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, 1997
-----------------------
OR
- -------
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
[No Fee Required] For the transition period to .
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Commission File Number 0-14488
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SEITEL, INC.
(Exact name of registrant as specified in charter)
Delaware 76-0025431
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
50 Briar Hollow Lane
West Building, 7th Floor
Houston, Texas 77027
-------------- -----
(Address of principal (Zip Code)
executive offices)
(713) 881-8900
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
Former name, former address and former fiscal year,
if changed since last report.
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 27, 1998 was approximately $331,183,075. 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 $15.50 and there were a total of 22,551,854 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Document Part
------------------------------------ --------
Definitive Proxy Statement for III
1998 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 O 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 1997, approximately 400 different petroleum companies entered into
seismic data license agreements with the Company. At December 31, 1997, the
Company owned approximately 885,000 linear miles of 2D and approximately 9,000
square miles of 3D seismic data which it maintained in its library, which, based
solely on management's knowledge and beliefs regarding the industry, constitutes
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 15 seismic sales specialists markets data
from its library and from newly created 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 22 member staff of geotechnical professionals who have in
excess of 400 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.
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.
<PAGE>
The Company conducts data creation activities in two ways; multi-client or
"group shoot" programs and proprietary acquisition programs for its wholly-owned
petroleum exploration and production subsidiary, DDD Energy, Inc. ("DDD
Energy"), and DDD Energy's partners. The Company contracts with selected seismic
acquisition crew companies, including its former wholly-owned subsidiary, Eagle
Geophysical, Inc., to conduct both onshore and offshore seismic surveys. In a
group shoot program, 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 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. To date, over 1,500 square miles of advanced 3D seismic surveys have
been conducted for DDD Energy and its exploration partners. In excess of 500
square miles of 3D surveys are already scheduled to be conducted in 1998 and
1999 by DDD Energy and its partners.
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, its large and growing 3D data library, a processing
center and proprietary computer technology coupled with extensive geophysical
application expertise to effectively interpret 3D data. DDD Energy exclusively
utilizes the Company's processing and interpretation technology and operations
to provide optimum quality control and confidentiality for the exploration and
production programs in which DDD Energy participates.
The Company wholly-owned a seismic data acquisition crew company, Eagle
Geophysical, Inc. ("Eagle"), until August 11, 1997, at which time it was
spun-off as an independent company. The Company now has a 17.9% ownership
interest in Eagle.
Oil and Gas Exploration and Production Operations
In addition to licensing its seismic data to customers, the Company also
utilizes its seismic expertise 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 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.
Since its formation in 1993, DDD Energy has entered into and maintained
cost and revenue-sharing relationships with more than 100 petroleum companies
and, in doing so, has received the benefit of these petroleum companies' land,
geological, engineering and drilling staffs. The Company has conducted over
1,500 square miles of advanced 3D surveys, with more than 500 square miles of
new surveys currently scheduled to be conducted for DDD Energy and its partners,
located primarily onshore Texas and Louisiana, and also onshore Alabama,
Mississippi and Arkansas. DDD Energy's working interest in these projects ranges
from approximately 10% to 90%, with an average working interest of approximately
31%. 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.
Since inception, DDD Energy has participated in the drilling of 240 wells,
165 of which are commercially productive for a 69% success rate.
Customers
During 1997, the Company's seismic data customers consisted of
approximately 400 oil and gas companies. No one customer accounted for as much
as 10% of the Company's revenues during the years 1997, 1996 or 1995. 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.
<PAGE>
Competition
The creation and resale of seismic data are highly competitive in the
United States. There is 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. In 1985, there were approximately 150 independent
seismic companies operating in the United States, of which approximately 15 were
significant competitors. In 1997, there were approximately 100 companies, with
approximately 10 significant competitors. With the U.S. "oil patch" collapse in
1985, many of the independent seismic companies went out of business; during the
1990's, this industry has witnessed a major consolidation. 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 and the technical proficiency and exploration
experience of its geotechnical staff. These resources enable the Company to
provide high-quality service and to create and market high-grade data.
In the oil and gas exploration and production business there are numerous
oil and gas companies competing for the acquisition of mineral properties. The
Company believes it can participate effectively in the exploration for and
development of natural gas and crude oil reserves 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 results of operations can fluctuate from quarter to quarter.
The fluctuations are caused by a number of factors.
With respect to the Company's seismic licensing revenue, the Company's
results are influenced by petroleum industry capital expenditure budgets and
spending patterns. These 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 revenue does not necessarily flow evenly
or progressively on a sequential quarterly basis during the year. In addition,
certain weather-related events may delay the creation of seismic data for the
Company's library during any given quarter. Although the majority of the
Company's seismic resales are under $500,000 per sale, occasionally a single
data resale from the Company's library can be as large as $5 million or more.
Such large resales can materially impact the Company's results during the
quarter in which they occur, creating an impression of a trend of increasing
revenue that may not be achieved in subsequent periods.
With respect to revenue from the Company's oil and gas operation, bringing
a small number of high-production wells on line in a given quarter can
materially impact the results of such quarter since many of the wells in which
the Company participates flow at high rates for the first 60 to 90 days of
production and then taper off to a lower, steady rate for the remainder of their
lives. If several of such wells are brought on line in a quarter, the results
for such quarter will appear unusually strong, and then later, when production
decreases to its long-term, steady rate, the Company's results may not be able
to sustain the trend of increased performance indicated by the strong results of
the previous quarter. 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 or shortages and other factors, which may
delay the hookup of successfully completed wells and delay the resultant
production revenue. Also, due to the high percentage of gas reserves in the
Company's portfolio and the seasonal variations in gas prices, the Company's
results from its oil and gas operations also are subject to significant
fluctuations due to variations in commodity prices. In addition, some producing
wells may be required periodically to go off line temporarily for pipeline and
other maintenance. The Company does not believe that these fluctuations in
quarterly results are indicative of the Company's long-term prospects and
financial performance.
See Note P 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, 1997, the Company and its subsidiaries had 94 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, 63 are related
to the seismic operations and 16 are related to the oil and gas operations. The
balance provide accounting and administrative support for all operations. The
Company believes it has a favorable relationship with its employees. The Company
has employment contracts with five of its senior corporate executives.
<PAGE>
Other
The Company is not dependent on any particular raw materials, patents,
trademarks or copyrights for its business operations.
The following organization chart gives an overview of the structure of the
Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
---------------------------
+----| Seitel Delaware, Inc. | 1%
| | 100% |----+ ----------------------------
| --------------------------- | |Seitel Data, Ltd. |
| |----| |
| --------------------------- 99%| ----------------------------
|----| Seitel Data Corp. |----+
| | 100% |----+ ----------------------------
| --------------------------- | |Seitel Offshore Corp. |
| |----|100% |
| --------------------------- | ----------------------------
|----| DDD Energy, Inc. | |
| | 100% | | ----------------------------
- ------------------ | --------------------------- | |Seitel International, Inc.|
++++++++++++++++++ | |----|100% |
+ + | --------------------------- | ----------------------------
+ SEITEL, INC. +----+----| Matrix Geophysical, Inc.| |
+ + | | 100% | | ----------------------------
++++++++++++++++++ | --------------------------- | |Datatel, Inc. |
- ------------------ | +----|100% |
| --------------------------- ----------------------------
|----| Seitel Canada Holdings, |
| | Inc. | ----------------------------
| | 100% |---------|Olympic Seismic Ltd. |
| --------------------------- |100% |
| ----------------------------
| ---------------------------
|----| Seitel Management, Inc. |
| | 100% |
| ---------------------------
|
| --------------------------- ----------------------------
|----| Seitel Geophysical, Inc.|----+----|African Geophysical, Inc. |
| | 100% | | |100% |
| --------------------------- | ----------------------------
| |
| --------------------------- | ---------------------------- --------------------------
|----| Alternative Communica- | +----|EHI Holdings, Inc. |----| Eagle Geophysical, Inc.|
| | tions Enterprises, Inc. | |100% | | 17.9% |
| | 100% | ---------------------------- --------------------------
| | Dormant|
| ---------------------------
|
| ---------------------------
|----| Exsol, Inc. |
| | 100% |
| | Dormant|
| ---------------------------
|
| ---------------------------
|----| Geo-Bank, Inc. |
| | 100% |
| | Dormant|
| ---------------------------
|
| --------------------------- ----------------------------
|----| Seitel Gas & Energy |---------|Seitel Natural Gas, Inc. |
| | Corp. | |100% |
| | 100% Dormant| ----------------------------
| ---------------------------
|
| ---------------------------
+----| Seitel Power Corp. |
| 100% |
| Dormant|
---------------------------
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The Company, through its wholly-owned subsidiary DDD Energy, participates
in oil and gas exploration and development efforts. For estimates of the
Company's net proved and proved developed oil and gas reserves as of December
31, 1997, see Note Q to the Company's Consolidated Financial Statements. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer. The
reserve data set forth in Note Q to the Company's Consolidated Financial
statements represent only estimates. Reserve engineering is a subjective process
of estimating underground accumulations of natural gas and liquids, including
crude oil, condensate and natural gas liquids, that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the amount
and quality of available data and of engineering and geological interpretation
and judgment. As a result, estimates of different engineers normally vary. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
In general, the volume of production from oil and gas properties owned by
the Company declines as reserves are depleted. Except to the extent that the
Company acquires additional properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved reserves
of the Company will decline as reserves are produced. Volumes generated from
future activities of the Company are therefore highly dependent upon the level
of success in finding or acquiring additional reserves and the costs incurred in
so doing.
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, 1997. Gross oil and gas wells include 10
with multiple completions. All of the wells are operated by the Company's
petroleum company partners.
Gross Wells Net Wells
----------- ---------
Oil 41 10.22
Gas 106 29.34
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>
1997
- ----
Texas 5.29 4.05 9.34 1.88 .52 2.40
Mississippi 2.64 2.00 4.64 1.24 - 1.24
Louisiana 2.35 1.05 3.40 1.05 - 1.05
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 - - -
</TABLE>
As of December 31, 1997, the Company was participating in the drilling of
10 gross and 2.43 net wells.
<PAGE>
The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of December 31, 1997. The table does
not include additional acreage which the Company may earn upon completion of
pending 3D seismic data projects.
Developed Acres Undeveloped Acres
---------------------------- ----------------------------
Gross Net Gross Net
------------ ------------- ------------- ------------
Texas 26,293 11,775 64,739 18,004
Louisiana 4,144 891 71,391 21,789
Alabama 160 5 1,516 270
Mississippi 4,100 1,321 26,806 16,239
Arkansas - - 3,600 450
------------ ------------- ------------- ------------
Total 34,697 13,992 168,052 56,752
============ ============= ============= ============
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, 1997 reserves with any federal
agencies.
<TABLE>
<CAPTION>
Net Production Average Sales Price
--------------------- Average -------------------------
Year Ended Oil Gas Production Oil Gas
December 31, (Mbbls) (Mmcf) Cost per Mcfe (Bbls) (Mcf)
------------ ------- ------ ------------- ------ ------
<S> <C> <C> <C> <C> <C>
1997 420 6,926 $ .55 $ 16.83 $ 2.63
1996 363 4,902 .44 18.52 2.28
1995 193 1,170 .66 13.85 1.55
</TABLE>
The amounts in 1997 and 1996 include 56,000 and 84,000 barrels,
respectively, and 1,795 and 2,094 million cubic feet, respectively, delivered
under the terms of a volumetric production payment agreement effective July 1,
1996 at an average price of $14.04 and $14.91, respectively, per barrel and
$1.84 and $2.15 per mcf, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary, routine claims and
lawsuits incidental to its business. In the opinion of management, uninsured
losses, if any, resulting from the ultimate resolution of these matters should
not be material to the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on November 20, 1997.
Matters voted upon at the Annual Meeting, and the results of those votes are as
follows:
1. The election of nine directors to serve until the 1998 Annual Meeting.
NAME NO. OF VOTES FOR NO. OF VOTES WITHHELD
-------------------- ---------------- ---------------------
Herbert M. Pearlman 9,112,694 185,658
Paul A. Frame 9,113,794 184,558
Horace A. Calvert 9,113,094 185,258
David S. Lawi 9,114,099 184,253
Debra D. Valice 9,114,099 184,253
Walter M. Craig, Jr. 9,112,845 185,507
William Lerner 9,114,599 183,753
John E. Stieglitz 9,113,145 185,207
Fred S. Zeidman 9,114,699 183,653
2. Approval of an amendment to the Company's Certificate of Incorporation to
increase the authorized Common Stock to facilitate a two-for-one stock
split.
NO. OF VOTES FOR NO. OF VOTES AGAINST NO. OF VOTES ABSTAINED
---------------- -------------------- ----------------------
9,064,342 179,240 54,770
<PAGE>
3. Approval of an amendment to the Seitel, Inc. 1993 Incentive Stock Option
Plan to limit the total number of options that can be granted to a single
participant under the Plan during any calendar year to 250,000 options.
NO. OF VOTES FOR NO. OF VOTES AGAINST NO. OF VOTES ABSTAINED
---------------- -------------------- ----------------------
8,823,505 372,192 102,655
4. Approval of an amendment to the Seitel, Inc. 1993 Incentive Stock Option
Plan to increase the number of shares available for granting options
thereunder by 850,000 shares.
NO. OF VOTES FOR NO. OF VOTES AGAINST NO. OF VOTES ABSTAINED
---------------- -------------------- ----------------------
3,368,325 2,548,455 146,200
5. Approval of the Seitel, Inc. 1998 Executive Compensation Plan.
NO. OF VOTES FOR NO. OF VOTES AGAINST NO. OF VOTES ABSTAINED
---------------- -------------------- ----------------------
4,956,383 929,912 176,685
6. Approval of the appointment of the public accounting firm of Arthur
Andersen LLP to act as the Company's independent Public Accountants for
1997.
NO. OF VOTES FOR NO. OF VOTES AGAINST NO. OF VOTES ABSTAINED
---------------- -------------------- ----------------------
9,233,899 14,575 49,878
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 1997 and 1996 as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
1997(1)<F1> 1996(1)<F1>
------------------------------- -------------------------------
High Low High Low
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter $ 22.31 $ 15.69 $ 17.75 $ 11.63
Second Quarter 19.50 16.31 14.31 12.50
Third Quarter 22.81 18.44 18.88 13.13
Fourth Quarter 25.88 16.00 21.88 18.13
</TABLE>
<F1> (1) All stock market prices have been restated to reflect the two-for-one
stock split in December 1997.
On March 27, 1998, the closing price for the Common Stock was $15.50. To
the best of the Company's knowledge, there are approximately 1,245 record
holders of the Company's Common Stock as of March 27, 1998.
<PAGE>
Dividend Policy
The Company did not pay cash dividends during 1996 or 1997, 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.
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>
Statement of Operations Data: Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 127,556 $ 106,002 $ 74,439 $ 70,902 $ 43,456
Expenses and costs:
Depreciation, depletion and
amortization 49,679 39,249 26,872 27,181 19,852
Impairment of oil and gas
properties 9,560 - - - -
Cost of sales 17,953 19,402 13,071 10,499 3,202
Selling, general and administrative 23,043 19,165 15,393 14,672 9,132
--------- --------- -------- -------- ---------
100,235 77,816 55,336 52,352 32,186
--------- --------- -------- -------- ---------
Income from operations 27,321 28,186 19,103 18,550 11,270
Interest expense, net (3,554) (2,900) (3,078) (3,198) (2,126)
Equity in earnings (loss) of affiliates 146 (186) - - -
Gain on sale of subsidiary stock 18,449 - - - -
Increase in underlying equity in affiliate 10,750 - - - -
Extinguishment of volumetric
production payment (4,133) - - - -
--------- --------- -------- -------- ---------
Income from continuing operations
before provision for income
taxes and extraordinary item 48,979 25,100 16,025 15,352 9,144
Provision for income taxes 17,422 8,863 5,898 5,681 3,328
--------- --------- -------- -------- ---------
Income from continuing operations
before extraordinary item 31,557 16,237 10,127 9,671 5,816
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 31,557 15,249 8,679 9,619 5,717
Extraordinary charge on early
extinguishment of debt, net of tax - - - (304) -
--------- --------- -------- -------- ---------
Net income $ 31,557 $ 15,249 $ 8,679 $ 9,315 $ 5,717
========= ========= ======== ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations Data: Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings per share: (1)<F1> (2)<F2>
Basic:
Income from continuing operations
before extraordinary item $ 1.48 $ .83 $ .55 $ .68 $ .49
Discontinued operations - (.05) (.08) - (.01)
Extraordinary item - - - (.02) -
--------- -------- -------- --------- ---------
Net income $ 1.48 $ .78 $ .47 $ .66 $ .48
========= ======== ======== ========= =========
Diluted:
Income from continuing operations
before extraordinary item $ 1.43 $ .79 $ .49 $ .55 $ .35
Discontinued operations - (.05) (.07) - (.01)
Extraordinary item - - - (.02) -
--------- -------- -------- --------- ---------
Net income $ 1.43 $ .74 $ .42 $ .53 $ .34
========= ======== ======== ========= =========
Weighted average shares: (1)<F1> (2)<F2>
- Basic 21,380 19,646 18,408 14,212 11,964
- Diluted 22,050 20,660 20,976 18,237 18,485
-----------------------------------------------------------------------
As of December 31,
-----------------------------------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993
---------- ---------- ---------- ----------- ----------
Data bank, net $ 180,936 $ 126,998 $ 105,369 $ 95,801 $ 58,583
Oil and gas properties, net 112,915 86,572 42,424 21,389 4,811
Property and equipment, net 2,349 14,022 10,126 11,035 6,985
Total assets 365,682 294,679 209,567 166,769 92,554
Total debt 90,566 86,488 61,283 16,927 31,866
Stockholders' equity 207,273 155,641 120,378 101,329 41,583
Stockholders' equity per common share
outstanding at December 31 $ 9.19 $ 7.51 $ 6.38 $ 5.74 $ 3.47
Common shares outstanding at
December 31 (1)<F1> 22,548 20,724 18,874 17,652 11,974
<FN>
<F1>(1) All number of shares and per share amounts have been restated to give
effect to the two-for-one stock split effected in the form of a 100% stock
dividend in December 1997.
<F2>(2) During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," which prescribes new computations
of all earnings per share amounts. All prior earnings per share data have
been restated.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The following table sets forth selected financial information (in
thousands) for the periods indicated, and should be read in conjunction with the
discussion of Results of Operations below.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------------
<S> <C> <C> <C>
Seismic:
Revenue $ 85,560 $ 67,138 $ 55,749
Amortization 35,163 30,477 23,852
Cost of sales 394 448 627
Oil and Gas:
Revenue 25,680 18,255 4,806
Depletion 12,666 7,212 1,625
Impairment of oil and gas properties 9,560 - -
Cost of sales 5,168 3,134 1,571
Geophysical Services:
Revenue 16,316 20,609 13,884
Depreciation 983 951 532
Cost of sales 12,391 15,820 10,873
Other depreciation 867 609 863
Selling, general and administrative 23,043 19,165 15,393
Net interest expense 3,554 2,900 3,078
Equity in earnings (loss) of affiliates 146 (186) -
------------ ------------ ------------
Income from continuing operations before provision
for income taxes and special items (1)<F1> 23,913 25,100 16,025
Provision for income taxes 8,498 8,863 5,898
------------ ------------ ------------
Income from continuing operations before special items (1)<F1> $ 15,415 $ 16,237 $ 10,127
============ ============ ============
Net income $ 31,557 $ 15,249 $ 8,679
============ ============ ============
- ----------------------------------
<FN>
<F1> (1) Special items include a pre-tax gain of $29,199,000 related to the
spin-off of the Company's seismic acquisition crew subsidiary and a
pre-tax loss of $4,133,000 related to the extinguishment of the
Company's volumetric production payment for the year ended December
31, 1997.
</FN>
</TABLE>
Results of Operations
Total revenue was $127,556,000, $106,002,000 and 74,439,000 in 1997, 1996
and 1995, respectively, representing increases of 20% from 1996 to 1997 and 42%
from 1995 to 1996. Revenue primarily consists of revenue generated from the
marketing of seismic data, oil and gas production and proprietary seismic data
acquisition (until August 11, 1997).
Revenue from the marketing of seismic data was $85,560,000, $67,138,000 and
$55,749,000 during 1997, 1996 and 1995, respectively. The increases between
years are primarily attributable to an increase in demand for high-resolution
seismic data, which is being used increasingly in oil and gas exploration and
development efforts. The Company believes the demand for its seismic data
remains strong due to several factors: large integrated oil and gas companies
are increasingly utilizing 3D seismic to evaluate the probability of the
existence and location of hydrocarbons; they have reduced their 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 $25,680,000, $18,255,000 and $4,806,000 during
1997, 1996 and 1995, respectively. The increases in oil and gas revenue are
primarily due to higher production resulting from more wells being on line in
1996 and 1997. The first year of oil and gas operations for the Company was
1993. Since then, the Company has steadily increased its exploration and
development efforts resulting in 68 wells producing as of December 31, 1995
increasing to 92 at December 31, 1996 and to 122 at December 31, 1997. Net
volume and price information for the Company's oil and gas production for the
years ended December 31, 1997, 1996 and 1995 is summarized in the following
table (amounts include deliveries made under the terms of a volumetric
production payment agreement effective from July 1, 1996 to June 30, 1997):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Natural gas volumes (mmcf) 6,926 4,902 1,170
Average natural gas price ($/mcf) $ 2.63 $ 2.28 $ 1.55
Crude oil/condensate volumes (mbbl) 420 363 193
Average crude oil/condensate price ($/bbl) $ 16.83 $ 18.52 $ 13.85
</TABLE>
Revenue from the acquisition of proprietary seismic data and leasing of
seismic equipment ("geophysical services") performed by the Company's former
seismic acquisition crew subsidiary, Eagle Geophysical, Inc. ("Eagle"), was
$16,316,000, $20,609,000 and $13,884,000 for 1997, 1996 and 1995, respectively.
The decrease from 1996 to 1997 is a result of the spin-off of Eagle on August
11, 1997. Consequently, the geophysical services revenue for 1997 represents
approximately seven and one-half months, whereas 1996 represented a full year.
The increase between 1995 and 1996 is primarily attributable to an increase in
the channel capacities of both crews. Additionally, revenue from geophysical
services recognized by the Company varies based on whether projects were
performed for other subsidiaries of the Company, in which case no revenue is
recognized, or were performed for third parties.
Depreciation, depletion and amortization consist primarily of data bank
amortization and depletion for oil and gas properties. Data bank amortization
amounted to $35,163,000, $30,477,000 and $23,852,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. As a percentage of revenue from
licensing seismic data, data bank amortization was 42%, 47% and 45% for 1997,
1996 and 1995, 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 and, in 1997, an
increase in revenue from purchased seismic data which is amortized on a
straight-line basis. 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.
The Company's (and its industry's) seismic revenue trends 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 expected declines in
activity, 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's
seismic business is stable and the possibility for significant improvement
exists.
Depletion of oil and gas properties, excluding the impairment discussed
below, was $12,666,000, $7,212,000 and $1,625,000 for the years ended December
31, 1997, 1996 and 1995, respectively, which amounted to $1.34, $1.02 and $.70,
respectively, per mcfe of gas produced during such periods. The increase in
rates reflects the amount of exploration and development costs incurred
increasing at a higher rate than the proven reserve base.
At December 31, 1997, the Company recorded a non-cash impairment of oil and
gas properties totaling $9,560,000 ($6,160,000, net of taxes) based on its
December 31, 1997, estimated proved reserves valued at March 18, 1998 market
prices. The impairment is primarily due to lower commodity prices as compared to
the December 31, 1996 and 1997 prices.
Cost of sales consists of expenses associated with the oil and gas
production and geophysical services (until August 11, 1997), as well as seismic
resale support services. The increases in cost of sales related to oil and gas
production is directly attributable to the increase in revenue from this area.
Oil and gas production costs amounted to $.55, $.44, $.66 per mcfe of gas
produced during 1997, 1996 and 1995, respectively. The variation in rates is
primarily attributable to the number of oil wells the Company has in relation to
its total wells as oil wells typically have higher associated production costs
than gas wells. Additionally, in 1997, ad valorem taxes increased as a result of
the increase in the value of reserves. The increase in cost of sales from 1995
to 1996 related to the acquisition of seismic data for non-affiliated parties is
due to an increase in revenue from this area. The decrease from 1996 to 1997 is
due to the 1997 cost of sales reflecting only seven and one-half months of
activity as a result of the spin-off of Eagle, whereas 1996 represented a full
year. Gross profit margin related to the acquisition of seismic data for
non-affiliated parties (revenue less cost of sales) was 19%, 21% and 22% for
1997, 1996 and 1995, respectively.
The Company's selling, general and administrative expenses increased from
$15,393,000 in 1995 and $19,165,000 in 1996 to $23,043,000 in 1997. The increase
for each year was primarily a result of variable expenses, including commissions
on revenue and compensation tied to pre-tax profits, related to the increased
volume of business. As a percentage of total revenue, these expenses were 21% in
1995 and decreased to 18% in 1996 and 1997. The decrease is primarily due to
ongoing cost reduction programs.
The Company's interest expense was $3,407,000 in 1995, $4,063,000 in 1996
and $4,610,000 in 1997. 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. The increase from 1996 to
1997 was primarily due to interest incurred on borrowings made under the
Company's revolving line of credit during 1997 along with the full amount of
Senior Notes being outstanding for all of 1997.
