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- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
- -----
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
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 | |
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As of August 12, 1999 there were 24,285,795 shares of the Company's common
stock, par value $.01 per share, outstanding.
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- --------------------------------------------------------------------------------
<PAGE>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1999 (Unaudited) and December 31, 1998................ 3
Consolidated Statements of Income (Unaudited) for the
Three Months Ended June 30, 1999 and 1998...................... 4
Consolidated Statements of Income (Unaudited) for the
Six Months Ended June 30, 1999 and 1998........................ 5
Consolidated Statements of Stockholders' Equity (Unaudited)
for the Six Months Ended June 30, 1999......................... 6
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1999 and 1998................ 7
Notes to Consolidated Interim Financial Statements............. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk..................................... 17
PART II. OTHER INFORMATION.............................................. 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and equivalents $ 2,776 $ 3,161
Receivables
Trade, net of allowance 48,973 59,244
Notes and other 561 581
Net data bank 314,074 262,950
Net oil and gas properties 158,651 148,977
Net other property and equipment 2,451 2,294
Investment in marketable securities 2,050 --
Investment in affiliate -- 15,544
Prepaid expenses, deferred charges and other assets 5,126 3,016
--------- ---------
TOTAL ASSETS $ 534,662 $ 495,767
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 44,177 $ 71,555
Income taxes payable 232 1,056
Debt
Senior Notes 203,000 65,000
Line of credit 12,312 85,500
Term loans 98 172
Obligations under capital leases -- 18
Contingent payables 274 274
Deferred income taxes 29,508 28,039
Deferred revenue 1,532 6,566
--------- ---------
TOTAL LIABILITIES 291,133 258,180
--------- ---------
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
24,285,795 and 23,804,508 at June 30, 1999
and December 31,1998, respectively 243 238
Additional paid-in capital 147,843 141,826
Retained earnings 106,362 107,102
Treasury stock, 175,818 shares at cost at
June 30, 1999 and December 31, 1998 (2,977) (2,977)
Notes receivable from officers and employees (7,410) (8,651)
Accumulated other comprehensive income (loss) (532) 49
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 243,529 237,587
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 534,662 $ 495,767
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUE $ 34,127 $ 36,976
EXPENSES
Depreciation, depletion and amortization 15,048 17,726
Cost of sales 1,187 1,350
Selling, general and administrative expenses 7,278 6,472
-------- --------
23,513 25,548
-------- --------
INCOME FROM OPERATIONS 10,614 11,428
Interest expense, net (2,860) (1,402)
Equity in earnings of affiliate -- 84
-------- --------
Income before provision for income taxes 7,754 10,110
Provision for income taxes 2,879 3,741
-------- --------
NET INCOME $ 4,875 $ 6,369
======== ========
Net income per share:
Basic $ .20 $ .28
======== ========
Diluted $ .20 $ .28
======== ========
Weighted average number of common and
common equivalent shares:
Basic 23,809 22,592
======== ========
Diluted 24,844 23,115
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUE $ 72,008 $ 67,903
EXPENSES
Depreciation, depletion and amortization 32,787 32,882
Cost of sales 2,479 2,479
Selling, general and administrative expenses 14,482 12,422
-------- --------
49,748 47,783
-------- --------
INCOME FROM OPERATIONS 22,260 20,120
Interest expense, net (5,023) (2,397)
Equity in earnings (loss) of affiliate (91) 125
Impairment due to dividend distribution
of affiliate stock (7,794) --
-------- --------
Income before provision for income taxes 9,352 17,848
Provision for income taxes 3,727 6,614
-------- --------
NET INCOME $ 5,625 $ 11,234
======== ========
Net income per share:
Basic $ .24 $ .50
======== ========
Diluted $ .23 $ .49
======== ========
Weighted average number of common and
common equivalent shares:
Basic 23,720 22,572
======== ========
Diluted 24,318 23,041
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Receivable Accumulated
Common Stock Additional Treasury Stock from Other
Comprehensive------------------ Paid-In Retained --------------- Officers & Comprehensive
Income Shares Amount Capital Earnings Shares Amount Employees Income
-------- ---------- ------ ------- ------- ------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 22,548,408 225 128,406 82,742 (175,818) (2,977) (1,109) (14)
Net proceeds from
issuance
of common stock 106,067 1 983 - - - - -
Tax reduction from
exercise
of stock options - - 344 - - - - -
Sale of common stock to
officers and employees 794,300 8 8,183 - - - (8,191) -
Acquisition of oil and
gas properties 355,733 4 3,910 - - - - -
Payments received on
notes receivable from
officers and employees - - - - - - 649 -
Net income $ 24,360 - - - 24,360 - - - -
Foreign currency
translation
adjustments net of
income tax expense
of $67 63 - - - - - - - 63
--------
Comprehensive income $ 24,423
======== ---------- ------ ------- ------- ------- ------ -------- ----------
Balance, December 31, 1998 23,804,508 $ 238 $141,826 $107,102 (175,818)$(2,977) $ (8,651) $ 49
Net proceeds from
issuance
of common stock 481,287 5 5,138 - - - - -
Tax reduction from
exercise
of stock options - - 879 - - - - -
Payments received on
notes receivable from
officers and employees - - - - - - 1,241 -
Distribution of Eagle
Geophysical, Inc.
