1996 and unaudited
for the three month period ended March 31, 1997........ F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995, 1996 and unaudited for the
three month periods ended March 31, 1996 and 1997...... F-12
Notes to Consolidated Financial Statements................ F-13
ENERGY RESEARCH INTERNATIONAL
Report of Independent Auditors............................ F-21
Consolidated Balance Sheets -- December 31, 1995, 1996 and
unaudited March 31, 1997............................... F-22
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995, 1996 and unaudited for the
three month periods ended March 31, 1996 and 1997...... F-23
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1994, 1995, 1996
and unaudited for the three month period ended
March 31, 1997......................................... F-24
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995, 1996 and unaudited for the
three month periods ended March 31, 1996 and 1997...... F-25
Notes to Consolidated Financial Statements................ F-26
</TABLE>
F-1
<PAGE> 65
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE GEOPHYSICAL, INC.
The accompanying unaudited pro forma consolidated financial statements are
derived from the historical consolidated financial statements of Eagle and ERI
included elsewhere in this Prospectus. The unaudited pro forma consolidated
financial statements are prepared to show the pro forma effects of the
acquisition of the remaining interests in the Horizon Companies (see Note A
hereto), the issuance of 4,000,000 shares of common stock of Eagle Geophysical,
Inc. to the public pursuant to the Offering and the application of the net
proceeds therefrom for planned repayments of indebtedness and the planned
dividend to Seitel, Inc. (see Note E hereto).
The unaudited pro forma consolidated balance sheet as of March 31, 1997 and
the unaudited pro forma consolidated statements of operations for the year ended
December 31, 1996 and the three month period ended March 31, 1997 give effect to
certain transactions that will take place upon the closing of the Offering as if
the transactions had taken place on March 31, 1997 in the case of the unaudited
pro forma consolidated balance sheet and January 1, 1996 in the case of the
unaudited pro forma consolidated statements of operations.
The unaudited pro forma consolidated statements of operations may not be
indicative of actual results that would have been achieved had the transactions
to be effected at the closing of the Offering actually been completed as of the
dates indicated. In addition, the unaudited pro forma consolidated financial
statements are not necessarily indicative of the results of future operations of
the Company and should be read in conjunction with Eagle and ERI's historical
and consolidated financial statements and notes thereto contained elsewhere in
this Prospectus.
F-2
<PAGE> 66
EAGLE GEOPHYSICAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ENERGY
EAGLE RESEARCH
GEOPHYSICAL, INC. INTERNATIONAL PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ -- $ 1,304 $ 54,850(B) $16,204
(39,950)(C)
Restricted cash.......................................... -- -- 5,000(C) 5,000
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 530 -- -- 530
Receivables:
Trade.................................................. 9,708 4,064 (572)(D) 13,200
Other.................................................. 190 253 -- 443
Inventories.............................................. -- 1,410 -- 1,410
Due from affiliate....................................... 5,809 -- (5,809)(E) --
Prepaid expenses and other assets........................ 235 2,579 -- 2,814
-------- -------- -------- -------
Total current assets.............................. 16,472 9,610 13,519 39,601
PROPERTY AND EQUIPMENT, AT COST:
Geophysical equipment.................................... 28,515 32,248 (11,677)(A) 49,086
Furniture, fixtures and other............................ 121 240 -- 361
-------- -------- -------- -------
28,636 32,488 (11,677) 49,447
Less: Accumulated depreciation and amortization.......... (9,388) (11,677) 11,677(A) (9,388)
-------- -------- -------- -------
Net property and equipment........................ 19,248 20,811 -- 40,059
OTHER LONG-TERM ASSETS..................................... 72 -- 19,849(A) 19,921
-------- -------- -------- -------
TOTAL ASSETS...................................... $35,792 $ 30,421 $ 33,368 $99,581
======== ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of bank line............................. $ -- $ 7,232 $ (7,232)(C) $ --
Current portion of long-term debt........................ 2,606 400 (3,006)(C) --
Current portion of capital lease obligations............. 942 4,048 (2,492)(C) 2,498
Accounts payable......................................... 4,506 5,700 (572)(D) 9,634
Accrued liabilities...................................... 1,822 3,763 -- 5,585
Accrued capital lease interest........................... -- 858 -- 858
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 565 -- -- 565
Due to affiliate......................................... 1,404 2,120 (1,404)(C) 2,120
-------- -------- -------- -------
Total current liabilities.............................. 11,845 24,121 (14,706) 21,260
DUE TO AFFILIATE........................................... -- 4,679 (4,679)(C) --
LONG-TERM DEBT............................................. 12,933 -- (12,933)(C) --
CAPITAL LEASE OBLIGATIONS.................................. 1,319 11,556 (3,004)(C) 9,871
DEFERRED INCOME TAXES...................................... 776 -- (67)(C) 709
-------- -------- -------- -------
Total liabilities................................. 26,873 40,356 (35,389) 31,840
-------- -------- -------- -------
STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share; authorized
25,000,000 shares; issued and outstanding 3,400,000
shares actual, 8,025,000 shares pro forma as
adjusted............................................... 34 -- 6(A) 80
40(B)
Additional paid-in capital............................... 7,755 -- 55,185(B) 68,169
9,908(A)
(4,679)(E)
Retained earnings (deficit).............................. 1,130 (9,690) 9,690(A) (133)
(1,130)(E)
(133)(C)
Translation adjustment................................... -- (245) 245(A) --
Note receivable from stockholder......................... -- -- (375)(B) (375)
-------- -------- -------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).............. 8,919 (9,935) 68,757 67,741
-------- -------- -------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $35,792 $ 30,421 $ 33,368 $99,581
======== ======== ======== =======
</TABLE>
F-3
<PAGE> 67
EAGLE GEOPHYSICAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ENERGY
EAGLE RESEARCH
GEOPHYSICAL, INC. INTERNATIONAL PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE............................................. $12,981 $ 11,079 $ (434)(F) $ 23,626
OPERATING EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)...................... 9,286 7,705 (434)(F) 16,557
Depreciation and amortization..................... 1,302 1,377 331 (G) 3,010
Selling, general and administrative expenses...... 450 517 400 (H) 1,367
Interest expense, net............................. 158 536 (660)(I) 34
------- -------- -------- --------
Total expenses............................ 11,196 10,135 (363) 20,968
------- -------- -------- --------
Income before provision for income taxes............ 1,785 944 (71) 2,658
Provision (benefit) for income taxes................ 655 -- (204)(J) 451
------- -------- -------- --------
NET INCOME.......................................... $ 1,130 $ 944 $ 133 $ 2,207
======= ======== ======== ========
Earnings per share.................................. $ .33 $ .28
======= ========
Weighted average number of common shares............ 3,400 4,625 8,025
======= ======== ========
</TABLE>
F-4
<PAGE> 68
EAGLE GEOPHYSICAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EAGLE ENERGY
GEOPHYSICAL, RESEARCH
INC. INTERNATIONAL PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS AS ADJUSTED
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE.............................................. $48,136 $43,607 $ (828)(K) $90,915
OPERATING EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)....................... 34,917 37,601 (828)(K) 71,690
Depreciation and amortization...................... 3,409 4,615 1,323 (L) 9,347
Selling, general and administrative expenses....... 2,680 2,619 1,601 (O) 6,900
Interest expense, net.............................. 531 1,649 (1,529)(M) 651
------- ------- ------ -------
Total expenses.................................. 41,537 46,484 567 88,588
------- ------- ------ -------
Income (loss) before provision for income taxes...... 6,599 (2,877) (1,395) 2,327
Provision (benefit) for income taxes................. 2,420 -- (677)(N) 1,743
------- ------- ------ -------
NET INCOME (LOSS)(1)................................. $ 4,179 $(2,877) $ (718) $ 584
======= ======= ====== =======
Earnings per share................................... $ 1.23 $ .07
======= =======
Weighted average number of common shares............. 3,400 4,625 8,025
======= ====== =======
</TABLE>
- ---------------
(1) Excludes the effect of a $600,000 extraordinary gain for early
extinguishment of debt on ERI's historical 1996 financial statements.
F-5
<PAGE> 69
EAGLE GEOPHYSICAL, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying pro forma consolidated financial statements have been
prepared to reflect certain adjustments to the historical consolidated financial
statements to give effect to the acquisition of the remaining interests in the
Horizon Companies and the net proceeds of the Offering. The adjustments are
based upon currently available information and certain estimates and
assumptions, and therefore the actual adjustments made to effect the
transactions may differ from the pro forma adjustments. The adjustments are
based on currently available information and certain estimates and assumptions,
primarily including the offering price of Eagle Geophysical, Inc. common stock.
Management believes the estimated offering price of Eagle's common stock is the
only assumption that could cause a significant change in the pro forma financial
statements, and has used the latest estimate of such offering price herein.
Actual adjustments made to effect the transactions may differ from the pro forma
adjustments; however, management believes the accompanying pro forma financial
statements reasonably present the effects of the transactions as contemplated.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997
A.) Adjustments to reflect the acquisition of ERI including i) the exchange
of an 81% interest in ERI for 600,000 shares of Eagle Geophysical, Inc.
common stock valued at the assumed initial offering price and ii)
Seitel's contribution of its 19% ownership interest in ERI to the
Company at Seitel's carryover basis. The following table summarizes
elements of the ERI acquisition, which was accounted for by the Company
as a purchase transaction (in thousands):
<TABLE>
<S> <C>
Consideration:
Stock purchase price........................................ $ 9,000
Seitel's contributed 19% investment......................... 914
Liabilities assumed......................................... 40,356
Assets acquired............................................. (30,421)
--------
Goodwill.................................................. $ 19,849
--------
</TABLE>
Based on its initial assessment, management believes that there are no
other identifiable intangible assets to which any material purchase
price can be allocated.
B.) Reflects the issuance of 4,000,000 shares of Eagle Geophysical Inc.
common stock to the public at $15 per share pursuant to the Offering,
net of underwriting discounts, commissions and offering costs (which
total approximately $5,150,000), and the sale of 25,000 shares of
Common Stock, at the initial public offering price, to Jay N.
Silverman, President of the Company, for a note.
C.) Adjustment to reflect the application of $35,422,000 of the estimated
net proceeds from the Offering to reduce debt, capital lease and due to
affiliate obligations at March 31, 1997, including a prepayment penalty
on early extinguishment of debt which is estimated to be approximately
$200,000, and the related tax effect. Approximately $5 million will be
deposited in escrow as additional security for a capital lease
obligation that the Company does not intend to repay with the proceeds
of the Offering.
D.) Reflects the elimination of intercompany payables and receivables
between Eagle and ERI totaling $572,000.
E.) Reflects the elimination of due from affiliate of $5,809,000 between
Eagle and affiliates in the form of a dividend.
F-6
<PAGE> 70
EAGLE GEOPHYSICAL, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
QUARTER ENDED MARCH 31, 1997
F.) Adjustments to eliminate $434,000 in lease income between Eagle and
ERI.
G.) Reflects the amortization of goodwill associated with the acquisition
of ERI over a 15-year estimated useful life.
H.) Represents identifiable additions to selling, general and
administrative expenses the Company estimates it will incur when
operating as a public registrant. Such incremental expenses primarily
include increases in personnel, contractual employment arrangements,
and directors' and officers' compensation and insurance. (See Note O
for detail of factually supportable annual amounts)
I.) Reflects a reduction in interest expense of $660,000 as a result of
the application of $35,017,000 of the estimated net proceeds from the
Offering to reduce debt and capital lease obligations and due to
affiliate obligations at March 31, 1997.
J.) Adjustments to the provision for income taxes related to the above
adjustments applicable to Eagle. No adjustment was made to the
provision for income taxes related to ERI's adjustments as ERI was not
required to record a tax provision during the pro forma period. The
Company does not anticipate repatriating any of its earnings from
foreign operations, so no accrual of additional U.S. deferred taxes has
been made for the acquired, non-U.S. operations.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996
K.) Adjustments to eliminate $828,000 in lease income between Eagle and
ERI.
L.) Reflects the amortization of goodwill associated with the acquisition
of ERI over a 15-year estimated useful life.
M.) Reflects a reduction in interest expense of $1,529,000 as a result of
the application of $23,565,000 of the estimated net proceeds from the
Offering to reduce debt and capital lease obligations.
N.) Adjustments to the provision for income taxes related to the above
adjustments applicable to Eagle. No adjustment was made to the
provision for income taxes related to ERI's adjustments as ERI was not
required to record a tax provision during the pro forma period. The
Company does not anticipate repatriating any of its earnings from
foreign operations, so no accrual of additional U.S. deferred taxes has
been made for the acquired, non-U.S. operations.
O.) Represents identifiable additions to selling, general and
administrative expenses the Company estimates it will incur when
operating as a public registrant. Such incremental expenses primarily
include increases in personnel ($522,000), contractual employment
arrangements ($292,900), directors' and officers' compensation and
insurance ($340,000) and other identifiable expenses ($446,500).
F-7
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle Geophysical, Inc.:
We have audited the accompanying consolidated balance sheets of Eagle
Geophysical, Inc. (a Delaware corporation and wholly owned subsidiary of Seitel,
Inc.) and subsidiary as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996. 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 Eagle Geophysical, Inc. and
subsidiary as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
May 21, 1997
F-8
<PAGE> 72
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------- MARCH 31, MARCH 31,
1995 1996 1997 1997(1)
------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 58 $ -- $ -- $ --
Receivables:
Trade, billed.......................................... 8,947 12,913 9,708 9,708
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 841 441 530 530
Other.................................................. 73 233 190 190
Due from affiliate........................................ -- -- 5,809 --
Prepaid expenses and other assets......................... 95 860 235 235
------- ------- ------- -------
Total current assets.............................. 10,014 14,447 16,472 10,663
PROPERTY AND EQUIPMENT, AT COST:
Geophysical equipment..................................... 12,531 20,200 28,515 28,515
Furniture, fixtures and other............................. 108 108 121 121
------- ------- ------- -------
12,639 20,308 28,636 28,636
Less: Accumulated depreciation and amortization........... (4,694) (8,103) (9,388) (9,388)
------- ------- ------- -------
Net property and equipment........................ 7,945 12,205 19,248 19,248
OTHER LONG-TERM ASSETS...................................... 1 69 72 72
------- ------- ------- -------
TOTAL ASSETS...................................... $17,960 $26,721 $35,792 $29,983
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 879 $ 2,556 $ 2,606 $ 2,606
Current portion of capital lease obligations.............. 1,239 1,033 942 942
Accounts payable.......................................... 2,515 4,623 4,506 4,506
Accrued liabilities....................................... 891 652 1,822 1,822
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 596 78 565 565
Due to affiliate.......................................... -- -- 1,404 1,404
------- ------- ------- -------
Total current liabilities......................... 6,120 8,942 11,845 11,845
LONG-TERM DEBT.............................................. 1,540 6,039 12,933 12,933
CAPITAL LEASE OBLIGATIONS................................... 2,274 1,274 1,319 1,319
OTHER LONG-TERM LIABILITIES................................. 100 -- -- --
DUE TO AFFILIATE............................................ 3,662 1,965 -- --
DEFERRED INCOME TAXES....................................... 654 712 776 776
------- ------- ------- -------
TOTAL LIABILITIES................................. 14,350 18,932 26,873 26,873
------- ------- ------- -------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued and outstanding 3,400,000
shares at December 31, 1995 and 1996 and March 31,
1997................................................... 34 34 34 34
Additional paid-in capital................................ 3,576 7,755 7,755 3,076
Retained earnings......................................... -- -- 1,130 --
------- ------- ------- -------
TOTAL STOCKHOLDER'S EQUITY........................ 3,610 7,789 8,919 3,110
------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $17,960 $26,721 $35,792 $29,983
======= ======= ======= =======
</TABLE>
- ---------------
(1) The March 31, 1997 pro forma balance sheet reflects the dividend to be
distributed to the Company's sole shareholder. (See Note G)
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 73
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTH
PERIODS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE(1)................................ $25,721 $29,275 $48,136 $5,974 $12,981
EXPENSES
Operating expenses (exclusive of
depreciation and amortization shown
below)(1)............................ 20,070 20,986 34,917 4,336 9,286
Depreciation and amortization........... 1,817 2,471 3,409 657 1,302
Selling, general and administrative
expenses............................. 1,673 2,874 2,680 361 450
Interest expense........................ 387 450 699 136 276
Interest income......................... (3) (42) (168) -- (118)
------- ------- ------- ------ -------
23,944 26,739 41,537 5,490 11,196
------- ------- ------- ------ -------
Income before provision for income
taxes................................... 1,777 2,536 6,599 484 1,785
Provision for income taxes................ 651 933 2,420 178 655
------- ------- ------- ------ -------
NET INCOME................................ $ 1,126 $ 1,603 $ 4,179 $ 306 $ 1,130
======= ======= ======= ====== =======
Earnings per share........................ $ .33 $ .47 $ 1.23 $ .09 $ .33
======= ======= ======= ====== =======
Weighted average number of common
shares.................................. 3,400 3,400 3,400 3,400 3,400
======= ======= ======= ====== =======
</TABLE>
- ---------------
(1) Includes revenue from affiliates of $14,281,000, $15,391,000, $27,217,000,
$2,882,000 and $8,081,000 for the years ended December 31, 1994, 1995, 1996
and for the unaudited three month periods ended March 31, 1996 and 1997,
respectively, and operating expenses related to such affiliate revenue of
$11,348,000, $10,845,000, $20,078,000, $2,039,000 and $5,948,000 for the
years ended December 31, 1994, 1995, 1996 and for the unaudited three month
periods ended March 31, 1996 and 1997, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 74
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............... 3,400 $34 $ 847 $ -- $ 881
Net income............................. -- -- 1,126 -- 1,126
----- --- ------ ------- -------
Balance, December 31, 1994............... 3,400 34 1,973 -- 2,007
Net income............................. -- -- 1,603 -- 1,603
----- --- ------ ------- -------
Balance, December 31, 1995............... 3,400 34 3,576 -- 3,610
Net income............................. -- -- 4,179 -- 4,179
----- --- ------ ------- -------
Balance, December 31, 1996............... 3,400 34 7,755 -- 7,789
UNAUDITED:
Net income............................. -- -- -- 1,130 1,130
----- --- ------ ------- -------
Balance, March 31, 1997.................. 3,400 $34 $7,755 $ 1,130 $ 8,919
===== === ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 75
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 1,126 $ 1,603 $ 4,179 $ 306 $ 1,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 1,817 2,471 3,409 657 1,302
Gain on sale of property and equipment....... -- -- -- -- (14)
Deferred income tax provision................ 248 152 58 16 64
(Increase) decrease in receivables........... (3,623) (5,241) (3,726) (3,038) 3,159
Increase in other assets..................... (41) (49) (833) (235) (119)
Increase (decrease) in accounts payable and
other liabilities.......................... 1,076 1,697 1,553 (718) 959
------- ------- ------- ------- -------
Total adjustments....................... (523) (970) 461 (3,318) 5,351
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities............................ 603 633 4,640 (3,012) 6,481
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.............. (234) (289) (7,928) (232) (6,737)
Cash received on disposal of property and
equipment.................................... -- -- -- -- 27
------- ------- ------- ------- -------
Net cash used in investing activities... (234) (289) (7,928) (232) (6,710)
------- ------- ------- ------- -------
Cash flows from financing activities:
Borrowings under term loans..................... -- -- 7,694 433 7,564
Principal payments on term loans................ (758) (812) (1,518) (225) (620)
Principal payments on capital leases............ (513) (1,299) (1,247) (308) (346)
Due to affiliate................................ 906 1,796 (1,699) 3,333 (6,369)
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................ (365) (315) 3,230 3,233 229
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... 4 29 (58) (11) --
Cash and cash equivalents at beginning of
period.......................................... 25 29 58 58 --
------- ------- ------- ------- -------
Cash and cash equivalents at end of period........ $ 29 $ 58 $ -- $ 47 $ --
======= ======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................... $ 371 $ 408 $ 637 $ 90 $ 276
======= ======= ======= ======= =======
Income taxes................................. $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash investing activities:
Capital lease obligations.................... $ 5,315 $ 10 $ 41 $ -- $ 300
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 76
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Eagle Geophysical, Inc. (the "Company") is an
oilfield service company engaged in seismic data acquisition services, with a
specialization in the acquisition of high-resolution, three-dimensional seismic
data in logistically difficult wetland environments primarily in the U.S. Gulf
Coast region. Since its inception, the Company has been a wholly-owned
subsidiary of Seitel Inc. ("Seitel"), which has subsidiaries that have been
significant purchasers of the Company's services -- See Note G.
The Company's future operations are dependent on a variety of factors,
including, but not limited to, the level of exploration-industry spending by
third parties; the Company's ability to maintain its technologically competitive
position in its capital-intensive business; the Company's reliance on key
suppliers and customers; risks inherent in doing business internationally;
weather; and the Company's ability to manage operating risks. See "Risk Factors"
included elsewhere in this document.
USE OF ESTIMATES: The preparation of these consolidated financial
statements requires the use of certain estimates by management in determining
the Company's assets, liabilities, contingencies, revenues and expenses. One
such estimate relates to the percentage of revenue recognized based on the stage
of completion of seismic acquisition projects. Actual results could differ from
estimates.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Eagle Geophysical, Inc., indirectly a wholly-owned
subsidiary of Seitel, and the accounts of its wholly-owned subsidiary, Eagle
Geophysical Onshore, Inc., both of which were formed on December 18, 1996.
Effective December 31, 1996, substantially all of the net assets of its
predecessor, Seitel Geophysical, Inc., a wholly-owned subsidiary of Seitel, were
contributed to Eagle Geophysical Onshore, Inc. The Company's reported assets,
liabilities, revenues and expenses include the predecessor operations of Seitel
Geophysical, Inc. for all periods presented. The financial reporting basis of
the contributed net assets was carried forward to the Company's accounts, and
the net equity of Seitel Geophysical, Inc. for periods prior to December 31,
1996, is reflected in the Company's additional paid-in capital account.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost and
include assets under capital leases. Maintenance and repairs are charged to
expense as incurred and expenditures for major improvements are capitalized.
Gains and losses from retirement or replacement of property and equipment are
included in operations.
Depreciation and amortization of property and equipment and assets under
capital leases are provided over the estimated useful lives of the assets, which
range from three to five years, or the term of the lease using the straight-line
method.
INCOME TAXES: The Company is included in the consolidated federal income
tax return filed by Seitel. Under an informal agreement, Seitel and its
subsidiaries have computed their individual income tax provisions as though each
were filing a separate federal income tax return. The subsidiaries pay to Seitel
the amount of their respective current federal income tax liability or, to the
extent the consolidated group is able to utilize their separate company tax
losses or credits, receive reimbursement from Seitel without regard to any
alternative minimum tax liabilities incurred by Seitel.
REVENUE AND COST RECOGNITION: Revenue from the acquisition of seismic data
is recognized on the percentage-of-completion method based on the work effort
completed compared with the total work effort estimated for the contract.
Revenue received in advance of being earned is deferred until earned.
Operating expenses include all direct material and labor costs and indirect
costs related to the acquisition of seismic data such as supplies, tools and
repairs. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including
F-13
<PAGE> 77
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenue recognized.
EARNINGS PER SHARE: Earnings per share was based on the weighted average
number of outstanding shares of common stock during the respective years. There
were no common stock equivalent shares outstanding for any period -- See Note I.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
effective for interim and annual periods after December 15, 1997. This statement
replaces primary earnings per share with a newly defined basic earnings per
share and modifies the computation of diluted earnings per share. The
application of this statement will not have any impact on earnings per share for
the three years ended December 31, 1996, as there were no common stock
equivalent shares outstanding.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers all highly liquid investments or debt instruments with
original maturity of three months or less to be cash equivalents.
INTERIM FINANCIAL DATA (UNAUDITED): The unaudited financial statements as
of March 31, 1997, and for the three month periods ended March 31, 1996 and 1997
and all related footnote information for these periods have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of normal and recurring
adjustments, necessary for a fair presentation of financial position and results
of operations and cash flows in accordance with generally accepted accounting
principles.
STOCK-BASED COMPENSATION: The Company anticipates that certain employees of
Eagle will be granted options or warrants to purchase Eagle or Seitel stock in
future periods. Some of these options or warrants may trigger compensation
expense in the Company's financial statements.
The Company plans to account for employee stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," will not
affect the Company's reported results of operations and will be included as
separate pro forma disclosures only.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value amounts have
been determined by the Company using available market data and valuation
methodologies. The book values of cash and equivalents, receivables and accounts
payable approximate their fair value as of December 31, 1995 and 1996, because
of the short-term maturity of these instruments. Based upon the rates available
to the Company, the fair value of the term loans approximates the carrying value
of this debt as of December 31, 1995 and 1996.
IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
realizable. The Company adopted SFAS No. 121 effective January 1, 1996; the
adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
F-14
<PAGE> 78
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- INCOME TAXES
The provision for income taxes for each of the three years ended December
31, 1996, consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
Current -- Federal.......................................... $359 $695 $2,105
-- State............................................ 44 86 257
---- ---- ------
403 781 2,362
---- ---- ------
Deferred -- Federal......................................... 221 137 51
-- State........................................... 27 15 7
---- ---- ------
248 152 58
---- ---- ------
Tax provision -- Federal.................................... 580 832 2,156
-- State...................................... 71 101 264
---- ---- ------
$651 $933 $2,420
==== ==== ======
</TABLE>
The differences between U.S. Federal income taxes computed at the statutory
rate (34%) and the Company's income tax provisions are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
Statutory Federal income tax................................ $604 $862 $2,244
State income tax, less Federal benefit...................... 47 67 174
Other, net.................................................. -- 4 2
---- ---- ------
Income tax expense.......................................... $651 $933 $2,420
==== ==== ======
</TABLE>
The components of the net deferred income tax liability reflected in the
Company's consolidated balance sheets at December 31, 1995 and 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS
(LIABILITIES)
AT DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred items related to state tax provision............... $ 24 $ 26
Accrued expense and other assets............................ 376 371
------- -------
Total deferred tax assets................................... 400 397
Less: valuation allowance................................... -- --
------- -------
Deferred tax assets, net of valuation allowance........... 400 397
------- -------
Depreciation and amortization............................... (1,054) (1,109)
------- -------
Total deferred tax liabilities.............................. (1,054) (1,109)
------- -------
Net deferred tax liability.................................. $ (654) $ (712)
======= =======
</TABLE>
F-15
<PAGE> 79
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- COST AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cost incurred and estimated earnings on uncompleted
contracts................................................. $4,898 $2,354
Billings on uncompleted contracts........................... 4,653 1,991
------ ------
$ 245 $ 363
====== ======
Included in accompanying balance sheets under the following
captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 841 $ 441
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (596) (78)
------ ------
$ 245 $ 363
====== ======
</TABLE>
NOTE D -- LONG-TERM DEBT
The following is a summary of the Company's long-term debt at December 31,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
<S> <C> <C>
Term loans.................................................. $2,419 $ 8,595
Less: Current maturities.................................... (879) (2,556)
------ -------
Long-term debt.............................................. $1,540 $ 6,039
====== =======
</TABLE>
TERM LOANS: On July 15, 1993, the Company obtained a $4,300,000, five-year
term loan bearing interest at the rate of 7.61% for the purchase of a telemetry
seismic data acquisition system and auxiliary equipment. The debt is secured by
such equipment. Monthly principal and interest payments total approximately
$86,000. This term loan is guaranteed by Seitel.
On March 14, 1996, the Company obtained a $433,000, three-year term loan
bearing interest at the rate of 7.52% for the purchase of geophysical equipment.
The debt is secured by such equipment. Monthly principal and interest payments
total approximately $13,000. This term loan is guaranteed by Seitel.
On July 9, 1996, the Company obtained two term loans aggregating $7,264,000
for the purchase of land and marine seismic equipment which secures the debt.
The first loan is a $5,902,000, five year term loan bearing interest at the rate
of 8%. The second loan is a $1,362,000, three year term loan bearing interest at
the rate of 8.06%. Monthly principal and interest payments on both term loans
total approximately $163,000. These term loans are guaranteed by Seitel.
Certain of the borrowings described above contain requirements as to the
maintenance of minimum net worth and limitations on liens, total debt, debt
issuance and disposition of assets by Seitel.
Aggregate maturities of the Company's debt over the next five years are as
follows: $2,556,000 in 1997; $2,326,000 in 1998; $1,584,000 in 1999; $1,313,000
in 2000; and $816,000 in 2001.
F-16
<PAGE> 80
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LEASE OBLIGATIONS
Property and equipment in the accompanying consolidated balance sheets
includes the following assets held under capital leases (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Geophysical equipment....................................... $ 5,298 $ 5,339
Accumulated amortization.................................... (1,555) (2,649)
------- -------
Assets under capital lease, net............................. $ 3,743 $ 2,690
======= =======
</TABLE>
The Company is allocated a portion of the office lease expense incurred by
Seitel under its operating lease for the corporate office based on the actual
cost of such office space pro-rated to the amount utilized by the Company.
Additionally, the Company also directly leases office space under operating
leases. Rental expense for 1994, 1995 and 1996 was approximately $60,000,
$98,000 and $142,000, respectively.
Future minimum lease payments for the five years subsequent to December 31,
1996 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $1,106 $45
1998........................................................ 881 15
1999........................................................ 447 --
2000........................................................ 11 --
2001........................................................ 2 --
------ ---
Total minimum lease payments................................ 2,447 $60
===
Less amount representing interest........................... (140)
------
Present value of net minimum lease payments................. $2,307
======
</TABLE>
The capital leases have annual interest rates ranging from 5% to 7.52%.
NOTE F -- CONTINGENCIES AND COMMITMENTS
On September 30, 1996, the Company entered into an agreement for the
purchase of a telemetry seismic data acquisition system at a cost of
approximately $3,500,000. Payment was made upon delivery of the system in
January 1997.
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from such proceedings
will have a material adverse effect on its consolidated operations or financial
position.
NOTE G -- RELATED PARTY TRANSACTIONS
The Company enters into various types of transactions with Seitel and its
subsidiaries. The Company performs seismic data acquisition services for
Seitel's seismic data library subsidiary and its exploration and production
subsidiary. During the years ended December 31, 1994, 1995, 1996 and for the
unaudited three month periods ended March 31, 1996 and 1997, the Company
recognized revenue of $14,281,000, $15,391,000, $27,217,000, $2,882,000 and
$8,081,000, respectively, for seismic data acquisition services performed for
Seitel's subsidiaries. Such revenues from affiliates are based on prices charged
to unaffiliated
F-17
<PAGE> 81
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
third parties for similar work. Gross margin recognized on work for affiliates
is limited in each reporting period to the total margin percentage earned on
work for unaffiliated parties.
The Company reimburses Seitel for direct and indirect costs of certain
Seitel employees who provide services to the Company and for other costs,
primarily general and administrative expenses, related to the Company's
operations. Seitel allocates indirect costs to the Company using a formula based
upon the ratio of the Company's levels of revenue, number of personnel or other
factors, as applicable, to the total consolidated Seitel levels for such
factors. Management of the Company believes that the use of such formula results
in a reasonable allocation of indirect costs. During the years ended December
31, 1994, 1995, 1996 and for the unaudited three month periods ended March 31,
1996 and 1997, the Company recorded general and administrative costs allocated
from Seitel of $613,000, $749,000, $1,217,000, $228,000 and $271,000,
respectively. Seitel funds the Company's direct operating costs through
intercompany advances and is reimbursed for such advances as the Company has
available cash. Amounts payable to or receivable from Seitel and its
subsidiaries bear or earn interest at the same rates which Seitel is charged or
receives. During the years ended December 31, 1994, 1995, 1996 and for the
unaudited three month period ended March 31, 1996, the Company recorded net
interest expense of $5,000, $21,000, $59,000 and $45,000, respectively, and net
interest income of $97,000 for the unaudited three month period ended March 31,
1997, related to the amounts payable to or receivable from Seitel and its
subsidiaries.
Prior to the consummation of the Offering (as defined in Note I), the
Company intends to declare a dividend to its sole shareholder, a wholly-owned,
indirect subsidiary of Seitel, of the Company's receivable from Seitel for work
performed by the Company for Seitel and its subsidiaries, which receivable has
been classified as a due from affiliate on the unaudited consolidated balance
sheet as of March 31, 1997.
The Company leases certain marine seismic equipment to Horizon Exploration
Limited, a marine seismic company wholly-owned by Energy Research International,
under a five-year operating rental agreement expiring June 30, 2001. During the
year ended December 31, 1996 and for the unaudited three month period ended
March 31, 1997, the Company recognized revenue of $828,000 and $434,000,
respectively, related to this lease. At December 31, 1996 and March 31, 1997,
the Company had a receivable of $138,000 and $572,000, respectively, related to
this lease.
The Company and Seitel intend to enter into a number of agreements for the
purpose of defining their continuing relationship. It is currently anticipated
that after the offering Seitel will account for its investment using the equity
method of accounting. Conflicts of interest may arise in the future between
Seitel and the Company in connection with these agreements and other areas of
their ongoing relationship. The following is a summary of certain prospective
arrangements between the Company and Seitel.
MASTER SEPARATION AGREEMENT. The Master Separation Agreement will provide
for the Company and Seitel to enter into a Sublease, a Registration Rights
Agreement, a Tax Indemnity Agreement and an Administrative Services Agreement.
In addition, the Master Separation Agreement will require the Company to repay
indebtedness owed by the Company and its subsidiaries to Seitel and indebtedness
owed by the Company and its subsidiaries to third parties guaranteed by Seitel
contemporaneously with the consummation of the offering. Under the Master
Separation Agreement, Seitel and its subsidiaries and the Company and its
subsidiaries will indemnify each other with respect to liabilities arising in
connection with the operations of their respective businesses prior to and after
the date of consummation of the Offering including liabilities under the
Securities Act with respect to the Offering. The Master Separation Agreement
will also provide for continued access by the Company to historical financial
and operational information relating to the Company and its subsidiaries
maintained by Seitel.
SUBLEASE. The Sublease between the Company and Seitel will provide for the
Company to lease its principal corporate offices, comprising approximately 9,000
square feet, from Seitel for a term of three years at
F-18
<PAGE> 82
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an annual rent of approximately $108,000. The Sublease will also provide for the
Company to utilize certain shared office equipment, such as phone systems and
central computer systems, for an additional charge.
REGISTRATION RIGHTS AGREEMENT. Pursuant to the Registration Rights
Agreement, the Company will agree to register the offer and sale by Seitel on a
delayed and continuous basis from time to time of the shares of Common Stock
owned by Seitel after the Offering at the expense of the Company.
TAX INDEMNITY AGREEMENT. Prior to the offering, the Company has been a
member of the Seitel affiliated group and has filed its tax returns on a
consolidated basis with such group. After the offering, the Company will no
longer be a member of the Seitel affiliated group. The Company and Seitel will
enter into a Tax Indemnity Agreement to define their respective rights and
obligations relating to federal, state and other taxes for periods before and
after the offering. Pursuant to the Tax Indemnity Agreement, the Company will be
required to pay Seitel (to the extent not already paid) its share of federal
income taxes prior to the date of consummation of the Offering, and shall be
responsible for federal income taxes from its operations on and after the date
of consummation of the Offering. Any subsequent refunds, additional taxes or
penalties or other adjustments relating to the Company's federal income taxes
for periods prior to the date of consummation of the Offering shall be for the
benefit of or be borne by Seitel. Similar provisions apply under the Tax
Indemnity Agreement to other taxes, such as state and local income taxes.
ADMINISTRATIVE SERVICES AGREEMENT. Seitel and the Company intend to enter
into an Administrative Services Agreement pursuant to which Seitel will provide
the Company with administrative services, primarily accounting services, at up
to the same levels as provided prior to the Offering. Seitel will provide these
services for a 90-day transition period to allow the Company adequate time to
build an internal administrative staff. The Company will pay Seitel for these
services at Seitel's actual cost of providing these services.
EMPLOYMENT AGREEMENTS. The Company intends to enter into employment
agreements with certain of its executive officers in connection with its planned
initial Offering.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT. The Company intends to enter into
an employee benefits allocation agreement with Seitel to govern certain matters
relating to employees of Seitel who will become employees of the Company.
NOTE H -- MAJOR CUSTOMERS
During each of the years ended December 31, 1994, 1995 and 1996, three
customers accounted for 10% or more of the Company's consolidated revenue as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Affiliated companies, wholly-owned subsidiaries of Seitel:
Seitel Data, Ltd. ........................................ 16% 14% 28%
DDD Energy, Inc. ......................................... 40% 39% 29%
Unaffiliated companies, one each year....................... 28% 22% 20%
</TABLE>
The Company extends credit to various companies in the oil and gas industry
for the acquisition of seismic data, which results in a concentration of credit
risk. This concentration of credit risk may be affected by changes in economic
or other conditions and may accordingly impact the Company's overall credit
risk. However, management believes that the risk is mitigated by the number,
size, reputation and diversified nature of the companies to which they extend
credit. Historical credit losses incurred on receivables by the Company have
been immaterial.
F-19
<PAGE> 83
EAGLE GEOPHYSICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SUBSEQUENT EVENTS
COMMON STOCK: In May 1997, the Company amended its Certificate of
Incorporation to authorize the issuance of 25,000,000 shares of common stock and
changed the par value to $.01 per share. At the same time, the Company approved
a 3,400-for-one stock split. All share and per share information included in the
accompanying consolidated financial statements has been adjusted to give
retroactive effect to the split.
Prior to the Offering, the Company intends to sell 25,000 shares of Common
Stock at the initial public offering price to the president of the Company for a
note.
PREFERRED STOCK: In May 1997, the Company amended its Certificate of
Incorporation to authorize the issuance of 5,000,000 shares of preferred stock,
the terms and conditions to be determined by the Board of Directors in creating
any particular series.
STOCK OPTION PLAN: The Company intends to adopt a stock option plan prior
to the Offering, and 1,100,000 shares of common stock have been reserved for
issuance pursuant to such plan. Under the stock option plan, the Company may
grant both incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code and options that are not qualified as incentive stock
options. Options will be granted at or above the market price of the Company's
stock on the date of grant. The Company intends to grant to directors, officers
and employees of the Company, effective as of the date of consummation of the
Offering, options to purchase a total of 679,450 shares of Common Stock at an
exercise price equal to the initial public offering price.
