FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended DECEMBER 31, 1996
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
to .
------------ ------------
Commission File No. 0-14488
-------
SEITEL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0025431
- - -------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
50 Briar Hollow Lane, West 7th Floor
HOUSTON, TEXAS 77027
- - ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (713) 627-1990
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- - ---------------------------- ---------------------
Common Stock, Par Value $.01 New York
Securities registered pursuant to Section 12(g) of the Act:
NONE
--------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 26, 1997 was approximately $357,851,804. For these purposes,
the term "affiliate" is deemed to mean officers and directors of the registrant.
On such date, the closing price of the Common Stock on the New York Stock
Exchange was $36.50 and there were a total of 10,384,932 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
DOCUMENT PART
------------------------------------ -----
Definitive Proxy Statement for III
1997 Annual Stockholders Meeting
<PAGE>
ITEM 1. BUSINESS
- - -----------------
GENERAL
- - -------
Seitel, Inc. (the "Company") is a leading provider of seismic data and
corollary geophysical technology used in petroleum exploration and production.
The Company sells its proprietary information-technology to petroleum companies
either for cash or selectively in exchange for working equity-interests in
exploration, development and ownership of natural gas and crude oil reserves.
See Note P to the Company's Consolidated Financial Statements for financial
information relating to industry segments.
SEISMIC OPERATIONS
- - ------------------
Since its inception in 1982, the Company has been engaged in the
development of a proprietary library of seismic data, created by both the
Company and others. The Company's seismic data library is owned and marketed by
Seitel Data, Ltd., a Texas limited partnership of which wholly-owned Seitel
subsidiaries constitute all of the limited and general partners. Seitel Data,
Ltd. markets the data library, which consists of both two-dimensional ("2D") and
three-dimensional ("3D") data, to oil and gas companies under license
agreements. Seismic surveys and the analysis of seismic data for the
identification and definition of underground geological structures are principal
techniques used in oil and gas exploration and development to determine the
existence and location of subsurface hydrocarbons.
In 1996, over 300 different petroleum companies entered into seismic data
license agreements with the Company. At December 31, 1996, the Company owned
approximately 880,000 linear miles of 2D and approximately 6,600 square miles of
3D seismic data which it maintained in its library, constituting the second
largest seismic data base marketed publicly in North America. While the majority
of the seismic surveys cover onshore and offshore the U.S. Gulf Coast, the
Company's data bases extend to virtually every major domestic exploration and
development region and 32 foreign countries.
The Company's marketing team of 17 seismic sales specialists markets data
from its library and the creation of new seismic surveys. The Company's
marketing philosophy is that seismic data, like most other products, must be
sold aggressively as opposed to waiting passively for customer purchases. The
marketing team monitors petroleum industry exploration and development
activities through close interaction with oil and gas companies on a daily basis
to maximize seismic sales opportunities.
The Company has a 27 member staff of geotechnical professionals who have in
excess of 500 years of collective geophysical experience. Together, the
marketing team and geotechnical professionals help clients evaluate their
respective seismic requirements, design data creation programs to meet market
demand, and supervise the reprocessing of data in the Company's library to
enhance future resales.
The Company strives to maximize its resales of seismic data, which require
minimal incremental cash outlays by the Company and, in turn, can generate both
strong profits and cash flow. In addition to aggressive marketing and periodic
data-reprocessing refinements, the Company supplements its existing seismic
library by the acquisition of additional data.
Through its wholly-owned subsidiary Eagle Geophysical, Inc., the Company
conducts advanced 3D land seismic crew operations. The Company operates three
1,850 channel state-of-the-art radio-telemetry systems, which the Company
believes to be among the largest and fastest real-time systems of their kind in
operation today. These systems, providing seismic recording capability totaling
5,550 channels, enable the Company to efficiently record complex 3D surveys in
the difficult marsh/swamp and transition-zone areas onshore the Gulf Coast where
the Company's data creation activities are concentrated. Most seismic recording
equipment use cables to transmit data and do not operate as efficiently in
wetland areas as telemetric systems, which use radio signals for data
transmission.
<PAGE>
Three-dimensional seismic data provide a graphic geophysical depiction of
the earth's subsurface from two horizontal dimensions and one vertical
dimension, rendering a more detailed picture than 2D data, which present a
cross-sectional view from one vertical and one horizontal dimension. The more
comprehensive geophysical information provided by 3D surveys significantly
enhances an interpreter's ability to evaluate the probability of the existence
and location of subsurface hydrocarbons. The proper use of 3D surveys can
significantly increase drilling success rates and reduce the occurrence of
costly dry holes and, correspondingly, significantly lower exploration and
development finding costs. However, the cost to create 3D seismic data is
significantly more than the cost to create 2D seismic data, particularly for
onshore data. As a result, 2D data remain economically more efficient for
preliminary, broad-scale exploration evaluation and to determine the location
for 3D surveys. Also, the best way to design a 3D survey is from 2D data grids
of the respective area. The 3D surveys can then be used for more site-specific
analysis to maximize actual drilling potential.
The Company conducts onshore data creation activities in three ways. It
performs multiclient ("group-shoot") programs, under which several petroleum
companies share in the expense of a survey and thereby materially reduce their
respective cost of the survey. In a group-shoot survey, the Company retains
ownership of the data created and markets licenses to use the data both to the
group-shoot participants and subsequently to others who make selections after
the data are added to the Company's library. (Seismic data cannot be transferred
by a licensee to another party; each individual user must purchase a respective
license.) The Company also conducts proprietary creation programs for individual
petroleum companies, under which the Company receives revenue for creating a
seismic survey, the ownership of which is retained by the petroleum company
contracting for the survey.
Seismic surveys also are conducted for the Company's wholly-owned petroleum
exploration and production subsidiary, DDD Energy, Inc. ("DDD Energy"). The DDD
Energy 3D surveys are intended to assist participation in petroleum exploration
and development, whereby DDD Energy's ownership interest in any resultant
production will be accounted for as "oil and gas" revenues and reserves. Surveys
conducted for DDD Energy constitute intercompany transactions and the Company
does not record seismic revenue for those projects. To date, over 1,100 square
miles of advanced 3D seismic surveys have been conducted for DDD Energy and its
exploration partners. In excess of 425 square miles of 3D surveys are already
scheduled to be conducted in 1997 by the Company for DDD Energy and its
partners, and over 275 square miles of additional surveys are in the planning
stage.
The Company contracts with selected marine seismic companies to conduct
offshore 3D seismic data surveys due to the cost inherent in operating advanced
seismic vessels. The Company has a 19% ownership interest in Energy Research
International, a holding company owning two marine-seismic companies, which
provides the Company with access to offshore vessels. The Company's 3D marine
activities are concentrated on group-shoot programs in the Gulf of Mexico. The
Company's wholly-owned subsidiary, Seitel International, Inc., entered into a
50% joint-venture agreement to conduct three high-resolution 2D surveys,
totaling approximately 8,455 kilometers (in excess of 5,000 miles) in the Irish
sector of the Atlantic Ocean, designed for exploration lease-block sales by the
Irish government beginning in March 1997. The Company's extensive in-house
geophysical team designs all of the offshore surveys and supervises the
respective marine contractor utilized to shoot the actual survey.
The Company has developed fully-integrated 3D technology and operations,
which extend from its expansive 2D seismic library from which to best design the
parameters for 3D surveys, state-of-the-art land seismic recording systems and
crews specifically to conduct 3D surveys, a processing center and proprietary
computer technology coupled with extensive geophysical application expertise to
effectively interpret 3D data. The Company's processing and interpretation
technology and operations are utilized exclusively by DDD Energy to provide
optimum quality control and confidentiality for the exploration and production
programs in which DDD Energy participates.
OIL AND GAS EXPLORATION AND PRODUCTION OPERATIONS
- - -------------------------------------------------
The Company formed DDD Energy, Inc., a wholly-owned subsidiary, in March
1993 to participate directly in petroleum exploration, development and ownership
of hydrocarbon reserves through partnering relationships with oil and gas
companies, whereby the Company exchanges its proprietary seismic technology for
working interests. The Company's strategy is to combine its 3D and 2D seismic
resources and related geophysical technologies with the land position and
geology, engineering and drilling expertise of selected petroleum producers in
<PAGE>
exploration and development programs. The Company believes that this combination
will result in higher drilling success rates, thereby allowing the Company to
participate in oil and gas exploration and development on a relatively low
cost/low risk basis, and to build an asset base of oil and gas reserves which
complement its seismic data library.
From inception, DDD Energy has entered into and maintained cost and
revenue-sharing relationships with more than 90 petroleum companies and, in
doing so, has received the benefit of these petroleum companies' land,
geological, engineering and drilling staffs. Approximately 350 qualified
exploration and development prospects have been identified, located primarily
onshore Texas and Louisiana, and also onshore Alabama, Mississippi and Arkansas.
DDD Energy's working interest in these prospects ranges from approximately 10%
to 50%.
Since inception, DDD Energy has participated in the drilling of 167 wells,
113 of which are commercially productive for a 68% success rate. Since the
beginning of 1994, the Company has conducted over 1,100 square miles of advanced
3D surveys, with more than 700 square miles of new surveys currently scheduled
to be conducted or in the planning stage, for DDD Energy and its partners. These
surveys cover more than 800,000 gross acres, in which DDD Energy averages more
than a 25% net working interest. The majority of the well locations pinpointed
by the surveys that have already been completed and interpreted should be
drilled during the next three years.
CUSTOMERS
- - ---------
During each of 1996, 1995 and 1994, the Company's seismic data customers
consisted of more than 300 oil and gas companies. No one customer accounted for
as much as 10% of the Company's revenues during the years 1996, 1995 or 1994. As
a result, the Company does not believe that the loss of any customer would have
a material adverse impact on its seismic business. The Company believes the size
of its customer base is due to its seismic technology and capabilities and the
increasing size of its data-library base.
COMPETITION
- - -----------
The creation and resale of seismic data are highly competitive in the
United States. There are a number of independent oil-service companies that
create and market seismic data, and numerous oil and gas companies create
seismic data and maintain their own seismic data banks. Some of the Company's
competitors have longer operating histories, greater financial resources and
larger sales volumes than the Company. However, the number of independent
seismic companies has decreased significantly during the last decade due to
difficult industry conditions. At the same time, oil and gas companies have
reduced their internal geophysical staffs and have out-sourced more for services
such as seismic data.
The Company believes it can compete favorably because of the expansiveness
of its data-library base, the expertise of its marketing staff, the technical
proficiency and exploration experience of its geotechnical staff and the
state-of-the-art technology of its seismic recording crews. These resources
enable the Company to provide high-quality service and to create and market
high-grade data.
In the exploration for and development of natural gas and crude oil
reserves, the Company believes it can participate effectively because of its
fully-integrated seismic resources and corollary geophysical expertise combined
with the geological and engineering experience and land positions of the
Company's petroleum company partners.
SEASONALITY AND TIMING FACTORS
- - ------------------------------
The Company's seismic data revenues are influenced by petroleum industry
capital expenditure budgets and spending patterns. Those budgets are not
necessarily spent in either equal or progressive increments during the year,
with spending patterns affected by individual petroleum company requirements as
well as industry-wide conditions. As a result, the Company's seismic data
revenues do not necessarily flow evenly or progressively on a sequential
quarterly basis during the year. In addition, certain weather-related events may
delay the Company's data creation operations during any given year.
The Company's oil and gas exploration and production operations also can be
impacted by certain weather-related events as well as by mechanical and
equipment problems and other factors, which may delay the hookup of successfully
completed wells and delay the resultant production revenues. Also, some
producing wells may be required periodically to go off line temporarily for
pipeline maintenance.
<PAGE>
See Note Q to the Company's Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EMPLOYEES
- - ---------
As of December 31, 1996, the Company and its subsidiaries had 109 full-time
employees and three employees who devote part of their time to the Company who
are also officers of other corporations. None of the Company's employees are
covered by collective bargaining agreements. Of these employees, 84 are related
to the seismic operations and 10 are related to the oil and gas operations. The
Company believes it has a favorable relationship with its employees. The Company
has employment contracts with five of its senior corporate executives.
OTHER
- - -----
The Company is not dependent on any particular raw materials, patents,
trademarks or copyrights for its business operations.
ITEM 2. PROPERTIES
- - -------------------
The Company's wholly-owned subsidiary Eagle Geophysical, Inc., owns three
1,850-channel radio-telemetry seismic data acquisition systems, providing
seismic recording capability totaling 5,550 channels, which are used in the
creation of 3D onshore seismic data.
The Company, through its wholly-owned subsidiary DDD Energy, participates
in oil and gas exploration and development efforts. The following table sets
forth the number of productive oil and gas wells (including producing wells and
wells capable of production) in which the Company owned an interest as of
December 31, 1996. All of the wells are operated by the Company's petroleum
company partners.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
----------- ---------
<S> <C> <C>
Oil 19 3.02
Gas 84 14.29
</TABLE>
The following table sets forth the number of net wells drilled in the last
three fiscal years in which the Company participated.
<TABLE>
<CAPTION>
Exploratory Development
------------------------------- --------------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
1996
- - ----
Texas 2.85 .90 3.75 2.91 - 2.91
Mississippi .69 2.48 3.17 - .15 .15
Louisiana .25 .26 .51 - - -
1995
- - ----
Texas 4.45 1.54 5.99 1.49 1.08 2.57
Alabama - .21 .21 - - -
Mississippi .51 .31 .82 - .60 .60
Louisiana .27 .96 1.23 .24 .24 .48
Arkansas - .12 .12 - - -
1994
- - ----
Texas 2.44 .94 3.38 1.74 .24 1.98
Alabama - - - - .05 .05
Mississippi .43 .31 .74 - - -
</TABLE>
As of December 31, 1996, the Company was participating in the drilling of
four gross and 1.13 net wells.
<PAGE>
The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of December 31, 1996. The table does
not include additional acreage which the Company may earn upon completion of
pending 3D seismic data projects.
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
---------------------------- ----------------------------
Gross Net Gross Net
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Texas 18,130 5,562 68,902 21,717
Louisiana 1,725 245 35,265 10,495
Alabama 160 5 1,516 270
Mississippi 3,080 993 27,826 16,567
Arkansas - - 3,560 445
------------ ------------- ------------- ------------
Total 23,095 6,805 137,069 49,494
============ ============= ============= ============
</TABLE>
The following table describes for each of the last three fiscal years,
crude oil (including condensate and natural gas liquids) and natural gas
production for the Company, average production costs and average sales prices.
All such production comes from the U.S. Gulf Coast region. The Company has not
filed any different estimates of its December 31, 1996 reserves with any federal
agencies.
<TABLE>
<CAPTION>
Net Production Average Sales Price
--------------------- ---------------------
Year Ended Oil Gas Average Oil Gas
DECEMBER 31, (MBBLS) (MMCF) Production (BBLS) (MCF)
------------ ------- ------ ------------- ------ -----
<S> <C> <C> <C> <C> <C>
1996 363 4,902 $.44 $18.52 $2.28
1995 193 1,170 .66 13.85 1.55
1994 54 268 .53 12.32 1.76
</TABLE>
The amounts in 1996 include 84,000 barrels and 2,094 million cubic feet
delivered under the terms of a volumetric production payment agreement effective
July 1, 1996 at an average price of $14.91 per barrel and $2.15 per mcf. For
estimates of the Company's net proved and proved developed oil and gas reserves
as of December 31, 1996, see Note R to the Company's Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
On May 25, 1995, Seitel Geophysical, Inc. ("SGI"), a wholly-owned
subsidiary of the Company, filed suit in United States District Court for the
Eastern District of Louisiana against Greenhill Petroleum Corporation
("Greenhill") for breach of contract. SGI sought to recover approximately $1.4
million owed by Greenhill to SGI for seismic data acquisition services provided
to Greenhill by SGI in 1994 in connection with a 3D seismic data shoot in
southern Louisiana. Greenhill generally denied SGI's allegations and asserted
counter-claims against SGI. Prior to SGI bringing the suit against Greenhill,
Greenhill had already paid SGI in excess of $7 million under the contract, and
SGI had provided the seismic data acquired under the contract to Greenhill. This
lawsuit was tried in late May, 1996, and judgment was entered on June 10, 1996
in favor of SGI for damages of approximately $940,000, including legal fees,
expenses, and pre-judgment interest. The trial court denied all of Greenhill's
counter-claims against SGI. Greenhill is appealing this judgment. Post-judgment
interest of 5.62%, which is based on the rate of one year Treasury Bills
immediately prior to the entry of the judgment, is accruing on the full amount
of the judgment. While the outcome of this appeal cannot be predicted with
certainty, the Company believes that the trial court's award will be upheld.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
NONE
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- - ---------------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth the high and low sales prices for the Common Stock
for 1996 and 1995 as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
High Low High Low
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter 35-1/2 23-1/4 33-1/2 18-7/8
Second Quarter 28-5/8 25 34-3/4 27
Third Quarter 37-3/4 26-1/4 31-1/4 23-7/8
Fourth Quarter 43-3/4 36-1/4 35-1/2 23-3/4
</TABLE>
On March 26, 1997, the closing price for the Common Stock was $36.50. To
the best of the Company's knowledge, there are approximately 1,272 record
holders of the Company's Common Stock as of March 26, 1997.
DIVIDEND POLICY
- - ---------------
The Company did not pay cash dividends during 1995 or 1996, and it intends
to retain future earnings in order to provide funds for use in the operation and
expansion of its business. Because the payment of dividends is dependent upon
earnings, capital requirements, financial conditions, any required consents of
lenders and other factors, there is no assurance that dividends, whether in the
form of stock or cash, will be paid in the future.
On July 3, 1996, the Company entered into an agreement with Olivera
Limited, Dormera Limited, and Balmedie Limited ("Sellers"), shareholders of
Energy Research International ("ERI"), whereby such Sellers sold an aggregate of
50,000 Ordinary Shares of ERI, comprising 50% of the outstanding shares of ERI,
to the Company in exchange for the Company issuing an aggregate of 132,075
shares of its Common Stock, par value $0.01 per share ("Company Stock"), to the
Sellers. Each Seller received one-third of the Company stock. ERI conducts
offshore seismic data acquisition services through its operating subsidiaries.
The issuance of the Company stock was made by the Company without registration
pursuant to Section 4(2) of the Securities Act of 1993, as amended, and
Regulation D promulgated thereunder, as a transaction by the Company not
involving any public offering. The resale of the Company Stock by the Sellers
was subsequently registered by the Company on a registration statement on Form
S-3, declared effective by the Securities and Exchange Commission on August 6,
1996.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands,
except per share data)
- - -------------------------------------------------------------
The following table summarizes certain historical consolidated financial
data of the Company and is qualified in its entirety by the more detailed
consolidated financial statements and notes thereto included in Item 8 hereof.
<TABLE>
<CAPTION>
Year Ended December 31,
Statement of Operations Data: 1996 1995 1994 1993 1992
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue $ 106,002 $ 74,439 $ 70,902 $ 43,456 $ 28,354
Expenses and costs:
Depreciation, depletion and
amortization 39,249 26,872 27,181 19,852 13,486
Cost of sales 19,402 13,071 10,499 3,202 506
Selling, general and administrative 19,165 15,393 14,672 9,132 6,412
Net interest expense 2,900 3,078 3,198 2,126 1,470
--------- -------- --------- -------- --------
Total expenses and costs 80,716 58,414 55,550 34,312 21,874
Equity in loss of affiliate (186) - - - -
--------- -------- --------- -------- --------
Income from continuing operations
before provision for income
taxes, extraordinary item and change
in accounting principle 25,100 16,025 15,352 9,144 6,480
Provision for income taxes 8,863 5,898 5,681 3,328 2,134
--------- -------- --------- -------- --------
Income from continuing operations
before extraordinary item and
change in accounting principle 16,237 10,127 9,671 5,816 4,346
Loss from discontinued operations,
net of tax (988) (1,196) (52) (99) -
Loss on disposal of discontinued
operations, net of tax - (252) - - -
--------- -------- --------- -------- --------
Income before extraordinary item
and change in accounting principle 15,249 8,679 9,619 5,717 4,346
Extraordinary charge on early
extinguishment of debt, net of tax - - (304) - -
Cumulative effect on prior years of
change in accounting principle - - - - 204
--------- -------- --------- -------- --------
Net income $ 15,249 $ 8,679 $ 9,315 $ 5,717 $ 4,550
========= ======== ========= ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
Statement of Operations Data: 1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings per share:
Primary:
Income from continuing operations
before extraordinary item and
change in accounting principle $ 1.58 $ 1.03 $ 1.24 $ .93 $ .76
Discontinued operations (.10) (.15) (.01) (.01) -
Extraordinary item - - (.04) - -
Change in accounting principle - - - - .04
--------- -------- -------- -------- --------
Net income $ 1.48 $ .88 $ 1.19 $ .92 $ .80
========= ======== ======== ======== ========
Assuming full dilution:
Income from continuing operations
before extraordinary item and
change in accounting principle $ 1.55 $ .99 $ 1.11 $ .83 $ .72
Discontinued operations (.09) (.14) (.01) (.01) -
Extraordinary item - - (.03) - -
Change in accounting principle - - - - .03
--------- -------- -------- -------- --------
Net income $ 1.46 $ .85 $ 1.07 $ .82 $ .75
========= ======== ======== ======== ========
Weighted average shares
- Primary 10,289 9,872 7,800 6,893 5,713
- Assuming full dilution 10,476 10,358 9,001 8,279 7,645
Cash dividends per share $ - $ - $ - $ - $ .05
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
As of December 31,
-----------------------------------------------------------------
Balance Sheet Data: 1996 1995 1994 1993 1992
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Data bank, net $ 126,998 $ 105,369 $ 95,801 $ 58,583 $ 55,278
Oil and gas properties, net 86,572 42,424 21,389 4,811 -
Property and equipment, net 14,022 10,126 11,035 6,985 698
Total assets 294,679 209,567 166,769 92,554 73,136
Total debt 84,025 57,560 11,839 31,866 26,746
Stockholders' equity 155,641 120,378 101,329 41,583 35,643
Stockholders' equity per common share
outstanding at December 31 $ 15.02 $ 12.76 $ 11.48 $ 6.95 $ 5.96
Common shares outstanding at
December 31 10,362 9,437 8,826 5,987 5,976
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - ---------------------------------------------------------------------
INTRODUCTION
- - ------------
The following table sets forth for the periods indicated (i) the percentage
which certain items in the financial statements of the Company bear to revenues
and (ii) the percent change in the dollar amount of such items from period to
period.
<TABLE>
<CAPTION>
Percentage of Percentage of
Total Revenues Increase (Decrease)
Year Ended December 31, Years Ended December 31,
---------------------------------- -----------------------------------
1996 1995
vs. vs.
1996 1995 1994 1995 1994
--------- --------- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Seismic 83% 94% 98% 26% *<F1>
Oil and Gas 17% 6% 2% 280% 299%
--------- --------- ---------
Total revenue 100% 100% 100% 42% 5%
Expenses and costs:
Depreciation, depletion and
amortization 37% 36% 38% 46% (1%)
Cost of sales 18% 17% 15% 48% 24%
Selling, general and administrative 18% 21% 21% 25% 5%
Net interest 3% 4% 4% (6%) (4%)
--------- --------- ---------
Total expenses and costs 76% 78% 78% 38% 5%
Equity in loss of affiliate *<F1> - - n/a -
Provision for income taxes 9% 8% 8% 50% 4%
--------- --------- ---------
Income from continuing operations 15% 14% 14% 60% 5%
========= ========= =========
<FN>
<F1>* Less than 1%
</FN>
</TABLE>
RESULTS OF OPERATIONS
- - ---------------------
Total revenue was $106,002,000, 74,439,000 and $70,902,000 in 1996, 1995
and 1994, respectively, representing increases of 42% from 1995 to 1996 and 5%
from 1994 to 1995. Revenue primarily consists of revenue generated from the
seismic business and oil and gas production.
Seismic revenue was $87,747,000, $69,598,000 and $69,579,000 during 1996,
1995, and 1994, respectively. The increase of $18,149,000 in seismic revenue
from 1995 to 1996 is primarily attributable to an increase in demand for
three-dimensional seismic data resulting in an increase in licensing of data
from the Company's data library and proprietary data acquisition performed for
non-affiliated parties by the Company's crew subsidiary. The slight increase in
seismic revenue between 1995 and 1994 primarily resulted from an increase in
revenue generated from the licensing of seismic data currently in the Company's
library, which was offset by a decrease in revenue generated from the creation
of new seismic data. During 1995, the Company's focus was more on generating
revenue from data that had been recently added to the library (both onshore and
offshore 3D seismic data) than on the creation of new data. The Company believes
the demand for its seismic data remains strong due to several factors: large
integrated oil and gas companies have reduced internal seismic data crew staffs
and are using outside sources to provide more of these services; the majority of
the Company's seismic data is located in the Gulf Coast region, which continues
to be of particular interest to the oil and gas industry; and the high quality
of the Company's seismic data. Additionally, management believes that the
Company's 2D data library will continue to generate significant revenue because
2D data is less expensive than 3D and 2D data is the most cost-efficient means
to preliminarily identify exploration and development leads, which are then best
evaluated with 3D data.
Oil and gas revenue was $18,255,000, $4,806,000 and $1,204,000 during 1996,
1995 and 1994, respectively. The increases in oil and gas revenue are primarily
due to higher production resulting from more wells being on line in 1995 and
<PAGE>
1996 and increased revenue interest in certain wells. The first year of oil and
gas operations for the Company was 1993. Since then, the Company has steadily
increased its exploration and development efforts resulting in the number of
wells producing as of December 31, 1994 to increase from 23 to 68 at December
31, 1995 and to 92 at December 31, 1996. Net production of oil and gas has
increased from 54,000 barrels and 268 million cubic feet ("mmcf") for the year
ended December 31, 1994, to 193,000 barrels and 1,170 mmcf for the year ended
December 31, 1995, and to 363,000 barrels and 4,902 mmcf for the year ended
December 31, 1996. Additionally, average oil prices increased from $12.32 per
barrel in 1994 to $13.85 per barrel in 1995 and to $18.52 per barrel in 1996.
Average gas prices were $1.76 and $1.55 per mcf in 1994 and 1995, respectively,
and increased to $2.28 per mcf in 1996.
Depreciation, depletion and amortization consist primarily of data bank
amortization. Data bank amortization amounted to $30,477,000, $23,852,000 and
$25,777,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
As a percentage of revenue from licensing seismic data, data bank amortization
was 47%, 45% and 46% for 1996, 1995 and 1994, respectively. These changes
between years are primarily due to the mix of sales of 2D and 3D data amortized
at varying percentages based on each data program's current and expected future
revenue stream. The costs of the Company's proprietary seismic data are
amortized for each project in the proportion that its revenue for a period
relates to management's estimate of its ultimate revenues. Revenue is expected
to be more evenly received over the lives of existing seismic data libraries
purchased by the Company. Accordingly, the Company amortizes the cash invested
in purchases of existing seismic data libraries evenly over ten years.
Since inception, management has established guidelines regarding its annual
charge for amortization. Under these guidelines, 90% of the cost incurred in the
creation of proprietary seismic data is amortized within five years of inception
for 2D seismic data and within seven years of inception for 3D data, and the
final 10% is amortized on a straight-line basis over fifteen years. Under these
guidelines, costs of existing seismic data libraries purchased by the Company
are fully amortized within ten years from date of purchase. On a periodic basis,
the carrying value of seismic data is compared to its estimated future revenue
and, if appropriate, is reduced to its estimated net realizable value.
Trends in the Company's (and its industry's) seismic revenue are evaluated
and results are used in estimating future revenue expected to be received on its
seismic data. Pricing of seismic data is significant when it indicates a
revision to estimated future revenue. During periods of downturn, the Company
may reduce its estimates of future revenue, causing the amortization rate to
rise and liquidity and operating results to decline. If the Company perceives an
impairment in value due to reduced, or a lack of, estimated future revenue, a
write-down of the asset is recognized. In periods of upturn, the opposite may
occur, except, however, that prior write-downs are not reversed. Management
believes that the economic outlook for the Company is stable and the possibility
for significant improvement exists.
Cost of sales consists of expenses associated with the acquisition of
seismic data for non-affiliated parties, seismic resale support services, and
oil and gas production. The increase in cost of sales from $10,499,000 in 1994
to $13,071,000 in 1995 and to $19,402,000 in 1996 is due to the corresponding
increase in revenue from these areas because of their continued growth. Revenues
from these areas increased from $14,033,000 in 1994 to $19,773,000 in 1995 to
$39,534,000 in 1996. Gross profit margin related to the acquisition of seismic
data for non-affiliated parties was 21%, 22% and 20% for 1996, 1995 and 1994,
respectively. Gross profit margin related to oil and gas production (revenue
less production costs) was 83%, 67% and 72% for 1996, 1995 and 1994,
respectively.
The Company's selling, general and administrative expenses increased from
$14,672,000 in 1994 and $15,393,000 in 1995 to $19,165,000 in 1996. The increase
for each year was primarily a result of variable expenses related to the
increased volume of business. As a percentage of total revenue, these expenses
were 21% in 1994 and 1995 and decreased to 18% in 1996. The decrease in 1996 is
primarily due to ongoing cost reduction programs.
The Company's interest expense was $3,455,000 in 1994, $3,407,000 in 1995
and $4,063,000 in 1996. The slight decrease in interest expense from 1994 to
1995 resulted from less interest expense incurred on the Company's 9%
convertible debentures due to the conversions and exchanges into common stock,
offset by increased interest expense being incurred primarily on amounts owed to
<PAGE>
a seismic acquisition contractor. The increase in interest expense from 1995 to
1996 was primarily due to interest expense incurred on the Company's Senior
Notes; $52.5 million was outstanding during all of 1996 and an additional $22.5
million was outstanding for approximately nine months of 1996.
Interest income increased from $257,000 in 1994 and $329,000 in 1995 to
$1,163,000 in 1996. The increase in 1996 was primarily attributable to interest
earned on the investment of increased cash balances.
On July 3, 1996, the Company acquired a 50% ownership interest in Energy
Research International ("ERI"), a holding company which wholly owns two marine
seismic companies, Horizon Exploration Limited and Horizon Seismic Inc. During
1996, the Company recognized a net loss from its interest in ERI of $186,000,
which excludes profits earned by ERI on the work performed for the Company. In
the fourth quarter of 1996, the Company reduced its ownership interest in ERI to
19%. Since then, the Company has not recorded any portion of ERI's income or
loss in the Company's consolidated financial statements. This investment
provides the Company with greater access to offshore vessels to better meet the
demand for new marine seismic data.
On March 22, 1996, the Company's Board of Directors unanimously adopted a
plan of disposal to discontinue the Company's gas marketing operations, the
final disposal and sale of which was completed during the third quarter of 1996.
Accordingly, the Company's consolidated financial statements present the gas
marketing operations as discontinued operations for all periods presented. The
Company decided to refocus and concentrate on its higher margin seismic
technology operations and related petroleum exploration and production
operations in order to maximize profitability and growth opportunities. A loss
from discontinued operations of $1,196,000, which is net of an income tax
benefit of $703,000, was recorded as of December 31, 1995. During 1996, an
additional loss from discontinued operations was recorded totaling $988,000,
which is net of an income tax benefit of $580,000. The additional loss resulted
from changes in market prices to purchase gas supply. Such loss represented the
final charge related to the discontinued operations. The loss on disposal of
discontinued operations recorded as of December 31, 1995, was $252,000, which is
net of an income tax benefit of $148,000, and included costs such as severance
benefits and personnel costs to continue to honor the Company's obligations
until the gas marketing contracts were transferred or terminated.
