<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-38393
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DAWSON GEOPHYSICAL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 1382 75-0970548
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
corporation or organization) Classification Code Number) Identification No.)
L. DECKER DAWSON
PRESIDENT
DAWSON GEOPHYSICAL COMPANY
208 SOUTH MARIENFELD 208 SOUTH MARIENFELD
MIDLAND, TEXAS 79701 MIDLAND, TEXAS 79701
(915) 682-7356 (915) 682-7356
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of
principal executive offices) agent for service)
COPIES TO:
JACK D. LADD C. NEEL LEMON III
STUBBEMAN, MCRAE, SEALY, THOMPSON & KNIGHT, P.C.
LAUGHLIN & BROWDER, INC. 1700 PACIFIC AVE.
550 W. TEXAS AVE., SUITE 800 SUITE 3300
MIDLAND, TEXAS 79701 DALLAS, TEXAS 75201
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following
box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
1,500,000 SHARES
(DAWSON LOGO)
COMMON STOCK
------------------------
Of the 1,500,000 shares of Common Stock offered hereby, 1,000,000 shares
are being issued and sold by Dawson Geophysical Company and 500,000 shares are
being sold by the Selling Shareholder. The Company will not receive any proceeds
from the sale of Common Stock by the Selling Shareholder. The Common Stock is
traded on the Nasdaq National Market under the symbol "DWSN." On November 10,
1997, the closing price of the Common Stock on the Nasdaq National Market was
$23.38 per share.
------------------------
SEE "RISK FACTORS" ON PAGES 6 THROUGH 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING SHAREHOLDER
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total(3)................... $ $ $ $
==========================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 225,000 additional shares of Common Stock on the same terms and
conditions as the securities offered hereby solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to certain other conditions including the right of the
Underwriters to withdraw, cancel, modify or reject any order in whole or in
part. It is expected that delivery of the Common Stock will be made on or about
, 1997 at the offices of Raymond James & Associates, Inc., St.
Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
<TABLE>
<S> <C>
I/O System Two RSR Technician collecting data
The Company's I/O System Two RSR central control unit and Technician collecting data from a
transmitting tower. remote seismic recorder.
Vibrator energy source units
Vibrator energy source units
operating in north Texas.
Geophysicist performing quality
control
Company geophysicist performing
quality control of data volume
from a 3-D seismic survey.
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and related notes appearing
elsewhere in this Prospectus. As used herein, the "Company" means Dawson
Geophysical Company, the "Selling Shareholder" means L. Decker Dawson, President
of the Company, and "Common Stock" means the Company's Common Stock, $.33 1/3
par value per share, unless the context otherwise requires. Unless otherwise
indicated, all financial information and share data in this Prospectus assume no
exercise of the Underwriters' over-allotment option. Investors should carefully
consider the information set forth under "Risk Factors."
THE COMPANY
Founded in 1952, Dawson Geophysical Company acquires and processes
three-dimensional ("3-D") seismic data used in the exploration, development and
field management of oil and natural gas reserves. The Company's operations
consist of six 3-D seismic data acquisition crews and a seismic data processing
center located in Midland, Texas. As a result of an increase in industry-wide
demand for 3-D seismic surveys and the Company's competitive position, the
Company has experienced increasing demand for its 3-D seismic services. The
Company acquires and processes seismic data for its clients, ranging from major
oil and gas companies to independent oil and gas operators, who retain exclusive
rights to the information obtained.
The Company's land-based data acquisition crews operate primarily in the
southwestern United States, but have responded to demand from south Texas to
North Dakota. As a result of the addition of a sixth crew equipped with the
versatile I/O System Two(R)* Remote Seismic Recorder ("RSR"), the Company has
expanded its capabilities to accommodate more difficult and remote terrains such
as east Texas and the Rocky Mountains.
The Company operates five I/O System Two recording systems, one with RSR
capability, and one MDS-18X(R)* recording system. The Company's six seismic
crews are equipped with an aggregate capacity of 14,200 recording channels and
45 vibrator energy source units, which are configured to meet the demands of
specific survey designs. Each crew consists of approximately 40 technicians, 25
associated vehicles with off-road capabilities, 31,000 geophones, a recording
system, energy sources, electronic cables and a variety of other equipment.
3-D seismic surveys provide an immense volume of concentrated subsurface
information to the oil and gas industry. Detailed subsurface resolution from 3-D
seismic data enhances the exploration for new reserves and enables oil and gas
companies to better delineate existing fields and to augment reservoir
management techniques. Benefits of incorporating 3-D seismic technology into
exploration and development programs include reducing drilling risk, decreasing
oil and gas finding costs, lowering field development expenditures and
recovering a greater portion of reserves in place.
The Company believes that it maintains a competitive advantage in the
industry by (i) acquiring equipment to expand capacity in response to client
demand, (ii) updating its equipment to take advantage of advances in geophysical
technology, (iii) maintaining skilled and experienced personnel for its data
acquisition and processing operations, (iv) focusing its operations on the
domestic onshore seismic industry, and (v) providing integrated in-house
operations necessary to complete all phases of 3-D seismic data acquisition and
processing, including project design, permitting and surveying.
Since fiscal 1990, the Company has spent approximately $57 million to
acquire new 3-D telemetry recording systems and associated equipment, including
approximately $26 million since fiscal 1995. Consistent with the Company's
strategy of maintaining technologically advanced equipment and the financial
flexibility to expand its 3-D capacity, the Company intends to use, of the net
proceeds it receives from this offering, (i) approximately $10 million to reduce
bank debt of the Company, (ii) approximately $8 million to acquire
- ---------------
* I/O System Two(R) is a registered trademark of Input/Output, Inc. and
MDS-18X(R) is a registered trademark of I/O Exploration Products.
3
<PAGE> 5
new equipment and to upgrade existing equipment for the six 3-D seismic crews
now operated by the Company, and (iii) the balance to increase working capital
of the Company and for general corporate purposes. The Company intends to
continue its program of acquiring new seismic equipment and upgrading its
existing equipment.
The headquarters of the Company, a Texas corporation, are located at 208
South Marienfeld, Midland, Texas 79701, and its telephone number is (915)
682-7356.
THE OFFERING
Common Stock offered by the
Company............................. 1,000,000 shares(1)
Common Stock offered by the Selling
Shareholder......................... 500,000 shares
Common Stock to be outstanding after
this offering....................... 5,200,000 shares(1)
Use of proceeds..................... Approximately $10 million to reduce
bank debt, approximately $8 million to
acquire new equipment and to upgrade
existing equipment for the Company's
six 3-D seismic crews, and the balance
to be added to working capital and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol....... "DWSN"
- ---------------
(1) Excludes 89,000 shares of Common Stock issuable upon exercise of outstanding
employee stock options. See "Management -- Compensation Plans."
4
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial information for the five fiscal years ended
September 30, 1997 was derived from the audited financial statements of the
Company. The following information should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's financial statements and notes thereto
and the other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................ $17,016 $23,027 $28,188 $33,518 $48,227
Operating costs:
Operating expenses..................... 12,497 15,478 20,067 23,763 32,293
General and administrative............. 842 887 975 1,299 1,477
Depreciation........................... 1,830 3,016 4,150 5,818 7,321
------- ------- ------- ------- -------
15,169 19,381 25,192 30,880 41,091
------- ------- ------- ------- -------
Income from operations.................... 1,847 3,646 2,996 2,638 7,136
Other income (expense).................... 950 (129) 444 122 (20)
Income before extraordinary item.......... $ 1,862 $ 2,266 $ 2,174 $ 1,888 $ 4,570
Net income................................ $ 2,739(1) $ 2,266 $ 2,174 $ 1,888 $ 4,570
PER SHARE DATA:
Income per share before extraordinary
item................................... $ .62 $ .74 $ .54 $ .45 $ 1.09
Net income per share...................... $ .91 $ .74 $ .54 $ .45 $ 1.09
Weighted average equivalent common shares
outstanding............................ 3,008 3,045 3,990 4,183 4,202
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
HISTORICAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................... $11,048 $
Net property, plant and equipment......................... 35,807
Total assets.............................................. 53,561
Long-term debt, less current maturities................... 7,893
Stockholders' equity...................................... 37,545
</TABLE>
- ---------------
(1) During 1993, the Company fully utilized its remaining net operating loss
carryforwards for federal income tax purposes resulting in an extraordinary
benefit of $877,000.
(2) As adjusted to reflect the sale by the Company in this offering of 1,000,000
shares of Common Stock and the application of the estimated net proceeds it
receives therefrom as described under "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus, in evaluating the
Company and its business before purchasing the Common Stock offered hereby.
INDUSTRY CONDITIONS
Demand for the Company's services depends upon the level of spending by oil
and gas companies for exploration, production, development and field management
activities, which activities depend in part on oil and gas prices. Beginning in
1982, a sharp decline in oil and gas prices led to a worldwide reduction in oil
and gas activities. This decline resulted in a significant reduction in the
overall demand for seismic services. Since reaching a high in 1981, the number
of land-based seismic crews operating worldwide and the number of companies
providing seismic services declined dramatically. Although demand for 3-D
seismic data acquisition services has continually increased over the past seven
years, no assurance can be given that current levels of oil and gas activities
will be maintained or that demand for the Company's services will reflect the
level of such activities. Decreases in oil and gas activities could adversely
affect the demand for the Company's services and the Company's results of
operations. In addition, a decrease in oil and gas expenditures in the United
States could result from such factors as unfavorable tax and other legislation
or uncertainty concerning national energy policy. Any significant decline in oil
and gas prices such as that which occurred in the 1980's could cause the Company
to alter its capital spending plans.
WEATHER
The Company's seismic data acquisition operations could be adversely
affected by inclement weather conditions. Delays associated with weather
conditions could negatively affect the Company's results of operations.
PERMITS
The Company's seismic data acquisition operations could be adversely
affected by the inability of the Company to obtain right of way usage from land
or mineral owners. Delays associated with permitting could negatively affect the
Company's results of operations.
OPERATING RISKS
The Company's activities are subject to general risks inherent in
land-based seismic data acquisition activities. To date, the Company has not
suffered any material losses of equipment, but there can be no assurance that it
will not experience such losses in the future. Because of the high fixed costs
associated with the Company's 3-D equipment, any significant downtime or low
productivity caused by reduced demand, weather interruptions, equipment
failures, permit delays or other causes could adversely affect its results of
operations. See "Business -- Operating Hazards and Insurance" for a description
of such risks and the insurance therefor carried by the Company.
LIQUIDITY AND WORKING CAPITAL REQUIREMENTS
The Company's sources of working capital are limited. The Company has
funded its working capital requirements with cash generated from operations,
cash reserves and borrowings from commercial banks. The Company's working
capital requirements increased significantly during the last seven years,
primarily due to the development of its 3-D land seismic data acquisition
infrastructure. If the Company were to expand its operations at a rate exceeding
operating cash flow, or if the current demand for and pricing of geophysical
services were to decrease substantially, additional financing could be required.
There is no assurance that additional financing could or would occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
6
<PAGE> 8
RELIANCE ON KEY SUPPLIER
The Company's primary supplier for seismic data acquisition systems is
Input/Output, Inc. Although the Company believes it will be able to obtain data
acquisition systems and/or replacement parts from Input/Output, Inc. or another
source for such systems or parts in the future, should it be unable to do so,
the Company's anticipated revenues could be reduced and the amount of cash
needed for capital expenditures could be increased. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital Expenditures" and "Business -- Equipment
Acquisition."
LITIGATION
The Company is a defendant in two lawsuits relating to a July 1995 accident
involving a van owned by the Company in which four Company employees died. The
Company believes that it has meritorious defenses to the claims asserted against
it in such suits. Further, while the plaintiffs seek damages in excess of the
Company's liability insurance policies, the Company believes that its liability
insurance should provide adequate coverage of the damages, if any, which may be
assessed against the Company in such litigation. Due to the uncertainties
inherent in litigation, no assurance can be given as to the ultimate outcome of
such suits or the adequacy or availability of the Company's liability insurance
to cover any such damages. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity. See "Business -- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company's success may be dependent upon, among other things, the
services of certain key personnel. The loss of services of any one or more of
the executive officers of the Company could have a material adverse effect on or
result in a disruption of normal business operations. See "Management."
COMPETITION
The acquisition and processing of 3-D geophysical data for the oil and gas
industry is a highly competitive business in the United States. The Company's
competitors include companies with financial resources that are significantly
greater than those of the Company as well as companies of comparable and smaller
size.
TECHNICAL OBSOLESCENCE
Seismic data acquisition and data processing technology have progressed
rapidly over the past several years, and the Company expects this progression to
continue. The Company's strategy is to regularly upgrade its data acquisition
and processing equipment to maintain its competitive position. However, due to
the rapid advances in technology and the related costs associated with such
technological advances, no assurance can be given that the Company will be able
to fulfill its strategy, thus possibly affecting the Company's ability to
compete.
GOVERNMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state and
local laws and regulations, including laws and regulations relating to the
protection of the environment and archeological sites. The Company is required
to expend financial and managerial resources to comply with such laws and
related permit requirements in its operations, and anticipates that it will
continue to be required to do so in the future. Although such expenditures
historically have not been material to the Company, the fact that such laws or
regulations change frequently make it impossible for the Company to predict the
cost or impact of such laws and regulations on its future operations. The
adoption of laws and regulations that have the effect of reducing or curtailing
exploration and production activities by energy companies could also adversely
affect the Company's operations by reducing the demand for its services.
7
<PAGE> 9
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the open market
after this offering could adversely affect the trading price of the Common
Stock. Immediately after this offering, the Selling Shareholder will hold
507,272 shares, representing approximately 9.76% of the outstanding shares of
Common Stock. A decision by the Selling Shareholder to sell shares of Common
Stock could adversely affect the trading price of the Common Stock. Upon the
consummation of this offering, the Company will have 5,200,000 shares of Common
Stock outstanding (excluding 89,000 shares of Common Stock issuable upon
exercise of outstanding employee stock options). Of such outstanding shares, the
Company estimates that approximately 4,410,000 shares will be freely tradeable
unless purchased by an "affiliate" of the Company, as that term is defined in
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
See "Description of Capital Stock -- Shares Eligible for Future Sale."
NO DIVIDENDS
The Company has never paid cash dividends on its Common Stock and has no
plans to do so in the foreseeable future. The Company intends to retain earnings
for use in its operations and to finance its business. See "Dividend Policy."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Prospectus, including without limitation statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding technological advancements, use
of proceeds and the Company's financial position, business strategy and plans
and objectives of management of the Company for future operations, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). When used in this Prospectus, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or its management, identify forward-looking statements.
Such forward-looking statements are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to dependence upon energy industry spending, weather
problems, inability to obtain land use permits, the volatility of oil and gas
prices, the availability of capital resources and the other factors set forth in
"Risk Factors." Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph. The Company
assumes no obligation to update any such forward-looking statements.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
by it are estimated to be approximately $ after deducting
underwriting discounts and commissions and offering expenses payable by the
Company. Of the net proceeds it receives from this offering, the Company intends
to use (i) approximately $10 million to reduce bank debt, (ii) approximately $8
million to acquire new equipment and to upgrade existing equipment for the
Company's six 3-D seismic crews in early 1998, and (iii) the balance for working
capital and general corporate purposes. Pending its use of the net proceeds it
receives from this offering, the Company may invest such proceeds in short-term
investments.
The Company's bank debt has been used to finance operating cash
requirements and capital expenditures for equipment purchases. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Loan Agreement" for additional
information concerning the Company's bank debt.
8
<PAGE> 10
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Shareholder. See "Principal and Selling
Shareholders."
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"DWSN." The following table sets forth the high and low sales prices, as
reported on the Nasdaq National Market, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter............................................. $12.25 $ 8.50
Second Quarter............................................ 9.75 7.75
Third Quarter............................................. 12.00 9.13
Fourth Quarter............................................ 11.25 8.31
FISCAL YEAR ENDED SEPTEMBER 30, 1997
First Quarter............................................. $11.25 $ 8.13
Second Quarter............................................ 13.75 10.38
Third Quarter............................................. 14.50 9.13
Fourth Quarter............................................ 25.75 13.50
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter (through November 10, 1997)................. $27.38 $17.50
</TABLE>
The last reported sale price for the Common Stock on November 10, 1997 on
the Nasdaq National Market was $23.38 per share. As of September 30, 1997, there
were approximately 296 record holders of the Common Stock.
9
<PAGE> 11
DIVIDEND POLICY
Since its initial public offering in 1981, the Company has not declared or
paid any dividends on its Common Stock. The Company presently intends to retain
earnings for use in its operations and to finance its business. Any change in
the Company's dividend policy is within the discretion of its Board of Directors
and will depend, among other things, on the Company's earnings, debt service and
capital requirements, restrictions in financing agreements, business conditions
and other factors that the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to give effect to the sale of 1,000,000
shares of Common Stock offered hereby by the Company and the application of the
estimated net proceeds to the Company therefrom. See "Use of Proceeds" and the
Company's financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
AS
HISTORICAL ADJUSTED
---------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term debt, less current maturities(1).................. $ 7,893 $
Stockholders' equity:
Preferred Stock, par value $1.00 per share:
5,000,000 shares authorized, none issued or
outstanding......................................... --
Common Stock, par value $.33 1/3 per share:
10,000,000 shares authorized, 4,199,250 shares issued
and outstanding;
5,199,250 shares issued and outstanding as
adjusted(2)................................................. 1,400
Additional paid-in capital................................ 17,174
Retained earnings......................................... 18,971
------- -------
Total stockholders' equity........................ 37,545
------- -------
Total capitalization......................... $45,438 $
======= =======
</TABLE>
- ---------------
(1) See the Company's financial statements and notes thereto included elsewhere
herein for additional information relating to the Company's long-term debt.
(2) Excludes 89,750 shares reserved for issuance upon exercise of employee stock
options at September 30, 1997. See "Management -- Compensation Plans."