INDEPENDENT DIRECTORS STOCK OPTION PLAN: The Company intends to adopt an
independent directors stock option plan prior to the Offering, and 100,000
shares have been reserved for issuance pursuant to such plan. Under this plan,
options will automatically be granted to independent directors upon their
election and reelection as directors of the Company. Such options will be
granted at the fair market value of the Company's stock on the date of grant.
The Company intends to grant to the Chairman of the Board, effective as of the
date of the consummation of the Offering, options to purchase up to 25,000
shares of Common Stock at an exercise price equal to the initial public offering
price.
SEITEL CONTRIBUTION: In May 1997, Seitel contributed to the Company all of
the shares that it owns of Energy Research International, representing a 19%
ownership interest. Energy Research International is a holding company that
wholly owns two marine seismic companies. This contribution will be recorded at
Seitel's basis in such investment and will result in a $914,000 increase in the
Company's additional paid-in capital.
SECURITIES OFFERING, ERI ACQUISITION: The Company plans to file a
registration statement with the Securities and Exchange Commission for an
underwritten initial public offering of shares of common stock (the "Offering").
Contemporaneously with the offering, the Company will acquire the remaining 81%
of Energy Research International in exchange for 600,000 shares of common stock.
The acquisition will be accounted for by the Company as a purchase transaction
in which the Company shall record at its cost the acquired assets less
liabilities assumed, with the difference between the cost and the sum of the
fair values of tangible assets less liabilities assumed being recorded as
goodwill.
F-20
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Energy Research International:
We have audited the consolidated balance sheets of Energy Research
International and consolidated subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements appearing on pages F-22 through
F-32 present fairly, in all material respects, the financial position of Energy
Research International and consolidated subsidiaries as of December 31, 1996 and
1995, and the results of their operations and cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles in the United States of America.
/s/ KPMG
Exeter, England
May 27, 1997
F-21
<PAGE> 85
ENERGY RESEARCH INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 373 $ 813 $ 1,304
Receivables
Trade.................................................. 3,741 3,702 4,064
Other.................................................. 297 323 253
Due from related party................................. 650 18 --
Prepaid expenses and other assets......................... 725 2,795 2,579
Inventories............................................... 1,331 1,585 1,410
------- ------- -------
Total current assets...................................... 7,117 9,236 9,610
Property and equipment, at cost:
Geophysical equipment..................................... 26,382 29,418 32,248
Furniture, fixtures and other............................. 169 246 240
------- ------- -------
26,551 29,664 32,488
Less: accumulated depreciation.............................. (5,628) (10,843) (11,677)
------- ------- -------
Net property and equipment................................ 20,923 18,821 20,811
------- ------- -------
TOTAL ASSETS................................................ $28,040 $28,057 $30,421
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt......................... 800 600 400
Current portion of capital leases......................... 2,098 2,612 4,048
Bank borrowings........................................... 6,496 6,630 7,232
Accounts payable.......................................... 5,075 7,400 5,700
Accrued liabilities....................................... 3,007 5,158 3,763
Accrued capital lease interest............................ 1,041 821 858
Due to related party...................................... -- 158 2,120
------- ------- -------
Total current liabilities................................. 18,517 23,379 24,121
Long-term debt.............................................. 2,600 -- --
Due to related party........................................ -- 4,679 4,679
Obligations under capital leases............................ 12,549 11,230 11,556
------- ------- -------
TOTAL LIABILITIES........................................... 33,666 39,288 40,356
======= ======= =======
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; Authorized shares
900,000,000; Issued and outstanding 1996 and March 31,
1997 61,728 shares; 1995 100,000 shares................ -- -- --
Retained (deficit)........................................ (5,678) (10,634) (9,690)
Translation adjustment.................................... 52 (597) (245)
------- ------- -------
TOTAL STOCKHOLDERS' DEFICIT................................. (5,626) (11,231) (9,935)
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $28,040 $28,057 $30,421
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 86
ENERGY RESEARCH INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTH
PERIODS ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
------------------------------ -----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE................................... $ 19,457 $ 29,423 $ 43,607 $ 7,700 $11,079
EXPENSES
Cost of sales (exclusive of depreciation
shown below)......................... (16,360) (27,075) (37,601) (7,914) (7,705)
Depreciation............................ (1,683) (3,856) (4,615) (1,036) (1,377)
Selling, general and administrative
expenses............................. (1,703) (2,196) (2,619) (467) (517)
Interest expense........................ (608) (1,462) (1,657) (406) (536)
Interest income......................... 80 6 8 -- --
-------- -------- -------- ------- -------
(20,274) (34,583) (46,484) (9,823) (10,135)
-------- -------- -------- ------- -------
Income (loss) before provision for income
taxes and extraordinary item............ (817) (5,160) (2,877) (2,123) 944
Provision for income taxes................ (11) -- -- -- --
-------- -------- -------- ------- -------
Income (loss) before extraordinary item... (828) (5,160) (2,877) (2,123) 944
Extraordinary credit on early
extinguishment of debt.................. -- -- 600 -- --
-------- -------- -------- ------- -------
NET INCOME (LOSS)......................... (828) (5,160) (2,277) (2,123) 944
-------- -------- -------- ------- -------
Income (loss) per share
Income (loss) before extraordinary
item................................. $ (8.28) $ (51.60) $ (30.22) $(21.23) $ 15.29
Extraordinary item...................... -- -- 6.30 -- --
-------- -------- -------- ------- -------
Net income (loss)......................... $ (8.28) $ (51.60) $ (23.92) $(21.23) $ 15.29
======== ======== ======== ======= =======
Weighted average number of common
shares.................................. *100,000 *100,000 95,216 100,000 61,728
======== ======== ======== ======= =======
</TABLE>
- ---------------
* Restated to reflect the stock split effective July 1996 (See NOTE I -- COMMON
STOCK).
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 87
ENERGY RESEARCH INTERNATIONAL
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) ADJUSTMENTS (DEFICIT)
------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. 100,000 $ -- $ 310 $ (3) $ 307
Net loss.............................. -- -- (828) -- (828)
Translation adjustment................ -- -- -- 30 30
------- ------- -------- ----- --------
Balance, December 31, 1994.............. 100,000 -- (518) 27 (491)
Net loss.............................. -- -- (5,160) -- (5,160)
Translation adjustment................ -- -- -- 25 25
------- ------- -------- ----- --------
Balance, December 31, 1995.............. 100,000 -- (5,678) 52 (5,626)
Net loss.............................. -- -- (2,277) -- (2,277)
Translation adjustment................ -- -- -- (649) (649)
Repurchase of and retirement
of own stock....................... (38,272) -- (2,679) -- (2,679)
------- ------- -------- ----- --------
Balance, December 31, 1996.............. 61,728 -- (10,634) (597) (11,231)
Unaudited:
Net income............................ -- -- 944 -- 944
Translation adjustment................ -- -- -- 352 352
------- ------- -------- ----- --------
Balance, March 31, 1997................. 61,728 $ -- $ (9,690) $(245) $ (9,935)
======= ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 88
ENERGY RESEARCH INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
YEAR ENDED DECEMBER 31 ENDED MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ (828) $(5,160) $(2,277) $(2,123) $ 944
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation................................ 1,683 3,856 4,615 1,036 1,377
Extraordinary credit on early extinguishment
of debt.................................. -- -- (600) -- --
(Increase)/decrease in receivables.......... (673) 141 645 1,779 (274)
(Increase)/decrease in other assets......... 662 (224) (2,324) (272) 391
(Decrease)/increase in accounts payable and
other liabilities........................ 146 1,386 4,256 351 (3,058)
------- ------- ------- ------- -------
Total adjustments................... 1,818 5,159 6,592 2,894 (1,564)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities.............. 990 (1) 4,315 771 (620)
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.......... (7,556) (2,758) (3,113) (21) (548)
------- ------- ------- ------- -------
Net cash used in investing
activities........................ (7,556) (2,758) (3,113) (21) (548)
------- ------- ------- ------- -------
Cash flows from financing activities:
Borrowings under bank facility.............. 4,629 1,867 134 (107) 602
Borrowings under term loans................. 2,000 2,000 2,000 -- --
Principal payments on term loans............ -- (600) (2,800) (200) (200)
Principal payments on capital leases........ -- (437) (805) (674) (1,252)
Increase in amounts due to related party.... -- -- 158 -- 1,962
------- ------- ------- ------- -------
Net cash provided by/(used in)
financing activities.............. 6,629 2,830 (1,313) (981) 1,112
------- ------- ------- ------- -------
Increase (decrease) in cash................... 63 71 (111) (231) (56)
Cash at beginning of period................... 157 266 373 373 813
------- ------- ------- ------- -------
220 337 262 142 757
Translation differences....................... 46 36 551 164 547
------- ------- ------- ------- -------
Cash at end of period......................... $ 266 $ 373 $ 813 $ 306 $ 1,304
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest................................. $ 202 $ 589 $ 1,877 $ 425 $ 564
Income taxes............................. $ 11 $ -- $ -- $ -- $ --
Non-cash investing activities:
Capital lease obligations................ $15,083 $ -- $ -- $ -- $ 3,660
Non-cash financing activities:
Note payable issued for repurchase of own
stock (NOTE I -- COMMON STOCK)......... $ -- $ -- $ 2,679 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 89
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Energy Research International (the "Company"), a
limited liability company incorporated in the Cayman Islands, is the holding
Company of an international group of companies involved in the acquisition of
offshore seismic data. The Company was incorporated in May 1993 to acquire
through a subsidiary substantially all of the offshore seismic business
operations of Simon Petroleum Technology. The Company's future operations are
dependent on a variety of factors, including dependence upon energy industry
spending, its ability to maintain its technologically competitive position and
its ability to minimise its operating risks, among others.
ACCOUNTING: The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and translated into U.S. dollars.
USE OF ESTIMATES: The preparation of these consolidated financial
statements requires the use of certain estimates by management in determining
the Company's assets, liabilities, revenues and expenses. Actual results could
differ from estimates.
BASIS OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Energy Research International and the accounts of its
subsidiaries, all of which are wholly-owned. All material intercompany accounts
have been eliminated in consolidation.
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 of property and equipment are included in operations.
Depreciation and amortization of property and equipment and assets under
capital leases are provided over the estimated useful lives of the assets, which
range from five to seven years, or the term of the lease using the straight-line
method.
TRANSLATION OF FOREIGN CURRENCIES: The Company maintains its books and
records in United Kingdom pounds sterling, the functional unit of currency.
Transactions in other currencies are recorded using the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in other
currencies are translated using the rate of exchange at the balance sheet date
and the gains or losses on translation are included in the income statement.
For consolidation purposes, the assets and liabilities of non United
Kingdom subsidiary undertakings are translated at the closing exchange rates.
Income statements of such undertakings are consolidated at the average rates of
exchange during the year. Exchange differences arising on these translations are
included in the cumulative translation account in stockholders'
equity/(deficit).
INCOME TAXES: The Company files income tax returns in the United Kingdom
and the United States; it is exempt from tax in the Cayman Islands.
REVENUE AND COST RECOGNITION: Revenue from the acquisition of seismic data
is recognized on either a distance or time method based upon the contractual
terms. Under the distance method, revenue is based upon the number of seismic
lines or kilometers of data collected; under the time method revenue is based on
agreed rates per unit of time.
Cost of sales includes all direct materials and labor costs and indirect
costs related to the acquisition of seismic data such as supplies, tools and
repairs. Selling, general and administrative costs are charged to expense as
incurred.
F-26
<PAGE> 90
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES: Inventories which consist primarily of spare parts for
equipment are stated at the lower of cost or market value on a first-in,
first-out basis.
NON-EXCLUSIVE SEISMIC SURVEYS: All costs incurred in acquiring and
processing non-exclusive seismic data are charged to the income statement as
they arise. Costs for the years ended December 31, 1994, 1995 and 1996 were
$Nil, $5,397,000 and $Nil, respectively.
PENSION COSTS: The Company provides for the cost of retirement benefits for
employees of its United Kingdom subsidiaries. The cost of providing these
benefits is charged to the income statement over the employees' estimated years
of service.
LOSSES PER SHARE: Losses per share were based on the weighted average
number of outstanding shares of common stock during the respective years. There
were no common stock equivalent shares outstanding for any period. In July 1996,
the Board of Directors declared a one thousand-for-one common stock split. The
calculation of losses per share for 1994 and 1995 is based upon the weighted
average number of shares outstanding which have been restated to reflect the one
thousand-for-one common stock split in 1996 and is on a basis consistent with
the weighted average number of outstanding shares during 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earning per Share,"
effective for interim and annual periods after December 31, 1997. This statement
replaces primary earnings per share with a newly defined basic earnings per
share and modifies the computation of diluted earnings per share. The
application of this statement will not have any impact on losses per share for
the three years ended December 31, 1996 as there were no common stock equivalent
shares outstanding.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers all highly liquid investments or debt instruments with
original maturity of three months or less to be cash equivalents.
INTERIM FINANCIAL DATA (UNAUDITED): The unaudited consolidated financial
statements as of March 31, 1997, and for the three month periods ended March 31,
1996 and 1997 and all related footnote information for these periods have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting of normal and
recurring adjustments, necessary for a fair presentation of financial position
and results of operations and cash flows in accordance with generally accepted
accounting principles.
FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107 "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments. The estimated fair value amounts have been
determined by the Company using available market data and valuation
methodologies. The book values of cash and equivalents, receivables and accounts
payable approximate their fair value as of December 31, 1995 and 1996 because of
the short term maturity of these instruments. Based upon the rates available to
the Company, the fair value of the term loans approximates the carrying value of
this debt at December 31, 1995 and 1996.
IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
realizable. The Company adopted SFAS No. 121, effective January 1, 1996; the
adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
F-27
<PAGE> 91
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- INCOME TAXES
The provision for income taxes for each of the three years ended December
31, 1996 comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current -- overseas withholding tax......................... $11 $-- $--
=== === ===
</TABLE>
No income taxes are payable for the three year period ended December 31,
1996 in the United Kingdom and the United States as the Company incurred
operating losses during this period.
The components of deferred tax asset/(liability) at December 31, 1995 and
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward (no expiry date)........... $506 $1,378
Other....................................................... 14 172
---- ------
Total deferred tax assets................................... 520 1,550
Less: valuation allowance................................... 100 1,158
---- ------
Deferred tax assets, net of valuation allowance............. 420 392
---- ------
Deferred tax liabilities:
Depreciation................................................ (420) (392)
---- ------
Total deferred tax liabilities.............................. (420) (392)
---- ------
Net deferred tax asset/(liability).......................... $ -- $ --
==== ======
</TABLE>
The valuation allowances recorded at December 31, 1995 and 1996 have been
provided against the Company's deferred tax assets based on management's
estimate of the recoverability of future tax benefits, which considered the
Company's recent operating results as well as other factors. In accordance with
the provisions of SFAS No. 109, "Accounting for Income Taxes," only the portion
of such tax assets that was, more likely than not, expected to be realized was
recorded at each balance sheet date.
NOTE C -- DEBT
The following is a summary of the Company's debt at December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31ST
----------------
1995 1996
------ ------
<S> <C> <C>
Bank Borrowings............................................. $6,496 $6,630
Term Debt -- Current Portion................................ 800 600
Term Debt -- Long Term Portion.............................. 2,600 --
------ ------
Total Debt........................................ $9,896 $7,230
====== ======
</TABLE>
BANK BORROWING: On August 23, 1994, the Company entered into a revolving
banking facility ("the Facility") of L4,560,000 (December 31, 1995 $7,080,000,
December 31, 1996 $7,804,000) of which at December 31, 1995 and December 31,
1996 $6,496,000 and $6,630,000 was outstanding respectively. The Facility is
interest bearing at the rate of 8.25% per annum, variable at three months LIBOR
plus 2%. The Facility is secured by property and equipment and working capital
and is repayable on demand.
F-28
<PAGE> 92
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TERM LOAN: On February 27, 1995, the Company obtained a $2,000,000 term
loan over thirty months bearing interest at the rate of 8.25% per annum variable
at three month LIBOR plus 2% per annum. The loan was obtained to purchase marine
seismic data acquisition equipment, and is repayable on a quarterly basis at the
amount of $200,000 plus accrued interest. At December 31, 1995, $800,000 was
current and $600,000 was long term. At December 31, 1996, $600,000 was current
with no long term balance. The loan is secured in the same manner as the
Facility described above.
On August 31, 1995, the Company obtained a $2,000,000 term loan bearing
interest at prime rate plus 1% per annum. On June 28, 1996, the loan was
extinguished for $1.4 million (see Note H -- EARLY EXTINGUISHMENT OF DEBT). On
June 28, 1996 the Company obtained a loan from Seitel, Inc. which is disclosed
in NOTE E -- RELATED PARTY TRANSACTIONS.
NOTE D -- COMMITMENTS AND CONTINGENCIES
Capital lease: Property and equipment in the accompanying consolidated
balance sheets includes the following assets held under capital leases (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31ST
------------------
1995 1996
------- -------
<S> <C> <C>
Geophysical Vessel and Equipment............................ $14,969 $16,498
Accumulated Depreciation.................................... (2,809) (5,159)
------- -------
Assets under Capital Lease, Net............................. $12,160 $11,339
======= =======
</TABLE>
The interest rate of the above vessel lease is 4.946%.
The Company also holds various operating leases, of which the principal
ones are in respect of vessel time charters, office/warehousing space and
certain geophysical equipment leased from Eagle Geophysical, Inc. (see NOTE
E -- RELATED PARTY TRANSACTIONS). Operating lease expenses for 1994, 1995 and
1996 were approximately $2,907,000, $859,000 and $2,082,000 respectively.
Future minimum lease payments for the five years subsequent to December 31,
1996 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1997.................................................... $ 3,239 $ 2,338
1998.................................................... 3,419 2,522
1999.................................................... 3,625 2,271
2000.................................................... 3,839 2,104
2001.................................................... 1,315 1,276
------- -------
Total Minimum Lease Payments.................. 15,437 $10,511
=======
Less Amount Representing Interest....................... (1,595)
-------
Present Value of Net Minimum Lease Payments............. $13,842
=======
</TABLE>
Legal proceedings: The Company is involved in or threatened with various
legal proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on its
consolidated operations or financial position.
F-29
<PAGE> 93
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- RELATED PARTY TRANSACTIONS
In July 1996, Seitel, Inc. acquired 50% of the issued and outstanding
shares of the Company from the directors of the Company who owned 97% of the
outstanding shares; in addition Seitel, Inc. advanced the Company by way of loan
$2 million to repay existing debt, due and payable on July 3, 1998, bearing
interest at prime plus 1%. In November 1996, the Company repurchased from
Seitel, Inc. 38,272 shares for $2,679,000, thereby reducing Seitel, Inc.'s share
ownership to 19%. The repurchase price was paid by delivery of a promissory note
to Seitel, Inc. bearing interest equal to 5.35% until December 31, 1997
increasing to 8.0% from January 1, 1998 through December 31, 1998 and then at
the prime rate of interest plus 1% from January 1, 1999 through December 31,
2001, the date of repayment. The total amount due to Seitel, Inc. at December
31, 1996 is $4,679,000 and is included in the Company's consolidated balance
sheet as due to related party.
In May 1997, Seitel, Inc. contributed its shares in the Company to Eagle
Geophysical, Inc., indirectly a wholly-owned subsidiary of Seitel, Inc.
The Company performs seismic data acquisition services for Seitel, Inc.
During the years ended December 31, 1994, 1995 and 1996 the Company recognized
revenue for services rendered to Seitel, Inc. of $4,027,000, $2,238,000, and
$20,049,000, respectively.
A subsidiary of the Company leases certain marine seismic equipment from
Eagle Geophysical, Inc. under a five year operating rental agreement expiring
June 30, 2001. During 1996, the Company recorded costs of $828,000 related to
this lease. At December 31, 1996, the Company had a payable of $138,000 related
to this item.
NOTE F -- CONCENTRATION OF RISK
During the years ended December 31, 1994, 1995 and 1996, the Company had a
concentration of revenues in four or less customers.
During the year ended December 31, 1994, 60% of revenues were accounted for
by Seitel, Inc. (21%), Chevron UK Ltd. (10%), Amerada Hess Ltd. (13%) and
British Gas Exploration and Production Ltd (16%).
During the year ended December 31, 1995, 63% of revenues were accounted for
by Amerada Hess Ltd. (37%) and British Gas Exploration and Production Ltd (26%).
During the year ended December 31, 1996, 72% of revenues were accounted for
by Seitel, Inc. (46%) and Clyde Petroleum Exploratie BV (26%).
The Company extends credit to various companies in the oil and gas industry
for the acquisition of seismic data, which results in a concentration of credit
risk. This concentration of credit risk may be affected by changes in economic
or other conditions and may accordingly impact the Company's overall credit
risk. However, management believes that the risk is mitigated by the number,
size, reputation and diversified nature of the companies to which they extend
credit. Historical credit losses incurred on receivables by the Company have
been immaterial.
F-30
<PAGE> 94
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- FOREIGN OPERATIONS
Substantially all of the Company's operations are outside of the Cayman
Islands. The Company's principal operations are in Europe and the United States.
Financial information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Operating revenues from unaffiliated customers:
Europe.............................................. $14,979 $24,150 $20,759
United States....................................... 4,029 4,048 21,390
Other............................................... 449 1,225 1,458
------- ------- -------
Total operating revenues.................... $19,457 $29,423 $43,607
======= ======= =======
Operating Income:
Europe.............................................. $ 3,040 $ 9,520 $ 3,973
United States....................................... 997 (4,404) 5,384
Other............................................... (940) (2,768) (3,351)
------- ------- -------
$ 3,097 $ 2,348 $ 6,006
======= ======= =======
Identifiable Assets:
Europe.............................................. $17,602 $15,333 $13,269
United States....................................... 3,695 3,357 4,429
Other............................................... 83 283 490
------- ------- -------
$21,380 $18,973 $18,188
======= ======= =======
</TABLE>
NOTE H -- EARLY EXTINGUISHMENT OF DEBT
In July 1996, in connection with Seitel, Inc. acquiring a 50% interest in
the shares of the Company, the Company repaid a promissory note to a third party
which was funded by a new loan from Seitel, Inc. in the amount of $2 million.
The promissory note amounting to $2 million was redeemed for $1.4 million and as
a result the Company recorded a credit of $600,000 which has been reflected in
the Company's consolidated statement of operations as an extraordinary item for
the year ended December 31, 1996.
NOTE I -- COMMON STOCK
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Authorized: 900,000,000 shares, at par value $0.001 per
share..................................................... $900,000 $900,000
-------- --------
Issued and outstanding: December 31, 1996
61,728 shares; December 31, 1995 100,000 shares........... $ 100 $ 62
-------- --------
</TABLE>
In July 1996 the directors of the Company then owning 97% of the
outstanding shares of the Company sold 50% of the outstanding shares of the
Company to Seitel, Inc.
In July 1996 the Board of Directors declared a one thousand-for-one common
stock split. In these consolidated financial statements all per share amounts
and numbers of shares have been restated to reflect the stock split.
In November 1996, the Company repurchased from Seitel, Inc. 38,272 shares
for an aggregate repurchase price of $2,679,000. The purchase price per share of
the stock in the repurchase transaction was equal to the purchase price in the
transaction in July 1996 in which Seitel acquired 50% of the outstanding shares
of ERI from the then-current shareholders of ERI. The July 1996 purchase price
was determined by arms-length negotiations between Seitel and such shareholders.
F-31
<PAGE> 95
ENERGY RESEARCH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- PENSION PLAN
The Company provides for the cost of retirement benefits for employees of
its United Kingdom subsidiaries. The Plan known as the Horizon Pension Plan
provides retirement benefits as defined in the Trust Deed and is managed by
Trustees.
The following table sets forth the plan and funded status at December 31,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................. $2,885 $4,098
Accumulated benefit obligation............................ 2,885 4,098
Projected benefit obligation.............................. 3,476 4,939
Plan assets at fair value................................... 4,360 5,969
------ ------
Plan assets in excess of projected benefit obligation....... 884 1,030
Unrecognized net transition asset........................... (705) (700)
Unrecognized net loss....................................... -- 79
------ ------
Prepaid pension cost........................................ $ 179 $ 409
====== ======
</TABLE>
Plan assets are invested in a unitised mixed managed fund. At December 31,
1996 approximately 86% of the fund was invested in UK and international equities
and the balance invested in fixed interest securities or held as cash deposits.
Net pension cost for 1995 and 1996 included the following components (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Service cost................................................ $ 338 $ 379
Interest cost............................................... 249 330
Actual return on plan assets................................ (489) (627)
Net amortization and deferral............................... 83 118
------ ------
Net pension cost............................................ $ 181 $ 200
====== ======
</TABLE>
The major assumptions used in computing the net pension cost were:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rate............................................... 9.0% 9.0%
Expected long term rate of return on plan assets............ 9.5% 9.5%
Rate of increase in compensation levels..................... 6.5% 6.5%
</TABLE>
NOTE K -- SUBSEQUENT EVENTS (UNAUDITED)
Eagle Geophysical, Inc. intends to file a registration statement with the
Securities and Exchange Commission for an underwritten initial public offering
of shares of common stock. Eagle Geophysical, Inc. currently owns 19% of the
outstanding shares of the Company and prior to or contemporaneously with the
consummation of the offering by Eagle Geophysical, Inc. of its common stock
pursuant to such registration statement, Eagle Geophysical, Inc. will acquire
the remaining 81% of the outstanding shares of the Company, such acquisition
being a condition to the consummation of the offering.
F-32
<PAGE> 96
======================================================
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 THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER, THE ADDITIONAL SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMPANY'S COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 14
Use of Proceeds....................... 15
Capitalization........................ 17
Dividend Policy....................... 18
Dilution.............................. 19
Selected Pro Forma Financial
Information......................... 20
Selected Financial Information........ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Description of Business............... 29
Management............................ 39
Principal and Selling Stockholders.... 48
Certain Transactions.................. 50
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 56
Underwriting.......................... 58
Legal Matters......................... 59
Experts............................... 59
Additional Information................ 60
Glossary.............................. 61
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
5,880,000 Shares
[EAGLE GEOPHYSICAL, INC. LOGO]
EAGLE
GEOPHYSICAL, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
PRUDENTIAL SECURITIES INCORPORATED
SIMMONS & COMPANY
INTERNATIONAL
, 1997
======================================================
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the Offering
described in this Registration Statement will be as follows. All of the amounts
except the SEC registration fee, NASD fee and the Nasdaq National Market listing
fee are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC registration fee........................................ $ 30,750
NASD fee.................................................... 10,500
Nasdaq National Market listing fee.......................... 39,005
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 250,000
Printing expenses........................................... 275,000
Fees and expenses for qualification under state securities
laws (including legal fees)............................... 5,000
Transfer agent's and registrar's fees and expenses.......... 15,000
Miscellaneous............................................... 24,745
--------
Total............................................. $950,000
========
</TABLE>
- ---------------
* None of this amount is to be borne by the Selling Stockholder.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the Delaware General Corporation Law provides that a Delaware corporation may
indemnify any person against expenses, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened, pending
or completed action, suit or proceeding in which he is involved by reason of the
fact that he is or was a director, officer, employee or agent of such
corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless and only to the extent that the Delaware Court
of Chancery or the court in which the action or suit is brought determines upon
application that, despite the adjudication of liability but in light of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
As permitted by the Delaware General Corporation Law, the Registrants'
Certificate of Incorporation provides that the directors and officers of the
Registrant shall be indemnified by the Registrant against certain liabilities
that those persons may incur in their capacities as directors or officers. The
Certificate of Incorporation eliminates the liability of directors of the
Registrant, under certain circumstances, to the maximum extent permitted by the
Delaware General Corporation Law. See "Description of Capital Stock -- Special
Provisions of the Certificate of Incorporation and By-laws" included in the
Prospectus.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and in certain circumstances provides
for indemnification of the Registrant's directors and officers.
II-1
<PAGE> 98
Additionally, pursuant to an employment agreement between Mr. Silverman and
the Registrant and an employment agreement between Mr. McNairy and the
Registrant, the Registrant shall, to the maximum extent not prohibited by law,
indemnify Mr. Silverman and Mr. McNairy if Mr. Silverman or Mr. McNairy is made,
or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Registrant to
procure a judgment in its favor (collectively, a "Proceeding"), by reason of the
fact that Mr. Silverman or Mr. McNairy is or was a director or officer of the
Registrant, or is or was serving in any capacity at the request of the
Registrant for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines, penalties,
excise taxes, amounts paid in settlement and costs, charges and expenses
(including attorneys' fees and disbursements) paid or incurred in connection
with any such Proceeding. The Registrant anticipates that it may enter into
similar contractual indemnification arrangements with its other executive
officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the previous three years, the Registrant has issued and sold the
following securities without registration under the Securities Act (none of
which sales were underwritten):
The Company was formed in December 1996, at which time it issued 1,000 of
its shares of Common Stock for a cash purchase price of $1.00 per share to the
Selling Stockholder. Such issuance of shares was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as a transaction by the
issuer not involving any public offering.
On May 22, 1997, the Company effected a stock split pursuant to which the
1,000 outstanding shares of Common Stock were subdivided into 3,400,000 shares
of Common Stock. All such shares were issued to the Selling Stockholder as sole
stockholder of the Company. Such issuance was exempt from registration under the
Securities Act pursuant to Section 3(a)(9) thereof as securities exchanged by
the issuer with its existing security holders exclusively where no commission or
other remuneration was given directly or indirectly for soliciting such
exchange.
Prior to consummation of the Offering, the Company intends to issue 25,000
shares of Common Stock to Jay N. Silverman, President of the Company, at a
purchase price equal to the initial public offering price. Such purchase price
will be paid by delivery to the Company of a promissory note by Mr. Silverman.
This issuance of shares will be exempt from registration under the Securities
Act pursuant to Section 4(2) thereof as a transaction by the issuer not
involving any public offering.
Pursuant to an agreement dated June 2, 1997, contemporaneously with the
consummation of the Offering, the Company will issue an aggregate of 600,000
shares of Common Stock to Oliveira Limited, Dormera Limited, Balmedie Limited,
and Larlane Limited in exchange for the 81.0% of the outstanding shares of
Energy Research International owned by such entities. Gerald Harrison, George
Purdie, Neil Campbell, and David Burns, all of whom will be directors, officers
or employees of the Company after the consummation of the Offering, are the
beneficial owners of Oliveira Limited, Dormera Limited, Balmedie Limited, and
Larlane Limited, respectively. This issuance of shares will be exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as a
transaction by the issuer not involving any public offering.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1** -- Form of Underwriting Agreement
2.1** -- Stock Purchase Agreement dated June 2, 1997, among Gerald
Harrison, George Purdie, Neil Campbell, David Burns,
Olivera Limited, Dormera Limited, Balmedie Limited,
Larlane Limited and Registrant
3.1** -- Certificate of Incorporation, as amended
3.2** -- Amended and Restated Bylaws
4.1 -- Specimen Certificate for Registrant's common stock, par
value $0.01
5.1 -- Opinion of Gardere Wynne Sewell & Riggs, L.L.P.
10.1.1** -- Loan and Security Agreement dated July 9, 1996, between
Seitel Geophysical, Inc., as Debtor, and Nationsbanc
Leasing Corporation of North Carolina, as Secured Party
10.1.2** -- Assumption and Consent dated December 31, 1996, among
Seitel Geophysical, Inc., Eagle Geophysical, Inc.,
Nationsbanc Leasing Corporation of North Carolina and
Seitel, Inc.
10.2** -- Loan and Security Agreement dated February 6, 1997,
between Eagle Geophysical, Inc., as Debtor, and
Nationsbanc Leasing Corporation of North Carolina, as
Secured Party
10.3** -- Conditional Sales Agreement dated February 19, 1997,
between Input/Output, Inc. and Horizon Exploration
Limited ("HEL")
10.4.1** -- Installment Note ($306,180) by HEL in favor of Teledyne
Brown Engineering Marine Products
10.4.2** -- Promissory Note ($330,000) by HEL in favor of Teledyne
Industries, Inc.
10.5.1** -- Loan and Security Agreement dated February 22, 1996,
between Seitel Geophysical, Inc. and MetLife Capital
Corporation
10.5.2** -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.6.1** -- Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. and MetLife Capital,
Limited Partnership, as amended
10.6.2** -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.7.1** -- Master Lease Agreement dated February 16, 1994 between
McCullagh Leasing (a unit of GE Capital Fleet Services)
and Seitel Geophysical, Inc., as amended
10.7.2** -- Partial Assignment dated April 8, 1997 among Seitel
Geophysical, Inc., Eagle Geophysical, Inc. and GE Capital
Fleet Services
10.8** -- Term Credit and Security Agreement dated July 15, 1993,
between Seitel Geophysical, Inc. and Compass Bank (f/k/a
Central Bank of the South), as amended
10.9.1** -- Bareboat Charter by Way of Subdemise dated July 15, 1994,
between Simon-Horizon Limited ("Simon") and HEL
10.9.2** -- Management Agreement dated December 19, 1990 between
Simon and Ervik Marine Services A/S ("Ervik")
10.9.3** -- Side Letter Agreement dated December 19, 1990, between
Simon and Ervik
10.9.4** -- Assignment Agreement Relating to a Ship Management
Agreement dated December 19, 1990 (as amended) dated July
15, 1990, between Simon and HEL
10.9.5** -- Deed of Assignment of Insurances dated July 15, 1994,
between HEL and Simon
10.9.6** -- Deed of Continuing Inter-Company Cross Guarantee and
Indemnity dated July 15, 1994, by Horizon Seismic Inc.,
Exploration Holdings Limited and HEL in favor of Simon,
Simon Petroleum Technology Limited and Simon Engineering
Plc
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.9.7** -- Sublease Contract Number 1 dated July 15, 1994, between
Simon and HEL
10.9.8** -- Sublease Contract Number 2 dated July 15, 1994, between
Simon and HEL
10.9.9** -- Agreement dated July 15, 1994, among Simon, Simon
Petroleum Technology Limited, Simon Engineering Plc and
HEL
10.9.10** -- Charterparty by way of Sub-Demise dated December 20,
1996, between Royal Bank of Scotland and Simon
10.9.11** -- Addendum to Charterparty dated March 31, 1992, between
Royal Bank of Scotland and Simon
10.9.12** -- Quadripartite Agreement dated August 18, 1994, among
Simon, Royal Bank of Scotland (Industrial Leasing)
Limited, HEL and Simon Engineering plc
10.9.13** -- Master Leasing Agreement dated July 15, 1994 between
Simon and HEL
10.10** -- Contribution and Assumption Agreement dated December 31,
1996, between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.11.1** -- Agreement to Extend the Charterparty of "Pacific Horizon"
dated July 11, 1994, by and between J. Marr Limited and
HEL
10.11.2** -- Deed of Novation m.v. "Pacific Horizon" dated July 11,
1994, by and among Simon, J. Marr Limited and HEL
10.11.3** -- Pacific Horizon Charter dated February 4, 1981, between
J. Marr and Son, Limited and HEL
10.12** -- Employment Agreement between Exploration Holdings Limited
("EHL") and Gerald Harrison, as amended
10.13** -- Employment Agreement between EHL and George Purdie, as
amended
10.14** -- Employment Agreement between EHL and Neil A.M. Campbell,
as amended
10.15** -- Form of Employment Agreement Amendment between EHL and
each of Messrs. Harrison, Purdie and Campbell
10.16* -- Form of Employment Agreement between Eagle Geophysical,
Inc. and Jay Silverman
10.17** -- Employment Agreement between Eagle Geophysical, Inc. and
Richard McNairy
10.18** -- Commercial Lease dated March 10, 1994, between Ron Chase
dba Chase Properties and Eagle Geophysical, Inc./Seitel
Geophysical, Inc.
10.19** -- Modification and Ratification of Lease dated April 24,
1996, between Ron Chase dba Chase Properties and Eagle
Geophysical, Inc./Seitel Geophysical, Inc.
10.20** -- Lease dated May 28, 1996, between Partnership of
Perkins-Guidry-Beazley-Ostteen and Seitel Geophysical,
Inc.
10.21* -- Form of Sublease between Seitel, Inc. and its
subsidiaries and Eagle Geophysical, Inc.
10.22* -- Form of Master Separation Agreement between Seitel, Inc.
and Eagle Geophysical, Inc.
10.23** -- Form of Registration Rights Agreement between EHI
Holdings, Inc. and Eagle Geophysical, Inc.
10.24* -- Form of Tax Indemnity Agreement between Seitel, Inc. and
Eagle Geophysical, Inc.
10.25** -- Form of Administrative Services Agreement between Seitel,
Inc. and Eagle Geophysical, Inc.
10.26** -- Amended and Restated Promissory Note ($2,000,000) dated
July 3, 1996 by Energy Research International ("ERI") in
favor of Seitel, Inc.
10.27** -- Promissory Note ($2,679,040) dated November 15, 1996 by
ERI in favor of Seitel, Inc.
10.28 -- Form of Bonus Agreement between Eagle Geophysical, Inc.
and Paul A. Frame
10.29** -- Form of Outside Directors Deferred Compensation Plan
10.30** -- Form of Independent Directors Stock Option Plan
10.31** -- Form of Stock Option Plan
</TABLE>
II-4
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.32.1** -- Form of Promissory Note payable by Jay Silverman to Eagle
Geophysical, Inc.
10.32.2** -- Form of Subscription Agreement between Eagle Geophysical,
Inc. and Jay N. Silverman
10.32.3** -- Form of Security Agreement -- Pledge between Eagle
Geophysical, Inc. and Jay N. Silverman
10.33.1** -- The Bank of N.T. Butterfield Term Loan Facility dated
February 27, 1995
10.33.2** -- The Bank of N.T. Butterfield & Son Limited Facility
Letter dated August 23, 1994
10.33.3** -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 1 dated February 3, 1995
10.33.4** -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 2 dated February 19, 1996
10.33.5** -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 10, 1996
10.33.6** -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 19, 1997
10.34.1 -- Abshire Tide Blanket Time Charter dated February 9, 1996,
between Tidewater Marine, Inc. and Horizon Seismic Inc.
