SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 18, 1997
GEOKINETICS INC.
(Exact name of Registrant as specified in charter)
Delaware 0-9268 94-1690082
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
5555 San Felipe, Suite 780, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (713) 850-7600
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On July 18, 1997, Geokinetics Inc., a Delaware corporation
("Registrant") entered into a Securities Purchase and Exchange
Agreement (the "Purchase Agreement") with Blackhawk Investors,
L.L.C. ("Blackhawk"), William R. Ziegler, an individual resident of
the state of New York ("Ziegler"), and Steven A. Webster, an
individual resident of the State of Texas ("Webster") (Blackhawk,
Ziegler and Webster being sometimes referred to collectively as the
"Blackhawk Group"). Pursuant to the Purchase Agreement, the
Blackhawk Group acquired from Registrant (i) 5,500,000 newly-issued
shares of Registrant's Common Stock, par value $.20 per share
("Common Stock"), (ii) 187,500 newly-issued shares of Registrant's
Series A Preferred Stock (convertible into an aggregate of 2,500,000
shares of Common Stock), and (iii) Shadow Warrants to purchase up to
an additional 7,104,103 shares of Common Stock at a price of $.20
per share, in exchange for (x) an aggregate of $5,500,000 in cash
paid to the Registrant and (y) the exchange of certain indebtedness
in the principal amount of $500,000 owed by Registrant to Ziegler
and Webster. The shares of Common Stock acquired by the Blackhawk
Group, pursuant to the Purchase Agreement, represent 62.2% of the
Registrant's outstanding Common Stock. The Shadow Warrants issued to
the Blackhawk Group are only exercisable in the event that certain
warrants previously issued by the Registrant are exercised in the
future.
On July 24, 1997, Registrant entered into a Letter Agreement re
Additional Investment pursuant to which the Blackhawk Group invested
an additional $1,000,000 in cash in Registrant and the Registrant
will issue 100,000 shares of Registrant's Series B Preferred Stock
(convertible into an aggregate of 1,333,333 shares of Common Stock).
The terms of the Series B Preferred Stock are identical to the terms
of the Series A Preferred Stock except that the Series B Preferred
Stock will automatically be converted into shares of Common Stock on
January 1, 1998.
Blackhawk is an investment limited liability company. The members of
Blackhawk, including Ziegler and Webster, provided the funds for the
acquisition of Registrant's securities and the other transactions
contemplated by the Purchase Agreement.
As an inducement to the consummation of the transactions
contemplated by the Purchase Agreement, Registrant entered into an
Investment Monitoring Agreement with Blackhawk and Blackhawk Capital
Partners, L.P., the managing member of Blackhawk ("Blackhawk
Capital") pursuant to which Blackhawk Capital was appointed to
oversee Blackhawk's investments in Registrant pursuant to the
Purchase Agreement. Blackhawk Capital will be paid a fee of $25,000
per year by Registrant under the Investment Monitoring Agreement.
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Reference is made to the information set forth under Item 5 below
regarding certain resignations of members of the Registrant's Board
of Directors and the appointment of two new members of Registrant's
Board of Directors.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 18, 1997, Registrant acquired all of the outstanding capital
stock of Signature Geophysical Services, Inc., a Michigan
corporation ("SGS") from Gallant Energy, Inc., a Texas corporation
("GEI") pursuant to the terms of a Stock Purchase Agreement (the
"SGS Agreement") among Registrant, SGS, GEI and James V. Gallant, an
individual resident of the State of Texas and sole shareholder of
GEI ("Gallant"). Pursuant to the SGS Agreement, Registrant acquired
500 shares of the outstanding common stock of SGS (the "SGS shares")
in exchange for 400,000 newly-issued shares of Registrant's Common
Stock to GEI. Effective July 18, 1997, the Registrant also entered
into an Employment Agreement with Gallant, pursuant to which Gallant
was granted options to purchase up to 400,000 shares of Common Stock
at an exercise price of $0.75 per share depending on the financial
performance of SGS during the period from July 18, 1997 to September
30, 1999. The amount of consideration paid by Registrant to GEI for
the acquisition of the SGS Shares was determined as a result of
arms-length negotiations and agreement between unrelated parties.
SGS, based in Houston, Texas, is engaged in the business of
providing 2-D and 3-D seismic surveys of oil and gas properties,
focusing on the Permian Basin and the U. S. Gulf Coast, with a
special emphasis on coastal swamp operations.
The description contained herein of Registrant's acquisition of the
SGS Shares is qualified in its entirety by reference to the SGS
Agreement, which is attached hereto as Exhibit 2.2 and incorporated
herein by reference.
ITEM 5. OTHER EVENTS.
Certain changes in the directors and officers of Registrant were
announced in the Press Release dated July 18, 1997 which is attached
hereto as Exhibit 99 and incorporated herein by reference. Effective
July 18, 1997, Michael D. Hale, William H. Murphy and Herbert H.
Hedick tendered their respective resignations as members of
Registrant's Board of Directors, and William R. Ziegler, a partner
of the New York law firm of Parson & Brown and Steven A. Webster,
Chairman and Chief Executive Officer of Falcon Drilling Company,
Inc., were appointed to be two of the three members of the Board of
Directors. In addition, the Board of Directors named (i) Jay D.
Haber as Chairman and Chief Executive Officer, (ii) Lynn Turner as
President and Chief Operating Officer of Registrant and (iii) Thomas
J. Concannon as Vice President and Chief Financial Officer.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
As of the date of filing of this Current Report on Form 8-K,
it is impracticable to provide the financial statements
required by this Item 7(a) with respect to the acquisition of
Signature Geophysical Services, Inc. In accordance with Item
7(a)(4) of Form 8-K, such financial statements shall be filed
by amendment to this Form 8-K no later than 60 days after
August 4, 1997.
(b) Pro Forma Financial Information
As of the date of filing of this Current Report on Form 8-K,
it is impracticable to provide the financial information by
this Item 7(b). In accordance with Item 7(b) of Form 8-K, such
financial information shall be filed by amendment to this Form
8-K no later than 60 days after August 4, 1997.
(c) Exhibits
(2.1) Securities Purchase and Exchange Agreement dated
as of July 18, 1997 among Registrant, Blackhawk
Investors, L.L.C., William R. Ziegler, and Steven
A. Webster. Registrant hereby agrees to furnish
supplementally to the Securities and Exchange
Commission upon request a copy of any omitted
Schedule, all of which are listed on the last page
of the Securities Purchase and Exchange Agreement.
(2.2) Stock Purchase Agreement dated as of June 25, 1997
among Registrant, Signature Geophysical Services,
Inc., Gallant Energy, Inc. and James Gallant.
(Registrant hereby agrees to furnish
supplementally to the Securities and Exchange
Commission upon request a copy of any omitted
Schedule to the Signature Geophysical Services,
Inc. Disclosure Schedule.)
(2.3) Letter Agreement re Additional Investment dated
July 24, 1997, between Registrant and Blackhawk
Investors, L.L.C.
(4) Statement of Designation of Series A Preferred
Stock
(10.1) Employment Agreement dated July 15, 1997, among
the Registrant, Signature Geophysical Services,
Inc., and James V. Gallant
(10.2) Investment Monitoring Agreement dated July 18,
1997, between the Registrant and Blackhawk Capital
Partners, L.P.
(99) Press Release Dated July 18, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned herein to duly authorized.
Dated: August 4, 1997
GEOKINETICS INC.
By: /s/ JAY D. HABER
Jay D. Haber, President
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EXHIBIT 2.1
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GEOKINETICS INC.
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SECURITIES PURCHASE AND EXCHANGE
AGREEMENT
DATED AS OF JULY 18, 1997
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COMMON STOCK
AND
SERIES A CONVERTIBLE PREFERRED STOCK
AND
SHADOW WARRANTS
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TABLE OF CONTENTS
PAGE
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ARTICLE I
PURCHASE AND SALE OR EXCHANGE OF COMMON STOCK,
SERIES A PREFERRED STOCK AND SHADOW WARRANTS
1.1 Authorization and Description of Common Stock, Series
A Preferred Stock and Shadow Warrants...................... 2
1.2 Sale and Purchase of Securities............................ 2
1.3 Exchange of Senior Notes for Securities.................... 2
1.5 Application of Proceeds.................................... 3
1.6 Purchaser's Conditions of Closing.......................... 3
1.7 Company's Conditions of Closing............................ 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization, Authority and Capitalization of the
Company; Stock Ownership................................... 6
2.2 Subsidiaries............................................... 7
2.3 Qualification; Enforceability.............................. 8
2.4 Business and Property; Financial Statements................ 8
2.5 Compliance with Laws, Other Instruments;
No Conflicts, etc.......................................... 8
2.6 Consents and Approvals..................................... 9
2.7 Litigation................................................. 9
2.8 Private Offering........................................... 10
2.9 No Defaults; Debt, etc; Liens.............................. 10
2.10 Full Disclosure............................................ 10
2.11 Environmental Matters...................................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
3.1 Investment Representation.................................. 12
3.2 Organization and Authority of Blackhawk;
No Conflicts; Approvals; Enforceability.................... 14
ARTICLE IV
COVENANTS
4.1 Financial Statements; Information.......................... 15
4.2 Corporate Existence........................................ 16
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4.3 Compliance with Laws; Government Filings................... 16
4.4 Environmental Matters...................................... 17
ARTICLE V
CERTAIN OTHER COVENANTS
5.1 Approval and Filing of Charter Amendment................... 17
5.2 Repayment of Debt and Removal of Liens..................... 17
ARTICLE VI
MISCELLANEOUS
6.1 Expenses................................................... 18
6.2 Reliance on and Survival of Representations................ 18
6.3 Amendment and Waiver....................................... 19
6.4 Shadow Warrant Register.................................... 19
6.5 Directly or Indirectly..................................... 19
6.6 Successors and Assigns..................................... 19
6.7 Notices.................................................... 20
6.8 LAW GOVERNING.............................................. 20
6.9 SUBMISSION TO JURISDICTION; Service of Process............. 20
6.10 Headings, etc.............................................. 21
6.11 Entire Agreement........................................... 21
6.12 WAIVER OF TRIAL BY JURY.................................... 21
6.13 Indemnification............................................ 22
6.14 Interpretive Provision..................................... 22
6.15 Severability............................................... 23
6.16 Counterparts............................................... 23
6.17 Finder's Fee............................................... 23
SCHEDULES:
Schedule 1.1 Purchasers
Schedule 1.5 Use of Proceeds
Schedule 2.1(b) Capitalization of the Company
Schedule 2.1(c) Capitalization of the Subsidiaries
Schedule 2.2 Subsidiaries
Schedule 2.5 Noncontravention
Schedule 2.6 Consent and Approvals
Schedule 2.7 Litigation
Schedule 2.9 Debts; Liens
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EXHIBITS:
Exhibit A Form of Certificate of Designation
Exhibit B Form of Shadow Warrant
Exhibit C-1 Form of Employment Agreement (Lynn Turner)
Exhibit C-2 Form of Employment Agreement (Michael Dunn)
Exhibit C-3 Form of Employment Agreement (Thomas Concannon)
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Monitoring Agreement
Exhibit F Form of Opinion of Company Counsel
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SECURITIES PURCHASE AND EXCHANGE AGREEMENT
THIS SECURITIES PURCHASE AND EXCHANGE AGREEMENT, dated as of July
18, 1997, among GEOKINETICS INC., a Delaware corporation (the "COMPANY"),
BLACKHAWK INVESTORS, L.L.C., a Delaware limited liability company ("BLACKHAWK")
and each of the undersigned HOLDERS OF THE SENIOR NOTES (individually, a
"HOLDER" and collectively, the "HOLDERS"; Blackhawk and the Holders being
sometimes hereinafter collectively referred to as the "PURCHASERS" and
individually as a "PURCHASER").
WHEREAS, the capitalized terms used herein have the meaning given to
such terms in APPENDIX I; and
WHEREAS, the Company has authorized the issuance of an aggregate of
5,550,000 shares of Common Stock, 187,500 shares of Series A Preferred Stock and
the Shadow Warrants and wishes to sell to Blackhawk an aggregate of 5,041,667
shares of Common Stock, 171,875 shares of Series A Preferred Stock and the
Blackhawk Shadow Warrant, for the consideration provided herein, and wishes to
issue to the Holders an aggregate of 458,333 shares of Common Stock, 15,625
shares of Series A Preferred Stock and the Holders' Shadow Warrants, in the
individual amounts set forth opposite each Holder's name on SCHEDULE 1.1, in
exchange for the surrender of the Senior Notes, in each case, subject to the
terms and conditions of this Agreement; and
WHEREAS, Blackhawk wishes to purchase 5,041,667 shares of Common
Stock, 171,875 shares of Series A Preferred Stock and the Blackhawk Shadow
Warrant, subject to the terms and conditions of this Agreement; and
WHEREAS, the Holders wish to exchange the Senior Notes, in the
aggregate principal amount of $500,000, for an aggregate of 458,333 shares of
Common Stock, 15,625 shares of Series A Preferred Stock and the Holders' Shadow
Warrants, in the individual amounts set forth opposite each Holder's name on
SCHEDULE 1.1, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and upon the terms and conditions hereinafter set forth, the Company
and the Purchasers, intending to be mutually bound, agree as follows:
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ARTICLE I
PURCHASE AND SALE OR EXCHANGE OF COMMON STOCK,
SERIES A PREFERRED STOCK AND SHADOW WARRANTS
1.1 AUTHORIZATION AND DESCRIPTION OF COMMON STOCK, SERIES A
PREFERRED STOCK AND SHADOW WARRANTS.
The Company has authorized (i) the issuance and sale to Blackhawk at
the Closing of (A) 5,041,667 shares of Common Stock, (B) 171,875 shares of
Series A Preferred Stock and (C) a Shadow Warrant to purchase up to an aggregate
of 6,512,095 shares of Common Stock, subject to adjustment (the "BLACKHAWK
SHADOW WARRANT"), and (ii) the issuance to the Holders of an aggregate of (A)
458,333 shares of Common Stock, (B) 15,625 shares of Series A Preferred Stock
and (C) Shadow Warrants to purchase up to an aggregate of 592,009 shares of
Common Stock, subject to adjustment (the "HOLDERS' SHADOW WARRANTS"), in the
individual amounts set forth opposite each Holder's name on SCHEDULE 1.1, in
exchange for the surrender of the Senior Notes, in the aggregate principal
amount of $500,000. The Series A Preferred Stock shall have the powers, rights
and privileges and shall be subject to the terms and conditions set forth in the
Certificate of Designation of Series A Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATION"), which shall be in the form of EXHIBIT "A"
attached hereto. The Shadow Warrants shall be in the form of EXHIBIT "B"
attached hereto.
1.2 SALE AND PURCHASE OF SECURITIES.
The Company will sell to Blackhawk and Blackhawk will purchase from
the Company, subject to the terms and conditions of this Agreement and in
reliance on the representations, warranties and covenants of the Company
contained herein and in the Exhibits hereto, (i) 5,041,667 shares of Common
Stock, (ii) 171,875 shares of Series A Preferred Stock and (C) the Blackhawk
Shadow Warrant, on the Closing Date, in each case, registered in the name of
Blackhawk, in consideration of an aggregate purchase price of $5,500,000 (the
"BLACKHAWK PURCHASE PRICE"), of which $3,781,250 will be paid in consideration
of the Common Stock ($0.75 per share) and $1,718,750 will be paid in
consideration of the Series A Preferred Stock ($10.00 per share). The Blackhawk
Purchase Price shall be payable in cash by wire transfer of immediately
available funds to the Company's bank account with Frost National Bank (the
"CASH PAYMENT"), in accordance with wire transfer instructions delivered by the
Company to Blackhawk at least one business day prior to the Closing.
1.3 EXCHANGE OF SENIOR NOTES FOR SECURITIES.
The Company will sell to each of the Holders and each Holder
severally will purchase from the Company, subject to the terms and conditions of
this Agreement and in reliance on the representations, warranties and covenants
of the Company contained herein and in the Exhibits hereto, an aggregate of (A)
458,333 shares of Common Stock, (B) 15,625 shares of Series A Preferred Stock
and (C) the Holders' Shadow Warrants, on the Closing Date, registered in the
names of the Holders in the individual amounts set forth opposite each Holder's
name on SCHEDULE 1.1, in consideration of an aggregate purchase price of
$500,000 (the "HOLDERS'
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PURCHASE PRICE"), of which $343,750 will be paid in consideration of the Common
Stock ($0.75 per share) and $156,250 will be paid in consideration of the Series
A Preferred Stock ($10.00 per share). The Holders' Purchase Price shall be
payable by the surrender and delivery by the Holders to the Company of the
Senior Notes, in the aggregate principal amount of $500,000.
1.4 CLOSING.
The sale and purchase or exchange (the "CLOSING") of the shares of
Common Stock, shares of Series A Preferred Stock and the Shadow Warrants
(collectively, the "SECURITIES") shall take place on the date hereof (the
"CLOSING DATE") at the offices of Parson & Brown, 666 Third Avenue, 9th Floor,
New York, New York 10017. At the Closing the Company will deliver to each
Purchaser certificates for the shares of Common Stock and Series A Preferred
Stock and the Shadow Warrants purchased hereunder, each dated the Closing Date,
and registered in the names and amounts as set forth on SCHEDULE 1.1 hereto,
against delivery by the Purchasers of the Purchase Price in the form of the Cash
Payment and the surrender for cancellation of the Senior Notes. The failure of
any Purchaser to deliver such Purchase Price shall not excuse any other
Purchaser from delivery of his or its Purchase Price.
1.5 APPLICATION OF PROCEEDS.
The Company shall apply the proceeds from the sale of the Securities
as set forth in SCHEDULE 1.5 attached hereto.
1.6 PURCHASER'S CONDITIONS OF CLOSING.
Each Purchaser's obligations to purchase and pay for the Securities
to be purchased by him or it is subject to satisfaction, prior to or
simultaneously with the closing, of the following conditions:
(a) The Company shall have delivered a certificate of the President
of the Company, dated the Closing Date, certifying that the representations and
warranties of the Company contained in this Agreement and any Exhibit to which
the Company is a party are true and correct in all material respects and that
the Company has performed in all material respects all agreements and complied
with all conditions contained in this Agreement and in any Exhibit to which it
is a party that are required to be performed or complied with on or before the
Closing Date.
(b) The Company shall have delivered a certificate of the Secretary
of the Company, dated the Closing Date, certifying as to (i) the certificate of
incorporation of the Company and any amendments thereto, (ii) the by-laws of the
Company, and (iii) resolutions of the Board of Directors of the Company
authorizing the issuance of the shares of Common Stock and the shares of Series
A Preferred Stock and the execution and delivery of the Shadow Warrants, this
Agreement and all Exhibits to which the Company is a party and reserving for
issuance (subject to the filing of the Charter Amendment with the Secretary of
State of Delaware) such number of shares of Common Stock as is required to
deliver shares of Common Stock upon exercise of rights therefor as provided in
the Series A Preferred Stock and the Shadow Warrants.
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(c) The Company shall have delivered a certificate of the President
of the Company, dated the Closing Date, certifying that (i) the purchase and
sale transaction contemplated by that certain Stock Purchase Agreement dated
June 25, 1997 (the "SIGNATURE STOCK PURCHASE AGREEMENT"), among the Company,
Gallant Energy, Inc. and Signature Geophysical Services, Inc. ("SIGNATURE")
shall have been consummated substantially in accordance with its terms and (ii)
the Master Seismic Agreement between Signature and Geco- Prakla is in full force
and effect and the Supplemental Agreement referred to in the Geco-Prakla Letter
has been entered into on substantially the terms stated therein (or if such
Supplemental Agreement has not been executed as of the Closing Date, the Company
has no knowledge, after due inquiry, of any change or proposed change with
respect to the terms stated therein).
(d) Messrs. Lynn Turner, Michael Dunn and Thomas J. Concannon shall
have entered into Employment Agreements with the Company (collectively, the
"EMPLOYMENT AGREEMENTS"), substantially in the forms of EXHIBITS "C-1", "C-2"
and "C-3", respectively.
(e) The Company shall have executed and delivered to the Purchasers
the Registration Rights Agreement, substantially in the form of EXHIBIT "D"
hereto.
(f) The Company shall have executed and delivered to the Managing
Member of Blackhawk the Monitoring Agreement, substantially in the form of
EXHIBIT "E" hereto.
(g) The Company shall have filed each of the Preferred Stock Charter
Amendment and the Certificate of Designation with the Secretary of State of the
State of Delaware.
(h) Messrs. Steven A. Webster and William R. Ziegler shall have been
duly elected to the Board of Directors of the Company and Messrs. Michael Hale,
Herbert Hedick, and William Murphy shall have tendered their resignations from
the Board of Directors of the Company, effective and conditioned upon the
Closing.
(i) The non-qualified stock options referred to in the Consulting
and Engagement Agreement shall have been issued to William R. Ziegler in
accordance with the terms thereof.
(j) Each of the other Exhibits hereto shall have been executed and
delivered to the Purchasers by the parties thereto.
(k) No foreclosure action shall have been instituted by any of the
Harbin/Murphy Entities or Input/Output, Inc. with respect to any default under
either the Harbin/Murphy Notes or the I/O Note and the I/O Extension Agreement
shall be in full force and effect with no breach by either party thereunder.
(l) Chamberlain, Hrdlicka, White, Williams & Martin, counsel for the
Company, shall have delivered to the Purchasers the Opinion of Company Counsel,
substantially in the form of EXHIBIT "F" hereto.
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(m) All proceedings taken in connection with the authorization,
issuance and sale of the Securities and the consummation of the transactions
contemplated hereby to occur on or prior to the Closing Date and all documents
and papers relating thereto shall be satisfactory in form, scope and substance
to the Purchasers and their counsel, and each Purchaser and their counsel shall
have received copies (executed or certified as may be appropriate) of such
documents and papers as each may reasonably request in connection therewith.
(n) The Company shall have paid the reasonable legal fees and other
expenses of the Purchasers' counsel and all other expenses for which the Company
is obligated to pay pursuant to SECTION 6.1 and for which the Company shall have
received invoices on or prior to the Closing.
1.7 COMPANY'S CONDITIONS OF CLOSING.
The Company's obligations to issue and sell the Securities are
subject to satisfaction, prior to or simultaneously with the closing, of the
following conditions:
(a) Blackhawk shall have delivered a certificate of a Partner of the
Managing Member, dated the Closing Date, certifying that the representations and
warranties of Blackhawk contained in this Agreement and any Exhibit to which
Blackhawk is a party are true and correct in all material respects and that
Blackhawk has performed in all material respects all agreements and complied
with all conditions contained in this Agreement and in any Exhibit to which it
is a party that are required to be performed or complied with on or before the
Closing Date.
(b) Each of the Holders shall have delivered a certificate, dated
the Closing Date, certifying that the representations and warranties made by him
as Purchaser in this Agreement and any Exhibit to which he is a party are true
and correct in all material respects and that he has performed in all material
respects all agreements and complied with all conditions contained in this
Agreement and in any Exhibit to which he is a party that are required to be
performed or complied with on or before the Closing Date.
(c) The Holders shall have delivered to the Company the stock
certificates representing the shares of capital stock of the Subsidiaries that
were pledged in favor of the Holders pursuant to the Pledge Agreement, together
with the stock powers executed and delivered pursuant thereto.