Interest income was $329,000 in 1995, $1,163,000 in 1996 and $1,055,000 in
1997. The increase from 1995 to 1996 was primarily attributable to interest
earned on the investment of increased cash balances as a result of the proceeds
from the Senior Notes. The decrease from 1996 to 1997 was primarily due to the
fluctuation in cash balances available for investment.
On August 11, 1997, Eagle completed an initial public offering in which the
Company sold 1,880,000 of its 3,400,000 shares of Eagle common stock as a
selling stockholder. As a result of the offering, the Company now owns 1,520,000
shares of Eagle common stock or 17.9% of the outstanding shares of Eagle. The
Company received net proceeds of $29,723,000 from its participation in the
offering, resulting in a pre-tax gain, net of costs, of $18,449,000 from its
sale of Eagle stock. Additionally, the Company recorded a pre-tax gain, net of
costs, of $10,750,000, representing an increase in the Company's underlying
equity of Eagle as a result of Eagle's issuance of stock in connection with the
offering. The Company's equity in earnings of Eagle was $146,000 for the period
from August 11, 1997 to December 31, 1997.
The Company entered into an agreement, which was effective July 1, 1997, to
extinguish its volumetric production payment. The cost to acquire the production
payment liability exceeded its book value. As a result of this transaction, the
Company recorded a pre-tax loss of $4,133,000 in 1997.
During a portion of 1996, the Company had 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.
The ownership interest in ERI was reduced to 19% in late 1996. During 1996, the
Company recognized a net loss from its interest in ERI of $186,000. In May 1997,
the Company contributed its 19% ownership interest in ERI to Eagle.
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.
Liquidity and Capital Resources
As a result of its sale of 1,880,000 shares of Eagle common stock on August
11, 1997, the Company received net proceeds of $29,723,000 which were used
primarily to fund additions to the Company's seismic data library and oil and
gas properties. As of December 31, 1997, the market value of the Company's
remaining equity interest in Eagle was $19,760,000, based on 1,520,000 shares at
the December 31, 1997 closing price of $13.00 per share as quoted by NASDAQ.
These shares are subject to certain trading restrictions.
Because Eagle is no longer consolidated in the Company's consolidated
financial statements, the amount of the Company's term loans and capital lease
obligations was reduced to $385,000 and $71,000, respectively, as of March 27,
1998. The Company also received repayment of debts owed directly to it by Eagle,
plus advances, amounting to $2,094,000. At December 31, 1997 the Company owed
$12,500,000 to this affiliate for seismic survey services.
From July 1995 to April 1997, the Company and two of its wholly-owned
subsidiaries obtained four separate three-year term loans totaling $1,077,000.
Two of the loans bear interest at the rate of 8.413%, and two at the rate of
7.9%. The proceeds were used for the purchase of certain property and equipment
which secures the debt. Monthly principal and interest payments total
approximately $34,000. The balance outstanding on the loans at March 27, 1998,
was $385,000.
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 may 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, up to an aggregate of $41,041,600 pursuant to an
effective "shelf" registration statement filed with the Securities and Exchange
Commission.
On March 16, 1998, the Company increased its $50,000,000 unsecured
revolving line of credit facility to $75,000,000. 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
March 16, 2001. As of March 27, 1998, the balance outstanding on the revolving
line of credit amounted to $18,000,000 bearing an interest rate of 6.44%.
In June 1996, a wholly-owned subsidiary of the Company sold a volumetric
production payment for $19 million to certain limited partnerships. During the
third quarter of 1997, the subsidiary extinguished the remaining portion of its
volumetric production payment at a cost of $13,352,000.
During 1997 and 1996, the Company received $17,361,000 and $11,182,000,
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 1997 and 1996, the Company also received $5,657,000 and
$3,204,000, respectively, in tax savings. From January 1, 1998, through March
27, 1998, the Company received $59,000 from 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 December 1997, the Company repurchased 175,000 shares of its common
stock in the open market at a cost of $2,973,000, pursuant to a stock repurchase
program authorized by the Board of Directors on December 12, 1997. The Board has
authorized expenditures of up to $25 million towards the repurchase of its
common stock.
During 1997, gross seismic data bank additions and capitalized oil and gas
exploration and development costs amounted to $89,073,000 and $50,597,000,
respectively. These capital expenditures, as well as taxes, interest expenses,
cost of sales and general and administrative expenses, were funded by
operations, proceeds from the sale of Eagle stock discussed above, 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
and borrowings under the Company's revolving line of credit.
Currently, the Company anticipates capital expenditures for 1998 to total
approximately $167 million. Such expenditures include approximately $130 million
for the creation of proprietary seismic data, and approximately $37 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 and project financing where applicable,
should be sufficient to fund the 1998 capital expenditures, along with
expenditures for operating and general and administrative expenses.
Additionally, the Company could arrange for additional debt or equity financing
during 1998; however, there can be no assurance that the Company would be able
to accomplish any such debt or equity financing on satisfactory terms.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." The statement establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The statement requires (a)
classification of items of other comprehensive income by their nature in a
financial statement (b) display of the accumulated balance of other
comprehensive income separate from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997 and
reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Under the new standard, companies will
be required to report certain information about operating segments in
consolidated statements. Operating segments will be determined based on the
method by which management organizes its business for making operating decisions
and assessing performance. The standard also requires that companies report
certain information about their products and services, the geographic areas in
which they operate, and their major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997.
Year 2000
The Company utilizes software and technologies throughout its operations
that will be affected by the date change in the year 2000 ("Year 2000 Issue").
An assessment of the systems that will be affected by the Year 2000 Issue has
been made. The Company does not believe the costs related to the Year 2000 Issue
will materially impact its results of operations. However, there can be no
guarantee that the systems of other companies, on which the Company's systems
rely, will be timely converted or that a failure to convert by another company
or a conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
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, 1997.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has a price risk management program that utilizes derivative
financial instruments, principally natural gas swaps, to reduce the price risks
associated with fluctuations in natural gas prices. These financial instruments
are designated as hedges and accounted for on the accrual basis with gains and
losses being recognized based on the type of contract and exposure being hedged.
Realized gains or losses on natural gas swaps designated as hedges of
anticipated production are treated as deferred credits or charges and are
included in other liabilities or other assets on the balance sheet. Net gains
and losses on natural gas swaps designated as hedges of anticipated
transactions, including accrued gains or losses upon maturity or termination of
the contract, are deferred and recognized in income when the associated hedged
commodities are produced. The Company did not materially hedge natural gas
prices in 1997. The Company continually reviews and may alter its hedged
positions.
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 1998 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").
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.
<PAGE>
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, 1997
and 1996 F-2
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 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
(11)
3.6 Amendment to Certificate of Incorporation filed November 21,
1997*
3.7 By-Laws of the Company (1)
3.8 Corporate Resolution reflecting an Amendment to the By-Laws of
the Company adopted January 6, 1989 (3)
3.9 Corporate Resolution reflecting an Amendment to the By-Laws of
the Company adopted May 19, 1986 (5)
4.1 Specimen of Common Stock Certificate (1)
4.2 Form of Warrant Certificate granted to certain employees and one
Director of the Company in December 1990 and expiring in December
2000 (8)
4.3 Form of Promissory Note for Employee Stock Purchase dated July
21, 1992 (10)
4.4 Form of Subscription Agreement for Employee Stock Purchase dated
July 21, 1992 (10)
4.5 Form of Pledge for Employee Stock Purchase dated July 21, 1992
(10)
<PAGE>
(3) Exhibits, continued...
4.6 Form of Warrant Certificate granted under the 1994 Warrant Plans
(14)
4.7 Form of Warrant Certificate granted under the 1995 Warrant Reload
Plan (17)
4.8 Form of Executive Warrant Certificate granted to certain
employees of the Company in November 1997 and expiring in
November 2002*
4.9 Form of Bonus Warrant Certificate granted to an employee of the
Company in November 1997 and expiring in November 2002*
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 (11)
10.4 Amendment No. 1 to the Seitel, Inc. 1993 Incentive Stock Option
Plan (16)
10.5 Statement of Amendments effective November 29, 1995, to the
Seitel, Inc. 1993 Incentive Stock Option Plan (19)
10.6 Statement of Amendments effective April 22, 1996, to the Seitel,
Inc. 1993 Incentive Stock Option Plan (19)
10.7 Amendment to the Seitel, Inc. 1993 Incentive Stock Option Plan
effective December 31, 1996 (21)
10.8 Amendment to Limit Options Granted to a Single Participant under
the Seitel, Inc. 1993 Incentive Stock Option Plan*
10.9 Amendment to Increase Number of Shares Available for Granting
Options under the Seitel, Inc. 1993 Incentive Stock Option Plan*
10.10 Non-Employee Directors' Stock Option Plan of the Company (13)
10.11 Amendment to the Seitel, Inc. Non-Employee Directors' Stock
Option Plan effective December 31, 1996 (21)
10.12 Seitel, Inc. Non-Employee Directors' Deferred Compensation Plan
(19)
10.13 Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan (20)
10.14 Amendment to the Seitel, Inc. Amended and Restated 1995 Warrant
Reload Plan effective December 31, 1996 (21)
10.15 Memorandum of Understanding between the Company and Triangle
Geophysical Company dated as of June 7, 1984 (1)
10.16 Lease Agreement by and between the Company and Commonwealth
Computer Advisors, Inc. (2)
10.17 The Company's 401(k) Plan adopted February 27, 1995 (14)
<PAGE>
(3) Exhibits, continued...
10.18 The Company's 401(k) Plan adopted January 1, 1998*
10.19 Executive Services Agreement dated April 3, 1990 between the
Company and Helm Resources, Inc. (7)
10.20 Employment Agreement effective as of January 1, 1991 between the
Company and Paul A. Frame, Jr. (9)
10.21 Amendment to Employment Agreement dated effective as of January
1, 1998 between the Company and Paul A. Frame, Jr.*
10.22 Employment Agreement effective as of January 1, 1991 between the
Company and Horace A. Calvert (9)
10.23 Amendment to Employment Agreement dated effective as of January
1, 1998 between the Company and Horace A. Calvert*
10.24 Employment Agreement effective as of January 1, 1991 between the
Company and Herbert M. Pearlman (9)
10.25 Amendment to Employment Agreement dated effective as of January
1, 1998 between the Company and Herbert M. Pearlman*
10.26 Employment Agreement effective as of January 1, 1991 between the
Company and David S. Lawi (9)
10.27 Amendment to Employment Agreement dated effective as of January
1, 1998 between the Company and David S. Lawi*
10.28 Employment Agreement effective as of January 1, 1993 between the
Company and Debra D. Valice (12)
10.29 Amendment to Employment Agreement dated effective as of January
1, 1998 between the Company and Debra D. Valice*
10.30 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)
10.31 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 (19)
10.32 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. (21)
10.33 Revolving Credit Agreement dated as of July 22, 1996, among
Seitel, Inc. and The First National Bank of Chicago (19)
10.34 First Amendment to Seitel, Inc. Revolving Credit Agreement dated
as of August 30, 1996 among the Company and The First National
Bank of Chicago (20) (3) Exhibits, continued...
10.35 Second Amendment to Revolving Credit Agreement dated as of July
22, 1996, among Seitel, Inc. and The First National Bank of
Chicago (22)
10.36 Ratable Note in the amount of $20,000,000 among Seitel, Inc. and
Bank One, Texas, N.A. dated as of May 1, 1997 (22)
10.37 Ratable Note in the amount of $30,000,000 among Seitel, Inc. and
The First National Bank of Chicago dated as of May 1, 1997 (22)
10.38 Third Amendment to Revolving Credit Agreement dated as of March
16, 1998 among Seitel, Inc. and The First National Bank of
Chicago*
10.39 Ratable Note in the amount of $40,000,000 among Seitel, Inc. and
The First National Bank of Chicago dated March 16, 1998*
10.40 Ratable Note in the amount of $35,000,000 among Seitel, Inc. and
Bank One, Texas, N.A. dated as of March 16, 1998*
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 (21)
10.42 Incentive Compensation Agreement (10)
10.43 Shareholder Value Bonus Agreement effective as of March 18, 1994
(13)
10.44 Amendment to Shareholder Value Bonus Agreement effective as of
March 18, 1994 (15)
10.45 Seitel, Inc. 1995 Shareholder Value Incentive Bonus Plan (16)
10.46 Terms Agreement dated July 28, 1994, between the Company and
Bear, Stearns & Co., Inc. (13)
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 (18)
21.1 Subsidiaries of the Registrant *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Miller and Lents, Ltd.*
23.3 Consent of Forrest A. Garb & Associates, Inc.*
----------------------
* Filed herewith
<PAGE>
(3) Exhibits, continued...
(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 Form 10-Q for the
quarter ended June 30, 1991.
(10) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
(11) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1993.
(12) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1993.
(13) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1994.
(14) 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.
(15) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
(16) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1995.
(17) 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.
<PAGE>
(3) Exhibits, continued...
(18) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(19) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(20) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1996.
(21) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(22) Incorporated by reference to the Company's Form 10-Q for the
quarter ended March 31, 1997.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1997:
--------------------------------------------------------------------
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 30th of March, 1998.
SEITEL, INC.
By: /s/Paul A. Frame
------------------------------------------
Paul A. Frame
President
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 March 30, 1998
- -------------------------- Board of Directors
Herbert M. Pearlman
/s/ Paul A. Frame President and Chief March 30, 1998
- -------------------------- Executive Officer,
Paul A. Frame Director
/s/ Horace A. Calvert Executive Vice President March 30, 1998
- -------------------------- and Chief Operating
Horace A. Calvert Officer, Director
/s/ Debra D. Valice Senior Vice President- March 30, 1998
- -------------------------- Finance, Chief Financial
Debra D. Valice Officer, Secretary and
Treasurer, Director
/s/ David S. Lawi Director March 30, 1998
- --------------------------
David S. Lawi
/s/ Walter M. Craig, Jr. Director March 30, 1998
- --------------------------
Walter M. Craig, Jr.
/s/ William Lerner Director March 30, 1998
- --------------------------
William Lerner
/s/ John Stieglitz Director March 30, 1998
- --------------------------
John Stieglitz
/s/ Fred S. Zeidman Director March 30, 1998
- --------------------------
Fred S. Zeidman
<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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
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, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1998
F-1
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 31,
------------------------------------
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 4,881 $ 3,340
Receivables
Trade, less allowance for doubtful accounts of $561 and $336
at December 31, 1997 and 1996, respectively 45,482 52,509
Notes and other, net of discount of $198 at
December 31, 1996 1,202 6,618
Data bank 373,920 284,847
Less: Accumulated amortization (192,984) (157,849)
---------- -----------
Net data bank 180,936 126,998
Property and equipment, at cost:
Oil and gas properties, full-cost method of accounting,
including $39,436 and $30,709 not being amortized at
December 31, 1997 and 1996, respectively 146,642 96,045
Geophysical equipment - 20,200
Furniture, fixtures and other 5,442 4,665
---------- -----------
152,084 120,910
Less: Accumulated depreciation, depletion and amortization (36,820) (20,316)
---------- -----------
Net property and equipment 115,264 100,594
Investment in affiliates 15,054 914
Prepaid expenses, deferred charges and other assets 2,863 3,706
---------- -----------
TOTAL ASSETS $ 365,682 $ 294,679
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- continued
(In thousands, except share and per share amounts)
<CAPTION>
December 31,
------------------------------------
1997 1996
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 22,423 $ 15,189
Accrued liabilities 5,330 6,538
Employee compensation payable 261 3,403
Payable to affiliate 12,500 -
Income taxes payable 1,242 302
Debt
Senior Notes 75,000 75,000
Line of credit 15,000 -
Term loans 477 9,025
Obligations under capital leases 89 2,463
Contingent payables 274 274
Deferred income taxes 18,050 9,793
Deferred revenue 7,763 17,051
----------- ------------
TOTAL LIABILITIES 158,409 139,038
----------- ------------
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
50,000,000 shares; issued and outstanding 22,548,408
and 10,362,102 (pre-split) at December 31, 1997 and 1996, respectively 225 104
Additional paid-in capital 128,406 105,544
Retained earnings 82,742 51,185
Treasury stock, 175,818 and 409 (pre-split) shares at cost at
December 31, 1997 and 1996, respectively (2,977) (4)
Notes receivable from officers and employees (1,109) (1,205)
Cumulative translation adjustment (14) 17
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 207,273 155,641
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 365,682 $ 294,679
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ 127,556 $ 106,002 $ 74,439
EXPENSES
Depreciation, depletion and amortization 49,679 39,249 26,872
Impairment of oil and gas properties 9,560 - -
Cost of sales 17,953 19,402 13,071
Selling, general and administrative expenses 23,043 19,165 15,393
----------- ----------- -----------
100,235 77,816 55,336
----------- ----------- -----------
INCOME FROM OPERATIONS 27,321 28,186 19,103
Interest expense (4,609) (4,063) (3,407)
Interest income 1,055 1,163 329
Equity in earnings (loss) of affiliates 146 (186) -
Gain on sale of subsidiary stock 18,449 - -
Gain on increase in underlying equity of affiliate 10,750 - -
Extinguishment of volumetric production payment (4,133) - -
----------- ----------- -----------
Income from continuing operations before provision for
income taxes 48,979 25,100 16,025
Provision for income taxes 17,422 8,863 5,898
----------- ----------- -----------
Income from continuing operations 31,557 16,237 10,127
Loss from discontinued operations, net of income tax
benefit of $580 for 1996 and $703 for 1995 - (988) (1,196)
Loss on disposal of discontinued operations, net of
income tax benefit of $148 - - (252)
----------- ----------- -----------
NET INCOME $ 31,557 $ 15,249 $ 8,679
=========== =========== ===========
Earnings per share:
Basic:
Income from continuing operations $ 1.48 $ .83 $ .55
Loss from discontinued operations - (.05) (.07)
Loss on disposal of discontinued operations - - (.01)
----------- ----------- -----------
Net income $ 1.48 $ .78 $ .47
=========== =========== ===========
Diluted:
Income from continuing operations $ 1.43 $ .79 $ .49
Loss from discontinued operations - (.05) (.06)
Loss on disposal of discontinued operations - - (.01)
----------- ----------- -----------
Net income $ 1.43 $ .74 $ .42
=========== =========== ===========
Weighted average number of common and common equivalent shares:
Basic 21,380 19,646 18,408
=========== =========== ===========
Diluted 22,050 20,660 20,976
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<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, 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
Net proceeds from issuance of
common stock 912,472 8 17,318 - - - -
Two-for-one stock split 11,273,834 113 (113) - (409) - - -
Tax reduction from exercise
of stock options - - 5,657 - - - - -
Treasury stock purchased - - - - (175,000) (2,973) - -
Payments received on notes
receivable from
officers and employees - - - - - - 96 -
Foreign currency translation
adjustment - - - - - - - (31)
Net income - - - 31,557 - - - -
=========== ======= ========= ======= ========= ======== ========== ==========
Balance, December 31, 1997 22,548,408 $ 225 $ 128,406 $ 82,742 (175,818) $ (2,977) $ (1,109) $ (14)
=========== ======= ========= ======= ========= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 123,795 $ 93,119 $ 80,981
Proceeds from volumetric production payment - 19,000 -
Cash paid to suppliers and employees (41,652) (40,066) (38,563)
Interest paid (4,584) (4,148) (4,551)
Interest received 955 1,181 320
Income taxes paid (2,353) (1,754) (2,218)
---------- ---------- ----------
Net cash provided by operating activities 76,161 67,332 35,969
---------- ---------- ----------
Cash flows from investing activities:
Cash invested in seismic data (76,616) (49,716) (59,286)
Cash invested in oil and gas properties (55,480) (48,429) (21,737)
Cash paid to acquire property and equipment (8,772) (8,224) (1,416)
Cash from disposal of property and equipment 28 59 -
Proceeds from sale of stock of subsidiary 29,723 - -
Costs related to sale of stock of subsidiary (5,435) - -
Cash received from affiliate for advances 2,094 - -
Advances made to oil and gas joint venture partner - - (1,142)
Collections on loans made 5,415 327 108
Loan made to unconsolidated affiliate - (2,000) -
Cost of investment made in unconsolidated affiliate - (109) -
---------- ---------- ----------
Net cash used in investing activities (109,043) (108,092) (83,473)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings under line of credit agreement 63,500 - 75,101
Principal payments under line of credit
agreement (48,500) - (80,186)
Borrowings under term loans 7,925 7,697 387
Principal payments on term loans (2,301) (1,743) (876)
Principal payments under capital lease
obligations (828) (1,301) (1,375)
Proceeds from issuance of senior notes - 22,500 52,500
Proceeds from issuance of common stock 17,361 11,184 6,942
Costs of debt and equity transactions (35) (860) (202)
Repurchase of common stock (2,735) - -
Payments on notes receivable from officers
and employees 96 190 156
---------- ---------- ----------
Net cash provided by financing activities 34,483 37,667 52,447
---------- ---------- ----------
Effect of exchange rate changes (60) (43) (8)
---------- ---------- ----------
Net increase (decrease) in cash and equivalents 1,541 (3,136) 4,935
Cash and equivalents at beginning of period 3,340 6,476 1,541
---------- ---------- ----------
Cash and equivalents at end of period $ 4,881 $ 3,340 $ 6,476
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--continued
(In thousands)
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995
------------ ------------ ------------
Reconciliation of net income to net cash provided by operating activities:
<S> <C> <C> <C>
Net income $ 31,557 $ 15,249 $ 8,679
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of subsidiary stock (18,449) - -
Gain on increase in underlying equity of affiliate (10,750) - -
Extinguishment of volumetric production payment 4,133 - -
Loss from discontinued operations, net of tax - 988 1,448
Equity in loss (earnings) of affiliate (146) 186 -
Depreciation, depletion and amortization 62,293 40,229 27,663
Deferred income tax provision 8,257 3,321 2,970
Non-cash sales - - (1,534)
Gain on sale of property and equipment (16) (40) -
Amortization of deferred revenue (4,079) (5,740) -
Increase in receivables (3,544) (12,155) (5,998)
Increase in other assets (849) (1,143) (705)
Discount on note receivable (198) 198 -
Proceeds from volumetric production payment - 19,000 -
Increase in accounts payable and other liabilities 7,952 10,996 3,722
----------- ----------- -----------
Total adjustments 44,604 55,840 27,566
----------- ----------- -----------
Net cash provided by (used in) operating activities of:
Continuing operations $ 76,161 $ 71,089 $ 36,245
Discontinued operations - (3,757) (276)
----------- ----------- -----------
Net cash provided by operating activities $ 76,161 $ 67,332 $ 35,969
=========== =========== ===========
</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, 1997
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 covers
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 Q, "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. Investments in less than majority owned companies over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. 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, 1997 to be amortized to be 23%,
20%, 14%, 13%, 10%, and 20% for the years ending December 31, 1998, 1999, 2000,
2001, 2002 and all periods 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.
F-8
<PAGE>
Net data bank at December 31, 1997 and 1996 was comprised of the
following (in thousands):
December 31,
1997 1996
------------- -------------
2D data created by the Company $ 17,625 $ 20,277
3D data created by the Company 151,247 96,100
Data purchased by the Company 12,064 10,621
============= =============
Net data bank $ 180,936 $ 126,998
============= =============
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, 1997, exploration and development related
overhead costs of $1,431,000, $1,146,000 and $861,000, respectively, have been
capitalized to oil and gas properties. For the three years ended December 31,
1997, interest costs of $2,105,000, $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 values, 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 from estimated proved reserves, based on current
economic and operating conditions, plus the lower of cost or fair value of
unevaluated properties, adjusted for the effects of related income taxes. If
capitalized costs exceed this limit, the excess is charged to depreciation,
depletion and amortization. Based on the Company's December 31, 1997 estimated
proved reserves valued at March 18, 1998 market prices, the Company recorded a
non-cash impairment of oil and gas properties of $9,560,000 ($6,160,000 net of
taxes) in the fourth quarter of 1997.
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 $207,000, $445,000 and $(3,000) for the years ended December 31, 1997, 1996
and 1995, respectively, as such earnings are intended to be permanently
reinvested in foreign 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. These contracts generally
provide that the customer accepts work completed throughout the performance
period and owes the Company, based on pricing provisions, amounts for job
completion, measured in terms of performance progress. Revenue received in
advance of being earned is deferred until earned.
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.
F-9
<PAGE>
FOREIGN CURRENCY TRANSLATION: For subsidiaries whose functional currency is
deemed to be other than the U. S. dollar, asset and liability accounts are
translated at year-end exchange rates and revenue and expenses are translated at
the current exchange rates as of the dates on which they are recognized.
Translation adjustments are included as a separate component of shareholders'
equity. Any gains or losses on transactions or monetary assets or liabilities in
currencies other than the functional currency are included in net income in the
current period.
USE OF DERIVATIVES: The Company has a price risk management program that
utilizes derivative financial instruments, principally natural gas swaps, to
reduce the price risks associated with fluctuations in natural gas prices. These
financial instruments are designated as hedges and accounted for on the accrual
basis with gains and losses being recognized based on the type of contract and
exposure being hedged. Realized gains or losses on natural gas swaps designated
as hedges of anticipated production are treated as deferred credits or charges
and are included in other liabilities or other assets on the balance sheet. Net
gains and losses on natural gas swaps designated as hedges of anticipated
transactions, including accrued gains or losses upon maturity or termination of
the contract, are deferred and recognized in income when the associated hedged
commodities are produced. In order for natural gas swaps to qualify as a hedge
of an anticipated transaction, the derivative contract must identify the
expected date of the transaction, the commodity involved, and the expected
quantity to be purchased or sold. In the event that a hedged transaction does
not occur, future gains and losses, including termination gains or losses, are
included in the income statement when incurred. The estimated fair value of open
commodity price hedges as of December 31, 1997 was a gain of $183,000 and as of
December 31, 1996 was a loss of $408,000.