10.34.2** -- Letter Agreement dated February 12, 1996 relating to
Abshire Tide Blanket Time Charter
10.34.3** -- Tidewater Marine letter to Horizon Seismic, Inc. dated
September 19, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide
10.34.4** -- Tidewater Marine letter to Horizon Seismic, Inc. dated
March 25, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide
10.35.1** -- Supplemental Security Agreement No. One dated February
22, 1996 between Seitel Geophysical, Inc. and MetLife
Capital Corporation
10.35.2** -- Term Promissory Note ($433,000) dated March 14, 1996, by
Seitel Geophysical, Inc. in favor of MetLife Capital
Corporation
10.36** -- Service Agreement for MV Discoverer dated April 12, 1994,
between Horizon Seismic, Inc. and Shanghai Bureau of
Marine Geological Survey, as amended
10.37** -- Underlease dated April 21, 1997, between Payless
Properties Limited and HEL
10.38** -- Lease Agreement between Pincay Oaks, Inc. and HEL
10.39** -- Lease dated February 1, 1997, between Tuscan Property
Developments Limited and HEL
10.40** -- Set-off and Charge dated August 30, 1994, between HEL and
The Bank of N.T. Butterfield & Son Limited
10.41** -- Deed relating to 6 Pembroke Road Sevenoaks Kent dated
August 25, 1993, between Marley Waterproofing Limited and
HEL
10.42** -- Debenture dated August 12, 1994, between HEL and The Bank
of N.T. Butterfield & Son Limited
10.43** -- Chattel Mortgage between HEL and The Bank of N.T.
Butterfield & Son Limited
10.44** -- Form of Employment Agreement between Eagle Geophysical
and David Burns.
10.45** -- Operating Lease of Marine Seismic Equipment dated as of
July 1, 1996, between Seismic Geophysical, Inc. and HEL
10.46** -- Assignment between HEL and The Bank of NT Butterfield &
Sons Limited
10.47** -- Letter of Hypothecation and Pledge dated August 30, 1994,
between Seismic Exploration Ltd. and The Bank of N.T.
Butterfield & Son Limited
10.48** -- Lease Agreement dated January 7, 1997, between DigiCOURSE
INC. and HEL
10.49** -- Lease Agreement dated March 27, 1997, between DigiCOURSE
INC. and HEL
10.50 -- Initial Definitive Trust Deed -- Horizon Pension Plan
10.51** -- Operating Lease dated February 3, 1997, between Eagle
Geophysical, Inc. and HEL
</TABLE>
II-5
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
Inc.10.53** -- Assignment of Life Insurance dated December 9, 1993 insuring G.M. Harrison.
10.54** -- Lease dated December 12, 1995, between Newington Bricks Limited and HEL
10.55** -- Lease dated August 25, 1993, between Marley Waterproofing Limited and HEL
10.56 -- Master Agreement for Geophysical Services by and between Eagle Geophysical Onshore,
Inc. and Seitel Data, Ltd.
10.57 -- Master Agreement for Geophysical Services by and between Eagle Geophysical Onshore,
Inc. and DDD Energy, Ltd.
10.58 -- Form of Employee Benefits Allocation Agreement between Seitel, Inc. and Eagle
Geophysical, Inc.
23.1 -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.2 -- Consent of KPMG, Independent Public Accountants
23.3 -- Consent of Gardere Wynne Sewell & Riggs, L.L.P. (contained in exhibit 5.1 opinion)
27** -- Financial data schedule
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II of the
Registration Statement:
None
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-6
<PAGE> 103
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) If the Underwriters do not exercise their option to purchase additional
shares of Common Stock to cover over-allotments, if any, or if such option is
partially exercised, the Registrant hereby undertakes to file a post-effective
amendment to the Registration Statement deregistering all such shares as to
which such option shall not have been exercised.
II-7
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 11th day of July, 1997
EAGLE GEOPHYSICAL, INC.
By: /s/ JAY N. SILVERMAN
-----------------------------------------
Jay N. Silverman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of July 11, 1997
- ----------------------------------------------------- Directors
William L. Lurie
/s/ JAY N. SILVERMAN President, Chief Executive July 11, 1997
- ----------------------------------------------------- Officer and Director (Principal
Jay N. Silverman Executive Officer)
* Executive Vice President and July 11, 1997
- ----------------------------------------------------- Director
Gerald M. Harrison
* Senior Vice July 11, 1997
- ----------------------------------------------------- President -- Offshore Operations
George Purdie and Director
/s/ RICHARD W. MCNAIRY Vice President -- Chief July 11, 1997
- ----------------------------------------------------- Financial Officer and Secretary
Richard W. McNairy (Principal Financial and
Accounting Officer)
* Director July 11, 1997
- -----------------------------------------------------
Paul A. Frame
*By: /s/ JAY N. SILVERMAN
------------------------------------------------
Jay N. Silverman
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1** -- Form of Underwriting Agreement
2.1** -- Stock Purchase Agreement dated June 2, 1997, among Gerald
Harrison, George Purdie, Neil Campbell, David Burns,
Olivera Limited, Dormera Limited, Balmedie Limited,
Larlane Limited and Registrant
3.1** -- Certificate of Incorporation, as amended
3.2** -- Amended and Restated Bylaws
4.1 -- Specimen Certificate for Registrant's common stock, par
value $0.01
5.1 -- Opinion of Gardere Wynne Sewell & Riggs, L.L.P.
10.1.1** -- Loan and Security Agreement dated July 9, 1996, between
Seitel Geophysical, Inc., as Debtor, and Nationsbanc
Leasing Corporation of North Carolina, as Secured Party
10.1.2** -- Assumption and Consent dated December 31, 1996, among
Seitel Geophysical, Inc., Eagle Geophysical, Inc.,
Nationsbanc Leasing Corporation of North Carolina and
Seitel, Inc.
10.2** -- Loan and Security Agreement dated February 6, 1997,
between Eagle Geophysical, Inc., as Debtor, and
Nationsbanc Leasing Corporation of North Carolina, as
Secured Party
10.3** -- Conditional Sales Agreement dated February 19, 1997,
between Input/Output, Inc. and Horizon Exploration
Limited ("HEL")
10.4.1** -- Installment Note ($306,180) by HEL in favor of Teledyne
Brown Engineering Marine Products
10.4.2** -- Promissory Note ($330,000) by HEL in favor of Teledyne
Industries, Inc.
10.5.1** -- Loan and Security Agreement dated February 22, 1996,
between Seitel Geophysical, Inc. and MetLife Capital
Corporation
10.5.2** -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.6.1** -- Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. and MetLife Capital,
Limited Partnership, as amended
10.6.2** -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.7.1** -- Master Lease Agreement dated February 16, 1994 between
McCullagh Leasing (a unit of GE Capital Fleet Services)
and Seitel Geophysical, Inc., as amended
10.7.2** -- Partial Assignment dated April 8, 1997 among Seitel
Geophysical, Inc., Eagle Geophysical, Inc. and GE Capital
Fleet Services
10.8** -- Term Credit and Security Agreement dated July 15, 1993,
between Seitel Geophysical, Inc. and Compass Bank (f/k/a
Central Bank of the South), as amended
10.9.1** -- Bareboat Charter by Way of Subdemise dated July 15, 1994,
between Simon-Horizon Limited ("Simon") and HEL
10.9.2** -- Management Agreement dated December 19, 1990 between
Simon and Ervik Marine Services A/S ("Ervik")
10.9.3** -- Side Letter Agreement dated December 19, 1990, between
Simon and Ervik
10.9.4** -- Assignment Agreement Relating to a Ship Management
Agreement dated December 19, 1990 (as amended) dated July
15, 1990, between Simon and HEL
10.9.5** -- Deed of Assignment of Insurances dated July 15, 1994,
between HEL and Simon
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.9.6** -- Deed of Continuing Inter-Company Cross Guarantee and
Indemnity dated July 15, 1994, by Horizon Seismic Inc.,
Exploration Holdings Limited and HEL in favor of Simon,
Simon Petroleum Technology Limited and Simon Engineering
Plc
10.9.7** -- Sublease Contract Number 1 dated July 15, 1994, between
Simon and HEL
10.9.8** -- Sublease Contract Number 2 dated July 15, 1994, between
Simon and HEL
10.9.9** -- Agreement dated July 15, 1994, among Simon, Simon
Petroleum Technology Limited, Simon Engineering Plc and
HEL
10.9.10** -- Charterparty by way of Sub-Demise dated December 20,
1996, between Royal Bank of Scotland and Simon
10.9.11** -- Addendum to Charterparty dated March 31, 1992, between
Royal Bank of Scotland and Simon
10.9.12** -- Quadripartite Agreement dated August 18, 1994, among
Simon, Royal Bank of Scotland (Industrial Leasing)
Limited, HEL and Simon Engineering plc
10.9.13** -- Master Leasing Agreement dated July 15, 1994 between
Simon and HEL
10.10** -- Contribution and Assumption Agreement dated December 31,
1996, between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc.
10.11.1** -- Agreement to Extend the Charterparty of "Pacific Horizon"
dated July 11, 1994, by and between J. Marr Limited and
HEL
10.11.2** -- Deed of Novation m.v. "Pacific Horizon" dated July 11,
1994, by and among Simon, J. Marr Limited and HEL
10.11.3** -- Pacific Horizon Charter dated February 4, 1981, between
J. Marr and Son, Limited and HEL
10.12** -- Employment Agreement between Exploration Holdings Limited
("EHL") and Gerald Harrison, as amended
10.13** -- Employment Agreement between EHL and George Purdie, as
amended
10.14** -- Employment Agreement between EHL and Neil A.M. Campbell,
as amended
10.15** -- Form of Employment Agreement Amendment between EHL and
each of Messrs. Harrison, Purdie and Campbell
10.16* -- Form of Employment Agreement between Eagle Geophysical,
Inc. and Jay Silverman
10.17** -- Employment Agreement between Eagle Geophysical, Inc. and
Richard McNairy
10.18** -- Commercial Lease dated March 10, 1994, between Ron Chase
dba Chase Properties and Eagle Geophysical, Inc./Seitel
Geophysical, Inc.
10.19** -- Modification and Ratification of Lease dated April 24,
1996, between Ron Chase dba Chase Properties and Eagle
Geophysical, Inc./Seitel Geophysical, Inc.
10.20** -- Lease dated May 28, 1996, between Partnership of
Perkins-Guidry-Beazley-Ostteen and Seitel Geophysical,
Inc.
10.21* -- Form of Sublease between Seitel, Inc. and its
subsidiaries and Eagle Geophysical, Inc.
10.22* -- Form of Master Separation Agreement between Seitel, Inc.
and Eagle Geophysical, Inc.
10.23** -- Form of Registration Rights Agreement between EHI
Holdings, Inc. and Eagle Geophysical, Inc.
10.24* -- Form of Tax Indemnity Agreement between Seitel, Inc. and
Eagle Geophysical, Inc.
10.25** -- Form of Administrative Services Agreement between Seitel,
Inc. and Eagle Geophysical, Inc.
10.26** -- Amended and Restated Promissory Note ($2,000,000) dated
July 3, 1996 by Energy Research International ("ERI") in
favor of Seitel, Inc.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.27** -- Promissory Note ($2,679,040) dated November 15, 1996 by
ERI in favor of Seitel, Inc.
10.28 -- Form of Bonus Agreement between Eagle Geophysical, Inc.
and Paul A. Frame
10.29** -- Form of Outside Directors Deferred Compensation Plan
10.30** -- Form of Independent Directors Stock Option Plan
10.31** -- Form of Stock Option Plan
10.32.1** -- Form of Promissory Note payable by Jay Silverman to Eagle
Geophysical, Inc.
10.32.2** -- Form of Subscription Agreement between Eagle Geophysical,
Inc. and Jay N. Silverman
10.32.3** -- Form of Security Agreement -- Pledge between Eagle
Geophysical, Inc. and Jay N. Silverman
10.33.1** -- The Bank of N.T. Butterfield Term Loan Facility dated
February 27, 1995
10.33.2** -- The Bank of N.T. Butterfield & Son Limited Facility
Letter dated August 23, 1994
10.33.3** -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 1 dated February 3, 1995
10.33.4** -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 2 dated February 19, 1996
10.33.5** -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 10, 1996
10.33.6** -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 19, 1997
10.34.1 -- Abshire Tide Blanket Time Charter dated February 9, 1996,
between Tidewater Marine, Inc. and Horizon Seismic Inc.
10.34.2** -- Letter Agreement dated February 12, 1996 relating to
Abshire Tide Blanket Time Charter
10.34.3** -- Tidewater Marine letter to Horizon Seismic, Inc. dated
September 19, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide
10.34.4** -- Tidewater Marine letter to Horizon Seismic, Inc. dated
March 25, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide
10.35.1** -- Supplemental Security Agreement No. One dated February
22, 1996 between Seitel Geophysical, Inc. and MetLife
Capital Corporation
10.35.2** -- Term Promissory Note ($433,000) dated March 14, 1996, by
Seitel Geophysical, Inc. in favor of MetLife Capital
Corporation
10.36** -- Service Agreement for MV Discoverer dated April 12, 1994,
between Horizon Seismic, Inc. and Shanghai Bureau of
Marine Geological Survey, as amended
10.37** -- Underlease dated April 21, 1997, between Payless
Properties Limited and HEL
10.38** -- Lease Agreement between Pincay Oaks, Inc. and HEL
10.39** -- Lease dated February 1, 1997, between Tuscan Property
Developments Limited and HEL
10.40** -- Set-off and Charge dated August 30, 1994, between HEL and
The Bank of N.T. Butterfield & Son Limited
10.41** -- Deed relating to 6 Pembroke Road Sevenoaks Kent dated
August 25, 1993, between Marley Waterproofing Limited and
HEL
10.42** -- Debenture dated August 12, 1994, between HEL and The Bank
of N.T. Butterfield & Son Limited
10.43** -- Chattel Mortgage between HEL and The Bank of N.T.
Butterfield & Son Limited
10.44** -- Form of Employment Agreement between Eagle Geophysical
and David Burns.
10.45** -- Operating Lease of Marine Seismic Equipment dated as of
July 1, 1996, between Seismic Geophysical, Inc. and HEL
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.46** -- Assignment between HEL and The Bank of NT Butterfield &
Sons Limited
10.47** -- Letter of Hypothecation and Pledge dated August 30, 1994,
between Seismic Exploration Ltd. and The Bank of N.T.
Butterfield & Son Limited
10.48** -- Lease Agreement dated January 7, 1997, between DigiCOURSE
INC. and HEL
10.49** -- Lease Agreement dated March 27, 1997, between DigiCOURSE
INC. and HEL
10.50 -- Initial Definitive Trust Deed -- Horizon Pension Plan
10.51** -- Operating Lease dated February 3, 1997, between Eagle
Geophysical, Inc. and HEL
10.52** -- Contribution Agreement dated as of May 30, 1997, between
Seitel, Inc. and Eagle Geophysical, Inc.
10.53** -- Assignment of Life Insurance dated December 9, 1993
insuring G.M. Harrison.
10.54** -- Lease dated December 12, 1995, between Newington Bricks
Limited and HEL
10.55** -- Lease dated August 25, 1993, between Marley Waterproofing
Limited and HEL
10.56 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and Seitel Data, Ltd.
10.57 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and DDD Energy, Inc.
10.58 -- Form of Employee Benefits Allocation Agreement between
Seitel, Inc. and Eagle Geophysical, Inc.
23.1 -- Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2 -- Consent of KPMG, Independent Public Accountants
23.3 -- Consent of Gardere Wynne Sewell & Riggs, L.L.P.
(contained in exhibit 5.1 opinion)
27** -- Financial data schedule
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE [LOGO] THIS CERTIFICATE IS
LAWS OF THE STATE OF DELAWARE TRANSFERABLE IN NEW YORK,
N.Y. OR RIDGEFIELD PARK, N.J.
EAGLE GEOPHYSICAL, INC.
CUSIP 269524 10 4
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
EAGLE GEOPHYSICAL, INC.
(herein called the "Corporation") transferable on the books of the Corporation
by the holder hereof, in person or by a duly authorized attorney, upon
surrender of this Certificate properly endorsed or accompanied by a proper
assignment. This Certificate and the shares represented hereby are issued under
and shall be subject to all of the provisions of the Certificate of
Incorporation and the Bylaws of the Corporation, and all amendments thereto,
copies of which are on file at the principal office of the Corporation and the
Transfer Agent, to all of which the holder of this Certificate, by acceptance
hereof, assents. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures
of its duly authorized officers and its facsimile seal to be hereunto affixed.
Dated:
COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES
TRANSFER AGENT
BY
AUTHORIZED SIGNATURE
[EAGLE GEOPHYSICAL, INC. SEAL]
/s/ JAY N. SILVERMAN /s/ R. W. McNAIRY
PRESIDENT SECRETARY
<PAGE> 2
\ EAGLE GEOPHYSICAL, INC.
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences, and relative, participating,
optional, or other special rights of each class of stock or series thereof of
the Corporation, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ----------- -----------
entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts to
right of survivorship Minors Act
and not as tenants ---------------------
in common (State)
UNIF TRF MIN ACT - Custodian (until
-------------
(Cust)
age ) under Uniform
------------
(Minor)
Transfers to Minors Act
-------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
-----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
--------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
---------------------------------
X
-------------------------------------------
(SIGNATURE)
X
-------------------------------------------
(SIGNATURE)
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-16.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
- --------------------------------------------------------------------------------
- --------------------------------------------------------
AMERICAN BANK NOTE COMPANY JUNE 23, 1997 se
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 051248bk
(562) 989-2333
(FAX) (562) 426-7450 Proof /s/ [ILLEGIBLE] NEW
-----------------
- --------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
July 11, 1997
Eagle Geophysical, Inc.
50 Briar Hollow Lane
6th Floor, West Building
Houston, Texas 77027
Gentlemen;
We have served as counsel for Eagle Geophysical, Inc., a Delaware
corporation (the "Company") in connection with Registration Statement on Form
S-1 (No. 333-28303) (the "Registration Statement"), filed with the Securities
and Exchange Commission on June 2, 1997, covering the proposed public offering
of 4,000,000 shares of Common Stock, par value $0.01 per share, of the Company
(the "Common Stock") to be issued and sold by the Company (the "Company
Shares") and 1,880,000 shares of Common Stock (the "Selling Stockholder
Shares") to be sold by EHI Holdings, Inc. (the "Selling Stockholder"). In
addition, the Registration Statement covers the proposed public offering,
subject to the exercise of overallotment options granted by certain additional
selling stockholders (the "Additional Selling Stockholders"), the Company, and
the Selling Stockholder, of 188,000 shares of Common Stock to be sold by the
Additional Selling Stockholders (the "Additional Selling Stockholder Shares"),
602,000 shares of Common Stock to be issued and sold by the Company (the
"Company Overallotment Shares"), and 100,000 shares of Common Stock to be sold
by the Selling Stockholder (the "Selling Stockholder Overallotment Shares").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinions expressed
below. Based upon the foregoing, we are of the opinion that:
1. The Company Shares and the Company Overallotment Shares, when
sold, issued and delivered in the manner and for the consideration stated in
the Prospectus constituting a part of the Registration Statement and in the
Underwriting Agreement described in the Registration Statement, will be duly
authorized, validly issued, fully paid and nonassessable.
2. The Selling Stockholder Shares and the Selling Stockholder
Overallotment Shares are duly authorized, validly issued, fully paid and
nonassessable.
<PAGE> 2
Eagle Geophysical, Inc.
July 11, 1997
Page 2
3. The Additional Selling Stockholder Shares, when sold, issued
and delivered by the Company to the Additional Selling Stockholders in the
manner and for the consideration stated in the Prospectus constituting a part
of the Registration Statement and in the Stock Purchase Agreement dated May 30,
1997 among the Company and the Additional Selling Stockholders described in the
Registration Statement, will be duly authorized, validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and the to the use of our name in the Registration
Statement and in the Prospectus included therein under the heading "Legal
Matters."
Very truly yours,
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
By: /s/ WILLIAM MARK YOUNG
-------------------------------------
William Mark Young, Partner
<PAGE> 1
EXHIBIT 10.28
BONUS AGREEMENT
THIS BONUS AGREEMENT (this "Agreement"), is entered into as of
___________, 1997 (the "Effective Date"), by and between EAGLE GEOPHYSICAL,
INC., a Delaware corporation (the "Company"), and PAUL A. FRAME ("Frame").
WHEREAS, Frame is a director of the Company; and
WHEREAS, in addition to his duties as a director, the Company desires
for Frame to provide services to the Company relating to marketing of the
Company's services and expansion of the Company's business, and Frame desires
to provide such services pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual agreements herein, the
parties agree as follows:
1. Duties. Frame agrees to provide services to the Company, in
addition to his services as a director, relating to marketing the Company's
services and expansion of the Company's business for a term commencing on the
Effective Date, and expiring December 31, 1999 (the "Term"). Frame shall be
primarily responsible for expansion of the Company's domestic and international
business and in that connection will initiate, develop and propose to the
Company Board of Directors strategies for expansion of the Company's onshore
and offshore domestic and international businesses. During the Term, Frame
shall devote all reasonable efforts and 20% of his professional time and
services to the Company, subject to the direction of the Board of Directors of
the Company (the "Board"). The Company acknowledges that Frame is the
President and Chief Executive Officer of Seitel, Inc., and as such will devote
the balance of his professional time and services to Seitel, Inc.
2. Compensation. As compensation for the services provided by
Frame to the Company hereunder, the Company shall pay Frame an annual Revenue
Increase Bonus and an annual Profit Bonus as set forth in this Section 2. The
Revenue Increase Bonus and the Profit Bonus are hereinafter collectively
referred as the "Bonuses."
2.1 Revenue Increase Bonus.
2.1.1 Grant of Revenue Increase Bonus. Frame shall
receive a revenue increase bonus, if earned, with respect to the fiscal years
ending during the Term (the "Revenue Increase Bonus"), calculated in accordance
with this Section 2.1.
2.1.2 Calculation of Bonus. If the Company's gross
revenues for any year during the term exceed the Company's gross revenues for
the previous year, the Company shall pay Frame a Revenue Increase Bonus equal
to 1.0% of the difference between the gross revenues for such year and the
gross revenues for the previous year. For purposes of calculation of the
Revenue Increase Bonus only, gross revenues for a particular year will not
include revenues attributable to mergers or acquisitions in the year of such
merger or acquisition, unless such year is the final year of the Term. In
addition, gross revenues for the Company for the year ended December 31, 1996
shall be deemed to be $90,915,000.
<PAGE> 2
2.2 Profit Bonus.
2.2.1 Grant of Profit Bonus. Frame shall receive a
profit bonus, if earned, with respect to the fiscal years ending during the
Term (the "Profit Bonus"), calculated in accordance with this Section 2.2;
provided, however, that no Profit Bonus will be payable for any fiscal year if
the Net After-Tax Profits (as hereinafter defined) for such fiscal year are
less than or equal to $800,000.
2.2.2 Net After-Tax Profits. "Net After-Tax
Profits" means the amount of net profits of the Company calculated by the chief
financial officer of the Company applying generally accepted accounting
principles and such other accounting principles and assumptions as may be
reasonable, and subtracting therefrom all income tax liabilities of the
Company.
2.2.3 Calculation of Bonus. If the Company's Net
After-Tax Profits for any year during the term exceed $800,000, the Company
shall pay Frame a Profit Bonus equal to 4.0% of the difference between the Net
After-Tax Profits for such year and $800,000.
2.3 Proration of Bonuses. For purposes of determining
the Bonuses payable to Frame hereunder attributable to the Company's fiscal
year ending December 31, 1997 the gross revenues of the Company for the year
ending December 31, 1996 shall be reduced to an amount equal to $90,915,000
multiplied by a fraction the numerator of which is the number of days from the
Effective Date to and including December 31, 1997 and the denominator of which
is 365 (the "Proration Formula") and for purposes of calculating the Profit
Bonus, $800,000 shall be reduced to an amount equal to $800,000 multiplied by
the Proration Formula.
For purposes of calculating the Bonuses payable to Frame in 1998 and
thereafter the gross revenues of the Company for the year ended December 31,
1997 shall be annualized.
2.4 Payment of Bonuses. The chief financial officer of
the Company shall calculate the gross revenues, Net After-Tax Profits, and any
Bonuses payable to Frame in connection therewith, shall certify such
calculations and shall deliver such calculations to Frame and the Chairman of
the Company Compensation Committee (for his review and approval) as soon as
reasonably practicable after the end of each fiscal year during the Term, but
in any event within seventy-five (75) days following the end of such fiscal
year. Any Bonuses payable hereunder shall be paid by the Company to Frame
within fifteen (15) days of delivery of such calculations by the chief
financial officer and in any event within ninety (90) days following the end of
the applicable fiscal year.
2.4 Section 162(m) Compensation Deferral.
Notwithstanding anything herein to the contrary, if the total compensation
payable to Frame by the Company during any year would cause the Company to lose
the federal income tax deduction for any portion of such compensation under
Section 162(m) of the Internal Revenue Code if 1986, as amended (the "Code"):
(a) the amount of compensation payable by the Company to Frame during such year
shall be reduced to the maximum amount for which the Company may receive a
current deduction under Section 162(m) of the Code, and (b) the excess of such
compensation shall be deferred and paid by the Company to Frame (without
interest) at such time (whether during the Term or after the expiration of the
Term) as the Company may pay such deferred compensation
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<PAGE> 3
to Frame and receive a corresponding federal income tax deduction under Section
162(m) of the Code.
3. Grant of Option. The Company agrees to grant Frame, pursuant
to the terms of the Company's Option Plan created in connection with the
initial public offering (the "IPO") of the Company's common stock, options to
acquire one hundred thousand (100,000) shares of Eagle's common stock, at an
exercise price equal to the IPO issue price, effective at the time of
completion of the IPO. Such stock options shall vest on the fifth anniversary
of the date of grant, subject to (i) performance by Frame of his duties under
this agreement and (ii) earlier vesting in cumulative installments of one-third
of the total shares subject thereto when the Company's gross revenues reach
$150,000,000, $175,000,000, and $200,000,000, respectively, if the Company's
Net After-Tax Profits are at least 4% of gross revenues for the fiscal year in
which such revenue target is attained. Such options will expire ten years from
the date of grant.
4. Confidentiality and Company Property.
4.1 Confidential Information.
4.1.1 Frame acknowledges that the Company has a
legitimate and continuing proprietary interest in the protection of its
confidential information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. The Company agrees to provide Frame access to
confidential information in conjunction with Frame's duties, including, without
limitation, information of a technical and business nature regarding the
Company's past, current or anticipated business that may encompass financial
information, financial figures, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans,
business acquisition plans, Company employee information, organizational
charts, new personnel acquisition plans, technical processes, designs and
design projects, inventions and research projects, ideas, discoveries,
inventions, improvements, trade secrets, design specifications, writings and
other works of authorship (collectively, "Intellectual Property"). In
exchange, as an independent covenant, Frame agrees not to make any unauthorized
use, publication, or disclosure, during or subsequent to the term of this
Agreement, of any Intellectual Property of a confidential or trade secret
nature, generated or acquired by him during the course of this Agreement,
except to the extent that the disclosure of Intellectual Property is necessary
to fulfill his responsibilities hereunder or as a director of the Company.
Frame understands that confidential matters and trade secrets include
information not generally known by or available to the public about or
belonging to the Company, its divisions, subsidiaries, and related affiliates,
or belonging to other companies to whom the Company, its divisions,
subsidiaries, and related affiliates may have an obligation to maintain
information in confidence, and that authorization for public disclosure may
only be obtained through the Company's written consent.
4.1.2 Frame further agrees not to disclose to the
Company, or induce any personnel of the Company to use, any confidential
information, trade secret, or confidential material belonging to others.
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<PAGE> 4
4.1.3 Frame agrees that the covenants set forth in
Sections 4.1.1 and 4.1.2 are independent covenants and indefinite obligations
binding upon Frame both during and after the termination of Frame's
relationship with the Company.
4.2 Property of the Company. All memoranda, notes,
lists, records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof) relating to
the Company, including such items stored in computer memories, microfiche or by
any other means, made or compiled by or on behalf of Frame after the date
hereof, or made available to Frame after the date hereof relating to the
Company, its affiliates or any entity which may hereafter become an affiliate
thereof, shall be the property of the Company, and shall be delivered to the
Company promptly upon the termination of this Agreement or at any other time
upon request; provided, however, that Frame's address books, diaries,
chronological correspondence files and rolodex files shall be deemed to be
property of Frame.
4.3 Rights and Remedies Upon Breach. If Frame breaches,
or threatens to commit a breach of, any of the provisions contained in Section
4.1 of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
4.3.1 Specific Performance. The right and remedy
to have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
4.3.2 Accounting. The right and remedy to require
Frame to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits derived or received by Frame as
the result of any action constituting a breach of the Restrictive Covenants.
5. Other Provisions.
5.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "affiliate" with respect to the Company means any
other person controlled by or under common control with the Company
but shall not include any stockholder or director of the Company, as
such.
(ii) "person" means any individual, corporation,
partnership, firm, joint Company, association, joint-stock company,
trust, unincorporated organization, governmental or regulatory body or
other entity.
(iii) "subsidiary" means any corporation 50% or more
of the voting securities of which are owned directly or indirectly by
the Company.
4
<PAGE> 5
5.2 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, on the date of actual receipt thereof, as follows:
(i) if to the Company, to:
Eagle Geophysical, Inc.
50 Briar Hollow Lane
West Building, 6th Floor
Houston, Texas 77027
Attention: President
(ii) if to Frame, to:
Paul A. Frame
50 Briar Hollow Lane
West Building, 7th Floor
Houston, Texas 77027
Any party may change its address for notice hereunder by notice to the other
party hereto.
5.3 Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
5.4 Waivers and Amendments. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any
party of any such right, power or privilege hereunder, nor any single or
partial exercise of any right, power or privilege hereunder, preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
5.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas (without giving
effect to the choice of law provisions thereof) where the employment of Frame
shall be deemed, in part, to be performed and enforcement of this Agreement or
any action taken or held with respect to this Agreement shall be taken in the
courts of appropriate jurisdiction in Houston, Texas.
5.6 Assignment. This Agreement, and any rights and
obligations hereunder, may not be assigned by Frame and may be assigned by the
Company only to a successor by merger or purchasers of substantially all of the
assets of the Company.
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<PAGE> 6
5.7 Counterparts. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
5.8 Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
5.9 Dispute Resolution. If any dispute arises out of or
relates to this Agreement, or the breach thereof, Frame and the Company agree
to promptly negotiate in good faith to resolve such dispute. If the dispute
cannot be settled by the parties through negotiation, Frame and the Company
agree to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association before
resorting to arbitration, litigation or any other dispute resolution procedure.
If the parties are unable to settle the dispute by mediation as provided in the
preceding sentence, any claim, controversy or dispute arising out of or
relating to this Agreement, or the breach thereof, shall be settled by binding
arbitration before a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted in Houston, Harris County, Texas, or such other
location to which the parties mutually agree. The decision of the
arbitrator(s) shall be final and binding and judgment upon the award rendered
may be entered in any court having jurisdiction thereof. The costs of
mediation and arbitration may be awarded to either party by the mediator or the
arbitrators and absent such award shall be borne equally by the parties.
5.10 Binding Agreement. This Agreement shall inure to the
benefit of and bit binding upon the Company and its respective successors and
assigns and Frame and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EAGLE GEOPHYSICAL, INC.
By:
----------------------------------
Jay N. Silverman, President
-------------------------------------
PAUL A. FRAME
6
<PAGE> 1
EXHIBIT 10.34.1
BLANKET TIME CHARTER
This Agreement made and entered into this 9th day of February, 1996,
by and between TIDEWATER MARINE, INC., a Louisiana corporation (hereinafter
called "OWNER") and HORIZON SEISMIC INC., a Texas corporation (hereinafter
called "CHARTERER").
W I T N E S S E T H:
WHEREAS, OWNER, is the demise owner and operator of various offshore
supply, crew and utility vessels (hereinafter sometimes referred to as "vessel
or "vessels"), which vessels are suitably equipped for CHARTERER's offshore
activities in the mineral and oil industry.
WHEREAS, CHARTERER may from time to time desire to time charter one or
more of said vessels for the purpose of performing such marine services in
support of CHARTERER's operations.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises and agreements herein contained, OWNER agrees to time charter and
CHARTERER agrees to hire such of OWNER's vessels as OWNER and CHARTERER shall
designate subject to the following terms and conditions:
I.
CHARTERER shall designate the vessel or vessels it desires from time
to time to hire by notifying OWNER of the particular vessel CHARTERER desires
to hire and by specifying the date that CHARTERER desires the vessel to be
delivered. If OWNER has such a vessel
<PAGE> 2
available and if the parties reach agreement on the details particular to that
vessel's charter (such as rate of hire), the vessel will be delivered to
CHARTERER in accordance herewith. As soon thereafter as is practicable, OWNER
shall mail to CHARTERER a letter on a form substantially identical to the form
attached hereto as Exhibit "A" which letter shall confirm the details of the
charter of the said vessel as between the parties. Even if OWNER shall fail to
send such letter or CHARTERER fails to acknowledge such letter, this Charter
and the verbally agreed details shall apply to any vessel delivered to
CHARTERER by OWNER in the absence of a separate charter covering such vessel.
II.
It is understood that OWNER is under no obligation to let any of its
vessels and that CHARTERER is under no obligation to hire any of OWNER's
vessels except that which CHARTERER may request or ask for during the term
hereof; it being the intent of the parties hereto that this is a nonexclusive
vessel rental contract, and that no vessel shall be considered let or hired
until same is delivered by OWNER to CHARTERER pursuant to mutual agreement.
III.
The vessel shall be delivered to CHARTERER at the port previously
agreed upon with such modifications as may be agreed for the particular job
involved and being on her delivery properly equipped and in every respect
seaworthy and in good running order and in every way fit and ready for
CHARTERER's use and for the employment intended so far as the exercise
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<PAGE> 3
of due diligence can make her; and OWNER undertakes to so maintain the vessel
during the period of service under this Charter.
The vessel (unless lost) shall, at the termination of each individual
charter hereunder, be redelivered to OWNER at the same port at which it was
accepted by CHARTERER (unless a different port of redelivery is agreed upon).
Throughout the term hereof, OWNER shall maintain in full force and
affect on the vessel any required United States Coast Guard documents and
Inspection Certificates, together with any other documents required of the
vessel.
IV.
For the use of said vessel, CHARTERER shall pay OWNER at the rate
previously agreed upon for each day or each part of a day, beginning on the day
said vessel is delivered to CHARTERER and ending on the day the vessel is
redelivered to OWNER, OWNER shall invoice CHARTERER at 11200 Westheimer, Suite
410, Houston, Texas 77042, on or before the first day of the calendar month to
which the invoice relates; and CHARTERER shall pay the amount of such invoice
to OWNER on or before the last day of the calendar month to which the invoice
relates. In the event the vessel is delivered to CHARTERER on any day other
than the first day of the calendar month, OWNER shall, on or before the date of
delivery, invoice CHARTERER for the delivery date and for the number of days
remaining in the calendar month after the delivery date; and CHARTERER shall
pay the amount of such invoice to OWNER on or before the last day of the
calendar month in which delivery took place. If the vessel is lost, payment
shall be made up to and including the date of her loss. Payment shall be made
to
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<PAGE> 4
OWNER, or its assigns, at Post Office Box 61620, New Orleans, Louisiana 70161,
or elsewhere as designated.
Should CHARTERER contest the amount of any invoice it shall, prior to
the payment due date, notify OWNER in writing of the contested amount and
specify the reason(s) therefor, whereupon payment of the contested amount will
be suspended until settlement of the dispute. The uncontested amount shall,
however, be paid within the term set forth hereinabove.
V.
The vessel shall be used for the lawful movement of materials and
personnel incidental to CHARTERER's operations in seismic operations in the
Gulf of Mexico. For reasons of safety, the vessel shall not be used for live
diving (also known as live boating).
VI
Owner shall man, victual, maintain, navigate and supply the vessel at
its expense. However, CHARTERER shall provide all fuel, oil and greases,
replacement firefighting foam, and potable water for the vessel at its expense,
or CHARTERER may direct OWNER to secure same and reimburse OWNER for the
properly documented cost thereof plus a fifteen (15%) percent handling charge;
provided, however, that CHARTERER shall not be obliged to pay a handling fee
for any consumable items arranged for by OWNER but billed to and paid for by
CHARTERER. Wharfage, port charges, dockage and safe berths will be provided by
CHARTERER at its expense. Except as otherwise agreed, CHARTERER on delivery and
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<PAGE> 5
OWNER on redelivery shall take over and pay the other party for the inventory
of fuel and lubricants aboard the vessel, utilizing then current prices in the
ports of delivery and redelivery, respectively.
VII.
As respects safety, the operation, navigation and management of the
vessel shall be under the exclusive control and command of OWNER. Subject
always to the right of the master to determine whether a movement may be safely
undertaken, the vessel will be operated, and services herein described will be
rendered, at times as requested by CHARTERER's party chief, who shall be in
charge of CHARTERER's seismic operations. OWNER is an independent contractor
and neither it nor its employees nor the master or crew are servants, agents,
or employees of CHARTERER, CHARTERER being interested only in the contemplated
performance of the services herein provided.
The crew will not be required to load or unload cargo or seismic
equipment, other than ship's stores and consumables.
VIII.
CHARTERER may install additional equipment in connection with its
operations, provided that without the written consent of OWNER no structural
changes shall be made. All equipment installed by CHARTERER shall remain its
property and shall be removed by it before redelivery, and the vessel must be
restored to the same condition as it was prior to the installation of equipment
or structural change, all at CHARTERER's expense.
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<PAGE> 6
IX.
OWNER agrees to indemnify and hold harmless CHARTERER of and from all
liens created and imposed on the vessel (except such liens as might arise out
of the obligations imposed herein on CHARTERER) as a result of the manning,
operating, victualing, maintaining, supplying, navigating and managing of the
vessel.
X.
Should the vessel breakdown or become inoperative for any cause
attributable to the vessel, other than negligence of CHARTERER or for any cause
attributable to CHARTERER or due to the nature of CHARTERER's seismic
operations and such condition continues for as long as twenty-four (24) hours
in any calendar month (hereinafter referred to as "Compensable Downtime"), the
vessel's agreed rate of hire shall cease for the time thereby lost in excess of
said Compensable Downtime.