In October 1994, the company called for redemption of its 12-1/2%
subordinated debentures due 1999 totaling $3,725,000. As a result, the Company
recorded an extraordinary charge of $304,000, net of a $163,000 income tax
benefit, associated with the early extinguishment of indebtedness, which has
been reflected as an extraordinary item for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
On December 28, 1995, the Company completed a private placement of three
series of unsecured Senior Notes totaling $75 million. The Company
contemporaneously issued its Series A Notes and Series B Notes, which total
$52.5 million and bear interest at a fixed rate of 7.17%. On April 9, 1996, the
Company issued its Series C Notes, which total $22.5 million and bear interest
at a fixed rate of 7.48%. The Series A Notes mature on December 30, 2001, and
require annual principal payments of $8.333 million beginning December 30, 1999.
The Series B and Series C Notes mature on December 30, 2002, and require
combined annual principal payments of $10 million beginning December 30, 1998.
Interest on all series of the notes is payable semi-annually on June 30 and
December 30. The Company used the majority of the proceeds of the Series A and
Series B Notes to repay amounts outstanding under its $25 million revolving line
of credit, amounts outstanding under a wholly-owned subsidiary's $75 million
reducing revolving line of credit, and amounts owed to a seismic contractor. The
proceeds of the Series C Notes are being used primarily to fund petroleum
exploration and development activities of its wholly-owned subsidiary and for
other working capital or general corporate purposes.
The Company filed a registration statement on Form S-3 (the "Shelf
Registration Statement") in June 1994 to offer from time to time in one or more
series (i) unsecured debt securities, which may be senior or subordinated, (ii)
preferred stock, par value $0.01 per share, and (iii) common stock, par value
$.01 per share, or any combination of the foregoing, at an aggregate initial
offering price not to exceed $75,000,000. The Shelf Registration Statement was
declared effective by the Securities and Exchange Commission on June 30, 1994.
In August 1994, the Company completed a public offering of 1,061,200 shares of
its common stock priced at $32 per share pursuant to the Shelf Registration
Statement. The net proceeds from the offering (after underwriting commission and
offering expenses) totaled $31,917,000. After this sale of common stock at an
initial aggregate offering price of $33,958,400, the Company may offer
additional securities in the future for up to an aggregate initial offering
price of $41,041,600 pursuant to the Shelf Registration Statement.
<PAGE>
On July 22, 1996, the Company entered into an agreement with The First
National Bank of Chicago for a $25,000,000 unsecured revolving line of credit
facility. The facility bears interest at a rate determined by the ratio of the
Company's debt to cash flow from operations. Pursuant to the interest rate
pricing structure, funds can currently be borrowed at LIBOR plus 3/4%, the
bank's prevailing prime rate, or the sum of the Federal Funds effective rate for
such day plus 1/2%. The facility matures on July 22, 1999. As of March 26, 1997,
the balance outstanding on the revolving line of credit amounted to $3,000,000
bearing an interest rate of 6.125% The Company has received a commitment from
its lenders to increase its revolving line of credit facility to $50,000,000,
subject to execution of formal loan documents to evidence this increase.
On February 6, 1997, a wholly-owned subsidiary of the Company entered into
a commitment to obtain two term loans aggregating $7,564,000 for the purchase of
a third 3D seismic recording system and other related equipment. The first loan
will have a principal amount of $558,000, will be for a term of three years and
will bear interest at the rate of 1.48% above the two year U.S. treasury yield.
The second loan will have a principal amount of $7,006,000, will be for a term
of five years and will bear interest at the rate of 1.58% above the three year
U.S. treasury yield. Interim advances totaling $7,564,000 at March 26, 1997 have
been made and bear interest at the rate of LIBOR plus 1.30%.
On July 9, 1996, a wholly-owned subsidiary of the Company obtained two term
loans aggregating $7,264,000 for the purchase of land and marine seismic
equipment which secures the debt. The first term loan has a principal amount of
$5,902,000, is for a term of five years and bears interest at the rate of 8%.
Monthly principal and interest payments total $120,000. The balance outstanding
on this loan at March 26, 1997 was $5,245,000. The second term loan has a
principal amount of $1,362,000, is for a term of three years and bears interest
at the rate of 8.06%. Monthly principal and interest payments on the second term
loan total $43,000. The balance outstanding on this loan at March 26, 1997 was
$1,122,000. The majority of this equipment is under a five year rental agreement
expiring June 30, 2001, whereby the Company receives $138,000 per month.
From 1993 to March 1996, the Company and two of its wholly-owned
subsidiaries obtained four separate term loans totaling $5,449,000, three of
which have a three year term and one which has a five year term. Two of the
loans bear interest at the rate of 8.413%, one at the rate of 7.61% and one at
the rate of 7.52%. The proceeds were used for the purchase of certain property
and equipment which secures the debt. Monthly principal and interest payments
total approximately $121,000. The balance outstanding on the loans at March 26,
1997, was $1,980,000.
In June 1996, a wholly-owned subsidiary of the Company sold a volumetric
production payment for $19 million to certain limited partnerships. Under the
terms of the production payment agreements, the Company conveyed a mineral
property interest of approximately 7.6 billion cubic feet of certain natural gas
and approximately 363,000 barrels of other hydrocarbons to the purchasers. The
Company retains responsibility for its working interest share of the cost of
operations. The proceeds of the sale were applied toward the acquisition cost of
certain oil and gas properties. The Company accounted for the proceeds received
in the transaction as deferred revenue which will be amortized into revenue and
income as natural gas and other hydrocarbons are produced and delivered during
the term of the volumetric production payment agreements.
During 1994 and 1995, the Company entered into three capital leases which
relate to the purchase of a 3D seismic recording system and a seismic data
processing center. These lease agreements are for terms of three to five years.
Monthly principal and interest payments total approximately $125,000. The
balance outstanding under these capital lease obligations was $2,130,000 at
March 26, 1997.
<PAGE>
During 1996 and 1995, the Company received $11,182,000 and $6,942,000,
respectively, from the exercise of common stock purchase warrants and options
and the Company's 401(k) stock purchases. In connection with the option and
warrant exercises in 1996 and 1995, the Company also received $3,204,000 and
$1,900,000, respectively, in tax savings. From January 1, 1997, through March
26, 1997, the Company received $247,000 from the exercise of common stock
purchase warrants and options and the Company's 401(k) stock purchases.
In February 1996, the Company called for the March 31, 1996 redemption of
its 9% convertible subordinated debentures, thereby eliminating future interest
and sinking fund payments. All remaining outstanding debentures converted to
common stock.
During 1996, gross seismic data bank additions and capitalized oil and gas
exploration and development costs amounted to $52,143,000 and $51,361,000,
respectively. These capital expenditures, as well as taxes, interest expenses,
cost of sales and general and administrative expenses, were funded by
operations, proceeds received from the exercise of common stock purchase
warrants and options combined with tax savings received on the exercise of the
warrants and options, proceeds from the private placement described above, and
proceeds from the sale of the volumetric production payment described above.
Acquisitions of geophysical equipment and other property and equipment were
funded partially by cash from operations and the remainder through capital lease
financing and term loans.
Currently, the Company anticipates capital expenditures for 1997 to total
approximately $72 million. Such expenditures include approximately $46 million
for the creation of proprietary seismic data, and approximately $26 million for
oil and gas exploration and development efforts. The Company believes its
current cash balances, revenues from operating sources and proceeds from the
exercise of common stock purchase warrants and options, combined with its
available revolving line of credit, should be sufficient to fund the 1997
capital expenditures, along with expenditures for operating and general and
administrative expenses. Additionally, the Company could arrange for additional
debt or equity financing during 1997; however, there can be no assurance that
the Company would be able to accomplish any such debt or equity financing on
terms satisfactory to it.
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
- - ---------------------------------------
The general availability of seismic equipment and crews and the level of
exploration activity in the oil and gas industry directly affect the cost of
creating seismic data. The pricing of the Company's products and services is
primarily a function of these factors. For these reasons, the Company does not
believe inflationary trends have had any significant impact on its financial
operating results during the three years ended December 31, 1996.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
- - ------------------------------------------------
This Annual Report on Form 10-K includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include,
but are not limited to, changes in the exploration budgets of the Company's
seismic data and related services customers, actual customer demand for the
Company's seismic data and related services, the extent of the Company's success
in acquiring oil and gas properties and in discovering, developing and producing
reserves, the timing and extent of changes in commodity prices for natural gas,
crude oil and condensate and natural gas liquids and conditions in the capital
markets and equity markets during the periods covered by the forward looking
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ----------------------------------------------------
The financial statements and financial statement schedules required by this
Item are set forth at the pages indicated in ITEM 14(a) (1) and (2) below.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- - -------------------------------------------------------------
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -----------------------------------------------------------
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Company's definitive proxy
statement relating to the 1997 annual meeting of its stockholders to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K (hereinafter the "Proxy
Statement").
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- - -------------------------------
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
- - ---------------------------------------------------------------
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------------------------------------------------------
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- - ----------------------------------------------------------------
(a) DOCUMENTS FILED AS PART OF THIS REPORT PAGE
(1) Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-2
Consolidated Statements of Operations
for the years ended December 31,
1996, 1995, and 1994 F-4
Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-8
(2) All schedules are omitted because they are not applicable or
the required information is shown in the financial
statements or the notes to the financial statements.
(3) Exhibits:
3.1 Certificate of Incorporation of the Company filed May 7,
1982 and Amendment to Certificate of Incorporation filed
April 25, 1984 (1)
3.2 Amendment to Certificate of Incorporation filed August 4,
1987 (3)
3.3 Amendment to Certificate of Incorporation filed January 18,
1989 (4)
3.4 Amendment to Certificate of Incorporation filed July 13,
1989 (5)
3.5 Amendment to Certificate of Incorporation filed August 3,
1993 (12)
3.6 By-Laws of the Company (1)
3.7 Corporate Resolution reflecting an Amendment to the By-Laws
of the Company adopted January 6, 1989 (3)
3.8 Corporate Resolution reflecting an Amendment to the By-Laws
of the Company adopted May 19, 1986 (5)
<PAGE>
(3) Exhibits, continued:
4.1 Specimen of Common Stock Certificate (1)
4.2 Form of Warrant Certificate granted to employees of the
Company in February 1990 (5)
4.3 Form of Warrant Certificate granted to certain employees and
one Director of the Company in December 1990 and expiring in
December 1997 (8)
4.4 Form of Warrant Certificate granted to certain employees and
one Director of the Company in December 1990 and expiring in
December 2000 (8)
4.5 Indenture of Trust between the Company and United States
Trust Company of New York relating to Convertible
Subordinated Debentures due December 31, 2001, including
Form of such Debenture (9)
4.6 Form of Underwriter's Warrant Certificate (9)
4.7 Form of Promissory Note for Employee Stock Purchase dated
July 21, 1992 (11)
4.8 Form of Subscription Agreement for Employee Stock Purchase
dated July 21, 1992 (11)
4.9 Form of Pledge for Employee Stock Purchase dated July 21,
1992 (11)
4.10 Form of Warrant Certificate granted under the 1994 Warrant
Plans (15)
4.11 Form of Warrant Certificate granted to certain Debenture
holders (16)
4.12 Form of Warrant Certificate granted under the 1995 Warrant
Reload Plan (19)
10.1 Incentive Stock Option Plan of the Company (1)
10.2 Non-Qualified Stock Option Plan of the Company (1)
10.3 1993 Incentive Stock Option Plan of the Company (12)
10.4 Amendment No. 1 to the Seitel, Inc. 1993 Incentive Stock
Option Plan (18)
10.5 Statement of Amendments effective November 29, 1995, to the
Seitel, Inc. 1993 Incentive Stock Option Plan (21)
10.6 Statement of Amendments effective April 22, 1996, to the
Seitel, Inc. 1993 Incentive Stock Option Plan (21)
10.7 Amendment to the Seitel, Inc. 1993 Incentive Stock Option
Plan effective December 31, 1996*
10.8 Non-Employee Directors' Stock Option Plan of the Company
(14)
10.9 Amendment to the Seitel, Inc. Non-Employee Directors' Stock
Option Plan effective December 31, 1996*
10.10 Seitel, Inc. Non-Employee Directors' Deferred Compensation
Plan (21)
10.11 Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan
(22)
10.12 Amendment to the Seitel, Inc. Amended and Restated 1995
Warrant Reload Plan effective December 31, 1996*
<PAGE>
(3) Exhibits, continued:
10.13 Memorandum of Understanding between the Company and
Triangle Geophysical Company dated as of June 7, 1984 (1)
10.14 Lease Agreement by and between the Company and Commonwealth
Computer Advisors, Inc. (2)
10.15 The Company's 401(k) Plan adopted February 27, 1995 (15)
10.16 Executive Services Agreement dated April 3, 1990 between
the Company and Helm Resources, Inc. (7)
10.17 Employment Agreement effective as of January 1, 1991
between the Company and Paul A. Frame, Jr. (10)
10.18 Employment Agreement effective as of January 1, 1991
between the Company and Horace A. Calvert (10)
10.19 Employment Agreement effective as of January 1, 1991
between the Company and Herbert M. Pearlman (10)
10.20 Employment Agreement effective as of January 1, 1991
between the Company and David S. Lawi (10)
10.21 Employment Agreement effective as of January 1, 1993
between the Company and Debra D. Valice (13)
10.22 Joint Venture Agreement dated April 5, 1990 by and between
Seitel Offshore Corp., a wholly-owned subsidiary of the
Company, and Digicon Data Inc., a wholly-owned subsidiary of
Digicon Geophysical Corp. (6)
10.23 Term Note dated July 15, 1993 between Seitel Geophysical,
Inc. (Company's wholly-owned subsidiary) and Central Bank of
the South (12)
10.24 Term Credit and Security Agreement dated July 15, 1993
between Seitel Geophysical, Inc. (Company's wholly-owned
subsidiary) and Central Bank of the South (12)
10.25 Continuing Guaranty dated July 15, 1993 between the Company
and Central Bank of the South (12)
10.26 Side Letter Agreement dated July 15, 1993 between the
Company and Central Bank of the South (12)
10.27 Loan Modification Agreement and Amendment to Loan Documents
effective as of December 28, 1995, between Seitel
Geophysical, Inc. (Company's wholly-owned subsidiary) and
Compass Bank (20)
10.28 Assumption and Loan Modification Agreement dated effective
December 31, 1996, among Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary), Eagle Geophysical, Inc. (Company's
wholly-owned subsidiary), Compass Bank and Seitel, Inc.*
10.29 Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. (Company's wholly-owned
subsidiary) and MetLife Capital, Limited Partnership (14)
<PAGE>
(3) Exhibits, continued:
10.30 Assignment and Assumption Agreement regarding Master Lease
dated December 31, 1996, between Eagle Geophysical, Inc.
(Company's wholly-owned subsidiary) and Seitel Geophysical,
Inc. (Company's wholly-owned subsidiary), consented to by
MetLife Capital Corporation*
10.31 Credit Agreement dated June 14, 1995, between DDD Energy,
Inc. (Company's wholly-owned subsidiary) and Bank One,
Texas, National Association, as a Bank and the Agent and
Compass Bank- Houston (18)
10.32 Promissory Note dated June 14, 1995, in the face amount of
$37,500,000, executed by DDD Energy, Inc. (Company's
wholly-owned subsidiary) and payable to the order of Bank
One, Texas, National Association (18)
10.33 Promissory Note dated June 14, 1995, in the face amount of
$37,500,000, executed by DDD Energy, Inc. (Company's
wholly-owned subsidiary) and payable to the order of Compass
Bank- Houston (18)
10.34 Guaranty dated June 14, 1995, by Seitel, Inc. in favor of
Bank One, Texas, National Association, Individually and as
Agent and Compass Bank-Houston (18)
10.35 Security Agreement (Stock Pledge) dated June 14, 1995, by
Seitel, Inc. in favor of Bank One, Texas, National
Association, as Agent (18)
10.36 Termination and Release Agreement dated as of December 28,
1995 between DDD Energy, Inc. (Company's wholly-owned
subsidiary) and Bank One, Texas, National Association and
Compass Bank-Houston (20)
10.37 Loan and Security Agreement dated as of July 9, 1996,
between Seitel Geophysical, Inc. (Company's wholly-owned
subsidiary) and NationsBanc Leasing Corporation of North
Carolina (21)
10.38 Assumption and Consent dated December 31, 1996, among
Seitel Geophysical, Inc. (Company's wholly-owned
subsidiary), Eagle Geophysical, Inc. (Company's wholly-owned
subsidiary), NationsBanc Leasing Corporation of North
Carolina, and Seitel, Inc.*
10.39 Revolving Credit Agreement dated as of July 22, 1996, among
Seitel, Inc. and The First National Bank of Chicago (21)
10.40 First Amendment to Seitel, Inc. Revolving Credit Agreement
dated as of August 30, 1996 among the Company and The First
National Bank of Chicago (22)
10.41 Loan and Security Agreement dated as of February 6, 1997,
between Eagle Geophysical, Inc. (Company's wholly-owned
subsidiary), Seitel Geophysical, Inc., (Company's
wholly-owned subsidiary), and NationsBanc Leasing
Corporation of North Carolina*
10.42 Incentive Compensation Agreement (11)
10.43 Shareholder Value Bonus Agreement effective as of March 18,
1994 (14)
10.44 Amendment to Shareholder Value Bonus Agreement effective as
of March 18, 1994 (17)
10.45 Seitel, Inc. 1995 Shareholder Value Incentive Bonus Plan
(18)
<PAGE>
(3) Exhibits, continued:
10.46 Terms Agreement dated July 28, 1994, between the Company
and Bear, Stearns & Co., Inc. (14)
10.47 Note Purchase Agreement dated as of December 28, 1995,
between the Company and the Series A Purchasers, the Series
B Purchasers and the Series C Purchasers (20)
21.1 Subsidiaries of the Registrant *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Miller and Lents, Ltd.*
----------------------
* Filed herewith
(1) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-1, No. 2-92572 as filed
with the Securities and Exchange Commission on August 3,
1984.
(2) Incorporated by reference to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-2, File
No. 33-32838, as filed with the Securities and Exchange
Commission on October 10, 1991.
(3) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-2, No. 33-21300 as filed
with the Securities and Exchange Commission on April 18,
1988.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989.
(6) Incorporated by reference to the Company's Form 8 amending
the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
(7) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-2, No. 33-34217 as filed
with the Commission on April 6, 1990.
(8) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990.
(9) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-2, No. 33-44430 as filed
with the Commission on December 12, 1991.
(10) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1991.
(11) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
(12) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1993.
<PAGE>
(13) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1993.
(14) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1994.
(15) Incorporated by reference to the Company's Registration
Statement on Form S-8, No. 33-89934 as filed with the
Securities and Exchange Commission on March 2, 1995.
(16) Incorporated by reference to the Company's Registration
Statement on Form S-3, No. 33-89890 as filed with the
Securities and Exchange Commission on March 2, 1995.
(17) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(18) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1995.
(19) Incorporated by reference to the Company's Registration
Statement on Form S-8, No. 333-01271 as filed with the
Securities and Exchange Commission on February 28, 1996.
(20) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(21) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(22) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1996.
(b) Reports on Form 8-K filed during the quarter
ended December 31, 1996:
--------------------------------------------
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 27th of March, 1997.
SEITEL, INC.
By: /s/Paul A. Frame
----------------------------------------------
Paul A. Frame, President, Chief Executive
Officer and Director
By: /s/Debra D. Valice
----------------------------------------------
Debra D. Valice, Chief Financial Officer
By: /s/Marcia H. Kendrick
----------------------------------------------
Marcia H. Kendrick, Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this Report on Form
10-K has been signed below by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ Herbert M. Pearlman Chairman of the Board of March 27 , 1997
- - ------------------------- Directors
Herbert M. Pearlman
/s/ Paul A. Frame President and Chief March 27, 1997
- - ------------------------- Executive Officer,
Paul A. Frame Director
/s/ Horace A. Calvert Executive Vice President March 27 , 1997
- - ------------------------- and Chief Operating
Horace A. Calvert Officer, Director
/s/ Debra D. Valice Senior Vice President-Finance, March 27, 1997
- - ------------------------- Chief Financial Officer,
Debra D. Valice Secretary and Treasurer, Director
/s/ David S. Lawi Director March 27, 1997
- - -------------------------
David S. Lawi
/s/ Walter M. Craig, Jr. Director March 27, 1997
- - -------------------------
Walter M. Craig, Jr.
/s/ William Lerner Director March 27, 1997
- - -------------------------
William Lerner
/s/ William L. Lurie Director March 27, 1997
- - -------------------------
William L. Lurie
/s/ John Stieglitz Director March 27, 1997
- - -------------------------
John Stieglitz
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Seitel, Inc.:
We have audited the accompanying consolidated balance sheets of Seitel, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seitel, Inc. and subsidiaries
as of December 31, 1996 and 1995,and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 19, 1997
F-1
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 3,340 $ 6,242
Receivables
Trade, less allowance for doubtful accounts of $336 and
$650 at December 31, 1996 and 1995, respectively 52,509 40,992
Notes and other, net of discount of $198 at
December 31, 1996 6,618 1,773
Data bank 284,847 232,704
Less: Accumulated amortization (157,849) (127,335)
---------- ----------
Net data bank 126,998 105,369
Property and equipment, at cost:
Oil and gas properties, full cost method of accounting,
including $30,709 and $20,862 not being amortized at
December 31, 1996 and 1995, respectively 96,045 44,684
Geophysical equipment 20,200 12,531
Furniture, fixtures and other 4,665 4,404
---------- ----------
120,910 61,619
Less: Accumulated depreciation, depletion and amortization (20,316) (9,069)
---------- ----------
Net property and equipment 100,594 52,550
Investment in affiliate 914 -
Prepaid expenses, deferred charges and other assets 3,706 2,641
---------- ----------
TOTAL ASSETS $ 294,679 $ 209,567
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- continued
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Accounts payable $ 15,189 $ 9,830
Accrued liabilities 6,538 6,243
Employee compensation payable 3,403 2,349
Income taxes payable 302 227
Net liabilities of discontinued operations - 1,105
Debt
Senior Notes 75,000 52,500
Subordinated debentures - 1,989
Term loans 9,025 3,071
Obligations under capital leases 2,463 3,723
Contingent payables 274 279
Deferred income taxes 9,793 6,472
Deferred revenue 17,051 1,401
----------- -----------
TOTAL LIABILITIES 139,038 89,189
----------- -----------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized 5,000,000
shares; none issued - -
Common stock, par value $.01 per share; authorized
20,000,000 shares; issued and outstanding 10,362,102
and 9,436,854 at December 31, 1996 and 1995, respectively 104 94
Additional paid-in capital 105,544 85,821
Retained earnings 51,185 35,936
Treasury stock, 409 and 414 shares at cost at
December 31, 1996 and 1995, respectively (4) (4)
Notes receivable from officers and employees (1,205) (1,395)
Cumulative translation adjustment 17 (74)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 155,641 120,378
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 294,679 $ 209,567
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
REVENUE $106,002 $ 74,439 $ 70,902
EXPENSES
Depreciation, depletion and amortization 39,249 26,872 27,181
Cost of sales 19,402 13,071 10,499
Selling, general and administrative expenses 19,165 15,393 14,672
Interest expense 4,063 3,407 3,455
Interest income (1,163) (329) (257)
-------- -------- ---------
80,716 58,414 55,550
-------- -------- ---------
Equity in loss of affiliate (186) - -
-------- -------- ---------
Income from continuing operations before provision for
income taxes and extraordinary item 25,100 16,025 15,352
Provision for income taxes 8,863 5,898 5,681
-------- -------- ---------
Income from continuing operations before
extraordinary item 16,237 10,127 9,671
Loss from discontinued operations, net of income tax
benefit of $580 for 1996, $703 for 1995 and
$30 for 1994 (988) (1,196) (52)
Loss on disposal of discontinued operations, net of
income tax benefit of $148 - (252) -
-------- -------- ---------
Income before extraordinary item 15,249 8,679 9,619
Extraordinary charge on early extinguishment of debt,
net of income tax benefit of $163 - - (304)
-------- -------- ---------
NET INCOME $ 15,249 $ 8,679 $ 9,315
======== ======== =========
Earnings per share:
Primary:
Income from continuing operations before
extraordinary item $ 1.58 $ 1.03 $ 1.24
Loss from discontinued operations (.10) (.12) (.01)
Loss on disposal of discontinued operations - (.03) -
Extraordinary item - - (.04)
-------- -------- ---------
Net income $ 1.48 $ .88 $ 1.19
======== ======== =========
Assuming full dilution:
Income from continuing operations before
extraordinary item $ 1.55 $ .99 $ 1.11
Loss from discontinued operations (.09) (.12) (.01)
Loss on disposal of discontinued operations - (.02) -
Extraordinary item - - (.03)
-------- -------- ---------
Net income $ 1.46 $ .85 $ 1.07
======== ======== =========
Weighted average number of common and common equivalent shares:
Primary 10,289 9,872 7,800
======== ======== =========
Assuming full dilution 10,476 10,358 9,001
======== ======== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Notes
Receivable
Common Stock Additional Treasury Stock from Cumulative
----------------- Paid-In Retained ------------- Officers Translation
Shares Amount Capital Earnings Shares Amount & Employees Adjustments
---------- ------ ------- -------- ------ ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 5,987,388 $ 60 $ 25,709 $17,942 (414) $(4) $(2,039) $(85)
Sale of common stock through public offering 1,061,200 11 31,906 - - - - -
Net proceeds from issuance of common stock 770,364 7 7,280 - - - - -
Tax reduction from exercise of stock options - - 1,879 - - - - -
Conversion and exchanges of subordinated debentures 1,006,667 10 8,837 - - - - -
Payments received on notes receivable from officers
and employees - - - - - - 488 -
Foreign currency translation adjustment - - - - - - - 13
Net income - - - 9,315 - - - -
---------- ---- ------- ------ ---- --- ------- ----
Balance, December 31, 1994 8,825,619 88 75,611 27,257 (414) (4) (1,551) (72)
Net proceeds from issuance of common stock 445,939 4 6,894 - - - - -
Tax reduction from exercise of stock options - - 1,900 - - - - -
Conversions and exchanges of subordinated debentures 165,296 2 1,416 - - - - -
Payments received on notes receivable from officers
and employees - - - - - - 156 -
Foreign currency translation adjustment - - - - - - - (2)
Net income - - - 8,679 - - - -
---------- ---- ------- ------ ---- --- ------- ----
Balance, December 31, 1995 9,436,854 94 85,821 35,936 (414) (4) (1,395) (74)
Net proceeds from issuance of common stock 578,869 7 11,142 - 5 - - -
Acquisition of equity interest in affiliate 132,075 1 3,499 - - - - -
Tax reduction from exercise of stock options - - 3,204 - - - - -
Conversions and exchanges of subordinated debentures 214,304 2 1,878 - - - - -
Payments received on notes receivable from
officers and employees - - - - - - 190 -
Foreign currency translation adjustment - - - - - - - 91
Net Income - - - 15,249 - - - -
---------- ---- ------- ------ ---- --- ------- ----
Balance, December 31, 1996 10,362,102 $104 $105,544 $51,185 (409) $(4) $(1,205) $ 17
========== ==== ======= ====== ==== === ======= ====
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 93,119 $ 80,981 $ 51,312
Proceeds from volumetric production payment 19,000 - -
Cash paid to suppliers and employees (40,066) (38,563) (24,540)
Interest paid (4,148) (4,551) (2,543)
Interest received 1,181 320 265
Income taxes paid (1,754) (2,218) (517)
----------- ----------- -----------
Net cash provided by operating activities 67,332 35,969 23,977
----------- ----------- -----------
Cash flows from investing activities:
Cash invested in seismic data (49,716) (59,286) (36,761)
Cash invested in oil and gas properties (48,429) (21,737) (15,269)
Cash paid to acquire property and equipment (8,224) (1,416) (615)
Cash from disposal of property and equipment 59 - -
Advances made to oil and gas joint venture partner - (1,142) -
Collections on loans made 327 108 -
Loan made to unconsolidated affiliate (2,000) - -
Cost of investment made in unconsolidated affiliate (109) - -
----------- ----------- -----------
Net cash used in investing activities (108,092) (83,473) (52,645)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under line of credit agreement - 75,101 79,767
Principal payments under line of credit
agreement - (80,186) (85,745)
Borrowings under term loans 7,697 387 -
Principal payments on term loans (1,743) (876) (759)
Principal payments under capital lease
obligations (1,301) (1,375) (551)
Redemption of subordinated debentures - - (3,911)
Proceeds from issuance of senior notes 22,500 52,500 -
Proceeds from issuance of common stock 11,184 6,942 41,290
Costs of debt and equity transactions (860) (202) (2,135)
Payments on notes receivable from officers
and employees 190 156 488
----------- ----------- -----------
Net cash provided by financing activities 37,667 52,447 28,444
----------- ----------- -----------
Effect of exchange rate changes (43) (8) 6
----------- ----------- -----------
Net increase (decrease) in cash and equivalents (3,136) 4,935 (218)
Cash and equivalents at beginning of period:
Continuing operations 6,242 846 1,759
Discontinued operations 234 695 -
----------- ----------- -----------
Total cash and equivalents at beginning of period 6,476 1,541 1,759
----------- ----------- -----------
Cash and equivalents at end of period:
Continuing operations 3,340 6,242 846
Discontinued operations - 234 695
----------- ----------- -----------
Total cash and equivalents at end of period $ 3,340 $ 6,476 $ 1,541
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
-------- ------- -------
Reconciliation of net income to net cash provided
by operating activities:
<S> <C> <C> <C>
Net income $ 15,249 $ 8,679 $ 9,315
-------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations, net of tax 988 1,448 52
Equity in loss of affiliate 186 - -
Extraordinary loss on extinguishment of debt, net of tax - - 304
Depreciation, depletion and amortization 40,229 27,663 27,929
Deferred income tax provision 3,321 2,970 2,455
Non-cash sales - (1,534) (3,162)
Gain on sale of property and equipment (40) - -
Amortization of deferred revenue (5,740) - -
Warrants issued in debenture exchange - - 180
Increase in receivables (12,155) (5,998) (17,322)
Increase in other assets (1,143) (705) (476)
Discount on note receivable 198 - -
Proceeds from volumetric production payment 19,000 - -
Increase in accounts payable and other liabilities 10,996 3,722 4,588
-------- ------- -------
Total adjustments 55,840 27,566 14,548
-------- ------- -------
Net cash provided by (used in) operating activities of:
Continuing operations 71,089 36,245 23,863
Discontinued operations (3,757) (276) 114
-------- ------- -------
Net cash provided by operating activities $ 67,332 $ 35,969 $ 23,977
======== ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Seitel, Inc. (the "Company") is a leading provider of
seismic data and corollary geophysical services to the petroleum industry and
directly participates in exploration, development and ownership of natural gas
and crude oil reserves. The majority of the Company's seismic surveys cover
onshore and offshore the U.S. Gulf Coast region. The Company's oil and gas
exploration, development and production activities are on properties located
primarily onshore Texas and Louisiana, and also onshore Alabama, Mississippi and
Arkansas.
USE OF ESTIMATES: The preparation of these consolidated financial
statements requires the use of certain estimates by management in determining
the Company's assets, liabilities, revenues and expenses. Actual results could
differ from estimates. Data bank amortization is determined using estimates of
ultimate revenues from licensing of the seismic data. Refer to the data bank
discussion below for additional information on data bank amortization.
Depreciation, depletion and amortization of oil and gas properties and the
impairment of oil and gas properties are determined using estimates of proved
oil and gas reserves. There are numerous uncertainties in estimating the
quantity of proved reserves and in projecting the future rates of production and
timing of development expenditures. Refer to Note R, "Supplemental Oil and Gas
Information" for additional information regarding the process of estimating
proved oil and gas reserve quantities.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Seitel, Inc., the accounts of its wholly-owned
subsidiaries and the Company's pro rata share of its investments in joint
ventures. Investment in affiliate was accounted for under the equity method when
the Company owned 50% of such company and accounted for under the cost method
when the ownership was reduced to 19%. All material intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the amounts in the prior years' financial statements to
conform to the current year's presentation.