In the statement of cash flows, cash receipts or payments related to
financial instruments are classified consistent with the cash flows from the
transaction being hedged.
EARNINGS PER SHARE: The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires
restatement of all comparative per share amounts. Under the provisions of SFAS
No. 128, the presentation of primary earnings per share has been replaced with
basic earnings per share, and fully diluted earnings per share presentations
have been replaced with diluted earnings per share for potentially dilutive
securities such as outstanding options, convertible debt and preferred stock.
All prior period earnings per share data have been restated.
Basic earnings per share are computed based on the weighted average shares
of common stock outstanding. Earnings per share computations to reconcile basic
and diluted income from continuing operations for the years 1997, 1996 and 1995
consist of the following (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations $ 31,557 $ 16,237 $ 10,127
=========== =========== ===========
Basic weighted average shares 21,380 19,646 18,408
Effect of dilutive securities: (1)<F1>
Options and warrants 670 932 2,083
Convertible subordinated debentures - 82 485
----------- ----------- -----------
Diluted weighted average shares 22,050 20,660 20,976
=========== =========== ===========
Per share income from continuing operations:
Basic $ 1.48 $ .83 $ .55
Diluted $ 1.43 $ .79 $ .49
- -------------------
<FN>
<F1>(1) A weighted average year-to-date number of options and warrants to
purchase 1,007,000, 20,000 and 345,000 shares of common stock were
outstanding during 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted per share income from
continuing operations because their exercise prices were greater than
the average market price of the common shares.
</FN>
</TABLE>
F-10
<PAGE>
STOCK-BASED COMPENSATION: The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board ("APB") Opinion No. 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 SFAS No. 123, "Accounting for Stock-Based
Compensation" on the Company's results of operations in 1997, 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, 1997 and 1996, 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, 1997 and 1996.
As of December 31, 1997, the market value of the Company's remaining equity
interest in Eagle Geophysical, Inc. ("Eagle") was $19.8 million, based on
1,520,000 shares at the December closing price of $13.00 per share as quoted by
NASDAQ.
IMPAIRMENT OF LONG-LIVED ASSETS: Effective January 1, 1996, the Company
adopted the requirements of 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. There were no impairments recorded under SFAS No. 121 in 1997, 1996
or 1995.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income."
The statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The statement requires (a) classification of items of other comprehensive income
by their nature in a financial statement and (b) display of the accumulated
balance of other comprehensive income separate from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Under the new standard, companies will
be required to report certain information about operating segments in
consolidated statements. Operating segments will be determined based on the
method by which management organizes its business for making operating decisions
and assessing performance. The standard also requires that companies report
certain information about their products and services, the geographic areas in
which they operate, and their major customers. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997.
NOTE B--INCOME TAXES
The discussion of income taxes herein does not include the income tax
effects of the discontinued operations explained in Note M of these consolidated
financial statements.
F-11
<PAGE>
The provision (benefit) for income taxes for each of the three years ended
December 31, 1997, are comprised of the following (in thousands):
1997 1996 1995
--------- ---------- ---------
Current - Federal $ 8,709 $ 5,214 $ 2,753
- State 314 246 153
- Foreign 142 82 22
--------- ---------- ---------
9,165 5,542 2,928
--------- ---------- ---------
Deferred - Federal 8,256 3,321 3,001
- State 1 - (31)
---------- ---------- ---------
8,257 3,321 2,970
--------- ---------- ---------
Tax provision - Federal 16,965 8,535 5,754
- State 315 246 122
- Foreign 142 82 22
--------- ---------- =========
$ 17,422 $ 8,863 $ 5,898
========= ========== =========
The differences between the U.S. Federal income taxes computed at the
statutory rate (35% for 1997, 34.7% for 1996 and 34.6% for 1995) and the
Company's income taxes for financial reporting purposes are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Statutory Federal income tax $ 17,143 $ 8,716 $ 5,540
State income tax, less Federal benefit 206 162 79
Other, net 73 (15) 279
-------- ------- --------
Income tax expense $ 17,422 $ 8,863 $ 5,898
======== ======= ========
</TABLE>
The components of the net deferred income tax liability reflected in
the Company's consolidated balance sheets at December 31, 1997 and 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
Deferred Tax Assets
(Liabilities) at December 31,
-------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Alternative minimum tax credit carryforward $ 3,541 $ 1,506
Net operating loss carryforward - 997
Partnership earnings 499 215
Investment tax credits 44 44
Other 1,021 553
---------- ----------
Total deferred tax assets 5,105 3,315
Less: Valuation allowance (44) (44)
---------- ----------
Deferred tax assets, net of
valuation allowance 5,061 3,271
---------- ----------
Depreciation, depletion and amortization (23,111) (12,969)
Other - (95)
----------
----------
Total deferred tax liabilities (23,111) (13,064)
---------- ----------
Net deferred tax liability $ (18,050) $ (9,793)
========== ==========
</TABLE>
F-12
<PAGE>
As of December 31, 1997, the Company has an alternative minimum tax (AMT)
credit carryforward of approximately $3,541,000 which can be used to offset
regular Federal income taxes payable in future years. The AMT credit has an
indefinite carryforward period.
In connection with the exercise of non-qualified stock options and common
stock purchase warrants by employees during 1997, 1996 and 1995, the Company
received $5,657,000, $3,204,000 and $1,900,000, 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, 1997 and
1996 (in thousands):
December 31,
----------------------------
1997 1996
---------- ----------
Senior notes $ 75,000 $ 75,000
Borrowings under line of credit 15,000 -
Term loans 477 9,025
---------- ----------
$ 90,477 $ 84,025
========== ==========
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.
LINE OF CREDIT: The Company's $50 million unsecured revolving line of
credit facility was increased to $75 million on March 16, 1998, and the maturity
date was extended from July 22, 1999 to March 16, 2001. 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 average
interest rate applicable to amounts outstanding under this facility was 7.1%
during 1997.
TERM LOANS: From 1995 to 1997, the Company and two of its wholly-owned
subsidiaries obtained four separate three-year term loans totaling $1,077,000.
Two of the loans bear interest at the rate of 8.413%, and two at the rate of
7.9%. The proceeds were used for the purchase of certain property and equipment
which secures the debt. Monthly principal and interest payments total
approximately $34,000.
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: $10,306,000 in 1998; $18,460,000 in 1999; $18,378,000 in 2000;
$25,000,000 in 2001; and $18,333,000 in 2002.
NOTE D--LEASE OBLIGATIONS
Assets recorded under capital leases obligations of $81,000 and $2,836,000
at December 31, 1997 and 1996, respectively, are included in property and
equipment.
F-13
<PAGE>
The Company leases office space under operating leases. Rental expense for
1997, 1996 and 1995 was approximately $606,000, $619,000 and $571,000,
respectively.
Future minimum lease payments for the five years subsequent to December 31,
1997 and in the aggregate are as follows (in thousands):
Capital Operating
Leases Leases
------------- ------------
1998 $ 74 $ 621
1999 18 622
2000 - 585
2001 - 408
2002 - 265
------------- ------------
Total minimum lease payments 92 $ 2,501
============
Less amount representing interest (3)
-------------
Present value of net minimum
lease payments $ 89
=============
The Company subleases a portion of its principal corporate offices to Eagle
Geophysical, Inc. ("Eagle"). Future minimum lease payment receivables under the
sublease as of December 31, 1997 are as follows: $83,000 in 1998; $83,000 in
1999 and $56,000 in 2000.
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 retained
responsibility for its working interest share of the cost of operations. The
Company accounted for the proceeds received in the transaction as deferred
revenue which was amortized into revenue and income as natural gas and other
hydrocarbons were produced and delivered.
The Company entered into an agreement to extinguish the remaining portion
of its volumetric production payment which was effective July 1, 1997. The cost
to acquire the production payment liability exceeded its book value. As a result
of this transaction, the Company recorded a pre-tax loss of $4,133,000 in the
accompanying consolidated statement of operations for the year ended December
31, 1997.
NOTE F--CONTINGENCIES AND COMMITMENTS
At both December 31, 1997 and 1996, $274,000 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 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 $30 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, 1998, the market price of the Company's common
stock was $15.625 per share.
The Company has employment agreements with certain of its key employees and
other incentive compensation arrangements that commit it to commissions based on
revenue, bonuses based on pre-tax profits, and other amounts based on seismic
data program profitability. Part III of the Company's Form 10-K contains a more
complete discussion of these contractual obligations.
F-14
<PAGE>
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,
1997, 231,200 shares have been reserved for issuance under the Incentive Stock
Option Plan and 541,800 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, July 25, 1996 and November 20, 1997, approved
amendments to that plan to increase the total number of shares issuable under
the option plan to 4,000,000. As of December 31, 1997, 2,969,058 options have
been issued under the plan. As of December 31, 1997, 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 no more than 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 150,000 shares for issuance. As of December 31,
1997, 74,000 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, 1997, 1996 and 1995 (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- ------------------------
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 1,554 $ 12.06 1,280 $ 9.90 712 $ 6.13
Granted 1,325 20.03 612 14.67 674 12.96
Exercised (256) 11.14 (244) 7.08 (104) 4.08
Forfeited - - (94) 12.56 (2) 5.66
------- ------- --------
Outstanding at end of year 2,623 16.18 1,554 12.06 1,280 9.90
======= ======= ========
Options exercisable at end of year 1,732 544 372
======= ======= ========
</TABLE>
The following table summarizes information for the options outstanding
at December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------------
Number of Weighted Weighted Number of Weighted
Options Average Average Options Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/97 Life in Price at 12/31/97 Price
Years
- ------------------------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$ 2.78- $ 7.00 189 4.26 $ 3.61 189 $ 3.61
$ 7.01- $ 11.00 45 6.30 10.09 45 10.09
$ 11.01- $ 15.00 786 8.00 12.77 421 12.75
$ 15.01- $ 19.00 410 7.51 17.11 207 16.81
$ 19.01- $ 21.50 1,193 5.76 20.32 870 20.30
------------ ------------
$ 2.78- $ 21.50 2,623 16.18 1,732 15.96
============ ============
</TABLE>
During 1997, 1996 and 1995, the Company granted 2,119,408, 524,282 and
614,288 warrants, respectively, with a weighted average fair value on the date
of grant of $9.58, $8.69 and $7.52, respectively.
F-15
<PAGE>
During 1997, the Company cancelled 460,160 warrants granted during 1997 and
274,262 warrants granted during 1996 and reissued the same number of options
under the same terms as the original grant. At December 31, 1997, outstanding
warrants to purchase the Company's common stock were as follows (shares in
thousands):
Number of Range of Year of
Shares Exercise Prices Expiration
------------- -------------------- -------------
Issued to employees 701 $12.00 - 24.94 1999
Issued to employees 574 6.53 - 20.59 2000
Issued to employees 104 13.56 - 24.97 2001
Issued to employees 1,498 2.69 - 21.44 2002
Issued to employees 43 21.28 - 22.53 2004
Issued to employees 50 24.28 - 24.91 2005
Issued to employees 64 21.28 - 25.31 2006
Issued to an employee 2 21.84 2007
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. APB No. Opinion 25 generally
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>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net income As reported $ 31,557 $ 15,249 $ 8,679
Pro forma $ 17,039 $ 10,050 $ 5,631
Basic earnings per share As reported $ 1.48 $ .78 $ .47
Pro forma $ .80 $ .51 $ .31
Diluted earnings per share As reported $ 1.43 $ .74 $ .42
Pro forma $ .78 $ .49 $ .28
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1997, 1996 and 1995, respectively: (1) risk-free interest rates ranging from
5.79% to 6.79%, 5.9% to 7.03% and 5.54% to 7.02%; (2) dividend yield of 0%, 0%
and 0%; (3) stock price volatility ranging from 37.23% to 45.77%, 46.49% to
62.62% and 47.18% to 65.06%; and (4) expected option lives ranging from 1.67 to
10 years, 5 to 10 years and 2.8 to 10 years. The weighted-average fair value of
options granted during 1997, 1996 and 1995 was $9.98, $11.20 and $9.66 per
option, respectively, for options granted at fair market value and $10.15 and
$9.43 per option for options granted above fair market value in 1997 and 1995,
respectively. 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, 1997, 60,000 shares have been reserved for issuance
under this plan and directors have accumulated 1,643 deferred shares in their
accounts which will begin to be distributed in January 1998 in five equal annual
installments.
F-16
<PAGE>
NOTE H--COMMON STOCK
On November 20, 1997, the shareholders of the Company approved an increase
in the Company's authorized common stock to 50,000,000 shares to facilitate a
two-for-one stock split, effected in the form of a 100% stock dividend, which
was approved by the Board of Directors on October 7, 1997. The two-for-one stock
split was paid in the form of a stock dividend to shareholders of record as of
December 3, 1997. All numbers of shares and per share amounts in the
accompanying consolidated financial statements and footnotes have been restated
to give effect to the two-for-one stock split except where noted.
In December 1997, the Company's Board of Directors approved the expenditure
of up to $25 million to repurchase the Company's common stock. During December
1997, the Company repurchased 175,000 shares of common stock at a cost of
$2,973,000.
The Company may 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, up to an aggregate of $41,041,600 pursuant to an
effective shelf registration statement filed with the Securities and Exchange
Commission.
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 $2.69 per share. The Company recorded related compensation
expense due to the below market interest rate on these loans of $43,000, $48,000
and $56,000 for the years ended December 31, 1997, 1996 and 1995, 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 1997, 1996 and 1995, the Company received
$96,000, $190,000 and $156,000 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, 1997, no preferred stock had been issued.
NOTE J--ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARY COMPANIES
The Company recognizes gains or losses on sales of stock by its subsidiary
companies when such sales are not made as part of a larger plan of corporate
reorganization. Such gains or losses are based upon the difference between the
book value of the Company's investment in the subsidiary immediately after the
sale and the historical book value of the Company's investment immediately prior
to the sale.
On August 11, 1997, the Company's wholly-owned seismic data acquisition
crew subsidiary, Eagle, completed an initial public offering ("Offering") in
which the Company sold 1,880,000 of its 3,400,000 shares of Eagle common stock
as a selling stockholder. As a result of the Offering, the Company now owns
1,520,000 shares of Eagle common stock, or 17.9% of the outstanding shares of
Eagle. The Company received net proceeds of $29,723,000 from its participation
in the Offering, resulting in a pre-tax gain, net of costs, on the sale of Eagle
common stock of $18,449,000. Additionally, the Company recorded a pre-tax gain,
net of costs, of $10,750,000 representing an increase in the Company's
underlying equity of Eagle as a result of Eagle's issuance of stock in
connection with the Offering.
F-17
<PAGE>
NOTE K--RELATED PARTY TRANSACTIONS
The Company owed Eagle and its subsidiaries $12,500,000 at December 31,
1997 for seismic data acquisition services provided to the Company and its
subsidiaries subsequent to the Offering date. The Company incurred charges of
$22,200,000 for these services from the period August 11, 1997 through December
31, 1997. Costs incurred from these services were based on agreed upon
contractual amounts and terms similar to contracts with third party contractors.
The Company and Eagle entered into a Master Separation Agreement ("the
Agreement") for the purpose of defining their continuing relationship after the
Offering. The Agreement provides for the Company and Eagle to enter into a
Sublease, a Registration Rights Agreement and a Tax Indemnity Agreement. Under
the Agreement, the Company and Eagle have indemnified each other with respect to
liabilities arising in connection with the operations of their respective
businesses prior to and after the date of consummation of the Offering including
liabilities under the Securities Act with respect to the Offering. The Sublease
between the Company and Eagle provides for the Company to sublease a portion of
its principal corporate offices to Eagle for a term of three years beginning
August 1997 at an annual rent of approximately $83,000. The Sublease also
provides for Eagle to utilize certain shared office equipment, such as phone
systems and central computer systems, for an additional charge. Pursuant to the
Registration Rights Agreement, Eagle has agreed to register the offer and sale
by the Company on a delayed and continuous basis from time to time of the shares
of common stock owned by the Company after the Offering at the expense of Eagle.
The Company and Eagle have entered into a Tax Indemnity Agreement to define
their respective rights and obligations relating to federal, state and other
taxes for periods before and after the Offering. Pursuant to the Tax Indemnity
Agreement, Eagle is required to pay the Company (to the extent not already paid)
its share of federal income taxes prior to the date of consummation of the
Offering, and is responsible for federal income taxes from its operations on and
after the date of the Offering. Any subsequent refunds, additional taxes or
penalties or other adjustments relating to Eagle's federal income taxes for
periods prior to the date of consummation of the Offering shall be for the
benefit of or be borne by the Company. Similar provisions apply under the Tax
Indemnity Agreement to other taxes, such as state and local taxes.
The Company owed Helm Resources, Inc. and its subsidiaries ("Helm"), a
company that has three executive officers who are directors of the Company,
$76,000 and $23,000 as of December 31, 1997 and 1996, 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 $76,000,
$80,000 and $78,000 for these general and administrative expenses during 1997,
1996 and 1995, respectively. Management believes that these expenses, which were
specifically related to the Company's business, represented costs which would
have been incurred in similar amounts 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 1994 through 1997 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 2.5% of the total
investment made by such partnership and DDD Energy, Inc. for the partnership
formed in 1997, 3% 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
arm's-length.
F-18
<PAGE>
NOTE L--MAJOR CUSTOMERS
No customers accounted for 10% or more of revenues during the years 1997,
1996 or 1995.
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 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 and $1,196,000
for the years ended December 31, 1996 and 1995, net of an income tax benefit of
$580,000 for 1996 and $703,000 for 1995. 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.
Revenue from the discontinued operations was $13,116,000 for the year ended
December 31, 1995. No assets or liabilities relating to the discontinued
operations remained at December 31, 1997.
Note N--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.
F-19
<PAGE>
Significant non-cash investing and financing activities are as follows:
1. During 1997, the Company recorded an increase in the underlying equity
of Eagle of $13,031,000, before costs, as a result of Eagle's issuance
of stock in connection with their offering.
2. During 1996 and 1995, the Company issued 428,608 and 330,592,
respectively, shares of its common stock upon the conversion and
exchange of $1,989,000 and $1,534,000, respectively, of its 9%
convertible subordinated debentures. In connection with these
conversions and exchanges, unamortized bond issue costs totaling
$109,000 and $98,000 during 1996 and 1995, respectively, have been
charged to additional paid-in capital.
3. During 1996, the Company issued 264,150 shares of its common stock in
exchange for a 50% equity interest in a marine seismic company.
4. 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.
5. During 1995, the Company licensed seismic data valued at $1,534,000,
in exchange for the purchase of property and equipment and seismic
data for its library.
6. During 1997, 1996 and 1995, capital lease obligations totaling
$374,000, $41,000 and $10,000, respectively, were incurred when the
Company entered into leases for property and equipment.
7. During 1995, the Company acquired $330,000 of property and equipment
by incurring a directly related term loan.
F-20
<PAGE>
Note O--INDUSTRY SEGMENTS
Financial information by industry segment for the three years ended
December 31, 1997, was as follows (in thousands):
<TABLE>
<CAPTION>
Exploration Corporate
and and Consolidating
Seismic Production Other Eliminations Consolidated
------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Unaffiliated revenue $ 101,876 $ 25,680 $ - $ - $ 127,556
Intersegment revenue (a)<F1> 5,166 - - (5,166) -
------------ ------------ ------------- ----------- -------------
Total revenue $ 107,042 $ 25,680 $ - $ (5,166) $ 127,556
============ ============ ============= =========== =============
Depreciation, depletion
and amortization $ 36,146 $ 22,226(b)<F2> $ 867 $ - $ 59,239
============ ============ ============= =========== =============
Operating income (loss) $ 40,846 $ (4,309) $ (8,255) $ (961) $ 27,321
Interest expense, net - - (3,554) - (3,554)
Equity in earnings
of affiliate 146 - - - 146
Gain on sale of
subsidiary stock 18,449 - - - 18,449
Gain on increase in
underlying equity
of affiliate 10,750 - - - 10,750
Extinguishment of
volumetric production
payment - (4,133) - - (4,133)
------------ ------------ ------------- ----------- -------------
Income from continuing
operations before
income taxes $ 70,191 $ (8,442) $ (11,809) $ (961) $ 48,979
============ ============ ============= =========== =============
Identifiable assets $ 218,396 $ 120,023 $ 32,429 $ (5,166) $ 365,682
============ ============ ============= =========== =============
Capital expenditures $ 97,950(c)<F3> $ 64,418 $ 247 $ - $ 162,615
============ ============ ============= =========== =============
1996
- ----
Unaffiliated revenue $ 87,747 $ 18,255 $ - $ - $ 106,002
Intersegment revenue (a) 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 $ 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
============ ============ ============= =========== =============
F-21
<PAGE>
Exploration Corporate
and and Consolidating
Seismic Production Other Eliminations Consolidated
------------- ------------- ------------ ------------ -------------
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.
<F2> (b) Includes a non-cash impairment of oil and gas properties totaling
$9,560,000.
<F3> (c) Includes capital expenditures for geophysical equipment totaling
$8,478,000.
</FN>
</TABLE>
F-22
<PAGE>
Note P--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------
(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
- ----
Revenue $ 27,219 $ 34,673 $ 30,793 $ 34,871
Gross profit(1)<F1> 12,682 16,338 15,166 6,000
Provision for income taxes 2,228 3,040 12,002 152
Net income 4,084 5,404 21,696 373
Earnings per share:(2)<F2> (3)<F3>
Basic .20 .26 1.00 .02
Diluted .19 .25 .98 .02
1996
- ----
Revenue $ 20,266 $ 27,180 $ 30,307 $ 28,249
Gross profit(1)<F1> 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:(2)<F2> (3)<F3>
- Basic:
Income from continuing operations .16 .21 .24 .21
Loss from discontinued operations - (.05) - -
Net income .16 .16 .24 .21
- Diluted:
Income from continuing operations .14 .20 .22 .19
Loss from discontinued operations - (.05) - -
Net income .14 .15 .22 .19
<FN>
<F1> (1) Gross profit represents revenue less data bank amortization, depletion
of oil and gas properties, impairment of oil and gas properties and
cost of sales.
<F2> (2) Earnings per share for all periods presented have been restated to
reflect the adoption of SFAS No. 128, "Earnings Per Share," and the
effects of the two-for-one stock split in December 1997 discussed in
Note H.
<F3> (3) 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>
Note Q--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.
F-23
<PAGE>
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. and Forrest A.
Garb & Associates, Inc. at December 31, 1997 and Miller and Lents, Ltd. at
December 31, 1996, and by Forrest A. Garb & Associates, Inc. at December 31,
1995. 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.
<TABLE>
<CAPTION>
Oil Gas
(Mbbl) (MMcf)
------------- -------------
<S> <C> <C>
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
Revisions of previous estimates (500) (3,863)
Repurchase of volumetric production payment 98 3,736
Extensions and discoveries 1,110 28,491
Production (364) (5,131)
------------ -------------
Proved reserves at December 31, 1997 2,638 46,994
============ =============
Proved developed reserves -
December 31, 1994 487 7,315
============ =============
December 31, 1995 1,178 10,219
============ =============
December 31, 1996 902 11,563
============ =============
December 31, 1997 1,744 18,483
============ =============
</TABLE>
In addition to the proved reserves disclosed above, the Company owned
proved sulfur reserves of 174,000 long tons, 197,000 long tons and 239,000 long
tons at December 31, 1997, 1996 and 1995, respectively. In addition to the
production indicated above, in 1997 and 1996 the Company delivered 56,000 and
84,000 barrels, respectively, and 1,795 and 2,094 million cubic feet,
respectively, under the terms of a volumetric production payment agreement.
CAPITALIZED COSTS OF OIL AND GAS PROPERTIES: As of December 31, 1997 and
1996, the Company's capitalized costs of oil and gas properties were as follows
(in thousands):
December 31,
-------------------------
1997 1996
--------- ----------
Unevaluated properties $ 39,436 $ 30,709
Evaluated properties 107,206 65,336
--------- ----------
Total capitalized costs 146,642 96,045
Less: Accumulated depreciation,
depletion and amortization (33,727) (9,473)
--------- ----------
Net capitalized costs $ 112,915 $ 86,572
========= ==========
Of the total costs excluded from the amortization calculation as of
December 31, 1997, $18,014,000 was incurred during 1997, $12,937,000 was
incurred during 1996, $5,130,000 was incurred during 1995, and $3,355,000 was
incurred during 1994. 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.
F-24
<PAGE>
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, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
------------ ---------- ----------
Acquisition of properties:
Evaluated $ 13,813 $ 23,090 $ 3,643
Unevaluated 10,857 7,000 5,549
Exploration costs 26,961 17,358 11,963
Development costs 12,318 3,913 1,505
------------ ---------- ----------
Total costs incurred $ 63,949 $ 51,361 $ 22,660
============ ========== ==========
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, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
----------- -------- ---------
Revenue $ 25,282 $ 17,921 $ 4,482
Production costs (5,155) (3,124) (1,553)
Depreciation, depletion and
amortization (12,666) (7,212) (1,625)
Impairment of oil and gas
properties (9,560) - -
----------- -------- ---------
Income (loss) before income
taxes (2,099) 7,585 1,304
Income tax benefit (expense) 735 (2,655) (456)
----------- -------- ---------
Results of operations $ (1,364) $ 4,930 $ 848
=========== ======== =========
In addition to the revenues and production costs disclosed above, the
Company had revenues from sulfur sales and related production costs of $398,000
and $13,000 respectively, for the year ended December 31, 1997, $334,000 and
$10,000, respectively, for the year ended December 31, 1996 and $324,000 and
$19,000, respectively, for the year ended December 31, 1995.