shares - - - (6,365) - - - -
Net income $ 5,625 - - - 5,625 - - - -
Foreign currency
translation
adjustments net of
income tax expense
of $8 (69) - - - - - - - (69)
Unrealized loss on
marketable securities
net of income tax
benefit of $512 (512) - - - - - - - (512)
--------
Comprehensive income $ 5,044
======== ---------- ------ ------- ------- ------- ------ -------- ----------
Balance, June 30, 1999
(unaudited) 24,285,795 $ 243 $147,843 $106,362 (175,818)$(2,977) $ (7,410) $ (532)
========== ====== ======= ======= ======= ====== ======== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 70,882 $ 66,402
Cash paid to suppliers and employees (18,962) (10,737)
Interest paid (1,683) (2,341)
Interest received 327 44
Income taxes paid (1,766) (2,483)
--------- ---------
Net cash provided by operating activities 48,798 50,885
--------- ---------
Cash flows from investing activities:
Cash invested in seismic data (92,291) (72,864)
Cash invested in oil and gas properties (22,360) (24,204)
Cash paid to acquire property and equipment (616) (497)
Cash from disposal of property and equipment -- 14
Investment in marketable securities (3,043) --
--------- ---------
Net cash used in investing activities (118,310) (97,551)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit agreement 40,282 54,063
Principal payments under line of credit (113,470) (10,313)
Principal payments on term loans (74) (196)
Principal payments on capital lease obligations (18) (41)
Proceeds from issuance of senior notes 138,000 --
Proceeds from issuance of common stock 5,175 934
Costs of debt and equity transactions (2,034) (1)
Payments on notes receivable from officers and employees 1,241 --
--------- ---------
Net cash provided by financing activities 69,102 44,446
--------- ---------
Effect of exchange rate changes 25 48
--------- ---------
Net increase in cash and equivalents (385) (2,172)
Cash and equivalents at beginning of period 3,161 4,881
--------- ---------
Cash and equivalents at end of period $ 2,776 $ 2,709
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 5,625 $ 11,234
Adjustments to reconcile net income to net cash provided by
operating activities:
Impairment due to dividend distribution of
affiliate stock 7,794 --
Depreciation, depletion and amortization 32,787 32,882
Deferred income tax provision 1,938 3,192
Non-cash sales (6,363) --
Equity in loss (earnings) of affiliate 91 (125)
Gain on sale of property and equipment -- (11)
Decrease (increase) in receivables 10,291 (5,465)
Decrease (increase) in other assets (288) 371
Increase (decrease) in accounts payable and other liabilities (3,077) 8,807
-------- --------
Total adjustments 43,173 39,651
-------- --------
Net cash provided by operating activities $ 48,798 $ 50,885
======== ========
Supplemental schedule of non-cash investing
and financing activities:
Dividend distribution of affiliate stock $ 6,365 $ --
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain reclassifications
have been made to the amounts in the prior year's financial statements to
conform to the current year's presentation. Operating results for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the financial statements and notes thereto for the year ended December 31,
1998 contained in the Company's Annual Report filed on Form 10-K with the
Securities and Exchange Commission.
The Company accounts for its marketable equity securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management determines the
appropriate classification of marketable securities at the time of purchase and
reevaluates such designation at each balance sheet date. The Company's
marketable securities are categorized as available-for-sale and are carried at
fair value, with unrealized holding gains and losses, net of taxes, reflected in
accumulated other comprehensive income included in stockholders' equity until
realized. For the purpose of computing realized gains and losses, cost is
identified on a specific identification basis.
NOTE B-EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic earnings
per share is computed based on the weighted average shares of common stock
outstanding during the periods. Diluted earnings per share is computed based on
the weighted average shares of common stock plus the assumed issuance of common
stock for all potentially dilutive securities. Earnings per share computations
to reconcile basic and diluted net income for the three and six months ended
June 30, 1999 and 1998 consist of the following (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 4,875 $ 6,369 $ 5,625 $11,234
======= ======= ======= =======
Basic weighted average shares 23,809 22,592 23,720 22,572
Effect of dilutive securities: (1)<F1>
Options and warrants 1,035 523 598 469
------- ------- ------- -------
Diluted weighted average shares 24,844 23,115 24,318 23,041
======= ======= ======= =======
Per share income:
Basic $ .20 $ .28 $ .24 $ .50
Diluted $ .20 $ .28 $ .23 $ .49
- -------------------
<FN>
(1)<F1> During the second quarter of 1999 and 1998 and the first six months of
1999 and 1998, a weighted average number of options and warrants to
purchase 342,000, 2,196,000, 265,000 and 2,424,000 shares of common
stock were outstanding, respectively, but were not included in the
computation of diluted per share income because their exercise prices
were greater than the average market price of the common shares.
</FN>
</TABLE>
<PAGE>
NOTE C-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. Substantially all (greater than 87%) of
the costs incurred to develop the Company's data bank have been for programs
created by the Company. The Company uses the income forecast method to amortize
the costs of seismic data programs it creates. Under the income forecast method,
seismic data costs are amortized in the proportion that revenue for a period
relates to management's estimate of ultimate revenues. Since inception,
management has established guidelines regarding its annual charge for
amortization. Under these guidelines, seismic data created by the Company is
amortized in a set period of time based on historical experience with both the
timing and amount of revenue. Management estimates that 90% of the costs
incurred in the creation of seismic data is amortized within five years of such
data becoming available for resale for two-dimensional seismic data and within
seven years of such data becoming available for resale for three-dimensional
seismic data. If anticipated sales fall below the benchmark guidelines,
amortization is accelerated. Depending on actual sales performance, the costs of
the Company's seismic data are fully amortized within 20 years or less. The
Company also purchases existing seismic data programs from other companies. The
costs of purchased seismic data programs are generally amortized on a
straight-line basis over ten years; however, the costs of a significant purchase
(greater than 5% of the net book value of the data bank), are amortized using
the greater of the income forecast method or ten-year straight-line method.
In certain cases, the Company grants seismic licenses to third parties
for data to be used in their operations (not for resale) in exchange for
exclusive ownership of seismic data from the third party. The Company recognizes
revenue for the licenses granted and records a data library asset for the
seismic data acquired. These transactions are accounted for as non-monetary
exchanges and are valued at the fair market value of such licenses based on
values realized in cash transactions with other third parties for similar
seismic data. During the first six months of 1999, the Company licensed seismic
data valued at $6,363,000 in exchange for the purchase of seismic data for its
library.
NOTE D-OIL AND GAS PROPERTIES
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, including directly related overhead costs and interest costs related
to its unevaluated properties and certain properties under development which are
not currently being amortized, are capitalized. For the six months ended June
30, 1999 and 1998, general and administrative costs of $973,000 and $821,000,
respectively, have been capitalized to oil and gas properties. For the six
months ended June 30, 1999 and 1998, interest costs of $1,582,000 and
$1,184,000, respectively, have been capitalized to oil and gas properties.