10
<PAGE> 12
SELECTED FINANCIAL DATA
The following selected financial data as of and for the five fiscal years
ended September 30, 1997 were derived from the historical financial statements
of the Company, which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected financial data presented herein is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's financial statements and notes thereto and the other
financial information included elsewhere herein.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................................ $17,016 $23,027 $28,188 $33,518 $48,227
Operating costs:
Operating expenses...................................... 12,497 15,478 20,067 23,763 32,293
General and administrative.............................. 842 887 975 1,299 1,477
Depreciation............................................ 1,830 3,016 4,150 5,818 7,321
------- ------- ------- ------- -------
15,169 19,381 25,192 30,880 41,091
------- ------- ------- ------- -------
Income from operations.................................... 1,847 3,646 2,996 2,638 7,136
Other income (expense):
Interest and dividend income............................ 367 209 399 253 260
Interest expense........................................ (160) (376) (170) (144) (486)
Gain on disposal of assets.............................. 67 68 76 11 196
Other................................................... 1 (30) 8 2 10
Proceeds from litigation settlement..................... 669 -- 131 -- --
Realized gain on marketable securities.................. 6 -- -- -- --
------- ------- ------- ------- -------
Income before income tax expense and extraordinary item... 2,797 3,517 3,440 2,760 7,116
Income tax expense:
Current................................................. 58 1,212 970 599 1,738
Deferred................................................ 877 39 296 273 808
------- ------- ------- ------- -------
935 1,251 1,266 872 2,546
------- ------- ------- ------- -------
Income before extraordinary item.......................... 1,862 2,266 2,174 1,888 4,570
Tax benefit from utilization of loss carryforward....... 877 -- -- -- --
------- ------- ------- ------- -------
Net income................................................ $ 2,739 $ 2,266 $ 2,174 $ 1,888 $ 4,570
======= ======= ======= ======= =======
Income per common share:
Income before extraordinary item........................ $ .62 $ .74 $ .54 $ .45 $ 1.09
Extraordinary item...................................... .29 -- -- -- --
------- ------- ------- ------- -------
Net income.............................................. $ .91 $ .74 $ .54 $ .45 $ 1.09
======= ======= ======= ======= =======
Weighted average equivalent common shares outstanding..... 3,008 3,045 3,990 4,183 4,202
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................... $ 3,646 $ 2,789 $ 9,641 $ 5,343 $11,048
Net property, plant and equipment......................... 11,836 14,936 21,550 32,926 35,807
Total assets.............................................. 21,908 24,942 32,342 41,909 53,561
Long-term debt, less current maturities................... 3,500 2,250 -- 4,857 7,893
Stockholders' equity...................................... 15,482 17,686 30,856 32,804 37,545
</TABLE>
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Prospectus. In
addition, in reviewing the Company's financial statements it should be noted
that quarterly fluctuations in the Company's results of operations can occur due
to weather, land use permitting and other factors. See "Risk Factors."
FISCAL YEAR ENDED SEPTEMBER 30, 1997 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1996
The Company's operating revenues increased 43.9% from $33,518,000 for
fiscal 1996 to $48,227,000 for fiscal 1997. The increase in revenues is
primarily due to increased capacity and improved efficiency resulting from
fiscal 1996 capital expenditures. The fiscal 1996 capital expenditures consisted
of the addition of a fifth crew in the third quarter combined with additional
channel capacity of the existing crews and additional vibrator energy source
units. During the fourth quarter of fiscal 1997 the Company placed a sixth crew
into service.
Operating expenses increased 35.9% in 1997 as compared to 1996 as a result
of adding a fifth 3-D seismic crew in fiscal 1996, as well as increased
personnel and other expenses associated with equipment additions and
technological upgrades made primarily during the third quarter of fiscal 1996.
General and administrative expenses for fiscal 1997 totaled $1,477,000, an
increase of $178,000 from fiscal 1996. The increase for fiscal year 1997 was
primarily due to timing adjustments of certain expenses. General and
administrative expenses totaled 3.1% of operating revenues for fiscal 1997
versus 3.9% for fiscal 1996.
Depreciation for fiscal 1997 totaled $7,321,000, an increase of 25.8% from
fiscal 1996. Depreciation continues to increase as a result of the capital
expansion discussed below in "Liquidity and Capital Resources."
Total operating costs for fiscal 1997 totaled $41,091,000, an increase of
33.1% over fiscal 1996 due to the factors described above. Income from
operations in fiscal 1997 increased to $7,136,000, 14.8% of revenues, from
$2,638,000, 7.9% of revenues, in fiscal 1996. This increase is the direct result
of the Company's operating expenses being relatively fixed as compared to
revenue trends. Because of the high proportion of relatively fixed total
operating costs (including personnel costs for active crews and depreciation
costs), income from operations in fiscal 1997 reflects the benefit of efficient
production with steady demand.
Interest is paid monthly at prime rates on the principal of the term notes
described below in "Liquidity and Capital Resources -- Loan Agreement."
The Company's effective tax rate for 1997 is 35.8% as compared to 32.0% for
1996. These rates reflect the effects of federal and state income taxes over the
periods reported.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1995
The Company's operating revenues increased 18.9% from $28,188,000 for
fiscal 1995 to $33,518,000 for fiscal 1996. In June 1996, the Company placed
into service its fifth telemetry recording system after combining two
1,000-channel crews in the quarter ended March 31, 1996. The Company further
increased production capacity during 1996 with the purchase of additional
equipment. Demand for larger surveys translates to an increased number of
channels and improved efficiency which has been gained with additional energy
source units to complement recording systems already in service.
Operating expenses increased 18.4% in 1996 as compared to 1995 as a result
of adding a new 3-D seismic crew as well as increased personnel and other
expenses associated with the equipment additions and technological upgrades.
12
<PAGE> 14
General and administrative costs have increased with additional support
services for the Company's expanding operations. As a percentage of operating
revenues, general and administrative costs increased to 3.9% from 3.5% in 1995.
Depreciation increased dramatically due to the Company's capital expansion.
In 1996, the cost to field the new telemetry crew represents approximately
$10,000,000 of the total $15,597,000 in capital expenditures. The increase from
the total capital expenditures in 1995 of $10,961,000 is comprised of the
upgrades to data acquisition capacity of the existing crews and further
expansion of energy source units.
The decrease in income from operations for 1996 as compared to 1995 and for
1995 as compared to 1994 is attributable to the significant increase in
depreciation. In addition, the impact of the permit delays in the first quarter
and unfavorable weather during the first and fourth quarters of 1996 affected
revenue directly without a significant corresponding reduction in the relatively
fixed operating expenses.
The significant changes in the Company's other income and expenses are a
result of a final litigation settlement of $131,000 in 1995 resulting from the
suit filed against First Republic Bank in 1988 and the increase of interest
income in 1995 due to the investment of public offering proceeds until capital
expenditures were made.
The Company's effective tax rate for 1996 is 32.0% as compared to 36.8% for
1995. These rates reflect the effects of federal and state income taxes over the
periods reported. As of September 30, 1995, the Company had no tax loss
carryforwards to offset future tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities increased to $10,335,000 in
fiscal 1997 from $6,732,000 in fiscal 1996 primarily due to a 142% increase in
net income to $4,570,000 in fiscal 1997 from $1,888,000 in fiscal 1996. In
addition, accounts receivable increased as a result of increased revenues in
1997. The increase in depreciation to $7,321,000 in 1997 from $5,818,000 in 1996
reflects the Company's continued capital expansion as discussed in "Capital
Expenditures" below.
Net cash used in investing activities decreased to $11,079,000 in 1997 from
$12,676,000 in 1996 as a result of the decrease in capital expenditures in 1997
as compared to 1996. In addition, during fiscal 1997 the Company invested cash
generated from operations in U.S. Treasury instruments. As discussed below in
"Capital Expenditures," the Company is positioning for possible future
expansion.
Net cash provided by financing activities primarily reflects proceeds from
a fourth quarter borrowing under the Company's loan agreement referenced below
and principal payments thereunder. During 1997, the Company made monthly
principal payments of approximately $71,400 under a $6,000,000 term note, and in
September 1997, the Company made a $69,400 principal payment under a $5,000,000
term note. See "Loan Agreement" below.
Capital Expenditures
As a result of capital expenditures of approximately $57,000,000 since
fiscal 1990, including approximately $26,000,000 since fiscal 1995, the Company
has positioned itself to meet market demand with technologically advanced 3-D
data acquisition recording systems and leading edge data processing
capabilities. Depreciation has increased as a new crew has been placed into
service each year for the past several years.
The Company placed a sixth crew into service in August of 1997. The cost of
the new crew equipped with a 2,000 channel I/O System Two RSR was approximately
$6,000,000. Expenditures of approximately $2,500,000 with additional commitments
of approximately $2,000,000 during fiscal 1997 were made for additions and
replacements to the myriad of cables and geophones, enhancements to the
surveying operation, and additions in support of quality control and operational
safety efforts.
13
<PAGE> 15
Loan Agreement
The Company is a party to a loan agreement, as amended (the "Loan
Agreement"), with Norwest Bank Texas, N.A. ("Norwest"). The Loan Agreement
consists of (1) a revolving line of credit of $6,000,000 which matures on April
15, 1999, (2) a term note in the aggregate principal amount of $6,000,000
bearing interest at Norwest's prime rate and which matures on March 15, 2003 and
(3) a term note in the aggregate principal amount of $5,000,000 bearing interest
at the prime rate as published in The Wall Street Journal and which matures on
April 15, 2003. The $5,000,000 term note, together with working capital, was
utilized to finance the purchase of equipment placed into service in August
1997. The term notes are secured by eligible accounts receivable and equipment
purchased from loan proceeds. At September 30, 1997, approximately $9.5 million
was outstanding under the term notes all of which was bearing interest at 8.5%
per annum.
Capital Resources
The Company believes that its capital resources, including the availability
of bank borrowings, and cash flow from operations are adequate to meet its
current operational needs and will allow the Company to continue its practice of
acquiring new technologically advanced equipment and upgrading its existing
equipment. However, the Company's expansion plans, including its capital budget
for fiscal 1998, may be affected by its ability to raise capital from additional
sources, including but not limited to this offering.
Litigation
The Company is a defendant in two lawsuits relating to a July 1995 accident
involving a van owned by the Company in which four Company employees died. The
Company believes that it has meritorious defenses to the claims asserted against
it in such suits. Further, while the plaintiffs seek damages in excess of the
Company's liability insurance policies, the Company believes that its liability
insurance should provide adequate coverage of the damages, if any, which may be
assessed against the Company in such litigation. Due to the uncertainties
inherent in litigation, no assurance can be given as to the ultimate outcome of
such suits or the adequacy or availability of the Company's liability insurance
to cover any such damages. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity. See "Risk Factors -- Litigation" and
"Business -- Legal Proceedings."
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based
Compensation." FAS 123 provides for alternative methods of recording stock-based
compensation and requires additional disclosure regardless of which method is
utilized to record stock-based compensation. The Company accounts for employee
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"). Effective October 1, 1996, the Company adopted the
disclosure provisions of FAS 123.
In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings per Share." FAS No. 128 establishes standards for computing and
presenting earnings per share and is effective for periods ending after December
15, 1997. The impact of the adoption of FAS No. 128 on the Company's earnings
per share is expected to be immaterial.
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income." FAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. FAS No. 130 is effective for interim
and annual periods beginning after December 15, 1997. The Company plans to adopt
FAS No. 130 for the period ended December 31, 1999.
14
<PAGE> 16
BUSINESS
GENERAL
Founded in 1952, Dawson Geophysical Company acquires and processes seismic
data used in the exploration, development and field management of oil and
natural gas reserves. Since fiscal 1990, the Company has spent approximately $57
million to acquire new 3-D telemetry recording systems and associated equipment,
including approximately $26 million since fiscal 1995. The Company's operations
consist of six 3-D seismic data acquisition crews and a seismic data processing
center. As a result of an increase in industry-wide demand for 3-D seismic
surveys and the Company's competitive position, the Company has experienced
increasing demand for its 3-D seismic services. During fiscal 1997,
substantially all of the Company's revenues were derived from 3-D seismic
operations.
The Company's land-based data acquisition crews operate primarily in the
southwestern United States, but have responded to demand from south Texas to
North Dakota. As a result of the addition of a sixth crew equipped with the
versatile I/O System Two RSR, the Company has expanded its capabilities to
accommodate more difficult and remote terrains such as east Texas and the Rocky
Mountains.
Data processing is performed by Company geophysicists at the Company's
computer center located in Midland, Texas. The Company acquires and processes
data for its clients, ranging from major oil and gas companies to independent
oil and gas operators, who retain exclusive rights to the information obtained.
The Company believes that it maintains a competitive advantage in the
industry by (i) acquiring equipment to expand capacity in response to client
demand, (ii) updating its equipment base to take advantage of advances in
geophysical technology, (iii) maintaining skilled and experienced personnel for
its data acquisition and processing operations, (iv) focusing its operations on
the domestic onshore seismic industry, and (v) providing integrated in-house
operations necessary to complete all phases of 3-D seismic data acquisition and
processing, including project design, permitting and surveying.
GEOPHYSICAL SERVICES
General. Technological advances in equipment and computers have allowed the
seismic industry to economically acquire and process immense volumes of seismic
data which produce more precise images of the earth's subsurface. The industry
refers to this process of data acquisition, processing and subsequent
interpretation of the processed data as the 3-D seismic method. Geophysicists
use computer workstations to interpret 3-D data volumes, identify subsurface
anomalies and generate a geologic model of subsurface features.
3-D seismic data are used in the exploration for new reserves and enable
oil and gas companies to better delineate existing fields and to augment their
reservoir management techniques. Benefits of incorporating 3-D seismic
technology into exploration and development programs include reducing drilling
risk, decreasing oil and gas finding costs and increasing the efficiencies of
reservoir location, delineation and management.
The Company is exploring the opportunities presented by the
four-dimensional seismic method, which adds the element of time to 3-D surveys.
By surveying the same site at successive times, geophysicists compare data
volumes and may be able to determine the progress of enhanced recovery programs
in existing petroleum reservoirs, and thereby aid in extracting remaining
reserves. Such projects could, over time, benefit reservoir management thereby
providing future opportunities for the Company.
The industry as a whole is investigating even more sophisticated
technologies. Researchers at the Colorado School of Mines, underwritten in part
by the Company, are exploring the use of three-component ("3-C") surveys
utilizing shear wave information in the effort to identify and exploit
recoverable oil and gas reserves. The Company's equipment currently includes
vibrators and geophones capable of generating and recording shear waves.
Data Acquisition. The seismic survey begins at the time a client requests
the Company to formulate a proposal to acquire seismic data on its behalf. The
Company's geophysicists then assist the client in designing
15
<PAGE> 17
the specifications of the proposed 3-D survey. If the client accepts the
Company's proposal, in most cases, a Company permit agent then obtains access
from the landowner to the site where the survey is to be conducted.
Utilizing electronic surveying equipment, the Company's survey personnel
precisely locate the energy source and receiver positions from which the seismic
data are collected. The Company utilizes the satellite global positioning
system, known as GPS, to properly locate the seismic survey grid.
The Company operates six land based crews gathering 3-D seismic data. The
Company primarily uses vibrator energy sources, each of which weighs 50,000 to
62,000 pounds, but on occasion detonates dynamite charges placed in drill holes
below the earth's surface to generate seismic energy. The Company has 45
vibrator energy source units and a capacity of 14,200 recording channels, any of
which are configured to meet the demands of specific survey designs. Each crew
consists of approximately 40 technicians, 25 associated vehicles with off-road
capabilities, 31,000 geophones, a seismic recording system, energy sources,
electronic cables and a variety of other equipment. The Company operates five
I/O System Two recording systems, one with RSR capability, and one MDS-18X
recording system.
Since 1994 the Company has grown from four seismic data acquisition crews
with an aggregate recording capacity of 4,532 channels and 22 vibrator energy
source units. Demand for more recording channels continues to increase from
client companies as the industry strives for improved data quality. The
Company's current average of 2,367 channels per crew is well above the industry
average. The comparatively large number of recording channels gives the Company
a competitive edge with the versatility and productivity to improve data quality
at a lower cost per unit of data to the client.
Data Processing. The Company currently operates a computer center located
in Midland, Texas to process seismic data. Such processing primarily involves
the enhancement of the data by improving reflected signal resolution, removing
ambient noise and establishing proper spatial relationships of geological
features. The data are then arranged in such a manner that computer graphic
technology may be employed for examination and interpretation of the data by the
user.
The processing center operates 24 hours daily utilizing two parallel
high-speed computers. The Company continues to improve data processing
efficiency by further integrating workstation-based computer technology into the
mainframe operation at the computer center and remote sites such as the client's
office. The Company purchases, develops or leases, under non-exclusive licensing
arrangements, seismic data processing software.
The Company's computer center processes seismic data collected by its
crews, as well as by other geophysical contractors. In addition, the Company
reprocesses previously recorded seismic data using current technology to enhance
the data quality. The Company's processing contracts may be awarded jointly with
or independently from data acquisition services.
Integrated Services. The Company maintains integrated in-house operations
necessary to the development and completion of 3-D seismic surveys. Experienced
Company personnel conduct and supervise the 3-D seismic survey design,
permitting, surveying and data acquisition and processing functions for each
seismic program. In-house support operations include facilities for automotive
repair, automotive paint, electronics repair, electrical engineering and
software development, thereby enabling better quality control and improved
efficiency. The Company's clients generally undertake to provide their own
interpretation of the seismic data provided by the Company, although from time
to time the Company's geophysicists may assist its clients in this process.
EQUIPMENT ACQUISITION
The Company believes it is essential to monitor and evaluate advances in
geophysical technology and to commit capital funds to purchase equipment it
deems most promising. Purchasing new assets and continually upgrading capital
assets involves a continuing commitment to capital spending. The Company's
capital expenditures for the three fiscal years ended September 30, 1997 were
$10,961,000, $15,597,000 and $8,528,000 respectively. Projected capital
expenditures for fiscal 1998 are at least $8 million which will be used to
purchase new equipment and upgrade existing equipment for its six 3-D seismic
crews by early 1998. See "Risk Factors -- Liquidity and Working Capital
Requirements" and "Use of Proceeds."
16
<PAGE> 18
CLIENTS
The Company's services are marketed by supervisory and executive personnel
who contact clients to determine geophysical needs and respond to client
inquiries regarding the availability of crews or processing schedules. These
contacts are based principally upon professional relationships developed over a
number of years.
The Company's clients range from major oil companies to small independent
oil and gas operators. The services provided by the Company vary according to
the size and needs of the client. During the year ended September 30, 1997, the
three most significant clients for the Company's services accounted for
approximately 9.1%, 7.3% and 6.2% of the Company's revenues. None of such
clients were included in the three largest clients during fiscal 1996. Because
of the limited number of data acquisition crews and the length of contracts
under which these crews have performed duties in the past, the Company
anticipates that a large portion of future revenues will continue to be
attributable to a few clients, who may change from period to period. The Company
presently believes that the loss of any one of its clients would not have a
material impact on its business.
CONTRACTS
For the past seven years, demand for the Company's services has
substantially exceeded its ability to meet such demand. Based on current market
conditions, current indications of interest and work in progress, the Company
believes that there will be a significant demand for its services well into the
Company's 1998 fiscal year.