(d) Each of the Holders shall have (i) surrendered to the Company
for cancellation the Senior Note registered in his name and (ii) executed and
delivered to the Company (A) such releases with respect to the Security
Agreements and the Subordination Agreement as shall have been prepared by
counsel for the Company and in form and substance reasonably satisfactory to
such Holder and his counsel, (B) UCC-3 Termination Statements with respect to
the UCC-1 Financing Statements filed pursuant to the Bridge Loan Securities
Purchase Agreement and the Personal Property Security Agreement as shall have
been prepared by counsel for the Company and in form and substance reasonably
satisfactory to such Holder and his counsel and (C) any and all other documents,
instruments and certificates reasonably requested by
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the Company to evidence the release and termination of the Security Agreements
executed and delivered pursuant to the Bridge Loan Securities Purchase
Agreement, in each case, in form and substance reasonably satisfactory to such
Holder and his counsel.
(e) Each of the other Exhibits hereto shall have been executed and
delivered to the Company by the parties thereto.
(f) All proceedings taken in connection with the purchase by the
Purchasers of the Securities and the consummation of the transactions
contemplated hereby to occur on or prior to the Closing Date and all documents
and papers relating thereto shall be satisfactory in form, scope and substance
to the Company and its counsel, and the Company and its counsel shall have
received copies (executed or certified as may be appropriate) of such documents
and papers as each may reasonably request in connection therewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
2.1 ORGANIZATION, AUTHORITY AND CAPITALIZATION OF THE COMPANY;
STOCK OWNERSHIP.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own or hold under lease the property
it purports to own or hold under lease, to carry on its business as now
conducted, to enter into this Agreement and the other Exhibits to which it is or
is to be a party, to issue and sell the Securities (including the issuance of
Common Stock upon the exercise or conversion, as the case may be, of the Series
A Preferred Stock and the Shadow Warrants), to perform its obligations under
this Agreement, the Securities (including the issuance of Common Stock upon the
exercise or conversion, as the case may be, of the Series A Preferred Stock and
the Shadow Warrants), and the other Exhibits to which it is or is to be a party
and to consummate the transactions contemplated hereby and thereby. The Company
has, by all necessary corporate action (no action of stockholders of the Company
being required by law, by its charter or by-laws, or otherwise in connection
therewith, other than with respect to the approval of the Charter Amendment),
duly authorized the execution and delivery of this Agreement, the Securities
(including the issuance of Common Stock upon the exercise or conversion, as the
case may be, of the Series A Preferred Stock and the Shadow Warrants), and the
other Exhibits to which it is or is to be a party, the performance of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby.
(b) SCHEDULE 2.1(b) sets forth the authorized capital stock of the
Company. All such authorized capital stock has been duly and validly authorized,
and either are, or will be when issued, duly and validly issued and outstanding
and are, or will be, fully paid and nonassessable. Such capital stock is not
subject to any rights (either preemptive or otherwise) or warrants to subscribe
for or to purchase, nor any options for the purchase of, nor any agreements
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providing for the issue (contingent or otherwise) of, nor any calls, commitments
or claims of any character relating thereto or any stock or securities
convertible into or exchangeable for any capital stock, other than as set forth
in SCHEDULE 2.1(b). All securities of the Company have been issued in compliance
with the Securities Act and applicable state securities laws. Upon the issuance
of the shares of Series A Preferred Stock by the Company against payment of the
Purchase Price by the Purchasers in accordance with the provisions of this
Agreement, the shares of Series A Preferred Stock will be duly authorized,
validly issued and fully paid and nonassessable with no personal liability
attaching to the ownership thereof. The shares of Common Stock that will be
issuable upon the exercise or conversion, as the case may be, of the Series A
Preferred Stock and the Shadow Warrants in the manner referred to in the
Certificate of Designation and Shadow Warrants, respectively, have been duly
authorized and reserved for issuance (subject to the filing of the Charter
Amendment with the Secretary of State of Delaware), are not subject to any
preemptive or similar rights on the part of the holders of any shares of capital
stock or other securities of the Company, and when issued in the manner referred
to in the Certificate of Designation and the Shadow Warrants will be validly
issued, fully paid and nonassessable.
(c) SCHEDULE 2.1(c) sets forth the authorized, issued and
outstanding capital stock of each Subsidiary, including the record ownership
thereof, and the ownership interests of the Company (direct and indirect), in
any other Person. There are no liens on any capital stock of any Subsidiary or
on the Company's ownership interests in any other Person, except as set forth in
SCHEDULE 2.1(c). There are no outstanding rights, options, warrants, conversion
rights or agreements for the purchase or acquisition from the Company or any
Subsidiary of any shares of capital stock of any Subsidiary or any other
securities convertible into or exchangeable for any shares of capital stock of
any Subsidiary, except as set forth in SCHEDULE 2.1(c).
2.2 SUBSIDIARIES.
(a) Schedule 2.2 sets forth the name and jurisdiction of
incorporation or other organization of each Subsidiary. Except for the
Subsidiaries, the Company does not directly or indirectly own any interest in
any other Person.
(b) Each of the Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to own or hold
under lease the property it purports to own or hold under lease, and to carry on
its business as conducted by it.
2.3 QUALIFICATION; ENFORCEABILITY.
(a) Each of the Company and each Subsidiary is duly qualified or
licensed and in good standing as a foreign corporation duly authorized to do
business in each jurisdiction in which the nature of the activities or the
character of the properties owned or leased makes such qualification or
licensing necessary, except for jurisdictions in which the failure to be so
qualified would not have a Material Adverse Effect.
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(b) This Agreement, the Shadow Warrants and the other Exhibits
hereto to which the Company is a party have been (or at the Closing will be, as
the case may be) duly executed and delivered by the Company and, assuming due
execution and delivery by the Purchasers of this Agreement and the Exhibits that
require execution by the Purchasers, constitute (or upon execution and delivery
at the Closing, will constitute) the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect relating to or affecting the enforcement of creditors' rights generally
or by the application of equitable principles (whether such application is
considered in equity or in law).
2.4 BUSINESS AND PROPERTY; FINANCIAL STATEMENTS.
The Company has furnished to each Purchaser a true and complete copy
of the Offering Disclosure Documents (other than the PPM, which was prepared by
the Purchasers, in large part, with information with respect to the Company, its
industry, Signature and the Signature acquisition, provided by or on behalf of
the Company). The Offering Disclosure Documents correctly describe in all
material respects the business and material properties of the Company and its
Subsidiaries and the nature of their operations as of the date thereof. The
Financial Statements included in the Offering Disclosure Documents, were
prepared in accordance with GAAP, applied on a consistent basis throughout the
periods specified, and present fairly in all material respects the financial
position of the Company and its Subsidiaries for the respective periods
specified. Except as specifically described in the Financial Statements
contained in the Offering Disclosure Documents, neither the Company nor any
Subsidiary has as of the date thereof any material liabilities, contingent or
otherwise, which under GAAP are required to be disclosed therein. There has been
no material adverse change in the financial position or condition of the Company
and its Subsidiaries since the date of such Financial Statements.
2.5 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS; NO CONFLICTS, ETC.
(a) Except as set forth in SCHEDULE 2.5, neither the Company nor any
Subsidiary is (i) in violation of any term or provision of its corporate charter
or by-laws or (ii) in violation of or default under (A) any term or provision of
any agreement, indenture, mortgage, instrument, permit or license to which it is
a party or by which it or any of its properties may be bound or affected or (B)
to the Company's knowledge, any existing statute, law, governmental rule,
regulation or ordinance, or any order of any court, arbitrator or Governmental
Body applicable to it or its properties (including, without limitation, any
statute, law, rule, regulation, ordinance or order relating to occupational
health and safety standards, or equal employment practice requirements), the
consequences of which violation or default, either in any one case or taken
together with all other such violations or defaults, (x) could have a Material
Adverse Effect or (y) could materially and adversely affect the ability of the
Company to perform its obligations under this Agreement, the Shadow Warrants or
any other Exhibit to which it is a party.
(b) Except as set forth in SCHEDULE 2.5, neither the execution,
delivery or performance by the Company of this Agreement, the Shadow Warrants
(including, without
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limitation, the issuance of Common Stock upon any exercise or conversion, as the
case may be, of the Series A Preferred Stock or the Shadow Warrants), or any
other Exhibit to which it is a party, nor compliance by the Company with the
respective terms hereof and thereof, as the case may be, will result in (i) any
violation of or be in conflict with or constitute a default under (A) any term
or provision of the corporate charter or by-laws of the Company or any
Subsidiary, (B) any term or provision of any agreement, indenture, mortgage,
instrument, permit or license to which it is a party or by which it or any of
its properties may be bound or affected, or (C) to the Company's knowledge, any
existing statute, law, governmental rule, regulation or ordinance, or any order
of any court, arbitrator or Governmental Body applicable to it or its
properties, or (ii) the creation of (or impose any obligation on the Company or
any Subsidiary to create) any lien upon any of the properties or assets of the
Company or any Subsidiary.
2.6 CONSENTS AND APPROVALS.
Except as set forth on Sechedule 2.6, no consent, approval or
authorization of, or filing or registration with, or the taking of any other
action in respect of, any Governmental Body or any other Person (including any
trustee or holder of any indebtedness, securities or other obligations of the
Company or any Subsidiary) is required (i) for or in connection with the valid
execution and delivery by the Company of, or the performance by the Company of
any obligation under, this Agreement or any Exhibit to which it is a party or
the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the offer, issue, sale and delivery of
the Securities (including without limitation, the issuance of Common Stock upon
any exercise or conversion, as the case may be, of the Series A Preferred Stock
or the Shadow Warrants) or (ii) as a condition to the legality, validity or
enforceability as against the Company of this Agreement or any Exhibit to which
it is a party.
2.7 LITIGATION.
Except as set forth on SCHEDULE 2.7, there are no actions, suits or
proceedings pending (or, to the knowledge of the Company, threatened) against
the Company or any Subsidiary or affecting any of their respective properties in
any court or before any arbitrator of any kind or before or by any Governmental
Body, which (i) question the validity or legality of this Agreement, the Shadow
Warrants or any other Exhibit or any action taken or to be taken pursuant hereto
or thereto or (ii) might result, either in any one case or in the aggregate, in
(A) a material impairment of the ability of the Company to perform its
obligations under this Agreement or any other Exhibit to which it is a party, or
(B) a Material Adverse Effect.
2.8 PRIVATE OFFERING.
Neither the Company, any Subsidiary, nor any other person acting on
behalf of the Company or any Subsidiary has taken, or will take, any action
which would subject the issuance or sale of the Securities (inclusive of the
issuance of shares of Common Stock pursuant to any exercise or conversion, as
the case may be, of the Series A Preferred Stock or the Shadow Warrants) to
Section 5 of the Securities Act or to the registration or qualification
requirements of any securities law of any state.
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2.9 NO DEFAULTS; DEBT, ETC; LIENS.
(a) SCHEDULE 2.9 correctly lists (i) all secured and unsecured
funded debt of the Company and any Subsidiary and (ii) any liens on any assets
of the Company or any Subsidiary, in each case, as of the date hereof. Upon
receipt of any Required Consent, no default or event of default, after giving
effect to the issuance and sale of the Units and the consummation of the other
transactions contemplated by this Agreement and the Exhibits, will exist (or,
but for the waiver thereof, would exist) under any instrument or agreement
evidencing, providing for the issuance or securing of, or otherwise relating to,
any such debt or liens.
(b) There is no pending foreclosure with respect to the Collateral
or any other assets or properties of the Company or any Subsidiary, and as of
the Closing there will not be any pending foreclosure with respect thereto, in
each case, whether pursuant to the Harbin/Murphy Foreclosure Notices or
otherwise.
2.10 FULL DISCLOSURE.
None of this Agreement, any Exhibit, the Offering Disclosure
Documents or any document, certificate or instrument delivered to the Purchasers
by or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by this Agreement as of their respective dates
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which the same were made, not misleading.
2.11 ENVIRONMENTAL MATTERS.
(a) To the Company's knowledge, the Company and the Subsidiaries
hold all Environmental Permits required under all Environmental Laws except to
the extent failure to have any such Environmental Permit has not had and will
not have a Material Adverse Effect.
(b) To the Company's knowledge, the Company and the Subsidiaries
currently are, and at all times heretofore have been, in compliance with all
terms and conditions of all such Environmental Permits and all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in all applicable Environmental
Laws except to the extent failure to comply therewith, in any one case or in the
aggregate, has not had and will not have a Material Adverse Effect.
(c) Neither any of the Company nor any Subsidiary has ever received,
and, to the Company's knowledge, no predecessor in interest of any the Company
and the Subsidiaries has ever received in respect of any of the Company
Premises, from any Governmental Body or other Person any written notice of, and
the Company has no knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans that could
reasonably be expected to interfere with or prevent compliance or continued
compliance in all material respects with the Environmental Permits referred to
in SECTION 2.11(a) or any scheduled renewals thereof or any Environmental Laws,
or that could reasonably be expected to give rise to any liability on the part
of any the Company and the Subsidiaries or otherwise form the basis of
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any claim, action, demand, request, notice, suit, proceeding, hearing, study or
investigation (collectively, "ENVIRONMENTAL CLAIMS") involving any of the
Company and the Subsidiaries based on or related to (i) a violation of any
Environmental Law or (ii) the manufacture, refining, generation, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport,
arranging for transport or handling, or the emission, discharge, release or
threatened release into the environment, of any Hazardous Substance, other than
liabilities or Environmental Claims referred to in this SECTION 2.11(c) that
have not had and will not have, either in any one case or in the aggregate, a
Material Adverse Effect.
(d) To the Company's knowledge, there has not been any civil,
criminal or administrative action, suit, demand, summons, citation, claim,
hearing, notice or demand letter, information request, notice of violation,
judgment, order, lien, investigation, study or proceeding pending or threatened
against any of the Company or the Subsidiaries, or against any predecessor in
interest thereof, in its capacity as such, relating to any such Environmental
Permits or any scheduled renewals thereof or any Environmental Laws that has had
or will have, either in any one case or in the aggregate, a Material Adverse
Effect.
(e) To the Company's knowledge, (i) no part of the Company Premises
or, so far as is known to the Company, the area surrounding the Company Premises
is being used, or has been used at any time in the past, to manufacture,
generate, refine, process, distribute, use, sell, treat, receive, store, dispose
of, transport, arrange for transport of, handle, or conduct any other activity
involving any Hazardous Substance except in a manner that has been in compliance
in all material respects with all applicable Environmental Laws and
Environmental Permits and to an extent that has not had and will not have a
Material Adverse Effect; and (ii) neither the Company nor any Subsidiary is
conducting or has ever conducted any such activities anywhere else except in a
manner that has been in compliance in all material respects with all applicable
Environmental Laws and Environmental Permits and to an extent that has not had
and will not have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally as to himself, represents and warrants as
follows:
3.1 INVESTMENT REPRESENTATION. (a) The Purchaser of the Securities
hereby acknowledges that the Securities (inclusive of any shares of Common Stock
issued upon any exercise or conversion of the Series A Preferred Stock or the
Shadow warrants, as the case may be) are not being registered (i) under the
Securities Act or (ii) under any applicable state securities law; and that the
Company's reliance on the Section 4(2) exemption of the Act and under applicable
state securities laws is predicated in part on the representations hereby made
to the Company in the Agreement.
(b) The Purchaser of the Securities will not sell or transfer all or
any part of the Securities unless and until he shall first have given notice to
the Company describing such sale or
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transfer and, if requested by the Company, furnished to the Company either (a)
an opinion, reasonably satisfactory to counsel for the Company, of counsel
skilled in securities matters (selected by the Purchaser and reasonably
satisfactory to the Company) to the effect that the proposed sale or transfer
may be made without registration under the Act and without registration or
qualification under applicable state law, or (b) an interpretive letter from the
Commission to the effect that no enforcement action will be recommended if the
proposed sale or transfer is made without registration under the Act. The
Purchaser acknowledges that the certificates representing the Common Stock and
Series A Preferred Stock and the Shadow Warrants (and upon any exercise or
conversion of the Series A Preferred Stock or the Shadow Warrants, as the case
may be, the certificates representing the Common Stock) subscribed for hereby
will bear a legend restricting transfer thereof as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ISSUED
PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION OR
QUALIFICATION PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS BASED,
IN PART, ON AN INVESTMENT REPRESENTATION OF THE PART OF THE
PURCHASER THEREOF. THESE SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM."
(c) The Company may refuse to recognize a transfer of the Securities
on its books should a Purchaser attempt to transfer the Securities otherwise
than in compliance with this SECTION 3.1.
(d) The Purchaser has adequate means of providing for his or its
current needs and possible personal contingencies, he or it anticipates no need
now or in the foreseeable future to sell the Securities (or upon any exercise or
conversion of the Series A Preferred Stock or the Shadow Warrants, as the case
may be, the Common Stock) which he or it is purchasing and he or it can afford
the loss of his or its entire investment in the Company.
(e) If an individual, the Purchaser either
(i) has a net worth or joint net worth with spouse which exceeds
$1,000,000; or
(ii) has had an individual income in excess of $200,000 in each of
1995 and 1996 or joint income with spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same income
level in 1997.
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(f) The Purchaser has such knowledge and experience in financial and
business matters that he or it is capable of evaluating the merits and risks of
investment in the Company and of making an informed investment decision.
(g) The Purchaser has received and read and is familiar with the
Offering Disclosure Documents and confirms that all documents, records and books
pertaining to his or its proposed investment in the Company have been made
available to him or it. The Purchaser is aware that no federal or state agency
has passed upon the Securities or made any finding or determination concerning
the fairness of the investment represented thereby.
(h) The Purchaser had an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this investment, and all such questions have been answered to the full
satisfaction of the Purchaser. The Purchaser understands that no person other
than the Company has been authorized to make any representation or warranty
other than as contained herein (inclusive of the Exhibits hereto) or in the
Offering Disclosure Documents and, if made, such representation may not be
relied on unless it is made in writing and signed by the Company. The Company
has not rendered any investment or tax advice to the Purchaser with respect to
the suitability of an investment in the Securities or the tax consequences
thereof. The Company has urged each Purchaser to consult his or its own tax
adviser concerning any tax matters relating to this investment.
(i) The Securities (inclusive of any shares of Common Stock issued
upon any exercise or conversion of the Series A Preferred Stock or the Shadow
Warrants) which Purchaser is acquiring will be acquired for his or its own
account for investment. The Purchaser intends to hold the Securities (inclusive
of any shares of Common Stock issued upon any exercise or conversion of the
Series A Preferred Stock or the Shadow Warrants) indefinitely and he or it is
not purchasing such securities with a view toward distribution in a manner which
would require registration under the Securities Act, and he or it does not
presently have any reasons to anticipate any change in his or its circumstances
or other particular occasion or event which would cause him or it to sell, the
Securities (inclusive of any shares of Common Stock issued upon any exercise or
conversion of the Series A Preferred Stock or the Shadow Warrants) which he or
it is purchasing hereunder, subject, nevertheless, to any requirement of law
that the disposition of his or its property shall at all times be within his or
its control.
(j) The Purchaser acknowledges that it has been called to his or its
attention both in the Offering Disclosure Documents and by those individuals
with whom he has dealt in connection with his investment in the Company that his
or its investment in the Company involves a high degree of risk.
(k) The Purchaser has received no representations or warranties from
the Company other than those contained herein (inclusive of the Exhibits hereto)
or in the Offering Disclosure Documents or otherwise furnished in writing and
signed by the Company.
3.2 ORGANIZATION AND AUTHORITY OF BLACKHAWK; NO CONFLICTS;
APPROVALS; ENFORCEABILITY. (a) Blackhawk is a limited liability company
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority
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to enter into this Agreement, to perform its obligations under this Agreement
and the other Exhibits to which it is or is to be a party and to consummate the
transactions contemplated hereby and thereby. Blackhawk has by all requisite
limited liability company action as required by law and its governing
instruments duly authorized the execution and delivery of this Agreement and the
other Exhibits to which it is or is to be a party, the performance of its
obligations hereunder or thereunder and the consummation of the transactions
contemplated hereby and thereby.
(b) Blackhawk is not in violation of or in default with respect to
any term or provision of its organizational documents or any terms or provision
of any agreement, indenture, mortgage, instrument, permit or license to which it
is a party or by which it or any of its properties may be bound or affected or
any existing statute, law, governmental rule, regulation or ordinance, or any
order of any court the consequences of such violation or default would conflict
with this Agreement or any Exhibit to which Blackhawk is or is to be a party or
adversely affect the ability of Blackhawk to perform its obligations hereunder
or thereunder.
(c) No approval by, from or with, and not other action, in respect
of, any Governmental Body or any other Person is required in connection with the
execution and delivery of this Agreement or any Exhibit to which Blackhawk is or
will be a party and the consummation of the transactions contemplated hereby and
thereby.
(d) This Agreement has been duly executed and delivered by Blackhawk
and is a legal, valid and binding obligation of Blackhawk, enforceable against
Blackhawk in accordance with its terms and conditions, except to the extent that
its enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally and by general equity principles (regardless of whether such
enforceability is considered in a proceeding a law or in equity).
ARTICLE IV
COVENANTS
The Company, so long as at least 10% of either the Series A
Preferred Stock or the Common Stock is owned by the Purchasers, agrees to
perform and comply with each of the following covenants.
4.1 FINANCIAL STATEMENTS; INFORMATION.
The Company shall furnish to each Purchaser the following:
(a) FINANCIAL INFORMATION. The Company shall send, or cause to be
sent, to each Purchaser (i) its consolidated audited annual financial
statements, fairly and accurately presenting in all material respects the
financial condition and the results of operations and cash flows of the Company
and its Subsidiaries, prepared in accordance with GAAP, as soon as is
practicable after the same have been issued but in any case within ninety days
of the end of its fiscal year, together with the report thereon by independent
public auditors as may be acceptable to the Majority-in-Interest, (ii) its
unaudited quarterly consolidated financial statements, of each of
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the first three fiscal quarters of its fiscal year, fairly and accurately
presenting in all material respects the financial condition and the results of
operations and cash flows of the Company and its Subsidiaries, prepared in
accordance with GAAP, as soon as is practicable after the end of each fiscal
quarter but in any case within forty-five days of the end of its fiscal
quarters, certified by its duly authorized chief financial officer, (iii) a copy
of any monthly financial report or statement of the Company and/or any of its
Subsidiaries as may be prepared by or for the directors of such company or for
any other Person, as soon as same is available, and (iv) such financial or other
information relating to the Company and its Subsidiaries or any of the
transactions contemplated by this Agreement or any Exhibit to which the Company
is a party, as may be reasonably requested by a Majority-in-Interest of the
Purchasers.
(b) INFORMATION DELIVERED TO CREDITORS. Concurrently with the
furnishing thereof, copies of any statements, reports or documents relating to
the business or condition generally of the Company or any Subsidiary which are
furnished by the Company or any Subsidiary to any other holder of funded debt of
the Company or Subsidiary, or any notices which are so furnished, in each case
pursuant to the terms of any indenture, loan, credit or similar agreement and
not otherwise required to be furnished pursuant to any other clause of this
SECTION 4.1
(c) COMMISSION AND OTHER REPORTS. Promptly upon their becoming
available (and in any event within five Business Days thereafter), copies of (i)
all financial statements, reports, notices, proxy statements and other
information sent or made available generally by the Company to any class of its
security holders (in their capacity as such) or by any Subsidiary to any class
of its security holders other than the Company or another Subsidiary, (ii) all
regular and periodic reports and all registration statements, forms and
prospectuses filed by the Company or any of its Subsidiaries with any securities
exchange or with the Commission, and (iii) all press releases and other
statements made available generally by the Company or any of its Subsidiaries to
the public concerning material developments in the business of the Company or
any of its Subsidiaries.