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.
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.
F-25
<PAGE>
Management does not rely upon the following information in making
investment and operating decisions. The Company, along with its partners, bases
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.
<TABLE>
<CAPTION>
December 31,
(in thousands)
-----------------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Future gross revenue $ 162,762 $ 127,905 $ 43,724
Future production costs (21,417) (21,913) (8,951)
Future development costs (21,659) (10,101) (3,393)
Future income taxes (27,453) (26,524) (9,266)
---------- ---------- ---------
Future net cash flows 92,233 69,367 22,114
10 percent annual discount for estimated timing of cash flows (27,636) (17,277) (6,056)
---------- ---------- ---------
Standardized measure of discounted future net cash flows $ 64,597 $ 52,090 $ 16,058
========== ========== =========
</TABLE>
The above table excludes future net cash flows before income taxes of
$3,187,000, $3,495,000 and $5,061,000, and discounted future net cash flows
before income taxes of $2,350,000, $2,427,000 and $3,926,000, as of December 31,
1997, 1996 and 1995, respectively, related to proved sulfur reserves.
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended December 31,
1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Standardized measure, beginning of year $ 52,090 $ 16,058 $ 10,830
Extensions and discoveries, net of related costs 45,193 26,690 13,714
Sales of oil and gas produced, net of production costs (16,035) (9,057) (2,929)
Net changes in prices and production costs (28,384) 24,561 77
Change in future development costs (2,650) (355) 4,010
Development costs incurred during the period that reduced
future development costs 7,802 2,042 421
Revision of previous quantity estimates (8,927) 3,077 (12,192)
Repurchase of volumetric production payment 8,319 - -
Purchases of reserves in place - 18,309 5,583
Sale of volumetric production payment - (17,763) -
Accretion of discount 7,276 2,532 1,525
Net change in income taxes 1,988 (11,406) (2,583)
Change in production rates and other (2,075) (2,598) (2,398)
---------- ---------- ----------
Standardized measure, end of year $ 64,597 $ 52,090 $ 16,058
========== ========== ==========
</TABLE>
F-26
<PAGE>
EXHIBIT
INDEX
- -------- -------------------------------------------------------- ---------
Exhibit Title Page
Number
- -------- -------------------------------------------------------- ---------
3.6 Amendment to Certificate of Incorporation 52
filed November 21, 1997
4.8 Form of Executive Warrant Certificate granted 54
to certain employees of the Company in
November 1997 and expiring in November 2002
4.9 Form of Bonus Warrant Certificate granted to 66
an employee of the Company in November
1997 and expiring in November 2002
10.8 Amendment to Limit Options Granted to a Single 77
Participant under the Seitel, Inc.
1993 Incentive Stock Option Plan
10.9 Amendment to Increase Number of Shares 79
Available for Granting Options under the
Seitel, Inc. 1993 Incentive Stock Option Plan
10.18 The Company's 401(k) Plan adopted January 1, 1998 81
10.21 Amendment to Employment Agreement dated effective 110
as of January 1, 1998 between the
Company and Paul A. Frame, Jr.
10.23 Amendment to Employment Agreement dated effective 114
as of January 1, 1998 between the
Company and Horace A. Calvert
10.25 Amendment to Employment Agreement dated effective 118
as of January 1, 1998 between the
Company and Herbert M. Pearlman
10.27 Amendment to Employment Agreement dated effective 122
as of January 1, 1998 between the
Company and David S. Lawi
10.29 Amendment to Employment Agreement dated effective 126
as of January 1, 1998 between the
Company and Debra D. Valice
10.38 Third Amendment to Revolving Credit 129
Agreement dated as of March 16, 1998 among
Seitel, Inc. and The First National Bank of Chicago
10.39 Ratable Note in the amount of $40,000,000 139
among Seitel, Inc. and The First National
Bank of Chicago dated March 16, 1998
10.40 Ratable Note in the amount of $35,000,000 141
among Seitel, Inc. and Bank One, Texas,
N.A. dated as of March 16, 1998
21.1 Subsidiaries of the Registrant 143
23.1 Consent of Arthur Andersen LLP 145
23.2 Consent of Miller and Lents, Ltd. 147
23.3 Consent of Forrest A. Garb & Associates, Inc. 149
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
SEITEL, INC.
Seitel, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of Delaware, does hereby
certify:
FIRST: That the Board of Directors of the Corporation adopted resolutions
proposing and declaring advisable the following amendment to the Certificate of
Incorporation of the Corporation:
RESOLVED, that the sub-paragraph (a) of Article Fourth of the
Certificate of Incorporation of the Corporation be amended by deleting the
existing sub-paragraph (a) of Article Fourth and replacing it with the
following:
(a) The aggregate number of shares of all classes of stock which
the Corporation shall have authority to issue is fifty-five million
(55,000,000), consisting of and divided into:
(i) one class of fifty million (50,000,000) shares of common
stock, par value $0.01 per share; and
(ii) one class of five million (5,000,000) shares of
preferred stock, par value $0.01 per share, which may be divided
into and issued in series, as hereinafter provided.
SECOND: That the annual meeting of the Corporation was duly called and held
on November 20, 1997, and at such meeting the necessary number of shares as
required by law were voted in favor of such amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused Certificate of Amendment to
be executed this 20th day of November, 1997.
Seitel, Inc.
By: Paul A. Frame
--------------------------
Paul A. Frame, President
EXHIBIT 4.8
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN WHOLE OR IN PART IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO COUNSEL OF SEITEL, INC., THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
OR THE RULES AND REGULATIONS THEREUNDER IS AVAILABLE WITH RESPECT TO THE
PROPOSED SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION.
SEITEL, INC.
COMMON STOCK PURCHASE
WARRANT CERTIFICATE
TO PURCHASE ---------
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., HOUSTON, TEXAS
LOCAL TIME ON NOVEMBER 19, 2002
Certificate No. -------
This Warrant Certificate certifies that ------------------- is the
registered holder ("Holder") of -------------------------------------------
(-------------) Common Stock Purchase Warrants (the "Warrants") to purchase
shares of the $.01 par value common stock, ("Common Stock") of SEITEL, INC., a
Delaware corporation (the "Company"). Subject to Section 15 hereof, each Warrant
enables the Holder to purchase from the Company at any time, on and after
November 20, 1997 and until 5:00 p.m., Houston, Texas, local time on November
19, 2002, one fully paid and non-assessable share of Common Stock ("Share") upon
presentation and surrender of this Warrant Certificate and upon payment of the
purchase price of $41.00 per Share. Payment shall be made in lawful money of the
United States of America by certified check payable to the Company at its
principal office at 50 Briar Hollow Lane, West, 7th Floor, Houston, Texas,
77027. As hereinafter provided, the purchase price and number of Shares
purchasable upon the exercise of the Warrants are subject to modification or
adjustment upon the happening of certain events.
FOR ALL OTHER PURPOSES STATED HEREIN, THE COMPANY MAY DEEM AND TREAT
THE PERSON IN WHOSE NAME THIS WARRANT CERTIFICATE IS REGISTERED AS THE
ABSOLUTE TRUE AND LAWFUL OWNER HEREOF FOR ALL PURPOSES WHATSOEVER.
1. Upon surrender to the Company, this Warrant Certificate may be
exchanged for another Warrant Certificate or Warrant Certificates
evidencing a like aggregate number of Warrants. If this Warrant
Certificate shall be exercised in part, the Holder shall be
entitled to receive upon surrender hereof another Warrant
Certificate or Warrant Certificates evidencing the number of
Warrants not exercised.
2. No Holder shall be deemed to be the holder of Common Stock or any
other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose nor shall anything
contained herein be construed to confer upon the Holder any of
the rights of a shareholder of the Company or any right to vote
for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any reorganization,
issuance of stock, reclassification or conversion of stock,
change of par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings or to receive
dividends or subscription rights or otherwise until a Warrant
shall have been exercised and the Common Stock purchasable upon
the exercise thereof shall have become issuable.
3. Each Holder consents and agrees with the Company and any other
Holder that:
A. this Warrant Certificate is exercisable in whole or in part
by the Holder in person or by attorney duly authorized in
writing at the principal office of the Company.
B. anything herein to the contrary notwithstanding, in no event
shall the Company be obligated to issue Warrant Certificates
evidencing other than a whole number of Warrants or issue
certificates evidencing other than a whole number of Shares
upon the exercise of this Warrant Certificate; provided,
however, that the Company shall pay with respect to any such
fraction of a Share an amount of cash based upon the current
public market value (or book value, if there shall be no
public market value) for Shares purchasable upon exercise
hereof, as determined in accordance with subparagraph I of
Section 10 hereof; and
C. the Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute true and
lawful owner hereof for all purposes whatsoever.
4. The Company shall maintain books for the transfer and
registration of Warrants. Upon the transfer of any Warrants, the
Company shall issue and register the Warrants in the names of the
new Holders. The Warrants shall be signed manually by the
Chairman, Chief Executive Officer, President or any Vice
President of the Company. The Company shall transfer, from time
to time, any outstanding Warrants upon the books to be maintained
by the Company for such purpose upon surrender thereof for
transfer properly endorsed or accompanied by appropriate
instructions for transfer. Upon any transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered
Warrants shall be canceled by the Company. Warrants may be
exchanged at the option of the Holder, when surrendered at the
office of the Company, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares. Subject
to the terms of this Warrant Certificate, upon such surrender and
payment of the purchase price, the Company shall issue and
deliver with all reasonable dispatch to or upon the written order
of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the
number of full Shares so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein
shall be deemed to have become the holder of record of such
Shares as of the date of the surrender of such Warrants and
payment of the purchase price; provided, however, that if, at the
date of surrender and payment, the transfer books of the Shares
shall be closed, the certificates for the Shares shall be
issuable as of the date on which such books shall be opened and
until such date the Company shall be under no duty to deliver any
certificate for such Shares; provided, further, however, that
such transfer books, unless otherwise required by law or by
applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days. The
rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holders, either as an
entirety or from time to time for part only of the Shares.
5. The Company will pay any documentary stamp taxes attributable to
the initial issuance of the Shares issuable upon the exercise of
the Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any
certificates for Shares in a name other than that of the Holder
in respect of which such Shares are issued, and in such case the
Company shall not be required to issue or deliver any certificate
for Shares or any Warrant until the person requesting the same
has paid to the Company the amount of such tax or has established
to the Company's satisfaction that such tax has been paid.
6. In case the Warrant Certificate shall be mutilated, lost, stolen
or destroyed, the Company may, in its discretion, issue and
deliver in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution
for the Warrant Certificate, lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
7. The Company warrants that there have been reserved, and covenants
that at all times in the future it shall keep reserved, out of
the authorized and unissued Common Stock, a number of Shares
sufficient to provide for the exercise of the rights or purchase
represented by this Warrant Certificate. The Company agrees that
all Shares issuable upon exercise of the Warrants shall be, at
the time of delivery of the certificates for such Shares, validly
issued and outstanding, fully paid and non-assessable and that
the issuance of such Shares will not give rise to preemptive
rights in favor of existing shareholders.
8. As used herein, the term "Exercise Rate" shall mean the number
and kind of shares of capital stock of the Company which the
Holder of this Warrant shall be entitled from time to time to
receive for each $1,000.00 of warrant exercise payment. Unless
and until an adjustment thereof shall be required as hereinafter
provided, the Exercise Rate shall be 24.39 shares of Common
Stock.
9. The term "Exercise Price" shall mean the price obtained by
dividing $1,000.00 by the number of shares constituting the
Exercise Rate in effect at the time for such amount.
10. The Exercise Rate in effect any time shall be subject to
adjustment as follows:
A. Whenever the Company shall (i) pay a dividend on Common
Stock in shares of its Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of
Common Stock (including any reclassification in connection
with a consolidation or merger in which the Company is the
continuing corporation) any shares, the Exercise Rate in
effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that
the Holder of this Warrant exercising it after such time
shall be entitled to receive the total number and kind of
shares which bear the same proportion to the total issued
and outstanding Common Stock of the Company immediately
after such time as the proportion he would have owned and
have been entitled to receive immediately prior to such
time.
B. Whenever the Company shall issue any shares of Common Stock
other than:
(i) shares issued in a transaction described in
subparagraph H of this Paragraph 10; and
(ii) shares issued upon exercise or conversion of securities
of the type referred to in subparagraphs E and F of
this Paragraph 10 or shares issued, subdivided or
combined in transactions described in subparagraph (A)
of this Paragraph 10 if and to the extent that the
Exercise Rate shall have been previously adjusted
pursuant to the terms of this subparagraph (B) or
subparagraph (A) of this Paragraph 10 as a result of
the issuance, subdivision or combination of such
securities;
at a price per share which is less than the current public
market value of a share of Common Stock, the Exercise Rate
in effect immediately prior to such issuance shall be
adjusted by multiplying such Exercise Rate by a fraction,
the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance
plus the number of additional shares of Common Stock so
issued, and the denominator of which shall be the number of
Shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock which the
fair value of the consideration received by the Company for
the total number of additional shares so issued would
purchase at a price equal to the current public market
value.
C. Whenever the Company shall pay a dividend or make a
distribution (other than in a transaction which results in
an equivalent adjustment pursuant to other subparagraphs of
this Paragraph 10) generally to holders of its Common Stock
or evidences of its indebtedness or assets (excluding
dividends paid in, or distributions of cash to the extent of
current income or earned surplus of the Company), or
securities of the Company, or rights to subscribe for or
purchase securities of the Company, the Exercise Rate in
effect immediately prior to such distribution shall be
adjusted by multiplying such Exercise Rate by a fraction,
the numerator of which shall be the then current public
market value, if any, per share of the Common Stock
receiving such dividend or distribution or, if there shall
be no such current public market value, then the book value
per share as of the close of the month preceding such
distribution, and the denominator of which shall be the
numerator less the fair market value of the portion of the
assets, or the evidences of indebtedness or rights, so
distributed which is applicable to each such share;
provided, however, if as a result of such adjustment the
Exercise Price would be a -------- ------- negative figure,
such adjustment shall be modified so that the Exercise Price
after such adjustment is $.01 per share.
D. Whenever the Company shall issue by reclassification of its
shares of Common Stock any shares of stock, the Exercise
Rate in effect immediately prior to such issuance shall be
proportionately adjusted so that the Holder of this Warrant
exercising it after such time shall be entitled to receive,
the number and kind of shares which, when added to the
number of shares of such kind exercisable hereunder prior to
such issue, would entitle the Holder hereof, upon the
exercise hereof in full, to purchase an amount of shares of
such kind which bears the same proportion to the total
issued and outstanding capital stock of the Company as the
proportion he would have owned and have been entitled to
receive immediately prior to such issue. In the event that
at any time, as a result of an adjustment made pursuant to
this paragraph 10, the Holder of this Warrant shall become
entitled upon exercise thereof to receive any shares of the
Company other than shares of its Common Stock, then
thereafter the number of such other shares so receivable
upon exercise of this Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in
this Paragraph 10 in the respect of the Common Stock.
E. For purposes of the adjustments provided for in the
foregoing subparagraphs of this Paragraph 10, if at any
time, the Company shall issue any rights or options for the
purchase of, or stock or other securities convertible into
Common Stock, (such convertible stock or securities being
herein referred to as "Convertible Securities") the Company
shall be deemed to have issued at the time of the issuance
of such rights or options or Convertible Securities the
maximum number of shares of Common Stock issuable upon
exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount
equal to the amount of cash and fair value of other
consideration, if any, received by the Company for the
issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the
minimum amounts of cash and fair value of other
consideration, if any, payable to the Company upon the
exercise of such options or rights and, in the case of
Convertible Securities, the minimum amounts of cash and fair
value of other consideration, if any, payable, to the
Company.
F. For purposes of the adjustment provided for in subparagraph
B above, if at any time the Company shall issue any rights
or options for the purchase of Convertible Securities, the
Company shall be deemed to have issued at the time of the
issuance of such rights or options the maximum number of
shares of Common Stock issuable upon conversion of the total
amount of Convertible Securities covered by such rights or
options and to have received as consideration for the
issuance of such shares an amount equal to the amount of
cash and the amount of fair value of other consideration, if
any, received by the Company for the issuance of such rights
or options, plus the minimum amounts of cash and fair value
of other consideration, if any, payable to the Company upon
the exercise of such rights or options and payable to the
Company on conversion of such Convertible Securities.
G. Anything in subparagraph E or F above to the contrary
notwithstanding, whenever the Company shall issue any shares
(other than on exercise of this Warrant) upon exercise of
any rights or options or upon conversion of any Convertible
Securities and if the Exercise Rate shall not previously
have been adjusted upon the issuance of such rights, options
or Convertible Securities, the computation described in
subparagraph B above shall be made and the Exercise Rate
adjusted in accordance with the provisions thereof (the
shares so issued being deemed for purposes of such
computation to have been issued at a price per share equal
to the amount of cash and fair value of other consideration,
if any, properly attributable to one such share received by
the Company upon issuance and exercise of such rights or
options or sale and conversion of such Convertible
Securities (and upon issuance of any rights or options
pursuant to which such Convertible Securities may have been
sold).
H. Anything in this Paragraph 10 to the contrary
notwithstanding, no adjustment in the Exercise Rate or
Exercise Price shall be made in connection with:
(i) Convertible Securities issued pursuant to the Company's
qualified or non-qualified Employee Stock Option Plans
or any other bona fide employee benefit plan or
incentive arrangement, adopted or approved by the
Company's Board of Directors or shares of Common Stock
issued pursuant to the exercise of any rights or
options granted pursuant to said plans or arrangements
(but only to the extent that the aggregate number of
shares excluded by the Clause (i) and issued after the
date hereof shall not exceed 15% of the Company's
Common Stock outstanding at the time of any such
issuance); and
(ii) The issuance of any shares of Common Stock pursuant to
the exercise of Convertible Securities outstanding as
of the date hereof including without limitation, the
conversion of any Warrant issued in the same placement
of securities pursuant to which this Warrant was issued
by the Company.
I. For purposes of this Paragraph 10, the current public market
value of a share of Common Stock on any date shall be deemed
to be the arithmetical average of the following prices for
such of the thirty (30) business days immediately preceding
such day as shall be available: (i) for any of the such days
on which the Common Stock shall be listed on a national
securities exchange, the last sale price on such day or, if
there shall have been no sale on such day, the average of
the closing bid and asked prices on such exchange on such
day, or (ii) for any of such days on which the Common Stock
shall not be listed on a national securities exchange but
shall be included in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the average
of the closing bid and asked prices on such day quoted by
brokers and dealers making a market in NASDAQ, furnished by
any member of the New York Stock Exchange selected by the
Company for that purpose, or (iii) for any of such days on
which the Common Stock shall not be so listed on a national
securities exchange or included in NASDAQ but shall be
quoted by three brokers regularly making a market in such
shares in the over-the-counter market, the average of the
closing bid and asked prices on such day, furnished by any
member of the New York Stock Exchange selected by the
Company for that purpose, or (iv) for any days on which the
information described in items (i), (ii) or (iii) above is
unavailable, the book value per share of the Common Stock as
determined in accordance with generally accepted accounting
principles; provided, however, in its discretion the Board
may make an appropriate reduction in the "current public
market value" based upon any applicable trading restrictions
to particular shares of Common Stock.
J. Anything in this Paragraph 10 to the contrary
notwithstanding, no adjustment in the Exercise Rate shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such rate; provided, however,
that any adjustments which by reason of this subparagraph J
are not required to be made shall be carried forward and
taken into account in making subsequent adjustments. All
calculations under the Paragraph 10 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as
the case may be.
K. No adjustment in the Exercise Rate shall be made for
purposes of subparagraphs B and C of this Paragraph 10 if
such adjustment would result in an increase in such Exercise
Price or decrease in the Exercise Rate except that, in the
case of any Convertible Securities in respect of which an
adjustment has previously been made under subparagraph B
above and which has expired or otherwise been canceled
without exercise of the rights or options evidenced thereby,
such previous adjustment shall be reversed.
L. Before taking any action which could cause an adjustment
pursuant to this Paragraph 10 reducing the Exercise Price
per share below the then par value (if any) of the shares
covered hereby, the Company will take any corporate action
which may be necessary in order that the Company may validly
and legally issue at the Exercise Price as so adjusted
shares that are fully paid and non-assessable.
M. The number of shares of capital stock of the Company
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue
or sale of such shares for the purposes of this Paragraph
10.
N. If any event occurs as to which the other provisions of this
Paragraph 10 are not strictly applicable but the lack of any
adjustment would not fairly protect the purchase rights of
the Holder of this Warrant in accordance with the basic
intent and principles of such provisions, or if strictly
applicable would not fairly protect the purchase rights of
the Holder of this Warrant in accordance with the basic
intent and principles of such provisions, then the Company
shall appoint a firm of independent certified public
accountants (which shall not be the regular auditors of the
Company) of recognized national standing, which shall give
their opinion upon the adjustment, if any, on a basis
consistent with the basic intent and principles established
in the other provisions of this Paragraph 10, necessary to
preserve, without dilution, the exercise rights of the
registered Holder of this Warrant. Upon receipt of such
opinion, the Company shall forthwith make the adjustments
described therein. In taking any action or making any
determination pursuant to the provisions of this Section 10,
the Company and its Board of Directors shall, at all times,
exercise reasonable judgment and act in good faith.
O. Upon any adjustment of any Exercise Rate, then and in each
such case, the Company shall promptly deliver a notice to
the registered Holder of this Warrant, which notice shall
state the Exercise Price and Exercise Rate resulting from
such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise
hereof, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is
based.
P. In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in
part, other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof as
reasonably determined in good faith by the Board of
Directors of the Company (regardless of accounting treatment
thereof); provided, however, that if such consideration
consists of the cancellation of debt issued by the Company
the consideration shall be deemed to be the amount the
Company received upon issuance of such debt (gross proceeds)
plus accrued interest and, in the case of original issue
discount or zero coupon indebtedness, accreted value to the
date of such cancellation, but not including any premium or
discount at which the debt may then be trading or which
might otherwise be appropriate for such class of debt;
Q. The Company shall not issue any shares of its capital stock
(other than Common Stock) at or for consideration which is
less than fair value determined by the Board of Directors of
the Company in light of all circumstances surrounding such
issuance.
11. In the case:
A. The Company shall declare any dividend or distribution on
its Common Stock (or on any other shares which the Holder of
this Warrant may become entitled to receive upon exercise
hereof); or
B. The Company shall authorize the issuance to holders of its
Common Stock (or on any other shares which the Holder of
this Warrant may become entitled to receive upon exercise
hereof) any subscription rights or warrants; or
C. Of any subdivision, combination or reclassification of
shares of Common Stock of the Company (or any shares of the
Company which are subject to this Warrant), or of any
proposed consolidation or merger to which the Company is to
be a party and for which the approval of any shareholders of
the Company is required, or of the proposed sale or transfer
of all or substantially all of the assets of the Company; or
D. Of the proposed voluntary or involuntary dissolution,
liquidation, or winding up of the Company; or
E. The Company proposes to effect any transaction not specified
above which would require an adjustment of the Exercise Rate
pursuant to Paragraph 10 hereof;
then the Company shall cause to be mailed to Holders of this
Warrant, at least ten (10) days prior to the applicable record or
other date hereinafter specified, a notice describing such
transaction in reasonable detail, specifying the character,
amount and terms of all securities and the amounts of cash and
other property, if any, involved in such transaction and stating
(i) the date as of which the holders of Common Stock (or any such
other shares) of record to be entitled to receive any such
dividend, distribution, rights, or warrants is to be determined,
or (ii) the date of which any such subdivision, combination,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation, winding up, or other transaction is
expected to become effective, and the date as of which it is
expected that holders of Common Stock (or any such other shares)
of record shall be entitled to exchange the same for securities
or other property, if any, deliverable upon such transaction.
12. The Company covenants and agrees that it will not merge or
consolidate with or into or sell or otherwise transfer all or
substantially all of its assets to any other corporation or
entity unless at the time of or prior to such transaction such
other corporation or other entity shall expressly assume all of
the liabilities and obligations of the Company under this Warrant
and (without limiting the generality of the foregoing) shall
expressly agree that the Holder of this Warrant shall thereafter
have the right (subject to subsequent adjustment as nearly
equivalent as practicable to the adjustments provided for in
Paragraph 10 of this Warrant) to receive upon the exercise of
this Warrant the number and kind of shares of stock and other
securities and property receivable upon such transaction by a
Holder of the number and kind of shares which would have been
receivable upon the exercise of this Warrant immediately prior to
such transactions.
13. The Holder of this Warrant Certificate, each transferee hereof
and any holder and transferee of any Shares, by his acceptance
thereof, agrees that (i) no public distribution of Warrants or
shares will be made in violation of the Act, and (ii) during such
period as the delivery of a prospectus with respect to Warrants
or Shares may be required by the Act, no public distribution of
Warrants or Shares will be made in a manner or on terms different
from those set forth in, or without delivery of, a prospectus
then meeting the requirements of Section 10 of the Act and in
compliance with all applicable state securities laws. The Holder
of this Warrant Certificate and each transferee hereof further
agrees that if any distribution of any of the Warrants or Shares
is proposed to be made by them otherwise than by delivery of a
prospectus meeting the requirements of Section 10 of the Act,
such action shall be taken only after submission to the Company
of an opinion of counsel, reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the
proposed distribution will not be in violation of the Act or of
applicable state law. Furthermore, it shall be a condition to the
transfer of the Warrants that any transferee thereof deliver to
the Company his written agreement to accept and be bound by all
of the terms and conditions contained in this Warrant
Certificate.
