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PROSPECTUS
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-63747
EAGLE GEOPHYSICAL, INC.
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2008, SERIES B,
FOR ALL OUTSTANDING 10 3/4% SENIOR NOTES DUE 2008, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 6, 1998, UNLESS EXTENDED
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Eagle Geophysical, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal, to
exchange, in a transaction registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein) of which this Prospectus constitutes a part, up to $100 million in
aggregate principal amount of its 10 3/4% Senior Notes due 2008, Series B (the
"Exchange Notes") for up to an equal aggregate principal amount of its
outstanding 10 3/4% Senior Notes due 2008, Series A (the "Private Notes"). The
Private Notes are, and the Exchange Notes will be, jointly and severally,
guaranteed on a senior unsecured basis by the Subsidiary Guarantors (as defined
herein). The Exchange Notes and the Private Notes are referred to herein
collectively as the "Notes."
The Company will accept for exchange any and all Private Notes that are
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the date the Exchange Offer expires, which will be November 6, 1998 unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Private Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Private Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions that may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement (as
defined herein). See "The Exchange Offer." Private Notes may be tendered only in
denominations of $1,000 and integral multiples thereof. The Company has agreed
to pay the expenses of the Exchange Offer.
The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture dated July 20, 1998 between the Company, as issuer,
the Subsidiary Guarantors and Chase Bank of Texas, National Association, as
trustee (the "Trustee"), relating to the Notes (the "Indenture"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Private Notes, except that (i) the offering of the Exchange
Notes has been registered under the Securities Act, (ii) the Exchange Notes will
not be subject to transfer restrictions and (iii) the Exchange Notes will not be
entitled to registration or other rights under the Registration Rights
Agreement, including the provision in the Registration Rights Agreement for
payment of additional interest upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. Following the Exchange
Offer, any holders of Private Notes will continue to be subject to the existing
restrictions on transfer thereof and, as a general matter, the Company will not
have any further obligation to such holders to provide for registration under
the Securities Act of transfers of the Private Notes held by them. To the extent
that Private Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered and tendered but unaccepted Private Notes could be
adversely affected. See "The Exchange Offer -- Purpose and Effect of the
Exchange Offer." The Exchange Notes are being offered hereby in order to satisfy
the obligations of the Company and the Subsidiary Guarantors under a
Registration Rights Agreement dated July 20, 1998 among the Company, the
Subsidiary Guarantors and the Initial Purchasers (as defined herein) relating to
the Private Notes (the "Registration Rights Agreement").
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
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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.
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The date of this Prospectus is October 5, 1998
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The Exchange Notes will bear interest at a rate of 10 3/4% per annum.
Interest on the Exchange Notes is payable semi-annually on January 15 and July
15 of each year, commencing January 15, 1999. Holders of Exchange Notes of
record on January 1, 1999 will receive, on January 15, 1999, an interest payment
in an amount equal to (x) the accrued interest on such Exchange Notes from the
date of issuance thereof to January 15, 1999, plus (y) the accrued interest on
the previously held Private Notes from the date of issuance of such Private
Notes (July 20, 1998) to the date of exchange thereof. Interest will not be paid
on Private Notes that are accepted for exchange. The Exchange Notes mature on
July 15, 2008.
Based on existing interpretations of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission"), Exchange Notes issued
pursuant to the Exchange Offer in exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Private Notes directly from the Company for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of the Company), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer must represent to the Company
that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of up to 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Private Notes. The Exchange Notes will not be listed on any securities exchange,
but the Private Notes are, and the Exchange Notes will be, eligible for trading
in the National Association of Securities Dealers, Inc.'s Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") Market. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Market for the Notes."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees
and Expenses."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, 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 IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
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NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global notes, Exchange Notes in certificated form will be
issued in exchange for the global notes only in accordance with the terms and
conditions set forth in the Indenture. See "Description of the Notes -- Book
Entry; Delivery and Form."
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FORWARD-LOOKING STATEMENTS
Certain statements contained herein and in the documents incorporated
herein by reference, including statements of the Company's and management's
expectations, intentions, plans and beliefs, are forward-looking statements, as
defined in Section 27A of the Securities Act, that are dependent on certain
events, risks and uncertainties that may be outside of the Company's control.
When used or incorporated in this Prospectus, the words "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "plan," "project" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that have a direct bearing on the
Company's results of operations are the Company's leverage and liquidity, the
Company's dependence on energy industry spending, the Company's investment in
multi-client data, risks in international operations, competition, operating
risks, the Company's limited operating history, concentration of credit risks,
the capital intensive nature of the Company's business and the potential
obsolescence of technology, the Company's reliance on its key suppliers,
environmental and other regulations, risks in connection with the Company's
vessel upgrade projects, the influence of Seitel on the Company, conflicts of
interest between Seitel and the Company and reliance on the Company's key
personnel. These and other factors are discussed in "Risk Factors" and elsewhere
in this Prospectus.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement"), which term shall include all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Exchange Notes offered hereby. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to the Company and the Exchange Notes offered hereby, reference is
made to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this Prospectus as to the
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contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder and, in accordance therewith, files reports,
proxy statements and other information with the Commission. All such information
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington
D.C. 20549 and at the following Regional Offices of the Commission: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission
also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (http://www.sec.gov). In addition, the Company's common
stock, par value $.01 per share, is listed for trading on The Nasdaq Stock
Market, Inc.'s National Market System and reports, proxy statements and other
information concerning the Company may be inspected at the offices of The Nasdaq
Stock Market, Inc., 1735 K Street, Washington, D.C. 20006.
The Company has agreed that, whether it is required to do so by the rules
and regulations of the Commission or not, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such forms pursuant to the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to the
Company that are not presented herein or delivered herewith. These documents
(other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge, on request by any person to whom this Prospectus is delivered,
from the Company, 2603 Augusta, Suite 1400, Houston, Texas 77056, attention:
Richard W. McNairy, telephone number (713) 243-6100. The Company incorporates
herein by reference the following documents:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998 and June 30, 1998;
(c) Current Reports on Form 8-K dated June 29, 1998, August 25, 1998
and October 2, 1998; and
(d) All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to termination of the Exchange Offer made hereby.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any subsequently filed document that also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superceded.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information in this Prospectus, including
the consolidated financial statements of the Company and notes thereto
incorporated herein by reference in this Prospectus. Unless the context
otherwise requires, references to the "Company" and "Eagle Geophysical" shall
mean Eagle Geophysical, Inc. and its subsidiaries.
THE COMPANY
Eagle Geophysical, Inc. is an international oilfield service company
specializing in the acquisition of high definition three-dimensional ("3D")
seismic data. Oil and gas companies regularly use seismic data to image
underground geological structures to aid in the exploration for hydrocarbon
reservoirs. The use of 3D seismic data can significantly increase the
probability of drilling success. The Company conducts its seismic data
acquisition operations both offshore and onshore, targeting particular niches in
both markets. The Company's offshore seismic acquisition operations have been
focused primarily on small and medium sized surveys in heavily congested areas,
while its onshore seismic operations have been concentrated in logistically
difficult wetland environments. Approximately 44% of the Company's 1997 pro
forma combined revenues was derived from its offshore operations, and the
remaining 56% of revenues was derived from onshore operations.
The Company's offshore operations currently utilize four seismic data
acquisition vessels. Three of these vessels are configured to tow either two or
three streamers, which allows the Company to conduct small and medium sized high
definition seismic surveys in congested offshore areas with dense marine
traffic, production platforms and other obstructions. Utilizing the greater
resources available to it after its initial public offering in August 1997 (the
"IPO"), the Company is expanding its offshore capabilities, primarily by
increasing the number of streamers towed by the Company's vessels, allowing the
Company to offer a wider breadth of services to its customers. As part of this
expansion, the Company took its vessel Labrador Horizon out of service from
December 1997 to April 1998 to complete an upgrade, increasing its streamer
towing capacity from three to six. The Company has also purchased two additional
vessels that are currently being converted to conduct seismic acquisition
operations, the Austral Horizon (scheduled for completion in the third quarter
of 1998 and the Atlantic Horizon (scheduled for completion in the fourth quarter
of 1998). Upon completion, these vessels will be equipped to tow four and six
streamers, respectively, and will have the potential to deploy up to six and ten
streamers, respectively. This increased capacity gives the Company the ability
to efficiently conduct larger offshore seismic surveys, which, in turn, will
enable the Company to expand its product offerings and to conduct more
multi-client surveys. In a multi-client survey, the Company retains ownership of
the seismic data and can license the data to numerous customers.
The Company's onshore seismic operations are currently concentrated in
wetland environments, and the Company's crews and equipment have been configured
for the technically and logistically demanding operations they conduct in these
areas. The Company currently operates four 2,450 channel Opseis(R) radio
telemetry seismic data acquisition crews. These crews and equipment are
specifically designed to work efficiently in environmentally sensitive and
operationally challenging swamp and marsh environments. Because these Opseis
systems use radio signals to transmit data, they can be operated more
efficiently than traditional cable-based systems, particularly in wetland areas
and 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's onshore
operations are currently located primarily in the U.S. Gulf Coast region.
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SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $100,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of outstanding Private Notes. The Exchange Notes will be obligations of the
Company entitled to the benefits of the Indenture. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Private Notes, except that (i) the offering of the Exchange Notes has been
registered under the Securities Act, (ii) the Exchange Notes will not be subject
to transfer restrictions and (iii) the Exchange Notes will not be entitled to
any rights under the Registration Rights Agreement. See "Description of the
Notes."
THE PRIVATE NOTES.......... The Company issued and sold $100 million aggregate
principal amount of its Private Notes to Prudential
Securities Incorporated and Banc One Capital
Markets, Inc. (the "Initial Purchasers") on July
20, 1998 (the "Closing Date") pursuant to a
Purchase Agreement dated July 15, 1998 (the
"Purchase Agreement") in a transaction not
registered under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the
Securities Act (the "Private Offering"). The
Initial Purchasers placed the Private Notes with
qualified institutional buyers (as defined in Rule
144A under the Securities Act) ("Qualified
Institutional Buyers" or "QIBs"), each of whom
agreed to comply with certain transfer restrictions
and other restrictions. Accordingly, the Private
Notes may not be reoffered, resold or otherwise
transferred in the United States unless such
transaction is registered under the Securities Act
or an applicable exemption from the registration
requirements of the Securities Act is available.
THE EXCHANGE OFFER......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Private Notes validly tendered and accepted
pursuant to the Exchange Offer. As of the date
hereof, $100,000,000 in aggregate principal amount
of Private Notes are outstanding. The Company will
issue the Exchange Notes to tendering holders of
Private Notes promptly following the Expiration
Date. The terms of the Exchange Notes are identical
in all material respects to the Private Notes
except for certain transfer restrictions and
registration rights relating to the Private Notes.
No federal or state regulatory requirements must be
complied with or approval obtained in connection
with the Exchange Offer, other than the
registration requirements under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, the Company,
the Subsidiary Guarantors and the Initial
Purchasers entered into the Registration Rights
Agreement which, among other things, grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy certain obligations of the Company and
the Subsidiary Guarantors under the Registration
Rights Agreement.
RESALE..................... Based on existing interpretations of the Securities
Act by the staff of the Commission (the "Staff")
set forth in several no-action letters to third
parties, and subject to the immediately following
sentence, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchased such
Private Notes directly from the Company for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person
that is an "affiliate" (within the meaning
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of Rule 405 of the Securities Act) of the Company),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business
and is not participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on November 6, 1998, unless the
Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES............ The Exchange Notes will bear interest at a rate of
10 3/4% per annum. Interest on the Exchange Notes
is payable semi-annually on January 15 and July 15
of each year, commencing January 15, 1999. Holders
of record of Exchange Notes on January 1, 1999 will
receive on January 15, 1999 an interest payment in
an amount equal to (x) the accrued interest on such
Exchange Notes from the date of issuance thereof to
January 15, 1999, plus (y) the accrued interest on
the previously held Private Notes from the date of
issuance of such Private Notes (July 20, 1998) to
the date of exchange thereof. Interest will not be
paid on Private Notes that are accepted for
exchange. The Exchange Notes mature on July 15,
2008.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
the occurrence of certain conditions. The Company
does not expect any of such conditions to occur,
although there can be no assurance that such
conditions will not occur. Holders of Private Notes
will have certain rights under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
PRIVATE NOTES.............. Each holder of Private Notes wishing to accept the
Exchange Offer must either (i) complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Private Notes to be
exchanged and any other required documentation, to
Chase Bank of Texas, National Association, as
Exchange Agent, at the address set forth herein and
therein or effect a tender of Private Notes
pursuant to the procedures for book-entry transfer
as provided for herein and therein or (ii) effect
tenders by book-entry transfer by complying with
DTC's Automated Tender Offer Program ("ATOP"),
including the delivery of an Agent's message to the
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Exchange Agent. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. See
"The Exchange Offer -- Procedures for Tendering."
Following consummation of the Exchange Offer,
holders of Private Notes not tendered will not as a
general matter have any further registration
rights, and the Private Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Private Notes could be adversely affected. See
"Risk Factors -- Absence of Market for the Notes"
and "-- Failure to Exchange Private Notes" and "The
Exchange Offer -- Consequences of Failure to
Exchange."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on his
behalf. If such beneficial owner wishes to tender
on his own behalf, such beneficial owner must,
prior to completing and executing the Letter of
Transmittal and delivering his Private Notes,
either (a) make appropriate arrangements to
register ownership of the Private Notes in such
holder's name or (b) obtain a properly completed
bond power from the registered holder or endorsed
certificates representing the Private Notes to be
tendered. The transfer of record ownership may take
considerable time, and completion of such transfer
prior to the Expiration Date may not be possible.
See "The Exchange Offer -- Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available, or who cannot deliver their
Private Notes (or complete the procedure for
book-entry transfer) and deliver a properly
completed Letter of Transmittal and any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date may
tender their Private Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF PRIVATE NOTES
AND DELIVERY OF EXCHANGE
NOTES.................... Subject to certain conditions (as summarized above
in "Conditions to the Exchange Offer" and described
more fully in "The Exchange Offer -- Conditions to
the Exchange Offer"), the Company will accept
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for exchange any and all Private Notes that are
properly tendered in the Exchange Offer prior to
the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering." The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
EXCHANGE AGENT............. Chase Bank of Texas, National Association, the
trustee under the Indenture, is serving as the
Exchange Agent (the "Exchange Agent") in connection
with the Exchange Offer. The mailing address of the
Exchange Agent is Chase Bank of Texas, National
Association, 1201 Main Street, 18th Floor, Dallas,
Texas 75202, Attn: Frank Ivins. For assistance and
requests for additional copies of the Prospectus,
the Letter of Transmittal or the Notice of
Guaranteed Delivery, the telephone number for the
Exchange Agent is (214) 672-5678, and the facsimile
number for the Exchange Agent is (214) 672-5746
(Eligible Institutions only).
EFFECT ON HOLDERS OF
PRIVATE NOTES.............. Holders of Private Notes who do not tender their
Private Notes in the Exchange Offer will continue
to hold their Private Notes and will be entitled to
all the rights and limitations applicable thereto
under the Indenture. All untendered, and tendered
but unaccepted, Private Notes will continue to be
subject to the restrictions on transfer provided
for in the Private Notes and the Indenture. To the
extent that Private Notes are tendered and accepted
in the Exchange Offer, the trading market, if any,
for any untendered and tendered but unaccepted
Private Notes could be adversely affected. See
"Risk Factors -- Consequences of Failure to
Exchange Private Notes."
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
5
<PAGE> 10
SUMMARY OF TERMS OF EXCHANGE NOTES
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of 10 3/4%
Senior Notes due 2008, Series B, of the Company
under an Indenture dated as of July 20, 1998. See
"Description of the Notes."
MATURITY DATE.............. July 15, 2008.
INTEREST PAYMENT DATES..... January 15 and July 15 of each year, commencing
January 15, 1999.
OPTIONAL REDEMPTION........ The Exchange Notes will be redeemable at the
election of the Company, in whole or in part, at
any time on or after July 15, 2003 at the
redemption prices set forth herein, plus accrued
interest to the date of redemption. In addition,
the Company may, at its option, redeem Notes prior
to July 15, 2001 at 110.75% of the principal amount
thereof, plus accrued interest to the date of
redemption, from the net proceeds of one or more
Equity Offerings (as defined); provided that,
immediately after giving effect to any such
redemption, an aggregate principal amount of Notes
equal to at least 65% of the aggregate principal
amount of the Notes issued remains outstanding
after each such redemption. See "Description of the
Notes."
GUARANTEES................. The Exchange Notes will be jointly and severally
guaranteed on a senior unsecured basis by the
Company's current and future Restricted
Subsidiaries (as defined) that are organized under
the laws of any state of the United States or the
District of Columbia (the "Subsidiary Guarantors").
The Exchange Notes will not be guaranteed by the
Company's Restricted Subsidiaries that are
organized under the laws of jurisdictions outside
the United States. The Indenture requires that the
subsidiaries of the Company that own the Austral
Horizon and the Atlantic Horizon, the two seismic
data acquisition vessels being upgraded with the
proceeds of the sale of the Private Notes, be
Subsidiary Guarantors. See "Description of the
Notes -- Subsidiary Guarantees."
RANKING.................... The Exchange Notes will be senior unsecured
obligations of the Company ranking pari passu with
all existing and future unsubordinated debt of the
Company. The Exchange Notes will also be guaranteed
by the Subsidiary Guarantors pursuant to the
Subsidiary Guarantees. The Exchange Notes and the
Subsidiary Guarantees are effectively subordinated
to all of the Company's and subsidiaries' secured
debt, including loans under the Revolving Credit
Facility (as defined), to the extent of the value
of the assets securing such debt and are
structurally subordinated to all liabilities,
including trade payables, of the Company's
subsidiaries that are not Subsidiary Guarantors. As
of June 30, 1998, on a pro forma basis after giving
effect to the sale of the Private Notes and the
application of the net proceeds therefrom, the
Company and its subsidiaries had $37.1 million of
consolidated secured debt and capital lease
obligations outstanding ($31.3 million of which is
a capital lease obligation of one of the Company's
subsidiaries that is not a Subsidiary Guarantor).
In addition, the Company's subsidiaries that are
not Subsidiary Guarantors had approximately $21.2
million of trade payables as of June 30, 1998.
COVENANTS.................. The Indenture contains certain covenants,
including, but not limited to, covenants that limit
the Company's and its subsidiaries' ability to
incur additional indebtedness, pay dividends and
make other restricted pay-
6
<PAGE> 11
ments, make asset sales, enter into transactions
with affiliates, incur dividend and other payment
restrictions affecting subsidiaries, incur certain
liens and merge or consolidate. These limitations
are subject to certain qualifications and
exceptions. See "Description of the Notes --
Certain Covenants."
CHANGE OF CONTROL.......... Upon a Change of Control, the Company will be
required, subject to certain conditions, to offer
to repurchase all of the outstanding Exchange Notes
at 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of
purchase. See "Risk Factors -- Potential Inability
to Purchase Notes Upon a Change in Control" and
"Description of the Notes."
FORM AND REGISTRATION OF
NOTES...................... Except as set forth under "Description of the
Notes -- Book-Entry, Delivery and Form," the
Exchange Notes offered hereby will be represented
by a global note in definitive, fully registered
form without interest coupons (the "Global Note").
The Global Note will be deposited with the trustee
for the Notes as custodian for, and registered in
the name of a nominee of, DTC. See "Description of
the Notes -- Book-Entry, Delivery and Form."
USE OF PROCEEDS............ The Company will not receive any proceeds from the
Exchange Offer.
RISK FACTORS............... Prospective purchasers of the Exchange Notes should
carefully consider the specific matters set forth
under "Risk Factors" as well as the other
information and data included in or incorporated by
reference into this Exchange Offer prior to making
an investment in the Exchange Notes.
7
<PAGE> 12
SUMMARY SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA
The following table sets forth historical summary selected financial data
and selected unaudited pro forma financial data for the Company. The unaudited
pro forma results of operations for the year ended December 31, 1997 and the six
month period ended June 30, 1997 give effect to the IPO, the application of the
net proceeds thereof to retire certain debt and capital leases, and the
acquisition of Energy Research International ("ERI"), which occurred
contemporaneously with the IPO (the "ERI Acquisition"), as if such transactions
had occurred on January 1, 1997. The unaudited pro forma results of operations
for the year ended December 31, 1997 and the six month periods ended June 30,
1997 and 1998 also give effect to the issuance of $22.5 million of the Notes to
retire borrowings under the Revolving Credit Facility and the Short-Term Loan as
if such transactions had occurred on January 1, 1997 or the later actual date of
such borrowings. Interest expense has not been accrued on the remaining net
proceeds of $73.9 million as this amount had not yet been utilized to fund
capital expenditures during the periods presented. Results of operations for pro
forma periods may not be indicative of the actual results that would have been
achieved or of the results that may be achieved through future operations. The
following historical and pro forma summary selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements and the unaudited pro forma consolidated financial statements
included herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ------------------------
1997(2) 1997(2) 1998 SIX MONTHS
YEARS ENDED DECEMBER 31, ------------ ----------- ---------- ENDED
------------------------------------ JUNE 30,
1995 1996 1997(1) PRO FORMA PRO FORMA 1998(3)
---------- ---------- ---------- COMBINED COMBINED -----------
HISTORICAL HISTORICAL HISTORICAL AS ADJUSTED AS ADJUSTED HISTORICAL AS ADJUSTED
---------- ---------- ---------- ------------ ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $29,275 $48,136 $79,061 $108,128 $50,060 $58,216 $58,216
------- ------- ------- -------- ------- ------- -------
Expenses:
Operating expenses........ 20,986 34,817 56,470 76,723 36,079 39,966 39,966
Depreciation and
amortization............ 2,471 3,409 8,584 12,889 6,238 7,687 7,687
Selling, general and
administrative
expenses................ 2,874 2,680 6,408 8,793 3,384 5,373 5,373
Interest and other
expense, net............ 408 531 205 251 297 351 459
------- ------- ------- -------- ------- ------- -------
Total expenses...... 26,739 41,537 71,667 98,656 45,998 53,377 53,485
------- ------- ------- -------- ------- ------- -------
Income before provision for
income taxes.............. 2,536 6,599 7,394 9,472 4,062 4,839 4,731
Provision for income
taxes..................... 933 2,420 2,994 3,836 1,645 1,960 1,916
------- ------- ------- -------- ------- ------- -------
Net income(4)............... $ 1,603 $ 4,179 $ 4,400 $ 5,636 $ 2,417 $ 2,879 $ 2,815
======= ======= ======= ======== ======= ======= =======
OTHER DATA:
EBITDA(5)................... $ 5,415 $10,539 $16,183 $ 22,612 $10,597 $12,877 $12,877
Ratio of EBITDA to interest
expense(6)................ 12.03x 15.08x 10.20x 90.09x 35.68x 19.63x 14.32x
Ratio of earnings to fixed
charges................... 3.61x 4.70x 3.08x 3.35x 2.71x 2.61x 2.52x
Capital expenditures and
acquisitions.............. $ 289 $ 7,928 $40,790 $ 46,290 $ 9,107 $17,269 $17,269
</TABLE>
8
<PAGE> 13
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
AS
ACTUAL ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... $ 15,912 $ 24,912
Working capital............................................. (8,960) (360)
Total assets................................................ 200,862 278,362
Total debt (including current portion)...................... 59,552 137,052
Stockholders' equity........................................ 87,820 87,820
</TABLE>
- ---------------
(1) Includes the results of ERI from and after August 11, 1997.
(2) The unaudited pro forma results of operations for the year ended December
31, 1997 and the six month period ended June 30, 1997 give effect to (i) the
IPO, the application of the net proceeds thereof to retire certain debt and
capital leases, and the ERI Acquisition, as if such transactions had
occurred on January 1, 1997, and (ii) the Private Offering and the
application of the net proceeds thereof.
(3) The unaudited adjusted statement of operations data for the six months ended
June 30, 1998 and the balance sheet data for the period then ended give
effect to the Private Offering and the application of the net proceeds
thereof.
(4) Excludes the effect of a $600,000 extraordinary gain for early
extinguishment of debt on ERI's historical 1996 financial statements.
(5) "EBITDA" means earnings before interest expense, taxes, depreciation, and
amortization, and should not be considered as an alternative to net income
or any generally accepted accounting principles measure of performance as an
indicator of the Company's operating performance or as a measure of
liquidity. The Company believes EBITDA is a widely accepted financial
indicator of a company's ability to service debt.
(6) Ratio of EBITDA to interest expense represents an industry ratio that
provides an investor with information as to the Company's current ability to
meet its interest costs.