(d) DEFAULTS, ETC. Promptly upon and in any event within five
Business Days after any officer of the Company obtaining knowledge of any
condition or event which constitutes a default or an event of default under any
agreement with respect to any debt for borrowed money in excess of $100,000 of
the Company or any Subsidiary or becoming aware that any person has given any
notice to the Company or any of its Subsidiaries or taken any other action with
respect to a claimed default under or in respect of any debt for borrowed money
in excess of $100,000 or with respect to the occurrence or existence of any
event or condition of such type, written notice in reasonable detail specifying
the facts and circumstances of such condition, event or action.
(e) LITIGATION, ETC. Promptly and in any event within five Business
Days after any officer of the Company obtains knowledge of any litigation,
administrative proceeding or judgment (i) affecting the Company or any of its
Subsidiaries which involves claims against the Company or its Subsidiaries
aggregating, when taken together with all other such litigation, proceedings and
judgments, $100,000 which are not considered by the Company, in its reasonable
judgment, to be covered by insurance, or (ii) relating in any material way to
this Agreement, the Shadow Warrants or any other Exhibit to which the Company is
a party, notice thereof specifying
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in each case in reasonable detail the facts and circumstances surrounding such
litigation, proceeding or judgment.
4.2 CORPORATE EXISTENCE.
The Company will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence.
4.3 COMPLIANCE WITH LAWS; GOVERNMENT FILINGS.
The Company shall, and shall cause each of its Subsidiaries to,
comply in all material respects with all laws, statutes, rules, regulations and
ordinances and all orders of, and restrictions imposed by, any court, arbitrator
or Governmental Body in respect of the conduct of the business of the Company or
Subsidiary and the ownership of the properties of the Company or Subsidiary
(including, without limitation, applicable laws, statutes, rules, regulations,
ordinances and orders relating to occupational health and safety standards,
consumer protection and equal employment opportunities), except to the extent
that the applicability or validity of any such law, statute, rule, regulation,
ordinance or order is being contested in good faith by appropriate and timely
actions or proceedings diligently pursued, and for which such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made.
4.4 ENVIRONMENTAL MATTERS.
(a) The Company shall, and shall cause each of its Subsidiaries to,
(i) obtain and maintain in full force and affect all Environmental Permits that
may be required from time to time in order for the Company and such Subsidiary
to comply in all material respects with all Environmental Laws applicable to the
Company or such Subsidiaries and (ii) be and remain in compliance in all
material respects with all terms and conditions of all such Environmental
Permits and with all other limitations, restrictions, conditions, standards,
prohibitions, require ments, obligations, schedules and timetables contained in
all applicable Environmental Laws.
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, (i) cause or allow (A) any Hazardous Substance to be present at
any time on, in, under or above the Company Premises or any part thereof or (B)
the Company Premises or any part thereof to be used at any time to manufacture,
generate, refine, process, distribute, use, sell, treat, receive, store, dispose
of, transport, arrange for transport of, handle, or be involved in any other
activity involving, any Hazardous Substance, or (ii) conduct any such activities
described in the foregoing clause (i) on the Company Premises or anywhere else,
except, in each case referred to in the foregoing clauses (i) and (ii), in a
manner that is in compliance in all material respects with all applicable
Environmental Laws and Environmental Permits or to an extent that will not have
a Material Adverse Effect.
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ARTICLE V
CERTAIN OTHER COVENANTS
5.1 APPROVAL AND FILING OF CHARTER AMENDMENT. In accordance with a
covenant contained in the Certificate of Designation, the Company shall use its
best efforts to cause an amendment to its certificate of incorporation to
increase the number of authorized shares of its Common Stock from 15,000,000
shares to 100,000,000 shares (the "Charter Amendment") to be approved by its
stockholders as soon as possible following the Closing and to file such Charter
Amendment with the Secretary of State of Delaware promptly following the receipt
of such stockholder approval.
5.2 REPAYMENT OF DEBT AND REMOVAL OF LIENS. The Company covenants
and agrees to use the proceeds of the sale of the Securities as provided in
SCHEDULE 1.5, including without limitation, the repayment in full of the
Harbin/Murphy Notes and the I/O Note as promptly as practicable following the
Closing hereof. In connection therewith, the Company shall condition the
repayment of such notes upon the execution and delivery to the Company by the
holders thereof of such documents, instruments and certificates as shall be
required to evidence the release and termination of all liens and security
interests granted by the Company and its Subsidiaries in favor of the holders
thereof or their agents, which documents, instruments and certificates shall be
in form and substance (including recordable form, with respect to liens of
record) sufficient to evidence the release and termination of such security
interests, and the Company shall file or record any such documents, instruments
or certificates as promptly as possible following the Closing.
ARTICLE VI
MISCELLANEOUS
6.1 EXPENSES.
Whether or not the transactions contemplated by Article I hereof are
consummated, the Company shall: (a) directly pay the reasonable fees and
expenses of special counsel to the Purchasers rendered in connection with such
transactions or in connection with any actual or proposed amendment, waiver or
consent pursuant to the provisions hereof, and all other expenses in connection
with the foregoing (including, without limitation, document production and
reproduction expenses); (b) reimburse each Purchaser for his reasonable
out-of-pocket expenses in connection with each such actual or proposed
amendment, waiver or consent pursuant to the provisions of this Agreement, and
any items of the character referred to in clause (a) which shall have been paid
by any Purchaser; (c) pay, and save each Purchaser of any Securities harmless
from and against, any and all liability and loss with respect to or resulting
from the nonpayment or delayed payment of any and all placement fees and other
liability to pay any agent or finder in connection with the sale of the
Securities to each Purchaser; (d) pay all fees and other charges payable in
connection with the filings, recordings and registrations contemplated by this
Agreement or any other Exhibit; and (e) pay all documentary, stamp or similar
taxes
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<PAGE>
(including interest and penalties) which may be payable in respect of the
execution and delivery or issuance (but not the transfer) of any of the
Securities or of any amendment of, or waiver or consent under or with respect
to, this Agreement, any of the Securities or any other Exhibit and save each
Purchaser of the Securities harmless against each Purchaser any loss or
liability resulting from nonpayment or delay in payment of any such tax.
6.2 RELIANCE ON AND SURVIVAL OF REPRESENTATIONS.
All agreements, covenants, representations and warranties of the
Company herein or of (or on behalf of) the Company in any Exhibit or in any
certificate or other instrument delivered pursuant hereto or thereto shall: (a)
be deemed to be material and to have been relied upon by each Purchaser,
notwithstanding any investigation heretofore or hereafter made by each Purchaser
or on his or its behalf, and (b) survive the execution and delivery of this
Agreement and the execution and delivery of the Securities to each Purchaser and
any investigation made at any time by him or it or on his or its behalf or any
disposition of any of the Securities, until the expiration of any applicable
statute of limitations.
6.3 AMENDMENT AND WAIVER.
(a) Any term, provision, covenant, agreement or condition of this
Agreement, the Shadow Warrants or any other Exhibit hereto may, with the written
consent of the Company, be amended or modified, or compliance therewith may be
waived (either generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Purchasers.
6.4 SHADOW WARRANT REGISTER.
(a) The Shadow Warrants shall be issued in registered form only. The
Company shall keep a register (the "SHADOW WARRANT REGISTER") in which provision
shall be made for the registration of the Shadow Warrants and the registration
of transfers of the Shadow Warrants. Such Register shall be kept at the
principal office of the Company and the Company is hereby appointed "SHADOW
WARRANT REGISTRAR" for the purpose of registering the Shadow Warrants and
transfers of the Shadow Warrants. Subject to compliance with the provisions of
SECTION 3.1 hereof by a transferee, upon surrender for registration of transfer
of any Shadow Warrant at the principal office of the Company and compliance with
the provisions of SECTION 3.1, if applicable, the Company shall execute and
deliver, in the name of the designated transferee, a new Shadow Warrant of a
like amount and kind. The Company shall treat the individual or entity in whose
name each Shadow Warrant is registered on the Shadow Warrant Register as the
sole and absolute owner thereof, notwithstanding any contrary notice.
(b) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of any Shadow Warrant and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of a Shadow Warrant, if mutilated, the Company
will make and deliver a new Shadow Warrant of like tenor in lieu of such lost,
stolen, destroyed or mutilated Shadow Warrant.
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<PAGE>
6.5 DIRECTLY OR INDIRECTLY.
Where any provision of this Agreement refers to actions to be taken
by any person, or which such person is prohibited from taking, such provision
shall be applicable whether the action in question is taken directly or
indirectly by such person.
6.6 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by or on behalf of
the respective parties hereto shall bind and inure to the benefit of their
respective successors and, in the case of any Holder of a Shadow Warrant,
registered assigns. The provisions of this Agreement are intended to be for the
benefit of all Holders from time to time of the Series A Preferred Stock, and
shall be enforceable by any such Holder, whether or not an express assignment to
such Holder of rights under this Agreement has been made by the Purchaser or his
successors or assigns.
6.7 NOTICES.
Unless otherwise expressly provided in this Agreement, all notices,
opinions and other communications provided for in this Agreement shall be in
writing and delivered by hand or mailed, first class postage prepaid, return
receipt requested or sent by overnight courier, or by confirmed telefax
transmission (confirmed by hand-delivered, mailed or overnight courier copy)
addressed (a) if to the Company, to the Company at Marathon Oil Tower, 5555 San
Felipe, Suite 780, Houston, Texas 77056 (with a copy sent by telefax
transmission to it at (713) 850-7330), marked to the attention of the President,
with a copy to Chamberlain, Hrdlicka, White, Williams & Martin, 1400 Two Allen
Center, 1200 Smith Street, Houston, Texas 77002-4310, telecopy number (713)
658-2553, to the attention of James J. Spring, III, Esq., or at such other
address as the Company may hereafter designate by notice to each Purchaser of
Securities or each Holder of Series A Preferred Stock or Shadow Warrants at the
time outstanding, or (b) if to the Purchasers, at the address of each Purchaser
as set forth in SCHEDULE 1.1 or at such other address as such Purchaser may
hereafter designate by notice to the Company, or (c) if to any other Holder of
any Series A Preferred Stock or Shadow Warrant, at the address of such Holder as
it appears on the Series A Preferred Stock Register or the Shadow Warrant
Register, as the case may be.
6.8 LAW GOVERNING.
THIS AGREEMENT AND THE SHADOW WARRANTS AND ALL AMENDMENTS,
SUPPLEMENTS, MODIFICATIONS, WAIVERS AND CONSENTS RELATING HERETO OR THERETO
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE
STATE OF NEW YORK.
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6.9 SUBMISSION TO JURISDICTION; SERVICE OF PROCESS .
(a) THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND
IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT,
THE SHADOW WARRANTS OR ANY OTHER EXHIBIT MAY BE LITIGATED IN SUCH COURTS, AND
THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT.
(b) In relation to any dispute arising out of or in connection with
this Agreement or any Exhibit, and for the exclusive benefit of the Purchasers
and any Holders, the Company irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the United States District Court for the Southern
District of New York, and to the non-exclusive jurisdiction of any court of the
State of New York located in the City and County of New York, for the purposes
of any suit, action or other proceeding arising out of, or relating to, this
Agreement or any Exhibit or any of the transactions contemplated hereby or
thereby, and hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, that it is not personally subject to the jurisdiction of
the above named courts for any reason whatsoever, that such suit, action or
proceeding is brought in an inconvenient forum, or that the venue of such suit,
action or proceeding is improper, or that this Agreement or any Exhibit or the
subject matter hereof may not be enforced in or by such courts. The Company
hereby agrees that process against it may be served by mail or delivery of
service of process in any of the aforementioned action, suits or proceedings to
CT Corporation System, 1633 Broadway, New York, New York 10019 (such agent being
hereinafter called the "Process Agent"), which the Company hereby irrevocably
designates and appoints as its attorney-in-fact to receive service of process in
any action, suit or proceeding with respect to any matter as to which it submits
to jurisdiction as set forth above, it being agreed that service to such office
or upon such agent shall constitute valid service upon the Company. The Company
hereby directs the Process Agent to receive and accept all process on its
behalf. The Company shall promptly notify the Purchasers of any change in the
address of the Process Agent and may, with prior notice given to Holders,
appoint a successor Process Agent; PROVIDED, HOWEVER, that if the Process Agent
shall at any time cease to exist or its agency shall for any reason cease, the
Company shall designate forthwith a successor Process Agent in the County and
State of New York and shall give prompt notice of such designation to the
Holders, together with evidence of the acceptance of any such appointment. The
Company agrees irrevocably to the service of process of any of the
aforementioned courts in any suit, action or proceeding described above by
mailing of copies of such process to the Company at its address specified in
SECTION 6.7 hereof. Nothing herein shall preclude service of process in any
other manner permitted by applicable law or prohibit any Holder from commencing
legal proceedings against the Company or any of its properties in any other
jurisdiction.
6.10 HEADINGS, ETC.
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The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning or construction of any of
the terms hereof. Unless otherwise specified, any reference in this Agreement to
a particular section, clause or other subdivision, or a particular schedule or
exhibit, shall be considered a reference to that section, clause or other
subdivision of, or to that schedule or exhibit to, this Agreement.
6.11 ENTIRE AGREEMENT.
This Agreement (inclusive of the Exhibits hereto) embodies the
entire agreement and understanding among the Company and the Purchasers and
supersedes all prior agreements and understandings among such parties relating
to the subject matter hereof.
6.12 WAIVER OF TRIAL BY JURY.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
PARTIES HERETO IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY EXHIBIT HERETO OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE PURCHASERS
IN THE NEGOTIATION OR ENFORCEMENT HEREOF OR THEREOF.
6.13 INDEMNIFICATION.
In consideration of the execution and delivery of this Agreement by
each Purchaser, the Company hereby agrees to indemnify, defend and hold each
Purchaser and the Managing Member and each partner of the Managing Member and
the employees and agents thereof, and each Holder from time to time of any
Series A Preferred Stock or Shadow Warrant (herein called the "INDEMNITEES"),
free and harmless from and against any and all claims, actions, causes of
action, suits or other proceedings (whether or not any such Indemnitee is a
party thereto), losses, liabilities and damages, and expenses in connection
therewith, including, without limitation, fees and disbursements of counsel,
consultants and experts and claims relating to personal injury or property
damage (herein called the "INDEMNIFIED LIABILITIES", which term shall not
include, however, in respect of any particular Indemnitee, liabilities incurred
by reason of the gross negligence or willful misconduct of such Indemnitee)
incurred by the Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any transaction financed or to be financed in whole or in part
directly or indirectly with proceeds from the sale of any Securities, or (b) the
execution, delivery, performance or enforcement of this Agreement, the Shadow
Warrants or any other Exhibit, or the consummation of any of the transactions
contemplated hereby or thereby or (c) any failure of any representation or
warranty set forth in SECTION 2.11 to be true and correct when made or any
failure by the Company to comply with any of its covenants or agreements set
forth in SECTION 4.4 or any liability of the Company arising pursuant to
Environmental Laws. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment of each of the Indemnified Liabilities which is
permissible under applicable law. The provisions of, and obligations of the
Company under, this SECTION 6.13 shall survive the execution and delivery of
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this Agreement, the enforcement of any provision hereof, the consummation of the
transactions to occur on the Closing Date, and any amendments or waivers, and
shall be enforceable by each Indemnitee separately or together; and any such
Indemnitee seeking to enforce the indemnification provided for hereunder may
initially proceed directly against the Company without first resorting to any
other rights of indemnification or otherwise that it may have.
6.14 INTERPRETIVE PROVISION.
Wherever any representation, warranty or other statement made by the
Company in this Agreement is limited to the Company's knowledge, such limitation
shall mean the actual knowledge or awareness of any person who, on the date
hereof, is an executive officer or director of the Company after due inquiry of
the circumstances thereof.
6.15 SEVERABILITY.
Any provision of this Agreement which shall be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or enforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
6.16 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
6.17 FINDER'S FEE.
(a) The Company represents and warrants that it has not incurred any
obligation or liability to any broker or finder for any fee or payment with
respect to the offering or sale of the Securities and agrees to indemnify and
hold the Purchasers harmless against any claims or liabilities asserted against
them by any person acting or claiming to act as a broker or finder on behalf of
the Company or any Subsidiary.
(b) Each Purchaser represents and warrants that it has not incurred
any obligation or liability to any broker or finder for any fee or payment with
respect to the offering or sale of the Securities and agrees to indemnify and
hold the Company harmless against any claims or liabilities asserted against
them by any person acting or claiming to act as a broker or finder on behalf of
such Purchaser.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first before written.
COMPANY:
GEOKINETICS INC.
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<PAGE>
By: /s/ JAY D. HABER
Name: Jay D. Haber
Title: President
PURCHASERS:
BLACKHAWK INVESTORS, L.L.C.
By: Blackhawk Capital Partners, Managing Member
By: /s/ WILLIAM R. ZIEGLER
Name: William R. Ziegler
Title: Partner
/s/ STEVEN A. WEBSTER
Steven A. Webster, Individually
/s/ WILLIAM R. ZIEGLER
William R. Ziegler, Individually
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<PAGE>
APPENDIX I
DEFINITIONS
As used in this Agreement the following terms shall have the
meanings ascribed thereto:
"AGREEMENT" means this agreement, as it may be amended from time to
time, including all schedules and exhibits thereto.
"BLACKHAWK PURCHASE PRICE" has the meaning set forth in SECTION 1.2.
"BLACKHAWK SHADOW WARRANT" has the meaning set forth in SECTION 1.1.
"BRIDGE LOAN SECURITIES PURCHASE AGREEMENT" means that certain
Securities Purchase Agreement dated as of April 25, 1997 between the Company and
the Holders.
"BUSINESS DAY" means any day other than a Saturday, Sunday or any
other day on which commercial banks are required or authorized by law or
regulation to be closed in New York, New York.
"CASH PAYMENT" has the meaning set forth in SECTION 1.2.
"CERTIFICATE OF DESIGNATION" has the meaning set forth in SECTION
1.1.
"CHARTER AMENDMENT" has the meaning set forth in SECTION 5.1.
"CLOSING" has the meaning set forth in SECTION 1.4.
"COLLATERAL" means the rights and interests of the Company and
Subsidiary Obligors in to the property and assets of the Company and the
Subsidiary Obligors described and as set forth in Schedule 2.8 to the Bridge
Loan Securities Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission or any
other United States agency at the time administering the Securities Act.
"COMMON STOCK" means common stock of the Company having a par value
of $.20 per share.
"COMPANY" means Geokinetics Inc., a Delaware corporation.
"COMPANY PREMISES" means real property in which (a) the Company, (b)
any Subsidiary of any person referred to in clause (a) of this definition or (c)
any person which has at any time been a Subsidiary of any person referred to in
clause (a) of this definition at any time has or ever had any direct or indirect
interest, including, without limitation, ownership thereof, or any
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<PAGE>
arrangement for the lease, rental or other use thereof, or the retention or
claim of any mortgage or security interest therein or thereon.
"CONSULTING AND ENGAGEMENT AGREEMENT" means that certain consulting
and engagement agreement dated as of April 25, 1997 between the Company and one
of the Holders.
"DEEDS OF TRUST" means those certain deeds of trust of GPC and HOC
in favor of the Holders, each dated as of April 25, 1997, each executed,
delivered and recorded in accordance with the terms of the Bridge Loan
Securities Purchase Agreement.
"ENVIRONMENTAL CLAIMS" has the meaning set forth in SECTION 2.12(c).
"ENVIRONMENTAL LAW" any past, present or future Federal, state,
local or foreign statutory or common law, or any regulation, ordinance, code,
plan, Order, permit, grant, franchise, concession, restriction or agreement
issued, entered, promulgated or approved thereunder, relating to (a) the
environment, human health or safety, including, without limitation, emissions,
discharges, releases or threatened releases of Hazardous Substances into the
environment (including, without limitation, air, surface water, groundwater or
land), or (b) the manufacture, generation, refining, processing, distribution,
use, sale, treatment, receipt, storage, disposal, transport, arranging for
transport, or handling of Hazardous Substances,
"ENVIRONMENTAL PERMIT" means any and all permits, consents,
licenses, approvals and registrations of any nature at any time required
pursuant to or in order to comply with any Environmental Law.
"EXHIBIT" means any of the exhibits to this Agreement, including
such exhibits as executed and delivered pursuant to the terms of this Agreement.
"FINANCIAL STATEMENTS" means (i) the (A) condensed statements of
financial position of the Company and the Subsidiaries as of March 31, 1997 and
December 31, 1996, and (B) the condensed statements of operations of the Company
and the Subsidiaries for the three months ended March 31, 1997 and 1996 and (C)
condensed statement of cash flow of the Company and the Subsidiaries for the
three months ended March 31, 1997 and 1996, in each case, together with the
notes thereto, and as set forth in the Form 10-QSB of the Company for the
Quarter Ended March 31, 1997, and (ii) the unaudited consolidated balance sheet
of the Company and the Subsidiaries as of May 31, 1997, and the unaudited
consolidated statement of operations of the Company and the Subsidiaries for the
five month period ended May 31, 1997, in each case, together with the notes
thereto.
"GAAP" means generally accepted accounting principles as from time
to time set forth in the opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such opinions and statements of such
other entities as shall be approved by a significant segment of the accounting
profession in the United States of America.
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<PAGE>
"GECO-PRAKLA LETTER" means that certain letter dated June 25, 1997
from Jeffrey W. Imber, Project Manager TZ-NEPS Department, Geco-Prakla,
addressed To Whom It May Concern with respect to the terms of Weeks project job
awarded by Geco-Prakla to Signature.
"GOVERNMENTAL BODY" means any Federal, state, municipal, local or
other governmental department, commission, board, bureau, agency,
instrumentality, political subdivision or taxing authority of any country.
"GPC" means Geokinetics Production Co., Inc., a Texas corporation
that is a Subsidiary Obligor.
"HARBIN/MURPHY ENTITIES" means Elinor T. Harbin, Elinor T. Harbin
Trust, Richard W. Harbin, William H. Murphy and Michael A. Kimmel.
"HARBIN/MURPHY NOTES" means those certain promissory notes of the
Company, in the aggregate principal amount of $701,001.85, payable to the
Harbin/Murphy Entities.
"HAZARDOUS SUBSTANCES" collectively, contaminants; pollutants; toxic
or hazardous chemicals, substances, materials, wastes and constituents;
petroleum products; polychlorinated biphenyls; medical wastes; infectious
wastes; asbestos; paint containing lead; and urea formaldehyde.
"HOC" means HOC Operating Co., Inc., a Texas corporation that is a
Subsidiary Obligor.
"HOLDER" means initially a Purchaser and thereafter such person who
from time to time is the registered Holder of any shares of Series A Preferred
Stock or any Shadow Warrant, as the case may be, or a Holder of either.
"HOLDERS' PURCHASE PRICE" has the meaning set forth in SECTION 1.3.
"HOLDERS' SHADOW WARRANTS" has the meaning set forth in SECTION 1.1.
"INDEMNIFIED LIABILITIES" has the meaning set forth in SECTION 6.13.
