<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DIGICON INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0343152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098
(713) 526-5611
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RICHARD W. MCNAIRY
3701 KIRBY DRIVE, SUITE 112
HOUSTON, TEXAS 77098
(713) 526-5611
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
With copies to:
T. WILLIAM PORTER J. MARK METTS
PORTER & HEDGES, L.L.P. VINSON & ELKINS L.L.P.
700 LOUISIANA, 35TH FLOOR 1001 FANNIN
HOUSTON, TEXAS 77002 2300 FIRST CITY TOWER
(713) 226-0600 HOUSTON, TEXAS 77002
(713) 758-2222
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share........................... 4,255,000 $6.5625 $27,923,438 $9,629
===========================================================================================================
</TABLE>
(1) Includes 555,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Pursuant to Rule 457(c), the registration fee is calculated on the basis of
the average of the high and low sale prices for the Common Stock on the
American Stock Exchange on February 13, 1996, $6.5625 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
DIGICON INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-2
---------------------
<TABLE>
<CAPTION>
ITEM FORM S-2 CAPTION LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors; The
Company; Selected Consolidated Financial
Data
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. *
6. Dilution..................................... *
7. Selling Stockholders......................... Selling Stockholder
8. Plan of Distribution......................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered... Description of Capital Stock
10. Interests of Named Experts and Counsel....... Experts; Legal Matters
11. Information with Respect to the Registrant... Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Price Range of
Common Stock and Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Description of Capital
Stock; Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference.................................... Incorporation of Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. *
</TABLE>
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* Omitted inasmuch as the response to the item is negative or inapplicable.
<PAGE> 3
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED FEBRUARY , 1996
3,700,000 SHARES
DIGICON INC.
[DIGICON LOGO] COMMON STOCK
OF THE 3,700,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY, 3,500,000 SHARES ARE BEING OFFERED BY DIGICON
INC. (THE "COMPANY") AND 200,000 SHARES ARE BEING OFFERED BY A SELLING
STOCKHOLDER (THE "SELLING STOCKHOLDER"). SEE "SELLING STOCKHOLDER." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDER.
THE COMMON STOCK IS LISTED ON THE AMERICAN STOCK EXCHANGE UNDER THE SYMBOL
"DGC." ON FEBRUARY 14, 1996, THE CLOSING SALES PRICE OF THE COMMON STOCK ON THE
AMERICAN STOCK EXCHANGE WAS $7 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK AND
DIVIDEND POLICY."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7-8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS* COMPANY+ STOCKHOLDER
<S> <C> <C> <C> <C>
PER SHARE........................ $ $ $ $
TOTAL++.......................... $ $ $ $
</TABLE>
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* THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933. SEE "UNDERWRITING."
+ BEFORE DEDUCTING EXPENSES OF THIS OFFERING PAYABLE BY THE COMPANY ESTIMATED
TO BE $380,000.
++ THE COMPANY HAS GRANTED THE UNDERWRITERS A 45-DAY OPTION TO PURCHASE UP TO
555,000 ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS PER SHARE
SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN
FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ , THE TOTAL UNDERWRITING
DISCOUNTS AND COMMISSIONS WILL BE $ AND THE TOTAL PROCEEDS TO
COMPANY WILL BE $ . SEE "UNDERWRITING."
---------------------
THE COMMON STOCK IS BEING OFFERED BY THE UNDERWRITERS AS SET FORTH UNDER
"UNDERWRITING" HEREIN. IT IS EXPECTED THAT THE DELIVERY OF THE CERTIFICATES
THEREFOR WILL BE MADE AT THE OFFICES OF DILLON, READ & CO. INC., NEW YORK, NEW
YORK, ON OR ABOUT , 1996, AGAINST PAYMENT THEREFOR IN NEW YORK
FUNDS. THE UNDERWRITERS INCLUDE:
DILLON, READ & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
RODMAN & RENSHAW, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-2
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered by this Prospectus. Certain portions of
the Registration Statement have not been included in this Prospectus. For
further information, reference is made to the Registration Statement. Statements
made in this Prospectus regarding the contents of any contract or document filed
as an exhibit to the Registration Statement are not necessarily complete and, in
each instance, reference is hereby made to the copy of such contract or document
so filed. Each such statement is qualified in its entirety by such reference.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, as well as such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 13, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Such materials also can be inspected
at the offices of the American Stock Exchange, 86 Trinity Place, New York, New
York 10006, on which the Common Stock is listed.
The Company furnishes holders of its Common Stock with unaudited financial
statements for the first three quarters of each year and audited financial
statements for each year.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission by the
Company, are incorporated herein by reference (i) the Company's Annual Report on
Form 10-K for the year ended July 31, 1995, and (ii) the Company's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1995. Any statement
contained herein or in a document 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 modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any or all
of the documents incorporated by reference as a part of the Registration
Statement, other than exhibits to such documents. Requests should be directed to
Allan C. Pogach, Secretary, Digicon Inc., 3701 Kirby Drive, Suite 112, Houston,
Texas 77098, telephone (713) 526-5611.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with and is qualified
in its entirety by the information and consolidated financial statements
(including the notes thereto) appearing elsewhere in this Prospectus and the
documents incorporated by reference herein. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." Unless the context otherwise
requires, the number of shares, per share prices, weighted average number of
shares outstanding and per share amounts in this Prospectus have been adjusted
to reflect a one-for-three reverse stock split effected in January 1995.
THE COMPANY
GENERAL
The Company was founded in 1965 and provides seismic data acquisition and
processing services to the petroleum industry in selected markets worldwide. Oil
and gas companies utilize seismic data for the determination of suitable
locations for drilling exploratory wells and, increasingly, in reservoir
management for the development and production of oil and gas reserves. The
Company acquires seismic data in land, in marine and in marsh, swamp and tidal
("transition zone") environments and processes data acquired by its own crews
and crews of other operators. In addition, the Company acquires and processes
seismic data on a non-exclusive basis for future sale to multiple customers.
In conjunction with certain changes in senior management in 1994, the
Company initiated a comprehensive program designed to restructure and refocus
each of the Company's geographic and operational lines of business. The
Company's actions included: (i) selling its marine and land seismic equipment
manufacturing operations; (ii) selling its joint venture interests in the former
Soviet Union ("FSU"); (iii) deploying its land and transition zone crews and its
marine crews into markets where the Company's presence would likely be
significant, such as the Gulf Coast transition zone; (iv) expanding its
accumulation and sale of proprietary seismic data to exploit the historically
higher margins associated with non-exclusive data sales; (v) emphasizing its
research and development on the proprietary seismicTANGO software in order to
capitalize on its reputation for seismic data processing innovation; and (vi)
streamlining its cost structure through personnel reductions, office
consolidations, vessel deactivations and the outsourcing of certain development
and manufacturing functions. The continued implementation of this program has
increased revenues and significantly improved operating efficiencies.
INDUSTRY OVERVIEW
The seismic industry and its role in petroleum exploration, development and
production have changed substantially in recent years. Advances in seismic
technology have shifted the emphasis from two-dimensional ("2D") surveys to
three-dimensional ("3D") surveys. The greater precision and improved subsurface
resolution obtainable from 3D seismic data have assisted oil and gas companies
in finding new fields and more accurately delineating existing fields, as well
as enhancing existing reservoir management and production monitoring techniques.
Enhanced subsurface resolution obtainable from 3D studies has been a key factor
in improving success ratios and lowering finding and field extension costs
during the past several years. Accordingly, demand for 3D seismic data by the
major oil and gas companies and independents has increased.
Three-dimensional surveys involve the acquisition of a very dense grid of
seismic data over a precisely defined area. This heavy concentration of data
requires extensive computer processing, involving the use of sophisticated
proprietary mathematical techniques, to produce an accurate image of the
subsurface. Computer analysis of the 3D surveys allows explorationists to better
examine and interpret important subsurface features.
COMPANY OVERVIEW
The Company's principal areas of service include (i) land and transition
zone data acquisition, (ii) marine data acquisition, (iii) data processing and
(iv) sale of proprietary seismic data.
3
<PAGE> 6
Land and transition zone data acquisition. The Company's land and
transition zone data acquisition crews consist of (i) a surveying unit that lays
out the lines to be recorded, (ii) an explosives or mechanical vibrating unit
and (iii) a recording unit that lays out the geophones and recording
instruments. The Company's land and transition zone data acquisition services
are conducted by five seismic crews, three of which operate in the continental
United States and two of which are dedicated to South America and currently
operate in Argentina. In fiscal 1995, land and transition zone data acquisition
accounted for approximately 33% of the Company's revenues.
The success of 3D seismic offshore has led to a significant increase in
demand for 3D seismic onshore and in transition zone areas. In recent years,
exploration activity in land and transition zone areas by the major oil and gas
companies and independents has increased. In fiscal 1993, the Company acquired
GFS Company, a contractor in the Gulf Coast transition zone, and has
subsequently upgraded four crews utilizing advanced technology, high capacity
Input/Output ("I/O") equipment. Two of these land crews are working in the Gulf
Coast area and the other two have been dedicated to the expanding South American
marketplace. The Company expects to upgrade the fifth crew to I/O System Two
remote seismic recorder ("RSR") equipment during calendar year 1996.
Marine data acquisition. The Company's marine data acquisition crews
operate on chartered vessels equipped with seismic, navigational and
communications equipment. All of the vessels operated by the Company are
equipped to perform both 3D and 2D seismic surveys. As of January 31, 1996, the
Company had six vessels in operation, with three located in the Gulf of Mexico
and one located in each of Australia, Indonesia and the North Sea. In fiscal
1995, marine data acquisition accounted for approximately 25% of the Company's
revenues.
Vessels with multiple streamers and multiple energy sources acquire more
lines of data with each pass, reducing time to completion and the effective
acquisition cost. Accordingly, the Company has upgraded one vessel so that it
can be configured with up to four streamers and two energy sources, which
enables that vessel to simultaneously record up to eight seismic lines. The
Company has also developed a multi-boat configuration as a cost effective
alternative to large multi-element vessels for simultaneously acquiring multiple
lines of data. The multi-boat configuration utilizes up to three smaller vessels
operating parallel to each other and working together to acquire multiple lines
of data. This configuration is particularly effective in obstructed areas, which
place a premium on maneuverability and versatility. The three vessels located in
the Gulf of Mexico are currently operating in this configuration. The two
vessels currently located in the Far East are acquiring predominantly 2D
surveys.
Data processing. The Company currently operates seven geophysical data
processing centers, including one under contract to a major oil and gas company.
These centers process data acquired by the Company's own crews and crews of
other operators. The centers are located in Houston, Texas; Singapore; London,
England; Brisbane, Australia; Jakarta, Indonesia; Kuala Lumpur, Malaysia; and
Assen, Holland. In each of these locations, the Company operates high capacity,
advanced technology data processing systems based on Convex and Hewlett Packard
computer systems with high speed networks. In fiscal 1995, data processing
accounted for approximately 27% of the Company's revenues.
The Company has developed seismicTANGO, advanced proprietary data
processing software which has been installed at all of the Company's data
processing centers and on three vessels and three land crews. The seismicTANGO
software is a fast, efficient and accurate system which enhances quality
control, facilitates the movement of data from the field to data processing
centers and may be used on a variety of hardware platforms. Current development
is aimed at enhancing the resolution of data from geologically complex
formations, such as those present in Gulf of Mexico subsalt plays.
Sale of proprietary seismic data. The Company also acquires and processes
seismic data for its own account through surveys partially funded by multiple
customers. Such surveys are offered for sale to other customers on a
nonexclusive basis. Since the beginning of fiscal 1995 through October 31, 1995,
91,000 line miles of new seismic data were added to the Company's library, and
the Company expects to continue its emphasis on sales of proprietary seismic
data.
4
<PAGE> 7
The industry has experienced a proliferation of both offshore and onshore
multi-customer surveys as a result of modifications in oil and gas company
spending strategies. In response to this increased demand, the Company has begun
and is expecting to continue to selectively add data to its library, primarily
in the Gulf of Mexico and the North Sea. Recent surveys have received
significant initial funding from customers, which has reduced the related risk
for the Company. Generally, the Company obtains pre-funding commitments for a
majority of the cost of such surveys. Historically, proprietary seismic data
sales have produced higher returns than the Company's other classes of services.
THE OFFERING
Common Stock offered by the
Company.......................... 3,500,000 shares
Common Stock offered by the
Selling Stockholder.............. 200,000 shares
Common Stock to be outstanding
after this Offering.............. 14,623,422 shares(1)
American Stock Exchange Symbol... DGC
Use of Proceeds.................. To repay outstanding indebtedness,
consisting of the Company's principal
revolving credit facility (approximately
$15.8 million at October 31, 1995), a $4.5
million secured term loan and the balance
to retire outstanding equipment purchase
obligations. See "Use of Proceeds."
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(1) Excludes an aggregate of 1,356,401 shares reserved for issuance upon
exercise of outstanding warrants and options.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
---------------------------------------------------------- ------------------
1991(1)(2) 1992(2) 1993(2) 1994 1995 1994 1995
---------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 94,217 $111,428 $117,709 $117,978 $132,569 $32,000 $38,178
Net income (loss)(3).......... 20,311 4,554 (1,258) (14,426) 2,778 607 752
Earnings (loss) per share..... .23 .74 (.15) (1.48) .25 .06 .07
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by
operating activities........ 636 1,392 (1,999) 885 (3,520) (4,709) (292)
Net cash provided (used) by
financing activities........ 3,895 10,880 17,981 7,865 (4,341) (1,770) 2,918
Net cash provided (used) by
investing activities........ (4,137) (5,796) (18,861) (5,699) 3,660 1,513 (3,367)
OTHER FINANCIAL DATA:
EBITDA(4)..................... 9,178 13,699 11,426 11,567 22,229 5,886 6,494
EBIT(4)....................... 3,472 7,248 1,806 (2,191) 8,466 2,493 2,871
</TABLE>
<TABLE>
<CAPTION>
AS OF ADJUSTED AS OF
OCTOBER 31, OCTOBER 31,
1995 1995(5)
----------- --------------
<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital.......................................................... $ 10,584 $ 12,924
Total assets............................................................. 139,052 139,052
Long-term debt........................................................... 26,697 6,337
Stockholders' equity..................................................... 63,616 86,316
</TABLE>
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(1) 1991 statement of operations data reflects results prior to the Company's
quasi-reorganization which was effected as of July 31, 1991 following its
emergence from Chapter 11 proceedings.
(2) Excludes financial results of GFS Company prior to October 30, 1992, the
acquisition date. See Note 9 of Notes to Consolidated Financial Statements.
(3) In fiscal 1991, net income includes extraordinary gains of $26,361,000.
(4) EBITDA represents earnings before interest, taxes, depreciation and
amortization, restructuring charges, write-off/reserve for impairment of
assets, equity in (earnings) loss of 50% or less owned companies and joint
ventures, reorganization costs, gain on sale of investment in FSU joint
ventures, other and extraordinary gains. EBIT consists of the same items but
includes depreciation and amortization. Neither EBITDA nor EBIT should be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a better measure
of liquidity.
(5) Reflects the issuance of the 3,500,000 shares of the Common Stock offered by
the Company in this Offering and the application of the estimated net
proceeds as described in "Use of Proceeds."
6
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus.
ENERGY INDUSTRY SPENDING
Demand for the Company's seismic services depends upon the level of capital
expenditures by oil and gas companies for exploration, production, development
and field management activities. These activities depend in part on oil and gas
prices, expectations about future prices, the cost of exploring for, producing
and delivering oil and gas, the sale and expiration dates of leases in the
United States and abroad, 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 results of operations.
COMPETITION FOR SEISMIC BUSINESS
Competition among seismic contractors historically has been intense.
Competitive factors include price, crew experience, equipment availability,
technological expertise and reputation for quality and dependability. Most of
the Company's major competitors operate more data acquisition crews than the
Company, have substantially greater revenues than the Company and are
subsidiaries or divisions of major industrial enterprises having far greater
financial and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully against its competitors for
contracts to conduct seismic surveys and process data. See
"Business -- Competition and Other Business Conditions."
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's seismic operations and quarterly financial results
historically have been subject to seasonal fluctuation, with the greatest volume
of both data acquisition and data processing occurring during the summer and
fall in the Northern Hemisphere. However, as a result of the expansion of the
Company's foreign operations and the deployment of its seismic vessels and crews
into regions having opposing seasons or less severe weather conditions, the
Company believes that the impact of seasonal fluctuations has been reduced. In
addition to seasonality, the Company historically has experienced quarterly
fluctuations in operating results. Operating results in any fiscal quarter may
vary as a result of (i) the magnitude of certain contracts for the acquisition
or sale of data, (ii) customers' budgetary cycles and (iii) seismic data sales
occurring as a result of offshore lease sales. In light of customer budgetary
considerations, the majority of the Company's sales of proprietary seismic data
has historically tended to occur in the Company's fiscal second and third
quarters.
HAZARDOUS OPERATING CONDITIONS
The Company's data acquisition activities involve operating under extreme
weather and other hazardous conditions. Accordingly, these operations are
subject to risks of loss to property and injury to personnel from such causes as
fires and accidental explosions. The Company carries insurance against these
risks in amounts that it considers adequate. The Company may not, however, be
able to obtain insurance against certain risks or for certain equipment located
from time to time in certain areas of the world.
HIGH FIXED COSTS; CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE
Because of the high fixed costs involved in the major components of the
Company's business, downtime or low productivity due to reduced demand, weather
interruptions, equipment failures or other causes can result in significant
operating losses. In recent years, the Company's contracts for data acquisition
have been predominately on a turnkey or on a combination of turnkey/time basis.
Under the turnkey method, payments
7
<PAGE> 10
for data acquisition services are based upon the amount of data collected, and
the Company bears substantially all of the risk of business interruption caused
by inclement weather and other hazards. When a combination of both turnkey and
time methods is used, the risk of business interruptions is shared in an agreed
percentage by the Company and the customer.
Seismic data acquisition and processing is a capital intensive business.
The development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements in recent years and the
Company expects this trend to continue. There can be no assurance that
manufacturers of seismic equipment will not develop new systems that have
competitive advantages over systems now in use that either render the Company's
current equipment obsolete or require the Company to make significant capital
expenditures. The Company intends to upgrade its data acquisition and processing
equipment as often as necessary to maintain its competitive position. However,
to do so may require large expenditures of capital in addition to the Company's
planned capital expenditures. There can be no assurance that the Company will
have the necessary capital or that financing will be available on favorable
terms. If the Company is unable to raise the capital necessary for its capital
expenditure program and to update its data acquisition and processing equipment
to the extent necessary, it may be materially and adversely affected as a
result.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
In fiscal years 1994 and 1995, 55% and 54%, respectively, of the Company's
revenues were derived from international operations and export sales, which are
subject in varying degrees to risks inherent in doing business abroad. Such
risks include the possibility of unfavorable changes in tax or other laws. For
example, the Company has approximately 6,000 line miles of offshore Peru seismic
data (book value approximately $2.0 million) which will become saleable only
upon receipt of previously expected governmental licenses which have been
delayed for more than a year and a $2.6 million delinquent account receivable
from a foreign national oil company (no book carrying value) which will become
collectible only upon receipt of necessary host country tax authorization. In
addition, foreign operations include risks of 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 requirements of partial local ownership of operations in certain
countries. To minimize such risks, the Company generally denominates its
contracts in U.S. dollars and other currencies it believes to be stable. The
Company also obtains insurance against war, expropriation, confiscation and
nationalization when such insurance is available and when management considers
it advisable to do so. Such coverage is not always available, and when
available, is subject to unilateral cancellation by the insuring companies on
short notice.
GOVERNMENTAL REGULATION
The Company's operations are subject to a variety of federal, state,
foreign and local laws and regulations, including laws and regulations relating
to the protection of the environment. The Company is required to invest
financial and managerial resources to comply with such laws and related permit
requirements in its operations and anticipates that it will continue to do so in
the future. In recent years, an increased number of the Company's data
acquisition contracts have provided for customers to obtain all necessary
permits. Customers' failure to timely obtain the required permits may result in
crew downtime and operating losses. In the past, the Company's cost of complying
with governmental regulation has not been material, but the fact that such laws
or regulations are changed frequently makes it impossible for the Company to
predict the cost or impact of such laws and regulations on its future
operations. The adoption of laws and regulations which have the effect of
curtailing exploration by oil and gas companies could adversely affect the
Company's operations by reducing the demand for its geophysical services.
8
<PAGE> 11
THE COMPANY
The Company provides seismic data acquisition and processing services to
the petroleum industry in selected markets worldwide. The Company was
incorporated in Texas in 1965 and was reincorporated in Delaware in 1969. In
conjunction with the implementation of the Company's Second Amended Joint Plan
of Reorganization, on June 7, 1991, Digicon Inc. was merged into a newly-formed,
wholly-owned subsidiary incorporated under Delaware law. The Company's executive
offices are located at 3701 Kirby Drive, Houston, Texas 77098, and its telephone
number is (713) 526-5611. Unless the context otherwise requires, all references
in this Prospectus to the "Company" include Digicon Inc. and its subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to be $22.7 million ($26.3 million if the overallotment option is
exercised in full). The net proceeds will be used as follows: first to repay the
outstanding balance under the Company's principal revolving credit facility
(approximately $15.8 million at October 31, 1995) bearing interest at a prime
rate plus 3% and maturing in April 1997; next to repay and retire a $4.5 million
secured term loan bearing interest at 10.75% per annum and maturing in June
1997; and then any remaining proceeds to repay equipment purchase obligations
bearing interest at an average rate of 12.0% per annum and maturing through
August 1998. A portion of the equipment purchase obligations to be repaid has
been incurred during the past 12 months and was used to upgrade the data
acquisition equipment on a vessel.
The Company intends either to seek a reduction in the cost of its existing
revolving credit facility or to obtain a new credit facility with a commercial
lender. While the Company will seek to obtain such a modified or new facility on
more favorable terms than its existing facility, no assurances can be given that
any such facility will be available. The Company may reborrow amounts from time
to time under its revolving credit facility.
9
<PAGE> 12
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of October 31, 1995, and as adjusted to reflect
the sale of the 3,500,000 shares of Common Stock offered by the Company hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
OCTOBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Short-term debt(1):
Current maturities of long-term debt.......................... $10,656 $ 8,316
======= =======
Long-term debt(1):
Revolving credit agreement due April, 1997, at prime plus
3%......................................................... $15,818 $ 0
Secured term loan due June 1997, at 10.75%.................... 3,000 0
Equipment purchase obligations maturing through February 1999,
at an average rate of 11.08% in fiscal 1996................ 7,879 6,337
------- -------
Total long-term debt....................................... 26,697 6,337
------- -------
Stockholders' equity:
Common Stock, $.01 par value; 20,000,000 shares authorized;
11,134,939 shares issued and outstanding; 14,634,939 shares
as adjusted(2)............................................. 111 146
Additional paid-in capital.................................... 71,105 93,770
Accumulated deficit from August 1, 1991....................... (7,600) (7,600)
------- -------
Total stockholders' equity................................. 63,616 86,316
------- -------
Total capitalization..................................... $90,313 $92,653
======= =======
</TABLE>
- ---------------
(1) For a description of the terms of the Company's debt, see Note 3 of Notes to
Consolidated Financial Statements.
(2) Excludes an aggregate of 1,356,401 shares reserved for issuance upon
exercise of outstanding warrants and options. Includes 11,517 shares of
Common Stock cancelled in January 1996.
10
<PAGE> 13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the American Stock Exchange under the symbol
"DGC." The following table sets forth the reported high and low sales prices for
the Common Stock on the American Stock Exchange for the periods shown.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Year ended July 31, 1994:
First Quarter........................................................ $9 3/8 $6 3/4
Second Quarter....................................................... 8 7/16 6
Third Quarter........................................................ 9 3/8 5 5/8
Fourth Quarter....................................................... 6 2 13/16
Year ended July 31, 1995:
First Quarter........................................................ $6 $3 3/8
Second Quarter....................................................... 5 13/16 3 3/8
Third Quarter........................................................ 5 1/8 3 1/8
Fourth Quarter....................................................... 6 4 1/4
Year ended July 31, 1996:
First Quarter........................................................ $6 3/8 $4 3/4
Second Quarter....................................................... 8 3/4 5 3/8
Third Quarter (through February 14, 1996)............................ 7 1/2 6 1/4
</TABLE>
On February 14, 1996, the last reported sales price for the Common Stock on
the American Stock Exchange was $7 per share. As of January 31, 1996, there were
approximately 300 record holders of the Common Stock.
DIVIDEND POLICY
Historically, the Company has not paid any dividends on its Common Stock
and has no present plans to pay any dividends. The payment of any future
dividends on Common Stock would depend, among other things, upon the current and
retained earnings and financial condition of the Company, and upon a
determination by its board of directors that the payment of dividends would be
desirable. In addition, the Company's principal revolving credit facility
prohibits, and its secured term loan contains certain restrictions, regarding
the payment of dividends.
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below is derived from the Company's
Consolidated Financial Statements. The selected financial data as of and for the
three-month periods ended October 31, 1994 and 1995, is unaudited and, in the
opinion of management, includes all adjustments that are of a normal recurring
nature and necessary for the fair presentation of the interim periods.
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, contained in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED JULY 31, OCTOBER 31,
------------------------------------------------------ -----------------
1991(1)(2) 1992(2) 1993(2) 1994 1995 1994 1995
---------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Revenues............................ $ 94,217 | $111,428 $117,709 $117,978 $132,569 $32,000 $38,178
Costs and expenses: |
Operating expenses: |
Cost of services................ 81,959 | 93,546 101,866 101,310 105,912 25,008 30,433
Restructuring(3)................ | 1,363 800
Write-off/reserve for impairment |
of assets(4).................... | 6,523
Depreciation and amortization..... 5,706 | 6,451 9,620 13,758 13,763 3,393 3,623
Selling, general and |
administrative.................. 3,080 | 4,183 4,417 5,101 4,428 1,106 1,251
Interest.......................... 3,571 | 1,839 1,217 3,085 5,142 1,170 1,282
Equity in (earnings) loss of 50% |
or less-owned companies and |
joint ventures.................. (115) | (121) 54 445 1,485 361
Reorganization costs.............. 4,348 |
Gain on sale of investment in FSU |
joint ventures(4)............... | (4,370)
Other............................. (407) | (320) 184 (702) 598 (372) 111
------- | -------- -------- -------- -------- ------- -------
Total costs and expenses... 98,142 | 105,578 117,358 130,883 127,758 30,666 36,700
------- | -------- -------- -------- -------- ------- -------
Income (loss) before provision for |
income taxes and extraordinary |
gains............................. (3,925) | 5,850 351 (12,905) 4,811 1,334 1,478
Provision for income taxes.......... 2,125 | 1,296 1,609 1,521 2,033 727 726
------- | -------- -------- -------- -------- ------- -------
Income (loss) before extraordinary |
gains............................. (6,050) | 4,554 (1,258) (14,426) 2,778 607 752
Extraordinary gains(5).............. 26,361 |
------- | -------- -------- -------- -------- ------- -------
Net income (loss)................... $ 20,311 | $ 4,554 $ (1,258) $(14,426) $ 2,778 $ 607 $ 752
======= | ======== ======== ======== ======== ======= =======
Earnings (loss) per share........... $ .23 | $ .74 $ (.15) $ (1.48) $ .25 $ .06 $ .07
======= | ======== ======== ======== ======== ======= =======
Cash dividends -- common stock...... None | None None None None None None
======= | ======== ======== ======== ======== ======= =======
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by
operating activities.............. $ 636 $ 1,392 $ (1,999) $ 885 $ (3,520) $(4,709) $ (292)
Net cash provided (used) by
financing activities.............. 3,895 10,880 17,981 7,865 (4,341) (1,770) 2,918
Net cash provided (used) by
investing activities.............. (4,137) (5,796) (18,861) (5,699) 3,660 1,513 (3,367)
OTHER FINANCIAL DATA:
EBITDA(6)........................... 9,178 13,699 11,426 11,567 22,229 5,886 6,494
EBIT(6)............................. 3,472 7,248 1,806 (2,191) 8,466 2,493 2,871
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
ADJUSTED
AS OF AS OF
AS OF JULY 31, OCTOBER 31, OCTOBER 31,
-------------------------------------------------- ------------------- ------------
1991(2) 1992(2) 1993 1994 1995 1994 1995 1995(7)
------- ------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Working capital........................ $ 6,217 $19,342 $ 16,752 $ 6,152 $ 7,330 $ 4,347 $ 10,584 $ 12,924
Total assets........................... 60,619 84,487 126,000 131,856 135,070 136,519 139,052 139,052
Long-term debt......................... 19,076 8,813 17,444 23,922 25,243 22,949 26,697 6,337
Stockholders' equity................... 9,652 44,739 65,717 58,550 58,882 61,451 63,616 86,316
</TABLE>
- ---------------
(1) 1991 statement of operations data reflects results prior to the Company's
quasi-reorganization which was effected as of July 31, 1991 following its
emergence from Chapter 11 proceedings.