9
<PAGE> 14
RISK FACTORS
Prior to making an investment in the Exchange Notes, prospective purchasers
should carefully consider all of the information contained and incorporated by
reference in this Prospectus and, in particular, should evaluate the following
risk factors.
LEVERAGE AND LIQUIDITY
The Company has significant leverage and will require substantial cash flow
to meet its debt service requirements. The degree of the Company's leverage will
have several important effects on its future operations, including (i) a
substantial amount of the Company's cash flow from operations must be dedicated
to the payment of interest on its indebtedness and will not be available for
other purposes, (ii) covenants contained in the Company's debt obligations will
require the Company to meet certain financial tests, and other restrictions will
limit its ability to borrow additional funds or to dispose of assets and may
affect the Company's flexibility in planning for, and reacting to, changes in
its business, including possible acquisition opportunities, and (iii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired.
The Company's ability to meet its debt obligations will depend on the
Company's future performance, which is subject to general economic and business
factors beyond the Company's control. To the extent that the Company is unable
to repay the principal amount of the Notes at maturity out of cash on hand or
from other sources, it will need to refinance its existing debt (including the
Notes), sell assets or repay the Notes with the proceeds of an equity offering.
There can be no assurance that future borrowings or equity financing will be
available for the refinancing or repayment of the Notes, nor can there be any
assurance as to the timing of any asset sales or the proceeds that could be
realized by the Company therefrom. In addition, the Indenture and the Revolving
Credit Facility will restrict the Company's ability to sell assets and use the
proceeds therefrom.
HOLDING COMPANY STRUCTURE
All of the Company's operating income and cash flow is generated by its
subsidiaries (the "Subsidiaries"). As a result, funds necessary to meet the
Company's debt service obligations are provided in part by distributions or
advances from the Subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Subsidiaries, could limit the Company's ability to obtain
cash from the Subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes.
Although the Subsidiary Guarantors will guarantee the Exchange Notes pursuant to
the Subsidiary Guarantees, not all of the Subsidiaries will be Subsidiary
Guarantors. See "Description of the Notes -- Subsidiary Guarantees." As a
result, the claims of creditors of the Subsidiaries that are not Subsidiary
Guarantors effectively have priority with respect to the assets and earnings of
those Subsidiaries over the claims of the holders of the Notes. In the event of
an insolvency, liquidation or reorganization of a Subsidiary that is not a
Subsidiary Guarantor, any creditors of such Subsidiary, including trade
creditors, would be entitled to payment in full from the assets of such
Subsidiary before the Company, as a stockholder, would be entitled to receive
any distribution from the Subsidiary.
Horizon Exploration Ltd., a Subsidiary that is not a Subsidiary Guarantor
("Horizon Exploration"), operates one of the Company's seismic acquisition
vessels under a capital lease with an outstanding balance of approximately $31.3
million as of June 30, 1998. Eagle Geophysical Onshore, Inc., a Subsidiary
Guarantor ("Eagle Onshore"), entered into a $5.9 million term loan in April 1998
to finance the acquisition of its fourth Opseis system. In addition, the Company
and its Subsidiaries are co-borrowers under the Revolving Credit Facility
secured by accounts receivable. The Exchange Notes will be effectively
subordinated to this capital lease, equipment loan and Revolving Credit
Facility, to the extent of the assets securing such obligations, and will be
structurally subordinated to all obligations of the Subsidiaries that are not
Subsidiary Guarantors, including obligations under this capital lease, certain
of the obligations under the Revolving Credit Facility and all trade payables,
currently outstanding or incurred in the future. The Indenture contains
covenants
10
<PAGE> 15
limiting the ability of the Company and its Subsidiaries to grant liens and the
ability of the Company and its Subsidiaries to incur additional indebtedness.
See "Description of the Notes -- Certain Covenants."
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. 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 cash flows
and results of operations.
INVESTMENT IN MULTI-CLIENT DATA
Historically, the Company has performed its offshore seismic data
acquisition services for its customers primarily on a contract basis without
retaining any interest in the data it acquired. However, increasing demand for
larger and higher-cost 3D surveys has resulted in significantly increased
industry acceptance of and customer demand for multi-client surveys. As a result
of this industry trend and customer demand, the Company anticipates that an
increasing part of its future offshore data acquisition projects will be
multi-client surveys. The Company therefore anticipates that in the near term it
will begin investing increasing amounts in acquiring and processing multi-client
data. By making such investments, the Company will assume the risk that future
sales of such data may not fully recoup the costs of the data. The amounts of
these data sales will be uncertain and will be impacted by a number of factors,
many of which are beyond the control of the Company. In addition, revenues
generated by licensing multi-client data are typically less predictable from
period to period than are revenues from surveys performed on an exclusive
contract basis for customers. The Company intends to seek to reduce these risks
by acquiring multi-client data in partnership with third parties or by obtaining
pre-acquisition licensing commitments to cover part of its costs of acquiring
the data and by evaluating various factors affecting the sales potential of each
survey. In addition, the recovery of costs of multi-client data is dependent
upon the absence of technological or regulatory changes or other developments
that would render such data obsolete or less valuable.
The majority of the Company's investment in multi-client data is likely to
be in the Gulf of Mexico. If there were to occur any material adverse change in
the general prospects for oil and gas exploration, development and production
activities in the Gulf of Mexico, the value of the Company's multi-client data
in the Gulf of Mexico could be significantly adversely impacted.
RISKS IN INTERNATIONAL OPERATIONS
Approximately 22% of the Company's pro forma combined 1997 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. For example, the Company has
conducted significant operations offshore Argentina during the first and second
quarters of 1998. Since the Company has an established presence in the North
Sea, 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
primary areas of operations 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.
11
<PAGE> 16
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 technological and certain other
advantages relating to costs that may provide them with an advantage over the
Company in bidding for contracts.
OPERATING RISKS
Seismic operations are subject to risks of injury to personnel and loss of
equipment. In addition, the Company's crews often conduct operations in extreme
weather, in difficult terrain that is not easily accessible and under other
hazardous conditions. 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 amount 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.
Although the Company provides the seismic personnel on its offshore seismic
data acquisition vessels, the Company contracts with third parties to provide
vessel crews, so the Company does not control some aspects of its operations and
is subject to the safety risks inherent in relying on third parties for critical
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.
LIMITED COMBINED OPERATING HISTORY
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 ERI and its operating subsidiaries (the
"Horizon Companies," and collectively with SGI, the "Combined Businesses"). The
Company acquired ERI in August 1997 at the time of the Company's IPO. Prior to
the Company's IPO, the Combined Businesses were operated 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
IPO, the Company was a subsidiary of Seitel, Inc. ("Seitel") and relied on
Seitel for certain financial, management, administrative and other resources. A
number of significant changes occurred in the funding and operations of the
Company in connection with the consummation of the IPO. These changes included
the establishment of the Company's 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." 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 the
Combined Businesses been operated as a combined stand-alone entity during all of
the periods presented.
12
<PAGE> 17
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. 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. The Company currently has
one receivable from a customer of approximately $2.4 million that is over one
year old. There can be no assurance that the Company will collect this
receivable. 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, any such upgrades 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.
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 and on Concept Systems Ltd. for positioning software. 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.
13
<PAGE> 18
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.
RISKS OF UPGRADE PROJECTS
The Company's seismic acquisition vessel upgrade projects are subject to
the risks of delay and cost overruns inherent in any large construction project,
including shortages of equipment, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases and shortages of
materials or skilled labor. Significant cost overruns or delays could adversely
affect the Company's financial condition and results of operations.
INFLUENCE OF SEITEL ON THE COMPANY
Prior to the Company's IPO, the Company was a subsidiary of Seitel. Seitel
currently owns approximately 17.7% of the outstanding shares of common stock of
the Company. Approximately 56% of the revenues of the Company for the six months
ended June 30, 1998 were derived from seismic data acquisition services provided
to Seitel and its subsidiaries. Prior to the IPO, the onshore revenues from
Seitel were based on prices charged to unaffiliated parties for similar work.
Such revenues are not necessarily indicative of the revenues the Company would
have earned had it provided these services to unrelated third parties. Prior to
the IPO, the offshore revenues from Seitel were determined by negotiations
between Seitel and the Horizon Companies, which management of the Horizon
Companies believe were equal to amounts it would have charged unrelated third
parties for such services. Revenues from Seitel for both onshore and offshore
data acquisition after the IPO have been determined by negotiations between
Seitel and the Company, which management believes are 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.
Prior to the IPO, Seitel guaranteed certain indebtedness of the Company and
made loans to the Company. The Company's borrowing costs may be greater than
historical borrowing costs 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."
Paul A. Frame, the President and Chief Executive Officer and a director of
Seitel, is a director of the Company, serves as Chairman of the Executive
Committee of the Board of Directors of the Company, has duties with respect to
marketing and expansion of the Company's business pursuant to a Bonus Agreement
with the Company, and has received from the Company options to acquire shares of
its common stock. 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 may 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.
In addition, Mr. William Lurie, Chairman of the Board of Directors of the
Company, was a director of Seitel prior to the Company's IPO. Mr. Jay N.
Silverman, President and Chief Executive Officer and a director of the Company,
was an executive officer of Seitel prior to the IPO. A substantial part of Mr.
Silverman's present personal assets is comprised of common stock and other
equity interests in Seitel.
14
<PAGE> 19
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. 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. There can be no assurance
that any such conflicts of interest will be resolved in favor of the Company.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts of Messrs. Jay N.
Silverman, President, and Gerald M. Harrison, Executive Vice President. If
either 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 has employment
agreements with automatic renewal features with Messrs. Silverman and Harrison.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Subsidiary Guarantees.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any
present or future creditor or the Subsidiary Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (y) a Subsidiary Guarantor did not receive fair consideration
or reasonably equivalent value for issuing its Subsidiary Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Subsidiary Guarantee, (iii) was engaged or about to engage
in a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could avoid or subordinate
such Subsidiary Guarantee in favor of the Subsidiary Guarantor's creditors.
Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the Company's issuance of the Notes. The Subsidiary
Guarantees will contain a savings clause that generally will limit the
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee to the
maximum amount as will, after giving effect to all of the liabilities of such
Subsidiary Guarantor, result in such obligations not constituting a fraudulent
conveyance. To the extent a Subsidiary Guarantee of any Subsidiary Guarantor was
avoided or limited as a fraudulent conveyance or held unenforceable for any
other reason, holders of the Notes would cease to have any claim against such
Subsidiary Guarantor and would be creditors solely of the Company and any
Subsidiary Guarantor whose Subsidiary Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Notes against the
issuer of an invalid Subsidiary Guarantee would be subject to the prior payment
of all liabilities (including trade payables) of such Subsidiary Guarantor.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets to satisfy the claims of the holders of the Notes
relating to any avoided portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Subsidiary Guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than the fair marketable value of
all of its assets at a fair valuation or if the present fair marketable value of
its assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and mature. The terms of the Subsidiary Guarantees will provide
that, for purposes of such
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limitations and the applicable fraudulent conveyance laws, any indebtedness of a
Subsidiary Guarantor incurred from time to time pursuant to the Revolving Credit
Facility and secured by a perfected Lien (as defined) on the assets of such
Subsidiary Guarantor (assuming, for purposes of such determination, that the
incurrence of any such indebtedness and the granting of any such security
interest did not violate any such fraudulent conveyance laws) shall be deemed,
to the extent of the value of the assets subject to such Lien, to have been
incurred prior to the incurrence by such Subsidiary Guarantor of liability under
its Subsidiary Guarantee.
Based upon financial and other information, the Company and the Subsidiary
Guarantors believe that the Subsidiary Guarantees were incurred for proper
purposes and in good faith and that the Company and each Subsidiary Guarantor
was solvent after issuing its Subsidiary Guarantee and continues to be solvent,
has sufficient capital for carrying on its business after such issuance and will
be able to pay its debts as they mature. There can be no assurance, however,
that a court passing on such standards would agree with the Company. See
"Description of the Notes -- Subsidiary Guarantees."
POTENTIAL INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered, or that restrictions
in the Revolving Credit Facility will allow the Company to make such required
repurchases. Notwithstanding these provisions, the Company could enter into
certain transactions, including certain recapitalizations, that would not
constitute a Change of Control but that would increase the amount of debt
outstanding at such time. See "Description of the Notes -- Certain
Covenants -- Purchase of Notes upon a Change of Control."
ABSENCE OF MARKET FOR THE NOTES
Although the Exchange Notes may be resold or otherwise transferred by the
holders (who are not affiliates of the Company) without compliance with the
registration requirements under the Securities Act, they will be new securities
for which there is currently no established trading market. The Company does not
intend to apply for listing of the Exchange Notes on a national securities
exchange or for quotation of the Exchange Notes on an automated dealer quotation
system. Although one of the Initial Purchasers in the Private Offering has
informed the Company that they intend to make a market in the Exchange Notes,
they are not obligated to do so, and any such market-making, if initiated, may
be discontinued at any time without notice. The liquidity of any market for the
Exchange Notes will depend upon the number of holders of the Exchange Notes, the
interest of securities dealers in making a market in the Exchange Notes and
other factors. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. If an active trading market for
the Exchange Notes does not develop, the market price and liquidity of the
Exchange Notes may be adversely affected. If the Exchange Notes are traded, they
may trade at a discount from their face value, depending upon prevailing
interest rates, the market for similar securities, the performance of the
Company and certain other factors. The Exchange Notes will be eligible for
trading in the PORTAL Market.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company may publicly offer for sale or resell the Exchange Notes
only in compliance with provisions of Rule 144 under the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE PRIVATE NOTES
The Private Notes have not been registered under the Securities Act or any
state securities law and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable state
securities laws. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, upon
consummation
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<PAGE> 21
of the Exchange Offer, holders of Private Notes which remain outstanding will
not be entitled to any rights under the Registration Rights Agreement (subject
to certain exceptions). To the extent that Private Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Private Notes could be adversely affected due to the limited
amount of the Private Notes that are expected to remain outstanding following
the Exchange Offer. See "The Exchange Offer -- Consequences of Failure to
Exchange."
EXCHANGE OFFER PROCEDURES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes (including tenders by
book-entry transfer), a properly completed and duly executed Letter of
Transmittal and all other required documentation, or after tender of the Private
Notes by book-entry transfer and compliance with DTC's ATOP procedures.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
compliance with the Exchange Offer procedures. Neither the Exchange Agent nor
the Company is under any duty to give notification of defects or irregularities
with respect to tenders of Private Notes for exchange.
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<PAGE> 22
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on July 20, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold all of the Private Notes to Qualified Institutional Buyers,
each of whom agreed to comply with certain transfer restrictions and other
conditions. As a condition to the purchase of the Private Notes by the Initial
Purchasers, the Company and the Subsidiary Guarantors entered into the
Registration Rights Agreement with the Initial Purchasers, which requires, among
other things, that promptly following the issuance and sale of the Private
Notes, the Company and the Subsidiary Guarantors file with the Commission the
Registration Statement with respect to the Exchange Notes, use their best
efforts to cause the Registration Statement to become effective under the
Securities Act and, upon the effectiveness of the Registration Statement, offer
to the holders of the Private Notes the opportunity to exchange their Private
Notes for a like principal amount of Exchange Notes, which will be issued
without a restrictive legend and may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act subject to certain
exceptions described below. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The term "holder" with respect to the Exchange Offer means any person in
whose name Private Notes are registered on the Company's books or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Private Notes are held of record by the Depositary
who desires to deliver such Private Notes by book-entry transfer of the
Depositary.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters issued to third parties, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchased
such Private Notes directly from the Company for resale pursuant to Rule 144A or
any other available exemption under the Securities Act or (ii) a person that is
an "affiliate" (within the meaning of Rule 405 of the Securities Act) of the
Company), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes. However, if
any holder acquires the Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is available. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for a period of 180 days after the Expiration Date. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Private Notes. Following the consummation of the
Exchange Offer, holders of Private Notes not tendered will not have any further
registration rights, except in certain limited circumstances requiring the
filing of a Shelf Registration Statement (as defined herein), and the Private
Notes will continue to be subject to certain restrictions on
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<PAGE> 23
transfer. See "-- Consequences of Failure to Exchange." Accordingly, the
liquidity of the market for the Private Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Private Notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time, on
the Expiration Date. After authentication of the Exchange Notes by the Trustee
or an authenticating agent, the Company will issue and deliver $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
outstanding Private Notes accepted in the Exchange Offer. Holders may tender
some or all of their Private Notes pursuant to the Exchange Offer in
denominations of $1,000 and integral multiples thereof.
Each holder of Private Notes who wishes to exchange Private Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) any
Exchange Notes to be received by such holder are being acquired in the ordinary
course of business, (ii) such holder has no arrangements or understandings with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes, (iii) such holder is not an affiliate of
the Company, as defined in Rule 405 of the Securities Act, (iv) if such holder
is not a broker-dealer, that it is not engaged in, and does not intend to engage
in, the distribution of the Exchange Notes, and (v) if such holder is a
broker-dealer, that it will receive the Exchange Notes for its own account in
exchange for the Private Notes that were acquired as a result of market-making
activities.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes, except that (i) the
offering of the Exchange Notes has been registered under the Securities Act,
(ii) the Exchange Notes will not be subject to transfer restrictions and (iii)
certain provisions relating to registration rights and an increase in the stated
interest rate on the Private Notes provided for under certain circumstances will
be eliminated. The Exchange Notes will evidence the same debt as the Private
Notes. The Exchange Notes will be issued under and entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Private Notes is outstanding. In connection with the issuance of the
Private Notes, the Company arranged for the Private Notes to be issued and
transferable in book-entry form through the facilities of the Depositary, acting
as depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Private Notes as of the
close of business on October 5, 1998. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Private Notes being tendered, and holders
of the Private Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware or under the Indenture in
connection with the Exchange Offer. The Company shall be deemed to have accepted
validly tendered Private Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent. See "-- Exchange Agent." The
Exchange Agent will act as agent for the tendering holders for the purpose of
receiving Exchange Notes from the Company and delivering Exchange Notes to such
holders.
If any tendered Private Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Private Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
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Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF PRIVATE NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR PRIVATE NOTES PURSUANT TO THE
EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF PRIVATE NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
PRIVATE NOTES TO TENDER.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
November 6, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Private Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Private Notes not
previously accepted, if any of the conditions set forth herein under
"-- Conditions of the Exchange Offer" shall have occurred and shall not have
been waived by the Company (if permitted to be waived by the Company), by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent and (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof by the Company to the
registered holders of the Private Notes. If the Exchange Offer is amended in a
manner determined by the Company to constitute a material change, the Company
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of such amendment and the Company will extend the Exchange
Offer to the extent required by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 10 3/4% per annum.
Interest on the Exchange Notes is payable semi-annually on January 15 and July
15 of each year, commencing January 15, 1999. Holders of Exchange Notes of
record on January 1, 1999 will receive on January 15, 1999 an interest payment
in an amount equal to (x) the accrued interest on such Exchange Notes from the
date of issuance thereof to January 15, 1999, plus (y) the accrued interest on
the previously held Private Notes from the date of issuance of such Private
Notes (July 20, 1998) to the date of exchange thereof. Interest will not be paid
on Private Notes that are accepted for exchange. The Exchange Notes mature on
July 15, 2008.
PROCEDURES FOR TENDERING
Each holder of Private Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Private Notes to be exchanged and any other required documentation, to Chase
Bank of Texas, National Association, as Exchange Agent, at the address set forth
herein and therein or effect a tender of Private Notes pursuant to the
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procedures for book-entry transfer as provided for herein and therein. By
executing the Letter of Transmittal, each holder will represent to the Company,
that, among other things, the Exchange Notes acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the holder, that
neither the holder nor any such other person has any arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Private
Notes by causing the Depositary to transfer such Private Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Private Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Depositary, the Letter of Transmittal
(or facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. Alternatively, holders
may tender by book-entry by complying, prior to 5:00 p.m., New York City time,
on the Expiration Date, with DTC's ATOP procedures, including transmitting an
Agent's Message to the Exchange Agent in which the holder of the Private Notes
acknowledges and agrees to be bound by the terms of the Letter of Transmittal,
which will confirm on behalf of the participant in ATOP and the beneficial
owners of such Private Notes all provisions of the Letter of Transmittal
applicable to it and such beneficial owners as fully as if it had completed the
information required in the Letter of Transmittal and executed and transmitted
the Letter of Transmittal to the Exchange Agent. See "-- Book-entry Transfer."
DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only a holder may tender its Private Notes in the Exchange Offer. To tender
in the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Private Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder,
the Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Private Notes held by a holder are tendered, the tendering holder
should fill in the amount of Private Notes being tendered in the appropriate box
on the Letter of Transmittal. The entire amount of Private Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT) (A) IT ACQUIRED THE PRIVATE NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS
NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY
"AFFILIATE" THEREOF (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO
DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE
OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT
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IN EXCHANGE FOR PRIVATE NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO
INCLUDE AN ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS
PROSPECTUS IN CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED
PURSUANT TO THE EXCHANGE OFFER. HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER"
WITHIN THE MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Private Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Private Notes, either
make appropriate arrangements to register ownership of the Private Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the
Private Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" of the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder listed therein, such Private Notes must
be endorsed or accompanied by appropriate bond powers which authorize such
person to tender the Private Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Private Notes. If the Letter of Transmittal or any Private Notes or bond powers
are signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, evidence satisfactory to the Company of their authority
to so act must be submitted with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding, The Company reserves the absolute right to reject any and all
Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms, and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of
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<PAGE> 27
Private Notes, nor shall any of them incur any liability for failure to give
such notification. Tenders of Private Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Private Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company and as to which the
defects or irregularities have not been cured or waived by the Company will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Private Notes that remain outstanding subsequent
to the Expiration Date, and (b) to the extent permitted by applicable law, to
purchase Private Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers may differ from the
terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Private Notes at the DTC (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Private Notes by
causing such Book Entry Transfer Facility to transfer such Private Notes into
the Exchange Agent's account with respect to the Private Notes in accordance
with the Book-Entry Transfer Facility's procedures for such transfer. ALTHOUGH
DELIVERY OF PRIVATE NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE
EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE
LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY REQUIRED
SIGNATURE GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN EACH CASE BE
TRANSMITTED TO AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS ADDRESS
SET FORTH BELOW ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE GUARANTEED
DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH, WITH THE TIME PERIOD
PROVIDED UNDER SUCH PROCEDURES. ALTERNATIVELY, HOLDERS MAY TENDER BY BOOK-ENTRY
BY COMPLYING, PRIOR TO THE EXPIRATION DATE, WITH DTC'S ATOP PROCEDURES,
INCLUDING TRANSMITTING AN AGENT'S MESSAGE TO THE EXCHANGE AGENT. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available, or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, or (iii) who cannot complete the procedure for
book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Private Notes and the principal amount of such
Private Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Private Notes
to be tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Private
Notes delivered electronically) and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Private Notes in proper form for transfer (or confirma-
23
<PAGE> 28
tion of a book-entry transfer into the Exchange Agent's account at the
Depositary of Private Notes delivered electronically) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the
Private Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Private Notes or, in the case of Private Notes
transferred by book-entry transfer, the name and number of the account at the
Depositary to be credited, the principal amount of Private Notes to be
credited), (iii) be signed by the Depositor in the same manner as the original
signature on the Letter of Transmittal by which such Private Notes were tendered
(including any required signature guarantee) or be accompanied by documents of
transfer sufficient to permit the Trustee with respect to the Private Notes to
register the transfer of such Private Notes into the name of the Depositor
withdrawing the tender and (iv) specify the name in which any such Private Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Private Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer, and
no Exchange Notes will be issued with respect thereto unless the Private Notes
so withdrawn are validly retendered. Any Private Notes that have been tendered
but are not accepted for exchange will be returned to the holder thereof without
cost to such holder as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Private Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer not violate applicable law, rules, regulations or interpretation of the
Staff) is not satisfied, the Company may (i) refuse to accept any Private Notes
and return all tendered Private Notes to the tendering holders or (ii) extend
the Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "-- Withdrawal of Tenders").
SHELF REGISTRATION
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any reason the
Exchange Offer is not consummated within 210 calendar days of the Closing Date,
the Company and the Subsidiary Guarantors will, at their expense, (i) as
promptly as practicable, and in any event on or prior to 60 calendar days after
such filing obligation arises, file with the Commission a shelf registration
statement (the "Shelf Registration Statement") covering resales of the Private
Notes, (ii) use their best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act on or prior to 45 calendar days
after such filing occurs and (iii) keep effective the
24
<PAGE> 29
Shelf Registration Statement until two years after the Closing Date (or such
shorter period that will terminate when all the Private Notes covered thereby
have been sold pursuant thereto or in certain other circumstances). The Company
will, in the event of the filing of a Shelf Registration Statement, provide to
each holder of the Private Notes covered by the Shelf Registration Statement
copies of the prospectus that is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Private Notes. A holder of Private Notes that sells such Private
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to the purchaser, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such holder (including certain indemnification obligations). In addition,
each holder of the Private Notes will be required to deliver certain information
to be used in connection with the Shelf Registration Statement in order to have
its Private Notes included in the Shelf Registration Statement.