The Company presents its consolidated balance sheets on an unclassified
basis. Because the portion of seismic data acquisition costs to be amortized
during the next year cannot be classified as a current asset, and classification
of all of these costs as noncurrent would be misleading to the reader because it
would not indicate the level of assets expected to be converted into cash in the
next year, the Company believes that the use of an unclassified balance sheet
results in improved financial reporting.
DATA BANK: Costs incurred in the creation of proprietary seismic data,
including the direct and incremental costs of Company personnel engaged in
project management and design, are capitalized. Seismic data costs are amortized
for each project in the proportion that its revenue for a period relates to
management's estimate of its ultimate revenues. Since inception, management has
established guidelines regarding its annual charge for amortization. Under these
guidelines, 90% of the cost incurred in the creation of proprietary seismic data
is amortized within five years of inception for two-dimensional seismic data and
within seven years of inception for three-dimensional data, and the final 10% is
amortized on a straight-line basis over fifteen years. Costs of existing seismic
data libraries purchased by the Company are fully amortized within ten years
from date of purchase. Using these guidelines, the Company would expect the
percentage of net data bank as of December 31, 1996 to be amortized to be 21%,
17%, 12%, 12%, 11%, and 27% for the years ending December 31, 1997, 1998, 1999,
2000, 2001 and thereafter, respectively. On a periodic basis, the carrying value
of seismic data is compared to its estimated future revenue and, if appropriate,
is reduced to its estimated net realizable value.
Net data bank at December 31, 1996 and 1995 was comprised of the following
(in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
2D data created by the Company $ 20,277 $ 23,607
3D data created by the Company 96,100 70,069
Data purchased by the Company 10,621 11,693
--------- ---------
Net data bank $ 126,998 $ 105,369
========= =========
</TABLE>
F-8
<PAGE>
PROPERTY AND EQUIPMENT: The Company accounts for its oil and gas
exploration and production activities using the full-cost method of accounting.
Under this method, all costs associated with acquisition, exploration and
development of oil and gas reserves are capitalized, including directly related
overhead costs, and interest costs related to its unevaluated properties and
certain properties under development which are not currently being amortized.
For the three years ended December 31, 1996, exploration and development related
overhead costs of $1,146,000, $861,000 and $707,000, respectively, have been
capitalized to oil and gas properties. For the years ended December 31, 1996 and
1995, interest costs of $1,525,000 and $835,000, respectively, have been
capitalized to oil and gas properties.
Provisions for depreciation, depletion and amortization are calculated
using the units-of-production method. Estimated future site restoration,
dismantlement and abandonment costs, net of salvage value, are taken into
consideration. Such costs are not currently expected to be material. Capitalized
costs associated with the acquisition and evaluation of unproved properties and
certain properties under development are not currently depleted. Depletion of
the costs associated with these properties will commence when the properties or
projects are evaluated.
Capitalized costs are limited to the present value, discounted at 10
percent, of future net revenues calculated using period-end prices from
estimated proved reserves plus the lower of cost or fair value of unevaluated
properties, adjusted for the effects of related income taxes.
Depreciation of other property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets of three to
five years.
INCOME TAXES: The Company and all of its subsidiaries file a consolidated
federal income tax return. The Company does not provide deferred taxes (benefit)
on the undistributed earnings (loss) of its foreign subsidiaries, which amounted
to $445,000, $(3,000), and $1,000 for the years ended December 31, 1996, 1995
and 1994, respectively, as such earnings are intended to be permanently
reinvested in those operations.
INCOME RECOGNITION: Revenue from seismic data licensing agreements is
recognized when each seismic data program is available for use by the licensees
and is presented net of revenue shared with other entities. Revenue from the
acquisition of seismic data for non-affiliated parties is recognized on the
percentage-of-completion method based on the work effort completed compared with
the total work effort estimated for the contract. Revenue received in advance of
being earned is deferred until earned.
HEDGING TRANSACTIONS: The Company may enter into futures transactions to
hedge commodity prices associated with the sales of natural gas and crude oil in
order to minimize the risk of market price fluctuations. Changes in the market
value of futures transactions are deferred until the gain or loss is recognized
on the hedged transactions. All future contracts permit settlement by delivery
of physical product.
COST OF SALES: Cost of sales consists of expenses associated with the
acquisition of seismic data for non-affiliated parties, oil and gas production,
and data resale support services. The cost of acquiring seismic data for
non-affiliated parties includes all direct material and labor costs and indirect
costs related to the acquisition such as supplies, tools, repairs and
depreciation.
EARNINGS PER SHARE: Earnings per share is based on the weighted average
number of outstanding shares of common stock during the respective years,
including common equivalent shares applicable to assumed exercise of stock
options and warrants when such common stock equivalents are dilutive, and the
Company's other potentially dilutive securities.
F-9
<PAGE>
Earnings per share was determined by dividing net income, as adjusted
below, by applicable shares outstanding (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Total income used for primary earnings per share $15,249 $ 8,679 $ 9,315
======= ======= =======
Net income as reported $15,249 $ 8,679 $ 9,315
Interest eliminated on assumed conversion of 9% convertible
subordinated debentures, net of tax -- 95 329
------- ------- -------
Total income used for fully diluted earnings per share $15,249 $ 8,774 $ 9,644
======= ======= =======
Weighted average number of common and common equivalent shares 10,289 9,872 7,800
======= ======= =======
Weighted average number of common shares assuming full dilution 10,476 10,358 9,001
======= ======= =======
</TABLE>
STOCK-BASED COMPENSATION: The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees."
Reference is made to Note G, "Stock Options and Warrants," for a summary of the
pro forma effect of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation" on the Company's results of
operations in 1996 and 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The estimated fair value amounts have been
determined by the Company using available market data and valuation
methodologies. The book values of cash and equivalents, receivables and accounts
payable approximate their fair value as of December 31, 1996 and 1995, because
of the short-term maturity of these instruments. Based upon the rates available
to the Company, the fair value of the Senior Notes and the term loans
approximates the carrying value of this debt as of December 31, 1996 and 1995.
Based on the quoted market price, the fair value of the 9% convertible
subordinated debentures at December 31, 1995 was $6,962,000.
IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
realizable. The Company adopted SFAS No. 121 effective January 1, 1996; the
adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
NOTE B--INCOME TAXES
The discussion of income taxes herein does not include the income tax
effects of the discontinued operations or the extraordinary item explained in
Note M and Note N, respectively, of these consolidated financial statements.
F-10
<PAGE>
The provision (benefit) for income taxes for each of the three years
ended December 31, 1996, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Current - Federal $ 5,214 $ 2,753 $ 2,706
- State 246 153 225
Foreign 82 22 295
------------ ------------- ------------
5,542 2,928 3,226
------------ ------------- ------------
Deferred - Federal 3,321 3,001 2,429
- State - (31) 26
------------ ------------- ------------
3,321 2,970 2,455
------------ ------------- ------------
Tax provision - Federal 8,535 5,754 5,135
- State 246 122 251
- Foreign 82 22 295
------------ ------------- ------------
$ 8,863 $ 5,898 $ 5,681
============ ============= ============
</TABLE>
The differences between the U.S. Federal income taxes computed at the
statutory rate (34.7% for 1996, 34.6% for 1995, and 34.4% for 1994) and the
Company's income taxes for financial reporting purposes are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Statutory Federal income tax $ 8,716 $ 5,540 $ 5,280
State income tax, less Federal benefit 162 79 163
Other, net (15) 279 238
--------- -------- --------
Income tax expense $ 8,863 $ 5,898 $ 5,681
========= ======== ========
</TABLE>
The components of the net deferred income tax liability reflected in the
Company's consolidated balance sheets at December 31, 1996 and 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
Deferred Tax Assets
(Liabilities) at December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Alternative minimum tax credit carryforward $ 1,506 $ 958
Net operating loss carryforward 997 --
Partnership earnings 215 217
Investment tax credits 44 44
Other 553 820
------- -------
Total deferred tax assets 3,315 2,039
Less: Valuation allowance (44) (44)
------- -------
Deferred tax assets, net of
valuation allowance 3,271 1,995
------- -------
Depreciation, depletion and amortization (12,969) (8,370)
Other (95) (97)
------- -------
Total deferred tax liabilities (13,064) (8,467)
------- -------
Net deferred tax liability $ (9,793) $ (6,472)
======= =======
</TABLE>
F-11
<PAGE>
As of December 31, 1996, the Company has an alternative minimum tax (AMT)
credit carryforward of approximately $1,506,000 which can be used to offset
regular Federal income taxes payable in future years. The AMT credit has an
indefinite carryforward period. Additionally, as of December 31, 1996, the
Company has a net operating loss carryforward for regular Federal income tax
purposes of approximately $2,933,000 which will expire in 2011.
In connection with the exercise of non-qualified stock options and common
stock purchase warrants by employees during 1996, 1995 and 1994, the Company
received $3,204,000, $1,900,000 and $1,879,000, respectively, in Federal income
tax savings which has been reflected as a credit to additional paid-in capital.
NOTE C--DEBT
The following is a summary of the Company's debt at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ----------
<S> <C> <C>
Senior notes $ 75,000 $ 52,500
Subordinated debentures - 1,989
Term loans 9,025 3,071
--------- ----------
$ 84,025 $ 57,560
========= ==========
</TABLE>
SENIOR NOTES: On December 28, 1995, the Company completed a private
placement of three series of unsecured Senior Notes totaling $75,000,000. The
Company contemporaneously issued its Series A Notes and Series B Notes, which
total $52,500,000 and bear interest at the fixed rate of 7.17%. On April 9,
1996, the Company issued its Series C Notes, which total $22,500,000 and bear
interest at a fixed rate of 7.48%. The Series A Notes mature on December 30,
2001, and require annual principal payments of $8,333,000 beginning December 30,
1999. The Series B and Series C Notes mature on December 30, 2002, and require
combined annual principal payments of $10,000,000 beginning December 30, 1998.
Interest on the Senior Notes is payable semi-annually on June 30 and December
30.
TERM LOANS: On July 15, 1993, a wholly-owned subsidiary of the Company
obtained a $4,300,000, five year term loan bearing interest at the rate of 7.61%
for the purchase of a telemetry seismic data acquisition system and auxiliary
equipment. The debt is secured by such equipment. Monthly principal and interest
payments total approximately $86,000.
During 1995, the Company and one of its wholly-owned subsidiaries obtained
two separate three year term loans totaling $716,000, which both bear interest
at the rate of 8.413%, for the purchase of certain property and equipment. The
debt is secured by such equipment. Monthly principal and interest payments total
approximately $22,000.
On March 14, 1996, a wholly-owned subsidiary of the Company obtained a
$433,000, three year term loan bearing interest at the rate of 7.52% for the
purchase of geophysical equipment. The debt is secured by such equipment.
Monthly principal and interest payments total approximately $13,000.
On July 9, 1996, a wholly-owned subsidiary of the Company obtained two term
loans aggregating $7,264,000 for the purchase of land and marine seismic
equipment which secures the debt. The first loan is a $5,902,000, five year term
loan bearing interest at the rate of 8%. The second loan is a $1,362,000, three
year term loan bearing interest at the rate of 8.06%. Monthly principal and
interest payments on both term loans total approximately $163,000.
LINE OF CREDIT: On July 22, 1996, the Company entered into an agreement
with The First National Bank of Chicago for a $25,000,000 unsecured revolving
line of credit facility. The facility bears interest at a rate determined by the
ratio of the Company's debt to cash flow from operations. Pursuant to the
interest rate pricing structure, funds can currently be borrowed at LIBOR plus
3/4%, the bank's prevailing prime rate, or the sum of the Federal Funds
effective rate for such day plus 1/2%. No amounts were outstanding under this
line of credit at December 31, 1996.
F-12
<PAGE>
Certain of the borrowings described above contain requirements as to the
maintenance of minimum net worth and limitations on liens, total debt, debt
issuance and disposition of assets.
Aggregate maturities of the Company's debt over the next five years are as
follows: $2,798,000 in 1997; $12,514,000 in 1998; $19,918,000 in 1999;
$19,647,000 in 2000; and $10,816,000 in 2001.
NOTE D--LEASE OBLIGATIONS
Property and equipment in the accompanying consolidated balance sheets
includes the following assets held under capital leases (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
--------- --------
<S> <C> <C>
Geophysical equipment $ 5,339 $ 5,298
Furniture, fixtures and other 324 324
--------- --------
Assets under capital lease 5,663 5,622
Accumulated amortization (2,827) (1,641)
--------- --------
Assets under capital lease, net $ 2,836 $ 3,981
========= ========
</TABLE>
The Company also leases office space under operating leases. Rental expense
for 1996, 1995 and 1994 was approximately $619,000, $571,000 and $473,000,
respectively.
Future minimum lease payments for the five years subsequent to December 31,
1996 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ---------
<S> <C> <C>
1997 $ 1,179 $ 572
1998 955 552
1999 465 433
2000 11 54
2001 2 -
-------- --------
Total minimum lease payments 2,612 $ 1,611
========
Less amount representing interest (149)
--------
Present value of net minimum
lease payments $ 2,463
========
</TABLE>
NOTE E-VOLUMETRIC PRODUCTION PAYMENT
In June 1996, the Company sold a volumetric production payment for $19
million to certain limited partnerships. Under the terms of the production
payment agreements, the Company conveyed a mineral property interest of
approximately 7.6 billion cubic feet of certain natural gas and approximately
363,000 barrels of other hydrocarbons to the purchasers. The Company retains
responsibility for its working interest share of the cost of operations. At
December 31, 1996, there were approximately 5.5 billion cubic feet of gas and
279,000 barrels of other hydrocarbons remaining to be delivered under the
agreements.
The Company accounted for the proceeds received in the transaction as
deferred revenue which is being amortized into revenue and income as natural gas
and other hydrocarbons are produced and delivered during the term of the
volumetric production payment agreements. Annual remaining amortization of
deferred revenue under the volumetric production payment agreements, at December
31, 1996 is estimated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 8,023
1998 3,901
1999 1,336
--------
Total $ 13,260
========
</TABLE>
F-13
<PAGE>
NOTE F--CONTINGENCIES AND COMMITMENTS
At December 31, 1996 and 1995, $274,000 and $279,000, respectively, of
charges for seismic surveys which are payable to joint venture partners only
from the collection of sales proceeds from those seismic surveys are included in
contingent payables.
On September 30, 1996, a wholly-owned subsidiary of the Company entered
into an agreement for the purchase of a telemetry seismic data acquisition
system at a cost of approximately $3,500,000. Payment was made upon delivery of
the system in January 1997.
On July 21, 1992, the Company's Board of Directors approved payment of a
one-time $2,500,000 bonus to be divided among five key employees upon the event
of the market price of the Company's stock maintaining or exceeding $20 per
share for at least 90 consecutive days (the "Target Date" ) at any time before
July 21, 1997. The Target Date was achieved in June 1994. The bonus vests
equally over the 12 quarters following the Target Date, contingent upon
continued full-time employment, except in the event of death or disability in
which case the balance of the bonus will be due and payable immediately. The
bonus expense is being recognized over the vesting period. For the years ended
December 31, 1996, 1995 and 1994, $833,000, $833,000 and $625,000, respectively,
was charged to expense for this bonus. As of December 31, 1996, $209,000 remains
to be charged to expense. Interest, at the prevailing prime rate, is paid
quarterly on the total outstanding bonus.
On January 27, 1995, the Company's Board of Directors approved a
shareholder value incentive bonus under which a cash bonus aggregating
$4,000,000 would be paid to all salaried employees if the market price of the
Company's stock reaches $60 per share on or before April 30, 1998, and maintains
that price for at least 90 consecutive days. This bonus would be shared by all
salaried employees on a basis proportionate to their respective compensation
ranking in the Company, and it would vest and be paid out in escalating
quarterly installments over a three-year period, subject to continued employment
with the Company. As of March 26, 1997, the market price of the Company's
common stock was $36.50 share.
NOTE G--STOCK OPTIONS AND WARRANTS
On July 7, 1984, the Company's Board of Directors adopted an Incentive
Stock Option Plan and a Non-Qualified Stock Option Plan. As of December 31,
1996, 115,600 shares have been reserved for issuance under the Incentive Stock
Option Plan and 270,900 shares have been reserved under the Non-Qualified Stock
Option Plan, of which all options have been issued under both original plans. On
July 28, 1993, the Company's Board of Directors adopted the 1993 Incentive Stock
Option Plan and on July 18, 1995 and July 25, 1996, approved amendments to that
plan to increase the total number of shares issuable under the option plan to
1,150,000. As of December 31, 1996, 838,997 options have been issued under the
plan. As of December 31, 1996, all options issued under these plans have been
issued at or above the market price of the Company's common stock as of the date
of issuance, have a term of ten years and are exercisable under the terms of the
respective option agreements. On June 17, 1994, the Company's Board of Directors
adopted the Non-Employee Directors Stock Option Plan which reserves 75,000
shares for issuance. As of December 31, 1996, 20,000 options have been issued at
the market price of the Company's common stock as of the date of issuance, have
a term of five years and are exercisable under the terms of the respective
option agreements. The following summarizes information with regard to the stock
option plans for the years ended December 31, 1996, 1995 and 1994 (shares in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 640 $ 19.79 356 $ 12.26 288 $ 6.24
Granted 306 29.34 337 25.92 112 24.06
Exercised (122) 14.16 (52) 8.16 (43) 5.85
Forfeited (47) 25.10 (1) 11.31 (1) 5.85
------- ------- -------
Outstanding at end of year 777 24.12 640 19.79 356 12.26
======= ======= =======
Options exercisable at end of year 272 186 136
======= ======= =======
</TABLE>
F-14
<PAGE>
The following table summarizes information for the options outstanding at
December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Number of Weighted Number of
Options Average Weighted Options Weighted
Outstanding Contractual Average Exercisable Average
at Life in Exercise at Exercise
Range of Exercise Prices 12/31/96 Years Price 12/31/96 Price
- - ------------------------ -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.22 - $10.00 118 4.6 $ 6.48 118 $ 6.48
$10.01 - $20.00 14 6.6 16.31 10 15.98
$20.01 - $30.00 476 8.8 25.25 119 24.92
$30.01 - $40.00 169 9.0 33.92 25 32.69
------- -------
$ 1.22 - $40.00 777 24.12 272 17.28
======= =======
</TABLE>
During 1996 and 1995, the Company granted 262,141 and 307,144 warrants,
respectively, with a weighted average fair value on the date of grant of $17.38
and $15.04, respectively. At December 31, 1996, outstanding warrants to purchase
the Company's common stock were as follows (shares in thousands):
<TABLE>
<CAPTION>
Number of Range of Year of
Shares Exercise Prices Expiration
------------- -------------------- -------------
<S> <C> <C> <C>
Issued to underwriters in connection
with 9% convertible
subordinated debentures 20 $ 9.28 1997
Issued in debenture exchange 96 29.92 1997
Issued to employees 219 11.25 - 13.19 1997
Issued to employees 407 24.00 - 30.13 1999
Issued to employees 602 13.05 - 32.00 2000
Issued to employees 248 26.75 - 43.50 2001
Issued to an employee 10 5.38 2002
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. APB Opinion 25 does not
require compensation costs to be recorded on options which have exercise prices
at least equal to the market price of the stock on the date of grant.
Accordingly, no compensation cost has been recognized for the Company's
stock-based plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the optional accounting method
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Net income As reported $ 15,249 $ 8,679
Pro forma $ 10,050 $ 5,631
Primary earnings per share As reported $ 1.48 $ .88
Pro forma $ .99 $ .58
Fully diluted earnings per share As reported $ 1.46 $ .85
Pro forma $ .97 $ .56
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1996 and 1995, respectively: risk-free interest rates ranging from 5.91% to
7.03% and 5.54% to 7.02%; dividend yield of 0% and 0%; stock price volatility
ranging from 46.49% to 62.62% and 47.18% to 65.06%; and expected option lives
ranging from 5 to 10 years and 2.8 to 10 years. The weighted-average fair value
of options granted during 1996 and 1995 was $22.40 and $19.32 per option,
F-15
<PAGE>
respectively, for options granted at fair market value and $18.86 per option for
options granted above fair market value in 1995. The pro forma amounts shown
above may not be representative of future results because the SFAS No. 123
method of accounting has not been applied to options granted prior to January 1,
1995.
On July 25, 1996, the Company's Board of Directors adopted the Non-Employee
Directors' Deferred Compensation Plan which permits each non-employee director
to elect to receive annual director fees in the form of stock options and to
defer receipt of any directors fees in a deferred cash account or as deferred
shares. As of December 31, 1996, 30,000 shares have been reserved for issuance
under this plan and directors have accumulated 687 deferred shares in their
accounts which will not be distributed until such time as designated by the
director.
NOTE H--COMMON STOCK
The Company filed a registration statement on Form S-3 (the "Shelf
Registration Statement") in June 1994 to offer from time to time in one or more
series (i) unsecured debt securities, which may be senior or subordinated, (ii)
preferred stock, par value $0.01 per share, and (iii) common stock, par value
$.01 per share, or any combination of the foregoing, at an aggregate initial
offering price not to exceed $75,000,000. The Shelf Registration Statement was
declared effective by the Securities and Exchange Commission on June 30, 1994.
In August 1994, the Company completed a public offering of 1,061,200 shares of
its common stock priced at $32 per share pursuant to the Shelf Registration
Statement. The net proceeds from the offering (after underwriting commission and
offering expenses) totaled $31,917,000. After this sale of common stock at an
initial aggregate offering price of $33,958,400, the Company may offer
additional securities in the future for up to an aggregate initial offering
price of $41,041,600 pursuant to the Shelf Registration Statement.
On July 21, 1992, the Company granted ten year loans at an interest rate of
4% to most of its employees for purchases of the Company's common stock at the
then market price of $5.375 per share. The Company recorded related compensation
expense of $48,000, $56,000 and $64,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Payments of 5% of the original principal balance
plus accrued interest are due annually August 1, with a balloon payment of the
remaining principal and accrued interest due August 1, 2002. During 1996, 1995
and 1994, the Company received $190,000, $156,000 and $488,000, respectively, as
principal payments on these notes. The stock certificates are held by the
Company as collateral until payment is received.
NOTE I--PREFERRED STOCK
The Company is authorized by its Amended Certificate of Incorporation to
issue 5,000,000 shares of preferred stock, the terms and conditions to be
determined by the Board of Directors in creating any particular series. As of
December 31, 1996, no preferred stock had been issued.
NOTE J--RELATED PARTY TRANSACTIONS
The Company owed Helm Resources, Inc. and its subsidiaries ("Helm"), a
company that has three executive officers who are directors of the Company,
$23,000 and $51,000 as of December 31, 1996 and 1995, respectively, for sales of
seismic data they jointly own and for general and administrative expenses paid
by Helm on behalf of the Company. The Company incurred charges of $80,000,
$78,000 and $84,000 for these general and administrative expenses during 1996,
1995 and 1994, respectively. Management believes that these expenses, which were
specifically related to the Company's business, represented costs which would
have been incurred in the same amount by the Company if such services that were
performed by Helm were performed by an unaffiliated entity.
Certain employees and directors of the Company contributed cash to
partnerships in 1996, 1995 and 1994 which invest in the exploration and
development of oil and gas properties on a working interest basis along with DDD
Energy, Inc. Each partnership's working interest amounts to 3% of the total
investment made by such partnership and DDD Energy, Inc. for the partnership
formed in 1996 and 5% for the partnerships formed in 1995 and 1994. Each
partnership invests in projects and prospects undertaken by DDD Energy, Inc. in
the year such partnership is formed and all subsequent development of those
projects and prospects. The terms of each partnership require the participants
to contribute their share of required capital contributions at the beginning of
the year and any future cash calls, as required. All transactions between the
partnerships and DDD Energy, Inc. are at arms length.
F-16
<PAGE>
NOTE K--MAJOR CUSTOMERS
No customers accounted for 10% or more of revenues during the years 1996,
1995 or 1994.
The Company extends credit to various companies in the oil and gas industry
for the purchase of their seismic data, which results in a concentration of
credit risk. This concentration of credit risk may be affected by changes in
economic or other conditions and may accordingly impact the Company's overall
credit risk. However, management believes that the risk is mitigated by the
number, size, reputation and diversified nature of the companies to which they
extend credit. Historical credit losses incurred on receivables by the Company
have been immaterial.
NOTE L--PROFIT-SHARING PLAN
The Company has an Incentive Compensation Agreement for certain employees
under which annual contributions, ranging from 2.5% to 5% of revenues generated
on certain seismic programs, are required. Contributions amounted to $550,000,
$263,000 and $652,000, for 1996, 1995 and 1994, respectively.
NOTE M--DISCONTINUED OPERATIONS
On March 22, 1996, the Company's Board of Directors unanimously adopted a
plan of disposal to discontinue the Company's gas marketing operations.
Accordingly, the Company's consolidated financial statements present the gas
marketing operations as discontinued operations for all periods presented.
Effective August 1, 1996, the Company assigned substantially all of its
contracts to purchase and supply natural gas to a retail energy marketer.
The loss from discontinued operations amounted to $988,000, $1,196,000, and
$52,000 for the three years ended December 31, 1996, net of an income tax
benefit of $580,000 for 1996, $703,000 for 1995, and $30,000 for 1994. At
December 31, 1995, the Company had fixed price gas sales contracts which were
generally below the estimated market price at which the Company could purchase
gas supply and transportation. Then current market pricing models were used to
estimate the market price at which the Company could purchase gas supply and
transportation in the future. Such models were used to estimate the loss related
to future contractual commitments at December 31, 1995. During the first seven
months of 1996, the Company continued to deliver gas to customers under its
existing contracts. Effective August 1, 1996, the gas marketing operations were
disposed of. As a result of changes in market prices to purchase gas supply, an
additional $988,000 was recognized as a loss from discontinued operations in
1996. Such loss represented the final charge related to the discontinued
operations. The loss on disposal of discontinued operations recorded as of
December 31, 1995, was $252,000, net of an income tax benefit of $148,000, and
included costs such as severance benefits and estimated personnel costs to
continue to honor the Company's obligations until the gas marketing contracts
were transferred or terminated. No additional loss on disposal of discontinued
operations was incurred during 1996.
Revenue from the discontinued operations was $13,116,000 and $2,864,000 for
the years ended December 31, 1995 and 1994, respectively. The net liabilities of
discontinued operations at December 31, 1995, consisted primarily of accounts
payable and accrued liabilities offset by trade receivables and income tax
benefits. No assets or liabilities relating to the discontinued operations
remained at December 31, 1996.
NOTE N--EARLY EXTINGUISHMENT OF DEBT
In October 1994, the Company called for redemption of its 12-1/2%
subordinated debentures due 1999 totaling $3,725,000, which was funded by
proceeds from the public offering of common stock in 1994. As a result, the
Company recorded a charge of $304,000, net of a $163,000 income tax benefit,
associated with the early extinguishment of indebtedness, which has been
reflected in the Company's consolidated statement of operations as an
extraordinary item for the year ended December 31, 1994. This charge includes
the write-off of unamortized bond discount totaling $176,000.
F-17
<PAGE>
NOTE O--STATEMENT OF CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers all
highly liquid investments or debt instruments with original maturity of three
months or less to be cash equivalents.
Operating cash flows reported in the consolidated statements of cash flows
do not reflect effects of changes in inventory levels because the Company
reports no inventories and classifies cash expenditures for its seismic data
library as an investing, rather than an operating, activity.
Significant non-cash investing and financing activities are as follows:
1. During 1996, 1995 and 1994, the Company issued 214,304, 165,296 and
1,006,667, respectively, shares of its common stock upon the
conversion and exchange of $1,989,000, $1,534,000 and $9,342,000,
respectively, of its 9% convertible subordinated debentures. In
connection with these conversions and exchanges, unamortized bond
issue costs totaling $109,000, $98,000 and $626,000 during 1996, 1995
and 1994, respectively, have been charged to additional paid-in
capital.
2. During 1996, the Company issued 132,075 shares of its common stock in
exchange for a 50% equity interest in a marine seismic company.
3. During 1996, the Company redeemed a portion of its equity interest in
a marine seismic company in exchange for a note totaling $2,680,000.
4. During 1995 and 1994, the Company licensed seismic data valued at
$1,534,000 and $3,162,000, respectively, in exchange for the purchase
of property and equipment and seismic data for its library.
5. During 1996, 1995 and 1994, capital lease obligations totaling
$41,000, $10,000 and $5,639,000, respectively, were incurred when the
Company entered into leases for property and equipment.
6. During 1995, the Company acquired $330,000 of property and equipment
by incurring a directly related term loan.
F-18
<PAGE>
NOTE P--INDUSTRY SEGMENTS
Financial information by industry segment for the three years ended
December 31, 1996, was as follows (in thousands):
<TABLE>
<CAPTION>
Exploration Corporate
and and Consolidating
Seismic Production Other Eliminations Consolidated
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1996
- - ----
Unaffiliated revenue $ 87,747 $ 18,255 $ - $ - $ 106,002
Intersegment revenue (a)<F1> 13,396 - - (13,396) -
---------- ---------- ---------- ---------- ---------
Total revenue $ 101,143 $ 18,255 $ - $ (13,396) $ 106,002
========== ========== ========== ========== =========
Depreciation, depletion
and amortization $ 31,428 $ 7,212 $ 609 $ - $ 39,249
========== ========== ========== ========== =========
Operating income (loss) $ 32,237 $ 5,984 $ (7,435) $ (2,786) $ 28,000
Interest expense, net - - (2,900) - (2,900)
---------- ---------- ---------- ---------- ---------
Income from continuing
operations before
income taxes and
extraordinary item $ 32,237 $ 5,984 $ (10,335) $ (2,786) $ 25,100
========== ========== ========== ========== =========
Identifiable assets $ 201,379 $ 93,521 $ 13,175 $ (13,396) $ 294,679
========== ========== ========== ========== =========
Capital expenditures $ 59,886 $ 51,428 $ 120 $ - $ 111,434
========== ========== ========== ========== =========
1995
- - ----
Unaffiliated revenue $ 69,598 $ 4,806 $ 35 $ - $ 74,439
Intersegment revenue (a)<F1> 10,877 - - (10,877) -
---------- ---------- ---------- ---------- ---------
Total revenue $ 80,475 $ 4,806 $ 35 $ (10,877) $ 74,439
========== ========== ========== ========== =========
Depreciation, depletion
and amortization $ 24,384 $ 1,625 $ 863 $ - $ 26,872
========== ========== ========== ========== =========
Operating income (loss) $ 25,465 $ 838 $ (4,840) $ (2,360) $ 19,103
Interest expense, net - - (3,078) - (3,078)
---------- ---------- ---------- ---------- ---------
Income from continuing
operations before
income taxes $ 25,465 $ 838 $ (7,918) $ (2,360) $ 16,025
========== ========== ========== ========== =========
Identifiable assets $ 164,886 $ 46,092 $ 9,466 $ (10,877) $ 209,567
========== ========== ========== ========== =========
Capital expenditures $ 34,137 $ 23,075 $ 985 $ - $ 58,197
========== ========== ========== ========== =========
<FN>
<F1> (a) Intersegment sales are made at prices comparable to those received from unaffiliated customers.