(2) Excludes financial results of GFS Company prior to October 30, 1992, the
acquisition date. See Note 9 of Notes to Consolidated Financial Statements.
(3) See Note 17 of Notes to Consolidated Financial Statements.
(4) Results for the year ended July 31, 1994 include $6,523,000 for the
write-off/reserve for the impairment of assets to their net realizable
value. Results for the year ended July 31, 1995 include a gain of $4,370,000
for the net effect of the sale of the Company's investment in the FSU joint
ventures. See Notes 17 and 16, respectively, of Notes to Consolidated
Financial Statements.
(5) In fiscal 1991, net income includes extraordinary gains of $1,153,000 for
utilization of net operating loss carryforwards and $25,208,000 related to
extinguishment of debt.
(6) EBITDA represents earnings before interest, taxes, depreciation and
amortization, restructuring charges, write-off/reserve for impairment of
assets, equity in (earnings) loss of 50% or less owned companies and joint
ventures, reorganization costs, gain on sale of investment in FSU joint
ventures, other and extraordinary gains. EBIT consists of the same items but
includes depreciation and amortization. Neither EBITDA nor EBIT should be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a better measure
of liquidity.
(7) Reflects the issuance of the 3,500,000 shares of the Common Stock offered by
the Company in this Offering and the application of the estimated net
proceeds as described in "Use of Proceeds."
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Selected Consolidated
Financial Data" included elsewhere herein.
RESULTS OF OPERATIONS
Three Months Ended October 31, 1995 compared with Three Months Ended October
31, 1994
Revenues. For the three month period ended October 31, 1995, total revenues
increased 19%, from $32.0 million to $38.2 million. Land revenues increased 50%
from $9.4 million to $14.1 million, resulting primarily from 3D and transition
zone surveys performed by two of the Company's North American crews and
increased rates on land surveys and production recognized by the Company in
Argentina. Marine revenues decreased 16% from $10.9 million to $9.1 million. As
a result of a severe hurricane season, three vessels working on a multi-client
survey in the Gulf of Mexico lost approximately 93 vessel days of production.
Production on this survey was also adversely impacted by delays in the start-up
of a new vessel. Data processing revenues increased 5% from $8.9 million to $9.3
million. The award of a new contract at the Assen, Holland center in the second
quarter of fiscal 1995, an increase in capacity at the Houston and Singapore
centers, and the improved Far East market resulted in higher revenues. These
increases were partially offset by the closing of the Company's Bogota, Colombia
and Oklahoma City centers during the third quarter of fiscal 1995, and depressed
data processing prices in the European market. Proprietary seismic data revenues
increased 108% from $2.7 million to $5.6 million, resulting from an expansion of
the Company's data library.
Operating Expenses. Cost of services for the period increased 22% from
$25.0 million to $30.4 million, and, as a percentage of total revenues, cost of
services increased from 78% to 80%. The increase as a percentage of total
revenues can be attributed to a weakness in marine acquisition margins and lower
profitability on the mix of proprietary data sales in the quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased 7% from $3.4 million to $3.6 million due to equipment purchases for
South American land crews, one of the Company's vessels and the Houston,
Singapore and London data processing centers.
Selling, General and Administrative. Selling, general and administrative
expenses increased 13% from $1.1 million to $1.3 million, resulting from
additional costs incurred in implementing a new administrative data processing
system.
Interest. Interest expense increased 10% from $1.2 million to $1.3 million,
resulting from additional financing for equipment purchases and an increase in
overall borrowing costs.
Other. Other expenses (income) decreased from income of $372,000 to an
expense of $111,000, resulting from net losses on damaged cables in the current
quarter and a gain on the sale of a seismic vessel in the prior year's quarter.
Income Taxes. Provisions for income taxes decreased from $727,000 to
$726,000. Provisions for income taxes in the current quarter related primarily
to operations in South America and Malaysia. Provisions for income taxes in the
prior year's quarter related primarily to operations in South America and a tax
assessment in Jakarta.
Fiscal Year 1995 Compared with Fiscal Year 1994
Revenues. For the fiscal year ended July 31, 1995, total revenues increased
12% from $118.0 million to $132.6 million. Land revenues increased 12% from
$38.5 million to $43.1 million, resulting from increased production in
Argentina, partially offset by reduced North America and Far East revenues. Land
acquisition revenues in the Far East declined as a result of the decommissioning
of an Australian crew. Marine revenues decreased 11% from $36.9 million to $32.8
million, resulting from the derigging of two seismic vessels, lower production
from three vessels due to offshore obstructions and bad weather, and the
reassignment of one vessel from contract work to proprietary data acquisition.
Improved market conditions for 2D surveys continued in
14
<PAGE> 17
the Far East where marine revenues increased by $4.6 million during the current
year. Data processing revenues increased 20% from $30.0 million to $36.1
million, primarily resulting from additional capacity. The improved data
processing performance was partially offset by lower revenues generated by the
Company's processing center in Jakarta, which is expected to be closed during
1997. Proprietary seismic data sales increased 74% from $11.7 million to $20.4
million, resulting from an expansion of the Company's data library.
Operating Expenses. Cost of services increased 5% from $101.3 million to
$105.9 million, primarily resulting from increased operating levels. Cost of
services as a percentage of sales declined from 86% to 80% due to savings from
the restructuring program implemented during fiscal 1994 and higher
profitability of proprietary data sales.
During fiscal 1995, the Company accrued $800,000 of costs related to the
closing of the Jakarta processing center. In fiscal 1994, restructuring charges
of $1.4 million were recognized, primarily relating to severance costs
associated with a reduction in the Company's workforce.
Depreciation and Amortization. Depreciation and amortization expense
remained essentially unchanged at $13.8 million. Fiscal 1995 reflects decreases
in charges resulting from the prior year's restructuring program of $2.4
million, offset primarily by an increase in charges on new asset purchases.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by 13% from $5.1 million to $4.4 million, primarily resulting
from the accrual of $607,000 in the prior year for benefits payable over five
years under an employment contract with a former executive.
Interest. Interest expense increased 67% from $3.1 million to $5.1 million
as a result of increased borrowings on working capital facilities and equipment
financing, as well as higher borrowing costs.
FSU Joint Venture. In April 1994, the Company acquired interests in joint
ventures that operate in the FSU. In acquiring these interests, the Company
exchanged common stock and cash commitments valued in excess of the fair market
value of the net assets received. The excess value was being amortized over a
20-year period, and the Company recorded $392,000 of amortization expense during
fiscal 1995. The joint ventures were in the start-up phase and the Company
recorded $1.5 million of equity losses during fiscal 1995. In June 1995, the
Company disposed of its FSU interests and recorded a $4.4 million gain on the
sale. See Note 16 to Notes to Consolidated Financial Statements.
Other. Other expenses (income) decreased from income of $702,000 to an
expense of $598,000. In fiscal 1995, net losses were recorded on the disposition
of property and equipment, partially offset by a gain on the sale of a vessel.
Income recorded in the prior year resulted primarily from a gain on the sale of
a vessel.
Income Taxes. Provisions for income taxes increased from $1.5 million to
$2.0 million resulting from higher taxable income (including a prior year
assessment) in foreign jurisdictions.
Fiscal Year 1994 Compared with Fiscal Year 1993
Revenues. During the year ended July 31, 1994, total revenue increased from
$117.7 million to $118.0 million. Land revenue increased 116% from $17.8 million
to $38.5 million, resulting from the addition of three land crews during fiscal
1993 and 1994. Marine revenue decreased 38% from $59.1 million to $36.9 million,
primarily resulting from the Company derigging four of its vessels during fiscal
1993 and 1994. Data processing revenues decreased 16% from $35.8 million to
$30.0 million, primarily resulting from excess capacity in the industry's marine
segment. Proprietary seismic data sales increased 232% from $3.5 million to
$11.7 million, resulting from the increase in the book value of the Company's
proprietary data library from $10.3 million to $19.6 million.
Operating Expenses. Cost of services decreased from $101.9 million to
$101.3 million, and as a percentage of total revenue, cost of services declined
from 87% to 86%. This decrease in operating expense as a percentage of revenue
resulted from improved margins on proprietary data sales and savings in the
fourth quarter as a result of the restructuring. In fiscal 1994, the Company
incurred restructuring charges of $1.4 million as discussed above.
15
<PAGE> 18
Write-off of Assets. In fiscal 1994, the Company recorded $6.5 million in
expenses associated with the write-off/reserve of certain assets including $2.4
million of marine and $552,000 of land acquisition assets related to
decommissioned marine vessels and stacked land crews. The write-off/reserve also
included the write-down of other marine and land acquisition assets of $1.0
million. In addition, due to decreased activity in Indonesia the Company wrote
down data processing equipment by $2.1 million and wrote off $430,000 of
proprietary data.
Depreciation and Amortization. Depreciation and amortization expense
increased 43% from $9.6 million to $13.8 million. During fiscal 1993 and 1994,
the Company spent approximately $51.0 million for upgrades to marine vessels,
equipment for new land crews and new processing equipment to enhance its market
position. As a result, depreciation expense for the year ended July 31, 1994
increased a net $3.9 million. This increase includes approximately $600,000 in
depreciation savings recognized as a result of the write-off and reserve for
impairment of assets.
Selling, General and Administrative. Selling, general and administrative
expenses increased 15% from $4.4 million to $5.1 million, primarily resulting
from expensing severance benefits of $607,000.
Interest. Interest expense increased 153% from $1.2 million to $3.1
million. To provide additional working capital during fiscal 1994, the Company
obtained a new revolving credit facility providing advances up to $15.0 million,
borrowed approximately $900,000 against its Indonesian credit facility, borrowed
$3.4 million in short-term related party debt and financed approximately $4.2
million of equipment purchases.
FSU Joint Venture. During fiscal 1994, the Company exchanged 1,024,317
shares of Common Stock valued at $7.125 per share, or $7.3 million, and a cash
commitment in the amount of $1.0 million in return for interests in four joint
ventures which operate in the FSU. Subsequent to year-end, the Company increased
its ownership interest in two of the joint ventures by exchanging an additional
684,181 shares of Common Stock valued at $3.375 per share, or $2.3 million and
committing to an additional $2.0 million in cash plus loan guaranties. The
excess of the purchase price over the fair value of the net assets received was
being amortized over a 20-year period and for the fiscal year ended 1994, the
Company recorded $100,000 in amortization expense.
Other. Other expenses (income) decreased from an expense of $184,000 to
income of $702,000, resulting from improved U.S. to foreign currency exchange
rates and gains on the sale of property and equipment.
Income Taxes. Provisions for income taxes decreased from $1.6 million to
$1.5 million. The provision for income taxes in fiscal 1994 related primarily to
taxes on South American operations. The provision for income taxes in fiscal
1993 related primarily to operations in Mexico.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are cash balances ($3.5 million
at October 31, 1995) and cash flow from operations. External sources include the
proceeds of this Offering, the unutilized portion of its working capital
facility described below (approximately $7.0 million at February 14, 1996),
equipment financing and trade credit. To provide additional working capital, the
Company maintains a $17.0 million revolving credit facility with a commercial
finance company which provides for borrowings of up to 80% of the majority of
the Company's domestic and foreign receivables at an interest rate of 3% over a
prime rate, secured by most of the Company's world-wide assets. The Company
plans to repay the entire outstanding balance on this revolving credit facility
with proceeds of this Offering. Following such repayment, $17.0 million will be
available under this revolver until its maturity in April 1997, although the
Company will seek to either reduce the cost of the facility or replace it with a
more cost-effective facility.
The Company requires significant amounts of working capital to support its
operations and to fund its capital spending and research and development
programs. The Company's foreign operations, which accounted for 54% of fiscal
1995 revenues and 58% of revenues in the first quarter of fiscal 1996, require
greater amounts of working capital than similar domestic activities, as the
average collection period for foreign receivables is generally longer than for
comparable domestic accounts. In addition, the Company has increased its
participation in non-exclusive data surveys and has significantly expanded its
library of proprietary data. Because of the lead time between survey execution
and sale, non-exclusive surveys generally
16
<PAGE> 19
require greater amounts of working capital than contract work. During the past
six months, this problem was exacerbated as, for budgeting purposes, several
clients deferred payments on data library purchases totaling in excess of $5.0
million until January and February 1996, at which time substantially all of such
receivables were collected. Depending on the timing of future sales of the data
and the collection of the proceeds from such sales, the Company's liquidity will
continue to be affected; however, the Company believes that these non-exclusive
surveys have good long-term sales, earnings and cash flow potential.
In recent years, the Company has updated and increased its data processing
capabilities, invested significant capital to outfit a new seismic vessel and
has, more recently, allocated significant resources to its land and transition
zone activities. Since July 31, 1992, the Company has committed approximately
$75.1 million for new capital equipment and invested approximately $12.6 million
in its research and development efforts.
During fiscal 1996, the Company expects to spend approximately $13.6
million for capital expenditures and $2.7 million for research and development
activities. In addition, $6.2 million of equipment was purchased by a commercial
finance company and leased to the Company under an operating lease entered into
in December 1995. The majority of capital spending in fiscal 1996 will be to
upgrade and expand the Company's land and marine data acquisition capabilities.
The utilization of net operating loss carryforwards ("NOLs") is subject to
certain limitations. Additionally, when such NOLs are utilized, the benefit will
be recognized as an addition to paid-in capital and will not be reflected in the
consolidated statements of operations. See "Income Taxes" in Note 1 to the
Consolidated Financial Statements, as well as Note 4 to the Consolidated
Financial Statements.
The Company believes that it possesses sufficient liquidity to continue
operations on a satisfactory basis. If additional working capital were to become
necessary as a result of deterioration in demand for or pricing of the Company's
services, and if additional financing were not available, the Company's
operating results and financial condition could be adversely affected.
17
<PAGE> 20
BUSINESS
GENERAL
The Company was founded in 1965 and provides seismic data acquisition and
processing services to the petroleum industry in selected markets worldwide. Oil
and gas companies utilize seismic data for the determination of suitable
locations for drilling exploratory wells and, increasingly, in reservoir
management for the development and production of oil and gas reserves. The
Company acquires seismic data in land, in marine, and in marsh, swamp and tidal
("transition zone") environments and processes data acquired by its own crews
and crews of other operators. In addition, the Company acquires and processes
seismic data on a non-exclusive basis for future sale to multiple customers.
In conjunction with certain changes in senior management in 1994, the
Company initiated a comprehensive program designed to restructure and refocus
each of the Company's geographic and operational lines of business. The
Company's actions included: (i) selling its marine and land seismic equipment
manufacturing operations; (ii) selling its joint venture interests in the FSU;
(iii) deploying its land and transition zone crews and its marine crews into
markets where the Company's presence would likely be significant, such as the
Gulf of Mexico transition zone; (iv) expanding its accumulation and sale of
proprietary seismic data to exploit the historically higher margins associated
with non-exclusive data sales; (v) emphasizing its research and development on
the proprietary seismicTANGO software in order to capitalize on its reputation
for seismic data processing innovation; and (vi) streamlining its cost structure
through personnel reductions, office consolidations, vessel deactivations and
the outsourcing of certain development and manufacturing functions. The
continued implementation of this program has increased revenues and
significantly improved operating efficiencies.
INDUSTRY OVERVIEW
Geophysical services enable oil and gas companies to determine whether
subsurface conditions are likely to be favorable for finding new oil and gas
accumulations and assist oil and gas companies in determining the size and
structure of previously identified oil and gas fields. These services consist of
the acquisition and processing of 3D and 2D seismic and other geophysical data,
which is used to produce computer-generated graphic cross-sections and maps of
the subsurface strata. The resulting cross-sections and maps are then analyzed
and interpreted by geophysicists and are used by oil and gas companies in the
acquisition of new leases, the selection of drilling locations on exploratory
prospects and in reservoir development and management.
Geophysical data is acquired by marine, land and transition zone crews. In
data acquisition, a source of acoustical energy is employed at or below the
earth's surface and an acoustical wave is produced through the discharge of
compressed air, the detonation of small explosive charges, or other energy
generating techniques. As the acoustical wave travels through the earth,
portions are reflected by variations in the underlying rock layers, and the
reflected energy is captured by geophones situated at intervals along specified
paths from the point of acoustical impulse. The resulting signals are then
transmitted to a recording unit which amplifies the reflected energy wave and
converts it into digital data. This data is then input into a specialized data
processing system that enhances the recorded signal by reducing noise and
distortion and improving resolution and arranges the input data to produce, with
the aid of plotting devices, an image of the subsurface strata. By interpreting
seismic data, oil and gas companies create detailed maps of prospective areas
and producing oil and gas reservoirs.
Advances in seismic technology have shifted the emphasis from 2D to 3D
seismic surveys. Three dimensional surveys generate extremely large data volumes
and involve the acquisition of a very dense grid of seismic data over a
precisely defined area. This heavy concentration of data requires extensive
computer processing to produce an accurate image of the subsurface. Processing
of 3D data is a complex operation involving the use of sophisticated proprietary
mathematical techniques to image the subsurface layers. Although 3D surveys are
acquired in a dense grid, computer analysis allows the geophysicist to focus the
data to closely examine and interpret important subsurface features.
18
<PAGE> 21
COMPANY OVERVIEW
The Company's principal areas of service include (i) land and transition
zone data acquisition, (ii) marine data acquisition, (iii) data processing and
(iv) sale of proprietary seismic data.
Land and transition zone data acquisition. The Company's land and
transition zone data acquisition crews consist of (i) a surveying unit that lays
out the lines to be recorded, (ii) an explosives or mechanical vibrating unit
and (iii) a recording unit that lays out the geophones and recording
instruments. The Company's land and transition zone data acquisition services
are conducted by five seismic crews, three of which operate in the continental
United States and two of which are dedicated to South America and currently
operate in Argentina. In fiscal 1995, land and transition zone data acquisition
accounted for approximately 33% of the Company's revenues.
The success of 3D seismic offshore has led to a significant increase in
demand for 3D seismic onshore and in transition zone areas. In recent years,
exploration activity in land and transition zone areas by the major oil and gas
companies and independents has increased. In fiscal 1993, the Company acquired
GFS Company, a contractor in the Gulf Coast transition zone, and has
subsequently upgraded four crews utilizing advanced technology, high capacity
I/O equipment. Two of these land crews are working in the Gulf Coast area and
the other two have been dedicated to the expanding South American marketplace.
The Company expects to upgrade the fifth crew to RSR equipment during calendar
year 1996.
Marine data acquisition. The Company's marine data acquisition crews
operate on chartered vessels equipped with seismic, navigational and
communications equipment. All of the vessels operated by the Company are
equipped to perform both 3D and 2D seismic surveys. As of January 31, 1996, the
Company had six vessels in operation, with three located in the Gulf of Mexico
and one located in each of Australia, Indonesia and the North Sea. In fiscal
1995, marine data acquisition accounted for approximately 25% of the Company's
revenues.
Vessels with multiple streamers and multiple energy sources acquire more
lines of data with each pass, reducing time to completion and the effective
acquisition cost. Accordingly, the Company has upgraded one vessel so that it
can be configured with up to four streamers and two energy sources, which
enables that vessel to simultaneously record up to eight seismic lines. The
Company has also developed a multi-boat configuration as a cost effective
alternative to large multi-element vessels for simultaneously acquiring multiple
lines of data. The multi-boat configuration utilizes up to three smaller vessels
operating parallel to each other and working together to acquire multiple lines
of data. This configuration is particularly effective in obstructed areas, which
place a premium on maneuverability and versatility. The three vessels located in
the Gulf of Mexico are currently operating in this configuration. The two
vessels currently located in the Far East are acquiring predominantly 2D
surveys.
Data processing. The Company currently operates seven geophysical data
processing centers, including one under contract to a major oil and gas company.
These centers process data acquired by the Company's own crews and crews of
other operators. The centers are located in Houston, Texas; Singapore; London,
England; Brisbane, Australia; Jakarta, Indonesia; Kuala Lumpur, Malaysia; and
Assen, Holland. In each of these locations, the Company operates high capacity,
advanced technology data processing systems based on Convex and Hewlett Packard
computer systems with high speed networks. In fiscal 1995, data processing
accounted for approximately 27% of the Company's revenues.
The Company has developed seismicTANGO, advanced proprietary data
processing software which has been installed at all of the Company's data
processing centers and on three vessels and three land crews. The seismicTANGO
software is a fast, efficient and accurate system which enhances quality
control, facilitates the movement of data from the field to data processing
centers and may be used on a variety of hardware platforms. Current development
is aimed at enhancing the resolution of data from geologically complex
formations, such as those present in Gulf of Mexico subsalt plays.
Sale of proprietary seismic data. The Company also acquires and processes
seismic data for its own account through surveys partially funded by multiple
customers. Such surveys are offered for sale to other customers on a
nonexclusive basis. Since the beginning of fiscal 1995 through October 31, 1995,
91,000 line
19
<PAGE> 22
miles of new seismic data were added to the Company's library, and the Company
expects to continue its emphasis on sales of proprietary seismic data.
The industry has experienced a proliferation of both offshore and onshore
multi-customer surveys as a result of modifications in oil and gas company
spending strategies. In response to this increased demand, the Company has begun
and is expecting to continue to selectively add data to its library, primarily
in the Gulf of Mexico and the North Sea. Recent surveys have received
significant initial funding from customers, which has reduced the related risk
for the Company. Generally, the Company obtains pre-funding commitments for a
majority of the cost of such surveys. Historically, proprietary seismic data
sales have produced higher returns than the Company's other classes of services.
SERVICES AND MARKETS
The Company acquires seismic data in marine, land and transition zone
environments and processes data acquired from its own crews as well as data
acquired by other geophysical crews. As of January 31, 1996, the Company
operated three land and transition zone crews in the U.S. and two land crews in
Argentina. The Company's six marine crews operate in selected markets worldwide.
The Company also operates seven seismic data processing facilities in major
petroleum centers around the world. In fiscal 1995 and the first quarter of
fiscal 1996, 54% and 58%, respectively, of the Company's revenues were
attributable to international operations and export sales.
When performing geophysical services under contract for oil and gas
producers, the Company may be employed to acquire and/or process geophysical
data. Under any of these arrangements, the Company's entire work-product belongs
to the contracting party. The Company also accumulates and processes geophysical
data for its own account, preserving its work-product in a data library for
later sale to interested parties on a non-exclusive basis. When acquiring data
for its library, the Company generally obtains pre-funding commitments for a
majority of the cost of such surveys.
The following tables set forth the Company's revenues by service group and
geographical segment:
REVENUES BY SERVICE GROUP(1)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land and transition zone data acquisition.............. $ 17,801 $ 38,454 $ 43,108
Marine data acquisition................................ 59,104 36,871 32,781
Data processing........................................ 35,773 30,017 36,104
Sale of proprietary seismic data....................... 3,522 11,710 20,351
Other.................................................. 1,509 926 225
-------- -------- --------
Total........................................ $117,709 $117,978 $132,569
======== ======== ========
</TABLE>
- ---------------
(1) Revenues from data acquisition and data processing services are recorded as
revenues based on contractual rates set forth in the related contract if the
contract provides a separate rate for each segment. If the contract only
provides a rate for the overall service, revenue is recognized based on the
percentage of the work effort completed compared with the total work effort
involved in the contract.
20
<PAGE> 23
REVENUES BY GEOGRAPHICAL SEGMENT
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States(1)....................................... $ 37,476 $ 54,467 $ 63,048
Europe and Middle East................................. 24,699 29,891 20,230
Africa................................................. 13,020
Far East............................................... 38,569 19,401 27,360
South America.......................................... 3,945 14,219 21,931
-------- -------- --------
Total........................................ $117,709 $117,978 $132,569
======== ======== ========
</TABLE>
- ---------------
(1) Includes export sales of $10,138,000; $1,501,000; and $2,228,000 in fiscal
1993, 1994 and 1995, respectively.
See Note 11 of Notes to the Consolidated Financial Statements for
additional segment information.
Geophysical services are marketed from the Company's Houston offices and
from its regional administrative centers by personnel whose duties also
typically include technical, supervisory or executive responsibilities.
Contracts are obtained either through competitive bidding in response to
invitations for bids, by direct negotiation with the prospective customer or
through the initiation by the Company of surveys for its library of data, which
surveys are then offered for sale to oil and gas companies on a non-exclusive
basis.
Contracts for exclusive data acquisition involve payments on either a
"turnkey" or a "time" basis or on a combination of both methods. Under the
turnkey method, payments for data acquisition services are based upon the amount
of data collected, and the Company bears substantially all of the risk of
business interruption caused by inclement weather and other hazards. When
operating on a time basis, payments are based on agreed rates per unit of time,
which may be expressed in periods ranging from days to months, and most of the
risk of business interruption (except for interruptions caused by failure of the
Company's equipment) is borne by the customer. When a combination of both
turnkey and time methods is used, the risk of business interruptions is shared
in an agreed percentage by the Company and the customer. In each case, progress
payments are usually required unless it is expected that the job can be
accomplished in a brief period. In recent years, the Company's contracts for
data acquisition have been predominately on a turnkey or on a combination of
turnkey/time basis. Except for services performed at the Assen, Holland contract
data processing center, substantially all exclusive data processing work is done
on a turnkey basis.
DATA ACQUISITION SERVICES
Land and Transition Zone. The Company's land and transition zone data
acquisition services are conducted by five seismic crews, three of which operate
in the continental United States and two of which are dedicated to South
American markets and currently operate in Argentina. Two of the Company's
domestic crews were acquired in October 1992 as a result of the purchase of GFS
Company, which had extensive 3D experience in the transition zone environment.