On July 26, 1999, the Company sold its 18.75% working interest in 11
oil and gas wells, one salt water disposal well and approximately 16,000 acres
of leasehold and options to lease for approximately $13.7 million.
NOTE E-INVESTMENT IN EAGLE GEOPHYSICAL, INC.
On April 22, 1999, the Board of Directors of Seitel, Inc. declared to
its common stockholders a dividend consisting of the 1,520,000 shares of the
common stock of Eagle Geophysical, Inc. ("Eagle") owned by the Company. The
dividend was declared at the rate of approximately 0.064 shares of Eagle common
stock for each share of Seitel, Inc. common stock owned as of the close of
business on the record date of May 18, 1999.
The fair market value of the common stock of Eagle held by the Company
on the date this dividend was declared was lower than the carrying value of the
stock on the Company's balance sheet; therefore, a non-cash, non-recurring,
pre-tax impairment, net of bonus effect, of $7,794,000 was recorded for the six
months ended June 30, 1999.
<PAGE>
NOTE F-INDUSTRY SEGMENTS
SFAS NO. 131, "Disclosures About Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in annual financial statements and requires selected information in
interim financial reports. Selected financial information for the three and six
months ended June 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Exploration
and Total
Seismic Production Segments
-------- -------- --------
THREE MONTHS ENDED JUNE 30, 1999
<S> <C> <C> <C>
Revenue from external purchasers $ 29,540 $ 4,587 $ 34,127
Depreciation, depletion
and amortization 12,702 2,057 14,759
Cost of sales 66 1,121 1,187
Segment operating income 16,772 1,409 18,181
Capital expenditures (a)<F1> 23,414 4,426 27,840
Assets 365,473 163,988 529,461
THREE MONTHS ENDED JUNE 30, 1998
Revenue from external purchasers $ 31,777 $ 5,199 $ 36,976
Depreciation, depletion
and amortization 14,104 3,399 17,503
Cost of sales 31 1,319 1,350
Segment operating income 17,642 481 18,123
Capital expenditures (a)<F1> 37,946 11,131 49,077
Assets (b)<F2> 317,292 156,623 473,915
SIX MONTHS ENDED JUNE 30, 1999
Revenue from external purchasers $ 63,462 $ 8,546 $ 72,008
Depreciation, depletion
and amortization 28,080 4,138 32,218
Cost of sales 131 2,348 2,479
Segment operating income 35,251 2,060 37,311
Capital expenditures (a)<F1> 79,203 14,125 93,328
Assets 365,473 163,988 529,461
SIX MONTHS ENDED JUNE 30, 1998
Revenue from external purchasers $ 58,093 $ 9,810 $ 67,903
Depreciation, depletion
and amortization 26,076 6,374 32,450
Cost of sales 112 2,367 2,479
Segment operating income 31,905 1,069 32,974
Capital expenditures (a)<F1> 63,332 21,582 84,914
Assets (b)<F2> 317,292 156,623 473,915
<FN>
(a)<F1> Includes other ancillary equipment.
(b)<F2> Balance as of December 31, 1998.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
1999 1998 1999 1998
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations before
income taxes:
Total reportable segment operating income $ 18,181 $ 18,123 $ 37,311 $ 32,974
Selling general and administrative expense (7,278) (6,472) (14,482) (12,422)
Interest expense, net (2,860) (1,402) (5,023) (2,397)
Equity in earnings (loss) of affiliate - 84 (91) 125
Impairment due to dividend distribution of
affiliate stock - - (7,794) -
Eliminations and other (289) (223) (569) (432)
----------- -----------
--------- ----------
Income from continuing operations before
income taxes $ 7,754 $ 10,110 $ 9,352 $ 17,848
========= ========== =========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's income from core seismic marketing and exploration and
production operations was $4,875,000 for the second quarter of 1999 and
$10,750,000 for the six months ended June 30, 1999 as compared to $6,314,000 for
the second quarter of 1998 and $11,152,000 for the six months ended June 30,
1998. Additionally, in the first six months of 1999, the Company recorded a
non-cash, non-operating loss on the dividend distribution of affiliate stock
totaling $5,066,000, net of tax, along with equity in loss of affiliate of
$59,000, net of tax, bringing net income for the six months ended June 30, 1999
to $5,625,000. In the second quarter and first six months of 1998, the Company
recorded its equity in the earnings of affiliate of $55,000 and $82,000, net of
tax, respectively, bringing second quarter 1998 net income to $6,369,000 and the
first six months of 1998 net income to $11,234,000.
RESULTS OF OPERATIONS
Total revenue was $34,127,000 and $36,976,000 in the second quarters of
1999 and 1998, respectively, and $72,008,000 and $67,903,000 in the first six
months of 1999 and 1998, respectively. Revenue primarily consists of revenue
generated from the marketing of seismic data and oil and gas production.
Revenue from the marketing of seismic data was $29,540,000 in the
second quarter of 1999 compared to $31,777,000 in the second quarter of 1998.
During the second quarter of 1999, the Company reduced the amount of
expenditures made in creating new seismic data which resulted in a decrease in
revenue associated with the creation of new data. The decline in creation
revenue was mostly offset by an increase in licensing of existing data from the
Company's data library. Revenue from the marketing of seismic data was
$63,462,000 in the first six months of 1999 compared to $58,093,000 in the first
six months of 1998. The increase for the six month period is primarily due to
more data being available for licensing because of the increased size of the
Company's data library. The Company's data library has increased significantly
since the second quarter of 1998 due to the creation of seismic data during 1998
and the first six months of 1999 and the purchase of the Amoco Canada data
library in February 1999. These increases are primarily attributable to a
continued increase in demand for high-resolution seismic data, which is being
used increasingly in oil and gas exploration and development efforts.
<PAGE>
Oil and gas revenue was $4,587,000 in the second quarter of 1999
compared to $5,199,000 in the second quarter of 1998 and was $8,546,000 in the
first six months of 1999 compared to $9,810,000 in the first six months of 1998.