ADDITIONAL INTEREST
If (i) the Registration Statement is not filed with the Commission on or
prior to the 60th calendar day following the Closing Date; (ii) the Registration
Statement is not declared effective on or prior to the 180th calendar day
following the Closing Date; (iii) the Exchange Offer is not consummated or a
Shelf Registration Statement is not declared effective on or prior to the 210th
calendar day after the Closing Date; (iv) either (A) the Registration Statement
ceases to be effective at any time prior to the time that the Exchange Offer is
consummated or (B) if applicable, subject to certain exceptions, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary of
the Closing Date, (each such event referred to in clause (i) through (iv) above,
a "Registration Default"), then the per annum interest rate on the Notes will
increase by 25 basis points following the 60-day period referred to in clause
(i) above, following the 180-day period referred to in clause (ii) above,
following the 210-day period referred to in clause (iii) above or in the case of
clause (iv) above, immediately following such Registration Default; and the per
annum interest rate will increase by an additional 25 basis points at the
beginning of such subsequent 30-day period in the case of clause (i), (ii) or
(iii) above, or 90-day period in the case of clause (iv) above; provided,
however, that in no event will the per annum interest rate borne by the Notes be
increased by more than 150 basis points. Upon the filing of the Registration
Statement, the consummation of the Exchange Offer or the effectiveness of the
Shelf Registration Statement, as the case may be, the interest borne by the
Notes will be reduced to the original interest rate; provided, however, that, if
after any such reduction in interest rate, a different Registration Default
occurs, the interest rate may again be increased pursuant to the foregoing
provisions.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 days after the commencement thereof provided that it has
accepted all Private Notes theretofore validly tendered in accordance with the
terms of the Exchange Offer.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) use its best
efforts to keep the Registration Statement effective and to amend and supplement
the prospectus in order to permit the prospectus to be lawfully delivered by all
persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as such persons must comply with such requirement in
order to resell the Exchange Notes and (iv) to provide copies of the latest
version of the Prospectus to broker-dealers upon their request for a period of
not less than 180 days after the Expiration Date.
25
<PAGE> 30
EXCHANGE AGENT
Chase Bank of Texas, National Association, the Trustee under the Indenture,
has been appointed as Exchange Agent for the Exchange Offer. In such capacity,
the Exchange Agent has no fiduciary duties and will be acting solely on the
basis of directions of the Company. Requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail or by Facsimile:
Overnight Delivery (214) 672-5746
Chase Bank of Texas, National Association Confirm by Telephone
1201 Main Street (214) 672-5678
18th Floor
Dallas, TX 75202
ATTN: Frank Ivins
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Private Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Private Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the
Private Notes tendered, or if tendered Private Notes are registered in the name
of any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed by the Company directly to such tendering
holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting
26
<PAGE> 31
purposes will be recognized by the Company as a result of the consummation of
the Exchange Offer. The expenses of the Exchange Offer will be amortized by the
Company over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
Holders of the Private Notes who do not tender their Private Notes in the
Exchange Offer will continue to hold such Private Notes and will be entitled to
all the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. All
untendered Private Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. Accordingly, the Private Notes may be
offered, resold, pledged or otherwise transferred only (i) to a person whom the
seller reasonably believes is a QIB in a transaction meeting the requirements of
Rule 144A; (ii) in a transaction meeting the requirements of Rule 144 under the
Securities Act; (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 promulgated under the
Securities Act; (vi) in accordance with any other available exemption from the
registration requirements under the Securities Act; (v) to the Company; or (vi)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the liquidity of the trading market
for untendered Private Notes could be adversely affected.
The Company may in the future seek to acquire untendered Private Notes in
the open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Private Notes in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Company has no present plan to acquire any
Private Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any Private Notes that are not
tendered in the Exchange Offer.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Private
Notes in like principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Private Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) the holders of the Exchange Notes will not be entitled to
registration or other rights under the Registration Rights Agreement, including
the payment of additional interest upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. The Private Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in a change in the indebtedness of the Company.
27
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1998 and as adjusted to reflect the issuance of the Notes offered hereby and
the use of the net proceeds from the Private Offering to repay certain
indebtedness.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
-------- ------------ -----------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt and capital
lease obligations........................... 6,861 6,861 6,861
-------- -------- --------
Total short-term debt.................. 6,861 6,861 6,861
-------- -------- --------
Long-term debt and capital lease obligations, net
of current portion:
Short-Term Loan................................ $ 2,500 $ 7,500 $ --
Revolving Credit Facility...................... 20,000 20,000 --
Equipment loan................................. 4,770 4,770 4,700
Capital lease of vessel........................ 25,421 25,421 25,421
10 3/4% Senior Notes due 2008.................. -- -- 100,000
-------- -------- --------
Total long-term debt and capital lease
obligations, net of current
portion.............................. $ 52,691 $ 57,691 $130,191
-------- -------- --------
Total stockholders' equity............. 87,820 87,820 87,820
-------- -------- --------
Total capitalization................... $140,511 $145,511 $218,011
======== ======== ========
</TABLE>
- ---------------
(1) Includes borrowings through the date of consummation of the Private
Offering.
28
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited and unaudited historical consolidated financial statements included
herein.
GENERAL
The Company's revenues are generated from the sale of onshore and offshore
seismic data acquisition services and, commencing in March 1998, the sale of
seismic shot-hole drilling and front end 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.
With respect to its onshore operations, the Company's prices, and therefore
its revenues, vary depending 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 increased the channel
capabilities of its two existing Opseis crews during 1996 and added a third
Opseis crew in January 1997. At the end of the third quarter of 1997, the
Company upgraded the channel capacity of each of its three crews to 2,350
channels from 1,850 channels. Thus, the Company has increased the number of
crews operated and the acquisition capacities of its crews for the periods
presented in the financial statements, which has contributed substantially to
the increased revenues from period to period. In addition, the Company recently
added a fourth onshore crew and upgraded all of its crews to 2,450 channels,
which should further increase revenues in future periods.
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 or less complex projects results in variations from period to period
for revenues attributable to each crew. The projects performed by the Company's
three onshore crews operating in 1997 were weighted more heavily towards complex
projects than in 1996, further contributing to the increases in revenues in 1997
as compared to 1996.
Similar to the Company's onshore operations, prices and revenues with
respect to the offshore operations performed by ERI vary depending on demand for
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. The Company operated four vessels in 1997 and during
the third and fourth quarters of 1996, with only three vessels being operated
during the first and second quarters of 1996. The Company also increased the
streamer capacity of its vessels in mid-1996, so that the vessels operated in
1997 had greater data acquisition capabilities than in the first half of 1996.
Thus, the Company has increased the number of vessels operated and the
acquisition capacities of its vessels for the periods presented in the financial
statements, which has contributed substantially to the increased revenues from
period to period.
The Company anticipates that an increasing percentage of its future
offshore data acquisition projects will be multi-client surveys. Conducting
multi-client surveys normally has little effect on operating margins in the
short term because the Company will capitalize most of the costs relating to the
acquisition of the multi-client data that are not offset by pre-funding.
However, since revenues from multi-client projects only include pre-funding
amounts during the acquisition of the data, and these pre-funding amounts are
normally less than revenues for proprietary data acquisition projects, total
revenues and net income tend to be less during multi-client acquisition projects
than during proprietary acquisition projects. If the Company is able to make
sales of the multi-client data after full amortization of the acquisition cost
of the data (up to four years), the additional sales will result in revenues
with little or no cost, increasing net income. Conversely, if the sales of the
multi-client data are less than originally projected by management, the asset
value of the data will be adjusted to equal the estimated net realizable value
of the data (total estimated future sales less selling expenses), resulting in
decreased net income. See Note B to the audited historical consolidated
financial statements included herein for a description of the Company's
multi-client data library accounting policies.
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<PAGE> 34
Because the Company derives part 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, and the Company does not
currently engage in any currency hedging activities. 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. The Company
generally intends to match foreign currency revenues and expenses in order to
balance its net position of receivables and payables denominated in foreign
currencies and 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.
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. This concentration of credit risk may be affected by changes in
the economic or other conditions of the Company's key clients and may
accordingly impact the Company's overall credit risk. As of June 30, 1998, the
Company had one receivable from a customer of approximately $2.4 million that
was over one year old. In light of the age of this receivable, the Company has
increased its reserve for doubtful accounts to $450,000 as of June 30, 1998.
Historical credit losses incurred on receivables by the Company have been
immaterial.
PRO FORMA 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 the
Company, and the Company's offshore operations, which were conducted by ERI
prior to the consummation of the IPO and the ERI Acquisition on August 11, 1997.
These discussions are presented for the periods ended on and prior to December
31, 1997 based on the unaudited pro forma revenues and expenses of the separate
companies including periods prior to the ERI Acquisition. The revenues of the
Company include intercompany profits from work performed for Seitel and its
subsidiaries prior to the IPO.
ONSHORE OPERATIONS
Historical Six Months Ended June 30, 1998 Compared to Pro Forma Six Months
Ended June 30, 1997
Revenue increased 44% from $27.9 million in the first six months of 1997 to
$40.3 million in the first six months of 1998, primarily due to the Company's
third onshore crew, acquired during the first quarter of 1997, operating for the
entire period in 1998, the Company's fourth onshore crew, acquired at the end of
the first quarter of 1998, operating for the entire second quarter of 1998, as
well as higher revenues derived from the increased channel capacity of the
Company's crews from 1,850 channels per crew in the 1997 period to 2,450
channels per crew in the 1998 period and revenue from the front end services
business acquired late in the first quarter of 1998.
Operating costs (excluding depreciation) increased 39% from $20.8 million
in the first six months of 1997 to $28.9 million in the first six months of
1998, primarily due to the operations of the third onshore crew for the entire
1998 period and the operations of the fourth onshore crew and the front end
services business, both of which were acquired at the end of the first quarter
of 1998. Operating margin percentage improved to 28.3% for the 1998 period
compared to an operating margin of 25.4% for the 1997 period.
Depreciation and amortization increased 57% from $2.8 million in the first
six months of 1997 to $4.4 million in the first six months of 1998, resulting
from operating three crews for the entire period in 1998,
30
<PAGE> 35
depreciation and amortization from the Company's fourth onshore crew and the
front end services business, both of which were acquired at the end of the first
quarter of 1998, and the increased depreciation associated with the upgrade to
2,450 channels in the 1998 period versus three crews at 1,850 channels in the
1997 period. Selling, general and administrative expenses increased 71% from
$2.1 million in the first six months of 1997 to $3.6 million in the first six
months of 1998, primarily due to the addition of administrative staff to support
the expanded operations and additional corporate staff and corporate office
expenses.
Pro Forma Year Ended December 31, 1997 Compared to 1996
Revenue increased 28% from $47.3 million in 1996 to $60.7 million in 1997,
primarily due to the addition of a third Opseis crew in January 1997.
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.
Operating costs (excluding depreciation) increased 25% from $34.9 million
in 1996 to $43.6 million in 1997, primarily due to the addition of the third
crew in the 1997 period. Operating margin (revenues less operating costs as a
percentage of revenues) increased from 26.2% in 1996 to 28.2% in 1997 as a
result of these changes in revenues and operating costs.
Depreciation and amortization increased 76% from $3.4 million in 1996 to
$6.0 million in 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 a subsidiary of ERI.
Selling, general and administrative expenses increased 58% from $3.8
million in 1996 to $6.0 million in 1997, primarily due to the addition of
administrative staff to support expanded operations and additional corporate
staff and related expenses incurred subsequent to the IPO.
Net interest expense decreased from $500,000 in the 1996 period to $0 in
the 1997 period due to the retirement of all debt and capital leases and
interest income with proceeds from the IPO.
OFFSHORE OPERATIONS
Historical Six Months Ended June 30, 1998 Compared to Pro Forma Six Months
Ended June 30, 1997
Revenue decreased 19% from $22.2 million in the 1997 period to $18.0
million in the 1998 period, primarily due to the decrease in vessel availability
during the first quarter of 1998. The Company's vessel the Labrador Horizon was
in drydock for the entire first quarter of 1998 completing a $22 million
upgrade, the vessel Discoverer underwent a bi-annual maintenance inspection, and
the vessel Abshire Tide was decommissioned and replaced by the Celtic Horizon,
which required shipyard work prior to commencing service. Additionally, the
Discoverer, the Abshire Tide, and later the Celtic Horizon, were working during
the 1998 period acquiring multi-client data, which instead of generating current
revenue, will generate revenue in the future as data is licensed to customers.
During the 1997 period, the Discoverer and the Abshire Tide acquired data on a
contract basis resulting in higher revenues during the period.
Operating expenses (excluding depreciation) decreased 27% from $15.3
million in the 1997 period to $11.1 million in the 1998 period due to the
decrease in vessel utilization during the first quarter of 1998. Operating
margins improved to 38.3% for the 1998 period as compared to 31.1% for the 1997
period.
Depreciation and amortization decreased 6% from $3.5 million in the 1997
period to $3.3 million in the 1998 period, resulting from the decrease in vessel
utilization during the first quarter of 1998 partially offset by additional
depreciation during the second quarter of 1998 from the upgrade to six streamers
on the Labrador Horizon and additional equipment purchased for the Celtic
Horizon.
Selling, general and administrative expenses increased from $1.3 million in
the 1997 period to $1.8 million in the 1998 period due to increases in personnel
required for the expansion of the Company's vessel fleet. Net interest expense
decreased from $297,000 in the 1997 period to $86,000 in the 1998 period due to
the retirement of certain debt and capital leases from the proceeds of the IPO
in 1997.
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<PAGE> 36
HISTORICAL RESULTS OF OPERATIONS
The following is a discussion of the historical results of operations of
the Company, including the results of ERI following the ERI Acquisition. The
revenues of the Company include intercompany profits from work performed for
Seitel prior to the IPO.
Historical Six Months Ended June 30, 1998 Compared to Historical Six Months
Ended June 30, 1997
Revenues increased 102% from $28.8 million in the first six months of 1997
to $58.2 million in the first six months of 1998 due to the addition of a third
onshore seismic crew in January 1997, the acquisition of ERI in August 1997, the
addition of a fourth onshore seismic crew at the end of the first quarter of
1998 and the acquisition of the front end services business at the end of the
first quarter of 1998.
Operating expenses increased 92% from $20.8 million in the 1997 period to
$40.0 million in the 1998 period also due to the addition of the third onshore
seismic crew in January 1997, the ERI Acquisition in August 1997, the addition
of a fourth onshore seismic crew at the end of the first quarter of 1998 and the
acquisition of the front end services business at the end of the first quarter
of 1998. Operating margins increased from 27.8% in the 1997 period to 31.3% in
the 1998 period.
Depreciation and amortization increased 175% from $2.8 million in the 1997
period to $7.7 million in the 1998 period due primarily to the addition of the
third onshore seismic crew in January 1997, depreciation and goodwill
amortization associated with the ERI Acquisition, depreciation associated with
the fourth onshore seismic crew, and depreciation and goodwill amortization
associated with the acquisition of the front end services business, both of
which occurred at the end of the first quarter of 1998.
Selling, general and administrative expenses increased 238% from $1.6
million in the 1997 period to $5.4 million in the 1998 period due to the
addition of staff to support the Company's expanded operations, expenses for
corporate staff and related expenses added subsequent to the IPO, and general
and administrative expenses of ERI incurred subsequent to the ERI Acquisition.
Net interest and other expense increased from $34,000 in the 1997 period to
$351,000 in the 1998 period due to interest expense from the Revolving Credit
Facility on borrowings used to fund the expansion of the Company's offshore
seismic vessel fleet through the purchase and upgrade of the vessels Austral
Horizon and Atlantic Horizon.
Historical Year Ended December 31, 1997 Compared to December 31, 1996
Revenues increased 64% from $48.1 million in 1996 to $79.1 million in 1997
due to the addition of a third onshore seismic crew in January 1997, and the ERI
Acquisition in August 1997.
Operating expenses increased 62% from $34.9 million in 1996 to $56.5
million in 1997 also due to the addition of the third onshore seismic crew in
January 1997 and the ERI Acquisition in August 1997. Operating margins improved
from 27.4% in 1996 to 28.6% in 1997.
Depreciation and amortization increased 153% from $3.4 million in 1996 to
$8.6 million in 1997 due primarily to the addition of the third onshore seismic
crew in January 1997, and depreciation and goodwill amortization associated with
the ERI Acquisition.
Selling, general and administrative expenses increased 137% from $2.7
million in 1996 to $6.4 million in 1997 due to the addition of staff to support
the Company's expanded operations, expenses related to corporate staff and
related expenses added subsequent to the IPO, and general and administrative
expenses of ERI incurred subsequent to the ERI Acquisition.
Interest and other expense decreased from $531,000 in 1996 to $205,000 in
1997 due to interest savings related to the retirement of the Company's debt and
capital leases and interest income earned on the net proceeds from the IPO.
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<PAGE> 37
Historical Year Ended December 31, 1996 Compared to December 31, 1995
Revenues increased 64% 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 (excluding depreciation and amortization) increased 66%
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 percentages changed only
slightly from 28.3% for 1995 to 27.4% for 1996.
Depreciation and amortization increased 36% 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 and
additional capital purchases 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 $408,000 in 1995 to $531,000 in 1996, reflecting
additional financing costs for equipment purchases made during 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the IPO, the Company was a wholly-owned subsidiary of Seitel. In
the past, Seitel guaranteed certain indebtedness of the Company and made loans
to the Company. All of such debt owed to Seitel was repaid with part of the net
proceeds of the IPO. The Company's borrowing costs may be greater than
historical borrowing costs as a result of having to obtain financing based on
its own creditworthiness. Therefore, the historical liquidity and capital
resources of the Company may not be indicative of the Company's future liquidity
and capital resources.
Prior to the IPO, revenues for services provided by the Company to Seitel
were based on prices charged to unaffiliated third parties for similar work.
These revenues included a profit component. Prior to the consummation of the
IPO, the Company declared and paid a dividend to Seitel to eliminate these
intercompany profits. The amount of such dividend was $6.7 million.
The Company had a working capital deficit of $9.0 million as of June 30,
1998. The indebtedness of the Company as of such date consisted of borrowings
under its Revolving Credit Facility, the Short-Term Loan, The Fleet Capital
Loan, and the British Linen Capital Lease, totaling approximately $59.6 million.
The Company has an agreement with Bank One, Texas, N.A. with respect to a
$20.0 million revolving credit facility (the "Revolving Credit Facility")
secured by the Company's accounts receivable. The amount the Company may borrow
under the revolving credit facility is limited to a borrowing base that is 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 non-graded U.S.
or foreign receivables and other eligible receivables approved by the bank.
Interest only is payable monthly or at the end of LIBOR interest periods, and
the credit facility is payable in full on June 1, 1999. Mandatory prepayments
are required if borrowings exceed the borrowing base. Interest accrues 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 1.625% if such
ratio is equal to or greater than 1 to 1. As of June 30, 1998, $20.0 million was
available for borrowing under the facility and $20.0 million of borrowings were
outstanding. On July 20, 1998, the $20 million of borrowings outstanding was
repaid with proceeds from the Offering.
In June 1998, the Company entered into a $29.0 million short-term loan (the
"Short-Term Loan") with Bank One, Texas, N.A. to fund part of the cost of the
upgrades to two of its seismic vessels, the Austral Horizon and the Atlantic
Horizon, pending completion of the Private Offering. The maximum amount borrowed
under this loan was $7.5 million, which was repaid in full on July 20, 1998 with
a portion of the
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<PAGE> 38
proceeds of the Private Offering. Interest accrued under this loan at the bank's
base rate or LIBOR plus 2% and was payable monthly or at the end of applicable
LIBOR interest periods.
The Company has expanded its existing data acquisition capabilities by
increasing the streamer towing capacity of its seismic vessel the Labrador
Horizon. The upgrades to this vessel were initiated late in the fourth quarter
of 1997 and were completed at the end of the first quarter of 1998. The capital
cost of these upgrades was approximately $22.0 million.
In April 1998, the Company entered into an agreement with British Linen
Bank for the financing of the Labrador Horizon upgrade and the refinancing of
the existing capital lease of this vessel. As part of this financing, British
Linen Bank purchased the vessel from the previous owner, funded approximately
$20.0 million of the upgrades to the vessel, and entered into a capital lease of
the vessel (the "British Linen Capital Lease") to the Company for a five-year
term commencing upon completion of the upgrades, for a total commitment of
approximately $31.3 million. The facility bears interest at a rate of LIBOR plus
1.375% and required the Company to post a security deposit of approximately $5
million with scheduled amounts to be refunded based upon a predetermined
formula. Additionally, the Company has the option to acquire the vessel at the
end of the term of the capital lease for a price of 0.1% of the total facility
commitment.
The Company is currently upgrading and equipping two additional offshore
seismic vessels at an aggregate capital cost of approximately $98.8 million. The
Company acquired the two vessels, the Austral Horizon and the Atlantic Horizon,
during the fourth quarter of 1997 for purchase prices of approximately $1.6
million and $3.6 million, respectively. These acquisitions were funded with cash
flows from operations. The Company expects to complete the upgrade and
outfitting of the vessels during the third and fourth quarters of 1998. The
costs to outfit and equip the two vessels will be approximately $34.3 million
for the Austral Horizon and approximately $59.3 million for the Atlantic
Horizon. As of August 1, 1998 the Company had expended $50.6 million (including
acquisition costs) and had $39.4 million of capital commitments outstanding
related to these projects. The Company funded these capital costs on an interim
basis with borrowings from the Revolving Credit Facility and the Short-Term
Loan. These borrowings were repaid on July 20, 1998 with proceeds from the
Private Offering and the remaining upgrade costs will be paid from the remaining
proceeds of the Private Offering.
In March 1998, the Company acquired the common stock of a privately-held
company providing seismic shot-hole drilling and front-end services, for a price
of approximately $6.3 million, consisting of approximately $4.3 million in cash
and 98,360 shares of the Company's common stock and deferred compensation
payable to the former owner of $500,000. The Company financed the cash portion
of the acquisition with a combination of cash flows from operations and
borrowings from the Company's Revolving Credit Facility.
In April 1998, the Company obtained a term loan (the "Fleet Capital Loan")
with Fleet Capital Corporation for the financing of an Opseis system for
approximately $5.9 million. The loan is for a period of five years and bears
interest at a fixed rate of 7.36%. Monthly payments of approximately $117,000
are payable under the loan with the Opseis system pledged as security for the
loan.
On July 20, 1998, the Company completed an offering of $100 million of
10 3/4% Senior Notes due 2008 in a private placement transaction which resulted
in net proceeds to the Company of approximately $96.4 million after deducting
offering-related expenses. The proceeds of the Private Offering were used to
repay $27.5 million of borrowings outstanding on the Revolving Credit Facility
and the Short-Term Loan, with the remaining proceeds to be used to complete the
upgrades for the vessels Austral Horizon and Atlantic Horizon and for general
corporate purposes.
The Company will be required to fund the portion of the acquisition costs
for multi-client data that is not covered by pre-acquisition licensing
commitments. These funding requirements will vary depending on the cost of the
data acquisition project, the amount of pre-acquisition licensing commitments,
and the amount of any costs funded by any third parties who participate in the
projects. The Company will evaluate each multi-client project in light of the
capital requirements of the project and the Company's other capital commitments
as compared to the Company's liquidity and capital resources.
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<PAGE> 39
The Company believes that its planned capital expenditures and operating
requirements through the end of 1998 will be funded from the Revolving Credit
Facility, additional equipment financing, the Company's cash flow from
operations and the net proceeds of the Private Offering. 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 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.
IMPACT OF INFLATION AND CHANGING PRICES
The general availability of seismic equipment and crews and the level of
exploration activity in the oil and gas industry directly affect the cost of
creating seismic data. The level of exploration activity is dependent on the
commodity price levels of oil and natural gas. The pricing of the Company's
products and services is primarily a function of these factors. For these
reasons, the Company does not believe inflationary trends have had any
significant impact on its financial operating results during the three years
ended December 31, 1997.
YEAR 2000
The Company is currently in the process of evaluating its computer hardware
and software systems to ensure such programs and systems will be able to process
transactions in the year 2000 ("Y2K"). The Company is also currently identifying
other equipment which contains embedded electronics that may render the
equipment inoperable in the year 2000 and is evaluating the plans of its
material suppliers and vendors to become Y2K compliant. The Company anticipates
it will have hardware and software critical to its operation Y2K compliant
before the end of 1999. The Company is currently evaluating the time table upon
which all other hardware, software, and equipment can be made Y2K compliant and
will target a date when the evaluation is complete.