Each of the Company's crews consists of a surveying unit which lays out the
lines to be recorded and marks the site for shot-hole placement or equipment
location, an explosives or mechanical vibrating unit and a recording unit that
lays out the geophones and recording instruments, directs shooting operations
and records the acoustical signal reflected from subsurface strata. On the
typical land seismic survey, the seismic crew is supported by several drill
crews, which are furnished by third parties under short-term contracts. Drill
crews operate in advance of the seismic crew and bore shallow holes for
explosive charges which, when detonated by the seismic crew, produce the
necessary acoustical impulse. In locations where the use of explosives is
precluded due to population density, technical requirements or ecological
factors, a mechanical vibrating unit or compressed air is substituted for
explosives as the acoustical source.
21
<PAGE> 24
The Company's land and transition zone crews are equipped to perform both
3D and 2D surveys, utilizing seismic recording instruments, geophones and a
variety of other seismic equipment, tools and stores. Each crew is capable of
recording seismic data utilizing any energy source. Company vehicles assigned to
each crew consist of a recording truck, two or more cable and geophone trucks,
an explosives unit or vibrator trucks and several personnel vehicles with
off-road capability. A summary of the Company's land and transition zone seismic
recording equipment as of January 31, 1996, is shown below:
<TABLE>
<CAPTION>
SEISMIC RECORDING
CAPACITY
CREW NO. LOCATION EQUIPMENT TYPE (CHANNELS)
- -------- ------------- ------------------ -------------------
<S> <C> <C> <C>
301............................ United States I/O System Two 1,800
303............................ United States Seismic Group 2,200
Recorder
325............................ United States I/O System Two-RSR 1,800
309............................ Argentina I/O System Two 1,400
312............................ Argentina I/O System Two 600
</TABLE>
Marine. Marine data acquisition services are carried out by the Company's
crews operating from vessels which have been modified or equipped to Company
specifications and outfitted with a full complement of seismic, navigational and
communications equipment.
The following table sets forth certain information concerning the
geophysical vessels operated by the Company as of January 31, 1996:
<TABLE>
<CAPTION>
SEISMIC
YEAR LOCATION AT RECORDING
ENTERED JANUARY 31, CAPACITY
VESSEL SERVICE 1996 LENGTH BEAM (CHANNELS)
--------------------------- ------- --------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Acadian Commander.......... 1981 Gulf of Mexico 217 feet 44 feet 240/3D
Acadian Searcher........... 1983 Australia 217 feet 44 feet 240/3D
Ross Seal.................. 1987 Indonesia 176 feet 38 feet 240/3D
Seacor Surf................ 1991 Gulf of Mexico 135 feet 35 feet 240/3D
Polar Search............... 1992 North Sea 300 feet 51 feet 1,920/3D
Pearl Chouest.............. 1995 Gulf of Mexico 210 feet 40 feet 240/3D
</TABLE>
The Polar Search is chartered from a ship operator for an initial term
which expires on December 31, 1999. The vessel has recently been upgraded and
equipped with advanced technology including the capability to simultaneously
record up to eight seismic lines utilizing any combination of up to four Syntrak
480 streamers and two energy sources, as well as the most advanced navigation
and positioning equipment obtainable.
The Company's vessels (other than the Polar Search) are operated under
charter arrangements expiring at various times through January 1997.
Historically, the Company has been able to extend its vessel charters on terms
and at rates closely approximating the expiring terms and rates. The Company has
the right to renew the charters for the Ross Seal, the Seacor Surf and the Polar
Search for periods ranging from two to six years. Decisions on whether to extend
or renew expiring vessel charters or enter into charters with other vessel
owners are pending and will be made prior to each charter expiration date.
All of the vessels operated by the Company are equipped to perform both 3D
and 2D seismic surveys. During the last several years, a majority of the marine
seismic data acquisition services performed by the Company involved 3D surveys.
The Company frequently upgrades seismic survey equipment on its vessels to
enhance performance quality and incorporate new technology. Each vessel has an
equipment complement consisting of seismic recording instrumentation, 4,500 to
6,000 meters of digital seismic streamer cable (21,000 meters on the Polar
Search), cable location and seismic data location (binning) systems, multiple
navigation systems, a source control system which controls the synchronization
of the energy source (except in the case of the Seacor Surf) and a firing system
which generates the acoustical impulses. The streamer cable contains hydrophones
(marine geophones) that receive the acoustical impulses reflected by variations
in the
22
<PAGE> 25
subsurface strata. Data acquired by each channel in the digital cable is
partially processed before it is transmitted to recording instruments for
storage on magnetic media, thus reducing subsequent processing time and the
effective acquisition costs to the customer. In August 1994, the Company signed
a series of agreements with Syntron, Inc. ("Syntron"), pursuant to which the
Company expects to upgrade the recording systems on each of its vessels (other
than the Polar Search which has recently been upgraded) to the Syntrak 480
marine digital telemetry system.
Each marine seismic crew consists of approximately 20 persons, excluding
the ship's captain and ship personnel. Seismic personnel live aboard ship during
their tours of duty, which are staggered to permit continuous operations. During
seismic operations, Company personnel direct the positioning of the vessel using
sophisticated navigational equipment, deploy and retrieve the seismic streamer
cable and energy-source array, and operate all other systems relating to data
collection activities. Company personnel do not, however, have ultimate
responsibility for the vessel, which is operated by the captain and personnel
who are employees of the vessel owner.
DATA PROCESSING
The Company currently operates seven geophysical data processing centers,
including one under contract to a major oil and gas company. At each of the
centers, data received from the field, both from Company and other geophysical
crews, is processed to produce an image of the earth's subsurface using
proprietary computer software and techniques developed by the Company. The
Company also reprocesses older seismic data using new techniques designed to
enhance the quality of the data. A majority of the Company's data processing
services are performed on 3D seismic data.
A summary of the Company's processing centers is as follows:
<TABLE>
<CAPTION>
YEAR
OPENED
----
<S> <C>
Houston, Texas.............................................. 1966
Singapore................................................... 1970
London, England............................................. 1973
Brisbane, Australia......................................... 1982
Jakarta, Indonesia(1)....................................... 1984
Kuala Lumpur, Malaysia...................................... 1991
Assen, Holland(2)........................................... 1982
</TABLE>
- ---------------
(1) Operated by an 80%-owned subsidiary. The minority owner has an option to
reduce the Company's ownership to 41%. The Company plans to close the center
in fiscal 1997.
(2) Operated under customer contract, which expires in December 1996.
The Company's centers operate high capacity, advanced technology data
processing systems based on Convex and Hewlett Packard ("HP") systems with high
speed networks. Recent installations in Houston, London and Singapore of HP's
new K class servers ("KittyHawk") have been carried out to take advantage of
price/performance improvements.
The Company has installed its proprietary software, seismicTANGO, on three
land acquisition crews (two in North America and one in South America) and three
marine vessels. These systems run seismicTANGO software identical to that
utilized in the Company's data processing centers, allowing for ease in the
movement of data from the field to the data processing centers. Continuing
development of seismicTANGO is aimed at enhancing the resolution of data from
geologically complex formations, such as those present in Gulf of Mexico subsalt
plays.
PROPRIETARY SEISMIC DATA
In its data acquisition and processing efforts, the Company acquires and
processes data for its own account through surveys partially funded by multiple
customers. Once acquired and processed, such surveys are then offered for sale
to other customers on a nonexclusive basis. Factors considered in determining
23
<PAGE> 26
whether to undertake such surveys include the availability of initial
participants to underwrite a majority of the costs, the location to be surveyed,
the probability and timing of future lease, concession and development activity
in the area, and the availability, quality and price of competing data.
During the past three years, the Company has increased its emphasis on its
proprietary data activities. Since the beginning of fiscal 1995 through October
31, 1995, 91,000 line miles of new seismic data were added to the Company's
library. The Company expects to continue its emphasis on the sale of proprietary
seismic data and in 1996 expects to selectively add additional Gulf of Mexico
and North Sea data to its library.
TECHNOLOGY
The geophysical industry is highly technical, and the requirements for the
acquisition and processing of seismic data have evolved continuously over the
past 50 years. Accordingly, it is of significance to the Company that its
technological capabilities remain comparable to those of its competitors,
whether through continuing research and development, strategic alliances with
equipment manufacturers or by acquiring technology under license from others.
The Company has introduced several technological innovations in its geophysical
service business, which have become industry standard practice in both
acquisition and processing. In August 1994, the Company sold certain inventory,
data acquisition equipment and technology and transferred its marine and land
engineering and manufacturing department personnel to Syntron. Syntron is a
leading manufacturer of advanced digital data acquisition systems which have
gained wide acceptance in the industry. The Company has upgraded one vessel and
plans to upgrade each of its other vessels to Syntron equipment pursuant to
agreements that continue for approximately 18 months. Until such time as
currently operated data acquisition equipment is replaced, the Company will
continue to have access to the equipment and technology sold to Syntron.
Currently, the Company employs approximately 40 persons in its research and
development activities, substantially all of whom are scientists, engineers or
programmers. During fiscal year 1993, 1994 and 1995, research and development
expenditures were $4.2 million, $4.9 million and $2.9 million, respectively. The
reduced level of expenditures in 1995 reflects the transfer of the Company's
marine and land engineering department to Syntron in August 1994.
The Company only periodically applies for patents on internally developed
technology. This policy is based upon the belief that most proprietary
technology, even where regarded as patentable, can be more effectively protected
by maintaining confidentiality than through disclosure and a patent enforcement
program.
Certain of the equipment, processes and techniques used by the Company are
subject to the patent rights of others, and the Company holds non-exclusive
licenses with respect to a number of such patents. While the Company regards as
beneficial its access to others' technology through licensing, the Company
believes that substantially all presently licensed technology could be replaced
without significant disruption to the business should the need arise.
The Company's continual upgrading of technology, together with the purchase
of new equipment during the previous three years, has required a major
commitment to capital spending. The amount of future capital expenditures will
depend on the availability of funding and market requirements as dictated by oil
and gas company activity levels.
24
<PAGE> 27
The following table sets forth, for the three years ended July 31, 1995,
the Company's capital expenditures for each of its significant operations.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------------
1993 1994 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land and transition zone seismic crews............ $ 8,670 $ 5,066 $ 5,791
Marine seismic crews.............................. 25,177(1) 3,370 8,296
Data processing centers........................... 6,257 1,931 3,438
Other............................................. 322 324 717
------- ------- -------
Total................................... $40,426 $10,691 $18,242
======= ======= =======
</TABLE>
- ---------------
(1) Includes $7,800,000 of assets purchased in exchange for deferred credits on
future seismic services. See Note 10 to Consolidated Financial Statements.
COMPETITION AND OTHER BUSINESS CONDITIONS
Competition. The acquisition and processing of seismic data for the oil and
gas exploration industry has historically been highly competitive worldwide.
However, as a result of changing technology and increased capital requirements,
the seismic industry has consolidated substantially since the late 1980's. The
consolidation has reduced the number of competitors, and the largest competitors
remaining in the market are Western Geophysical (a division of Western Atlas
Inc.), Geco-Prakla (a division of Schlumberger), Compagnie Generale Geophysique
and Petroleum Geo-Services A/S. Although reliable comparative figures are not
available in all cases, the Company believes that its largest competitors have
more extensive and diversified operations and have financial and operating
resources in excess of those available to the Company. Competition for available
seismic surveys is based on several competitive factors, including price,
performance, dependability and crew availability.
Operating Conditions/Seasonality. The Company's data acquisition activities
often are conducted under extreme weather and other hazardous conditions.
Accordingly, these operations are subject to risks of injury to personnel and
loss of equipment. The Company carries insurance against the destruction of, or
damage to, its chartered vessels and its geophysical equipment in amounts that
it considers adequate. The Company may not, however, be able to obtain insurance
against certain risks or for equipment located from time to time in certain
areas of the world. The Company obtains insurance against war, expropriation,
confiscation and nationalization when such insurance is available and when
management considers it advisable to do so. Such coverage is not always
available and, when available, is subject to unilateral cancellation by the
insuring companies on short notice. The Company also carries insurance against
pollution hazards and injury to persons and property that may result from its
operations and considers the amounts of such insurance to be adequate.
Fixed costs, including costs associated with vessel charters and operating
leases, labor costs, depreciation and interest expense, account for more than
one-half of the Company's costs and expenses. As a result, downtime or low
productivity resulting from reduced demand, equipment failures, weather
interruptions or otherwise, can result in significant operating losses.
The Company's seismic operations and quarterly financial results
historically have been subject to seasonal fluctuation, with the greatest volume
of both data acquisition and data processing occurring during the summer and
fall in the Northern Hemisphere. However, as a result of the expansion of the
Company's foreign operations and the deployment of its seismic vessels and crews
into regions having opposing seasons or less severe weather conditions, the
Company believes that the impact of seasonal fluctuations has been reduced. In
addition to seasonality, the Company historically has experienced quarterly
fluctuations in operating results. Operating results in any fiscal quarter may
vary as a result of (i) the magnitude of certain contracts for the acquisition
or sale of data, (ii) customers' budgetary cycles and (iii) seismic data sales
occurring as a result of offshore lease sales. In light of customer budgetary
considerations, the majority of the Company's sales of proprietary seismic data
has historically tended to occur in the Company's second and third quarters.
25
<PAGE> 28
BACKLOG
At October 31, 1995, the Company's backlog of commitments for services was
$73.3 million, compared with $86.6 million at July 31, 1995. Such backlog
consisted of written orders or commitments believed to be firm. Contracts for
services are occasionally varied or modified by mutual consent and in certain
instances are cancelable by the customer on short notice without penalty;
consequently, the Company's backlog as of any particular date may not be
indicative of the Company's actual operating results for any succeeding fiscal
period. It is anticipated that approximately 95% of the orders and commitments
included in backlog at October 31, 1995, will be completed prior to the end of
fiscal 1996.
SIGNIFICANT CUSTOMERS
Historically, the Company's principal customers have been international oil
and gas companies, foreign national oil companies and independent oil and gas
companies. In fiscal 1993, Royal Dutch Shell and its subsidiaries and affiliates
accounted for 11% of the Company's revenues. In fiscal 1993 and 1994, Mobil Oil
Corporation and its subsidiaries and affiliates accounted for 16% and 10%
respectively, of the Company's revenues. In fiscal 1995, no single customer
accounted for 10% or more of total revenues. Due to the contractual nature of
the Company's operations, it is anticipated that significant portions of future
consolidated revenues may continue to be attributable to a few customers,
although it is likely that the identity of such customers may change from period
to period.
EMPLOYEES
At January 31, 1996, the Company employed approximately 1,200 full-time
personnel. The Company has no collective bargaining agreements with its United
States employees. However, the Company's employees in its data processing center
in Singapore have been organized by the Singapore Industrial and Services
Employees' Union. The Company considers the relations with its employees to be
good.
26
<PAGE> 29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The table below sets forth certain information regarding the Company's
executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
Douglas B. Thompson................ 46 Chairman of the Board, Director
Stephen J. Ludlow.................. 45 President and Chief Executive Officer,
Director
Richard W. McNairy................. 55 Vice President and Chief Financial Officer
Nicholas A. C. Bright.............. 49 Regional Manager -- Europe, Africa, and
Middle East Operations
David E. Graham.................... 48 Regional Manager -- North America
Operations
Timothy L. Wells................... 42 Regional Manager -- Far East Operations
Allan C. Pogach.................... 51 Vice President, Secretary, and Treasurer
George F. Baker.................... 56 Director
James B. Clement................... 50 Director
Clayton P. Cormier................. 63 Director
Steven J. Gilbert.................. 48 Director
Jack C. Threet..................... 67 Director
</TABLE>
Douglas B. Thompson. Mr. Thompson has served as chairman of the board since
May 1994 and has been president of Jupiter Management Co., Inc. ("Jupiter
Management"), a general partner of Jupiter & Associates ("Jupiter"), since
Jupiter Management's formation in 1989. He is also the sole director and
shareholder of Jupiter Investment Company and J/D Funding Corp., both general
partners of Jupiter, and is the sole shareholder of Jupiter Management. In
addition, he is chairman of the board and president of WellTech, Inc., a well
servicing company based in Houston, Texas.
Stephen J. Ludlow. Mr. Ludlow has been employed by the Company for 24 years
and has served as chief executive officer since May 1994. He was executive vice
president of the Company for the preceding four years following eight years of
service in a variety of progressively more responsible management positions,
including several years of service as the executive responsible for operations
in Europe, Africa and the Middle East.
Richard W. McNairy. Mr. McNairy has served as vice president and chief
financial officer of the Company since February 1994, prior to which he was
corporate controller of Halliburton Energy Services Group for three years and
vice president -- finance for its geophysical services subsidiary for the
preceding two years. Prior to 1989 and since 1974 he was employed in various
financial and operational management capacities with predecessor companies
acquired by Halliburton. Mr. McNairy has 26 years of experience in the oil
service industry.
Nicholas A. C. Bright. Mr. Bright is the regional manager in charge of all
Company operations in Europe, Africa and the Middle East. He joined the Company
in 1980 and served in a succession of more responsible management positions
prior to assuming his present position in 1989.
David E. Graham. Mr. Graham joined the Company in July 1995, was designated
an executive officer in October 1995, and is the regional manager in charge of
North American geophysical operations. Mr. Graham has 26 years of experience in
the exploration business including the past eight years with Schlumberger, where
he most recently served as Western Hemisphere sales and marketing manager for
Geco-Prakla, a geophysical subsidiary of Schlumberger.
Timothy L. Wells. Mr. Wells was appointed to his present position as the
regional manager in charge of the Company's Far Eastern geophysical operations
in August 1995, was designated an executive officer in
27
<PAGE> 30
October 1995, and has been employed by the Company in a series of progressively
more responsible, technical, and managerial positions since 1981.
Allan C. Pogach. Mr. Pogach has served as vice president and treasurer of
the Company since 1981 and as corporate secretary since July 1994. Mr. Pogach
has 25 years of experience in energy-related companies.
George F. Baker. Mr. Baker has been president of Cambridge Capital
Holdings, Inc., a private investment firm, for more than five years. He also
serves as chairman of the board and president of Whitehall Corporation, a
manufacturer of seismic towed arrays for offshore oil exploration, and through
its Aerocorp subsidiary, is a provider of aircraft maintenance for the airline
industry.
James B. Clement. Mr. Clement has served as the president and chief
executive officer of Offshore Logistics, Inc., a supplier of helicopter,
transportation, and related services to the oil and gas industry since November
1987, where he is also a director. Mr. Clement also is a member of the board of
directors of Pride Petroleum Services, Inc.
Clayton P. Cormier. Mr. Cormier is currently a financial and insurance
consultant. From 1986 to 1991, Mr. Cormier was a senior vice president in the
oil and gas division of Johnson & Higgins, an insurance broker. From 1979 to
1986, he was the chairman of the board, president, and chief executive officer
of Ancon Insurance Company, S.A. Prior to that time, he was an assistant
treasurer of Exxon Corporation.
Steven J. Gilbert. Mr. Gilbert has been managing general partner of Soros
Capital L.P. since 1992. Soros Capital L.P. is the principal venture capital and
leveraged transaction entity of Quantum Group of Funds. He is also the managing
director of Commonwealth Capital Partners, L.P., a private equity investment
fund. From 1984 to 1988, Mr. Gilbert was the managing general partner of
Chemical Venture Partners, which he founded. Mr. Gilbert is a director of Katz
Media Group, Inc., NFO Research, Inc., The Asian Infrastructure Fund, Peregrine
Indonesia Fund, Inc., Terra Nova (Bermuda) Holdings, Ltd., GTS-Duratek, Inc.,
Sydney Harbour Casino Holdings, Ltd., and UroMed, Inc., and is a member of the
Advisory Committee of Donaldson, Lufkin & Jenrette Merchant Banking.
Jack C. Threet. Mr. Threet was formerly vice president for exploration of
Shell Oil Company. Prior to his retirement from Shell Oil Company in 1987, Mr.
Threet was also a member of the boards of directors of several affiliates of
Shell Oil Company.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share, and at February 14, 1996, there were 11,123,422 shares
outstanding, and 1,356,401 shares were reserved for issuance upon exercise of
outstanding warrants and options. Each share of Common Stock has one vote on all
matters presented to the stockholders. Subject to the rights and preferences of
any Preferred Stock (as defined below) which may be designated and issued, the
holders of Common Stock are entitled to receive dividends, if and when declared
by the board of directors, and are entitled on liquidation to all assets
remaining after the payment of liabilities. The Common Stock has no preemptive
or other subscription rights. Outstanding shares of Common Stock are and the
shares of Common Stock offered by the Company, when issued and paid for, will be
fully paid and nonassessable. Since the Common Stock does not have cumulative
voting rights, the holders of more than 50% of the shares may, if they choose to
do so, elect all of the directors and, in that event, the holders of the
remaining shares will not be able to elect any directors. For additional
provisions relating to the ability of certain persons to elect directors, see
"-- Certain Provisions of Governing Documents." Chemical Mellon Shareholder
Services, Dallas, Texas, is the transfer agent and registrar for the Common
Stock.
PREFERRED STOCK
The board of directors of the Company, without any action by the
stockholders of the Company, is authorized to issue up to 1,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"), in
28
<PAGE> 31
one or more series and to determine the voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and in
liquidation and the conversion and other rights of each such series. There are
no shares of Preferred Stock outstanding, and no series of Preferred Stock has
been designated.
Although the board of directors has no present intention of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, provide for a liquidation preference over the Common Stock or
impede the completion of a merger, tender offer or other takeover attempt. The
board of directors, in so acting, could issue Preferred Stock having terms that
could discourage an acquisition attempt through which an acquiror may be
otherwise able to change the composition of the board of directors, including a
tender or exchange offer or other transaction that some, or a majority, of the
Company's stockholders might believe to be in their best interests.
CERTAIN PROVISIONS OF GOVERNING DOCUMENTS
The Company's bylaws also contain provisions which may affect control of
the Company and restrict its ability to engage in certain transactions. In
general, the Company's bylaws require that, until such time as a group of
individual and institutional investors (collectively, the "Jupiter Group") and
Quantum Partners LDC, a Netherlands Antilles corporation ("Quantum"), no longer
own more than 20% of the Company's outstanding Common Stock, they will have the
right to (i) designate an aggregate of six nominees for election as directors
(out of a present seven positions) at each annual meeting of the stockholders,
(ii) appoint one additional director to an expanded board of directors if the
Company defaults in any payment obligation on any of its then outstanding debt
instruments or equity securities or if the Company were to incur losses for any
five consecutive fiscal quarters and (iii) designate two of the three members of
the executive committee of the board. Both the Jupiter Group and Quantum have
agreed that during such time they will vote their shares in favor of the other's
nominees.
Upon consummation of this Offering, the Jupiter Group and Quantum will
collectively own less than 20% of the Company's outstanding Common Stock, and
accordingly, they will no longer have the right to designate board members for
election pursuant to the Company's bylaws. See "Selling Stockholder."
In addition, the bylaws prohibit the Company from engaging in certain
transactions, except upon the prior approval of at least five of the directors
designated by the Jupiter Group and Quantum, including (i) mergers,
consolidations, restructuring and recapitalizations, (ii) any issuance of Common
Stock or securities convertible into or exchangeable for Common Stock in
quantities exceeding approximately 933,333 shares, (iii) any sale of
substantially all of the assets or a majority of the equity securities of any
"significant subsidiary" and certain other sales of assets outside the ordinary
course of business, (iv) any repurchase by the Company of its outstanding
securities, or (v) any transaction between the Company and Jupiter, any member
of the Jupiter Group or Quantum except for certain transactions in the ordinary
course of business and certain other transactions entered into in connection
with or contemplated by the plan of reorganization consummated in connection
with the Company's emergence from Chapter 11 proceedings in July 1991.
SELLING STOCKHOLDER
The Selling Stockholder has agreed to sell the number of shares of Common
Stock set forth opposite its name. The table sets forth information with respect
to ownership of the Common Stock by the Selling Stockholder as of the date of,
and as adjusted to reflect, the sale of shares covered by this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
---------------------- ------------------------
PERCENT SHARES TO NUMBER PERCENT OF
NAME NUMBER OF CLASS BE SOLD OF SHARES CLASS(1)
- ---------------------------------------- ---------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Quantum Partners LDC(2)................. 1,024,263 9.17% 200,000 824,263 5.62%
</TABLE>
- ---------------
(1) Assuming the Underwriters' over-allotment option is not exercised.
(2) Includes 40,443 shares of Common Stock which may be acquired upon the
exercise of warrants by Quantum.
29
<PAGE> 32
For a discussion of Quantum's right to designate directors to the Company's
board of directors and their relationship to the Jupiter Group, see "Description
of Capital Stock -- Certain Provisions of Governing Documents."
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company and the Selling Stockholder (subject to the terms and
conditions specified in the Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Dillon, Read & Co. Inc....................................................
Raymond James & Associates, Inc...........................................
Rodman & Renshaw, Inc.....................................................
---------
Total........................................................... 3,700,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc., Raymond James &
Associates, Inc. and Rodman & Renshaw, Inc.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares hereby, the remaining
Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation, or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 555,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the 45th day
from the date of the public offering of the shares offered hereby and only to
cover over-allotments made of the shares in connection with this Offering.
The Company and certain of its directors and executive officers have agreed
not to offer, sell, contract to sell, grant any option to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock or securities
convertible or exchangeable into or exercisable for Common Stock other than the
shares offered hereby for a period of 90 days after the date of this Prospectus
without the prior written consent of Dillon, Read & Co. Inc., except that the
Company may, without that consent, issue shares of Common Stock pursuant to its
existing stock and benefit plans.