"INDEMNITEES" has the meaning set forth in SECTION 6.13.
"I/O EXTENSION AGREEMENT" means that certain agreement dated April
9, 1997 between Input/Output, Inc. and the Company, providing for an extension
of the maturity or other due date of the current outstanding principal amount of
the I/O Note issued by the Company in favor of Input/Output, Inc. until the
earlier of October 1, 1997 or the closing date of any financing of the Company
(excluding the Senior Note financing) or change in control of the Company,
provided that the Company make six monthly payments totaling $14,722.18
representing repayment of interest owing on the I/O Note, commencing on the
execution date of an amended note.
"I/O NOTE" means that certain promissory note of the Company payable
to Input/Output, Inc. in the original principal amount of $300,000, as amended.
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"MAJORITY-IN-INTEREST" means the Holders of at least 50.1% of the
Common Stock (assuming the conversion of the Series A Preferred Stock into
shares of Common Stock) purchased hereunder.
"MANAGING MEMBER" means Blackhawk Capital Partners, a Texas general
partnership and the managing member of Blackhawk.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which is
material and adverse to the financial condition or business operations or
prospects of the Company and its Subsidiaries, taken as a whole.
"MATERIAL CONTRACT" means any contract of the Company or any
Subsidiary with any Person that is presently in effect and (i) that either (A)
accounted for 10 percent or more of the annual revenues of the Company or any
Subsidiary during any of the past three fiscal years or (B) is expected to
account for 10 percent or more of the annual revenues of the Company or any
Subsidiary during the present fiscal year or (ii) the expiration or termination
of which would have a Material Adverse Effect.
"MONITORING AGREEMENT" means that certain Monitoring Agreement to be
entered into between the Company and the Managing Member, in the form of EXHIBIT
"E" attached hereto.
"OFFERING DISCLOSURE DOCUMENTS" means (i) the Annual Report on Form
10-KSB of the Company for the year ended December 31, 1996, and the Form 10-QSB
of the Company for the Quarter Ended March 31, 1997, in each case, as filed with
the Commission, (ii) the Financial Statements and (iii) that certain
Confidential Private Placement Memorandum of Blackhawk dated June 25, 1997, but
only to the extent of the information provided or supplied to Blackhawk or its
counsel by or on behalf of the Company.
"OPINION OF COMPANY COUNSEL" means the legal opinion of Chamberlain,
Hrdlicka, White, Williams & Martin, counsel for the Company, in favor of the
Purchasers, in the form of EXHIBIT "F" hereto
"PERSON" means a corporation, a partnership, an organization or
business, an individual, a government or political subdivision thereof or
governmental agency.
"PERSONAL PROPERTY SECURITY AGREEMENT" means that certain security
agreement dated as of April 25, 1997 of the Company and the Subsidiary Obligors
in favor of the Holders, executed and delivered pursuant to the Bridge Loan
Securities Purchase Agreement.
"PLEDGE AGREEMENT" means that certain pledge agreement of the
Company in favor of the Holders dated as of April 25, 1997 with respect to all
of the capital stock of the Subsidiaries owned by the Company, , executed and
delivered pursuant to the Bridge Loan Securities Purchase Agreement.
"PREFERRED STOCK CHARTER AMENDMENT" means that certain charter
amendment that was approved by the stockholders of the Company at its last
annual meeting of stockholders
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<PAGE>
providing for the increase in the authorized capital stock of the Company to
consist of (A) 15,000,000 shares of Common Stock and (B) 2,500,000 shares of
series preferred stock, par value $10 per share (the "Preferred Stock").
"PURCHASER" means a person set forth on SCHEDULE 1.1 with respect to
that number of Securities set forth opposite his or its name and a person who
executes and delivers a counterpart signature page to this Agreement, and
Purchasers means two or more Purchasers.
"REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement to be entered into between the Company and the Purchasers in
the form of EXHIBIT "D" hereto.
"SECURITIES" has the meaning set forth in SECTION 1.4.
"SECURITIES ACT" means the Securities Act of 1933, or any similar
United States statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SECURITY AGREEMENTS" means (i) the Pledge Agreement, (ii) the Deeds
of Trust and (iii) the Personal Property Security Agreement.
"SENIOR NOTES" means those certain 12% Senior Secured Promissory
Notes of the Company and the Subsidiary Obligors, in the aggregate principal
amount of $500,000, executed and delivered pursuant to the Bridge Loan
Securities Purchase Agreement.
"SERIES A PREFERRED STOCK" means that series of Preferred Stock of
the Company created and designated pursuant to the Certificate of Designation of
Series A Convertible Preferred Stock of the Company, in the form of EXHIBIT "A"
attached hereto.
"SHADOW WARRANTS" collectively means the Blackhawk Shadow Warrant
and the Holders' Shadow Warrants, and individually means any of such Shadow
Warrants, in each case, issued by the Company pursuant to the terms hereof in
the form of EXHIBIT "B" attached hereto.
"SHADOW WARRANT REGISTER" has the meaning set forth in SECTION 6.4.
"SUBORDINATION AGREEMENT" means that certain subordination agreement
dated as of April 25, 1997 executed and delivered pursuant to the terms of the
Bridge Loan Securities Purchase Agreement.
"SUBSIDIARY" means any corporation or other legal entity 50% or more
of the voting stock of which is owned by the Company or another Subsidiary of
the Company. For these purposes voting stock means the capital stock or other
form of ownership which ordinarily, in the absence of contingencies, entitles
the holder to elect corporate directors or persons performing similar functions.
For purposes of the covenants contained in Article IV hereof, Subsidiary
generally includes any corporation or other legal entity in which the Company or
any other Subsidiary of the Company hereafter acquires 50% or more of the voting
stock, and specifically includes Signature.
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<PAGE>
"SUBSIDIARY OBLIGOR" means: (i) each of the existing Subsidiaries of
the Company other than Quantum Geophysical, Inc.; and (ii) any Subsidiary
hereafter formed or acquired by the Company, either directly or through one or
more other Subsidiaries.
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<PAGE>
SCHEDULE 1.1
PURCHASERS
Name, Address, Telefax No. No. Shares No. Shares No. Shadow
and Tax Identification No. Common Preferred Warrant
of Purchaser Stock Stock Shares
- -------------------------------------- ----------- ----------- -----------
Blackhawk Investors, L.L.C ........... 5,041,667 171,875 6,512,095
1013 Centre Road
Wilmington, Delaware 19805-1297
Steven A. Webster .................... 229,166 7,812 296,005
c/o Falcon Drilling Company, Inc.
1900 West Loop South, Suite 1800
Houston, Texas 77027
Telefax No.: (713) 623-8103
William R. Ziegler ................... 229,167 7,813 296,004
c/o Parson & Brown
666 Third Avenue, 9th Floor
New York, New York 10017
Telefax No.: (212) 682-9112
<PAGE>
SCHEDULE 1.5
USE OF PROCEEDS
See Attached.
<PAGE>
SCHEDULE 2.2
SUBSIDIARIES
See Attached.
<PAGE>
SCHEDULE 2.5
NONCONTRAVENTION
See Attached.
<PAGE>
SCHEDULE 2.7
LITIGATION
See Attached.
<PAGE>
SCHEDULE 2.9
DEBTS; LIENS
See Attached.
<PAGE>
SCHEDULES
Schedule 1.1 Purchasers
Schedule 1.5 Use of Proceeds
Schedule 2.1(b) Capitalization of the Company
Schedule 2.1(c) Capitalization of the Subsidiaries
Schedule 2.2 Subsidiaries
Schedule 2.4 Change in Financial Condition
Schedule 2.5 Compliance with Laws, Other Instruments; No Conflicts, etc
Schedule 2.6 Consents and Approvals
Schedule 2.7 Litigation
Schedule 2.9 Debts; Liens
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
AMONG
GEOKINETICS INC.
AND
GALLANT ENERGY, INC.
AND
SIGNATURE GEOPHYSICAL SERVICES, INC.
JUNE ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
GENERAL................................................................1
1.1 DEFINITIONS......................................................1
1.2 AGREEMENT TO PURCHASE AND SELL ACQUIRED SHARES...................5
1.3 PURCHASE PRICE...................................................5
1.4 EMPLOYMENT AGREEMENT.............................................5
1.5 THE CLOSING......................................................5
1.6 ADDITIONAL EQUITY FINANCING......................................6
1.7 EMPLOYEES........................................................6
1.8 DELIVERIES AT THE CLOSING........................................6
ARTICLE II.
REPRESENTATIONS AND WARRANTIES.........................................6
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................6
(a) AUTHORIZATION OF TRANSACTION...............................7
(b) NONCONTRAVENTION...........................................7
(c) BROKERS' FEES..............................................7
(d) INVESTMENT.................................................7
(e) ACQUIRED SHARES............................................7
2.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER......................8
(a) ORGANIZATION OF THE BUYER..................................8
(b) AUTHORIZATION OF TRANSACTION...............................8
(c) NONCONTRAVENTION...........................................8
(d) BROKERS' FEES..............................................8
(e) INVESTMENT.................................................8
2.3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY...........10
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER..........10
(b) AUTHORIZATION OF TRANSACTION..............................11
(c) CAPITALIZATION............................................11
(d) NONCONTRAVENTION..........................................11
(e) BROKERS' FEES.............................................11
(f) TITLE TO ASSETS...........................................11
(g) SUBSIDIARIES, ETC.........................................12
(h) FINANCIAL STATEMENTS......................................12
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..........12
(j) UNDISCLOSED LIABILITIES...................................14
(k) LEGAL COMPLIANCE..........................................14
(l) TAX MATTERS...............................................14
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TABLE OF CONTENTS (Cont'd.)
(m) REAL PROPERTY.............................................15
(n) OWNED INTELLECTUAL PROPERTY...............................16
(o) USED INTELLECTUAL PROPERTY................................17
(p) BUSINESS ACTIVITY.........................................17
(q) TANGIBLE ASSETS...........................................18
(r) CONTRACTS.................................................18
(s) NOTES AND ACCOUNTS RECEIVABLE.............................19
(t) POWERS OF ATTORNEY........................................19
(u) INSURANCE.................................................19
(v) LITIGATION................................................20
(w) WARRANTY..................................................20
(x) EMPLOYEES.................................................21
(y) EMPLOYEE BENEFITS.........................................21
(z) GUARANTIES................................................21
(aa) ENVIRONMENT, HEALTH, AND SAFETY...........................21
(bb) CERTAIN BUSINESS RELATIONSHIPS............................21
(cc) DISCLOSURE................................................21
ARTICLE III.
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.............................21
3.1 GENERAL.........................................................21
3.2 NOTICES AND CONSENTS............................................22
3.3 OPERATION OF BUSINESS...........................................22
3.4 PRESERVATION OF BUSINESS........................................22
3.5 FULL ACCESS.....................................................22
3.6 NOTICE OF DEVELOPMENTS..........................................22
3.7 EXCLUSIVITY.....................................................23
3.8 CONFIDENTIALITY.................................................23
ARTICLE IV.
POST-CLOSING COVENANTS................................................24
4.1 GENERAL.........................................................24
4.2 LITIGATION SUPPORT..............................................24
4.3 TRANSITION......................................................24
4.4 CONFIDENTIALITY.................................................24
ARTICLE V.
CONDITIONS OF CLOSING.................................................25
5.1 CONDITIONS OF OBLIGATIONS OF THE BUYER..........................25
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<PAGE>
TABLE OF CONTENTS (Cont'd.)
5.2 CONDITIONS OF OBLIGATIONS OF THE SELLER.........................26
ARTICLE VI.
REMEDIES FOR BREACHES OF AGREEMENT....................................27
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................27
6.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.............27
6.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER............28
6.4 MATTERS INVOLVING THIRD PARTIES.................................28
6.5 OTHER INDEMNIFICATION PROVISIONS................................29
ARTICLE VII.
MISCELLANEOUS.........................................................30
7.1 TERMINATION OF AGREEMENT........................................30
7.2 EFFECT OF TERMINATION...........................................30
7.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.........................30
7.4 NO THIRD-PARTY BENEFICIARIES....................................30
7.5 ENTIRE AGREEMENT................................................30
7.6 SUCCESSION AND ASSIGNMENT.......................................31
7.7 COUNTERPARTS....................................................31
7.8 HEADINGS........................................................31
7.9 NOTICES.........................................................31
7.10 GOVERNING LAW...................................................32
7.11 AMENDMENTS AND WAIVERS..........................................32
7.12 SEVERABILITY....................................................32
7.13 EXPENSES........................................................32
7.14 CONSTRUCTION....................................................32
7.15 INCORPORATION OF EXHIBITS AND SCHEDULES.........................33
7.16 SPECIFIC PERFORMANCE............................................33
7.17 SUBMISSION TO JURISDICTION......................................33
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is made and entered into
as of June ___, 1997, by and among Geokinetics Inc., a Delaware corporation (the
"BUYER"), Gallant Energy, Inc., a Texas corporation (the "SELLER"), and
Signature Geophysical Services, Inc., a Michigan corporation (the "COMPANY").
The Buyer, the Seller and the Company are sometimes referred to collectively
herein as the "PARTIES."
The Company is engaged in the business of conducting 2-D and 3-D seismic
surveys of oil and gas prospects, focusing on the Permian Basin and the Gulf
Coast with a special emphasis on swamp work (the "BUSINESS").
The Seller owns 500 shares of the issued and outstanding capital stock of
the Company, no par value (the "COMMON STOCK"), representing all of the issued
and outstanding capital stock of the Company.
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer all of the shares of the
Common Stock owned by Seller in return for shares of Buyer's common stock, $.20
par value ("Buyer Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I.
GENERAL
1.1 DEFINITIONS. Unless otherwise stated in this Agreement, capitalized
terms shall have the following meanings:
"ACQUIRED SHARES" means 500 shares of Common Stock of the Company owned by
the Seller, representing one hundred percent (100%) of the total issued and
outstanding shares of the capital stock of the Company.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
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"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504 of the Code or any similar group defined under a similar provision
of state, local or foreign law.
"AGREEMENT" has the meaning set forth in the first paragraph above.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUSINESS" has the meaning set forth in the second paragraph above.
"BUYER" has the meaning set forth in the first paragraph above.
"BUYER COMMON STOCK" has the meaning set forth in the fourth paragraph
above.
"CLOSING" has the meaning set forth in Section 1.5 below.
"CLOSING DATE" has the meaning set forth in Section 1.5 below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means any share of the common stock, no par value, of the
Company.
"COMPANY" has the meaning set forth in the first paragraph above.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section 3.8 below.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 2.3 below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section 3(2)
of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section 3(1)
of ERISA.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof)
2
<PAGE>
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FIDUCIARY" has the meaning set forth in Section 3(21) of ERISA.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 2.3(h) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.4 below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6.4 below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, seismic data bases, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"KNOWN" OR "KNOWLEDGE" means that whenever a statement regarding the
existence or absence of facts in this Agreement is qualified by a phrase such as
"to such Person's knowledge" or "known by such Person," the Parties intend that
the information to be attributed to such Person is information that is actually
or constructively known to (a) the Person in the case of an individual, or (b)
in the case of a corporation or other entity, an officer or an employee who
devoted substantive attention to matters of such nature during the ordinary
course of his employment. A Person has "constructive knowledge" of those matters
which the individual involved could reasonably be expected to have as a result
of undertaking an investigation of such a scope and extent as a reasonably
prudent man would undertake concerning the particular subject matter.
3
<PAGE>
"LETTER OF INTENT" means that certain Letter of Intent between James V.
Gallant, the Company and Buyer, dated March 5, 1997.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
2.3(h) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section 2.3(h)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 2.3(h)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3(37) of ERISA.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PRIVATE PLACEMENT" has the meaning set forth in Section 1.6 below.
"PROCESS AGENT" has the meaning set forth in Section 7.17 below.
"PURCHASE PRICE" has the meaning set forth in Section 1.3 below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, deed of trust, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the first paragraph above.
4
<PAGE>
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 6.4 below.
1.2 AGREEMENT TO PURCHASE AND SELL ACQUIRED SHARES. On and subject to the
terms and conditions of this Agreement, the Buyer agrees to purchase from the
Seller, and the Seller agrees to sell to the Buyer, all of the Acquired Shares
for the consideration specified below in Section 1.3.
1.3 PURCHASE PRICE. The purchase price for the Acquired Shares shall be
for the aggregate consideration (the "Purchase Price") consisting of 400,000
shares of the Buyer's Common Stock. At the Closing the Buyer and the Seller
shall enter into a registration rights agreement (the "Registration Rights
Agreement"), on mutually acceptable terms, which will entitle Seller to receive
"piggyback" registration rights to participate as a selling shareholder in up to
two public offerings of Common Stock by Buyer, if any, occurring more than six
months after the date hereof and not later than four years after the date
hereof, subject to reasonable and customary terms and conditions, including the
right of the managing underwriter to cut back the number of shares to be sold by
any selling shareholder as a result of market conditions. In addition, the
Registration Rights Agreement shall provide that, beginning one year after the
date hereof, the Seller shall receive a one-time right to require registration
of not less than 50% of all of the Common Stock received by Seller pursuant
hereto, subject to reasonable and customary terms and conditions.
1.4 EMPLOYMENT AGREEMENT. At the Closing, immediately following Buyer's
acquisition of the Acquired Shares, the Company and James V. Gallant shall
execute and deliver an Executive Employment Agreement in the form attached as
Exhibit A (the "Executive Employment Agreement"), providing for the employment
of Mr. Gallant as President of the Company for an initial term of three years.
Any shares of Buyer's Common Stock acquired by Mr. Gallant upon the exercise of
stock options granted pursuant to the terms of the Executive Employment
Agreement shall also be entitled to the benefits of the Registration Rights
Agreement.
1.5 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Chamberlain,
Hrdlicka, White, Williams & Martin in Houston, Texas, commencing at 9:00 a.m.
local time on the second business day following the
5
<PAGE>
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Buyer and the Seller may mutually determine (the "CLOSING
DATE"); provided, however, that the Closing Date shall be no later than July 15,
1997.
1.6 ADDITIONAL EQUITY FINANCING. It is contemplated that, in order to
obtain the equity capital necessary for the consummation of the transactions
contemplated by this Agreement, Buyer will conduct a private offering of not
less than $6,000,000 of Buyer's equity securities (the "PRIVATE PLACEMENT"),
pursuant to an exemption from registration under the Securities Act. The Buyer
intends to apply the proceeds of the Private Placement approximately as follows:
(i) $500,000 to conversion of certain outstanding bridge financing to
(ii)$2,000,000 pursuant to the provisions of Section 5.2(e) hereof,
(iii)$1,000,000 to the working capital requirements of Quantum Geophysical,
Inc., a wholly-owned subsidiary of the Buyer after the Closing, (iv)$2,150,000
for the repayment of certain indebtedness of the Buyer, and (v)$350,000 to the
Buyer's working capital requirements of the Buyer after the Closing.
1.7 EMPLOYEES. Prior to or at the Closing, Seller will permit or cause the
Company to permit Buyer to offer continued employment to some or all of the
individuals that are employees of the Company immediately prior to Closing. The
Buyer shall have full and absolute discretion in determining the terms,
conditions and benefits relating to such employment. Nothing contained in this
Agreement shall obligate the Buyer to continue the employment of any employee
(other than Mr. Gallant, who will be employed after the Closing pursuant to the
terms of the Executive Employment Agreement), nor is this Section 1.8 intended
to create any claim or right on the part of the employee of the Company and no
such employee shall be entitled to assert any such claim.
1.8 DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will deliver
to the Buyer the various certificates, instruments, and documents referred to in
Section 5.1 below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 5.2 below, (iii)
the Seller will deliver to the Buyer a stock certificate representing all of the
Acquired Shares, endorsed in blank or accompanied by a duly executed assignment
document, (iv) the Buyer will deliver to the Seller the consideration specified
in Section 1.3 above , (v) the Buyer and the Seller shall have executed the
Registration Rights Agreement specified in Section 1.3 above, and (vi) the
Company and Mr. Gallant shall execute and deliver the Executive Employment
Agreement.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this Section 2.1 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 2.1
with respect to Seller).
6
<PAGE>
(a) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject
or, or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which it is bound or to which any of
Seller's assets is subject.
(c) BROKERS' FEES. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(d) INVESTMENT. The Seller (A) understands that the Buyer Common
Stock has not been, and, except as contemplated by the Registration Rights
Agreement, will not be, registered under the Securities Act, or under any
state securities laws, and is being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Common Stock for its own account for
investment purposes, and not with a view to the distribution thereof, (C)
is a sophisticated investor with knowledge and experience in business and
financial matters, (D) has received certain information concerning the
Buyer, and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding
the Buyer Common Stock, and (E) is able to bear the economic risk and lack
of liquidity inherent in holding the Buyer Common Stock, and (F) the
certificate evidencing the shares of Buyer Common Stock will contain
legends restricting the transfer thereof.
(e) ACQUIRED SHARES. The Seller holds of record and owns
beneficially the Acquired Shares, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The
Acquired Shares constitute all of the issued and outstanding capital stock
of the Company. The Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the Company
(other than as contemplated in this Agreement). The Seller is not a party
to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Company.
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2.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this Section 2.2 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
2.2).
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware. The Buyer is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such
qualification is required. The Buyer has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry
on the business in which it is engaged and to own and use the properties
owned and used by it. The Buyer is not in default or in violation of any
provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms
and conditions. Assuming the truth and accuracy of the Seller's
representation and warranty in Section 2.1(d) above, the Buyer does not
need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
any of Buyer's assets is subject (or result in the imposition of any
Security Interest upon any of its assets).
(d) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
(e) INVESTMENT. The Buyer is not acquiring the Acquired Shares with
a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
(f) BUYER'S COMMON STOCK. The shares of Buyer Common Stock to be
issued to Seller pursuant to Section 1.3 above and to Mr. Gallant pursuant
to the Executive Employment Agreement will be validly issued, fully paid
and non-assessable.
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(g) FINANCIAL STATEMENTS. The Buyer has delivered to the Seller the
following financial Statements: (i) The unaudited balance sheet and
statement of income, changes in stockholders' equity, and cash flows as of
and for the fiscal year ended December 31, 1996 for the Buyer and its
subsidiaries; and (ii) Buyer's Quarterly Report on Form 10-QSB for the
three months ended March 31, 1997. Such financial statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly
the financial condition of the Buyer as of such dates and the results of
operations of the Buyer for such periods, are correct and complete, and
are consistent with the books and records of the Buyer (which books and
records are correct and complete). Since March 31, 1997, there has not
been any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Buyer.
(h) LEGAL COMPLIANCE. The Buyer and its subsidiaries and their
respective predecessors have complied in all material respects with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal,
state, local, and foreign governments (and all agencies thereof), and no
actions, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
(i) TAX MATTERS. The Buyer has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Buyer (whether or not shown on
any Tax Return) have been paid. The Buyer currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has
ever been made by an authority in a jurisdiction where the Buyer does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any assets of the Buyer
or any of its subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.
(j) BUSINESS ACTIVITY. The Buyer has not infringed, misappropriated
or otherwise violated any intellectual property rights of third parties,
nor does the Buyer have any knowledge of any infringement,
misappropriation or violation which will occur as a result of the
continued operation of the Buyer's business as now conducted or as
presently proposed to be conducted.