The decreases in oil and gas revenue were primarily caused by lower gas prices
during the first six months of 1999. Net volume and price information for the
Company's oil and gas production for the second quarters and first six months of
1999 and 1998 are summarized in the following table:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Natural gas volumes (mmcf) 1,446 1,564 3,076 2,921
Average natural gas price ($/mcf) $ 2.16 $ 2.45 $ 2.00 $ 2.43
Crude oil/condensate volumes (mbbl) 97 105 181 198
Average crude oil/condensate price ($/bbl) $ 14.45 $ 12.17 $ 12.44 $ 12.87
</TABLE>
In July 1999, the Company sold its interest in 11 oil and gas wells,
five of which were currently producing. The Company anticipates that the
majority of loss in production from these wells will be offset by production
from new wells anticipated to come on-line in the third quarter.
Depreciation, depletion and amortization consists primarily of data
bank amortization and depletion of oil and gas properties. Data bank
amortization was $12,702,000 during the second quarter of 1999 compared to
$14,104,000 during the second quarter of 1998 and was $28,080,000 during the
first six months of 1999 compared to $26,076,000 during the first six months of
1998. The amount of seismic data amortization fluctuates based on the level of
seismic marketing revenue. As a percentage of revenue from licensing seismic
data, data bank amortization was 44% and 45% for the second quarters of 1999 and
1998, respectively, and was 45% for the first six months of 1999 and 1998. See
Note C for a discussion of the Company's seismic data amortization policy.
Depletion of oil and gas properties was $2,057,000 for the second
quarter of 1999 compared to $3,399,000 for the second quarter of 1998, which
amounted to $1.01 and $1.55, respectively, per mcfe of gas produced during such
periods. For the six months ended June 30, 1999 and 1998, depletion of oil and
gas properties was $4,138,000 and $6,374,000, respectively, which amounted to
$.99 and $1.55, respectively, per mcfe of gas produced during such periods. The
decreases in the rate are due to the significant increase in the Company's
proved reserves as of January 1, 1999 as determined by the Company's independent
reserve engineers resulting from both new discoveries in 1998 and positive
revisions to previous reserve estimates.
Cost of sales consists of expenses associated with oil and gas
production and seismic resale support services. Oil and gas production costs
amounted to $.55 and $.56 per mcfe of gas produced in the second quarter and
first six months of 1999, respectively, compared to $.60 and $.58 per mcfe in
the same periods in 1998. The decrease in this rate is primarily due to lower
workover costs in the second quarter of 1999 as compared to 1998.
The Company's selling, general and administrative expenses were
$7,278,000 and $14,482,000 during the second quarter and first six months of
1999, respectively, compared to $6,472,000 and $12,422,000 during the second
quarter and first six months of 1998, respectively. The increase between periods
is primarily due to increased costs resulting from the Company's expansion in
Canada and growth in the domestic United States. As a percentage of total
revenue, these expenses were 21% and 20% for the second quarter and first six
months of 1999, respectively, and 18% for both the second quarter and first six
months of 1998.
Net interest expense was $2,860,000 and $5,023,000 in the second
quarter and first six months of 1999, respectively, compared to $1,402,000 and
$2,397,000 in the second quarter and first six months of 1998, respectively. The
increase was primarily due to the addition of $138 million of senior notes on
February 12, 1999 at an average interest rate of 7.3%. Additionally, in the
second quarter of 1999, the increase was partially offset by a decrease in
interest expense on the Company's line of credit as borrowings under this line
of credit were less in the second quarter of 1999 than in the same period in
1998.
On April 22, 1999, the Board of Directors of Seitel, Inc. declared a
dividend to its common stockholders consisting of the 1,520,000 shares of the
common stock of Eagle Geophysical, Inc. owned by the Company. The fair market
value of the common stock of Eagle held by the Company on the date this dividend
was declared was lower than the carrying value of the stock on the Company's
balance sheet; therefore, a non-cash, non-recurring, pre-tax impairment, net of
bonus effect, of $7,794,000 was recorded for the six months ended June 30, 1999.
The Company's effective income tax rate was 37% and 40% for the second
quarter and first six months of 1999, respectively, compared to 37% for both the
second quarter and first six months of 1998. The increase in the effective
income tax rate for the six months ended June 30, 1999 was due to the makeup of
the income tax expense for the period. Income tax expense in the first six
months of 1999 consisted of two items: (1) income tax expense on income from
core operations at the Company's estimated annual tax rate of 38% offset by (2)
income tax benefit on the non-recurring loss on dividend distribution of
affiliate stock at the tax rate of 35%. The net of these two items resulted in
the higher effective tax rate. The Company's effective tax rate for the
remainder of 1999 is estimated to be approximately 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $48,798,000, and
$50,885,000 for the six months ended June 30, 1999 and 1998, respectively. The
decrease from 1998 to 1999 was primarily due to an increase in collections from
customers offset by an increase in payments to suppliers.
The Company has a $75 million unsecured revolving line of credit
facility that matures on 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%. Certain restrictions exist that
limit the amount of borrowings that the Company can make under this facility. As
of August 12, 1999, the balance outstanding on the revolving line of credit
amounted to $7,074,000 bearing an average interest rate of 7.2%
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 $8.3 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 which began on December 30,
1998. Interest on all series of the notes is payable semi-annually on June 30
and December 30.
On February 12, 1999, the Company completed a private placement of
three series of unsecured Senior Notes totaling $138 million. The Series D Notes
total $20 million, bear interest at a fixed rate of 7.03% and mature on February
15, 2004, with no principal payments due until maturity. The Series E Notes
total $75 million, bear interest at a fixed rate of 7.28% and mature on February
15, 2009, with annual principal payments of $12.5 million beginning February 15,
2004. The Series F Notes total $43 million, bear interest at a fixed rate of
7.43% and mature on February 15, 2009, with no principal payments due until
maturity. Interest on all series of the notes is payable semi-annually beginning
on August 15, 1999. The Company used a majority of the proceeds to repay amounts
then outstanding under its revolving lines of credit and the remainder for
capital expenditures.
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.
From January 1, 1999, through August 12, 1999, the Company received
$5,175,000 from the exercise of common stock purchase warrants and options. In
connection with these exercises, the Company will also receive approximately
$879,000 in tax savings.