The Company's seismic services are conducted under master contracts with
clients. Contracts are either "turnkey" contracts that provide for a fixed fee
to be paid to the Company for each unit of data acquired, or "term" contracts
that provide for a fixed hourly, daily, or monthly fee during the term of the
project. Turnkey contracts generally provide more profit potential for the
Company, but involve more risks because of the potential downtime for weather
and other types of delays. Substantially all of the Company's contracts with its
clients are turnkey. A supplemental agreement setting forth the terms of a
specific project, which may be cancelled by either party, is entered into for
every project.
The results of the Company's services belong to the contracting party. To
avoid conflicts of interest, the Company does not acquire any data for its own
account. All of the client's information is maintained in strictest confidence.
Company policy prohibits any officer, director or employee from participating in
oil and gas ventures.
COMPETITION AND MARKETS
The acquisition and processing of 3-D seismic data for the oil and gas
industry is a highly competitive business in the United States. Contracts for
such services generally are awarded on the basis of price quotations, crew
experience and availability of crews to perform in a timely manner, although
factors other than price, such as technological expertise and reputation, are
sometimes determinative. The Company's competitors include companies with
financial resources that are significantly greater than those of the Company as
well as companies of comparable and smaller size.
Historically, the demand for geophysical services has been directly related
to the level of spending by oil and gas companies for exploration, production,
development and field management activities, which activities depend in part on
the level of oil and gas prices. Because geophysical services are among the
first operations involved in the exploration for oil and gas, the level of such
services, in the past, has declined prior to a decline in oil and gas
exploration activities. In recent years, however, the improved subsurface
resolution obtainable from 3-D seismic data have enhanced the exploration for
new reserves and enabled oil and gas companies to utilize 3-D surveys to better
delineate existing fields and to augment their reservoir management techniques.
See "Risk Factors -- Industry Conditions."
17
<PAGE> 19
EMPLOYEES
The Company employs approximately 350 persons, of which 293 are engaged in
providing energy sources and acquiring data, 12 are engaged in data processing,
seven are administrative personnel, 30 are engaged in equipment maintenance and
eight are executive officers. Of the employees listed above, 16 are
geophysicists. The Company's employees are not represented by a labor union. The
Company believes it has good relations with its employees.
The current level of demand for geophysical services has increased the
difficulty of obtaining qualified personnel. Although the Company thus far has
not experienced unusual difficulty in this regard, a continued acceleration in
demand for geophysical services may create a shortage of such personnel. The
Company maintains an active training program and attempts to promote from within
the Company.
PROPERTIES
The Company's principal properties are energy sources and data acquisition
and processing equipment. At September 30, 1997 the average age of the Company's
data acquisition equipment was approximately three years. In general, the
Company believes that this equipment is well maintained and suitable for its
intended uses. See "Business -- Equipment Acquisition" for information regarding
capital expenditures by the Company.
The location and description of the Company's principal real properties are
set forth in the following table:
<TABLE>
<CAPTION>
FEE OR BUILDING AREA
LOCATION LEASED PURPOSE SQUARE FEET
-------- ------ ------- -------------
<S> <C> <C> <C>
Midland, Texas.................. Fee Executive offices and data processing 10,400
Midland, Texas.................. Fee Field office 53,000
Equipment fabrication
Maintenance and repairs
</TABLE>
OPERATING HAZARDS AND INSURANCE
The Company's activities are often conducted in remote areas under extreme
weather and other dangerous conditions. These operations are subject to risks of
injury to personnel and equipment. The Company's crews are mobile and the
equipment and personnel are subject to vehicular accidents. The Company uses
diesel fuel which is classified by the U.S. Department of Transportation as a
hazardous material. See "Risk Factors -- Litigation and -- Governmental
Regulations."
The Company carries insurance in amounts which it considers adequate on the
principal items of its equipment. The Company does not carry insurance against
certain risks, including business interruption resulting from equipment losses
or weather delays. The Company obtains insurance against certain property and
personal casualty risks, when such insurance is available and when management
considers it advisable to do so. Such coverage is not always available, however,
and, when available, is subject to unilateral cancellation by the insuring
companies on very short notice. The Company insures seismic data for amounts
considered acceptable by management. Accordingly, damage to such data should not
have a material adverse effect upon the Company.
LEGAL PROCEEDINGS
The Company is a defendant in two lawsuits pending in the 112th and 83rd
District Courts of Pecos County, Texas (respectively, Cause No. 8812, Ernestine
Bernal, et al. vs. Javier Antonio Orona, et al.; and Cause No. P5565-83-CV,
Carla Jaquez, et al. vs. Javier Antonio Orona, et al.) relating to a July 1995
accident involving a van owned by the Company which was used to transport
employees to various job sites and a non-Company owned vehicle. The accident
resulted in the deaths of four Company employees who were passengers in such
van. The Company is one of several named defendants in such suits. Other named
18
<PAGE> 20
defendants include the estate of the deceased driver of such van, who was an
employee of the Company, the driver of such non-Company owned vehicle, who was
then an employee of the Company, the owner of such vehicle, and Ford Motor
Company, the manufacturer of the Company van involved in such accident. In
general, the claims against the Company include allegations of negligence, gross
negligence and/or intentional tort as a result of, among other things, the
Company's alleged failure to provide safe transportation for its employees and
to properly select, train and supervise the deceased driver of such van. The
plaintiffs in such suits are seeking actual damages from the defendants of $15.5
million, additional unspecified actual damages, pre-judgment and post-judgment
interest and costs of suit as well as exemplary and punitive damages in an
amount not to exceed four times the amount of actual damages. The Company
believes that it has meritorious defenses to the claims asserted against it in
such suits and it intends to continue to vigorously defend itself against such
claims. In addition, the Company believes that it has approximately $11 million
of liability insurance coverage to provide against an unfavorable outcome. Such
suits are currently in the discovery stage and the Company currently has pending
before the court a motion for summary judgment in Cause No. 8812 requesting that
the Company be dismissed from such suit based upon various legal theories. A
trial date of July 20, 1998 has been set in Cause No. 8812. No trial date has
yet been set for Cause No. P5565-83-CV. A motion to consolidate such suits into
a single proceeding is currently pending before the courts. Due to the
uncertainties inherent in litigation, no assurance can be given as to the
ultimate outcome of such suits or the adequacy or availability of the Company's
liability insurance to cover the damages, if any, which may be assessed against
the Company in such suits. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity. See "Risk Factors -- Litigation" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In addition to the foregoing, from time to time the Company is a party to
various legal proceedings arising in the ordinary course of business. Although
the Company cannot predict the outcomes of any such legal proceedings, the
Company's management believes that the resolution of pending legal actions will
not have a material adverse effect on the Company's financial condition, results
of operations or liquidity.
19
<PAGE> 21
MANAGEMENT
The Board of Directors currently consists of three persons who are
employees of the Company and three persons who are not employees of the Company
(i.e., outside directors). Set forth below are the names, ages, and positions of
the Company's Directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
L. Decker Dawson.............................. 77 President, Director
Floyd B. Graham............................... 69 Executive Vice President, Director
Howell W. Pardue.............................. 61 Executive Vice President, Director
Christina W. Hagan............................ 42 Vice President, Chief Financial Officer
Edward L. Huff................................ 60 Vice President
C. Ray Tobias................................. 40 Vice President
Stephen C. Jumper............................. 36 Vice President
Paula W. Henry................................ 40 Secretary
Calvin J. Clements............................ 76 Director
Matthew P. Murphy............................. 67 Director
Tim C. Thompson............................... 63 Director
</TABLE>
L. Decker Dawson. Mr. Dawson founded the Company in 1952 and has served in
his present positions since that time. Prior thereto, Mr. Dawson was a
geophysicist with Republic Exploration Company, a geophysical company. Mr.
Dawson served as President of the Society of Exploration Geophysicists (1989-
1990) and received its Enterprise Award in 1997. He was Chairman of the Board of
Directors of the International Association of Geophysical Contractors (1981). He
currently serves as a director and honorary life member of such association. He
was inducted into the Permian Basin Petroleum Museum's Hall of Fame in 1997.
Floyd B. Graham. Mr. Graham joined the Company in 1974 and has served in
his present positions since that time. Prior thereto, Mr. Graham was an
independent geophysical consultant for 14 years, and prior thereto was a
geophysicist for the predecessor of Exxon Company, U.S.A. for 10 years.
Howell W. Pardue. Mr. Pardue joined the Company in 1976 and has served in
his present positions since that time. Prior thereto, Mr. Pardue was employed in
data processing for 17 years by Geosource, Inc. and its predecessor geophysical
company.
Christina W. Hagan. Ms. Hagan joined the Company in 1988, and was elected
Chief Financial Officer in January 1997 and Vice President in September 1997.
Prior thereto, Ms. Hagan served the Company as Controller and Treasurer. Ms.
Hagan is a certified public accountant.
Edward L. Huff. Mr. Huff joined the Company in 1956, and was elected Vice
President in September 1997. Prior thereto, Mr. Huff served as instrument
operator, crew manager and field supervisor. He has managed the Company's field
operations since 1987.
C. Ray Tobias. Mr. Tobias joined the Company in 1990, and was elected Vice
President in September 1997. Mr. Tobias is responsible for maintaining client
relationships and submitting survey cost quotations to client companies. He is
presently the chairman of the International Association of Geophysical
Contractors West Texas -- Eastern New Mexico Operations Committee and is Past
President of the Permian Basin Geophysical Society. Prior to joining the
Company, Mr. Tobias was employed by Geo-Search Corporation where he was
responsible for pricing and bidding geophysical work to major oil companies.
Stephen C. Jumper. Mr. Jumper, a geophysicist, joined the Company in 1985,
and was elected Vice President in September 1997. Mr. Jumper also serves as
manager of technical services with an emphasis on 3-D processing. Mr. Jumper has
served the Permian Basin Geophysical Society as Second Vice President (1991),
First Vice President (1992), and as President (1993).
Paula W. Henry. Ms. Henry joined the Company in 1981 and has served in her
present position since 1989. Ms. Henry supervises administrative operations of
the Company.
20
<PAGE> 22
Calvin J. Clements. Mr. Clements has served the Company as a director since
1972. Prior thereto and until his retirement in 1987, Mr. Clements was employed
by the Company as vice president of the data acquisition operations.
Matthew P. Murphy. Mr. Murphy has served the Company as a director since
1993. Until his retirement in 1991, Mr. Murphy served as an executive of NCNB
Texas, now known as Nations Bank of Texas, N.A. (and predecessor banks), and
from 1986 to 1991, Mr. Murphy served the bank as District Director-West Texas.
Tim C. Thompson. Mr. Thompson has served the Company as director since
1995. Mr. Thompson, a management consultant since May 1993, was President and
Chief Executive Officer of Production Technologies International, Inc. from
November 1989 to May 1993.
All directors and officers of the Company are elected annually and hold
office from the date of their election until their successors have been duly
elected and qualified, or until their earlier death, resignation or removal from
office. The Board of Directors has standing audit and compensation committees,
each consisting of Messrs. Clements, Murphy, and Thompson, all of whom are
non-employee directors.
EXECUTIVE COMPENSATION
The following table sets forth summary information regarding the
compensation paid by the Company to L. Decker Dawson, the President of the
Company, and to Floyd B. Graham, Howell W. Pardue, Edward L. Huff and Stephen C.
Jumper (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------
SECURITIES
UNDERLYING
FISCAL OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION (NO. OF SHARES)
- --------------------------- ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
L. Decker Dawson..................... 1997 $119,892 $ -- $-- --
President 1996 90,301 -- -- --
1995 84,293 -- -- --
Floyd B. Graham...................... 1997 121,538 5,840 -- 5,000
Executive Vice President 1996 120,000 7,588 -- --
1995 120,000 9,138 -- --
Howell W. Pardue..................... 1997 121,538 5,531 -- 5,000
Executive Vice President 1996 120,000 7,168 -- --
1995 120,000 8,607 -- --
Edward L. Huff(2).................... 1997 102,302 4,603 -- 5,000
Vice President
Stephen C. Jumper(2)................. 1997 102,302 3,337 -- 5,000
Vice President
</TABLE>
- ---------------
(1) Bonus amounts reflect discretionary amounts paid during the indicated fiscal
year based on prior fiscal year results.
(2) Messrs. Huff and Jumper were each elected Vice President in September 1997.
21
<PAGE> 23
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the fiscal year ended September 30, 1997
to each of the named executive officers.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF
SECURITIES GRANT DATE
UNDERLYING % OF TOTAL VALUE(1)
OPTIONS OPTIONS GRANTED ----------------
GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME (NO. OF SHARES) FISCAL YEAR PRICE ($/SH) DATE PRESENT VALUE($)
- --------------------------- --------------- --------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Floyd B. Graham............ 5,000 16.67% 24.125 9/30/2002 55,926
Howell W. Pardue........... 5,000 16.67% 24.125 9/30/2002 55,926
Edward L. Huff............. 5,000 16.67% 24.125 9/30/2002 55,926
Stephen C. Jumper.......... 5,000 16.67% 24.125 9/30/2002 55,926
</TABLE>
- ---------------
(1) The "grant date present value" shown is a hypothetical value based upon
application of the Black-Scholes model which often is used to estimate the
market value of transferable options by calculating the probability, based
on the volatility of the stock subject to the options, that the stock price
will exceed the option exercise price at the end of the option term. The
Company's stock options are not transferable and, the Black-Scholes estimate
notwithstanding, an option will have value to the optionee only if and to
the extent the market price of the Company's stock rises above the market
price on the date the option was granted.
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock during the fiscal year ended
September 30, 1997, and unexercised options held at September 30, 1997, by each
of the named executive officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
9/30/97 OPTIONS AT
--------------- 9/30/97(1)
EXERCISABLE/ -------------
SHARES ACQUIRED VALUE UNEXERCISABLE EXERCISABLE/
NAME ON EXERCISE REALIZED (NO. OF SHARES) UNEXERCISABLE
- ---------------------------------------- --------------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Floyd B. Graham......................... -- $ -- --/5,000 $--/$--
Howell W. Pardue........................ -- -- --/5,000 --/ --
Edward L. Huff.......................... 2,500 17,188 --/5,000 --/ --
Stephen C. Jumper....................... 3,750 23,906 --/5,000 --/ --
</TABLE>
- ---------------
(1) The closing price per share on September 30, 1997 was $24.125 as reported by
the Nasdaq National Market.
Defined Benefit Plans and Other Arrangements. Long-term incentive
compensation for senior executive officers is not a policy of the Company.
Accordingly, no awards or payouts have been made. The Company has no retirement
or pension plan except for its Employee Stock Purchase Plan and its 1991
Incentive Stock Option Plan, both of which are described below.
COMPENSATION OF DIRECTORS
Directors who are not also employees of the Company receive $1,000 per
month and 500 shares of Common Stock per year for serving as Directors.
22
<PAGE> 24
COMPENSATION PLANS
Stock Option Plan. The Dawson Geophysical Company 1991 Incentive Stock
Option Plan (the "1991 Plan") provides that 150,000 shares of the Company's
authorized but unissued Common Stock are reserved for issuance pursuant to the
1991 Plan and are subject to options granted to key employees during the
ten-year period ending January 8, 2001.
Options under the 1991 Plan will be granted at an exercise price equal to
the market price of the Common Stock on the date of grant. Each option that is
granted will be exercisable after the period or periods specified in the option
agreement, but prior to the expiration of five years after the date of grant.
Commencing one year after date of grant, optionees may purchase up to one-fourth
of the shares covered by a particular grant, and each option becomes exercisable
with respect to an additional one-fourth of the shares covered in each of the
next three years.
During fiscal 1997, options to purchase an aggregate of 30,000 shares of
Common Stock were granted to certain key employees of the Company under the 1991
Plan. The per share exercise price of all options granted in fiscal 1997 is
$24.125, being the fair market value of a share of the Common Stock on the date
of grant. During fiscal 1997, 36,500 shares of the Common Stock were issued
pursuant to the exercise of options granted under the 1991 Plan. As of November
10, 1997, the total number of shares covered by outstanding options was 89,000.
Stock Purchase Plan. On November 1, 1982, the Board of Directors of the
Company adopted an Employee Stock Purchase Plan (the "Purchase Plan") effective
January 1, 1983, in which eligible employees may elect to purchase, through
payroll deductions, shares of the Company's Common Stock and thereby increase
their proprietary interest in the Company. Pursuant to the Purchase Plan, the
Company contributes one dollar (before Social Security and withholding taxes)
for each dollar contributed by an eligible employee to purchase Common Stock for
the employee's account up to 5% of the employee's annual salary. As of September
30, 1997, two named executive officers participated in the Purchase Plan. On a
bi-weekly basis, the Company matches the participants' contributions and directs
the purchase of shares of the Company's Common Stock. There are no vesting
requirements for the participants. The Company contributed $164,530, $198,863
and $217,723 to the Purchase Plan during the fiscal years 1995, 1996 and 1997,
respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee makes recommendations regarding
compensation subject to approval of the entire Board of Directors.
23
<PAGE> 25
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information, as adjusted to reflect
the sale of the Common Stock offered by this Prospectus, with respect to the
beneficial ownership of the Company's outstanding Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock, (ii) each of the directors and executive officers of the Company,
(iii) all directors and executive officers of the Company as a group and (iv) L.
Decker Dawson, the President of the Company and the Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THIS SHARES TO BE OWNED AFTER THIS
OFFERING(1) SOLD IN OFFERING(1)
------------------- THIS -------------------
NAME AND ADDRESS OF SHAREHOLDER NUMBER PERCENT OFFERING NUMBER PERCENT
------------------------------- --------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
L. Decker Dawson.............................. 1,007,272 23.98% 500,000 507,272 9.76%
208 South Marienfeld
Midland, Texas 79701
Wellington Management Company(2).............. 410,000 9.76% -- 410,000 7.88%
75 State Street
Boston Massachusetts 02109
Dimensional Fund Advisors Inc.(3)............. 232,000 5.52% -- 232,000 4.46%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Howell W. Pardue.............................. 77,000 1.83% -- 77,000 1.48%
Calvin J. Clements............................ 71,126 1.69% -- 71,126 1.37%
Floyd B. Graham............................... 60,425 1.44% -- 60,425 1.16%
Stephen C. Jumper............................. 21,928 * -- 21,928 *
Christina W. Hagan............................ 16,420 * -- 16,420 *
Edward L. Huff................................ 15,537 * -- 15,537 *
C. Ray Tobias................................. 15,146 * -- 15,146 *
Tim C. Thompson............................... 1,500 * -- 1,500 *
Paula W. Henry................................ 1,152 * -- 1,152 *
Matthew P. Murphy............................. 200 * -- 200 *
Share ownership of directors and executive
officers as a group (11 persons)............ 1,287,706 30.66% 787,706 15.15%
</TABLE>
- ---------------
* Indicates less than 1% of the outstanding shares of Common Stock.