(k) TANGIBLE ASSETS. The Buyer and its subsidiaries own or lease all
buildings, machinery, equipment and other tangible assets necessary for
the conduct of their businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free from defects
(patent and latent), has been maintained in accordance with normal
industry practice, is in good operation condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it
presently is used and presently is proposed to be used.
(l) LITIGATION. Neither the Buyer nor any of its subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or is
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threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. The Buyer does not have any reason
to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company or any of
its subsidiaries.
(m) PUBLIC FILINGS. Each of Buyer's public filings under the
Securities Exchange Act contains the information required therein and is
complete and correct in all materials respects (except that Buyer's Form
10-QSB for the year ended December 31, 1996, will be required to be
supplemented with appropriate financial statements promptly after the
completion of the Private Placement). The capitalization of Buyer is as
set forth in such filings.
(n) DISCLOSURE. The representations and warranties contained in this
Section 2.2 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 2.2 not misleading.
2.3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The Seller and
the Company, jointly and severally, represent and warrant to the Buyer that the
statements contained in this Section 2.3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were sub stituted for the date
of this Agreement throughout this Section 2.3), except as set forth in the
disclosure schedule to be delivered by the Seller to the Buyer on the Closing
Date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"). Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 2.3.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is
a corporation duly organized, validly existing, and in good standing under
the laws of the State of Michigan. The Company is duly authorized to
conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Company has full
corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Section 2.3(a) of
the Disclosure Schedule lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the
charter and bylaws of the Company, as amended to date. The minute book
(containing the records of meetings of the shareholders, the board of
directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct
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and complete. The Company is not in default under or in violation of any
provision of its charter or bylaws.
(b) AUTHORIZATION OF TRANSACTION. The Company has full corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with
its terms and conditions.
(c) CAPITALIZATION. Section 2.3(c) of the Disclosure Schedule sets
forth a true and accurate schedule stating (i) the number of shares of
authorized capital stock of each class of the Company's stock, (ii) the
number of issued and outstanding shares of each class of its capital
stock, the names of the holders thereof, and the number of shares held by
each such holder, and (iii) the number of shares of its capital stock held
in treasury. All of the issued and outstanding shares of the Company's
capital stock, including the Acquired Shares, have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record
by the respective Persons set forth in Section 2.3(c) of the Disclosure
Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that could require the Company to issue,
sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws of the Company or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Company is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
The Company does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(f) TITLE TO ASSETS. The Company has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by them,
located on their premises, or shown on the unaudited balance sheet as of
March 31, 1997 or acquired after the date thereof,
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free and clear of all Security Interests, except as set forth in Section
2.3(f) of the Disclosure Schedule.
(g) SUBSIDIARIES, ETC. The Company does not own of record or
beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation or (ii) any participating interest in any partnership, joint
venture, limited liability company, or other non-corporate business
enterprise, except as listed in Section 2.3(g) of the Disclosure Schedule.
(h) FINANCIAL STATEMENTS. Attached hereto as Exhibit 2.3(h) are the
following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) the reviewed balance sheet and statements of income, changes in
stockholders' equity, and cash flows as of and for the fiscal year ended
August 31, 1996 (the "MOST RECENT FISCAL YEAR END") for the Company; and
(ii) unaudited balance sheet and statements of income (the "MOST RECENT
FINANCIAL STATEMENTS") as of and for the seven months ended March 31, 1997
(the "MOST RECENT FISCAL MONTH END") for the Company. The Financial
Statements (including the notes thereto) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered
thereby, present fairly the financial condition of the Company as of such
dates and the results of operations of the Company for such periods, are
correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in
the Business, financial condition, operations, results of operations, or
future prospects of the Company. Without limiting the generality of the
foregoing, since that date, except as set forth in Section 2.3(i) of the
Disclosure Schedule, the Company has not:
(i) sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(ii) entered into any agreement, contract, lease or license
(or series of related agreements, contracts, leases, and licenses)
involving more than $10,000;
(iii) accelerated, terminated, modified, or canceled any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than
$10,000 to which the Company is a party or by which the Company is
bound, nor has any other Person accelerated, terminated, modified,
or canceled any of the foregoing;
(iv) imposed any Security Interests upon any of its assets,
tangible or intangible;
(v) made any capital expenditure (or series of related capital
expenditures) involving more than $10,000;
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(vi) made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions);
(vii) issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more
than $10,000 singly or $50,000 in the aggregate;
(viii) delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of Business;
(ix) canceled, compromised, waived, or released any right or
claim (or series of related rights and claims) involving more than
$1,000;
(x) granted any license or sublicense of any rights under or
with respect to any Intellectual Property;
(xi) made or authorized any change in the charter or bylaws of
the Company;
(xii) issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) experienced or suffered any damage, destruction, or loss
(whether or not covered by insurance) to its property;
(xv) made any loan to, or entered into any other transaction
with, any of its directors, officers, and employees;
(xvi) entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(xvii) granted any increase in the base compensation of any of
its directors, officers, and employees outside the Ordinary Course
of Business;
(xviii) adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other
Employee Benefit Plan);
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(xix) made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of
Business;
(xx) made or pledged to make any charitable or other capital
contribution; or
(xxi) become aware of any other material occurrence, event,
incident, action, failure to act, or transaction involving the
Company.
(j) UNDISCLOSED LIABILITIES. Except as described in Section 2.3(j)
of the Disclosure Schedule, the Company has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Month
End in the Ordinary Course of Business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(k) LEGAL COMPLIANCE. The Company is in compliance in all material
respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed
or commenced against any of them alleging any failure so to comply.
(l) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company (whether or not
shown on any Tax Return) have been paid. The Company currently is
not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) No Seller or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns
have been filed. There is no dispute or claim concerning any Tax
Liability of the Company either (A) claimed or raised by any
authority in writing or (B) as to which any of the Seller and the
directors and officers (and employees
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responsible for Tax matters) of the Company has knowledge, based
upon personal contact with any agent of such authority. Section
2.3(l) of the Disclosure Schedule lists all federal, state, local,
and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after August 31, 1994, indicates those
Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Seller has delivered to
the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since August 31, 1994.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
(v) The Company is not a party to any Tax allocation or
sharing agreement. The Company (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company) or
(B) has no Liability for the Taxes of any Person (other than the
Company) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(vi) Section 2.3(l) of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most
recent practicable date: (A) the basis of the Company in its assets
and (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Company.
(vii) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the
face of the Most Recent Balance Sheet (rather than in any notes
thereto) and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past
custom and practice of the Company in filing its Tax Returns.
(m) REAL PROPERTY.
(i) The Company does not own real property.
(ii) Section 2.3(m)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the
Company. Section 2.3(m)(ii) of the Disclosure Schedule also
identifies the leased or subleased properties. The Seller has
delivered to the Buyer correct and complete copies of the leases and
subleases listed in Section 2.3(m)(ii) of the Disclosure Schedule
(as amended to date). With respect to each lease and sublease listed
in Section 2.3(m)(ii) of the Disclosure Schedule, to the knowledge
of Seller:
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(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations
and warranties set forth in subsections (A) through (E) above
are true and correct with respect to the underlying lease; and
(G) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold.
(n) OWNED INTELLECTUAL PROPERTY. Section 2.3(n) of the Disclosure
Schedule sets forth a list of Intellectual Property owned by the Company.
With respect to each of such item of Intellectual Property, to the
knowledge of Seller:
(i) the Company is the sole and exclusive owner and has the
sole and exclusive right to use the item in the conduct of the
Business;
(ii) no proceedings have been instituted, are pending or are
threatened which challenge the validity, enforceability, use or
ownership thereof;
(iii) the item (A) does not infringe upon or otherwise violate
the rights of others, (B) is not being infringed upon by others, (C)
is not subject to any outstanding order, decree, judgment,
stipulation or charge;
(iv) no license, sublicense or agreement pertaining to the
item has been granted by the Company;
(v) the Company has not received any charge of interference or
infringement with respect to the item;
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(vi) the Company has not agreed to indemnify any Person for or
against any infringement with respect to the item;
(vii) there is no invention or application therefor or similar
property which infringes upon the item;
(viii) the transactions contemplated by this Agreement will
have no adverse effect on the Company's right, title and interest in
the item;
(ix) the Company has taken all steps necessary to protect the
rights set forth in Section 2.3(n) of the Disclosure Schedule and
will continue to maintain those rights prior to the Closing so as
not to adversely affect the validity or enforcement of such rights;
and
(x) the Company has supplied Buyer with true and complete
copies of all written documentation evidencing its ownership of the
item and of all licenses and other contracts related thereto.
To the best Knowledge of the Company and the Seller, there are no
inventions, new products or methods of manufacturing or processing
developed by any competitors or others which are expected by the Company
or the Seller to supersede or make obsolete the products or processes of
the Company within 18 months of the date hereof.
(o) USED INTELLECTUAL PROPERTY. Section 2.3(o) of the Disclosure
Schedule sets forth a list describing all of the Intellectual Property of
others which the Company practices or uses that is material to the
Company's Business. With respect to each of such item of Intellectual
Property to the knowledge of Seller:
(i) a license agreement covering the item has been validly
executed and delivered by the Company and by the other parties
thereto and is in full force and effect;
(ii) no event has occurred which constitutes a breach of such
license agreement, the Company has not repudiated and no other party
thereto has repudiated any provisions thereof and there are no
disputes, oral arrangements or delayed payments programs in effect
as to any such license agreement;
(iii) the Company has supplied Buyer with a true and correct
copy of the license agreement; and
(iv) the transaction contemplated by this Agreement will have
no adverse effect on the Company's ability to continue using or
practicing each such item.
(p) BUSINESS ACTIVITY. The Company has not infringed,
misappropriated or otherwise violated any intellectual property rights of
third parties, nor does the Company have
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any Knowledge of any infringement, misappropriation or violation which
will occur as a result of the continued operation of the Company's
business as now conducted or as presently proposed to be conducted.
(q) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct
of its business as presently conducted. Each such tangible asset has been
maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
(r) CONTRACTS. Section 2.3(r) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $1,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products,
or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more
than one year, result in a material loss to the Company, or involve
consideration in excess of $1,000.
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $1,000 or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with any of the Seller or its Affiliates
(other than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $20,000 or providing severance benefits;
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(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default
or termination could have an adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 2.3(r) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 2.3(r) of the
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(s) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
collectible, subject to the reserve for bad debts set forth on the
Company's balance sheet for the Most Recent Fiscal Month End, and are
expected to be collected in accordance with their terms at their recorded
amounts.
(t) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
(u) INSURANCE. Section 2.3(u) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the
Company has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past three years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
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(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy, to the knowledge of Seller:
(A) the policy is legal, valid, binding, enforceable, and in full force
and effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither any of
the Company nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the
policy has repudiated any provision thereof. The Company has been covered
during the past three years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the
aforementioned period. Section 2.3(u) of the Disclosure Schedule describes
any self-insurance arrangements affecting the Company.
(v) LITIGATION. Section 2.3(v) of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party
or is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
adminis trative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. Unless specifically noted in
Section 2.3(v) of the Disclosure Schedule, none of the actions, suits,
proceedings, hearings, and investigations set forth in Section 2.3(v) of
the Disclosure Schedule could reasonably be expected to result in any
adverse change in the business, financial condition, operations, results
of operations, or future prospects of the Company. None of the Seller and
the directors and officers (and employees with responsibility for
litigation matters) of the Company has any reason to believe that any such
action, suit, pro ceeding, hearing, or investigation may be brought or
threatened against the Company.
(w) WARRANTY. Each product and service sold or delivered by the
Company has been in material conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
material Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company giving rise to any material
Liability) for replacement or correction thereof or other damages in
connection therewith. No product or service sold or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond
the applicable standard terms and conditions of sale or lease. Section
2.3(w) of the Disclosure Schedule includes copies of the standard terms
and conditions of sale for the Company (containing applicable guaranty,
warranty, and indemnity provisions).
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(x) EMPLOYEES. To the Knowledge of the Seller and the directors and
officers of the Company, no executive, key employee, or group of employees
has any plans to terminate employment with the Company. The Company is not
a party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Company has not committed any
unfair labor practice. None of the Seller and the directors and officers
(and employees with responsibility for employment matters) of the Company
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
the Company.
(y) EMPLOYEE BENEFITS. The Company does not maintain nor ever has
maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Benefit Plan. The Company has no Liability
for any contribution to any Employee Benefit Plan.
(z) GUARANTIES. The Company is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any
other Person.
(aa) ENVIRONMENT, HEALTH, AND SAFETY. The Company has complied in
all material respects with all Environmental, Health, and Safety Laws, and
no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against the Company
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, the Company has obtained and has been in compliance
with all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which
are contained in, all Environmental, Health, and Safety Laws.
(bb) CERTAIN BUSINESS RELATIONSHIPS. None of the Seller and its
Affiliates has been involved in any business arrangement or relationship
with the Company within the past 12 months, and none of the Seller or its
Affiliates either owns any asset, tangible or intangible, which is used in
the Business of the Company or is owed any amount by the Company or owes
any amount to the Company.
(cc) DISCLOSURE. The representations and warranties contained in
this Section 2.3 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
and information contained in this Section 2.3 not misleading.
ARTICLE III.
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
3.1 GENERAL. The Parties agree that with respect to the period between the
execution of this Agreement and the Closing, each of the Parties will use his or
its best efforts to take all action
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and to do all things necessary, proper, or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article V
below).
3.2 NOTICES AND CONSENTS. The Seller will cause the Company to give any
notices to third parties, and will cause the Company to obtain any third-party
consents in connection with the matters referred to in Sections 2.3(c) and
2.3(d) above. Each of the Parties will (and the Seller will cause the Company
to) give any notices to, make any filings with, and use its best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Sections
2.1(a), 2.1(b), 2.3(c) and 2.3(d) above.
3.3 OPERATION OF BUSINESS. Seller covenants and agrees that, prior to the
Closing, unless Buyer shall otherwise agree and except as otherwise expressly
contemplated or permitted by this Agreement, the Seller will not cause or permit
the Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause or permit the Company to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, (ii) create any Subsidiaries, or (iii) otherwise engage in
any practice, take any action, or enter into any transaction of the sort
described in Section 2.3(i) above.
3.4 PRESERVATION OF BUSINESS. The Seller will use all reasonable efforts
to: (i) cause the Company to keep its Business and properties substantially
intact, keep in full force and effect all rights, licenses, permits and
franchises relating to its Business or properties, keep available the services
of its officers and employees as a group and maintain satisfactory relationships
with suppliers, distributors, customers and others having business relationships
with the Company; (ii) report on a regular basis to representatives of Buyer
regarding operational matters and the general status of ongoing operations;
(iii) not to take any action which would render any representation or warranty
made by the Company in this Agreement untrue at any time prior to the Closing if
then made; and (iv) notify Buyer of any emergency or other change in the normal
course of its Business or in the operation of its properties and of any tax
audits, tax claims, governmental or third party complaints, investigation or
hearings (or communications indicating that the same may be contemplated) if
such emergency, change, audit, claim, complaint, investigation or hearing would
reasonably be material, individually or in the aggregate, to the financial
condition, results of operations or Business of the Company, or to the Seller's,
Company's and Buyer's ability to consummate the transactions contemplated by
this Agreement.
3.5 FULL ACCESS. The Seller will permit, and the Seller will cause the
Company to permit, representatives of the Buyer to have full access, at all
reasonable times, to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to the
Company.
3.6 NOTICE OF DEVELOPMENTS. The Seller will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 2.1 or 2.3 above. Each Party will give
prompt written notice to the others of any material
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adverse development causing a breach of any of his or its own representations
and warranties contained in Article II above. No disclosure by any Party
pursuant to this Section 3.6, however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
3.7 EXCLUSIVITY. The Seller will not (and the Seller will not cause or
permit the Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets of,
the Company (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will notify the Buyer immediately if any Person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
3.8 CONFIDENTIALITY.
(a) All Confidential Information (as hereafter defined), acquired by
the Buyer with respect to the Company shall be (i) maintained in strict
confidence, (ii) used only for the purpose of and in connection with
evaluating the transactions contemplated by this Agreement, and (iii)
disclosed only to employees and duly authorized agents and representatives
of the Buyer who have been informed of the obligations of the Buyer under
this Section 3.8. The Buyer will take all reasonable measures to restrain
its representatives and agents from prohibited or unauthorized disclosure
of Confidential Information. For purposes of this Agreement, "Confidential
Information" shall mean all information acquired by the Buyer from the
Company or the Seller with respect to the Business, other than information
generally available to the public, other than as a result of disclosure by
the Buyer in violation of this Section 3.8 and information which is
rightfully disclosed to the Buyer on a nonconfidential basis from a source
other than the Company or its representatives, provided such source is not
known by the Buyer to be bound by a confidentiality agreement with, or
other obligation of secrecy to, the Company or another party. If the
transactions contemplated by this Agreement are not consummated, all
Confidential Information in written or printed or other tangible form
(either copies or originals) shall be returned to the Company.
(b) In the event that the Buyer is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process)
to disclose any Confidential Information, the Buyer will notify the Seller
promptly of the request or requirement so that the Seller may seek an
appropriate protective order or waive compliance with the provisions of
this Section 3.8. If, in the absence of a protective order or the receipt
of a waiver hereunder, the Buyer is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand
liable for contempt, the Buyer may disclose the Confidential Information
to the tribunal; provided, however, that the disclosing Person shall use
his reasonable best efforts to obtain, at the request of the Seller, an
order or other assurance that confidential treatment will be accorded to
such portion of the Confidential Information required to be disclosed as
the Seller shall designate.
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ARTICLE IV.
POST-CLOSING COVENANTS
4.1 GENERAL. If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article VI
below). The Seller acknowledges and agrees that from and after the Closing, the
Buyer will be entitled to possession of all documents, books, records (including
Tax records), agreements, and financial data of any sort relating to the
Company.
4.2 LITIGATION SUPPORT. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties will cooperate with him or it
and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article VI below).
4.3 TRANSITION. The Seller will take no action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company and after the Closing as it maintained
with the Company prior to the Closing. The Seller will refer all customer
inquiries relating to the Business of the Company to the Buyer from and after
the Closing.
4.4 CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement. In the event that the
Seller is requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, the Seller
will notify the Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the provisions
of this Section 4.4. If, in the absence of a protective order or the receipt of
a waiver hereunder, the Seller is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, the Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his reasonable best
efforts to obtain, at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate.
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4.5 RULE 144. The Buyer will use all reasonable efforts to comply with the
requirements of the Securities Act and the Securities Exchange Act after the
Closing in order to make the benefits of Rule 144 of the Securities and Exchange
Commission under the Securities Act available to Seller and Mr. Gallant.
ARTICLE V.
CONDITIONS OF CLOSING
5.1 CONDITIONS OF OBLIGATIONS OF THE BUYER. The obligations of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing are subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 2.1 and
Section 2.3 above shall be true and correct in all material respects at
and as of the Closing Date;
(b) the Seller and the Company shall have performed all obligations
and agreements and complied with all of their covenants in this Agreement
in all material respects at or before the Closing;
(c) the Company and/or Seller shall provide evidence, in form and
substance satisfactory to Buyer, that there have been obtained all
consents, approval and authorizations required for the consummation of the
transactions contemplated by this Agreement;
(d) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Buyer to own the Acquired Shares and to
control the Company, or (D) affect adversely the right of the Company to
own its assets and to operate the Business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(e) the Seller shall have delivered to the Buyer a certificate dated
as of the Closing Date and executed by both the Seller and the President
of the Company to the effect that each of the conditions specified above
in Sections 5.1(a) to 5.1(d) is satisfied in all respects;
(f) the Buyer shall have received from counsel to the Seller,
acceptable to Buyer, an opinion in form and substance acceptable to the
Buyer, addressed to the Buyer, dated as of the Closing Date and addressing
the matters referred to in Sections 2.1(a), (b) and (e) and 2.3(a)-(d)
above;
(g) Buyer shall have completed the Private Placement and all
transactions related thereto;
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(h) The investigation by Buyer and its representatives in connection
with the transactions contemplated by this Agreement shall not have caused
the Buyer or its representatives to become aware of any facts or
circumstances relating to the Business, operations, assets, properties,
liabilities, financial condition, results of operation or affairs of the
Company that, in the sole judgment of the Buyer, make its inadvisable for
the Buyer to proceed with the purchase of the Acquired Shares;
(i) Buyer shall have received releases, in form satisfactory to the
Buyer, of any and all claims and liabilities of Seller, Signature
Geophysical Services Incorporated and Kahuna Energy, Inc. against the
Company;
(j) Seller shall have delivered to the Buyer executed contracts for
the performance of geophysical services for GEKO/Prakla's Weeks Island
project (providing for a contract price of $37,500 per square mile and
additional payments to Input/Output, Inc. of $1,400,000) and SMK Energy
Corporation's Interdomal project;
(k) Seller shall have delivered to the Buyer the Disclosure
Schedule, in form and substance satisfactory to Buyer, in its sole
discretion;
(l) Buyer's board of directors shall have approved and authorized
this Agreement and the transactions contemplated by this Agreement; and
(m) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in this Section 5.1 if it executes a
writing so stating at or prior to the Closing.
5.2 CONDITIONS OF OBLIGATIONS OF THE SELLER. The obligations of the Seller
to consummate the transactions to be performed by Seller in connection with the
Closing are subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 2.2
above shall be true and correct in all material respects at and as of the
Closing Date;
(b) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following
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consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(d) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Sections 5.2(a)
to 5.2(c) is satisfied in all respects;
(e) the Buyer shall have delivered to the Seller evidence,
satisfactory to the Seller, that the Private Placement and all
transactions related thereto shall have been completed and that the Buyer
will make available to the Company immediately after Closing (i) up to
$1,000,000 for the payment of the Company's liabilities and (ii) an
additional $1,000,000 for satisfaction of the Company's working capital
requirements after the Closing;
(f) the Seller shall have received from Chamberlain, Hrdlicka,
White, Williams & Martin, counsel to the Buyer, an opinion acceptable to
the Seller, addressed to the Seller, dated as of the Closing Date and
addressing the matters referred to in Sections 2.2(a)-(c) and (f) above;
(g) the Seller or Mr. Gallant shall have received from the Buyer
funds sufficient to pay the Company's indebtedness to Seller, Signature
Geophysical Services, Incorporated and Kahuna Energy, Inc.; and
(h) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 5.2 if they execute
a writing so stating at or prior to the Closing.
ARTICLE VI.
REMEDIES FOR BREACHES OF AGREEMENT
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder and continue in full force and effect for a period of three
(3) years thereafter, except for representations regarding Company's Tax
Liabilities, which representations will expire and be terminated on the date of
expiration of the statute of limitations for collection of such Tax Liability in
question.
6.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(a) In the event the Seller or the Company breaches (or in the event
any third party alleges facts that, if true, would mean the Seller has
breached) any of their representations, warranties, and covenants
contained herein and, provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section 7.9 below within
the survival
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period specified in Section 6.1 hereof, then the Seller agrees to
indemnify each of the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of the survival period) resulting from, arising out
of, relating to, in the nature of, or caused by the breach (or the alleged
breach). Notwithstanding the foregoing to the contrary, Seller shall not
be required to indemnify the Buyer from any Adverse Consequences pursuant
to this Section 6.2(a) until the aggregate amount of such Adverse
Consequences exceeds $10,000.