On July 26, 1999, the Company's wholly-owned subsidiary, DDD Energy,
Inc., sold its 18.75% working interest in 11 oil and gas wells, one salt water
disposal well and approximately 16,000 acres of leasehold and options to lease
for approximately $13.7 million. The Company temporarily used these funds to
reduce its borrowings under its line of credit.
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 the first six months of 1999, gross seismic data bank additions
and capitalized oil and gas exploration and development costs amounted to
$79,126,000 and $13,811,000 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 exercise of common stock purchase
warrants and options, borrowings under the Company's revolving line of credit
and proceeds from the issuance of senior notes.
Currently, the Company anticipates capital expenditures for the
remainder of 1999 to total approximately $60 million. Such expenditures include
approximately $50 million for the creation of proprietary seismic data, and
approximately $10 million for oil and gas exploration and development efforts.
The Company believes its current cash balances, revenues from operating sources
and proceeds from the exercise of common stock purchase warrants and options,
combined with its available revolving line of credit, should be sufficient to
fund the 1999 capital expenditures, along with expenditures for operating and
general and administrative expenses. If these sources are not sufficient to
cover the Company's anticipated expenditures or if the Company were to increase
its planned capital expenditures for 1999, the Company could arrange for
additional debt or equity financing during 1999; however, there can be no
assurance that the Company would be able to accomplish any such debt or equity
financing on satisfactory terms. If such debt or equity financing is not
available on satisfactory terms, the Company could reduce its current capital
budget or any proposed increases to its capital budget, and fund expenditures
with cash flow generated from operating sources.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" as amended
by SFAS No. 137. The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement 133 is effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the Company's election,
before January 1, 1998 or January 1, 1999). The Company has not yet quantified
the impact of adopting Statement 133. However, the Company anticipates that
application of the statement will not have a material effect on its consolidated
financial statements.
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists concerning
the potential effects associated with such compliance, but systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
Compliance Program. In order to address the Year 2000 issue, the
Company appointed the Chief Operating Officer ("COO") to assure that key
automated systems and related processors would remain functional through 2000.
The COO and the Company's Information Systems Manager addressed the project by
reviewing the information technology ("IT") and non-information technology
systems to determine whether they were Year 2000 compliant. Also, they prepared
a formal questionnaire for all significant suppliers, customers, and service
providers to determine the extent to which the Company was vulnerable to those
third parties' failure to remediate the Year 2000 problem.
Company's State of Readiness. A review and assessment of the
information technology and non-information technology systems was completed as
of January 31, 1999 and did not identify any material systems which are not Year
2000 compliant. The Company prepared and sent a formal questionnaire to all
significant suppliers, customers and service providers to determine the extent
to which the Company is vulnerable to those third parties' failure to remediate
the Year 2000 problem. The Company requested that these companies respond no
later than June 30, 1999. As of August 12, 1999, the Company has received
written assurances of Year 2000 compliance from approximately 37% of its
suppliers, customers and service providers. Companies who have not responded
have been sent second requests to respond to the questionnaire. The Company has
received oral assurances of Year 2000 compliance from many of the third parties
with whom it has relationships. The Company believes that its operations will
not be significantly disrupted even if third parties with whom the Company has
relationships are not Year 2000 compliant.
Costs to Address Year 2000 Compliance Issues. The Company believes that
it will not be required to make any material expenditures to address the Year
2000 problem as it relates to its existing systems. To date, costs incurred to
address Year 2000 compliance have been internal in nature and have been charged
to income as incurred. Such costs have been funded from cash provided by
operating activities. However, uncertainty exists concerning the potential costs
and effects associated with any Year 2000 compliance, and the Company intends to
continue to make efforts to ensure that third parties with whom it has
relationships are Year 2000 compliant. The Company is not aware of any IT
projects that have been delayed due to the Year 2000 compliance program.
Risk of Non-Compliance and Contingency Plan. The goal of the Year 2000
project has been to ensure that all of the critical systems and processes, which
are under the direct control of the Company, remain functional. However, because
certain systems and processes may be interrelated with systems outside of the
control of the Company, there can be no assurance that all implementations will
be successful. The principal area of risk to the Company is thought to be the
contracting of seismic acquisition crews and vessels. A likely worst case
scenario is that despite the Company's efforts, there could be a failure of the
global positioning system used by seismic acquisition crews and vessels that the
Company contracts which could result in the temporary cessation of the
acquisition of seismic data. However, the Company believes that the risk of such
occurrence is low based upon its discussions concerning Year 2000 compliance
with third party seismic contractors. As part of the Year 2000 project,
contingency plans will be developed to respond to any potential failures as they
may be identified. There can be no assurance that unexpected Year 2000
compliance problems of either the Company or its vendors, customers and service
providers would not materially and adversely affect the Company's business,
financial condition or operating results. The Company will continue throughout
1999 to consider the likelihood of a material business interruption due to the
Year 2000 issue.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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. Among the 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. The foregoing and other risk factors are identified in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in
commodity prices, interest rates and foreign currency exchange rates. Refer to
the Company's Form 10-K for the year ended December 31, 1998 for a detailed
discussion of these risks. The following information discusses changes in the
Company's market risk exposures since December 31, 1998.
COMMODITY PRICE RISK
During 1999, the Company has entered into natural gas swaps in order to
hedge a portion of anticipated natural gas production. As of August 12, 1999,
the Company had open commodity price hedges totaling 3,515,000 mmbtu at an
average price of $2.51 per mmbtu.
INTEREST RATE RISK
In February 1999, the Company completed a private placement of three
series of unsecured Senior Notes totaling $138 million at an average interest
rate of 7.3%. The Series D Notes total $20 million, bear interest at a fixed
rate of 7.03% and mature on February 15, 2004, with no principal payments due
until maturity. The Series E Notes total $75 million, bear interest at a fixed
rate of 7.28% and mature on February 15, 2009, with annual principal payments of
$12.5 million beginning February 15, 2004. The Series F Notes total $43 million,
bear interest at a fixed rate of 7.43% and mature on February 15, 2009, with no
principal payments due until maturity. The carrying value and fair value of this
debt are the same.
PART II - OTHER INFORMATION
ITEMS 1., 2., 3., 4., AND 5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Seitel, Inc. Amended and Restated 1998 Employee Stock Purchase
Plan
(b) Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEITEL, INC.