(1) Except as otherwise indicated, each shareholder shown in the table has sole
voting and investment power with respect to all shares listed as
beneficially owned by such shareholder.
(2) Wellington Management Company, LLP ("WMC") is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. WMC, in its capacity as investment
adviser, may be deemed to have beneficial ownership of 410,000 shares of
Common Stock that are owned by numerous investment advisory clients, none of
which is known to have such interest with respect to more than five percent
of the class.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 232,000 shares of Common
Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional Fund Advisors
Inc. serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
24
<PAGE> 26
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$1.00 par value per share, and 10,000,000 shares of Common Stock, $.33 1/3 par
value per share. As of the date of this Prospectus, there were 4,200,000 shares
of Common Stock issued and outstanding, and no shares of Preferred Stock have
been issued. The outstanding shares of Common Stock are, and the shares of
Common Stock to be sold by the Company as described herein will be when issued,
fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series
shall have such rights and preferences as shall be fixed by the Board of
Directors in the resolution or resolutions authorizing the issuance of that
particular series. In designating any series of Preferred Stock the Board of
Directors has authority without further action by the holders of Common Stock,
to fix the number of shares constituting that series and to fix the dividend
rights, dividend rate, conversion rights, rights and terms of redemption
(including any sinking fund provisions), and the liquidation preferences of that
series of Preferred Stock. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
COMMON STOCK
Each share of Common Stock has one vote on all matters presented to the
shareholders. Since the Common Stock does not have cumulative voting rights, the
holders of more than 50% of the shares may, if they choose to do so, elect all
of the directors and, in that event, the holders of the remaining shares will
not be able to elect any directors. Subject to the rights and preferences of any
Preferred Stock which may be designated and issued, the holders of Common Stock
are entitled to dividends when and as declared by the Board of Directors and are
entitled on liquidation to all assets remaining after payment of liabilities,
subject to the liquidation preferences of any shares of Preferred Stock. The
Common Stock has no preemptive or other subscription rights. There are no
conversion rights or redemption or sinking fund provisions with respect to the
Common Stock.
LIMITATION OF DIRECTOR LIABILITY
The Company's Restated Articles of Incorporation provide that the Company's
directors will have no personal liability to the Company or its shareholders for
monetary damages for breach or alleged breach of the directors' duty of care.
This provision in the Restated Articles of Incorporation does not eliminate the
directors' fiduciary duty of care, and in appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief should
remain available under Texas law. Furthermore, each director will continue to be
subject to liability for (i) a breach of the directors' duty of loyalty, (ii)
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, (iii) any transaction from which a director derives
an improper personal benefit, or (iv) an act or omission for which the liability
of a director is expressly provided by an applicable statute. This provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the open market
after this offering could adversely affect the trading price of the Common
Stock. Immediately after this offering, the Selling Shareholder will hold
507,272 shares representing approximately 9.76% of the outstanding shares of
Common Stock. A decision by the Selling Shareholder to sell shares of Common
Stock could adversely affect the trading price of the Common Stock. Upon
consummation of this offering, the Company will have 5,200,000 shares of Common
Stock outstanding excluding 89,000 shares of Common Stock issuable upon exercise
of outstanding employee stock options. Of such outstanding shares, the Company
estimates that approximately
25
<PAGE> 27
4,410,000 shares will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by an "affiliate" of the
Company, as that term is defined in Rule 144 under the Securities Act. The
remaining shares were acquired in transactions exempt from registration under
the Securities Act and are or formerly were "restricted securities" within the
meaning of Rule 144 and may not be resold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year from the later of the date the shares were acquired from the Company or
from an "affiliate" of the Company, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to the availability of certain public
information about the Company, restrictions on the manner of sale and notice
requirements. A person who is not deemed an affiliate of the Company under the
Securities Act, has not been an affiliate during the preceding 90 days and has
beneficially owned shares for at least two years from the later of the date the
shares were acquired from the Company or from an "affiliate" of the Company is
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations and other restrictions described above.
See "Underwriting" for a description of certain agreements prohibiting the
Company, the directors and officers thereof and the Selling Shareholder from
selling shares of Common Stock (other than the shares sold pursuant to this
Prospectus) for a period of 120 days from the date of this Prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., Dallas, Texas.
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below, through their representatives, Raymond James &
Associates, Inc. and Principal Financial Securities, Inc. (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholder the following respective numbers of shares of Common Stock
at the initial price to public less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Raymond James & Associates, Inc.............................
Principal Financial Securities, Inc.........................
---------
Total............................................. 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions. The
26
<PAGE> 28
Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are to be purchased.
The Underwriters, through the Representatives, propose to offer part of the
shares of Common Stock directly to the public at the offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at a
price that represents a concession not in excess of $ per share under the
initial price to public. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial offering of the shares to the public, the offering
price and other selling terms may be changed by the Representatives. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 225,000 additional shares of Common Stock, at the initial price to public,
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total shown, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise their option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. If purchased, the Underwriters will sell such additional shares
on the same terms as those on which the shares that the Underwriters have agreed
to purchase from the Company and the Selling Shareholder are being offered.
This offering of Common Stock is made for delivery when, as and if accepted
by the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Until the distribution of Common Stock in this offering is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. If the Underwriters create
a short position in the Common Stock in connection with this offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Representatives may reduce the short position by purchasing
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above. The Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of this offering. In general, purchases of
a security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases. The imposition of a penalty bid might also have an effect on the
price of a security to the extent that it discouraged resales of any security.
Neither the Company, the Selling Shareholder nor any of the Underwriters makes
any representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common Stock.
In addition, neither the Company, the Selling Shareholder nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or the such transactions, once commenced, will not be
discontinued without notice.
The Company, the Selling Shareholder and officers and directors of the
Company, which upon consummation of this offering will own or have the right to
acquire in the aggregate 817,706 shares of Common Stock, have agreed that they
will not, without the prior written consent of Raymond James & Associates, Inc.,
sell, offer to sell, contract to sell or otherwise transfer or dispose of any
shares of Common Stock (other than the shares offered by the Selling Shareholder
in this offering), options, rights or warrants to
27
<PAGE> 29
acquire shares of Common Stock, or securities exchangeable for or convertible
into shares of Common Stock, during the 120-day period commencing on the date of
this Prospectus, except that the Company may issue shares of Common Stock upon
exercise of options outstanding under the 1991 Plan and may grant additional
options under the 1991 Plan, provided that without the prior written consent of
Raymond James & Associates, Inc., such additional options shall not be
exercisable during such period.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities, including liabilities under the Securities Act.
Prior to the filing of the Registration Statement of which this Prospectus
is a part, the Company paid the Representatives of the Underwriters a due
diligence and advisory fee in the aggregate amount of $25,000.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the form of
Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Midland, Texas.
Certain matters relating to this offering will be passed upon for the
Underwriters by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The financial statements of the Company as of September 30, 1996 and 1997
and for each of the years in the three-year period ended September 30, 1997 have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (as amended and together with all exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered by this Prospectus. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Common Stock offered, reference is made to the Registration Statement.
Statements contained in this Prospectus concerning the provisions of any
contract, agreement or other document are not necessarily complete. With respect
to each contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for the complete
contents of the exhibit, and each statement concerning its provisions is
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission, which can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: Chicago Regional Office, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661, and New York Regional Office, 7
World Trade Center, New York, New York 10048. Copies of such material may also
be obtained by mail at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Commission maintains an Internet world wide web site that contains reports,
proxy and information reports and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. The site
can be accessed at http://www.sec.gov.
28
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of September 30, 1996 and 1997 ........... F-3
Statements of Operations for the Years Ended September 30,
1995, 1996 and 1997....................................... F-4
Statements of Cash Flows for the Years Ended September 30,
1995, 1996 and 1997....................................... F-5
Statements of Stockholders' Equity for the Years Ended
September 30, 1995, 1996 and 1997......................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited the accompanying balance sheets of Dawson Geophysical
Company as of September 30, 1996 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dawson Geophysical Company
as of September 30, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended September 30,
1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
October 30, 1997
F-2
<PAGE> 32
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,493,000 $ 4,774,000
Marketable securities..................................... 988,000 3,968,000
Accounts receivable....................................... 6,161,000 8,724,000
Income taxes receivable................................... 193,000 --
Prepaid expenses.......................................... 148,000 288,000
------------ ------------
Total current assets.............................. 8,983,000 17,754,000
------------ ------------
Property, plant and equipment............................... 56,368,000 63,267,000
Less accumulated depreciation............................... (23,442,000) (27,460,000)
------------ ------------
Net property, plant and equipment................. 32,926,000 35,807,000
------------ ------------
$ 41,909,000 $ 53,561,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 857,000 $ 1,690,000
Accounts payable.......................................... 2,079,000 3,956,000
Accrued liabilities:
Payroll costs and other taxes.......................... 560,000 566,000
Other.................................................. 144,000 494,000
------------ ------------
Total current liabilities......................... 3,640,000 6,706,000
------------ ------------
Long-term debt, less current maturities..................... 4,857,000 7,893,000
Deferred income taxes....................................... 608,000 1,417,000
Stockholders' equity:
Preferred stock -- par value $1.00 per share; 5,000,000
shares authorized, none outstanding.................... -- --
Common stock -- par value $.33 1/3 per share; 10,000,000
shares authorized, 4,161,550 and 4,199,250 shares
issued and outstanding as of September 30, 1996 and
1997................................................... 1,387,000 1,400,000
Additional paid-in capital................................ 17,021,000 17,174,000
Net unrealized loss on marketable securities.............. (5,000) --
Retained earnings......................................... 14,401,000 18,971,000
------------ ------------
Total stockholders' equity........................ 32,804,000 37,545,000
------------ ------------
Contingencies (See note 11)
$ 41,909,000 $ 53,561,000
============ ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 33
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues..................................... $28,188,000 $33,518,000 $48,227,000
Operating costs:
Operating expenses................................... 20,067,000 23,763,000 32,293,000
General and administrative........................... 975,000 1,299,000 1,477,000
Depreciation......................................... 4,150,000 5,818,000 7,321,000
----------- ----------- -----------
25,192,000 30,880,000 41,091,000
----------- ----------- -----------
Income from operations................................. 2,996,000 2,638,000 7,136,000
Other income (expense):
Interest income...................................... 399,000 253,000 260,000
Interest expense..................................... (170,000) (144,000) (486,000)
Gain on disposal of assets........................... 76,000 11,000 196,000
Other................................................ 8,000 2,000 10,000
Proceeds from litigation settlement.................. 131,000 -- --
----------- ----------- -----------
Income before income tax expense....................... 3,440,000 2,760,000 7,116,000
Income tax expense:
Current.............................................. 970,000 599,000 1,738,000
Deferred............................................. 296,000 273,000 808,000
----------- ----------- -----------
1,266,000 872,000 2,546,000
----------- ----------- -----------
Net income............................................. $ 2,174,000 $ 1,888,000 $ 4,570,000
=========== =========== ===========
Income per common share................................ $ .54 $ .45 $ 1.09
=========== =========== ===========
Weighted average equivalent common shares
outstanding.......................................... 3,989,949 4,182,891 4,201,611
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 34
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 2,174,000 $ 1,888,000 $ 4,570,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.......................................... 4,150,000 5,818,000 7,321,000
Gain on disposal of assets............................ (76,000) (11,000) (196,000)
Non-cash interest income.............................. (229,000) (101,000) (63,000)
Deferred income taxes................................. 296,000 273,000 808,000
Other................................................. -- -- 91,000
Change in current assets and liabilities:
Increase in accounts receivable....................... (704,000) (1,153,000) (2,563,000)
Decrease (increase) in prepaid expenses............... (21,000) 72,000 (140,000)
Decrease (increase) in income taxes receivable........ (126,000) (67,000) 193,000
Increase (decrease) in accounts payable............... 548,000 (222,000) (42,000)
Increase (decrease) in accrued liabilities............ (118,000) 235,000 267,000
Increase (decrease) in income taxes payable........... (121,000) -- 89,000
------------ ------------ ------------
Net cash provided by operating activities................... 5,773,000 6,732,000 10,335,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposal of assets...................... 273,000 33,000 340,000
Capital expenditures.................................. (10,961,000) (15,597,000) (8,528,000)
Proceeds from sale of marketable securities........... -- 2,884,000 742,000
Proceeds from maturity of marketable securities....... 7,827,000 2,100,000 750,000
Investment in marketable securities................... (5,935,000) (2,096,000) (4,383,000)
------------ ------------ ------------
Net cash used in investing activities....................... (8,796,000) (12,676,000) (11,079,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on debt............................ (7,875,000) (286,000) (927,000)
Proceeds from debt.................................... 1,500,000 6,000,000 4,795,000
Issuance of common stock.............................. 10,776,000 -- --
Proceeds from exercise of stock options............... 142,000 52,000 157,000
------------ ------------ ------------
Net cash provided by financing activities................... 4,543,000 5,766,000 4,025,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents........ 1,520,000 (178,000) 3,281,000
Cash and cash equivalents at beginning of year.............. 151,000 1,671,000 1,493,000
------------ ------------ ------------
Cash and cash equivalents at end of year.................... $ 1,671,000 $ 1,493,000 $ 4,774,000
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 35
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
COMMON STOCK UNREALIZED
----------------------- ADDITIONAL LOSS ON
NUMBER PAID-IN MARKETABLE RETAINED
OF SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
---------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994......... 3,002,800 $1,001,000 $ 6,437,000 $(91,000) $10,339,000 $17,686,000
Issuance of common stock............ 1,114,000 371,000 10,405,000 -- -- 10,776,000
Exercise of stock options........... 32,250 11,000 131,000 -- -- 142,000
Net unrealized gain on marketable
securities........................ -- -- -- 78,000 -- 78,000
Net income.......................... -- -- -- -- 2,174,000 2,174,000
---------- ---------- ----------- -------- ----------- -----------
Balance, September 30, 1995......... 4,149,050 1,383,000 16,973,000 (13,000) 12,513,000 30,856,000
Exercise of stock options........... 12,500 4,000 48,000 -- -- 52,000
Net unrealized gain on marketable
securities........................ -- -- -- 8,000 -- 8,000
Net income.......................... -- -- -- -- 1,888,000 1,888,000
---------- ---------- ----------- -------- ----------- -----------
Balance, September 30, 1996......... 4,161,550 1,387,000 17,021,000 (5,000) 14,401,000 32,804,000
Issuance of common stock............ 1,200 1,000 8,000 -- -- 9,000
Exercise of stock options........... 36,500 12,000 145,000 -- -- 157,000
Net unrealized gain on marketable
securities........................ -- -- -- 5,000 -- 5,000
Net income.......................... -- -- -- -- 4,570,000 4,570,000
---------- ---------- ----------- -------- ----------- -----------
Balance September 30, 1997 ......... 4,199,250 $1,400,000 $17,174,000 $ -- $18,971,000 $37,545,000
========== ========== =========== ======== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 36
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Dawson Geophysical Company (the "Company"), which was incorporated in Texas
in 1952, has been listed and traded on the Nasdaq National Market under the
symbol "DWSN" since 1981.
The Company acquires and processes 3-D seismic data for major and
intermediate-sized oil and gas companies and independent oil operators who
retain exclusive rights to the information obtained. The Company's land-based
acquisition crews operate primarily in the southwestern United States, and data
processing is performed by geophysicists at the Company's computer center in
Midland, Texas.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers demand
deposits, certificates of deposit and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Marketable Securities
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (Statement 115). In
accordance with Statement 115, the Company has classified its investment
portfolio consisting of U.S. Treasury securities as "available-for-sale" and
records the net unrealized holding gains and losses as a separate component of
stockholders' equity. The cost of marketable securities sold is based on the
specific identification method.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable and marketable
securities. The Company's sales are to customers whose activities relate to oil
and gas exploration and production. However, accounts receivable are well
diversified among many customers, and a significant portion of the receivables
are from major oil companies, which management believes minimizes potential
credit risk. The Company generally extends unsecured credit to these customers;
therefore, collection of receivables may be affected by the economy surrounding
the oil and gas industry. However, the Company closely monitors extensions of
credit and has not experienced significant credit losses in recent years. The
Company invests primarily in U.S. Treasury securities which are a low risk
investment.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line method. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is reflected in the results of operations for the
period.
Impairment of Long-Lived Assets
In March, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121)
which requires companies to assess their long-lived assets for impairment.
Statement 121 requires companies to review for impairment whenever events or
changes in circumstances indicate that the carrying amount of a long-lived asset
may not be recoverable. The Company adopted
F-7
<PAGE> 37
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement 121 as of October 1, 1995. The effect of the adoption of Statement 121
was not material to the Company and, accordingly, no provision was recorded in
the Statement of Operations for the years ended September 30, 1996 and 1997.
Income Taxes
The Company accounts for state and federal income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Under the asset and liability method of Statement 109,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company's deferred tax liability results primarily from
differences in depreciation for financial reporting and income tax purposes.
Income per Common Share
Income per common share is computed based on the weighted average common
shares and common share equivalents outstanding during each year. The dilutive
effect of stock options granted is included in the computation of income per
common share. The fully dilutive effect of common share equivalents was less
than 3% for 1995, 1996 and 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (Statement 128), "Earnings per Share."
Statement 128 establishes standards for computing and presenting earnings per
share and is effective for periods ending after December 15, 1997. The impact of
the adoption of Statement 128 on the Company's earnings per share is expected to
be immaterial.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
(Statement 123). Statement 123 allows a company to adopt a fair value based
method of accounting for a stock-based employee compensation plan or to continue
to use the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting For Stock Issued To Employees" (APB
No. 25). The Company has chosen to continue to account for stock-based
compensation under APB No. 25 using the intrinsic value method. Under this
method, the Company has not recorded any compensation expense related to stock
options granted. The disclosures required by Statement 123, however, have been
included in Note 5.
2. MARKETABLE SECURITIES
Marketable securities, consisting entirely of U.S. Treasury securities, had
a cost and market value of approximately $993,000 and $988,000, respectively, at
September 30, 1996. At September 30, 1997, market value approximated the cost of
$3,968,000.
F-8
<PAGE> 38
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Marketable securities held at September 30, 1997, consisting of U.S.