Should there be any unused Compensable Downtime from previous
month(s), such time shall be accrued by OWNER and applied to the current month,
or used for regularly drydocking and maintenance, but such Compensable Downtime
shall not exceed a cumulative total of twelve (12) days at any one time. In
addition to said Compensable Downtime, OWNER shall be entitled to perform or
have performed repairs or maintenance on the vessel without reduction of
charter hire, provided that such repairs or maintenance do not interfere with
CHARTERER's operations.
OWNER'S liability to CHARTERER as a result of the vessel breaking down
or becoming inoperative shall be limited to the interruption of charter hire as
set forth above, and OWNER
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<PAGE> 7
shall not be responsible for any resulting consequential or special damages,
including, without limitation, loss of profit or loss of use.
XI.
OWNER shall during the term hereof procure and maintain in effect the
following insurance:
(i) Hull and Machinery Insurance in the amount set forth in the letter
agreement contemplated herein, which is agreed to be the market value
of the vessel, on the American Institute Hull Clauses June 2, 1977
Form, or equivalent, excluding Collision/Towers Liability, with
navigation limits adequate for the vessel's trade, and subject to a
deductible not to exceed $50,000.00 which deductible shall be for
OWNER's account.
(ii) Protection and Indemnity Insurance covering the liabilities of
OWNER in the amount of $2,000,000.00 on the Ocean P & I Clauses SP-23
Form or equivalent, including Collision/Towers Liability and crew
coverage, but excluding Cargo Liability and those risks, if any,
assumed or insured by CHARTERER in this Charter. Such insurance may be
subject to a deductible not to exceed $20,000.00 per occurrence. Such
deductibles shall be for OWNER's account.
The aforesaid policies shall include CHARTERER, in its capacity as
time charterer of the vessel, as an additional assured, but only with respect
to the risks and obligations assumed by OWNER in this Charter, and shall
contain a waiver of subrogation in favor of CHARTERER with respect to such
risks and obligations assumed by OWNER in this Charter. The policies
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<PAGE> 8
shall contain a provision requiring fourteen (14) days notice to CHARTERER from
insurers prior to cancellation or substantial modification of such policies.
CHARTERER shall be provided proper evidence of such instance upon its request.
XII.
CHARTERER shall pay or reimburse OWNER for all permits, clearance
expenses, customs fees, duties (import or otherwise), pilotage fees, agency
fees and related costs which result from CHARTERER's use of the vessel or from
the cargo carried for CHARTERER. CHARTERER shall also pay all taxes applicable
to CHARTERER or to the operation or use of the vessel.
XII.
In order that all operations contemplated herein can be safely
undertaken, especially mooring and anchoring operations, it shall be the
obligation of CHARTERER to provide OWNER or the vessel's master with accurate,
up-to-date flowline charts or other relevant information regarding the location
and existence of sub-sea pipelines, structures, or equipment.
XIV.
Neither CHARTERER, its employees, nor their respective underwriters
shall have any liability for loss of or damage to the vessel or to any other
property owned, rented, leased or used by OWNER in carrying out its operations
under this Charter, or for injury to, illness or death of the crew of the
vessel, employees of OWNER or of the registered owner of the vessel,
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<PAGE> 9
or of the vessel's operator, their contractors or subcontractors or their
employees, however, said loss, damage injury, illness or death arises or
occurs, whether through the negligence in whole or in part of CHARTERER, its
employees, unseaworthiness of the vessel or otherwise; and OWNER shall protect,
defend, indemnify and hold harmless CHARTERER, its employees, and their
respective underwriters from and against any claim, suit, loss, liability,
expense, demand, cost or damage as a result of such loss, damage injury,
illness or death.
Neither OWNER, the registered owner of the vessel, the company
operating the vessel, their employees, the vessel, its master and crew, nor
their respective underwriters shall have any liability for loss of or damage to
any property owned, rented, leased or used by CHARTERER (other than the vessel
itself) in connection with its seismic operations utilizing the vessel
(including all equipment, cargo, and machinery laden upon, carried aboard,
towed by, or installed on the vessel), or for injury to, illness or death of
the personnel or employees of CHARTERER, or CHARTERER's contractors or
subcontractors or their employees (except OWNER, the registered owner of the
vessel, the vessel's operator, their employees, and their contractors and
subcontractors and the employees thereof), however said loss, damage, injury,
illness or death arises or occurs, whether through the negligence in whole or
in part of OWNER, or the registered owner of the vessel, or of the company
operating the vessel, their employees, the master and crew, unseaworthiness of
the vessel or otherwise; and CHARTERER shall protect, defend, indemnify and
hold harmless OWNER, the registered owner of the vessel, the company operating
the vessel, their employees, the vessel, the master and the crew thereof, and
their respective underwriters from and against all claims, suits, losses,
liabilities, demands, costs, damages or expense as a result of such loss,
damage, illness, injury or death.
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Notwithstanding anything to the contrary contained herein, it is
expressly agreed by and between the parties hereto that, regardless of the
negligence on the part of any party hereto or the unseaworthiness of any
vessel, neither such party shall be liable to the other for any punitive,
indirect, incidental, special or consequential damages of any kind or nature
(including, but not limited to, loss of profits, loss of use, loss of hire or
loss of production); and each party hereby agrees to waive its rights of
recourse in this regard against the other party, its affiliated and/or
subsidiary companies, their respective vessels and their respective
underwriters.
XV.
CHARTERER shall have no right, power, or authority to create, incur,
or permit to be imposed upon the vessel any liens whatsoever.
XVI.
If CHARTERER shall fail to perform any of its duties or obligations or
shall violate any of the prohibitions imposed upon it under this Charter, or if
CHARTERER shall be dissolved or be adjudged a bankrupt or shall have a petition
in bankruptcy filed against it, or shall make a general assignment for the
benefit of creditors, or if a receiver shall be appointed for CHARTERER, OWNER
may, without prejudice to any other rights or clams which it may have under
this Charter, withdraw and retake the vessel, wherever the same may be found,
without prior demand and without legal process, and for that purpose may enter
upon any premises where the vessel may be and take possession thereof. OWNER
may bring said vessel to the redelivery point hereinabove provided, at the
expense of CHARTERER. If CHARTERER fails
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<PAGE> 11
to turn over possession and make redelivery, CHARTERER shall indemnify and hold
OWNER harmless against all cost and expense incurred by OWNER in obtaining
possession and making such redelivery.
XVII.
Charter hire is based upon and determined by existing operating costs
as of the date of each individual Charter. Should the term of such Charter
extend for longer than three hundred sixty-five (365) days and the event there
is an increase in any operating costs, OWNER shall have the right to request an
increase in the hire which shall reflect such increased costs. OWNER shall
present its request to CHARTERER in writing with proper support attached. If
CHARTERER fails to agree to the request within thirty (30) days from date
presented, OWNER may cancel such Charter. Any increased charter hire agreed to
shall be effective as of the date of OWNER's request.
XVIII.
At CHARTERER's request, OWNER agrees to furnish food and lodging for
any personnel, other than crew members of the vessel, at the rates reflected in
the letter agreement setting forth the vessel's details of the Charter.
XIX.
All salvage and salvage towage, after payment of out-of-pocket
expenses and awards to the master and crew, shall be divided equally between
the OWNER and CHARTERER.
11
<PAGE> 12
XX.
This Charter shall not be construed as a personal contract nor shall
it deprive OWNER, CHARTERER, or the vessel of any right to claim limitation of
liability provided by any statute or law of any country having authority or
jurisdiction over the vessel.
XXI.
This Charter may be terminated by either party on thirty (30) days
notice delivered in writing; provided, however, that such cancellation shall
not be effective as to any vessel which has been delivered to CHARTERER under
the terms hereof until the Charter term stipulated in such vessel's letter
agreement has expired and such vessel is redelivered to OWNER.
XXII.
This Charter and the letter agreement contemplated herein (Exhibit
"A"), including any attachments incorporated therein by reference, shall
constitute the entire agreement between the parties for the charter of vessels
by OWNER to CHARTERER in the absence of a separate time charter on a specific
vessel and the terms and provisions hereof shall ipso facto apply to the
charter of any vessel to CHARTERER by OWNER in the absence of any such separate
time charter on a specific vessel. The terms and provisions of this Charter
shall not, however, be applicable to the charter of any vessel upon which such
a separate time charter is executed. No changes, amendments, or variations of
the terms and conditions shall be valid or binding on the parties hereto in any
respect unless made in writing and signed by both parties hereto. This
12
<PAGE> 13
Blanket Time Charter replaces any Blanket or Master Time Charter agreements
which the parties hereto may previously have entered into.
XXIII.
It is agreed that the terms and provisions of this Charter shall be
applicable separately to each and every vessel which OWNER charters to
CHARTERER. Further, this Charter shall be subject to all applicable laws,
orders, rules, regulations, and requirements of any State or Federal Government
or any agency thereof.
XXIV.
Subject to obtaining the prior written approval of the other party,
either party may assign this Charter, but no such assignment shall relieve the
assigning party of any obligation hereunder to the non-assigning party.
XXV.
The provisions of this Charter are separable and severable. If any
provision, item or application of this Charter shall be deemed invalid in whole
or in part, such invalidity shall not affect other provisions, items or
applications of this Charter which can be given effect without the invalid
provision item or application.
13
<PAGE> 14
XXVI.
OWNER's address for sending notices under this Charter is P.O. Box
61620, New Orleans, Louisiana 70161, and CHARTERER's address for sending
notices under this Charter is 11200 Westheimer, Suite 410, Houston, Texas
77042. Any notices provided for herein shall be deemed to have been given at
the time of mailing when sent by mail addressed to the recipient at the address
hereinbefore stated.
IN WITNESS WHEREOF, the parties hereto have caused this Charter to be
executed by their duly authorized representatives in duplicate original as of
the date first above written.
WITNESSES: CHARTERER HORIZON SEISMIC INC.
/s/ [illegible signature] By: /s/ [illegible signature]
- ------------------------------- ---------------------------------
Its: Vice President
/s/ [illegible signature]
- -------------------------------
OWNER TIDEWATER MARINE, INC.
/s/ [illegible signature] By: /s/ Marinus Quist
- ------------------------------- ---------------------------------
Its: Vice President
/s/ [illegible signature]
- -------------------------------
14
<PAGE> 15
EXHIBIT "A"
___________________________________
___________________________________
___________________________________
___________________________________
Attn:______________________________
Re: Time Charter of M/V_______________
Gentlemen:
Pursuant to the terms and conditions of that certain Blanket Time
Charter dated _____________, entered into by and between Tidewater Marine, Inc.
and ____________, this letter sets forth our understanding and agreement that
the above-captioned vessel, has been chartered subject to the following:
1. Date of delivery, on or about:_________________________________________
2. Location of delivery:__________________________________________________
3. Location of redelivery:________________________________________________
4. Area of Operations/Navigation Limits:__________________________________
5. Minimum term of Charter:_______________________________________________
6. Cancellation after minimum term by: _____________ written notice by
either party.
7. Daily charter rate:____________________________________________________
8. Insured value of vessel:_______________________________________________
9. Meals and lodging rates for non-crew members:__________________________
10. Special provisions:____________________________________________________
Please date and sign the duplicate copy of this letter in acceptance
of the foregoing and return it to us.
Very truly yours,
TIDEWATER MARINE, INC.
_______________________________
_______________________________
Agreed and Accepted
this ______ day of ____________, 199____
By:___________________________
Its:
15
<PAGE> 1
10.50
INITIAL DEFINITIVE TRUST DEED
HORIZON PENSION PLAN
<PAGE> 2
CONTENTS
CLAUSE
1. Interpretation
2. Proceedings of Trustees/Professional and other charges
3. Special Powers of Trustees
4. Appointment and Removal of Trustees
5. Trustee Liability
6. General Powers of Trustees
7. Investment of Scheme Assets/Segregation of certain assets
8. Power to Retain a Reserve
9. Estimate of Cost/Payment of Contributions/Donations and Bequests
10. Application of Scheme Assets
11. Transfers to the Scheme
12. Transfers from the Scheme
13. Certain Specific Obligations of Employers
14. Cessation of Right to Benefit/Incapacity of Beneficiary
15. Participation of further Employers in Scheme
16. Alteration of Scheme
17. Termination of Employer's Liability to contribute to Scheme
18. Events leading to Winding-up of Scheme
19. Winding-up of Scheme - benefits to be secured
20. Winding-up of Scheme - means of securing benefits
21. Partial Winding-up of Scheme
22. Notices
23. Provisions relating to certain Prescribed Policies
24. Effect of statutory provisions - cash equivalents and contracting-out
Schedule Definitions
<PAGE> 3
THIS DEED is made the 15th day of August 1996
BETWEEN HORIZON EXPLORATION LIMITED whose registered office is at 6 PEMBROKE
ROAD SEVENOAKS KENT TN13 1XR (hereinafter called "the Principal Employer") of
the first part and EXPLORATION HOLDINGS LIMITED whose registered office is at 6
PEMBROKE ROAD aforesaid of the second part and GERALD MARTIN HARRISON of 34 THE
MIDDLINGS SEVENOAKS KENT TN13 2NW and NEIL ALEXANDER MACLEOD CAMPBELL of
TREDIGO 6 ST JOHNS LANE HARTLEY KENT and GEORGE PURDIE of MERLINS BROOK PARK
ROAD ADDINGTON WEST MALLING KENT (hereinafter called "the Present Trustees") of
the third part
WHEREAS
(a) This deed is supplemental to
(i) an interim trust deed dated the 2nd day of February 1994
(hereinafter called "the Interim Trust Deed") by which the
Principal Employer established a retirement benefits
scheme (hereinafter called "the Scheme") and
(ii) any deeds supplemental thereto
(b) This present Deed has been framed in accordance with the
provisions of the Interim Trust Deed and any deeds supplemental
thereto and is intended to be the Definitive Trust Deed referred
to in the Interim Trust Deed
(c) This deed is to be known as "the First Definitive Deed"
NOW THIS DEED WITNESSES that the participation of the parties hereto of the
second part in the Scheme is hereby confirmed and that the said parties
undertake to observe and perform the provisions of this Deed and of the Rules
as hereinafter defined and that the provisions of any deed or agreement
hitherto governing the participation of such parties in the Scheme shall cease
to have effect from the date hereof
AND IT IS HEREBY AGREED AND DECLARED as follows:
1. (a) IN this Deed where the context so admits the singular includes
the plural and vice versa, the masculine includes the feminine,
the expressions defined in the Schedule to this Deed have the
meanings therein ascribed to them, the express "Rules" means the
rules attached hereto together with any variations of or
additions to or substitutions for the same duly made and any
expressions not defined in the Schedule shall, unless otherwise
specifically provided, have the meanings ascribed to them by the
Rules.
<PAGE> 4
(b) Any reference in this Deed or in the Rules to the 1993 Act or to
any words or expressions used therein shall include references
respectively to
(i) any provisions in force in Northern Ireland and
corresponding to the provisions of the 1993 Act and
(ii) the corresponding words or expressions within the meaning
of any such provisions
and any words or expressions relating to contracting-out of the
State Earnings Related Pension Scheme which are used in this Deed
or in the Rules and which are not defined by these presents shall
have the same meaning as in the 1993 Act.
(c) The provisions of the Schedule hereto and of the Rules shall be
deemed t be incorporated in and to form part of this Deed which
shall be read and construed accordingly.
2. (a) THE Trustees shall be the Administrator of the Scheme for the
purposes of Chapter I of Part XIV of the 1988 Act.
(b) The Trustees may meet together for the despatch of business,
adjourn and otherwise regulate their meetings as they think fit.
All business brought before a meeting of the Trustees shall be
decided by a majority of the votes of the Trustees present and
voting thereon and in the event of an equality of votes the
chairman of the meeting shall have a second or casting vote
(provided that a resolution in writing signed as approved by all
the Trustees shall be as effectual as if it had been passed at a
meeting of the Trustees and so that the same may consist of two
or more documents in similar form signed by one or more of the
Trustees). Should there be an equality of votes on the election
of a chairman at any meeting the Trustee to take the chair at the
meeting shall be chosen by lot. The quorum for any meeting of
the Trustees shall be a majority of the Trustees.
(c) The Trustees shall keep such accounts, entries, registers and
records as are necessary for the proper working of the Scheme and
shall cause the said accounts to be audited annually by an
accountant with proper professional qualifications appointed by
the Trustees. Such accountant shall have access to all books,
papers, vouchers, accounts and documents connected with the
Scheme and shall certify in writing the result of each audit.
(d) The Trustee shall keep a register of Members which register shall
be deemed to be incorporated in and to form part of these
presents and so soon as an employee has been admitted to
membership of the Scheme the Trustees shall enter his name in the
said register and shall issue to him a certificate stating that
his name has been recorded as a Member.
(e) Any Trustee for the time being hereof being a solicitor or other
person engaged in any profession or business shall be entitled to
charge and be paid all usual professional or other charges for
business done by him or by his firm in relation to the trusts
hereof or to the administration of the Scheme.
(f) Any Trustee which is a company transacting insurance business (or
any
<PAGE> 5
subsidiary as defined by section 736 of the Companies Act 1985
(including any statutory modification or re-enactment thereof for
the time being in force and any statutory regulations made
thereunder) of such a Trustee) may (without such Trustee or
subsidiary being liable to account for any profit) issue and hold
any annuity or assurance or sinking fund contracts or policies in
respect of the Scheme and transact in respect of the Scheme any
class of business which it is authorised by its Memorandum of
Association to carry on.
(g) Any Trustee which is a company shall be entitled to such fees or
remuneration for services as such Trustee as shall from time to
time be agreed between such Trustee and the Principal Employer.
(h) Any Trustee who is a Member or (in the case of any Trustee being
an incorporated body) any member of the board of directors of the
trustee company who is a Member shall be entitled to retain for
his absolute benefit any benefits to which he is or becomes
entitled by virtue of his membership of the Scheme.
(i) Not later than the first date prescribed by regulations made
under section 113 or 114 of the 1993 Act and thereafter at
intervals not longer than those so prescribed the Trustees shall
(unless the appropriate arrangements have been made by the
Principal Employer) arrange for a person from whom they are
empowered to obtain Actuarial Advice to submit the financial
position of the Scheme to actuarial investigation and to report
to them in writing thereon and shall furnish to such person all
accounts and information which the said person may reasonably
require for that purpose.
3. THE Trustees shall have the following special powers in addition to all
ordinary powers vested in them by this Deed and by statute, viz:
(a) power to act generally by majority vote;
(b) power to delegate to any incorporated body or to any committee
consisting of two or more persons (any of whom may be a Trustee)
appointed by them such of the powers, duties, authorities and
discretions hereby or by the Rules conferred on the Trustees as
they may deem necessary or desirable for the convenient
administration of their duties hereunder including the operation
of any banking accounts by such incorporated body or by two or
more members of any such committee;
(c) power to make such arrangements generally for the administration
of their duties hereunder and in particular to employ such agents
and staff including a secretary (who may be one of the Trustees)
to transact or to concur in transacting any business (including
the management of investments and the receipt and payment of
money) as the Trustees may think fit;
(d) power from time to time to obtain Actuarial Advice upon such
terms as to remuneration as shall be approved by the Principal
Employer;
(e) power (with the approval of the Principal Employer) to appoint
and to dismiss a company, firm or person as investment manager
upon such terms as to remuneration and otherwise as shall from
time to time be agreed
<PAGE> 6
between the Trustees and the investment manager so appointed and,
in relation to the whole or any part of the Scheme Assets, power
to delegate to any such investment manager all or any of their
powers of investment and of realizing and transposing investments
and the Trustees shall not be liable for any loss tot he Scheme
Assets occasioned by the exercise of this power
PROVIDED ALWAYS THAT: any notice, receipt, instructions, requests, data,
information or evidence given, made or furnished in the exercise of
their functions under this Clause by any person, persons or corporation
appointed or employed by the Trustees as aforesaid shall be as valid and
effectual as if the same were given, made or furnished by the Trustees
and any valid receipt given to such person, persons or corporation for
any payment made by them under the provisions of this Clause shall be a
good and sufficient discharge to the Trustees.
4. (a) THE statutory power of appointing new trustees hereof shall be
vested in the Principal Employer and any such appointment shall
be by deed.
(b) The Principal Employer may at any time and notwithstanding that
there may at the time of such appointment be more than three
Trustees or that one or more of the Trustees is a Trustee
Corporation (as hereinafter defined) by deed appoint one or any
number of additional trustees hereof.
(c) A Trust Corporation as defined in section 205(1) of the Law of
Property Act 1925 and section 3 of the Law of Property
(Amendment) Act 1926 may be appointed to act alone as the
Trustees of this Deed and in any such case the powers, duties,
authorities and discretions of such Corporation as the Trustees
shall be exercisable by the Board of Directors of such
Corporation or by any proper officer of such Corporation.
(d) The Principal Employer covenants with the Trustees to exercise
the power contained in sub-clause (a) of this Clause in such
manner that at any time the Trustees are either a Trust
Corporation (as hereinbefore defined) or are not less than three
in number.
(e) At the end of any period of three months during the whole of
which the Principal Employer shall have been in breach of the
covenant contained in subclause (d) of this Clause the Principal
Employer (whether or not a Trustee Corporation as hereinbefore
referred to) shall be deemed to be appointed a Trustee (either
alone or with any continuing Trustee or Trustees) and the
continuing Trustee or Trustees (if any) and the Principal
Employer shall execute such documents and do such things (if any)
as may be necessary to give prior effect to such appointment.
(f) The Trustees or any of them may resign their appointment as the
Trustees or Trustee hereof by serving on the Principal Employer
one month's notice in writing to that effect which shall be
delivered to or sent by registered post to the registered office
or principal place of business of the Principal Employer and at
the expiration of such notice the Trustees or Trustee so
resigning shall be deemed to have retired from the trust and the
continuing Trustee or Trustees, the resigning Trustee or Trustees
and the Principal Employer shall execute such documents and do
such things (if any) as may be necessary to give prior effect to
such retirement.
<PAGE> 7
(g) The Principal Employer may call upon any Trustee to resign by
serving upon such Trustee seven days' notice in writing to that
effect which shall be delivered to him or sent by registered post
to his last known place of abode or in the case of a company to
the registered office of such company and at the expiration of
any such notice the Trustee therein named shall be deemed to have
retired from the trust and shall execute such documents and do
such things (if any) as may be necessary to give proper effect to
such retirement.
5. (a) NO Trustee hereof shall be responsible, chargeable or liable in
any manner whatsoever for or in respect of any loss of or any
depreciation in or default upon any of the Scheme Assets or for
any delay which may occur from whatever cause in the investment
of any moneys forming part of the Scheme Assets or for the safety
of any securities or documents of title deposited by the Trustees
for safe custody or for the exercise of any discretionary powers
vested in the Trustees by this Deed or by the Rules (including
any act or omission by any person, persons or corporation
appointed or employed by the Trustees under the provisions of
Clause 3) or by reason of any other matter or thing unless such
loss depreciation or default was attributable to his personal
dishonesty or to the wilful commission by him personally of a
positive act consciously known by him to constitute a breach of
trust.
(b) The Trustees and each of them shall be entitled to recover from
the Scheme Assets the full amount of any expenses personally
incurred by them in the execution of the trusts and the
management and administration of the Scheme.
(c) The Principal Employer shall indemnify and keep indemnified the
Trustees and each of them against all claims proceedings and
liabilities arising out of the execution of the trusts of the
Scheme, the exercise of their powers thereunder and the
management and administration thereof.
6. (a) THE Trustees shall hold the Scheme Assets for the Trust Period
(which period shall be the perpetuity period applicable to this
Deed) upon the trusts and with and subject to the powers
thereinafter and in the Rules declared and contained concerning
the same and may do all such other acts and things as may deem to
them expedient or necessary for the support and maintenance of
the Scheme and the benefit of the Members. The Pooled Assets and
the Segregated Assets and their respective liabilities, incomes,
accumulations and outgoings shall be held separately and the
Trustees shall keep separate accounts in respect thereof.
(b) The Trustees shall have full power to determine all questions and
matters of doubt arising in connection with the Scheme whether
relating to the construction thereof or the benefits thereunder
or any segregation of the Scheme Assets or otherwise and no
decision of or exercise of a power by one or more of the Trustees
shall be invalidated or questioned on the ground that any Trustee
or (in the case of any Trustee being an incorporated body) any
member of the board of directors of the trustee company had a
direct or personal interest in the result of any such decision or
in the exercising of any such power.
(c) The Trustees shall have all powers, rights and privileges in
connection with the Scheme requisite or proper to enable them to
carry out or execute or do any transaction, act, deed or thing
arising under or in connection with this
<PAGE> 8
Deed or the Rules or any annuity or assurance or sinking fund
contracts or policies effected by or assigned to them under the
provisions of this Deed and the consent or concurrence of the
Employers or the Members or any of them shall not be necessary in
connection with the giving of any receipt or discharge or the
making of any payment or the doing of any act or thing made or
done in the exercise of their powers as Trustees or in connection
with this Deed or the Rules or the said contracts or policies of
any of them. Persons transacting business with the Trustees in
relation to the Scheme shall not be entitled or be under any
obligation to make enquiry of the Trustees or the Employers or
the Members or any of them as to the application of funds in the
hands of the Trustees and all persons paying money to the
Trustees shall be completely and sufficiently discharged by their
receipt for the same.
(d) The Trustees shall have power to pay such fees, remuneration and
professional or other charges as shall be approved by the
Principal Employer to any person, persons or corporation
appointed, employed or consulted for the purposes of the Scheme
in accordance with Clauses 2, 3 and 4 hereof and any amounts so
paid shall be deemed to be part of the necessary expenses
incurred by the Trustees in or about the execution and carrying-
out of the trusts and provisions of this Deed.
(e) The Trustees shall be entitled to deduct from any amount payable
by them under the Scheme any tax, duty, levy or other payment for
which they are accountable in respect of the amount so payable.
7. (a) THE Trustees shall have the following power in relation to the
whole or part of any moneys from time to time forming part of the
Scheme Assets and which they are not required to expend
immediately in making any payment or payments pursuant to the
provisions of this Deed, namely, the power to invest the same in
or upon any securities for the time being authorised by law for
the investment of trust funds or by placing the same on deposit
with any bank or insurance company or building society of good
repute at such rate of interest and upon such terms as the
Trustees shall think fit or in annuity or assurance or sinking
fund contracts or policies with any Authorised Insurer as
hereinafter more particularly provided or in such stock, shares,
securities or unit trust unites as may be approved by the
Principal Employer, with power to vary any such investments for
others of a nature hereby authorised.
(b) The Trustee may if they think fit make provision of the Intended
Benefits and any additional benefits granted by them in
accordance with the terms of this Deed or for any part thereof
whether in advance or as and when the same shall fall due by
investing from time to time so much of the capital and/or income
of the Scheme Assets (after meeting any expenses, tax, duty, levy
or other payments hereinafter referred to) in such annuity or
assurance or sinking fund contracts or policies as they deem
desirable with any United Kingdom office or branch of any
Authorised Insurer upon the terms that all sums payable under
such contracts or policies shall as and when received by the
Trustees from the Authorised Insurer concerned be held by the
Trustees upon trust for.
(c) The Trustees shall have the following power in relation to any
Scheme Assets which represent the benefits specified below
namely, the power, in so far as the nature of the investment or
investments held by the Trustees in relation
<PAGE> 9
thereto shall permit, to hold the whole or a part of such Scheme
Assets and to deal with the same separately from the remaining
part of the Scheme Assets provided that if there is a
Contracting-out Rule in full force and effect in relation to the
Scheme then the exercise by the Trustees of the said power shall
unless authorised by or pursuant to the provisions of Relevant
Legislation be subject tot he approval of the Occupational
Pensions Board. Subject to the aforementioned proviso the
Trustees hereby exercise the said power with effect from the date
hereof.
For purposes of this sub-clause the relevant benefits are
(i) any benefits the amounts of which are directly determined
(according to age or otherwise) by the amount of any
voluntary contributions paid by Members under the Rules on
or after the date of this Deed or if earlier the date on
which the said power was first exercisable under the
provisions of any deed executed prior to the date hereof
and
(ii) any other benefits to be provided in respect of a Member
from the Scheme in consideration of the transfer to the
Scheme on or after the date on which the said power first
subsisted of sums representing voluntary contributions to
any other retirement benefits arrangement.
(d) If there is a Contracting-out Rule in full force and effect in
relation to the Scheme but by reason of their category of
employment or for any other reason permitted in terms of the 1993
Act any Members of the Scheme are excluded from the scope of the
contracting-out certificate held by any of the Employers then
(provided that such action is permitted by or does not contravene
Relevant Legislation), if the Trustees so determine and the
nature of the relevant investments held by them so permits, the
Pooled Assets which relate to the benefits of such Members shall
be held and dealt with separately from those relation to the
benefits of the remaining Members and this Deed shall be read and
construed accordingly and without prejudice to the generality of
the foregoing for the purposes of Clauses 10, 19, 20 and 21 such
Pooled Assets shall be treated as constituting a separate scheme.
8. (a) THE Trustees shall have power at their discretion to retain part
of the capital and/or income of the Pooled Assets as a reserve
and not to apply such part in the provision of benefits for
Members so long as the total amount so retained at any one time
is a reasonable reserve against contingencies which in the
opinion of the Trustees might adversely affect their ability to
maintain the benefits of the Scheme (including, but without
prejudice to the generality of the foregoing, such contingencies
as a depreciation in the value of any part of the Pooled Assets).
9. (a) THE Trustees shall on the Commencement Date and on each
subsequent Scheme Anniversary Date or so soon thereafter as is
possible estimate to the best of their ability the total sum
(including contributions, if any, of Members) required during the
period up to the next Scheme Anniversary Date to enable the
Trustees to maintain the benefits of the Scheme and shall
immediately give written notice to the Employers of the
proportions of the amount so estimated applicable to their
respective employees specifying the installments (if any) by
which and the date or dates within such period on
<PAGE> 10
which the Trustees may have required the same to be paid.
(b) The Employers shall on behalf of the Trustees collect from those
Members who are their respective employees by way of deduction
from salary or wages or pay or otherwise such contributions (if
any) as are expressed to be payable by the Members under the
Rules together with any voluntary contributions to be paid by any
or all of such Members thereunder and on receipt of written
notice as aforesaid shall pay to the Trustees on the date or
dates specified therein or within seven days thereof the amount
or amounts therein stated except in so far as the same may
require to be altered by reason of the Principal Employer
exercising its discretion under Clause 16 hereof or any of the
Employers exercising their discretion under Clause 17 hereof.
The Employers shall also pay to the Trustees such sum or sums as
the Trustees shall at any time estimate to be required to make
provision for any additional benefits granted by the Trustees at
their discretion under the provisions of Clause 10 hereof. Each
Employer may also subject to the consent of the Trustees pay to
the Trustees at any time such additional sum or sums as such
Employer shall at its discretion decide which sum or sums shall
until such time as they shall be applied in the provision of
benefits for Members who are or have been employed by such
Employer be retained by the Trustees as part of the reserves
subject to the provisions of Clause 8 hereof.
(c) Where any sum, amount or value is by this Deed or the Rules
expressed to be determined by the estimate or opinion of the
Trustees, the Trustees may rely and act upon the Actuarial Advice
obtained by them as permitted under Clause 3 hereof and shall not
in any event incur any liability or responsibility whatsoever in
the event of such estimate or opinion proving subsequently to be
incorrect or inaccurate or in any way insufficient for its
purposes.
(d) The Trustees may accept payments donations or bequests from any
person or body for the purposes of the Scheme.
10. THE Trustees shall apply the Scheme Assets in providing the
Intended Benefits as follows:
(a) Subject as provided in Clause 7 hereof the Trustees shall apply
the capital and income of the Segregated Assets in providing the
Special Benefits as and when the same shall fall due in
accordance with the provisions of the Scheme.
(b) Subject as provided in Clauses 7 and 8 hereof the Trustees shall
apply the capital and/or income of the Pooled Assets.
firstly, in paying and discharging as and when the same shall fall
due all necessary expenses incurred by them in or about
the execution and carrying out of the trusts and
provisions of this Deed and any tax, duty, levy or other
payments for which they may be accountable or liable in
connection with the Scheme;
and
secondly, in providing the Ordinary Benefits as and when the same
shall fall due in accordance with the terms and provisions
of the Rules;
<PAGE> 11
and
thirdly if there is a Contracting-out Rule in full force and
effect in relation to the Scheme, in paying such state
scheme premiums as the trustees of retirement benefits
schemes may be authorised to pay under the provisions of
the 1993 Act, the Trustees' liability to provide the
benefits intended to be provided by the Scheme being
deemed (to the extent that the same will be provided
pursuant to the provisions of the 1993 Act by virtue of
the payment of such state scheme premiums) to have been
discharged by the payment of such state scheme premiums;
and
fourthly, if there is a Contracting-out Rule in full force and
effect in relation to the Scheme, in paying to any
Employer who has paid a state scheme premium in respect of
any Member an amount which, inclusive of any amount which
in accordance with section 61 of the 1993 Act the Employer
may recover from the Trustees in respect of the Member's
contributions, shall be not greater than the state scheme
premium so paid;
and
lastly, if the Trustees so think fit having regard to any special
circumstances and if the funds from time to time in the
hands of the Trustees so permit and if the Principal
Employer so consents:
(1) in augmenting the Ordinary Benefits payable under
the Rules to or on the death of any Member,
and
(2) in providing pension for the widow, widower or
other Dependant of any Member,
and
(3) in providing a lump sum benefit payable on the
death of any Member who is a former employee of any
of the Employers and is not in receipt of a pension
from the Scheme or has not received a cash
retirement benefit or a cash sum in lieu of pension
under the Scheme,
and
(4) in providing pension or other benefit to or on the
death of any former employee of any of the
Employers who is not a Member or in providing
pension or other benefit for the widow or widower
of any such former employee or for any individual
who was at the date of any such former employee's
death or retirement financially dependent upon such
former employee for all or part of the necessaries
of life;
<PAGE> 12
PROVIDED ALWAYS THAT:
(A) the total pension or other benefit payable to or on
the death of any Member or to the widow, widower or
other Dependant of any Member shall not exceed any
maximum specified in the Rule headed "Limitation of
Benefits" in the Rules or be such as would
prejudice approval of the Scheme under the 1988
Act,
and
(B) before granting any pension or other benefit under
($) above the Trustees shall obtain confirmation
from the Board of Inland Revenue that the approval
of the Scheme under the 1988 Act will not be
prejudiced,
and
(C) a Member who on ceasing to be a Participating
Member is a Qualifying Member shall, subject to the
provision of the Scheme, be entitled in addition to
any benefits in respect of him under the Rules to
the whole or such proportion of any benefits under
(1) or (2) above in respect of him (other than any
part thereof payable on death in Service prior to
Normal Retiring Date) as the Trustees shall decide
being not less than such proportion as the period
from the date such benefit was awarded to the date
on which he ceased to be a Participating Member
(but ignoring any part of such period in respect of
which a refund of contributions is elected by the
Member) bears to the period from the said date such
benefit was awarded to the Member's Normal Retiring
Date.
11. IF any Member is entitled to benefit under any other retirement benefits
arrangement (as mentioned in items (a) or (b) of the definition of the
1988 Act) then the Trustees may in accordance with the provisions of the
other arrangement or at the written request of such Member and subject
to the consent of the Principal Employer and to any undertaking given to
the Board of Inland Revenue for the purposes of this Clause:
(a) accept from the other arrangement any cash sum that the trustees
thereof or other person or persons having the necessary powers
thereunder may be authorised to pay to them in substitution for
the Member's benefit thereunder or for a part thereof
and/or
(b) accept from the other arrangement an assignment to themselves of
such annuity or assurance contracts or policies on the life of
the Member as the assets thereunder may include,
and/or
(c) accept a fresh annuity or assurance contract or policy or an
amendment of an
<PAGE> 13
existing annuity or assurance contract or policy of which they
are the grantees which will secure, inter alia, benefits on the
life of the Member similar to and in substitution for those
secured for him under the other arrangement or for a part thereof
in respect of which the trustees of the other arrangement or
other person or persons having the necessary powers thereunder
may be authorised to effect a transfer to them;
and upon such acceptance shall confer on the Member such rights and
benefits under the Scheme as they estimate to be equal in value to the
assets so received and shall notify the Member accordingly;
PROVIDED ALWAYS THAT:
(i) before accepting any payment to the Scheme or any annuity
or assurance contract or policy or any amendment or
assignment of any annuity or assurance contract or policy
or conferring any right or benefit under this Clause the
Trustees shall satisfy themselves that such acceptance or
conferment will not prejudice the approval of the Scheme
under the 1988 Act;
(ii) such part, but only such part, of the assets so received
as is derived from the contributions (if any) made by the
member under the other arrangement, as certified by the
trustees thereof or other person or persons administering
the other arrangement, shall be treated in the Scheme as
Member's contributions and
(1) any provision which restricted a Member's right to
take a refund of any contributions under such other
arrangement shall subsist in relation to any assets
so treated but only, in the case of any such
restriction imposed by reason of the level of a
Member's remuneration while in such other
arrangement, up to and including 5 April 1980,
(2) any provision subsisting as aforesaid which by
reason of the level of a Member's remuneration
while in such other arrangement restricts his
rights to take a refund of any assets so treated
shall, if such other arrangement is an arrangement
of the Employers, apply to any contributions which
he makes to the Scheme,
and
(3) any provision which by reason of the level of a
Member's remuneration while in the Scheme restricts
his rights to take a refund of any contributions
which he makes to the Scheme shall apply to any
assets so treated;
(iii) in the event of a Member ceasing to be a Participating
Member before Normal Retiring Date for any reason except
death he shall (subject to (iv) below) be entitled to the
full amount of the benefit conferred upon him by the
Trustees as aforesaid;
(iv) if the other arrangement concerned is not one to which
item (b) in the definition of the 1988 Act is applicable
and in accordance with
<PAGE> 14
the Rules the Member elects to receive a return of his own
contributions in lieu of other benefits any return as
aforesaid of any contributions to such other arrangement
which are treated in the Scheme as Member's contributions
shall be in lieu of the whole of the benefits conferred
upon the member by the Trustees as aforesaid unless the
Member is a Qualifying Member in which case he shall
remain entitled to that part of such benefits which
corresponds to the benefits to which in the opinion of the
Trustees he would have remained entitled under the other
arrangement if he had at the date of acceptance of the
relevant assets therefrom by the Trustees, elected a
return of contributions thereunder in circumstances in
which he was entitled to short service benefit in
accordance with the preservation requirements of the 1993
Act;
(v) the rights conferred under this Clause shall include the
right for the Member concerned to require the Trustees to
apply for his benefit the cash equivalent of the benefits
conferred where the following circumstances apply, namely:
(1) the Member has acquired such a right under the
other retirement benefits arrangement concerned in
accordance with the provisions of Chapter IV of
Part IV of the 1993 Act but has not previously
exercised such right, and
(2) rights and benefits have been conferred under the
Scheme in substitution for the Member's rights and
benefits under the other retirement benefits
arrangement without his consent having been
obtained in any of the situations described in
Regulation 6 of the Occupational Pension Schemes
(Transfer Values) Regulations 1985 (as amended or
replaced from time to time);
(vi) references in the foregoing provisions of this Clause to
any other retirement benefits arrangement shall be
construed as including a reference to any Prescribed
Policy under which the Member concerned is entitled to
benefit and under or pursuant to the terms of which
transfer payments may be made to a retirement benefits
scheme or arrangement which is either approved under the
1988 Act or is approved for the purpose of receiving such
payments by the Board of Inland Revenue.