30
<PAGE> 33
The Company and the Selling Stockholder have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company and the Selling
Stockholder by Porter & Hedges, L.L.P., Houston, Texas. Certain legal matters in
connection with the Common Stock offered hereby are being passed upon for the
Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The financial statements as of July 31, 1994 and 1995 and for each of the
three years in the period ended July 31, 1995, included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
31
<PAGE> 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Statements of Operations for the years ended July 31, 1993, 1994 and
1995 and for the three months ended October 31, 1994 and 1995...................... F-3
Consolidated Balance Sheets as of July 31, 1994 and 1995 and October 31, 1995........ F-4
Consolidated Statements of Cash Flows for the years ended July 31, 1993, 1994 and
1995 and for the three months ended October 31, 1994 and 1995...................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended July
31, 1993, 1994 and 1995 and for the three months ended October 31, 1995............ F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Digicon Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Digicon
Inc. and Subsidiaries (the "Company") as of July 31, 1994 and 1995, and the
related consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended July 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at July 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
October 12, 1995
F-2
<PAGE> 36
DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, OCTOBER 31,
-------------------------------- ------------------
1993 1994 1995 1994 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUES.................................. $117,709 $117,978 $132,569 $32,000 $38,178
COSTS AND EXPENSES:
Operating expenses:
Cost of services..................... 101,866 101,310 105,912 25,008 30,433
Restructuring........................ 1,363 800
Write-off/reserve for impairment of
assets............................... 6,523
Depreciation and amortization........... 9,620 13,758 13,763 3,393 3,623
Selling, general and administrative..... 4,417 5,101 4,428 1,106 1,251
Interest................................ 1,217 3,085 5,142 1,170 1,282
Equity in loss of 50% or less-owned
companies and joint ventures......... 54 445 1,485 361
Gain on sale of investment in FSU joint
ventures............................. (4,370)
Other................................... 184 (702) 598 (372) 111
-------- -------- -------- ------- -------
Total........................... 117,358 130,883 127,758 30,666 36,700
-------- -------- -------- ------- -------
Income (loss) before provision for income
taxes................................... 351 (12,905) 4,811 1,334 1,478
Provision for income taxes................ 1,609 1,521 2,033 727 726
-------- -------- -------- ------- -------
NET INCOME (LOSS)......................... $ (1,258) $(14,426) $ 2,778 $ 607 $ 752
======== ======== ======== ======= =======
PER SHARE OF COMMON STOCK:
Earnings (loss) per share............... $ (.15) $ (1.48) $ .25 $ .06 $ .07
======== ======== ======== ======= =======
Weighted average shares................. 8,674 9,769 10,958 10,956 10,584
======== ======== ======== ======= =======
Cash dividends -- common stock.......... None None None None None
======== ======== ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 37
DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
JULY 31, (UNAUDITED)
---------------------- OCTOBER 31,
1994 1995 1995
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 8,365 $ 4,209 $ 3,490
Restricted cash investments...................................... 320 670 681
Accounts and notes receivable (net of allowance for doubtful
accounts: 1994, $701; 1995, $703; October 31, 1995, $653)...... 30,427 40,662 42,632
Note receivable from FSU joint venture, current portion.......... 443
Materials and supplies inventory (net of reserves: 1994, $68;
1995, $66; October 31, 1995, $66).............................. 5,410 1,335 1,269
Prepayments and other............................................ 4,692 6,619 6,489
-------- -------- --------
Total current assets...................................... 49,657 53,495 54,561
Property and equipment:
Seismic equipment................................................ 48,622 53,615 56,386
Data processing equipment........................................ 27,795 26,703 26,620
Seismic ships.................................................... 8,291
Leasehold improvements and other................................. 30,809 29,394 32,011
-------- -------- --------
Total..................................................... 115,517 109,712 115,017
Less accumulated depreciation.................................. 66,625 60,874 63,843
-------- -------- --------
Property and equipment -- net............................. 48,892 48,838 51,174
Proprietary seismic data........................................... 19,638 28,444 29,061
Investment in FSU joint ventures................................... 8,478
Goodwill (net of accumulated amortization: 1994, $743; 1995,
$1,168; October 31, 1995, $1,273)................................ 3,502 3,077 2,972
Other assets....................................................... 802 1,216 1,284
Note receivable from FSU joint venture, non-current portion........ 887
-------- -------- --------
Total..................................................... $131,856 $135,070 $139,052
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term related party loans................................... $ 2,695
Current maturities of long-term debt............................. 6,166 $ 10,915 $ 10,656
Accounts payable -- trade........................................ 23,740 18,875 18,206
Accrued interest................................................. 293 409 399
Other accrued liabilities........................................ 9,205 14,869 13,020
Income taxes payable............................................. 1,406 1,097 1,696
-------- -------- --------
Total current liabilities................................. 43,505 46,165 43,977
Non-current liabilities:
Long-term debt--less current maturities.......................... 23,922 25,243 26,697
Deferred credits................................................. 5,538 3,675 3,675
Other non-current liabilities.................................... 341 1,105 1,087
-------- -------- --------
Total non-current liabilities............................. 29,801 30,023 31,459
Commitments and contingent liabilities (Note 7)
Stockholders' equity:
Common stock, $.01 par value; July 31, 1994 -- authorized:
60,000,000 shares; issued: 31,352,273 shares; July 31, 1995 and
October 31, 1995 -- authorized: 20,000,000 shares; issued:
11,134,939 shares.............................................. 314 111 111
Additional paid-in capital....................................... 69,366 71,895 71,105
Accumulated deficit from August 1, 1991.......................... (11,130) (8,352) (7,600)
Less: Treasury stock, at cost; 858,497 shares.................... (4,772)
-------- -------- --------
Stockholders' equity...................................... 58,550 58,882 63,616
-------- -------- --------
Total..................................................... $131,856 $135,070 $139,052
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 38
DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, OCTOBER 31,
------------------------------ -------------------
1993 1994 1995 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................... $ (1,258) $(14,426) $ 2,778 $ 607 $ 752
Non-cash items included in income (loss):
Restructuring accrual......................................... 777 14 (295)
Write-off/reserve for impairment of assets.................... 6,523
Depreciation and amortization................................. 9,620 13,758 13,763 3,393 3,623
Amortization of warrants issued with short-term related party
loans....................................................... 89
Amortization of deferred gain on sale/leaseback............... (898) (200) (60)
(Gain) loss on disposition of property and equipment.......... (129) (746) 755 (349) 137
Equity in loss of 50% or less-owned companies and joint
ventures.................................................... 54 445 1,485 361
Gain on sale of investment in FSU joint ventures.............. (4,370)
Gain on settlement of deferred credits........................ (864)
Write-down of proprietary seismic data to market.............. 589 348 1,786 99 99
Other......................................................... (131) (148)
Change in operating assets/liabilities (exclusive of the effects
of the purchase of GFS):
Accounts and notes receivable................................. 2,937 5,203 (7,314) (4,818) (1,970)
Materials and supplies inventory.............................. (2,312) 1,145 291 11 66
Prepayments and other......................................... (608) (610) (1,326) (845) 130
Proprietary seismic data...................................... (4,174) (10,153) (10,592) (1,859) (716)
Other......................................................... (515) 508 122 (84)
Accounts payable -- trade..................................... (2,623) (4,500) (5,331) (2,960) (1,051)
Accrued interest.............................................. (68) 133 116 46 (10)
Other accrued liabilities..................................... (1,188) 3,679 5,551 1,727 (1,789)
Income taxes payable.......................................... (1,361) 546 (309) 163 599
Deferred credits.............................................. (832) (1,430) (414)
Other non-current liabilities................................. 341 762 88 (18)
-------- -------- -------- -------- --------
Total cash provided (used) by operating activities....... (1,999) 885 (3,520) (4,709) (292)
FINANCING ACTIVITIES:
Payment of long-term debt....................................... (8,102) (3,158) (7,206) (1,321) (1,877)
Net borrowings under credit agreements.......................... 5,000 8,368 1,648 588 813
Net proceeds from sale of common stock.......................... 21,083 (40) (72) (15)
Net proceeds from sale of treasury stock........................ 3,984 3,982
Borrowings of short-term related party loans.................... 6,081 30 30
Payments of short-term related party loans...................... (3,386) (2,725) (1,052)
-------- -------- -------- -------- --------
Total cash provided (used) by financing activities....... 17,981 7,865 (4,341) (1,770) 2,918
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash investments.............. 79 304 (350) (424) (11)
Increase in investment in FSU joint ventures.................... (1,535) (1,875) (415)
Sale to Syntron, Inc.:
Inventories and technologies.................................. 1,630 1,630
Property and equipment........................................ 1,370 1,370
Sale of investment in FSU joint ventures........................ 6,000
Purchase of property and equipment.............................. (21,485) (5,406) (4,552) (746) (3,488)
Sale of property and equipment.................................. 2,545 938 1,437 98 132
-------- -------- -------- -------- --------
Total cash provided (used) by investing activities....... (18,861) (5,699) 3,660 1,513 (3,367)
Currency (gain) loss on foreign cash............................ (241) (88) 45 35 22
-------- -------- -------- -------- --------
Change in cash and cash equivalents............................. (3,120) 2,963 (4,156) (4,931) (719)
Beginning cash and cash equivalents balance..................... 8,522 5,402 8,365 8,365 4,209
-------- -------- -------- -------- --------
Ending cash and cash equivalents balance........................ $ 5,402 $ 8,365 $ 4,209 $ 3,434 $ 3,490
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 39
DIGICON INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, OCTOBER 31,
------------------------------- ------------------
1993 1994 1995 1994 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in materials and supplies inventories for deferred credits..... $ 987
Increase in assets/liabilities due to purchase of GFS Company:
Cash.................................................................. 65
Restricted cash investments........................................... 75
Accounts and notes receivable......................................... 3,025
Materials and supplies inventory...................................... 183
Prepayments and other................................................. 363
Property and equipment -- net......................................... 3,168
Goodwill.............................................................. 4,245
Long-term debt........................................................ 2,431
Accounts payable -- trade............................................. 6,558
Accrued interest...................................................... 13
Other accrued liabilities............................................. 969
Common stock.......................................................... 1,153
Increase (decrease) in investment in FSU joint ventures for:
Common stock.......................................................... $ 7,299 $ 2,309 $ 2,309
Accounts and note receivable from FSU joint ventures.................. (409) (409)
Other assets.......................................................... 135
Other accrued liabilities............................................. 1,233
Long-term debt........................................................ 245
Increase (decrease) in property and equipment for:
Accounts and notes receivable......................................... 2,045 925
Execution of capital leases and notes................................. 9,844 4,227 11,224 454 $2,259
Accounts payable -- trade............................................. 2,289 1,058 334 943 382
Deferred credits payable.............................................. 6,813 (1,449)
Prepayments and other................................................. (1,104)
Increase in prepayments on property and equipment for notes payable..... 601
Increase in notes receivable for:
Sale of property and equipment........................................ 250
Sale of other assets.................................................. 1,330
Sale of investment in FSU joint ventures resulting in an increase
(decrease) in:
Accounts and notes receivable from purchaser.......................... 1,790
Accounts and note receivable from FSU joint ventures.................. (1,740)
Accounts payable -- trade............................................. 78
Treasury stock........................................................ 8,756
Sale of inventories, property and equipment, and technologies to
Syntron, Inc. resulting in an increase (decrease) in:
Accounts and notes receivable -- deferred credits..................... 3,255 1,805
Materials and supplies inventory...................................... (2,154) (2,034)
Other assets -- deferred credits receivable........................... 857 2,307
Accounts payable -- trade............................................. 957 957
Other accrued liabilities -- deferred gain............................ 891 1,011
Other non-current liabilities -- deferred gain........................ 110 110
Sale of accounts receivable and property and equipment resulting in a
decrease in:
Accounts and notes receivable......................................... (78)
Property and equipment -- net......................................... (247)
Long-term debt........................................................ (199)
Accounts payable -- trade............................................. (18)
Other non-current liabilities......................................... (108)
Increase in additional paid-in capital as a result of warrants issued
with short-term related party loans................................... 89
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest --
Equipment purchase obligations and unsecured notes payable.......... 384 879 1,060 291 392
Secured term loan................................................... 584 585 635 151 121
Credit agreements................................................... 227 664 1,915 397 529
Short-term related party loans...................................... 206 199
Other............................................................... 239 339 1,388 276 220
Income taxes.......................................................... 3,178 1,293 1,963 131 112
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 40
DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1993, 1994 AND 1995 AND THE THREE MONTHS ENDED
OCTOBER 31, 1995
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
PAID-IN CAPITAL EARNINGS
COMMON STOCK ISSUED TREASURY STOCK, ------------------- (DEFICIT)
------------------- AT COST EMPLOYEE FROM
PAR --------------------- NOTES AUGUST 1,
SHARES VALUE SHARES AMOUNT OTHER RECEIVABLE 1991
----------- ---- ---------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1992........... 22,597,423 $226 $40,007 $ (48) $ 4,554
Common stock issued in
acquisition of GFS, net of
issue costs.................... 225,000 2 1,137
Common stock issued for cash, net
of issue costs................. 5,456,900 55 20,994
Collections of employee notes
receivable..................... 48
Net loss......................... (1,258)
---------- ---- -------- ------ ------- -------- --------
BALANCE, JULY 31, 1993........... 28,279,323 283 62,138 3,296
Common stock issued for
investment in FSU joint
ventures, net of issue costs... 3,072,950 31 7,228
Net loss......................... (14,426)
---------- ---- -------- ------ ------- -------- --------
BALANCE, JULY 31, 1994........... 31,352,273 314 69,366 (11,130)
Common stock issued for
investment in FSU joint
ventures, net of issue costs... 2,052,543 20 2,265
One for three reverse stock
split, net of issue costs...... (22,269,877) (223) 175
Warrants issued in conjunction
with short-term related party
loans.......................... 89
Common stock reacquired in sale
of investment in FSU joint
ventures....................... (1,708,497) $(8,756)
Treasury stock issued for cash... 850,000 3,984
Net income....................... 2,778
---------- ---- -------- ------ ------- -------- --------
BALANCE, JULY 31, 1995........... 11,134,939 111 (858,497) (4,772) 71,895 (8,352)
Treasury stock issued for cash,
net of issue costs
(unaudited).................... 858,497 4,772 (790)
Net income (unaudited)........... 752
---------- ---- -------- ------ ------- -------- --------
BALANCE, OCTOBER 31, 1995
(UNAUDITED).................... 11,134,939 $111 $ $71,105 $ $ (7,600)
========== ==== ======== ====== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 41
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1993, 1994 AND 1995 AND THE THREE MONTHS ENDED
OCTOBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Digicon Inc. ("the Company") and all majority-owned domestic and foreign
subsidiaries. Investments in 50% or less-owned companies and joint ventures are
carried on the equity basis. All material intercompany balances and transactions
have been eliminated in consolidation.
RESTRICTED CASH INVESTMENTS
Restricted cash investments in the amounts of $320,000 at July 31, 1994 and
$670,000 at July 31, 1995 were pledged as collateral on certain bank guarantees.
TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the U.S. dollar is its functional currency.
Property and equipment (and related depreciation) and inventories are translated
into U.S. dollars at the exchange rates in effect at the time of their
acquisition. Other assets and liabilities are translated at year-end rates.
Operating results (other than depreciation) are translated at the average rates
of exchange prevailing during the year. Remeasurement gains and losses are
included in the determination of net income and are reflected in other costs and
expenses. See Note 5.
REVENUES
Revenues from data acquisition and data processing services are recorded as
revenues based on contractual rates set forth in the related contract if the
contract provides a separate rate for each segment. If the contract only
provides a rate for the overall service, revenue is recognized based on the
percentage of the work effort completed compared with the total work effort
involved in the contract.
ACCOUNTS RECEIVABLE
Included in accounts and notes receivable at July 31, 1994 and 1995 are
unbilled amounts of approximately $8,800,000 and $10,700,000, respectively. Such
amounts are either not billable to the customer at July 31 in accordance with
the provisions of the contract and generally will be billed in one to four
months or are currently billable and will be invoiced in the next monthly
statement cycle.
PROPRIETARY SEISMIC DATA
The direct cost of collecting and processing seismic data for the Company's
own account is capitalized using a percentage of estimated sales method. The
cost of proprietary seismic data is charged to operations either in (i) the
periods in which sales occur as a percentage of the revenue obtained, or (ii) in
periods when the estimated market value of such data is less than the cost of
the data.
MOBILIZATION COST
Transportation and make-ready expenses of seismic operations prior to
commencement of business in an area are amortized over the period of expected
operations in that area. Amounts applicable to operations for the Company's own
account are included in the cost of proprietary seismic data. Unamortized
mobilization costs, if any, are shown as a prepaid expense.
F-8
<PAGE> 42
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories of materials and supplies are stated at the lower of average
cost or market.
DEPRECIATION
Provision for depreciation is computed using the straight-line method based
on estimated useful lives as follows:
<TABLE>
<CAPTION>
AVERAGE
YEARS
-------
<S> <C>
Seismic equipment...................................... 5
Data processing equipment.............................. 5-6
Seismic ships.......................................... 14
Leasehold improvements and other....................... 3-7
</TABLE>
Expenditures for routine repairs and maintenance are charged to expense as
incurred; expenditures for additions and improvements are capitalized and
depreciated over the estimated remaining life of the related asset. Significant
vessel repairs and biennial drydocking expenses are recorded as deferred charges
in prepayments and other and are amortized over a six to 24 month period. The
net gain or loss on items of property and equipment retired or disposed of is
included in other costs and expenses. See Note 5.
It is the Company's policy to periodically review property and equipment
lives. In fiscal 1993, a study indicated that the actual lives for certain asset
categories generally were longer than the useful lives used for depreciation
purposes in the Company's financial statements and the Company extended the
estimated useful lives for certain of its seismic acquisition equipment. The
effect of this change was to reduce 1993 depreciation expense by $490,000 and
decrease the net loss by $490,000, or $.06 per share (as restated for the
Reverse Split -- See Note 19).
In fiscal 1994, the Company wrote off or reserved for the impairment of
assets to their net realizable value the amount of $6,523,000, or $.67 per share
(as restated for the Reverse Split -- See Notes 17 and 19).
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred.
Research and development costs for the years ended July 31, 1993, 1994 and 1995
were $4,235,000, $4,908,000 and $2,851,000, respectively.
INCOME TAXES
The Company's policy is not to provide for the income taxes, if any, which
would be payable if undistributed earnings of foreign consolidated subsidiaries
were paid as dividends to the parent company, since such earnings have been or
will be reinvested in the business.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes", which requires the use of the "liability method" in place of the
previously required "deferred method". Under the liability method, deferred
income taxes reflect the net tax effects of (a) temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss and tax
credit carryforwards. SFAS 109 allows recognition of all or a portion of
benefits from the utilization of net operating loss carryforwards as deferred
tax assets if realization is "more likely than not". In periods of changing
income tax rates, the liability method will cause fluctuations in net income of
companies with deferred taxes. The Company adopted SFAS 109 effective August 1,
1993. The adoption of this standard did not result in a cumulative effect
adjustment to equity or income for the year ended July 31, 1994.
F-9
<PAGE> 43
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recognition is given in the accompanying consolidated balance sheets to the
future income tax benefits of loss carryforwards only to the extent that they
can be used to offset existing deferred taxes. Since the Company's
quasi-reorganization on July 31, 1991, in accordance with Staff Accounting
Bulletin No. 86, the tax benefits of loss carryforwards existing at the date of
the quasi-reorganization, when realized, have been recognized in the
consolidated statements of operations by a charge in lieu of income taxes,
representing the additional income taxes which otherwise would have been
provided, with an equal and offsetting direct addition to paid-in capital
reflecting the utilization of the loss carryforward.
EARNINGS (LOSS) PER SHARE
Weighted average shares and earnings (loss) per share have been restated
for all periods presented to reflect the effect of the Reverse Split consummated
on January 17, 1995. See Note 19.
Primary loss per share is computed based on the weighted average number of
shares of common stock. Primary earnings per share is computed based on the
weighted average number of shares of common stock plus common stock equivalents.
Common stock equivalents include (i) stock options (see Note 6), (ii) warrants
(see Note 8) and (iii) contingent shares issuable. Shares issuable upon the
conversion of stock options and warrants were disregarded since the treasury
stock method of calculation produced no incremental shares or resulted in
dilution of less than 3%. For the year ended July 31, 1994, contingent shares
issuable under the second stage of the agreements discussed in Note 16 were
disregarded due to net losses incurred.
Fully diluted earnings per share is not presented for the year ended July
31, 1993 and 1994 due to net losses incurred. Fully diluted earnings per share
is not presented for the year ended July 31, 1995 and the three months ended
October 31, 1994 and 1995 since stock options and warrants referenced above had
no dilutive effect.
LEASES
Operating leases include those for office space, specialized seismic
equipment rented for short periods of time, and the Company's seismic ships
which generally are chartered on a short-term basis.
CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company has
elected to define "cash equivalents" as items readily convertible into known
amounts of cash with original maturities of three months or less.
QUASI-REORGANIZATION
The Company effected a quasi-reorganization adjustment as of July 31, 1991
in which the accumulated deficit at July 31, 1991 of $139,751,000 was offset
against additional paid-in capital.
GOODWILL
The Company has recorded the purchase price of businesses or joint venture
interests in excess of the fair value of net assets acquired as goodwill which
is amortized over the period benefits are expected to be derived. The Company
periodically reviews the carrying value of goodwill in relation to the current
and expected operating results of the businesses or joint ventures in order to
assess whether there has been a permanent impairment of such amounts.
See also Notes 9 and 16 relating to the purchase of GFS Company and
investment in FSU joint ventures.
F-10
<PAGE> 44
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain balances as of July 31, 1994 have been reclassified for consistent
presentation.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of Management, the unaudited consolidated financial
statements as of October 31, 1994 and 1995 contain all adjustments necessary to
present fairly the financial position of Digicon Inc. and subsidiaries, and the
results of its operations and its cash flows for the three-month periods ended
October 31, 1994 and 1995. The results of operations for any interim period are
not necessarily indicative of the results to be expected for a full year, as
such results could be affected by changes in demand for geophysical services and
products, which is directly related to the level of oil and gas exploration and
development activity. Governmental actions, foreign currency exchange rate
fluctuations, seasonal factors, weather conditions and equipment problems also
could impact future operating results.
2. SHORT-TERM RELATED PARTY LOANS
The short-term related party loans provided for up to $3,000,000 in
advances and were collateralized, on a subordinated basis, by a majority of the
assets of the Company. Interest was payable at prime plus 3% through January 26,
1995 and at prime plus 6% thereafter. Interest expense for the years ended July
31, 1994 and 1995 was $206,000 and $376,000, respectively. The loans were
subject to mandatory prepayment from a portion of the proceeds of certain
specified transactions, if and when such transactions occurred. As a result of
the completion of several such transactions, the loans were fully repaid on June
13, 1995. As further consideration for the facility, the Company issued common
stock purchase warrants in an amount directly related to the average outstanding
balance of the loans. See Notes 8 and 13.
3. LONG-TERM DEBT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
JULY JULY OCTOBER
31, 31, 31,
1994 1995 1995
------- ------- -----------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Revolving credit agreement due April 1997, at prime
plus 3% (11.75% at October 31, 1995)................ $12,446 $14,123 $15,818
Secured term loan due June 1997, at 10.75%............ 6,000 4,500 4,500
Secured Indonesian Rupiah revolving credit agreement
due September 1995, at 19%.......................... 922 894
Unsecured notes maturing through January 1995, at
10%................................................. 35
Equipment purchase obligations maturing through
February 1999, at an average rate of 11.08% at
October 31, 1995.................................... 10,605 16,641 17,035
Real estate note maturing April 1995, at prime plus
1.25%............................................... 80
------- ------- -------
Total....................................... 30,088 36,158 37,353
Less current maturities............................... 6,166 10,915 10,656
------- ------- -------
Due after one year.......................... $23,922 $25,243 $26,697
======= ======= =======
</TABLE>
The revolving credit agreement is with a finance company and provides a
revolving credit facility of up to $17,000,000 (increased from $15,000,000 in
April 1995) through April 11, 1997. Advances under the agreement are limited by
a borrowing formula and are collateralized by a majority of the assets of the
Company. The agreement limits, among other things, the Company's right, without
consent of the lender, to
F-11
<PAGE> 45
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
take certain actions, including creating indebtedness, prohibits paying
dividends and requires the Company to maintain certain financial ratios. The
agreement also provides for the deposit of collections of certain of the
Company's accounts receivable into cash collateral accounts and for the
repayment of outstanding advances and monthly interest with such proceeds.
Amounts applied against outstanding advances are available for reborrowing upon
presentation of evidence of adequate borrowing base coverage. At July 31, 1995,
$2,877,000 was available for borrowing under this agreement.
The secured term loan is due June 30, 1997, with interest at 10.75% payable
quarterly. A principal payment of $1,500,000 is due June 30, 1996, and the
remaining unpaid principal is due June 30, 1997. The loan agreement limits, but
does not prohibit, the Company's ability to pay dividends and to incur
indebtedness for borrowed money and requires the Company to maintain certain
financial ratios. The Company has obtained a waiver for noncompliance at July
31, 1995 with the debt service coverage ratio. The ratio has been revised
subsequent to year-end. In April 1994, in conjunction with the execution of the
revolving credit agreement, the lender was granted a security interest in a
majority of the Company's equipment. In connection with the loan, the Company
issued common stock purchase warrants to the lender. See Note 8.
The secured Indonesian Rupiah revolving credit facility in the amount of
two billion Rupiahs is the obligation of P.T. Digicon Mega Pratama, a
consolidated subsidiary of the Company, and provides working capital and certain
bank guarantees for its Indonesian operations. The facility was repaid in
September 1995.
The unsecured notes payable represented agreements executed in settlement
of certain unsecured obligations.
The Company's equipment purchase obligations represent installment loans
and capitalized lease obligations primarily related to computing and seismic
equipment.
The real estate note was secured by land and a building and was payable in
installments of $8,987 per month plus interest through April 1995.
Annual maturities of long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR MATURITIES
--------------------------------------------------- -----------
<S> <C>
(IN THOUSANDS
OF DOLLARS)
1996............................................. $10,915
1997............................................. 21,931
1998............................................. 3,105
1999............................................. 207
</TABLE>
During the year ended July 31, 1993, the Company incurred interest costs of
$1,421,000. The Company capitalized $204,000 of this amount as a cost of
leasehold improvements to a chartered vessel. No interest was capitalized during
the years ended July 31, 1994 and 1995.
F-12
<PAGE> 46
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
tax position are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1994 1995
-------- --------
<S> <C> <C>
(IN THOUSANDS OF
DOLLARS)
Deferred tax assets:
Difference between book and tax basis of property
and equipment.................................... $ 3,488 $ 4,544
Reserves not currently deductible................... 396 156
Operating loss carryforwards........................ 47,046 50,920
Tax credit carryforwards............................ 6,023 5,761
Other............................................... 2,142 4,526
-------- --------
Total....................................... 59,095 65,907
Deferred tax liabilities:
Other............................................... (483) (314)
-------- --------
Net deferred tax assets............................... 58,612 65,593
Valuation allowance................................... (58,612) (65,593)
-------- --------
Net deferred tax position............................. $ 0 $ 0
======== ========
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, OCTOBER 31,
---------------------------- -----------------
1993 1994 1995 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Current -- U.S................ $ 54 $ 34 $ (50)
Current -- foreign............ 1,601 $1,675 2,112 777 $ 760
Deferred -- foreign........... (46) (154) (113) (34)
----- ----- ----- ----- -----
Total............... $1,609 $1,521 $2,033 $ 727 $ 726
===== ===== ===== ===== =====
</TABLE>
As of July 31, 1995, the Company had U.S. net operating loss carryforwards
("NOL's") of approximately $88,756,000 which expire in the years 1998 through
2010. Included in such amounts are $76,885,000 of NOL's that existed prior to
the quasi-reorganization. See Note 1. As of July 31, 1995, approximately
$5,761,000 of investment tax credit carryforwards, which will expire in the
years 1996 through 1998, were available to reduce future U.S. income taxes.
Foreign operations had NOL's of approximately $64,681,000 at July 31, 1995,
which are available indefinitely to reduce future foreign taxable income in
specific jurisdictions. Included in such amounts are $48,900,000 of NOL's that
existed prior to the quasi-reorganization. See Note 1. The foreign component of
income (loss) before provision for income taxes was $(5,315,000), $(8,982,354)
and $(9,038,919) for the years ended July 31, 1993, 1994 and 1995, respectively.
Income tax expense is different from the amount computed by multiplying
income (loss) before provision for income taxes by the corporate tax rate of 34%
for the years ended July 31, 1993, 1994 and 1995 because of the inability to
obtain any income tax benefits from operating losses in foreign countries.
Additionally, during 1995 other permanent differences arose for both U.S. and
foreign income tax purposes. For U.S. income tax purposes, such differences
included approximately $16,500,000 relating to the write-off of uncollectible
F-13
<PAGE> 47
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
advances to certain foreign subsidiaries. For foreign income tax purposes, such
differences included a payment of approximately $600,000 for prior year tax
assessments and the payment of approximately $1,400,000 in withholding taxes.