Treasury securities, have contractual maturities from December 1997 through June
1998.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, together with annual depreciation rates,
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1996 1997 RATES
----------- ----------- -----------------
<S> <C> <C> <C>
Land................................... $ 836,000 $ 836,000 --
Buildings and improvements............. 1,214,000 1,219,000 3 to 12.5 percent
Machinery and equipment................ 52,150,000 58,811,000 10 to 20 percent
Equipment in process(a)................ 2,168,000 2,400,000 --
----------- -----------
$56,368,000 $63,266,000
=========== ===========
</TABLE>
- ---------------
(a) Equipment in process has not been placed into service and accordingly has
not been subject to depreciation.
4. SHORT-TERM AND LONG-TERM DEBT
In April 1997, the Company entered into a loan agreement, as amended (the
"Loan Agreement"), with Norwest Bank Texas, N.A. ("Norwest"). The Loan Agreement
consists of (1) a revolving line of credit of $6,000,000 which matures on April
15, 1999, (2) a term note in the aggregate principal amount of $6,000,000
bearing interest at Norwest's prime rate and which matures on March 15, 2003 and
(3) a term note in the aggregate principal amount of $5,000,000 bearing interest
at the prime rate as published in The Wall Street Journal and which matures on
April 15, 2003. The $5,000,000 term note, together with working capital, were
utilized to finance the purchase of equipment placed into service in August
1997. The term notes are secured by eligible accounts receivable and equipment
purchased from loan proceeds. At September 30, 1997, approximately $9.5 million
was outstanding under the term notes all of which were bearing interest at 8.5%
per annum.
At September 30, 1997, the current maturity of the long-term debt is
$1,690,000. For fiscal years 1998 through 2002, the annual maturity is
$1,690,000, and for fiscal year 2003, the annual maturity will be the balance.
As of September 30, 1997, the Company has not utilized the revolving line of
credit.
F-9
<PAGE> 39
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTIONS
The Company's 1991 Incentive Stock Option Plan, which extends the 1981
Plan, provides options to purchase 150,000 shares of authorized but unissued
common stock of the Company. The option price is the market value of the
Company's common stock at date of grant. Options are exercisable 25% annually
from the date of the grant and the options expire five years from date of grant.
The transactions under the 1991 Plan are summarized as follows:
<TABLE>
<CAPTION>
OPTION NUMBER OF
PRICE PER SHARE OPTIONED SHARES
------------------ ---------------
<S> <C> <C> <C>
Balance as of September 30, 1994................... $3.625 to $8.875 135,000
Granted.......................................... $11.25 17,000
Exercised........................................ $3.625 to $4.75 (32,250)
Cancelled or expired............................. $4.75 to $8.875 (7,000)
------------------ ---------------
Balance as of September 30, 1995................... $4.25 to $11.25 112,750
Exercised........................................ $4.25 (12,500)
------------------ ---------------
Balance as of September 30, 1996................... $4.25 to $11.25 100,250
Granted.......................................... $24.125 30,000
Exercised........................................ $4.25 to $8.875 (36,500)
Cancelled or expired............................. $4.25 (4,000)
------------------ ---------------
Balance as of September 30, 1997................... $7.25 to $24.125 89,750
================== ===============
</TABLE>
Options for 54,250, 73,000 and 47,500 shares were exercisable as of
September 30, 1995, 1996 and 1997, respectively.
Options for 30,000 shares were granted in fiscal year 1997 and none were
granted in 1996. The expected life of the options granted is 5 years. The
weighted average fair value of options granted during 1997 is $10.64. The fair
value of each option grant is estimated on the date of grant, using the
Black-Scholes options-pricing model. The model assumed expected volatility of
42% and risk-free interest rate of 6.4% for grants in 1997. As the Company has
not declared dividends since it became a public entity, no dividend yield was
used. Actual value realized, if any, is dependent on the future performance of
the Company's common stock and overall stock market conditions. There is no
assurance the value realized by an optionee will be at or near the value
estimated by the Black-Scholes model.
Outstanding options at September 30, 1997 expire between September 1998 and
September 2002.
As discussed in Note 1, no compensation expense has been recorded in 1997
for the Company's stock options under the intrinsic value method. Had
compensation cost for the 1991 Plan been determined based on the fair value at
the grant dates for awards made after September 30, 1995 under the 1991 Plan,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C> <C>
Net income As reported $4,570,000
Pro forma $4,352,000
Earnings per share As reported $ 1.09
Pro forma $ 1.04
</TABLE>
Under the provisions of Statement No. 123, the pro forma disclosures above
indicate only the effects of stock options granted by the Company subsequent to
September 30, 1995. During this initial phase-in period,
F-10
<PAGE> 40
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the pro forma disclosures as required by Statement No. 123 are not
representative of the effects on reported net income for future years as options
vest over several years and additional awards are generally made each year.
6. EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan to invest in the Company's
common stock for the benefit of eligible employees. Participants were entitled
to contribute a percentage, not to exceed 5%, of their biweekly salary to the
plan. On a bi-weekly basis, the Company matches the participants' contributions
and directs the purchase of shares of the Company's common stock. There are no
vesting requirements for the participants. The Company contributed $164,530,
$198,863 and $217,723 to the plan during 1995, 1996 and 1997, respectively.
7. INCOME TAXES
Income tax expense attributable to income before extraordinary item
consists of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
U.S. federal................................. $ 859,000 $ 596,000 $1,585,000
State........................................ 111,000 3,000 153,000
---------- ---------- ----------
970,000 599,000 1,738,000
Deferred -- U.S. federal....................... 296,000 273,000 808,000
---------- ---------- ----------
Total................................ $1,266,000 $ 872,000 $2,546,000
========== ========== ==========
</TABLE>
Income tax expense varies from the amount computed by multiplying income
before taxes by the statutory income tax rate. The reason for these differences
and the related tax effects are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Expense computed at statutory rates............ $1,169,000 $ 938,000 $2,420,000
Effect of:
State income taxes, net of federal income tax
benefit................................... 73,000 10,000 101,000
Other........................................ 24,000 (76,000) 25,000
---------- ---------- ----------
Income tax expense............................. $1,266,000 $ 872,000 $2,546,000
========== ========== ==========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized.
8. STATEMENT OF CASH FLOWS
The Company paid current and estimated tax payments of $1,019,000, $619,000
and $1,553,000 in 1995, 1996 and 1997, respectively. Payments of interest were
$170,000, $144,000 and $486,000 in 1995, 1996 and 1997, respectively. During
1995, the Company exchanged certain land and buildings plus cash of $425,000 for
buildings and land held by a third party.
F-11
<PAGE> 41
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. MAJOR CUSTOMERS
The Company operates in only one business segment, contract seismic data
acquisition and processing services. The major customers in 1995 and 1996 varied
and sales to these customers, as a percentage of operating revenues, for periods
in which sales to these customers exceeded 10%, were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Customer A.................................................. -- 11%
Customer B.................................................. 20% --
Customer C.................................................. 16% --
</TABLE>
During 1997, sales to no customers exceeded 10% of operating revenue.
10. EQUITY OFFERING
During the first quarter of fiscal 1995, the Company completed a public
offering of 1,114,000 shares with net proceeds of approximately $10,776,000 used
to acquire seismic equipment and retire debt.
11. CONTINGENCIES
The Company is a defendant in two lawsuits pending in the 112th and 83rd
District Courts of Pecos County, Texas relating to a July 1995 accident
involving a van owned by the Company which was used to transport employees to
various job sites and a non-Company owned vehicle. The accident resulted in the
deaths of four Company employees who were passengers in such van. The Company is
one of several named defendants in such suits. Other named defendants include
the estate of the deceased driver of such van, who was an employee of the
Company, the driver of such non-Company owned vehicle, who was then an employee
of the Company, the owner of such vehicle, and Ford Motor Company, the
manufacturer of the Company van involved in such accident. In general, the
claims against the Company include allegations of negligence, gross negligence
and/or intentional tort as a result of, among other things, the Company's
alleged failure to provide safe transportation for its employees and to properly
select, train and supervise the deceased driver of such van. The plaintiffs in
such suits are seeking actual damages from the defendants of $15.5 million,
additional unspecified actual damages, pre-judgment and post-judgment interest
and costs of suit as well as exemplary and punitive damages in an amount not to
exceed four times the amount of actual damages. The Company believes that it has
meritorious defenses to the claims asserted against it in such suits and it
intends to continue to vigorously defend itself against such claims. In
addition, the Company believes that it has approximately $11 million of
liability insurance coverage to provide against an unfavorable outcome. Due to
the uncertainties inherent in litigation, no assurance can be given as to the
ultimate outcome of such suits or the adequacy or availability of the Company's
liability insurance to cover the damages, if any, which may be assessed against
the Company in such suits. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity.
The Company is party to other legal actions arising in the ordinary course
of its business, none of which management believes will result in a material
adverse effect on the Company's financial position or results of operation, as
the Company believes it is adequately insured.
F-12
<PAGE> 42
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
1996:
Operating revenues................ $ 7,358,000 $ 8,572,000 $ 8,555,000 $ 9,033,000
Income from operations............ $ 56,000 $ 931,000 $ 750,000 $ 901,000
Net income........................ $ 77,000 $ 630,000 $ 514,000 $ 667,000
Net Income per common share....... $ .02 $ .15 $ .12 $ .16
1997:
Operating revenues................ $10,063,000 $11,721,000 $12,520,000 $13,923,000
Income from operations............ $ 1,078,000 $ 1,566,000 $ 2,322,000 $ 2,180,000
Net income........................ $ 657,000 $ 1,090,000 $ 1,501,000 $ 1,322,000
Net Income per common share....... $ .16 $ .26 $ .36 $ .31
</TABLE>
F-13
<PAGE> 43
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Disclosure Regarding Forward-Looking
Statements.......................... 8
Use of Proceeds....................... 8
Price Range of Common Stock........... 9
Dividend Policy....................... 10
Capitalization........................ 10
Selected Financial Data............... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 15
Management............................ 20
Principal and Selling Shareholders.... 24
Description of Capital Stock.......... 25
Underwriting.......................... 26
Legal Matters......................... 28
Experts............................... 28
Available Information................. 28
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
1,500,000 SHARES
[DAWSON LOGO]
DAWSON
GEOPHYSICAL
COMPANY
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES & ASSOCIATES, INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
, 1997
======================================================
<PAGE> 44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred or to be incurred in connection
with the sale of the common Stock being registered (all amounts are estimated
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market filing fee) all of which will be paid by the Registrant:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,826.70
NASD filing fee............................................. 4,403.00
Nasdaq National Market filing fee........................... 17,500.00
Printing and engraving costs................................ 140,000.00
Legal fees and expenses..................................... 125,000.00
Accounting fees and expenses................................ 35,000.00
Blue Sky fees and expenses.................................. 10,000.00
Transfer agent and registrar fees........................... 5,000.00
Miscellaneous............................................... 51,270.30
-----------
Total............................................. $400,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seven of the Articles of Incorporation, as amended, of Dawson
Geophysical Company (the "Registrant") provides as follows:
"A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for an act or omission
in such director's capacity as a director, except for liability for (i) a
breach of a director's duty of loyalty to the corporation or its
shareholders; (ii) an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of the law; (iii) a
transaction from which a director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office; (iv) an act or omission for which the liability of a
director is expressly provided by statue; or (v) an act related to an
unlawful stock repurchase or payment of a dividend. If the laws of the
State of Texas are hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of a director of the
corporation, then the liability of a director of the corporation shall
thereupon automatically be eliminated or limited to the fullest extent
permitted by such laws. Any repeal or modification of this Article Seven by
the shareholders of the corporation shall not adversely affect any right or
protection of a director existing at the time of such repeal or
modification with respect to events or circumstances occurring or existing
prior to such time."
Article IX of the Bylaws of the Registrant provides that:
"To the extent permitted by Texas Business Corporation Act Article
2.02-1, the corporation shall indemnify any present or former Director,
officer, employee, or agent of the corporation against judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses actually incurred by the person in connection with a proceeding in
which the person was, is, or is threatened to be made a named defendant or
respondent because the person is or was a Director, officer, employee, or
agent of the corporation."
Article 2.02-1 of the Texas Business Corporation Act permits corporations
to indemnify a person who was or is a director, officer, employee, or agent of a
corporation or who serves at the corporation's request as a director, officer,
partner, proprietor, trustee, employee, or agent of another corporation,
partnership, trust, joint venture, or other enterprise (an "outside
enterprise"), who was, is, or is threatened to be named a defendant in a legal
proceeding by virtue of such person's position in the corporation or in an
outside enterprise, but only if
II-1
<PAGE> 45
the person acted in good faith and reasonably believed, in the case of conduct
in the person's official capacity, that the conduct was in or, in the case of
all other conduct, that the conduct was not opposed to the corporation's best
interest, and, in the case of a criminal proceeding, the person had no
reasonable cause to believe the conduct was unlawful. A person may be
indemnified within the above limitations against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred; however, indemnification is limited to reasonable expenses actually
incurred in a proceeding in which the person is found liable to the corporation
or is found to have improperly received a personal benefit and shall not be made
in respect of any proceeding in which the person shall have been found liable
for willful or intentional misconduct in the performance of his duty to the
corporation. A corporation must indemnify a director, officer, employee, or
agent against reasonable expenses incurred in connection with a proceeding in
which the person is a party because of the person's corporate position, if the
person was successful, on the merits or otherwise, in the defense of the
proceeding. Under certain circumstances, a corporation may also advance expenses
to such person.
Indemnification can be made by the corporation only upon a determination
made in the manner prescribed by the statute that indemnification is proper in
the circumstances because the party seeking indemnification has met the
applicable standard of conduct as set forth in Article 2.02-1 of the Texas
Business Corporation Act.
Article 2.02-1 of the Texas Business Corporation Act also permits a
corporation to purchase and maintain insurance or to make other arrangements on
behalf of any of the above persons against any liability asserted against and
incurred by the person in such capacity, or arising out of the person's status
as such a person, whether or not the corporation would have the powers to
indemnify the person against the liability under applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to all securities sold by the Registrant
within the past three years and not registered under the Securities Act of 1933
(the "Securities Act").
The only securities sold by the Registrant within the past three years and
not registered under the Securities Act have been in connection with the
exercise of employee stock options granted to certain key employees of the
Registrant pursuant to the Registrant's 1991 Incentive Stock Option Plan. During
the past three years, 17 employees of the Company exercised stock options for
the purchase of a total of 81,250 shares of Common Stock at an average exercise
price of $4.33 per share.
Each of the transactions described above was conducted in reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act and
the rules and regulations promulgated thereunder. Furthermore, each of the
certificates representing the Registrant's securities issued in connection with
such transactions contains a restrictive legend, as appropriate, and each person
acquiring such securities from the Registrant furnished investment
representations to the Registrant and no underwriters participated in such
transactions.
No other sales of securities were made by the Registrant during the past
three year period.
SCHEDULES:
The schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
II-2
<PAGE> 46
ITEM 16. EXHIBITS.
Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Proposed form of Underwriting Agreement.
3.1 (2) -- Restated and Amended Articles of Incorporation of Dawson
Geophysical Company.
3.2 (2) -- Bylaws of Dawson Geophysical Company.
5.1 -- Opinion of Stubbeman, McRae, Sealy, Laughlin & Browder,
Inc., counsel for the Company.
10.1 (2) -- Form of Short Term Seismograph Service Agreement for
Periodic Performance between Dawson Geophysical Company
and clients.
10.2 (2) -- Form of Supplemental Agreement for Geophysical Services
for seismograph services between Dawson Geophysical
Company and clients.
10.3 (2) -- License Agreement granting license to use system for
seismic exploration, dated May 15, 1992 between Dawson
Geophysical Company and Techno Geophysical Services, Ltd.
10.4 (2) -- Dawson Geophysical Company 1991 Incentive Stock Option
Plan.
10.5 (2) -- Dawson Geophysical Company Employee Stock Purchase Plan.
10.6 (3) -- Loan Agreement dated April 1, 1996 by and between Dawson
Geophysical Company and Norwest Bank Texas, N.A.
10.7 (4) -- First Amendment to Loan Agreement, dated April 15, 1997.
10.8 (3) -- Security Agreement dated April 1, 1996 relating to the
Loan Agreement between Dawson Geophysical Company and
Norwest Bank Texas, N.A.
10.9 (1) -- First Amendment to Security Agreement, dated April 15,
1997.
10.10(3) -- Term Note of Dawson Geophysical Company dated April 1,
1996.
10.11(3) -- Revolving Note of Dawson Geophysical Company dated April
1, 1996.
10.12(4) -- Term Note of Dawson Geophysical Company dated April 15,
1997.
10.13(4) -- Revolving Note of Dawson Geophysical Company, Dated April
15, 1997.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Stubbeman, McRae, Sealy, Laughlin & Browder,
Inc. (included in their opinion filed as Exhibit 5.1).
24.1 (1) -- Power of Attorney.
</TABLE>
- ---------------
(1) Previously filed.
(2) Incorporated by reference to Registrant's Form S-1, dated October 19, 1994
(Commission File No. 33-85328).
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnifica-
II-3
<PAGE> 47
tion is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Midland, and the State of Texas, on the 12th day of November, 1997.
DAWSON GEOPHYSICAL COMPANY
By /s/ L. DECKER DAWSON
-----------------------------------
L. Decker Dawson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L. DECKER DAWSON Director, President (Principal November 12, 1997
- -------------------------------------------------- Executive Officer)
L. Decker Dawson
/s/ FLOYD B. GRAHAM* Director, Executive Vice President November 12, 1997
- --------------------------------------------------
Floyd B. Graham
/s/ HOWELL W. PARDUE* Director, Executive Vice President November 12, 1997
- --------------------------------------------------
Howell W. Pardue
/s/ CALVIN J. CLEMENTS* Director November 12, 1997
- --------------------------------------------------
Calvin J. Clements
/s/ MATTHEW P. MURPHY* Director November 12, 1997
- --------------------------------------------------
Matthew P. Murphy
/s/ TIM C. THOMPSON* Director November 12, 1997
- --------------------------------------------------
Tim C. Thompson
/s/ CHRISTINA W. HAGAN* Vice President, Chief Financial November 12, 1997
- -------------------------------------------------- Officer (Principal Financial and
Christina W. Hagan Accounting Officer)
*By: /s/ L. DECKER DAWSON
------------------------------------------------
L. Decker Dawson
Attorney-in-fact
</TABLE>
II-5
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Proposed form of Underwriting Agreement.
3.1 (2) -- Restated and Amended Articles of Incorporation of Dawson
Geophysical Company.
3.2 (2) -- Bylaws of Dawson Geophysical Company.