12. (a) SUBJECT to Clause 24 if any Member who has ceased to be a
Participating Member becomes a member under any other retirement
benefits arrangement approved by the Board of Inland Revenue
under the 1988 Act (other than one to which item (b)(i) in the
definition of the 1988 Act is applicable) or approved for the
purposes of this sub-clause by the Board of Inland Revenue and(so
far as may be necessary in any particular cases) the Occupational
Pensions Board the Trustees may in substitution for the whole or
a part of the benefits which would otherwise arise under the
Scheme in consequence of his membership thereof and provided that
the manner in which the Scheme Assets are invested so permits and
subject to any undertaking given to the Board of Inland Revenue
for the purposes of this sub-clause;
<PAGE> 15
(i) pay to such other retirement benefits arrangement a cash
sum of an amount not exceeding that which they estimate to
be equal in value to such benefits,
and/or
(ii) if the Scheme Assets shall include annuity or assurance
contracts or policies with any insurance company, entered
into an arrangement with such insurance company whereby it
shall be released from all liability to pay the whole or
part of any benefits secured in respect of the Member
under any such contract or policy in consideration of such
insurance company agreeing to issue a fresh annuity or
assurance contract or policy in respect of such other
retirement benefits arrangement or to amend an existing
annuity or assurance contract or policy issued by such
insurance company in respect of such other retirement
benefits arrangement in order to secure in respect of such
other retirement benefits arrangement benefits similar to
and in substitution for those benefits in respect of which
the Trustees shall have released such insurance company
from liability as aforesaid.
upon the footing that the Member shall be entitled under such
other retirement benefits arrangement to such benefits
(consistent with the existing formal approval, if any, of such
other retirement benefits arrangement by the Board of Inland
Revenue) in respect of such payment and/or arrangement as the
Trustees may in their discretion arrange with such other
retirement benefits arrangement;
PROVIDED ALWAYS THAT:
(1) no transfer relating to less than the whole or the
benefits in respect of the Member under the Scheme
shall be made from the Scheme under this sub-clause
without the consent of the Board of Inland Revenue
unless the benefits which are to remain payable in
respect of him under the Scheme are Residual
Benefits,
(2) no transfer (unless in accordance with the Rules)
shall be made from the Scheme under this sub-clause
without the written consent of the Member or a
written request from the Member to which the
Employer has given consent, and without the Member
giving to the Trustees such discharges and
indemnities (or procuring such other persons to do
so) as the Trustees shall in their absolute
discretion require,
(3) no transfer shall be made from the Scheme under
this sub-clause unless the Trustees are satisfied
that such part, but only such part, of the value
thereof as is derived from the Member's
contributions (if any) will be treated in such
other retirement benefits arrangement as member's
contributions and the Trustees shall certify to the
trustees or person or persons administering such
other retirement benefits arrangement the amount to
be so treated,
<PAGE> 16
(4) in such cases as are prescribed by the Board of
Inland Revenue, no transfer shall be made to a
retirement benefits arrangement to which item
(b)(ii) in the definition of the 1988 Act applies
unless the Trustees provide a certificate to the
Member concerned confirming that the sum to be
transferred does not exceed an amount as so
prescribed and except to the extent so prescribed
represents the whole of the benefits in respect of
the Member under the Scheme,
and
(5) the Trustees shall notify the trustees or person or
persons administering such other retirement
benefits arrangement of any prohibition on the
Member's right to take a refund of contributions
(if any) under the Scheme and shall further notify
such trustees or person or persons as aforesaid
that a similar prohibition must subsist under any
other retirement benefits arrangement which is
providing the benefits as aforesaid in relation to
such contributions as aforesaid but only, in the
case of any such prohibition imposed by reason of
the level of a Member's remuneration while in the
Scheme, up to and including 5 April 1980.
(b) Subject to Clause 24 and to sub-clause (c) and (d) of this Clause
the Trustees may at any time before the winding-up provisions of
the Scheme have come into operation make provision for any
benefit or any part thereof) payable or prospectively payable
under the Scheme in respect of a Member by securing in lieu
thereof a corresponding benefit or benefits under a Prescribed
Policy or Prescribed Policies effected either in the name of the
Member or other beneficiary concerned or (subject to Clause 23
hereof) in the name of trustees for the benefit of such person or
persons. Alternatively the Trustees may at any time before the
said winding-up provisions have come into operation arrange for
an amount not exceeding that which they estimate to be equal in
value to the aforesaid benefit (or part thereof) to be applied in
securing an alternative benefit or benefits under a Prescribed
Policy or Prescribed Policies effected as aforesaid.
(c) No provision under sub-clause (b) of this Clause (unless the
benefits to be provided correspond exactly with the benefits
under the Scheme) shall be made without a written request from
the Member and from any other beneficiary (other than a minor)
who at the date such provision is to be made has a contingent
entitlement to pension benefit from the Scheme deriving from the
Member's membership would be affected by such provision and/or
without such consent release indemnity undertaking or condition
of whatever nature as shall be prescribed by the Trustees from
time to time at their discretion.
(d) No provision under sub-clause (b) of this Clause (unless
specifically provided for elsewhere in this Deed or in the Rules)
shall be made unless the Member concerned has ceased to be a
Participating Member.
(e) Upon the Trustees making a payment or other arrangement in
respect of any benefit to which this Clause applies the Member or
other person or persons to whom such benefit would have been
payable under the Scheme shall cease
<PAGE> 17
to have any claim on the Scheme in respect of such benefit.
13. EACH of the Employers hereby covenants with the Trustees as follows:
(a) without prejudice to Clause 10 hereof at the request of the
Trustees to pay to the Trustees all necessary expenses
attributable to the employees of such Employer and incurred by
the Trustees in or about the execution and carrying-out of the
trusts and provisions of this Deed,
and
(b) to supply within 15 days from the date of a notice from the
Trustees requiring it so to do such information in connection
with the Scheme as the Trustees in their discretion consider is
required in order to enable the Trustees to comply with the
requirements of section 605(1) of the 1988 Act.
14. (a) THE assignment by a person of any right to benefit under the
Scheme is prohibited and if any person shall purport either
wholly or partially to assign or charge any right to present or
future benefit in the Scheme, or attempt to do so, or if any
other act shall be done or event shall happen whereby such
benefit if belonging absolutely to such person would be vested in
or payable to or charged in favour of any other person or
company, all right whatsoever of such person to such benefit
shall cease forthwith. The Trustees may as from the date on
which they receive notice of the act or event causing such cesser
hold pay or apply in the case of hardship only such benefit (as
and when it arises) or any part thereof at their sole and
absolute discretion to or for the benefit of all or any one or
more to the exclusion of the other or others of the following
persons, namely, the person entitled to such benefit prior to
such cesser and (provided that such person was a Member prior to
such cesser) the Dependents of such person but so that in no
circumstances shall any payment be made to any person purported
to be an assignee of such benefit.
(b) Where any benefit becomes payable under the Scheme and the person
to who it is payable is deemed by the Trustees in their absolute
discretion to be incapable of managing his affairs owing to
mental infirmity the Trustees shall have the power to pay or
apply the benefit for or towards the maintenance personal support
or benefit of the Member his spouse and issue or all or any of
them to the exclusion of the other or others of them instead of
paying it as otherwise provided under the Scheme.
15. (a) ANY employer which desires to become a party to the Scheme at any
time after the date hereof and is associated with the Principal
Employer and the participation of which therein is approved by
the Principal Employer, the Trustees and the Board of Inland
Revenue, shall enter into an agreement with the Principal
Employer and the Trustees supplemental hereto binding itself to
observe and perform the provisions hereof and of the Rules and
shall thereby become a party to the Scheme and to this Deed as
from a date to be specified in such agreement.
16. THE Principal Employer may from time to time without the
concurrence of the Members authorise the Trustees in writing to
alter or add to the terms and provisions of the Rules and/or the
trusts, powers and provisions of this Deed
<PAGE> 18
and any such alteration or addition to the Rules in writing under
their hands and any such alteration or addition to this Deed by
deed except that any alternation or addition to this Deed which
is solely for the purpose of enabling the Scheme to satisfy any
requirements of Relevant Legislation (and any variation or
termination of such alteration or addition) may be under the
Trustees' hands only and shall be as effective in all respects as
if it had been by deed. This Deed and/or the Rules shall stand
amended accordingly with effect from the date of such declaration
or from such other date (whether future or past) as is stated in
such declaration. In the event of the Trustees making any such
alteration or addition to the Rules the Trustees shall forthwith
notify or arrange for the notification of each Member affected
thereby individually in writing of the effect thereof
PROVIDED ALWAYS THAT no such alteration or addition shall
(i) operate so as to affect in any way prejudicially
(1) any pension already being paid in accordance
with the Rules or this Deed at the date such
alteration or addition takes effect or
(2) any rights or interests which shall have
accrued to each prospective beneficiary in
respect of pension or other retirement
benefits secured under the Scheme up to the
date on which such alteration or addition
takes effect
unless such operation (whether retrospective or
otherwise) is necessary in order to enable the
Scheme to satisfy any requirements of Relevant
Legislation or
(ii) authorise or permit, or have the effect of
authorizing or permitting, the payment or
transfer (or any increase in the payment or
transfer) to any of the Employers of any
part of the Scheme Assets except where such
payment or transfer (or increase in payment
or transfer) would not prevent the continued
approval of the Scheme under the 1988 Act or
(iii) create any surplus of Scheme Assets if such
surplus would prevent the continued approval
of the Scheme under the 1988 Act or
(iv) affect in any way the duration of the Trust
Period except to extend it to such other
period (whether limited or unlimited) as may
for the time being be allowed by law.
17. (a) THE Principal Employer may at any time without the concurrence of
the Members or the other Employers terminate its liability to
contribute to the Scheme by giving notice in writing to the
Trustees to that effect. Upon receipt of such notice the
Trustees shall forthwith notify each Member
<PAGE> 19
individually in writing to that effect and all further liability
on the part of the Employers and the Members to contribute to the
Scheme shall cease with effect from the date of such notice by
the Principal Employer except in so far as concerns any payments
due on or before the date of such notice.
(b) An Associated Employer may at any time without the concurrence of
the Members or the other Employers terminate its liability to
contribute to the Scheme by giving notice in writing to the
Trustees to that effect. Upon receipt of such notice the
Trustees shall forthwith notify each member employed by such
Associated Employer individually in writing to that effect and
all further liability to contribute to the Scheme on the part of
the Associated Employer and such Members shall cease with effect
from the date of such notice by the Associated Employer except in
so far as concerns any payments due on or before the date of such
notice.
18. THE Scheme shall be determined and wound-up in accordance with
Clauses 19 and 20 hereof upon the happening of any of the
following events (whichever shall first occur), viz:
(a) the Trustees deciding that the Scheme appears to be insolvent or
their receiving Actuarial Advice to that effect and the Trustees
thereupon resolving to determine the Scheme;
(b) the Principal Employer terminating its liability hereunder by
notice to the Trustees in accordance with the provision of Clause
17 hereof,
(c) the Principal Employer at any time failing to pay to the Trustees
any sum or sums on or within 14 days after the date on which the
Trustees shall have required the same to be paid under Clause 9
hereof or failing to observe and perform any other of its
obligations hereunder or in the Rules or in any deed or agreement
supplemental hereto and (in either case) the Trustees thereupon
resolving to determine the Scheme;
(d) the making of an order or the passing of an effective resolution
for the winding-up of the Principal Employer or the Principal
Employer ceasing to carry on business;
(e) when a date one year before the end of the Trust Period is
reached;
PROVIDED ALWAYS THAT:
(i) if the Principal Employer shall be wound-up for the
purpose of reconstruction or amalgamation with any other
company or if the Principal Employer shall amalgamate or
enter into any arrangement having the effect of
amalgamation with any other company or if the undertaking
of the Principal Employer or part thereof shall be
assigned to or vested in any other company, person or body
of persons, the Trustees may make such arrangements or
enter into such agreements (not being arrangements or
agreements incompatible with the manner in which the
Scheme Assets are invested or of such a kind as to
prejudice approval of the Scheme under the 1988 Act) as
they shall think fit for the continuance of the Scheme or
part thereof whereby such reconstructed company or other
company with which
<PAGE> 20
the Principal Employer has been amalgamated or company,
person or body of persons to or in which the undertaking
of the Principal Employer or part thereof shall have been
assigned or vested shall for the purposes of this Deed and
the Rules accept and adopt the obligations and liabilities
of the Principal Employer under the Scheme, and
(ii) if this Clause becomes operative by reason of the
happening of the event described in sub-paragraph (b)
above or if any of the events described in sub-paragraphs
(c) and (d) above (other than the resolution of the
Trustees to determine the Scheme) shall happen the
Trustees may in their absolute discretion decide that the
determination and winding-up of the Scheme or any part
thereof shall be deferred in which event the Trustees
shall continued to hold the Scheme Assets upon the trusts
hereby declared and administer the same as a frozen scheme
with no further liability on the Employers or the Members
to contribute thereto until such date as the Trustees may
fix for the determination of the Scheme or until the
Scheme Assets shall be exhausted or until a date one year
before the end of the Trust Period is reached (whichever
shall first occur) and provided further that if the
Trustees exercise their powers under this proviso
following the happening of an event described in paragraph
(d) of this Clause the Trustees may determine that the
powers of the Principal Employer under Clause 4(b) shall
thereupon be vested in the Trustees and that the
provisions of Clause 4(f) shall be construed as though
references to the service of notice on and the execution
of documents by the Principal Employer were removed
therefrom and provided further that the approval of the
Principal Employer referred to in Clause 7(a) shall cease
to be required.
19. (a) IF at any time the Scheme is to be determined as aforesaid the
Trustees shall (if they have not already done so) notify each
member and each other person in receipt of benefit from the
Scheme individually in writing to that effect. The Trustees
shall upon such determination be entitled to reserve out of the
Pooled Assets such amount as they consider may be necessary to
meet any expenses of the administration and winding-up of the
Scheme which in their opinion may not be recoverable from the
Employers and to meet any tax, duty, levy or other payments for
which they may be accountable under the Scheme as referred to in
Clause 10 hereof and subject thereto shall apply the Pooled
Assets towards the provision of Ordinary Benefits in the
following manner so far as the funds in the hands of the Trustees
shall permit, viz:
firstly, in completing the application in accordance with
the Rules (or in arranging appropriately with any
insurance company for such application) of any cash
sums which shall have become payable on the death
or retirement of any member and in securing, so far
as they have not already done so, the payment of
the following benefits to those persons entitled
thereto under this Deed and the Rules, namely,
pensions already being paid, retirement benefits
for Members who have reached Normal Retiring Date
and who are not already in receipt of the same
(such benefits to be payable immediately and to be
appropriately increased in amount in accordance
with the Rules), benefits expectant or contingent
upon the
<PAGE> 21
death of the persons entitled to any of the
foregoing benefits (but excluding, unless
ascertainable by reference to a pension benefit,
any such death benefit in lump sum form) and
(subject to proviso (ii) to this sub-clause, if
applicable) any Ordinary AVC Benefits (as defined
below) not included in the foregoing and any
retirement benefits from Normal Retiring Date not
included in the foregoing which shall have arisen
from rights and benefits conferred under Clause 11
hereof;
and
secondly, (i) in securing (to the extent hat the requirement
amounts of benefit have not already been secured
under the preceding provisions of this sub-clause)
the payment of any Equivalent Pension Benefits,
(ii) if there is a Contracting-out Rule in full
force and effect in relation to the Scheme and the
Trustees shall have made arrangements which are
approved under section 55 of the 1993 Act, in
securing (to the extent that the requirement
amounts of benefit have not already been secured
under the preceding provisions of this sub-clause
but disregarding for this purpose any Equivalent
Pensions Benefits) the payment of any guaranteed
minimum pensions and accrued rights to guaranteed
minimum pensions which are subject to such approved
arrangements, and,
(iii) if there is a Contracting-out Rule in full
force and effect in relation to the Scheme and the
Trustees shall not have made arrangements which are
approved as aforesaid or if having made such
arrangements remain liable for the payment of any
state scheme premiums, in providing for the payment
of any state scheme premiums for which they are
liable;
and
thirdly, in securing the payment of any benefits which would
have fallen to be secured under the heading
"firstly" but for proviso (ii) to this sub-clause
(if applicable);
and
fourthly, in securing, so far as they have not already done
so, to each Member who has not reached Normal
Retiring Date and has not received any retirement
benefit from the Scheme the payment of a retirement
benefit at Normal Retiring Date and benefits
expectant or contingent upon the death of such
member on or after Normal Retiring Date or the date
of earlier retirement (but excluding, unless
ascertainable by reference to a pension benefit,
any such death benefit in lump sum form) of such
amount and subject to such terms and conditions as
the Trustees shall determine to be just and
equitable having red to each such Member's
respective
<PAGE> 22
interest in the Scheme and to the preservation
requirements of the 1993 Act and any such Member in
Service at the date of determination of the Scheme
shall have entitlement to the aforesaid retirement
benefit as if he had left Service immediately prior
to such date;
and
fifthly, in securing, so far as they have not already done
so, the payment of such benefits under the
provisions of Clause 14 hereof as the Trustees in
their sole and absolute discretion may think fit,
and
sixthly, in securing the payment of such additional
retirement benefits at Normal Retiring Date for the
benefit of all or any of the Members who have not
reached Normal Retiring Date as the Trustees in
their sole and absolute discretion may think fit;
and
seventhly, in securing the payment forthwith of such
additional retirement benefits for the benefit of
all or any of the persons who have received a
retirement benefit from the Scheme or whose
retirement benefits have been withheld after Normal
Retiring Date in accordance with the rules as the
Trustees in their sole an absolute discretion may
think fit;
and
lastly, in securing, so far as they have not already done
so, the payment of such benefits (whether immediate
or deferred) for the benefit of all or any of the
widows, widowers or other Dependents of persons who
are or have been Members as the Trustees in their
sole an absolute discretion may think fit;
PROVIDED ALWAYS THAT if there is a Contracting-out Rule in full
force and effect in relation to the Scheme:
(i) the Trustees' liability to secure benefits in accordance
with the foregoing provisions of this sub-clause shall to
the extent that the required amounts of benefit will be
provided pursuant to the provisions of the 1993 Act by
virtue of the payment of state scheme premiums be deemed
to have been discharged by the payment of the said state
scheme premiums, and
(ii) in securing under the heading "firstly" any Ordinary AVC
Benefits or any benefits which shall have arisen under
Clause 11 hereof the Trustees shall secure only such of
those benefits as are derived from property forming part
of the Pooled Assets at the date from which the
Contacting-out Rule came into effect and, in the case of
any benefits which shall have arisen under Clause 11 as
aforesaid which
<PAGE> 23
represent assets received from retirement benefits schemes
of employers who are not parties to the Scheme.
For the purposes of this sub-clause:
"EQUIVALENT PENSION BENEFITS" means those pensions benefits for
which the Scheme is liable in accordance with the
provisions of the National Insurance Act 1965 as to Part
III thereof or the National Insurance Act (Northern
Ireland) 1966 as to Part III thereof (or any statutory
modification or re-enactment of those provisions for the
time being in force and any statutory regulations made
thereunder.
"ORDINARY AVC BENEFITS" means any benefits payable from the
Scheme which are provided by any voluntary contributions
made by Members to the Scheme under the Rules other than
(i) any such benefits payable on the death of such Members
while in Service before Normal Retiring Date and (ii)
Special Benefits.
(b) On such determination as aforesaid the Trustees shall apply the
Segregated Assets so far as the funds in their hands shall permit
in securing in respect to each Member who has made or transferred
to the Scheme any voluntary contributions which form part of the
said assets the payment of such Special Benefits as may be
provided by the value of such part of the Segregated Assets as
the Trustees shall determine to be attributable to such voluntary
contributions.
(c) If the amount of any pension ascertained under sub-clauses (a)
and (b) of this Clause in respect of any person when aggregated
with the annuity equivalent of all other benefits for that person
under schemes relating to employment with the Employer (benefit
deriving from such person's membership of any scheme being
treated separately for the purposes of this sub-clause from
benefit for such person contingent upon the death of some other
person) does not exceed L.104 per annum or such higher amount as
may be prescribed from time to time by regulations made under
sections 77(5) and 77(6) of the 1993 Act and if applicable
section 21(1) of the 1993 Act and is consistent with approval of
the Scheme under the 1988 Act (L.260 per annum in respect of
persons who become entitled to benefit under this Clause on or
after 24 April 1991) the Trustees may instead of applying the
Scheme Assets as aforesaid elect at their discretion or to
compute the said pension for a cash sum payable in lieu thereof
of an amount to be determined by the Trustees,
provided always that
(i) the Trustees may not elect to commute as aforesaid a
persons contingently payable on the death of a Member if
they do not also elect to commute under this sub-clause
the pension payable to the Member upon whose death such
pension is contingently payable and
(ii) the amount of any cash sum payable under this sub-clause
in lieu of any amount of pension shall be determined by
the Trustees on a basis approved for this purpose by the
Board of Inland Revenue.
(d) The winding-up of the Scheme shall be completed before the
expiration of the
<PAGE> 24
Trust Period.
(e) The trusts hereby declared shall cease and determine at the
expiration of the Trust Period or upon any earlier date upon
which the winding-up of the Scheme shall have been completed.
20. (a) In order to secure the benefits which are referred to in sub-
clause (a) of Clause 19 hereof:
(i) the Trustees shall have power to transfer to the trustees
for the time being of any other retirement benefits
arrangement approved by the Board of Inland Revenue for
the purposes of this sub-clause all or such part of the
Pooled Assets as the Trustees shall consider to be just
and equitable having regard to such of the accrued rights
and interest (as determined in accordance with sub-clause
(a) of Clause 19 hereof) of beneficiaries and prospective
beneficiaries as may be affected by such transfer
provided always that
(1) where transfer is to a retirement benefits
arrangement other than one relating to the same
employment or to another employment with the
Employer or its successor the written consent of
the Member or Members concerned must be obtained
before the transfer is effected and
(2) subject as aforesaid such beneficiaries shall be
entitled under such other arrangement to such
benefits consistent with the existing formal
approval of such other arrangement by the board of
Inland Revenue) as the Trustees may in their
discretion arrange with the trustees of such other
arrangement;
(ii) any benefits referred to in sub-clause (a) of Clause 19
hereof which have not been secured as aforesaid shall be
secured by the purchase by the Trustees of Prescribed
Policies from an Authorised Insurer in accordance with the
procedures set out in Clause 12(b) and so that
(1) all the requirements set out in relation to that
Clause shall apply (except that any requirement to
provide for a particular level of benefits shall be
modified as required having regard to the funds
then available to the Trustees).
(2) no Member who is in Service at the time the
winding-up of the scheme begins shall be permitted
to receive a refund representing the amount of his
own contributions (if any) to the Scheme and
(3) no payment shall be made in full commutation of an
annuity under such a Prescribed Policy without the
Authorised Insurer concerned first having made
arrangements satisfactory to the Board of Inland
Revenue for the payment of any tax due as a
consequence of such payment;
<PAGE> 25
(iii) in securing any such benefits as aforesaid the trustees
shall expend the Pooled Assets to the extent that they
determine to be reasonable and practicable in providing
such benefits for and in respect of each Member up to the
maximum approvable by the Board of Inland Revenue.
(b) If the Pooled Assets shall comprise in whole or in part annuity
or assurance or sinking fund contracts or policies with any
Authorised Insurer the Trustees shall have the following special
powers in relation thereto and may exercise one or more of such
powers in applying the whole or such part of the Pooled Assets as
aforesaid in securing the benefits referred to in sub-clause (a)
of Clause 19 hereof, such powers being:
(i) power to enter into any arrangements with the
Authorised Insurer concerned whereby the whole or
part of any benefit secured on the life of any
person at the date of determination of the Scheme
under any such contract or policy shall be
transferred to or secured to or in trust for such
person in the form of a non-assignable annuity or
assurance contract or policy which shall include
such options as may be agreed with the Authorised
Insurer which are not inconsistent with the Scheme
having been recognized as an exempt approved scheme
under the 1988 Act nor with the preservation
requirements of the 1993 Act, and
(ii) power to enter into any arrangements with the
Authorised Insurer concerned whereby such
Authorised Insurer shall be released from all
liability to pay any benefits under the whole or
any part or parts of any such contract or policy in
consideration of such Authorised Insurer agreeing
to issue from any United Kingdom office or branch
of such Authorised Insured a fresh annuity or
assurance contract or policy in respect of any
other retirement benefits arrangement approved by
the Board of Inland Revenue for the e purposes of
this sub-clause or to amend an existing annuity or
assurance contract or policy issued by such
Authorised Insured in respect of such other
arrangement in order to secure in respect of such
other arrangement benefits (consistent with the
existing formal approval of such other arrangement
by the Board of Inland Revenue) similar to and in
substitution for those benefits in respect of which
the Trustees shall have released such Authorised
Insurer from liability as aforesaid, and
(iii) power (subject to the consent of the Authorised
Insurer concerned) to assign the whole or any party
or parts of any such contract or policy and the
benefits and moneys thereby assured to the trustees
for the time being of any other retirement benefits
arrangement approved by the Board of Inland Revenue
for the purposes of this sub-clause on the
understanding that the premises so assigned shall
be kept on foot upon such terms (consistent with
the existing formal approval of such other
arrangement by the Board of Inland Revenue as the
Trustees shall consider to be just and
<PAGE> 26
equitable having regard to such of the accrued
rights and interests of beneficiaries and
prospective beneficiaries under the Scheme as may
be affected by such assignment,
Provided always that where there is to be a transfer to a
retirement benefits arrangement other than one relating to the
same employment or to another employment with the Employer or its
successor the written consent of the Member or Members concerned
must be obtained before the transfer is effected.
(c) Any balance of the Pooled Assets remaining unexpended in the
hands of the Trustees after effect has been given to the
proceeding provisions of this Clause shall be paid to the
Employers in such proportions having regard to any special
requirements of the Board of Inland Revenue as the Trustees shall
arrange or, if this Clause becomes operative in consequence of
that operation of sub-clause (c) of Clause 21 hereof, shall be
paid to the appropriate Associated Employer.
Provided always that any such payment should be subject to the
deduction therefrom and payment of any taxes due to the Board of
Inland Revenue under section 601 of the 1988 Act in respect
thereof.
(d) In order to secure the benefits referred to in sub-clause (b) of
Clause 19 hereof powers and provisions similar to those contained
in paragraphs (i) and (ii) of sub-clause (a) of this Clause and
in paragraphs (i), (ii) and (iii) of sub-clause (b) of this
Clause shall apply in respect of the Segregated Assets except
that the written consent of the Member or Members concerned must
be obtained before the power contained in paragraph (i) of sub-
clause (a) of this Clause is exercised in relation to such assets
and before either of the powers contained in paragraphs (ii) and
(iii) of sub-clause (b) of this Clause is exercised in relation
to such assets.
21. (a) IF before such determination of the Scheme as referred to in
Clause 19 hereof:
(i) an Associated Employer terminates its liability hereunder
by notice to the Trustees in accordance with the
provisions of Clause 17 hereof;
or
(ii) an Associated Employer shall at any time fail to pay to
the trustees any sum or sums on or within 14 days after
the date on which the Trustees shall have required the
same to be paid under Clause 9 hereof or shall fail to
observe and perform any other of its obligations hereunder
or in the Rules or in any deed or agreement supplemental
hereto entered into by such Associated Employer and (in
either case) the Trustees thereupon give notice in writing
to such Associated Employer that its participation in the
Scheme shall cease;
or
(iii) an order is made or an effective resolution is passed for
the winding-up of an Associated Employer or an Associated
Employer ceases to
<PAGE> 27
carry on business;
or
(iv) the Board of Inland Revenue give notice in writing to the
Trustees that in their opinion the degree of association
between the Principal Employer and an Associated Employer
has ceased to be sufficiently great to justify the
continued participation of such Associated Employer in the
Scheme;
then upon the happening of whichever of the events described in
the preceding sub-paragraphs of this Clause shall first occur the
participation of such Associated Employer in the Scheme shall
cease and the provisions of sub-clause (b) of this Clause shall
apply;
Provided always that:
(1) if an Associated Employer shall be wound-up for the
purposes of reconstruction or amalgamation with any
other company or if an Associated Employer shall
amalgamate or enter into any arrangement having the
effect of amalgamation with any other company or if
the undertaking of an Associated Employer or part
thereof shall be assigned to or vested in any other
company, person or body of persons the Trustees may
make such arrangements or enter into such
agreements (not being arrangements or agreements
incompatible with the manner in which the Scheme
Assets are invested or of such a kind as to
prejudice approval of the Scheme under the 1988
Act) as they shall think fit whereby such
reconstructed company or other company with which
such Associated Employer has been amalgamated or
company, person or body of persons to or in which
the undertaking of such Associated Employer or part
thereof shall have been assigned or vested shall
for the purposes of this Deed and the Rules accept
and adopt the obligations and liabilities of such
Associated Employer under the Scheme;
(2) if this Clause becomes operative by reason of the
Board of Inland Revenue serving notice in terms of
sub-paragraph (iv) above such Associated Employer
may continue to participate in the Scheme until
such date as may be agreed between the Trustees and
such Associated Employer or until the Scheme
Anniversary Date next but one following the date
from which in the opinion of the board of Inland
Revenue the degree of association ceased to be
sufficiently great as referred to in sub-paragraph
(iv) or until the happening of any of the events
described in sub-paragraphs (i), (ii) and (iii) of
this sub-clause or until such determination of the
Scheme as aforesaid as aforesaid (whichever shall
first occur).
(b) If the participation of an Associated Employer in the Scheme
shall cease as aforesaid the Scheme shall thereon be determined
and wound-up so far as regards the following persons, namely
<PAGE> 28
(i) Members who have received any retirement benefits from the
Scheme upon their retirement from the employee of such
Associated Employer or of any other company, person or
body of persons to whose business such Associated Employer
has succeeded in any way as aforesaid.
(ii) Members who are in the employ of such Associated Employer
at the date such Associated Employer ceases to participate
in the Scheme and who are not immediately transferred to
the employ of another of the Employers
(iii) Members who have left the employ of such Associated
Employer at the date such Associated Employer ceases to
participate in the Scheme and who are not immediately
transferred to the employer of another of the Employers.
(iv) all beneficiaries and prospective beneficiaries under the
Scheme (not being Members) whose interest therein derives
from the membership thereof any of the above-mentioned
Members.
(c) Upon such cessation as described in sub-clause (b) of this Clause
if the Trustees do not exercise the discretion contained in sub-
clause (d) of this Clause then the appropriate portion or
portions of the Scheme Assets applicable to the aforesaid persons
shall be ascertained by the Trustees and the provisions of Clause
19 and Clause 20 hereof shall (mutatis mutandis) apply thereto
provided that the Trustees may in their absolute discretion
decide that the determination of all or any part of such portion
or portions in the Scheme Assets shall be deferred in which event
the Trustees shall continue to hold such assets as the
appropriate portion of the Scheme may then comprise upon the
trusts hereby declared and administer the same as the frozen
scheme with no further liability upon such Associated Employer or
upon the employees thereof to contribute thereto until such date
as they may fix for the determination of such portion of the
Scheme as aforesaid or until such assets as aforesaid shall be
exhausted or until the whole of the Scheme shall be determined
and wound-up in accordance with Clause 19 and Clause 20 hereof
(whichever shall first occur).
(d) Upon such cessation as described in sub-clause (b) of this Clause
the trustees may at their absolute discretion in lieu of any
action as described in sub-clause (c) of this Clause secure to
the aforesaid persons such pensions and other benefits as shall
have accrued in accordance with the Rules of shall have been
conferred on them in accordance with Clause 10 and Clause 11
hereof up to the date of such cessation and such further benefits
as they shall decide to grant in accordance with Clause 10
provided always that the said pensions and other benefits shall
not be payable from an earlier date than would have been
permitted by the Rules and shall be subject to the provisions of
sub-clauses (a) and (d) of Clause 20 hereof and the Trustees
shall have in regard thereto powers and options similar to those
contained in the proviso to sub-clause (c) of this Clause, sub-
clause (c) of Clause 19 hereof and sub-clause (b) of Clause 20
hereof.
22. ANY notice required to be served hereunder on the trustees shall be sent
by post to all the Trustees at their respective last known addresses and
any notice required to be served hereunder on any Employer shall be sent
by post to such Employer at its
<PAGE> 29
registered office or principal place of business for the time being and
any such notice shall be deemed served 48 hours after the same shall
have been posted and in proving such service it shall be sufficient to
provide that the notice was properly addressed and posted.
23. ANY Prescribed Policies effected in the name of the Trustees as trustees
for the benefit of any person or persons under sub-clause (b) of Clause
12 hereof shall, without prejudice to the requirement for the Authorised
Insurer concerned to pay the benefits thereunder to or for the benefit
of the person or persons concerned, be held by the Trustees on trust for
the benefit of the person or persons concerned separately from the
trusts upon which they hold the Scheme Assets. Any Prescribed Policies
so held shall be excluded for all purposes from the Scheme Assets.
24. (a) IN the case of any Member who on or after 1 January 1986 ceases
to be a participating Member and in respect of whom a cash sum is
to be applied without his consent under any of the foregoing
provisions of this Deed in the provision of benefits in respect
of him which are in lieu of the whole or a part of the benefits
otherwise arising under the Scheme in consequence of his
membership the Trustees shall ensure that
(i) such sum represents to their reasonable satisfaction not
less than the value of the whole or such benefits arising
under the Scheme ascertained by reference to "the
applicable rules" as defined in section 94(2) of the 1993
Act or a specified part of such benefits as appropriate
and
(ii) if such cessation occurs on or after 6 April 1988 the
requirements of the Relevant Preservation Regulations with
regard to transactions to which section 19 of the 1993 Act
applied (extinguishment of liability of occupational
pension schemes for bought-out pension secured by
insurance policies or annuity contracts) are satisfied to
the extent that they are applicable to the particular
case.
For the purposes of this sub-clause:
"RELEVANT PRESERVATION REGULATIONS" means Regulations made under
section 70 of the 1993 Act in respect of requirements as to
preservation of benefit under occupational pension schemes, being
(1) in respect of the period between the 6 April 1988
and the 28 February 1991 The Occupational Pension
Schemes (Preservation of Benefits) Regulations
1984) ("1984 Regulations"), particularly as to
Regulation 12(4A) thereof, and
(2) on and after the 28 February 1991, following
revocation of the whole of the 1984 Regulations
aforesaid at that date, the Occupational Pension
Schemes (Preservation of Benefit) Regulations 1991
("1991 Regulations"), particularly as to Regulation
9(4), (5) and (6) thereof, and
(3) any amendment to or replacement of the 1991
Regulations aforesaid or comparable Regulations for
the time being in
<PAGE> 30
force.
(b) In any case where under the provisions of chapter IV of Part IV
of the 1993 Act a Member acquires and exercises the right to
require the Trustees to apply for his benefit an amount equal to
the case equivalent (computed as specified in Chapter IV of that
Part and any Regulations made thereunder) of the whole or a part
of the benefits otherwise arising under the Scheme in consequence
of his membership, the application of any of the foregoing
provisions of this Deed which concern the payment by the Trustees
of a cash sum from the Scheme (or other arrangements concerning
the provision of such benefits or equivalent benefits under a
retirement benefits arrangement other than the Scheme) shall be
restricted to that part (if any) of such benefits to which the
provisions of Chapter IV of Part IV aforesaid are not applicable.
(c) The foregoing provisions of this Deed shall be subject to the
provisions of the Contracting-out Rule if such Rule is in full
force and effect in relation to the Scheme.
<PAGE> 31
THE SCHEDULE
DEFINITIONS
"ACTUARIAL ADVICE" means advice given by a Fellow of the Institute of
Actuaries or by a Fellow of the Faculty of Actuaries (or if applicable
by an incorporated body making available the advice given to it by a
Fellow of the Institute of Actuaries or by a Fellow of the Faculty of
Actuaries)
"ASSOCIATED EMPLOYER" means any employer (other than the Principal Employer and
the Trustees) which is a party to this Deed or becomes a party to the
Scheme after the date hereof in accordance with Clause 15 of this Deed.
"AUTHORISED INSURER" means any insurance company to which Part II of the
Insurance Companies Act 1982 applies and which is authorised by or under
section 3 or 4 of that Act to carry on ordinary long-term insurance
business as defined in that Act.
"CONTRACTING-OUT RULE" means if any employment to which the Scheme relates is
contracted-out employment under the 1993 Act the Rule headed "Provisions
relating to Members in Contracted-out Employment" in the Rules.
"DEPENDANT" means in relation to a Member any person who is or was at the
relevant time
(a) the spouse of the Member or
(b) a child of the Member aged less than 18 or in receipt of full-
time educational or vocational training or
(c) an individual financially dependent on the Member for all or part
of the necessaries of life.