14. This Warrant Certificate shall be exercisable only during the
continuance of the Holder's employment at the Company or its
subsidiaries, except that:
A. If the Holder ceases to be an employee at the Company (or a
subsidiary of the Company) for any reason other than by
death or disability, this Warrant Certificate may be
exercised by Holder, to the extent that it was exercisable
at the date of termination, at any time within 90 days after
the date Holder ceases to be an employee, but not later than
November 19, 2002 except that, in case of his death or
disability within that three-month period, this Warrant
Certificate may be exercised as provided in subparagraph (b)
below.
B. If the Holder dies or becomes disabled during employment or
within the three-month period referred to in subparagraph
(a) above, this Warrant Certificate may be exercised, to the
extent that it was exercisable by the Holder at the date of:
(i) death, by the person or persons to whom Holder's rights
under this Warrant Certificate pass by will or by the
laws of descent and distribution or
(ii) disability, by the Holder's legal representative,
at any time within one year after the date of Holder's death
or disability, but not later than November 19, 2002.
The determination by the Company's Board of Directors of the
reason for termination of the Holder's employment shall be
binding and conclusive on the Holder.
15. Except only as specifically provided elsewhere in this Warrant
Certificate, the Warrants shall not be exercisable prior to the
dates set forth below except in the amounts set forth below:
A. As of the date hereof, up to a total of 20% of the total
warrants represented hereby may be exercised.
B. The remaining 80% become exercisable on November 19, 2000,
or if earlier, in incremental installments of 20% of the
total number of warrants represented hereby for each
two-point increase in the closing price of the Common Stock
above $41.00 per share which is maintained or exceeded for
10 consecutive trading days.
16. In the event the Company shall be a party to any merger,
consolidation or corporate reorganization as the result of which
the Company is the surviving corporation, the rights and duties
of the Participants and the Company shall not be affected in any
manner except as specified in this Warrant Certificate. In the
event the Company shall sell all or substantially all of its
assets or shall be a party to a merger, consolidation or
corporate reorganization, as the result of which the Company
shall not be the surviving organization, or in the event any
other corporation makes a successful tender or exchange offer for
more than 50% of the stock of the Company (the surviving
corporation, purchaser, or tendering corporation being hereafter
collectively referred to as the "purchaser" and the transaction
being hereinafter referred to the "purchase"), and the Board of
Directors obtains the agreement of the purchaser to assume the
obligations of the Company under the Holder's employment
agreement with the Company, then the rights and duties of the
Holder and the Company (as assumed by the purchaser) shall not be
affected in any manner except as specified in this Warrant
Certificate. If the Company is purchased and the Board of
Directors does not obtain such agreement of the purchaser to
assume such obligations on or before the date of such purchase,
all unvested portions of all Holder's warrants hereunder that
have not been forfeited as of the date of such purchase shall be
accelerated and shall be immediately exercisable by the Holder.
17. No reload warrants shall be granted to the Holder upon exercise
of the Warrants.
WITNESS the following signatures effective as of November 20, 1998.
SEITEL, INC.
By:
Name:
Title:
Accepted:
--------------------------------
--------------------------------
<PAGE>
PURCHASE FORM
TO: SEITEL, INC. DATE:
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate No. ------, to the extent of ---------- of Common Stock,
$.01 par value per share of SEITEL, INC., and hereby makes payment of
- ------------ in payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:
Address:
By:
<PAGE>
Notice of Adjustment of Exercise Rate Regarding
Warrants Represented by Warrant Certificate No. -----
of Seitel, Inc.
Seitel, Inc. effected a two-for-one stock split in the form of a stock
dividend in December 1997, the record date for which was December 3, 1997 and
the payment date for which was December 12, 1997. As a result of such stock
dividend, the Exercise Rate set forth in Section 8 of the Warrant Certificate
dated November 20, 1997, No. -----, has been adjusted pursuant to Section 10 of
such Warrant Certificate. The new Exercise Rate is 48.78. As a result of this
new Exercise Rate, the Warrant Certificate entitles the Holder, subject to the
terms thereof, to purchase ------ shares of Common Stock of Seitel, Inc. at an
Exercise Price of $20.50 per share.
SEITEL, INC.
By:
Name:
Title:
December 12, 1997
EXHIBIT 4.9
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN WHOLE OR IN PART IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO COUNSEL OF SEITEL, INC., THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
OR THE RULES AND REGULATIONS THEREUNDER IS AVAILABLE WITH RESPECT TO THE
PROPOSED SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION.
SEITEL, INC.
COMMON STOCK PURCHASE
WARRANT CERTIFICATE
TO PURCHASE ----------
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., HOUSTON, TEXAS
LOCAL TIME ON NOVEMBER 19, 2002
Certificate No. ----------
This Warrant Certificate certifies that --------------- is the registered
holder ("Holder") of ----------------------------- (--------) Common Stock
Purchase Warrants (the "Warrants") to purchase shares of the $.01 par value
common stock, ("Common Stock") of SEITEL, INC., a Delaware corporation (the
"Company"). Subject to Section 15 hereof, each Warrant enables the Holder to
purchase from the Company at any time, on and after November 20, 1997 and until
5:00 p.m., Houston, Texas, local time on November 19, 2002, one fully paid and
non-assessable share of Common Stock ("Share") upon presentation and surrender
of this Warrant Certificate and upon payment of the purchase price of $41.00 per
Share. Payment shall be made in lawful money of the United States of America by
certified check payable to the Company at its principal office at 50 Briar
Hollow Lane, West, 7th Floor, Houston, Texas, 77027. As hereinafter provided,
the purchase price and number of Shares purchasable upon the exercise of the
Warrants are subject to modification or adjustment upon the happening of certain
events.
FOR ALL OTHER PURPOSES STATED HEREIN, THE COMPANY MAY DEEM AND TREAT
THE PERSON IN WHOSE NAME THIS WARRANT CERTIFICATE IS REGISTERED AS THE
ABSOLUTE TRUE AND LAWFUL OWNER HEREOF FOR ALL PURPOSES WHATSOEVER.
1. Upon surrender to the Company, this Warrant Certificate may be
exchanged for another Warrant Certificate or Warrant Certificates
evidencing a like aggregate number of Warrants. If this Warrant
Certificate shall be exercised in part, the Holder shall be
entitled to receive upon surrender hereof another Warrant
Certificate or Warrant Certificates evidencing the number of
Warrants not exercised.
2. No Holder shall be deemed to be the holder of Common Stock or any
other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose nor shall anything
contained herein be construed to confer upon the Holder any of
the rights of a shareholder of the Company or any right to vote
for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any reorganization,
issuance of stock, reclassification or conversion of stock,
change of par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings or to receive
dividends or subscription rights or otherwise until a Warrant
shall have been exercised and the Common Stock purchasable upon
the exercise thereof shall have become issuable.
3. Each Holder consents and agrees with the Company and any other
Holder that:
A. this Warrant Certificate is exercisable in whole or in part
by the Holder in person or by attorney duly authorized in
writing at the principal office of the Company.
B. anything herein to the contrary notwithstanding, in no event
shall the Company be obligated to issue Warrant Certificates
evidencing other than a whole number of Warrants or issue
certificates evidencing other than a whole number of Shares
upon the exercise of this Warrant Certificate; provided,
however, that the Company shall pay with respect to any such
fraction of a Share an amount of cash based upon the current
public market value (or book value, if there shall be no
public market value) for Shares purchasable upon exercise
hereof, as determined in accordance with subparagraph I of
Section 10 hereof; and
C. the Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute true and
lawful owner hereof for all purposes whatsoever.
4. The Company shall maintain books for the transfer and
registration of Warrants. Upon the transfer of any Warrants, the
Company shall issue and register the Warrants in the names of the
new Holders. The Warrants shall be signed manually by the
Chairman, Chief Executive Officer, President or any Vice
President of the Company. The Company shall transfer, from time
to time, any outstanding Warrants upon the books to be maintained
by the Company for such purpose upon surrender thereof for
transfer properly endorsed or accompanied by appropriate
instructions for transfer. Upon any transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered
Warrants shall be canceled by the Company. Warrants may be
exchanged at the option of the Holder, when surrendered at the
office of the Company, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares. Subject
to the terms of this Warrant Certificate, upon such surrender and
payment of the purchase price, the Company shall issue and
deliver with all reasonable dispatch to or upon the written order
of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the
number of full Shares so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein
shall be deemed to have become the holder of record of such
Shares as of the date of the surrender of such Warrants and
payment of the purchase price; provided, however, that if, at the
date of surrender and payment, the transfer books of the Shares
shall be closed, the certificates for the Shares shall be
issuable as of the date on which such books shall be opened and
until such date the Company shall be under no duty to deliver any
certificate for such Shares; provided, further, however, that
such transfer books, unless otherwise required by law or by
applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days. The
rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holders, either as an
entirety or from time to time for part only of the Shares.
5. The Company will pay any documentary stamp taxes attributable to
the initial issuance of the Shares issuable upon the exercise of
the Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any
certificates for Shares in a name other than that of the Holder
in respect of which such Shares are issued, and in such case the
Company shall not be required to issue or deliver any certificate
for Shares or any Warrant until the person requesting the same
has paid to the Company the amount of such tax or has established
to the Company's satisfaction that such tax has been paid.
6. In case the Warrant Certificate shall be mutilated, lost, stolen
or destroyed, the Company may, in its discretion, issue and
deliver in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution
for the Warrant Certificate, lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
7. The Company warrants that there have been reserved, and covenants
that at all times in the future it shall keep reserved, out of
the authorized and unissued Common Stock, a number of Shares
sufficient to provide for the exercise of the rights or purchase
represented by this Warrant Certificate. The Company agrees that
all Shares issuable upon exercise of the Warrants shall be, at
the time of delivery of the certificates for such Shares, validly
issued and outstanding, fully paid and non-assessable and that
the issuance of such Shares will not give rise to preemptive
rights in favor of existing shareholders.
8. As used herein, the term "Exercise Rate" shall mean the number
and kind of shares of capital stock of the Company which the
Holder of this Warrant shall be entitled from time to time to
receive for each $1,000.00 of warrant exercise payment. Unless
and until an adjustment thereof shall be required as hereinafter
provided, the Exercise Rate shall be 24.39 shares of Common
Stock.
9. The term "Exercise Price" shall mean the price obtained by
dividing $1,000.00 by the number of shares constituting the
Exercise Rate in effect at the time for such amount.
10. The Exercise Rate in effect any time shall be subject to
adjustment as follows:
A. Whenever the Company shall (i) pay a dividend on Common
Stock in shares of its Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of
Common Stock (including any reclassification in connection
with a consolidation or merger in which the Company is the
continuing corporation) any shares, the Exercise Rate in
effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that
the Holder of this Warrant exercising it after such time
shall be entitled to receive the total number and kind of
shares which bear the same proportion to the total issued
and outstanding Common Stock of the Company immediately
after such time as the proportion he would have owned and
have been entitled to receive immediately prior to such
time.
B. Whenever the Company shall issue any shares of Common Stock
other than:
(i) shares issued in a transaction described in
subparagraph H of this Paragraph 10; and
(ii) shares issued upon exercise or conversion of securities
of the type referred to in subparagraphs E and F of
this Paragraph 10 or shares issued, subdivided or
combined in transactions described in subparagraph (A)
of this Paragraph 10 if and to the extent that the
Exercise Rate shall have been previously adjusted
pursuant to the terms of this subparagraph (B) or
subparagraph (A) of this Paragraph 10 as a result of
the issuance, subdivision or combination of such
securities;
at a price per share which is less than the current public market
value of a share of Common Stock, the Exercise Rate in effect
immediately prior to such issuance shall be adjusted by
multiplying such Exercise Rate by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of additional
shares of Common Stock so issued, and the denominator of which
shall be the number of Shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of
Common Stock which the fair value of the consideration received
by the Company for the total number of additional shares so
issued would purchase at a price equal to the current public
market value.
C. Whenever the Company shall pay a dividend or make a distribution
(other than in a transaction which results in an equivalent
adjustment pursuant to other subparagraphs of this Paragraph 10)
generally to holders of its Common Stock or evidences of its
indebtedness or assets (excluding dividends paid in, or
distributions of cash to the extent of current income or earned
surplus of the Company), or securities of the Company, or rights
to subscribe for or purchase securities of the Company, the
Exercise Rate in effect immediately prior to such distribution
shall be adjusted by multiplying such Exercise Rate by a
fraction, the numerator of which shall be the then current public
market value, if any, per share of the Common Stock receiving
such dividend or distribution or, if there shall be no such
current public market value, then the book value per share as of
the close of the month preceding such distribution, and the
denominator of which shall be the numerator less the fair market
value of the portion of the assets, or the evidences of
indebtedness or rights, so distributed which is applicable to
each such share; provided, however, if as a result of such
adjustment the Exercise Price would be a -------- -------
negative figure, such adjustment shall be modified so that the
Exercise Price after such adjustment is $.01 per share.
D. Whenever the Company shall issue by reclassification of its
shares of Common Stock any shares of stock, the Exercise Rate in
effect immediately prior to such issuance shall be
proportionately adjusted so that the Holder of this Warrant
exercising it after such time shall be entitled to receive, the
number and kind of shares which, when added to the number of
shares of such kind exercisable hereunder prior to such issue,
would entitle the Holder hereof, upon the exercise hereof in
full, to purchase an amount of shares of such kind which bears
the same proportion to the total issued and outstanding capital
stock of the Company as the proportion he would have owned and
have been entitled to receive immediately prior to such issue. In
the event that at any time, as a result of an adjustment made
pursuant to this paragraph 10, the Holder of this Warrant shall
become entitled upon exercise thereof to receive any shares of
the Company other than shares of its Common Stock, then
thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained in this Paragraph 10 in
the respect of the Common Stock.
E. For purposes of the adjustments provided for in the foregoing
subparagraphs of this Paragraph 10, if at any time, the Company
shall issue any rights or options for the purchase of, or stock
or other securities convertible into Common Stock, (such
convertible stock or securities being herein referred to as
"Convertible Securities") the Company shall be deemed to have
issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of shares of Common
Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an
amount equal to the amount of cash and fair value of other
consideration, if any, received by the Company for the issuance
of such rights or options or Convertible Securities, plus, in the
case of such options or rights, the minimum amounts of cash and
fair value of other consideration, if any, payable to the Company
upon the exercise of such options or rights and, in the case of
Convertible Securities, the minimum amounts of cash and fair
value of other consideration, if any, payable, to the Company.
F. For purposes of the adjustment provided for in subparagraph B
above, if at any time the Company shall issue any rights or
options for the purchase of Convertible Securities, the Company
shall be deemed to have issued at the time of the issuance of
such rights or options the maximum number of shares of Common
Stock issuable upon conversion of the total amount of Convertible
Securities covered by such rights or options and to have received
as consideration for the issuance of such shares an amount equal
to the amount of cash and the amount of fair value of other
consideration, if any, received by the Company for the issuance
of such rights or options, plus the minimum amounts of cash and
fair value of other consideration, if any, payable to the Company
upon the exercise of such rights or options and payable to the
Company on conversion of such Convertible Securities.
G. Anything in subparagraph E or F above to the contrary
notwithstanding, whenever the Company shall issue any shares
(other than on exercise of this Warrant) upon exercise of any
rights or options or upon conversion of any Convertible
Securities and if the Exercise Rate shall not previously have
been adjusted upon the issuance of such rights, options or
Convertible Securities, the computation described in subparagraph
B above shall be made and the Exercise Rate adjusted in
accordance with the provisions thereof (the shares so issued
being deemed for purposes of such computation to have been issued
at a price per share equal to the amount of cash and fair value
of other consideration, if any, properly attributable to one such
share received by the Company upon issuance and exercise of such
rights or options or sale and conversion of such Convertible
Securities (and upon issuance of any rights or options pursuant
to which such Convertible Securities may have been sold).
H. Anything in this Paragraph 10 to the contrary notwithstanding, no
adjustment in the Exercise Rate or Exercise Price shall be made
in connection with:
(i) Convertible Securities issued pursuant to the Company's
qualified or non-qualified Employee Stock Option Plans or
any other bona fide employee benefit plan or incentive
arrangement, adopted or approved by the Company's Board of
Directors or shares of Common Stock issued pursuant to the
exercise of any rights or options granted pursuant to said
plans or arrangements (but only to the extent that the
aggregate number of shares excluded by the Clause (i) and
issued after the date hereof shall not exceed 15% of the
Company's Common Stock outstanding at the time of any such
issuance); and
(ii) The issuance of any shares of Common Stock pursuant to the
exercise of Convertible Securities outstanding as of the
date hereof including without limitation, the conversion of
any Warrant issued in the same placement of securities
pursuant to which this Warrant was issued by the Company.
I. For purposes of this Paragraph 10, the current public market
value of a share of Common Stock on any date shall be deemed to
be the arithmetical average of the following prices for such of
the thirty (30) business days immediately preceding such day as
shall be available: (i) for any of the such days on which the
Common Stock shall be listed on a national securities exchange,
the last sale price on such day or, if there shall have been no
sale on such day, the average of the closing bid and asked prices
on such exchange on such day, or (ii) for any of such days on
which the Common Stock shall not be listed on a national
securities exchange but shall be included in the National
Association of Securities Dealers Automated Quotation System
("NASDAQ"), the average of the closing bid and asked prices on
such day quoted by brokers and dealers making a market in NASDAQ,
furnished by any member of the New York Stock Exchange selected
by the Company for that purpose, or (iii) for any of such days on
which the Common Stock shall not be so listed on a national
securities exchange or included in NASDAQ but shall be quoted by
three brokers regularly making a market in such shares in the
over-the-counter market, the average of the closing bid and asked
prices on such day, furnished by any member of the New York Stock
Exchange selected by the Company for that purpose, or (iv) for
any days on which the information described in items (i), (ii) or
(iii) above is unavailable, the book value per share of the
Common Stock as determined in accordance with generally accepted
accounting principles; provided, however, in its discretion the
Board may make an appropriate reduction in the "current public
market value" based upon any applicable trading restrictions to
particular shares of Common Stock.
J. Anything in this Paragraph 10 to the contrary notwithstanding, no
adjustment in the Exercise Rate shall be required unless such
adjustment would require an increase or decrease of at least 1%
in such rate; provided, however, that any adjustments which by
reason of this subparagraph J are not required to be made shall
be carried forward and taken into account in making subsequent
adjustments. All calculations under the Paragraph 10 shall be
made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
K. No adjustment in the Exercise Rate shall be made for purposes of
subparagraphs B and C of this Paragraph 10 if such adjustment
would result in an increase in such Exercise Price or decrease in
the Exercise Rate except that, in the case of any Convertible
Securities in respect of which an adjustment has previously been
made under subparagraph B above and which has expired or
otherwise been canceled without exercise of the rights or options
evidenced thereby, such previous adjustment shall be reversed.
L. Before taking any action which could cause an adjustment pursuant
to this Paragraph 10 reducing the Exercise Price per share below
the then par value (if any) of the shares covered hereby, the
Company will take any corporate action which may be necessary in
order that the Company may validly and legally issue at the
Exercise Price as so adjusted shares that are fully paid and
non-assessable.
M. The number of shares of capital stock of the Company outstanding
at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of such shares for
the purposes of this Paragraph 10.
N. If any event occurs as to which the other provisions of this
Paragraph 10 are not strictly applicable but the lack of any
adjustment would not fairly protect the purchase rights of the
Holder of this Warrant in accordance with the basic intent and
principles of such provisions, or if strictly applicable would
not fairly protect the purchase rights of the Holder of this
Warrant in accordance with the basic intent and principles of
such provisions, then the Company shall appoint a firm of
independent certified public accountants (which shall not be the
regular auditors of the Company) of recognized national standing,
which shall give their opinion upon the adjustment, if any, on a
basis consistent with the basic intent and principles established
in the other provisions of this Paragraph 10, necessary to
preserve, without dilution, the exercise rights of the registered
Holder of this Warrant. Upon receipt of such opinion, the Company
shall forthwith make the adjustments described therein. In taking
any action or making any determination pursuant to the provisions
of this Section 10, the Company and its Board of Directors shall,
at all times, exercise reasonable judgment and act in good faith.
O. Upon any adjustment of any Exercise Rate, then and in each such
case, the Company shall promptly deliver a notice to the
registered Holder of this Warrant, which notice shall state the
Exercise Price and Exercise Rate resulting from such adjustment
and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise hereof, setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based.
P. In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part,
other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as reasonably
determined in good faith by the Board of Directors of the Company
(regardless of accounting treatment thereof); provided, however,
that if such consideration consists of the cancellation of debt
issued by the Company the consideration shall be deemed to be the
amount the Company received upon issuance of such debt (gross
proceeds) plus accrued interest and, in the case of original
issue discount or zero coupon indebtedness, accreted value to the
date of such cancellation, but not including any premium or
discount at which the debt may then be trading or which might
otherwise be appropriate for such class of debt;
Q. The Company shall not issue any shares of its capital stock
(other than Common Stock) at or for consideration which is less
than fair value determined by the Board of Directors of the
Company in light of all circumstances surrounding such issuance.
11. In the case:
A. The Company shall declare any dividend or distribution on its
Common Stock (or on any other shares which the Holder of this
Warrant may become entitled to receive upon exercise hereof); or
B. The Company shall authorize the issuance to holders of its Common
Stock (or on any other shares which the Holder of this Warrant
may become entitled to receive upon exercise hereof) any
subscription rights or warrants; or
C. Of any subdivision, combination or reclassification of shares of
Common Stock of the Company (or any shares of the Company which
are subject to this Warrant), or of any proposed consolidation or
merger to which the Company is to be a party and for which the
approval of any shareholders of the Company is required, or of
the proposed sale or transfer of all or substantially all of the
assets of the Company; or D. Of the proposed voluntary or
involuntary dissolution, liquidation, or winding up of the
Company; or
E. The Company proposes to effect any transaction not specified
above which would require an adjustment of the Exercise Rate
pursuant to Paragraph 10 hereof;
then the Company shall cause to be mailed to Holders of this Warrant,
at least ten (10) days prior to the applicable record or other date
hereinafter specified, a notice describing such transaction in
reasonable detail, specifying the character, amount and terms of all
securities and the amounts of cash and other property, if any,
involved in such transaction and stating (i) the date as of which the
holders of Common Stock (or any such other shares) of record to be
entitled to receive any such dividend, distribution, rights, or
warrants is to be determined, or (ii) the date of which any such
subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up, or other
transaction is expected to become effective, and the date as of which
it is expected that holders of Common Stock (or any such other shares)
of record shall be entitled to exchange the same for securities or
other property, if any, deliverable upon such transaction.
12. The Company covenants and agrees that it will not merge or consolidate
with or into or sell or otherwise transfer all or substantially all of
its assets to any other corporation or entity unless at the time of or
prior to such transaction such other corporation or other entity shall
expressly assume all of the liabilities and obligations of the Company
under this Warrant and (without limiting the generality of the
foregoing) shall expressly agree that the Holder of this Warrant shall
thereafter have the right (subject to subsequent adjustment as nearly
equivalent as practicable to the adjustments provided for in Paragraph
10 of this Warrant) to receive upon the exercise of this Warrant the
number and kind of shares of stock and other securities and property
receivable upon such transaction by a Holder of the number and kind of
shares which would have been receivable upon the exercise of this
Warrant immediately prior to such transactions.
13. The Holder of this Warrant Certificate, each transferee hereof and any
holder and transferee of any Shares, by his acceptance thereof, agrees
that (i) no public distribution of Warrants or shares will be made in
violation of the Act, and (ii) during such period as the delivery of a
prospectus with respect to Warrants or Shares may be required by the
Act, no public distribution of Warrants or Shares will be made in a
manner or on terms different from those set forth in, or without
delivery of, a prospectus then meeting the requirements of Section 10
of the Act and in compliance with all applicable state securities
laws. The Holder of this Warrant Certificate and each transferee
hereof further agrees that if any distribution of any of the Warrants
or Shares is proposed to be made by them otherwise than by delivery of
a prospectus meeting the requirements of Section 10 of the Act, such
action shall be taken only after submission to the Company of an
opinion of counsel, reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed distribution
will not be in violation of the Act or of applicable state law.
Furthermore, it shall be a condition to the transfer of the Warrants
that any transferee thereof deliver to the Company his written
agreement to accept and be bound by all of the terms and conditions
contained in this Warrant Certificate.
14. This Warrant Certificate shall be exercisable only during the
continuance of the Holder's employment at the Company or its
subsidiaries, except that:
A. If the Holder ceases to be an employee at the Company (or a
subsidiary of the Company) for any reason other than by death or
disability, this Warrant Certificate may be exercised by Holder,
to the extent that it was exercisable at the date of termination,
at any time within 90 days after the date Holder ceases to be an
employee, but not later than November 19, 2002 except that, in
case of his death or disability within that three-month period,
this Warrant Certificate may be exercised as provided in
subparagraph (b) below.