5.1 -- Opinion of Stubbeman, McRae, Sealy, Laughlin & Browder,
Inc., counsel for the Company.
10.1 (2) -- Form of Short Term Seismograph Service Agreement for
Periodic Performance between Dawson Geophysical Company
and clients.
10.2 (2) -- Form of Supplemental Agreement for Geophysical Services
for seismograph services between Dawson Geophysical
Company and clients.
10.3 (2) -- License Agreement granting license to use system for
seismic exploration, dated May 15, 1992 between Dawson
Geophysical Company and Techno Geophysical Services, Ltd.
10.4 (2) -- Dawson Geophysical Company 1991 Incentive Stock Option
Plan.
10.5 (2) -- Dawson Geophysical Company Employee Stock Purchase Plan.
10.6 (3) -- Loan Agreement dated April 1, 1996 by and between Dawson
Geophysical Company and Norwest Bank Texas, N.A.
10.7 (4) -- First Amendment to Loan Agreement, dated April 15, 1997.
10.8 (3) -- Security Agreement dated April 1, 1996 relating to the
Loan Agreement between Dawson Geophysical Company and
Norwest Bank Texas, N.A.
10.9 (1) -- First Amendment to Security Agreement, dated April 15,
1997.
10.10(3) -- Term Note of Dawson Geophysical Company dated April 1,
1996.
10.11(3) -- Revolving Note of Dawson Geophysical Company dated April
1, 1996.
10.12(4) -- Term Note of Dawson Geophysical Company, dated April 15,
1997.
10.13(4) -- Revolving Note of Dawson Geophysical Company, dated April
15, 1997.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Stubbeman, McRae, Sealy, Laughlin & Browder,
Inc. (included in their opinion filed as Exhibit 5.1).
24.1 (1) -- Power of Attorney.
</TABLE>
- ---------------
(1) Previously filed.
(2) Incorporated by reference to Registrant's Form S-1, dated October 19, 1994
(Commission File No. 33-85328).
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
<PAGE> 1
EXHIBIT 1.1
1,500,000 SHARES*
DAWSON GEOPHYSICAL COMPANY
COMMON STOCK
____________________
UNDERWRITING AGREEMENT
St. Petersburg, Florida
November , 1997
Raymond James & Associates, Inc.
Principal Financial Securities, Inc.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Dawson Geophysical Company, a Texas corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
an aggregate of 1,000,000 shares of common stock, $.33 1/3 par value per share
(the "Common Stock"), of the Company, to the several underwriters named in
Schedule I hereto (the "Underwriters"), and L. Decker Dawson (the "Selling
Shareholder") proposes, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 500,000 shares of the Common Stock
(the aggregate of such 1,500,000 shares to be sold by the Company and the
Selling Shareholder hereinafter referred to as the "Firm Shares"). In
addition, the Company has agreed to sell to the Underwriters, upon the terms
and conditions set forth herein, up to an additional 225,000 shares (the
"Additional Shares") of the Common Stock to cover over-allotments by the
Underwriters, if any. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares."
The Company and the Selling Shareholder, acting severally and jointly,
wish to confirm as follows their agreement with you and the other several
Underwriters, on whose behalf you are
__________________________________
* Plus an additional 225,000 shares subject to the Underwriters
over-allotment option.
<PAGE> 2
acting, in connection with the several purchases of the Shares from the Company
and the Selling Shareholder.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (File No.
333-38393), including a prospectus subject to completion, relating to the
Shares. Such registration statement, as amended at the time when it becomes
effective and as thereafter amended by post-effective amendment, is referred to
in this Agreement as the "Registration Statement." The prospectus in the form
included in the Registration Statement (including any prospectus subject to
completion meeting the requirements of Rule 434(b) under the Act provided by
the Company with any term sheet meeting the requirements of such Rule 434(b) as
the prospectus provided to meet the requirements of Section 10(a) of the Act),
or, if the prospectus included in the Registration Statement omits information
in reliance upon Rule 430A under the Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b) under the Act or
as part of a post-effective amendment to the Registration Statement after the
Registration Statement becomes effective, the prospectus as so filed, is
referred to in this Agreement as the "Prospectus." The prospectus subject to
completion in the form included in the Registration Statement at the time of
the initial filing of such Registration Statement with the Commission and as
such prospectus is amended from time to time until the date of the Prospectus,
is referred to in this Agreement as the "Prepricing Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. The Company and the Selling
Shareholder hereby agree, severally and not jointly, to sell the Firm Shares to
the Underwriters and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholder herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholder at a purchase price of $____ per Share (the "purchase price per
Share"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted
pursuant to Section 11 hereof).
The Company hereby also agrees to sell to the Underwriters, and upon
the basis of the representations, warranties and agreements of the Company and
the Selling Shareholder herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right for 30 days
from the date of the Prospectus to purchase from the Company up to 225,000
Additional Shares at the purchase price per Share for the Firm Shares. The
Additional Shares may be purchased solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase the number of Additional Shares
(subject to such adjustments as you may determine to avoid fractional shares)
which bears the same proportion to the total number of Additional Shares to be
purchased by the Underwriters as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto (or such number of Firm
Shares as adjusted pursuant to Section 11 hereof) bears to the total number of
Firm Shares.
2
<PAGE> 3
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Shareholder have been advised by you that the Underwriters propose severally,
and not jointly, to make a public offering of their respective portions of the
Shares as soon after the Registration Statement and this Agreement have become
effective as in your judgment is advisable and initially to offer the Shares
upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on November
__, 1997 (the "Closing Date"). The place of closing for the Firm Shares and
the Closing Date may be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the offices of Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at
10:00 a.m., St. Petersburg, Florida time, on such date or dates (the
"Additional Closing Date") (which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than three nor later
than ten business days after the giving of the notice hereinafter referred to)
as shall be specified in a written notice from you on behalf of the
Underwriters to the Company of the Underwriters' determination to purchase a
number, specified in such notice, of Additional Shares. Such notice may be
given to the Company by you at any time within 30 days after the date of the
Prospectus. The place of closing for the Additional Shares and the Additional
Closing Date may be varied by agreement among you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, not
later than the second full business day preceding the Closing Date or the
Additional Closing Date, as the case may be. Such certificates shall be made
available to you in St. Petersburg, Florida for inspection and packaging not
later than 9:30 a.m., St. Petersburg, Florida time, on the business day
immediately preceding the Closing Date or the Additional Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Additional Closing Date, as the case may be, against payment of the
purchase price therefor by certified or official bank check or checks payable
in New York Clearing House (next day) funds.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
a. The Company will use its best efforts to cause the
Registration Statement to become effective and will advise you
promptly and, if requested by you, will confirm such advice in writing
(i) when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) if Rule 430A
under the Act is employed, when the Prospectus has been timely filed
pursuant to Rule 424(b) under the Act, (iii) of any request by the
Commission for amendments or supplements to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for
additional
3
<PAGE> 4
information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation of any proceeding for such purposes and
(v) within the period of time referred to in the first sentence of
Section 5(e) below, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or
results of operations, or of any event that comes to the attention of
the Company that makes any statement made in the Registration
Statement or the Prospectus (as then amended or supplemented) untrue
in any material respect or that requires the making of any additions
thereto or changes therein in order to make the statements therein not
misleading in any material respect, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply
with the Act or any other law. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, the Company will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible time.
b. The Company will furnish to you, without charge, two
signed duplicate originals of the Registration Statement as originally
filed with the Commission and of each amendment thereto, including
financial statements and all exhibits thereto, and will also furnish
to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
c. The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised (with a
reasonable opportunity to review such amendment or supplement) or to
which you have reasonably objected after being so advised.
d. Prior to the execution and delivery of this
Agreement, the Company has delivered or will deliver to you, without
charge, in such quantities as you have requested or may hereafter
reasonably request, copies of each form of the Prepricing Prospectus.
The Company consents to the use, in accordance with the provisions of
the Act and with the securities or Blue Sky laws of the jurisdictions
in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus so furnished by the Company.
e. As soon after the execution and delivery of this
Agreement as is practicable and thereafter from time to time for such
period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or a dealer, and for so long a period as you
may request for the distribution of the Shares, the Company will
deliver to each Underwriter, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as they may
reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection
4
<PAGE> 5
with the offering and sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If at any time
during the nine-month period referred to in Section 10(a)(3) of the
Act any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be
set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if it is necessary to supplement or amend the Prospectus to comply
with the Act or any other law, the Company will forthwith prepare and,
subject to Sections 5(a) and 5(c) hereof, file with the Commission and
use its best efforts to cause to become effective as promptly as
possible an appropriate supplement or amendment thereto, and will
furnish to each Underwriter who has previously requested Prospectuses,
without charge, a reasonable number of copies thereof.
f. The Company will cooperate with you and counsel for
the Underwriters in connection with the registration or qualification
of the Shares for offering and sale by the several Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as
you may reasonably designate and will file such consents to service of
process or other documents as may be reasonably necessary in order to
effect such registration or qualification; provided that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
g. The Company will make generally available to its
security holders a consolidated earnings statement (in form complying
with the provisions of Rule 158), which need not be audited, covering
a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter,
as soon as practicable after the end of such period, which
consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Act.
h. During the period ending five years from the date
hereof, the Company will furnish to you and, upon your request, to
each of the other Underwriters, (i) as soon as available, a copy of
each proxy statement, quarterly or annual report or other report of
the Company mailed to shareholders or filed with the Commission, the
National Association of Securities Dealers, Inc. ("NASD") or any
securities exchange or quotation system on which any class of
securities of the Company is listed or traded and (ii) from time to
time such other information concerning the Company as you may
reasonably request.
i. If this Agreement shall terminate or shall be
terminated after execution pursuant to any provision hereof (except
pursuant to a termination under Section 11 hereof) or if this
Agreement shall be terminated by the Underwriters because of any
inability, failure or refusal on the part of the Company or the
Selling Shareholder to perform any agreement herein or to comply with
any of the terms or provisions hereof, the Company agrees to reimburse
you and the other Underwriters for all out-of-pocket
5
<PAGE> 6
expenses (including travel expenses and fees and expenses of counsel
for the Underwriters) incurred by you in connection herewith, such
fees and expenses not to exceed $50,000.
j. The Company will apply the net proceeds from the sale
of the Shares to be sold by it hereunder for the purposes set forth
under "Use of Proceeds" in the Prospectus.
k. If Rule 430A under the Act is employed, the Company
will timely file the Prospectus pursuant to Rule 424(b) under the Act.
l. For a period of 120 days after commencement of the
public offering of the Shares by the Underwriters, without the prior
written consent of Raymond James & Associates, Inc., the Company will
not sell, contract to sell or otherwise dispose of any Common Stock or
rights to purchase Common Stock, except to the Underwriters pursuant
to this Agreement; provided, however, that the Company may issue to
participants in its 1991 Incentive Stock Option Plan, as currently in
effect, shares of Common Stock upon the exercise of currently
outstanding options that are or that become exercisable during such
120-day period and may grant additional options under the 1991 Stock
Incentive Plan, provided that without the prior written consent of
Raymond James & Associates, Inc., such additional options shall not be
exercisable during such 120-day period.
m. Prior to the Closing Date or the Additional Closing
Date, as the case may be, the Company will furnish to you, as promptly
as possible, copies of any unaudited interim financial statements of
the Company for any period subsequent to the periods covered by the
financial statements appearing in the Prospectus.
n. The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
o. The Company will not at any time, directly or
indirectly take any action designed, or which might reasonably be
expected to cause or result in, or which will constitute,
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.
p. The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of
each state where necessary to permit market making transactions and
secondary trading, and will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.
q. The Company will timely file within the National
Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market all documents and notices required by the Nasdaq
National Market of companies that have issued securities that are
6
<PAGE> 7
traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
r. The Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 under the
Act.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter on the date hereof, and shall be
deemed to represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
a. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424(a) under the Act,
complied when so filed in all material respects with the provisions of
the Act, except that this representation and warranty does not apply
to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein. The Commission has not issued any order
preventing or suspending the use of any Prepricing Prospectus. Any
term sheet and prospectus subject to completion provided by the
Company to the Underwriters for use in connection with the offering
and sale of the Shares pursuant to Rule 434 under the Act together are
not materially different from the last Prepricing Prospectus included
as part of the Registration Statement at the time of its effectiveness
(exclusive of any information deemed to be a part thereof by virtue of
Rule 434(d) under the Act).
b. The Registration Statement, in the form in which it
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective, and the
Prospectus, and any supplement or amendment thereto when filed with
the Commission under Rule 424(b) under the Act, will comply in all
material respects with the provisions of the Act and will not at any
such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
c. The capitalization of the Company is and will be as
set forth in the Prospectus as of the date set forth therein. All the
outstanding shares of Common Stock of the Company (including the
Shares owned by the Selling Shareholder) have been, and as of the
Closing Date will be, duly authorized and validly issued, are fully
paid and nonassessable and are free of any preemptive or similar
rights; the Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the
capital stock of the
7
<PAGE> 8
Company conforms to the description thereof in the Registration
Statement and the Prospectus (or any amendment or supplement thereto);
and the delivery of certificates for the Shares pursuant to the terms
of this Agreement and payment for the Shares will pass valid title to
the Shares, free and clear of any claim, encumbrance or defect in
title to the several Underwriters purchasing the Shares in good faith
and without notice of any lien, claim or encumbrance. The
certificates for the Shares are or will be in valid and sufficient
form.
d. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Texas
with full power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or
results of operations of the Company. The Company does not have any
Subsidiaries.
e. There are no legal or governmental proceedings
pending or, to the best knowledge of the Company, threatened, against
the Company, or to which the Company, or to which any of its
respective properties, is subject, that are required to be described
in the Registration Statement or the Prospectus (or any amendment or
supplement thereto) but are not described as required. Except as
described in the Prospectus, there is no action, suit, inquiry,
proceeding, or investigation by or before any court or governmental or
other regulatory or administrative agency or commission pending or, to
the best knowledge of the Company, threatened, against or involving
the Company, which might individually or in the aggregate prevent or
adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or
otherwise), properties, business, results of operations or prospects
of the Company, nor is there any basis for any such action, suit,
inquiry, proceeding, or investigation. There are no agreements,
contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) or to be filed as an exhibit to
the Registration Statement that are not described or filed as required
by the Act. All such contracts to which the Company is a party have
been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company and are
enforceable against the Company in accordance with the terms thereof,
and neither the Company nor to the best of the Company's knowledge,
any other party, is in breach of or default under any of such
contracts.
f. The Company is not in violation of its certificate or
articles of incorporation or bylaws, or other organizational
documents, or of any law, ordinance, administrative or governmental
rule or regulation applicable to the Company or of any decree of any
court or governmental agency or body having jurisdiction over the
Company, or in default in
8
<PAGE> 9
any material respect in the performance of any obligation, agreement
or condition contained in (i) any bond, debenture, note or any other
evidence of indebtedness, or (ii) any material agreement, indenture,
lease or other instrument to which the Company is a party or by which
it or any of its properties may be bound; and there does not exist any
state of facts which constitutes an event of default on the part of
the Company as defined in such documents or which, with notice or
lapse of time or both, would constitute such an event of default.
g. The execution and delivery of this Agreement and the
performance by the Company of its obligations under this Agreement
have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms.
h. Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated
hereby (i) requires any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
(except such as may be required for the registration of the Shares
under the Act and compliance with the securities or Blue Sky laws of
various jurisdictions, all of which will be, or have been, effected in
accordance with this Agreement) or conflicts with or will conflict
with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or (ii) conflicts or
will conflict with or constitutes a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Company
is a party or by which it or any of its properties may be bound, or
violates any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of its
properties, or results in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company
pursuant to the terms of any agreement or instrument to which it is a
party or by which it may be bound or to which any of its property or
assets is subject.
i. Except as described in the Prospectus, the Company
does not have outstanding and at the Closing Date (and the Additional
Closing Date, if applicable) will not have outstanding any options to
purchase, or any warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of Common Stock or any such options, warrants or
convertible securities or obligations. No holder of securities of the
Company has rights to the registration of any securities of the
Company because of the filing of the Registration Statement that have
not been satisfied or heretofore waived in writing.
j. KPMG Peat Marwick LLP, the certified public
accountants who have certified the financial statements filed as part
of the Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by
the Act.
9
<PAGE> 10
k. The financial statements, together with related
schedules and notes, included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly
the financial position, results of operations and cash flows of the
Company on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein;
and the other financial and statistical information and data set forth
in the Registration Statement and Prospectus (and any amendment or
supplement thereto) is accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company. All pro forma financial data filed with the Commission
as a part of the Registration Statement and Prospectus have been
prepared to give effect to certain assumptions made on a reasonable
basis that are fairly described in the Prospectus and the
Registration Statement, and all pro forma adjustments have been
properly applied on the basis described therein. No other financial
statements or schedules are required to be included in the
Registration Statement.
l. Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to
the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or
supplement thereto), (i) the Company has not incurred any material
liabilities or obligations, indirect, direct or contingent, or other
transaction which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the
Company; (ii) the Company has not sustained any material loss or
interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the
capital stock (other than upon the sale of the Shares hereunder and
upon the exercise of options described in the Prospectus) or
indebtedness material to the Company (other than in the ordinary course
of business); and (v) there has not been any material adverse change,
or any development involving or which may reasonably be expected to
involve a potential future material adverse change, in the condition
(financial or otherwise), business, properties, result of operations or
prospects of the Company.
m. The Company has good and marketable title to all
property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests
or other encumbrances except (i) such as are described in the
financial statements included in, or elsewhere in, the Prospectus or
(ii) such as are not materially burdensome and do not interfere in any
material respect with the use of the property or the conduct of the
business of the Company taken as a whole. The property (real and
personal) held under lease by the Company is held by it under valid,
subsisting and enforceable leases with only such exceptions as in the
aggregate are not materially
10
<PAGE> 11
burdensome and do not interfere in any material respect with the
conduct of the business of the Company taken as a whole.
n. The Company has not distributed and will not
distribute any offering material in connection with the offering and
sale of the Shares other than the Prepricing Prospectus, the
Prospectus, or other offering material, if any, as permitted by the
Act and the rules and regulations enacted thereunder (the "Rules and
Regulations.").
o. The Company has not taken, directly or indirectly,
any action which constituted, or any action designed, or which might
reasonably be expected to cause or result in or constitute, under the
Act or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares.
p. The Company is not an "investment company," an
"affiliated person" of, or "promoter" or "principal underwriter" for
an investment company within the meaning of the Investment Company Act
of 1940, as amended.
q. The Company has all permits, licenses, franchises,
approvals, easements, consents and authorizations of governmental or
regulatory authorities (hereinafter "permit" or "permits") as are
necessary to own its properties and to conduct its business in the
manner described in the Prospectus, subject to such qualifications as
may be set forth in the Prospectus, except where the failure to have
obtained any such permit has not and will not have a material adverse
effect upon the condition (financial or other), properties, business,
results of operations or prospects of the Company; the Company has
fulfilled and performed all of its material obligations with respect
to each such permit and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination of any
such permit or result in any other material impairment of the rights
of the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company.
r. The Company has complied and will comply in all
material respects with wage and hour determinations issued by the U.S.