</FN>
</TABLE>
F-19
<PAGE>
NOTE P -- continued
<TABLE>
<CAPTION>
Exploration Corporate
and and Consolidating
Seismic Production Other Eliminations Consolidated
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994
- - ----
Unaffiliated revenue $ 69,579 $ 1,204 $ 119 $ - $ 70,902
Intersegment revenue (a)<F1> 9,755 - - (9,755) -
---------- ---------- ---------- ---------- ---------
Total revenue $ 79,334 $ 1,204 $ 119 $ (9,755) $ 70,902
========== ========== ========== ========== =========
Depreciation, depletion
and amortization $ 25,777 $ 296 $ 1,108 $ - $ 27,181
========== ========== ========== ========== =========
Operating income (loss) $ 19,797 $ 229 $ (6) $ (1,470) $ 18,550
Interest expense, net - - (3,198) - (3,198)
---------- ---------- ---------- ---------- ---------
Income from continuing
operations before
income taxes and
extraordinary item $ 19,797 $ 229 $ (3,204) $ (1,470) $ 15,352
========== ========== ========== ========== =========
Identifiable assets $ 151,614 $ 22,164 $ 2,746(b)<F2> $ (9,755) $ 166,769
========== ========== ========== ========== =========
Capital expenditures $ 69,095 $ 16,874 $ 134 $ - $ 86,103
========== ========== ========== ========== =========
<FN>
<F1> (a) Intersegment sales are made at prices comparable to those received from unaffiliated customers.
<F2> (b) Includes net assets of discontinued operations of $529,000.
</FN>
</TABLE>
F-19(a)
<PAGE>
NOTE Q--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------
(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
1996
- - ----
Revenue $ 20,266 $ 27,180 $ 30,307 $ 28,249
Gross profit 9,266 12,987 14,022 12,636
Provision for income taxes 1,799 2,441 2,836 1,787
Income from continuing operations 3,064 4,156 4,829 4,188
Net income 3,064 3,168 4,829 4,188
Earnings per share (1):<F1>
- Primary:
Income from continuing operations .31 .41 .45 .39
Loss from discontinued operations - (.10) - -
Net income .31 .31 .45 .39
- Assuming full dilution:
Income from continuing operations .30 .41 .44 .39
Loss from discontinued operations - (.10) - -
Net income .30 .31 .44 .39
1995
- - ----
Revenue $ 16,608 $ 22,143 $ 17,873 $ 17,815
Gross profit 9,338 10,808 8,289 7,456
Provision for income taxes 1,637 1,891 1,226 1,144
Income from continuing operations 2,787 3,221 2,088 2,031
Net income 2,974 3,341 2,182 182
Earnings per share (1):<F1>
- Primary:
Income from continuing operations .29 .33 .21 .20
Income (loss) from discontinued
operations .02 .01 .01 (.16)
Loss on disposal of discontinued
operations - - - (.02)
Net income .31 .34 .22 .02
- Assuming full dilution:
Income from continuing operations .27 .32 .21 .20
Income (loss) from discontinued
operations .02 .01 .01 (.16)
Loss on disposal of discontinued
operations - - - (.02)
Net income .29 .33 .22 .02
<FN>
<F1> (1) The sum of the individual quarterly earnings (loss) per share may not
agree with the year to date earnings (loss) per share as each period's
computation is based on the weighted average number of common shares
outstanding during the period.
</FN>
</TABLE>
F-20
<PAGE>
NOTE R--SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following information concerning the Company's oil and gas operations
is presented in accordance with SFAS No. 69, "Disclosures About Oil and Gas
Producing Activities."
OIL AND GAS RESERVES: Proved reserves represent estimated quantities of
crude oil, condensate, natural gas and natural gas liquids that geological and
engineering data demonstrate, with reasonable certainty, to be recoverable in
future years from known reservoirs under economic and operating conditions
existing at the time the estimates were made. Proved developed reserves are
proved reserves expected to be recovered through wells and equipment in place
and under operating methods being utilized at the time the estimates were made.
The Company has also presented, as additional information, proved reserves
including quantities dedicated to future deliveries required under the
volumetric production payment. The Company believes that this information is
informative to readers of its financial statements as the related oil and gas
properties costs and deferred revenue are included in the Company's balance
sheet for 1996. This additional information is not required to be presented in
accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve and financial position on a
comprehensive basis.
The following table sets forth estimates of proved reserves and proved
developed reserves of crude oil (including condensate and natural gas liquids)
and natural gas attributable to the Company's interest in oil and gas
properties. The reserve estimates presented herein were prepared by the
independent petroleum engineering firms of Miller and Lents, Ltd. at December
31, 1996, and by Forrest A. Garb & Associates, Inc. at December 31, 1995 and
1994. It should be noted that these reserve quantities are estimates and may be
subject to substantial upward or downward revisions. The estimates are based on
the most current and reliable information available; however, additional
information obtained through future production and experience and additional
development of existing reservoirs may significantly alter previous estimates of
proved reserves.
F-21
<PAGE>
<TABLE>
<CAPTION>
Oil Gas
(Mbbl) (MMcf)
------------- --------------
<S> <C> <C>
Proved reserves at December 31, 1993 198 997
Revisions of previous estimates (25) 520
Extensions and discoveries 1,355 14,128
Production (54) (268)
------------ -------------
Proved reserves at December 31, 1994 1,474 15,377
Revisions of previous estimates (964) (9,075)
Purchases of reserves in place 782 1,851
Extensions and discoveries 413 7,028
Production (193) (1,170)
------------ -------------
Proved reserves at December 31, 1995 1,512 14,011
Revisions of previous estimates 249 1,966
Purchases of reserves in place 68 7,896
Extensions and discoveries 1,107 10,322
Sale of volumetric production payment (363) (7,626)
Production (279) (2,808)
------------ -------------
Proved reserves at December 31, 1996 2,294 23,761
Additional disclosures -
Volumes dedicated to volumetric
production payment 279 5,532
------------ -------------
Proved reserves at December 31, 1996,
including volumes dedicated to
volumetric production payment 2,573 29,293
============ =============
Proved developed reserves -
December 31, 1993 168 974
============ =============
December 31, 1994 487 7,315
============ =============
December 31, 1995 1,178 10,219
============ =============
December 31, 1996 902 11,563
============ =============
Proved developed reserves, including amounts
dedicated to volumetric production payment-
December 31, 1996 1,181 17,099
============ =============
</TABLE>
In addition to the proved reserves disclosed above, the Company owned
proved sulfur reserves of 197,000 long tons, 239,000 long tons, and 261,000 long
tons at December 31, 1996, 1995 and 1994, respectively.
F-21(a)
<PAGE>
CAPITALIZED COSTS OF OIL AND GAS PROPERTIES: As of December 31, 1996 and
1995, the Company's capitalized costs of oil and gas properties were as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
------------- --------------
<S> <C> <C>
Unevaluated properties $ 30,709 $ 20,862
Evaluated properties 65,336 23,822
------------ -------------
Total capital costs 96,045 44,684
Less: Accumulated depreciation,
depletion and amortization (9,473) (2,260)
============ =============
Net capitalized costs $ 86,572 $ 42,424
============ =============
</TABLE>
Of the total costs excluded from the amortization calculation as of
December 31, 1996, $17,459,000 was incurred during 1996, $7,238,000 was incurred
during 1995, $4,952,000 was incurred during 1994, and $1,060,000 was incurred
during 1993. The Company cannot accurately predict when these costs will be
included in the amortization base, but it is expected that these costs will be
evaluated in the next three to five years.
COSTS INCURRED IN OIL AND GAS ACTIVITIES: The following table sets forth
the Company's costs incurred for oil and gas activities for the years ended
December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
Acquisition of properties:
Evaluated $ 23,090 $ 3,643 $ -
Unevaluated 7,000 5,549 3,676
Exploration costs 17,358 11,963 10,853
Development costs 3,913 1,505 2,345
-------------- ------------ ------------
Total costs incurred $ 51,361 $ 22,660 $ 16,874
============== ============ ============
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES: The following
table sets forth the results of operations for oil and gas producing activities
for the years ended December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenue $ 17,921 $ 4,482 $ 1,137
Production costs (3,124) (1,553) (316)
Depreciation, depletion and amortization (7,212) (1,625) (296)
---------- ---------- ---------
Income before income taxes 7,585 1,304 525
Income tax expense (2,655) (456) (179)
---------- ---------- ---------
Results of operations $ 4,930 $ 848 $ 346
========== ========== =========
</TABLE>
In addition to the revenues and production costs disclosed above, the
Company had revenues from sulfur sales and related production costs of $334,000
and $10,000, respectively, for the year ended December 31, 1996, $324,000 and
$19,000, respectively, for the year ended December 31, 1995 and $67,000 and
$24,000, respectively for the year ended December 31, 1994.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
OIL AND GAS RESERVES: The following table sets forth the standardized measure of
the discounted future net cash flows attributable to the Company's proved oil
and gas reserves as prescribed by SFAS No. 69. Future cash inflows were computed
by applying year-end prices of oil and gas to the estimated future production of
proved oil and gas reserves. Future prices actually received may differ from the
estimates in the standardized measure.
F-22
<PAGE>
Future production and development costs represent the estimated future
expenditures (based on current costs) to be incurred in developing and producing
the proved reserves, assuming continuation of existing economic conditions.
Future income tax expenses were computed by applying statutory income tax rates
to the difference between pre-tax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis of proved oil and gas properties,
adjusted for tax credits and allowances. The resulting annual net cash flows
were then discounted to present value amounts by applying a 10 percent annual
discount factor.
Although the information presented is based on the Company's best estimates
of the required data, the methods and assumptions used in preparing the data
were those prescribed by the Financial Accounting Standards Board ("FASB").
Although not market sensitive, they were specified in order to achieve
uniformity in assumptions and to provide for the use of reasonably objective
data. It is important to note here that this information is neither fair market
value nor the present value of future cash flows and it does not reflect changes
in oil and gas prices experienced since the respective year end. It is primarily
a tool designed by the FASB to allow for a reasonable comparison of oil and gas
reserves and changes therein through the use of a standardized method.
Accordingly, the Company cautions that this data should not be used for other
than its intended purpose.
Management does not rely upon the following information in making
investment and operating decisions. The Company, along with its partners, base
such decisions upon a wide range of factors, including estimates of probable as
well as proved reserves, and varying price and cost assumptions considered more
representative of a range of possible economic conditions that may be
anticipated.
The presentation of the standardized measure of discounted future net cash
flows and changes therein excludes, for 1996, amounts dedicated to future
deliveries required under a volumetric production payment. The Company has also
presented, as additional information, the standardized measure of discounted
future net cash flows and changes therein including amounts dedicated to future
deliveries required under the volumetric production payment. The Company
believes that this information is informative to readers of its financial
statements because the related oil and gas properties costs and deferred revenue
are shown in the Company's balance sheet for 1996. This additional information
is not required to be presented in accordance with SFAS No. 69; however, the
Company believes this additional information is useful in assessing its reserve
and financial position on a comprehensive basis.
<TABLE>
<CAPTION>
December 31,
(in thousands)
----------------------------------------------
1996 1995 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Future gross revenue $ 127,905 $ 43,724 $ 35,910
Future production costs (21,913) (8,951) (7,100)
Future development costs (10,101) (3,393) (6,998)
Future income taxes (26,524) (9,266) (6,024)
------------- ------------ -------------
Future net cash flows 69,367 22,114 15,788
10 percent annual discount for estimated timing of cash flows (17,277) (6,056) (4,958)
------------- ------------ -------------
Standardized measure of discounted future net cash flows 52,090 $ 16,058 $ 10,830
============ =============
Additional disclosures -
Amounts dedicated to volumetric production payment 7,911
-------------
Total discounted future net cash flows, including amounts
dedicated to volumetric production payment $ 60,001
=============
</TABLE>
The above table excludes future net cash flows before income taxes of
$3,495,000, $5,061,000 and, $3,884,000 and discounted future net cash flows
before income taxes of $2,427,000, $3,926,000 and $2,939,000, as of December 31,
1996, 1995 and 1994, respectively, related to proved sulfur reserves.
F-23
<PAGE>
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended December 31,
1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Standardized measure, beginning of year $ 16,058 $ 10,830 $ 1,291
Extensions and discoveries, net of related costs 26,690 13,714 14,344
Sales of oil and gas produced, net of production costs (9,057) (2,929) (821)
Net changes in prices and production costs 24,561 77 (276)
Change in future development costs (355) 4,010 74
Development costs incurred during the period
that reduced future development costs 2,042 421 -
Revision of previous quantity estimates 3,077 (12,192) 201
Purchases of reserves in place 18,309 5,583 -
Sale of volumetric production payment (17,763) - -
Accretion of discount 2,532 1,525 154
Net change in income taxes (11,406) (2,583) (4,174)
Change in production rates and other (2,598) (2,398) 37
----------- ----------- ----------
Standardized measure, end of year 52,090 $ 16,058 $ 10,830
=========== ==========
Additional disclosures -
Amounts dedicated to volumetric
production payment 7,911
-----------
Total standardized measure, including
amounts dedicated to volumetric
production payment $ 60,001
===========
</TABLE>
F-24
<PAGE>
EXHIBIT
INDEX
- - --------------------------------------------------------------------------------
Exhibit Title Page
Number
- - --------------------------------------------------------------------------------
10.7 Amendment to the Seitel, Inc. 1993 Incentive Stock Option 47
Plan effective December 31, 1996
10.9 Amendment to the Seitel, Inc. Non-Employee Directors' Stock 49
Option Plan effective December 31, 1996
10.12 Amendment to the Seitel, Inc. Amended and Restated 1995 51
Warrant Reload Plan effective December 31, 1996
10.28 Assumption and Loan Modification Agreement dated effective 53
December 31, 1996, among Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary), Eagle Geophysical, Inc. (Company's
wholly-owned subsidiary), Compass Bank and Seitel, Inc.
10.30 Assignment and Assumption Agreement regarding Master Lease 58
dated December 31, 1996, between Eagle Geophysical, Inc.
(Company's wholly-owned subsidiary) and Seitel Geophysical,
Inc. (Company's wholly-owned subsidiary), consent to by
MetLife Capital Corporation
10.38 Assumption and Consent dated December 31, 1996, among Seitel 62
Geophysical, Inc. (Company's wholly-owned subsidiary), Eagle
Geophysical, Inc. (Company's wholly-owned subsidiary),
NationsBanc Leasing Corporation of North Carolina, and
Seitel, Inc.
10.41 Loan and Security Agreement dated as of February 6, 1997, 67
between Eagle Geophysical, Inc. (Company's wholly-owned
subsidiary), Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary), and NationsBanc Leasing
Corporation of North Carolina
21.1 Subsidiaries of the Registrant 123
23.1 Consent of Arthur Andersen LLP 125
23.2 Consent of Miller and Lents, Ltd. 127
Exhibit 10.7
Amendment to Seitel, Inc. 1993 Incentive Stock Option Plan
Effective December 31, 1996
The section of the Plan headed "Nonassignability of Options" in Article IX is
hereby deleted and replaced with the following:
Limited Transferability of Options
The Committee may, in its discretion, authorize all or a portion of the
Options granted to an optionee to be on terms which permit transfer by such
optionee to (1) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (2) a trust or trusts for the exclusive benefit of
such Immediate Family Members, (3) a partnership in which such Immediate Family
Members are the only partners, or (4) such other person or persons in the sole
discretion of the Committee, provided that the Option Agreement pursuant to
which such Options are granted must be approved by the Committee, and must
expressly provide for transferability in a manner consistent with this
paragraph, and provided further, that subsequent transfers of transferred
Options shall be prohibited except those by will or in accordance with the laws
of descent and distribution. Following transfer, any such Options shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of this Plan the transferee shall
be treated as optionee. However, the events of termination of employment
described in this Plan and in the applicable Option Agreement, as well as other
similar conditions relating to exercisability, termination, expiration, and
vesting shall continue to be applied with respect to the original optionee, and
following discontinuance of employment of such original optionee or such other
event, the Options shall be exercisable by the transferee only to the extent,
and for the periods specified pursuant to the terms of this Plan and the Option
Agreement. If the Committee does not so authorize Options to be transferable,
such Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by him (unless he becomes disabled, in which event they may be
exercised by his legal representative).
Exhibit 10.9
Amendment to Seitel, Inc. Non-Employee Directors' Stock Option Plan
Effective December 31, 1996
Section 9(c) of the Plan is hereby deleted and replaced with the following:
(c) Limited Transferability. The Options granted hereunder may be transferred by
a Participant to (1) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (2) a trust or trusts for the exclusive benefit of
such Immediate Family Members, (3) a partnership in which such Immediate Family
Members are the only partners, or (4) such other person or persons as may be
approved by the Board of Directors in their sole discretion, provided that
subsequent transfers of transferred Options shall be prohibited except those by
will or in accordance with the laws of descent and distribution. Following
transfer, any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of this Plan the transferee shall be treated as optionee. However, the
events of termination of employment described in this Plan, as well as other
similar conditions relating to exercisability, termination, expiration, and
vesting shall continue to be applied with respect to the original optionee, and
following discontinuance of employment of such original optionee or such other
event, the Options shall be exercisable by the transferee only to the extent,
and for the periods specified pursuant to the terms of this Plan.
Exhibit 10.12
Amendment to Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan
Effective December 31, 1996
The sixth paragraph of the Plan is hereby deleted and replaced with the
following:
The Board of Directors may, in its discretion, authorize all or a
portion of the Warrants granted pursuant to this Plan be on terms which permit
transfer by the Warrantholder to (1) the spouse, children or grandchildren of
such Warrantholder ("Immediate Family Members"), (2) a trust or trusts for the
exclusive benefit of such Immediate Family Members, (3) a partnership in which
such Immediate Family Members are the only partners, or (4) such other person or
persons in the sole discretion of the Board of Directors, provided that the
Warrant Certificate pursuant to which such Warrants are granted must be approved
by the Board of Directors, and must expressly provide for transferability in a
manner consistent with this paragraph, and provided further, that subsequent
transfers of transferred Warrants shall be prohibited except those by will or in
accordance with the laws of descent and distribution. Following transfer, any
such Warrants shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that for purposes of
this Plan the transferee shall be treated as the Warrantholder. However, the
events of termination of employment described in this Plan and in the applicable
Warrant Certificate, as well as other similar conditions relating to
exercisability, termination, expiration, and vesting shall continue to be
applied with respect to the original Warrantholder, and following discontinuance
of employment of such original Warrantholder or such other event, the Warrants
shall be exercisable by the transferee only to the extent, and for the periods
specified pursuant to the terms of this Plan and the Warrant Certificate. If the
Board of Directors does not so authorize Warrants issued hereunder to be
transferable, such Warrants shall not be transferable other than by will or by
the laws of descent and distribution, and during a Warrantholder's lifetime
shall be exercisable only by him (unless he becomes disabled, in which event
they may be exercised by his legal representative).
Exhibit 10.28
ASSUMPTION AND LOAN MODIFICATION AGREEMENT
THIS ASSUMPTION AND LOAN MODIFICATION AGREEMENT (this "Agreement") is
entered into effective as of December 31, 1996 (this "Agreement") and is by and
among SEITEL GEOPHYSICAL, INC., a Delaware corporation ("Seitel"), EAGLE
GEOPHYSICAL, INC., a Delaware corporation ("Eagle"), COMPASS BANK (f/k/a Central
Bank of the South), an Alabama state banking corporation ("Compass"), and
SEITEL, INC., a Delaware corporation (the "Guarantor").
All capitalized terms used herein but not otherwise defined herein
shall have the meaning set forth in that certain Term Credit and Security
Agreement dated as of July 15, 1993, together with any Schedules thereto, all as
amended (the "Loan Agreement") between Seitel and Compass.
WITNESSETH:
WHEREAS, Seitel and Compass are parties to the Loan Agreement.
WHEREAS, the Guarantor has provided to Compass a guaranty of, inter
alia, all amounts due and payable by Seitel under the Loan Agreement, the Note
and all the other Loan Documents pursuant to that certain Continuing Guaranty
(Unlimited) dated JULY 15, 1993 executed by Guarantor in favor of Compass, as
AMENDED (the "Guaranty").
WHEREAS, Seitel wishes to assign and delegate to Eagle all of its
right, title, interests and obligations in, to and under the Loan Agreement, the
Note, and the Loan Documents and Eagle wishes to accept such assignment and
delegation.
WHEREAS, the parties hereto have entered into this Agreement to, among
other things, (a) acknowledge and consent to the assignment and delegation from
Seitel to Eagle on the terms and conditions hereinafter set forth and (b)
provide for the Guarantor to acknowledge its continuing obligations under the
Guaranty with respect to Eagle.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT, ASSUMPTION AND MODIFICATION. Seitel, in its capacity as Borrower
under the Loan Agreement, the Note and all the other Loan Documents, hereby
assigns and delegates to Eagle all of Seitel's right, title, interests and
obligations in, to and under the Loan Agreement, the Note, and the other Loan
Documents pursuant to that certain Contribution and Assumption Agreement
effective as of December 31, 1996 (the "Contribution Agreement") between Seitel
and Eagle. Eagle hereby accepts and agrees to perform such assignment and
delegation and acknowledges and agrees that from and after December 31, 1996
(the "Effective Date") it shall be a party to and be the "Borrower" for all
purposes under the Loan Agreement, the Note, the Guaranty and all the other Loan
Documents executed in connection therewith and agrees to be bound by all of the
terms of, and to assume, undertake and perform all the obligations and
liabilities of, the Borrower as set forth therein whether such obligations and
liabilities arise prior to, on or after the Effective Date. Without limiting the
foregoing, the Loan Documents shall be and the same hereby are amended by
deleting any and all references to the name "Seitel Geophysical, Inc." and
substituting in place thereof the name "Eagle Geophysical, Inc." The Loan
Documents also shall be and the same hereby are amended by deleting any and all
references to "Central Bank of the South" and substituting in place thereof
"Compass Bank".
2. CONSENT TO ASSIGNMENT. Compass hereby, subject to the terms of this
Agreement, consents to the Contribution Agreement and the assignment and
delegation by Seitel to Eagle of all of Seitel's right, title, interests and
obligations in, to and under the Loan Agreement, the Note and the other Loan
Documents.
<PAGE>
3. ACKNOWLEDGMENT BY GUARANTOR. The Guarantor hereby acknowledges and
consents to the Contribution Agreement and this Agreement. Further, the
Guarantor agrees that the Guaranty from the Guarantor to Compass guaranteeing
all obligations of Seitel to Compass shall guarantee all obligations of Eagle to
Compass. Without limiting the foregoing, (i) any and all references in said
Guaranty to "Seitel Geophysical, Inc." shall be and hereby are amended to read
and refer to "Eagle Geophysical, Inc." and (ii) any and all references in said
Guaranty to "Central Bank of the South" shall be and hereby are amended to read
and refer to "Compass Bank".
4. ABSENCE OF DEFAULTS. Eagle, as Borrower, and the Guarantor hereby
represent and warrant that as of the date hereof no default or event of default
currently exists and is continuing with respect to the Borrower or the Guarantor
under any of the Loan Documents.
5. CONDITIONS PRECEDENT. Eagle, as Borrower, and Guarantor agree to
deliver to Compass the following items on or before the Effective Date, each in
form and substance satisfactory to Compass: (a) the Contribution Agreement duly
executed by the parties thereto; (b) this Agreement duly executed by the parties
hereto; (c) Good Standing Certificates from Eagle's state of incorporation and
each state where it is required to qualify in order to do business; (d) a legal
opinion of counsel to Eagle and the Guarantor in form and substance satisfactory
to Compass; and (e) such other certificates, financing statements, resolutions
and opinions as deemed necessary or advisable. by Compass.
6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
7. EFFECT ON LOAN DOCUMENTS. Each of the Loan Documents shall be deemed amended
as set forth hereinabove and to the extent necessary to carry out the intent of
this Agreement. Without limiting the generality of the foregoing, each reference
in the Loan Documents to the Note, the Guaranty or any other Loan Documents
shall be deemed to be references to said documents, as heretofore and hereby
amended. Except as is expressly set forth herein, all of the Loan Documents
shall remain in full force and effect in accordance with their respective terms
and shall continue to evidence, secure, guarantee or relate to, as the case may
be, the Term Loan.
8. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. Each representation,
warranty, covenant, grant of security interest and other agreement originally
made by Seitel and contained or referenced in the Loan Documents is hereby
expressly affirmed, adopted, stated and ratified and agreed to by Eagle, and
incorporated herein by reference, as if fully set forth herein. Seitel, Eagle
and Guarantor hereby represent that neither Seitel, Eagle nor Guarantor has any
offsets or claims against Compass arising under, related to, or connected with
the Term Loan, the Loan Agreement, the Guaranty or any of the other Loan
Documents.
9. EXPENSES. Eagle shall pay any recording fees and all other expenses
incurred by Compass in connection with this Agreement and any other transactions
contemplated hereby, including, without limitation, legal expenses, filing fees
and taxes.
10. EXECUTION BY GUARANTOR. Guarantor has executed this Agreement to
evidence its consent to the modification, amendments and other matters described
herein, and to acknowledge the continuing effect of its Guaranty and the
obligations contained therein.
11. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Alabama.
12. CONTINUATION OF LIEN AND SECURITY INTEREST. It is expressly
acknowledged and agreed that Eagle is taking the Assets (as denied in the
Contribution Agreement) subject to all liens and security interests of Compass
in such Assets and nothing contained or implied herein shall be deemed to be,
constitute or result in the release of any such liens and security interests.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the Effective Date.
SEITEL GEOPHYSICAL, INC.
By: /s/Jay N. Silverman
-----------------------------------------------------
Name: Jay N. Silverman
-----------------------------------------------------
Title: President
-----------------------------------------------------
EAGLE GEOPHYSICAL, INC.
By: /s/Jay N. Silverman
-----------------------------------------------------
Name: Jay N. Silverman
-----------------------------------------------------
Title: President
-----------------------------------------------------
ACKNOWLEDGED, AGREED AND CONSENTED TO:
SEITEL, INC.
By: /s/ Paul A. Frame
-----------------------------------------------------
Name: Paul A. Frame
-----------------------------------------------------
Title: President
-----------------------------------------------------
COMPASS BANK
By: /s/Jay P. Ackley
-----------------------------------------------------
Name: Jay P. Ackley
-----------------------------------------------------
Title: Assistant Vice President
-----------------------------------------------------
Exhibit 10.30
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Agreement") is entered into as of
the 31st day December, 1996, between SEITEL GEOPHYSICAL, INC., dba, Eagle
Geophysical ("Assignor") a Delaware corporation, with its principal place of
business at 50 Briar Hollow Lane West, 7th Floor, Houston, Texas 77027 and EAGLE
GEOPHYSICAL, INC. ("Assignee"), a Delaware corporation, with its principal place
of business at 50 Briar Hollow Lane West, 7th Floor, Houston, Texas 77027.
RECITALS
A. Assignor, as Lessee, has entered into a Master Equipment Lease Agreement,
dated May 20, 1994, and the respective schedules, amendments, and addendums
thereto, (collectively referred to herein as the 'Lease') with MetLife
Capital, Limited Partnership, a Delaware limited partnership ("MetLife"),
as Lessor, whereby Assignor has leased from MetLife: Opseis Eagle Recording
System and Ancillary Equipment; Opseis Eagle Telemetry Seismic Data
Acquisition System; ATV's, Engine and Generator, Three 1994 Circle M
Utility Trailers; One Spectrum Analyzer with Cables; Cable Strings
Land/Marsh; MGA with hardware, Geophone Analyzer Test Equipment; Multiple
Cables, all more fully described in the attached copies of the Lease
documents herein as Exhibit "A" (the "Equipment"). Terms used in the
agreement are, unless defined herein, used as defined in the Lease.
B. Lease documents attached as Exhibit "A", herein incorporated by this
reference, are as follows: Master Equipment Lease Agreement dated 5/20/94;
Addendum No. One dated 5/20/94; Amendment No. One dated 5/20/94; Amendment
No. Two dated 9/16/94; Request to Purchase Addendum No. One dated 5/20/94
as amended by Amendment No. One dated 5/20/94 and Amendment No. Two dated
9/16/94; Request to Purchase Addendum No. Two dated 5/20/94 as amended by
Amendment No. One dated 5/20/94 and Amendment No. Two dated 9/16/94; Lease
Closing Schedules 001, 002, 003, 004, 005, 006, 007, and 008 dated 7/29/94,
7/7/94, 7/7/94, 7/25/94, 7/25/94, 7/29/94, 7/29/94, and 9/19/94,
consecutively; and the 9/16/94 Letter of Correction (collectively referred
to herein as "the Lease").
C. The Assignor wishes to assign to the Assignee, and the Assignee wishes to
accept an assignment from the Assignor, of the Assignor's right, title and
interest in and to the Lease.
D. Pursuant to the terms of the Lease, MetLife's consent to the assignment of
Assignor's interest in the Lease is required. One of the conditions to
MetLife's willingness to give that consent is that the parties enter into
the covenants and make the representations and warranties set forth in this
Agreement.
NOW, THEREFORE, The parties agree as follows:
1. Assignment and Assumption.
Assignor hereby sells, assigns, transfers and sets over unto Assignee and
unto Assignee's successors and assigns, all right, title, and interest of
Assignor under, in and to the Lease. The Assignee hereby assumes, and
covenants with Assignor and MetLife to perform fully, all the duties of the
Assignor under the Lease. It is expressly understood and agreed that
Assignee assumes all such obligations notwithstanding the fact that some of
such obligations may have accrued prior to the date hereof.
2. Representations and Warranties of Assignee and Assignor. Assignee and
Assignor represent and warrant individually and respectively as applicable,
to MetLife as follows:
a. The Assignee is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and has the
power and authority to enter into and perform its obligations under
this Agreement. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part
of the Assignee and the Assignor, does not require any stockholder
approval, or approval or consent of any general or limited partner,
trustee or holders of any indebtedness or obligations of the Assignee
or Assignor except such as have been duly obtained and does not and
will not contravene any law, judgment, governmental rule, regulation
or order applicable to or binding on the Assignee or Assignor or any
of their subsidiaries or the certificates of incorporation or bylaws
of the Assignee or Assignor or any of their subsidiaries or contravene
the provisions of, or constitute a default under, or result in the
creation of any lien (other than as permitted under the Lease) upon
the property of the Assignee or Assignor under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract,
bank loan or agreement or instrument, or other contract or agreement
to which the Assignee or Assignor or any of their subsidiaries are a
party or by which they or any of their subsidiaries may be bound or
affected;
b. This agreement constitutes the legal, valid and binding obligation of
the Assignee and Assignor enforceable against said parties in
accordance with its terms;
c. Except for the filings and recordings consummated at the time of
execution of the Lease and except for the filing and recording of this
Agreement, no further action, including any filing or recording of any
document, is necessary or advisable in order to establish and protect
MetLife's title to and interest in the Equipment as against the
Assignee, the Assignor, and any third parties in any applicable
jurisdictions in the United States.
3. Assignors Continuing Obligation and Guaranty.
Assignor covenants with MetLife that notwithstanding its assignment of the
Lease to the Assignee, Assignor will duly and punctually perform and
observe each and every obligation, covenant, representation, warranty and
agreement to be performed and observed by the Lessee under the provisions
of the Lease, notwithstanding the fact that Assignee is similarly obligated
by the terms of this Agreement to perform or observe those obligations,
covenants, representations or warranties of Lessee arising pursuant to the
terms of the Lease; provided, however, that Assignor shall have no
obligation hereunder to make any payment to MetLife required by any Lease
provision to the extent that Assignee has satisfied the obligations of the
Lessee arising pursuant to such Lease provision. Except as expressly set
forth in the preceding sentence, Assignor is not released in any respect
from its obligations to MetLife arising under the Lease or related
documents. The Assignor hereby acknowledges and consents that MetLife may
agree with the Assignee to extend the time for making payments for any or
all of the amounts due or to become due under the Lease and documents
executed in conjunction therewith or that the Lease and documents in
conjunction therewith may be changed in any manner at the option of said
Assignee and without Assignor's consent and that Assignor's obligation to
perform in accordance with this Paragraph 3 shall extend to such agreements
as changed in the same manner as if such changes had been part of the
agreements as originally executed and delivered.