Although it is not possible to accurately estimate the costs of this
information systems analysis, at this time the Company expects that such costs
will not be material to the Company's financial position or the results of
operations. There can be no assurance, however, that the Company, its suppliers
and vendors or their respective software vendors will complete all modifications
to all material information technology systems in a timely manner, or as to the
costs associated with the Company becoming Y2K compliant, or the costs of the
failure of any of the Company's vendors failing to become Y2K compliant.
The Company's risks due to failure of computer hardware and software not
being Y2K compliant include the risk that the Company's seismic recording
systems will not operate properly or as efficiently, thus causing an unexpected
decline in revenue. The Company also risks not being able to record and process
transactions properly in its accounting system. Such risks could lead to a
material business interruption and could have a material adverse impact on the
Company's results of operations, although the amount can not be estimated. The
Company will continue to consider the likelihood of a material business
interruption due to the Year 2000 Problem, and if necessary, implement an
appropriate contingency plan.
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<PAGE> 40
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Private Notes were issued,
pursuant to an Indenture dated July 20, 1998 among the Company, the Subsidiary
Guarantors referred to below and Chase Bank of Texas, National Association,
trustee (the "Trustee"), a copy of which is available from the Company upon
request. The Private Notes were issued on July 20, 1998 in a private transaction
that was not subject to the registration requirements of the Securities Act. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and prospective
Holders of Notes are referred to the Indenture and the Trust Indenture Act for a
statement of such terms. The following summary of certain provisions of the
Notes and the Indenture do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the Notes and the Indenture.
For definitions of certain capitalized terms used in the following summary, see
"-- Certain Definitions" below.
GENERAL
The Notes will mature on July 15, 2008, will be initially limited to
$100,000,000 aggregate principal amount and will be senior unsecured obligations
of the Company. Each Note will bear interest at 10 3/4% per annum from July 20,
1998 or from the most recent interest payment date to which interest has been
paid or duly provided for, payable semiannually on January 15 and July 15 in
each year, commencing January 15, 1999, until the principal thereof is paid or
duly provided for, to the person in whose name the Note (or any predecessor
Note) is registered at the close of business on the January 1 or July 1 next
preceding such interest payment date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located in The City of New
York); provided, however, that, at the option of the Company, interest may be
paid by check mailed to the address of the person entitled thereto as such
address appears in the security register. The Notes will be issued only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer or exchange or redemption of Notes, but the Company may require
payment in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
Subject to the covenants described below under "Certain Covenants" and
applicable laws, the Company may, from time to time, issue additional Notes (the
"Additional Notes") under the Indenture. The Notes offered hereby and any
Additional Notes subsequently issued would be treated as a single class for all
purposes under the Indenture.
As of the date hereof, all of the Company's Subsidiaries are Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
Any Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
SUBSIDIARY GUARANTEES
Payment of the principal of (and premium, if any, on) and interest on the
Notes, when and as the same become due and payable, is guaranteed, jointly and
severally, on a senior unsecured basis by the Subsidiary Guarantors referred to
below. The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee is limited so as not to constitute a fraudulent conveyance under
applicable law. See "Risk Factors -- Fraudulent Conveyance."
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The Indenture requires that all of the Company's current and future
Restricted Subsidiaries that are organized under the laws of any state of the
United States or the District of Columbia be Subsidiary Guarantors. The
Subsidiary Guarantors as of the date hereof are Eagle Geophysical Onshore, Inc,
Eagle Geophysical Offshore, Inc., Eagle Geophysical Royalty, Inc. (f/k/a Eagle
Geophysical Leasing, Inc.), Eagle Geophysical de Mexico, Inc., Eagle Front End
Services, Inc., Eagle Geophysical Management, Inc., Eagle Geophysical GOM, Inc.,
Eagle Front End Services, Ltd., Eagle Geophysical de Colombia, Inc., Austral
Horizon, Inc., Atlantic Horizon, Inc. Eagle Geophysical de Bolivia, Inc. and
Eagle Geophysical de Ecuador, Inc. Restricted Subsidiaries that are organized
under the laws of jurisdictions outside the United States will not be required
to be Subsidiary Guarantors.
The Indenture requires that the Austral Horizon and the Atlantic Horizon,
and any assets or properties acquired with the Net Cash Proceeds from the sale
of either such vessel pursuant to the "Limitation on Certain Asset Sales"
covenant, be owned by the Company or a Subsidiary Guarantor.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into any other person or convey, sell, assign, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any other person (other than the Company or another Subsidiary Guarantor)
unless: (a) subject to the provisions of the following paragraph, the person
formed by or surviving such consolidation or merger (if other than such
Subsidiary Guarantor) or to which such properties and assets are transferred
assumes all of the obligations of such Subsidiary Guarantor under the Indenture
and its Subsidiary Guarantee, pursuant to a supplemental indenture in form and
substance satisfactory to the Trustee and (b) immediately after giving effect to
such transaction, no Default or Event of Default has occurred and is continuing.
The Indenture provides that, in the event of (a) a sale, transfer or other
disposition of all of the Capital Stock of a Subsidiary Guarantor to a person
that is not an Affiliate of the Company, (b) a sale, transfer or other
disposition of all or substantially all of the assets of a Subsidiary Guarantor
to a person that is not an Affiliate of the Company or (c) the designation of
such Subsidiary Guarantor as an Unrestricted Subsidiary, in any such case in
compliance with the terms of the Indenture, then such Subsidiary Guarantor will
be deemed automatically and unconditionally released and discharged from all of
its obligations under its Subsidiary Guarantee without any further action on the
part of the Trustee or any holder of the Notes; provided that the Net Proceeds
of any such sale, transfer or other disposition are applied in accordance with
the "Limitation on Certain Asset Sales" covenant.
RANKING
The Notes and the Subsidiary Guarantees are senior unsecured obligations of
the respective obligors and rank pari passu in right of payment with all other
existing and future senior obligations of the Company and the Subsidiary
Guarantors, respectively. The Notes and the Subsidiary Guarantees are
effectively subordinated to all of the Company's secured debt, including amounts
outstanding under the Revolving Credit Facility, to the extent of the value of
the assets securing such loans. The Notes are also structurally subordinated to
all liabilities, including trade payables, of the Company's Subsidiaries that
are not Subsidiary Guarantors. As of June 30, 1998, on a pro forma basis after
giving effect to the Private Offering and the use of proceeds therefrom, the
Company would have had approximately $37.1 million of consolidated debt and
capital lease obligations outstanding other than the Notes (excluding accounts
payable), of which $5.8 million would have been senior secured debt of a
Subsidiary Guarantor and $31.3 million would have been a capital lease
obligation of one of the Company's Subsidiaries that is not a Subsidiary
Guarantor. In addition, the Company's Subsidiaries that are not Subsidiary
Guarantors had approximately $21.2 million of trade payables as of June 30,
1998. Subject to certain limitations, the Company and its Restricted
Subsidiaries may incur additional Debt in the future.
REDEMPTION
The Notes are redeemable, at the election of the Company, as a whole or
from time to time in part, at any time on or after July 15, 2003, on not less
than 30 nor more than 60 days' prior notice at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued
interest, if any, to the
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redemption date, if redeemed during the 12-month period beginning on July 15 of
the years indicated below (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003............................................. 105.375%
2004............................................. 103.583
2005............................................. 101.792
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
In addition, at any time or from time to time prior to July 15, 2001, the
Company may at its option redeem Notes with the net proceeds of one or more
Equity Offerings at a redemption price equal to 110.75% of the principal amount
thereof, together with accrued interest, if any, to the date of redemption
(subject to the rights of holders of record on the relevant record date to
receive interest due on an interest payment date); provided that, immediately
after giving effect to any such redemption, at least 65% of the aggregate
principal amount of the Notes issued under the Indenture remains outstanding.
Any such redemption must be made within 90 days of the related Equity Offering.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by lot or such other method as the Trustee deems fair and
appropriate.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a person (a) existing at the time such person
is merged with or into the Company or becomes a Subsidiary or (b) assumed in
connection with the acquisition of assets from such person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger or consolidation)
(collectively, a "transfer") by the Company or a Restricted Subsidiary, directly
or indirectly, in one or a series of related transactions, to any person other
than the Company or a Restricted Subsidiary of (a) any Capital Stock of any
Restricted Subsidiary, (b) all or substantially all of the properties and assets
of the Company and its Restricted Subsidiaries representing a division or line
of business or (c) any other properties or assets of the Company or any
Restricted Subsidiary, other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" does not include any transfer
of properties or assets (i) that is governed by the provisions of the Indenture
described under "Consolidation, Merger and Sale of Assets," (ii) between or
among the Company and its Restricted Subsidiaries pursuant to transactions that
do not violate any other provision of the Indenture, (iii) to an Unrestricted
Subsidiary, if permitted under the "Limitation on Restricted Payments" covenant,
(iv) representing obsolete or permanently retired equipment and facilities, (v)
the gross proceeds of which (exclusive of indemnities) do not exceed $500,000
for any particular item or $1,000,000 in the aggregate for any fiscal year, or
(vi) that is a lease of a towed-streamer seismic data acquisition vessel owned
by the Company or any Restricted Subsidiary, provided that (A) such lease shall
not provide for the acquisition of such vessel by the lessee during or at the
end of the term thereof for an amount that is less than the fair market value
thereof at the time the right to acquire such property is granted, (B) the term
of such lease shall not exceed twelve months, (C) such lease shall provide that
upon an Event of Default under the Indenture such lease would automatically
terminate, (D) not more than the greater of (I) one such vessel or (II)
one-third of
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all of such vessels may be subject to such a lease at any one time and (E) the
Company or a Restricted Subsidiary shall retain legal title to such vessel at
all times during the term of such lease.
"Bank" means Bank One, Texas, N.A., and other institutions that from time
to time are lenders under the Revolving Credit Facility.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such person's equity interest (however designated).
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Change of Control" means the occurrence of any of the following events:
(a) Any person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person will
be deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than a
majority of the voting power of all classes of Voting Stock of the Company.
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office.
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions described under "Consolidation, Merger and Sales of Assets."
"Closing Date" means the date on which the Private Notes were originally
issued under the Indenture.
"Consolidated Adjusted Net Income" means, for any period, the net income
(or net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash during such period, (d) the net income (or loss) of any
person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination and
(e) the net income (but not the net loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is at the date of determination restricted, directly
or indirectly, except to the extent that such net income could be paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated Adjusted
Net Income will be reduced (to the extent not otherwise reduced in accordance
with GAAP) by an amount equal to (A) the amount of the Consolidated Adjusted Net
Income otherwise attributable to such Restricted Subsidiary multiplied by (B)
the quotient of (1) the number of shares of outstanding common stock of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding common stock of such Restricted Subsidiary on the last day of such
period.
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"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period (a)
Consolidated Fixed Charges for such period, plus (b) the provision for federal,
state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of the Company and its Restricted Subsidiaries for such
period, plus (d) any other non-cash charges for such period, and minus non-cash
credits for such period, other than non-cash charges or credits resulting from
changes in prepaid assets or accrued liabilities in the ordinary course of
business; provided that fixed charges, income tax expense, depreciation and
amortization expense and non-cash charges and credits of a Restricted Subsidiary
will be included in Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Adjusted Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) Consolidated EBITDA for such period to (b) Consolidated Fixed Charges for
such period.
"Consolidated Fixed Charges" means, for any period, without duplication,
the sum of (a) the amount that, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs and (v) the interest component of Capitalized Lease
Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified
Stock by the Company and any Restricted Subsidiary (to any person other than the
Company and its Restricted Subsidiaries), plus (c) all interest on any Debt of
any person guaranteed by the Company or any of its Restricted Subsidiaries;
provided, however, that Consolidated Fixed Charges will not include (i) any gain
or loss from extinguishment of debt, including the write-off of debt issuance
costs and (ii) the fixed charges of a Restricted Subsidiary to the extent (and
in the same proportion) that the net income of such Subsidiary was excluded in
calculating Consolidated Adjusted Net Income pursuant to clause (e) of the
definition thereof for such period.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the Company
and its Restricted Subsidiaries, less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for Debt, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries and less, to the extent included in calculating such stockholders'
equity of the Company and its Restricted Subsidiaries, the stockholders' equity
attributable to Unrestricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency adjustments
under Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Debt" means (without duplication), with respect to any person, whether
recourse is to all or a portion of the assets of such person and whether or not
contingent, (a) every obligation of such person for money borrowed, (b) every
obligation of such person evidenced by bonds, debentures, notes or other similar
instruments, (c) every reimbursement obligation of such person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such person, (d) every obligation of such person issued or assumed as
the deferred purchase price of property or services, (e) the amount of every
Capitalized Lease Obligation of such person, (f) all Disqualified Stock of such
person valued at its maximum fixed repurchase price, plus accrued and unpaid
dividends, (g) all obligations of such person under or in respect of Hedging
Obligations and (h) every obligation of the type referred to in clauses (a)
through (g) of another person and all dividends of another person the payment of
which, in either case, such person has guaranteed. For purposes of this
definition, the "maximum fixed repurchase price" of any Disqualified Stock that
does not have a fixed repurchase price will be calculated in accordance with the
terms of such Disqualified Stock as if such Disqualified Stock were repurchased
on any date on which Debt is required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value will be determined in
good faith by the board of directors of the issuer of such
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Disqualified Stock. Notwithstanding the foregoing, trade accounts payable and
accrued liabilities arising in the ordinary course of business and any liability
for federal, state or local taxes or other taxes owed by such person will not be
considered Debt for purposes of this definition.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Indenture, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions (other than as the holder of Voting
Stock of the Company).
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to one year after the final Stated Maturity of the Notes, (ii) is redeemable at
the option of the holder thereof at any time prior to one year after such final
Stated Maturity or (iii) at the option of the holder thereof, is convertible
into or exchangeable for debt securities at any time prior to one year after
such final Stated Maturity; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions therein giving holders thereof
the right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior to
the Stated Maturity of the Notes will not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
contained in the "Limitation on Certain Asset Sales" and "Purchase of Notes upon
a Change of Control" covenants described below and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Limitation on Certain Asset
Sales" and "Purchase of Notes upon a Change of Control" covenants described
below.
"Equity Offering" means an offer and sale by the Company of its common
stock (which is Qualified Stock) for cash to a person or persons other than a
Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limitation, the payment of
amounts drawn down under letters of credit.
"Hedging Obligations" means the obligations of any person under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (ii) other agreements or arrangements designed to protect
such person against fluctuations in interest rates or the value of foreign
currencies.
"Investment" in any person means, (i) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to any person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such person, or the making
of any investment in such person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary, including, without limitation, by reason of any
transaction permitted by clause (iv) of
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the "Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries" covenant described below. Investments exclude extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A person will be deemed to own subject to a Lien any property that
such person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Multi-Client Survey" means a seismic survey whereby the Company or a
Restricted Subsidiary acquires certain seismic data in which it directly or
indirectly retains ownership rights, revenue interests or similar interests in
the future economic benefits thereof and which data is to be licensed to
customers on a non-transferable, non-exclusive basis.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Debt where payment of such Debt is
secured by the assets that are the subject of such Asset Sale, (d) amounts
required to be paid to any person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets that are subject to the
Asset Sale and (e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the seller after such Asset Sale, including pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000; and
(iii) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having the highest rating obtainable from Moody's Investors Service Inc. or
Standard & Poor's Ratings Services, a division of McGraw Hill, Inc.
(b) Investments by the Company or any Restricted Subsidiary in another
person, if as a result of such Investment such other person (i) becomes a
Restricted Subsidiary or (ii) is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary.
(c) Investments by the Company or any of the Restricted Subsidiaries
in any one or the other of them.
(d) Investments in existence on the Closing Date.
(e) Promissory notes received as a result of Asset Sales permitted
under the "Limitation on Certain Asset Sales" covenant.
(f) Direct or indirect loans to employees, or to a trustee for the
benefit of such employees, of the Company or any Restricted Subsidiary in
an aggregate amount outstanding at any time not exceeding
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$750,000, plus the amount of direct or indirect loans to employees for
relocation expenses, plus advances to employees in the ordinary course of
business for travel and other business expenses.
(g) Investments in assets owned or used in the ordinary course of
business.
(h) Other Investments in a business substantially similar, or related,
to the business conducted by the Company and its Restricted Subsidiaries
provided that such Investments do not exceed $5,000,000 in the aggregate at
any time outstanding.
(i) Investments by the Company or any Restricted Subsidiary in any
person in connection with Multi-Client Surveys in an aggregate amount
outstanding at any time not exceeding $5,000,000.
(j) Investments in any person in the form of a capital contribution of
the Company's Qualified Stock.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether now outstanding or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Revolving Credit Facility" means the revolving credit facility dated
October 21, 1997, as amended June 10, 1998, between the Company and the Bank, as
such agreement may be amended, restated, supplemented, refinanced or otherwise
modified from time to time.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Restricted Subsidiaries or (b) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the Company
and its Restricted Subsidiaries, in the case of either (a) or (b), as set forth
on the most recently available consolidated financial statements of the Company
for such fiscal year or (c) was organized or acquired after the beginning of
such fiscal year and would have been a Significant Subsidiary if it had been
owned during the entire fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable.
"Subordinated Debt" means Debt of the Company or a Subsidiary Guarantor
that is subordinated in right of payment to the Notes or the Subsidiary
Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantee" means a guarantee of the Notes by a Restricted
Subsidiary in accordance with the provisions of the Indenture.
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"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary in accordance with the
"Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted
Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Debt or Disqualified Stock, respectively, multiplied by (ii) the
amount of each such principal or liquidation value payment by (b) the sum of all
such principal or liquidation value payments.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned, directly or
indirectly, by the Company.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Debt. The Company will not, and will not permit any
Restricted Subsidiary to, create, issue, assume, guarantee or in any manner
become directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Debt (including Acquired Debt and the issuance of
Disqualified Stock), except that the Company or a Subsidiary Guarantor may incur
Debt or issue Disqualified Stock if, at the time of such event, the Consolidated
Fixed Charge Coverage Ratio for the immediately preceding four full fiscal
quarters for which internal financial statements are available, taken as one
accounting period, would have been greater than 2.5 to 1.0.
In making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Debt and (if applicable) the application of the net
proceeds therefrom, including to refinance other Debt, as if such Debt was
incurred and the application of such proceeds occurred at the beginning of such
four-quarter period, (ii) the incurrence, repayment or retirement of any other
Debt by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Debt was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period. In making a computation under the
foregoing clause (i) or (ii), (A) interest on Debt bearing a floating interest
rate will be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period, (B) if such Debt bears, at the
option of the Company, a fixed or floating rate of interest, interest thereon
will be computed by applying, at the option of the Company, either the fixed or
floating rate and (C) the amount of Debt under a revolving credit facility will
be computed based upon the average daily balance of such Debt during such
four-quarter period.
On a pro-forma basis after giving effect to this offering and the use of
the net proceeds therefrom, the Company's Consolidated Fixed Charge Coverage
Ratio for the four quarters ended June 30, 1998 would have been 2.15:1.
Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit its Restricted Subsidiaries to, incur any of
the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Restricted Subsidiary under the
Revolving Credit Facility or one or more other credit facilities in an
aggregate principal amount at any one time outstanding not to exceed
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$25,000,000, less any amounts applied to the permanent reduction of such
credit facilities pursuant to the "Limitation on Certain Asset Sales"
covenant, together with guarantees (if any) of such Debt by a Restricted
Subsidiary, plus an amount equal to (A) the excess of 85% of the aggregate
book value of the accounts receivable (net of bad debt reserves) and 50% of
the aggregate net book value of the inventory of the Company and its
Restricted Subsidiaries on a consolidated basis in accordance with GAAP as
of the last day of the immediately preceding four full fiscal quarters for
which internal financial statements are available over (B) $25,000,000.
(ii) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date, other than Debt described under clause (i) above.
(iii) Debt of the Company or any Restricted Subsidiary incurred in
respect of letters of credit, bankers' acceptances or similar facilities
entered into in the ordinary course of business.
(iv) Debt owed by the Company to any Wholly-Owned Restricted
Subsidiary or owed by a Subsidiary Guarantor to the Company or any
Wholly-Owned Restricted Subsidiary (provided that such Debt is held by the
Company or such Restricted Subsidiary and constitutes Subordinated Debt) or
owed by a Restricted Subsidiary that is not a Subsidiary Guarantor to the
Company or another Restricted Subsidiary; provided the incurrence of such
Debt did not violate the "Limitations on Restricted Payments" covenant.
(v) Acquired Debt of a person, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Restricted Subsidiary
or the acquisition of assets from such person, as the case may be, provided
that the Company on a pro forma basis could incur $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant.
(vi) Debt represented by the Notes (other than the Additional Notes)
and the Subsidiary Guarantees.
(vii) Debt of the Company or any Restricted Subsidiary in respect of
Hedging Obligations incurred in the ordinary course of business.
(viii) (A) Capitalized Lease Obligations of the Company or a
Restricted Subsidiary, and (B) Debt of the Company or a Restricted
Subsidiary under purchase money mortgages or secured by purchase money
security interests so long as (x) such Debt is not secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired and (y) such Debt is created within 60 days
of the acquisition of the related property; provided that the aggregate
amount of Debt under this clause (viii) does not exceed $10,000,000 at any
one time outstanding.
(ix) Guarantees by any Restricted Subsidiary made in accordance with
the provisions of the "Limitation on Guarantees of Debt by Restricted
Subsidiaries" covenant.
(x) Debt of the Company or a Restricted Subsidiary, not permitted by
any other clause of this definition, in an aggregate principal amount not
to exceed $10,000,000 at any one time outstanding.
(xi) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Debt, other than Debt incurred pursuant to clause (i), (vii),
(viii) or (x) of this definition, including any successive refinancings
thereof, so long as (A) any such new Debt is in a principal amount that
does not exceed the principal amount so refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of the Debt refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus
the amount of the expenses of the Company incurred in connection with such
refinancing, (B) in the case of any refinancing of Subordinated Debt, such
new Debt is made subordinate to the Notes at least to the same extent as
the Debt being refinanced and (C) such refinancing Debt does not have a
Weighted Average Life less than the Weighted Average Life of the Debt being
refinanced and does not have a final scheduled maturity earlier than the
final scheduled maturity, or permit redemption at the option of the holder
earlier than the earliest date of redemption at the option of the holder,
of the Debt being refinanced.
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For the purpose of determining compliance with this covenant, if an item of
Debt meets the criteria of more than one of the types of Permitted Debt
described in the above clauses, the Company or the Restricted Subsidiary in
question shall have the right to determine the category to which such Debt
applies and shall not be required to include the amount and type of such Debt in
more than one of such categories and may elect to apportion such item of Debt
between or among any two or more of such categories otherwise applicable.
Limitation on Restricted Payments. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(a) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company or any
Restricted Subsidiary, other than (i) dividends or distributions payable
solely in Qualified Equity Interests, (ii) dividends or distributions by a
Restricted Subsidiary payable to the Company or another Restricted
Subsidiary or (iii) pro rata dividends or distributions on common stock of
a Restricted Subsidiary held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiary's net income from the first day of
the Company's fiscal quarter during which the Closing Date occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock (or any options,
warrants or other rights to acquire shares of Capital Stock) of (i) the
Company or any Unrestricted Subsidiary or (ii) any Restricted Subsidiary
held by any Affiliate of the Company (other than, in either case, any such
Capital Stock owned by the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt; and
(d) make any Investment (other than a Permitted Investment) in any
person
(such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant and
(iii) the aggregate amount of all Restricted Payments declared or
made after the Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company during the period (taken as one accounting period) from the
first day of the Company's fiscal quarter during which the Closing
Date occurs to the last day of the Company's most recently ended
fiscal quarter for which internal financial statements are available
at the time of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Adjusted Net Income is a loss,
minus 100% of such amount), plus
(B) the aggregate net cash proceeds received by the Company
after the Closing Date from the issuance or sale (other than to a
Subsidiary) of Qualified Equity Interests of the Company (excluding
from this computation proceeds of an Equity Offering received by the
Company that are used by it to redeem Notes as discussed above); plus
(C) the aggregate net cash proceeds received by the Company
after the Closing Date from the issuance or sale (other than to a
Subsidiary) of debt securities or Disqualified Stock that have been
converted into or exchanged for Qualified Stock of the Company,
together with the aggregate net cash proceeds received by the Company
at the time of such conversion or exchange, plus
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(D) $5,000,000.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take any of the following actions, so long as (with respect to clause (e)
and (f) below) no Default or Event of Default has occurred and is continuing or
would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof if at the declaration date such payment would not have
been prohibited by the foregoing provision.