"FRIENDLY SOCIETY" means a friendly society authorised under regulation 5 or 6
of the Friendly Societies (Long Term Insurance Business) Regulations
1987 or under article 67 of the Social Security Pensions (Northern
Ireland) Order 1975 to conduct such business as described in those
regulations or that article.
"INTENDED BENEFITS" means the benefits to be provided in respect of each Member
in accordance with the Rules.
"SPECIAL BENEFITS" being construed as meaning any such benefits which are
represented by Segregated Assets, and
"ORDINARY BENEFITS" being construed as meaning any such benefits which are
represented by Pooled Assets.
"PRESCRIBED POLICY" means an annuity or assurance contract or policy issued
from a United Kingdom office or branch of an Authorised Insurer or
Friendly Society under which the authorised Insurer or Friendly Society
concerned assumes an enforceable obligation to pay the benefits as and
when they fall due to or for the benefit of such persons (or to or for
the benefit of the widows, widowers, dependants or personal
representatives of such persons) in respect of whom such contract or
<PAGE> 32
policy is issued and under which the following requirements are met:
(a) Any benefits provided are non-assignable;
(b) The benefits provided are approvable relevant benefits (as
defined in section 612(1) of the 1988 Act) which do not exceed
the maximum amount approvable under the Scheme by the Board of
Inland Revenue;
(c) The maximum amount which can be taken as a lump sum at Normal
Retiring Date is specified;
(d) The maximum amount payable in lump sum form on death before
retirement is specified;
(e) Where payment of any benefits can be deferred until after Normal
Retiring Date the period of deferment does not extend beyond the
attainment of age 75;
(f) The said contract or policy cannot be assigned or surrendered
except that with the consent in writing or at the request of the
person concerned it may be surrendered for the purpose of
transferring the value thereof or (subject to (h) below) a part
of the value thereof either
(i) to a further contract or policy which satisfies the
requirements set out in this definition or
(ii) to a retirement benefits arrangement of which the person
concerned has become a member and which is approved by the
Board of Inland Revenue under the 1988 Act (other than one
to which item (b)(i) in the definition of the 1988 Act is
applicable) or is approved for the purposes of this
provision by the Board of Inland Revenue and (so far as
may be necessary) the Occupational Pensions Board;
(g) A transfer under the preceding provision is subject to the
Authorised Insurer or Friendly Society which issued the original
contractor policy certifying to the Authorised Insurer or
Friendly Society issuing the further contract or policy or to the
trustees or administrator of the retirement benefits arrangement
concerned (as appropriate) the maximum amounts specified in (c)
and (d) above and subject to any undertaking given to the Board
of Inland Revenue in connection with the making of such transfers
by the Authorised Insurer or Friendly Society which issued the
original contract;
(h) A transfer relating to less than the total value of the benefits
under the said contract or policy may not be made under (f) above
without the consent of the Board of Inland Revenue unless the
benefits remaining payable thereunder are or are in substitution
for Residual Benefits;
(i) Any option in the said contract or policy for utilising the
proceeds of such contract or policy in the purchase of an annuity
with another Authorised Insurer or Friendly Society is in terms
which provide that all the foregoing conditions will also be met
by the policy under which such annuity is to be secured and that
any transfer of policy proceeds will be made direct between the
Authorised Insurers or Friendly Societies concerned or if
appropriate through the intermediary arranging the transaction;
<PAGE> 33
(j) In relation to any such contract or policy effected on or after 1
January 1986 the actual length of service giving rise to the
benefits provided is specified or it contains a statement that
the length of such service exceeds the qualifying period for the
preservation of benefits in accordance with the provisions of the
1993 Act.
"RELEVANT LEGISLATION" means any legislation in force at the appropriate time
which retirement benefits schemes have to satisfy and shall include
(a) any such legislation which has to be satisfied in order to obtain
the approval or continued approval of the Scheme by the board of
Inland Revenue
(b) except for the purposes of the proviso to Clause 16 of this Deed,
any such legislation which has to be satisfied in order to obtain
exemption for Members of the Scheme from liability to contribute
in whole or in part to a state scheme for the national provision
of retirement and other benefits for and in respect of employed
earners and
(c) any statutory regulations made under such legislation.
"RESIDUAL BENEFITS" means benefits falling within one or more of the following
categories, viz:
(a) Benefits for widows or dependants;
(b) Equivalent pension benefits under retirement benefits schemes
contracted-out in accordance with the provisions of the National
Insurance Act 1965 as to part III thereof or the National
Insurance Act (Northern Ireland) 1966 as to part III thereof (or
any statutory modification or re-enactment thereof for the time
being in force and any statutory regulations made thereunder);
(c) Guaranteed minimum pensions under retirement benefits schemes
contracted-out in accordance with the provisions of the 1993 Act.
"SCHEME ASSETS" means the assets from time to time held by the Trustees for the
purposes of the Scheme and includes rights under any assurance or
annuity contracts or policies (other than Prescribed Policies) held by
the Trustees as aforesaid,
"SEGREGATED ASSETS" being construed as meaning any part of the said assets in
respect of which the Trustees shall have exercised their power under
Clause 7(c) of this Deed, and
"POOLED ASSETS" being construed as meaning any remaining part of the said
assets.
"TRUST PERIOD" means the period beginning with the date of establishment of the
Scheme and enduring for 80 years or such longer period as may from time
to time be permitted by statute.
<PAGE> 34
"TRUSTEES" means the Present Trustees or other the person or persons or the
incorporated body or bodies who for the time being and from time to time
are the trustees under the provisions of this Deed and "Trustee" means
any one of the Trustees.
SIGNED AND DELIVERED AS A DEED )
by the said GERALD MARTIN HARRISON )
) /s/ Gerald Martin Harrison
)
in the presence of: )
)
)
Sandra Swaisland ) /s/ Sandra Swaisland
SIGNED AND DELIVERED AS A DEED )
by the said )
NEIL ALEXANDER MACLEOD CAMPBELL )
) /s/ Neil Alexander Macleod
Campbell
in the presence of: )
)
)
Sandra Swaisland ) /s/ Sandra Swaisland
SIGNED AND DELIVERED AS A DEED )
by the said GEORGE PURDIE )
) /s/ George Purdie
)
in the presence of: )
)
)
Sandra Swaisland ) /s/ Sandra Swaisland
IN WITNESS whereof these presents have been entered into as a deed the day and
year first above written
THE COMMON SEAL OF )
HORIZON EXPLORATION LIMITED )
was hereunto affixed in the )
presence of: )
Director
/s/ Gerald Martin Harrison
<PAGE> 35
Secretary
/s/ Neil Alexander Macleod Campbell
THE COMMON SEAL OF )
EXPLORATION HOLDINGS LIMITED )
was hereunto affixed in the )
presence of: )
Director
/s/ Gerald Martin Harrison
Secretary
/s/ Neil Alexander Macleod Campbell
<PAGE> 1
EXHIBIT 10.56
EAGLE GEOPHYSICAL, INC.
MASTER AGREEMENT FOR GEOPHYSICAL SERVICES
THIS AGREEMENT ("Agreement"), dated this 2nd day of January, 1997, is by
and between EAGLE GEOPHYSICAL, INC., a Delaware Corporation hereafter called
CONTRACTOR, and SEITEL DATA, LTD. hereafter called CLIENT.
W I T N E S S E T H:
In consideration of the mutual promises and agreements set forth
herein, CONTRACTOR, and CLIENT agree as follows:
SECTION I - NATURE OF WORK
CONTRACTOR shall conduct geophysical surveys for the benefit of CLIENT in
those areas designated by CLIENT in accordance with the terms and conditions of
this Agreement and any Job Supplement (sometimes collectively referred to as
"the Contract"). These geophysical surveys shall be carried out by one or more
geophysical parties as may be agreed upon between CLIENT and CONTRACTOR in a
manner and subject to these terms and conditions and those contained in any Job
Supplement (defined herein), which shall define the scope of CONTRACTOR's work
(the "Work").
SECTION II - SUPPLEMENTARY AGREEMENTS
Whenever CLIENT requests and CONTRACTOR agrees to conduct a geophysical
survey, CLIENT and CONTRACTOR shall enter into a written supplementary
agreement (a "Job Supplement") which shall describe the specific area where the
Work is to be performed and specifies the equipment, services, and materials to
be furnished by CONTRACTOR and prices to be charged for the Work. Each Job
Supplement shall be incorporated herein by reference and all terms and
provisions of this Agreement shall apply to each Job Supplement unless any of
the terms and conditions of this Agreement are eliminated for purposes of a
particular Job Supplement. If any of the terms and conditions of this Agreement
and those of any Job Supplement conflict, the terms and conditions of the Job
Supplement shall control. Except as otherwise provided herein, all estimates of
time for commencement of operations pursuant to any Job Supplement are
estimates only, and are subject to change depending upon weather conditions,
availability of permits, environmental considerations, availability of
subcontractor crews and equipment, and any other condition beyond the sole
control of the CONTRACTOR. CONTRACTOR shall not be liable for any loss caused
by any variation in commencement or completion of the Work specified in any Job
Supplement.
SECTION III - TERM AND TERMINATION
This Agreement shall be effective as of the date first above written and
shall continue until terminated by written notice, postmarked at least ten (10)
days prior to the termination date, from one party to the other party setting
forth the termination date of this Agreement (the "Termination Date").
Contractor may not terminate the Agreement while a Job Supplement is in effect.
Subject to the foregoing, this Agreement shall terminate on the Termination
Date so specified. The termination of any Job Supplement shall not terminate
this Agreement or relieve the CLIENT of any obligation to pay CONTRACTOR all
amounts accrued in connection with the Work performed by CONTRACTOR through the
termination date, including project cancellation charges, if applicable.
SECTION IV - DELINEATION OF AUTHORITY
In the performance of the Work hereunder, CONTRACTOR shall be an
independent contractor with sole authority to direct and control the Work
provided for herein. A representative designated by CLIENT may observe all work
done by CONTRACTOR, but the detailed manner of accomplishing the Work shall be
under the sole control of CONTRACTOR,
<PAGE> 2
CLIENT being interested only in the results obtained. Notwithstanding the
foregoing, CLIENT's representative may request the removal from the job site of
any of CONTRACTOR's personnel for good cause.
SECTION V - SECRECY OBLIGATION
CONTRACTOR shall use diligence in safeguarding (1) geophysical data
acquired from the Work hereunder, (2) information relating to the location of
the survey and type of Work performed and (3) information supplied by CLIENT
which is not in the public domain or otherwise already known by CONTRACTOR.
CONTRACTOR shall not divulge to anyone other than CLIENT or its designated
representative any such data or information unless authorized by CLIENT in
writing prior to such disclosure. CONTRACTOR shall use diligence to cause its
subcontractors, employees and agents to comply with this obligation of secrecy.
CONTRACTOR's obligation of secrecy shall be a continuing one and shall survive
the termination of this Agreement and shall continue not withstanding the
disclosure or transfer of data by CLIENT to a third party until any such
information becomes part of the public domain through no fault of CONTRACTOR.
Likewise, CLIENT shall observe the above secrecy obligation, insofar as it has
access to and knowledge of information that is confidential or proprietary to
CONTRACTOR, including, without limitation, information regarding CONTRACTOR's
equipment, instruments, programs, procedures, business practices and the
operation thereof.
SECTION VI - OPERATIONS
1. CONTRACTOR shall perform data acquisition activities in accordance with
the Data Acquisition Parameters, Survey Design Considerations, Field Design
Implementation Techniques, Quality Control Standards and Specifications
contained in the Job Supplement.
2. CONTRACTOR shall provide experienced personnel and supervisory staff
necessary to conduct the Work in accordance with the data acquisition
parameters and the quality control standards included in any Supplemental
Agreement.
3. CLIENT DESIGNATION OF LOCATION. CLIENT shall designate each area to be
surveyed, and shall furnish CONTRACTOR with adequate maps of suitable scale for
each project to be surveyed sufficiently in advance to permit orderly planning
of any Work. Such maps shall remain the property of CLIENT and shall be
returned upon completion of the Work, if requested by CLIENT.
4. PLANNING THE WORK. CONTRACTOR shall be solely responsible for planning,
scheduling and implementing the sequence of the Work under the Contract. Any
changes in the scheduling or sequence of the Work as planned by Contractor,
after permitting activities have been initiated, whether requested by CLIENT or
resulting from permit delays outside the sole control of CONTRACTOR which shall
result in loss or extra overhead and/or direct expense to CONTRACTOR shall be
for CLIENT's account and payable to CONTRACTOR.
5. REPORTS. Subject to the terms and conditions of this Contract,
CONTRACTOR shall exercise reasonable care in its Work and shall keep CLIENT
informed of the progress of the Work. Within a reasonable time after completion
of Work in any area, CONTRACTOR shall furnish CLIENT with all basic data
belonging to CLIENT, and such basic data shall be the permanent property of
CLIENT. CONTRACTOR shall not be required to provide any information proprietary
to Contractor, including, but not limited to, information pertaining to its
materials, equipment, techniques, methodology or expertise.
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SECTION VII - WARRANTIES
1. NO WARRANTY REGARDING DATA. Reports, information and data supplied to
CLIENT shall represent diligent efforts and opinion of CONTRACTOR; however, any
use made by CLIENT of said reports, information or data will be at CLIENT's
sole risk, and CONTRACTOR shall have no responsibility or liability whatsoever
for any use made thereof. CLIENT AGREES TO RELEASE, DEFEND AT ITS SOLE COST,
AND INDEMNIFY CONTRACTOR FROM ALL LOSSES AND DAMAGES RESULTING THEREFROM.
2. DISCLAIMER AND LIMITATION OF EXPRESS AND IMPLIED WARRANTIES. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT AND ANY JOB SUPPLEMENT, CLIENT
ACKNOWLEDGES THAT CONTRACTOR HAS MADE NO OTHER EXPRESS WARRANTY OR
REPRESENTATION. NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN TO THE CONTRARY,
CONTRACTOR DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT
LIMITED TO, THOSE REGARDING ITS EQUIPMENT, SUPPLIES, SERVICES AND THE
INFORMATION AND DATA SUPPLIED BY CONTRACTOR, INCLUDING WITHOUT LIMITATION THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NO
WARRANTY OF WORKMANLIKE PERFORMANCE IS GIVEN BY THE CONTRACTOR BY VIRTUE OF
THIS AGREEMENT FOR ANY PERFORMANCE COMPLETED AND WORK TURNED OVER TO CLIENT.
CLIENT'S SOLE REMEDY FOR NONPERFORMANCE BY CONTRACTOR SHALL BE ITS RIGHT TO
WITHHOLD ANY REMAINING PAYMENTS DUE TO CONTRACTOR.
3. DISCLAIMER AND INDEMNITY FROM THIRD PARTIES. This contract is not
intended to create, and shall not create any rights for any persons who are not
parties hereto. ACCORDINGLY, CONTRACTOR SHALL NOT BE LIABLE, DIRECTLY OR
INDIRECTLY, TO ANY THIRD PARTIES, AND CLIENT AGREES TO DEFEND, RELEASE AND
INDEMNIFY CONTRACTOR FROM ALL DIRECT, INDIRECT AND CONSEQUENTIAL DAMAGES AND
LOSSES SUSTAINED BY ANY PERSONS WHO ARE NOT PARTIES TO THIS CONTRACT
(INCLUDING, BUT NOT LIMITED TO, CLIENT'S ASSIGNEES, PARTNERS, AFFILIATES AND
WORKING INTEREST OWNERS) RESULTING FROM ANY ALLEGED BREACH OF CONTRACT,
WARRANTY, OR OTHER ALLEGED NONPERFORMANCE OF OBLIGATIONS UNDER THE CONTRACT BY
CONTRACTOR, INCLUDING, BUT NOT LIMITED TO, DAMAGES OR LOSSES ARISING FROM USE
OF INFORMATION OR DATA PROVIDED TO CLIENT. IN NO EVENT SHALL CONTRACTOR BE
LIABLE FOR, AND CLIENT AGREES TO RELEASE, DEFEND AT ITS SOLE COST, AND
INDEMNIFY CONTRACTOR FROM ALL CLAIMS FOR SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND ANY JOB
SUPPLEMENT(S) OR THE USE OF REPORTS, INFORMATION AND DATA SUPPLIED TO CLIENT,
INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOST REVENUES, LOST PROFITS, LOSS
OF BUSINESS OPPORTUNITIES, LOSS OF LEASES, BUSINESS INTERRUPTIONS, LOST DATA,
COSTS OF OBTAINING SUBSTITUTE INFORMATION OR SERVICES, LOSS OR DELAY OF
PRODUCTION, LOSS RESULTING TO ANY EXISTING WELLS OR RESERVOIR, LOSSES INCURRED
BY CLIENT'S JOINT INTEREST OWNERS AND ALL OTHER PARTIES ARISING OUT OF ANY
DRILLING COMMITMENTS OR OBLIGATIONS CONTAINED IN ANY LEASE, FARMOUT AGREEMENT
OR OTHER AGREEMENT WHICH MAY BE AFFECTED BY TERMINATION OR LACK OF PERFORMANCE
HEREUNDER, AND ANY SIMILAR OR DISSIMILAR LOSSES, COSTS OR DAMAGES, HOWEVER
CAUSED, REGARDLESS OF WHEN OR HOW SUCH DAMAGE OCCURS, EXCEPT IN
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THE CASE OF GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BREACH OF THIS AGREEMENT BY
CONTRACTOR.
SECTION VIII - FORCE MAJEURE AND CONDITIONS EXCUSING PERFORMANCE
The contracting parties acknowledge that conditions beyond the control of
either party, including, but limited to, Force Majeure, may prevent timely
performance of this Contract by CONTRACTOR. Such conditions may include, for
example, but are not limited to delay in issuance or continuance of permits,
weather conditions which interrupt the orderly and efficient conduct of
surveying operations, and conditions which may cause loss, malfunction of or
damage to CONTRACTOR's equipment or endanger its properties or crews or those
of its subcontractors. The parties agree that such conditions shall include any
set of circumstances where CONTRACTOR's performance under this Contract is
delayed, prevented, or substantially impaired, which conditions are beyond the
reasonable control of CONTRACTOR. Force Majeure events shall include riot,
strike, war, insurrection, rebellion, civil disturbance, legal restraints,
governmental action or inaction or like interference, fire, flood, freezing,
storm, hurricane, tornadoes, or other action of the elements, acts of God,
accidental damage to equipment or any cause outside the sole control of
CONTRACTOR. CONTRACTOR shall not be liable for any delay or failure of
performance caused by any or all of the foregoing conditions. If such
conditions result in an increase of personnel or costs to complete a project,
CONTRACTOR, at its option, in addition to other rights set forth herein, shall
have the right to charge for standby time or to negotiate with CLIENT for an
adjustment of the rate set forth in the Job Supplement, and should the parties
fail to agree on said adjustment within five (5) days, CONTRACTOR shall have
the option to terminate this Agreement and/or any Job Supplement by giving to
CLIENT five (5) days written notice of termination. CLIENT shall promptly pay
CONTRACTOR for all amounts earned in connection with the Work performed by
CONTRACTOR in addition to all reimbursable expenses incurred by CONTRACTOR
through the termination date
SECTION IX - RESPONSIBILITY FOR LOSS OR DAMAGE, INDEMNITY,
RELEASE OF LIABILITY AND ALLOCATION OF RISK
1. INDEMNITY BY CONTRACTOR. EXCEPT AS HEREAFTER PROVIDED, CONTRACTOR SHALL
PROTECT, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY, SAVE AND HOLD HARMLESS
THE CLIENT GROUP FROM AND AGAINST ALL CLAIMS, DEMANDS, CAUSES OF ACTION, SUITS,
LOSSES, DAMAGES, AND LIABILITIES OF EVERY KIND AND CHARACTER ARISING DIRECTLY
OR INDIRECTLY IN CONNECTION WITH THE WORK TO BE PERFORMED HEREIN RESULTING IN
PERSONAL INJURY TO, OR ILLNESS, DEATH, OR PROPERTY DAMAGE TO THE CONTRACTOR
GROUP, REGARDLESS OF WHETHER CAUSED BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE
OF CLIENT OR CONTRACTOR. SUCH INDEMNITY SHALL BE WITHOUT REGARD TO AND WITHOUT
ANY RIGHT TO CONTRIBUTION FROM ANY INSURANCE MAINTAINED BY CLIENT AS REQUIRED
HEREIN. For purposes of this Contract, the "Client Group" shall mean any and
all of the CLIENT, its owners, affiliates, partners, joint venturers and
subcontractors and each of their respective officers, directors, shareholders,
employees, agents, representatives, and invitees.
2. INDEMNITY BY CLIENT. EXCEPT AS HEREAFTER PROVIDED, CLIENT SHALL
PROTECT, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY, SAVE AND HOLD HARMLESS
THE CONTRACTOR GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF
ACTION, SUITS, LOSSES, DAMAGES, AND LIABILITIES OF EVERY KIND AND CHARACTER
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH THE WORK TO BE PERFORMED
HEREIN, RESULTING IN PERSONAL INJURY TO, OR
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ILLNESS, DEATH, OR PROPERTY DAMAGE TO CLIENT GROUP, REGARDLESS OF WHETHER
CAUSED BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF CLIENT OR CONTRACTOR.
SUCH INDEMNITY SHALL BE WITHOUT REGARD TO AND WITHOUT ANY RIGHT TO CONTRIBUTION
FROM ANY INSURANCE MAINTAINED BY CONTRACTOR AS REQUIRED HEREIN. For purposes of
this Contract, the "Contractor Group" shall mean any and all of CONTRACTOR, its
owners, affiliates, partners, joint venturers and subcontractors, and each of
their respective officers, directors, shareholders, employees, agents,
representatives, and invitees.
3. INDEMNITY WITHOUT FAULT. EXCEPT AS OTHERWISE EXPRESSLY LIMITED HEREIN,
IT IS THE INTENT OF THE PARTIES HERETO THAT ALL INDEMNITY OBLIGATIONS AND
LIABILITIES ASSUMED BY THE PARTIES UNDER THIS AGREEMENT BE WITHOUT MONETARY
LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF (INCLUDING PREEXISTING
CONDITIONS), THE NEGLIGENCE OF ANY PARTY OR PARTIES (WHETHER THE NEGLIGENCE BE
SOLE, JOINT, OR CONCURRENT, ACTIVE OR PASSIVE), AND THE FAULT OR RESPONSIBILITY
OF ANY PARTY OR PARTIES UNDER ANY OTHER CONTRACT OR ANY STATUTE, RULE, OR
THEORY OF LAW. THIS CONTRACT SHALL CREATE NO RIGHT OF ACTION IN ANY PERSON NOT
A PARTY HEREUNDER OR NOT SPECIFICALLY IDENTIFIED AS AN INDEMNITY HERETO, AND
ALL INDEMNITY OBLIGATIONS CONTAINED HEREIN SHALL HAVE NO APPLICATION TO THEM.
4. RISK OF LOSS OF FIELD TAPES. CLIENT SHALL ASSUME SOLE RESPONSIBILITY
FOR, AND AGREES TO RELEASE AND INDEMNIFY CONTRACTOR GROUP FOR ALL DAMAGE TO,
LOSS OR THEFT OF ORIGINAL FIELD TAPES AND THE INFORMATION RECORDED THEREON
AFTER CONTRACTOR TURNS SUCH FIELD TAPES OVER TO A REPUTABLE COMMON CARRIER WITH
APPROPRIATE SHIPPING INSTRUCTIONS OR WHEN CONTRACTOR DELIVERS SUCH INFORMATION
TO THE CLIENT REPRESENTATIVE DESIGNATED IN THE APPROPRIATE JOB SUPPLEMENT.
5. MINERAL INTERESTS AND TRESPASS. CLIENT SHALL ASSUME SOLE RESPONSIBILITY
FOR AND DEFEND AT ITS SOLE COST, RELEASE AND INDEMNIFY CONTRACTOR FOR ANY CLAIM
BY THE OWNER OR PURPORTED OWNER OF LAND OR OF A MINERAL INTEREST IN LAND, BASED
UPON THE THEORY THAT THE OPERATIONS HEREUNDER OF CONTRACTOR HAVE DIMINISHED THE
MINERAL VALUE OF SUCH LAND; provided, however, that CLIENT shall not be
responsible for any such claim in any case where such operations are conducted
upon land not designated therefor by CLIENT or its said representative, or in
any case where CLIENT shall have requested CONTRACTOR to obtain a permit to
conduct such operations, and where CONTRACTOR shall fail either to obtain such
permit, or to do everything reasonably or prudently necessary to assure the
validity and sufficiency of such permit if obtained by it, or in any case where
CONTRACTOR shall fail to observe any condition or restrictions, of which it has
knowledge, imposed with respect to such permit obtained by it or CLIENT, and
without limiting the generality of the foregoing, it is further agreed that
CLIENT shall not be responsible for any damage or claim, resulting from an
entry on land, or arising from CONTRACTOR's operations on land, after
CONTRACTOR or its employees have been warned to keep off such land by the owner
or lessee thereof, or by any person having authority or apparent authority to
eject CONTRACTOR or its employees. If CONTRACTOR is unable through reasonable
efforts to timely obtain such permits, CONTRACTOR will notify CLIENT and
CONTRACTOR will not enter non-permitted land unless so instructed in writing by
an officer of the CLIENT. NOTWITHSTANDING THE FOREGOING, WHEN THE
ABOVE-MENTIONED
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PERMITS ARE NOT TIMELY OBTAINED EITHER BY CLIENT OR CONTRACTOR PRIOR TO CREW
ENTRY AND CLIENT INSTRUCTS CONTRACTOR TO PROCEED WITHOUT PERMITS, CLIENT
ASSUMES ALL RESPONSIBILITY FOR, AND AGREES TO RELEASE, DEFEND AT ITS SOLE COST
AND INDEMNIFY CONTRACTOR FOR ALL DAMAGES, COSTS AND ATTORNEYS FEES ACCRUING OR
ASSERTED TO ACCRUE FROM SUCH ENTRY.
6. INDEMNITY FOR DAMAGES CAUSED BY THE DATA ACQUISITION PROCESS. ATTACHED
AS EXHIBIT "A" IS THE SAFE OPERATING DISTANCE CHART DISTRIBUTED BY THE IAGC,
COMMONLY USED AND ACCEPTED BY THE GEOPHYSICAL INDUSTRY WHICH THE PARTIES DEEM
REFLECTS THE SAFE DISTANCE FOR THE CONDUCT OF THE WORK. CONTRACTOR AGREES TO
ADHERE TO THE REQUIREMENTS OF SAID CHART IN PERFORMING THE CONTRACT. IF, (i)
CLIENT REQUESTS OR INSTRUCTS CONTRACTOR TO DISCHARGE EXPLOSIVES AT CLOSER
DISTANCES THAN THOSE PRESCRIBED, OR TO DISCHARGE EXPLOSIVES LARGER THAN THE
AMOUNTS PRESCRIBED FOR THE DISTANCES PRESCRIBED, OR TO CAUSE THE DISTANCES
PRESCRIBED FOR SURFACE ENERGY SOURCES TO BE LESS THAN THOSE SET FORTH IN
EXHIBIT "A", OR (ii) SUCH CHARGES ARE SET OR USED BY CONTRACTOR IN COMPLIANCE
WITH THE SPECIFICATIONS SET FORTH IN EXHIBIT "A", THEN CLIENT SHALL ASSUME SOLE
RESPONSIBILITY FOR, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY AND HOLD
CONTRACTOR GROUP HARMLESS FROM AND AGAINST ALL CLAIMS FOR DAMAGE TO OR LOSS OF
PROPERTY OR INJURIES TO PERSONS OR DEATH RESULTING FROM THE DISCHARGE OF ANY
ENERGY SOURCE IN THE COURSE OF THE DATA ACQUISITION PROCESS OPERATIONS
HEREUNDER. WHENEVER SUCH ENERGY SOURCES ARE SET OR USED BY CONTRACTOR IN
COMPLIANCE WITH THE SPECIFICATIONS SET FORTH IN EXHIBIT "A", THEN THE PARTIES
AGREE THAT SUCH PERFORMANCE SHALL BE DEEMED REASONABLE AND PRUDENT.
7. INDEMNITY AND DEFENSE RIGHTS EXTEND TO AFFILIATES AND OFFICERS. ALL
INDEMNITIES, RELEASES AND ASSUMPTIONS OF LIABILITY EXTENDED BY THE PARTIES
HERETO SHALL INURE TO THE BENEFIT OF THE PARTIES, THEIR PARENT HOLDING AND
AFFILIATED COMPANIES AND EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS,
SHAREHOLDERS, AGENTS, SERVANTS AND EMPLOYEES, ALTHOUGH THEY SHALL NOT EXTEND
TO, AND SHALL HAVE NO APPLICATION TO CLAIMS OR CAUSES OF ACTION ASSERTED
AGAINST CONTRACTOR OR CLIENT BY REASON OF ANY AGREEMENT OF INDEMNITY WITH A
PERSON OR ENTITY NOT A PARTY HERETO.
8. CLAIMS NOTIFICATION AND DEFENSE ASSUMPTION. If either party hereto
learns of any claim, liability, demand, cause of action or judgment relating to
this Agreement or the performance hereunder, said party agrees to give written
notice as promptly as possible to the other party. Failure by one party to
provide such notification to the other party shall not relieve such other party
from any obligation or liability which it may have on account of this Agreement
or otherwise, except to the extent such other party shall have been materially
prejudiced by such failure. The duty to defend shall be based solely upon the
allegations or claims made, regardless of whether such claims or allegations
are groundless, false or untrue and provided further that if any claim as
asserted would or could fall within the obligation to indemnify, then the
responsible party must assume the defense of the indemnitee for all allegations
made against it. If the duty to defend is required by any of the terms of this
Agreement, the party who agreed to defend shall defend the other one in the
suit or
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claim to final resolution, or settle same. If it is determined that assumption
of liability or indemnity is required under this agreement, then the
responsible party shall pay all settlements, judgments, costs, including
reasonable attorneys' fees, and other reasonable expenses incident thereto.
Each party, if requested, agrees to cooperate with the other in any defense,
and the responsible party shall reimburse the other on an ongoing basis for all
reasonable expenses incurred in connection therewith.
SECTION X - INSURANCE
Prior to commencement of any Work pursuant hereto and in compliance with
Section VI above, CONTRACTOR shall secure and maintain in force and effect at
all times during the term of this Agreement, the insurance as provided below
with coverage limits not less than the amount specified, insuring the
liabilities specifically assumed by the indemnitor in this contract, but not
otherwise, with insurers licensed to do business in all states where Work
arises from the Agreement. Subject to policy exclusions with respect to any
insured claim that arises from the work done by CONTRACTOR, or its
subcontractors, this insurance shall be primary to any insurance which CLIENT
may have or may be applicable at the time. CONTRACTOR shall include CLIENT as
additional insured under CONTRACTOR'S policies only for those risks and losses
for which CONTRACTOR is liable under this Agreement. However CLIENT assumes the
obligation to ensure that its defense and indemnity obligations assumed
hereunder are fully covered by insurance. The Parties will cause each policy to
be endorsed to provide waiver of subrogation rights against each other.
CONTRACTOR shall supply CLIENT with a valid certificate or certificates of
insurance evidencing such coverage's in their entirety and containing a
provision for a 30-day notice of cancellation or material change to the
Additional Insured. If it is judicially determined that the insurance required
hereunder, or the indemnities voluntarily or mutually assumed in this Agreement
(which shall be supported either by available liability insurance, under which
the insurer has no right of subrogation against the indemnitees, or voluntarily
self-insured in part or whole), exceed the maximum limits permissible under
applicable law, it is agreed that said insurance requirements or indemnities
shall automatically be amended to conform to the maximum limits permitted under
such law.
INSURANCE COVERAGE
<TABLE>
<CAPTION>
Coverage Minimum Limits
-------- --------------
<S> <C>
1 Workers Compensation/ Statutory requirements in State in which
Employers Liability work hereunder is to be performed; the
CONTRACTOR is domiciled; and in State
in which the CONTRACTOR's employee(s)
reside. Employer's liability limit of
$1,000,000.
2 Comprehensive General Liability $1,000,000 CSL $2,000,000 aggregate
including Broad Form Contractual
Coverage per policy terms and
conditions.
3 Automobile Liability Insurance $1,000,000 CSL
on all owned, non-owned and
hired vehicles
4 Umbrella Liability (endorsed to $10,000,000 per occurrence $10,000,000 aggregate
follow form)
5 Property damage insurance in full insurable value to cover loss or damage of
CONTRACTOR property.
6 Non-owned aircraft liability $2,000,000 per occurrence $2,000,000 aggregate
7 Maritime insurance as follows, when applicable:
a) Liability insurance with a minimum limit of $2,000,000, including Vessel
Liability and/or Protection and Indemnity insurance for any vessels
involved.
b) Marine Trip Cargo and Loading and Unloading Insurance coverage in the
amount equal to the value of the equipment involved.
c) Maritime Employer's Liability with limits of not less than $1,000,000, and
US Longshoremen's and harborworkers' Act coverage.
</TABLE>
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d) Insurance to protect against liability of employer to provide
transportation, wages, maintenance and cure to maritime employees.
e) Coverage providing that a claim "in rem" shall be treated as a claim
against the employer.
f) Insurance providing Gulf of Mexico territorial extension.
8 Such other insurance as may be required by law.
9 Contractual indemnity insurance in a sufficient amount to cover all indemnity
and defense obligations assumed under this Agreement and any Job Supplements.
SECTION XI - GOVERNMENTAL LAWS AND TAXES
1. CONTRACTOR shall perform all Work hereunder in compliance with all
applicable governmental laws, rules and regulations.
2. CONTRACTOR shall be solely liable for the payment of all taxes and
contributions for unemployment insurance and for pensions, benefits and
annuities, now or hereafter imposed by the United States, or any state, which
are measured by the wages, salaries or other remuneration paid to or due any
person employed by CONTRACTOR in the performance of this Agreement.
SECTION XII - SAFETY AND HEALTH STANDARDS
CONTRACTOR shall observe and comply with all applicable federal, state and
local safety and health standards as well as those contained in the Eagle
Geophysical, Inc. Safety and Health Manual for Geophysical Operations,
including the Eagle Geophysical, Inc. Drug and Alcohol Policy, which are
attached hereto, by reference, as Exhibits "B". Such safety and health
standards shall apply to all subcontractors of CONTRACTOR and their employees
as well as to CONTRACTOR and its employees.
SECTION XIII - ENVIRONMENTAL LAWS AND REQUIREMENTS
CONTRACTOR shall use reasonable efforts to comply with all applicable
laws, rules and regulations concerning environmental protection and
preservation.
SECTION XIV - PERMITS AND PROPERTY DAMAGE
CLIENT shall designate each area to be surveyed. CONTRACTOR shall attempt
to secure any permits necessary for CONTRACTOR to enter upon such area for the
purpose herein contemplated, at CLIENT's expense. CONTRACTOR shall not be
liable for any delays or cancellation of any Job Supplement due to its
inability to obtain any such permits. CONTRACTOR shall use its best efforts to
obtain written permission from the person who purports to be the owner or
lessee of the land on which operations are to be conducted or from a third
person who purports to have authority from the owner or lessee to grant such
permit. CONTRACTOR shall use a bonafide good faith effort to determine if the
person is the owner or lessee of the land or that the person has the authority
to grant the permit. If, however, CONTRACTOR has any reason to question the
authority of any person to grant a valid permit, it shall fully report the
facts to CLIENT and shall proceed no further with respect to the lands in
question until authorized by CLIENT. CLIENT agrees to use its best efforts to
assist CONTRACTOR in obtaining permits if requested to do so. CONTRACTOR shall
not enter upon any lands or proceed with any surveying or other seismic
operations until permits have been obtained. Should CONTRACTOR be denied free
access to the local work area for any reason not within CONTRACTOR's sole
control, then any time lost by reason of such denial shall be chargeable as
standby time. CONTRACTOR SHALL INDEMNIFY AND SAVE CLIENT HARMLESS FROM ANY
CLAIMS, ACTIONS, JUDGMENTS OR ANY COSTS WHATSOEVER ARISING OUT OF
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ANY INSTANCE WHERE CONTRACTOR HAS ENTERED UPON LANDS OR CONDUCTED OPERATIONS
WITHOUT FIRST HAVING SATISFIED ITS OBLIGATIONS HEREUNDER, UNLESS SPECIFICALLY
INSTRUCTED TO PROCEED WITHOUT PERMITS BY CLIENT.
SECTION XV - PATENT INFRINGEMENT
CONTRACTOR shall be excused from its performance under this Agreement
insofar as such discontinuance is the result of any claim of patent
infringement by CONTRACTOR, whether or not suit is filed, and CLIENT shall be
relieved, in proportion to the extent of CONTRACTOR's discontinuance of
operations, from CLIENT's obligations to make payment hereunder from the
initial date of and during the period of such discontinuance; provided,
however, that CLIENT's other obligations to CONTRACTOR shall continue as
provided in this AGREEMENT or in any Job Supplement in effect. CONTRACTOR shall
indemnify and hold CLIENT harmless from and against any claims, liabilities,
demands, causes of action or judgments based on any such infringement claim;
provided that the foregoing indemnity shall not apply (1) if the claim for
infringement is made against CLIENT unless CLIENT notifies CONTRACTOR promptly
in writing of such claim and gives CONTRACTOR written authority, information
and assistance (at CLIENT's expense) for the defense thereof or (2) if the
claim for infringement is based on (i) equipment, materials or methods which
CLIENT owns and directs CONTRACTOR to use or (ii) infringement of any patent
owned by any person where specific use of such patent is approved and directed
in writing by the CLIENT. CONTRACTOR shall have the right to control all
litigation for which it must indemnify CLIENT under this Section.
SECTION XVI - SPECIFIC AGREEMENT
1. JOB SUPPLEMENT TERM. Services hereunder will commence as soon as
reasonably practical and prudent following the execution of a job supplement
and shall continue until CONTRACTOR has completed the seismic program described
in the Job Supplement, unless the Job Supplement is first terminated earlier by
other provisions of the Contract.