The Assignor hereby absolutely and unconditionally guarantees to MetLife
the full and timely performance by the Assignee of all obligations
whatsoever which the Assignee has incurred or is under or which the
Assignee may at any time incur or be under to MetLife pursuant to or in
connection with any of the transactions contemplated by the Lease and this
Agreement; including but not limited to all obligations of the Assignee for
the payment of money whether by reason of covenant, indemnity, breach of
warranty or otherwise. MetLife shall not be bound to exhaust their recourse
nor to take any other action against the Assignee or other parties or on
any collateral they may hold before being entitled to payment by the
Assignor of all amounts hereby guaranteed. The Assignor specifically agrees
that it shall not be necessary or required in order to enforce the
obligations of the Assignor hereunder that there be, and specifically
waives: notice of performance or nonperformance of the Lease; demand of
payment from the Assignee; presentment for payment upon Assignee or the
making of any protest; notice of the amount of guaranteed obligations
outstanding at any time; notice of nonpayment or failure to perform on the
part of the Assignee; and any other circumstances which might otherwise
constitute a legal or equitable defense or discharge of a Guarantor.
4. Financial Data.
During the term of this Agreement, Assignee will furnish to MetLife and
will cause any guarantor of Assignee's obligations to furnish to MetLife on
request (i) annual balance sheet and profit and loss statements prepared in
accordance with generally accepted accounting principles and practices
consistently applied and, if MetLife so requires, accompanied by the annual
audit report of an independent certified public accountant reasonably
acceptable to MetLife, and (ii) all other financial information and reports
that MetLife may from time to time reasonably request, including, if
MetLife so requires, income tax returns of Assignee and any guarantor of
Assignee's obligations hereunder.
Assignee shall, from time to time, furnish all such information as MetLife
may reasonably request concerning Assignee and its affairs and shall
execute and deliver such documents and perform all such other acts that
MetLife may reasonably request in order to carry out any transactions
contemplated by this Agreement.
5. Miscellaneous.
This Agreement may not be amended without the express written consent of
MetLife. This Agreement supersedes all prior agreements between the parties
relating to the assignment from Assignor to Assignee of the Assignor's
interest in the Lease or the Equipment.
6. Counterparts.
This Agreement may be signed in any number of counterparts required for the
convenience of the parties, all of which when taken together shall form one
and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ASSIGNOR:
SEITEL GEOPHYSICAL, INC., dba EAGLE GEOPHYSICAL
By /s/ Jay N. Silverman
----------------------------------------------------
Its President
----------------------------------------------------
By /s/ Marcia Kendrick
----------------------------------------------------
Its Assistant Secretary
----------------------------------------------------
ASSIGNEE:
EAGLE GEOPHYSICAL, INC.
By /s/ Jay N. Silverman
----------------------------------------------------
Its President
----------------------------------------------------
By /s/ Marcia Kendrick
----------------------------------------------------
Its Assistant Secretary
----------------------------------------------------
CONSENT OF METLIFE
On the terms and conditions set forth above, MetLife Capital, Limited
Partnership hereby consents to the assignment by SEITEL GEOPHYSICAL INC., dba
Eagle Geophysical of its interest under the Lease described above to EAGLE
GEOPHYSICAL, INC. dated this 30th day of December, 1996.
METLIFE CAPITAL, LIMITED PARTNERSHIP
By MetLife Capital Corporation
Its General Partner
By /s/Judy Johnston
----------------------------------------------------
Its Vice President
Exhibit 10.38
ASSUMPTION AND CONSENT
THIS ASSUMPTION AND CONSENT is entered into effective as of December 31,
1996 (this "Agreement") and is by and among SEITEL GEOPHYSICAL, INC., a Delaware
corporation ("Seitel"), EAGLE GEOPHYSICAL, INC., a Delaware corporation
("Eagle"), NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina
corporation ("NBLC") and SEITEL, Inc., a Delaware corporation (the "Guarantor").
All defined terms used herein but not otherwise defined shall have the
meaning set forth in that certain Loan and Security Agreement dated as of July
9, 1996 (the "Loan Agreement") between Seitel, as debtor, and NBLC, as secured
party.
WITNESSETH:
WHEREAS, Seitel and NBLC are parties to the Loan Agreement.
WHEREAS, the Guarantor has provided to NBLC a guaranty of all amounts
due and payable by Seitel under the Loan Agreement, the Notes and all other
documents executed in connection therewith.
WHEREAS, Seitel wishes to assign to Eagle all of its right, title,
interests and obligations in, to and under the Loan Agreement, the Notes, the
Bills of Sale and the Equipment and Eagle wishes to accept such assignment.
WHEREAS, the parties hereto have entered into this Assumption and
Consent to, among other things, (a) acknowledge and consent to the assignment
from Seitel to Eagle and (b) provide for the Guarantor to acknowledge its
continuing obligations under the Guaranty with respect to Eagle.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Assignment and Assumption. Seitel, in its capacity as Debtor under
the Loan Agreement, the Notes and all other documents executed in connection
therewith, hereby assigns to Eagle all of Seitel's right, title, interests and
obligations in, to and under the Loan Agreement, the Notes, the Bills of Sale
and the Equipment in accordance with that certain Contribution and Assumption
Agreement effective as of December 31, 1996 (the "Contribution Agreement")
between Seitel and Eagle. Eagle hereby acknowledges and agrees that from and
after December 31, 1996 (the "Effective Date") it shall be a party to and Debtor
under the Loan Agreement, the Notes, the Bills of Sale and all other documents
executed in connection therewith and agrees to be bound by all of the terms of,
and to assume and undertake all the obligations and liabilities of, the Debtor
as set forth therein whether such obligations and liabilities arise prior to, on
or after the Effective Date..
2. Consent to Assignment. NBLC hereby consents to the assignment by
Seitel to Eagle of all of Seitel's right, title, interests and obligations in,
to and under the Loan Agreement, the Notes, the Bills of Sale, the Equipment and
all other documents executed in connection therewith.
3. Acknowledgment by Guarantor. The Guarantor hereby acknowledges and
consents to the Contribution Agreement and this Agreement. Further, the
Guarantor agrees that the Guaranty Agreement dated as of July 9, 1996 from the
Guarantor to NBLC guaranteeing all obligations of Seitel to NBLC shall guarantee
all obligations of Eagle to NBLC as if Eagle were the original beneficiary of
such Guaranty.
4. Representations, Warranties and Covenants. Eagle, as Debtor, and the
Guarantor hereby represent and warrant that as of the date hereof (a) the
representations and warranties of the Debtor set forth in Section 3.1 of the
Loan Agreement are true and correct in all material respects, (b) Debtor shall
comply with all covenants set forth in Sections 3.2 and 3.3 of the Loan
Agreement and (ii) no Default or Event of Default currently exists and is
continuing with respect to the Debtor or the Guarantor.
5. Conditions Precedent. The effectiveness of this Agreement is
contingent upon the receipt by NBLC of the following items, each in form and
substance satisfactory to NBLC: (a) the Contribution Agreement duly executed by
the parties thereto; (b) this Agreement duly executed by the parties hereto; (c)
Amended, Restated and Substituted Secured Term Note A duly executed by Eagle in
favor of NBLC; (d) Amended, Restated and Substituted Secured Term Note B duly
executed by Eagle in favor of NBLC; (e) an Officer's Certificate of Eagle
stating that (i) no Default or Event of Default has occurred and is continuing
and (ii) the assignment to and assumption by Eagle complies with the terms and
conditions of Section 3.3(k) of the Loan Agreement; (f) a Secretarial
Certificate of Eagle certifying as true and accurate the Articles of
Incorporation, By-Laws and Resolutions of Eagle, which such resolutions shall
authorize the transactions contemplated by this Agreement; (f) Good Standing
Certificates from Eagle's state of incorporation and each state where it is
required to qualify in order to do business; (g) a legal opinion of counsel to
Eagle and the Guarantor in form and substance satisfactory to NBLC; and (h) such
other certificates, financing statements, resolutions and opinions as deemed
necessary or advisable by NBLC.
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
7. No Other Amendments. Except as modified hereby, all of the terms
and conditions of the Operative Agreements shall remain in full force and
effect.
8. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of North Carolina.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed and delivered as of the Effective Date.
SEITEL GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
------------------------------------------
Name: Jay N. Silverman
------------------------------------------
Title: President
------------------------------------------
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
------------------------------------------
Name: Jay N. Silverman
------------------------------------------
Title: President
------------------------------------------
ACKNOWLEDGED, AGREED AND CONSENTED TO:
SEITEL, INC.
By: /s/ Debra D. Valice
------------------------------------------
Name: Debra D. Valice
------------------------------------------
Title: Sr. Vice President - CFO
------------------------------------------
NATIONSBANC LEASING CORPORATION
NORTH CAROLINA
By: /s/ George L. Robinson, Jr.
------------------------------------------
Name: George L. Robinson, Jr.
------------------------------------------
Title: Senior Vice President
------------------------------------------
Exhibit 10.41
LOAN AND SECURITY AGREEMENT
between
EAGLE GEOPHYSICAL, INC.,
as Debtor,
and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA,
as Secured Party
dated as of February 6, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINED TERMS; CREDIT FACILITIES; CONDITIONS PRECEDENT...........1
SECTION 1.1 Definitions...........................................1
SECTION 1.2 Other Terms...........................................7
SECTION 1.3 Term Loans............................................7
SECTION 1.4 Conditions Precedent.................................11
ARTICLE II SECURITY INTEREST 13
SECTION 2.1 Grant of Security Interest...........................13
SECTION 2.2 Security for Secured Obligations.....................15
SECTION 2.3 Security Interest Absolute...........................15
SECTION 2.4 Debtor as Agent for Secured Party....................16
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS.....................16
SECTION 3.1 Debtor's Representations and Warranties..............16
SECTION 3.2 Affirmative Covenants................................20
SECTION 3.3 Negative Covenants...................................23
ARTICLE IV INSURANCE, TRANSFER, CONDEMNATION AND EVENT OF LOSS............25
SECTION 4.1 Insurance............................................25
SECTION 4.2 Transfer of Collateral...............................27
SECTION 4.3 Condemnation.........................................27
SECTION 4.4 Certain Events of Loss...............................27
ARTICLE V EVENTS OF DEFAULT AND REMEDIES..................................28
SECTION 5.1 Events of Default....................................28
SECTION 5.2 Remedies.............................................31
SECTION 5.3 Proceeds of Collateral...............................34
SECTION 5.4 Waiver of Rights; Receiver...........................34
ARTICLE VI INDEMNITY AND EXPENSES.........................................35
SECTION 6.1 General Indemnity....................................35
SECTION 6.2 General Tax Indemnity................................37
ARTICLE VII FURTHER ASSURANCES; ATTORNEY-IN-FACT; DISCHARGE...............38
SECTION 7.1 Further Assurances...................................38
SECTION 7.2 Secured Party Appointed Attorney-in-Fact.............39
SECTION 7.3 Secured Party May Perform............................39
SECTION 7.4 Secured Party's Duties...............................39
SECTION 7.5 Continuing Security Interest; Transfer of Note;
Termination..........................................40
ARTICLE VIII MISCELLANEOUS 40
SECTION 8.1 Notices.40
SECTION 8.2 Risk of Loss.........................................41
SECTION 8.3 Powers and Agencies..................................41
SECTION 8.4 Entire Agreement.....................................41
SECTION 8.5 Lawful Interest......................................41
SECTION 8.6 Survival; Severability...............................42
SECTION 8.7 Binding Effect.......................................42
SECTION 8.8 Amendment and Waiver.................................43
SECTION 8.9 Headings; Execution in Counterpart...................43
SECTION 8.10 Transaction Costs...................................43
SECTION 8.11 APPLICABLE LAW; CONSENT TO JURISDICTION AND
VENUE; WAIVER OF JURY TRIAL.........................43
SECTION 8.12 Break-Funding Costs.................................44
SECTION 8.13 Intention of the Parties............................44
EXHIBIT A -- Equipment Description
Schedule 1.3 -- Notice of Borrowing
Schedule 1.3(a) -- Form of Secured Term Note A
Schedule 1.3(b) -- Form of Secured Term Note B
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of February 6, 1997 (as amended,
modified, supplemented, restated and/or replaced from time to time, the
"Agreement") is between EAGLE GEOPHYSICAL, INC., a Delaware corporation
("Debtor"), and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North
Carolina corporation ("Secured Party").
PRELIMINARY STATEMENTS:
(1) Debtor has requested that Secured Party make loans in the aggregate
principal amount of $7,563,920.18 to Debtor pursuant to the terms of the
Agreement as evidenced by promissory notes in such amount to finance Debtor's
acquisition of the Equipment (hereinafter defined).
(2) Secured Party has agreed to make the Loans to Debtor on the condition,
among other things, that Debtor shall have executed and delivered the Notes
(hereinafter defined) payable to Secured Party, this Agreement, any required
amendment or supplement hereto Granting (hereinafter defined) Secured Party a
first priority security interest in the Collateral (hereinafter defined),
related UCC-1 financing statements and other filings reasonably deemed necessary
or prudent by Secured Party to perfect such security interest.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
ARTICLE I
DEFINED TERMS; CREDIT FACILITIES; CONDITIONS PRECEDENT
SECTION 1.1 Definitions.
When used in this Agreement, the following capitalized terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Affiliate" means a Person (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, Debtor; (ii) which beneficially owns or holds 10% or more of any class of
the voting stock of Debtor, or (iii) of which 10% or more of the voting stock is
beneficially owned or held by Debtor or a Subsidiary.
"Amortization Rate" means (i) for Term Loan A, the interpolated generic two
year U.S. Treasury yield as quoted by the Dow Jones/Telerate Inc. system at
approximately 11:00 a.m. (Charlotte, North Carolina time) five (5) Business Days
prior to the Term Loan A Draw Termination Date plus 1.48% and (ii) for Term Loan
B, the interpolated generic three year U.S. Treasury yield as quoted by the Dow
Jones/Telerate Inc. system at approximately 11:00 a.m. (Charlotte, North
Carolina time) plus 1.56%, in each case expressed on a per annum basis; or, if
such data for any reason ceases to be available on the Dow Jones/Telerate Inc.
system, the applicable U.S. Treasury yield shall be determined from any publicly
available source of similar market data selected by Secured Party; provided,
however, to the extent any such date on which the U.S. Treasury yield is to be
determined is not a Business Day, then the applicable U.S. Treasury yield in
effect on the immediately preceding Business Day shall be the effective yield.
"Assigned Agreements" has the meaning set forth in Section 2.1(b) hereof.
"Beneficiary" has the meaning set forth in Section 6.1 hereof.
"Bills of Sale" means each warranty bill of sale in favor of the Debtor duly
executed by the Seller of the Equipment or other evidence of title transfer
satisfactory to Secured Party.
"Break-Funding Costs" means, in the case of any voluntary prepayment of all
or any portion of the unamortized balance of the Loans, an amount reasonably
determined by Secured Party as shall compensate Secured Party as a result of the
inability of Secured Party in its reasonable discretion to redeploy the amount
so prepaid at an interest rate equal to or greater than the interest rate on the
applicable Loan and for a term equal to the remaining average life of the
applicable Loan.
"Business Day" means any day other than a day on which banking institutions
in the states of North Carolina or Georgia are authorized or required by law to
close.
"Closing Date" means February 6, 1997.
"Collateral" shall have the meaning set forth in Section 2.1 hereof.
"Default" shall mean an event or occurrence which upon the giving of notice
and/or the lapse of time shall constitute an Event of Default.
"Equipment" means all items of equipment described in Exhibit A attached
hereto, together with any replacement parts which may from time to time be
incorporated in such equipment and title to which shall have vested in Debtor.
"Equipment Cost" means, with respect to any item of Equipment, an amount
equal to the sum of (a) the total cost paid by Debtor for such item of Equipment
plus (b) all excise, sales and use taxes and registration fees paid by Debtor on
or with respect to the acquisition of such item of Equipment, both as evidenced
by invoices, appraisals and/or bills of sale in form and substance reasonably
satisfactory to Secured Party.
"ERISA" has the meaning set forth in Section 3.1(t) hereof.
"Eurodollar Rate" for a particular day means the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page
3750 (or any successor page) as the London interbank offered rate for deposits
in U.S. dollars at approximately 11:00 a.m. (London time) for a period of one
month and in an amount substantially equal to the requested Term Loan A advance
or the requested Term Loan B advance, as appropriate. If for any reason such
rate is not available, the term "Eurodollar Rate" shall mean the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in U.S.
dollars at approximately 11:00 a.m. (London time) for a period of one month and
in an amount substantially equal to the requested Term Loan A advance or the
requested Term Loan B advance, as appropriate; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"Event of Default" has the meaning set forth in Section 5.1 hereof.
"Event of Loss" with respect to an item of Equipment means any of the
following events: (i) loss of any item of Equipment or of the use thereof due to
theft or disappearance prior to the expiration or termination of this Agreement,
or the non-existence of any item of Equipment at the expiration or termination
of this Agreement, (ii) destruction, damage beyond repair, or rendition of any
item of Equipment permanently unfit for normal use for any reason whatsoever,
(iii) any damage to any item of Equipment which results in an insurance
settlement with respect to such item of Equipment on the basis of a total loss,
or (iv) the condemnation, confiscation, seizure, or requisition of use or title
to any item of Equipment by any governmental authority under the power of
eminent domain or otherwise.
"Event of Loss Payment Date" has the meaning set forth in Section 4.3 hereof.
"Grant" means to grant, bargain, sell, warrant, remise, release, convey,
assign, transfer, mortgage, pledge, deposit, set over, confirm or create a
security interest under the North Carolina UCC. A grant with respect to any
instrument, document or agreement shall include all rights, powers and options
(but none of the obligations) of the granting party thereunder, including
without limitation the right to generally do anything which the granting party
then is or thereafter may be entitled to do thereunder or with respect thereto.
"Guarantor" means Seitel, Inc., a Delaware corporation.
"Guaranty" means the Guaranty Agreement dated as of the date hereof, as such
may be amended, modified, supplemented, restated and/or replaced from time to
time, executed by Guarantor for the benefit of Secured Party.
"Installment Payment Date" means the last day of each calendar month with
respect to Term Loan A and/or Term Loan B.
"Lien" means any lien, claim, charge, security interest, mortgage and/or
other encumbrance.
"Loans" means each of Term Loan A and Term Loan B.
"North Carolina UCC" or "UCC" means the North Carolina Uniform Commercial
Code, N.C. Gen. Stat. Chapter 25, Articles 1-11, as now in effect and as
hereafter amended from time to time.
"Notes" means each of Secured Term Note A and Secured Term Note B.
"Notice of Borrowing" means a notice of borrowing delivered pursuant to
Section 1.3(a) or 1.3(b) substantially in the form of Schedule 1.3 hereto.
"PBGC" has the meaning set forth in Section 3.1(t) hereof.
"Permitted Contest" means any contest by Debtor with respect to any Lien, tax
or imposition referred to in Section 6.2 hereof, so long as Debtor shall
contest, in good faith and at its expense, the existence, the amount or the
<PAGE>
validity thereof, the amount of the damages caused thereby, or the extent of its
liability therefor, by appropriate Proceedings which do not result in (i) the
collection of, or other realization upon, the tax, assessment, levy, fee, rent
or Lien so contested, (ii) the sale, forfeiture or loss of any item of Equipment
or any material part thereof, or (iii) any interference with the use of any item
of Equipment or any material part thereof.
"Permitted Encumbrances", with respect to the Collateral, means (i) this
Agreement and any assignment permitted hereby, (ii) any Lien affecting the
Collateral for work or service performed or materials furnished securing amounts
which are not yet due and payable or which are not otherwise delinquent and
(iii) any Lien which is the subject of a Permitted Contest and (iv) any other
Lien incurred in the ordinary course of business which such Lien does not exceed
$50,000.
"Permitted Lease" shall mean a lease of all the Equipment or any portion
thereof entered into between Debtor and a Permitted Lessee; provided, that the
following conditions shall be met with respect to each such lease: (i) Secured
Party shall have given its prior written consent to such lease; (ii) upon the
effective date of such lease, there shall exist no Default or Event of Default
and no Liens on any of the Collateral other than the Permitted Encumbrances;
(iii) each such lease shall specify explicitly as a condition to the
effectiveness of such lease that (A) Debtor shall remain fully obligated and in
compliance with the terms and conditions of this Agreement and (B) upon Secured
Party's delivery to the lessee of notice specifying that an Event of Default has
occurred and is continuing and that the Secured Party has commenced the exercise
of remedies with respect to the Equipment, such lease will automatically
terminate and be of no further force or effect and the lessee will cause each
item of Equipment then subject to such lease to be delivered to Secured Party at
a place to be designated by Secured Party.
"Permitted Lessee" shall mean any Person which (i) is domiciled in the United
States, (ii) in Debtor's reasonable opinion, is financially responsible and
(iii) at the time Debtor enters into such lease, is not the subject of any
filing by or against such Person of a petition under any federal bankruptcy law
or any federal law replacing or superseding such law or any state bankruptcy law
in which such Person is named as debtor.
"Person" means an individual or a corporation, partnership, trust,
association, joint venture, joint stock company, firm or other enterprise or
government (or a political subdivision or any agency, department or
instrumentality thereof) or other entity of any kind.
"Plan" means any "employee benefit pension plan" or other "plan" (including a
"multiemployer plan" as defined in Section 3(37) of ERISA) established or
maintained, as to which contributions have been made, by Debtor or any Affiliate
for either of their respective employees and which is covered by Title IV of
ERISA or to which Section 412 of the Internal Revenue Code of 1986, as amended
applies.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Replacement Equipment" means an item (i) of comparable make, model and
manufacture as the item of Equipment with respect to which an Event of Loss has
occurred, (ii) selected by Debtor and consented to by Secured Party, such
consent not to be unreasonably withheld or delayed, (iii) owned by Debtor free
and clear of all Liens and other encumbrances other than Permitted Encumbrances
and (iv) having a value, utility and useful life at least equal to, and being in
as good operating condition as, the item of Equipment with respect to which the
Event of Loss occurred, assuming such item of Equipment was in the condition and
repair required by the terms hereof immediately prior to the occurrence of the
Event of Loss.
"Secured Obligations" has the meaning set forth in Section 2.2 hereof.
"Secured Party" means NationsBanc Leasing Corporation of North Carolina, a
North Carolina corporation, and its successors and assigns.
"Security Instrument" means each of this Agreement, and any other instrument,
document, financing statement or agreement with respect to which any right or
interest in or with respect to the Collateral has been Granted to Secured Party
or has been recorded with the appropriate filing office.
<PAGE>
"Secured Term Note A" means the promissory note of the Debtor in favor of the
Secured Party dated the Closing Date evidencing Term Loan A as provided pursuant
to Section 1.3(a)(iii), as amended, modified, supplemented, extended, renewed or
replaced from time to time.
"Secured Term Note B" means the promissory note of the Debtor in favor of the
Secured Party dated the Closing Date evidencing Term Loan B as provided pursuant
to Section 1.3(b)(iii), as amended, modified, supplemented, extended, renewed or
replaced from time to time.
"Seller" means each Person executing a Bill of Sale in favor of Debtor with
respect to any Equipment.
"Subsidiary" means any corporation, limited liability company, partnership,
joint venture, trust or estate of which (i) more than 50% of the outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation; or (ii) the interest in the capital or profits of
such corporation, limited liability company, partnership or joint venture; or
(iii) the beneficial interest of such trust or estate is owned directly or
indirectly by Guarantor and/or one of its Subsidiaries.
"Taxes or Other Impositions" has the meaning set forth in Section 6.2 hereof.
"Term Loan A" means the term loan made pursuant to the provisions of Section
1.3(a).
"Term Loan A Commitment" has the meaning set forth in Section 1.3(a) hereof.
"Term Loan B" means the term loan made pursuant to the provisions of Section
1.3(b).
"Term Loan B Commitment" has the meaning set forth in Section 1.3(b) hereof.
"Term Loan A Draw Termination Date" has the meaning set forth in Section
1.3(a) hereof.
"Term Loan B Draw Termination Date" has the meaning set forth in Section
1.3(b) hereof.
"Termination Value" means, with respect to any or all item(s) of Equipment,
an amount equal to the Equipment Cost of such item(s) of Equipment multiplied by
the Termination Value Percentage as of such Installment Payment Date.
"Termination Value Percentage" means the termination value percentage for
Term Loan A and/or Term Loan B, as appropriate, as of each Installment Payment
Date calculated as of the date on which the Amortization Rate is determined for
each of Term Loan A and Term Loan B.
SECTION 1.2 Other Terms.
Unless otherwise defined in this Agreement, all terms defined in the North
Carolina UCC and used in this Agreement have the meanings set forth in the North
Carolina UCC.
SECTION 1.3 Term Loans.
(a) Term Loan A. Subject to and upon the terms and conditions and relying
upon the representations and warranties herein set forth, the Secured Party
agrees to make advances ("Term Loan A") to the Debtor from time to time from
the Closing Date to and including February 28, 1997 (as such date may be
extended from time to time in the sole discretion of the Secured Party, the
"Term Loan A Draw Termination Date") in an aggregate principal amount of up
to FIVE HUNDRED FIFTY-SEVEN THOUSAND SEVEN HUNDRED SIXTY-EIGHT AND 14/100
DOLLARS ($557,768.14) (the "Term Loan A Commitment") for the purposes
hereinafter set forth. Amounts repaid on Term Loan A may not be reborrowed.
(i) Term Loan A Advances. So long as the conditions to advances have
been satisfied, the Secured Party will make Term Loan A advances to the
Debtor from time to time from the Closing Date to the Term Loan A Draw
Termination Date upon submission of a Notice of Borrowing substantially in
the form of Schedule 1.3 to the Secured Party five (5) Business Days prior
to the date of the requested advance. Each such notice shall specify (A)
the date of the requested advance (which shall be a Business Day), (B)
shall not exceed, taking into account all prior Term Loan A advances, the
Term Loan A Commitment, (C) shall be in a minimum amount of $100,000 and
(D) shall be accompanied by any supporting invoices and requisitions
relating to the requested advance. The Secured Party shall make such Term
Loan A advances available by deposit to the Debtor's account at the office
of Bank One, Texas, N.A. in Houston, Texas.
<PAGE>
(ii) Payment of Principal and Interest.
(A) Interest During Draw Period. Term Loan A shall be subject to a
draw period during which accrued interest shall be payable monthly in
arrears on the last day of each calendar month beginning with the first
of such dates to occur after the Closing Date. Interest during such
draw period shall accrue at the applicable Eurodollar Rate plus 1.30%
(computed on the basis of the actual number of days elapsed over a year
of 360 days) with respect to the Term Loan A advance made on the
Closing Date and with respect to each Term Loan A advance made
thereafter throughout the draw period. The Eurodollar Rate applicable
to the Term Loan A advance made on the Closing Date shall be determined
five (5) Business Days prior to the Closing Date. The Eurodollar Rate
applicable to each Term Loan A advance made after the Closing Date
shall be determined five (5) Business Days prior to the date of the
requested advance.
(B) Principal and Interest after Draw Period. The Term Loan A
Commitment shall bear interest at a fixed rate equal to the
Amortization Rate. The Amortization Rate for Term Loan A shall be
determined five (5) Business Days prior to the Term Loan A Draw
Termination Date. Principal and interest on Term Loan A shall be
amortized and payable in thirty-six (36) consecutive level monthly
installments beginning with the payment due on March 31, 1997. Payments
received on Term Loan A shall be applied first to accrued interest and
then to principal in inverse order of maturity.
Upon the occurrence and during the continuation of an Event of Default
hereunder, the principal of and, to the extent permitted by law, interest on
Term Loan A hereunder shall bear interest, payable on demand, at a rate equal to
2.0% per annum in excess of the rate otherwise applicable hereunder.
(iii) Secured Term Note A. Term Loan A shall be evidenced by a duly
executed promissory note of the Debtor to the Secured Party dated the Closing
Date in an original principal amount equal to the Term Loan A Commitment and
substantially in the form of Schedule 1.3(a) hereto.
(b) Term Loan B. Subject to and upon the terms and conditions and relying
upon the representations and warranties herein set forth, the Secured Party
agrees to make advances ("Term Loan B") to the Debtor from time to time from the
Closing Date to and including April 30, 1997 (as such date may be extended from
time to time in the sole discretion of the Secured Party, the "Term Loan B Draw
Termination Date") in an aggregate principal amount of up to SEVEN MILLION SIX
THOUSAND ONE HUNDRED FIFTY-TWO AND 04/100 DOLLARS ($7,006,152.04) (the "Term
Loan B Commitment") for the purposes hereinafter set forth. Amounts repaid on
Term Loan B may not be reborrowed.
(i) Term Loan B Advances. So long as the conditions to advances have been
satisfied, the Secured Party will make Term Loan B advances to the Debtor
from time to time from the Closing Date to the Term Loan B Draw Termination
Date upon submission of a Notice of Borrowing substantially in the form of
Schedule 1.3 to the Secured Party five (5) Business Days prior to the date of
the requested advance. Each such notice shall specify (A) the date of the
requested advance (which shall be a Business Day), (B) shall not exceed,
taking into account all prior Term Loan B advances, the Term Loan B
Commitment, (C) shall be in a minimum amount of $100,000 and (D) shall be
accompanied by any supporting invoices and requisitions relating to the
requested advance. The Secured Party shall make such Term Loan B advances
available by deposit to the Debtor's account at the office of Bank One,
Texas, N.A. in Houston, Texas.
(ii) Payment of Principal and Interest.
(A) Interest during Draw Period. Term Loan B shall be subject to a draw
period during which accrued interest shall be payable monthly in arrears
on the last day of each calendar month beginning with the first of such
dates to occur after the Closing Date. Interest during such draw period
shall accrue at the applicable Eurodollar Rate plus 1.30% (computed on the
basis of the actual number of days elapsed over a year of 360 days) with
respect to the Term Loan B advance made on the Closing Date and with
respect to each Term Loan B advance made thereafter throughout the draw
period. The Eurodollar Rate applicable to the Term Loan B advance made on
the Closing Date shall be determined five (5) Business Days prior to the
Closing Date. The Eurodollar Rate applicable to each Term Loan B advance
made after the Closing Date shall be determined five (5) Business Days
prior to the date of the requested advance.
<PAGE>
(B) Principal and Interest after Draw Period. The Term Loan B
Commitment shall bear interest at a fixed rate equal to the Amortization
Rate. The Amortization Rate for Term Loan B shall be determined five (5)
Business Days prior to the Term Loan B Draw Termination Date. Principal
and interest on Term Loan B shall be amortized and payable in sixty (60)
consecutive level monthly installments beginning with the payment due on
May 31, 1997. Payments received on Term Loan B shall be applied first to
accrued interest and then to principal in inverse order of maturity.
Upon the occurrence and during the continuation of an Event of Default
hereunder, the principal of and, to the extent permitted by law, interest on
Term Loan B shall bear interest, payable on demand, at a rate equal to 2.0% per
annum in excess of the rate otherwise applicable hereunder.
(iii) Secured Term Note B. Term Loan B shall be evidenced by a duly
executed promissory note of the Debtor to the Secured Party dated the Closing
Date in an original principal amount equal to the Term Loan B Commitment and
substantially in the form of Schedule 1.3(b) hereto.
(c) Early Termination. (i) On any Installment Payment Date on or after the
second anniversary of the Closing Date, Debtor may, upon sixty (60) days' prior
written notice to Secured Party, terminate the Loans and this Agreement. Debtor
shall pay to Secured Party on the applicable Installment Payment Date the sum
of: (A) the Termination Value as of such Installment Payment Date, plus (B) any
Break-Funding Costs, plus (C) any accrued but unpaid interest with respect to
either Loan, plus (D) all other obligations owing under the Agreement on the
termination date. Upon receipt of the amounts set forth in (A)-(D) above,
Secured Party shall release its Lien on the Collateral.