(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company.
(c) The purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Debt in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company;
(d) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance or sale (other
than to a Subsidiary) of, Subordinated Debt, so long as the Company or a
Restricted Subsidiary would be permitted to refinance such original
Subordinated Debt with such new Subordinated Debt pursuant to clause (xi)
of the definition of Permitted Debt.
(e) The repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a "change of control" in accordance with provisions similar to the
"Purchase of Notes upon a Change of Control" covenant; provided that, prior
to or simultaneously with such repurchase, the Company has made the Change
of Control Offer as provided in such covenant with respect to the Notes and
has repurchased all Notes validly tendered for payment in connection with
such Change of Control Offer.
(f) The purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
held by officers or employees or former officers or employees (or their
estates or beneficiaries under their estates) or by any employee benefit
plan, upon death, disability, retirement or termination of employment or
pursuant to the terms of any employee benefit plan or any other agreement
under which such shares of stock or related rights were issued; provided
that the aggregate cash consideration paid for such purchase, redemption,
acquisition, cancellation or other retirement of such shares of Capital
Stock after the date of the initial issuance of the Notes does not exceed
$500,000 in any fiscal year.
(g) Repurchases of Capital Stock of the Company from employees of the
Company or any of its Restricted Subsidiaries deemed to occur upon exercise
of stock options or stock appreciation rights if such Capital Stock
represents a portion of the exercise price of such options or rights;
provided that any payments made pursuant to this clause (g) may not exceed
in the aggregate $100,000 in any fiscal year.
The payments described in clauses (b), (c), (e), (f) and (g) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph but will reduce the amount that would
otherwise be available for Restricted Payments under the foregoing clause
(iii) of the first paragraph of this covenant and the payments described in
clauses (a) and (d) of this paragraph will be Restricted Payments that will
be permitted to be taken in accordance with this paragraph and will not
reduce the amount that would otherwise be available for Restricted Payments
under the foregoing clause (iii) of the first paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in amount equal to the fair market value of
the net assets of such Restricted Subsidiary at the time of such designation as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive, (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the
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time of such transfer, as determined by the Board of Directors of the Company,
whose good faith determination will be conclusive and (iii) subject to the
foregoing, the amount of any Restricted Payment, if other than cash, will be
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the net asset value of such Subsidiary at the
time it becomes a Restricted Subsidiary and (y) the initial amount of such
Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in the
Company's Consolidated Adjusted Net Income; provided that the total amount by
which the aggregate amount of all Restricted Payments may be reduced may not
exceed the lesser of (x) the cash proceeds received by the Company and its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income of the Company for purposes
of the foregoing clause (iii)(A), (i) the Company may use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (ii) the Company will
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment that, at the time of the making of such Restricted Payment, would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment will be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period.
Purchase of Notes upon a Change of Control. If a Change of Control occurs
at any time, then each holder of Notes will have the right to require that the
Company purchase such holder's Notes, in whole or in part in integral multiples
of $1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to the offer described below (the "Change of Control Offer") and the
other procedures set forth in the Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes by first-class mail, postage prepaid, at its address appearing in the
security register, stating, among other things, (i) the purchase price and the
purchase date, which will be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed or such later date as is
necessary to comply with requirements under the Exchange Act; (ii) that any Note
not tendered will continue to accrue interest; (iii) that, unless the Company
defaults in the payment of the purchase price, any Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control purchase date; and (iv) certain other procedures that a holder
of Notes must follow to accept a Change of Control Offer or to withdraw such
acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by holders of the Notes seeking to accept
the Change of Control Offer. The failure of the Company to make or consummate
the Change of Control Offer or pay the applicable Change of Control purchase
price when due would result in an Event of Default and would give the Trustee
and the holders of the Notes the rights described under "Events of Default."
One of the events that constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is
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the governing law of the Indenture) to represent a specific quantitative test.
As a consequence, in the event holders of the Notes elect to require the Company
to purchase the Notes and the Company elects to contest such election, there can
be no assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to repurchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "-- Certain Definitions" above for the definition of
"Change of Control." A transaction involving the Company's management or its
affiliates, or a transaction involving a recapitalization of the Company, would
result in a Change of Control if it is the type of transaction specified in such
definition.
The Company will comply with the applicable tender offer rules including
Rule l4e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Restricted Subsidiary to,
create any restriction (other than restrictions existing under Debt as in effect
on the Closing Date or in refinancings of such Debt) that would materially
impair the ability of the Company to make a Change of Control Offer to purchase
the Notes or, if such Change of Control Offer is made, to pay for the Notes
tendered for purchase.
Limitation on Certain Asset Sales. (a) The Company will not, and will not
permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 75% (A) cash or cash equivalents or (B) the assumption by
the transferee of Debt of the Company or a Restricted Subsidiary ranked pari
passu with the Notes and release of the Company or such Restricted Subsidiary
from all liability on such Debt, or a combination of the foregoing.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may, at its option, within 12 months after such Asset Sale, (i)
apply all or a portion of the Net Cash Proceeds to the permanent reduction of
amounts outstanding under the Revolving Credit Facility or other credit facility
referred to in clause (i) of the definition of Permitted Debt or to the
repayment of other senior Debt of the Company or a Restricted Subsidiary or (ii)
invest (or enter into a legally binding agreement to invest) all or a portion of
such Net Cash Proceeds in properties and assets to replace the properties and
assets that were the subject of the Asset Sale or in properties and assets that
will be used in businesses of the Company or its Restricted Subsidiaries, as the
case may be, existing on the Closing Date. If any such legally binding agreement
to invest such Net Cash Proceeds is terminated, the Company may, within 90 days
of such termination or within 12 months of such Asset Sale, whichever is later,
invest such Net Cash Proceeds as provided in clause (b)(i) or (b)(ii) (without
regard to the parenthetical contained in such clause (b)(ii)) above. The amount
of such Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company will, within 30 days thereafter, make an offer to purchase from all
holders of Notes, on a pro rata basis, in accordance with the procedures set
forth in the Indenture, the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased with the Excess Proceeds, at a purchase
price in cash equal to 100% of the principal amount thereof, plus accrued
interest, if any, to the date such offer to purchase is consummated. To the
extent that the aggregate principal amount of Notes tendered pursuant to such
offer to purchase is less
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than the Excess Proceeds, the Company may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes validly tendered
and not withdrawn by holders thereof exceeds the Excess Proceeds, the Notes to
be purchased will be selected on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds will be reset to zero.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction with, or for the benefit of, any Affiliate of
the Company unless (a) such transaction is on terms that are no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could have been obtained in an arm's length transaction with third parties
who are not Affiliates and (b) either (i) with respect to any transaction or
series of related transactions involving aggregate payments in excess of
$1,000,000, but less than $2,500,000, or between the Company (or its
Subsidiaries) and Seitel (or its subsidiaries) in the ordinary course of
business involving aggregate payments in excess of $1,000,000, the Company
delivers an officers' certificate to the Trustee certifying that such
transaction or transactions comply with clause (a) above ("Officers'
Certificate") or (ii) with respect to any transaction or series of related
transactions involving aggregate payments equal to or in excess of $2,500,000,
but less than $7,500,000 (not including transactions with Seitel or its
subsidiaries, falling under clause (i) above), the Company delivers (A) an
Officers' Certificate and (B) such transaction or transactions have been
approved by the Board of Directors (including a majority of the Disinterested
Directors) of the Company or (iii) with respect to a transaction or series of
related transactions involving aggregate payments equal to or in excess of
$7,500,000 (not including transactions with Seitel or its subsidiaries, falling
under clause (i) above) the Company has obtained a written opinion from a
nationally recognized investment banking firm to the effect that such
transaction or transactions are fair to the Company or such Restricted
Subsidiary from a financial point of view.
The foregoing covenant will not restrict any of the following:
(A) Transactions among the Company and/or its Wholly-Owned Restricted
Subsidiaries.
(B) The Company from paying (i) reasonable compensation and fees to
directors of the Company or any Restricted Subsidiary who are not employees
of the Company or any Restricted Subsidiary and (ii) reasonable
compensation to officers of the Company or any Restricted Subsidiary.
(C) Transactions permitted by the provisions of the "Limitations on
Restricted Payments" covenant.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Debt owed to the Company or any other Restricted Subsidiary,
(c) make loans or advances to the Company or any other Restricted Subsidiary,
(d) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary or (e) guarantee Debt of the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of any of the following:
(i) Any agreement in effect on the Closing Date.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary.
(iii) The refinancing or successive refinancings of Debt incurred
under the agreements in effect on the Closing Date, so long as such
encumbrances or restrictions are no less favorable to the Company or any
Restricted Subsidiary than those contained in such original agreement.
(iv) Any agreement or other instrument of a person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which
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encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the property
or assets of the person, so acquired.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company or a
Wholly-Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance or
sale, neither the Company nor any of its Subsidiaries owns any shares of Capital
Stock of such Restricted Subsidiary (including options, warrants or other rights
to purchase shares of such Capital Stock) or (iv) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any remaining Investment in such person
would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such issuance or sale.
Limitation on Guarantees of Debt by Restricted Subsidiaries. The Company
will not permit any Restricted Subsidiary, directly or indirectly, to guarantee,
assume or in any other manner become liable for the payment of any Debt of the
Company or any other Restricted Subsidiary, provided, however, that any
Restricted Subsidiary may guarantee, assume or become liable for the payment of
Debt of the Company if (a) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for a guarantee of payment of
the Notes by such Restricted Subsidiary and (b) with respect to any guarantee of
Debt by a Restricted Subsidiary, any such guarantee is subordinated to such
Restricted Subsidiary's guarantee with respect to the Notes at least to the same
extent as such Debt is subordinated to the Notes, provided that the foregoing
provision will not be applicable to any guarantee by any Restricted Subsidiary
that existed at the time such person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such person becoming a
Restricted Subsidiary.
Any guarantee by a Restricted Subsidiary of the Notes pursuant to the
preceding paragraph may provide by its terms that it will automatically and
unconditionally be released and discharged upon (i) any sale, exchange or
transfer to any person not an Affiliate of the Company of all of the Company's
and the Restricted Subsidiaries' Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture), (ii) the release or discharge of the guarantee
that resulted in the creation of such guarantee of the Notes, except a discharge
or release by or as a result of payment under such guarantee or (iii) the
designation of such Restricted Subsidiary as an Unrestricted Subsidiary in
accordance with the terms of the Indenture.
The foregoing restriction shall not apply to any guarantee, assumption or
liability in existence as of the Closing Date.
Unrestricted Subsidiaries. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any Restricted Subsidiary provides credit support for or guarantee of, any
Debt or is directly or indirectly liable for any Debt of such Subsidiary, (ii)
no default with respect to any Debt of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Debt of the Company
or any Restricted Subsidiary to declare a default on such other Debt or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as a result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"Limitation on Restricted Payments" covenant, (iv) neither the Company nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time from persons who are not Affiliates of
the Company and (v) neither the Company nor any Restricted Subsidiary has any
obligation to subscribe for additional shares of Capital Stock or other equity
interest in such Subsidiary, or to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve certain levels of
operating results.
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(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the "Limitation on Debt" covenant
(treating any Debt of such Unrestricted Subsidiary as the incurrence of Debt by
a Restricted Subsidiary).
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on or with respect to any of its property
or assets, including any shares of stock or indebtedness of any Restricted
Subsidiary, whether owned at the Closing Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (a) in the case of any Lien securing Debt
which is pari passu or Subordinated Debt, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Lien and
(b) in the case of any other Lien, the Notes are equally and ratably secured
with the obligation or liability secured by such Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, incur any of the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Debt under the Revolving Credit
Facility) existing as of the Closing Date.
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Debt under the Revolving Credit Facility and/or other
credit facilities in a principal amount not to exceed the principal amount
of the outstanding Debt permitted by clause (i) of the definition of
"Permitted Debt."
(iii) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary.
(iv) Liens securing the Notes or any Subsidiary Guarantee.
(v) Liens representing the interest or title of lessors under
Capitalized Lease Obligations or Liens securing purchase money mortgages or
purchase money security interests.
(vi) Liens securing Acquired Debt created prior to (and not in
connection with or in contemplation of) the incurrence of such Debt by the
Company or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired in connection with
the incurrence of such Acquired Debt.
(vii) Liens securing Hedging Obligations permitted to be incurred
pursuant to clause (vii) of the definition of "Permitted Debt."
(viii) Statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings.
(ix) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted.
(x) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money).
(xi) Easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of the Company or any Restricted Subsidiary incurred in the ordinary course
of business.
(xii) Liens arising by reason of any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired.
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(xiii) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof.
(xiv) Liens incidental to the conduct by the Company or its Restricted
Subsidiaries of Multi-Client Surveys (including without limitation,
licenses, participation rights, rebate or revenue sharing obligations,
joint ownership, or similar encumbrances), provided that such Liens have
not arisen in connection with the incurrence of Debt.
(xv) Liens encumbering towed-streamer seismic data acquisition vessels
owned by the Company or a Restricted Subsidiary pursuant to leases thereof
in accordance with clause (vi) of the last sentence of the definition of
Asset Sale.
(xvi) Any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xv); provided that
any such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does
not extend to any additional property or assets.
Reports. At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration") and (ii) the date six months after the Closing
Date, in either case, whether or not the Company is then required to file
reports with the Commission, the Company will file with the Commission all such
annual reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Sections 13(a) or 15(d) under the
Exchange Act. The Company will also be required (a) to supply to the Trustee and
each holder of Notes, or supply to the Trustee for forwarding to each such
holder, without cost to such holder, copies of such reports and other documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be required
to file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the Company's
cost copies of such reports and documents to any prospective holder of Notes
promptly upon written request. In addition, at all times prior to the earlier of
the date of the Registration and the date six months after the Closing Date, the
Company will, at its cost, deliver to each holder of the Notes quarterly and
annual reports substantially equivalent to those that would be required by the
Exchange Act. Furthermore, at all times prior to the Registration, the Company
will supply at the Company's cost copies of such reports and documents to any
prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other person
or, directly or indirectly, convey, sell, assign, transfer, lease or otherwise
dispose of its properties and assets substantially as an entirety to any other
person (in one transaction or a series of related transactions), unless each of
the following conditions is satisfied:
(a) Either (i) the Company is the surviving corporation or (ii) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person that acquires by sale,
assignment, transfer, lease or other disposition the properties and assets
of the Company substantially as an entirety (the "Surviving Entity") (A) is
a corporation, partnership or trust organized and validly existing under
the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Trustee, all of the Company's obligations under the
Indenture and the Notes.
(b) Immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection with
or as a result of such transaction as having been incurred at the time of
such transaction, no Default or Event of Default has occurred and is
continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving
Entity if the Company is not the continuing obligor under the
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Indenture) is equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction.
(d) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) could
incur at least $1.00 of additional Debt (other than Permitted Debt)
pursuant to the first paragraph of the "Limitation on Debt" covenant.
(e) If any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with.
(f) The Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
(g) If the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture confirmed that its
Subsidiary Guarantee applies to the Surviving Entity's obligations under
the Indenture and the Notes.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
EVENTS OF DEFAULT
Each of the following are "Events of Default" under the Indenture:
(a) Default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 60 days.
(b) Default in the payment of the principal of (or premium, if any,
on) any Note when due either at maturity, upon any redemption or pursuant
to a purchase by the Company pursuant to the "Change in Control" covenant
or the "Limitation on Certain Asset Sales" covenant.
(c) Failure to perform or comply with the Indenture provisions
described under "Consolidation, Merger and Sale of Assets."
(d) Default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in the
Indenture or any Subsidiary Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach for
a period of 60 days after written notice has been given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least
25% in aggregate principal amount of the Notes then outstanding.
(e) (i) An event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of Debt of
the Company or any Restricted Subsidiary, which issue has an aggregate
outstanding principal amount of not less than $5,000,000, and such default
has resulted in such Debt becoming, whether by declaration or otherwise,
due and payable prior to the date on which it would otherwise become due
and payable or (ii) a default in any payment when due at final maturity of
any such Debt.
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(f) Failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 30 days.
(g) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
(h) Any Subsidiary Guarantee ceases to be in full force and effect or
is declared null and void or any Subsidiary Guarantor denies that it has
any further liability under any Subsidiary Guarantee, or gives notice to
such effect (other than by reason of the termination of the Indenture or
the release of any such Subsidiary Guarantee in accordance with the
Indenture), and such condition has continued for a period of 30 days after
written notice of such failure requiring the Subsidiary Guarantor and the
Company to remedy the same has been given (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the holders of 25% in aggregate
principal amount of the Notes then outstanding.
If an Event of Default (other than as specified in clause (g) above) occurs
and is continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders will, declare the principal of all of the outstanding
Notes immediately due and payable and, upon any such declaration, such principal
will become due and payable immediately. If an Event of Default specified in
clause (g) above occurs and is continuing, then the principal of all of the
outstanding Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder of
Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Notes and, (D) all sums paid or advanced by the Trustee under
the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and (ii) all Events of Default,
other than the non-payment of amounts of principal of (or premium, if any, on)
or interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived. No such rescission will affect any
subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all of the Notes, waive
any past defaults under the Indenture, except a default in the payment of the
principal of (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of (and
premium, if any, on) or interest on any Notes, the Trustee may withhold the
notice to the holders of the Notes if a committee of its trust officers in good
faith determines that withholding such notice is in the interests of the holders
of the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company of its obligations under the Indenture and as to
any default in such performance. The Company is also required to notify the
Trustee within five business days of any Default.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Guarantors with respect to the outstanding
Notes ("defeasance"). Such defeasance means that the Company will be deemed to
have paid and discharged the entire Debt represented by the outstanding Notes,
except for (i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of (and premium, if any, on) and interest on such Notes
when such payments are due, (ii) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes, maintain an office or agency for payments in
respect of the Notes and segregate and hold such payments in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company and
any Subsidiary Guarantors with respect to certain covenants set forth in the
Indenture and described under "Certain Covenants" above, and any omission to
comply with such obligations would not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, money in an amount, or U.S.
Government Obligations (as defined in the Indenture) that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal or installment of interest; (b) no
Default or Event of Default has occurred and is continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (g) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such defeasance or covenant defeasance
may not result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company or any
Subsidiary Guarantor is a party or by which it is bound; (d) in the case of
defeasance, the Company must deliver to the Trustee an opinion of counsel
stating that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the date hereof there has been a
change in applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (e) in the case of covenant defeasance, the Company
must have delivered to the Trustee an opinion of counsel to the effect that the
Holders of the Notes outstanding will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and (f) the Company must have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "Defeasance or Covenant Defeasance of Indenture") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) the Company has
irrevocably notified the Trustee to call such Notes for redemption within one
year under arrangements for the
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giving of notice of redemption by the Trustee in the name, and at the expense,
of the Company, and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Debt on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any,
on) and interest on the Notes to the date of such deposit (in the case of Notes
that have become due and payable) or to the Stated Maturity or redemption date,
as the case may be; (b) the Company has paid or caused to be paid all sums
payable under the Indenture by the Company; and (c) the Company has delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided in the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the holders of a majority in aggregate outstanding principal
amount of the Notes; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any such amendment or for any
waiver of compliance with certain provisions of, or certain defaults and
their consequences provided for under, the Indenture; or
(c) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes or reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose holders is
necessary for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults.
Without the consent of the holders of at least 75% in principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for such Notes), no waiver or amendment to the
Indenture may make any change in the provisions described above under the
caption "Change of Control" above after the mailing of an offer with respect to
a Change of Control Offer that adversely affects the rights of any holder of
Notes.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture and any Subsidiary Guarantee.
Without the consent of any holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
to the Indenture for any of the following purposes: (1) to evidence the
succession of another person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the holders, or to
surrender any right or power herein conferred upon the Company; or (3) to add
additional Events of Defaults; or (4) to provide for uncertificated Notes in
addition to or in place of the certificated Notes; or (5) to evidence and
provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to secure the Notes; or (7) to add new Subsidiary Guarantors or
release Subsidiary Guarantors in accordance with the terms of the Indenture; or
(8) to cure any ambiguity, to correct or supplement any provision in the
Indenture that may be defective or inconsistent with any other provision in the
Indenture, or to make any other provisions with respect to matters or questions
arising under the Indenture, provided that such actions pursuant to this clause
do not adversely affect the interests of the holders in any material respect; or
(9) to comply with any requirements of the Commission in order to effect and
maintain
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the qualification of the Indenture under the Trust Indenture Act; or (10) to
make any other change that does not adversely affect the rights of any holder.
THE TRUSTEE
Chase Bank of Texas, National Association, the Trustee under the Indenture,
is the initial paying agent and registrar for the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the holders of a majority in outstanding
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that, if it acquires any conflicting
interest (as defined), it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
GOVERNING LAW
The Indenture and the Notes are governed by, and will be construed in
accordance with, the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
The Private Notes were initially issued in fully registered form without
interest coupons, represented by one global Note in definitive, fully registered
form without interest coupons (the "Private Global Note") and were deposited
with the Trustee as custodian for DTC and registered in the name of a nominee of
DTC.
The Private Notes, to the extent validly tendered and accepted and directed
by their holders in their Letters of Transmittal, will be exchanged through
book-entry electronic transfer for a beneficial interest in one global Note (the
"Exchange Global Note") in definitive, fully registered form deposited with the
Trustee as custodian for DTC and registered in the name of a nominee of DTC. The
Private Global Note and the Exchange Global Note are referred to collectively as
the "Global Note."
Upon the issuance of the Global Note, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Note to the accounts of persons who have accounts
with such depositary. Such accounts were initially designated by or on behalf of
the Initial Purchasers. Ownership of beneficial interests in a Global Note will
be limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Ownership of beneficial interests in the
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified Institutional Buyers
may hold their interests in the Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the applicable procedures of DTC.
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Payments of the principal of, and interest on, the Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the Global Note for
Certificated Notes which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meanings of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Company or the
Trustee will have any responsibility for the performance by DTC or the
participants or indirect participants of their respective obligations under the
rules and procedures governing their respective operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Notes in the name of, and
cause the same to be delivered to, such Person or Persons (or the nominee of any
thereof). In addition, if (i) DTC or any successor depositary notifies the
Company in writing that it is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Certificated Notes under the
Indenture, then, upon surrender by the registered owner or holder of a Global
Note (a "Global Note Holder") of its Global Note, Notes in such form will be
issued to each Person that such Global Note Holder and the Depositary identify
as the beneficial owner of the related Notes.
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Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected from relying on, instructions from such Global Note Holder or
of the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Notes, the Company will make
all payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearinghouse or next-day funds. In
contrast, the Notes represented by the Global Note will be eligible to trade in
the PORTAL Market and to trade in DTC's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such Notes will, therefore,
be required by DTC to be settled in immediately available funds. The Company
expects that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
tax purposes, is not a "United States person" (a "Non-United States Holder").
This discussion is based upon the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect on the date hereof, which are
subject to change, possibly retroactively. For purposes of this discussion, a
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in the United
States or under the law of the United States or of any state thereof or the
District of Columbia (unless, in the case of a partnership, Treasury regulations
provide otherwise), an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source, or a trust
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date, that
elect to continue to be treated as United States persons will also be United
States persons. This discussion applies only to those Non-United States Holders
who purchased Private Notes from the Initial Purchasers and hold the Notes as a
capital asset. The tax treatment of the holders of the Notes may vary depending
upon their particular situations. United States persons acquiring the Notes are
subject to different rules than those discussed below. In addition, certain
other holders (including insurance companies, tax exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of Notes, as well as any tax consequences that may arise under the
laws of any relevant foreign, state, local or other taxing jurisdiction.
INTEREST
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States Holder
(i) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company; (ii) is not a controlled
foreign corporation with respect to which the Company is a related person and
(iii) certifies, under penalties of perjury, on Form W-8 or substantially
similar form that such holder is not a United States person and provides such
holder's name and address (the "Certification Requirement"). In the case of
interest on a Note that is not "effectively connected with the conduct of a
trade or business within the United States" and does not satisfy the three
requirements of the preceding sentence, the Non-United States Holder's interest
on a Note would generally be subject to United States withholding tax at a flat
rate of 30% (or a lower applicable treaty rate). If a Non-United States Holder's
interest on a Note is "effectively connected with the conduct of a trade or
business within the United States," then the Non-United States Holder will be
subject to United States federal income tax on such interest income in
essentially the same manner as a United States person and, in the case of a
Non-United States Holder that is a foreign corporation, may also be subject to
the branch profits tax.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain recognized on a sale, redemption or
other disposition of a Note unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
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FEDERAL ESTATE TAXES
If interest on a Note is exempt from withholding of United States federal
income tax under the rules described above, the Note held by an individual who
at the time of death is a Non-United States Holder generally will not be subject
to United States federal estate tax as a result of such individual's death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, when required, report to the holders of the Notes and The
Internal Revenue Service ("IRS") the amount of any interest paid on the Notes in
each calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders, the
general 31% backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the Certification
Requirement, as described above under "Certain United States Federal Tax
Consequences For Non-United States Holders Interest," has been satisfied or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not in fact satisfied.