B. If the Holder dies or becomes disabled during employment or
within the three-month period referred to in subparagraph (a)
above, this Warrant Certificate may be exercised, to the extent
that it was exercisable by the Holder at the date of:
(i) death, by the person or persons to whom Holder's rights
under this Warrant Certificate pass by will or by the laws
of descent and distribution or
(ii) disability, by the Holder's legal representative,
at any time within one year after the date of Holder's death or
disability, but not later than November 19, 2002.
The determination by the Company's Board of Directors of the
reason for termination of the Holder's employment shall be
binding and conclusive on the Holder.
15. No reload warrants shall be granted to the Holder upon exercise of the
Warrants.
WITNESS the following signatures effective as of November 20, 1998.
SEITEL, INC.
By:
Name:
Title:
Accepted:
--------------------------------
--------------------------------
<PAGE>
PURCHASE FORM
TO: SEITEL, INC. DATE:
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate No. ------, to the extent of ---------- of Common Stock,
$.01 par value per share of SEITEL, INC., and hereby makes payment of
- ------------ in payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:
Address:
By:
<PAGE>
Notice of Adjustment of Exercise Rate Regarding
Warrants Represented by Warrant Certificate No. -----
of Seitel, Inc.
Seitel, Inc. effected a two-for-one stock split in the form of a stock
dividend in December 1997, the record date for which was December 3, 1997 and
the payment date for which was December 12, 1997. As a result of such stock
dividend, the Exercise Rate set forth in Section 8 of the Warrant Certificate
dated November 20, 1997, No. -----, has been adjusted pursuant to Section 10 of
such Warrant Certificate. The new Exercise Rate is 48.78. As a result of this
new Exercise Rate, the Warrant Certificate entitles the Holder, subject to the
terms thereof, to purchase ------ shares of Common Stock of Seitel, Inc. at an
Exercise Price of $20.50 per share.
SEITEL, INC.
By:
Name:
Title:
December 12, 1997
EXHIBIT 10.8
SEITEL, INC. 1993 INCENTIVE STOCK OPTION PLAN
---------------------------------------------
Amendment to Limit Options Granted to a Single Participant
The subsection of Section VII headed "Maximum Annual Amount Per Employee" is
hereby amended to read in its entirety as follows:
The aggregate fair market value (determined as of the time the
Incentive Stock Option is granted) of stock with respect to which Incentive
Stock Options are exercisable for the first time by any Participant during
any calendar year (under this and any other plans of the Company or any
Subsidiary) shall not exceed $100,000. In no event will any Participant be
granted under the Plan in any calendar year Options to purchase more than
250,000 Shares, subject to adjustment as provided in Section VIII hereof.
EXHIBIT 10.9
SEITEL, INC. 1993 INCENTIVE STOCK OPTION PLAN
---------------------------------------------
Amendment to Increase Number of Shares Available for Granting Options
The first sentence of Section V is hereby amended to read as follows:
Subject to adjustment as provided in Section VIII hereof, a total of
Two Million (2,000,000) shares of Common Stock of the Company (the
"Shares") shall be subject to the Plan.
EXHIBIT 10.18
- --------------------------------------------------------------------------------
MERRILL LYNCH
---------------
SPECIAL
---------------
PROTOTYPE DEFINED
CONTRIBUTION PLAN
ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
401(k) PLAN
EMPLOYEE THRIFT PLAN
PROFIT-SHARING PLAN
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
This Prototype Plan and Adoption Agreement are important legal instruments with
legal and tax implications for which the Sponsor, Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, does not assume responsibility. The Employer is urged to
consult with its own attorney with regard to the adoption of this Plan and its
suitability to its circumstances.
Merrill Lynch
<PAGE>
Addendum to the Seitel, Inc. 40 1 (k) Plan pursuant to Article II. 1.2 of the
Plan
411(d)(6) Protected Benefits Attachment to the
SEITEL, INC. 40 1 (K) PLAN
Pursuant to Article V. Section 5.7. 1, any Participant who was a Participant as
of December 31, 1997 shall have been deemed to have optional forms of benefit to
include in service distributions for any vested portion of these Accounts.
<PAGE>
ADOPTION OF PLAN
The Employer named below hereby establishes or restates a profit-sharing plan
that includes a |X| 401(k), |X| profit-sharing and/or thrift plan feature (the
"Plan") by adopting the Merrill Lynch Special Prototype Defined Contribution
Plan and Trust as modified by the terms and provisions of this Adoption
Agreement.
EMPLOYER AND PLAN INFORMATION
Employer Name:* SEITEL, INC.
Business Address: 50 BRIAR HOLLOW LANE, 7W
HOUSTON, TX 77027
Telephone Number: (713) 881-8900
Employer Taxpayer ID Number: 76-0025431
Employer Taxable Year ends on: DECEMBER 31ST
Plan Name: SEITEL, INC. 401(K) PLAN
Plan Number: 001
<TABLE>
<CAPTION>
401(k) Profit Thrift
Sharing
<S> <C> <C> <C>
Effective Date of Adoption ----/----/----
or Restatement: 1/l/98 1/l/98
Original Effective Date: 11/1/85 11/1/85 ----/----/----
</TABLE>
If this Plan is a continuation or an amendment of a prior plan, all optional
forms of benefits provided in the prior plan must be provided under this Plan to
any Participant who had an account balance, whether or not vested, in the prior
plan.
- ---------------------------------------
* If there are any Participating Affiliates in this Plan, list below the proper
name of each Participating Affiliate.
<PAGE>
ARTICLE 1. DEFINITIONS
A. "COMPENSATION"
(1) With respect to each Participant, except as provided below, Compensation
shall mean the (select all those applicable for each column):
401(K) AND/ OR PROFIT SHARING
THRIFT
(a) amount reported in the "Wages Tips and
Other Compensation" Box on Form W-2 for
the applicable period selected in Item 5
below.
(b) compensation for Code Section 415
safe-harbor purposes (as defined in
Section 3.9.1 (H)(i) of basic plan
document #03) for the applicable period
selected in Item 5 below.
|X| |X| (c) amount reported pursuant to Code Section
3401(a) for the applicable period selected
in Item 5 below.
(d) all amounts received (under either option
(a) or (b) above) for personal services
rendered to the Employer but excluding
(select one):
overtime
bonuses
commissions
amounts in excess of $
other (specify) _______.
(2) Treatment of Elective Contributions (select one):
|X| (a) For purposes of contributions, Compensation shall include Elective
Deferrals and amounts excludable from the gross income of the Employee
under Code Section 125, Code Section 402(e)(3), Code Section 402(h) or
Code Section 403(b) ("elective contributions").
(b) For purposes of contributions, Compensation shall not include
"elective contributions."
(3) CODA Compensation (select one):
|X| (a) For purposes of the ADP and ACP Tests, Compensation shall include
"elective contributions."
(b) For purposes of the ADP and ACP Tests, Compensation shall not include
"elective contributions."
(4) With respect to Contributions to an Employer Contributions Account,
Compensation shall include all Compensation (select one):
|X| (a) during the Plan Year in which the Participant enters the Plan.
(b) after the Participant's Entry Date.
(5) The applicable period for determining Compensation shall be (select one):
|X| (a) the Plan Year.
(b) the Limitation Year.
(c) the consecutive 12-month period ending on ________.
B. "DISABILITY"
(1) Definition
Disability shall mean a condition which results in the Participant's (select
one):
(a) inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.
|X| (b) total and permanent inability to meet the requirements of the
Participant's customary employment which can be expected to last for a
continuous period of not less than 12 months.
(c) qualifications for Social Security disability benefits.
(d) qualification for benefits under the Employer's long-term disability
plan.
(2) Contributions Due to Disability (select one):
|X| (a) No contributions to an Employer Contributions Account will be made on
behalf of a Participant due to his or her Disability.
(b) Contributions to an Employer Contributions Account will be made on
behalf of a Participant due to his or her Disability provided that:
the Employer elected option (a) or (c) above as the definition of
Disability, contributions are not made on behalf of a Highly
Compensated Employee, the contribution is based on the Compensation
each such Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation paid
immediately before his or her Disability, and contributions made on
behalf of such Participant will be nonforfeitable when made.
<PAGE>
C. "EARLY RETIREMENT" IS (SELECT ONE):
(1) not permitted.
|X| (2) permitted if a Participant terminates Employment before Normal
Retirement Age and has (select one): (a) attained age ______.. |X| (b)
attained age 55 and completed 10 Years of Service. --- -- (c) attained
age _____ and completed _____ Years of Service as a Participant.
D. "ELIGIBLE EMPLOYEES" (select one):
(1) All Employees are eligible to participate in the Plan.
|X| (2) The following Employees are not eligible to participate in the Plan
(select all those applicable):
(a) Employees included in a unit of Employees covered by a collective
bargaining agreement between the Employer or a Participating
Affiliate and the Employee representatives (not including any
organization more than half of whose members are Employees who
are owners, officers, or executives of the Employer or
Participating Affiliate) in the negotiation of which retirement
benefits were the subject of good faith bargaining, unless the
bargaining agreement provides for participation in the Plan.
(b) non-resident aliens who received no earned income from the
Employer or a Participating Affiliate which constitutes income
from sources within the United States.
(c) Employees of an Affiliate.
|X| (d) Employees employed in or by the following specified division,
plant, location, job category or other identifiable individual or
group of Employees: LEASED EMPLOYEES
<PAGE>
E. "ENTRY DATE"
Entry Date shall mean (select as applicable):
401(K) AND/ OR PROFIT SHARING
THRIFT
(1) If the initial Plan Year is less than
twelve months, the _______ day of ______
and thereafter:
(2) the first day of the Plan Year following
the date the Employee meets the
eligibility requirements. If the Employer
elects this option establishing only one
Entry Date, the eligibility "age and
service" requirements elected in Article
II must be no more than age 20-1/2 and 6
months of service.
|X| |X| (3) the first day of the month following the
date the Employee meets the eligibility
requirements.
(4) the first day of the Plan Year and the
first day of the seventh month of the Plan
Year following the date the Employee meets
the eligibility requirements.
(5) the first day of the Plan Year, the first
day of the fourth month of the Plan Year,
the first day of the seventh month of the
Plan Year, and the first day of the tenth
month of the Plan Year following the date
the Employee meets the eligibility
requirements.
(6) other:
provided that the Entry Date or Dates
selected are no later than any of the
options above.
F. "HOURS OF SERVICE'
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the method
specified below:
(1) Eligibility Service: For purposes of determining whether a Participant has
satisfied the eligibility requirements, the following method shall be used
(select one):
401(K) AND/ OR PROFIT SHARING
THRIFT
|X| |X| (a) elapsed time method
(b) hourly records method
<PAGE>
(2) Vesting Service: A participant's nonforfeitable interest shall be determined
on the basis of the method specified below (select one):
|X| (a) elapsed time method
(b) hourly records method
(c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2) will
not apply.
(3) Hourly Records: For the purpose of determining Hours of Service under the
hourly record method (select one):
(a) only actual hours for which an Employee is paid or entitled to
payment shall be counted.
(b) an Employee shall be credited with 45 Hours of Service if such
Employee would be credited with at least 1 Hour of Service during
the week.
G. "INTEGRATION LEVEL"
|X| (1) This Plan is not integrated with Social Security.
(2) This Plan is integrated with Social Security. The Integration Level
shall be (select one):
(a) the Taxable Wage Base.
(b) $---- (a dollar amount less than the Taxable Wage Base),
(c) ----% of the Taxable Wage Base (not to exceed 100%).
(d) the greater of $10,000 or 20% of the Taxable Wage Base.
H. "LIMITATION COMPENSATION"
For purposes of Code Section 415, Limitation Compensation shall be compensation
as determined for purposes of (select one):
|X| (1) Code Section 415 Safe-Harbor as defined in Section 3.9.1(H)(i) of
basic plan document #03.
(2) the "Wages, Tips and Other Compensation" Box on Form W-2.
(3) Code Section 3401(a) Federal Income Tax Withholding.
I. "LIMITATION YEAR"
For purposes of Code Section 415, the Limitation Year shall be (select one):
|X| (1) the Plan Year.
(2) the twelve consecutive month period ending on the ------ day of the
month of ---------.
J. "NET PROFITS" are (select one):
|X| (1) not necessary for any contribution.
(2) necessary for (select all those applicable):
(a) Profit-Sharing Contributions.
(b) Matching 401(k) Contributions.
(c) Matching Thrift Contributions.
K. "NORMAL RETIREMENT AGE'
Normal Retirement Age shall be (select one):
|X| (1) attainment of age 65 (not more than 65) by the Participant.
(2) attainment of age ------ (not more than 65) by the Participant or the
anniversary (not more than the 5th) of the first day of the Plan Year
in which the Eligible Employee became a Participant, whichever is
later.
(3) attainment of age ------ (not more than 65) by the Participant or the
anniversary (not more than the 5th) of the first day on which the
Eligible Employee performed an Hour of Service, whichever is later.
L. "PARTICIPANT DIRECTED ASSETS" are:
401(K) AND/ OR PROFIT SHARING
THRIFT
|X| |X| (1) permitted.
(2) not permitted.
M. "PLAN YEAR"
The Plan Year shall end on the 31ST day of DECEMBER.
N. "PREDECESSOR SERVICE"
Predecessor service will be credited (select one):
|X| (1) only as required by the Plan.
(2) to include, in addition to the Plan requirements and subject to the
limitations set forth below, service with the following predecessor
employer(s) determined as if such predecessors were the Employer:
<PAGE>
Service with such predecessor employer applies [select either or both (a) and/or
(b); (c) is only available in addition to (a) and/or (b)]:
(a) for purposes of eligibility to participate;
(b) for purposes of vesting;
(c) except for the following service:-------------.
O. "VALUATION DATE"
Valuation Date shall mean (select one for each column, as applicable):
401(K) AND/ OR PROFIT SHARING
THRIFT
(1) the last business day of each month.
(2) the last business day of each quarter
within the Plan Year.
(3) the last business day of each semi-annual
period within the Plan Year.
(4) the last business day of the Plan Year.
|X| |X| (5) other: DAILY.
ARTICLE II. PARTICIPATION
PARTICIPATION REQUIREMENTS
An Eligible Employee must meet the following requirements to become a
Participant (select one or more for each column, as applicable):
401(K) AND/ OR PROFIT SHARING
THRIFT
(1) Performance of one Hour of Service.
(2) Attainment of age ----- (maximum 20 1/2)
and completion of (not more than 1/2)
Years of Service. If this item is
selected, no Hours of Service shall be
counted.
<PAGE>
|X| |X| (3) Attainment of age 21 (maximum 21) and
completion of 1/2 Year(s) of Service. If
more than one Year of Service is selected,
the immediate 100% vesting schedule must
be selected in Article VII of this
Adoption Agreement.
(4) Attainment of age------ (maximum 21) and
completion of Years of Service. If more
than one Year of Service is selected, the
immediate 100% vesting schedule must be
selected in Article VII of this Adoption
Agreement.
(5) Each Employee who is an Eligible Employee
on ----- will be deemed to have satisfied
the participation requirements on the
effective date without regard to such
Eligible Employee's actual age and/or
service.
ARTICLE III. 401(K) CONTRIBUTIONS AND ACCOUNT ALLOCATION
A. ELECTIVE DEFERRALS
If selected below, a Participant's Elective Deferrals will be (select all
applicable):
|X| (1) a dollar amount or a percentage of Compensation, as specified by the
Participant on his or her 401(k) Election form, which may not exceed
17 % of his or her Compensation.
(2) with respect to bonuses, such dollar amount or percentage as specified
by the Participant on his or her 401(k) Election form with respect to
such bonus.
B. MATCHING 401(K) CONTRIBUTIONS
If selected below, the Employer may make Matching 401(k) Contributions for each
Plan Year (select one):
|X| (1) Discretionary Formula:
Discretionary Matching 401(k) Contribution equal to such a dollar
amount or percentage of Elective Deferrals, as determined by the
Employer, which shall be allocated (select one):
(a) based on the ratio of each Participant's Elective Deferral for
the Plan Year to the total Elective Deferrals of all Participants
for the Plan Year. If inserted, Matching 401(k) Contributions
shall be subject to a maximum amount of $------- for each
Participant or ------% of each Participant's Compensation.
<PAGE>
|X| (b) in an amount not to exceed 100% of each Participant's first 100%
of Compensation contributed as Elective Deferrals for the Plan
Year. If any Matching 401(k) Contribution remains, it is
allocated to each such Participant in an amount not to exceed
------% of the next -----% of each Participant's Compensation
contributed as Elective Deferrals for the Plan Year.
Any remaining Matching 401(k) Contribution shall be allocated to each such
Participant in the ratio that such Participant's Elective Deferral for the Plan
Year bears to the total Elective Deferrals of all such Participants for the Plan
Year. If inserted, Matching 401(k),Contributions shall be subject to a maximum
amount of $_______ for each Participant or ________% of each Participant's
Compensation.
(2) Nondiscretionary Formula:
A nondiscretionary Matching 401(k) Contribution for each Plan Year equal to
(select one):
(a) -------% of each Participant's Compensation contributed as
Elective Deferrals. If inserted, Matching 401(k) Contributions
shall be subject to a maximum amount of $------- for each
Participant or -------% of each Participant's Compensation.
(b) -------% of the first -----% of the Participant's Compensation
contributed as Elective Deferrals and -----% of the next -----%
of the Participant's Compensation contributed as Elective
Deferrals. If inserted, Matching 401(k) Contributions shall be
subject to a maximum amount of $----- for each Participant or
-----% of each Participant's Compensation.
C. PARTICIPANTS ELIGIBLE FOR MATCHING 401(K) CONTRIBUTION ALLOCATION
The following Participants shall be eligible for an allocation to their Matching
401(k) Contributions Account (select all those applicable):
|X| (1) Any Participant who makes Elective Deferrals.
(2) Any Participant who satisfies those requirements elected by the
Employer for an allocation to his or her Employer Contributions
Account as provided in Article IV Section C.
(3) Solely with respect to a Plan in which Matching 401(k) Contributions
are made quarterly (or on any other regular interval that is more
frequent than annually) any Participant whose 401(k) Election is in
effect throughout such entire quarter (or other interval).
<PAGE>
D. QUALIFIED MATCHING CONTRIBUTIONS
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
(a) all Participants who make Elective Deferrals in that Plan Year.
|X| (b) only those Participants who are Nonhighly Compensated Employees
and who make Elective Deferrals for that Plan Year.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to:
(a) ----% of the Participant's Compensation contributed as Elective
Deferrals. If inserted, Qualified Matching Contributions shall
not exceed ----% of the Participant's Compensation.
|X| (b) Such an amount, determined by the Employer, which is needed to
meet the ACP Test.
(3) In its discretion, the Employer may elect to designate all or any part
of Matching 401(k) Contributions as Qualified Matching Contributions
that are taken into account as Elective Deferrals -- included in the
ADP Test and excluded from the ACP Test -- on behalf of (select one):
(a) all Participants who make Elective Deferrals for that Plan Year.
|X| (b) Only Participants who are Nonhighly Compensated Employees who
make Elective Deferrals for that Plan Year.
E. QUALIFIED NONELECTIVE CONTRIBUTIONS
If selected below, the Employer may make Qualified Nonelective Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Nonelective
Contributions on behalf of (select one):
(a) all Eligible Participants.
|X| (b) only Eligible Participants who are Nonhighly Compensated
Employees.
(2) Qualified Nonelective Contributions will be contributed and allocated
to each Eligible Participant in an amount equal to (select one):
(a) ____% (no more than 15%) of the Compensation of each Eligible
Participant eligible to share in the allocation.
|X| (b) Such an amount determined by the Employer, which is needed to
meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
(a) all Eligible Participants.
|X| (b) only those Eligible Participants who are Nonhighly Compensated
Employees.
F. ELECTIVE DEFERRALS USED IN ACP TEST (select one):
|X| (1) At the discretion of the Employer, Elective Deferrals may be used to
satisfy the ACP Test.
(2) Elective Deferrals may not be used to satisfy the ACP Test.
G. MAKING AND MODIFYING A 401(K) ELECTION
An Eligible Employee shall be entitled to increase, decrease or resume his or
her Elective Deferral percentage with the following frequency during the Plan
Year (select one):
(1) annually.
(2) semiannually.
|X| (3) quarterly.
(4) monthly
(5) other(specify):----------.
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Elective
Deferrals at any time effective for the payroll period after written notice is
provided to the Administrator.
<PAGE>
ARTICLE IV. PROFIT-SHARING CONTRIBUTIONS AND ACCOUNT ALLOCATION
A. PROFIT-SHARING CONTRIBUTIONS
If selected below, the following contributions for each Plan Year will be made:
Contributions to Employer Contributions Accounts (select one):
|X| (a) Such an amount, if any, as determined by the Employer.
(b) ---------% of each Participant's Compensation.
B. ALLOCATION OF CONTRIBUTIONS TO EMPLOYER CONTRIBUTIONS ACCOUNTS (select one):
|X| (1) Non-Integrated Allocation
The Employer Contributions Account of each Participant eligible to
share in the allocation for a Plan Year shall be credited with a
portion of the contribution, plus any forfeitures if forfeitures are
reallocated to Participants, equal to the ratio that the Participant's
Compensation for the Plan Year bears to the Compensation for that Plan
Year of all Participants entitled to share in the contribution.
(2) Integrated Allocation
Contributions to Employer Contributions Accounts with respect to a
Plan Year, plus any forfeitures if forfeitures are reallocated to
Participants, shall be allocated to the Employer Contributions Account
of each eligible Participant as follows:
(a) First, in the ratio that each such eligible Participant's
Compensation for the Plan Year bears to the Compensation for that
Plan Year of all eligible Participants but not in excess of 3% of
each Participant's Compensation.
(b) Second, any remaining contributions and forfeitures will be
allocated in the ratio that each eligible Participant's
Compensation for the Plan Year in excess of the Integration Level
bears to all such Participants' excess Compensation for the Plan
Year but not in excess of 3%.
<PAGE>
(c) Third, any remaining contributions and forfeitures will be
allocated in the ratio that the sum of each Participant's
Compensation and Compensation in excess of the Integration Level
bears to the sum of all Participants' Compensation and
Compensation in excess of the Integration Level, but not in
excess of the Maximum Profit-Sharing Disparity Rate (defined
below).
(d) Fourth, any remaining contributions or forfeitures will be
allocated in the ratio that each Participant's Compensation for
that year bears to all Participants' Compensation for that year.
The Maximum Profit-Sharing Disparity Rate is equal to the lesser of:
(a) 2.7% or
(b) The applicable percentage determined in accordance with the
following table:
IF THE INTEGRATION THE APPLICABLE
LEVEL IS (AS A % OF PERCENTAGE IS:
THE TAXABLE WAGE BASE ("TWB")).
20% (or $10,000 if greater) 2.7%
or less of the TWB
More than 20% (but not less than $10,001) but not 1.3%
more than 80% of the TWB
More than 80% but not less 2.4%
than 1 00 % of the TWB
100 % of the TWB 2.7%
<PAGE>
C. PARTICIPANTS ELIGIBLE FOR EMPLOYER CONTRIBUTION ALLOCATION
The following Participants shall be eligible for an allocation to their Employer
Contributions Account (select all those applicable):
(1) Any Participant who was employed during the Plan Year.
(2) In the case of a Plan using the hourly record method for determining
Vesting Service, any Participant who was credited with a Year of
Service during the Plan Year.
(3) Any Participant who was employed on the last day of the Plan Year.
(4) Any Participant who was on a leave of absence on the last day of the
Plan Year.
|X| (5) Any Participant who during the Plan Year died or became Disabled while
an Employee or terminated employment after attaining Normal Retirement
Age.
(6) Any Participant who was credited with at least 501 Hours of Service
whether or not employed on the last day of the Plan Year.
|X| (7) Any Participant who was credited with at least 1,000 Hours of Service
and was employed on the last day of the Plan Year.
ARTICLE V. THRIFT CONTRIBUTIONS
THIS ARTICLE V IS NOT APPLICABLE
A. EMPLOYEE THRIFT CONTRIBUTIONS
If selected below, Employee Thrift Contributions, which are required for
Matching Thrift Contributions, may be made by a Participant in an amount equal
to (select one):
(1) A dollar amount or a percentage of the Participant's Compensation
which may not be less than -----% nor may not exceed ------% of his or
her Compensation.
(2) An amount not less than ------% of and not more than ---------% of
each Participant's Compensation.
<PAGE>
B. MAKING AND MODIFYING AN EMPLOYEE THRIFT CONTRIBUTION ELECTION
A Participant shall be entitled to increase, decrease or resume his or her
Employee Thrift Contribution percentage with the following frequency during the
Plan Year (select one):
(1) annually
(2) semi-annually
(3) quarterly
(4) monthly
(5) other (specify): --------.
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Employee Thrift
Contributions at any time effective for the payroll period after written notice
is provided to the Administrator.
C. THRIFT MATCHING CONTRIBUTIONS
If selected below, the Employer will make Matching Thrift Contributions for each
Plan Year (select one):
(1) Discretionary Formula:
A discretionary Matching Thrift Contribution equal to such a dollar
amount or percentage as determined by the Employer, which shall be
allocated (select one):
(a) based on the ratio of each Participant's Employee Thrift
Contribution for the Plan Year to the total Employee Thrift
Contributions of all Participants for the Plan Year. If inserted,
Matching Thrift Contributions shall be subject to a maximum
amount of $-------- for each Participant or ------% of each
Participant's Compensation.
(b) in an amount not to exceed ------% of each Participant's first
-----% of Compensation contributed as Employee Thrift
Contributions for the Plan Year. If any Matching Thrift
Contribution remains, it is allocated to each such Participant in
an amount not to exceed ------% of the next --------% of each
Participant's Compensation contributed as Employee Thrift
Contributions for the Plan Year.