(ii) On any Installment Payment Date on or after the second anniversary of
the Closing Date, Debtor may, upon sixty (60) days' prior written notice to
Secured Party, prepay a portion of the Loans in accordance with the terms
hereof. Debtor shall have the option to make up to three (3) prepayments in
the aggregate on the Loans, each prepayment in an amount not less than
$200,000. Debtor shall pay to Secured Party on the applicable Installment
Payment Date the sum of: (A) the prepayment amount, plus (B) any
Break-Funding Costs, plus (C) any accrued but unpaid interest with respect to
the prepayment. Amounts so prepaid under this subsection (c)(ii) shall be
applied to outstanding obligations owing under this Agreement in the
reasonable discretion of the Secured Party.
SECTION 1.4 Conditions Precedent.
The obligation of Secured Party to make any Loan advance shall be subject to
the following conditions, as appropriate:
(a) Conditions to All Advances on Closing Date. Each Loan advance on the
Closing Date shall be subject to the delivery to Secured Party of the
following originally executed documents (unless otherwise noted) each in form
and substance satisfactory to Secured Party and the satisfaction of the other
conditions set forth herein:
(i) the Agreement;
(ii) the Notes;
(iii) the Guaranty;
(iv) evidence of payment (or evidence of exemption) of any and all
sales, transfer, use, documentation or similar taxes due in connection
with the acquisition of the Equipment by Debtor;
(v) a secretarial certificate from Debtor: (A) certifying Debtor's
articles of incorporation, by-laws and resolutions, with such resolutions
authorizing the overall transaction and Debtor's execution, delivery and
performance of this Agreement and (B) containing an incumbency
certification of Debtor with the name(s), title(s) and specimen
signature(s) of the person or persons authorized on behalf of Debtor to
execute this Agreement.
(vi) an officer's certificate from Debtor: (A) stating that no material
adverse change has occurred in the condition of Debtor (financial or
otherwise) since the date of the last financial statement of Guarantor
which has been delivered to Secured Party which would impair the ability
of Debtor to pay and perform its obligations under this Agreement and (B)
stating that no Default or Event of Default shall have occurred and be
continuing as of such date;
(vii) a secretarial certificate from Guarantor: (A) certifying
Guarantor's articles of incorporation, by-laws and resolutions, with such
resolutions authorizing the overall transaction and Guarantor's execution,
delivery and performance of the Guaranty and (B) containing an incumbency
<PAGE>
certification of Guarantor with the name(s), title(s) and specimen
signature(s) of the person or persons authorized on behalf of Guarantor to
execute the Guaranty;
(viii) an officer's certificate from Guarantor: (A) stating that no
material adverse change has occurred in the condition of Guarantor
(financial or otherwise) since the date of the last financial statement of
Guarantor which has been delivered to Secured Party which would impair the
ability of Guarantor to pay and perform its obligations under the Guaranty
and (B) stating that no Default or Event of Default shall have occurred
and be continuing as of such date;
(ix) a written opinion of counsel for Debtor and Guarantor;
(x) copies of the Bills of Sale;
(xi) certificates of insurance evidencing the coverages required
hereunder;
(xii) Uniform Commercial Code filings as deemed appropriate by Secured
Party's counsel duly executed by Debtor and necessary third parties;
(xiii) good standing certificates from the Secretary of State of
Debtor's state of incorporation and the state of Debtor's chief executive
office; and
(xiv) good standing certificates from the Secretary of State of
Guarantor's state of incorporation and Guarantor's chief executive office.
(xv) UCC, tax and judgment lien searches as deemed necessary or
advisable by Secured Party;
(xvi) the absence on the date hereof of any Liens on the Collateral,
other than any Permitted Encumbrance in favor of Secured Party; and
(xvii) Secured Party shall have received such other documents,
certificates, financing statements and other items, in form and substance
satisfactory to Secured Party, as Secured Party may request.
(b) Term Loan Advances after the Closing Date. The obligation of the Secured
Party to make Term Loan A advances and/or Term Loan B advances after the Closing
Date is subject to satisfaction of the following conditions:
(i) delivery to the Secured Party of a Notice of Borrowing;
(ii) no material adverse change in the condition of the Debtor (financial
or otherwise) shall have occurred since the Closing Date;
(iii) the absence on the date of such advance of any Default or Event of
Default; and
(iv) no Lien or other interest shall have been permitted to attach to the
Collateral superior or subordinate to the interest of the Secured Party under
this Agreement, except for Permitted Encumbrances.
<PAGE>
ARTICLE II
SECURITY INTEREST
SECTION 2.1 Grant of Security Interest.
Debtor hereby Grants to Secured Party a first priority security interest in
the following (collectively, the items described in subsections (a)-(d) may be
referred to herein as the "Collateral"):
(a) All right, title and interest of the Debtor in and to the Equipment as
the same is now and will hereafter be constituted, whether now owned by the
Debtor or hereafter acquired, together with all accessories, equipment, parts
and appurtenances appertaining or attached to the Equipment whether now owned
or hereafter acquired, and all substitutions, renewals and replacements of
and additions, improvements, accessions and accumulations to the Equipment
together with all the rents, issues, income, profits and avails thereof.
(b) All right, title, interest, claims and demands of Debtor in, to and
under the following (collectively the "Assigned Agreements"):
(i) the Bills of Sale;
(ii) the Permitted Leases; and
(iii) any and all other contracts and agreements (excluding this
Agreement and any supplement or modification thereto and the Notes)
relating to the Equipment or any rights or interests therein to which
Debtor is now or may hereafter be a party (excluding contracts or
agreements by the Debtor with vendors providing for the use of certain
Equipment by Debtor to record, produce and distribute seismic data),
together with all rights, powers, privileges, licenses, easements, options
and other benefits of Debtor under each thereof, including without
limitation the right to make all waivers and agreements, to give and
receive all notices and other instruments or communications, to take such
action upon the occurrence of a default thereunder, including the
commencement, conduct and consummation of legal, administrative or other
Proceedings, as shall be permitted thereby or by law, and to do any and
all other things which Debtor is or may be entitled to do thereunder.
(c) The proceeds from a sale or transfer of any right, title or interest of
Debtor in the Equipment or any portion thereof.
(d) All proceeds of any and all of the foregoing Collateral, whether now
owned or hereafter acquired by Debtor and wherever located, including without
limitation:
(i) cash, accounts receivable, instruments, contract rights, chattel
paper, documents of title and any other obligation due to Debtor with respect
to or in connection with the foregoing Collateral; and
(ii) to the extent not otherwise included, all payments under any casualty
insurance (whether or not Secured Party is the loss payee thereof),
condemnation award, indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing
Collateral.
The Collateral shall mean and include all personal property and the
proceeds of such personal property described in any and all amendments to
this Agreement hereafter executed by Debtor and Secured Party in connection
with the Loan.
SECTION 2.2 Security for Secured Obligations.
This Agreement secures the payment of all indebtedness and other obligations
of Debtor to Secured Party with respect to: the Loans, whether now or hereafter
existing, including without limitation Debtor's obligations to Secured Party
under the Notes or any other instrument and all amendments thereto and renewals
and extensions thereof, whether for principal, interest, fees, expenses or
otherwise; all of Debtor's obligations of payment and performance now or
hereafter existing under this Agreement, including, without limitation, all
amendments hereto and renewals and extensions hereof (all such obligations of
Debtor described in this Section 2.2 being, collectively, the "Secured
Obligations").
SECTION 2.3 Security Interest Absolute.
All rights of Secured Party and security interests hereunder and all Secured
Obligations shall be absolute and unconditional, irrespective of:
(i) any lack of validity or enforceability of the Notes, this Agreement or
any other Security Instrument or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner, or place or payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment
or waiver of or any consent to any departure from the Notes, this Agreement
or any other Security Instrument; or
(iii) any exchange, release or non-perfection of any other collateral, or
any release, amendment or waiver of or consent to departure from any
guaranty, for all or any of the Secured Obligations.
SECTION 2.4 Debtor as Agent for Secured Party.
Title to each item of Equipment shall at all times remain in Debtor so long
as any Loans or other obligations under this Agreement remain outstanding;
provided, however, that with respect to each item of Equipment subject to motor
vehicle titling and registration laws, Secured Party appoints Debtor as the
agent of Secured Party and grants Debtor a limited power of attorney for the
sole and limited purpose of causing each item of such Equipment to be titled in
the name of Debtor with Secured Party noted as the first, and sole, lienholder.
Debtor shall keep possession of such original certificates of title and upon
reasonable notice Secured Party shall have the right to review such original
certificates of title during Debtor's normal business hours. In the case of a
Default or an Event of Default, Debtor shall promptly deliver within five (5)
Business Days the original certificates of title to Secured Party. The agency
and power of attorney created hereby shall immediately terminate upon the
occurrence of any Default or Event of Default under this Agreement. ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.1 Debtor's Representations and Warranties.
Debtor hereby represents and warrants to Secured Party that:
(a) Debtor is a corporation duly organized and validly existing under the
laws of the State of Delaware and has all requisite corporate power,
authority and legal right to own its properties, including without limitation
the Collateral, to conduct its business as is now being conducted and to
execute, deliver and perform its obligations under the Notes, this Agreement,
each other Security Instrument to which it is a party and each other document
or agreement related to the Collateral to which it is a party. Debtor is
fully qualified to do business and is in good standing in each jurisdiction
in which the failure to be in good standing would have a material adverse
effect on the business or operations of Debtor.
(b) The execution, delivery and performance by Debtor of the Notes, this
Agreement and each other Security Instrument to which it is a party are
within Debtor's corporate powers, have been duly authorized by all requisite
corporate action, do not contravene Debtor's charter or by-laws or any law,
governmental rule or regulation, or any order, writ, injunction, decree,
determination or award currently in effect applicable to, or any contractual
restriction binding on or affecting, Debtor or any of its properties,
including without limitation the Collateral, and do not result in or require
the creation of any Lien, security interest, right of acceleration, charge or
encumbrance (other than pursuant to this Agreement) upon or with respect to
any of its properties.
(c) No authorization or approval or other action by, and no notice to or
filing (other than the filings referred to in subparagraph (f) below) with,
any governmental authority or regulatory body, shareholders or any other
Person is required for the due execution, delivery and performance by Debtor
of this Agreement or any other Security Instrument to which it is a party.
(d) The Notes, this Agreement and each other Security Instrument to which
Debtor is a party are the legal, valid and binding obligations of Debtor,
enforceable against Debtor in accordance with their respective terms,
subject, in the case of enforceability, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally and to the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
(e) The proceeds of the Loans will be used only to finance the purchase by
Debtor of the Equipment; Debtor owns good and marketable title to the
Equipment; the Collateral is free and clear of all Liens (except for
Permitted Encumbrances in favor of Secured Party); and the Equipment is in
good condition and ready for operation. The Equipment is and will retain its
character as personal property, and neither Debtor, Guarantor, or any
Affiliate or Subsidiary of either Debtor or Guarantor shall affix or attach
any item of Equipment in any manner so as to alter the character of the
Equipment as personal property subject to the UCC.
(f) Except for the notation on the certificates of title naming Secured
Party as first lienholder with respect to all items of Equipment subject to
motor vehicle titling and registration laws, the filing of Uniform Commercial
Code financing statements in the office of the Secretary of State of the
State of Texas will create a valid perfected first priority security interest
in the Collateral, securing the payment of the Secured Obligations, and all
filings and other actions necessary or desirable to perfect and protect such
security interests will have been taken. No Person other than Secured Party
holds any security interest affecting the Collateral. No effective Security
Instrument or other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office, except such as may have
been filed in favor of Secured Party relating to this Agreement.
(g) Debtor's chief executive office is located in Harris County, Houston,
Texas. The Debtor has not used any trade names or other names.
(h) Contemporaneously with the execution and delivery of this Agreement,
Debtor is delivering to Secured Party evidence of insurance satisfying the
requirements of Section 4.1 hereof.
(i) Debtor is not currently insolvent, as defined in 11 U.S.C. 101(32) nor
will it be rendered insolvent by virtue of entering into the Notes, this
Agreement or any other Security Instrument to which it is a party or carrying
out any of the transactions contemplated hereby or thereby.
(j) Each financial statement of Guarantor which has been furnished to
Secured Party fairly presents the financial condition of Guarantor as of the
date of such financial statement. There has been no material adverse change
in Guarantor's financial condition since the date of the most current
financial statement delivered to Secured Party.
(k) There is no pending, or to the Debtor's knowledge, threatened, action
or Proceeding affecting Debtor, Guarantor or any of their properties before
any court, governmental agency or arbitrator which may materially and
adversely affect the condition (financial or otherwise) or operations of
Debtor, Guarantor or any of their properties or which purports to affect the
validity or enforceability of the Notes, this Agreement or any other Security
Instrument to which Debtor is a party.
(l) No Default or Event of Default has occurred and is continuing.
(m) All sales, transfer, use, documentation or similar taxes, fees or
other charges due and payable prior to or as of the date hereof have been
paid to the extent such are in connection with the sale to and purchase by
Debtor of the Equipment.
(n) Debtor is not a party to, nor bound by, any contract, agreement or
instrument that would conflict with this Agreement, the Notes or any other
contracts, agreements or instruments executed in connection with the
transactions contemplated by this Agreement.
(o) Debtor has agreed, and hereby acknowledges, to accept service of
process at its address set forth in Section 8.1 hereof in person or by
registered or certified mail return receipt requested, postage prepaid, in
connection with any Proceeding initiated by Secured Party in any of the
courts referenced in Section 8.11 hereof.
(p) The Debtor has no Subsidiaries.
(q) Debtor has not incurred any accumulated unfunded deficiency within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
from time to time ("ERISA") nor has Debtor incurred any material liability to
the Pension Benefit Guaranty Corporation ("PBGC") established under such Act
(or any successor thereto under such Act) in connection with any Plan. Debtor
and its Affiliates are in compliance in all material respects with those
provisions of ERISA and the regulations and public interpretations thereunder
which are applicable to Debtor and its Affiliates, except for such
noncompliance as would not have a material adverse effect on the financial
condition of Debtor and its Affiliates, taken as a whole.
(r) Debtor has filed all income tax returns required to be filed prior to
the date hereof with the various governmental entities having taxing
authority with respect to Debtor.
(s) Debtor (i) is not an "investment company" as such term is defined in,
or otherwise subject to regulations under, the Investment Company Act of 1940
and (ii) is not a "holding company" as that term is defined in, and is not
otherwise subject to regulations under, the Public Utility Holding Company
Act of 1935.
(t) Debtor has not sold, extended any offer to sell nor accepted any offer
to purchase regarding any of Debtor's interest in the Collateral or with
respect to the transactions described in the Security Instruments or the
Notes.
(u) Debtor has delivered true and accurate copies of the Bills of Sale
executed by each Seller with respect to the transfer of the Equipment to
Debtor.
<PAGE>
SECTION 3.2 Affirmative Covenants.
Until all the Secured Obligations shall have been fully paid and satisfied,
Debtor covenants and agrees that it shall, unless Secured Party shall have
otherwise consented in writing:
(a) promptly pay the principal of, interest on, and any other amounts due
under the Notes as and when the same become due, whether at maturity, by
acceleration or otherwise;
(b) (i) duly, punctually and faithfully perform its obligations under the
Notes, this Agreement and each other Security Instrument to which it is a
party; (ii) maintain the Liens and security interests created by this
Agreement and each other Security Instrument to which it is a party as valid
and perfected Liens on and security interests in all of the Collateral, prior
in right to any other Lien, security interest, claim or other encumbrance;
(iii) warrant and defend its interest in and to the Collateral against the
claims and demands of all Persons; and (iv) defend, at Debtor's cost, any
action, claim or Proceeding affecting the Collateral;
(c) use the proceeds of the Loans only to finance the purchase by Debtor
of the Equipment and maintain good and marketable title to the Equipment,
free and clear of any Liens, security interests, charges or encumbrances
except for the security interest created by this Agreement and Permitted
Encumbrances;
(d) notify Secured Party at least thirty (30) days prior to the changing
of the chief executive office of the Debtor from the location specified in
Section 3.1(g);
(e) at no expense to Secured Party, cause each item of Equipment to be
serviced, maintained and preserved in the same condition, repair and working
order as when new, ordinary wear and tear excepted, and in accordance with
any manufacturer's suggested or approved maintenance program and warranty
requirements, and shall, in the case of any loss or damage to any item of
Equipment, promptly furnish to Secured Party a statement respecting any such
loss or damage and (unless an Event of Loss shall have occurred with respect
to an item of Equipment) as quickly as practicable after the occurrence
thereof make or cause to be made all repairs, replacements and other
improvements in connection therewith which are necessary or desirable to keep
each item of Equipment in proper working order;
(f) permit Secured Party to inspect the Equipment during normal business
hours upon reasonable prior notice to Debtor;
(g) from time to time execute and deliver all such supplements and
amendments hereto and to any other Security Instrument, and all such
financing statements, continuation statements, instruments of further
assurance and other instruments, and take such other action, as the Secured
Party requests and reasonably deems necessary or advisable to: (i) further
Grant, maintain or preserve the Lien and security interest contemplated by
this Agreement or carry out more effectively the purposes hereof; (ii)
perfect or protect the validity of any Security Instrument or of any Grant
made or to be made by this Agreement; or (iii) enforce any Security
Instrument or preserve and defend title to the Collateral and the rights of
the Secured Party therein against the claims of all Persons and parties;
(h) comply with all of its representations, warranties and covenants set
forth in this Agreement, in the Notes and each Security Instrument to which
it is a party; and punctually perform and observe all of its obligations and
agreements contained in this Agreement, in the Notes and each Security
Instrument to which it is a party;
(i) promptly notify the Secured Party of any default by any Person under
any Security Instrument;
(j) remain a duly organized and validly existing corporation under the
laws of the state of its incorporation and remain duly qualified to do
business and in good standing in each jurisdiction in which the failure to be
in good standing would have a material adverse effect on the business or
operations of Debtor;
(k) comply in all material respects with all applicable laws, rules,
regulations and orders; and preserve and maintain all federal, state and
local licenses, privileges, franchises, certificates and other permits
necessary for the operation of its business and the operation of each item of
Equipment;
<PAGE>
(l) pay or cause to be paid promptly when due (i) (subject to the right of
Debtor, in accordance with the provisions of this Agreement to obtain
extensions of the date on which such taxes are due) all property and other
taxes (including without limitation income, sales, use, franchise and gross
receipts taxes) and governmental charges or levies which are at any time or
from time to time levied upon or assessed against it or any item of Equipment
or are otherwise associated with the ownership, use or operation of any item
of Equipment (except such taxes levied on the net income of Secured Party)
and (ii) all claims (including without limitation claims for labor, materials
and supplies) against any item of Equipment; provided, that Debtor may
contest any such tax or claim by appropriate Proceedings so long as such
Proceedings shall suspend the collection thereof, no part of the Collateral
would be subject to sale, forfeiture or diminution during the pendency of
such Proceedings, Debtor shall have furnished such security as may be
required in the Proceedings or reasonably requested by Secured Party, Debtor
conducts such contests in good faith and with due diligence, and promptly
after the final determination of each such contest, Debtor pays all amounts
which shall be determined to be payable in respect thereof;
(m) within 120 days after the end of each fiscal year furnish to the
Secured Party unaudited year end financial reports of the Debtor including
without limitation (i) a balance sheet and (ii) statements of income and
retained earnings, all prepared in accordance with generally accepted
accounting principles consistently applied and certified by the president,
chief financial officer or any vice president of Debtor who prepared such
financial statements as being true and accurate and fairly representing the
financial condition of Debtor;
(n) promptly report to Secured Party the commencement of any Proceeding
against Debtor if such litigation reasonably would be expected to, in the
event of an unfavorable outcome, cause an Event of Default, have a material
adverse effect on Debtor's financial condition or operations, affect the
validity or enforceability of the Notes, this Agreement or any of the
Security Instruments or affect priority or enforceability of Secured Party's
security interest in any of the Collateral;
(o) promptly notify Secured Party in writing if a Default or an Event of
Default has occurred;
(p) upon the replacement of an item of Equipment with Replacement
Equipment, Debtor, at its own expense, will promptly (i) cause a supplement
hereto, in form and substance satisfactory to Secured Party, subjecting such
Replacement Equipment to this Agreement, to be duly executed by Debtor, (ii)
furnish Secured Party with such evidence of Debtor's title to such
Replacement Equipment, of the condition of such Replacement Equipment, and of
compliance with the insurance provisions hereof with respect to such
Replacement Equipment and (iii) take such other action as Secured Party may
request in order that such Replacement Equipment be duly and properly titled
in Debtor and subject to this Agreement to the same extent as the item of
Equipment replaced thereby;
(q) (i) at all times, make prompt payment of all contributions required
under its Plans and required to meet the minimum funding standard set forth
in ERISA with respect to its Plans; (ii) notify Secured Party immediately of
any fact, including, but not limited to, any Reportable Event (as defined in
ERISA) arising in connection with any of its Plans, which might constitute
grounds for termination thereof by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such
Plan, together with a statement, if requested by the Secured Party, as to the
reason therefor and the action, if any, proposed to be taken with respect
therefor; and (iii) furnish to Secured Party upon its request, such
additional information concerning any of its Plans as may be reasonably
requested;
(r) Debtor shall pay, and save Secured Party harmless against, any and all
losses, judgments, decrees and costs (including, without limitation, all
reasonable attorneys' fees and expenses) in connection with any Permitted
Contest and shall promptly after the final settlement, compromise or
determination (including any appeals) of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or
be determined to be payable therein or in connection therewith, together with
all penalties, fines, interest, costs and expenses thereof or in connection
therewith, and perform all acts, the performance of which shall be ordered or
decreed as a result thereof.
<PAGE>
SECTION 3.3 Negative Covenants.
Until the Secured Obligations shall have been fully paid and satisfied,
Debtor shall not, without the prior written consent of Secured Party:
(a)(i) sell, lease, assign, transfer, convey, Grant an interest in,
exchange or otherwise dispose of any of the Collateral or any part thereof or
(ii) cause or permit any subleasing of any of the Equipment (except that
Debtor may lease any or all items of Equipment to a Permitted Lessee pursuant
to a Permitted Lease);
(b) create or suffer to exist any Lien affecting the Collateral or any
part thereof, other than in favor of Secured Party or other Permitted
Encumbrances;
(c) use the Equipment for any unlawful purpose;
(d) dissolve, wind up or liquidate or seek or permit the dissolution or
liquidation of Debtor in whole or in part;
(e) [intentionally omitted];
(f) as against Secured Party, claim any credit on, or make any deduction
from, the principal or interest payable on the Notes, whether by reason of
the payment of any taxes levied or assessed upon any of the Collateral, or
otherwise;
(g) take or permit any action which would result in an Event of Default;
(h) [intentionally omitted];
(i) [intentionally omitted];
(j) enter into any new line of business or operation not currently in
existence with respect to the Debtor or materially alter its existing
operations;
(k) consolidate with or merge into any other corporation or sell, assign,
convey, transfer or lease substantially all of its assets as an entirety to
any Person unless:
(i) Debtor is the surviving entity of any such consolidation or merger;
or
(ii) (A) the corporation formed by such consolidation or into which
Debtor is merged, or the Person which acquires by conveyance, transfer or
lease of substantially all of the assets of Debtor as an entirety, shall
be a solvent corporation organized and existing under the laws of the
United States or any state thereof or the District of Columbia and shall
execute and deliver to Secured Party an agreement containing an effective
assumption by such successor, transferee or lessee corporation of the due
and punctual performance and observance of each covenant and condition of
this Agreement;
(B) immediately prior to and after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(C) Debtor shall have delivered to Secured Party a certificate
signed by an officer of Debtor and an opinion of Debtor's counsel
satisfactory in form and substance to Secured Party stating that such
consolidation, merger, conveyance, transfer or lease and the assumption
agreement mentioned in clause 3.3(k)(ii)(A) above comply with the
requirements of this Section 3.3(k) and that all conditions precedent
herein provided for relating to such transaction have been complied
with.
Upon any consolidation or merger in which Debtor is not the surviving
corporation, or any conveyance, transfer or lease of substantially all the
assets of Debtor as an entirety in accordance with this Section 3.3(k), the
successor corporation formed by such consolidation or into which Debtor is
merged or to which such conveyance, transfer or lease is made (x) shall succeed
to, and be substituted for (but without release of Debtor from any of its
obligations hereunder) and (y) may exercise every right and power of, Debtor
under this Agreement with the same effect as if such successor corporation had
been named as a Debtor herein.
(l) attach or affix any item of Equipment in any manner so as to alter the
character of the Equipment as personal property subject to the UCC.
<PAGE>
ARTICLE IV
INSURANCE, TRANSFER, CONDEMNATION AND EVENT OF LOSS
SECTION 4.1 Insurance.
(a) Property and Liability Insurance. So long as this Agreement is in effect,
Debtor shall maintain and keep in force, or cause to be maintained and kept in
force, without cost or expense to Secured Party, with respect to all items of
Equipment prior to the expiration or earlier termination of this Agreement (i)
all-risk property damage insurance in an amount not less than the aggregate
Termination Value for all items of Equipment of such type as shall be
satisfactory to Secured Party and (ii) commercial general liability insurance,
including blanket contractual and personal injury insurance, covering any risks
which Secured Party or Debtor might incur by reason of the use or operation of
the Equipment in or over any area, in an amount not less than $6,000,000 per
occurrence. Such insurance policy or policies referenced to in clause (i) of the
preceding sentence will name Secured Party as a loss payee to the extent of its
interest; provided, that upon verification by Secured Party that all amounts
owing to Secured Party under the Agreement, the Notes or any other Security
Instrument have been paid in full, then Secured Party shall remit all remaining
property damage insurance proceeds, respecting any item of Equipment, to the
extent such proceeds are controlled by Secured Party, to Debtor. Such insurance
policy or policies referenced to in clause (ii) of the preceding sentence will
name Secured Party as an additional insured. Each of the policies required by
this Section 4.1 will provide that (A) the same may not be invalidated against
Secured Party by reason of (1) any violation of a condition or breach of
warranty of the policies or the application therefor by any Person excepting
Secured Party, (2) the use of any item of Equipment for purposes not permitted
by such policies by any Person excepting Secured Party, (3) any foreclosure
proceeding or notice of sale regarding any item of Equipment or (4) the title or
beneficial ownership of any item of Equipment being held by a party other than
Debtor; (B) the policies may be canceled or materially amended by the insurer
only after thirty (30) days' prior written notice to Secured Party; (C) the
interests of Secured Party in such insurance policies (except with respect to
commercial general liability) are assignable and (D) such insurance policies
shall be primary insurance. Each of the policies required by this Section 4.1
shall otherwise be reasonably satisfactory to Secured Party. The policies of
insurance required under this Section shall be valid and enforceable policies
issued by insurers of recognized responsibility acceptable to Secured Party. On
or before the date hereof, and thereafter at intervals of not more than twelve
months, Debtor will furnish or cause to be furnished to Secured Party a
certificate or other evidence satisfactory to Secured Party signed by an
independent insurance broker certifying to Secured Party's satisfaction that
Debtor has insurance in place with respect to all items of Equipment which
complies with the insurance requirements of this Agreement. If Debtor shall fail
to cause the insurance required under this Section 4.1 to be carried and
maintained, Secured Party may, but shall have no obligation to, provide such
insurance and Debtor shall reimburse Secured Party upon demand for the cost
thereof as a supplemental payment hereunder in addition to other amounts owing
with respect to the Notes or this Agreement.
SECTION 4.2 Transfer of Collateral.
Except as otherwise expressly provided by the provisions of this Agreement,
Debtor will not (prior to the satisfaction of all Obligations) lease, Grant or
otherwise transfer the Collateral or any part thereof or any interest therein to
any party other than Secured Party without Secured Party's prior written consent
and any and all such transfers shall be made under and subject to Secured
Party's security interest in such Collateral hereunder. Prior to or
simultaneously with any such transfer, the transferee shall accept, agree to and
execute an agreement assuming Debtor's Obligations to Secured Party, in form and
substance satisfactory to Secured Party.
SECTION 4.3 Condemnation.
Immediately upon obtaining knowledge thereof, Debtor shall notify Secured
Party of any condemnation or other eminent domain Proceedings with respect to
any item of Equipment. Secured Party may participate in any such Proceedings,
and Debtor shall provide Secured Party with all instruments required by it to
permit such participation upon obtaining actual knowledge thereof. Debtor shall
pay all reasonable fees and expenses incurred by Secured Party in connection
with Secured Party's participation in any such Proceedings. All proceeds arising
from any such eminent domain Proceedings shall be paid to and applied by the
Secured Party as specified in Section 5.3 hereof.
SECTION 4.4 Certain Events of Loss.
Upon the occurrence of an Event of Loss with respect to any item of
Equipment, Debtor shall pay Secured Party within thirty (30) days after receipt
of insurance proceeds after the occurrence of such Event of Loss (but in no
event shall such period extend 120 days beyond the date of the occurrence of
such Event of Loss) or, if such day is not a Business Day, on the next occurring
Business Day (the "Event of Loss Payment Date") an amount equal to the sum of
(a) the Termination Value (computed as of the Installment Payment Date
immediately preceding the Event of Loss Payment Date) for the items of Equipment
then subject to the Event of Loss, plus (b) all accrued but unpaid interest,
plus (c) any Break-Funding Costs with respect to the items of Equipment then
subject to the Event of Loss, plus (d) all other obligations owing hereunder on
the Event of Loss Payment Date. Upon payment of the amounts set forth in (a)-(d)
above, Secured Party shall release its Lien on the items of Equipment then
subject to the Event of Loss.
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.1 Events of Default.