Department of Labor under the Service Contract Act of 1965 and the
Fair Labor Standards Act in paying its employees' salaries, fringe
benefits, and other compensation for the performance of work or other
duties in connection with contracts with the U.S. government. The
Company has complied and will comply in all material respects with the
terms of all certifications and representations made to the U.S.
government in connection with the submission of any bid or proposal or
any contract. The Company has complied and will comply in all
material respects with its obligations under its agreements and
contracts with the U.S. government and agencies thereof.
s. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary
11
<PAGE> 12
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
t. The Company has not, directly or indirectly, at any
time during the past five years (i) made any unlawful contribution to
any candidate for political office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal, state or foreign governmental official, or other person
charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof or applicable foreign jurisdictions.
u. The Company has obtained all required permits,
licenses, and other authorizations, if any, which are required under
federal, state, local and foreign statutes, ordinances and other laws
relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, chemicals, or industrial, hazardous, or
toxic materials or wastes into the environment ("Environmental Laws").
The Company is in material compliance with all terms and conditions of
all required permits, licenses, and authorizations, and are also in
material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in the Environmental Laws. There
is no pending or, to the best knowledge of the Company, threatened
civil or criminal litigation, notice of violation, or administrative
proceeding relating in any way to the Environmental Laws involving the
Company. There have not been and there are not any past, present, or
foreseeable future events, conditions, circumstances, activities,
practices, incidents, actions, or plans which may interfere with or
prevent continued compliance, or which may give rise to any common law
or legal liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation under the
Environmental Laws.
v. The Company owns and has full right, title and
interest in and to, or has valid licenses to use, all copyrights,
patents, inventions, formulas, processes (secret or otherwise),
trademarks and trade names necessary or material to its business as
presently conducted, and the Company has created no lien or
encumbrance on, or granted any right or license with respect to, any
such copyright, patent, trademark, trade name, application, process,
invention or formula or other intangible property right; there is no
claim pending against the Company with respect to any copyright,
patent, trademark, trade name, application, process, invention or
formula or other intangible property right and the Company has not
received notice that any copyright, patent, trademark, trade name,
application, process, invention or formula or other intangible
property right which it uses or has used in the conduct of its
business infringes upon or conflicts with the rights of any third
party. To the best knowledge of the Company, there is no infringement
on the intellectual property rights of the Company by others, and none
of the activities engaged in by the Company infringes or conflicts
with the intellectual property rights of others, in
12
<PAGE> 13
a manner that could adversely affect the condition (financial or
other), business, properties, results of operations or prospects of
the Company.
w. All offers and sales of the Company's capital stock
prior to the date hereof were made in compliance with the Act and all
other applicable state and federal laws or regulations.
x. The Shares have been duly authorized for trading on
the Nasdaq National Market, and with respect to the Shares being
offered by the Company, subject to notice of issuance.
y. All federal, state and local tax returns required to
be filed by or on behalf of the Company with respect to all periods
ended prior to the date of this Agreement have been filed (or are the
subject of valid extension) with the appropriate federal, state and
local authorities and all such tax returns, as filed, are accurate in
all material respects. All federal, state and local taxes (including
estimated tax payments) required to be shown on all such tax returns
or claimed to be due from or with respect to the business of the
Company have been paid or reflected as a liability on the financial
statements of the Company for appropriate periods, except for those
taxes or claims therefor which are being contested by the Company in
good faith and for which appropriate reserves are reflected in the
Company's financial statements. All deficiencies asserted as a result
of any federal, state or local tax audits have been paid or finally
settled and no issue has been raised in any such audit which, by
application of the same or similar principles, reasonably could be
expected to result in a proposed deficiency for any other period not
so audited. No state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability with
respect to the periods which have not been audited by appropriate
federal, state or local authorities. There are no outstanding
agreements or waivers extending the statutory period of limitation
applicable to any federal, state or local tax return for any period.
On the Closing Date, and Additional Closing Date, if any, all stock
transfer and other taxes which are required to be paid in connection
with the sale of the shares to be sold by the Company to the
Underwriters will have been fully paid by the Company and all laws
imposing such taxes will have been complied with.
z. Except as set forth in the Prospectus, there are no
transactions with affiliates, as defined in Rule 405 promulgated under
the Act, which are required by the Act and the applicable Rules and
Regulations thereunder to be disclosed in the Registration Statement.
aa. The Company has procured and provided to Raymond
James & Associates, Inc. the written agreement of the Selling
Shareholder, and each of the officers and directors of the Company who
owns shares of Common Stock or options to acquire shares of Common
Stock of the Company as set forth in the Prospectus not to sell, or
otherwise dispose of or transfer, directly or indirectly, any shares
of Common Stock owned or controlled, or hereafter acquired, by such
persons, or any rights to purchase any of such shares of Common Stock,
for a period of 120 days after the commencement of the public offering
of the Shares by the Underwriters without the prior written consent of
Raymond James & Associates, Inc.
13
<PAGE> 14
ab. The Company (i) does not conduct business or have
affiliates which conduct business in or with Cuba, (ii) does not plan
to commence doing business in or with Cuba after the effective date of
the Registration Statement or (iii) is not required by Florida law to
report a material change in information previously reported to the
State of Florida regarding business conducted in or with Cuba.
ac. No officer, director or nominee for director of the
Company, and except as disclosed in writing to the NASD in connection
with the offering contemplated hereby, no beneficial owner of 5% or
more of the Company's outstanding Common Stock, has any direct or
indirect affiliation or association with any member of the NASD.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder hereby represents and warrants to each Underwriter on
the date hereof (except as otherwise set forth herein), and shall be deemed to
represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, that:
a. All consents, approvals, authorizations and orders
necessary for the execution and delivery by the Selling Shareholder of
this Agreement and the Custody Agreement (including the Power of
Attorney provided for in such Custody Agreement) referred to in the
last paragraph of this Section 7 (the "Custody Agreement"), and for the
sale and delivery of the Shares to be sold by the Selling Shareholder
hereunder, have been obtained; and the Selling Shareholder has full
right, power and authority to enter into this Agreement and the Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder.
b. This Agreement and the Custody Agreement have been
duly authorized, executed and delivered by the Selling Shareholder and
this Agreement and the Custody Agreement constitute the valid and
binding agreements of the Selling Shareholder enforceable against the
Selling Shareholder in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting enforcement of
creditors' rights generally or the availability of equitable remedies,
regardless of whether such enforcement is considered in a proceeding
in equity or at law; the performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated
herein and therein will not result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, voting trust agreement, note
agreement, lease or other agreement or instrument to which the
Selling Shareholder is a party or by which the Selling Shareholder or
the Selling Shareholder's properties are bound, or under any law,
statute, order, rule or regulation of any court or governmental agency
or body applicable to the Selling Shareholder or the business or
property of the Selling Shareholder.
c. The Selling Shareholder has, and immediately prior to
the Closing Date (and the Additional Closing Date, if any) the Selling
Shareholder will have, good and marketable title to the Shares to be
sold by the Selling Shareholder hereunder, free and clear of all
liens, encumbrances, equities, shareholder agreements, voting trusts,
adverse claims or other claims of any nature whatsoever, and, upon
delivery of the Shares and payment therefor pursuant hereto, good and
marketable title to the Shares, free and clear of all liens,
encumbrances, equities,
14
<PAGE> 15
shareholder agreements, voting trusts, adverse claims or other claims
of any nature whatsoever (other than those arising by or through the
Underwriters), will pass to the several Underwriters.
d. The Selling Shareholder will not, for a period of 120
days after the commencement of the public offering of the Shares by
the Underwriters, directly or indirectly, sell, offer or contract to
sell, or otherwise dispose of or transfer any shares of Common Stock
or rights to purchase shares of Common Stock otherwise than hereunder
or with the prior written consent of Raymond James & Associates, Inc.
e. The Selling Shareholder has not taken, and will not
take, directly or indirectly, any action designed to or which has
constituted nor which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares or otherwise.
f. No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or
body is required for the consummation by the Selling Shareholder of
the transactions on his part contemplated herein or in the Custody
Agreement, except such as have been obtained under the Act and such as
may be required under state securities or Blue Sky laws or the by-laws
and rules of the NASD in connection with the purchase and distribution
by the Underwriters of the Shares to be sold by the Selling
Shareholder.
g. The Selling Shareholder is familiar with the
Registration Statement, the Prepricing Prospectus and the Prospectus
and has no knowledge of any material fact or condition not set forth
in the Registration Statement, the Prepricing Prospectus or the
Prospectus which has adversely affected, or may adversely affect, the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, and the sale of
the Shares proposed to be sold by the Selling Shareholder is not
prompted by any such knowledge.
h. All information with respect to the Selling
Shareholder contained in the Registration Statement, the Prepricing
Prospectus and the Prospectus (as amended or supplemented, if the
Company shall have filed with the Commission any amendment or
supplement thereto) complied and will comply in all material respects
with all applicable provisions of the Act, contains and will contain
all statements required to be stated therein in accordance with the
Act, and does not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
i. To the best knowledge of such Selling Shareholder,
the representations and warranties of the Company contained in Section
6 hereof are true and correct.
j. Other than as permitted by the Act and the Rules and
Regulations, the Selling Shareholder has not distributed and will not
distribute any Prepricing Prospectus,
15
<PAGE> 16
the Prospectus or any other offering material in connection with the
offering and sale of the Shares.
k. On the Closing Date, and on the Additional Closing
Date, if any, all stock transfer and other taxes (other than income
taxes) which are required to be paid in connection with the sale and
transfer of the Shares to be sold by the Selling Shareholder to the
several Underwriters hereunder will have been fully paid for by the
Selling Shareholder and all laws imposing such taxes will have been
fully complied with.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, the Selling
Shareholder agrees to deliver to you at least two days prior to the Closing a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The Selling Shareholder represents and warrants that certificates in
negotiable form representing all of the Shares to be sold by the Selling
Shareholder hereunder have been placed in custody under a Custody Agreement, in
the form heretofore furnished to you, duly executed and delivered by the Selling
Shareholder to the Company, as the Custodian (the "Custodian"). The Selling
Shareholder specifically agrees that the Shares represented by the certificates
held in custody for the Selling Shareholder under the Custody Agreement are
subject to the interest of the Underwriters hereunder, and that the arrangements
made by the Selling Shareholder for such custody, including the Power of
Attorney provided for in the Custody Agreement, are to that extent irrevocable.
The Selling Shareholder specifically agrees that the obligations of the Selling
Shareholder hereunder or under the Custody Agreement shall not be terminated by
operation of law, whether by the death or incapacity of the Selling Shareholder,
or if the Selling Shareholder should die or become incapacitated or if any other
such event should occur before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf of the
Selling Shareholder in accordance with the terms and conditions of this
Agreement and the Custody Agreement, regardless of whether or not the Custodian
shall have received notice of such death, incapacity or other event.
8. EXPENSES. Whether or not the transactions contemplated hereby
are consummated or this Agreement becomes effective or is terminated, the
Company will pay or cause to be paid
16
<PAGE> 17
the following: (i) the fees, disbursements and expenses of counsel to the
Company and the Selling Shareholder and the Company's accountants in connection
with the registration of the Shares under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof and of any Prepricing Prospectus to
the Underwriters and dealers; (ii) the printing and delivery (including,
without limitation, postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, the Prospectus, each
Prepricing Prospectus, the Blue Sky memoranda, the Custody Agreement, the
Agreement Among Underwriters, this Agreement, the Selected Dealers Agreement
and all amendments or supplements to any of them as may be reasonably requested
for use in connection with the offering and sale of the Shares; (iii) all
expenses in connection with the qualification of the Shares for offering and
sale under state securities laws or Blue Sky laws, including the fees of the
counsel for the Underwriters in connection therewith; (iv) the filing fees
incident to securing any required review by the NASD of the sale of the Shares
and the reasonable fees and disbursements of the Underwriters' counsel relating
thereto; (v) the cost of preparing stock certificates; (vi) the costs and
charges of any transfer agent or registrar; (vii) the cost of the tax stamps,
if any, in connection with the issuance and delivery of the Shares to the
respective Underwriters; (viii) all other fees, costs and expenses referred to
in Item 13 of the Registration Statement; (ix) all travel, lodging and living
expenses of the Company's directors, officers and employees incurred during
the "road show" or otherwise in connection with the marketing of the Shares;
and (x) all other costs and expenses incident to the performance of the
obligations of the Company and the Selling Shareholder hereunder which are not
otherwise specifically provided for in this Section. Notwithstanding the
foregoing, in the event that the proposed offering is terminated for the
reasons set forth in Section 5(i) hereof, the Company agrees to reimburse the
Underwriters as provided in Section 5(i).
9. INDEMNIFICATION AND CONTRIBUTION. The Company and the Selling
Shareholder jointly and severally agree to indemnify and hold harmless you and
each other Underwriter, the directors, officers, employees and agents of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
an untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith, or arising
out of or based upon any inaccuracy in the representations and warranties of
the Company or the Selling Shareholder contained herein or any failure of the
Company or the Selling Shareholder to perform their respective obligations
hereunder or under law; provided, however, that with respect to any untrue
statement or omission made in any Prepricing Prospectus, the indemnity
agreement contained in this subsection shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) from
whom the person asserting any such losses,
17
<PAGE> 18
claims, damages or liabilities purchased the shares of Stock concerned if both
(A) a copy of the Prospectus was not sent or given to such person at or prior
to the written confirmation of the sale of such shares of Stock to such person
as required by the Act, and (B) the untrue statement or omission in the
Prepricing Prospectus was corrected in the Prospectus. Notwithstanding
anything in this Section 9, in no event shall the Selling Shareholder's
obligation under this Section 9 exceed the total net proceeds from the offering
received by such Selling Shareholder (it being agreed that the Company shall
bear the balance).
In addition to its other obligations under this Section 9, the Company
and the Selling Shareholder agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any inaccuracy in
the representations and warranties of the Company or the Selling Shareholder
herein or failure to perform its obligations hereunder, all as described in
this Section 9, they will reimburse each Underwriter on a quarterly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's or the Selling Shareholder's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly
return it to the Company together with interest, compounded daily determined on
the basis of the base lending rate announced from time to time by Chase
Manhattan Bank, N.A. (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the Underwriters within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company or the Selling Shareholder, such Underwriter or such
controlling person shall promptly notify in writing the party(s) against whom
indemnification is being sought (the "indemnifying party" or "indemnifying
parties"), and such indemnifying party(s) shall assume the defense thereof,
including the employment of counsel reasonably acceptable to such Underwriter
or such controlling person and payment of all fees and expenses. Such
Underwriter or any such controlling person shall have the right to employ
separate counsel (but the Company and the Selling Shareholder shall not be
liable for the fees and expenses of more than one counsel) in any such action
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the indemnifying party(s) has (have) agreed in writing to pay such
fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume
the defense and employ counsel reasonably acceptable to the Underwriter or such
controlling person or (iii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying party(s), and such Underwriter or such controlling person
shall have been advised by its counsel that one or more legal defenses may be
available to the Underwriter which may not be available to the Company, or that
representation of such indemnified party and any indemnifying party(s) by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests
18
<PAGE> 19
between them (in which case the indemnifying party(s) shall not have the right
to assume the defense of such action on behalf of such Underwriter or such
controlling person (notwithstanding its (their) obligation to bear the fees and
expenses of such counsel)). The indemnifying party(s) shall not be liable for
any settlement of any such action effected without its (their) written consent,
but if settled with such written consent, or if there be a final judgment for
the plaintiff in any such action, the indemnifying party(s) agrees to indemnify
and hold harmless any Underwriter and any such controlling person from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and the
Selling Shareholder, to the same extent as the foregoing indemnity from the
Company and the Selling Shareholder to each Underwriter, but only with respect
to information furnished in writing by or on behalf of such Underwriter through
you expressly for use in the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto. If any action
or claim shall be brought or asserted against the Company, any of its
directors, any such officers, or any such controlling person or the Selling
Shareholder based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph, such Underwriter shall have the rights and duties given to the
Company and the Selling Shareholder by the preceding paragraph (except that if
the Company shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
such Underwriter's expense), and the Company, its directors, any such officers,
and any such controlling persons and the Selling Shareholder shall have the
rights and duties given to the Underwriters by the immediately preceding
paragraph.
If the indemnification provided for in this Section 9 is unavailable
or insufficient for any reason whatsoever to an indemnified party under the
first or fourth paragraph hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholder on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and the Selling Shareholder on the one hand
and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholder on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Shareholder bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus; provided
that, in the event that the Underwriters shall have purchased any Additional
Shares hereunder, any determination of the relative benefits received by the
Company and the Selling Shareholder or the Underwriters from the offering of
the Shares shall include the net proceeds (before deducting expenses) received
by the Company, and the underwriting
19
<PAGE> 20
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company and the Selling Shareholder on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Shareholder on the one hand
or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
was determined by a pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 11 hereof) and not joint.
Notwithstanding the second paragraph of this Section 9, any losses,
claims, damages, liabilities or expenses for which an indemnified party is
entitled to indemnification or contribution under this Section 9 shall be paid
by the indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. The indemnity, contribution and
reimbursement agreements contained in Section 9 and the representations and
warranties of the Company and the Selling Shareholder, respectively, set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any person controlling the Company or the Selling Shareholder, (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or
20
<PAGE> 21
officers, or any person controlling the Company or the Selling Shareholder,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in the second paragraph of this
Section 9, including the amounts of any requested reimbursement payments and
the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in the second paragraph of this
Section 9, and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of the
second paragraph of this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
a. The Registration Statement shall have become
effective not later than 12:00 noon, New York City time, on the date
hereof, or at such later date and time as shall be consented to in
writing by you, and all filings required by Rules 424(b) and 430A
under the Act shall have been timely made.
b. You shall be reasonably satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock (other than pursuant to the exercise of outstanding
options and warrants disclosed in the Prospectus) of the Company or
any material change in the indebtedness (other than in the ordinary
course of business) of the Company, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have
been entered into by the Company, which is not in the ordinary course
of business or which could reasonably be expected to result in a
material reduction in the future earnings of the Company, (iii) no
loss or damage (whether or not insured) to the property of the Company
shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business, results of operations or
prospects of the Company, (iv) no legal or governmental action, suit
or proceeding affecting the Company which is material to the Company
or which affects or could reasonably be expected to affect the
transactions contemplated by this Agreement shall have been instituted
or threatened, and (v) there shall not have been any material change
in the condition (financial or otherwise), business, management,
results or operations or prospects of the Company which makes it
impractical or inadvisable in your judgment to proceed with the public
offering or purchase the Shares as contemplated hereby.