Information reporting and backup withholding requirements will apply to the
gross proceeds paid to a Non-United States Holder on the disposition of the
Notes by or through a United States office of a United States or foreign broker,
unless the holder certifies to the broker under penalties of perjury as to its
name, address and status as a foreign person or the holder otherwise establishes
an exemption. Information reporting requirements, but not backup withholding,
will also apply to a payment of the proceeds of a disposition of the Notes by or
through a foreign office of a United States broker or foreign brokers with
certain types of relationships to the United States unless such broker has
documentary evidence in its file that the holder of the Notes is not a United
States person and such broker has no actual knowledge to the contrary, or the
holder establishes an exception. Neither information reporting nor backup
withholding generally will apply to a payment of the proceeds of a disposition
of the Notes by or through a foreign office of a foreign broker not subject to
the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
The United States Treasury Department recently promulgated new regulations
regarding the withholding and information reporting rules discussed above. In
general, the new regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. The new
regulations require, however, that a foreign person furnish its taxpayer
identification number in certain circumstances to claim a reduction in United
States federal withholding tax and new rules are provided for foreign persons
that hold debt instruments thorough a foreign intermediary. The new regulations
are generally effective for payments made after December 31, 1999, subject to
certain transition rules. Non-United States Holders should consult their own tax
advisors with respect to the impact, if any, of the new regulations.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes.
Exchange Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such person may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer, other than commissions or concessions
of any broker-dealer, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Gardere Wynne Sewell & Riggs, L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997 included in this prospectus and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report. Arthur Andersen's report, included herein, indicates that
ERI's 1997 financial statements were audited by other auditors, whose opinion
was furnished to Arthur Andersen. Arthur Andersen's 1997 opinion, insofar as it
relates to ERI, is based solely on the report of the other auditors. The
consolidated financial statements referred to above have been included herein in
reliance upon the authority of said firm as experts in giving said report.
63
<PAGE> 68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
Unaudited Pro forma Consolidated Balance Sheet as of June
30, 1998............................................... F-3
Unaudited Pro forma Consolidated Statement of Operations
for the six month period ended June 30, 1998........... F-4
Unaudited Pro forma Consolidated Statement of Operations
for the year ended December 31, 1997................... F-5
Notes to Unaudited Pro forma Financial Statements......... F-6
CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE GEOPHYSICAL, INC.
AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-7
Consolidated Balance Sheets -- December 31, 1996 and 1997
and unaudited June 30, 1998............................ F-8
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and unaudited for the
three and six month periods ended June 30, 1997 and
1998................................................... F-9
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 and
unaudited for the six month period ended June 30,
1998................................................... F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and unaudited for the
six month periods ended June 30, 1997 and 1998......... F-11
Notes to Consolidated Financial Statements................ F-12
</TABLE>
F-1
<PAGE> 69
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following financial statements include the unaudited pro forma
consolidated balance sheet of Eagle Geophysical, Inc. (the "Company") as of June
30, 1998, and the unaudited pro forma consolidated statements of operations for
the year ended December 31, 1997 and the six months ended June 30, 1998.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 assume the
issuance of $22.5 million of the $100.0 million 10 3/4% Senior Notes due 2008
(the "Notes"), the proceeds of which were used to repay borrowings under the
Revolving Credit Facility and the Short-term Loan as of January 1, 1997 or the
later actual date of such borrowings (the "Offering"). Interest expense has not
been accrued on the excess net proceeds of $73.9 million as this amount had not
yet been utilized to fund capital expenditures during the periods presented.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997 assumes the Company had completed the acquisition of the
remaining 81% of Energy Research International ("ERI") for 600,000 shares of the
Company's common stock as of January 1, 1997 (the "ERI Acquisition"), and
assumes the Company completed the offering and sale of a total of 6,524,000
shares of common stock to the public at a price of $17.00 per share (including
1,880,000 shares sold by the Company's former parent, Seitel, Inc., and 180,000
shares by the former owners of ERI) resulting in net proceeds to the Company of
$69.1 million after deducting offering related expenses (the "IPO"), the
proceeds of which were used to retire debt and capital leases of ERI and the
Company.
The accompanying unaudited pro forma consolidated balance sheet as of June
30, 1998 gives effect to the issuance of the Notes resulting in net proceeds of
$96.4 million after deducting offering-related expenses of approximately $3.6
million and the use of proceeds thereof to retire certain debt and obligations
incurred for the acquisition and upgrade of the vessels Austral Horizon and
Atlantic Horizon. The Company estimates the upgrades will cost approximately
$98.8 million of which approximately $33.5 million was expended as of June 30,
1998. These expenditures are being financed on an interim basis under the
Company's $20.0 million bank revolving credit facility and under a $29.0 million
short-term bank loan.
The unaudited pro forma consolidated financial statements and the notes
thereto are based upon available information and certain estimates and
assumptions related to the accounting for the Offering that are subject to final
determination. The unaudited pro forma financial information is not necessarily
indicative of the results that would have occurred had such transactions
actually taken place at the beginning of the periods specified nor does such
information purport to project the Company's financial position or results of
operations for any future date or period.
F-2
<PAGE> 70
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 10,912 $ 96,400(A) $ 19,512
(87,800)(B)
Restricted Cash............................................. 5,000 -- 5,000
Receivables:
Trade..................................................... 12,941 -- 12,941
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 2,313 -- 2,313
Other..................................................... 3,840 -- 3,840
Due from affiliate.......................................... 9,988 -- 9,988
Inventory................................................... 3,032 -- 3,032
Prepaid expenses and other assets........................... 2,151 -- 2,151
-------- -------- --------
Total current assets............................... 50,177 8,600 58,777
PROPERTY AND EQUIPMENT, AT COST:
Vessels and geophysical Equipment........................... 145,310 65,300(B) 210,610
Furniture, fixtures and other............................... 1,071 -- 1,071
-------- -------- --------
146,381 65,300 211,681
Less: Accumulated depreciation and amortization............. (22,363) -- (22,363)
-------- -------- --------
Net property and equipment......................... 124,018 65,300 189,318
MULTI-CLIENT DATA LIBRARY................................... 6,615 -- 6,615
GOODWILL, NET............................................... 19,877 -- 19,877
OTHER LONG-TERM ASSETS...................................... 175 3,600(A) 3,775
-------- -------- --------
TOTAL ASSETS....................................... $200,862 $ 77,500 $278,362
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................... $ 1,014 $ -- $ 1,014
Current portion of capital lease obligations................ 5,847 -- 5,847
Accounts payable............................................ 28,943 -- 28,943
Accrued liabilities......................................... 13,879 -- 13,879
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... 9,454 -- 9,454
-------- -------- --------
Total current liabilities.......................... 59,137 -- 59,137
LONG-TERM DEBT.............................................. 27,270 100,000(A) 104,770
(22,500)(B)
CAPITAL LEASE OBLIGATIONS................................... 25,421 25,421
DEFERRED INCOME TAXES AND OTHER OBLIGATIONS................. 1,214 -- 1,214
-------- -------- --------
Total liabilities.................................. 113,042 77,500 190,542
-------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding......................................... -- -- --
Common Stock, par value $0.01 per share; authorized
25,000,000 shares; 8,587,360 (unaudited) shares issued
and outstanding......................................... 86 -- 86
Additional paid-in capital................................ 83,566 -- 83,566
Retained earnings (deficit)............................... 4,593 -- 4,593
Note receivable from stockholder.......................... (425) -- (425)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)............... 87,820 -- 87,820
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $200,862 $ 77,500 $278,362
======== ======== ========
</TABLE>
See footnote explanations beginning at page F-6.
F-3
<PAGE> 71
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE.................................................. $58,216 $ -- $58,216
OPERATING EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)........................... 39,966 -- 39,966
Depreciation and amortization.......................... 7,687 -- 7,687
Selling, general and administrative expenses........... 5,373 -- 5,373
Interest expense....................................... 656 93(C) 764
15(D)
Interest Income........................................ (395) -- (395)
Other, net............................................. 90 -- 90
------- ----- -------
Total expenses................................. 53,377 108 53,485
------- ----- -------
Income before provision (benefit) for income taxes..... 4,839 (108) 4,731
Provision (benefit) for income taxes................... 1,960 (44)(E) 1,916
------- ----- -------
NET INCOME............................................. $ 2,879 $ (64) $ 2,815
======= ===== =======
Basic earnings per share............................... $ 0.34 -- $ 0.33
======= =======
Weighted average number of common shares (basic)....... 8,543 -- 8,543
======= =======
Diluted earnings per share............................. $ 0.34 -- $ 0.33
======= =======
Weighted average number of common shares............... 8,553 -- 8,553
======= =======
</TABLE>
See footnote explanations beginning at page F-6.
F-4
<PAGE> 72
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ENERGY
RESEARCH
INTERNATIONAL
(HISTORICAL)
JANUARY 1, 1997
THE COMPANY TO PRO FORMA PRO FORMA
HISTORICAL AUGUST 11, 1997 ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE.................................. $79,061 $30,401 $(1,334)(F) $108,128
OPERATING EXPENSES
Operating expenses (exclusive of
depreciation and amortization shown
below)................................. 56,470 21,587 (1,334)(F) 76,723
Depreciation and amortization............ 8,584 3,282 1,023 (G) 12,889
Selling, general and administrative
expenses............................... 6,408 1,656 729 (H) 8,793
Interest expense, net.................... 205 1,046 (1,000)(I) 251
------- ------- ------- --------
Total expenses................. 71,667 27,571 (582) 98,656
------- ------- ------- --------
Income (loss) before provision for income
taxes.................................. 7,394 2,830 (752) 9,472
Provision (benefit) for income taxes..... 2,994 -- 842 (J) 3,836
------- ------- ------- --------
NET INCOME (LOSS)(1)..................... $ 4,400 $ 2,830 $(1,594) $ 5,636
======= ======= ======= ========
Basic earnings per share................. $ 0.81 -- $ 0.66
======= ========
Weighted average number of common shares
(basic)................................ 5,418 3,071 (K) 8,489
======= ======= ========
Diluted earnings per share............... $ 0.81 -- $ 0.66
======= ======= ========
Weighted average number of common shares
(diluted).............................. 5,436 3,071 (K) 8,507
======= ======= ========
</TABLE>
See footnote explanations beginning at Page F-6.
F-5
<PAGE> 73
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998
A) Adjustment to record proceeds from the issuance of the Notes, net of
offering costs of approximately $3.6 million.
B) Adjustment to record the remaining capital expenditures for the acquisition
and upgrade of the vessels Austral Horizon and Atlantic Horizon for
approximately $98.8 million of which approximately $33.5 million had been
expended as of June 30, 1998. These expenditures are being financed on an
interim basis under the Company's $20.0 million bank revolving credit
facility and under a $29.0 million short-term bank loan.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1998
C) To adjust interest expense on the $22.5 million of Notes proceeds used to
repay borrowings under the Revolving Credit Facility and the Short-Term
Loan.
D) To adjust interest expense to reflect deferred financing costs incurred on
the $22.5 million of Notes proceeds used to repay borrowings under the
Revolving Credit Facility and the Short-Term Loan. Interest expense has not
been accrued on the remaining net proceeds of $73.9 million as this amount
had not yet been utilized to fund capital expenditures during the periods
presented.
E) To record the tax effects of the above adjustments at the Company's
effective tax rate.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997
F) Adjustment to eliminate $1.3 million in lease income between the Company
and ERI for the period from January 1, 1997 to August 8, 1997.
G) Reflects the amortization of goodwill associated with the acquisition of
ERI over a 15-year estimated useful life.
H) Represents additions supported by contractual agreements to selling,
general and administrative (SG&A) expenses the Company estimates it would
have incurred operating as a public registrant. Such incremental expenses
primarily include increases in personnel, contractual employment
arrangements, and directors' and officers' compensation and insurance.
I) Reflects a reduction in interest expense as a result of the application of
approximately $35.7 million of the net proceeds of the IPO to reduce debt,
capital lease obligations and due to affiliate obligations.
J) To record the tax effects of the above adjustments at the Company's
effective tax rate.
K) To adjust the weighted average common shares outstanding to reflect the
IPO, the ERI Acquisition, and the issuance of 25,000 shares of common stock
to the president of the Company for a note as if such transactions had
occurred on January 1, 1997.
F-6
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle Geophysical, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Eagle
Geophysical, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 did
not audit the financial statements of Energy Research International, which
statements reflect total assets and total revenues of 41 percent and 22 percent
in 1997, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Eagle Geophysical, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 6, 1998 (except with respect to the
matter discussed in Note O,
as to which the date is July 10, 1998)
F-7
<PAGE> 75
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$-0-, $4,502 and $5,000 (unaudited) at December 31, 1996,
1997, and June 30, 1998, respectively..................... $ -- $ 19,482 $ 15,912
Receivables:
Trade, billed, net of allowance for doubtful accounts of
$-0-, $132, and $450 (unaudited) at December 31, 1996,
1997 and June 30, 1998, respectively.................... 12,913 11,291 12,941
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 441 2,576 2,313
Other..................................................... 233 546 3,840
Due from affiliate.......................................... -- 12,500 9,988
Inventory................................................... -- 1,705 3,032
Prepaid expenses and other assets........................... 860 2,273 2,151
Deferred income taxes....................................... -- 515 --
------- -------- --------
Total current assets............................... 14,447 50,888 50,177
PROPERTY AND EQUIPMENT, AT COST:
Geophysical equipment....................................... 20,200 69,418 145,310
Furniture, fixtures and other............................... 108 652 1,071
------- -------- --------
20,308 70,070 146,381
Less: Accumulated depreciation.............................. (8,103) (14,873) (22,363)
------- -------- --------
Net property and equipment......................... 12,205 55,197 124,018
GOODWILL, net of accumulated amortization of $-0-, $477, and
$1,150 (unaudited) at December 31, 1996, 1997, and June
30, 1998, respectively.................................... -- 17,990 19,877
MULTI-CLIENT DATA LIBRARY................................... -- -- 6,615
OTHER LONG-TERM ASSETS...................................... 69 230 175
------- -------- --------
TOTAL ASSETS....................................... $26,721 $124,305 $200,862
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................... $ 2,556 $ -- $ 1,014
Current portion of capital lease obligations................ 1,033 2,816 5,847
Accounts payable............................................ 4,623 15,671 28,943
Accrued liabilities......................................... 652 7,849 13,879
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... 78 6,029 9,454
------- -------- --------
Total current liabilities.......................... 8,942 32,365 59,137
LONG-TERM DEBT.............................................. 6,039 -- 27,270
CAPITAL LEASE OBLIGATIONS................................... 1,274 7,944 25,421
DUE TO AFFILIATE............................................ 1,965 -- --
DEFERRED INCOME TAXES AND OTHER OBLIGATIONS................. 712 -- 1,214
------- -------- --------
TOTAL LIABILITIES.................................. 18,932 40,309 113,042
------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding........................................... -- -- --
Common stock, par value $0.01 per share; 25,000,000 shares
authorized; 3,400,000 shares issued and outstanding at
December 31, 1996, 8,489,000 at December 31, 1997 and
8,587,360 (unaudited) at June 30, 1998.................... 34 85 86
Additional paid-in capital.................................. 7,755 82,622 83,566
Retained earnings........................................... -- 1,714 4,593
Note receivable from Stockholder............................ -- (425) (425)
------- -------- --------
TOTAL STOCKHOLDERS' EQUITY......................... 7,789 83,996 87,820
------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $26,721 $124,305 $200,862
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 76
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES(1).................................. $29,275 $48,136 $79,061 $28,766 $58,216
EXPENSES.....................................
Operating expenses (exclusive of
depreciation and amortization shown
below................................... 20,986 34,917 56,470 20,779 39,966
Depreciation and amortization.............. 2,471 3,409 8,584 2,772 7,687
Selling, general and administrative
expenses................................ 2,874 2,680 6,408 1,565 5,373
Interest Expense........................... 450 699 1,586 612 656
Interest Income............................ (42) (168) (1,263) (578) (395)
Other, net................................. -- -- (118) -- 90
------- ------- ------- ------- -------
26,739 41,537 71,667 25,150 53,377
------- ------- ------- ------- -------
Income before provision of income taxes.... 2,536 6,599 7,394 3,616 4,839
Provision for income taxes................. 933 2,420 2,994 1,326 1,960
------- ------- ------- ------- -------
NET INCOME................................... $ 1,603 $ 4,179 $ 4,400 $ 2,290 $ 2,879
======= ======= ======= ======= =======
Basic earnings per share................... $ 0.47 $ 1.23 $ 0.81 $ 0.67 $ 0.34
======= ======= ======= ======= =======
Weighted average number of common shares
(basic)................................. 3,400 3,400 5,418 3,400 8,543
======= ======= ======= ======= =======
Diluted earnings per share................. $ 0.47 $ 1.23 $ 0.81 $ 0.67 $ 0.34
======= ======= ======= ======= =======
Weighted average number of common shares
(diluted)............................... 3,400 3,400 5,436 3,400 8,553
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes revenue from affiliates of $15,391, $27,217, $42,265, $15,212
(unaudited), and $32,546 (unaudited) for the years ended December 31, 1995,
1996 and 1997 and the unaudited six month periods ended June 30, 1997 and
1998, respectively, and operating expenses related to such affiliate revenue
of $10,845, $20,078, $34,514, $11,210 (unaudited) and $24,961 (unaudited)
for the years ended December 31, 1995, 1996, and 1997 and the unaudited
six-month periods ended June 30, 1997 and 1998, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 77
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN RETAINED FROM STOCKHOLDER
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDER EQUITY
------ ------ ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
Contribution of 19% interest in
Energy Research International
by Seitel, Inc. ............. -- -- 914 -- -- 914
Net income from January 1, 1997
to August 11, 1997........... -- -- -- 2,686 -- 2,686
Dividend declared to Seitel,
Inc.......................... -- -- (3,965) (2,686) -- (6,651)
Issuance of common stock, net... 4,464 45 69,084 -- -- 69,129
Acquisition of remaining 81% of
Energy Research International
Energy Research
International................ 600 6 8,409 -- -- 8,415
Issuance of common stock to an
officer for a note........... 25 -- 425 -- (425) --
Net income from August 12, 1997
to December 31, 1997......... -- -- -- 1,714 -- 1,714
------ --- ------- ------- ----- -------
Balance, December 31, 1997........ 8,489 $85 $82,622 $ 1,714 $(425) $83,996
Unaudited:
Acquisition of shot hole
drilling company............. 98 1 1,124 -- -- 1,125
Net income...................... -- -- -- 2,879 -- 2,879
Other, net...................... -- -- (180) -- -- (180)
------ --- ------- ------- ----- -------
Balance, June 30, 1998............ 8,587 $86 $83,566 $ 4,593 $(425) $87,820
====== === ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 78
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTH
PERIODS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,603 $ 4,179 $ 4,400 $ 2,290 $ 2,879
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,471 3,409 8,584 2,772 7,687
Income contributed to former parent, Seitel, Inc.......... -- -- (6,651) -- --
Bad debt expense.......................................... -- -- 582 -- 450
Gain on sale of property and equipment.................... -- -- (19) (18) (10)
Deferred income tax provision............................. 152 58 219 128 386
(Increase) decrease in receivables........................ (5,241) (3,726) (2,280) 3,005 1,930
(Increase) decrease in other assets....................... (49) (833) (1,257) 240 (10,402)
Increase in accounts payable and other liabilities........ 1,697 1,553 9,311 1,479 20,993
------- ------- -------- ------- --------
Total adjustments....................................... (970) 461 8,489 7,606 21,034
------- ------- -------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 633 4,640 12,889 9,896 23,913
------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (289) (7,928) (32,375) (8,098) (45,159)
Cash paid for Seismic Drilling & Services, Inc., net of
cash acquired........................................... -- -- -- -- (3,516)
Cash acquired from the purchase of Energy Research
International........................................... -- -- 145 -- --
Cash received on sale of property and equipment........... -- -- 24 27 152
------- ------- -------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (289) (7,928) (32,206) (8,071) (48,523)
------- ------- -------- ------- --------
Cash flows from financing activities:
Borrowings under credit facility.......................... -- -- -- -- 30,500
Repayments under credit facility.......................... (8,000)
Borrowings under term loans............................... -- 7,694 7,564 7,925 --
Principal payments on term loans.......................... (812) (1,518) (27,886) (1,943) (81)
Principal payments on capital leases...................... (1,299) (1,247) (7,005) (681) (1,199)
Receipts (payments) to affiliate.......................... 1,796 (1,699) (3,003) (7,115) --
Issuance of common stock, net............................. -- -- 69,129 -- --
Other net................................................. (180)
------- ------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (315) 3,230 38,799 (1,814) 21,040
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 29 (58) 19,482 11 (3,570)
Cash and cash equivalents at beginning of period............ 29 58 -- -- 19,482
------- ------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 58 $ -- $ 19,482 $ 11 $ 15,912
======= ======= ======== ======= ========
Supplemental disclosures of cash flow information:
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $ 408 $ 637 $ 1,472 $ 339 $ 678
======= ======= ======== ======= ========
Income taxes.............................................. -- -- $ 1,950 -- $ 1,741
======= ======= ======== ======= ========
NON-CASH INVESTING ACTIVITIES:
Capital lease obligations................................. $ 10 $ 41 $ 374 $ 374 --
======= ======= ======== ======= ========
Vessel upgrade through a capital lease.................... -- -- -- -- $ 21,707
======= ======= ======== ======= ========
Contribution of 19% interest in Energy Research
International by Seitel, Inc. .......................... -- -- $ 914 $ 914 --
======= ======= ======== ======= ========
Issuance of common stock to an officer for a note......... -- -- $ 425 -- --
======= ======= ======== ======= ========
Purchase of remaining 81% interest in Energy Research
International for common stock.......................... -- -- $ 8,415 -- --
======= ======= ======== ======= ========
Dividend declared to Seitel, Inc.......................... -- -- $ 6,651 -- --
======= ======= ======== ======= ========
Purchase of Seismic Drilling & Services, Inc. for 98,360
shares of common stock.................................. -- -- -- -- $ 1,175
======= ======= ======== ======= ========
Equipment Purchase through term loan...................... -- -- -- -- $ 5,864
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 79
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BUSINESS, FORMATION OF THE COMPANY AND ACQUISITIONS
BUSINESS
Eagle Geophysical, Inc. (the "Company") is an international 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 and in congested offshore
areas primarily in the U.S. Gulf Coast region. Since its inception and through
August 11, 1997, the Company was a wholly-owned subsidiary of Seitel, Inc.
("Seitel"), which has subsidiaries that have been significant purchasers of the
Company's services -- See Note J.
FORMATION OF THE COMPANY AND ACQUISITIONS
The Company was formed from the onshore seismic data acquisition business
of Seitel Geophysical, Inc., a wholly-owned subsidiary of Seitel that began
operations in December, 1992. Eagle Geophysical, Inc., indirectly a wholly-owned
subsidiary of Seitel and Eagle Geophysical Onshore, Inc. were both formed on
December 18, 1996. Effective December 31, 1996, substantially all of the net
assets of Seitel Geophysical, Inc. were contributed to Eagle Geophysical
Onshore, Inc.
In May 1997, Seitel contributed to the Company all of the shares that it
owned of Energy Research International ("ERI"), representing a 19% ownership
interest. ERI is a holding company that wholly owns two marine seismic
companies. This contribution was recorded at Seitel's basis in such investment
and resulted in a $914,000 increase in the Company's additional paid-in capital
account.
On August 11, 1997 and September 5, 1997, the Company completed the
offering and sale of a total of 6,524,000 shares of common stock to the public
at a price of $17 per share (including 1,880,000 shares sold by the Company's
former parent, Seitel and 180,000 shares sold by the former owners of ERI)
resulting in net proceeds to the Company of $69.1 million after deducting
offering-related expenses (the "IPO"). After the IPO, Seitel owns 1,520,000
shares or 17.9% of the Company's common stock.