Any of the following occurrences or acts shall constitute an event of default
under this Agreement (individually, an "Event of Default"):
(a) Debtor shall fail to pay any principal of, or interest on, the Notes
or any other indebtedness of Debtor to Secured Party, now or hereafter
existing, within five (5) Business Days from the date the same shall be due
and payable, whether at maturity, by acceleration or otherwise; or
(b) Except as specified in Section 5.1(a), Debtor shall default in the
payment of any costs or expenses incurred by Secured Party in connection
herewith or any other amounts hereunder or under the Notes within ten (10)
Business Days from the date on which Secured Party notifies Debtor of such
default; or
(c) Debtor shall fail to observe the terms and covenants of Sections
3.2(b)(ii), 3.2(c), 3.2(l), 3.3(a)-(l) or 4.1; or
(d) Except as otherwise specified in Sections 5.1(a)-(c), Debtor shall
fail to perform or observe any other term, covenant or agreement contained in
the Notes, this Agreement or any other Security Instrument and such failure
shall remain unremedied for a period of thirty (30) days from either the date
Debtor first knows of such failure or the date on which Secured Party
notifies Debtor of such failure; or
(e) Any representation or warranty made by Debtor in the Notes, this
Agreement, any other Security Instrument or in any certificate or other
document delivered pursuant hereto or thereto shall prove to have been
incorrect or misleading in any material respect when made; or
(f) Debtor shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors; or any Proceeding
shall be instituted by or against Debtor seeking to adjudicate it bankrupt or
insolvent, or seeking reorganization, liquidation, arrangement, adjustment or
composition of it or its debt under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking appointment of
a receiver, custodian, trustee, or other similar official for it or for any
substantial part of its property, and, in the case of any such Proceeding
instituted against Debtor, it shall remain undismissed for a period of sixty
(60) days; or Debtor shall take any action to authorize any of the actions
set forth in this subsection (f); or
(g) This Agreement shall, for any reason, except to the extent permitted
by the terms hereof, cease to create a valid first priority Lien on and
perfected first priority security interest in any of the Collateral purported
to be covered hereby; or
(h) Any provision of the Notes, this Agreement or the other Security
Instruments shall cease to be valid and binding on Debtor, as a signatory
thereto, or Debtor shall so state in writing; or Secured Party shall be
deprived of any of the benefits of the Note, this Agreement or any other
Security Instrument for any reason whatsoever; or
(i) For any reason whatsoever, Debtor is not entitled to or does not
possess the property rights or other rights regarding the Collateral which
have been assigned or transferred to Secured Party; or
(j) Debtor shall dissolve or any action shall be taken by Debtor to wind
up or liquidate Debtor's business, affairs or property or assets or Debtor
shall announce its intention to do so without Secured Party's prior written
consent; or
(k) Any sale, transfer, conveyance, abandonment, condemnation, partition
or change in ownership of any item or items of Equipment in excess of
$50,000, or any portion thereof shall occur, whether in one transaction or a
series of transactions without Secured Party's prior written consent; or
(l) An attachment or other Lien shall be filed or levied against a
substantial part of the property of Debtor (or any Affiliate of Debtor) and
such judgment shall continue unstayed and in effect, or such attachment or
Lien shall continue undischarged or unbonded, for a period of sixty (60)
days; or
(m) Guarantor shall fail to make a payment under the Guaranty within five
(5) Business Days from the date such payment is due; or
(n) Except as specified in Section 5.1(m), Guarantor shall fail to perform
or observe any other term, covenant or agreement contained in the Guaranty
and such failure shall remain unremedied for a period of thirty (30) days
from either the date Guarantor first knows of such failure or the date on
which Secured Party notifies Guarantor of such failure; or
(o) Any representation or warranty made by Guarantor in the Guaranty or in
any certificate or other document delivered pursuant thereto shall prove to
have been incorrect or misleading in any material respect when made; or
(p) Guarantor shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors; or any
Proceeding shall be instituted by or against Guarantor seeking to adjudicate
it bankrupt or insolvent, or seeking reorganization, liquidation,
arrangement, adjustment or composition of its finances or debt under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking appointment of a receiver, custodian, trustee, or other similar
official for its finances or for any substantial part of its property, and,
in the case of any such Proceeding instituted against Guarantor, it shall
remain undismissed for a period of sixty (60) days; or Guarantor shall take
any action to authorize any of the actions set forth in this subsection (p);
or
(q) Guarantor (or any Affiliate of Guarantor) shall be in default (i)
under any lease, loan agreement or other agreement, instrument or document
respecting any such obligation of Guarantor (or any Affiliate of Guarantor)
in excess of $10,000,000, now or hereafter entered into between Guarantor (or
any Affiliate of Guarantor) and Secured Party, or between Guarantor (or any
Affiliate of Guarantor) and any parent, subsidiary or affiliate of Secured
Party, and such default shall have been declared by the party entitled to
declare the same, (ii) under any promissory note, now or hereafter executed
by Guarantor (or any Affiliate of Guarantor) and delivered to any party
referred to in clause (i) above evidencing a loan made by any such party to
Guarantor (or any Affiliate of Guarantor) or (iii) in the payment of any
single amount due by Guarantor (or any Affiliate of Guarantor) to any Person
(other than Secured Party, or any parent, subsidiary or affiliate of Secured
Party) in excess of $10,000,000 (excluding any such obligation which is being
contested in good faith by Guarantor (or any Affiliate of Guarantor) by
appropriate proceedings, and the liability for which has not been reduced to
judgment) relating to the payment of borrowed money or the payment of rent or
hire under any lease agreement and such default shall have continued for more
than thirty (30) days after the date Guarantor (or any Affiliate of
Guarantor) obtained knowledge or received notice thereof; or an attachment or
other Lien shall be filed or levied against a substantial part of the
property of Guarantor or Debtor and such judgment shall continue unstayed and
in effect, or such attachment or Lien shall continue undischarged or
unbonded, for a period of sixty (60) days; or
(r) Any provision of the Guaranty shall cease to be valid and binding on
Guarantor, as a signatory thereto, or Guarantor shall so state in writing; or
Secured Party shall be deprived of any of the benefits of the Guaranty for
any reason whatsoever; or
(s) Any action shall be taken by Guarantor to wind up or liquidate
Guarantor's business, affairs or property or assets or Guarantor shall
announce his intention to do so without Secured Party's prior written
consent.
SECTION 5.2 Remedies.
If any Event of Default shall have occurred and be continuing:
(a) the Secured Party may do one or more of the following:
(i) declare the Notes and all interest thereon and all other Secured
Obligations to be forthwith due and payable, whereupon the Notes, all such
interest and all Secured Obligations shall become and be forthwith due and
payable, without presentation, demand, protest or further notice of any
kind, all of which are hereby expressly waived by Debtor;
(ii) exercise, in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC and/or
other applicable law and also (A) require Debtor to, and Debtor hereby
agrees that it will at its expense and upon the request of Secured Party
forthwith, assemble all or part of the Collateral as directed by Secured
Party and make it available to Secured Party at a place to be designated
by Secured Party and (B) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or
private sale, at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party
may deem commercially reasonable. Debtor agrees that, to the extent notice
of sale shall be required by law, at least fifteen (15) days' notice to
Debtor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Secured Party may adjourn
any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned;
(iii) to the extent permitted by applicable law, bring suit at law, in
equity or through other appropriate Proceedings, whether for the specific
performance of any covenant or agreement contained in this Agreement or
any of the other Security Instruments, for an injunction against a
violation of any of the terms hereof or thereof, in aid of the exercise of
any power Granted hereby or thereby, or by law, to recover judgment for
any and all amounts due on the Notes, this Agreement, any of the other
Security Instruments or otherwise, including, without limitation, any
deficiency remaining after foreclosure hereunder;
(iv) exclude Debtor from the Collateral and take immediate possession
of interest therein, and, at the expense of Debtor, maintain, repair,
alter, use, add to, improve, insure, lease, operate and manage the
Collateral in such manner as Secured Party shall see fit; and
(v) take any other appropriate action to protect and enforce the rights
and remedies of Secured Party hereunder, or under or in respect of any
other Security Instrument, or otherwise.
(b) Notwithstanding any provision to the contrary contained in this
Agreement, the Notes or any other Security Instrument, the unpaid principal
amount of the Notes and all accrued interest and other sums payable under the
Notes or under this Agreement shall be forthwith payable upon a sale of any
portion of the Collateral pursuant to subsection (a)(ii) of this Section 5.2.
All earnings, revenues, proceeds, rents, issues, profits and income derived
pursuant to subsection (a)(iv) of this Section 5.2 (after deducting costs and
expenses of operation and other proper charges), all proceeds of any such
sale and all other money and property received or recovered by the Secured
Party pursuant to this Section 5.2 shall be held and applied as set forth in
Section 5.3 hereof.
(c) The power to effect any sale under this Section 5.2 shall not be
exhausted by any one or more sales as to any portion of the Collateral
remaining unsold, but shall continue unimpaired until all of the Collateral
shall have been sold or all of the Secured Obligations shall have been paid
in full.
(d) Secured Party may bid for and acquire any portion of the Collateral in
connection with a sale thereof under this Section 5.2, and may pay all or
part of the purchase price by crediting against amounts owing on the Secured
Obligations, all or part of the net proceeds of such sale after deducting the
costs, charges and expenses incurred by Secured Party in connection with such
sale. The Notes need not be produced in order to complete any such sale or
effect such credit. Secured Party may hold, lease, operate, manage or
otherwise deal with any property so acquired in any manner permitted by law.
(e) Secured Party shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Collateral in
connection with a sale thereof under this Section 5.2. In addition, Debtor
hereby irrevocably appoints Secured Party as its agent and attorney-in-fact
to transfer and convey its interest in any portion of the Collateral in
connection with such a sale thereof and to take all action necessary to
effect such sale. No purchaser or transferee at such a sale shall be bound to
ascertain Secured Party's authority, inquire into the satisfaction of any
condition precedent or see to the application of any monies.
(f) Secured Party's right to seek and recover judgment on the Secured
Obligations shall not be affected by the seeking, obtaining or application of
any other relief under or with respect to this Agreement. Neither the Lien of
this Agreement nor any rights or remedies of Secured Party shall be impaired
by the recovery of any judgment by Secured Party against Debtor or by the
levy of an execution under such judgment upon any portion of the Collateral.
(g) All rights and remedies from time to time conferred upon or reserved
to the Secured Party are cumulative, and none is intended to be exclusive of
another and shall be in addition to every other right or remedy permitted by
law. No delay or omission in insisting upon the strict observance or
performance of any provision of this Agreement, or in exercising any right or
remedy, shall be construed as a waiver or relinquishment of such provision,
nor shall it impair such right or remedy. Every right and remedy may be
exercised from time to time and as often as deemed expedient in any
combination and order desired by Secured Party; provided, however, that
Secured Party shall exercise none of the remedies referenced in this Section
5.2 with respect to the Collateral unless and until an Event of Default shall
have occurred and be continuing.
(h) Anything contained in this Agreement to the contrary notwithstanding,
until an Event of Default shall occur and be continuing: (i) all rights,
powers, privileges and other benefits of or accruing to Debtor under the
Assigned Agreements shall be exercisable only by Debtor, without the consent
or approval of the Secured Party, (ii) Debtor shall retain full right to make
all waivers and agreements, to give and receive all notices and other
instruments or communications, and to take all action upon the occurrence of
a default under any Assigned Agreement, including the commencement, conduct
and consummation of legal, administrative or other proceedings, as shall be
permitted thereby or by law, and to do any and all other things which Debtor
is or may be entitled to do under any Assigned Agreement.
SECTION 5.3 Proceeds of Collateral.
All cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
shall be held by Secured Party as collateral for, and then promptly thereafter
applied by Secured Party against, all or any part of the amounts due under the
Notes and the other Secured Obligations in such order as Secured Party shall
elect. Any surplus of such cash or cash proceeds held by Secured Party and
remaining after payment in full of all the Secured Obligations shall be paid
over to Debtor or to whomsoever may be lawfully entitled to receive such
surplus.
SECTION 5.4 Waiver of Rights; Receiver.
(a) Debtor consents to the appointment of one or more receivers of all or
part of the Collateral, upon the request of Secured Party, if an Event of
Default shall have occurred and be continuing.
(b) To the extent permitted by law, Debtor hereby waives its right to
seek, and hereby agrees that it will not seek or derive any benefit or
advantage from, any of the following whether now existing or hereafter in
effect:
(i) any stay, extension, moratorium or similar law with respect to the
Collateral or the Secured Obligations;
(ii) any law allowing for the redemption of any portion of the
Collateral after a sale thereof under Section 5.2 hereof; and
(iii) any right to have any portion of the Collateral after an Event of
Default shall have occurred.
Debtor covenants not to hinder, delay or impede the exercise of any right
or remedy of Secured Party under or in respect of this Agreement and agrees
to suffer and permit the exercise of each such remedy.
<PAGE>
ARTICLE VI
INDEMNITY AND EXPENSES
SECTION 6.1 General Indemnity.
Debtor hereby assumes liability for, and does hereby agree, whether or not
any of the transactions contemplated hereby, by the Security Instruments or the
Notes are consummated, to indemnify, protect, save, defend and hold harmless
Secured Party and each of its officers, directors, stockholders, successors,
assigns, agents and servants (for purposes of this Article VI, each of the
foregoing may be referred to individually as a "Beneficiary") from and against
any and all obligations, fees, liabilities, losses, damages, penalties, claims,
demands, actions, suits, judgments, costs and expenses, including, without
limitation, reasonable legal fees and expenses, of every kind and nature
whatsoever imposed on, incurred by, or asserted against any Beneficiary, in any
way relating to or arising out of (a) the manufacture, construction, ordering,
purchase, acceptance or rejection, financing, ownership, titling or retitling,
registration or re-registration, acceptance, leasing, subleasing, possession,
use, operation, maintenance, storage, removal, sale, delivery or other
disposition of any item of Equipment, including, without limitation, any of such
as may arise from (i) loss or damage to any property or death or injury to any
person, (ii) patent or latent defects in any item of Equipment (whether or not
discoverable by Debtor or any Beneficiary), (iii) any claims based on strict
liability in tort or otherwise, (iv) any claims based on patent, trademark or
copyright infringement and (v) any claims based on liability arising under the
applicable environmental or noise or pollution control law or regulation or (b)
any failure on the part of Debtor to perform or comply with any of the terms of
the Security Instruments or the Notes or (c) any Security Instrument or the
Notes. Debtor shall not be required to indemnify any Beneficiary for any claims
resulting from acts which would constitute the willful misconduct or gross
negligence of such Beneficiary. Debtor shall give Secured Party prompt notice of
any occurrence, event or condition known to Debtor as a consequence of which any
Beneficiary is or is reasonably likely to be entitled to indemnification
hereunder. Debtor shall promptly upon demand of any such Beneficiary reimburse
such Beneficiary for amounts expended by it in connection with any of the
foregoing or pay such amounts directly. Debtor shall be subrogated to a
Beneficiary's rights in any matter with respect to which Debtor has actually
reimbursed such Beneficiary for amounts expended by it or has actually paid such
amounts directly pursuant to this Section 6.1. In case any action, suit or
Proceeding is brought against any Beneficiary in connection with any claim
indemnified against hereunder, such Beneficiary will, after receipt of notice of
the commencement of such action, suit or Proceeding, notify Debtor thereof,
enclosing a copy of all papers served upon such Beneficiary. Debtor may, and
upon any Beneficiary's request will, at Debtor's expense, resist and defend such
action, suit or Proceeding, or cause the same to be resisted or defended by
counsel selected by Debtor and reasonably satisfactory to such Beneficiary and
in the event of any failure by Debtor to do so, Debtor shall pay all costs, fees
and expenses (including, without limitation, reasonable attorney's fees and
expenses) incurred by such Beneficiary in connection with such action, suit or
Proceeding.
SECTION 6.2 General Tax Indemnity.
Debtor agrees to pay, and indemnify and hold each Beneficiary harmless on an
after-tax basis from, any and all federal, state, local and foreign taxes, fees,
withholdings, levies, imposts, duties, assessments and charges of any kind and
nature whatsoever, together with any penalties, fines or interest therein
(herein called "Taxes or Other Impositions") howsoever imposed, whether levied
or imposed upon or asserted against such Beneficiary, Debtor, any item of
Equipment or any part thereof, by any federal, state or local government or
taxing authority in the United States, or by any taxing authority or
governmental subdivision of a foreign country, upon or with respect to (a) any
item of Equipment (b) the manufacture, construction, ordering, purchase,
ownership, financing, delivery, leasing, re-leasing, possession, use,
maintenance, registration, titling, licensing, documentation, return, sale
(including, without limitation, sale to a third party) or other application or
disposition thereof, (c) the payments, receipts or earnings arising from any
item of Equipment or (d) the Bills of Sale, the Security Instruments or the
Notes, or upon the payments by Debtor under the Bills of Sale, the Notes or the
Security Instruments; provided, however, that the foregoing indemnity shall not
apply to any taxes or other impositions to the extent based upon or measured by
any Beneficiary's net income (unless such tax or other imposition is a Covered
Income Tax as hereinafter defined), and which are imposed or levied by any
federal, state or local taxing authority in the United States. For purposes
hereof, a "Covered Income Tax" shall mean an income tax (including, without
limitation, a tax imposed upon gross income or receipts) imposed on any
Beneficiary by any taxing authority (excluding the United States federal
government) in whose jurisdiction such Beneficiary (including for this purpose
all entities with which it is combined, integrated or consolidated in such
taxing authority's jurisdiction) would not engage in business, would not
maintain an office or other place of business and would not otherwise be located
therein, but for such Beneficiary's role in the transaction associated with the
financing of the Equipment, the operation of the Equipment in such jurisdiction,
the presence of Debtor or any use of the Equipment or the transactions
contemplated by the Bills of Sale, the Security Instruments or the Notes.
Each Beneficiary shall furnish Debtor with copies of any requests for
information received by such Beneficiary from any taxing authority relating to
any taxes or other impositions with respect to which Debtor is required to
indemnify hereunder, and if a claim is made against such Beneficiary for any
such taxes or other impositions, with respect to which Debtor is liable for a
payment or indemnity hereunder, such Beneficiary shall give Debtor notice in
writing within (10) Business Days of such Beneficiary's receipt of such claim.
Debtor may, at its sole cost and expense, either in its own name or in the name
of any Beneficiary, contest the validity, applicability or amount of any such
tax or other imposition by means of a Permitted Contest. If any Beneficiary
shall obtain a refund of any amount paid by Debtor pursuant to this Section 6.2,
such Beneficiary shall pay to Debtor the amount of such refund, together with
the amount of any interest actually received by such Beneficiary on account of
such refund. Debtor will promptly notify Secured Party of all reports or returns
required to be made with respect to any tax or other imposition with respect to
which Debtor is required to indemnify hereunder and will promptly provide each
Beneficiary with all information necessary for the making and timely filing of
such reports or returns by such Beneficiary. If any Beneficiary requests that
any such reports or returns be prepared and filed by Debtor, Debtor will prepare
and file the same if permitted by applicable law to do so, and if not so
permitted, Debtor shall prepare such reports or returns for signature by such
Beneficiary, and shall forward the same, together with immediately available
funds for payment of any tax or other imposition due, to such Beneficiary, at
least ten (10) Business Days in advance of the date such payment is to be made.
Upon written request, Debtor shall furnish each Beneficiary with copies of all
paid receipts or other appropriate evidence of payment for all taxes or other
impositions paid by Debtor pursuant to this Section 6.2.
ARTICLE VII
FURTHER ASSURANCES; ATTORNEY-IN-FACT; DISCHARGE
SECTION 7.1 Further Assurances.
(a) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and documents, and
take all further action that Secured Party may reasonably deem necessary or
desirable, or that Secured Party may otherwise reasonably request, in order
to perfect and protect any security interest Granted or purported to be
Granted hereby or to enable Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Debtor will cooperate to execute and file
financing or continuation statements, or amendments hereto or thereto, and
such other instruments or notices, as may be necessary or reasonably
desirable, or as Secured Party may reasonably request, in order to perfect
and preserve the security interests Granted or purported to be Granted
hereby.
(b) A carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) Debtor will furnish to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
SECTION 7.2 Secured Party Appointed Attorney-in-Fact.
Debtor hereby irrevocably appoints Secured Party to serve as Debtor's
attorney-in-fact (provided, the parties hereto agree that Secured Party may not
act as Debtor's attorney-in-fact until the occurrence and during the
continuation of an Event of Default), with full authority in the place and stead
of Debtor and in the name of Debtor, Secured Party or otherwise, from time to
time in Secured Party's discretion, to take any action and to execute any
instrument, including without limitation financing statements or amendments
thereto, which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation:
(a) to obtain and adjust insurance required to be paid to Secured Party
hereunder;
(b) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for monies due and to become due under or in respect
of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with subsections (a) or (b) above;
and
<PAGE>
(d) to file any claims or take any action or institute any Proceedings
which Secured Party may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Collateral.
SECTION 7.3 Secured Party May Perform.
If Debtor fails to perform any agreement contained herein, Secured Party may
itself perform, or cause performance of, such agreement, and the expenses of
Secured Party incurred in connection therewith shall be payable by Debtor under
Section 6.1.
SECTION 7.4 Secured Party's Duties.
The powers conferred on Secured Party hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Secured Party shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against other parties or any
other rights pertaining to any Collateral.
SECTION 7.5 Continuing Security Interest; Transfer of Note; Termination.
This Agreement shall: (a) create a continuing security interest in the
Collateral and shall remain in full force and effect until payment in full of
the Secured Obligations, be binding upon Debtor, its successors and assigns and
(b) inure to the benefit of Secured Party and its permitted successors,
transferees and assigns. Without limiting the generality of the foregoing
clause, Secured Party may assign or otherwise transfer all or any part of
Secured Party's interest in the Notes and/or the Security Instruments to one or
more persons or entities, and such other persons or entities shall thereupon
become vested with all the benefits in respect thereof Granted to Secured Party
herein. Upon the payment in full of the Secured Obligations, the security
interest Granted hereby shall terminate and all rights to the Collateral shall
revert to Debtor. Upon any such termination, Secured Party will execute and
deliver to Debtor such documents as Debtor shall reasonably request to evidence
such termination.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices.
Except as expressly permitted herein to the contrary, all notices and other
communications provided for hereunder shall be in writing (including
communication by telecopier) and mailed (postage prepaid, by registered or
certified mail, return receipt requested), telecopied or hand delivered:
if to Secured Party, at:
NationsBanc Leasing Corporation of
North Carolina
101 South Tryon Street, NC1-002-38-20
Charlotte, North Carolina 28255
Attention: Manager of Corporate Lease
Administration
Telecopy: (704) 386-0892
or if to Debtor, at:
Eagle Geophysical, Inc.
50 Briar Hollow Lane, 7th Floor-West
Houston, Texas 77027
Attention: Debra D. Valice
Telecopy: (713) 627-1114
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party. All such notices and communications
shall be effective (a) five (5) days after such have been deposited in the mail
or (b) immediately (i) after such have been telecopied to the appropriate
telecopy number and (ii) after such have been hand delivered to the appropriate
address.
SECTION 8.2 Risk of Loss.
Debtor shall bear all risk of any loss of or damage to the Collateral and in
no event shall Secured Party be liable for such loss or damage.
SECTION 8.3 Powers and Agencies.
Whenever in this Agreement Secured Party or Debtor is Granted the power of
attorney or is appointed the agent and attorney-in-fact with respect to any
Person, such Grant or appointment is irrevocable and coupled with an interest.
Secured Party shall have full power of substitution and delegation in respect of
all such Grants and appointment.
SECTION 8.4 Entire Agreement.
The Notes, this Agreement and the other Security Instruments embody the
entire agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof.
SECTION 8.5 Lawful Interest.
No provision in the Notes, this Agreement or any Security Instrument or other
document in favor of Secured Party shall require or permit the collection of
interest in excess of the maximum lawful rate which Debtor may contract for,
stipulate or agree to pay as determined by a court of competent jurisdiction
over the holder of the Notes or any such document. In determining whether or not
the interest paid or payable under any specific contingency exceeds such maximum
lawful rate, Debtor and Secured Party shall, to the full extent permitted by
applicable law, prorate, allocate and spread, in equal parts, the total amount
of interest throughout the entire contemplated term of the Notes or other
document, as the case may be, so that the interest rate is uniform throughout
the entire term of the Notes or such document. If it is so determined that any
interest in excess of such maximum lawful rate is provided for, such excess
shall be applied first to any other amounts not constituting interest due or
which may become due and payable to Debtor under the Notes or any of such other
documents, and the balance, if any, shall be refunded to Debtor; provided,
however, that in no event shall Debtor be obligated to pay, and Secured Party
hereby waives payment of, the amount of interest to the extent it is in excess
of the amount permitted by applicable law.
SECTION 8.6 Survival; Severability.
If any word, phrase, sentence, paragraph, provision or section of this
Agreement, the Notes or any other Security Instrument shall be held, declared or
pronounced void, voidable, invalid, unenforceable or inoperative for any reason
by any court of competent jurisdiction, governmental authority or otherwise,
such holding, declaration or pronouncement shall not adversely affect any other
word, phrase, sentence, paragraph, provision or section of this Agreement, the
Notes or any other Security Instrument, which shall otherwise remain in full
force and effect and be enforced in accordance with their respective terms, and
the effect of such holding, declaration or pronouncement shall be limited to the
territory or the jurisdiction in which made. All agreements, covenants,
representations, warranties and conditions contained in this Agreement or made
pursuant to the provisions hereof shall survive the execution and delivery of
this Agreement until the Secured Obligations shall have been paid and performed
in full. All statements by Debtor contained in any certificate or other
instrument delivered pursuant to the provisions of this Agreement or any other
Security Instrument shall constitute the representations and warranties of
Debtor.
SECTION 8.7 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of Debtor and
Secured Party and their respective successors and assigns, except that Debtor
shall not have the right to assign its rights hereunder of any interest herein
without the prior written consent of Secured Party. Secured Party may assign all
or any part of, or any interest in, its rights and benefits hereunder, under the
Notes and any Security Instrument as permitted under Section 7.5 hereof, and to
the extent of such permitted assignment each such assignee shall have the same
rights and benefits against Debtor as it would have had if it were Secured Party
hereunder.
SECTION 8.8 Amendment and Waiver.
No amendment or waiver of any provision of the Notes, this Agreement or any
of the other Security Instruments, or consent to any departure by Debtor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Secured Party and Debtor, and such waiver and consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of Secured Party to exercise, and no delay in
exercising, any right under the Notes, this Agreement or any of the other
Security Instruments shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any such instrument or agreement preclude
any other or further exercise thereof or the exercise of any other right.
SECTION 8.9 Headings; Execution in Counterpart.
The section and article headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning of any provision
herein. This Agreement may be executed in counterparts, each of which shall
constitute an original, but all of which together shall constitute one and the
same Agreement.
SECTION 8.10 Transaction Costs.
Debtor shall pay all reasonable costs and out-of-pocket expenses of Secured
Party incurred in connection with preparation, negotiation, execution,
modification and/or enforcement of the Notes, this Agreement, the other Security
Instruments including without limitation (a) the reasonable legal fees and
expenses of Moore & Van Allen, PLLC, (b) all filing and registration costs, (c)
all fees and disbursements incurred by Secured Party in connection with the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, and (d) all fees and
disbursements incurred by Secured Party in connection with the failure by Debtor
to perform or observe any of the provisions hereof.
SECTION 8.11 APPLICABLE LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF
JURY TRIAL.
THIS AGREEMENT, THE NOTES AND THE OTHER SECURITY INSTRUMENTS AND ALL MATTERS
RELATING THERETO SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE
LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
DEBTOR HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
COURTS OF MECKLENBURG COUNTY, NORTH CAROLINA AND AGREES THAT SECURED PARTY MAY,
AT ITS OPTION, ENFORCE ITS RIGHTS HEREUNDER AND UNDER THE NOTES AND OTHER
SECURITY INSTRUMENTS IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES THE
DEFENSE OF AN INCONVENIENT FORUM TO MAINTENANCE OF ANY ACTION OR PROCEEDING BY
SECURED PARTY IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTES OR ANY OTHER SECURITY INSTRUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
SECTION 8.12 Break-Funding Costs.
Upon any early termination of this Agreement and/or any early prepayment of
the Notes for any reason which is not expressly permitted under the Notes,
Debtor shall promptly pay Secured Party (in addition to all other amounts due
and owing hereunder) an amount equal to the Break-Funding Costs incurred by
Secured Party, as such are (a) determined by Secured Party at such time in its
reasonable discretion and (b) specified in writing to Debtor.
SECTION 8.13 Intention of the Parties.
It is the intention of the parties to this Agreement that the Equipment be
and remain personal property, and at no time (so long as any of the Secured
Obligations remain outstanding) shall such Equipment be attached, affixed or
otherwise become a part of any vehicle or vessel. Further, each of the parties
hereto agree that it is their intent that the provisions of the UCC govern the
creation and perfection of a security interest in the Collateral.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
EAGLE GEOPHYSICAL, INC., as Debtor
By:/s/ Debra D. Valice
----------------------------------
Name: Debra D. Valice
--------------------------------
Title: Vice President
-------------------------------
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA, as Secured Party
By:/s/ George L. Robinson, Jr.
----------------------------------
Name: George L. Robinson, Jr.
--------------------------------
Title: Senior Vice President
-------------------------------
<PAGE>
SCHEDULE 1.3(a)
SECURED TERM NOTE A
Due February 29, 2000
$557,768.14 February 6, 1997
FOR VALUE RECEIVED, the undersigned EAGLE GEOPHYSICAL, INC., a Delaware
corporation ("Debtor") HEREBY PROMISES TO PAY to the order of NATIONSBANC
LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation ("Secured
Party"), the principal sum of FIVE HUNDRED FIFTY-SEVEN THOUSAND SEVEN HUNDRED
SIXTY-EIGHT AND 14/100 DOLLARS ($557,768.14) (the "Original Amount") pursuant to
the terms and conditions of that certain Loan and Security Agreement dated as of
the date hereof between the Debtor and the Secured Party, as amended, modified
or replaced from time to time (as so amended, modified or replaced, the
"Agreement" - all the terms, conditions, definitions and covenants of such
Agreement are expressly made a part hereof in the same manner and with the same
effect as if set forth herein at length, any holder of this Secured Term Note A
(the "Note") being entitled to the benefits and remedies provided for in the
Agreement).
The Bank has made a term loan to the Borrower as provided in Section
1.3(a) of the Loan Agreement. The outstanding principal balance hereof shall be
due and payable as provided in Section 1.3(a)(ii) of the Agreement.
Notwithstanding the foregoing, the final payment made on this Note shall be an
amount sufficient to discharge in full the unpaid Original Amount and all
accrued and unpaid interest on, and any other amounts due under this Note and
under the Agreement.
This Note shall bear interest on the outstanding balance hereof, and
such interest shall be payable hereunder, as provided in Section 1.3(a)(ii) of
the Agreement.
In the event the amounts owing under this Note shall be accelerated in
accordance with the terms of the Agreement, the amounts owing hereunder shall
become immediately due and payable without presentation, demand, protest or
notice of any kind, all of which are hereby expressly waived. Further, in the
event amounts owing hereunder are not paid when due (including any stated or
accelerated maturity), the Debtor agrees to pay promptly upon demand, in
addition to principal, interest and other amounts owing hereunder, all costs of
collection, including reasonable attorneys' fees.
All payments shall be payable, in lawful money of the United States and
in immediately available funds without setoff or counterclaim, to Secured Party
at its office at NationsBank Plaza, 101 South Tryon Street, NC1-002-38-20,
Charlotte, North Carolina 28255 or such other address as the holder thereof
shall notify Debtor in writing.
In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the maximum lawful rate permitted by law, Debtor
and Secured Party shall, to the full extent permitted by applicable law, exclude
voluntary prepayment and the effects thereof and amortize, prorate, allocate and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of this Note so that the interest rate is uniform throughout
the entire term of this Note. If it is so determined that any interest in excess
of such maximum lawful rate is provided for, then such excess shall be applied
first to any other amounts not constituting interest due or which may become due
under this Note or the Agreement and the balance, if any, shall be refunded to
Debtor; provided, however, that in no event shall Debtor be obligated to pay,
and Secured Party hereby waives payment of, the amount of interest to the extent
it is in excess of the amount permitted by applicable law. No provision in this
Note or the Agreement shall require or permit the collection of interest in
excess of the maximum lawful rate.
This Note may be prepaid by the Debtor in accordance with Section
1.3(c) of the Agreement only if all amounts owing with respect to this Note,
Agreement and the other Security Instruments are paid in full. Except as
otherwise provided for herein and in the Agreement, this Note shall not be
subject to prepayment.
<PAGE>
THIS NOTE, THE AGREEMENT AND THE SECURITY INSTRUMENTS AND ALL MATTERS
RELATING THERETO SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE
LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
DEBTOR HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
COURTS OF NORTH CAROLINA AND AGREES THAT THE SECURED PARTY MAY, AT ITS OPTION,
ENFORCE ITS RIGHTS HEREUNDER AND UNDER THE AGREEMENT AND THE OTHER SECURITY
INSTRUMENTS IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES THE DEFENSE OF AN
INCONVENIENT FORUM TO MAINTENANCE OF ANY ACTION OR PROCEEDING BY SECURED PARTY
IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE,
THE AGREEMENT OR ANY OTHER SECURITY INSTRUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the Debtor has caused this Note to be executed as
of the date appearing above.
EAGLE GEOPHYSICAL, INC.