Dated: August 12, 1999 /s/ Paul A. Frame
----------------------------------------
Paul A. Frame
President
Dated: August 12, 1999 /s/ Debra D. Valice
-----------------------------------------
Debra D. Valice
Chief Financial Officer
Dated: August 12, 1999 /s/ Marcia H. Kendrick
----------------------------------------
Marcia H. Kendrick
Chief Accounting Officer
<PAGE>
EXHIBIT
INDEX
- --------------- ------------------------------------------------ -----------
Exhibit Title Page
Number
- --------------- ------------------------------------------------ -----------
10.1 Seitel, Inc. Amended and Restated 1998 20
Employee Stock Purchase Plan
SEITEL, INC.
AMENDED AND RESTATED
1998 EMPLOYEE STOCK PURCHASE PLAN
Seitel, Inc., a Delaware corporation (the "Company"), hereby amends and
restates, effective as of May 10, 1999, the Seitel, Inc. 1998 Employee Stock
Purchase Plan, which was originally adopted effective as of September 14, 1998
and amended with Amendment No.1 effective as of September 30, 1998 and Amendment
No. 2 effective as of January 1, 1999 (as amended and restated, the "Plan"), as
follows:
I. PURPOSE
The Plan is intended as an employment incentive, to retain in the
employment of the Company and its subsidiaries persons of experience and
ability, to encourage the sense of proprietorship of such persons, and to
stimulate the active interest of such persons in the development and financial
success of the Company.
II. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
following meanings:
(1) BOARD OF DIRECTORS shall mean the Board of Directors of the
Company.
(2) CLOSING DATE shall mean the date designated by the Company on
which shares of Common Stock and Original Warrants are purchased by
Eligible Employees under the Plan. The Company shall not designate more
than one Closing Date.
(3) CODE shall mean the Internal Revenue Code of 1986, as amended.
(4) COMMON STOCK means the common stock, par value $0.01 per share, of
the Company.
(5) COMPANY means Seitel, Inc. and any successor thereto by merger,
consolidation, liquidation or other reorganization which has made provision
for adoption of the Plan and the assumption of the Company's obligations
hereunder.
(6) ELIGIBLE EMPLOYEE shall mean any person who is employed by the
Company or a Subsidiary in a salaried position, including, but not limited
to, any employee who is also an officer and director of the Company or a
Subsidiary. With respect to the exercise of Warrants, the term "Eligible
Employee" shall also mean any person who is a director of the Company or
any Subsidiary of the Company who originally purchased such Warrants while
employed by the Company or a Subsidiary in a salaried position. With
respect to the issuance and exercise of New Warrants, the term "Eligible
Employee" shall also mean any person who is a director of the Company or
any Subsidiary who was employed by the Company or a Subsidiary in a
salaried position when he or she originally purchased the Original
Warrants, the exercise of which gives rise to the issuance of New Warrants.
<PAGE>
(7) EXPIRATION DATE shall mean the Original Warrant Expiration Date,
with respect to the Original Warrants, or the New Warrant Expiration Date,
with respect to the New Warrants, as the case may be.
(8) FIVE-DAY WARRANT SHARE SALES shall have the meaning set forth in
Section VI hereof.
(9) NEW WARRANTS shall have the meaning set forth in Section VI
hereof.
(10) NEW WARRANT EXPIRATION DATE shall have the meaning set forth in
Section VI hereof.
(11) ORIGINAL WARRANT EXPIRATION DATE shall have the meaning set forth
in Section V hereof.
(12) ORIGINAL WARRANTS shall have the meaning set forth in Section V
hereof.
(13) PLEDGE shall mean a pledge of the shares of Common Stock
purchased by an Eligible Employee as security for the Promissory Note in
the form of Exhibit D hereto.
(14) PROMISSORY NOTE shall mean a promissory note in the form of
Exhibit C hereto executed by an Eligible Employee as payment for Common
Stock and Original Warrants purchased under the Plan.
(15) PURCHASE PRICE shall mean, with respect to one share of Common
Stock and one Original Warrant, the price equal to the closing price of a
share of Common Stock as reported on the New York Stock Exchange on the day
immediately preceding the Closing Date.
(16) SHARES shall have the meaning set forth in Section IV hereof.
(17) SUBSCRIPTION AGREEMENT shall mean a subscription agreement in the
form of Exhibit B hereto duly executed and delivered by an Eligible
Employee to the Company on or before the Closing Date as provided herein.
(18) SUBSIDIARY shall mean any corporation to which the Company is a
"parent corporation" as defined in Section 424(e) of the Code.
<PAGE>
(19) WARRANT EXERCISE DATE shall have the meaning set forth in Section
VI hereof.
(20) WARRANTS shall mean the warrants to purchase shares of Common
Stock that may be purchased by Eligible Employees pursuant to the terms of
the Plan, in the form of Exhibit E hereto.
III. EMPLOYEE STOCK AND ORIGINAL WARRANT PURCHASES
Eligible Employees may, pursuant to the Plan, purchase from the Company on
the Closing Date shares of Common Stock and Original Warrants. An Eligible
Employee may purchase up to the maximum number of shares of Common Stock and
Original Warrants set forth on Exhibit A hereto based on such Eligible
Employee's maximum annual cash compensation from the Company and its
Subsidiaries for the 12 month period ended on December 31st of 1995, 1996 or
1997. If such Eligible Employee was first employed by the Company or any
Subsidiary after January 1, 1997, the maximum number of shares of Common Stock
and Original Warrants set forth on Exhibit A hereto shall be based on the
Company's reasonable estimate of such Eligible Employee's annual cash
compensation. Eligible Employees must purchase an equal number of shares of
Common Stock and Original Warrants, and Common Stock and Original Warrants must
be purchased in whole multiples of 50 with a minimum of 100. On or before the
Closing Date, any Eligible Employee who desires to purchase Common Stock and
Original Warrants shall complete and deliver to the Senior Vice President -
Finance of the Company a duly executed Subscription Agreement in the form of
Exhibit B hereto, a duly executed Promissory Note in the form of Exhibit C
hereto and a duly executed Pledge in the form of Exhibit D hereto.