<PAGE>
Any remaining Matching Thrift Contribution shall be allocated to each such
Participant in the ratio that such Participant's Employee Thrift Contributions
for the Plan Year bears to the total Employee Thrift Contributions of all such
Participants for the Plan Year. If inserted, Matching Thrift Contributions shall
be subject to a maximum amount of $_______ for each Participant or _______% of
each Participant's Compensation.
(2) Nondiscretionary, Formula:
A nondiscretionary Matching Thrift Contribution for each Plan Year
equal to (select one):
(a) -----% of each Participant's Compensation contributed as Employee
Thrift Contributions. If inserted, Matching Thrift Contributions
shall be subject to a maximum amount of $------- for each
Participant or -------% of each Participant's Compensation.
(b) ------% of the first -------% of the Participant's Compensation
contributed as Employee Thrift Contributions and ------% of the
next ------% of the Participant's Compensation contributed as
Employee Thrift Contributions. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of $--------
for each Participant or ------% of each Participant's
Compensation.
D. QUALIFIED MATCHING CONTRIBUTIONS
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
(a) all Participants who make Employee Thrift Contributions.
(b) only those Participants who are Nonhighly Compensated Employees
and who make Employee Thrift Contributions.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to:
(a) _____% of the Participant's Employee Thrift Contributions. If
inserted, Qualified Matching Contributions shall not exceed
______% of the Participant's Compensation.
(b) such an amount, determined by the Employer, which is needed to
meet the ACP Test.
ARTICLE VI. PARTICIPANT CONTRIBUTIONS
PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS
Participant Voluntary Nondeductible Contributions are (select one):
(a) permitted.
|X| (b) not permitted.
ARTICLE VII. VESTING
A. EMPLOYER CONTRIBUTION ACCOUNTS
(1) A Participant shall have a vested percentage in his or her Profit-Sharing
Contributions, Matching 401(k) Contributions and/or Matching Thrift
Contributions, if applicable, in accordance with the following schedule
(Select one):
401(K) AND/ OR PROFIT SHARING
THRIFT CONTRIBUTION
CONTRIBUTION
(a) 100% vesting immediately upon
participation.
(b) 100% after -------- (not more than 5)
years of Vesting Service.
|X| |X| (c) Graded vesting schedule:
20% 20% after 1 year of Vesting Service;
40% 40% after 2 years of Vesting Service;
60% 60% (not less than 20%) after 3 years of
Vesting Service;
80% 80% (not less than 40%) after 4 years of
Vesting Service;
100% 100% (not less than 60%) after 5 years of
Vesting Service;
100% 100% (not less than 80%) after 6 years of
Vesting Service;
100% after 7 years of Vesting Service.
<PAGE>
(2) Top Heavy Plan
401(K) AND/ OR PROFIT SHARING
THRIFT CONTRIBUTION
CONTRIBUTION
Vesting Schedule (Select one):
(a) 100% vesting immediately upon
participation.
(b) 100% after --------- (not more than 3
years of Vesting Service.
|X| |X| (c) Graded vesting schedule:
20% 20% after 1 year of Vesting Service;
40% 40% (not less than 20%) after 2 years of
Vesting Service;
60% 60% (not less than 40%) after 3 years of
Vesting Service;
80% 80% (not less than 60%) after 4 years of
Vesting Service;
100% 100% (not less than 80%) after 5 years of
Vesting Service;
100% after 6 years of Vesting Service.
Top Heavy Ratio:
(a) If the adopting Employer maintains or has ever maintained a qualified
defined benefit plan, for purposes of establishing present value to
compute the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the following:
Interest Rate: 8 %
---------
Mortality Table: UP '84
---------
(b) For purposes of computing the top-heavy ratio, the valuation date
shall be the last business day of each Plan Year.
<PAGE>
B. ALLOCATION OF FORFEITURES
Forfeitures shall be (select one from each applicable column):
MATCHING 401(K) PROFIT-SHARING
AND/ OR THRIFT CONTRIBUTIONS
CONTRIBUTION
|X| (1) used to reduce Employer contributions for
succeeding Plan Year.
|X| (2) allocated in the succeeding Plan Year in
the ratio which the Compensation of each
Participant for the Plan Year bears to the
total Compensation of all Participants
entitled to share in the Contributions. If
the Plan is integrated with Social
Security, forfeitures shall be allocated
in accordance with the formula elected by
the Employer.
C. VESTING SERVICE
For purposes of determining Years of Service for Vesting Service [select (1) or
(2) and/or (3)1:
|X| (1) All Years of Service shall be included.
(2) Years of Service before the Participant attained age 18 shall be
excluded, (3) Service with the Employer prior to the effective date of
the Plan shall be excluded.
ARTICLE VIII. DEFERRAL OF BENEFIT DISTRIBUTIONS,
IN-SERVICE WITHDRAWALS AND LOANS
A. DEFERRAL OF BENEFIT DISTRIBUTIONS
401(K) AND/ OR PROFIT SHARING
THRIFT
If this item is checked, a Participant's
vested benefit in his or her Employer
Accounts shall be payable as soon as
practicable after the earlier of: (1) the
date the Participant terminates Employment
due to Disability or (2) the end of the Plan
Year in which a terminated Participant
attains Early Retirement Age, if applicable,
or Normal Retirement Age.
<PAGE>
B. IN-SERVICE DISTRIBUTIONS
|X| (1) In-service distributions may be made from any of the Participant's
vested Accounts, at any time upon or after the occurrence of the
following events (select all applicable):
|X| (a) a Participant's attainment of age 59-1/ 2.
|X| (b) due to hardships as defined in Section 5.9 of the Plan.
(2) In-service distributions are not permitted.
C. LOANS ARE:
401(K) AND/ OR PROFIT SHARING
THRIFT
|X| |X| (1) permitted.
(2) not permitted.
ARTICLE IX. GROUP TRUST
If this item is checked, the Employer elects to establish a Group Trust
consisting of such Plan assets as shall from time to time be transferred to the
Trustee pursuant to Article X of the Plan. The Trust Fund shall be a Group Trust
consisting of assets of this Plan plus assets of the following plans of the
Employer or of an Affiliate:
ARTICLE X. MISCELLANEOUS
A. IDENTIFICATION OF SPONSOR
The address and telephone number of the Sponsor's authorized representative is
800 Scudders Mill Road, Plainsboro, New Jersey 08536; (609) 282-2272. This
authorized representative can answer inquiries regarding the adoption of the
Plan, the intended meaning of any Plan provisions, and the effect of the opinion
letter.
The Sponsor will inform the adopting Employer of any amendments made to the Plan
or the discontinuance or abandonment of the Plan.
<PAGE>
B. PLAN REGISTRATION
1. Initial Registration
This Plan must be registered with the Sponsor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, in order to be considered a Prototype Plan by
the Sponsor. Registration is required so that the Sponsor is able to
provide the Administrator with documents, forms and announcements relating
to the administration of the Plan and with Plan amendments and other
documents, all of which relate to administering the Plan in accordance with
applicable law and maintaining compliance of the Plan with the law.
The Employer must complete and sign the Adoption Agreement. Upon receipt of
the Adoption Agreement, the Plan will be registered as a Prototype Plan of
Merrill, Lynch, Pierce, Fenner & Smith Incorporated. The Adoption Agreement
will be countersigned by an authorized representative and a copy of the
countersigned Adoption Agreement will be returned to the Employer.
2. Registration Renewal
Annual registration renewal is required in order for the Employer to
continue to receive any and all necessary updating documents. There is an
annual registration renewal fee in the amount set forth with the initial
registration material. The adopting Employer authorizes Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to debit the account established for
the Plan for payment of agreed upon annual fee; provided, however, if the
assets of an account are invested solely in Participant-Directed Assets, a
notice for this annual fee will be sent to the Employer annually. The
Sponsor reserves the right to change this fee from time to time and will
provide written notice in advance of any change.
C. PROTOTYPE REPLACEMENT PLAN
This Adoption Agreement is a replacement prototype plan for the (1) Merrill
Lynch Special Prototype Defined Contribution Plan and Trust - 401(k) Plan
#03-004 and (2) Merrill Lynch Asset Management, Inc., Special Prototype Defined
Contribution Plan and Trust - 401(k) Plan Adoption Agreement #03-004.
D. RELIANCE
The adopting Employer may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is qualified
under Code Section 401. In order to obtain reliance, the Employer must apply to
the appropriate Key District Director of the Internal Revenue Service for a
determination letter with respect to the Plan.
<PAGE>
EMPLOYER'S SIGNATURE
Name of Employer: Seitel, Inc.
-------------------------
By: /s/Debra D. Valice
-------------------------
Authorized Signature
Debra D. Valice
-------------------------
Print Name
CFO, Sr. V.P. Finance
-------------------------
Title
Dated: February 3, 1998
----------------
TO BE COMPLETED BY MERRILL LYNCH:
Sponsor Acceptance.
Subject to the terms and conditions of the Prototype Plan and this Adoption
Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce, Fenner
& Smith Incorporated as the Prototype Sponsor.
Authorized Signature: /s/ Joel Rubinstein
--------------------
<PAGE>
TRUSTEE(S) SIGNATURE
This Trustee Acceptance is to be completed only if the Employer appoints one or
more Trustees and does not appoint a Merrill Lynch Trust Company as Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group Trust
in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s)
of the Group Trust.
AS TRUSTEE:
- -------------------------------------- -------------------------------------
(Signature) (print or type name)
- -------------------------------------- -------------------------------------
(Signature) (print or type name)
- -------------------------------------- -------------------------------------
(Signature) (print or type name)
- -------------------------------------- -------------------------------------
(Signature) (print or type name)
Dated:_______________, 19______
<PAGE>
THE MERRILL LYNCH TRUST COMPANIES AS TRUSTEE
This Trustee Acceptance and designation of Investment Committee are to be
completed only when a Merrill Lynch Trust Company is appointed as Trustee.
TO BE COMPLETED BY THE EMPLOYER:
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type names):
Name: Debra D. Valice
-------------------------
Name: David S. Lawi
-------------------------
Name: Horace Calvert
-------------------------
Name: Paul Frame
-------------------------
TO BE COMPLETED BY MERRILL LYNCH TRUST COMPANY:
ACCEPTANCE BY TRUSTEE:
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group Trust
in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s)
of the Group Trust.
SEAL MERRILL LYNCH TRUST COMPANY [of Texas]
By: /s/ Melanie Madera
-----------------------------
Dated: 2/6, 1998
<PAGE>
THE MERRILL LYNCH TRUST COMPANIES AS ONE OF THE TRUSTEES
This Trustee Acceptance is to be completed only if, in addition to a Merrill
Lynch Trust Companies as Trustee, the Employer appoints an additional Trustee of
a second trust fund.
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment, as Trustee under the Plan. If the Employer has elected a Group
Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the
Trustee(s) of the Group Trust.
AS TRUSTEE
- ---------------------------------- -------------------------------------
(Signature) (print or type name)
Dated: , 19
------ ---
SEAL MERRILL LYNCH TRUST COMPANY [ ]
--------------
By:
------------------------
Dated: , 19
------ ---
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type names):
Name:
-------------------------------
Name:
-------------------------------
Name:
-------------------------------
Name:
-------------------------------
EXHIBIT 10.21
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT ( this "Agreement") is between Seitel,
Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and Paul A. Frame (the "Employee," and collectively
with the Company, the "Parties"), and is an amendment to that certain Employment
Agreement between the Company and the Employee dated effective January 1, 1991
(the "Employment Agreement").
Recitals
WHEREAS, the Company and the Employee entered into the Employment Agreement
to govern the terms of the Employee's employment by the Company;
WHEREAS, the Employment Agreement was entered into prior to the enactment
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which section limits the deductibility by corporations of certain compensation
expenses;
WHEREAS, the compensation payable to the Employee under the Employment
Agreement will become subject to the restrictions of Section 162(m) of the Code
beginning January 1, 1998;
WHEREAS, the Company proposed, and its shareholders approved at the
Company's annual shareholders' meeting, the 1997 Executive Compensation Plan
(the "Plan"), the purpose of which was to cause the compensation paid to
Employee after January 1, 1998 to comply with the deductibility restrictions of
Section 162(m) of the Code;
WHEREAS, the Employee and the Company are entering into this Agreement to
amend the Employment Agreement to incorporate therein the compensation
provisions approved by the Company's shareholders as set forth in the Plan;
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Compensation. Section 3 of the Employment Agreement is hereby amended by
deleting the existing Section 3 and replacing it with the following:
"3. Compensation:
(a) Base Salary. For services rendered by the Employee under this
Agreement, the Company shall pay the Employee an annual base salary of
$444,878 in twenty-four (24) bi-monthly installments (the "Base Salary").
(b) Pre-Tax Profits Bonus. Commencing January 1, 1998, the Employee
shall receive bonus payments based on the annual Pre-Tax Profits (the
"PTP") of the Company and its majority owned subsidiaries ("Subsidiaries").
If the PTP exceeds the
<PAGE>
PTP Threshold (hereinafter defined), Employee shall receive a pre-tax
profits bonus equal to 4.0% of PTP for PTP up to $50 million and 4.25% of
PTP for PTP in excess of $50 million.
The PTP must equal or exceed ten million dollars ($10,000,000.00) for
fiscal year 1998 and each of the four years thereafter, twelve million
dollars ($12,000,000.00) for fiscal year 2003 and each of the four years
thereafter, and fourteen million dollars ($14,000,000.00) for fiscal year
2008 and thereafter (the "PTP Threshold"). The PTP shall be computed as
follows:
(i) Any bonuses paid to Company employees (other than bonuses paid to
the Employee, Messrs. Horace A. Calvert, Herbert M. Pearlman and
David S. Lawi (collectively, the "Executive Group") and bonuses
paid to other employees of the Company aggregating up to 2% of
PTP) shall be deducted before any bonuses payable to the
Executive Group are calculated;
(ii) Any Sales Bonuses payable to the Employee and Mr. Calvert under
Section 3(c) hereof or the similar section of Mr. Calvert's
employment agreement, as amended, shall be deducted before any
bonuses payable under this Section 3(b) are calculated;
(iii)Any bonuses payable to any member of the Executive Group under
this Section 3(b) or the similar section of his employment
agreement or bonuses paid to other employees of the Company
aggregating up to 2% of PTP shall not be deducted from pre-tax
profits in order to calculate the bonus payable to any other
member of the Executive Group under this Section 3(b) or the
similar section of such member's employment agreement, as
amended;
(iv) The annual pre-tax profits calculation shall be reviewed by the
Company's outside auditors and approved by the Company's
Compensation Committee before any bonuses are paid to the members
of the Executive Group;
(v) Any payments to the Employee by any company that is not a
wholly-owned Subsidiary of the Company but whose profits are
included in the Company's pre-tax profits calculation shall
reduce the Company's pre-tax profits for purposes of calculating
any percent of Company pre-tax profits payable to the Employee;
and
(vi) PTP shall be determined in accordance with generally accepted
accounting principles and will mean, subject to the foregoing
subparagraphs (i)-(v), the consolidated profits of the Company
<PAGE>
before payment of (A) all local, state and federal income taxes
or (B) the payment of any severance, buy-out or salary
continuation payments to Messrs. Pearlman or Lawi, but after
deduction for: (X) all expenses of any subsidiary companies or
divisions allocable to such year; and (Y) the payment of any
management fee incurred for carrying out the activities of the
Company.
(c) Sales Bonus. Commencing January 1, 1998, the Company shall pay the
Employee a bonus equal to 1% of the consolidated sales of the Company and
its Subsidiaries in excess of $30 million, provided that the PTP exceeds
the PTP Threshold. For this purpose, sales shall only include resales of
seismic data, oil and gas sales and any other recurring sales. The Company
may, in its sole discretion, advance monthly to Employee any amounts which
would otherwise be due to Employee under this paragraph (c) assuming that
the PTP Threshold for such year is achieved.
(d) Payment of Bonuses. The Company shall pay Employee the Bonuses due
hereunder no later than March 15th of the year following the year in which
it is earned, provided, however, that before the Company is obligated to
make any payments of Bonuses under Paragraphs (b) or (c), the Company's
Compensation Committee shall certify to the Board of Directors of the
Company that the material terms and performance goals hereunder have been
met, which determination shall be made by the Compensation Committee in its
sole discretion.
(e) Salary Continuation Benefits. The Company will pay, so long as the
Employee's Employment Agreement, as amended, is in full force and effect on
the date of his death, a monthly salary continuation amount to the
Employee's estate or his designee, for twelve months beginning on the date
of his death. The annual salary continuation amount will equal the
Employee's base salary at his date of death plus an average of the bonuses
paid to the Employee by the Company for the three calendar years preceding
the year of his death."
2. Termination. Paragraph 13(b) of the Employment Agreement is hereby
amended by inserting at the end thereof the following sentence:
"Employee shall have no obligation to provide the Consulting Services
to the Company under Section 2 hereof upon any termination pursuant to
this Paragraph 13(b)."
3. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
4. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
<PAGE>
5. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
6. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
7. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
EXECUTED to be effective as of the 1st day of January, 1998.
SEITEL, INC.
By: /s/Herbert M. Pearlman
-----------------------------------
Name: Herbert M. Pearlman
---------------------------------
Title: Chairman of the Board
--------------------------------
/s/ Paul A. Frame
----------------------------------------
PAUL A. FRAME
EXHIBIT 10.23
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT ( this "Agreement") is between Seitel,
Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and Horace A. Calvert (the "Employee," and
collectively with the Company, the "Parties"), and is an amendment to that
certain Employment Agreement between the Company and the Employee dated
effective January 1, 1991 (the "Employment Agreement").
Recitals
WHEREAS, the Company and the Employee entered into the Employment Agreement
to govern the terms of the Employee's employment by the Company;
WHEREAS, the Employment Agreement was entered into prior to the enactment
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which section limits the deductibility by corporations of certain compensation
expenses;
WHEREAS, the compensation payable to the Employee under the Employment
Agreement will become subject to the restrictions of Section 162(m) of the Code
beginning January 1, 1998;
WHEREAS, the Company proposed, and its shareholders approved at the
Company's annual shareholders' meeting, the 1997 Executive Compensation Plan
(the "Plan"), the purpose of which was to cause the compensation paid to
Employee after January 1, 1998 to comply with the deductibility restrictions of
Section 162(m) of the Code;
WHEREAS, the Employee and the Company are entering into this Agreement to
amend the Employment Agreement to incorporate therein the compensation
provisions approved by the Company's shareholders as set forth in the Plan;
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Compensation. Section 3 of the Employment Agreement is hereby amended by
deleting the existing Section 3 and replacing it with the following:
"3. Compensation:
(a) Base Salary. For services rendered by the Employee under this
Agreement, the Company shall pay the Employee an annual base salary of
$444,878 in twenty-four (24) bi-monthly installments (the "Base Salary").
(b) Pre-Tax Profits Bonus. Commencing January 1, 1998, the Employee
shall receive bonus payments based on the annual Pre-Tax Profits (the
"PTP") of the Company and its majority owned subsidiaries ("Subsidiaries").
If the PTP exceeds the PTP Threshold (hereinafter defined), Employee shall
receive a pre-tax profits bonus equal to 4.0% of PTP for PTP up to $50
million and 4.25% of PTP for PTP in excess of $50 million.
<PAGE>
The PTP must equal or exceed ten million dollars ($10,000,000.00) for
fiscal year 1998 and each of the four years thereafter, twelve million
dollars ($12,000,000.00) for fiscal year 2003 and each of the four years
thereafter, and fourteen million dollars ($14,000,000.00) for fiscal year
2008 and thereafter (the "PTP Threshold"). The PTP shall be computed as
follows:
(i) Any bonuses paid to Company employees (other than bonuses paid to
the Employee, Messrs. Paul A. Frame, Herbert M. Pearlman and
David S. Lawi (collectively, the "Executive Group") and bonuses
paid to other employees of the Company aggregating up to 2% of
PTP) shall be deducted before any bonuses payable to the
Executive Group are calculated;
(ii) Any Sales Bonuses payable to the Employee and Mr. Frame under
Section 3(c) hereof or the similar section of Mr. Frame's
employment agreement, as amended, shall be deducted before any
bonuses payable under this Section 3(b) are calculated;
(iii)Any bonuses payable to any member of the Executive Group under
this Section 3(b) or the similar section of his employment
agreement or bonuses paid to other employees of the Company
aggregating up to 2% of PTP shall not be deducted from pre-tax
profits in order to calculate the bonus payable to any other
member of the Executive Group under this Section 3(b) or the
similar section of such member's employment agreement, as
amended;
(iv) The annual pre-tax profits calculation shall be reviewed by the
Company's outside auditors and approved by the Company's
Compensation Committee before any bonuses are paid to the members
of the Executive Group;
(v) Any payments to the Employee by any company that is not a
wholly-owned Subsidiary of the Company but whose profits are
included in the Company's pre-tax profits calculation shall
reduce the Company's pre-tax profits for purposes of calculating
any percent of Company pre-tax profits payable to the Employee;
and
(vi) PTP shall be determined in accordance with generally accepted
accounting principles and will mean, subject to the foregoing
subparagraphs (i)-(v), the consolidated profits of the Company
before payment of (A) all local, state and federal income taxes
or (B) the payment of any severance, buy-out or salary
continuation payments to Messrs. Pearlman or Lawi, but after
deduction for: (X) all expenses of any subsidiary companies or
divisions allocable to such year; and (Y) the payment of any
management fee incurred for carrying out the activities of the
Company.
(c) Sales Bonus. Commencing January 1, 1998, the Company shall pay the
Employee a bonus equal to 1% of the consolidated sales of the Company and
its Subsidiaries in excess of $30 million, provided that the PTP exceeds
the PTP Threshold. For this purpose, sales shall only include resales of
seismic data, oil and gas sales and any other recurring sales. The Company
may, in its sole discretion, advance monthly to Employee any amounts which
would otherwise be due to Employee under this paragraph (c) assuming that
the PTP Threshold for such year is achieved.
(d) Payment of Bonuses. The Company shall pay Employee the Bonuses due
hereunder no later than March 15th of the year following the year in which
it is earned, provided, however, that before the Company is obligated to
make any payments of Bonuses under Paragraphs (b) or (c), the Company's
Compensation Committee shall certify to the Board of Directors of the
Company that the material terms and performance goals hereunder have been
met, which determination shall be made by the Compensation Committee in its
sole discretion.
(e) Salary Continuation Benefits. The Company will pay, so long as the
Employee's Employment Agreement, as amended, is in full force and effect on
the date of his death, a monthly salary continuation amount to the
Employee's estate or his designee, for twelve months beginning on the date
of his death. The annual salary continuation amount will equal the
Employee's base salary at his date of death plus an average of the bonuses
paid to the Employee by the Company for the three calendar years preceding
the year of his death."
2. Termination. Paragraph 13(b) of the Employment Agreement is hereby
amended by inserting at the end thereof the following sentence:
"Employee shall have no obligation to provide the Consulting Services
to the Company under Section 2 hereof upon any termination pursuant to
this Paragraph 13(b)."
3. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
4. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
5. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
6. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
7. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
EXECUTED to be effective as of the 1st day of January, 1998.
SEITEL, INC.
By: /s/Herbert M. Pearlman
-----------------------------------
Name: Herbert M. Pearlman
---------------------------------
Title: Chairman of the Board
--------------------------------
/s/ Horace A. Calvert
----------------------------------------
HORACE A. CALVERT
EXHIBIT 10.25
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT ( this "Agreement") is between Seitel,
Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and Herbert M. Pearlman (the "Employee," and
collectively with the Company, the "Parties"), and is an amendment to that
certain Employment Agreement between the Company and the Employee dated
effective January 1, 1991 (the "Employment Agreement").
Recitals
WHEREAS, the Company and the Employee entered into the Employment Agreement
to govern the terms of the Employee's employment by the Company;
WHEREAS, the Employment Agreement was entered into prior to the enactment
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which section limits the deductibility by corporations of certain compensation
expenses;
WHEREAS, the compensation payable to the Employee under the Employment
Agreement will become subject to the restrictions of Section 162(m) of the Code
beginning January 1, 1998;
WHEREAS, the Company proposed and its shareholders approved at the
Company's annual shareholders' meeting the 1997 Executive Compensation Plan (the
"Plan"), the purpose of which was to cause the compensation paid to Employee
after January 1, 1998 to comply with the deductibility restrictions of Section
162(m) of the Code;
WHEREAS, the Employee and the Company are entering into this Agreement to
amend the Employment Agreement to incorporate therein the compensation
provisions approved by the Company's shareholders as set forth in the Plan;
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Compensation. Section 3 of the Employment Agreement is hereby amended by
deleting the existing Section 3 and replacing it with the following:
"3. Compensation:
(a) Base Salary. For services rendered by the Employee under this
Agreement, the Company shall pay the Employee an annual base salary of
$428,435 in twenty-four (24) bi-monthly installments (the "Base Salary").
(b) Pre-Tax Profits Bonus. Commencing January 1, 1998, the Employee
shall receive bonus payments based on the annual Pre-Tax Profits (the
"PTP") of the Company and its majority owned subsidiaries ("Subsidiaries").
If the PTP exceeds the PTP Threshold (hereinafter defined), Employee shall
receive a pre-tax profits bonus equal to the difference of (I) 5.0% of PTP
for PTP up to $50 million and 5.3% of PTP for PTP in excess of $50 million,
minus (II) $300,000, provided, however, that if the amount determined under
clause (I) is less than $300,000, no bonus shall be payable hereunder.