By:
--------------------------------
Name (Printed):
--------------------
Title:
-----------------------------
<PAGE>
SCHEDULE 1.3(b)
SECURED TERM NOTE B
Due April 30, 2002
$7,006,152.04 February 6, 1997
FOR VALUE RECEIVED, the undersigned EAGLE GEOPHYSICAL, INC., a Delaware
corporation ("Debtor") HEREBY PROMISES TO PAY to the order of NATIONSBANC
LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation ("Secured
Party"), the principal sum of SEVEN MILLION SIX THOUSAND ONE HUNDRED FIFTY-TWO
AND 04/100 DOLLARS ($7,006,152.04) (the "Original Amount") pursuant to the terms
and conditions of that certain Loan and Security Agreement dated as of the date
hereof between the Debtor and the Secured Party, as amended, modified or
replaced from time to time (as so amended, modified or replaced, the "Agreement"
- - - all the terms, conditions, definitions and covenants of such Agreement are
expressly made a part hereof in the same manner and with the same effect as if
set forth herein at length, any holder of this Secured Term Note B (the "Note")
being entitled to the benefits and remedies provided for in the Agreement).
The Bank has made a term loan to the Borrower as provided in Section
1.3(b) of the Loan Agreement. The outstanding principal balance hereof shall be
due and payable as provided in Section 1.3(b)(ii) of the Agreement.
Notwithstanding the foregoing, the final payment made on this Note shall be an
amount sufficient to discharge in full the unpaid Original Amount and all
accrued and unpaid interest on, and any other amounts due under this Note and
under the Agreement.
This Note shall bear interest on the outstanding balance hereof, and
such interest shall be payable hereunder, as provided in Section 1.3(b)(ii) of
the Agreement.
In the event the amounts owing under this Note shall be accelerated in
accordance with the terms of the Agreement, the amounts owing hereunder shall
become immediately due and payable without presentation, demand, protest or
notice of any kind, all of which are hereby expressly waived. Further, in the
event amounts owing hereunder are not paid when due (including any stated or
accelerated maturity), the Debtor agrees to pay promptly upon demand, in
addition to principal, interest and other amounts owing hereunder, all costs of
collection, including reasonable attorneys' fees.
All payments shall be payable, in lawful money of the United States and
in immediately available funds without setoff or counterclaim, to Secured Party
at its office at NationsBank Plaza, 101 South Tryon Street, NC1-002-38-20,
Charlotte, North Carolina 28255 or such other address as the holder thereof
shall notify Debtor in writing.
In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the maximum lawful rate permitted by law, Debtor
and Secured Party shall, to the full extent permitted by applicable law, exclude
voluntary prepayment and the effects thereof and amortize, prorate, allocate and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of this Note so that the interest rate is uniform throughout
the entire term of this Note. If it is so determined that any interest in excess
of such maximum lawful rate is provided for, then such excess shall be applied
first to any other amounts not constituting interest due or which may become due
under this Note or the Agreement and the balance, if any, shall be refunded to
Debtor; provided, however, that in no event shall Debtor be obligated to pay,
and Secured Party hereby waives payment of, the amount of interest to the extent
it is in excess of the amount permitted by applicable law. No provision in this
Note or the Agreement shall require or permit the collection of interest in
excess of the maximum lawful rate.
This Note may be prepaid by the Debtor in accordance with Section
1.3(c) of the Agreement only if all amounts owing with respect to this Note, the
Agreement and the other Security Instruments are paid in full. Except as
otherwise provided for herein and in the Agreement, this Note shall not be
subject to prepayment.
<PAGE>
THIS NOTE, THE AGREEMENT AND THE SECURITY INSTRUMENTS AND ALL MATTERS
RELATING THERETO SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE
LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
DEBTOR HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
COURTS OF NORTH CAROLINA AND AGREES THAT THE SECURED PARTY MAY, AT ITS OPTION,
ENFORCE ITS RIGHTS HEREUNDER AND UNDER THE AGREEMENT AND THE OTHER SECURITY
INSTRUMENTS IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES THE DEFENSE OF AN
INCONVENIENT FORUM TO MAINTENANCE OF ANY ACTION OR PROCEEDING BY SECURED PARTY
IN SUCH COURTS. DEBTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE,
THE AGREEMENT OR ANY OTHER SECURITY INSTRUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the Debtor has caused this Note to be executed as
of the date appearing above.
EAGLE GEOPHYSICAL, INC.
By:
--------------------------------
Name (Printed):
--------------------
Title:
-----------------------------
<PAGE>
GUARANTY
THIS GUARANTY AGREEMENT dated as of February 6, 1997 (the "GUARANTY")
is given by SEITEL, INC., a Delaware corporation (the "GUARANTOR") and extended
to NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina
corporation (the "SECURED PARTY"), for the benefit of EAGLE GEOPHYSICAL, INC., a
DELAWARE corporation (the "DEBTOR").
Capitalized terms used herein but not otherwise defined shall have the
meaning set forth in the Loan and Security Agreement (as defined below). In
consideration of the execution by the Secured Party of the Loan and Security
Agreement dated as of the date hereof (as renewed, extended, supplemented or
amended, and together with all exhibits and schedules thereto, the "LOAN AND
SECURITY AGREEMENT") with Debtor, and to induce Secured Party to enter into the
Loan and Security Agreement, Guarantor hereby agrees as follows:
SECTION 1. UNCONDITIONAL GUARANTEE. Guarantor does hereby
unconditionally guarantee to Secured Party, without offset or deduction, (a) the
prompt payment when due, whether by acceleration or otherwise, of all amounts
payable by Debtor pursuant to (i) the Loan and Security Agreement (including all
supplements and amendments thereto and all exhibits and schedules now or
hereafter attached thereto and made a part thereof), (ii) the Secured Term Note
A dated February 6, 1997 ("TERM NOTE A") in the original principal amount of
$557,768.14 extended by Debtor for the benefit of Secured Party, (iii) Secured
Term Note B dated February 6 , 1997 ("TERM NOTE B") in the original principal
amount of $7,006,152.04 extended by Debtor for the benefit of Secured Party
(collectively, Term Note A and Term Note B may be referred to as the "NOTES"),
and (iv) all agreements, instruments and documents delivered or to be delivered
by Debtor pursuant to the Loan and Security Agreement and/or the Notes
(collectively, the Loan and Security Agreement, the Notes and such other
agreements, instruments and documents may be referred to herein as the
"TRANSACTION DOCUMENTS"), the guarantee under this clause (a) of Section 1
constituting a guarantee of payment and not of collection, and (b) the punctual
and faithful performance by Debtor of each and every duty, agreement, covenant
and obligation of Debtor under and in accordance with the terms of the
Transaction Documents and all other obligations of Debtor to Secured Party.
Guarantor does hereby agree that in the event Debtor does not or is unable to
pay or perform in accordance with the terms of the Transaction Documents for any
reason (including, without limitation, the liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
proceedings affecting the status, existence, assets or obligations of Debtor or
the limitation of damages for the breach, or the disaffirmance of, any
Transaction Documents in such proceeding) it will pay the sums, or amounts equal
thereto, which Debtor is (or, but for any such reason, would be) obligated to
pay at the times specified in the Transaction Documents, whether by acceleration
or otherwise (it being the intention hereof that Guarantor shall pay to Secured
Party, as a payment obligation directly due from Guarantor to Secured Party,
amounts equal to all amounts which Debtor shall fail faithfully and properly to
pay when due under the Transaction Documents, whether by acceleration or
otherwise), or otherwise provide for and bring about promptly when due such
payment and the performance of such duties, agreements, covenants and
obligations of Debtor under the Transaction Documents. Guarantor acknowledges
that it is fully aware of, and consents to the terms and conditions of, the Loan
and Security Agreement, the Notes and each of the other Transaction Documents
and guarantees the accuracy of all representations and warranties of Debtor or
any officer thereof made, or to be made after the date hereof, in any of such
Transaction Documents. The obligations of Debtor hereby guaranteed are
hereinafter called the "SECURED OBLIGATIONS".
SECTION 2. DIRECTNESS OF OBLIGATION. Without limiting the generality of
clause (a) of Section 1, Guarantor specifically agrees that it shall not be
necessary or required, and that Guarantor shall not be entitled to require, that
Secured Party file suit or proceed to obtain or assert a claim for personal
judgment against Debtor for the Secured Obligations or make any effort at
collection of the Secured Obligations from Debtor or foreclose against or seek
to realize upon any security now or hereafter existing for the Secured
Obligations or file suit or proceed to obtain or assert a claim for personal
judgment against any other party liable for the Secured Obligations or make any
effort at collection of the Secured Obligations from any such other party or
exercise or assert any other right or remedy to which it is or may be entitled
in connection with the Secured Obligations or any security or other guarantee
therefor or assert or file any claim against the assets of Debtor or any other
person liable for the Secured Obligations, or any part thereof, before or as a
condition of enforcing the liability of Guarantor under this Guaranty or
requiring payment of said Secured Obligations by Guarantor hereunder, or at any
time thereafter. Fulfillment by Debtor or Guarantor of any of the Secured
Obligations shall dispose of any claim hereunder with respect to, and to the
extent of, such of the Secured Obligations fulfilled. Without limiting the
generality of the waiver provisions hereof, Guarantor hereby waives any rights
to require Secured Party to proceed against Debtor or any co-guarantor or to
require Secured Party to pursue any other remedy or enforce any other right,
including any and all rights under ss.26-7 through ss.26-9 of the North Carolina
General Statutes. The Guarantor shall have no rights of subrogation,
reimbursement or indemnity whatsoever, nor any right or recourse to security for
the debts and obligations of Debtor to Secured Party so long as any of the
Secured Obligations shall remain outstanding. Guarantor does hereby waive and
relinquish, so far as Guarantor may lawfully and effectively do so, the benefit
and advantage of any and all valuation, stay, appraisement, extension or
redemption laws which, but for this provision, agreement and waiver, might be
applicable to any sale made under any judgment, order or decree of any court or
otherwise based on this Guaranty, the Loan and Security Agreement or any other
Agreement.
SECTION 3. WAIVER OF NOTICE AND DEFENSE. This Guaranty shall not be
deemed to create any right in any person except as provided herein or be
construed in any respect to be a contract in whole or in part for the benefit of
any other person except Secured Party and its successors or assigns. Guarantor
specifically agrees that it shall not be necessary or required in order to
enforce the obligations of Guarantor hereunder that there be, and specifically
waives (a) notice of the acceptance of this Guaranty and of the performance or
nonperformance of the Loan and Security Agreement, the Notes or any other
Transaction Documents, (b) demand of payment from Debtor, (c) presentment for
payment upon Debtor or the making of any protest, (d) notice of the amount of
the Secured Obligations outstanding at any time, (e) notice of nonpayment or
failure to perform on the part of Debtor, and (f) any other circumstance which
might otherwise constitute a legal or equitable defense or discharge of a
guarantor.
SECTION 4. OBLIGATIONS - ABSOLUTE AND UNCONDITIONAL. The obligations of
Guarantor under this Guaranty shall be absolute and unconditional and shall
remain in full force and effect until Debtor shall have fully discharged the
Secured Obligations and shall not be released or discharged for any reason
whatsoever, including, without limitation, the following: (a) the waiver by
Secured Party, or its successors or assigns, of the performance or observance by
Debtor of any of the agreements, covenants, terms or conditions contained in the
Transaction Documents, or any default thereunder, (b) the extension of time for
payment by Debtor of any sums or any part thereof owing or payable under any
Transaction Document, or of the time for performance by Debtor of any other
obligations under or arising out of or on account of any Transaction Document,
or the extension or renewal of any Transaction Document, (c) any failure,
omission or delay of Secured Party to enforce, assert or exercise any right,
power or remedy conferred on Secured Party in any action on the part of Secured
Party granting extension or indulgence in any form, (d) any transfer or
assignment by Debtor or Secured Party of its interest, or any part thereof, in
and to any Collateral (as such term is defined in the Loan and Security
Agreement) as permitted by the Loan and Security Agreement, (e) any compromise,
settlement, release, renewal, extension, indulgence, change in or waiver or
modification of any of the Secured Obligations or the release or discharge of
Debtor from the performance or observance of any of the Secured Obligations by
operation of law, (f) any assignment or mortgaging or the purported assignment
or mortgaging of all or any part of the interest of Debtor in the Loan and
Security Agreement or in any Collateral, (g) the voluntary or involuntary
liquidation, dissolution, sale or other disposition of all or substantially all
the assets and liabilities of, or the voluntary or involuntary receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar proceeding
affecting, Debtor or the disaffirmance of the Loan and Security Agreement in any
such proceeding, (h) any merger, consolidation or other reorganization to which
Debtor, Guarantor or any related entity is a party, or any sale or disposition,
whether directly or indirectly, of any of Guarantor's direct or indirect
ownership interest in Debtor, or (i) any other circumstance, whether similar or
dissimilar to any of the above, which might otherwise constitute a legal or
equitable defense or discharge of a guarantor.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS. Guarantor
represents, warrants and covenants to and with Secured Party all of the
following: (a) Guarantor is duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated, and is duly
qualified and authorized to do business wherever the nature of its activities or
the ownership of its properties requires such qualification and authorization;
(b) Guarantor has the full power, authority and legal right to execute, deliver
and perform the terms of this Guaranty; and this Guaranty has been duly
authorized by all necessary corporate action of Guarantor and constitutes a
valid and binding obligation of Guarantor, enforceable in accordance with its
terms; (c) Guarantor has delivered to Secured Party various financial statements
in regard to this transaction and such financial statements have been prepared
in accordance with generally accepted accounting principles consistently
applied; and to the best knowledge of Guarantor, such financial statements
present fairly the financial condition of Guarantor as of the date indicated,
and as of the date hereof no material adverse change has occurred with respect
to Guarantor's financial condition from the date of each such financial
statement previously provided to Secured Party; (d) neither the execution and
delivery of, nor the performance by Guarantor under, this Guaranty will
contravene any law or government regulation or the charter or by-laws of
Guarantor, or any provision in any existing mortgage, indenture, contract or
agreement binding upon Guarantor; (e) no consent of the shareholders, or of any
trustee or holder of any indebtedness of Guarantor, is or will be required as a
condition to the execution, delivery or performance of this Guaranty or to the
validity and enforceability of this Guaranty or with respect to the obligations
of Guarantor hereunder, or if required, all such consents have been obtained and
duly certified copies thereof have been delivered to Secured Party; (f) no
registration with, or approval of, any governmental agency or commission is
necessary for the execution, delivery or performance by Guarantor of the terms
of this Guaranty or for the validity and enforceability of this Guaranty or with
respect to the obligations of Guarantor hereunder; or if required, all such
registrations and approvals have been duly made or obtained and certified copies
thereof delivered to Secured Party; and (g) there are no outstanding or unpaid
judgments against Guarantor, and there is no action or proceeding pending or,
insofar as Guarantor knows, threatened against Guarantor before any court or
administrative agency which in Guarantor's reasonable opinion might have any
material adverse effect on the business, condition (financial or otherwise) or
operations of Guarantor.
SECTION 6. BUSINESS COVENANTS. So long as there shall remain
outstanding any obligation or covenant under the Transaction Documents,
Guarantor agrees that:
(a) FINANCIAL STATEMENTS. (i) within sixty (60) days after the
end of each fiscal quarter (except the fourth quarter), Debtor will
cause Guarantor to furnish to Secured Party unaudited quarterly
financial statements (including consolidated balance sheets of
Guarantor) as of the end of such quarterly period, and consolidated
statements of income, retained earnings and changes in financial
position or cash flows for the year to date of Guarantor setting forth
in each case comparative consolidated financial statements for the
corresponding period in the preceding year all prepared by Guarantor in
accordance with generally accepted accounting principles applied on a
consistent basis and certified by the president, chief financial
officer or any vice president of Guarantor who prepared such financial
statements as being true and accurate and fairly representing the
financial condition of Guarantor and (ii) within 120 days after the end
of each fiscal year, furnish to Secured Party audited year end
financial statements (including consolidated balance sheets of
Guarantor) as of the end of such fiscal year, and the notes thereto,
and consolidated statements of income, retained earnings and cash flows
for the year then ended of Guarantor and the notes thereto, and setting
forth in each case comparative consolidated financial statements for
the corresponding period in the preceding year, all prepared in
accordance with generally accepted accounting principles consistently
applied and containing, with respect to such financial statements,
opinions of a firm of independent certified public accountants of
national prominence selected by Guarantor that such reports are without
a "going concern" or like qualification or exception, or qualification
indicating that the scope of the audit was inadequate or limited;
(b) MERGER; CONSOLIDATION. Guarantor may not consolidate with,
merge with or into, or sell, lease or otherwise transfer all or
substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions), to
any Person unless: (i) Guarantor shall be the continuing Person, or the
Person (if other than Guarantor) formed by such consolidation or into
which Guarantor is merged or to which the properties and assets of
Guarantor are sold, leased or otherwise transferred shall be a
corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and shall expressly
assume, by a written agreement, executed and delivered to Secured
Party, in form and substance satisfactory to Secured Party all of the
obligations of Guarantor under this Guaranty, and the obligations under
this Guaranty shall remain in full force and effect; and (ii)
immediately before and immediately after giving effect to such
transaction, no Default or Event of Default hereunder or under the
Security Agreement shall have occurred and be continuing;
In connection with any consolidation, merger, sale, lease or
other transfer contemplated by this provision, Guarantor shall deliver,
or cause to be delivered, to Secured Party, in form and substance
reasonably satisfactory to Secured Party, an officers' certificate and
an opinion of counsel, each stating that such consolidation, merger,
sale, lease or other transfer and the written agreement in respect
thereto comply with this provision and the representations, warranties
and covenants of this Guaranty and that all conditions precedent herein
provided for relating to such transaction or transactions have been
complied with;
(c) NET WORTH. The Guarantor will not, at any time, permit
Consolidated Net Worth to be less than the sum of (a) Ninety Million
Dollars ($90,000,000.00), plus (b) an aggregate amount equal to fifty
percent (50%) of Consolidated Net Income (but, in each case, only if a
positive number) for each completed fiscal year of the Guarantor
beginning with the fiscal year ending December 31, 1995.
(d) INTEREST COVERAGE. The Guarantor will not, at any time,
permit EBITDA for the period of four consecutive fiscal quarters of the
Guarantor then most recently ended to be less than five hundred percent
(500%) of Consolidated Interest Expense for such period.
(e) DEBT INCURRENCE. The Guarantor will not, directly or
indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any Debt (including,
without limitation, any extension, renewal or refunding of Debt),
unless on the date the Guarantor becomes liable with respect to any
such Debt and immediately after giving effect thereto and the
concurrent retirement of any other Debt,
(i) no Default or Event of Default exists, and
(ii) Consolidated Debt does not exceed fifty percent (50%)
of Total Capitalization.
For purposes of this Guaranty, the following capitalized terms shall have the
following meanings:
"CAPITAL LEASE" means a lease with respect to which the lessee
is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" means, with the respect to any
Person and a Capital Lease, the amount of the obligation of such Person
as the lessee under such Capital Lease which would in accordance with
GAAP, appear as a liability on a balance sheet of such Person.
"CONSOLIDATED DEBT" means, as of any date of determination,
the total of all Debt of the Guarantor and the Restricted Subsidiaries
outstanding on such date, after eliminating all offsetting debits and
credits between the Guarantor and the Restricted Subsidiaries and all
other items required to be eliminated in the course of the preparation
of consolidated financial statements of the Guarantor and the
Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any
period, the sum (without duplication) of the following (in each case,
eliminating all offsetting debits and credits between the Guarantor and
the Restricted Subsidiaries and all other items required to be
eliminated in the course of the preparation of consolidated financial
statements of the Guarantor and the Restricted Subsidiaries in
accordance with GAAP):
(a) all interest in respect of Debt of the Guarantor
and the Restricted Subsidiaries (including imputed interest on
Capital Lease Obligations) deducted in determining
Consolidated Net Income for such period, and
(b) all debt discount and expense amortized or
required to be amortized in the determination of Consolidated
Net Income for such period.
"CONSOLIDATED NET INCOME" means, with reference to any period,
the net income (or loss) of the Guarantor and the Restricted
Subsidiaries for such period (taken as a cumulative whole), as
determined in accordance with GAAP, after eliminating all offsetting
debits and credits between the Guarantor and the Restricted
Subsidiaries and all other items required to be eliminated in the
course of the preparation of consolidated financial statements of the
Guarantor and the Restricted Subsidiaries in accordance with GAAP,
provided that there shall be excluded:
(a) any gains resulting from any write-up of any
assets (but not any loss resulting from any write-down of any
assets),
(b) the income (or loss) of any Person accrued prior
to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with the Guarantor or a Restricted
Subsidiary, and the income (or loss) of any Person,
substantially all of the assets of which have been acquired in
any manner by the Guarantor or any Restricted Subsidiary,
realized by such other Person prior to the date of
acquisition,
(c) in the case of a successor to the Guarantor by
consolidation or merger or as a transferee of its assets, any
earnings of the successor corporation prior to such
consolidation, merger or transfer of assets,
(d) any aggregate net gain (but not any aggregate net
loss) during such period arising from the sale, conversion,
exchange or other disposition of capital assets (such term to
include, without limitation, (i) all non-current assets and,
without duplication, (ii) the following, whether or not
current: all fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed
assets, and all securities),
(e) any portion of such net income that cannot be
freely converted into United States Dollars,
(f) the income (or loss) of any Person (other than a
Restricted Subsidiary) in which the Guarantor or any
Restricted Subsidiary has an ownership interest, except to the
extent that any such income has been actually received by the
Guarantor or such Restricted Subsidiary in the form of cash
dividends or similar cash distributions,
(g) any gain arising from the acquisition of any
security, or the extinguishment, under GAAP, of any Debt, of
the Guarantor or any Restricted Security,
(h) any net income or gain or any net loss during
such period from (i) any change in accounting principles in
accordance with GAAP or (ii) any prior period adjustments
resulting from any change in accounting principles in
accordance with GAAP, and
(i) any net income or gain (but not any net loss)
during such period from (i) any extraordinary items or (ii)
any discontinued operations or the disposition thereof.
"CONSOLIDATED NET WORTH" means, at any time, the total
stockholders' equity which would be shown in consolidated financial
statements of the Guarantor and the Restricted Subsidiaries prepared at
such time in accordance with GAAP.
"DEBT" means, with respect to any Person, without duplication,
(a) its obligations for borrowed money;
(b) its obligations in respect of banker's
acceptances, other acceptances, letters of credit and other
instruments serving a similar function issued or accepted by
banks and other financial institutions for the account of such
Person (whether or not incurred in connection with the
borrowing of money);
(c) its obligations that are evidenced by bonds,
notes, debentures or similar instruments;
(d) its obligations for the deferred purchase price
of property acquired by such Person (excluding accounts
payable arising in the ordinary course of business but
including, without limitation, all obligations created or
arising under any conditional sale or other title retention
agreement with respect to any such property);
(e) its Capital Lease Obligations;
(f) its obligations in respect of all mandatorily
redeemable preferred stock of such Person;
(g) its obligations for borrowed money secured by any
Lien with respect to any property owned by such Person
(whether or not it has assumed or otherwise become liable for
such obligations); and
(h) any guaranty of such Person with respect to
liabilities of a type described in any clauses (a) through (g)
hereof.
Debt of any person shall include all obligations of such
Person of the character described in clauses (a) through (h) to the
extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extinguished
under GAAP.
"EBITDA" means, in respect of any period, Consolidated Net
Income for such period minus:
(a) to the extent added in the computation of such
Consolidated Net Income, each of the following:
(i) extraordinary gains, net of extraordinary
losses, and
(ii) gains, net of losses, arising from the
disposition of property other than in the ordinary
course of business, plus
<PAGE>
(b) to the extent deducted in the computation of such
Consolidated Net Income, each of the following:
(i) Consolidated Interest Expense, net of
interest and other investment income,
(ii) taxes imposed on or measured by income or
excess profits of the Guarantor and the Restricted
Subsidiaries,
(iii) the amount of all depreciation, depletion
and amortization allowances and other non-cash
expenses of the Guarantor and the Restricted
Subsidiaries,
(iv) extraordinary losses, net of extraordinary
gains, and
(v) losses, net of gains, arising from the
disposition of property other than in the ordinary
course of business.
"EQUITY INTEREST" means (a) the outstanding Voting Stock of a
corporation or other business entity, (b) the interest in the capital
or profits of a corporation, limited liability company, partnership or
joint venture, or (c) the beneficial interest in a trust or estate.
"GAAP" means generally accepted accounting principles as in
effect in the United States as of the date hereof.
"LIEN" means with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest
or title of any vendor, lessor, lender, or other secured party to or of
such Person under any conditional sale or other title retention
agreement or Capital Lease, upon or with respect to any property or
asset of such Person (including in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
"RESTRICTED SUBSIDIARY" means and includes each and every
Subsidiary other than any Subsidiary which, at the time of any
determination hereunder, has been designated by the Board of Directors
and by written notice of the Guarantor to all of the holders to be an
Unrestricted Subsidiary; provided, in any event, that each of the
following shall at all times constitute a Restricted Subsidiary:
(a) each Subsidiary identified on SCHEDULE 5.4
attached hereto; and
(b) each Subsidiary which owns, directly or
indirectly, more than fifty percent (50%) of the Equity
Interest of a Restricted Subsidiary.
"TOTAL CAPITALIZATION" means, at any time, the sum of
Consolidated Debt plus Consolidated Net Worth, in each case at such
time.
"VOTING STOCK" means the capital stock or similar interest of
any class or classes (however designated) of a corporation or other
business entity, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of the members of the
board of directors (or Persons performing similar functions) of a
corporation or other business entity.
SECTION 7. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the
benefit of and be binding upon the successors and assigns of Secured Party and
of Guarantor. The dissolution or release from liability of any other guarantor
shall not relieve Guarantor from liability hereunder.
<PAGE>
SECTION 8. FEES AND EXPENSES. Guarantor shall be liable for all
reasonable out-of-pocket legal fees and other reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) incurred by
reason of the enforcement by Secured Party of its rights hereunder.
SECTION 9. NOTICES. Except as expressly permitted herein to the
contrary, all notices and other communications provided for hereunder shall be
in writing (including communication by telecopier) and mailed (postage prepaid,
by registered or certified mail, return receipt requested), telegraphed,
telecopied or hand delivered:
if to Secured Party, at:
NationsBanc Leasing Corporation of
North Carolina
101 South Tryon Street, NC1-002-38-20
Charlotte, North Carolina 28255
Attention: Manager of Corporate Lease
Administration
Telecopy: (704) 386-0892
or if to Guarantor, at:
Seitel, Inc.
50 Briar Hollow Lane, 7th Floor - West
Houston, Texas 77027
Attention: Debra D. Valice
Telecopy: (713) 627-1114
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party. All such notices and communications
shall be effective (a) five (5) days after such have been deposited in the mail
or (b) immediately (i) after such have been telecopied to the appropriate
telecopy number and (ii) after such have been hand delivered to the appropriate
address.
SECTION 10. APPLICABLE LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER
OF JURY TRIAL. THIS GUARANTY AND THE TRANSACTION DOCUMENTS AND ALL MATTERS
RELATING THERETO SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE
LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
GUARANTOR HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
COURTS OF NORTH CAROLINA AND AGREES THAT SECURED PARTY MAY, AT ITS OPTION,
ENFORCE ITS RIGHTS HEREUNDER AND UNDER THE TRANSACTION DOCUMENTS IN SUCH COURTS.
GUARANTOR HEREBY IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO
MAINTENANCE OF ANY ACTION OR PROCEEDING BY SECURED PARTY IN SUCH COURTS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS GUARANTY OR THE TRANSACTION DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed as of
the date hereof by its duly authorized officer.
SEITEL, INC.
By
--------------------------
Title
-----------------------
EXHIBIT 21.1
SEITEL, INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
** African Geophysical, Inc. (incorporated in Cayman Islands)
** Alternative Communication Enterprises, Inc. (incorporated in Texas)
Datatel, Inc. (incorporated in Delaware)
DDD Energy, Inc. (incorporated in Delaware)
* Eagle Geophysical, Inc. (incorporated in Delaware)
* Eagle Horizon, Inc. (incorporated in Delaware)
* EHI Holdings, Inc. (incorporated in Delaware)
Exsol, Inc. (incorporated in Delaware)
** GEO-BANK, INC. (incorporated in Texas)
Matrix Geophysical, Inc. (incorporated in Delaware)
Seitel Data Corp. (incorporated in Delaware)
* Seitel Delaware, Inc. (incorporated in Delaware)
Seitel Gas & Energy Corp. (incorporated in Delaware)
Seitel Geophysical Inc. (incorporated in Delaware)
Seitel International, Inc. (incorporated in Cayman Islands)
Seitel Management, Inc. (incorporated in Delaware)
Seitel Natural Gas, Inc. (incorporated in Delaware)
Seitel Offshore Corp. (incorporated in Delaware)
Seitel Power Corp. (incorporated in Delaware)
* Incorporated in 1996
** Dormant
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 19, 1997, included in this Form 10-K, into
the Seitel, Inc. previously filed Form S-3 Registration Statements File Nos.
33-71968, 33-78554, 33-80574, 33-89890 and 333-09293, and Form S-8 Registration
Statements File Nos. 33-36914, 33-78560, 33-89934, 333-01271 and 333-12549.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 1997
Exhibit 23.2
MILLER AND LENTS, LTD
Oil and Gas Consultants
Twenty-Seventh Floor
1100 Louisiana
Houston, Texas 77002-5216
Telephone 713 651-9455
Telefax 713 654-9914
March 26, 1997
Ms. Debra D. Valice
Seitel, Inc.
50 Briar Hollow Lane, 7th Floor West
Houston, Texas 77027
Dear Ms. Valice:
The firm of Miller and Lents, Ltd., consents to the use of its name and to
the use of its report dated March 12, 1997, regarding the DDD Energy, Inc.,
Proved Reserves and Future Net Revenue, as of January 1, 1997, SEC Case, in
Seitel, Inc.'s 1996 Annual Report on Form 10-K and to its incorporation by
reference into the Seitel, Inc. previously filed Form S-3 Registration
Statements File Nos. 33-71968, 33-78554, 33-80574, 33-89890, and 333-09293 and
Form S-8 Registration Statements File Nos. 33-36914, 33-78560, 33-89934,
333-01271, and 333-12549.
Miller and Lents, Ltd., has no interests in Seitel, Inc., or DDD Energy,
Inc., or in any affiliated companies or subsidiaries and is not to receive any
such interest as payment for such reports and has no director, officer, or
employee otherwise connected with Seitel, Inc. or DDD Energy, Inc. We are not
employed by Seitel, Inc., on a contingent basis.
Yours very truly,
MILLER AND LENTS, LTD.
By /s/ P.G. VON TUNGELN
--------------------------
P. G. Von Tungeln
Chairman
PGVT/mk
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,340
<SECURITIES> 0
<RECEIVABLES> 59,463
<ALLOWANCES> 336
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 120,910<F2>
<DEPRECIATION> 20,316
<TOTAL-ASSETS> 294,679
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 86,488
0
0
<COMMON> 104
<OTHER-SE> 155,537
<TOTAL-LIABILITY-AND-EQUITY> 294,679
<SALES> 106,002
<TOTAL-REVENUES> 106,002
<CGS> 19,402
<TOTAL-COSTS> 19,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,063
<INCOME-PRETAX> 25,100
<INCOME-TAX> 8,863
<INCOME-CONTINUING> 16,237
<DISCONTINUED> (988)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,249
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.46
<FN>
<F1> The Company does not present a classified balance sheet; therefore, current
assets and current liabilities are not reflected in the Company's financial
statement.
<F2> PP&E does not include seismic data bank assets with a cost of $284,847,000
and related accumulated amortization of $157,849,000.
</FN>
</TABLE>