IV. SHARES SUBJECT TO THE PLAN
A total of TWO MILLION THREE HUNDRED SEVENTY-NINE THOUSAND (2,379,000)
shares of Common Stock of the Company (the "Shares") shall be subject to the
Plan, which shall include shares of Common Stock that may be purchased by
Eligible Employees on the Closing Date and thereafter upon exercise of Warrants.
The Shares shall consist of unissued shares or previously issued shares
reacquired and held by the Company, and such number of shares shall be and is
hereby reserved for sale for such purpose. Until expiration or exercise of all
of the Warrants, the Company shall at all times reserve a sufficient number of
Shares to be issued upon exercise thereof.
V. ORIGINAL WARRANTS
The Warrants to be issued pursuant to Section III hereof (the "Original
Warrants") shall be in the form attached hereto as Exhibit E. The Original
Warrants shall provide as follows:
<PAGE>
EXERCISE PRICE
The exercise price per Share of the Original Warrants shall equal one
hundred twelve and one-half percent (112-1/2%) of the Purchase Price rounded up
to the next one-quarter of one dollar.
ORIGINAL WARRANT PERIOD
Each Original Warrant shall expire on the earlier of (i) the date that is
five (5) years after the Closing Date (the "Stated Date"), (ii) the date that is
five business days after an Eligible Employee who originally purchased such
Original Warrant ceases to be an Eligible Employee for any reason other than for
death, disability or retirement after the age of 65, or (iii) the date that is
one year after the death, disability or retirement after age 65 of an Eligible
Employee who originally purchased such Original Warrant if he ceases to be an
Eligible Employee because of his death, disability or retirement after age 65
(the earlier of (i), (ii) or (iii) being referred to herein as the "Original
Expiration Date"). As used herein, disability has the meaning used in Section
22(e)(3) of the Code.
EXERCISE OF ORIGINAL WARRANTS
Any Original Warrant may be exercised solely by the Eligible Employee or
permitted transferee during his lifetime, or after his disability by his legal
representative on his behalf, or after his death by the personal representative
of the Eligible Employee's estate or permitted transferee (in the event such
Original Warrant was transferred prior to the Eligible Employee's death) or the
person or persons entitled thereto under his will or under the laws of descent
and distribution.
The purchase price of the Shares as to which an Original Warrant is
exercised shall be paid in full in cash at the time of the exercise. An Eligible
Employee or permitted transferee shall not be or have any of the rights or
privileges of a stockholder of the Company in respect of any Shares purchasable
upon the exercise of any part of an Original Warrant unless and until
certificates representing such Shares shall have been issued by the Company to
such Eligible Employee or permitted transferee.
LIMITED TRANSFERABILITY OF WARRANTS
Original Warrants shall not be transferable other than by will or by the
laws of descent and distribution, except that Original Warrants may be
transferred by an Eligible Employee to members of the Eligible Employee's
immediate family who are U.S. residents or to trusts or business entities formed
for the benefit of members of the Eligible Employee's immediate family who are
U.S. residents. As used herein, immediate family means a parent, child,
grandchild, or spouse. An Original Warrant may not be subsequently transferred
by the immediate family member of the Eligible Employee to whom the Original
Warrant is transferred other than by will or by the laws of descent and
distribution. If an Original Warrant is transferred to an immediate family
member, the Company may require investment representations upon exercise of the
Original Warrant and may impose such conditions upon the exercise of the
Original Warrant as may be required to comply with federal and state securities
laws, and the Shares of Common Stock issuable upon exercise of an Original
Warrant by such immediate family member may be "restricted shares" as such term
is defined in Rule 144 under the Securities Act of 1933, as amended, and may
contain such restrictive legends as may be deemed necessary by the Company.
<PAGE>
VI. NEW WARRANTS
Upon the exercise of an Original Warrant, one new warrant (a "New Warrant")
shall be issued to the Eligible Employee who initially purchased such Original
Warrant from the Company (even if such Eligible Employee has transferred the
Original Warrant as permitted hereunder), provided that such person is an
Eligible Employee at the time such Original Warrant is exercised. No New
Warrants will be issued upon the exercise of an Original Warrant after an
Eligible Employee's death or disability. The New Warrants shall provide as
follows:
EXERCISE PRICE
If a holder exercises an Original Warrant and sells the Shares received
upon such exercise on the day of such exercise, the exercise price of the New
Warrant issued upon the exercise of the Original Warrant shall equal the price
at which such Shares are sold. For all other New Warrants issued upon the
exercise of an Original Warrant, the exercise price shall be determined on the
date the Original Warrant is exercised (each a "Warrant Exercise Date") as
follows: (i) for any Warrant Exercise Date 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 Warrant Exercise Date
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 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 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 Warrant Exercise Date 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 Warrant
Exercise Date on which the information described in items (i), (ii) or (iii)
above is unavailable, the book value per share of the Common Stock on such day
as determined in accordance with generally accepted accounting principles.
NEW WARRANT PERIOD
Each New Warrant shall expire on the earlier of (i) the Stated Date, (ii)
the date that is five business days after termination of employment if the
Eligible Employee who originally received such New Warrant ceases to be an
Eligible Employee for any reason other than for death, disability or retirement
after the age of 65, or (iii) the date that is one year after the death,
disability or retirement after age 65 of an Eligible Employee who originally
received such New Warrant if he ceases to be an Eligible Employee because of his
death, disability or retirement after age 65 (the earlier of (i), (ii) or (iii)
being referred to herein as the "New Warrant Expiration Date"). As used herein,
disability has the meaning used in Section 22(e)(3) of the Code.
<PAGE>
EXERCISE OF NEW WARRANTS
A New Warrant may be exercised solely by the Eligible Employee or permitted
transferee during his lifetime, or after his disability by his legal
representative on his behalf, or after his death by the personal representative
of the Eligible Employee's estate or permitted transferee (in the event such New
Warrant was transferred prior to the Eligible Employee's death) or the person or
persons entitled thereto under his will or under the laws of descent and
distribution.