(b) The Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability
of the Company for the unpaid Taxes of any Person (other than the Company)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(c) The Seller agrees to indemnify the Buyer from and against
one-half of the first $500,000 of any Adverse Consequences (including the
Company's attorneys' fees) the Buyer may suffer resulting from, arising
out of , relating to, in the nature of, or caused by any litigation among
the Company, Sonat Exploration Company ("Sonat") and Vanguard Geophysical
Services, Inc. In the event the Company recovers any amount of damages
from Sonat as a result of any such litigation, (i) Seller shall be
entitled to be reimbursed for any amounts paid by Seller pursuant hereto
out of a percentage of any such recovery equal to the amounts paid by
Seller pursuant hereto divided by the aggregate amount of all Adverse
Consequences suffered by Buyer under this Section 6.2(c), and (ii) any
additional amount shall be applied first to reimburse the Company for any
expenses incurred as a result of such litigation and the balance shall be
treated as additional revenue of the Company.
6.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the event the
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to Section 7.9 below within the
survival period specified in Section 6.1 hereof, then the Buyer, as applicable,
agree to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Seller may suffer after
the end of the survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach).
6.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give
rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this Article VI, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the
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Indemnifying Party from any obligation hereunder unless (and then solely
to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen (15) days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 6.4(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 6.4(b) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Article VI.
6.5 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant.
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ARTICLE VII.
MISCELLANEOUS
7.1 TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(a) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller
or the Company has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer
has notified the Seller of the breach, and the breach has continued
without cure for a period of ten (10) days after the notice of breach or
(B) if the Closing shall not have occurred on or before July 15, 1997, by
reason of the failure of any condition precedent under Section 5.1 above
(unless the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(c) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (A) in the event the Buyer
has breached any material represen tation, warranty, or covenant contained
in this Agreement in any material respect, the Seller has notified the
Buyer of the breach, and the breach has continued without cure for a
period of ten (10) days after the notice of breach or (B) if the Closing
shall not have occurred on or before July 15, 1997 (unless the failure to
close results primarily from the Seller or the Company itself breaching
any representation, warranty, or covenant contained in this Agreement).
7.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7.1 above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
7.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
7.4 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and to James V.
Gallant and their respective successors and permitted assigns.
7.5 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings,
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agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof including, without
limitation, the Letter of Intent.
7.6 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
7.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.8 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.9 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLER OR
THE COMPANY: SIGNATURE GEOPHYSICAL SERVICES, INC.
19407 PARK ROW, SUITE 195
HOUSTON, TEXAS 77084
ATTENTION: JAMES V. GALLANT
COPY TO: BRACEWELL & PATTERSON, L.L.P.
711 LOUISIANA STREET, SUITE 2900
HOUSTON, TEXAS 77002
ATTENTION: THOMAS W. ADKINS
IF TO BUYER: GEOKINETICS INC.
5555 SAN FELIPE, SUITE 780
HOUSTON, TEXAS 77056
ATTENTION: JAY D. HABER
COPY TO: CHAMBERLAIN, HRDLICKA, WHITE,
WILLIAMS & MARTIN
1200 SMITH STREET, SUITE 1400
HOUSTON, TEXAS 77002
ATTENTION: JAMES J. SPRING, III
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Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
7.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether of the State of Texas or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
7.11 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
7.12 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.13 EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller agrees that the Seller will
bear the Seller's costs and expenses (including Seller's legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby. Notwithstanding the foregoing to the contrary, the Parties
acknowledge that the Company shall pay up to $7,500.00 of legal expenses
incurred in connection with the transactions contemplated by this Agreement.
7.14 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not
32
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detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
7.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.16 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 7.17
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
7.17 SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any federal court sitting in Houston, Texas, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
GEOKINETICS INC.
/s/ JAY D. HABER
Jay D. Haber, President
SELLER:
GALLANT ENERGY, INC.
/s/ JAMES V. GALLANT
James V. Gallant, President
COMPANY:
SIGNATURE GEOPHYSICAL SERVICES, INC.
/s/ JAMES V. GALLANT
James V. Gallant, President
James V. Gallant, a Texas resident, hereby fully and unconditionally
guarantees the performance by the Seller of all obligations, covenants and
agreements of Seller and the Company under the terms of the Agreement
(including, but not limited to, the agreements set forth in Sections 2.2, 2.3,
3.1 and 6.2 thereof).
/s/ JAMES V. GALLANT
JAMES V. GALLANT
34
EXHIBIT 2.3
LETTER AGREEMENT RE ADDITIONAL INVESTMENT
LETTER AGREEMENT (hereinafter referred to as this "Agreement"), dated as
of July 24, 1997, by and between GEOKINETICS INC., a Delaware corporation (the
"Company"), and BLACKHAWK INVESTORS, L.L.C., a Delaware limited liability
company ("Blackhawk").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase and Exchange Agreement dated
July 18, 1997 (the "Purchase Agreement") among the Company, Blackhawk and
certain Holders (as defined therein), (i) Blackhawk purchased (A) 5,041,667
shares of Common Stock of the Company, (B) 171,875 shares of Series A Preferred
Stock of the Company and (C) a Shadow Warrant to purchase up to an aggregate of
6,512,095 shares of Common Stock, subject to adjustment, for an aggregate
purchase price of $5,500,000, and (ii) the Holders exchanged certain 12% Senior
Secured Promissory Notes of the Company and certain of its subsidiaries, in the
aggregate principal amount of $500,000, for an aggregate of (A) 458,333 shares
of Common Stock, (B) 15,625 shares of Series A Preferred Stock and (C) Shadow
Warrants to purchase up to an aggregate of 592,009 shares of Common Stock,
subject to adjustment;
WHEREAS, Blackhawk desires to make an additional $1,000,000 investment in
the Company, on the same terms as its initial investment, except as otherwise
provided herein, and the Company desires to accept such investment on such terms
and to issue and sell additional securities to Blackhawk as herein provided.
NOW, THEREFORE, in consideration of the conditions and mutual agreements
hereinafter set forth, the parties hereto agree as follows:
1. The Company will issue and sell to Blackhawk (i) 100,000 shares of a
new series of its authorized Series Preferred Stock, par value $10.00 per share,
which Preferred Stock shall be designated as Series B Convertible Preferred
Stock (the "Series B Convertible Preferred Stock") and (ii) shadow warrants on
the same terms as the Blackhawk Shadow Warrants issued on July 18, 1997, except
that the maximum aggregate number of shares of Common Stock issuable thereunder
shall be re-calculated to take into account any increase in the number of shares
of Common Stock issuable under the Subject Warrants (as defined in the Blackhawk
Shadow Warrant) that may result from the issuance of the Series B Convertible
Preferred Stock or any conversion thereof into shares of Common Stock (the "New
Blackhawk Shadow Warrant"), for an aggregate purchase price (the "Purchase
Price") of $1,000,000 (or $10.00 per share of Series B Convertible Preferred
Stock). The Series B Convertible Preferred Stock shall have identical terms to
the Series A Convertible Preferred Stock, except that the automatic conversion
date shall be January 1, 1998 instead of the date of the filing of the Charter
Amendment, and the shares of Common Stock issuable upon the date of the filing
of the Charter Amendment, and the shares of Common Stock issuable upon the
conversion thereof, as well as the shares of Common Stock issuable upon any
exercise of the New Blackhawk Shadow Warrant, shall be subject to the terms of
the Registration Rights Agreement.
<PAGE>
2. Blackhawk shall pay the Purchase Price by wire transfer to the
Company's account with Frost National Bank contemporaneously with the execution
and delivery of this Letter Agreement and, in consideration thereof, (i) the
Company agrees to enter into a new securities purchase agreement and related
documentation with Blackhawk as soon as practicable, on substantially the terms
and conditions of the Purchase Agreement and other related closing documentation
(including, without limitation, certified Board resolutions and opinion of
counsel with respect to the authorization and issuance of the securities)
MUTATIS MUTANDIS, provided that Series B Convertible Preferred Stock will be
issued as provided above in lieu of a combination of Common Stock and Series A
Convertible Preferred Stock; and provided further, that at the option of
Blackhawk, such closing documentation may take the form of one or more
amendments to the Purchase Agreement and related closing documentation in lieu
of new agreements; and (ii) the Company agrees to amend the terms of the
Holders' Shadow Warrants to increase the aggregate maximum amount of shares of
Common Stock issuable thereunder to increase the aggregate maximum amount of
shares of Common Stock issuable thereunder to reflect any increase in the number
of shares of Common Stock issuable under the Subject Warrants (as defined
therein) that may result from the issuance of the Series B Convertible Preferred
Stock or any conversion thereof into shares of Common Stock.
3. Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Purchase Agreement.
4. No modification of this Agreement, or any part hereof, shall be valid
or effective unless in writing and signed by the party or parties sought to be
charged therewith.
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to choice of law or conflicts
of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GEOKINETICS, INC.
By: /s/ JAY D. HABER
Name: Jay D. Haber
Title: President
BLACKHAWK INVESTORS, L.L.C.
By: Blackhawk Capital Partners,
its Managing Member
By: /s/ WILLIAM R. ZIEGLER
William R. Ziegler, Partner
EXHIBIT 4
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GEOKINETICS INC.
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
The undersigned, Jay D. Haber, President of Geokinetics Inc., a
Delaware corporation (the "Corporation"), does hereby state and certify that the
Board of Directors of the Corporation, by unanimous written consent dated as of
July 10, 1997, duly adopted the following resolution providing for the issuance
of a series of its Preferred Stock, par value $10.00 per share(the "Preferred
Stock"), and further providing for the designation, powers, preferences, and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, all in accordance with the
provisions of Section 151(g) of the General Corporation Law of the State of
Delaware:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by Article FOURTH of
the Corporation's Certificate of Incorporation (the "Certificate of
Incorporation"), a series of Preferred Stock of the Corporation be, and
hereby is, created out of the authorized but unissued shares of capital
stock of the Corporation and authorized to be issued, such series to be
designated Series A Convertible Preferred Stock (the "Series A Convertible
Preferred Stock"), to consist of 187,500 shares, par value $10.00 per
share, of which the powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, shall be, in addition to those set forth in the
Corporation's Certificate of Incorporation, as follows:
1. DIVIDENDS. Holders of shares of Series A Convertible Preferred
Stock will be entitled to receive, when and as declared by the Board of
Directors of the Corporation (the "Board") out of assets of the
Corporation legally available for payment, dividends payable in cash,
evidences of indebtedness, assets or property other than cash, or
securities of the Corporation, at the same rate as such dividends are
declared with respect to shares of Common Stock (as defined in paragraph
3(a) below). In connection therewith, the shares of Series A Convertible
Preferred Stock held by each holder shall be deemed to represent that
number of shares of Common Stock into which they are then convertible,
rounded to the nearest 1/100th of a share. Dividends will be payable to
holders of record of the Series A Convertible Preferred Stock as they
appear on the stock books of the Corporation on such record dates, not
more than 60 days nor less than 10 days preceding the payment dates
thereof, as shall be fixed by the Board.
No dividends may be paid upon or declared or set apart for the
Series A Convertible Preferred Stock for any dividend period unless:
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(a) as to each series of Preferred Stock entitled to
cumulative dividends, dividends for all past dividend periods shall
have been paid or shall have been declared and a sum sufficient for
the payment thereof set apart; and
(b) as to all series of Preferred Stock (including the Series
A Convertible Preferred Stock), dividends for the current dividend
period shall have been paid or be or have been declared and a sum
sufficient for the payment thereof set apart ratably in accordance
with the amounts which would be payable as dividends on the shares
of the respective series for the current dividend period if all
dividends for the current dividend period were declared and paid in
full.
No dividend in respect of past dividend periods shall be paid upon
or declared and set apart for payment on any of the Preferred Stock
entitled to cumulative dividends unless there shall be or have been
declared and set apart for payment on all outstanding shares of Preferred
Stock entitled to cumulative dividends, dividends for past dividend
periods ratably in accordance with the amounts which would be payable on
the shares of the series entitled to cumulative dividends if all dividends
due for all past dividend periods were declared and paid in full.
So long as any shares of the Series A Convertible Preferred Stock
are outstanding, the Corporation shall not pay or declare any dividend
payable in cash, evidences of indebtedness, assets or property other than
cash, or stock of the Corporation ranking equally with or senior to the
Series A Convertible Preferred Stock in respect of dividends, or make any
other distribution on the Common Stock or any other class or series of
stock ranking equally with or junior to the Series A Convertible Preferred
Stock in respect of dividends, unless the Corporation has paid, or at the
same time pays or provides for the payment of, all accrued and unpaid
dividends on the Series A Convertible Preferred Stock; provided, however,
that the Corporation may pay less than the amount of all accrued and
unpaid dividends on any class or series of stock ranking equally with the
Series A Convertible Preferred Stock in respect of dividends if such
payment is made ratably in accordance with the respective accrued and
unpaid dividends on the Series A Convertible Preferred Stock and such
class or series of stock ranking equally with the Series A Convertible
Preferred Stock in respect of dividends. The Series A Convertible
Preferred Stock shall rank junior as to dividends to any class or series
of stock of the Corporation which is by its terms made senior as to
dividends to the Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock shall rank equally as to dividends with the
Corporation's Common Stock and with all shares of the Corporation's
Preferred Stock and any other class or series of stock of the Corporation
which is expressly stated to rank on a parity as to dividends with the
Series A Convertible Preferred Stock. For purposes of the Series A
Convertible Preferred Stock, the amount of
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dividends "accrued" on any share of Series A Convertible Preferred Stock
at any date shall be deemed to be the amount of any declared but unpaid
dividends thereon.
2. LIQUIDATION PREFERENCE. The shares of Series A Convertible
Preferred Stock shall rank prior to the shares of Common Stock and of any
other class of stock of the Corporation ranking junior to the Series A
Convertible Preferred Stock upon liquidation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Series A Convertible
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders
of shares of Common Stock or any other such junior stock, an amount equal
to $10.00 per share (the "Liquidation Preference" of a share of Series A
Convertible Preferred Stock) plus an amount equal to all cash dividends
accrued and unpaid on the shares of Series A Convertible Preferred Stock
to the date of final distribution. (For purposes hereof, the Common Stock
shall rank on liquidation junior to the Series A Convertible Preferred
Stock.) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of the Series A Convertible
Preferred Stock and any other preferred stock ranking on a parity as to
liquidation preference with the Series A Convertible Preferred Stock (such
other preferred stock and the Series A Convertible Preferred Stock
hereinafter being collectively referred to in this paragraph 2 as the
"Parity Preferred Stock") shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distributable among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts
thereon were payable in full. In liquidation, the Series A Convertible
Preferred Stock shall be senior to the Corporation's Common Stock and
senior to or PARI PASSU with any other series of convertible Preferred
Stock hereinafter authorized and issued by the Corporation, but junior to
any series of Preferred Stock which does not have any conversion feature
and which is hereinafter authorized and issued by the Corporation.
After payment to holders of the Series A Convertible Preferred Stock
of the full preferential amounts as aforesaid, holders of the Series A
Convertible Preferred Stock as such shall have no right or claim to any of
the remaining assets of the Corporation.
The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into the
Corporation, or the sale, lease or conveyance of all or substantially all
of the property or business as of the Corporation shall not be deemed to
be a dissolution, liquidation or winding up, voluntary or involuntary, for
the purposes of this paragraph 2.
3. CONVERSION. The holders of the Series A Convertible Preferred
Stock shall have the following conversion rights:
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<PAGE>
(a) AUTOMATIC CONVERSION. Shares of Series A Convertible Preferred
Stock automatically shall be converted into fully paid and non-assessable
shares of Common Stock, at the conversion ratio (the "Conversion Ratio")
of 13-1/3 shares of Common Stock for each share of Series A Preferred
Stock (13-1/3:1), upon the filing by the Corporation of the Charter
Amendment (as defined in subparagraph (e) below of this paragraph 3) with
the Secretary of State of the State of Delaware. Upon the occurrence of
any automatic conversion of the Series A Convertible Preferred Stock, the
holders thereof shall be entitled to the payment of all accrued and unpaid
cash dividends through the date of such conversion.
Upon the occurrence of such automatic conversion of the Series A
Convertible Preferred Stock, (i) the Corporation shall cause to be filed
with the conversion agent and shall cause to be mailed to the holders of
the Series A Convertible Preferred Stock, in accordance with the notice
provisions of subparagraph (d) of this paragraph 3, a notice of automatic
conversion (a "Notice of Automatic Conversion") which sets forth the
instructions for the surrender of all certificates representing shares of
Series A Convertible Preferred Stock and (ii) as promptly as possible
thereafter, the holders of such Series A Convertible Preferred Stock shall
surrender for cancellation the certificates representing such shares at
the office of the Corporation or of any conversion agent designated by the
Corporation or the transfer agent for the Common Stock, all in accordance
with the instructions contained in the Notice of Automatic Conversion.
Thereupon, there shall be issued and delivered to each such holder a
certificate or certificates for the number of shares of Common Stock into
which the shares of the Series A Convertible Preferred Stock surrendered
were convertible on the date on which such automatic conversion occurred,
together with a check in the amount of all accrued but unpaid cash
dividends on the Series A Convertible Preferred Stock through the date of
such automatic conversion, and any fractional interest in respect of a
share of Common Stock arising from such conversion shall be settled as
provided in subparagraph (b) of this paragraph 3. Upon such automatic
conversion date, the holders of shares of Series A Convertible Preferred
Stock shall cease to be holders of Series A Convertible Preferred Stock
and shall automatically become holders of shares of Common Stock,
irrespective of whether or not the certificates for shares of Series A
Convertible Preferred Stock shall have been properly surrendered for
cancellation in accordance with the Notice of Automatic Conversion, and
thereafter such shares of Series A Convertible Preferred Stock shall no
longer be transferrable upon the books of the Corporation and such holders
of shares of Series A Convertible Preferred Stock shall have no interest
or claim against the Corporation with respect to such shares except the
right to receive a certificate representing the shares of Common Stock
into which such shares were converted, together with a check in the amount
of all accrued but unpaid cash dividends on the Series A Convertible
Preferred Stock through the date of conversion and payment of any cash in
lieu of fractional interests as provided in subparagraph (b) of this
paragraph 3.
The term "Common Stock" shall mean the Common Stock, par value $0.20
per share, of the Corporation as the same exists at the date of this
Certificate or as such stock
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<PAGE>
may be constituted from time to time, except that for the purposes of
subparagraph (c) of this paragraph 3 the term "Common Stock" shall also
mean and include stock of the Corporation of any class (other than Series
A Convertible Preferred Stock), whether now or hereafter authorized, which
shall have the right to participate in the distribution of either earnings
or assets of the Corporation without limit as to amount or percentage.
(b) CASH PAYMENT FOR FRACTIONAL SHARES. No fractional shares or
script representing fractions of shares of Common Stock shall be issued
upon conversion of the Series A Convertible Preferred Stock. Instead of
any fractional interest in a share of Common Stock which would otherwise
be deliverable upon the conversion of a share of Series A Convertible
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash (computed to the nearest cent) equal to the current market
price (as determined in a reasonable manner prescribed by the Board in its
sole discretion) thereof at the close of business on the business day next
preceding the day of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of
shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate Liquidation Preference of the shares of
Series A Convertible Preferred Stock so surrendered.
(c) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio shall be
adjusted from time to time as follows:
(i) In case the Corporation shall hereafter (A) pay a dividend
or make a distribution on the Common Stock in shares of Common
Stock, (B) subdivide its outstanding shares of Common Stock into a
greater number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by
reclassification of the Common Stock any shares of capital stock of
the Corporation, the Conversion Ratio in effect immediately prior to
such action shall be adjusted so that the holder of any share of
Series A Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Corporation which he
would have owned or been entitled to receive immediately following
such action had such share been converted immediately prior thereto.
An adjustment made pursuant to this subdivision (i) shall become
effective immediately after the record date, in the case of a
dividend or distribution, or immediately after the effective date,
in the case of a subdivision, combination or reclassification. If,
as a result of an adjustment made pursuant to this subdivision (i),
the holder of any share of Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Corporation, the Board
(whose determination shall be conclusive and shall be described in a
statement filed with the conversion agent by the Corporation as soon
as practicable) shall determine the allocation of the adjusted
Conversion
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<PAGE>
Ratio between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock.
(ii) If at any time after the date of issuance of the shares
of Series A Convertible Preferred Stock, the Corporation shall issue
to all holders of its Common Stock or sell or fix a record date for
the issuance to all holders of its Common Stock of (A) Common Stock
or (B) rights, options or warrants entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible or
exchangeable into or exercisable for Common Stock), in any such
case, at a price per share (or having a conversion, exchange or
exercise price per share) that is less than $0.75 (the "Placement
Price") then, immediately after the date of such issuance or sale or
on such record date, the number of shares of Common Stock to be
delivered upon the conversion of the Series A Convertible Preferred
Stock shall be increased so that the holders of the Series A
Convertible Preferred Stock thereafter will be entitled to receive
the number of shares of Common Stock determined by multiplying the
number of shares of Common Stock such holder would have been
entitled to receive immediately before the date of such issuance or
sale on such record date by a fraction, the denominator of which
will be the number of shares of Common Stock outstanding on such
date plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares so offered for
subscription or purchase (or the aggregate initial conversion price,
exchange price or exercise price of the convertible securities or
exchangeable securities or rights, options or warrants, as the case
may be, so offered) would purchase at such Placement Price, and the
numerator of which will be the number of shares of Common Stock
outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the
convertible or exchangeable securities or rights, options or
warrants so offered are initially convertible or exchangeable or
exercisable, as the case may be). Notwithstanding anything contained
herein to the contrary, the provisions of this paragraph 3(c)(ii)
shall not apply to any issuance of shares of Common Stock to
employees, officers or directors of the Corporation pursuant to the
exercise of options or pursuant to a stock option plan or other
arrangements approved by the Board of Directors of the Corporation.
(iii) In case the Corporation shall distribute pro rata to
holders of shares of its Common Stock evidences of its indebtedness
or assets (excluding any cash dividends payable in Common Stock or
equity securities of the Corporation) or rights or warrants to
subscribe for securities of the Corporation or any of its
subsidiaries (other than shares of Common Stock referred to in
subdivision (ii) above), then in each case the number of shares of
Common Stock into which each share of the Series A Convertible
Preferred Stock shall be convertible thereafter shall be determined
by multiplying the number of shares of Common Stock into which each
such share was convertible theretofore by a fraction, of which the
numerator shall be the Average Market Price (as defined below) for a
share of
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<PAGE>
Common Stock on the record date mentioned below, and of which the
denominator shall be such Average Market Price, less the fair market
value (as determined by the Board of Directors of the Corporation,
whose determination shall be conclusive) as of such record date of
the portion of such evidences of indebtedness or assets or rights or
warrants to subscribe which are applicable to one of the outstanding
shares of Common Stock. Such adjustment shall be made whenever such
a distribution is made and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(iv) In any case in which this paragraph 3 shall require that
an adjustment be made immediately following a record date or an
effective date, the Corporation may elect to defer (but only until
five business days following the filing by the Corporation with the
conversion agent of the certificate of the chief financial officer
of the Corporation required by subdivision (vi) of this subparagraph
(c)) issuing to the holder of any share of Series A Convertible
Preferred Stock converted after such record date or effective date
the additional shares of Common Stock or other capital stock
issuable upon such conversion over and above the shares of Common
Stock or other capital stock issuable upon such conversion on the
basis of the Conversion Ratio prior to adjustment, and paying to
such holder any amount of cash in lieu of a fractional share.