On August 11, 1997, the Company acquired the remaining 81% of ERI in
exchange for 600,000 shares of common stock valued at the initial offering price
of $17 per share (the "ERI Acquisition"). The ERI Acquisition was accounted for
by the Company as a purchase transaction in which the Company recorded its cost
in the assets acquired less liabilities assumed, with the difference between the
cost and the sum of the fair values of tangible assets less liabilities assumed
recorded as goodwill. The Company is currently evaluating the value of the
assets acquired and liabilities assumed in order to determine the final purchase
price allocation related to the ERI Acquisition.
The following table presents the unaudited pro forma effects of the IPO,
the application of the net proceeds thereof, and the ERI Acquisition, as if such
transactions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
-------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT
PER SHARE
INFORMATION)
<S> <C> <C>
Pro Forma Revenues.......................................... $108,128 $90,915
Pro Forma Income Before Taxes............................... 9,472 2,715
Pro Forma Weighted Average Number of Common Shares
Outstanding............................................... 8,489 8,489
Pro Forma Basic and Diluted Earnings Per Common Share....... $ 0.66 $ 0.09
======== =======
</TABLE>
The pro forma results of operations reflect the application of United
Kingdom statutory tax rates to earnings from ERI resulting from non-deductible
goodwill. Had such rates not been applied, pro forma earnings would have been
$.80 and $.09 for the years ended December 31, 1997 and 1996 respectively.
F-12
<PAGE> 80
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of these consolidated financial
statements in accordance with generally accepted accounting principles requires
the use of certain estimates by management in determining the Company's assets,
liabilities, contingencies, revenues and expenses. One important 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 until August 11, 1997, and the accounts of its wholly-owned
subsidiaries, Eagle Geophysical Onshore, Inc. and ERI. 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. The accompanying consolidated financial statements include the results
of operations of ERI for the period after the ERI Acquisition (August 11, 1997).
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with original maturities of three months or less.
Inventory: Inventory which consists primarily of spare parts for equipment
is stated at the lower of cost or market value on a first-in, first-out basis.
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 of property and equipment and assets under capital leases is
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.
Multi-client Data Library: The Company acquires certain seismic data for
its own account to which it retains ownership rights and which it resells to
clients on a non-transferable, non-exclusive basis. The Company may obtain
precommitted sales contracts to help fund the cash requirements of these surveys
which generally last from 5 to 7 months. The Company capitalizes the unfunded
portion using an estimated sales method. Under that method the amount
capitalized equals actual costs incurred less costs attributed to the
precommitted sales contracts based on the percentage of total estimated costs to
total estimated sales multiplied by actual sales. The capitalized cost of
multi-client data library is likewise charged to operations in the period
subsequent sales occur based on the percentage of total estimated costs to total
estimated sales multiplied by actual sales. The Company periodically reviews the
carrying value of the multi-client data library to assess whether there has been
a permanent impairment of value and records losses when the total estimated
costs exceed total estimated sales or when it is determined that estimated sales
would not be sufficient to cover the carrying value of the asset. In general,
costs are expected to be recovered from sales over a period of less than 4
years.
Intangible Assets: Goodwill which resulted from the ERI Acquisition is
amortized on a straight-line basis over a period of 15 years. Organization
costs, which are classified as other long-term assets, are amortized on a
straight-line basis over a period of three years. The Company evaluates
intangible assets periodically in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" to determine whether they are
F-13
<PAGE> 81
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
properly reflected in the financial statements based upon future undiscounted
operating cash flows. If an impairment is determined to exist, then the asset is
written down to fair market value.
Income Taxes: The Company and all of its subsidiaries file a consolidated
federal income tax return. ERI and its subsidiaries file a consolidated income
tax return in the United Kingdom. The Company does not provide deferred taxes
(benefit) on the undistributed earnings (loss) of its foreign subsidiaries which
amounted to $192,000 for the year ended December 31, 1997, as such earnings are
intended to be permanently invested in those operations.
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. For
contracts accounted for under the percentage-of-completion method, the Company's
contracts provide that the customer accepts work completed throughout the
duration of the project and owes the Company, based on the pricing provisions
and job completion to date, measured in terms of time incurred or other
performance milestones.
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 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.
Foreign Currency Translation: The Company's functional currency is the U.S.
Dollar. Accordingly, foreign entities translate monetary assets and liabilities
at period end exchange rates, while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year except for depreciation and amortization which
are translated at historical rates. Gains and losses resulting from the
translation of foreign financial statements and from foreign currency
transactions are included in other income and expense. The Company recorded no
foreign currency translation gains or losses in 1995 and 1996 and approximately
$117,000 in net gains for the year ending December 31, 1997.
Earnings Per Share: Earnings per share is based on the weighted average
number of outstanding shares of common stock during the respective years, and
where dilutive, the effect of common stock contingently issuable, which arises
from the exercise of stock options. 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 dilutive
earnings per share. The Company adopted this statement effective for the fiscal
year ended December 31, 1997. The adoption of this statement had no effect on
the Company's earnings per share for the three years ended December 31, 1997.
The weighted average number of common shares outstanding for calculation of
basic earnings per share was 3,400,000, 3,400,000 and 5,418,000 for the years
ended December 31, 1995, 1996 and 1997 respectively. The weighted average number
of common shares outstanding for calculation of diluted earnings per share was
3,400,000, 3,400,000 and 5,436,000 for the years ended December 31, 1995, 1996
and 1997 respectively.
Stock-based Compensation: The Company accounts 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." Reference is made to Note G, "Stockholders' Equity," for a summary
of the pro
F-14
<PAGE> 82
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
forma effect of SFAS No. 123, "Accounting for Stock Based Compensation" on the
Company's results of operations for 1997.
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 cash equivalents, receivables and
accounts payable approximate their fair value as of December 31, 1996 and 1997,
because of the short-term maturity of these instruments. Based upon the rates
available to the Company, the fair value of the Company's debt and capital
leases approximated the carrying value as of December 31, 1996 and was $10.2
million compared to a carrying value of $10.8 million as of December 31, 1997.
New Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This
statements requires the reporting of comprehensive income which includes net
income plus all other non owner changes in equity during the period. This
statement is required to be adopted for fiscal years beginning after December
15, 1997. The Company intends to adopt this statement during its fiscal year
ending December 31, 1998. The adoption of this statement will not have a
material effect on the Company's financial position or results of operations.
Management is evaluating what, if any, additional disclosures may be required
when this statement is implemented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. The adoption of this
statement will not have a material effect on the Company's financial position or
results of operations. Management is evaluating what, if any, additional
disclosures may be required when this statement is implemented.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. The provisions of the statement are effective for
fiscal years beginning after December 15, 1998 and encourages early adoption.
Management adopted this statement in January 1998 and does not believe the
adoption had a material effect on the Company's financial position and results
of operations.
F-15
<PAGE> 83
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INCOME TAXES
The provision for income taxes for each of the three years ended December
31, 1997, consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Current
-- Federal................................................ $695 $2,105 $2,603
-- State.................................................. 86 257 443
-- Foreign................................................ -- -- (271)
---- ------ ------
781 2,362 2,775
---- ------ ------
Deferred
-- Federal................................................ 137 51 (227)
-- State.................................................. 15 7 (33)
-- Foreign................................................ -- -- 479
---- ------ ------
152 58 219
---- ------ ------
Tax Provision
-- Federal................................................ 832 2,156 2,376
-- State.................................................. 101 264 410
-- Foreign................................................ -- -- 208
---- ------ ------
$933 $2,420 $2,994
==== ====== ======
</TABLE>
The difference between U.S. Federal income taxes computed at the statutory
rate (34%) and the Company's income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Statutory Federal income tax................................ $862 $2,244 $2,514
State income tax, less Federal benefit...................... 67 174 272
Foreign income tax.......................................... -- -- 208
Other, net.................................................. 4 2 --
---- ------ ------
Income tax expense.......................................... $933 $2,420 $2,994
==== ====== ======
</TABLE>
The components of the net deferred income tax asset and liability reflected
in the Company's consolidated balance sheets at December 31, 1996 and 1997 were
as follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS
(LIABILITIES)
AT DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Net operating loss carry forward............................ $ -- $ 2,263
Deferred items related to state tax provisions.............. 26 --
Accrued expense and other assets............................ 371 1,008
------- -------
Total deferred tax assets......................... 397 3,271
Less: valuation allowance................................... -- (291)
------- -------
Deferred tax assets, net of valuation allowance........... 397 2,980
------- -------
Depreciation and amortization............................... (1,109) (2,361)
Total deferred tax liabilities.................... (1,109) (2,361)
------- -------
Net deferred tax asset (liability).......................... $ (712) $ 619
======= =======
</TABLE>
F-16
<PAGE> 84
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the deferred federal tax provisions are the following: excess
of tax depreciation expense over book depreciation expense and expenses accrued
for financial statement purposes which are not yet deductible for tax purposes.
In connection with the ERI Acquisition, the Company acquired approximately $6.0
million of net operating loss carry forwards (currently with no expiration date)
and $1.3 million of other items not currently deductible for tax purposes in the
United Kingdom related to ERI's United Kingdom subsidiary, Horizon Exploration
Ltd. resulting in a deferred tax asset of approximately $2.6 million. Such
deferred tax asset was recorded by the Company in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes," with only the portion of such
tax assets that are in management's opinion, more likely than not, expected to
be realized considering ERI's results subsequent to the ERI Acquisition.
Accordingly, a $291,000 valuation allowance was provided on such deferred
assets.
NOTE D -- COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of the Company's estimated costs and earnings on
uncompleted contacts at December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
Costs incurred and estimated earnings on uncompleted
contracts................................................. $ 2,354 $ 19,748
Billings on uncompleted contracts........................... (1,991) (23,201)
------- --------
$ 363 $ (3,453)
======= ========
Included in accompanying balance sheets under the following
captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $ 441 $ 2,576
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (78) (6,029)
------- --------
$ 363 $ (3,453)
======= ========
</TABLE>
NOTE E -- LONG TERM DEBT
The following is a summary of the Company's long-term debt at December 31,
1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------- ----
<S> <C> <C>
Term loans.................................................. $ 8,595 $ --
Less: Current maturities.................................... $(2,556) --
------- ----
Long-term debt.............................................. $ 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 was secured by
such equipment. Monthly principal and interest payments total approximately
$86,000. This term loan was guaranteed by Seitel. On August 12, 1997, the
Company repaid the remaining balance of the loan of approximately $917,000,
including accrued interest to date, with proceeds from the IPO.
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 was secured by such equipment. Monthly principal and interest payments
totaled approximately $13,000. This term loan was guaranteed by Seitel. On
August 14, 1997, the Company repaid the remaining balance of the loan of
approximately $257,000, including accrued interest to date, with proceeds from
the IPO.
F-17
<PAGE> 85
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 9, 1996, the Company obtained two term loans aggregating $7,264,000
for the purchase of land and marine seismic equipment which secured the debt.
The first loan was a $5,902,000, five year term loan bearing interest at the
rate of 8%. The second loan was a $1,362,000 three year term loan bearing
interest at a rate of 8.06%. Monthly principal and interest payments on both
term loans totaled approximately $163,000. In March 1997, the Company obtained
two additional loans from the same lender of $558,000 and $7,006,000,
respectively, for the purchase of additional seismic equipment. The notes bear
interest at 7.73% and 7.98%, respectively, and mature in three and five years
respectively. These term loans were guaranteed by Seitel. On August 12, 1997,
the Company repaid the remaining balance of these loans of $13.3 million,
including interest and prepayment penalties, with proceeds from the IPO.
On August 14, 1997, the Company repaid approximately $7.5 million of
borrowings and accrued interest to date with respect to the ERI Acquisition with
proceeds from the IPO.
On October 21, 1997, the Company entered into an agreement with Bank One,
Texas N.A. with respect to a $20,000,000 revolving credit facility secured by
the Company's accounts receivable. The amount the Company may borrow under the
facility is limited to a borrowing base that is equal to 90% of the eligible
U.S. and U.K. investment grade accounts receivable, as defined, 100% of
receivables secured by acceptable letters of credit, and 80% of eligible
noninvestment grade domestic and other foreign receivables. Interest only will
be payable monthly or at the end of LIBOR interest periods, and the credit
facility is payable in full in three years. Mandatory prepayments are required
if borrowings exceed the borrowing base. Interest accrues under the credit
facility at the bank's base rate or LIBOR plus a spread of 1.375% if the
Company's debt to net worth ratio is less than 1 to 1, and 1.625% if such ratio
is equal to or greater than 1 to 1. As of December 31, 1997, the Company has
approximately $18.5 million available under this facility and no borrowings were
currently outstanding.
NOTE F -- 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,
------------------
1996 1997
------- -------
<S> <C> <C>
Geophysical equipment....................................... $ 5,339 $15,311
Accumulated amortization.................................... (2,649) (6,704)
------- -------
Assets under capital lease, net............................. $ 2,690 $ 8,607
======= =======
</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 square footage utilized by the
Company. Additionally, the Company directly leases office space and charters
vessels and geophysical equipment under certain non-cancelable operating leases.
Rental expense for 1995, 1996 and 1997 was approximately $98,000, $142,000 and
$4,293,000, respectively, related to these leases.
F-18
<PAGE> 86
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for the five years subsequent to December 31,
1997 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998........................................................ $ 3,278 $ 4,655
1999........................................................ 3,474 2,409
2000........................................................ 3,681 2,301
2001........................................................ 1,261 433
2002........................................................ -- 426
Thereafter.................................................. -- 4,220
------- -------
Total minimum lease payments...................... 11,694 $14,444
=======
Less amount representing interest........................... (934)
-------
Present value of net minimum lease payments................. $10,760
=======
</TABLE>
The capital lease obligation outstanding as of December 31, 1997 has an
annual interest rate of approximately 4.95%.
NOTE G -- STOCKHOLDERS' EQUITY
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.
On July 23, 1997, the Company issued 25,000 shares of common stock to the
president of the Company for a note valued at $425,000 which represented the
fair value of the Company's common stock at that date. The note bears interest
at 6% and is for a term of eight years. Interest is payable quarterly until
September 2000 when equal payments of principal plus interest will be payable
monthly until July 2005. The note is secured by a pledge of the 25,000 shares of
common stock in favor of the Company.
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.
Seitel Contribution: In May 1997, Seitel contributed to the Company all of
the shares that it owned of Energy Research International, which represented a
19% ownership interest. Energy Research International is a holding company that
wholly-owns two marine seismic companies. This contribution was recorded at
Seitel's basis in such investment and resulted in a $914,000 increase in the
Company's additional paid-in capital.
Securities Offering, ERI Acquisition: On August 11, 1997 and September 5,
1997, the Company completed the offering and sale of a total of 6,524,000 shares
of common stock to the public at a price of $17 per share (including 1,880,000
shares sold by the Company's former parent, Seitel, Inc. and 180,000 shares sold
by the former owners of ERI) resulting in net proceeds of $69.1 million to the
Company after deducting offering-related expenses. Also on August 11, 1997, the
Company acquired the remaining 81% of Energy Research International in exchange
for 600,000 shares of common stock.
Stock Option Plans: In May 1997, the Company adopted a stock option plan
whereby 1,100,000 shares of common stock were 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 are
granted at or above the market price
F-19
<PAGE> 87
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's stock on the date of grant. As of December 31, 1997, 763,250
options have been issued under the plan.
In May 1997, the Company adopted an independent directors stock option plan
and 100,000 shares were reserved for issuance pursuant to such plan. Under this
plan, options are automatically granted to independent directors upon their
election and reelection as directors of the Company. Such options are granted at
the fair market value of the Company's stock on the date of grant. As of
December 31, 1997, 30,000 options have been issued under the plan.
The following summarizes information with regard to the stock option plans
for the year ended December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
1997
-----------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning of year............................ -- --
Granted................................................... 793 $16.81
Exercise.................................................. -- --
Forfeited................................................. -- --
Outstanding at end of year.................................. 793 $16.81
=== ======
Options exercisable at end of year.......................... -- --
=== ======
</TABLE>
The following table summarizes information for the options outstanding at
December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED NUMBER OF
NUMBER OF AVERAGE WEIGHTED OPTIONS WEIGHTED
OPTIONS CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
OUTSTANDING LIFE IN EXERCISE AT EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/97 YEARS PRICE 12/31/97 PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13.25 - 15.50...................... 53 10.0 $13.28 -- --
$17.00 - $18.50..................... 740 9.6 17.07 -- --
--- ------ --- ---
$13.25 - $18.50..................... 793 $16.81 -- --
=== ====== === ===
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. APB Opinion 25 does not
require compensation costs to be recorded on options which have exercise prices
at least equal to the market price of the stock on the date of grant.
Accordingly, no compensation cost has been recognized for the Company's
stock-based plans. Had compensation costs for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the optional accounting method
prescribed by SFAS No. 123,
F-20
<PAGE> 88
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997
------
<S> <C> <C>
Net income.................................................. As reported $4,400
Pro forma.. 3,635
Basic earnings per share.................................... As reported $ 0.81
Pro forma 0.67
Diluted earnings per share.................................. As reported $ 0.81
Pro forma 0.67
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1997: risk-free interest rates ranging from 5.7% to 6.5%; dividend yield of 0%;
stock price volatility ranging from 40.7% to 41.2%; and an expected option life
of ten years. The weighted-average fair value of options granted during 1997 was
$10.68 per option, for options granted at fair market value.
NOTE H -- COMMITMENTS AND CONTINGENCIES
Acquisition and Financing Commitments: In September, 1997, the Company
entered into an agreement for the purchase of a telemetry seismic data
acquisition system at a cost of approximately $5.9 million. A deposit of
approximately $586,000 has been made with the remaining amount to be paid upon
delivery of the system which is expected in March, 1998.
In December 1997, the Company commenced upgrades on one of its vessels, the
Labrador Horizon, for an estimated upgrade cost of approximately $20.0 million.
In March 1998, the Company completed the upgrade.
In December 1997, the Company entered into a letter of intent for the
purchase of a privately-held seismic shot-hole drilling and front-end services
company. This acquisition is expected to be accounted for under the purchase
method of accounting. In March 1998, the Company completed the acquisition for a
purchase price of approximately $4.3 million in cash, 98,360 shares of the
Company's common stock, and $500,000 in deferred compensation payable to the
former owner (unaudited).
In January 1998, the Company obtained a commitment, subject to
documentation, with British Linen Shipping Ltd. for the financing of the
Labrador Horizon upgrades and the purchase of the vessel for a total commitment
of approximately $31.3 million. The facility will bear interest at a rate of
LIBOR plus 1.375% and will require the Company to enter into a lease purchase
agreement with British Linen Shipping Ltd. for a period of five years commencing
upon completion of the upgrades. The facility will require a security deposit of
approximately $5.0 million with scheduled amounts to be refunded based upon a
predetermined formula. Additionally, the Company will have the option to acquire
the vessel at the end of the lease purchase agreement for a price of .1% of the
total facility commitment. In April 1998, the Company completed the transaction
for a total of approximately $31.3 million (unaudited).
In March 1998, the Company obtained a term loan commitment, subject to
documentation, with Fleet Capital Corporation for the financing of an Opseis
system for approximately $5.9 million. The loan will be for a period of five
years and will bear interest at a fixed rate equal to the average three year
treasury rate at the time of closing plus 1.75%. Monthly payments of
approximately $117,000 will be made under the loan with the Opseis system
pledged as security for the loan. In April 1998, the Company acquired the Opseis
system and completed the financing with the Fleet Capital term loan as described
above (unaudited).
F-21
<PAGE> 89
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employment Agreements: In connection with the completion of the IPO in
August 1997, the Company entered into employment agreements with five of its
executive officers.
Litigation: 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 results
of operations or financial position.
NOTE I -- EMPLOYEE BENEFIT PLANS
In July 1997, the Company adopted the Eagle Geophysical, Inc. 401k
Retirement Plan (the "Plan") which is a defined contribution plan for all
eligible employees in the United States. The Company matches employee
contributions up to specified limits and may contribute a portion of the net
profits of the Company in accordance with the Plan. For the year ended December
31, 1997, the Company incurred expense of approximately $32,000 for its matching
contributions to the Plan.
The Company provides for the retirement of its United Kingdom employees
through The Horizon Pension Plan (the "Pension Plan"). The Pension Plan provides
defined retirement benefits as defined in the Trust Deed and is managed by the
Trustees. The following table sets forth the Pension Plan and the funded status
as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................. $4,098 $5,168
Accumulated benefit obligation............................ 4,098 5,168
Projected benefit obligation.............................. 4,939 6,230
Plan assets at fair value................................... 5,969 7,271
------ ------
Plan assets in excess of projected benefit obligation....... 1,030 1,041
Unrecognized net transition asset........................... (700) (597)
Unrecognized net loss....................................... 79 159
------ ------
Prepaid pension cost........................................ $ 409 $ 603
====== ======
</TABLE>
Plan assets are invested in a unitized mixed managed fund. At December 31,
1997 approximately 82% of the fund was invested in UK and international equities
and the balance was invested in fixed interest securities or held as cash
deposits.
Net pension cost for 1995, 1996 and 1997 included the following components
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Service cost............................................. $ 338 $ 379 $ 406
Interest cost............................................ 249 330 403
Actual return on plan assets............................. (489) (627) (1,102)
Net amortization and deferral............................ 83 118 512
----- ----- -------
Net pension cost......................................... $ 181 $ 200 $ 219
===== ===== =======
</TABLE>
The major assumptions used in computing the net pension cost were:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount.................................................... 9.0% 9.0% 8.5%
Expected long term rate of return on plan assets............ 9.5% 9.5% 9.0%
Rate of increase in compensation levels..................... 6.5% 6.5% 6.5%
</TABLE>
F-22
<PAGE> 90
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RELATED PARTY TRANSACTIONS
The Company enters into various 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. For the years ended December 31, 1995, 1996 and 1997, the Company
recognized revenue of $15.4 million, $27.2 million and $42.3 million,
respectively, for seismic data acquisition services performed for Seitel's
subsidiaries. Prior to August 11, 1997 such revenues from affiliates were based
on prices charged to unaffiliated third parties for similar work. Gross margin
recognized on work for affiliates was limited in each reporting period to the
total margin percentage earned on work for unaffiliated parties. Subsequent to
August 11, 1997, revenues from affiliates were based on agreed upon contractual
amounts and terms similar to contracts with other third party customers.
Prior to the IPO, the Company reimbursed Seitel for direct and indirect
costs of certain Seitel employees who provided services to the Company and for
other costs, primarily general and administrative expenses, related to the
Company's operations. Seitel allocated indirect costs to the Company using a
formula based on 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 resulted in a reasonable allocation of indirect costs. During the period
from January 1, 1997 to August 11, 1997, the Company recorded general and
administrative costs allocated from Seitel of $818,000. Prior to August 11,
1997, Seitel funded the Company's direct operating costs through intercompany
advances and was reimbursed for such advances with available cash. Amounts
payable to or receivable from Seitel and its subsidiaries bore interest at the
same rates which Seitel was charged or received. During the period from January
1, 1997 to August 11, 1997, the Company recorded net interest income of $404,000
related to the amounts payable to or receivable from Seitel and its
subsidiaries.
On July 22, 1997 the Company declared a dividend to Seitel for its
receivable for work performed by the Company for Seitel and its subsidiaries
prior to the IPO. On August 11, 1997, the Company settled this receivable
through a non-cash dividend which amounted to approximately $6,651,000.
Prior to the IPO, the Company leased certain marine seismic equipment to
Horizon Exploration Limited, a marine seismic company wholly-owned by ERI, under
a five-year operating rental agreement expiring June 30, 2001. For the years
ended December 31, 1995, 1996, and 1997, the Company recognized revenues of
$-0-, $828,000 and $1,783,000, respectively, related to this lease. Subsequent
to the IPO and the ERI acquisition, $694,000 of such rental income and expense
has been eliminated in the Company's consolidated results of operations.
The Company and Seitel have entered into a number of agreements for the
purpose of defining their continuing relationship. 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 provided 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 required 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 IPO. Under the Master Separation
Agreement, Seitel and its subsidiaries and the Company and its subsidiaries have
indemnified 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 IPO including liabilities under the Securities Act with
respect to the IPO. The Master Separation Agreement also provides for continued
access by the Company to historical financial and operational information
relating to the Company and its subsidiaries maintained by Seitel.
F-23
<PAGE> 91
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sublease: The Sublease between the Company and Seitel provides 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 also provides 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 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 IPO at the expense of the Company.