21
<PAGE> 22
c. You shall have received on the Closing Date an
opinion of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.,
Midland, Texas, as counsel for the Company and the Selling
Shareholder, dated the Closing Date, satisfactory to you and your
counsel, to the effect that:
(i) The Company is a corporation duly organized
and validly existing in good standing under the laws of the
State of Texas with corporate power and authority to own or
hold under lease its properties and conduct its business as
described in the Prospectus, and is duly qualified to conduct
the business in which it is engaged, in each jurisdiction or
place where its ownership or leasing of properties makes such
qualification necessary.
(ii) The Company has all necessary authorizations,
approvals, licenses, certificates, permits and orders of and
from all governmental regulatory officials and bodies of the
United States of America to own its properties and to conduct
its business as described in the Registration Statement and
Prospectus.
(iii) Except for permits and similar authorizations
required under the securities or Blue Sky laws of certain
jurisdictions, no consent, approval, authorization or other
order of any regulatory body, administrative agency or other
governmental body is required for the valid issuance and sale
of the Shares to the Underwriters as contemplated by this
Agreement.
(iv) This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company in accordance with its terms,
except as specific performance may be limited by general
principles of equity and except as rights to indemnity
hereunder may be limited by applicable securities laws and
subject to bankruptcy or other laws relating to or affecting
the rights of creditors generally.
(v) The authorized and outstanding capital stock
of the Company is as set forth under the caption
"Capitalization" in the Prospectus, and all of the outstanding
shares of Common Stock of the Company are validly authorized
and issued, fully paid and nonassessable and free of
preemptive rights; the shares of Common Stock reserved for
issuance upon exercise of the Company's outstanding options
have been duly and validly authorized and are sufficient in
number to meet the current exercise requirements of such
securities.
(vi) Except as disclosed in the Registration
Statement and Prospectus, no person has any right to the
registration of any security of the Company by reason of the
Company's filing of the Registration Statement with the
Commission or the consummation of the transactions
contemplated hereby or otherwise.
22
<PAGE> 23
(vii) The Shares to be sold by the Company and the
Selling Shareholder have been duly authorized and when paid
for will be validly issued and outstanding, fully paid and
nonassessable and free of preemptive rights.
(viii) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except as to the
financial statements, notes and schedules and other financial
and statistical data included therein as to which such counsel
need not express an opinion) at the time of their
effectiveness complied and as of the Closing Date comply with
the requirements of the Act. Such counsel has participated in
conferences with representatives of the Company, accountants
for the Company, representatives of the Underwriters and
counsel for the Underwriters in connection with the
preparation of the Registration Statement and Prospectus and
have considered the matters required to be stated therein and
the statements contained therein, although such counsel have
not independently verified the accuracy, completeness or
fairness of such statements. Based upon and subject to the
foregoing, no facts have come to the attention of such counsel
that have caused them to believe that the Registration
Statement (other than the financial statements, notes and
schedules and other financial and statistical data included
therein, as to which no belief need be stated), at the time it
became effective and as of the Closing Date, contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
Prospectus (other than the financial statements, notes and
schedules and other financial and statistical data included
therein, as to which no belief need be stated), at the time
the Prospectus was forwarded to the Commission for filing or
on the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ix) The Registration Statement has become
effective under the Act and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or
contemplated under the Act.
(x) The sale of the Shares and the compliance by
the Company with all of the provisions hereof will not result
in a breach of any of the provisions of, or constitute a
default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property or assets
of the Company pursuant to the terms of any agreement or
instrument to which the Company is a party, or by which the
Company is bound, of which such counsel is aware, will not
result in a violation of the provisions of the certificate of
incorporation or charter, as the case may be, or by-laws of
the Company and will not result in any violation of any
statute or any order, rule or regulation applicable to the
Company of any court or of any federal, state or other
regulatory authority or other governmental body having
jurisdiction over the Company.
23
<PAGE> 24
(xi) The Shares conform as to legal matters with
the statements concerning them in the Prospectus and the
certificates representing the Shares are in due and proper
form.
(xii) The statements under the caption "Description
of Capital Stock" and "Underwriting" in the Prospectus,
insofar as such statements constitute a summary of the
documents, securities or legal matters referred to therein,
fairly present the information called for with respect to such
documents, securities or legal matters.
(xiii) So far as such counsel are aware, there are
no legal or governmental proceedings, pending or threatened to
which the Company is a party or of which the business or
property of the Company is the subject which is required to be
described in the Registration Statement or the Prospectus
which is not so described, and there is no contract or
document of a character required to be described in the
Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which is not
described or filed as required.
(xiv) The Company is not in violation of its
charter or by-laws, in default in any respect in the
performance of any obligations, agreement or condition
contained in any bond, debenture, note or any other evidence
of indebtedness or in any indenture, lease, loan agreement or
contract of the Company known to such counsel or in violation
of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation under the laws of the State of
Texas or the United States of America.
(xv) Except as disclosed in the Registration
Statement and Prospectus, there are no patents, copyrights,
trade secrets, service marks, trademarks or trade names not
presently held by or licensed by the Company that, in the
Company's judgment, are material to its business as presently
conducted.
(xvi) This Agreement and the Custody Agreement have
each been duly executed and delivered by the Selling
Shareholder and are valid and binding agreements of the
Selling Shareholder in accordance with their terms, except
as specific performance may be limited by general principles of
equity and except as rights to indemnity hereunder may be
limited under applicable securities laws and subject to
bankruptcy or other laws relating to or affecting the rights
of creditors generally.
(xvii) The Selling Shareholder has full legal right,
power and authorization, and all approval required by law, to
sell, assign, transfer and delivery good and marketable
title to the Shares to be sold by the Selling Shareholder in
the manner provided in this Agreement.
(xviii) Upon delivery of the Shares to be sold by the
Company and the Selling Shareholder pursuant hereto and
payment therefor, as contemplated herein,
24
<PAGE> 25
the Underwriters will acquire good and marketable title
thereto, free and clear of any perfected security interest and
free and clear of any encumbrance, adverse claim or other
restriction whatsoever.
(xix) The execution, delivery and performance of
this Agreement and the Custody Agreement will not conflict
with, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the Shares to be sold by the
Selling Shareholder pursuant to the terms of, or constitutes a
default under, any agreement or instrument known to such
counsel to which the Selling Shareholder is a party or result
in any violation of any order, rule or regulation of any court
or governmental agency having jurisdiction over the Selling
Shareholder or his property, and no consent, authorization or
order of, or filing or registration with, any court or
government agency is legally required for the execution,
delivery and performance of this Agreement and the Custody
Agreement, except such as have been obtained under the Act and
such as may be required under the Blue Sky or securities laws
of certain jurisdictions.
(xx) The statements in the Prospectus under the
caption "Principal and Selling Shareholders," insofar as such
statements constitute a summary of the matters referred to
therein, fairly present the information called for with
respect to such matters.
In rendering its opinion hereunder, such counsel for the
Company and the Selling Shareholder may rely: (i) as to matters of
fact, on certificates of officers of the Company and of the Selling
Shareholder and certificates or other written statements of officers
of departments of various jurisdictions having custody of documents
regarding the corporate existence or good standing of the Company; and
(ii) as to matters involving the application of laws other than the
laws of the United States and the State of Texas, to the extent such
counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel and familiar with the applicable
laws. The opinion of such counsel for the Company and the Selling
Shareholder shall state that counsel for the Company and the Selling
Shareholder believes that you are justified in relying thereon. A
copy of the opinion of any such other counsel shall be attached to the
opinion of such counsel for the Company and the Selling Shareholder.
The opinion of counsel for the Company and the Selling Shareholder may
be expressly limited to the laws of the United States and the State of
Texas.
The opinion of the counsel for the Company and the Selling
Shareholder shall state that as used therein, the qualification "to
the knowledge of such counsel" relates to factual matters and matters
of local law and (i) shall limit the opinions to which such
qualification relates to the actual conscious awareness of information
by those attorneys in such counsel's firm who have been actively
involved in the representation of the Company and the Selling
Shareholder with respect to this Agreement and the transactions
contemplated hereby or otherwise, without independent investigation or
verification; and (ii) does not
25
<PAGE> 26
indicate or imply that such counsel has not conducted such review as
it, in its professional judgment, has deemed necessary or appropriate
to render such opinion, but does indicate that such counsel has relied
upon factual certificates, representations and information from the
Company and its representatives and the Selling Shareholder, having
such scope and in such form as such counsel has deemed appropriate.
Such opinion shall also state that such counsel waives any
right it may have, at the time of giving the opinion or thereafter, to
assert against the Underwriters any claim or defense based on the
absence of privity between the Underwriters and such counsel with
respect to reliance by the Underwriters on such opinion; provided,
however, that the foregoing shall not constitute a waiver of the
attorney-client privilege between such counsel and the Company or the
Selling Shareholder nor a waiver of any other claim or defense
available at law or in equity.
d. You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Thompson & Knight,
P.C., as counsel for the Underwriters, dated the Closing Date with
respect to the issuance and sale of the Firm Shares, the Registration
Statement and other related matters as you may reasonably request and
the Company and its counsel shall have furnished to your counsel such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
e. You shall have received letters addressed to you and
dated the date hereof and the Closing Date from KMPG Peat Marwick LLP,
independent certified public accountants, substantially in the forms
heretofore approved by you.
f.(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or, to the knowledge of the Company,
shall be threatened or contemplated by the Commission at or prior to
the Closing Date; (ii) no order suspending the effectiveness of the
Registration Statement or the qualification or registration of the
Shares under the securities or Blue Sky laws of any jurisdiction shall
be in effect and no proceeding for such purpose shall be pending or,
to the knowledge of the Company, threatened or contemplated by the
Commission or the authorities of any jurisdiction; (iii) any request
for additional information on the part of the staff of the Commission
or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities; (iv)
after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to you and you did not object thereto in
good faith; and (v) all of the representations and warranties of the
Company and the Selling Shareholder contained in this Agreement shall
be true and correct in all respects on and as of the date hereof and
on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing
Date and signed by the chief executive officer and the chief financial
officer of the Company (or such other officers as are acceptable to
you) as well as the Selling Shareholder to the effect set forth in
this Section 10(f) and in Sections 10(b) and 10(g) hereof.
26
<PAGE> 27
g. The Company and the Selling Shareholder shall not
have failed in any respect at or prior to the Closing Date to have
performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior
to the Closing Date.
h. You shall have received a certificate, dated on and
as of the Closing Date, by or on behalf of the Selling Shareholder to
the effect that as of such Closing Date the Selling Shareholder's
representations and warranties in this Agreement are true and correct
as if made on and as of such Closing Date, and that the Selling
Shareholder has performed all the Selling Shareholder's obligations
and satisfied all the conditions on the Selling Shareholder's part to
be performed or satisfied at or prior to the Closing Date.
i. The Company and the Selling Shareholder shall have
furnished or caused to have been furnished to you such further
certificates and documents as you shall have reasonably requested.
j. At or prior to the Closing Date, you shall have
received the written commitment of each of the Company's officers and
directors and certain of their affiliates and the Selling Shareholder
not to sell, offer or contract to sell, or otherwise dispose of or
transfer any shares of Common Stock or rights to purchase any of such
shares of Common Stock, directly or indirectly, except to the
Underwriters pursuant to this Agreement, for a period of 120 days
after commencement of the public offering of the Shares by the
Underwriters without the prior written consent of Raymond James &
Associates, Inc.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of the Additional
Closing Date of the conditions set forth in this Section 10, except that, if
the Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (h) shall be dated
as of the Additional Closing Date and the opinion called for by paragraph (c)
shall be revised to reflect the sale of Additional Shares.
If any of the conditions hereinabove provided for in this Section 10
shall not have been satisfied when and as required by this Agreement, this
Agreement may be terminated by you by notifying the Company of such termination
in writing or by telegram at or prior to such Closing Date, but you shall be
entitled to waive any of such conditions.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the later of (a) the execution and delivery hereof by the
parties hereto, and (b) release of notification of the effectiveness of the
Registration Statement by the Commission; provided, however, that the
provisions of Sections 8 and 9 shall at all times be effective.
27
<PAGE> 28
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Firm Shares, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the number
of Firm Shares set forth opposite its name in Schedule I hereto bears to the
aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
the Agreement Among Underwriters, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares
and arrangements satisfactory to you, the Company and the Selling Shareholder
for the purchase of such Firm Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholder. In any
such case which does not result in termination of this Agreement, either you or
the Company and the Selling Shareholder shall have the right to postpone the
Closing Date, but in no event for longer than seven (7) days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any such default of any such Underwriter under this Agreement.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Shareholder by notice to the Company
and the Selling Shareholder, if prior to the Closing Date or the Additional
Closing Date (if different from the Closing Date and then only as to the
Additional Shares), as the case may be, in your sole judgment, (i) trading in
the Company's Common Stock shall have been suspended by the Commission or the
Nasdaq National Market, (ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market shall have
been suspended or materially limited, or minimum or maximum prices shall have
been generally established on such exchange or market, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by any such exchange or
market or by order of the Commission or any court or other governmental
authority, (iii) a general moratorium on commercial banking activities shall
have been declared by either federal or New York State authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions or other material event the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares. Notice of such cancellation shall be promptly given to
the Company and its counsel by telegraph, telecopy or telephone and shall be
subsequently confirmed by letter.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company
acknowledges that the statements under the third paragraph under the caption
"Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute
the only information furnished by or on behalf of the
28
<PAGE> 29
Underwriters through you or on your behalf as such information is referred to
in Sections 6(a), 6(b) and 9 hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5 and
12 hereof, notice given pursuant to any of the provisions of this Agreement
shall be in writing and shall be delivered (i) if to the Company or the Selling
Shareholder, to the office of the Company at 208 South Marienfeld Street,
Midland, Texas 79701, Attention: President (with copy to Jack D. Ladd,
Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., 550 West Texas, Suite 800,
Midland, Texas 79701) or (ii) if to you, as Representatives of the
Underwriters, to Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida 33716, Attention: Corporate Finance Department, (with copy
to C. Neel Lemon III, Thompson & Knight, P.C., 1700 Pacific Avenue, Suite
3300, Dallas, Texas 75201).
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof, the Selling Shareholder
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither of the terms "successor" and "successors and assigns" as
used in this Agreement shall include a purchaser from you of any of the Shares
in his status as such purchaser.
15. APPLICABLE LAW; COUNTERPARTS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA
WITHOUT REFERENCE TO CHOICE OF LAW PRINCIPLES THEREUNDER.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Subject to Section 11, this Agreement shall be effective when, but
only when, at least one counterpart hereof shall have been executed on behalf
of each party hereto.
The Company, the Selling Shareholder and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect to any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
29
<PAGE> 30
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholder and the several Underwriters.
Very truly yours,
DAWSON GEOPHYSICAL COMPANY
By:
-----------------------------------
Name: L. Decker Dawson
Title: President
SELLING SHAREHOLDER
---------------------------------------
L. Decker Dawson
CONFIRMED as of the date first above mentioned,
on behalf of itself and the other several
Underwriters named in Schedule I hereto.
RAYMOND JAMES & ASSOCIATES, INC.
By:
------------------------------------------
Name: Allen D. Lassiter
Title: Senior Vice President
30
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
(1) (2) (3)
Number of Number of Number of Firm
Firm Shares Firm Shares to Shares to be
to be be Purchased Purchased from
Name Purchased from the Company the Selling Shareholder
---- --------- ---------------- -----------------------
<S> <C> <C> <C>
Raymond James & Associates, Inc.
Principal Financial Securities, Inc. . .
--------- --------- -------
Total . . . . . . . . . . . 1,500,000 1,000,000 500,000
========= ========= =======
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Stubbeman, McRae,
Sealy, Laughlin & Browder, Inc.]
November 12, 1997
Dawson Geophysical Company
208 South Marienfeld
Midland, TX 79702
Re: Dawson Geophysical Company/Public Offering
Gentlemen:
We have acted as counsel for Dawson Geophysical Company, a Texas
corporation (the "Company"), and are familiar with the proceedings taken by the
Company in connection with the proposed offering covering up to 1,725,000
shares (the "Subject Shares Stock") of its Common Stock, par value $0.33-1/3
per share (the "Common Stock"), all on the terms and conditions set forth in
the Company's Registration Statement on Form S-1 (Registration No. 333-38393),
as amended (the "Registration Statement"), filed with the Securities and
Exchange Commission on October 21, 1997. Of the Subject Shares, up to
1,225,000 shares of Common Stock will be issued and sold by the Company
(including 225,000 shares of Common Stock subject to an over-allotment option
granted by the Company), and 500,000 shares will be sold by L. Decker Dawson
(the "Selling Shareholder").
In addition, we have examined such corporate records and other
documents and made such examinations thereof as we considered necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Texas.
2. The 1,000,000 shares of Subject Shares Stock (or up to
1,225,000, if the over allotment option is exercised), being
offered by the Company, when sold in accordance with the terms
of the offering described in the Registration Statement will
be legally issued and outstanding, fully paid and non-
assessable shares of Common Stock of the Company.
<PAGE> 2
Dawson Geophysical Company
Re: Dawson Geophysical Company/Public Offering
November 12, 1997
Page 2
3. The 500,000 shares of Common Stock being offered by the
Selling Shareholder, are legally issued and outstanding, fully
paid and non-assessable shares of common stock of the Company.
4. When the applicable provisions of the Securities Act of 1933,
as amended, and of the securities or Blue Sky laws of various
states have been complied with, the Subject Shares may be
legally sold as contemplated in said Registration Statement.
5. The Company has reserved a total of 1,225,000 shares of its
authorized but unissued Common Stock for issuance.
We hereby consent to the reference to our firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement
and to the filing of this opinion as an exhibit to said Registration Statement.
Sincerely,
Stubbeman, McRae, Sealy, Laughlin
& Browder, Inc.
By: /s/ JACK D. LADD
-----------------------------
Jack D. Ladd
JDL/jae
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dawson Geophysical Company:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
KPMG PEAT MARWICK LLP
Midland, Texas
November 12, 1997