(v) No adjustment in the Conversion Ratio shall be required to
be made unless such adjustment would require an increase or decrease
of at least 1% of such Conversion Ratio; PROVIDED, HOWEVER, that any
adjustments which by reason of this subdivision (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph 3 shall
be to the nearest 1/100th of a share. Anything in this paragraph 3
to the contrary notwithstanding, the Corporation shall be entitled
to make such adjustment in the Conversion Ratio, in addition to
those required by this paragraph 3, as it in its discretion shall
determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights to purchase stock or
securities, or distribution of securities convertible into or
exchangeable for stock hereafter made by the Corporation to its
stockholders shall not be taxable to the recipients.
(vi) Whenever the Conversion Ratio is adjusted as herein
provided, (A) the Corporation shall promptly file with the
conversion agent a certificate of the chief financial officer of the
Corporation setting forth the Conversion Ratio after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment and the manner of computing the same, which certificate
shall be conclusive evidence of the correctness of such adjustment,
and (B) a notice stating that the Conversion Ratio has been adjusted
and setting forth the adjusted Conversion Ratio shall forthwith be
mailed by the Corporation to the holders of
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<PAGE>
the Series A Convertible Preferred Stock at their addresses as shown
on the stock books of the Corporation.
(vii) In the event that at any time as a result of an
adjustment made pursuant to subdivision (i) of this subparagraph
(c), the holder of any share of Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares of Common
Stock, thereafter the Conversion Ratio of such other shares so
receivable upon conversion of any share shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common
Stock contained in this paragraph 3.
(viii) The Average Market Price of Common Stock at any date
shall be deemed to be the average of the Current Market Prices (as
defined below) for the 30 consecutive business days commencing 45
business days before the date in question. The "Current Market
Price" on any given day shall mean the closing price per share of
the Corporation's Common Stock on the principal national securities
exchange on which the Common Stock is listed or admitted to trading
or, if not listed or traded on any such exchange, on the National
Market System (the "National Market System") of the National
Association of Securities Dealers Automated Quotations System
("NASDAQ"), or if not listed or traded on any such exchange or
system, on the Nasdaq Bulletin Board, or if not listed or traded on
any such exchange, system or board, the average of the bid and asked
price per share on NASDAQ or, if such quotations are not available,
the fair market value per share of the Corporation's Common Stock as
reasonably determined by the Board of Directors of the Company.
(d) NOTICES OF RECORD DATE. In case:
(i) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a change
in the par value of the Common Stock), or any consolidation or
merger to which the Corporation is a party or any statutory exchange
of securities with another corporation and for which approval of any
stockholders of the Corporation is required, or any sale or transfer
of all or substantially all the assets of the Corporation; or
(ii) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the conversion agent,
and shall cause to be mailed to the holders of shares of the Series A
Convertible Preferred Stock at their addresses as shown on the stock books
of the Corporation, at least 10 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is
to
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be taken for the purpose of such distribution or rights, or, if a record
is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such distribution or rights are to be determined,
or (B) the date on which such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings
described in subdivision (i) or (ii) of this subparagraph (d).
(e) RESERVATION OF COMMON STOCK FOR CONVERSION. The Corporation
covenants that it will (i) use its best efforts to cause an amendment to
its Certificate of Incorporation to increase the aggregate number of
shares of authorized Common Stock from 15,000,000 shares to 100,000,000
shares (the "Charter Amendment") to be approved and adopted by its
stockholders as soon as possible after the date hereof and thereafter
promptly to file the Charter Amendment with the Secretary of State of the
State of Delaware and (ii) thereafter, at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or shares of Common Stock
held in its treasury, or both, for the purpose of effecting conversions of
the Series A Convertible Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding shares of
Series A Convertible Preferred Stock not theretofore converted. For
purposes of this subparagraph (e), the number of shares of Common Stock
which shall be deliverable upon the conversion of all outstanding shares
of Series A Convertible Preferred Stock shall be computed as if at the
time of computation all such outstanding shares were held by a single
holder.
(f) TAXES UPON CONVERSION. The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Common Stock on conversions of the
Series A Convertible Preferred Stock pursuant hereto; PROVIDED, HOWEVER,
that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the
Series A Convertible Preferred Stock to be converted and no such issue or
delivery shall be made unless and until the person requesting such issue
or delivery has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(g) MODIFICATION OF COMMON STOCK. Notwithstanding any provision
herein to the contrary, in case of any consolidation or merger to which
the Corporation is a party (other than a merger or consolidation in which
the Corporation is the continuing corporation), or in case of any sale or
conveyance to another corporation of the property
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of the Corporation as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Corporation), the holder of each share of Series A
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share into the kind and amount of securities,
cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance by a holder of the number of shares
of Common Stock into which such share of Series A Convertible Preferred
Stock might have been converted immediately prior to such consolidation,
merger, statutory exchange, sale or conveyance, assuming such holder of
Common Stock failed to exercise his rights of election, if any, as to the
kind of amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided
that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised (each, a
"non-electing share"), then for the purpose of this subparagraph (g) the
kind and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). Thereafter, the
holders of the Series A Convertible Preferred Stock shall be entitled to
appropriate adjustments with respect to their conversion rights to the end
that the provisions set forth in this paragraph 3 shall correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable on the
conversion of the Series A Convertible Preferred Stock. Any such
adjustment shall be approved by the Board of Directors of the Corporation,
evidenced by a certificate of the chief financial officer of the
Corporation to that effect delivered to the conversion agent; and any
adjustment so approved shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment.
The above provisions of this subparagraph (g) shall similarly apply
to successive consolidations, mergers, statutory exchanges, sales or
conveyances.
4. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. No share
or shares of Series A Convertible Preferred Stock acquired by the
Corporation by reason of purchase, conversion or otherwise shall be
reissued, and all such shares shall be cancelled, retired and eliminated
from the shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce accordingly the authorized number of shares
of the Series A Convertible Preferred Stock.
5. VOTING RIGHTS. Except as otherwise expressly provided herein or
as required by law, the holders of the Series A Convertible Preferred
Stock shall be entitled to vote on all matters upon which holders of
Common Stock have the right to vote and, with respect to such right to
vote, shall be entitled to notice of any stockholders' meeting
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<PAGE>
in accordance with the Corporation's Bylaws, and shall be entitled to a
number of votes equal to the number of shares of Common Stock into which
such shares of Series A Convertible Preferred Stock could then be
converted, at the record date for the determination of stockholders
entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Except as otherwise expressly provided herein,
or to the extent class or series voting is otherwise required by law or
agreement, the holders of the Series A Convertible Preferred Stock and the
holders of the Common Stock shall vote together as a single class and not
as separate classes.
6. NO CONSENT REQUIRED. No consent of the holders of the Series A
Convertible Preferred Stock shall be required for (a) the creation of any
indebtedness of any kind of the Corporation, (b) the creation of any class
of stock of the Corporation ranking senior (provided such class of stock
is not convertible into Common Stock or any equity security convertible
into or exchangeable for Common Stock), junior or PARI PASSU as to
dividends or upon liquidation to the Series A Convertible Preferred Stock
or (c) any increase of decrease in the amount of authorized Common Stock
or any increase, decrease or change in the par value thereof or in any
other terms thereof.
7. RESERVATION OF RIGHTS. The Board reserves the right by subsequent
amendment of this resolution from time to time to increase or decrease the
number of shares which constitute the Series A Convertible Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law,
this resolution and the Certificate of Incorporation.
IN WITNESS WHEREOF, Geokinetics Inc. has caused this Certificate of
Designation of Series A Convertible Preferred Stock to be made under the seal of
the Corporation and signed by Jay D. Haber, its President, and attested by
Michael Hale, its Secretary, as of this 11 day of July, 1997.
GEOKINETICS INC.
By: /s/ JAY D. HABER
Name: Jay D. Haber
Title: President
[SEAL]
Attest:
/s/ MICHAEL HALE
Name: Michael Hale
Title: Secretary
STATE OF TEXAS )
) ss.:
COUNTY OF HARRIS )
On the 11 day of July, 1997 before me, the undersigned Notary
Public, personally came Jay D. Haber, to me known, who by me duly sworn, did
depose and say that deponent is the President of GEOKINETICS INC., the
corporation described in, and which executed the foregoing instrument, that the
facts stated therein are true, that deponent knows the seal of the Corporation,
that the seal affixed to the instrument is the corporate seal, that it was
affixed by order of the board of directors of the Corporation, and that deponent
signed deponent's name to the foregoing instrument by order of the board of
directors of the Corporation being authorized so to do on its behalf.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
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<PAGE>
/s/ SUSAN POE
Notary Public
STATE OF TEXAS )
) ss.:
COUNTY OF HARRIS )
On the 11 day of July, 1997 before me, the undersigned Notary
Public, personally came Michael Hale, to me known, who by me duly sworn, did
depose and say that deponent is the Secretary of GEOKINETICS INC., the
corporation described in, and which executed the foregoing instrument, that the
facts stated therein are true, that deponent knows the seal of the Corporation,
that the seal affixed to the instrument is the corporate seal, that it was
affixed by order of the board of directors of the Corporation, and that deponent
signed deponent's name to the foregoing instrument by order of the board of
directors of the Corporation being authorized so to do on its behalf.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ SUSAN POE
Notary Public
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made as of July __, 1997
by SIGNATURE GEOPHYSICAL SERVICES, INC, a Michigan corporation (the "EMPLOYER"),
and JAMES V. GALLANT, an individual resident of the State of Texas (the
"EXECUTIVE").
INTRODUCTION
Employer is engaged in the business of conducting 2-D and 3-D seismic
surveys of oil and gas prospects, focusing on the Permian Basin and the Gulf
Coast with a special emphasis on swamp work. This Agreement shall be effective
on the date (the "EFFECTIVE DATE") that one hundred percent (100%) of the issued
and outstanding stock of Employer has been acquired by Geokinetics Inc., a
Delaware corporation ("GEOKINETICS"), pursuant to that certain Stock Purchase
Agreement, by and among Geokinetics, the Employer and Gallant Energy, Inc. dated
as of June 25, 1997 (the "Stock Purchase Agreement"). The Executive has been the
President of the Employer since July, 1996. The Employer desires the Executive's
continued employment with the Employer, and the Executive wishes to accept such
continued employment, upon the terms and conditions set forth in this Agreement.
The parties, intending to be legally bound, agree as follows:
Section 1. DEFINITIONS. For the purposes of this Agreement, the following
terms have the meanings specified or referred to in this Section 1.
1.1 "AFFILIATE" or "AFFILIATES" -- any Person that, directly or
indirectly, controls, or is controlled by or under common control with, the
Employer or Geokinetics, including the Employer and Geokinetics. For the
purposes of this definition, "CONTROL" (including the terms "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH") means the power to direct or cause the direction of
the management and policies of any Person, directly or indirectly, through
ownership of voting securities, by contract, or otherwise.
1.2 "AGREEMENT" -- this Employment Agreement, including all Exhibits
attached hereto, as amended from time to time.
1.3 "BASIC COMPENSATION" -- Salary and Benefits.
1.4 "BENEFITS" -- as defined in Section 3.1(d).
1.5 "BOARD OF DIRECTORS" -- the board of directors of the Employer.
1.6 "CONFIDENTIAL INFORMATION" -- any and all:
(a) trade secrets concerning the business and affairs of any
Affiliate, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past,
current, and planned research and development, current and
planned
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manufacturing or distribution methods and processes, customer
lists, current and anticipated customer requirements, price
lists, market studies, business plans, seismic data bases,
computer software and programs (including object code and
source code), computer software and database technologies,
systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and
information), and any other information, however documented,
that is a trade secret within the meaning of the common law of
the State of Texas; and
(b) information concerning the business and affairs of any
Affiliate (which includes historical financial statements,
financial projections and budgets, historical and projected
sales, capital spending budgets and plans, the names and
backgrounds of key personnel, personnel training and
techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for any Affiliate containing or based,
in whole or in part, on any information included in the
foregoing.
1.7 "DISABILITY" -- as defined in Section 5.2.
1.8 "EFFECTIVE DATE" -- the date stated in the first paragraph of the
Agreement.
1.9 "EMPLOYEE INVENTION" -- any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer or the Affiliates, and any
such item created by the Executive, either solely or in conjunction with others,
following termination of the Executive's employment with the Employer, that is
based upon or uses Confidential Information.
1.10 "EMPLOYMENT PERIOD" -- the term of the Executive's employment under
this Agreement.
1.11 "FISCAL YEAR" -- the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
1.12 "FOR CAUSE" -- as defined in Section 5.3.
1.13 "FORCE MAJEURE" -- as defined in Section 3.2(b).
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1.14 "INCENTIVE COMPENSATION" -- as defined in Section 3.2.
1.15 "OPTION PLAN" -- the Geokinetics Inc. 1995 Employee Stock Option
Plan.
1.16 "NONINCENTIVE COMPENSATION" -- as defined in Section 3.3.
1.17 "PERSON" -- any individual, general or limited partnership, joint
venture, corporation (including any non-profit corporation), limited liability
company, bank, estate, trust, association, entity, unincorporated organization,
or government body.
1.18 "POST-EMPLOYMENT PERIOD" -- as defined in Section 7.2.
1.19 "PROPRIETARY ITEMS" -- as defined in Section 6.2(a)(iv).
1.20 "SALARY" -- as defined in Section 3.1(a).
1.21 "SIGNING BONUS" -- as defined in Section 3.1(b).
Section 2. EMPLOYMENT TERMS AND DUTIES.
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 5, the term of the
Executive's employment under this Agreement will be three years, beginning on
the Effective Date and ending on the third anniversary of the Effective Date.
Thereafter, the term may continue for additional one (1) year periods upon the
mutual written agreement of the Executive and the Employer.
2.3 DUTIES. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors (which duties shall be of a
management or executive level) and will initially serve as President of the
Employer and a member of its Board of Directors. The Executive will devote
substantially all of his entire business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best efforts to
promote the success of the Employer's business, and will cooperate fully with
the Board of Directors in the advancement of the best interests of the Employer.
For the Executive's service as a director of the Employer or as a director or
officer of any of its affiliates, the Executive will fulfill his duties as such
director or officer without additional compensation.
Section 3. COMPENSATION.
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual salary of
$120,000.00, subject to adjustment as provided below (the
"SALARY"), which will be payable in equal periodic
installments according to the Employer's customary payroll
practices,
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but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors not less frequently than
annually, and may be adjusted upward or downward in the sole
discretion of the Board of Directors, but in no event will the
Salary be less than $120,000.00 per year.
(b) SIGNING BONUS. In order to induce the Executive to continue
his employment with the Employer, the Employer agrees to pay
the Executive a bonus ("SIGNING BONUS"). Subject to the
Executive's employment by the Employer, such bonus shall be
paid to the Executive, in installments, as follows: $50,000.00
upon execution of this Agreement, and $12,500.00 on each of
October 1, 1998, January 1, April 1, July 1 and October 1,
1999, and January 1, April 1, and July 1, 2000.
(c) CONTINUITY OF SERVICE PAYMENT. Upon Executive's completion of
each three months of employment hereunder, Employer shall pay
to the Executive an additional $7,500.00 bonus for continuity
of service. Subject to Executive's employment hereunder,
Employer shall pay the Executive $7,500.00 on each of October
1, 1997, January 1, April 1, July 1 and October 1, 1998,
January 1, April 1, July 1 and October 1, 1999, and January 1,
April 1 and July 1 2000.
(d) BENEFITS. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and
other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is
eligible under the terms of those plans (collectively, the
"BENEFITS").
3.2 INCENTIVE COMPENSATION. As additional compensation (the "INCENTIVE
COMPENSATION") for the services to be rendered by the Executive pursuant to this
Agreement, the Executive will be entitled to participate in the following plans,
in the manner described below:
(a) The Executive shall be entitled to receive an annual bonus
("BONUS") based upon the amount of the Employer's earnings
before taxes in accordance with the terms of the Bonus Plan
attached hereto as Exhibit "A". The Employer's earnings before
taxes shall be computed by Geokinetics, for purposes of
calculation of the Bonus, for each twelve-month period
beginning on July 1 and ending on June 30 during the term
hereof, and shall be determined in accordance with generally
accepted accounting principles, consistently applied.
(b) Upon the commencement of Executive's employment hereunder,
Executive shall be granted an option to purchase up to an
aggregate of 400,000 shares of Geokinetics' Common Stock, $.20
par value ("COMMON STOCK"), at a price per share of $.75
(equal to the closing bid price for the Common Stock on the
day before the execution date of the Stock Purchase
Agreement), exercisable in accordance with the following terms
and conditions. On or before each of
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March 31 and September 30, 1998 and March 31 and September 30,
1999, Geokinetics shall cause to be prepared and delivered to
the Executive a statement (each a "STATEMENT") based on the
financial statements of the Employer for each six-month period
ending on December 31, 1997, June 30 and December 31, 1998 and
June 30, 1999, respectively, prepared in accordance with
generally accepted accounting principles, and showing the
calculation of the amount of the Employer's earnings before
taxes, but after interest, depreciation and amortization
("EBIT"), for such period (the "EARN- OUT"). For purposes of
calculating the Earn-Out, the Employer shall not be charged
more than an average of $15,000 per month (or an aggregate of
$90,000 during each six-month period) for any services
rendered to or on behalf of the Employer by Geokinetics or any
Affiliate of Geokinetics. Any interest charges which may be
accrued by Geokinetics in respect of the $2,000,000 which will
be advanced by Geokinetics to the Employer after the Effective
Date shall not be considered in the calculation of the
Earn-Out. The number of shares of Common Stock as to which the
Executive shall be vested and entitled to exercise the option
granted herein shall be equal to the amount of the Earn-Out as
set forth in each Statement divided by five (5), up to a
maximum of 400,000 shares in the aggregate. The amount of any
negative EBIT shown on any Statement shall be cumulated and
offset against any positive EBIT shown on any succeeding
Statement(s). The option granted herein shall be exercisable
at any time during the thirty-six month period beginning on
the date of delivery of each Statement with respect to the
number of shares specified in each Statement up to an
aggregate of 400,000 shares. The maximum cumulative Earn-Out
that shall be considered hereunder is $2,000,000. The period
for determination of the Earn-Out shall be extended by the
period of any event of force majeure and the amount of EBIT
calculable hereunder shall not include any such period of
time. The term "force majeure" shall mean any acts of God,
strikes, lockouts, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, arrests, civil
disturbances, explosions, the binding order of any court or
governmental authority which has been resisted in good faith
by all reasonable legal means, and any other cause not within
the control of the Executive and which, by the exercise of due
diligence, the Executive was unable to prevent or overcome.
The Executive (A) understands that the shares of Common Stock
to be received by the Executive hereunder will not be
registered (except as contemplated by the Registration Rights
Agreement) under the Securities Act of 1933, as amended, or
under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is
acquiring the Common Stock for his own account for investment
purposes, and not with a view to the distribution thereof, (C)
is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received, and will
continue to receive, information concerning Geokinetics, and
has had the opportunity to obtain additional
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information as desired in order to evaluate the merits and the
risks inherent in acquiring the Common Stock, and (E) is able
to bear the economic risk and lack of liquidity inherent in
holding the Common Stock. The Executive understands that the
certificates evidencing the shares of Common Stock to be
issued hereunder will contain a legend restricting transfers
thereof.
3.3 NONINCENTIVE COMPENSATION. As additional compensation (the
"NONINCENTIVE COMPENSATION") for the services to be rendered by the Executive
pursuant to this Agreement, the Executive shall be permitted to participate in
the Option Plan. Upon the commencement of Executive's employment hereunder, the
Executive shall be granted one, five-year option to purchase an aggregate of
225,000 shares of Common Stock on the terms and conditions set forth below:
(a) The Executive will have one option (the "Option") to purchase
225,000 shares of Common Stock and will become eligible to
exercise 75,000 shares of the Option on and after each of July
15, 1998, 1999 and 2000 provided the Executive continues to be
employed by the Employer hereunder on such dates, and the
Executive exercises such Option prior to or on July 15, 2002;
and
(b) The Option shall be exercisable at a price per share of Common
Stock of $.75 (equal to the closing bid price for the Common
Stock on the day before the execution date of the Stock
Purchase Agreement).
3.4 VACATIONS AND HOLIDAYS. The Executive will be entitled to four weeks'
paid vacation each Fiscal Year in accordance with the vacation policies of the
Employer in effect for its executive officers from time to time. Vacation must
be taken by the Executive at such time or times as approved by the Chairman of
the Board of Directors. The Executive will also be entitled to the paid holidays
and other paid leave set forth in the Employer's policies. Vacation days and
holidays during any Fiscal Year that are not used by the Executive during such
Fiscal Year may not be used in any subsequent Fiscal Year, but Executive shall
be paid at the end of each Fiscal Year for any vacation days which Executive was
unable to use as a result of a request for approval of a vacation having been
denied by the Chairman of the Board of Directors.
3.5 AUTOMOBILE. During the Employment Period, the Executive shall be
entitled to the use of an automobile owned by the Employer, comparable to the
type of automobile presently being provided to the Executive for his use. The
Employer will pay on behalf of the Executive (or reimburse the Executive for)
reasonable expenses incurred by the Executive for the repair and maintenance of
such automobile in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies. The
Executive shall file expense reports with respect to such expenses in accordance
with the Employer's policies.
Section 4. FACILITIES AND EXPENSES. The Employer will furnish the
Executive office space, equipment, supplies, and such other facilities and
personnel as the Employer deems necessary or appropriate for the performance of
the Executive's duties under this Agreement and as are
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commensurate with Executive's duties under Section 2.3. The Employer will pay
the Executive's dues in such professional societies and organizations as the
Chairman of the Board of Directors of the Employer deems appropriate, and will
pay on behalf of the Executive (or reimburse the Executive for) reasonable
expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies, including
reasonable expenses incurred by the Executive in attending conventions,
seminars, and other business meetings, in appropriate business entertainment
activities, and for promotional expenses. The Executive must file expense
reports with respect to such expenses in accordance with the Employer's
policies.
Section 5. TERMINATION.
5.1 EVENTS OF TERMINATION. The Employment Period, the Executive's Basic
Compensation, Incentive Compensation, Nonincentive Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 5):
(a) upon the death of the Executive;
(b) upon the Disability of the Executive (as defined in Section
5.2) immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 5.3), immediately upon notice
from the Employer to the Executive, or at such later time as
such notice may specify; or
(d) upon Executive's voluntary termination of employment, which
termination shall be effective thirty (30) days after
Employer's receipt of Executive's written resignation.
5.2 DISABILITY. For purposes of this Section 5, the Executive will be
deemed to have a "DISABILITY" if, for physical or mental reasons, the Executive
is unable to perform the Executive's duties under this Agreement for 120
consecutive days, or 180 days during any twelve month period, as determined in
accordance with this Section 5.2. The Disability of the Executive will be
determined by a medical doctor selected by written agreement of the Employer and
the Executive upon the request of either party by notice to the other. If the
Employer and the Executive cannot agree on the selection of a medical doctor,
each of them will select a medical doctor and the two medical doctors will
select a third medical doctor who will determine whether the Executive has a
Disability. The determination of the medical doctor selected under this Section
5.2 will be binding on both parties. The Executive must submit to a reasonable
number of examinations by the medical doctor making the determination of
Disability under this Section 5.2, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act on behalf of the
Executive, under this Section 5.2, for the purposes of submitting the
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Executive to the examinations, and providing the authorization of disclosure,
required under this Section 5.2.