IRS regulations restrict utilization of NOL's for any company in which an
"ownership change" (as defined in Section 382 of the Internal Revenue Code) has
occurred. The Company has performed required testing and has concluded that an
"ownership change" occurred in connection with the issuance of common stock
through a public offering made by the Company on January 6, 1992. As a result,
the future utilization of U.S. NOL's existing at the date of the "ownership
change" will be limited to approximately $4,000,000 per year. This limitation
had no effect on the provision for income taxes for the years ended July 31,
1993, 1994 and 1995. To the extent that any portion of this annual limitation is
not used in any year, it may be carried over and added to the annual limitation
of succeeding years. At July 31, 1995, the accumulated unused limitation on
NOL's existing at the date of the "ownership change" was approximately
$12,373,000.
5. OTHER COSTS AND EXPENSES
Other costs and expenses consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
JULY 31, OCTOBER 31,
------------------------ ---------------
1993 1994 1995 1994 1995
---- ----- ----- ----- -----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Net foreign currency exchange (gains)
losses................................. $532 $ 94 $ 51 $ 7 $ (2)
Net (gain) loss on disposition of
property and equipment................. (129) (746) 755 (349) 137
Interest income.......................... (255) (82) (208) (37) (24)
Other.................................... 36 32 7
---- ----- ----- ----- -----
Total.......................... $184 $(702) $ 598 $(372) $ 111
==== ===== ===== ===== =====
</TABLE>
6. EMPLOYEE BENEFITS
The Company maintains a 401(k) plan in which employees of all the
majority-owned domestic subsidiaries and certain foreign subsidiaries are
eligible to participate. However, employees of foreign subsidiaries who are
covered under a foreign deferred compensation plan are not eligible. Employees
are permitted to make contributions of up to 10% of their salary to a maximum of
$9,240 per year. Generally, the Company will contribute an amount equal to
one-half of the employee's contribution up to $6,000 or 6% (whichever is less)
of the employee's salary; however, if consolidated pre-tax income for any fiscal
year is less than the amount required to be contributed by the Company, the
Company may elect to reduce its contribution, but in no event may it reduce the
total contribution to less than 25% of the employee contribution. The Company
may make additional contributions from its current or cumulative net profits in
an amount to be determined by the Board of Directors. Employer matching
contributions to the 401(k) plan were $136,981 in 1993, $286,471 in 1994 and
$280,981 in 1995.
The Company initiated an employee nonqualified stock option plan on
September 1, 1992. Options are granted to key employees and are exercisable
beginning six months after the date of grant. The option price per share shall
not be less than the lesser of (i) fair market value of the common stock on the
date the option is granted or (ii) the average fair market value for the common
stock during the 30 trading days ending on the trading day next preceding the
date the option is granted. Options expire ten years from the date of grant. No
options under the plan have been exercised. The exercise prices and number of
options existing prior to
F-14
<PAGE> 48
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 17, 1995 have been adjusted for the Reverse Split. See Note 19. The
Company has authorized 658,333 shares of post-Reverse Split common stock to be
issued under the plan.
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
OPTIONS PRICE
------- ------------
<S> <C> <C>
Balance, July 31, 1993.............................. 560,000 $13.50
Options cancelled................................. (70,667) $13.50
-------
Balance, July 31, 1994.............................. 489,333 $13.50
Options issued.................................... 13,333 $6.00
Options cancelled................................. (79,666) $13.50
-------
Balance, July 31, 1995.............................. 423,000 $6.00-$13.50
=======
</TABLE>
The Company also initiated a stock option plan for non-employee directors
(the "Director Plan") providing for stock options to be granted to each
non-employee director of the Company. The Director Plan provides that on
December 31 of each year, each eligible director shall be granted an option to
purchase 3,333 shares of the Company's post-Reverse Split common stock, subject
to an aggregate limit of 16,667 shares for each director. The exercise price for
each option granted shall be the average closing price of the common stock for
the 30 trading days prior to the date of grant. The exercise prices of options
existing prior to January 17, 1995 have been adjusted for the Reverse Split.
Options may be exercised at any time (i) after the later of six months following
the date of grant or the first anniversary of the director's service on the
board and (ii) before the sixth anniversary of the date of grant, when the
option expires. No options under the Director Plan have been exercised. The
Company has authorized 200,000 shares of post-Reverse Split common stock to be
issued under the Director Plan.
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
OPTIONS PRICE
------ ------------
<S> <C> <C>
Balance, July 31, 1993............................... 20,000 $12.87
Options issued..................................... 16,667 $6.72
------
Balance, July 31, 1994............................... 36,667 $6.72-$12.87
Options issued..................................... 19,998 $4.13
------
Balance, July 31, 1995............................... 56,665 $4.13-$12.87
======
</TABLE>
The Company maintains a contributory defined benefit pension plan (the
"Pension Plan") for eligible participating employees in its United Kingdom
offices. Monthly contributions by employees are equal to 3.5% of their salaries
with the Company providing an additional contribution in an actuarially
determined amount necessary to fund future benefits to be provided under the
Pension Plan. Benefits provided are based upon 1/60 of the employee's final
pensionable salary (as defined) for each complete year of service up to 2/3 of
the employee's final pensionable salary and increase annually at 5%. The Pension
Plan also provides for 50% of such actual or expected benefits to be paid to a
surviving spouse upon the death of a participant. Pension Plan
F-15
<PAGE> 49
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets consist mainly of investments in marketable securities which are held and
managed by an independent trustee. The net periodic pension costs are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
-------------------
1994 1995
----- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Service costs (benefits earned during the period)...... $ 288 $ 275
Interest costs on projected benefit obligation......... 249 253
Return on assets....................................... (226) (275)
Net amortization and deferral.......................... 4 5
----- -----
Net periodic pension costs............................. $ 315 $ 258
===== =====
</TABLE>
The funded status of the Pension Plan is as follows:
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1994 1995
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Plan assets at fair value.............................. $ 2,841 $ 3,444
Actuarial present value of accumulated vested benefit
obligations.......................................... 2,472 3,026
Effect of future salary increases...................... 437 517
------- -------
Projected benefit obligation......................... 2,909 3,543
------- -------
Projected benefit obligation in excess of plan
assets............................................... (68) (99)
Unrecognized prior service cost........................ 68 13
------- -------
Pension liability...................................... $ $ (86)
======= =======
</TABLE>
The weighted average assumptions used to determine the projected benefit
obligation and the expected long-term rate of return on assets for the years
ended July 31, 1994 and 1995 are as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 8.5%
Rates of increase in compensation levels.............................. 6.5%
Expected long-term rate of return on assets........................... 9.0%
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
Total rentals of vessels, equipment and office facilities charged to
operations amounted to $19,105,000, $21,914,000 and $24,884,000 for the years
ended July 31, 1993, 1994 and 1995, respectively.
F-16
<PAGE> 50
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rentals payable under operating leases, principally for office
space, and vessel charters with remaining noncancellable terms are as follows:
<TABLE>
<CAPTION>
FISCAL MINIMUM
YEAR RENTALS
--------------------------------------------------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
1996............................................. $14,583
1997............................................. 8,113
1998............................................. 7,244
1999............................................. 6,758
2000............................................. 3,546
2001-2013.......................................... 7,562
</TABLE>
At July 31, 1995, the Company had placed orders for the purchase of certain
equipment and services with an aggregate purchase price of $1,748,000.
The Company has an employment agreement with an employee, who is also a
director, that provides for salary payments of $25,417 per month plus certain
employee benefits through December 31, 1995, the end of the employment period as
defined. The agreement also contains a non-compete clause for a period of three
years after the employment period during which time the employee will receive
payments of $12,709 per month plus certain employee benefits.
8. WARRANTS
The following number of warrants issued and exercise prices have been
adjusted for the Reverse Split consummated on January 17, 1995. See Note 19.
In conjunction with the cancellation of a previous issue of common and
preferred stock and certain other liabilities, the Company authorized 454,545
warrants which may be exercised for 454,545 shares of common stock. The warrants
were issued for a term of five years beginning July 5, 1991 at an exercise price
of $18.00 per share. The warrants may only be exercised for cash.
In conjunction with the Company's term loan due June 30, 1997, the Company
issued 113,333 warrants which expire June 29, 1997. The warrants were
exercisable for cash at a price of $18.00 per share. In conjunction with an
amendment to the loan in August 1994, which revised certain financial ratio
covenants, the price of the warrants was reduced to $6.00 per share.
In conjunction with the Company's short-term related party loans, the
Company issued to the lenders warrants to purchase 120,000 common shares. The
warrants may be exercised for cash at a price of $4.50 per share and will expire
July 26, 1999.
9. PURCHASE OF GFS COMPANY
On October 30, 1992, the Company acquired GFS Company ("GFS") of Jackson,
Mississippi. GFS operates land and transition zone seismic crews. Under the
agreement, Digicon issued 225,000 shares of its pre-Reverse Split common stock
(valued at $1,153,000) and $117,000 in notes in exchange for all of the
outstanding stock of GFS. On completion of the transaction, GFS became a
wholly-owned subsidiary of the Company. The acquisition was accounted for using
the purchase method of accounting, and accordingly, goodwill of $4,245,000 was
recorded representing the excess of the purchase price over the fair value of
the net assets acquired. The goodwill is being amortized over a ten-year period
and the operations of GFS are included in the consolidated financial statements
beginning November 1, 1992.
F-17
<PAGE> 51
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEFERRED CREDITS
In August 1992, the Company entered into agreements with a customer
pursuant to which the Company was obligated to allow $7,800,000 in discounts at
specified rates on future seismic services performed by the Company for such
customer. Discounts were payable only out of a portion of the revenues received
by the Company for the performance of the seismic services for such customer. At
July 31, 1994, remaining discounts due were included in accounts
payable -- trade in the amount of $536,000 and in deferred credits in the amount
of $5,538,000. The agreement also required the customer to utilize the services
of certain Company vessels for a minimum period of 15 months during a period
ending in June 1995. In July 1995, the agreements were amended to terminate the
remaining vessel usage requirement, revise the discount rates available on
future seismic services and allow the customer to apply the discounts against
the Company's invoices in return for a reduction in discounts allowed. As a
result, the Company recognized a gain of $864,000 which is included in operating
expenses for the year ended July 31, 1995. At July 31, 1995, remaining discounts
of $3,675,000 are included in deferred credits.
The Company also has $1,500,000 and $880,000 at July 31, 1994 and 1995,
respectively, included in other accrued liabilities relating to deferred credits
earned by certain customers in conjunction with their original participation in
one of the Company's proprietary data surveys. These credits may be applied by
the customers against future invoiced amounts.
F-18
<PAGE> 52
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHICAL INFORMATION
Substantially all of the Company's operations consist of geophysical
services. The following tables provide relevant information for the three years
ended July 31, 1993, 1994 and 1995, grouped by major geographic areas.
Intersegment sales between geographic areas are valued at current market prices.
<TABLE>
<CAPTION>
REVENUES
--------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
YEAR ENDED JULY 31, 1993:
Geographic areas:
Europe & Middle East............. $ 24,699 $ 108 $ 24,807 $ 4,374 $ 38,516
Africa........................... 13,020 13,020 2,392 3,850
Far East......................... 38,569 74 38,643 (2,107) 26,267
South America.................... 3,945 3,945 638 7,723
Eliminations..................... (182) (182)
-------- ------- -------- ------- --------
Totals...................... 80,233 80,233 5,297 76,356
United States.................... 37,476* 3,639 41,115* (908) 49,035
Eliminations..................... (3,639) (3,639)
-------- ------- -------- ------- --------
Totals...................... 117,709 117,709 4,389 125,391
Other............................ (184)
Corporate, general and
administrative expenses........ (2,583)
Interest......................... (1,217)
Income taxes..................... (1,609)
Investments in 50% or less-owned
companies and joint ventures... (54) 254
Corporate assets................. 355
-------- ------- -------- ------- --------
Totals...................... $117,709 $ $117,709 $(1,258) $126,000
======== ======= ======== ======= ========
</TABLE>
- ---------------
* Includes export sales of $10,138.
During 1993, United States, Europe & Middle East, Africa and Far East
revenues include sales to two clients which accounted for 16% and 11% of total
revenues. Depreciation and amortization expense was $2,345,000 for Europe &
Middle East, $230,000 for Africa, $2,209,000 for Far East, $140,000 for South
America and $4,678,000 for United States. Capital expenditures were $21,310,000
for Europe & Middle East, $275,000 for Africa, $4,295,000 for Far East,
$3,692,000 for South America and $10,809,000 for United States.
F-19
<PAGE> 53
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REVENUES
-------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
-------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
YEAR ENDED JULY 31, 1994:
Geographic areas:
Europe & Middle East............. $ 29,891 $1,697 $ 31,588 $ (3,120) $ 33,063
Far East......................... 19,401 19,401 (11,325) 19,330
South America.................... 14,219 14,219 (799) 9,758
Eliminations..................... (1,697) (1,697)
-------- ------ -------- -------- --------
Totals...................... 63,511 63,511 (15,244) 62,151
United States.................... 54,467* 315 54,782* 7,187 60,649
Eliminations..................... (315) (315)
-------- ------ -------- -------- --------
Totals...................... 117,978 117,978 (8,057) 122,800
Other............................ 702
Corporate, general and
administrative expenses........ (2,020)
Interest......................... (3,085)
Income taxes..................... (1,521)
Investments in 50% or less-owned
companies and joint ventures... (445) 8,543
Corporate assets................. 513
-------- ------ -------- -------- --------
Totals...................... $117,978 $ $117,978 $(14,426) $131,856
======== ====== ======== ======== ========
</TABLE>
- ---------------
* Includes export sales of $1,501.
During 1994, United States, Europe & Middle East and Far East revenues
include sales to a client which accounted for 10% of total revenues. Operating
profit (loss) includes restructuring charges and write-off/reserve for
impairment of assets of $1,258,000 for Europe & Middle East, $3,317,000 for Far
East, and $3,808,000 for United States. Depreciation and amortization expense
was $4,214,000 for Europe & Middle East, $1,942,000 for Far East, $1,551,000 for
South America and $6,030,000 for United States. Capital expenditures were
$2,031,000 for Europe & Middle East, $458,000 for Far East, $1,471,000 for South
America and $6,720,000 for United States.
F-20
<PAGE> 54
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REVENUES
------------------------------- OPERATING
UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE
CUSTOMERS SALES TOTAL (LOSS) ASSETS
-------- ----- -------- ------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
YEAR ENDED JULY 31, 1995:
Geographic areas:
Europe & Middle East............... $ 20,230 $ 579 $ 20,809 $ 2,188 $ 11,976
Far East........................... 27,360 22 27,382 (262) 23,436
South America...................... 21,931 21,931 (1,996) 16,998
Eliminations....................... (601) (601)
-------- ----- -------- ------- --------
Totals........................ 69,521 69,521 (70) 52,410
United States...................... 63,048* 126 63,174* 9,263 82,227
Eliminations....................... (126) (126)
-------- ----- -------- ------- --------
Totals........................ 132,569 132,569 9,193 134,637
Other.............................. (598)
Corporate, general and
administrative expenses.......... (1,527)
Interest........................... (5,142)
Income taxes....................... (2,033)
Gain on sale of investment in FSU
joint ventures................... 4,370
Investments in 50% or less-owned
companies and joint ventures..... (1,485) 57
Corporate assets................... 376
-------- ----- -------- ------- --------
Totals........................ $132,569 $ $132,569 $ 2,778 $135,070
======== ===== ======== ======= ========
</TABLE>
- ---------------
* Includes export sales of $2,228.
There was no single client that accounted for 10% or more of total revenues
during the year ended July 31, 1995. During 1995, depreciation and amortization
expense was $3,984,000 for Europe & Middle East, $1,470,000 for Far East,
$2,149,000 for South America and $5,762,000 for United States. Capital
expenditures were $1,709,000 for Europe & Middle East, $1,240,000 for Far East,
$4,252,000 for South America and $11,041,000 for United States.
12. ISSUANCE OF COMMON STOCK
See Note 19 relating to the Reverse Split consummated on January 17, 1995.
In December 1992, the Company sold, in an underwritten public offering,
5,456,900 shares of pre-Reverse Split common stock at $4.25 per share. The
Company incurred approximately $2,104,000 of issuance costs in conjunction with
the offering and these costs have been charged to additional paid-in capital.
F-21
<PAGE> 55
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
See also Notes 9 and 16 relating to the issuance of pre-Reverse Split
common stock for the purchase of GFS Company and investment in FSU joint
ventures.
On June 6, 1995, 850,000 shares of treasury stock were sold to an
institutional investor at a price of $4.6875 per share. See Note 15.
13. CERTAIN TRANSACTIONS
During fiscal 1994, the Company entered into two credit facilities with
shareholders SOROS Capital L.P., CCF Jupiter L.P. and Jupiter Management Co.,
Inc. (collectively, "the Lenders"). In November 1993, the Company executed a
secured term loan agreement with the Lenders which provided loans totaling
$3,386,000. The loans were repaid in full in April 1994, and the facility was
terminated. In July 1994, the Company executed a second secured loan agreement
with the Lenders providing up to $3,000,000 of advances. See Note 2. The second
facility was repaid in full in June 1995. In connection with the second
facility, the Lenders received warrants to purchase the Company's common stock.
See Note 8. During the fiscal year ended July 31, 1994 and 1995, $206,000 and
$376,000, respectively, was paid to the Lenders as interest and fees under the
two facilities.
In fiscal 1994 and 1995, the Company performed certain data acquisition,
processing, marketing and training services for various co-venturers and
recorded sales in the amount of $1,279,000 and $1,633,000, respectively. At July
31, 1994 and 1995, there was approximately $310,000 and $300,000, respectively,
in outstanding receivables related to these transactions.
The Company sold certain assets during July 1994 to Caspian Geophysical, a
joint venture in which the Company had an indirect 10% interest, for a note
receivable payable in 36 monthly installments of $41,667 with an imputed
interest rate of 10%. The net gain recorded after eliminating intercompany
profits was $148,000. The note receivable was repaid in June 1995 as a result of
the sale of the Company's interest in the joint venture. See Note 16.
14. EMPLOYEE STOCK PURCHASE
In July 1991, the Company authorized 707,547 shares of pre-Reverse Split
common stock for sale to its employees at a price of $2.12 per share. Employee
purchases were voluntary and the stock was fully subscribed at the Closing Date.
On the Closing Date, the Company issued the stock to the employees upon receipt
of cash in an amount of par value. At the employee's option, the remaining
purchase price could be paid in cash on the Closing Date or by payroll
deductions over a period of 24 months.
At July 31, 1992, agreements in the amount of $48,000 were outstanding and
in accordance with Staff Accounting Bulletin No. 40, Topic 4-E were excluded
from additional paid-in capital. As of July 31, 1993, all proceeds due under the
agreements had been received and are included in additional paid-in capital.
15. SUBSEQUENT EVENTS
In September 1995, the Company sold its 858,497 shares of treasury stock to
a group of institutional investors at a price of $4.6875 per share for total
cash proceeds of $4,024,204.
16. INVESTMENT IN FSU JOINT VENTURES
During the year ended July 31, 1994, the Company entered into a joint
venture agreement with MD Seis International Ltd. to perform geophysical
services in the former Soviet Union ("FSU"). In connection with the agreement,
the Company placed 5,431,615 shares of its pre-Reverse Split common stock in
escrow to be distributed in stages upon the execution and completion of certain
conditions.
F-22
<PAGE> 56
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The first stage was completed on April 1, 1994 and the Company exchanged
3,072,950 shares of pre-Reverse Split common stock valued at $2.375 per share,
or $7,298,256, and a $1,000,000 cash commitment in return for interests in
certain jointly owned companies. The second stage of the agreement was completed
on August 25, 1994, and the Company increased its ownership interest in certain
of these companies by exchanging 2,052,543 shares of pre-Reverse Split common
stock valued at $1.125 per share, or $2,309,111, and an additional $2,000,000
cash commitment. In addition, the Company agreed to guarantee certain
liabilities of the joint ventures. After adjustment for the Reverse Split
consummated on January 17, 1995, MD Seis owned 1,708,497 shares of common stock.
The investments were being accounted for under the equity method. The FSU
joint ventures generated total revenues of approximately $300,000 and $6,994,000
and net losses of approximately $921,000 and $2,954,000 during the years ended
July 31, 1994 and 1995, respectively. The Company's share of net losses was
approximately $391,000 and $1,477,000 during the years ended July 31, 1994 and
1995, respectively. The excess purchase price over the fair value of the net
assets acquired in the amount of $9,292,000 was being amortized over a 20 year
period. Amortization expense for the years ended July 31, 1994 and 1995 was
$100,000 and $392,000, respectively.
On June 6, 1995, the Company sold its interests in the joint ventures for
$6,000,000 in cash and the return of the 1,708,497 shares of the post-Split
common stock owned by MD Seis (valued at $5.125 per share). In addition, the
Company received $2,992,144 in short-term notes, which were collected on July
31, 1995, representing payments for equipment sold and a return of amounts
previously advanced to the joint ventures and is entitled to receive royalties
of up to $1,500,000 based on future sales of speculative data currently being
acquired by the joint ventures. The net effect of these transactions was a gain
of $4,370,000.
17. RESTRUCTURING CHARGES AND EXIT COSTS
In response to operating losses in certain markets which adversely impacted
the Company's liquidity during the year ended July 31, 1994, management made a
decision to restructure its operations and revalue certain assets in April 1994,
including plans to close the Indonesian processing center, and accordingly
incurred $9,116,000 in total expenses relating to such decision. Costs of
$1,230,000 are included in cost of services and include non-recurring expenses
associated with certain contract liabilities. Also included in the $9,116,000 is
$6,523,000 for the write-off/reserve for the impairment of assets to their net
realizable value. A portion of the write-off pertains to marine ($2,437,000) and
land ($552,000) acquisition assets related to decommissioned marine vessels and
stacked land crews. The write-off/reserve for impairment of assets also includes
the write-down of certain other marine and land acquisition assets that were not
a direct result of the restructuring program ($1,048,000). In addition, the
Company wrote down data processing equipment ($2,056,000), particularly in the
Far East, based on the declining market and the plan to close the Indonesian
processing center, and Indonesian proprietary data ($430,000), since the
Company's license to sell such data will not be extended by the Indonesian
government. The remaining costs are restructuring charges of $1,363,000 of which
$1,226,000 relates to severance costs for a reduction in the Company's workforce
of 122 employees and $137,000 relates to office restoration expenses in the
Indonesian processing center. Employees to be terminated are from the processing
centers (including the Indonesian center), marine and land crews, marine
support, manufacturing, research and development and corporate groups. The
Company accrued an additional $450,000 of severance costs for 37 employees and
$350,000 in lease obligations in the Indonesian processing center during the
year ended July 31, 1995. As of July 31, 1995, 119 employees have been
terminated and $1,061,000 in severance costs have been paid. The Company
estimates that all remaining liabilities in the amount of $1,102,000 will be
paid during fiscal 1996.
F-23
<PAGE> 57
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES
On August 31, 1994, the Company entered into a series of agreements with
Syntron, Inc. ("Syntron") that provided for the sale of certain assets,
inventories, and technologies by the Company to Syntron and the assumption of
certain liabilities by Syntron. The sale price was $7,500,000 payable in cash of
$3,000,000 and $4,500,000 in credits to be applied against future purchases from
Syntron by the Company. The agreements also provide that for a period of three
years, Syntron will be the sole supplier to the Company of certain acquisition,
monitoring, and recording equipment that is competitively priced, deliverable on
a timely basis and is technologically competitive. In addition, the Company has
agreed to lease back certain marine and land recording equipment from Syntron
for a period of up to 36 months with minimum lease terms ranging from 7 1/2 to
17 1/2 months. The difference between the sale price and the net book value of
the net assets sold after discounting the credits by 2 1/2% was a $1,001,000
gain which is being recognized on a pro rata basis over the minimum lease terms
as a reduction in rental expense. Unused credits in the amount of $1,210,000 and
$857,000 are included in accounts and notes receivable and other assets,
respectively, at July 31, 1995.
19. REVERSE STOCK SPLIT
On December 14, 1994, shareholders approved a one for three reverse stock
split (the "Reverse Split") to holders of record on January 17, 1995, with no
change in par value. On January 17, 1995, there were 33,404,816 shares of common
stock outstanding which were converted into 11,134,939 shares of post-Reverse
Split common stock. The net effect of these transactions was a charge to common
stock and a credit to additional paid-in capital of approximately $223,000.
On January 17, 1995, there were 1,363,637 publicly traded common stock
purchase warrants expiring on July 5, 1996 with an exercise price of $6.00 per
share. In connection with the Reverse Split and as required by the American
Stock Exchange, the publicly traded warrants were converted, effective January
17, 1995, into approximately 454,545 post-Reverse Split common stock purchase
warrants with an exercise price of $18.00. Also on January 17, 1995, there were
340,000 common stock purchase warrants expiring on June 29, 1997 with an
exercise price of $2.00 per share which were adjusted in connection with the
Reverse Split to represent 113,333 shares of post-Reverse Split common stock
issuable upon exercise of these warrants at an exercise price of $6.00.
Additionally, there were 1,975,000 and 600,000 shares of pre-Reverse Split
common stock authorized under the 1992 Employee Nonqualified Stock Option Plan
and 1992 Non-Employee Director Stock Option Plan, respectively. In connection
with the Reverse Split, these authorized shares were decreased to 658,333 and
200,000 authorized shares of post-Reverse Split common stock under the Employee
Plan and Director Plan, respectively, and the new exercise prices were tripled.
F-24
<PAGE> 58
DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20.SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
FOR THE YEARS ENDED JULY 31, 1994 AND 1995
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)(*)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1994
--------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $32,274 $30,475 $ 25,463 $29,766
Operating expense:
Cost of services................................. 26,305 25,708 24,968 24,329
Restructuring.................................... 1,363
Write-off/reserve for impairment of assets......... 6,523
Depreciation and amortization...................... 3,374 3,560 3,541 3,283
Selling, general and administrative................ 1,080 1,716 1,438 867
Income (loss) before provision for income taxes.... 956 (735) (13,210) 84
Net income (loss).................................. 717 (982) (13,688) (473)
Net income (loss) per share of common stock(*)..... .08 (.10) (1.40) (.05)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1995
--------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $32,000 $30,266 $ 34,448 $35,855
Operating expense:
Cost of services................................. 25,008 22,701 27,767 30,436
Restructuring.................................... 800
Depreciation and amortization...................... 3,393 3,453 3,469 3,448
Selling, general and administrative................ 1,106 1,058 1,244 1,020
Income before provision for income taxes........... 1,334 1,146 509 1,822
Net income......................................... 607 829 479 863
Net income per share of common stock(*)............ .06 .07 .04 .08
</TABLE>
- ------------
(*) Reported quarterly earnings (loss) per share is based on each quarter's
weighted average shares outstanding. The quarters may not total to the
reported annual earnings (loss) per share due in part to fluctuations in
common shares outstanding. Weighted average shares for all periods presented
have been restated for the Reverse Split consummated on January 17, 1995.
See Note 19.