2. CONTRACTOR'S PERFORMANCE. CONTRACTOR shall acquire seismic data for
CLIENT in certain designated areas as outlined in the Job Supplement, utilizing
the recording methods, personnel and equipment CONTRACTOR deems necessary
therefor and in accordance with the Survey Design parameters. The seismic data
shall be the property of CLIENT. Upon completion of the work, CONTRACTOR shall
deliver to CLIENT all originals and copies of the seismic data; CONTRACTOR
shall not retain any seismic data acquired, produced or derived from the work
for CLIENT.
3. SCHEDULING CHANGES. CLIENT acknowledges it has been reasonably informed
of scheduling demands regarding availability of the crews and equipment
necessary to enable CONTRACTOR to timely commence, and to efficiently continue
and complete the Work and that CONTRACTOR has reasonably relied upon CLIENT's
representations concerning the availability of permits. If for any reason
beyond the sole control of the CONTRACTOR commencement or continuation of the
Work is unreasonably delayed, then CONTRACTOR may, at its election, either (1)
terminate this contract; (2) reschedule the Work, taking into consideration
interference with prior, interim and subsequent commitments undertaken by
CONTRACTOR; and/or (3) charge a standby fee, specified in the Job Supplement,
for each day or portion of a day that the Work is not commenced or the Work
cannot be continued in the reasonable judgment of CONTRACTOR. In the event of
early termination, CLIENT nevertheless agrees to pay CONTRACTOR for all
services, expenses and other
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charges reasonably incurred or earned through the date of termination, and any
applicable reasonable contract cancellation charge specified in the Job
Supplement.
SECTION XVII - AUDIT
CONTRACTOR shall maintain full and complete records concerning invoices
which are based on services performed and costs which relate to reimbursable
billings in such manner and detail as to permit verification of all such
charges made to CLIENT. For a period of one (1) year from the date such costs
were incurred, CLIENT shall have the right to audit CONTRACTOR's accounting
records related directly to reimbursable billing on the Work at any reasonable
time during normal business hours after the expiration of five (5) days
following written notice received by CONTRACTOR.
SECTION XVIII - NOTICES
All notices permitted or required to be given under the terms of this
Contract shall be in writing and shall be deemed effective upon receipt if sent
by facsimile or first-class or certified mail with return receipt requested,
postage prepaid. Receipt shall be deemed to have occurred as to facsimile
notices on the date the sending party receives telefax confirmation that the
receiving party has received the telefaxed notice or, for first class or
certified mailings, the date of actual receipt or three days after the date
which notice is sent by first class or certified mail, postage prepaid,
whichever occurs earlier, provided that mailed notices are properly addressed
to the respective parties hereto as follows, or at such other address as shall
be designated by written notice to the other party in accordance with this
provision:
<TABLE>
<CAPTION>
CONTRACTOR
EAGLE GEOPHYSICAL, INC. JDK INCORPORATED
<S> <C>
ATTENTION: Jay Silverman, President ATTENTION: Robert Simon, Senior Vice President
50 Briar Hollow, 7th Floor West 50 Briar Hollow, 7th Floor West
Houston, Texas 77027 Houston, Texas 77027
Telephone (713) 627-1990 Telephone (713) 627-1990
Facsimile (713) 627-1020 Facsimile (713) 627-7802
</TABLE>
SECTION XIX - PAYMENT
1. PAYMENTS. In consideration of services performed and to be performed,
and the personnel, equipment, materials and supplies furnished hereunder,
CLIENT shall timely pay to CONTRACTOR all amounts provided for in each Job
Supplement, and, in addition thereto, all reimbursable expenses, standby time,
cancellation charges, if applicable, and such other charges as agreed to or as
set forth in any Job Supplement, at CONTRACTOR's address as follows:
EAGLE GEOPHYSICAL, INC. (TAX ID #76-0522657)
Attention: Accounts Receivable
50 Briar Hollow, 7th Floor West
Houston, Texas 77027
2. REIMBURSABLE EXPENSES. Reimbursables shall include the cost and expense
of those items purchased, used or incorporated into the performance of the Work
as set forth in each Job Supplement.
3. INVOICES. CONTRACTOR may invoice for charges incurred hereunder at
least on a monthly basis and invoices shall be mailed as soon as practical
after the end of each invoice period. CLIENT shall pay all amounts invoiced by
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CONTRACTOR under this Contract at the address shown in Subsection 1 above (or
at the address shown on the invoice, if different) within thirty (30) days
after the invoice date of each invoice by CONTRACTOR. All amounts not paid by
CLIENT to CONTRACTOR within thirty (30) days after the date of invoice shall
bear interest thereafter at the lesser of (i) the rate of one and one-half
percent (1.5%) per month or (ii) the maximum rate allowed by applicable law. It
is the intention of CLIENT and CONTRACTOR to comply with all applicable usury
laws; accordingly, it is agreed notwithstanding any provision of the Contract
or any invoices related thereto, no provision shall require the payment of or
permit collection of interest in excess of the maximum rate of applicable law
governing this Contract. If any alleged excess interest is provided for, then
in such event the provisions of this paragraph shall govern and control, and
CLIENT shall not be obligated to pay any amount of interest in excess of the
maximum rate allowed by applicable law governing this Contract. Any such excess
shall be applied as a credit to the principal balance owed, or refunded.
4. CONTRACTOR'S RIGHTS IN EVENT OF NONPAYMENT. CLIENT shall promptly pay
to CONTRACTOR all costs and expenses incurred by CONTRACTOR, including, without
limitation, reasonable costs, expenses and attorneys' fees, in connection with
the preservation and enforcement of CONTRACTOR's rights under this Contract. In
addition to the collection of interest pursuant to the foregoing and in
addition to all other rights that CONTRACTOR may have at law or in equity,
CONTRACTOR shall have the right to suspend or terminate its performance under
this Contract upon failure by CLIENT to make timely payments of all sums due
under the Contract. Payment of CONTRACTOR's invoices shall not prejudice the
right of CLIENT to protest or question the correctness thereof; however all
invoices rendered shall conclusively be presumed to have been reasonable, fully
earned, and the amounts charged therein necessary and proper after two years
following payment, unless within such period CLIENT takes written exception
thereto and makes a written claim on CONTRACTOR for adjustment.
SECTION XX - MISCELLANEOUS
1. WAIVER. The rights herein given to either party hereto may be exercised
from time to time, singularly or in combination, and the waiver of one or more
of such rights shall not be deemed to be a waiver of such right in the future,
or of any one or more of the other rights which the exercising party may have.
No waiver of any breach of a term, provision or condition of this Agreement by
one party shall be deemed to have been made by the other party hereto, unless
such waiver is expressed in writing and signed by an authorized representative
of such party, and the failure of either party to insist upon the strict
performance of any term, provision or condition of this Agreement, or to
exercise any option herein given, shall not be construed as a waiver or
relinquishment in the future of the same or any other term, provision,
condition or option.
2. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
benefit of the Parties hereto, their successors and assigns. Notwithstanding
the foregoing, neither party to this Agreement shall assign any of its rights
or obligations hereunder without prior written consent of the other party;
provided, however, that CONTRACTOR shall be entitled to subcontract to third
parties those portions of the Work which are routinely subcontracted by
contractors in the geophysical contracting industry. Nothing in this section
shall limit, restrict, or prohibit CLIENT's use, transfer or disclosure of the
seismic data or materials to third parties.
3. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, as written, together
with any Job Supplement(s), embodies the entire agreement and Contract by and
between CLIENT and CONTRACTOR with respect to the transactions contemplated
hereby and shall supersede all previous communications, representations or
agreements, both
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oral and written, with respect to the subject matter hereof. The Contract shall
not and cannot be amended or modified except by written instrument duly
executed by all of the parties hereto.
4. HEADINGS. The Section Headings contained herein are for convenience
only, and shall not in any way affect the meaning or interpretation of the
provisions hereof.
5. GOVERNING LAW AND VENUE. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Texas,
without giving effect to any conflict of law rules or provisions. Each party
hereto agrees that any suit, action or other proceeding arising out of this
Agreement shall be brought and litigated only in the State or Federal courts
located in Harris County, Texas, and each party hereto hereby irrevocably
consents to personal jurisdiction and venue in any such court and hereby waives
any claim it may have that such court is an inconvenient or improper forum for
the purposes of any such suit, action or other proceeding. Each party hereto
hereby irrevocable consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at the address of such party set forth in or designated pursuant to Section
XVII.
6. SEVERABILITY. If any one or more of the provisions of this Agreement
shall for any reason be held by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforecable provision had never been a part hereof.
7. COUNTERPARTS. This Agreement and any Job Supplement may be executed in
any number of counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute but one
and the same instrument. Telefaxed signatures on any counterpart shall likewise
be deemed originals. This Agreement and any Job Supplement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by the parties. It shall not be necessary in proving this Agreement
or any counterpart hereof to produce or account for any of the other
counterparts.
8. ARBITRATION. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE ALLEGED BREACH THEREOF, WHICH CANNOT BE RESOLVED BETWEEN
THE PARTIES HERETO SHALL BE SETTLED BY ARBITRATION WHICH SHALL PROCEED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION (BUT NOT NECESSARILY BY THE AMERICAN ARBITRATION ASSOCIATION). ANY
ARBITRATION PROCEEDINGS HEREUNDER SHALL BE HELD IN HOUSTON, TEXAS, OR SUCH
OTHER LOCATION IN THE UNITED STATES ON WHICH THE CLIENT AND CONTRACTOR MAY
MUTUALLY AGREE. THIS DISPUTE SHALL BE RESOLVED BY ONE ARBITRATOR. CONTRACTOR
AND CLIENT SHALL APPOINT ONE ARBITRATOR. IF CONTRACTOR AND CLIENT CANNOT
PROMPTLY AGREE ON THE APPOINTMENT OF THE ARBITRATOR, CONTRACTOR OR CLIENT MAY
APPLY TO THE SENIOR JUDGE OF THE SOUTHERN DISTRICT OF TEXAS, WHO SHALL APPOINT
SUCH ARBITRATOR. THE AWARD RENDERED BY SUCH ARBITRATOR SHALL BE FINAL AND
BINDING UPON CONTRACTOR AND CLIENT. CLIENT AND CONTRACTOR HEREBY SUBMIT TO THE
JURISDICTION OF THE COURTS (FEDERAL AND STATE) OF HARRIS COUNTY, TEXAS, FOR
PURPOSES
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OF ENFORCEMENT OF THE FINDINGS OF SUCH ARBITRATOR. CLIENT AND CONTRACTOR AGREE
THAT NEITHER PARTY SHALL HAVE ANY RIGHT TO COMMENCE OR MAINTAIN ANY SUIT OR
LEGAL PROCEEDING CONCERNING ANY DISPUTE HEREUNDER, OTHER THAN A SUIT FOR
ENFORCEMENT OF THE ARBITRATION PROVISIONS CONTAINED IN THIS SECTION XX, UNTIL
THE DISPUTE HAS BEEN DETERMINED IN ACCORDANCE WITH THE ARBITRATION PROCEDURE
PROVIDED FOR HEREIN AND THEN ONLY FOR ENFORCEMENT OF THE AWARD RENDERED UNDER
SUCH ARBITRATION.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers effective as of the day and year
first written above.
EAGLE GEOPHYSICAL, INC. SEITEL DATA, LTD.
By: /s/ JAY N. SILVERMAN By: /s/ ROBERT SIMON
--------------------------------- ---------------------------------
Printed Name: Jay N. Silverman Printed Name: Robert Simon
----------------------- -----------------------
Title: President Title: Senior Vice President
------------------------------ ------------------------------
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EXHIBIT 10.57
EAGLE GEOPHYSICAL, INC.
MASTER AGREEMENT FOR GEOPHYSICAL SERVICES
THIS AGREEMENT ("Agreement"), dated this 2nd day of January, 1997, is by
and between EAGLE GEOPHYSICAL, INC., a Delaware Corporation hereafter called
CONTRACTOR, and DDD ENERGY, INC a Delaware Corporation hereafter called CLIENT.
W I T N E S S E T H:
In consideration of the mutual promises and agreements set forth herein,
CONTRACTOR, and CLIENT agree as follows:
SECTION I - NATURE OF WORK
CONTRACTOR shall conduct geophysical surveys for the benefit of CLIENT in
those areas designated by CLIENT in accordance with the terms and conditions of
this Agreement and any Job Supplement (sometimes collectively referred to as
"the Contract"). These geophysical surveys shall be carried out by one or more
geophysical parties as may be agreed upon between CLIENT and CONTRACTOR in a
manner and subject to these terms and conditions and those contained in any Job
Supplement (defined herein), which shall define the scope of CONTRACTOR's work
(the "Work").
SECTION II - SUPPLEMENTARY AGREEMENTS
Whenever CLIENT requests and CONTRACTOR agrees to conduct a geophysical
survey, CLIENT and CONTRACTOR shall enter into a written supplementary
agreement (a "Job Supplement") which shall describe the specific area where the
Work is to be performed and specifies the equipment, services, and materials to
be furnished by CONTRACTOR and prices to be charged for the Work. Each Job
Supplement shall be incorporated herein by reference and all terms and
provisions of this Agreement shall apply to each Job Supplement unless any of
the terms and conditions of this Agreement are eliminated for purposes of a
particular Job Supplement. If any of the terms and conditions of this Agreement
and those of any Job Supplement conflict, the terms and conditions of the Job
Supplement shall control. Except as otherwise provided herein, all estimates of
time for commencement of operations pursuant to any Job Supplement are
estimates only, and are subject to change depending upon weather conditions,
availability of permits, environmental considerations, availability of
subcontractor crews and equipment, and any other condition beyond the sole
control of the CONTRACTOR. CONTRACTOR shall not be liable for any loss caused
by any variation in commencement or completion of the Work specified in any Job
Supplement.
SECTION III - TERM AND TERMINATION
This Agreement shall be effective as of the date first above written and
shall continue until terminated by written notice, postmarked at least ten (10)
days prior to the termination date, from one party to the other party setting
forth the termination date of this Agreement (the "Termination Date").
Contractor may not terminate the Agreement while a Job Supplement is in effect.
Subject to the foregoing, this Agreement shall terminate on the Termination
Date so specified. The termination of any Job Supplement shall not terminate
this Agreement or relieve the CLIENT of any obligation to pay CONTRACTOR all
amounts accrued in connection with the Work performed by CONTRACTOR through the
termination date, including project cancellation charges, if applicable.
SECTION IV - DELINEATION OF AUTHORITY
In the performance of the Work hereunder, (i) CONTRACTOR shall be an
independent contractor with sole authority to direct and control the Work, (ii)
CLIENT, or a representative designated by CLIENT shall observe all Work
performed by CONTRACTOR, but the detailed manner of accomplishing the Work
shall be under the sole control of
<PAGE> 2
CONTRACTOR, (iii) CLIENT will approve, in writing, all methods and techniques
to be employed by CONTRACTOR prior to commencement of the Work and CONTRACTOR
will inform CLIENT, in writing, of any and all changes in such approved methods
and techniques, during the performance of the Work, (iv) CLIENT will timely
provide all required information, assistance and support to CONTRACTOR to
ensure the integrity of the subsurface sampling objectives of the seismic
survey. CLIENT being interested only in the results obtained as a result of the
operations conducted by CONTRACTOR; CLIENT will work with CONTRACTOR so that
CLIENT can fully represent the soundness and integrity of the data recorded.
SECTION V - SECRECY OBLIGATION
CONTRACTOR shall use diligence in safeguarding (1) geophysical data
acquired from the Work hereunder, (2) information relating to the location of
the survey and type of Work performed and (3) information supplied by CLIENT
which is not in the public domain or otherwise already known by CONTRACTOR.
CONTRACTOR shall not divulge to anyone other than CLIENT or its designated
representative any such data or information unless authorized by CLIENT in
writing prior to such disclosure. CONTRACTOR shall use diligence to cause its
subcontractors, employees and agents to comply with this obligation of secrecy.
CONTRACTOR's obligation of secrecy shall be a continuing one and shall survive
the termination of this Agreement and shall continue not withstanding the
disclosure or transfer of data by CLIENT to a third party until any such
information becomes part of the public domain through no fault of CONTRACTOR.
Likewise, CLIENT shall observe the above secrecy obligation, insofar as it has
access to and knowledge of information that is confidential or proprietary to
CONTRACTOR, including, without limitation, information regarding CONTRACTOR's
equipment, instruments, programs, procedures, business practices and the
operation thereof.
SECTION VI - OPERATIONS
1. CONTRACTOR shall perform data acquisition activities in accordance with
the Data Acquisition Parameters, Survey Design Considerations, Field Design
Implementation Techniques, Quality Control Standards and Specifications
contained in the Job Supplement.
2. CONTRACTOR shall provide experienced personnel and supervisory staff
necessary to conduct the Work in accordance with the data acquisition
parameters and the quality control standards included in any Supplemental
Agreement.
3. CLIENT DESIGNATION OF LOCATION. CLIENT shall designate each area to be
surveyed, and shall furnish CONTRACTOR with adequate maps of suitable scale for
each project to be surveyed sufficiently in advance to permit orderly planning
of any Work. Such maps shall remain the property of CLIENT and shall be
returned upon completion of the Work, if requested by CLIENT.
4. PLANNING THE WORK. CONTRACTOR shall be solely responsible for planning,
scheduling and implementing the sequence of the Work as outlined herein and
described in more detail on any and all Job Supplements that are entered into
pursuant to this Agreement. Any changes that are made in CONTRACTOR's original
operational plan and/or scheduling of the Work requested by CLIENT, which shall
result in loss or extra overhead and/or direct expense to CONTRACTOR, shall be
for CLIENT's account and payable to CONTRACTOR. Any changes in scheduling
and/or sequence of work influenced by weather conditions, availability of
subcontractor crews and equipment, or any other condition beyond the sole
control of CLIENT, which shall result in loss or extra overhead and/or direct
expense to CONTRACTOR will not be accountable to CLIENT.
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5. REPORTS. Subject to the terms and conditions of this Contract,
CONTRACTOR shall exercise reasonable care in its Work and shall keep CLIENT
informed of the progress of the Work. Within a reasonable time after completion
of Work in any area, CONTRACTOR shall furnish CLIENT with all basic data
belonging to CLIENT, and such basic data shall be the permanent property of
CLIENT. CONTRACTOR shall not be required to provide any information proprietary
to Contractor, including, but not limited to, information pertaining to its
materials, equipment, techniques, methodology or expertise.
SECTION VII - WARRANTIES
1. NO WARRANTY REGARDING DATA. Reports, information and data supplied to
CLIENT shall represent diligent efforts and opinion of CONTRACTOR; however, any
use made by CLIENT of said reports, information or data will be at CLIENT's
sole risk, and CONTRACTOR shall have no responsibility or liability whatsoever
for any use made thereof. CLIENT AGREES TO RELEASE, DEFEND AT ITS SOLE COST,
AND INDEMNIFY CONTRACTOR FROM ALL LOSSES AND DAMAGES RESULTING THEREFROM.
2. DISCLAIMER AND LIMITATION OF EXPRESS AND IMPLIED WARRANTIES. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT AND ANY JOB SUPPLEMENT, CLIENT
ACKNOWLEDGES THAT CONTRACTOR HAS MADE NO OTHER EXPRESS WARRANTY OR
REPRESENTATION. NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN TO THE CONTRARY,
CONTRACTOR DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT
LIMITED TO, THOSE REGARDING ITS EQUIPMENT, SUPPLIES, SERVICES AND THE
INFORMATION AND DATA SUPPLIED BY CONTRACTOR, INCLUDING WITHOUT LIMITATION THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NO
WARRANTY OF WORKMANLIKE PERFORMANCE IS GIVEN BY THE CONTRACTOR BY VIRTUE OF
THIS AGREEMENT FOR ANY PERFORMANCE COMPLETED AND WORK TURNED OVER TO CLIENT.
CLIENT'S SOLE REMEDY FOR NONPERFORMANCE BY CONTRACTOR SHALL BE ITS RIGHT TO
WITHHOLD ANY OR ALL PAYMENTS DUE TO CONTRACTOR.
3. DISCLAIMER AND INDEMNITY FROM THIRD PARTIES. This contract is not
intended to create, and shall not create any rights for any persons who are not
parties hereto. ACCORDINGLY, CONTRACTOR SHALL NOT BE LIABLE, DIRECTLY OR
INDIRECTLY, TO ANY THIRD PARTIES, AND CLIENT AGREES TO DEFEND, RELEASE AND
INDEMNIFY CONTRACTOR FROM ALL DIRECT, INDIRECT AND CONSEQUENTIAL DAMAGES AND
LOSSES SUSTAINED BY ANY PERSONS WHO ARE NOT PARTIES TO THIS CONTRACT
(INCLUDING, BUT NOT LIMITED TO, CLIENT'S ASSIGNEES, PARTNERS, AFFILIATES AND
WORKING INTEREST OWNERS) RESULTING FROM ANY ALLEGED BREACH OF CONTRACT,
WARRANTY, OR OTHER ALLEGED NONPERFORMANCE OF OBLIGATIONS UNDER THE CONTRACT BY
CONTRACTOR, INCLUDING, BUT NOT LIMITED TO, DAMAGES OR LOSSES ARISING FROM USE
OF INFORMATION OR DATA PROVIDED TO CLIENT. IN NO EVENT SHALL CONTRACTOR BE
LIABLE FOR, AND CLIENT AGREES TO RELEASE, DEFEND AT ITS SOLE COST, AND
INDEMNIFY CONTRACTOR FROM ALL CLAIMS FOR SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND ANY JOB
SUPPLEMENT(S) OR THE USE OF REPORTS, INFORMATION AND DATA SUPPLIED TO CLIENT,
INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOST REVENUES, LOST PROFITS, LOSS
OF BUSINESS OPPORTUNITIES, LOSS OF LEASES, BUSINESS INTERRUPTIONS, LOST DATA,
COSTS OF OBTAINING
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SUBSTITUTE INFORMATION OR SERVICES, LOSS OR DELAY OF PRODUCTION, LOSS RESULTING
TO ANY EXISTING WELLS OR RESERVOIR, LOSSES INCURRED BY CLIENT'S JOINT INTEREST
OWNERS AND ALL OTHER PARTIES ARISING OUT OF ANY DRILLING COMMITMENTS OR
OBLIGATIONS CONTAINED IN ANY LEASE, FARMOUT AGREEMENT OR OTHER AGREEMENT WHICH
MAY BE AFFECTED BY TERMINATION OR LACK OF PERFORMANCE HEREUNDER, AND ANY
SIMILAR OR DISSIMILAR LOSSES, COSTS OR DAMAGES, HOWEVER CAUSED, REGARDLESS OF
WHEN OR HOW SUCH DAMAGE OCCURS, EXCEPT IN THE CASE OF GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR BREACH OF THIS AGREEMENT BY CONTRACTOR.
SECTION VIII - FORCE MAJEURE AND CONDITIONS EXCUSING PERFORMANCE
The contracting parties acknowledge that conditions beyond the control of
either party, including, but limited to, Force Majeure, may prevent timely
performance of this Contract by CONTRACTOR. Such conditions may include, for
example, but are not limited to delay in issuance or continuance of permits,
weather conditions which interrupt the orderly and efficient conduct of
surveying operations, and conditions which may cause loss, malfunction of or
damage to CONTRACTOR's equipment or endanger its properties or crews or those
of its subcontractors. The parties agree that such conditions shall include any
set of circumstances where CONTRACTOR's performance under this Contract is
delayed, prevented, or substantially impaired, which conditions are beyond the
reasonable control of CONTRACTOR. Force Majeure events shall include riot,
strike, war, insurrection, rebellion, civil disturbance, legal restraints,
governmental action or inaction or like interference, fire, flood, freezing,
storm, hurricane, tornadoes, or other action of the elements, acts of God,
accidental damage to equipment or any cause outside the sole control of
CONTRACTOR. CONTRACTOR shall not be liable for any delay or failure of
performance caused by any or all of the foregoing conditions. If such
conditions result in an increase of personnel or costs to complete a project,
CONTRACTOR, at its option, in addition to other rights set forth herein, shall
have the right to charge for standby time or to negotiate with CLIENT for an
adjustment of the rate set forth in the Job Supplement, and should the parties
fail to agree on said adjustment within five (5) days, CONTRACTOR shall have
the option to terminate this Agreement and/or any Job Supplement by giving to
CLIENT five (5) days written notice of termination. CLIENT shall promptly pay
CONTRACTOR for all amounts earned in connection with the Work performed by
CONTRACTOR in addition to all reimbursable expenses incurred by CONTRACTOR
through the termination date.
SECTION IX - RESPONSIBILITY FOR LOSS OR DAMAGE, INDEMNITY,
RELEASE OF LIABILITY AND ALLOCATION OF RISK
1. INDEMNITY BY CONTRACTOR. EXCEPT AS HEREAFTER PROVIDED, CONTRACTOR
AGREES THAT IT WILL PROTECT, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY, SAVE
AND HOLD HARMLESS THE CLIENT GROUP FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LOSSES, DAMAGES, AND LIABILITIES OF EVERY KIND AND CHARACTER, CAUSES
OF ACTION, SUITS, (INCLUDING COSTS AND REASONABLE ATTORNEYS FEES) ARISING FROM
OR CONNECTED WITH THE OPERATIONS OF CONTRACTOR, RESULTING IN PERSONAL INJURY
TO, ILLNESS OR DEATH, OR DAMAGE TO CONTRACTOR'S SUBCONTRACTORS, CLIENT'S
SUBCONTRACTORS, OR ANY THIRD PARTIES PROPERTY, EXCEPT TO THE EXTENT CAUSED BY
THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF CLIENT GROUP. FOR PURPOSES OF THIS
CONTRACT, THE "CLIENT GROUP" SHALL MEAN ANY AND ALL OF THE CLIENT, ITS OWNERS,
OFFICERS, DIRECTORS, AFFILIATES, PARTNERS, JOINT VENTURERS AND
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SUBCONTRACTORS AND EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS,
EMPLOYEES, AGENTS, REPRESENTATIVES, AND INVITEES.
2. INDEMNITY BY CLIENT. EXCEPT AS HEREAFTER PROVIDED, CLIENT AGREES THAT
IT WILL PROTECT, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY, SAVE AND HOLD
HARMLESS THE CONTRACTOR GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LOSSES, DAMAGES AND LIABILITIES OF EVERY KIND AND CHARACTER, CAUSES OF ACTION,
SUITS (INCLUDING COST AND REASONABLE ATTORNEY FEES) ARISING FROM OR CONNECTED
WITH THE OPERATIONS OF CLIENT, RESULTING IN PERSONAL INJURY TO, ILLNESS, OR
DEATH, OR DAMAGE TO CONTRACTOR'S SUBCONTRACTORS, CLIENT'S SUBCONTRACTORS, OR
ANY THIRD PARTIES PROPERTY, EXCEPT TO THE EXTENT CAUSED BY THE SOLE, JOINT OR
CURRENT NEGLIGENCE OF CONTRACTOR GROUP. FOR PURPOSES OF THIS CONTRACT, THE
"CONTRACTOR GROUP" SHALL MEAN ANY AND ALL OF CONTRACTOR, ITS OWNERS, OFFICERS,
DIRECTORS, AFFILIATES, PARTNERS, JOINT VENTURERS AND SUBCONTRACTORS, AND EACH
OF THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AND INVITEES.
3. INDEMNITY WITHOUT FAULT. EXCEPT AS OTHERWISE EXPRESSLY LIMITED HEREIN,
IT IS THE INTENT OF THE PARTIES HERETO THAT ALL INDEMNITY OBLIGATIONS AND
LIABILITIES ASSUMED BY THE PARTIES UNDER THIS AGREEMENT BE WITHOUT MONETARY
LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF (INCLUDING PREEXISTING
CONDITIONS), THE NEGLIGENCE OF ANY PARTY OR PARTIES (WHETHER THE NEGLIGENCE BE
SOLE, JOINT, OR CONCURRENT, ACTIVE OR PASSIVE), AND THE FAULT OR RESPONSIBILITY
OF ANY PARTY OR PARTIES UNDER ANY OTHER CONTRACT OR ANY STATUTE, RULE, OR
THEORY OF LAW. THIS CONTRACT SHALL CREATE NO RIGHT OF ACTION IN ANY PERSON NOT
A PARTY HEREUNDER OR NOT SPECIFICALLY IDENTIFIED AS AN INDEMNITY HERETO, AND
ALL INDEMNITY OBLIGATIONS CONTAINED HEREIN SHALL HAVE NO APPLICATION TO THEM.
4. RISK OF LOSS OF FIELD TAPES. CLIENT SHALL ASSUME SOLE RESPONSIBILITY
FOR, AND AGREES TO RELEASE AND INDEMNIFY CONTRACTOR GROUP FOR ALL DAMAGE TO,
LOSS OR THEFT OF ORIGINAL FIELD TAPES AND THE INFORMATION RECORDED THEREON
AFTER CONTRACTOR TURNS SUCH FIELD TAPES OVER TO A REPUTABLE COMMON CARRIER WITH
APPROPRIATE SHIPPING INSTRUCTIONS OR WHEN CONTRACTOR DELIVERS SUCH INFORMATION
TO THE CLIENT REPRESENTATIVE DESIGNATED IN THE APPROPRIATE JOB SUPPLEMENT.
5. MINERAL INTERESTS AND TRESPASS. CLIENT SHALL ASSUME SOLE RESPONSIBILITY
FOR AND DEFEND AT ITS SOLE COST, RELEASE AND INDEMNIFY CONTRACTOR FOR ANY CLAIM
BY THE OWNER OR PURPORTED OWNER OF LAND OR OF A MINERAL INTEREST IN LAND, BASED
UPON THE THEORY THAT THE OPERATIONS HEREUNDER OF CONTRACTOR HAVE DIMINISHED THE
MINERAL VALUE OF SUCH LAND; provided, however, that CLIENT shall not be
responsible for any such claim in any case where such operations are conducted
upon land not designated therefor by CLIENT or its said representative, or in
any case where CLIENT shall have requested CONTRACTOR to obtain a permit to
conduct such operations, and where CONTRACTOR shall fail either to obtain such
permit, or to do everything reasonably or prudently necessary to assure the
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validity and sufficiency of such permit if obtained by it, or in any case where
CONTRACTOR shall fail to observe any condition or restrictions, of which it has
knowledge, imposed with respect to such permit obtained by it or CLIENT, and
without limiting the generality of the foregoing, it is further agreed that
CLIENT shall not be responsible for any damage or claim, resulting from an
entry on land, or arising from CONTRACTOR's operations on land, after
CONTRACTOR or its employees have been warned to keep off such land by the owner
or lessee thereof, or by any person having authority or apparent authority to
eject CONTRACTOR or its employees. If CONTRACTOR is unable through reasonable
efforts to timely obtain such permits, CONTRACTOR will notify CLIENT and
CONTRACTOR will not enter non-permitted land unless so instructed in writing by
an officer of the CLIENT. NOTWITHSTANDING THE FOREGOING, WHEN THE
ABOVE-MENTIONED PERMITS ARE NOT TIMELY OBTAINED EITHER BY CLIENT OR CONTRACTOR
PRIOR TO CREW ENTRY AND CLIENT INSTRUCTS CONTRACTOR TO PROCEED WITHOUT PERMITS,
CLIENT ASSUMES ALL RESPONSIBILITY FOR, AND AGREES TO RELEASE, DEFEND AT ITS
SOLE COST AND INDEMNIFY CONTRACTOR FOR ALL DAMAGES, COSTS AND ATTORNEYS FEES
ACCRUING OR ASSERTED TO ACCRUE FROM SUCH ENTRY.
6. INDEMNITY FOR DAMAGES CAUSED BY THE DATA ACQUISITION PROCESS. ATTACHED
AS EXHIBIT "A" IS THE SAFE OPERATING DISTANCE CHART DISTRIBUTED BY THE IAGC,
COMMONLY USED AND ACCEPTED BY THE GEOPHYSICAL INDUSTRY WHICH THE PARTIES DEEM
REFLECTS THE SAFE DISTANCE FOR THE CONDUCT OF THE WORK. CONTRACTOR AGREES TO
ADHERE TO THE REQUIREMENTS OF SAID CHART IN PERFORMING THE CONTRACT. IF, (i)
CLIENT REQUESTS OR INSTRUCTS CONTRACTOR TO DISCHARGE EXPLOSIVES AT CLOSER
DISTANCES THAN THOSE PRESCRIBED, OR TO DISCHARGE EXPLOSIVES LARGER THAN THE
AMOUNTS PRESCRIBED FOR THE DISTANCES PRESCRIBED, OR TO CAUSE THE DISTANCES
PRESCRIBED FOR SURFACE ENERGY SOURCES TO BE LESS THAN THOSE SET FORTH IN
EXHIBIT "A", OR (ii) SUCH CHARGES ARE SET OR USED BY CONTRACTOR IN COMPLIANCE
WITH THE SPECIFICATIONS SET FORTH IN EXHIBIT "A", THEN CLIENT SHALL ASSUME SOLE
RESPONSIBILITY FOR, DEFEND AT ITS SOLE COST, RELEASE, INDEMNIFY AND HOLD
CONTRACTOR GROUP HARMLESS FROM AND AGAINST ALL CLAIMS FOR DAMAGE TO OR LOSS OF
PROPERTY OR INJURIES TO PERSONS OR DEATH RESULTING FROM THE DISCHARGE OF ANY
ENERGY SOURCE IN THE COURSE OF THE DATA ACQUISITION PROCESS OPERATIONS
HEREUNDER. WHENEVER SUCH ENERGY SOURCES ARE SET OR USED BY CONTRACTOR IN
COMPLIANCE WITH THE SPECIFICATIONS SET FORTH IN EXHIBIT "A", THEN THE PARTIES
AGREE THAT SUCH PERFORMANCE SHALL BE DEEMED REASONABLE AND PRUDENT.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IF CONTRACTOR OR ONE OF ITS
SUBCONTRACTORS, AGENTS OR EMPLOYEES CAUSES ANY ENERGY SOURCE POINT TO BE PLACED
CLOSER THAN THE DISTANCES PRESCRIBED IN EXHIBIT "A", AND LOSSES OR CLAIMS FOR
DAMAGES TO INJURY OR DEATH RESULT FROM THE DISCHARGE OF SUCH ENERGY SOURCE,
THEN CONTRACTOR SHALL ASSUME SOLE RESPONSIBILITY FOR DEFEND AT ITS SOLE COST,
RELEASE, INDEMNIFY AND HOLD CLIENT GROUP HARMLESS FROM AND AGAINST ALL SUCH
LOSSES AND CLAIMS.
7. INDEMNITY AND DEFENSE RIGHTS EXTEND TO AFFILIATES AND OFFICERS. ALL
INDEMNITIES, RELEASES AND ASSUMPTIONS OF LIABILITY EXTENDED BY THE PARTIES
HERETO SHALL
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INURE TO THE BENEFIT OF THE PARTIES, THEIR PARENT HOLDING AND AFFILIATED
COMPANIES AND EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS,
AGENTS, SERVANTS AND EMPLOYEES, ALTHOUGH THEY SHALL NOT EXTEND TO, AND SHALL
HAVE NO APPLICATION TO CLAIMS OR CAUSES OF ACTION ASSERTED AGAINST CONTRACTOR
OR CLIENT BY REASON OF ANY AGREEMENT OF INDEMNITY WITH A PERSON OR ENTITY NOT A
PARTY HERETO.
8. CLAIMS NOTIFICATION AND DEFENSE ASSUMPTION. If either party hereto
learns of any claim, liability, demand, cause of action or judgment relating to
this Agreement or the performance hereunder, said party agrees to give written
notice as promptly as possible to the other party. Failure by one party to
provide such notification to the other party shall not relieve such other party
from any obligation or liability which it may have on account of this Agreement
or otherwise, except to the extent such other party shall have been materially
prejudiced by such failure. The duty to defend shall be based solely upon the
allegations or claims made, regardless of whether such claims or allegations
are groundless, false or untrue and provided further that if any claim as
asserted would or could fall within the obligation to indemnify, then the
responsible party must assume the defense of the indemnitee for all allegations
made against it. If the duty to defend is required by any of the terms of this
Agreement, the party who agreed to defend shall defend the other one in the
suit or claim to final resolution, or settle same. If it is determined that
assumption of liability or indemnity is required under this agreement, then the
responsible party shall pay all settlements, judgments, costs, including
reasonable attorneys' fees, and other reasonable expenses incident thereto.
Each party, if requested, agrees to cooperate with the other in any defense,
and the responsible party shall reimburse the other on an ongoing basis for all
reasonable expenses incurred in connection therewith.
SECTION X - INSURANCE
Prior to commencement of any Work pursuant hereto and in compliance with
Section VI above, CONTRACTOR shall secure and maintain in force and effect at
all times during the term of this Agreement, the insurance as provided below
with coverage limits not less than the amount specified, insuring the
liabilities specifically assumed by the indemnitor in this contract, but not
otherwise, with insurers licensed to do business in all states where Work
arises from the Agreement. SUBJECT TO POLICY EXCLUSIONS WITH RESPECT TO ANY
INSURED CLAIM THAT ARISES FROM THE WORK DONE BY CONTRACTOR, OR ITS
SUBCONTRACTORS, THIS INSURANCE SHALL BE PRIMARY TO ANY INSURANCE WHICH CLIENT
MAY HAVE OR MAY BE APPLICABLE AT THE TIME. CONTRACTOR shall include CLIENT as
additional insured under CONTRACTOR'S policies only for those risks and losses
for which CONTRACTOR is liable under this Agreement. However CLIENT assumes the
obligation to ensure that its defense and indemnity obligations assumed
hereunder are fully covered by insurance. The Parties will cause each policy to
be endorsed to provide waiver of subrogation rights against each other.
CONTRACTOR shall supply CLIENT with a valid certificate or certificates of
insurance evidencing such coverage's in their entirety and containing a
provision for a 30-day notice of cancellation or material change to the
Additional Insured. If it is judicially determined that the insurance required
hereunder, or the indemnities voluntarily or mutually assumed in this Agreement
(which shall be supported either by available liability insurance, under which
the insurer has no right of subrogation against the indemnitees, or voluntarily
self-insured in part or whole), exceed the maximum limits permissible under
applicable law, it is agreed that said insurance requirements or indemnities
shall automatically be amended to conform to the maximum limits permitted under
such law.