5.3 FOR CAUSE. For purposes of Section 5.1, the phrase "FOR CAUSE" means
any conduct or behavior by the Executive that, in the good faith judgment of the
Employer's Board of Directors, is materially detrimental to or materially
harmful to the business or reputation of the Employer including, without
limitation: (a) the Executive's breach of this Agreement, which breach is not
substantially cured within ten (10) days after Executive's receipt of written
notice thereof from Employer; (b) the Executive's failure to adhere to any
written Employer policy and Executive's failure to cure such noncompliance
within ten (10) days after receipt of written notice thereof from Employer; (c)
the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony (other than involving the misuse of alcohol),
the equivalent thereof, or any other crime with respect to which imprisonment is
a possible punishment.
5.4 TERMINATION PAY. Effective upon the termination of this Agreement, the
Employer will be obligated to pay the Executive (or, in the event of his death,
his designated beneficiary as defined below) only such compensation as is
provided in this Section 5.4, and in lieu of all other amounts and in settlement
and complete release of all claims the Executive may have against the Employer
under this Agreement. For purposes of this Section 5.4, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer
terminates this Agreement For Cause, the Executive will be
entitled to receive his Salary, Signing Bonus and Benefits
through the date such termination is effective and the vested
portion of any Incentive Compensation and any Nonincentive
Compensation.
(b) TERMINATION UPON DISABILITY. If this Agreement is terminated
by either party as a result of the Executive's Disability, as
determined under Section 5.2, the Employer will pay the
Executive his Salary, Signing Bonus and Benefits through the
remainder of the calendar month during which such termination
is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until Disability insurance
benefits commence under the
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Disability insurance coverage, if any, furnished by the
Employer to the Executive. The Executive shall be entitled to
the vested portions of his Incentive Compensation and
Nonincentive Compensation and to a pro rata portion of his
Incentive Compensation and Nonincentive Compensation for the
year during which such Disability occurs, but shall not be
entitled to any other Incentive Compensation or Nonincentive
Compensation.
(c) TERMINATION UPON DEATH. If this Agreement is terminated
because of the Executive's death, the Executive will be
entitled to receive his Salary, Signing Bonus and Benefits
through the end of the calendar month in which his death
occurs. The Executive shall be entitled to receive the vested
portions of his Incentive Compensation and Nonincentive
Compensation and to a pro rata portion of his Incentive
Compensation and Nonincentive Compensation for the year during
which the Executive's death occurs, but shall not be entitled
to any other Incentive Compensation or Nonincentive
Compensation for or any subsequent year.
(d) TERMINATION UPON RESIGNATION. If this Agreement is terminated
because of the voluntary resignation of the Executive
hereunder, the Executive shall be entitled to receive his
Salary, Signing Bonus and Benefits through the effective date
of his termination and any vested portions of his Incentive
Compensation or Nonincentive Compensation. The Executive shall
not be entitled to any other Incentive Compensation or to any
other Nonincentive Compensation.
(e) TERMINATION BY THE EMPLOYER NOT FOR CAUSE. If the Employer
terminates this Agreement not For Cause, the Executive will be
entitled to either: (i) receive all of the compensation and
Benefits provided by Section 3.1, the Incentive Compensation
provided by Section 3.2, and the Nonincentive Compensation
provided by Section 3.3 for the remainder of the Employment
Term, and the Executive shall be subject to the provisions of
Section 7.2 hereof; or (ii) the Executive shall be entitled to
receive all of the compensation and Benefits provided by
Section 3.1 and the vested portions of any Incentive
Compensation provided by Section 3.2 and Nonincentive
Compensation provided by Section 3.3 through the end of the
calendar month in which such termination occurs, and the
Executive shall not be subject to the provisions of Section
7.2.
(f) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive
will be entitled to accrued Benefits pursuant to such plans
only as provided in such plans. The Executive will not
receive, as part of his termination pay pursuant to this
Section 5, any payment or other compensation for any vacation,
holiday, sick leave, or other leave unused on the date the
notice of termination is given under this Agreement.
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(g) EXPIRATION OF EMPLOYMENT. Employer agrees to notify the
Executive not less than sixty (60) days prior to the
expiration of the initial term of this Agreement or any
subsequent continuation thereof as to whether Employer desires
to extend the Employment Period of this Agreement.
Section 6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS.
6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that
during the Employment Period and as a part of his employment, the Executive will
be afforded access to Confidential Information; public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; because the Executive possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to obtain
exclusive ownership of each Employee Invention, and the Employer will be at a
substantial competitive disadvantage if it fails to acquire exclusive ownership
of each Employee Invention; Geokinetics has required that the Executive make the
covenants in this Section 6 as a condition to its purchase of the Employer's
stock; and the provisions of this Section 6 are reasonable and necessary to
prevent the improper use or disclosure of Confidential Information and to
provide the Employer with exclusive ownership of all Employee Inventions.
6.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer under this
Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and for a period of three (3) years following the
Employment Period, the Executive will hold in confidence
the Confidential Information and will not disclose it to
any person except with the specific prior written
consent of the Employer or except as otherwise expressly
permitted by the terms of this Agreement.
(ii) Any trade secrets of any Affiliate will be entitled to
all of the protections and benefits under the common law
of the State of Texas and any other applicable law. If
any information that the Employer deems to be a trade
secret is found by a court of competent jurisdiction not
to be a trade secret for purposes of this Agreement,
such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade
secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that
the Executive demonstrates either (x) was known by
Executive prior to the date of his employment by the
Employer, (y) was or became generally available to the
public
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other than as a result of a disclosure by the Executive,
or (z) was made known to Executive on a nonconfidential
basis from a source other than Employer or its
representatives or agents, provided that such source is
not bound by a confidentiality agreement with, or other
obligation of secrecy to, Employer or another party.
(iv) The Executive will not remove from the premises of the
Employer or any Affiliate (except to the extent such
removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except
as otherwise specifically authorized by the Employer or
such Affiliate) any document, record, notebook, plan,
model, component, device, or computer software or code,
whether embodied in a disk or in any other form
(collectively, the "PROPRIETARY ITEMS"). The Executive
recognizes that, as between the Employer or any
Affiliate and the Executive, all of the Proprietary
Items, whether or not developed by the Executive, are
the exclusive property of the Employer or the
Affiliates. Upon termination of this Agreement by either
party, or upon the request of the Employer or any
Affiliate during the Employment Period, the Executive
will return to the Employer or the Affiliates all of the
Proprietary Items in the Executive's possession or
subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary
Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that
all of the Executive's writing, works of authorship, specially
commissioned works, and other Employee Inventions are works
made for hire and the property of the Employer, including any
copyrights, patents, or other intellectual property rights
pertaining thereto. If it is determined that any such works
are not works made for hire, the Executive hereby assigns to
the Employer all of the Executive's right, title, and
interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee
Inventions. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and
without additional compensation, all of the
Executive's right to the Employee Invention for
the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as
the Employer may request in order to apply for and
obtain patents or other
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registrations with respect to any Employee
Invention in the United States and any foreign
jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee
Invention.
6.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
Section 7. NON-COMPETITION AND NON-INTERFERENCE.
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges and
agrees that the limitations set forth in this Section 7 are a necessary part of
and ancillary to the Executive's agreement not to disclose Confidential
Information, reasonable and do not impose a greater restraint on the activities
of the Executive than is necessary to protect the business interest of the
Employer. In the event that any such territorial, scope, or time limitation are
deemed to be unreasonable by a court of competent jurisdiction, the Executive
agrees to the reduction of the territorial, scope or time limitation to the
area, scope or time which such court shall have deemed reasonable.
7.2 COVENANTS OF THE EXECUTIVE. In consideration of the acknowledgments by
the Executive, and in consideration of the compensation and benefits to be paid
or provided to the Executive by the Employer in the event this Agreement is
terminated pursuant to Section 5.4(a), 5.4(d) or 5.4(e)(i), the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period
(as defined below), engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's
credit to or render services or advice to, any business whose
products or activities compete in whole or in part with the
products or activities of the Employer or any Affiliate of
Employer anywhere within the geographic areas in which the
Employer or any such Affiliate now or hereafter conducts its
business; provided, however, that the Executive may purchase
or otherwise acquire up to (but not more than) one percent of
any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise)
if such securities are listed on
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any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act
of 1934;
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and
the Post-Employment Period, solicit business of the same or
similar type being carried on by the Employer or any Affiliate
of Employer, from any person known by the Executive to be a
customer of the Employer or any such Affiliate, whether or not
the Executive had personal contact with such person during and
by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person at any time during the Employment Period and the
Post-Employment Period, (i) solicit, employ, or otherwise
engage as an employee, independent contractor, or otherwise,
any person who is or was an employee of the Employer or any
Affiliate of Employer at any time during the Employment Period
or in any manner induce or attempt to induce any employee of
the Employer and any such Affiliate to terminate his
employment with the Employer; or (ii) interfere with the
Employer's or any Affiliate's relationship with any person,
including any person who at any time during the Employment
Period was an employee, contractor, supplier, or customer of
the Employer or any such Affiliate; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 7.2, the term "POST-EMPLOYMENT PERIOD" means
the two-year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 7.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
The period of time applicable to any covenant in this Section 7.2 will be
extended by the duration of any violation by the Executive of such covenant, as
determined by a court of competent jurisdiction.
The Executive will, while the covenant under this Section 7.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's new employer. Geokinetics or the
Employer may notify such new employer that the Executive is bound by this
Agreement and, at Geokinetics' or the Employer's election, furnish such new
employer with a copy of this Agreement or relevant portions thereof.
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Section 8. GENERAL PROVISIONS.
8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of the provisions of this Agreement (including any provision of Sections 6 and
7) would be irreparable and that an award of monetary damages to the Employer
for such a breach would be an inadequate remedy. Consequently, the Employer will
have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise to
specifically enforce any provision of this Agreement, and the Employer will not
be obligated to post bond or other security in seeking such relief. Any such
remedy shall be in addition to any damages which the Employer may be legally
entitled to recover as a result of any breach by the Employee of any provision
of this Agreement. The Employer may pursue any of the remedies described in this
Section concurrently or consecutively and in any order as to such breach or
violation, and the pursuit of any one of such remedies at any time will not be
deemed an election of remedies or a waiver of the right to pursue any other
available remedy.
8.2 ESSENTIAL AND INDEPENDENT COVENANTS. The covenants by the Executive in
Sections 6 and 7 are essential elements of this Agreement supported by the
payment of $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Executive, and without the
Executive's agreement to comply with such covenants, the Employer would not have
entered into this Agreement or employed or continued the employment of the
Executive. The Employer and the Executive have independently consulted their
respective counsel and have been advised in all respects concerning the
reasonableness and propriety of such covenants, with specific regard to the
nature of the business conducted by the Employer.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 6 and 7.
8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: violate any judgment, writ, injunction, or
order of any court, arbitrator, or governmental agency applicable to the
Executive; or conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound. The Executive
further represents and warrants to the Employer that no agreements or
understandings, whether written or oral, are currently in force and effect
between the Executive and the Employer, or any other Person concerning the
subject matter of this Agreement.
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8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the Employer
hereunder, including its obligation to pay the compensation provided for herein,
are contingent upon the Executive's performance of the Executive's obligations
hereunder.
8.5 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
no claim or right arising out of this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; no waiver that may be given by a party will
be applicable except in the specific instance for which it is given; and no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
8.6 NOTICES. All notices pertaining to this Agreement must be in writing,
must be sent to the addressee at the address set forth in this Section, or at
such other address as the addressee has designated by a notice given in the
manner set forth in this Section, and must be sent by telegram, telex,
facsimile, electronic mail, courier, or prepaid, certified U.S. Mail. Notices
will be deemed given when received, if sent by telegram, telex, electronic mail
or facsimile and if received between the hours of 8:00 a.m. and 5:00 p.m., local
time of the destination address, on a business day (with confirmation of
completed transmission sufficing as prima facie evidence of receipt of a notice
sent by telex, telecopy, electronic mail, or facsimile), and when delivered and
receipted for (or when attempted delivery is refused at the address where sent)
if sent by courier or by certified U.S. Mail. Notices sent by telegram, telex,
electronic mail, or facsimile and received between 12:01 a.m. and 7:59 a.m.,
local time of the destination address, on a business day will be deemed given at
8:00 a.m. on that same day. Notices sent by telegram, telex, electronic mail, or
facsimile and received at a time other than between the hours of 12:01 a.m. and
5:00 p.m., local time of the destination address, on a business day will be
deemed given at 8:00 a.m. on the next following business day after the day of
receipt. The addresses for notice are as follows:
If to Employer: Signature Geophysical Services, Inc.
c/o Geokinetics Inc.
5555 San Felipe, Suite 780
Houston, Texas 77056
Attention: President
Facsimile No.: (713) 850-7330
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With copies to: Geokinetics Inc.
5555 San Felipe, Suite 780
Houston, Texas 77056
Attention: President
Facsimile No.: (713) 850-7330
and
If to the Executive: James V. Gallant
1319 W. Vistawood
Houston, Texas 77077
With a copy to: Cohen & Small
2700 Post Oak Blvd., Suite 950
Houston, Texas 77056
Attention: William G. Small
8.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement shall
inure to the benefit of, and shall be binding upon, the parties hereto and their
respective successors, assigns, heirs, and legal representatives, including any
entity with which the Employer may merge or consolidate or to which all or
substantially all of its assets may be transferred. The duties and covenants of
the Executive under this Agreement, being personal, may not be delegated.
8.8 INTERPRETATION. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. A determination that any provision of this Agreement is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision.
8.9 HEADINGS. The section headings appearing in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
8.10 ENTIRE AGREEMENT. This Agreement constitutes the final and entire
agreement and understanding between the parties to this Agreement concerning the
subject matter of this Agreement, and this Agreement supersedes and replaces all
prior agreements and understandings, whether written or oral, between such
parties concerning the subject matter of this Agreement. No alleged
representation, warranty, promise, inducement, or statement of intention not
expressly set forth in this Agreement is binding on any party to this Agreement.
8.11 ACKNOWLEDGMENT AND RELEASE BY THE EXECUTIVE. By his execution of this
Agreement, the Executive acknowledges that this Agreement supersedes and
replaces all other agreements and understandings, whether written or oral,
between the Executive and any other Person concerning the subject matter of this
Agreement. In consideration for the rights and obligations arising under this
Agreement, the Executive hereby voluntarily, knowingly, fully, finally,
completely, and forever releases, relinquishes, and forever discharges the
Employer and its Affiliates, their officers, directors,
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employees, and agents, from any and all claims, actions, demands, and causes of
action of whatever kind or character, whether known or unknown, joint or
several, which the Executive might have or might claim to have against the
Employer for any and all injuries, harm, damages, penalties, costs, losses,
expenses, attorneys' fees, liabilities, or other detriments, if any, whatsoever
and whenever incurred, suffered, or claimed by the Executive arising from any
prior agreement or understanding, whether written or oral, between the Executive
and the Employer, or any other Person concerning the subject matter of this
Agreement.
8.12 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
8.13 JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Texas,
County of Harris, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Texas, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
8.14 LIMITATION OF LIABILITY. The Executive acknowledges that he has
personally guaranteed the obligations of Gallant Energy, Inc. and the Employer
under the Stock Purchase Agreement. In consideration for the agreement of
Geokinetics to limit the Executive's personal liability under such guarantee to
the amount of the Earn-Out described in Section 3.2(b) above, the Executive
hereby authorizes Geokinetics to offset any amounts that may be payable by the
Executive pursuant to the terms of such guarantee against the amount of the
Earn-Out. Geokinetics hereby agrees that, so long as Executive has not willfully
concealed adverse information regarding the Employer from Geokinetics which
would otherwise have been required to be disclosed pursuant to the terms of the
Stock Purchase Agreement, Geokinetics' sole remedy against the Executive under
his guarantee shall be to offset any liability incurred thereunder against the
amount of the Earn-Out.
8.15 EXERCISE OF OPTIONS. The Executive shall be entitled to exercise the
options granted pursuant to Section 3.2(b) and 3.3: (i) in cash or by certified
or cashier's check payable to Geokinetics; or (ii) by delivery to Geokinetics of
certificates representing the number of shares of Common Stock then owned by the
Executive, the Designated Value of which equals the option price of the shares
of Common Stock purchased pursuant to the option or options being exercised.
(For purposes of this Agreement, the Designated Value of any shares of Common
Stock delivered in payment of the option price payable upon exercise of any
option granted hereunder shall be the Designated Value as of the exercise date,
and the exercise date shall be the date of delivery of the certificates for the
Common Stock used as payment of such option price. The "Designated Value" of the
shares of Common Stock on a given date shall mean the average of the closing
prices of the Common Stock on the principal market or registered exchange on
which the Common Stock is traded (or the average of the closing bid and asked
prices, if a single closing price is not reported for such market) on the ten
(10) consecutive trading days preceding the date for the determination of such
value, provided that the Common Stock is then traded on the over-the-counter
market or on the NASDAQ National Market System or any registered securities
exchange.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
EMPLOYER:
SIGNATURE GEOPHYSICAL SERVICES, INC.
BY: /s/ MICHAEL HALE
NAME: Michael Hale
TITLE: Vice President
EXECUTIVE:
/s/ JAMES V. GALLANT
JAMES V. GALLANT
19
EXHIBIT 10.2
INVESTMENT MONITORING AGREEMENT
INVESTMENT MONITORING AGREEMENT (hereinafter referred to as this
"Agreement"), dated as of July 18, 1997, by and among GEOKINETICS INC., a
Delaware corporation (the "Company"), BLACKHAWK CAPITAL PARTNERS, a Texas
general partnership (the "Investment Monitor") and BLACKHAWK INVESTORS, L.L.C, a
Delaware limited liability company ("Blackhawk").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase and Exchange Agreement of even
date herewith (the "Purchase Agreement") among the Company, Blackhawk and
certain Holders (as defined therein), Blackhawk will invest in the Company (the
"Investment") by purchasing 5,041,667 shares of Common Stock of the Company,
171,875 shares of Series A Preferred Stock of the Company and a Shadow Warrant
to purchase up to an aggregate of 6,512,095 shares of Common Stock, subject to
adjustment;
WHEREAS, the Investment Monitor is the managing member of Blackhawk;
WHEREAS, as an inducement to the consummation of the transactions
contemplated by the Purchase Agreement Merger and the making of the Investment,
the parties have agreed that the Investment Monitor will oversee the Investment
on behalf of Blackhawk, and the Investment Monitor is willing to undertake such
responsibility on the terms and conditions set forth herein; and
WHEREAS, capitalized terms used herein without definition shall have the
respective meanings ascribed to the in the Purchase Agreement.
NOW, THEREFORE, in consideration of the conditions and mutual agreements
hereinafter set forth, the parties hereto agree as follows:
1. The parties agree that the Investment Monitor will monitor the
Investment, on behalf of Blackhawk, during the term of this Agreement (the
"Term"), which shall commence on the Closing Date of the transactions
contemplated by the Purchase Agreement and terminate as provided in paragraph 6
below.
2. During the Term, the Company shall pay to the Investment Monitor an
annual fee, in the amount of $25,000, in payment for its services to be rendered
hereunder (the "Fee"), which Fee will be paid quarterly in arrears on the last
business day of March, June, September and December of each year, commencing
September 30, 1997.
3. Nothing herein shall require the Investment Monitor to devote full time
to its duties hereunder, the Investment Monitor hereby agrees to devote such of
its time and activity during normal business days and hours as it, in its sole
discretion, shall deem necessary for the accomplishment of its duties hereunder.
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4. The Investment Monitor shall not be liable to Blackhawk or any of its
members on account of any compensation received or action taken pursuant to this
Agreement.
5. Blackhawk hereby agrees to hold the Investment Monitor harmless from
and indemnify the Investment Monitor against all actions, proceedings, claims
and demands (herein referred to as "Claims") which may be brought against,
suffered or incurred by the Investment Monitor by reason of its performance or
nonperformance of its duties under the terms of this Agreement (including all
reasonable legal, professional and other expenses incurred), except any such
Claim that arises from the willful misconduct, gross negligence or fraud of the
Investment Monitor in the performance or nonperformance of its obligations or
duties hereunder.
6. This Agreement shall terminate (except for the provisions of paragraph
5), upon the earlier to occur of (i) the date that on which Blackhawk and/or its
affiliates ceases to own 10% of the equity securities of the Company or (ii)
December 31, 2002, provided, that, if the event described in subparagraph (i)
above shall not have occurred before December 31, 2002, this Agreement shall be
automatically extended beyond December 31, 2002 for successive one year terms,
unless either the Company or Blackhawk shall give written notice to the
Investment Monitor at least 30 days before such expiration date or such extended
expiration date or until the occurrence of the event described in subparagraph
(i) above.
7. No modification of this Agreement, or any part hereof, shall be valid
or effective unless in writing and signed by the party or parties sought to be
charged therewith.
8. This Agreement contains the entire understanding of the parties and
supersedes any prior agreements and understandings between the parties with
respect to its subject matter.
9. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to choice of law or conflicts
of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GEOKINETICS INC.
By:/s/ JAY D. HABER
Name: Jay D. Haber
Title: President
BLACKHAWK CAPITAL PARTNERS
By:/s/ WILLIAM R. ZIEGLER
William R. Ziegler, Partner
-2-
<PAGE>
BLACKHAWK INVESTORS, L.L.C.
By: Blackhawk Capital Partners, its Managing Member
By:/s/ WILLIAM R. ZIEGLER
William R. Ziegler, Partner
-3-
EXHIBIT 99
Geokinetics Closes Private Placement Equity Financing and Announces Acquisition
Houston, July 18, 1997 - Geokinetics Inc., (NASDAQ: GEOK) announced today
that it had funded a $6,000,000 equity financing obtained from private
investment sources. The financing consisted of both common and preferred stock.
Geokinetics issued 5,500,000 shares of common at $.75 cents per share and
187,500 shares of preferred priced at $10.00 per share. The preferred stock is
convertible into common at $.75 cents per share. Upon conclusion of the
transaction, Geokinetics has 13,353,288 shares of common stock outstanding,
assuming conversion of the new preferred issue. In addition, the private
investment sources received shadow warrants providing partial anti-dilution
protection for the groups approximately 62% ownership interest in the company.
Geokinetics also announced today that it has completed the acquisition of
Signature Geophysical Services, Inc., a Houston based 3-D seismic acquisition
contractor. Signature currently operates one 3400 channel I/O RSR System Two
primarily in the Atchafalaya Basin of Louisiana. Geokinetics issued 400,000
shares of common stock and granted certain earn out provisions in exchange for
all of the outstanding shares of Signature Geophysical. This acquisition is an
important step in the company's strategic repositioning as a technologically
focused provider of land-based 3-D seismic acquisition services to the oil and
gas industry.
In conjunction with the above transactions, Geokinetics also announced
several changes in the composition of its Board of Directors. William R.
Ziegler, a partner of the New York Law firm Parson & Brown, and Steven A.
Webster, Chairman and CEO of Falcon Drilling Company, Inc., a NYSE company, have
been elected to the Board of Directors effective July 18, 1997. Immediately
following the election of Mr. Ziegler and Mr. Webster, it was announced that
Michael D. Hale, (who will remain an officer of the company), Herbert H. Hedick
and William H. Murphy were resigning their positions as Directors of the
company.