F-25
<PAGE> 59
===============================================================================
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 9
Use of Proceeds....................... 9
Capitalization........................ 10
Price Range of Common Stock and
Dividend Policy..................... 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 18
Management............................ 27
Description of Capital Stock.......... 28
Selling Stockholder................... 29
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
===============================================================================
===============================================================================
[DIGICON LOGO]
DIGICON INC.
---------------------------------
3,700,000 SHARES
COMMON STOCK
PROSPECTUS
, 1996
---------------------------------
DILLON, READ & CO. INC.
RAYMOND JAMES &
ASSOCIATES, INC.
RODMAN & RENSHAW, INC.
===============================================================================
<PAGE> 60
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering of the Common Stock to be registered and offered hereby are as follows:
<TABLE>
<S> <C>
Commission registration fee............................................... $ 9,629
National Association of Securities Dealers, Inc. fees..................... 3,293
American Stock Exchange listing fee....................................... 17,500
Printing expenses......................................................... 120,000
Legal fees and expenses................................................... 150,000
Blue Sky fees and expenses (including legal expenses)..................... 10,000
Accounting fees and expenses.............................................. 60,000
Transfer agent and registrar fees and expenses............................ 5,000
Miscellaneous............................................................. 4,578
--------
Total........................................................... $380,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action.
In a suit brought to obtain a judgment in the corporation's favor, whether
by the corporation itself or derivatively by a stockholder, the corporation may
only indemnify for expenses, including attorney's fees, actually and reasonably
incurred in connection with the defense or settlement of the case, and the
corporation may not indemnify for amounts paid in satisfaction of a judgment or
in settlement of the claim. In any such action, no indemnification may be paid
in respect of any claim, issue or matter as to which such persons shall have
been adjudged liable to the corporation except as otherwise approved by the
Delaware Court of Chancery or the court in which the claim was brought. In any
other type of proceeding, the indemnification may extend to judgments, fines and
amounts paid in settlement, actually and reasonably incurred in connection with
such other proceeding, as well as to expenses (including attorneys' fees).
The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. There are additional limitations applicable to
criminal actions and to actions brought by or in the name of the corporation.
The determination as to whether a person seeking indemnification has met the
required standard of conduct is to be made (i) by a majority vote of a quorum of
disinterested members of the board of directors, or (ii) by independent legal
counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (iii) by the stockholders.
The certificate of incorporation and bylaws of the Company require the
Company to indemnify the Company's directors and officers to the fullest extent
permitted under Delaware law, and to implement provisions pursuant to
contractual indemnity agreements the Company has entered into with its directors
and executive officers. The Company's Certificate of Incorporation limits the
personal liability of a director to the corporation or its stockholders to
damages for breach of the director's fiduciary duty.
II-1
<PAGE> 61
The Company has purchased insurance on behalf of its directors and officers
against certain liabilities that may be asserted or incurred by, such persons in
their capacities as directors or officers of the registrant, or that may arise
out of their status as directors or officers of the registrant, including
liabilities under the federal and state securities laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all the exhibits and financial statement
schedules filed as part of the Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
----------- ------------
<S> <C>
*1 -- Form of Underwriting Agreement by and among Dillon, Read & Co. Inc.,
Raymond James & Associates, Inc., Rodman & Renshaw, Inc., Digicon
Inc., and the Selling Stockholder.
3-A -- Restated Certificate of Incorporation (with Amendments) of Digicon
Inc. dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report
on Form 10-K for the year ended July 31, 1994)
3-B -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon
Inc. (Exhibit 3-B to Digicon's Registration Statement No. 33-43873,
dated November 12, 1991)
3-C -- By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to
Digicon's Registration Statement No. 33-43873, dated November 12,
1991).
3-D -- Certificate of Amendment of Certificate of Incorporation of Digicon
Inc. dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report
on Form 10-K for the year ended July 31, 1994)
**3-E -- Certificate of Amendment of Restated Certificate of Incorporation of
Digicon Inc. dated January 16, 1995.
**4 -- Specimen Digicon Inc. Common Stock certificate.
**5 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of
securities.
10-A -- Salary Continuation Agreement executed by Nicholas A. C. Bright,
Kevin P. Callaghan, Richard W. McNairy and Allan C. Pogach. (Exhibit
10-E to Digicon Inc.'s Annual Report on Form 10-K for the year ended
July 31, 1994)
**10-B -- Salary Continuation Agreement executed by Stephen J. Ludlow.
10-C -- Funding and Stockholders' Agreement dated April 9, 1991. (Exhibit
10.23 to Digicon Inc.'s Amendment No. 3 to Registration Statement No.
33-40197, dated June 7, 1991)
10-D -- Note Purchase Agreement dated June 29, 1992, between Digicon Inc. and
Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon Inc.'s
Annual Report on Form 10-K for the year ended July 31, 1992)
10-E -- Memorandum of Agreement dated August 13, 1992, between Digicon Inc.
and Mobil Tankships (U.S.A.) with respect to the purchase and sale of
the M/V MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on
Form 10-K for the year ended July 31, 1992)
10-F -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc.
and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and
Digicon Inc. (Exhibit 10-M to Digicon Inc.'s Annual Report on Form
10-K for the year ended July 31, 1994)
</TABLE>
II-2
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10-G -- Loan and Security Agreement dated April 11, 1994, between Foothill
Capital Corporation and Digicon Inc., Digicon Geophysical Corp.,
Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration
Ltd. (Exhibit 10-N to Digicon Inc.'s Annual Report on Form 10-K for
the year ended July 31, 1994)
10-H -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to
Digicon Inc.'s Amendment No. 3 to Registration Statement No.
33-54384, dated December 17, 1992)
**10-I -- Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
10-J -- Stock Purchase Agreement dated June 6, 1995, among Digicon Inc. and
MD Seis International relating to the sale of the Company's interest
in certain joint ventures established to pursue business
opportunities in the former Soviet Union. (Exhibit 10-a to Digicon
Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 30,
1995)
**10-K -- Stock Purchase and Registration Rights Agreement dated June 6, 1995,
between Digicon Inc. and Acorn Fund.
**10-L -- Stock Purchase and Registration Rights Agreement dated September 19,
1995, between Digicon Inc. and Artform, N.V., Christian Humann and
Francois Sicart Trustee under a deed of trust dated 2/2/88, Montber,
S.A., Mellon Bank, N.A., as trustee for National Intergroup, Inc.,
Trace Inc., Jomacim, Inc., WKDL Investments Ltd., and The Tocqueville
Fund.
**10-M -- Stock Purchase and Registration Rights Agreement dated September 28,
1995, between Digicon Inc. and Value Partners, Ltd.
11-A -- Computation of Income (Loss) Per Common and Common Equivalent Share
for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to
Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31,
1995)
11-B -- Computation of Income Per Common and Common Equivalent Share for the
three-month period ended October 31, 1994 and 1995. (Exhibit 11 to
Digicon Inc.'s Quarterly Report on Form 10-Q for the period ended
October 31, 1995)
**23-A -- Consent of Deloitte & Touche LLP.
23-B -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5 opinion)
24 -- Power of Attorney. (included on the signature page hereto)
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
(b) Financial Statement Schedules
Schedules are omitted since the information required to be submitted has
been included in the Consolidated Financial Statements of Digicon Inc. or the
notes thereto, or the required information is not required.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act: (i) the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of the registration statement as of the time it was declared
effective; and (ii) each post-effective amendment that contains a form of
II-3
<PAGE> 63
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE> 64
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen J. Ludlow and Richard W. McNairy, and
each of them, either of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre-and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of either of them, may lawfully do or cause to be done
by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on February 16, 1996.
DIGICON INC.
By: /s/ STEPHEN J. LUDLOW
--------------------------------------
Stephen J. Ludlow, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the indicated capacities
and on the 16th day of February, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ DOUGLAS B. THOMPSON Director and Chairman of the Board
- ---------------------------------------------
Douglas B. Thompson
Director, President and Chief Executive
/s/ STEPHEN J. LUDLOW Officer
- ---------------------------------------------
Stephen J. Ludlow
/s/ RICHARD W. McNAIRY Chief Financial Officer
- ---------------------------------------------
Richard W. McNairy
/s/ CHARLES H. ACKERMAN Principal Accounting Officer
- ---------------------------------------------
Charles H. Ackerman
/s/ GEORGE F. BAKER Director
- ---------------------------------------------
George F. Baker
/s/ JAMES B. CLEMENT Director
- ---------------------------------------------
James B. Clement
</TABLE>
II-5
<PAGE> 65
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ CLAYTON P. CORMIER Director
- ---------------------------------------------
Clayton P. Cormier
/s/ STEVEN J. GILBERT Director
- ---------------------------------------------
Steven J. Gilbert
</TABLE>
II-6
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
*1 -- Form of Underwriting Agreement by and among Dillon, Read & Co. Inc.,
Raymond James & Associates, Inc., Rodman & Renshaw, Inc., Digicon
Inc., and the Selling Stockholder.
3-A -- Restated Certificate of Incorporation (with Amendments) of Digicon
Inc. dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report
on Form 10-K for the year ended July 31, 1994)
3-B -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon
Inc. (Exhibit 3-B to Digicon's Registration Statement No. 33-43873,
dated November 12, 1991)
3-C -- By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to
Digicon's Registration Statement No. 33-43873, dated November 12,
1991).
3-D -- Certificate of Amendment of Certificate of Incorporation of Digicon
Inc. dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report
on Form 10-K for the year ended July 31, 1994)
**3-E -- Certificate of Amendment of Restated Certificate of Incorporation of
Digicon Inc. dated January 16, 1995.
**4 -- Specimen Digicon Inc. Common Stock certificate.
**5 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of
securities.
10-A -- Salary Continuation Agreement executed by Nicholas A. C. Bright,
Kevin P. Callaghan, Richard W. McNairy and Allan C. Pogach. (Exhibit
10-E to Digicon Inc.'s Annual Report on Form 10-K for the year ended
July 31, 1994)
**10-B -- Salary Continuation Agreement executed by Stephen J. Ludlow.
10-C -- Funding and Stockholders' Agreement dated April 9, 1991. (Exhibit
10.23 to Digicon Inc.'s Amendment No. 3 to Registration Statement No.
33-40197, dated June 7, 1991)
10-D -- Note Purchase Agreement dated June 29, 1992, between Digicon Inc. and
Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon Inc.'s
Annual Report on Form 10-K for the year ended July 31, 1992)
10-E -- Memorandum of Agreement dated August 13, 1992, between Digicon Inc.
and Mobil Tankships (U.S.A.) with respect to the purchase and sale of
the M/V MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on
Form 10-K for the year ended July 31, 1992)
10-F -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc.
and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and
Digicon Inc. (Exhibit 10-M to Digicon Inc.'s Annual Report on Form
10-K for the year ended July 31, 1994)
10-G -- Loan and Security Agreement dated April 11, 1994, between Foothill
Capital Corporation and Digicon Inc., Digicon Geophysical Corp.,
Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration
Ltd. (Exhibit 10-N to Digicon Inc.'s Annual Report on Form 10-K for
the year ended July 31, 1994)
10-H -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to
Digicon Inc.'s Amendment No. 3 to Registration Statement No.
33-54384, dated December 17, 1992)
**10-I -- Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10-J -- Stock Purchase Agreement dated June 6, 1995, among Digicon Inc. and
MD Seis International relating to the sale of the Company's interest
in certain joint ventures established to pursue business
opportunities in the former Soviet Union. (Exhibit 10-a to Digicon
Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 30,
1995)
**10-K -- Stock Purchase and Registration Rights Agreement dated June 6, 1995,
between Digicon Inc. and Acorn Fund.
**10-L -- Stock Purchase and Registration Rights Agreement dated September 19,
1995, between Digicon Inc. and Artform, N.V., Christian Humann and
Francois Sicart Trustee under a deed of trust dated 2/2/88, Montber,
S.A., Mellon Bank, N.A., as trustee for National Intergroup, Inc.,
Trace Inc., Jomacim, Inc., WKDL Investments Ltd., and The Tocqueville
Fund.
**10-M -- Stock Purchase and Registration Rights Agreement dated September 28,
1995, between Digicon Inc. and Value Partners, Ltd.
11-A -- Computation of Income (Loss) Per Common and Common Equivalent Share
for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to
Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31,
1995)
11-B -- Computation of Income Per Common and Common Equivalent Share for the
three-month period ended October 31, 1994 and 1995. (Exhibit 11 to
Digicon Inc.'s Quarterly Report on Form 10-Q for the period ended
October 31, 1995)
**23-A -- Consent of Deloitte & Touche LLP.
23-B -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5 opinion)
24 -- Power of Attorney. (included on the signature page hereto)
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
<PAGE> 1
Exhibit 3e
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DIGICON INC.
Digicon Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a regular meeting of the Board of Directors of Digicon
Inc. held on October 14, 1994, resolutions were duly adopted setting forth a
proposed amendment to the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that said
amendment be considered at the forthcoming annual meeting of stockholders of
said corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the board of directors hereby in all respects
approves and declares the advisability of amending the Company's
Restated Certificate of Incorporation (With Amendments) (the "Restated
Certificate") to amend Section 1 of Article IV thereof to be and read
in its entirety as follows:
ARTICLE IV, SECTION 1
The aggregate number of shares which the
Corporation will have authority to issue is 21,000,000,
of which 20,000,000 will be shares of common stock,
par value $.01 per share ("Common Stock"), and 1,000,000
will be shares of preferred stock, par value $.01
per share ("Preferred Stock").
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
<PAGE> 2
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
(Signature Page Follows)
-2-
<PAGE> 3
IN WITNESS WHEREOF, said Digicon Inc. has caused this certificate to
be signed by Stephen J. Ludlow, its President, and Allan C. Pogach, its
Secretary, this 16th day of January, 1995.
DIGICON INC.
By: /s/ STEPHEN J. LUDLOW
_______________________________
Stephen J. Ludlow, President
ATTEST: /s/ ALLAN C. POGACH
____________________________
Allan C. Pogach, Secretary
STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
Sworn to this 16th day of January, 1995.
/s/ REBECCA ANN CAYLOR
___________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
7-29-97 /s/ REBECCA ANN CAYLOR
____________________________ ___________________________________
Printed Name of Notary Public
-3-
<PAGE> 1
Exhibit 4
<TABLE>
<CAPTION>
Number Shares
<S> <C> <C>
DC
INCORPORATED UNDER THE LAWS [DIGICON LOGO] THIS CERTIFICATE IS TRANSFERABLE IN
OF THE STATE OF DELAWARE NEW YORK, N.Y. OR DALLAS, TX.
DIGICON INC.
COMMON STOCK
CUSIP 253804 30 6
THIS CERTIFIES THAT
SPECIMEN
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND RESTRICTIONS
ON TRANSFER
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.01 EACH OF DIGICON INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all the
provisions of the Certificate of Incorporation of the Corporation (copies of which are on file with each Transfer Agent and
Registrar), as now or hereafter amended, to all of which the holder hereof by acceptance hereof assents. This Certificate is not
valid unless countersigned and registered by a Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
[Allan C. Pogach Sig.] [DIGICON INC. SEAL] [STEVEN J. LUDLOW]
- ----------------------------------- ----------------------------------
Secretary President
</TABLE>
*************************************************
* Countersigned and Registered: *
* CHEMICAL SHAREHOLDER SERVICES GROUP, INC. *
* Transfer Agent *
* and Registrar *
* *
* By: *
* *
* *
* *
* *
* Authorized Signature *
*************************************************
<PAGE> 2
The Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations, or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or any
Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian _________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship under Uniform Gifts to Minors
and not as tenants in common Act ___________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, the undersigned hereby sells, assigns and transfers unto
Please Insert Social Security or Other
Identifying Number of Assignee
- ----------------------------------------------
- ----------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- Shares
of the stock represented by the within certificate, and do hereby irrevocably constitute and appoint
- ------------------------------------------------------------------------------------------------------------ Attorney
to transfer the same on the books of the within named Corporation with full power of substitution in the premises.
Dated
-----------------------------------------
X
-----------------------------------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST
CORRESPOND WITH THE
NAME(S) AS WRITTEN
UPON THE FACE OF
THE CERTIFICATE IN X
EVERY PARTICULAR -----------------------------------------------------------
WITHOUT ALTERATION (SIGNATURE)
OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
-----------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
-----------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-----------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 5
February 16, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Avenue, N.W.
Washington, D.C. 20549
RE: DIGICON INC. -- FORM S-2 REGISTRATION STATEMENT
Gentlemen:
We have acted as counsel to Digicon Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, of 3,700,000 shares (the "Shares") of the Company's common
stock, par value $.01 per share (the "Common Stock"), pursuant to a Registration
Statement on Form S-2 (the "Registration Statement"). In such capacity, we have
examined the Certificate of Incorporation, the Bylaws and the corporate
proceedings of the Company, and based on such examination and having regard for
applicable legal principles, it is our opinion that (i) the 3,500,000 Shares to
be sold by the Company will, when issued and sold as contemplated in the
Registration Statement, be validly issued, fully-paid and non-assessable
outstanding securities of the Company, and (ii) the 200,000 shares to be sold by
the "Selling Stockholder" identified in the Registration Statement are validly
issued, fully paid and non-assessable outstanding securities of the Company.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the Prospectus included as part of the Registration Statement.
Very truly yours,
PORTER & HEDGES, L.L.P.
<PAGE> 1
Exhibit 10b
ANNEX B
DIGICON INC.
December 21, 1995
Stephen J. Ludlow
Digicon, Inc.
3701 Kirby Drive
Houston, Texas 77098
Dear Steve:
Digicon Inc. (the "Company") hereby agrees that in the event that the
Company terminates your employment with the Company for any reason other than
"cause" (as that term is defined in Exhibit A attached), the Company will
continue for the period of one year following such termination to pay you your
base salary (as of the date of termination), plus a bonus equal to that earned
for the most recent fiscal year, each in the manner in which the Company's
payroll is customarily handled. The Company's agreement set forth herein will
terminate on December 31, 2000. All services to be performed by you as an
employee (other than for temporary trips in connection with the Company's
business) shall be performed at the Company's main office in Houston.
This letter is executed in consideration of and is intended to
encourage your continued employment with the Company.
DIGICON INC.
By /s/ Jack C. Threet
-----------------------------------
Jack C. Threet,
Chairman, Compensation
Committee of the Board of
Directors
ACCEPTED AND AGREED TO:
By: /s/ Stephen J. Ludlow
---------------------------------
Stephen J. Ludlow
Date: 01/31/96
--------------------------------
<PAGE> 2
EXHIBIT A
As used in the letter dated December 21, 1995 to Steven J. Ludlow
("Employee") the word "cause" means:
(a) the conviction of Employee by a court of competent
jurisdiction, from which conviction no further appeal can be taken, of any
felony, or of an other crime involving moral turpitude committed during the
period of employment; or
(b) the commission by Employee of an act of "fraud" upon, or
materially evidencing bad faith toward, the Company with the term "fraud"
defined for this purpose to encompass only the commission of any act defined by
a relevant statute of the United States or a state thereof to constitute fraud
and the commission of which by Employee is accompanied by scienter; or
(c) the willful, continued or unreasonable failure by Employee to
(i) perform the lawful duties assigned to him, or (ii) abide by the material
policies of the Company or (iii) perform up to the standards of performance
expected of the position occupied by Employee; or
(d) the knowing engagement in any direct conflict of interest with
the Company by Employee.
<PAGE> 1
Exhibit 10i
DIGICON INC.
AMENDED AND RESTATED
1992 EMPLOYEE NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1992 Employee Nonqualified Stock Option Plan (the
"Plan") of Digicon Inc. (the "Company") is to provide officers and other key
employees with a continuing proprietary interest in the Company. The Plan is
intended to advance the interests of the Company by enabling it (i) to increase
the interest in the Company's welfare of those members of management who share
the primary responsibility for the management, growth, and protection of the
business of the Company, (ii) to furnish an incentive to such persons to
continue their services to the Company, (iii) to provide a means through which
the Company may continue to induce able management personnel to enter its
employ, and (iv) to provide a means through which the Company may effectively
compete with other organizations offering similar incentive benefits in
obtaining and retaining the services of competent management personnel.
2. STOCK SUBJECT TO THE PLAN.
The Company may grant from time to time options to purchase shares of
the Company's authorized but unissued common stock, par value $.01 per share,
or treasury shares of the common stock. Subject to adjustment as provided in
Section 11 hereof, the aggregate number of shares which may be issued or
covered by options pursuant to the Plan is 1,158,333 shares, as adjusted for
the one for three reverse stock split effective January 17, 1995. Shares of
common stock applicable to options which have expired unexercised or terminated
for any reason may again be subject to an option or options under the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee
of the Company's board of directors (the "Committee"). The board of directors
may, from time to time, remove members from or add members to the Committee.
Vacancies in the Committee, however caused, shall be filled by the board of
directors. No member of the Committee shall be eligible to receive options
under the Plan. The Committee shall select one of its members chairman and
shall hold meetings at such times and places as it may determine. The
Committee may appoint a secretary and, subject to the provisions of the Plan
and to policies determined by the board of directors, may make such rules and
regulations for the conduct of its business as it shall deem advisable. A
majority of the Committee shall constitute a quorum. All action of the
Committee shall be taken by a majority of its members. Any action may be taken
by a written instrument signed by a majority of the members, and action so
taken shall be fully as effective as if it had been taken by a vote of the
majority of the members at a meeting duly called and held.
(b) Subject to the express terms and conditions of the Plan, the
Committee shall have full power to construe or interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it and to make
all other determinations necessary or advisable for its administration.
<PAGE> 2
(c) Subject to the provisions of Sections 4 and 5 hereof, the
Committee may, from time to time, determine which employees of the Company or
subsidiary corporations shall be granted options under the Plan, the number of
shares subject to each option, and the time or times at which options shall be
granted.
(d) The Committee shall report to the board of directors the names
of employees granted options, and the number of option shares subject to, and
the terms and conditions of, each option.
(e) No member of the board of directors or of the Committee shall
be liable for any action or determination made in good faith with respect to
the Plan or any option.
4. ELIGIBILITY.
Only full-time salaried officers and other key personnel of the
Company and of its majority-owned subsidiaries shall be eligible to participate
in the Plan. In determining the employees to whom options shall be granted and
the number of shares to be covered by each option, the Committee may take into
account the nature of the services rendered by the respective employees, their
present and potential contributions to the success of the Company, and such
other factors as the Committee in its discretion shall deem relevant. The
Company shall effect the granting of options under the Plan in accordance with
the determination made by the Committee.
5. PRICE OF OPTIONS.
The option price per share shall be not less than the lesser of (i)
fair market value of the common stock on the date the option is granted or (ii)
the average fair market value for the common stock during the thirty trading
days ending on the trading day next preceding the date the option is granted.
Fair market value on any day shall be deemed to be the last reported sale price
of the common stock on the principal stock exchange on which the Company's
common stock is traded on that date. If no trading occurred on such date, or,
if at the time the common stock shall not be listed for trading, fair market
value shall be deemed to be the mean between the quoted bid and asked prices
for the common stock on such exchange or in the over-the-counter market, as the
case may be, on that date.
6. TERM OF OPTION.
No option shall be exercisable after the expiration of ten years from
the date the option is granted.
7. EXERCISE OF OPTIONS.
(a) General. Except as provided below, each option may be
exercised at such times and in such amounts as the Committee in its discretion
may provide. No option may be exercised prior to six months from the date of
grant.
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<PAGE> 3
(b) Manner of Exercising Options. Shares of common stock
purchased under options shall at the time of purchase be paid for in full. To
the extent that the right to purchase shares has accrued hereunder, options may
be exercised from time to time by written notice to the Company stating the
full number of shares with respect to which the option is being exercised, and
the time of delivery thereof, which shall be at least 15 days after the giving
of such notice unless an earlier date shall have been mutually agreed upon. At
such time, the Company shall, without transfer or issue tax to the optionee (or
other person entitled to exercise the option) deliver to the optionee (or to
such other person) at the principal office of the Company, or such other place
as shall be mutually acceptable, a certificate or certificates for such shares
against prior payment of the option price in full on the date of notice of
exercise for the number of shares to be delivered by certified or official bank
check or the equivalent thereof acceptable to the Company; provided, however,
that the time of such issuance and delivery may be postponed by the Company for
such period as may be required for it with reasonable diligence to comply with
any requirements of law, the listing requirements of the American Stock
Exchange or any other exchange on which the common stock may then be listed.
If the optionee (or other person entitled to exercise the option) fails to pay
for all or any part of the number of shares specified in such notice or to
accept delivery of such shares upon tender of delivery thereof, the right to
exercise the option with respect to such undelivered shares shall be
terminated.
8. NON-ASSIGNABILITY OF OPTION RIGHTS.
No option granted under the Plan shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an optionee, the option shall be exercisable only by him.
9. TERMINATION OF EMPLOYMENT.
Except as otherwise provided in this paragraph, options shall
terminate 90 days following the termination of the optionee's employment with
the Company for any reason, but shall be exercisable following termination only
to the extent that the option had become vested on the termination date. In
the event that the optionee retires from the Company (at or after normal
retirement age) the optionee shall have the right, subject to the provisions of
Section 6, to exercise his option at any time within one year after such
termination, to the extent that such option had become vested on the
termination date. If, however, the optionee shall die in the employment of the
Company, then for the lesser of the maximum period during which such option
might have been exercisable or one year after the date of death, his estate,
personal representative, or beneficiary shall have the same right to exercise
the option of such employee as he would have had if he had survived and
remained in the employment of the Company. For purposes of this Section 9,
employment by any majority-owned subsidiary corporation of the Company shall be
deemed employment by the Company.
In the discretion of the Committee, a leave of absence approved in
writing by the board of directors of the Company shall not be deemed a
termination of employment; however, no option may be exercised during such
leave of absence.
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<PAGE> 4
10. CHANGE OF CONTROL.
If, at any time, a person, entity or group (including, in each case,
all other persons, entities or groups controlling, controlled by, or under
common control with or acting in concert or concurrently with, such person,
entity or group) shall hold, purchase or acquire beneficial ownership
(including, without limitation, power to vote) of 50% or more of the then
outstanding shares of the Company's common stock, then any portion of the
Options which have not yet become exercisable shall thereupon become
immediately exercisable, and, except with respect to the limitations set forth
in paragraph 6 hereof, the limitations set forth above as to the earliest date
at which an option may be exercised shall thereupon become null and void and of
no further effect whatsoever.
11. ADJUSTMENT OF OPTIONS ON RECAPITALIZATION OR REORGANIZATION.
The aggregate number of shares of common stock on which options may be
granted to persons participating under the Plan, the aggregate number of shares
of common stock on which options may be granted to any one such person, the
number of shares thereof covered by each outstanding option, and the price per
share thereof in each such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of common stock of the
Company resulting from the subdivision or combination of shares or other
capital adjustments, or the payment of a stock dividend after the effective
date of this Plan, or other increase or decrease in such shares effected
without receipt of consideration by the Company; provided, however, that no
adjustment shall be made unless the aggregate effect of all such increases and
decreases occurring in any one fiscal year after the effective date of this
Plan will increase or decrease the number of issued shares of common stock of
the Company by 5% or more; and, provided, further, that any options to purchase
fractional shares resulting from any such adjustment shall be eliminated.
Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or
consolidation, any option granted hereunder shall pertain to and apply to the
securities to which a holder of the number of shares of common stock subject to
option would have been entitled had such option been exercised immediately
preceding such merger or consolidation; but a dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the surviving
or resulting corporation, shall cause every option outstanding hereunder to
terminate, except that the surviving or resulting corporation may, in its
absolute and uncontrolled discretion, tender an option or options to purchase
its shares on its terms and conditions, both as to the number of shares and
otherwise.
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
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<PAGE> 5
12. AGREEMENTS BY OPTIONEE.
Each individual optionee shall agree:
(a) if requested by the Company, at the time of exercise of any
option, to execute an agreement stating that he is purchasing the shares
subject to option for investment purposes and not with a view to the resale or
distribution thereof;
(b) to authorize the Company to withhold from his gross pay any
tax which it believes is required to be withheld with respect to any benefit
under the Plan, and to hold as security for the amount to be withheld any
property otherwise distributable to the optionee under the Plan until the
amounts required to be withheld have been so withheld.
13. RIGHTS AS A SHAREHOLDER.
The optionee shall have no rights as a stockholder with respect to any
shares of common stock of the Company held under option until the date of
issuance of the stock certificates to him for such shares.
14. EFFECTIVE DATE.
The plan shall be effective as of September 1, 1992, if within one
year of that date it shall have been approved by the holders of a majority of
the shares of outstanding capital stock present at a duly called meeting of the
Company's stockholders at which a quorum is present.
15. AMENDMENTS.
(a) The board of directors may, from time to time, alter, suspend
or terminate the Plan, or alter or amend any and all option agreements granted
thereunder but only for one or more of the following purposes:
(1) to modify the administrative provisions of the Plan
or options; or
(2) to make any other amendment which does not materially
alter the intent or benefits of the Plan.
(b) It is expressly provided that no such action of the board of
directors may, without the approval of the stockholders, alter the provisions
of the Plan or option agreements granted thereunder so as to:
(1) increase the maximum number of shares as to which
options may be granted under the Plan either to all persons
participating in the Plan or to any one such person;
(2) decrease the option price applicable to any options
granted under the Plan, provided, however, that the provisions of this
clause (2) shall not prevent the granting, to any
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<PAGE> 6
person holding an option under the Plan, of additional options under
the Plan exercisable at a lower option price; or
(3) alter any outstanding option agreement to the
detriment of the optionee, without his consent.
16. EMPLOYMENT OBLIGATION.
The granting of any option under this Plan shall not impose upon the
Company any obligation whatsoever to employ or to continue to employ any
optionee, and the right of the Company to terminate the employment of any
officer or other employee shall not be diminished or affected by reason of the
fact that an option has been granted to him under the Plan.
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<PAGE> 1
Exhibit 10k
STOCK PURCHASE
AND
REGISTRATION RIGHTS AGREEMENT
THIS STOCK PURCHASE AND REGISTRATION RIGHTS AGREEMENT ("Agreement") is
entered into on June 6, 1995 between Digicon Inc., a Delaware corporation (the
"Company"), and Acorn Fund, a series of Acorn Investment Trusts, (the
"Purchaser").
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMON STOCK" means the Common Stock, par value $.01 per share, of
the Company.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"DEMAND NOTICE" means a notice by the Purchaser pursuant to Section
3.1 demanding that the Company register the Purchaser's Registrable Securities
for sale under the Securities Act.
"DEMAND REGISTRATION" means the Shelf Registration which the Company
is required to effect on behalf of the Purchaser pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"NOTICE OF REGISTRATION" means a notice by the Company to the
Purchaser that the Company has determined to conduct an Underwritten Public
Offering or Shelf Registration.
"PIGGYBACK REGISTRATION" means a registration of shares of Registrable
Securities owned by the Purchaser under the terms and conditions set forth in
Section 3.3.
"REGISTRABLE SECURITIES" means the 850,000 shares of Common Stock
purchased by the Purchaser hereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SHARES" means the 850,000 shares of Common Stock being sold by the
Company to the Purchaser hereunder.
<PAGE> 2
"SHELF REGISTRATION" means a registration meeting the requirements of
Rule 415 under the Securities Act or any similar rule in effect under the
Securities Act.
"UNDERWRITTEN PUBLIC OFFERING" means a public offering (including a
Shelf Registration) of Common Stock for cash which is offered and sold in a
registered transaction on a firm commitment underwritten basis through one or
more underwriters, pursuant to an underwriting agreement between the Company
and such underwriters.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to sell and deliver
the Shares to the Purchaser, and the Purchaser agrees to purchase the Shares
from the Company.
2.2 PURCHASE PRICE. As consideration for the sale of the Shares,
on the date hereof the Purchaser shall pay $3,984,375 in U.S. Federal or other
immediately available funds to the account of the Company at Texas Commerce
Bank, ABA #113000609, (Credit: Digicon Inc., Acct. No. 00100356584) before
5:00 p.m., Houston, Texas time, on the date hereof. Upon receipt of such
purchase price, the Company will, as soon as practicable, deliver to the
Purchaser a stock certificate representing the Shares registered in the name
of the Purchaser.
ARTICLE III
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION. (a) Beginning on the date hereof through
June 6, 1998, upon receipt by the Company of a Demand Notice from the Purchaser
requesting registration of all or part of the Registrable Securities, the
Company agrees to use its best efforts to effect, as soon as practicable, all
registrations, qualifications and compliances (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualifications under the applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the Securities
Act and any other governmental requirements or regulations) as would permit or
facilitate the sale and distribution of the Registrable Securities under the
Securities Act; provided that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 3.1 in any jurisdiction in which the Company would be required to
execute a general consent to service of process or to register as a dealer or
to cause any officer or employee of the Company to register as a salesman in
effecting such registration, qualification or compliance. The Company shall
use its best efforts to prepare and file a registration statement on Form S-3
or any successor Form thereto covering the Registrable Securities so requested
to be registered pursuant to this Section 3.1 within 30 days after such request
is received and to keep such registration statement effective under the
Securities Act until the first to occur of (i) the expiration of three years
from the date
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<PAGE> 3
of effectiveness of such registration statement or (ii) the date upon which the
Purchaser has sold all such Registrable Securities.
3.2 LIMITATIONS ON DEMAND REGISTRATION RIGHTS. The Purchaser may
make only one request for a Demand Registration hereunder. The Company shall
be obligated only to effect a Shelf Registration on behalf of the Purchaser in
connection with a Demand Registration, and the Company shall not be obligated
to execute any underwriting agreement with respect to the sale of the
Registrable Securities in connection with a Demand Registration.
3.3 PIGGYBACK REGISTRATION. If at any time or from time to time
after the date hereof the Company shall determine to make an Underwritten
Public Offering or Shelf Registration for its own account (but not including an
offering that is registered on Commission Forms S-4, S-8 or any successor forms
thereto), then the Company will:
(a) promptly give to the Purchaser a Notice of
Registration; and
(b) use its best efforts to include in such registration
(and any related qualification or compliance under blue sky laws), and
in any Underwritten Public Offering or Shelf Offering involved
therein, all the Registrable Securities specified in any written
request or requests by the Purchaser received by the Company within 10
days after such Notice of Registration is given.
3.4 LIMITATIONS ON PIGGYBACK REGISTRATIONS. (a) The Purchaser may
make a request for the inclusion of all or any portion of its Registrable
Securities in any registration effected pursuant to Section 3.3 at any time
after the date hereof through the first anniversary of the date hereof under
the procedures set forth in Section 3.3.
(b) The right of the Purchaser to participate in an
Underwritten Public Offering pursuant to Section 3.3 shall be
conditioned upon the inclusion of the Purchaser's Registrable
Securities in the Underwritten Public Offering to the extent provided
herein. The Company and the Purchaser shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such Underwritten Public Offering by the
Company.
(c) Notwithstanding any other provisions of Sections 3.3
or 3.4, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter and the Company may limit the Registrable
Securities to be included in any Underwritten Public Offering as set
forth below. In such event, the Company shall so advise the
Purchaser, and the number of shares of Registrable Securities that
will be included in the registration and Underwritten Public Offering
shall be allocated pro rata between the Company and the Purchaser.
No Registrable Securities excluded from the Underwritten Public
Offering by reason of the managing underwriter's marketing limitation
shall be included in such registration. If the Purchaser disapproves
of the terms of the Underwritten Public Offering, the Purchaser
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<PAGE> 4
may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. The Registrable Securities so withdrawn
also shall be withdrawn from registration.
3.5 TERMINATION OF REGISTRATION. Notwithstanding any other
provision of this Agreement, at any time before or after the filing of a
registration statement that is subject to Section 3.3, the Company may, in its
sole discretion, abandon or terminate an Underwritten Public Offering without
the consent of the Purchaser, and the Purchaser may, in its sole discretion,
abandon or terminate a Demand Registration without the consent of the Company.
3.6 REGISTRATION EXPENSES. All expenses of any registration under
this Agreement (including, but not limited to, any qualifications under the
Blue Sky or other state securities laws, compliance with governmental
requirements of preparing and filing any post-effective amendments required for
the lawful distribution of the Registrable Securities to the public and of
supplying prospectuses, offering circulars or other documents), will be paid by
the Company provided, however, that the Purchaser shall be responsible for the
fees and expenses of its counsel.
3.7 REGISTRATION PROCEDURES. The Company will at its expense:
(a) prepare and file with the Commission a registration
statement with respect to the Registrable Securities to be registered,
and, in the case of a Demand Registration or an Underwritten Public
Offering involving a Shelf Registration, use its best efforts to cause
such registration statement to become and remain effective for three
years or until the Purchaser no longer owns any of the Registrable
Securities;
(b) prepare and file with the Commission such amendments
to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for the periods set forth in Section 3.7(a).
(c) furnish to the Purchaser such reasonable number of
copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as the Purchaser may reasonably
request to facilitate the public offering of the Registrable
Securities;
(d) use its diligent good faith efforts to register or
qualify the Registrable Securities covered by such registration
statement under such state securities or Blue Sky laws of such
jurisdictions as the Purchaser may reasonably request;
(e) notify counsel for the Purchaser, promptly after it
shall receive notice thereof, of the time when such registration
statement has become effective under the Securities Act or a
supplement to any prospectus forming a part of such registration
statement has been filed;
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<PAGE> 5
(f) notify counsel for the Purchaser promptly of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon
the request of the Purchaser, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for the Purchaser (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable
Securities;
(h) prepare and promptly file with the Commission and
promptly notify counsel for the Purchaser of the filing of such
amendment or supplement to any such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise counsel for the Purchaser, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement under the Securities Act or the initiation or
threatening of any proceeding for such purpose, and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such
registration statement or prospectus if, in the opinion of counsel for
the Purchaser, such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished with a
copy substantially in the form thereof at least two business days
before the filing thereof; provided, however, that if in the opinion
of counsel for the Company, the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law, the Company may make such filing; and
(l) list the Registrable Securities on any national
securities exchange on which the Common Stock is approved for listing;
3.8 RELATED REGISTRATION MATTERS.
(a) The Company may require that the Purchaser refrain
from effecting any public sales or distributions of the Registrable
Securities if the board of directors of the Company in good faith
determines in its sole discretion that such public sales or
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<PAGE> 6
distributions would interfere in any material respect with any
transaction involving the Company that in the sole discretion of the
board of directors is material to the Company. The board of directors
shall, as promptly as practicable, give the Purchaser written notice
of any such development. The Company shall be required to lift such
restrictions regarding effecting public sales or distributions of the
Registrable Securities as soon as reasonably practicable after the
board of directors shall determine, in its sole discretion, that the
public sales or distributions by the Purchaser of the Registrable
Securities shall not interfere with such transaction, provided, that
no requirement that the Purchaser refrain from effecting public sales
or distributions in the Registrable Securities may extend for more
than 45 days.
(b) If the Company shall register any Underwritten Public
Offering during any period in which the Purchaser may sell Registered
Securities under a Shelf Registration that is at the time effective
under the Securities Act (other than a registration on Form S-8 of (i)
an employee stock option, stock purchase or compensation plan or of
securities issued or issuable pursuant to such plan or (ii) a dividend
reinvestment plan), the Purchaser agrees, to the extent requested in
writing by the managing underwriter administering such Underwritten
Public Offering as reasonably practicable before the commencement of
the 10 day period referred below, not to effect any public sale or
distribution of securities of the Company during the 10 day period
before the effective date of the registration statement covering such
Underwritten Public Offering and during the period ending on the
earlier of (i) the date such sale or distribution is permitted by such
managing underwriter and (ii) 45 days after such effective date.
3.9 INDEMNIFICATION.
(a) The Company agrees to indemnify, defend and hold
harmless the Purchaser, its officers and directors, each underwriter
of the Registrable Securities, and each person who controls the
Purchaser or any such underwriter within the meaning of Section 15 of
the Securities Act, against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees) to which they or
any of them may become subject under the Securities Act or any other
statute or common law, including any amount paid in settlement of any
litigation, commenced or threatened, if such settlement is effected
with the written consent of the Company (subject to subsection (c) of
this Section 3.9), insofar as any such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
or in any Blue Sky application, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that the indemnification agreement contained in this
subsection (a) shall not (i) apply to such losses, claims, damages,
liabilities or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance
upon and in conformity with
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<PAGE> 7
information furnished to the Company in writing by the Purchaser or
any such underwriter for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus
contained in the registration statement or any such amendment thereof
or supplement thereto; or (ii) inure to the benefit of any person to
the extent such person's claim for indemnification hereunder arises
out of or is based on any violation by such person of applicable law.
(b) The Purchaser shall, in the same manner and to the
same extent as set forth in subsection (a), indemnify and hold
harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and its
directors and officers, with respect to any statement or alleged
untrue statement in, or omission or alleged omission from, such
registration statement or any post-effective amendment thereof or any
preliminary prospectus or final prospectus (as amended or
supplemented, if amended or supplemented as aforesaid) contained in
such registration statement, if such statement or omission was made in
reliance upon and in conformity with information furnished in writing
to the Company by the Purchaser for use in connection with the
preparation of such registration statement or any preliminary
prospectus or final prospectus contained in such registration
statement or any such amendment thereof or supplement thereto.
(c) Each person to be indemnified pursuant to this
Section 3.8 will, promptly after its receipt of written notice
of the commencement of any action against such indemnified person in
respect of which indemnity may be sought from an indemnifying person
under this Section 3.8 notify the indemnifying person in writing of
the commencement thereof, provided, however that the failure of any
person to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Agreement except to
the extent that such indemnifying party is actually prejudiced by such
failure to give notice. If any such action shall be brought against
any indemnified person and it shall notify an indemnifying person of
the commencement thereof, the indemnifying person will be entitled to
participate therein and, to the extent it may desire, jointly with any
other indemnifying person similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified person, and
after notice from the indemnifying person to such indemnified person
of its election so to assume the defense thereof, the indemnifying
person will not be liable to such indemnified person under this
Section 3.8 for any legal or other expenses subsequently incurred by
such indemnified person in connection with the defense thereof other
than reasonable costs of investigation unless (i) the indemnified
person shall have employed counsel in an action in which the
indemnified person and indemnifying person are both defendants and
there is a conflict of interest between such parties that would
prevent counsel from adequately representing both parties, (ii) the
indemnifying person shall not have employed counsel satisfactory
within the exercise of reasonable judgment of the indemnified person
to represent the indemnified person within a reasonable time after the
notice of the commencement of the action or (iii) the indemnifying
person has authorized the employment of counsel for the indemnified
person at the expense of the indemnifying person. The undertaking
contained in this
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Section 3.8 shall be in addition to any liabilities which the
indemnifying person may have pursuant to law.
3.10 INFORMATION BY PURCHASER. The Purchaser shall furnish to the
Company such information regarding the Purchaser as the Company may request and
as shall be reasonably required in connection with the registration,
qualification or compliance referred to in Article III.
3.11 RIGHTS NON-TRANSFERABLE. The registration rights provided by
this Agreement are for the sole benefit of the Purchaser, are personal in
nature, and shall not be available to any subsequent holder of the Registrable
Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
(a) VALIDITY OF SHARES. The Shares are in due and proper
form, have been duly authorized by all necessary corporate action on the part
of the Company, and are validly issued, fully paid and non-assessable shares of
Common Stock, free of preemptive rights. Upon delivery of the Shares in
consideration of the purchase price set forth in Section 2.2, the Purchaser
will acquire valid and marketable title to the Shares, free and clear of any
encumbrances.
(b) SEC REPORTS. The Company has filed with the
Commission all proxy statements and periodic reports required to be filed by it
under the Exchange Act (collectively, the "SEC Reports"). Each SEC Report was
in compliance in all material respects with the requirements of the Exchange
Act and did not on the date of its filing (and the SEC Reports as a whole do
not on the date hereof contain) any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants to the Company the Purchaser is
acquiring the Shares solely for its own account and not with a view to the
public distribution thereof. The Purchaser acknowledges that the Shares have
not and will not be registered under the Securities Act except as provided
herein and agrees that it will only re-offer or resell the Shares purchased
under this Agreement in compliance with the requirements of Rule 144
promulgated under the Securities Act, in accordance with any other available
exemption from the requirements of Section 5 of the Securities Act, or pursuant
to a valid registration statement under the Securities Act. The Purchaser
acknowledges that upon its acquisition of the Shares (other than in connection
with a registered offering thereof), and until such time, if any, as the
Company shall agree that it is no longer necessary or advisable, the Shares
shall bear the following legend:
8
<PAGE> 9
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS."
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT. This Agreement may be amended from time to time by
an instrument in writing signed by all parties to this Agreement.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company and the Purchaser hereunder shall
not survive the closing of the transactions contemplated hereby.
5.3 NOTICES. Any notice, request, reply instruction or other
communication (herein severally and collectively called "notice") in this
Agreement provided or permitted to be given to the Company or to the Purchaser
must be given in writing and may be given or served by depositing the same in
the United States mail, in certified or registered form, postage fully prepaid,
addressed to the party or parties to be notified, with return postage fully
requested, or by delivering the same in person to such party or parties.
Notice deposited in the United States mail, mailed in the manner hereinabove
described, shall be effective upon deposit. Notice given in any other manner
shall be effective only if and when received by the party to be notified. For
purpose of notice hereunder, the address of the Company shall be 3701 Kirby
Drive, Suite 112, Houston, Texas 77098 and the address of the Purchaser shall
be 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606.
5.4 GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Texas.
5.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the parties to this Agreement alone and no implication that any
other person has any rights under this Agreement shall be made from the
provisions hereof, provided, however, that the obligations of the Company
pursuant to this Agreement shall be binding upon the Company's successors.
5.6 INVALID PROVISIONS. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall not
have the effect of invalidating or voiding the remainder of this Agreement and
the parties hereby agree that the portion so held invalid, unenforceable or
void shall, if possible, be deemed amended or reduced in scope, or to otherwise
9
<PAGE> 10
be stricken from this Agreement to the extent required for the purposes of
validity and enforcement thereof.
5.7 SECTION HEADINGS. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
5.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute only one
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by themselves or by their respective duly authorized
representatives as of the date first above set forth.
COMPANY:
DIGICON INC.
By: /s/ RICHARD W. McNAIRY
________________________________
PURCHASER:
ACORN FUND
By Wanger Asset Management, L.P.
By: /s/ ROBERT M. SLOTKY
________________________________
10
<PAGE> 1
Exhibit 10l
STOCK PURCHASE
AND
REGISTRATION RIGHTS AGREEMENT
THIS STOCK PURCHASE AND REGISTRATION RIGHTS AGREEMENT ("Agreement") is
entered into on September 19, 1995 between Digicon Inc., a Delaware corporation
(the "Company"), and the purchasers listed on Schedule A attached hereto
(collectively and individually hereinafter referred to as the "Purchaser").
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"DEMAND NOTICE" means a notice by the Purchaser pursuant to Section
3.1 demanding that the Company register the Purchaser's Registrable Securities
for sale under the Securities Act.
"DEMAND REGISTRATION" means the Shelf Registration which the Company
is required to effect on behalf of the Purchaser pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"NOTICE OF REGISTRATION" means a notice by the Company to the
Purchaser that the Company has determined to conduct an Underwritten Public
Offering or Shelf Registration.
"PIGGYBACK REGISTRATION" means a registration of shares of Registrable
Securities owned by the Purchaser under the terms and conditions set forth in
Section 3.3.
"REGISTRABLE SECURITIES" means the 400,000 shares of Common Stock
purchased by the Purchaser hereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SHARES" means the 400,000 shares of Common Stock being sold by the
Company to the Purchaser hereunder.
<PAGE> 2
"SHELF REGISTRATION" means a registration meeting the requirements of
Rule 415 under the Securities Act or any similar rule in effect under the
Securities Act.
"UNDERWRITTEN PUBLIC OFFERING" means a public offering (including a
Shelf Registration) of Common Stock for cash which is offered and sold in a
registered transaction on a firm commitment underwritten basis through one or
more underwriters, pursuant to an underwriting agreement between the Company
and such underwriters.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to sell and deliver
the Shares to the Purchaser, and the Purchaser agrees to purchase the Shares
from the Company.
2.2 PURCHASE PRICE. As consideration for the sale of the Shares,
on the date hereof the Purchaser shall pay $1,875,000.00 in U.S. Federal or
other immediately available funds to the account of the Company at Texas
Commerce Bank, ABA #113000609, (Credit: Digicon Inc., Acct. No. 00100356584)
before 5:00 p.m., Houston, Texas time, on the date hereof. Upon receipt of
such purchase price, the Company will, as soon as practicable, deliver to the
Purchaser a stock certificate representing the Shares registered in the name
of the Purchaser.
ARTICLE III
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION. (a) Beginning on the date hereof through
September 19, 1998, upon receipt by the Company of a Demand Notice from the
Purchaser requesting registration of all or part of the Registrable Securities,
the Company agrees to use its best efforts to effect, as soon as practicable,
all registrations, qualifications and compliances (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualifications under the applicable blue sky or other state
securities laws and appropriate compliance with exemptive regulations issued
under the Securities Act and any other governmental requirements or
regulations) as would permit or facilitate the sale and distribution of the
Registrable Securities under the Securities Act; provided that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 3.1 in any jurisdiction in
which the Company would be required to execute a general consent to service of
process or to register as a dealer or to cause any officer or employee of the
Company to register as a salesman in effecting such registration, qualification
or compliance. The Company shall use its best efforts to prepare and file a
registration statement on Form S-3 or any successor Form thereto covering the
Registrable Securities so requested to be registered pursuant to this Section
3.1 within 30 days after such request is received and to keep such registration
statement effective under the Securities Act until the first to occur of (i)
the expiration of three
2
<PAGE> 3
years from the date of effectiveness of such registration statement or (ii) the
date upon which the Purchaser has sold all such Registrable Securities.
3.2 LIMITATIONS ON DEMAND REGISTRATION RIGHTS. The Purchaser may
make only one request for a Demand Registration hereunder. The Company shall
be obligated only to effect a Shelf Registration on behalf of the Purchaser in
connection with a Demand Registration, and the Company shall not be obligated
to execute any underwriting agreement with respect to the sale of the
Registrable Securities in connection with a Demand Registration.
3.3 PIGGYBACK REGISTRATION. If at any time or from time to time
after the date hereof the Company shall determine to make an Underwritten
Public Offering or Shelf Registration for its own account (but not including an
offering that is registered on Commission Forms S-4, S-8 or any successor forms
thereto), then the Company will:
(a) promptly give to the Purchaser a Notice of
Registration; and
(b) use its best efforts to include in such registration
(and any related qualification or compliance under blue sky laws), and
in any Underwritten Public Offering or Shelf Offering involved
therein, all the Registrable Securities specified in any written
request or requests by the Purchaser received by the Company within 10
days after such Notice of Registration is given.
3.4 LIMITATIONS ON PIGGYBACK REGISTRATIONS. (a) The Purchaser may
make a request for the inclusion of all or any portion of its Registrable
Securities in any registration effected pursuant to Section 3.3 at any time
after the date hereof through the first anniversary of the date hereof under
the procedures set forth in Section 3.3.
(b) The right of the Purchaser to participate in an
Underwritten Public Offering pursuant to Section 3.3 shall be
conditioned upon the inclusion of the Purchaser's Registrable
Securities in the Underwritten Public Offering to the extent provided
herein. The Company and the Purchaser shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such Underwritten Public Offering by the
Company, provided that Purchaser shall only be obliged to enter into
the underwriting agreement if Purchaser participates in such
Underwritten Public Offering.
(c) Notwithstanding any other provisions of Sections 3.3
or 3.4, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter and the Company may limit the Registrable
Securities to be included in any Underwritten Public Offering as set
forth below. In such event, the Company shall so advise the
Purchaser, and the number of shares of Registrable Securities that
will be included in the registration and Underwritten Public Offering
shall be allocated pro rata between the Company and the Purchaser. No
Registrable Securities excluded from the Underwritten Public Offering
by reason of the managing underwriter's marketing limitation shall be
included in such registration. If the
3
<PAGE> 4
Purchaser disapproves of the terms of the Underwritten Public
Offering, the Purchaser may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. The Registrable
Securities so withdrawn also shall be withdrawn from registration.
3.5 TERMINATION OF REGISTRATION. Notwithstanding any other
provision of this Agreement, at any time before or after the filing of a
registration statement that is subject to Section 3.3, the Company may, in its
sole discretion, abandon or terminate an Underwritten Public Offering without
the consent of the Purchaser, and the Purchaser may, in its sole discretion,
abandon or terminate a Demand Registration without the consent of the Company.
3.6 REGISTRATION EXPENSES. All expenses of any registration under
this Agreement (including, but not limited to, any qualifications under the
Blue Sky or other state securities laws, compliance with governmental
requirements of preparing and filing any post-effective amendments required for
the lawful distribution of the Registrable Securities to the public and of
supplying prospectuses, offering circulars or other documents), will be paid by
the Company provided, however, that the Purchaser shall be responsible for the
fees and expenses of its own separate counsel, if any.
3.7 REGISTRATION PROCEDURES. The Company will at its expense:
(a) prepare and file with the Commission a registration
statement with respect to the Registrable Securities to be registered,
and, in the case of a Demand Registration or an Underwritten Public
Offering involving a Shelf Registration, use its best efforts to cause
such registration statement to become and remain effective for three
years or until the Purchaser no longer owns any of the Registrable
Securities;
(b) prepare and file with the Commission such amendments
to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for the periods set forth in Section 3.7(a).
(c) furnish to the Purchaser such reasonable number of
copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as the Purchaser may reasonably
request to facilitate the public offering of the Registrable
Securities;
(d) use its diligent good faith efforts to register or
qualify the Registrable Securities covered by such registration
statement under such state securities or Blue Sky laws of such
jurisdictions as the Purchaser may reasonably request;
(e) notify counsel for the Purchaser, promptly after it
shall receive notice thereof, of the time when such registration
statement has become effective under the Securities Act or a
supplement to any prospectus forming a part of such registration
statement has been filed;
4
<PAGE> 5
(f) notify counsel for the Purchaser promptly of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon
the request of the Purchaser, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for the Purchaser (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable
Securities;
(h) prepare and promptly file with the Commission and
promptly notify counsel for the Purchaser of the filing of such
amendment or supplement to any such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise counsel for the Purchaser, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement under the Securities Act or the initiation or
threatening of any proceeding for such purpose, and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such
registration statement or prospectus if, in the opinion of counsel for
the Purchaser, such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished with a
copy substantially in the form thereof at least two business days
before the filing thereof; provided, however, that if in the opinion
of counsel for the Company, the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law, the Company may make such filing; and
(l) list the Registrable Securities on any national
securities exchange on which the Common Stock is approved for listing;
3.8 RELATED REGISTRATION MATTERS.
(a) No Registrable Securities to be sold or otherwise
transferred by Purchaser pursuant to an Underwritten Public Offering
or Shelf Registration provided for under this Agreement shall bear any
legend respecting the transferability of such Registrable Securities,
5
<PAGE> 6
nor shall the Company cause or permit any transfer agent or registrar
appointed by the Company with respect to such Registrable Securities
to refuse or fail to effect a transfer or registration with respect to
such Registrable Securities.