Tax Indemnity Agreement: Prior to the IPO, the Company was a member of the
Seitel affiliated group and filed its tax returns on a consolidated basis with
such group. After the IPO, the Company is no longer a member of the Seitel
affiliated group. The Company and Seitel have entered 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 IPO. Pursuant to the Tax
Indemnity Agreement, the Company is required to pay Seitel (to the extent not
already paid) its share of federal income taxes prior to the date of
consummation of the IPO, and is responsible for federal income taxes from its
operations on and after the date of the IPO. 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 IPO 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 entered into an
Administrative Services Agreement pursuant to which Seitel provides the Company
with administrative services, primarily accounting services, at or up to the
same levels as provided prior to the IPO. Seitel provided these services for a
90-day transition period after the IPO to allow the Company adequate time to
build an internal administrative staff. The Company paid Seitel approximately
$5,500 for these services at Seitel's actual cost of providing these services
for the year ended December 31, 1997.
NOTE K -- MAJOR CUSTOMERS
During each of the years ended December 31, 1995, 1996 and 1997, certain
customers accounted for 10% or more of the Company's consolidated revenue as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Affiliated companies, wholly-owned subsidiaries of Seitel:
Seitel Data, Ltd. ........................................ 14% 28% 46%
DDD Energy Inc. .......................................... 39% 29% 8%
Unaffiliated companies, one each year....................... 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 as a percentage of total revenues have been
immaterial.
F-24
<PAGE> 92
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- FOREIGN OPERATIONS
Prior to the IPO, the Company's principal operations were in the United
States. With the completion of the ERI Acquisition, the Company's principal
operations are in both Europe and the United States. Financial information by
geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Operating revenues:
United States...................................... $29,275 $48,136 $ 70,185
Europe and other areas............................. -- -- 8,876
------- ------- --------
Total operating revenues................... $29,275 $48,136 $ 79,061
======= ======= ========
Operating Income:
United States...................................... $ 5,415 $10,539 $ 15,998
Europe and other areas............................. -- -- 2,255
------- ------- --------
Total operating income..................... 5,415 10,539 18,253
Depreciation and amortization................... 2,471 3,409 8,584
General corporate expense....................... -- -- 2,070
Net interest and other expense.................. 408 531 205
------- ------- --------
Income before provision for income taxes........ $ 2,536 $ 6,599 $ 7,394
======= ======= ========
Identifiable Assets:
United States...................................... 17,960 26,721 47,568
Europe and other areas............................. -- -- 66,668
------- ------- --------
Total Identifiable assets.................. 17,960 26,721 114,236
Corporate assets........................... -- -- 10,069
------- ------- --------
Total assets............................... $17,960 $26,721 $124,305
======= ======= ========
</TABLE>
F-25
<PAGE> 93
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Revenues....................................... $ 5,974 $11,777 $12,138 $18,247
Operating costs and expenses (excluding
depreciation and amortization).............. 4,697 9,412 9,660 13,828
Depreciation and amortization.................. 657 640 1,018 1,094
Interest and other............................. 136 158 167 70
Income before income taxes..................... 484 1,567 1,293 3,255
Net income applicable to common shares......... 306 993 819 2,061
Net income per common share -- basic(1)........ $ 0.09 $ 0.29 $ 0.24 $ 0.61
Net income per common share -- diluted(1)...... $ 0.09 $ 0.29 $ 0.24 $ 0.61
1997
Revenues....................................... $12,981 $15,785 $25,216 $25,079
Operating costs and expenses (excluding
depreciation and amortization).............. 9,736 12,608 20,451 20,083
Depreciation and amortization.................. 1,302 1,470 2,613 3,199
Interest and other............................. 158 (124) 646 (475)
Income before income taxes..................... 1,785 1,831 1,506 2,272
Net income applicable to common shares......... 1,130 1,160 913 1,197
Net income per common share -- basic(1)........ $ 0.33 $ 0.34 $ 0.14 $ 0.14
Net income per common share -- diluted(1)...... $ 0.33 $ 0.34 $ 0.14 $ 0.14
</TABLE>
- ---------------
(1) The sum of individual quarterly earnings per share may not agree with the
year to date earnings per share as each period's computation is based on the
weighted average number of common shares outstanding during the period.
NOTE N -- SUBSEQUENT EVENTS (UNAUDITED)
The Company intends to upgrade and equip two additional offshore seismic
vessels, at an aggregate capital cost (including acquisition costs) of
approximately $98.8 million. The Company acquired the two vessels, the Austral
Horizon and the Atlantic Horizon, during the fourth quarter of 1997 for purchase
prices of approximately $1.6 million and $3.6 million, respectively. The Company
intends to upgrade and equip the vessels during 1998. The costs to upgrade and
equip the two vessels will be approximately $34.3 million for the Austral
Horizon and approximately $59.3 million for the Atlantic Horizon. The Company is
financing these capital costs out of the proceeds of the issuance of $100.0
million aggregate principal amount of 10 3/4% Senior Notes due 2008 (the "Senior
Notes"). In anticipation of the offering and sale of the Senior Notes (the
"Offering"), the Company financed these costs on an interim basis with the $20.0
million Bank Credit Facility and a $29.0 million short-term loan more fully
described below.
In June 1998, the Company entered into the $29.0 million Short-Term Loan
with Bank One, Texas, N.A. to fund part of the cost of the upgrades to the
Austral Horizon and the Atlantic Horizon pending completion of the Offering. The
maximum amount borrowed under this loan was $7.5 million, which was repaid in
full upon consummation of the Offering on July 20, 1998. Interest accrued under
this loan at the bank's base rate on LIBOR plus 2% and was payable monthly or at
the end of applicable LIBOR interest periods.
F-26
<PAGE> 94
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On July 20, 1998, the Company issued the Senior Notes to repay
approximately $27.5 million borrowed under the Short-Term Loan and the Revolving
Credit Facility to pay for upgrades to the Austral Horizon and Atlantic Horizon
and to fund the remaining upgrades of these two vessels. In connection with the
Offering, certain of the Company's subsidiaries (the "Guarantor Subsidiaries")
agreed to guarantee the Company's obligations under the Senior Notes. Certain
other subsidiaries (the "Non-Guarantor Subsidiaries") are not required to
guarantee the Senior Notes.
The following tables present the condensed consolidating balance sheets of
Eagle Geophysical, Inc. as a parent company, its Guarantor Subsidiaries and its
Non-Guarantor Subsidiaries as of June 30, 1998 (unaudited), and December 31,
1997 and 1996 and the related condensed consolidating statements of operations
and cash flows for the six months ended June 30, 1998 and 1997 (unaudited), and
for each of the three years in the period ended December 31, 1997.
F-27
<PAGE> 95
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 4,619 $ -- $ 14,506 $ (3,213) $ 15,912
Receivables, net.......... -- 18,151 10,931 -- 29,082
Inventory................. -- 1,441 1,591 -- 3,032
Prepaid expenses and other
assets................. 2,607 416 1,735 (2,607) 2,151
-------- ------- -------- -------- --------
Total current
assets.......... 7,226 20,008 28,763 (5,820) 50,177
Property and equipment,
net.................... -- 29,470 94,548 -- 124,018
Goodwill, net............. -- 2,443 17,434 -- 19,877
Other assets, net......... 172 4,647 1,971 -- 6,790
Intercompany investments
and advances........... 16,790 -- -- (16,790) --
-------- ------- -------- -------- --------
Total Assets...... $ 24,188 $56,568 $142,716 $(22,610) $200,862
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt and capital lease
obligations............... $ -- $ 1,014 $ 5,847 $ -- $ 6,861
Accounts payable............ 16 10,956 21,184 (3,213) 28,943
Intercompany payables,
net....................... (79,196) 15,866 77,659 (14,329) --
Accrued liabilities......... 1,153 4,014 11,319 (2,607) 13,879
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... -- 9,267 187 -- 9,454
-------- ------- -------- -------- --------
Total current
liabilities..... (78,027) 41,117 116,196 (20,149) 59,137
Long-term debt.............. 22,500 4,770 -- -- 27,270
Capital leases
obligations............... -- -- 25,421 -- 25,421
Deferred income taxes and
other obligations......... -- 1,214 -- -- 1,214
-------- ------- -------- -------- --------
Total
Liabilities..... (55,527) 47,101 141,617 (20,149) 113,042
-------- ------- -------- -------- --------
Stockholders' Equity........ 79,715 9,467 1,099 (2,461) 87,820
-------- ------- -------- -------- --------
Total Liabilities
and
Stockholders'
Equity.......... $ 24,188 $56,568 $142,716 $(22,610) $200,862
======== ======= ======== ======== ========
</TABLE>
F-28
<PAGE> 96
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 8,450 $ 1,871 $ 9,161 $ -- $ 19,482
Receivables, net.......... 89 25,339 1,485 -- 26,913
Inventory................. -- 378 1,327 -- 1,705
Prepaid expenses and other
assets................. 2,357 515 1,866 (1,950) 2,788
-------- ------- ------- -------- --------
Total current
assets.......... 10,896 28,103 13,839 (1,950) 50,888
Property and equipment,
net.................... 54 22,338 32,805 -- 55,197
Goodwill, net............. -- -- 17,990 -- 17,990
Other assets, net......... 104 22 1,972 (1,868) 230
Intercompany
investments............ 11,789 -- -- (11,789) --
-------- ------- ------- -------- --------
Total Assets...... $ 22,843 $50,463 $66,606 $(15,607) $124,305
======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of capital
lease obligations......... $ -- $ -- $ 2,816 $ -- $ 2,816
Accounts payable............ 934 8,198 6,539 -- 15,671
Intercompany payables,
net....................... (58,340) 25,681 41,987 (9,328) --
Accrued liabilities......... 278 3,095 6,426 (1,950) 7,849
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... -- 5,842 187 -- 6,029
-------- ------- ------- -------- --------
Total current
liabilities..... (57,128) 42,816 57,955 (11,278) 32,365
Capital leases
obligations............... -- -- 7,944 -- 7,944
Deferred income taxes and
other obligations......... -- 1,868 -- (1,868) --
-------- ------- ------- -------- --------
Total
Liabilities..... (57,128) 44,684 65,899 (13,146) 40,309
-------- ------- ------- -------- --------
Stockholders' Equity........ 79,971 5,779 707 (2,461) 83,996
-------- ------- ------- -------- --------
Total Liabilities
and
Stockholders'
Equity.......... $ 22,843 $50,463 $66,606 $(15,607) $124,305
======== ======= ======= ======== ========
</TABLE>
F-29
<PAGE> 97
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ -- $ -- $ -- $ --
Receivables, net......... -- 13,587 -- -- 13,587
Inventory................ -- -- -- -- --
Prepaid expenses and
other assets.......... -- 860 -- -- 860
---- ------- ---- ---- -------
Total current
assets......... -- 14,447 -- -- 14,447
Property and equipment,
net................... -- 12,205 -- -- 12,205
Goodwill, net............ -- -- -- -- --
Other assets, net........ -- 69 -- -- 69
Intercompany investments
and advances, net..... -- -- -- -- --
---- ------- ---- ---- -------
Total Assets..... $ -- $26,721 $ -- $ -- $26,721
==== ======= ==== ==== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of
capital lease
obligations........... $ -- $ 1,033 $ -- $ -- $ 1,033
Current portion of
long-term debt........ -- 2,556 -- -- 2,556
Accounts payable......... -- 4,623 -- -- 4,623
Intercompany payables,
net................... -- -- -- -- --
Accrued liabilities...... -- 652 -- -- 652
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............. -- 78 -- -- 78
---- ------- ---- ---- -------
Total current
liabilities.... -- 8,942 -- -- 8,942
---- ------- ---- ---- -------
Long-term debt............. -- 6,039 -- -- 6,039
Capital leases
obligations.............. -- 1,274 -- -- 1,274
Due to affiliate........... -- 1,965 -- -- 1,965
Deferred income taxes and
other obligations........ -- 712 -- -- 712
---- ------- ---- ---- -------
Total
Liabilities.... -- 18,932 -- -- 18,932
---- ------- ---- ---- -------
Stockholders' Equity....... -- 7,789 -- -- 7,789
---- ------- ---- ---- -------
Total Liabilities
and
Stockholders'
Equity......... $ -- $26,721 $ -- $ -- $26,721
==== ======= ==== ==== =======
</TABLE>
F-30
<PAGE> 98
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
1998
REVENUES................... $ -- $43,995 $15,118 $ (897) $58,216
EXPENSES
Operating Expenses
(exclusive of
depreciation and
amortization
shown below).......... -- 31,741 9,122 (897) 39,966
Depreciation and
amortization.......... 13 4,407 3,267 -- 7,687
Selling, general and
administrative
expenses.............. 1,753 1,923 1,697 -- 5,373
Interest expense, net.... 156 8 187 -- 351
------- ------- ------- ------- -------
1,922 38,079 14,273 (897) 53,377
------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................... (1,922) 5,916 845 -- 4,839
Provision (benefit) for
income taxes............. (721) 2,228 453 -- 1,960
------- ------- ------- ------- -------
NET INCOME (LOSS).......... $(1,201) $ 3,688 $ 392 $ -- $ 2,879
======= ======= ======= ======= =======
1997
REVENUES................... $ -- $28,766 $ -- $ -- $28,766
EXPENSES
Operating expenses
(exclusive of
depreciation and
amortization shown
below)................ -- 20,779 -- -- 20,779
Depreciation and
amortization.......... -- 2,772 -- -- 2,772
Selling, general and
administrative
expenses.............. -- 1,565 -- -- 1,565
Interest expense, net.... -- 34 -- -- 34
------- ------- ------- ------- -------
-- 25,150 -- -- 25,150
------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................... -- 3,616 -- -- 3,616
Provision for income
taxes.................... -- 1,326 -- -- 1,326
------- ------- ------- ------- -------
NET INCOME (LOSS).......... $ -- $ 2,290 $ -- $ -- $ 2,290
======= ======= ======= ======= =======
</TABLE>
F-31
<PAGE> 99
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
1997
REVENUES................... $ -- $70,024 $ 9,731 $(694) $79,061
EXPENSES
Operating expenses
(exclusive of
depreciation and
amortization
shown below).......... -- 51,548 5,616 (694) 56,470
Depreciation and
amortization.......... 4 6,070 2,510 -- 8,584
Selling, general and
administrative
expenses.............. 2,070 4,086 252 -- 6,408
Interest expense, net.... (355) 450 110 -- 205
------- ------- ------- ----- -------
1,719 62,154 8,488 (694) 71,667
------- ------- ------- ----- -------
Income (loss) before
provision for income
taxes.................... (1,719) 7,870 1,243 -- 7,394
Provision (benefit) for
income taxes............. (645) 3,106 533 -- 2,994
------- ------- ------- ----- -------
NET INCOME (LOSS).......... $(1,074) $ 4,764 $ 710 $ -- $ 4,400
======= ======= ======= ===== =======
1996
REVENUES................... $ -- $48,136 $ -- $ -- $48,136
EXPENSES
Operating expenses
(exclusive of
depreciation and
amortization
shown below).......... -- 34,917 -- -- 34,917
Depreciation and
amortization.......... -- 3,409 -- -- 3,409
Selling, general and
administrative
expenses.............. -- 2,680 -- -- 2,680
Interest expense, net.... -- 531 -- -- 531
------- ------- ------- ----- -------
-- 41,537 -- -- 41,537
------- ------- ------- ----- -------
Income (loss) before
provision for income
taxes.................... -- 6,599 -- -- 6,599
Provision for income
taxes.................... -- 2,420 -- -- 2,420
------- ------- ------- ----- -------
NET INCOME (LOSS).......... $ -- $ 4,179 $ -- $ -- $ 4,179
======= ======= ======= ===== =======
</TABLE>
F-32
<PAGE> 100
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
1995
REVENUES................... $ -- $29,275 $ -- $ -- $29,275
EXPENSES
Operating expenses
(exclusive of
depreciation and
amortization
shown below).......... -- $20,986 -- -- 20,986
Depreciation and
amortization.......... -- 2,471 -- -- 2,471
Selling, general and
administrative
expenses.............. -- 2,874 -- -- 2,874
Interest expense, net.... -- 408 -- -- 408
------- ------- ------- ------- -------
-- 26,739 -- -- 26,739
------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................... -- 2,536 -- -- 2,536
Provision for income
taxes.................... -- 933 -- -- 933
------- ------- ------- ------- -------
NET INCOME (LOSS).......... $ -- $ 1,603 $ -- $ -- $ 1,603
======= ======= ======= ======= =======
</TABLE>
F-33
<PAGE> 101
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ (1,201) $ 3,688 $ 392 $ -- $ 2,879
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities............... (2,248) 15,763 10,732 (3,213) 21,034
-------- -------- -------- ------- --------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES............... (3,449) 19,451 11,124 (3,213) 23,913
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase and upgrades of
property and equipment... -- (4,633) (40,526) -- (45,159)
Cash received on disposal
of property and
equipment................ -- 152 -- -- 152
Cash paid for shot-hole
drilling company, net of
cash acquired............ -- (3,516) -- -- (3,516)
-------- -------- -------- ------- --------
NET CASH USED IN INVESTING
ACTIVITIES............... -- (7,997) (40,526) -- (48,523)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit
facility................. 30,500 -- -- -- 30,500
Repayments under credit
facility................. (8,000) -- -- -- (8,000)
Principal payments on term
loans.................... -- (81) -- -- (81)
Principal payments on
capital
leases................... -- -- (1,199) -- (1,199)
Proceeds (payments) on
intercompany advances.... (22,702) (13,244) 35,946 -- --
Other, net................. (180) -- -- -- (180)
-------- -------- -------- ------- --------
NET CASH PROVIDED BY (USED
IN) FINANCING
ACTIVITIES............... (382) (13,325) 34,747 -- 21,040
-------- -------- -------- ------- --------
Net decrease in cash and
cash equivalents......... (3,831) (1,871) 5,345 (3,213) (3,570)
Cash and cash equivalents,
beginning of period...... 8,450 1,871 9,161 -- 19,482
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............ $ 4,619 $ -- $ 14,506 $(3,213) $ 15,912
======== ======== ======== ======= ========
</TABLE>
F-34
<PAGE> 102
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income(loss)........... $ -- $ 2,290 $ -- $ -- $ 2,290
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities..... -- 7,606 -- -- 7,606
---- ------- ---- ---- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES..... -- 9,896 -- -- 9,896
---- ------- ---- ---- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase and upgrades of
property and equipment... -- (8,098) -- -- (8,098)
Cash received on disposal
of property and
equipment................ -- 27 -- -- 27
---- ------- ---- ---- -------
NET CASH USED IN INVESTING
ACTIVITIES............... -- (8,071) -- -- (8,071)
---- ------- ---- ---- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under term
loans.................... -- 7,925 -- -- 7,925
Principal payments on term
loans.................... -- (1,943) -- -- (1,943)
Principal payments on
capital
leases................... -- (681) -- -- (681)
Payment to affiliate....... -- (7,115) -- -- (7,115)
---- ------- ---- ---- -------
NET CASH USED IN FINANCING
ACTIVITIES............... -- (1,814) -- -- (1,814)
---- ------- ---- ---- -------
Net change in cash and cash
equivalents.............. -- 11 -- -- 11
Cash and cash equivalents,
beginning of period...... -- -- -- -- --
---- ------- ---- ---- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............ $ -- $ 11 $ -- $ -- $ 11
==== ======= ==== ==== =======
</TABLE>
F-35
<PAGE> 103
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ (1,074) $ 4,764 $ 710 $ -- $ 4,400
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:..... (1,335) 4,056 5,768 -- 8,489
-------- -------- -------- ---- --------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES................ (2,409) 8,820 6,478 -- 12,889
-------- -------- -------- ---- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase and upgrades of
property and equipment.... (58) (16,821) (15,496) -- (32,375)
Cash received on disposal of
property and equipment.... -- 24 -- -- 24
Cash acquired from the
purchase of Energy
Research International.... -- -- 145 -- 145
-------- -------- -------- ---- --------
NET CASH USED IN INVESTING
ACTIVITIES................ (58) (16,797) (15,351) -- (32,206)
-------- -------- -------- ---- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit
facility.................. -- -- -- -- --
Borrowings under term
loans..................... -- 7,564 -- -- 7,564
Principal payments on term
loans..................... -- (16,275) (11,611) -- (27,886)
Principal payments on
capital leases............ -- (3,002) (4,003) -- (7,005)
Payment to affiliate........ -- (3,003) -- -- (3,003)
Issuance of common stock,
net....................... 69,129 -- -- -- 69,129
Proceeds (payments) on
intercompany investments
and advances.............. (58,212) 24,564 33,648 -- --
-------- -------- -------- ---- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES...... 10,917 9,848 18,034 -- 38,799
-------- -------- -------- ---- --------
Net increase in cash and
cash equivalents.......... 8,450 1,871 9,161 -- 19,482
Cash and cash equivalents,
beginning of year......... -- -- -- -- --
-------- -------- -------- ---- --------
CASH AND CASH EQUIVALENTS,
END
OF YEAR................... $ 8,450 $ 1,871 $ 9,161 $ -- $ 19,482
======== ======== ======== ==== ========
</TABLE>
F-36
<PAGE> 104
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ -- $ 4,179 $ -- $ -- $ 4,179
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:.... -- 461 -- -- 461
------ ------- ------ ------ -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES..... -- 4,640 -- -- 4,640
------ ------- ------ ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase and upgrading of
property and
equipment............. -- (7,928) -- -- (7,928)
Cash received on disposal
of property and
equipment............. -- -- -- -- --
Cash paid for shot-hole
drilling
company, net of cash
acquired............ -- -- -- -- --
------ ------- ------ ------ -------
NET CASH USED IN INVESTING
ACTIVITIES............... -- (7,928) -- -- (7,928)
------ ------- ------ ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit
facility.............. -- -- -- -- --
Borrowings under term
loans................. -- 7,694 -- -- 7,694
Principal payments on
term loans............ -- (1,518) -- -- (1,518)
Principal payments on
capital leases........ -- (1,247) -- -- (1,247)
Payments to affiliate.... -- (1,699) -- -- (1,699)
------ ------- ------ ------ -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES..... -- 3,230 -- -- 3,230
------ ------- ------ ------ -------
Net decrease in cash and
cash equivalents......... -- (58) -- -- (58)
Cash and cash equivalents,
beginning of year........ -- 58 -- -- 58
------ ------- ------ ------ -------
CASH AND CASH EQUIVALENTS,
END OF YEAR.............. $ -- $ -- $ -- $ -- $ --
====== ======= ====== ====== =======
</TABLE>
F-37
<PAGE> 105
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECLASSIFICATIONS
EAGLE GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND EAGLE GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------------- ------------ ------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................. $ -- $ 1,603 $ -- $ -- $ 1,603
Adjustments to reconcile
net income to net cash
provided by operating
activities:.............. -- (970) -- -- (970)
------ ------- ------ ------ -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES..... -- 633 -- -- 633
------ ------- ------ ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase and upgrading of
property and equipment... -- (289) -- -- (289)
Cash received on disposal
of property and
equipment................ -- -- -- -- --
Cash paid for shot-hole
drilling company,
net of cash acquired..... -- -- -- -- --
------ ------- ------ ------ -------
NET CASH USED IN INVESTING
ACTIVITIES............... -- (289) -- -- (289)
------ ------- ------ ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit
facility................. -- -- -- -- --
Borrowings under term
loans.................... -- -- -- -- --
Principal payments on term
loans.................... -- (812) -- -- (812)
Principal payments on
capital leases........... -- (1,299) -- -- (1,299)
Receipts from affiliate.... -- 1,796 -- -- 1,796
------ ------- ------ ------ -------
NET CASH USED IN FINANCING
ACTIVITIES............... -- (315) -- -- (315)
------ ------- ------ ------ -------
Net increase in cash and
cash equivalents......... -- 29 -- -- 29
Cash and cash equivalents,
beginning
of year.................. -- 29 -- -- 29
------ ------- ------ ------ -------
CASH AND CASH EQUIVALENTS,
END OF YEAR.............. $ -- $ 58 $ -- $ -- $ 58
====== ======= ====== ====== =======
</TABLE>
F-38
<PAGE> 106
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, 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 CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-looking Statements............. iii
Available Information.................. iii
Incorporation of Certain Documents by
Reference............................ iv
Summary................................ 1
Risk Factors........................... 10
The Exchange Offer..................... 18
Use of Proceeds........................ 27
Capitalization......................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
Description of the Notes............... 36
Certain United States Federal Tax
Consequences for Non-United States
Holders.............................. 61
Plan of Distribution................... 63
Legal Matters.......................... 63
Experts................................ 63
Financial Statements................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[EAGLE GEOPHYSICAL LOGO
EAGLE GEOPHYSICAL, INC.
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2008, SERIES B,
FOR ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2008, SERIES A
---------------------
PROSPECTUS
---------------------
October 5, 1998
- ------------------------------------------------------
- ------------------------------------------------------