The PTP must equal or exceed ten million dollars ($10,000,000.00) for
fiscal year 1998 and each of the four years thereafter, twelve million
dollars ($12,000,000.00) for fiscal year 2003 and each of the four years
thereafter, and fourteen million dollars ($14,000,000.00) for fiscal year
2008 and thereafter (the "PTP Threshold"). The PTP shall be computed as
follows:
(i) Any bonuses paid to Company employees (other than bonuses paid to
the Employee, Messrs. Paul A. Frame, Horace A. Calvert, and David
S. Lawi (collectively, the "Executive Group") and bonuses paid to
other employees of the Company aggregating up to 2% of PTP) shall
be deducted before any bonuses payable to the Executive Group are
calculated;
(ii) Any Sales Bonuses payable to Mr. Frame and Mr. Calvert under
Section 3(c) of their respective employment agreements, as
amended, shall be deducted before any bonuses payable under this
Section 3(b) are calculated;
(iii)Any bonuses payable to any member of the Executive Group under
this Section 3(b) or the similar section of his employment
agreement or bonuses paid to other employees of the Company
aggregating up to 2% of PTP shall not be deducted from pre-tax
profits in order to calculate the bonus payable to any other
member of the Executive Group under this Section 3(b) or the
similar section of such member's employment agreement, as
amended;
(iv) The annual pre-tax profits calculation shall be reviewed by the
Company's outside auditors and approved by the Company's
Compensation Committee before any bonuses are paid to the members
of the Executive Group;
(v) Any payments to the Employee by any company that is not a
wholly-owned Subsidiary of the Company but whose profits are
included in the Company's pre-tax profits calculation shall
reduce the Company's pre-tax profits for purposes of calculating
any percent of Company pre-tax profits payable to the Employee;
and
(vi) PTP shall be determined in accordance with generally accepted
accounting principles and will mean, subject to the foregoing
subparagraphs (i)-(v), the consolidated profits of the Company
before payment of all local, state and federal income taxes but
after deduction for: (A) all expenses of any subsidiary companies
or divisions allocable to such year; and (B) the payment of any
management fee incurred for carrying out the activities of the
Company.
(c) Payment of Bonus. The Company shall pay Employee any Bonus due
hereunder no later than March 15th of the year following the year in which
it is earned, provided, however, that before the Company is obligated to
make any payments of Bonuses under Paragraph (b), the Company's
Compensation Committee shall certify to the Board of Directors of the
Company that the material terms and performance goals hereunder have been
met, which determination shall be made by the Compensation Committee in its
sole discretion.
(d) Salary Continuation Benefits. The Company will pay, so long as the
Employee's Employment Agreement, as amended, is in full force and effect on
the date of his death, a monthly salary continuation amount to the
Employee's estate or his designee, for twelve months beginning on the date
of his death. The annual salary continuation amount will equal the
Employee's base salary at his date of death plus an average of the bonuses
paid to the Employee by the Company for the three calendar years preceding
the year of his death."
2. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
3. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
4. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
5. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
6. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
<PAGE>
EXECUTED to be effective as of the 1st day of January, 1998.
SEITEL, INC.
By: /s/Paul A. Frame
-----------------------------------
Name: Paul A. Frame
---------------------------------
Title: President
--------------------------------
/s/ Herbert M. Pearlman
----------------------------------------
HERBERT M. PEARLMAN
EXHIBIT 10.27
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT ( this "Agreement") is between Seitel,
Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and David S. Lawi (the "Employee," and collectively
with the Company, the "Parties"), and is an amendment to that certain Employment
Agreement between the Company and the Employee dated effective January 1, 1991
(the "Employment Agreement").
Recitals
WHEREAS, the Company and the Employee entered into the Employment Agreement
to govern the terms of the Employee's employment by the Company;
WHEREAS, the Employment Agreement was entered into prior to the enactment
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which section limits the deductibility by corporations of certain compensation
expenses;
WHEREAS, the compensation payable to the Employee under the Employment
Agreement will become subject to the restrictions of Section 162(m) of the Code
beginning January 1, 1998;
WHEREAS, the Company proposed and its shareholders approved at the
Company's annual shareholders' meeting the 1997 Executive Compensation Plan (the
"Plan"), the purpose of which was to cause the compensation paid to Employee
after January 1, 1998 to comply with the deductibility restrictions of Section
162(m) of the Code;
WHEREAS, the Employee and the Company are entering into this Agreement to
amend the Employment Agreement to incorporate therein the compensation
provisions approved by the Company's shareholders as set forth in the Plan;
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Compensation. Section 3 of the Employment Agreement is hereby amended by
deleting the existing Section 3 and replacing it with the following:
"3. Compensation:
(a) Base Salary. For services rendered by the Employee under this
Agreement, the Company shall pay the Employee an annual base salary of
$214,217 in twenty-four (24) bi-monthly installments (the "Base Salary").
(b) Pre-Tax Profits Bonus. Commencing January 1, 1998, the Employee
shall receive bonus payments based on the annual Pre-Tax Profits (the
"PTP") of the Company and its majority owned subsidiaries ("Subsidiaries").
If the PTP exceeds the PTP Threshold (hereinafter defined), Employee shall
receive a pre-tax profits bonus equal to the difference of (I) 2.5% of PTP
for PTP up to $50 million and 2.65% of PTP for PTP in excess of $50
million, minus (II) $150,000, provided, however, that if the amount
determined under clause (I) is less than $150,000, no bonus shall be
payable hereunder.
The PTP must equal or exceed ten million dollars ($10,000,000.00) for
fiscal year 1998 and each of the four years thereafter, twelve million
dollars ($12,000,000.00) for fiscal year 2003 and each of the four years
thereafter, and fourteen million dollars ($14,000,000.00) profits for
fiscal year 2008 and thereafter (the "PTP Threshold"). The PTP shall be
computed as follows:
(i) Any bonuses paid to Company employees (other than bonuses paid to
the Employee, Messrs. Paul A. Frame, Horace A. Calvert, and
Herbert M. Pearlman (collectively, the "Executive Group") and
bonuses paid to other employees of the Company aggregating up to
2% of PTP) shall be deducted before any bonuses payable to the
Executive Group are calculated;
(ii) Any Sales Bonuses payable to Mr. Frame and Mr. Calvert under
Section 3(c) of their respective employment agreements, as
amended, shall be deducted before any bonuses payable under this
Section 3(b) are calculated;
(iii)Any bonuses payable to any member of the Executive Group under
this Section 3(b) or the similar section of his employment
agreement or bonuses paid to other employees of the Company
aggregating up to 2% of PTP shall not be deducted from pre-tax
profits in order to calculate the bonus payable to any other
member of the Executive Group under this Section 3(b) or the
similar section of such member's employment agreement, as
amended;
(iv) The annual pre-tax profits calculation shall be reviewed by the
Company's outside auditors and approved by the Company's
Compensation Committee before any bonuses are paid to the members
of the Executive Group;
(v) Any payments to the Employee by any company that is not a
wholly-owned Subsidiary of the Company but whose profits are
included in the Company's pre-tax profits calculation shall
reduce the Company's pre-tax profits for purposes of calculating
any percent of Company pre-tax profits payable to the Employee;
and
(vi) PTP shall be determined in accordance with generally accepted
accounting principles and will mean, subject to the foregoing
subparagraphs (i)-(v), the consolidated profits of the Company
before payment of all local, state and federal income taxes but
after deduction for: (A) all expenses of any subsidiary companies
or divisions allocable to such year; and (B) the payment of any
management fee incurred for carrying out the activities of the
Company.
(c) Payment of Bonus. The Company shall pay Employee any Bonus due
hereunder no later than March 15th of the year following the year in which
it is earned, provided, however, that before the Company is obligated to
make any payments of Bonuses under Paragraph (b), the Company's
Compensation Committee shall certify to the Board of Directors of the
Company that the material terms and performance goals hereunder have been
met, which determination shall be made by the Compensation Committee in its
sole discretion.
(d) Salary Continuation Benefits. The Company will pay, so long as the
Employee's Employment Agreement, as amended, is in full force and effect on
the date of his death, a monthly salary continuation amount to the
Employee's estate or his designee, for twelve months beginning on the date
of his death. The annual salary continuation amount will equal the
Employee's base salary at his date of death plus an average of the bonuses
paid to the Employee by the Company for the three calendar years preceding
the year of his death."
2. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
3. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
4. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
5. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
6. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
<PAGE>
EXECUTED to be effective as of the 1st day of January, 1998.
SEITEL, INC.
By: /s/Paul A. Frame
-----------------------------------
Name: Paul A. Frame
---------------------------------
Title: President
--------------------------------
/s/ David S. Lawi
----------------------------------------
DAVID S. LAWI
EXHIBIT 10.29
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT ( this "Agreement") is between Seitel,
Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and Debra D. Valice (the "Employee," and
collectively with the Company, the "Parties"), and is an amendment to that
certain Employment Agreement between the Company and the Employee dated
effective March 11, 1993 (the "Employment Agreement").
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Salary Continuation Benefits. The Company will pay, so long as the
Employee's Employment Agreement, as amended, is in full force and effect on the
date of her death, a monthly salary continuation amount to the Employee's estate
or her designee, for twelve months beginning on the date of her death. The
annual salary continuation amount will equal the Employee's base salary at her
date of death plus an average of the bonuses paid to the Employee by the Company
for the three calendar years preceding the year of her death.
2. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
3. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
4. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
5. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
6. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
<PAGE>
EXECUTED to be effective as of the 1st day of January, 1998.
SEITEL, INC.
By: /s/Herbert M. Pearlman
-----------------------------------
Name: Herbert M. Pearlman
---------------------------------
Title: Chairman of the Board
--------------------------------
/s/ Debra D. Valice
----------------------------------------
DEBRA D. VALICE
EXHIBIT 10.38
THIRD AMENDMENT TO
SEITEL, INC. REVOLVING CREDIT AGREEMENT
This Third Amendment to Seitel, Inc. Revolving Credit Agreement dated as of
March 16, 1998 (this "Third Amendment") is among Seitel, Inc., a Delaware
corporation (the "Borrower"), the lenders set forth on the signature pages
hereto (the "Lenders") and The First National Bank of Chicago, individually and
as agent for the Lenders (in such capacity, the "Agent").
FOR VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless amended pursuant hereto or unless the context
otherwise requires, all terms used herein which are defined in the
Revolving Credit Agreement dated as of July 22, 1996, as amended (the
"Credit Agreement") among the Borrower, the Agent and the Lenders
shall have the meanings assigned to them in the Credit Agreement.
2. Amendments. Upon the satisfaction of the conditions precedent set
forth in Section 4 of this Third Amendment and effective as of the
date first set forth above (the "Effective Date"), the Credit
Agreement shall be amended as follows:
(a) The definition of "Facility Termination Date" set forth in
Article I of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Facility Termination Date" means March 16, 2001 or any earlier
date on which the Aggregate Commitment is reduced to zero or
otherwise terminated pursuant to the terms hereof.
(b) Section 2.4.3. of the Credit Agreement is hereby amended to read
in its entirety as follows:
2.4.3. Method of Selecting Types and Interest Periods for New
Ratable Advances The Borrower shall select the Type of Ratable
Advance and, in the case of each Eurodollar Advance, the Interest
Period applicable to each Ratable Advance from time to time. The
Borrower shall give the Agent irrevocable notice (a "Ratable
Borrowing Notice") not later than 11:30 a.m. (Chicago time) on
the Borrowing Date for each Floating Rate Advance or three
Business Days before the Borrowing Date for each Eurodollar
Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Ratable Advance,
(ii) the aggregate amount of such Ratable Advance,
(iii)the Type of Ratable Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
Not later than 1:00 p.m. (Chicago time) on each Borrowing Date,
each Lender shall make available its Loan or Loans, in funds
immediately available in Chicago to the Agent at its address
specified pursuant to Article XIII. Promptly after receipt of
such funds from the Lenders, the Agent will make such funds
available to the Borrower at the Agent's aforesaid address.
(c) Section 2.4.4. of the Credit Agreement is hereby amended to read
in its entirety as follows:
2.4.4. Conversion and Continuation of Outstanding Ratable
Advances Floating Rate Advances shall continue as Floating Rate
Advances unless and until such Floating Rate Advances are
converted into Eurodollar Advances. Each Eurodollar Advance shall
continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such
Eurodollar Advance shall be automatically converted into a
Floating Rate Advance unless the Borrower shall have given the
Agent a Conversion/Continuation Notice requesting that, at the
end of such Interest Period, such Eurodollar Advance either
continue as a Eurodollar Advance for the same or another Interest
Period or be converted into a Floating Rate Advance. Subject to
the terms of Section 2.7, the Borrower may elect from time to
time to convert all or any part of any Ratable Advance of any
Type into any other Type or Types of Ratable Advances; provided
that any conversion of any Eurodollar Advance shall be made on,
and only on, the last day of the Interest Period applicable
thereto. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Ratable
Advance or continuation of a Eurodollar Advance not later than
11:30 a.m. (Chicago time) on the date of the requested conversion
or continuation, in the case of a conversion into a Floating Rate
Advance, or three Business Days prior to the date of the
requested conversion or continuation, in the case of a conversion
into or continuation of a Eurodollar Advance, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Ratable Advance which
is to be converted or continued; and
(iii)the amount and Type(s) of Ratable Advance(s) into which such
Ratable Advance is to be converted or continued and, in the
case of a conversion into or continuation of a Eurodollar
Advance, the duration of the Interest Period applicable
thereto.
(d) The Commitment of The First National Bank of Chicago is hereby
increased to $40,000,000.
(e) The Commitment of Bank One, Texas, N.A. is hereby increased to
$35,000,000.
(f) Exhibit "B" to the Credit Agreement is hereby amended by deleting
the amount "$50,000,000" on the first page thereof and replacing
it with the amount "$75,000,000".
(g) Schedule 1 to the Credit Agreement is hereby amended to read in
its entirety as set forth in Schedule 1 attached hereto.
(h) Schedule 6 to the Credit Agreement is hereby amended to read in
its entirety as set forth in Schedule 6 attached hereto.
3. Representations and Warranties. The Borrower hereby confirms,
reaffirms and restates as of the date hereof the representations and
warranties set forth in Article V of the Credit Agreement, provided
that, with respect to the representations and warranties set forth in
Section 5.6, the reference to "March 31, 1996" therein shall be deemed
to read "September 30, 1997," and with respect to the representations
and warranties set forth in Section 5.15, the references to "May 1,
1997" therein shall be deemed to read "March 16, 1998."
4. Conditions Precedent. This Third Amendment and the amendments to the
Credit Agreement provided for in Section 2 hereof shall become
effective as of the Effective Date when all of the following
conditions precedent shall have been satisfied:
(a) The Agent shall have received counterparts of this Third
Amendment duly executed and delivered by the Borrower and by all
of the Lenders and consented to by all of the Subsidiary
Guarantors.
(b) The Agent shall have received from the Borrower a certificate of
a Senior Financial Officer attaching and certifying resolutions
adopted by the Board of Directors of the Borrower on or prior to
the Effective Date authorizing the execution and delivery by the
Borrower of this Third Amendment and the extension of the
Facility Termination Date and increase in the Aggregate
Commitment provided for herein.
(c) The Agent shall have received from the Borrower new Ratable Notes
payable to the order of each Lender in the amount of such
Lender's Commitment as revised hereby and new Competitive Bid
Notes payable to the order of each Lender substantially in the
form of Exhibit "B" as amended hereby, each duly executed and
delivered by the Borrower.
(d) On the Effective Date and after giving effect to the terms of
this Third Amendment, no Default or Unmatured Default shall have
occurred and be continuing.
5. Effect on the Credit Agreement. Except to the extent of the amendments
expressly provided for herein, all of the representations, warranties,
terms, covenants and conditions of the Loan Documents (a) shall remain
unaltered, (b) shall continue to be, and shall remain, in full force
and effect in accordance with their respective terms, and (c) are
hereby ratified and confirmed in all respects. Upon the effectiveness
of this Third Amendment, all references in the Credit Agreement
(including references in the Credit Agreement as amended by this Third
Amendment) to "this Agreement" (and all indirect references such as
"hereby", "herein", "hereof" and "hereunder") shall be deemed to be
references to the Credit Agreement as amended by this Third Amendment.
6. Entire Agreement. This Third Amendment, the Credit Agreement as
amended by this Third Amendment and the other Loan Documents embody
the entire agreement and understanding among the parties hereto and
supersede any and all prior agreements and understandings between the
parties hereto relating to the subject matter hereof.
7. APPLICABLE LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
8. Headings. The headings, captions and recitals used in this Third
Amendment are for convenience only and shall not affect the
interpretation of this Third Amendment.
9. Counterparts. This Third Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed as of the date first above written.
SEITEL, INC.
By: /s/ Debra D. Valice
---------------------------------
Debra D. Valice
Sr. Vice President - Chief Financial Officer
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By: /s/ Helen A. Carr
---------------------------------
Title: Attorney in fact
------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ Linda Masera
---------------------------------
Title: Vice President
------------------------------
s:\coml\kwh\seit3.amd
<PAGE>
ACKNOWLEDGMENT AND CONSENT BY SUBSIDIARY GUARANTORS
Each of the undersigned Subsidiary Guarantors (i) acknowledges its receipt
of a copy of and hereby consents to all of the terms and conditions of the
foregoing Third Amendment and (ii) reaffirms its obligations under the
Subsidiary Guaranty dated as of July 22, 1996 in favor of The First National
Bank of Chicago, as agent.
SEITEL DATA CORP.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL DELAWARE, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL MANAGEMENT, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
President
SEITEL GEOPHYSICAL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
DDD ENERGY, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL GAS & ENERGY CORP.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL POWER CORP.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL NATURAL GAS, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
MATRIX GEOPHYSICAL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
EXSOL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
DATATEL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL OFFSHORE CORP.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
GEO-BANK, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
<PAGE>
ALTERNATIVE COMMUNICATIONS
ENTERPRISES, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL INTERNATIONAL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
AFRICAN GEOPHYSICAL, INC.
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
SEITEL DATA LTD.
By: SEITEL DELAWARE, INC.,
its general partner
By: /s/ Debra D. Valice
-------------------------
Debra D. Valice
Vice President
<PAGE>
Schedule 1
RESTRICTED SUBSIDIARIES
Incorporated in Delaware
Seitel Data Corp.
Seitel Delaware, Inc.
Seitel Management, Inc.
Seitel Geophysical, Inc.
DDD Energy, Inc.
Seitel Gas & Energy Corp.
Seitel Power Corp.
Seitel Natural Gas, Inc.
Matrix Geophysical, Inc.
Exsol, Inc.
Datatel, Inc.
Seitel Offshore Corp.
Incorporated (or Organized) in Texas
Geo-Bank, Inc.
Alternative Communications Enterprises, Inc.
Seitel Data Ltd. (a Texas limited partnership)
Incorporated in the Cayman Islands
Seitel International, Inc.
African Geophysical, Inc.
UNRESTRICTED SUBSIDIARIES
Seitel Canada Holdings, Inc., a Delaware corporation
Olympic Seismic Ltd., an Alberta, Canada corporation
EHI Holdings, Inc., a Delaware corporation
AFFILIATES
Eagle Geophysical, Inc., a Delaware corporation (17.9% owned by
EHI Holdings, Inc.)
EXHIBIT 10.39
RATABLE NOTE
$40,000,000 March 16, 1998
Seitel, Inc., a Delaware corporation (the "Borrower"), promises to pay to
the order of THE FIRST NATIONAL BANK OF CHICAGO (the "Lender") the lesser of the
principal sum of Forty Million and 00/100 Dollars or the aggregate unpaid
principal amount of all Ratable Loans made by the Lender to the Borrower
pursuant to Section 2.4 of the Agreement (as hereinafter defined), in
immediately available funds at the main office of The First National Bank of
Chicago in Chicago, Illinois, as Agent, together with interest on the unpaid
principal amount hereof at the rates and on the dates set forth in the
Agreement. The Borrower shall pay the principal of and accrued and unpaid
interest on the Ratable Loans in full on the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Ratable Loan and the date and amount of each
principal payment hereunder, provided that the failure by the Lender to so
record or any mistake in so recording shall not affect the obligations of the
Borrower hereunder.
This Ratable Note is one of the Notes issued pursuant to, and is subject to
the terms of and entitled to the benefits of, the Revolving Credit Agreement
dated as of July 22, 1996 (which, as it may be amended or modified and in effect
from time to time, is herein called the "Agreement"), among the Borrower, the
lenders party thereto, including the Lender, and The First National Bank of
Chicago, as Agent, to which Agreement reference is hereby made for a statement
of the terms and conditions governing this Ratable Note, including the terms and
conditions under which this Ratable Note may be prepaid or its maturity date
accelerated. This Ratable Note is guaranteed pursuant to the Subsidiary
Guaranty, all as more specifically described in the Agreement, and reference is
made thereto for a statement of the terms and provisions thereof. Capitalized
terms used herein and not otherwise defined herein are used with the meanings
attributed to them in the Agreement.
THIS RATABLE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
SEITEL, INC.
By: /s/Debra D. Valice
---------------------------------
Print Name: Debra D. Valice
-------------------------
Title: Sr. Vice President
------------------------------
EXHIBIT 10.40
RATABLE NOTE
$35,000,000 March 16, 1998
Seitel, Inc., a Delaware corporation (the "Borrower"), promises to pay
to the order of BANK ONE, TEXAS, N.A. (the "Lender") the lesser of the principal
sum of Thirty-five Million and 00/100 Dollars or the aggregate unpaid principal
amount of all Ratable Loans made by the Lender to the Borrower pursuant to
Section 2.4 of the Agreement (as hereinafter defined), in immediately available
funds at the main office of The First National Bank of Chicago in Chicago,
Illinois, as Agent, together with interest on the unpaid principal amount hereof
at the rates and on the dates set forth in the Agreement. The Borrower shall pay
the principal of and accrued and unpaid interest on the Ratable Loans in full on
the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Ratable Loan and the date and amount of each
principal payment hereunder, provided that the failure by the Lender to so
record or any mistake in so recording shall not affect the obligations of the
Borrower hereunder.
This Ratable Note is one of the Notes issued pursuant to, and is
subject to the terms of and entitled to the benefits of, the Revolving Credit
Agreement dated as of July 22, 1996 (which, as it may be amended or modified and
in effect from time to time, is herein called the "Agreement"), among the
Borrower, the lenders party thereto, including the Lender, and The First
National Bank of Chicago, as Agent, to which Agreement reference is hereby made
for a statement of the terms and conditions governing this Ratable Note,
including the terms and conditions under which this Ratable Note may be prepaid
or its maturity date accelerated. This Ratable Note is guaranteed pursuant to
the Subsidiary Guaranty, all as more specifically described in the Agreement,
and reference is made thereto for a statement of the terms and provisions
thereof. Capitalized terms used herein and not otherwise defined herein are used
with the meanings attributed to them in the Agreement.
THIS RATABLE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
SEITEL, INC.
By: /s/Debra D. Valice
---------------------------------
Print Name: Debra D. Valice
-------------------------
Title: Sr. Vice President
------------------------------
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)
EHI Holdings, Inc. (incorporated in Delaware)
** Exsol, Inc. (incorporated in Delaware)
** GEO-BANK, INC. (incorporated in Texas)
Matrix Geophysical, Inc. (incorporated in Delaware)
* Seitel Canada, 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 1997
** Dormant
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report 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 30, 1998
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
e-mail: [email protected]
March 26, 1998
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 26, 1998, regarding the DDD Energy, Inc.,
Proved Reserves and Future Net Revenue, as of January 1, 1998, SEC Case, in
Seitel, Inc.'s 1997 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/ James A. Cole
James A. Cole
Senior Vice President
JAC/mk
EXHIBIT 23.3
FORREST A. GARB & ASSOCIATES, INC.
PETROLEUM CONSULTANTS
5310 HARVEST HILL ROAD, SUITE 160-LB 152
DALLAS, TEXAS 75230-5805
TEL: 972.788.1110 FAX: 972.991.3160
email: [email protected]
March 23, 1998
CONSENT OF EXPERT
Ms. Debra D. Valice
Seitel, Inc.
50 Briar Hollow Lane, 7th Floor West
Houston, Texas 77027
Dear Ms. Valice:
Forrest A. Garb & Associates, Inc., petroleum consultants, hereby consent to the
incorporation by reference in any registration statement or other document filed
with the Securities and Exchange Commission by Seitel, Inc., of our reserve
report dated January 1, 1998, and to all references to our firm included
therein.
Forrest A. Garb & Associates, Inc.
By: /s/ Forrest A. Garb
-------------------------
Name: Forrest A. Garb
-------------------------
Title: President
-------------------------
Dallas, Texas
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,881
<SECURITIES> 0
<RECEIVABLES> 47,245
<ALLOWANCES> 561
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 152,084<F2>
<DEPRECIATION> 36,820
<TOTAL-ASSETS> 365,682
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 90,566
0
0
<COMMON> 225
<OTHER-SE> 207,048
<TOTAL-LIABILITY-AND-EQUITY> 365,682
<SALES> 127,556
<TOTAL-REVENUES> 127,556
<CGS> 17,953
<TOTAL-COSTS> 17,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,609
<INCOME-PRETAX> 48,979
<INCOME-TAX> 17,422
<INCOME-CONTINUING> 31,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,557
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.43
<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 $373,920,000
and related accumulated amortization of $192,984,000.
</FN>
</TABLE>