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<PAGE> 8
INSURANCE COVERAGE
<TABLE>
<CAPTION>
COVERAGE MINIMUM LIMITS
<S> <C> <C> <C>
1 Workers Compensation/ Statutory requirements in State in which work hereunder is to
Employers Liability be performed; the CONTRACTOR is domiciled; and in State in
which the CONTRACTOR's employee(s) reside. Employer's
liability limit of $1,000,000.
2 Comprehensive General Liability including Broad $1,000,000 CSL $2,000,000 aggregate
Form Contractual Coverage per policy terms and
conditions.
3 Automobile Liability Insurance on all owned, non- $1,000,000 CSL
owned and hired vehicles
4 Umbrella Liability (endorsed to follow form) $10,000,000 per occurrence $10,000,000 aggregate
5 Property damage insurance in full insurable value to cover loss or damage of CONTRACTOR property.
6 Non-owned aircraft liability $2,000,000 per occurrence $2,000,000 aggregate
7 Maritime insurance as follows, when applicable:
a) Liability insurance with a minimum limit of $2,000,000, including Vessel Liability and/or Protection and
Indemnity insurance for any vessels involved.
b) Marine Trip Cargo and Loading and Unloading Insurance coverage in the amount equal to the value of the
equipment involved.
c) Maritime Employer's Liability with limits of not less than $1,000,000, and US Longshoremen's and
harborworkers' Act coverage.
d) Insurance to protect against liability of employer to provide transportation, wages, maintenance and cure to
maritime employees.
e) Coverage providing that a claim "in rem" shall be treated as a claim against the employer.
f) Insurance providing Gulf of Mexico territorial extension.
8 Such other insurance as may be required by law.
9 Contractual indemnity insurance in a sufficient amount to cover all indemnity and defense obligations assumed under this
Agreement and any Job Supplements.
</TABLE>
SECTION XI - GOVERNMENTAL LAWS AND TAXES
1. CONTRACTOR shall perform all Work hereunder in compliance with all
applicable governmental laws, rules and regulations.
2. CONTRACTOR shall be solely liable for the payment of all taxes and
contributions for unemployment insurance and for pensions, benefits and
annuities, now or hereafter imposed by the United States, or any state, which
are measured by the wages, salaries or other remuneration paid to or due any
person employed by CONTRACTOR in the performance of this Agreement.
SECTION XII - SAFETY AND HEALTH STANDARDS
CONTRACTOR shall observe and comply with all applicable federal, state and
local safety and health standards as well as those contained in the Eagle
Geophysical, Inc. Safety and Health Manual for Geophysical Operations,
including the Eagle Geophysical, Inc. Drug and Alcohol Policy, which are
attached hereto, by reference, as Exhibits "B". Such safety and health
standards shall apply to all subcontractors of CONTRACTOR and their employees
as well as to CONTRACTOR and its employees.
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SECTION XIII - ENVIRONMENTAL LAWS AND REQUIREMENTS
CONTRACTOR shall use reasonable efforts to comply with all applicable
laws, rules and regulations concerning environmental protection and
preservation.
SECTION XIV - PERMITS AND PROPERTY DAMAGE
CLIENT shall designate each area to be surveyed. CONTRACTOR shall attempt
to secure any permits necessary for CONTRACTOR to enter upon such area for the
purpose herein contemplated, at CLIENT's expense. CONTRACTOR shall not be
liable for any delays or cancellation of any Job Supplement due to its
inability to obtain any such permits. CONTRACTOR shall use its best efforts to
obtain written permission from the person who purports to be the owner or
lessee of the land on which operations are to be conducted or from a third
person who purports to have authority from the owner or lessee to grant such
permit. CONTRACTOR shall use a bonafide good faith effort to determine if the
person is the owner or lessee of the land or that the person has the authority
to grant the permit. If, however, CONTRACTOR has any reason to question the
authority of any person to grant a valid permit, it shall fully report the
facts to CLIENT and shall proceed no further with respect to the lands in
question until authorized by CLIENT. CLIENT agrees to use its best efforts to
assist CONTRACTOR in obtaining permits if requested to do so. CONTRACTOR shall
not enter upon any lands or proceed with any surveying or other seismic
operations until permits have been obtained. Should CONTRACTOR be denied free
access to the local work area for any reason not within CONTRACTOR's sole
control, then any time lost by reason of such denial shall be chargeable as
standby time. CONTRACTOR SHALL INDEMNIFY AND SAVE CLIENT HARMLESS FROM ANY
CLAIMS, ACTIONS, JUDGMENTS OR ANY COSTS WHATSOEVER ARISING OUT OF ANY INSTANCE
WHERE CONTRACTOR HAS ENTERED UPON LANDS OR CONDUCTED OPERATIONS WITHOUT FIRST
HAVING SATISFIED ITS OBLIGATIONS HEREUNDER, UNLESS SPECIFICALLY INSTRUCTED TO
PROCEED WITHOUT PERMITS BY CLIENT.
SECTION XV - PATENT INFRINGEMENT
CONTRACTOR shall be excused from its performance under this Agreement
insofar as such discontinuance is the result of any claim of patent
infringement by CONTRACTOR, whether or not suit is filed, and CLIENT shall be
relieved, in proportion to the extent of CONTRACTOR's discontinuance of
operations, from CLIENT's obligations to make payment hereunder from the
initial date of and during the period of such discontinuance; provided,
however, that CLIENT's other obligations to CONTRACTOR shall continue as
provided in this AGREEMENT or in any Job Supplement in effect. CONTRACTOR shall
indemnify and hold CLIENT harmless from and against any claims, liabilities,
demands, causes of action or judgments based on any such infringement claim;
provided that the foregoing indemnity shall not apply (1) if the claim for
infringement is made against CLIENT unless CLIENT notifies CONTRACTOR promptly
in writing of such claim and gives CONTRACTOR written authority, information
and assistance (at CLIENT's expense) for the defense thereof or (2) if the
claim for infringement is based on (i) equipment, materials or methods which
CLIENT owns and directs CONTRACTOR to use or (ii) infringement of any patent
owned by any person where specific use of such patent is approved and directed
in writing by the CLIENT. CONTRACTOR shall have the right to control all
litigation for which it must indemnify CLIENT under this Section.
SECTION XVI - SPECIFIC AGREEMENT
1. JOB SUPPLEMENT TERM. Services hereunder will commence as soon as
reasonably practical and prudent following the execution of a job supplement
and shall continue until CONTRACTOR has completed the seismic
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<PAGE> 10
program described in the Job Supplement, unless the Job Supplement is first
terminated earlier by other provisions of the Contract.
2. CONTRACTOR'S PERFORMANCE. CONTRACTOR shall acquire seismic data for
CLIENT in certain designated areas as specified and described and utilizing
equipment as detailed in each Job Supplement. CONTRACTOR shall employ recording
instruments and support equipment that meet or exceed all instrument
manufacturer's performance criteria for such equipment, and shall maintain such
equipment in good working order for the duration of the Work. CONTRACTOR shall
furnish competent personnel to operate said equipment in such a manner as to
obtain seismic reflection data in accordance with CLIENT'S performance
requirements as outlined in each Job Supplement. The seismic data obtained
shall be the property of CLIENT. Upon completion of the Work, CONTRACTOR shall
deliver to CLIENT all originals and copies of all seismic recordings, their
support data, and all survey data relating to the Work. CONTRACTOR shall not
retain any seismic data acquired, produced or derived from the Work for CLIENT.
3. SCHEDULING CHANGES. CLIENT acknowledges it has been reasonably informed
of scheduling demands regarding availability of the crews and equipment
necessary to enable CONTRACTOR to timely commence, and to efficiently continue
and complete the Work and that CONTRACTOR has reasonably relied upon CLIENT's
representations concerning the availability of permits. If for any reason
beyond the sole control of the CONTRACTOR commencement or continuation of the
Work is unreasonably delayed, then CONTRACTOR may, at its election, either (1)
terminate this contract; (2) reschedule the Work, taking into consideration
interference with prior, interim and subsequent commitments undertaken by
CONTRACTOR; and/or (3) charge a standby fee, specified in the Job Supplement,
for each day or portion of a day that the Work is not commenced or the Work
cannot be continued in the reasonable judgment of CONTRACTOR. In the event of
early termination, CLIENT nevertheless agrees to pay CONTRACTOR for all
services, expenses and other charges reasonably incurred or earned through the
date of termination, and any applicable reasonable contract cancellation charge
specified in the Job Supplement.
SECTION XVII - AUDIT
CONTRACTOR shall maintain full and complete records concerning invoices
which are based on services performed and costs which relate to reimbursable
billings in such manner and detail as to permit verification of all such
charges made to CLIENT. For a period of one (1) year from the date such costs
were incurred, CLIENT shall have the right to audit CONTRACTOR's accounting
records related directly to reimbursable billing on the Work at any reasonable
time during normal business hours after the expiration of five (5) days
following written notice received by CONTRACTOR.
SECTION XVIII - NOTICES
All notices permitted or required to be given under the terms of this
Contract shall be in writing and shall be deemed effective upon receipt if sent
by facsimile or first-class or certified mail with return receipt requested,
postage prepaid. Receipt shall be deemed to have occurred as to facsimile
notices on the date the sending party receives telefax confirmation that the
receiving party has received the telefaxed notice or, for first class or
certified mailings, the date of actual receipt or three days after the date
which notice is sent by first class or certified mail, postage prepaid,
whichever occurs earlier, provided that mailed notices are properly addressed
to the respective parties hereto as follows, or at such other address as shall
be designated by written notice to the other party in accordance with this
provision:
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<PAGE> 11
<TABLE>
<S> <C>
CONTRACTOR: CLIENT:
EAGLE GEOPHYSICAL, INC. DDD ENERGY, INC.
ATTENTION: Jay Silverman, President ATTENTION: Horace Calvert, President
50 Briar Hollow, 6th Floor West 50 Briar Hollow, 7th Floor West
Houston, Texas 77027 Houston, Texas 77027
Telephone (713) 881-2800 Telephone (713) 881-8907
Facsimile (713) 881-2801 Facsimile (713) 881-8990
</TABLE>
SECTION XIX - PAYMENT
1. PAYMENTS. In consideration of services performed and to be performed,
and the personnel, equipment, materials and supplies furnished hereunder,
CLIENT shall timely pay to CONTRACTOR all amounts provided for in each Job
Supplement, and, in addition thereto, all reimbursable expenses, standby time,
cancellation charges, if applicable, and such other charges as agreed to or as
set forth in any Job Supplement, at CONTRACTOR's address as follows:
EAGLE GEOPHYSICAL, INC. (TAX ID #76-0522657)
Attention: Accounts Receivable
50 Briar Hollow, 6th Floor West
Houston, Texas 77027
2. REIMBURSABLE EXPENSES. Reimbursables shall include the cost and expense
of those items purchased, used or incorporated into the performance of the Work
as set forth in each Job Supplement.
3. INVOICES. CONTRACTOR may invoice for charges incurred hereunder at
least on a monthly basis and invoices shall be mailed as soon as practical
after the end of each invoice period. CLIENT shall pay all amounts invoiced by
CONTRACTOR under this Contract at the address shown in Subsection 1 above (or
at the address shown on the invoice, if different) within thirty (30) days
after the invoice date of each invoice by CONTRACTOR. All amounts not paid by
CLIENT to CONTRACTOR within thirty (30) days after the date of invoice shall
bear interest thereafter at the lesser of (i) the rate of one and one-half
percent (1.5%) per month or (ii) the maximum rate allowed by applicable law. It
is the intention of CLIENT and CONTRACTOR to comply with all applicable usury
laws; accordingly, it is agreed notwithstanding any provision of the Contract
or any invoices related thereto, no provision shall require the payment of or
permit collection of interest in excess of the maximum rate of applicable law
governing this Contract. If any alleged excess interest is provided for, then
in such event the provisions of this paragraph shall govern and control, and
CLIENT shall not be obligated to pay any amount of interest in excess of the
maximum rate allowed by applicable law governing this Contract. Any such excess
shall be applied as a credit to the principal balance owed, or refunded.
4. CONTRACTOR'S RIGHTS IN EVENT OF NONPAYMENT. CLIENT shall promptly pay
to CONTRACTOR all costs and expenses incurred by CONTRACTOR, including, without
limitation, reasonable costs, expenses and attorneys' fees, in connection with
the preservation and enforcement of CONTRACTOR's rights under this Contract. In
addition to the collection of interest pursuant to the foregoing and in
addition to all other rights that CONTRACTOR may have at law or in equity,
CONTRACTOR shall have the right to suspend or terminate its performance under
this Contract upon failure by CLIENT to make timely payments of all sums due
under the Contract. Payment of CONTRACTOR's invoices shall not prejudice the
right of CLIENT to protest or question the correctness
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<PAGE> 12
thereof; however all invoices rendered shall conclusively be presumed to have
been reasonable, fully earned, and the amounts charged therein necessary and
proper after two years following payment, unless within such period CLIENT
takes written exception thereto and makes a written claim on CONTRACTOR for
adjustment.
SECTION XX - MISCELLANEOUS
1. WAIVER. The rights herein given to either party hereto may be exercised
from time to time, singularly or in combination, and the waiver of one or more
of such rights shall not be deemed to be a waiver of such right in the future,
or of any one or more of the other rights which the exercising party may have.
No waiver of any breach of a term, provision or condition of this Agreement by
one party shall be deemed to have been made by the other party hereto, unless
such waiver is expressed in writing and signed by an authorized representative
of such party, and the failure of either party to insist upon the strict
performance of any term, provision or condition of this Agreement, or to
exercise any option herein given, shall not be construed as a waiver or
relinquishment in the future of the same or any other term, provision,
condition or option.
2. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
benefit of the Parties hereto, their successors and assigns. Notwithstanding
the foregoing, neither party to this Agreement shall assign any of its rights
or obligations hereunder without prior written consent of the other party;
provided, however, that CONTRACTOR shall be entitled to subcontract to third
parties those portions of the Work which are routinely subcontracted by
contractors in the geophysical contracting industry. Nothing in this section
shall limit, restrict, or prohibit CLIENT's use, transfer or disclosure of the
seismic data or materials to third parties.
3. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, as written, together
with any Job Supplement(s), embodies the entire agreement and Contract by and
between CLIENT and CONTRACTOR with respect to the transactions contemplated
hereby and shall supersede all previous communications, representations or
agreements, both oral and written, with respect to the subject matter hereof.
The Contract shall not and cannot be amended or modified except by written
instrument duly executed by all of the parties hereto.
4. HEADINGS. The Section Headings contained herein are for convenience
only, and shall not in any way affect the meaning or interpretation of the
provisions hereof.
5. GOVERNING LAW AND VENUE. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Texas,
without giving effect to any conflict of law rules or provisions. Each party
hereto agrees that any suit, action or other proceeding arising out of this
Agreement shall be brought and litigated only in the State or Federal courts
located in Harris County, Texas, and each party hereto hereby irrevocably
consents to personal jurisdiction and venue in any such court and hereby waives
any claim it may have that such court is an inconvenient or improper forum for
the purposes of any such suit, action or other proceeding. Each party hereto
hereby irrevocable consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at the address of such party set forth in or designated pursuant to Section
XVII.
6. SEVERABILITY. If any one or more of the provisions of this Agreement
shall for any reason be held by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforecable provision had never been a part hereof.
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<PAGE> 13
7. COUNTERPARTS. This Agreement and any Job Supplement may be executed in
any number of counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute but one
and the same instrument. Telefaxed signatures on any counterpart shall likewise
be deemed originals. This Agreement and any Job Supplement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by the parties. It shall not be necessary in proving this Agreement
or any counterpart hereof to produce or account for any of the other
counterparts.
8. ARBITRATION. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE ALLEGED BREACH THEREOF, WHICH CANNOT BE RESOLVED BETWEEN
THE PARTIES HERETO SHALL BE SETTLED BY ARBITRATION WHICH SHALL PROCEED IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION (BUT NOT NECESSARILY BY THE AMERICAN ARBITRATION ASSOCIATION). ANY
ARBITRATION PROCEEDINGS HEREUNDER SHALL BE HELD IN HOUSTON, TEXAS, OR SUCH
OTHER LOCATION IN THE UNITED STATES ON WHICH THE CLIENT AND CONTRACTOR MAY
MUTUALLY AGREE. THIS DISPUTE SHALL BE RESOLVED BY ONE ARBITRATOR. CONTRACTOR
AND CLIENT SHALL APPOINT ONE ARBITRATOR. IF CONTRACTOR AND CLIENT CANNOT
PROMPTLY AGREE ON THE APPOINTMENT OF THE ARBITRATOR, CONTRACTOR OR CLIENT MAY
APPLY TO THE SENIOR JUDGE OF THE SOUTHERN DISTRICT OF TEXAS, WHO SHALL APPOINT
SUCH ARBITRATOR. THE AWARD RENDERED BY SUCH ARBITRATOR SHALL BE FINAL AND
BINDING UPON CONTRACTOR AND CLIENT. CLIENT AND CONTRACTOR HEREBY SUBMIT TO THE
JURISDICTION OF THE COURTS (FEDERAL AND STATE) OF HARRIS COUNTY, TEXAS, FOR
PURPOSES OF ENFORCEMENT OF THE FINDINGS OF SUCH ARBITRATOR. CLIENT AND
CONTRACTOR AGREE THAT NEITHER PARTY SHALL HAVE ANY RIGHT TO COMMENCE OR
MAINTAIN ANY SUIT OR LEGAL PROCEEDING CONCERNING ANY DISPUTE HEREUNDER, OTHER
THAN A SUIT FOR ENFORCEMENT OF THE ARBITRATION PROVISIONS CONTAINED IN THIS
SECTION XX, UNTIL THE DISPUTE HAS BEEN DETERMINED IN ACCORDANCE WITH THE
ARBITRATION PROCEDURE PROVIDED FOR HEREIN AND THEN ONLY FOR ENFORCEMENT OF THE
AWARD RENDERED UNDER SUCH ARBITRATION.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers effective as of the day and year
first written above.
EAGLE GEOPHYSICAL, INC. DDD ENERGY, INC.
BY: /s/ JAY N. SILVERMAN BY: /s/ MARK S. PRZWARA
-------------------------------- ------------------------------
Printed Name: Jay N. Silverman Printed Name: Mark S. Przwara
---------------------- ---------------------
Title: President Title: Vice President
---------------------------- ---------------------------
13
<PAGE> 1
EXHIBIT 10.58
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
This EMPLOYEE BENEFITS ALLOCATION AGREEMENT, dated _______________,
1997, is between Seitel Inc. ("Seitel"), a Delaware corporation, and Eagle
Geophysical, Inc. ("Eagle"), a Delaware corporation.
WHEREAS, Seitel, a public company whose common shares are traded on
the New York Stock Exchange, owns indirectly 100% of the common stock of Eagle.
WHEREAS, the Board of Directors of Seitel has determined, subject to
its further consideration and the satisfaction of certain conditions, to
separate the ownership of a majority of its equity ownership of Eagle and its
subsidiaries from Seitel by means of an initial public offering by Eagle and
Seitel of 5,880,000 shares of Eagle common stock (the "IPO") pursuant to a
Registration Statement filed by Eagle with the SEC on June 2, 1997, as amended.
WHEREAS, the parties hereto have determined that it is necessary and
desirable to make certain agreements regarding employee benefit plans and
related matters in connection with the IPO.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; HEADINGS
SECTION 1 - DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings, unless a different meaning clearly is
required by the context:
(a) Administrative Services Agreement. The transition management
Administrative Services Agreement, dated ______________, 1997, between Seitel
and Eagle entered into pursuant to the terms of the Master Separation
Agreement.
(b) Action or Claim. Any "Third-party Claim" as defined in the
Master Separation Agreement, together with any assessment of, or claim for,
taxes or a statutory penalty. For purposes hereof, the term "Action" or
"Claim" always is deemed to include, but is not limited to, a Qualification or
ERISA Claim.
(c) Closing Date. The Closing Date as defined in the Master
Separation Agreement.
(d) COBRA. Continuation health coverage maintained under Section
4980B of the Code and Sections 601 to 607 of ERISA, and any successor
provisions thereto.
(e) Code. The Internal Revenue Code of 1986, as amended, and any
predecessor or successor thereto.
<PAGE> 2
(f) Employee or Active Employee. An individual maintained on an
entity's payroll system (including, but not limited to, an individual on
approved leave of absence and an individual in receipt of or entitled to
worker's compensation or employer-provided long term disability benefits) and,
to the extent required by the context, such an individual's dependents and
beneficiaries.
(g) ERISA. The Employee Retirement Income Security Act of 1974, as
amended from time to time.
(h) Filing. The requirement to timely file a form related to an
employee benefit plan, including but not limited to Internal Revenue Service
("IRS") Form 5500; to timely distribute a notice related to an employee benefit
plan, including, but not limited to, a COBRA notice or a summary plan
description; and to timely pay a fee or premium.
(i) IPO. The initial public offering described in the recitals to
this Agreement.
(j) Master Separation Agreement. The Master Separation Agreement of
even date herewith between Seitel and Eagle.
(k) Policy Claim. A routine claim for benefits under a medical,
dental, disability or group life insurance program.
(l) Qualification or ERISA Claim. Any Action or Claim arising from,
or related to, the failure of a benefit plan that is intended to be
tax-qualified under the provisions of Section 401(a), et seq., of the Code to
satisfy the requirements for qualification, in form or in operation; any Action
or Claim arising from, or related to, the failure of an employee benefit plan
to comply with applicable requirements of ERISA (including, for this purpose,
Section 4975 of the Code); and any Action or Claim arising from, or related to,
the failure to make a Filing.
SECTION 2 - HEADINGS. The headings in this Agreement are for
convenience of reference only and are not to be construed as a part of the
Agreement.
ARTICLE II
DEFINED CONTRIBUTION 401(k) PLAN
SECTION 1 - IDENTIFICATION OF EXISTING PLAN. The Seitel, Inc. 401(k)
Plan is maintained in the United States for employees and former employees of
Seitel and its related participating employers.
SECTION 2 - VESTING; FUNDING. Effective as of the close of business
on the Closing Date, each individual who is an active employee of Eagle and who
is a participant in the Seitel, Inc. 401(k) Plan shall be 100% vested in the
benefit accrued by him as of the Closing Date [BASED ON HIS COMPENSATION AND
SERVICE THROUGH SUCH DATE]. On such date as determined
<PAGE> 3
by Seitel, but prior to the asset transfer described in Section 3 of this
Article II, Seitel shall contribute, or cause to be contributed, to the Seitel,
Inc. 401(k) Plan any contributions required to be made under such plan on
behalf of participants who are employees of Eagle.
SECTION 3 - ESTABLISHMENT OF NEW 401(k) PLAN AND ASSET TRANSFER. On
or before July 1, 1997, Eagle shall adopt a defined contribution plan in a form
furnished to Eagle by Seitel. Such plan (the "Eagle Geophysical, Inc. 401(k)
Plan") shall be effective as of July 1, 1997. At such administratively
feasible date following the Closing Date as is determined by Seitel, there
shall be a transfer from the Seitel, Inc. 401(k) Plan to the Eagle Geophysical,
Inc. 401(k) Plan of the account balances of individuals who were participants
in the Seitel, Inc. 401(k) Plan and who are eligible to become participants in
the Eagle Geophysical, Inc. 401(k) Plan. Such transfers may be made in cash or
in kind or in a combination of both, in Seitel's sole discretion. Prior to
such transfer, Seitel shall continue to administer the Seitel, Inc. 401(k) Plan
in the interests of such participants as well as all other participants in the
Seitel, Inc. 401(k) Plan. It shall be provided that no further 401(k)
employee and matching contributions shall be made after the final
_______________, 1997 payroll deposit is made by or on behalf of a participant
who is or is scheduled to become an active employee of Eagle as of the close of
business on the Closing Date and provided, further, that no loans may be
obtained on or after _______________, 1997 from the 401(k) Plan by such
participants.
SECTION 4 - ALLOCATION OF RESPONSIBILITIES. Eagle shall be solely
responsible for all Filings for, and the defense of any Claim with respect to,
the plan adopted by it pursuant to Article II and Seitel shall be solely
responsible for all Filings for, and the defense of any Qualification or ERISA
Claim with respect to, the Seitel, Inc. 401(k) Plan.
ARTICLE III
MEDICAL, DENTAL, DISABILITY AND GROUP LIFE INSURANCE BENEFITS
Eagle shall establish effective as of the close of business on the
Closing Date medical, dental, disability and group life insurance (which
includes life and accidental death and dismemberment benefits) programs for the
benefit of Eagle's active employees that provide coverage to such employees
that is substantially similar to the coverage provided for such active
employees immediately prior thereto, including coverage without any
pre-existing condition limitation and annual out-of-pocket expenses that had
been satisfied or paid by such employees under similar programs maintained by
Seitel prior to the Closing Date. Eagle shall be solely responsible for all
Filings and Policy Claims for the programs established by it pursuant to this
Article III, and Seitel shall be solely responsible for all Filings and, to the
extent consistent with the terms of the programs sponsored by Seitel, Policy
Claims and the defense (including the settlement or payment) of all medical,
dental, disability and group life insurance Claims made by a covered
participant or his or her beneficiary relating to [EVENTS THAT OCCURRED PRIOR
TO] the close of business on the Closing Date under an insurance program
sponsored by Seitel. Eagle shall cooperate with Seitel in any manner
reasonably requested by Seitel or its employees or agents to enable Seitel to
complete such Filings and handle such Policy Claims. In addition, Eagle shall
reimburse Seitel for any costs or expenses incurred by Seitel in connection
with such programs that properly are allocable to Eagle.
<PAGE> 4
ARTICLE IV
SEVERANCE PAY; VACATION PAY
SECTION 1 - SEVERANCE PAY. Although the parties are of the belief
that the IPO obviously does not give rise to the payment of severance pay (or
salary continuation, unemployment compensation or similar pay), in the event
that on or after the close of business on the Closing Date, a Claim for any
such pay is made by an employee of Eagle, the defense of such Claim, as well as
any payment or settlement of such Claim, shall be solely the responsibility of
Eagle.
SECTION 2 - VACATION PAY. Effective as of the close of business on
the Closing Date, Eagle shall continue in effect any vacation pay plans
maintained for the benefit of their employees immediately prior thereto. In
the event that on or after the close of business on the Closing Date, a Claim
for vacation pay is made by an employee of Eagle, the defense of such Claim, as
well as any payment or settlement of such Claim, shall be solely the
responsibility of Eagle.
ARTICLE V
CAFETERIA PLAN
Effective as of the close of business on the Closing Date, Eagle shall
adopt cafeteria plan documents in a form furnished to Eagle with respect to the
Eagle employees who, prior to the Closing Date, were eligible and/or
participating in the Seitel, Inc. Cafeteria Plan that provided for the pre-tax
payment of medical and dental insurance premiums. The plan set forth in such
document ("Eagle Geophysical, Inc. Cafeteria Plan") shall become effective as
soon as practicable after the Closing Date and in no event later than
_______________, 1997.
ARTICLE VI
EMPLOYMENT; EMPLOYMENT RELATED MATTERS; OTHER BENEFITS
SECTION 1 - EMPLOYMENT. Effective as of the close of business on the
Closing Date, Eagle shall continue to employ all individuals who were employees
of Eagle as a wholly-owned subsidiary of Seitel immediately prior thereto,
together with any Seitel employees who are transferring to Eagle unless any
such individual declines employment with Eagle. Nothing herein shall be
construed to be a guarantee of employment, and Eagle may terminate an
individual's employment at any time and for any reason.
SECTION 2 - EMPLOYMENT RELATED MATTERS. Eagle shall be solely
responsible for the defense of any Claim made by, on behalf of, or with respect
to, (i) any employee thereof, (ii) any former employee of Eagle, or (iii) any
individual described in Section 1 hereof, including the settlement or payment
of such a Claim, that arises out of, or relates to, such individual's
employment with (or failure to be employed by) Eagle or an employee benefit
matter that is not covered elsewhere by the terms of this Agreement. Such
Claims include, but are not limited to, employment discrimination, harassment,
wrongful discharge and COBRA Claims.
<PAGE> 5
SECTION 3 - OTHER BENEFITS. Except as otherwise expressly provided in
this Agreement, Eagle shall be solely responsible for the provision of all
employee benefits to its employees and former employees and for any Filings and
the defense of any Claim, including any settlement or payment or such Claim,
related to any such benefit provided by it or the failure to provide or
maintain any particular benefit.
ARTICLE VII
CERTAIN BENEFITS ADMINISTRATION MATTERS
SECTION 1 - PURPOSE; RELATIONSHIP TO ADMINISTRATIVE SERVICES
AGREEMENT. The Administrative Services Agreement provides that Seitel shall
consult with Eagle with respect to employee benefits and certain related
matters. The purpose of this Article VII is to bind the parties to share in
certain employee benefits responsibilities that are necessary or appropriate in
view of other agreements reached herein and the fact that, for a portion of
1997, the parties are members of a controlled group of corporations, within the
meaning of Section 414(b) of the Code. To the extent inconsistent, the
provisions hereof override the provisions of the Administrative Services
Agreement.
SECTION 2 - FORM 5310 FILINGS. Unless expressly instructed in writing
otherwise by Eagle, Seitel shall make the IRS Form 5310 filings with the IRS
necessary to effectuate the transfers contemplated by Article II.
SECTION 3 - APPLICATION FOR DETERMINATION. Unless expressly
instructed in writing otherwise by Eagle and agreed to by Seitel, Eagle shall
file the application for determination with the IRS with respect to the newly
adopted Code Section 401(k) plan described in Article II.
SECTION 4 - DISCRIMINATION TESTING; DISTRIBUTIONS. Eagle shall supply
to Seitel within sixty (60) days of a request from Seitel all information
reasonably requested by Seitel to undertake discrimination testing under
Sections 401(a)(4), 401(k), 401(m), and 410(b) of the Code (or other applicable
sections of the Code) for the portion of 1997 during which the parties were
members of a controlled group of corporations within the meaning of Section
414(b) of the Code. Seitel shall share the discrimination test findings with
Eagle, to the extent relevant to Eagle. At such times as are determined by
Seitel, Eagle shall make distributions from their employee benefit plan to
their employees or take other corrective actions determined by Seitel upon
notice from Seitel to Eagle that such distributions or other actions are
necessary to satisfy any discrimination test for the portion of 1997 during
which the parties were members of a controlled group of corporations. Nothing
herein shall be construed to require Seitel to undertake discrimination testing
on Eagle's behalf nor shall any of Seitel's findings or any notice provided
pursuant to the immediately preceding sentence create any responsibility or
liability on the part of Seitel.
SECTION 5 - COOPERATION WITH RESPECT TO PLAN ADMINISTRATION. Seitel
and Eagle shall cooperate with each other, and shall provide, or cause to be
provided, to each other information reasonably requested within sixty (60) days
of the request, in order to efficiently administer and account properly for the
employee benefit plans maintained by them and the undertakings contemplated
herein, including for example, but not limited to, information necessary to
effectuate the provisions of Article II, Section 3 hereof.
<PAGE> 6
SECTION 6 - OTHER MATTERS. Except as otherwise provided in this
Agreement, unless requested by Eagle and agreed to by Seitel, or unless
initiated by Seitel and agreed to by Eagle, Seitel shall not be responsible for
employee benefits matters including, but not limited to, Filings, on behalf of
Eagle's employees, former employees, or their beneficiaries.
SECTION 7 - EXTENT OF SEITEL'S RESPONSIBILITY. The employee benefit
services provided to Eagle by Seitel pursuant to this Article VII and the
Administrative Services Agreement are ministerial and are for the sake of
administrative conveniences only. In providing such services, Seitel shall not
be responsible for the accuracy, completeness or timeliness of any advice or
service or any return, report, filing or other document that it provides,
prepares or assists in preparing except to the extent that any inaccuracy,
incompleteness or untimeliness arises solely from Seitel's gross negligence or
willful misconduct. The parties expressly acknowledge that with respect to any
employee benefit plan or arrangement established, maintained, or assumed by
Eagle, neither Seitel nor any of its directors, officers, employees, agents and
affiliates (and the heirs, executors, successors and assigns of any of the
foregoing) is or shall be a fiduciary. In accordance with the indemnification
provisions of Article VIII, Eagle shall indemnify, defend and hold harmless
Seitel and its directors, officers, employees, agents and affiliates (and the
heirs, executors, successors and assigns of any of the foregoing) from and
against any matter arising out of, or due to, an allegation or determination
that Seitel or any other person specified herein is a fiduciary or has
fiduciary responsibility with respect to any such employee benefit plan or
arrangement.
SECTION 8 - COMMON PROJECTS. The parties acknowledge that certain
employee benefit arrangements and responsibilities including, but not limited
to, discrimination testing, may involve a commonality of interests and,
accordingly, of projects and necessary services. To the extent that such
common projects are performed by Seitel and Seitel cannot ascertain the precise
amount of time spent in providing services to a particular party, its fees and
expenses (the amount of which shall be determined under the Administrative
Services Agreement) shall be apportioned on an equitable basis between Seitel
and Eagle. In general, the total fees and expenses for any such common project
shall be divided evenly between Seitel and Eagle unless Seitel determines that,
due to such factors as the amount and complexity of the data involved, a
different apportionment is more equitable.
SECTION 9 - OUTSIDE CONSULTANTS. The parties acknowledge that the
employee benefit arrangements made by them pursuant to this Agreement
including, but not limited to, this Article VII, may require the services of
outside consultants including, for example, attorneys and accountants. The
parties shall attempt to negotiate separate fee arrangements with outside
consulting, legal and accounting firms, even though some firms' services may
relate to projects common to both parties. However if, notwithstanding the
foregoing, Seitel receives an invoice from such a firm that clearly relates to
such a common project, Seitel shall apportion on an equitable basis the firm's
fees and expenses between the affected parties and bill each affected party
accordingly. In general, the total fees and expenses reflected on the invoice
shall be divided evenly between Seitel and Eagle unless Seitel determines that,
due to such factors as the amount and complexity of the data involved, a
different apportionment is more equitable.
<PAGE> 7
SECTION 10 - EXECUTIVE COMPENSATION. All executive compensation
arrangements have been addressed outside of this Agreement. All matters
relating to executive compensation will be handled in this manner.
ARTICLE VIII
INDEMNIFICATION
SECTION 1 - IN GENERAL. The party hereto to whom certain
responsibilities and liabilities have been allocated hereunder (the
"Indemnifying Party") shall indemnify, defend and hold harmless the other party
(the "Indemnitee"), including the Indemnitee's respective directors, officers,
employees, agents and affiliates (and the heirs, executors, successors and
assigns of any of the foregoing) from and against any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions) arising out of or
due to the failure or alleged failure of the Indemnifying Party to pay, perform
or otherwise discharge in due course any of its responsibilities or
liabilities.
SECTION 2 - INDEMNIFICATION OF FIDUCIARIES. Seitel (directly or
through one or more subsidiaries) shall indemnify, defend and hold harmless
each individual who is both an employee of Seitel or Eagle and a trustee or
other fiduciary of an employee benefit plan (and his heirs, executors,
successors and assigns) from and against any and all losses, liabilities,
claims, damages, obligations, payments, costs and expenses, matured or
unmatured, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions) directly arising
out of, or directly related to, the plan transfer contemplated by Article II
hereof.
SECTION 3 - LIMITATIONS ON, AND PROCEDURES FOR, INDEMNIFICATION. The
limitations on, and procedures for, indemnification set forth in the Master
Separation Agreement are incorporated herein by reference.
ARTICLE IX
MISCELLANEOUS
SECTION 1 - COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, and the
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with
respect to such subject matter. Notwithstanding any other provisions in this
Agreement or the Master Separation Agreement to the contrary, in the event and
to the extent that there shall be a conflict between the provisions of the
Master Separation Agreement and this Agreement, the provisions of this
Agreement shall control.
<PAGE> 8
SECTION 2 - EXPENSES. Except as otherwise set forth in this
Agreement, each party hereto shall pay its respective costs and expenses in
connection with the preparation, execution, delivery and implementation of this
Agreement and with the consummation of the transactions contemplated by this
Agreement.
SECTION 3 - GOVERNING LAW. Subject to applicable federal law, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas, without regard to the principles of conflicts of laws thereof.
SECTION 4 - NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
TO SEITEL: 50 Briar Hollow Lane
7th Floor West
Houston, TX 77027
TO EAGLE: 50 Briar Hollow Lane
6th Floor West
Houston, Texas 77027
SECTION 5 - AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties hereto.
SECTION 6 - SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
SECTION 7 - TERMINATION. This Agreement may be terminated in the
event that the Master Separation Agreement is terminated and the IPO abandoned
prior to the Closing Date. In the event of such termination, no party shall
have any liability of any kind to the other party.
SECTION 8 - NO THIRD PARTY BENEFICIARIES. Except as provided in
Section 2 of Article VIII ("Indemnification of Fiduciaries"), this Agreement is
solely for the benefit of the parties hereto and their respective subsidiaries
and shall not be deemed to confer upon third parties including, but not limited
to, employees any remedy, claim, liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
SECTION 9 - LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
<PAGE> 9
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 10 - SATISFACTION OF CERTAIN CLAIMS. Notwithstanding any
other provision of this Agreement, in the event that a Claim relating to any
employee benefit plan or arrangement is successfully made by a person who is
not a party hereto (or a subsidiary or affiliate thereof) and Seitel in its
sole discretion, determines that such Claim may be satisfied from assets of the
plan or arrangement, the Claim, at Seitel's discretion, may be satisfied from
such assets.
SECTION 11 - FURTHER ASSURANCES. The parties hereto agree to execute
such documents and assurances as are necessary or appropriate to give effect to
the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties, acting through their duly authorized
officers, have caused this Agreement to be duly executed as of the day and year
first above written.
SEITEL, INC.
By:
-------------------------------------
Paul A. Frame, President
EAGLE GEOPHYSICAL, INC.
By:
-------------------------------------
Jay N. Silverman, President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
July 11, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Energy Research International
We consent to the use of our report dated May 27, 1997 included in the
registration statement on Form S-1 of Eagle Geophysical, Inc. with respect to
the consolidated balance sheets of Energy Research International and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity/(deficit) and cash flows for each
of the years in the three year period ended December 31, 1996.
/s/ KPMG
Exeter, England
July 11, 1997