(b) Any registration rights granted by the Company to the
Purchaser hereunder shall be exercisable upon notice from Purchasers
holding a majority of the Registrable Securities held at the time of
such notice by such Purchasers.
3.9 INDEMNIFICATION.
(a) The Company agrees to indemnify, defend and hold
harmless the Purchaser, its officers and directors, each underwriter
of the Registrable Securities, and each person who controls the
Purchaser or any such underwriter within the meaning of Section 15 of
the Securities Act, against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees) to which they or
any of them may become subject under the Securities Act or any other
statute or common law, including any amount paid in settlement of any
litigation, commenced or threatened, if such settlement is effected
with the written consent of the Company (which consent shall not be
unreasonably withheld) (subject to subsection (c) of this Section
3.9), insofar as any such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or in any Blue Sky
application, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
indemnification agreement contained in this subsection (a) shall not
(i) apply to such losses, claims, damages, liabilities or actions
arising out of, or based upon, any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Company in writing by the Purchaser or
any such underwriter for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus
contained in the registration statement or any such amendment thereof
or supplement thereto; or (ii) inure to the benefit of any person to
the extent such person's claim for indemnification hereunder arises
out of or is based on any violation by such person of applicable law.
(b) The Purchaser shall, in the same manner and to the
same extent as set forth in subsection (a), indemnify and hold
harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and its
directors and officers, with respect to any statement or alleged
untrue statement in, or omission or alleged omission from, such
registration statement or any post-effective amendment thereof or any
preliminary prospectus or final prospectus (as amended or
supplemented, if amended or supplemented as aforesaid) contained in
such registration statement, if such statement or omission was made in
reliance upon and in conformity with information furnished in writing
to the Company by the Purchaser for use in connection
6
<PAGE> 7
with the preparation of such registration statement or any preliminary
prospectus or final prospectus contained in such registration
statement or any such amendment thereof or supplement thereto,
provided, however, that the liability of the Purchaser hereunder shall
be limited to the amount of proceeds received by the Purchaser in the
offering giving rise to the violation. Each Purchaser shall only be
liable for its own violations and shall not be jointly or severally
liable for the violations of other Purchasers hereunder.
(c) Each person to be indemnified pursuant to this
Section 3.8 will, promptly after its receipt of written notice of the
commencement of any action against such indemnified person in respect
of which indemnity may be sought from an indemnifying person under
this Section 3.8 notify the indemnifying person in writing of the
commencement thereof, provided, however that the failure of any person
to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Agreement except to the extent
that such indemnifying party is actually prejudiced by such failure to
give notice. If any such action shall be brought against any
indemnified person and it shall notify an indemnifying person of the
commencement thereof, the indemnifying person will be entitled to
participate therein and, to the extent it may desire, jointly with any
other indemnifying person similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified person, and
after notice from the indemnifying person to such indemnified person
of its election so to assume the defense thereof, the indemnifying
person will not be liable to such indemnified person under this
Section 3.8 for any legal or other expenses subsequently incurred by
such indemnified person in connection with the defense thereof other
than reasonable costs of investigation unless (i) the indemnified
person shall have employed counsel in an action in which the
indemnified person and indemnifying person are both defendants and
there is a conflict of interest between such parties that would, in
the reasonable opinion of the indemnified party, prevent counsel from
adequately representing both parties, (ii) the indemnifying person
shall not have employed counsel satisfactory within the exercise of
reasonable judgment of the indemnified person to represent the
indemnified person within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying person has
authorized the employment of counsel for the indemnified person at the
expense of the indemnifying person. The undertaking contained in this
Section 3.8 shall be in addition to any liabilities which the
indemnifying person may have pursuant to law.
3.10 INFORMATION BY PURCHASER. The Purchaser shall furnish to the
Company such information regarding the Purchaser as the Company may request and
as shall be reasonably required in connection with the registration,
qualification or compliance referred to in Article III.
3.11 RIGHTS NON-TRANSFERABLE. The registration rights provided by
this Agreement are for the sole benefit of the Purchaser, are personal in
nature, and shall not be available to any subsequent holder of the Registrable
Securities.
7
<PAGE> 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
(a) VALIDITY OF SHARES. The Shares are in due and proper
form, have been duly authorized by all necessary corporate action on the part
of the Company, and are validly issued, fully paid and non-assessable shares of
Common Stock, free of preemptive rights. Upon delivery of the Shares in
consideration of the purchase price set forth in Section 2.2, the Purchaser
will acquire valid and marketable title to the Shares, free and clear of any
encumbrances.
(b) SEC REPORTS. The Company has filed with the
Commission all proxy statements and periodic reports required to be filed by it
under the Exchange Act (collectively, the "SEC Reports"). Each SEC Report was
in compliance in all material respects with the requirements of the Exchange
Act and did not on the date of its filing (and the SEC Reports as a whole do
not on the date hereof contain) any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) AVAILABILITY OF FORM S-3. The Company is and shall,
during the three year period following the closing of the transaction
contemplated hereby, use its best efforts to remain eligible to use Form S-3 to
register the Registrable Securities in a Shelf Registration on behalf of the
Purchaser.
(d) OFFERING TERMS. The Company has not offered any of
the approximately 1.7 million shares of common stock of the Company which it
has or is in the process of placing privately with investors to any single
investor or investor group at a price or upon terms that are more favorable
than provided to the Purchaser hereunder.
4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants to the Company the Purchaser is
acquiring the Shares solely for its own account and not with a view to the
public distribution thereof. The Purchaser acknowledges that the Shares have
not and will not be registered under the Securities Act except as provided
herein and agrees that it will only re-offer or resell the Shares purchased
under this Agreement in compliance with the requirements of Rule 144
promulgated under the Securities Act, in accordance with any other available
exemption from the requirements of Section 5 of the Securities Act, or pursuant
to a valid registration statement under the Securities Act. The Purchaser
acknowledges that upon its acquisition of the Shares (other than in connection
with a registered offering thereof), and until such time, if any, as the
Company shall agree that it is no longer necessary or advisable, the Shares
shall bear the following legend:
8
<PAGE> 9
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS."
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT. This Agreement may be amended from time to time by
an instrument in writing signed by all parties to this Agreement.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser hereunder shall not survive the
closing of the transactions contemplated hereby.
5.3 NOTICES. Any notice, request, reply instruction or other
communication (herein severally and collectively called "notice") in this
Agreement provided or permitted to be given to the Company or to the Purchaser
must be given in writing and may be given or served by depositing the same in
the United States mail, in certified or registered form, postage fully prepaid,
addressed to the party or parties to be notified, with return postage fully
requested, or by delivering the same in person to such party or parties.
Notice deposited in the United States mail, mailed in the manner hereinabove
described, shall be effective upon deposit. Notice given in any other manner
shall be effective only if and when received by the party to be notified. For
purpose of notice hereunder, the address of the Company shall be 3701 Kirby
Drive, Suite 112, Houston, Texas 77098 and the address of the Purchaser shall be
4675 MacArthur Court, Suite 157, Newport Beach, California 92660.
5.4 GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Texas.
5.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the parties to this Agreement alone and no implication that any
other person has any rights under this Agreement shall be made from the
provisions hereof, provided, however, that the obligations of the Company
pursuant to this Agreement shall be binding upon the Company's successors.
5.6 INVALID PROVISIONS. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall not
have the effect of invalidating or voiding the remainder of this Agreement and
the parties hereby agree that the portion so held invalid, unenforceable or
void shall, if possible, be deemed amended or reduced in scope, or to otherwise
9
<PAGE> 10
be stricken from this Agreement to the extent required for the purposes of
validity and enforcement thereof.
5.7 SECTION HEADINGS. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
5.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute only one
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by themselves or by their respective duly authorized
representatives as of the date first above set forth.
COMPANY:
DIGICON INC.
By: /s/ RICHARD W. McNAIRY
______________________________
PURCHASER:
By: TOCQUEVILLE ASSET MANAGEMENT
L.P.
By: /s/ ROBERT W. KLEINSCHMIDT
______________________________
10
<PAGE> 11
SCHEDULE A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Company Name Account Number No. Of Shares
------------ -------------- -------------
<S> <C> <C>
Artform, N.V. 086-00712-16-368 10,000
Christian Humann and Franccia Sieart, 068-00569-10-368 10,000
Treas. Trust U/D 2/22/88
Montbar, S.A. 086-67200-14-364 120,000
Montbar, S.A. Income A/C 086-67210-12-384 100,000
National Intergroup Inc. 086-00690-95-365 30,000
A/C Pfd & Common
Trace Incorporated TD001 25,000
Jomacim, Incorporated TD002 15,000
WKDL Investments Limited (Cayman) 086-00789-97-385 15,000
The Tocqueville Fund 086-00500-95-367 75,000
-------
TOTAL 400,000
=======
</TABLE>
<PAGE> 1
Exhibit 10m
STOCK PURCHASE
AND
REGISTRATION RIGHTS AGREEMENT
THIS STOCK PURCHASE AND REGISTRATION RIGHTS AGREEMENT ("Agreement") is
entered into on September 28, 1995 between Digicon Inc., a Delaware corporation
(the "Company"), and Value Partners, Ltd. (the "Purchaser").
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMON STOCK" means the Common Stock, par value $.01 per share, of
the Company.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"DEMAND NOTICE" means a notice by the Purchaser pursuant to Section
3.1 demanding that the Company register the Purchaser's Registrable Securities
for sale under the Securities Act.
"DEMAND REGISTRATION" means the Shelf Registration which the Company
is required to effect on behalf of the Purchaser pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"NOTICE OF REGISTRATION" means a notice by the Company to the
Purchaser that the Company has determined to conduct an Underwritten Public
Offering or Shelf Registration.
"PIGGYBACK REGISTRATION" means a registration of shares of Registrable
Securities owned by the Purchaser under the terms and conditions set forth in
Section 3.3.
"REGISTRABLE SECURITIES" means the 458,497 shares of Common Stock
purchased by the Purchaser hereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"SHARES" means the 458,497 shares of Common Stock being sold by the
Company to the Purchaser hereunder.
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"SHELF REGISTRATION" means a registration meeting the requirements of
Rule 415 under the Securities Act or any similar rule in effect under the
Securities Act.
"UNDERWRITTEN PUBLIC OFFERING" means a public offering (including a
Shelf Registration) of Common Stock for cash which is offered and sold in a
registered transaction on a firm commitment underwritten basis through one or
more underwriters, pursuant to an underwriting agreement between the Company
and such underwriters.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to sell and deliver
the Shares to the Purchaser, and the Purchaser agrees to purchase the Shares
from the Company.
2.2 PURCHASE PRICE. As consideration for the sale of the Shares,
on the date hereof the Purchaser shall pay $2,149,204 in U.S. Federal or other
immediately available funds to the account of the Company at Texas Commerce
Bank, ABA #113000609, (Credit: Digicon Inc., Acct. No. 00100356584) before
5:00 p.m., Houston, Texas time, on the date hereof. The Company will deliver
to the Purchaser a stock certificate representing the Shares registered in the
name of the Purchaser.
ARTICLE III
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION. (a) Beginning on the date hereof through
September 28, 1998, upon receipt by the Company of a Demand Notice from the
Purchaser requesting registration of all or part of the Registrable Securities,
the Company agrees to file a registration statement with respect to the
Registrable Securities within thirty days of the receipt of such demand, and
use its best efforts to effect, as soon as practicable, all registrations,
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualifications
under the applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the Securities Act and any
other governmental requirements or regulations) as would permit or facilitate
the sale and distribution of the Registrable Securities under the Securities
Act; provided that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 3.1 in any jurisdiction in which the Company would be required to
execute a general consent to service of process or to register as a dealer or
to cause any officer or employee of the Company to register as a
salesman in effecting such registration, qualification or compliance. The
Company shall use its best efforts to prepare and file a registration statement
on Form S-3 or any successor Form thereto covering the Registrable Securities
so requested to be registered pursuant to this Section 3.1 within 30 days after
such request is received and to keep such registration statement effective
under the Securities Act until the first to occur of (i) the
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expiration of three years from the date of effectiveness of such registration
statement or (ii) the date upon which the Purchaser has sold all such
Registrable Securities.
3.2 LIMITATIONS ON DEMAND REGISTRATION RIGHTS. The Purchaser may
make only one request for a Demand Registration hereunder. The Company shall
be obligated only to effect a Shelf Registration on behalf of the Purchaser in
connection with a Demand Registration, and the Company shall not be obligated
to execute any underwriting agreement with respect to the sale of the
Registrable Securities in connection with a Demand Registration.
3.3 PIGGYBACK REGISTRATION. If at any time or from time to time
after the date hereof the Company shall determine to make an Underwritten
Public Offering or Shelf Registration for its own account (but not including an
offering that is registered on Commission Forms S-4, S-8 or any successor forms
thereto), then the Company will:
(a) promptly give to the Purchaser a Notice of
Registration; and
(b) use its best efforts to include in such registration
(and any related qualification or compliance under blue sky laws), and
in any Underwritten Public Offering or Shelf Offering involved
therein, all the Registrable Securities specified in any written
request or requests by the Purchaser received by the Company within 10
days after such Notice of Registration is given.
3.4 LIMITATIONS ON PIGGYBACK REGISTRATIONS. (a) The Purchaser may
make a request for the inclusion of all or any portion of its Registrable
Securities in any registration effected pursuant to Section 3.3 at any time
after the date hereof through the first anniversary of the date hereof under
the procedures set forth in Section 3.3.
(b) The right of the Purchaser to participate in an
Underwritten Public Offering pursuant to Section 3.3 shall be
conditioned upon the inclusion of the Purchaser's Registrable
Securities in the Underwritten Public Offering to the extent provided
herein. The Company and the Purchaser shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such Underwritten Public Offering by the
Company.
(c) Notwithstanding any other provisions of Sections 3.3
or 3.4, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter and the Company may limit the Registrable
Securities to be included in any Underwritten Public Offering as set
forth below. In such event, the Company shall so advise the
Purchaser, and the number of shares of Registrable Securities that
will be included in the registration and Underwritten Public Offering
shall be allocated pro rata between the Company and the Purchaser.
No Registrable Securities excluded from the Underwritten Public
Offering by reason of the managing underwriter's marketing limitation
shall be included in such registration. If the Purchaser disapproves
of the terms of the Underwritten Public Offering, the Purchaser
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may, in its sole discretion, elect to withdraw therefrom by written
notice to the Company and the managing underwriter. The Registrable
Securities so withdrawn also shall be withdrawn from registration.
3.5 TERMINATION OF REGISTRATION. Notwithstanding any other
provision of this Agreement, at any time before or after the filing of a
registration statement that is subject to Section 3.3, the Company may, in its
sole discretion, abandon or terminate an Underwritten Public Offering without
the consent of the Purchaser, and the Purchaser may, in its sole discretion,
abandon or terminate a Demand Registration without the consent of the Company.
Any abandoned Demand Registration shall not constitute a Demand Registration
for purposes of this Agreement.
3.6 REGISTRATION EXPENSES. All expenses of any registration under
this Agreement (including, but not limited to, any qualifications under the
Blue Sky or other state securities laws, compliance with governmental
requirements of preparing and filing any post-effective amendments required for
the lawful distribution of the Registrable Securities to the public and of
supplying prospectuses, offering circulars or other documents), will be paid by
the Company provided, however, that the Purchaser shall be responsible for the
fees and expenses of its counsel.
3.7 REGISTRATION PROCEDURES. The Company will at its expense:
(a) prepare and file with the Commission a registration
statement with respect to the Registrable Securities to be registered,
and, in the case of a Demand Registration or an Underwritten Public
Offering involving a Shelf Registration, use its best efforts to cause
such registration statement to become and remain effective for three
years or until the Purchaser no longer owns any of the Registrable
Securities;
(b) prepare and file with the Commission such amendments
to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for the periods set forth in Section 3.7(a).
(c) furnish to the Purchaser such reasonable number of
copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as the Purchaser may reasonably
request to facilitate the public offering of the Registrable
Securities;
(d) use its diligent good faith efforts to register or
qualify the Registrable Securities covered by such registration
statement under such state securities or Blue Sky laws of such
jurisdictions as the Purchaser may reasonably request;
(e) notify counsel for the Purchaser, promptly after it
shall receive notice thereof, of the time when such registration
statement has become effective under the Securities Act or a
supplement to any prospectus forming a part of such registration
statement has been filed;
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(f) notify counsel for the Purchaser promptly of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon
the request of the Purchaser, any amendments or supplements to such
registration statement or prospectus which, in the reasonable opinion
of counsel for the Purchaser (and concurred in by counsel for the
Company), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Registrable Securities;
(h) prepare and promptly file with the Commission and
promptly notify counsel for the Purchaser of the filing of such
amendment or supplement to any such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise counsel for the Purchaser, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement under the Securities Act or the initiation or
threatening of any proceeding for such purpose, and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such
registration statement or prospectus if, in the opinion of counsel for
the Purchaser, such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished with a
copy substantially in the form thereof at least two business days
before the filing thereof; provided, however, that if in the opinion
of counsel for the Company, the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law, the Company may make such filing; and
(l) list the Registrable Securities on any national
securities exchange on which the Common Stock is approved for listing;
3.8 RELATED REGISTRATION MATTERS.
(a) The Company may require that the Purchaser refrain
from effecting any public sales or distributions of the Registrable
Securities if the board of directors of the Company in good faith
determines in its sole discretion that such public sales or
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distributions would interfere in any material respect with any
transaction involving the Company that in the sole discretion of the
board of directors is material to the Company. The board of directors
shall, as promptly as practicable, give the Purchaser written notice
of any such development. The Company shall be required to lift such
restrictions regarding effecting public sales or distributions of the
Registrable Securities as soon as reasonably practicable after the
board of directors shall determine, in its sole discretion, that the
public sales or distributions by the Purchaser of the Registrable
Securities shall not interfere with such transaction, provided, that
no requirement that the Purchaser refrain from effecting public sales
or distributions in the Registrable Securities may extend for more
than 45 days in the aggregate during the three year period after the
date hereof.
(b) If the Company shall register any Underwritten Public
Offering during any period in which the Purchaser may sell Registered
Securities under a Shelf Registration that is at the time effective
under the Securities Act (other than a registration on Form S-8 of (i)
an employee stock option, stock purchase or compensation plan or of
securities issued or issuable pursuant to such plan or (ii) a dividend
reinvestment plan), the Purchaser agrees, to the extent requested in
writing by the managing underwriter administering such Underwritten
Public Offering as reasonably practicable before the commencement of
the 10 day period referred below, not to effect any public sale or
distribution of securities of the Company during the 10 day period
before the effective date of the registration statement covering such
Underwritten Public Offering and during the period ending on the
earlier of (i) the date such sale or distribution is permitted by such
managing underwriter and (ii) 45 days after such effective date.
3.9 INDEMNIFICATION.
(a) The Company agrees to indemnify, defend and hold
harmless the Purchaser, its officers and directors, each underwriter
of the Registrable Securities, and each person who controls the
Purchaser or any such underwriter within the meaning of Section 15 of
the Securities Act, against any and all losses, claims, damages or
liabilities (including reasonable attorneys' fees) to which they or
any of them may become subject under the Securities Act or any other
federal or state statute or common law, including any amount paid in
settlement of any litigation, commenced or threatened, if such
settlement is effected with the written consent of the Company
(subject to subsection (c) of this Section 3.9), insofar as any such
losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or in any Blue Sky application, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the indemnification agreement
contained in this subsection (a) shall not (i) apply to such losses,
claims, damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made
in reliance upon and in conformity with
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information furnished to the Company in writing by the Purchaser or any
such underwriter for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus
contained in the registration statement or any such amendment thereof
or supplement thereto; or (ii) inure to the benefit of any person to
the extent such person's claim for indemnification hereunder arises out
of or is based on any violation by such person of applicable law.
(b) The Purchaser shall, in the same manner and to the
same extent as set forth in subsection (a), indemnify and hold
harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and its
directors and officers, with respect to any statement or alleged
untrue statement in, or omission or alleged omission from, such
registration statement or any post-effective amendment thereof or any
preliminary prospectus or final prospectus (as amended or
supplemented, if amended or supplemented as aforesaid) contained in
such registration statement, if such statement or omission was made in
reliance upon and in conformity with information furnished in writing
to the Company by the Purchaser for use in connection with the
preparation of such registration statement or any preliminary
prospectus or final prospectus contained in such registration
statement or any such amendment thereof or supplement thereto.
(c) Each person to be indemnified pursuant to this
Section 3.8 will, promptly after its receipt of written notice of the
commencement of any action against such indemnified person in respect
of which indemnity may be sought from an indemnifying person under
this Section 3.8 notify the indemnifying person in writing of the
commencement thereof, provided, however that the failure of any person
to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Agreement except to the extent
that such indemnifying party is actually prejudiced by such failure to
give notice. If any such action shall be brought against any
indemnified person and it shall notify an indemnifying person of the
commencement thereof, the indemnifying person will be entitled to
participate therein and, to the extent it may desire, jointly with any
other indemnifying person similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified person, and
after notice from the indemnifying person to such indemnified person
of its election so to assume the defense thereof, the indemnifying
person will not be liable to such indemnified person under this
Section 3.8 for any legal or other expenses subsequently incurred by
such indemnified person in connection with the defense thereof other
than reasonable costs of investigation unless (i) the indemnified
person shall have employed counsel in an action in which the
indemnified person and indemnifying person are both defendants and
there is a conflict of interest between such parties that would
prevent counsel from adequately representing both parties, (ii) the
indemnifying person shall not have employed counsel satisfactory
within the exercise of reasonable judgment of the indemnified person
to represent the indemnified person within a reasonable time after the
notice of the commencement of the action or (iii) the indemnifying
person has authorized the employment of counsel for the indemnified
person at the expense of the indemnifying person. The undertaking
contained in this
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Section 3.8 shall be in addition to any liabilities which the
indemnifying person may have pursuant to law.
3.10 INFORMATION BY PURCHASER. The Purchaser shall furnish to the
Company such information regarding the Purchaser as the Company may request and
as shall be reasonably required in connection with the registration,
qualification or compliance referred to in Article III.
3.11 RIGHTS NON-TRANSFERABLE. The registration rights provided by
this Agreement are for the sole benefit of the Purchaser, are personal in
nature, and shall not be available to any subsequent holder of the Registrable
Securities.
3.12 FURTHER ASSURANCES. The Company shall cooperate with the
Purchaser in effecting the disposition of the Shares as contemplated in this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
(a) VALIDITY OF SHARES. The Shares are in due and proper
form, have been duly authorized by all necessary corporate action on the part
of the Company, and are validly issued, fully paid and non-assessable shares of
Common Stock, free of preemptive rights. Upon delivery of the Shares in
consideration of the purchase price set forth in Section 2.2, the Purchaser
will acquire valid and marketable title to the Shares, free and clear of any
encumbrances.
(b) SEC REPORTS. The Company has filed with the
Commission all proxy statements and periodic reports required to be filed by it
under the Exchange Act (collectively, the "SEC Reports"). Each SEC Report was
in compliance in all material respects with the requirements of the Exchange
Act and did not on the date of its filing (and the SEC Reports as a whole do
not on the date hereof contain) any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) NO VIOLATION OF AGREEMENTS. This Agreement and its
execution and delivery by the Company does not, and the fulfillment and
compliance by the Company with the terms and conditions of this Agreement, and
the consummation by the Company of the transactions contemplated hereby, will
not: (i) conflict with the articles of incorporation or the bylaws of the
Company, (ii) violate any provision of, or require any filing, consent,
authorization, or approval under, any law or administrative regulation or any
judicial, administrative, or arbitration order, award, judgment, writ,
injunction, or decree applicable to or binding upon the Company, or (iii)
conflict with, result in a breach of, constitute a default under (without
regard to any requirements of notice or the lapse of time), accelerate, or
permit the acceleration of the
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performance required by, any mortgage, indenture, loan or credit agreement, or
other agreement or instrument evidencing indebtedness for borrowed money to
which the Company is a party, by which it is bound, or to which any of the
properties of the Company are subject.
4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company the Purchaser is acquiring the
Shares solely for its own account and not with a view to the public
distribution thereof. The Purchaser acknowledges that the Shares have not and
will not be registered under the Securities Act except as provided herein and
agrees that it will only re-offer or resell the Shares purchased under this
Agreement in compliance with the requirements of Rule 144 promulgated under the
Securities Act, in accordance with any other available exemption from the
requirements of Section 5 of the Securities Act, or pursuant to a valid
registration statement under the Securities Act. The Purchaser acknowledges
that upon its acquisition of the Shares (other than in connection with a
registered offering thereof), and until such time, if any, as the Company has
received an opinion of counsel to the Purchaser, in form and substance
satisfactory to the Company, that it is no longer necessary or advisable, the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS."
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT. This Agreement may be amended from time to time by
an instrument in writing signed by all parties to this Agreement.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company and the Purchaser hereunder shall
not survive the closing of the transactions contemplated hereby.
5.3 NOTICES. Any notice, request, reply instruction or other
communication (herein severally and collectively called "notice") in this
Agreement provided or permitted to be given to the Company or to the Purchaser
must be given in writing and may be given or served by depositing the same in
the United States mail, in certified or registered form, postage fully prepaid,
addressed to the party or parties to be notified, with return postage fully
requested, or
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by delivering the same in person to such party or parties. Notice
deposited in the United States mail, mailed in the manner hereinabove
described, shall be effective upon deposit. Notice given in any other manner
shall be effective only if and when received by the party to be notified. For
purpose of notice hereunder, the address of the Company shall be 3701 Kirby
Drive, Suite 112, Houston, Texas 77098 and the address of the Purchaser shall
be 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606.
5.4 GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Texas.
5.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the parties to this Agreement alone and no implication that any
other person has any rights under this Agreement shall be made from the
provisions hereof, provided, however, that the obligations of the Company
pursuant to this Agreement shall be binding upon the Company's successors.
5.6 INVALID PROVISIONS. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall not
have the effect of invalidating or voiding the remainder of this Agreement and
the parties hereby agree that the portion so held invalid, unenforceable or
void shall, if possible, be deemed amended or reduced in scope, or to otherwise
be stricken from this Agreement to the extent required for the purposes of
validity and enforcement thereof.
5.7 SECTION HEADINGS. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
5.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute only one
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by themselves or by their respective duly authorized
representatives as of the date first above set forth.
COMPANY:
DIGICON INC.
By: /s/ RICHARD W. McNAIRY
_________________________________
PURCHASER:
VALUE PARTNERS, LTD.
By: /s/ TIMOTHY EWING
_________________________________
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EXHIBIT 23-A
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Digicon Inc. on Form S-2
of our report dated October 12, 1995, appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
February 16, 1996