The purchase price of the Shares as to which a New Warrant is exercised
shall be paid in full in cash at the time of the exercise. An Eligible Employee
or permitted transferee shall not be or have any of the rights or privileges of
a stockholder of the Company in respect of any Shares purchasable upon the
exercise of any part of a New Warrant unless and until certificates representing
such Shares shall have been issued by the Company to such Eligible Employee or
permitted transferee.
LIMITED TRANSFERABILITY OF NEW WARRANTS
New Warrants shall not be transferable other than by will or by the laws of
descent and distribution, except that New Warrants may be transferred by an
Eligible Employee to members of the Eligible Employee's immediate family who are
U.S. residents or to trusts or business entities formed for the benefit of
members of the Eligible Employee's immediate family who are U.S. residents. As
used herein, immediate family means a parent, child, grandchild, or spouse. A
New Warrant may not be subsequently transferred by the immediate family member
of the Eligible Employee to whom the New Warrant is transferred other than by
will or by the laws of descent and distribution. If a New Warrant is transferred
to an immediate family member, the Company may require investment
representations upon exercise of the New Warrant and may impose such conditions
upon the exercise of the New Warrant as may be required to comply with federal
and state securities laws, and the Shares of Common Stock issuable upon exercise
of a New Warrant by such immediate family member may be "restricted shares" as
such term is defined in Rule 144 under the Securities Act of 1933, as amended,
and may contain such restrictive legends as may be deemed necessary by the
Company.
RESTRICTIONS ON EXERCISE
New Warrants may not be exercised prior to August 10, 1999. A New Warrant
may not be exercised at any time if, at any time prior to August 10, 1999, the
Five-Day Warrant Share Sales for the Eligible Employee to whom such New Warrant
is issued exceed the greater of (i) 3,000 or (ii) 25% of the total number of
Shares issuable upon the exercise of all Original Warrants purchased hereunder
by such Eligible Employee. An Eligible Employee's "Five-Day Warrant Share Sales"
shall be the total aggregate number of Shares that are sold by an Eligible
Employee and all of such Eligible Employee's permitted transferees during any
period of five trading days before August 10, 1999 to the extent such Shares
were purchased upon the exercise of an Original Warrant on or after May 10,
1999. Any New Warrant shall include the following restrictive legend:
THIS WARRANT MAY NOT BE EXERCISED PRIOR TO AUGUST 10, 1999
AND IS SUBJECT TO FURTHER RESTRICTIONS AS SET FORTH IN THE
AMENDED AND RESTATED 1998 SEITEL, INC. EMPLOYEE STOCK PURCHASE PLAN.
<PAGE>
The Company may require written certification or other proof as to facts
relevant to the restrictions set forth in this paragraph prior to issuing any
Shares upon the exercise of a New Warrant.
VII. PURCHASE PRICE
Eligible Employees shall pay the Company the Purchase Price for each share
of Common Stock and Original Warrant purchased hereunder pursuant to the terms
hereof. The proceeds received by the Company from the sale of Shares (both on
the Closing Date and subsequently upon the exercise of Warrants) pursuant to
this Plan will be used for general corporate purposes.
VIII. PAYMENT TERMS
The consideration for Shares of Common Stock and Original Warrants
purchased under the Plan shall be payable pursuant to a Promissory Note in the
form of Exhibit C hereto. The Promissory Note will bear interest at 4.0% per
annum and be payable as follows: (i) 60 equal monthly payments of principal and
interest calculated so as to pay interest as it accrues and to reduce the
principal balance to 40% of the purchase price on the Stated Date, and (ii) all
outstanding principal and accrued but unpaid interest shall be due on the Stated
Date. Such payments shall be made by payroll deduction (one-half of such payment
twice per month for non-commission employees, or the full amount of such payment
monthly for commission employees). Notwithstanding the foregoing, (i) if an
Eligible Employee receives commissions quarterly rather than monthly, the
Eligible Employee may elect to defer monthly payments under the Promissory Note
and instead make quarterly payments of accrued interest and principal at the
time of payment of such quarterly commission, provided that such payment shall
in any event be due on or before each April 30, July 30, October 30 and January
30 prior to the Stated Date, and (ii) if an Eligible Employee is eligible to
receive an annual bonus from the Company pursuant to a written employment
contract between the Company and the Eligible Employee, the Eligible Employee
may elect to defer monthly payments under the Promissory Note and instead make
annual payments of accrued interest and principal at the time of payment of such
bonus, provided that such payment shall in any event be due on or before each
March 15 prior to the Stated Date. If the Expiration Date occurs prior to the
Stated Date, all amounts due under the Promissory Note shall become immediately
due and payable on the Expiration Date. The Promissory Note will be secured by
the Pledge, and the Company shall have an express contractual right of setoff
against any amounts otherwise due to an Eligible Employee for any payments due
under the Promissory Note, including any amounts due upon acceleration of the
maturity thereof. Notwithstanding any other provision hereof, in the event that
the amount of a paycheck, commission or bonus is not sufficient to discharge a
payment due under the Promissory Note, the Eligible Employee will be required to
pay any difference to the Company in cash at the time such payment is due. For
purposes of interpreting the Event of Default number 2 set forth in the
Promissory Note, "employment with the Payee" shall include serving as a
non-employee director of the Company or any Subsidiary of the Company.
<PAGE>
IX. PLEDGE OF SHARES
The Promissory Note shall be secured by a pledge of the Shares of Common
Stock purchased by an Eligible Employee on the Closing Date pursuant to the
terms of Pledge in the form of Exhibit D hereto. Each Eligible Employee who
executes a Promissory Note shall also execute and deliver to the Company a
Pledge.
X. CHANGE OF CONTROL OF THE COMPANY
In the event the Company shall be a party to any merger, consolidation or
corporate reorganization, as the result of which the Company shall be the
surviving corporation, the rights and duties of the Eligible Employees and the
Company shall not be affected in any manner. In the event the Company shall sell
all or substantially all of its assets or shall be a party to any 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
may make a tender or exchange offer for stock of the Company (the surviving
corporation, purchaser, or tendering corporation being hereinafter collectively
referred to as the "purchaser," and the transaction being hereinafter referred
to as the "purchase"), then the Board of Directors may, at its election, (i)
reach an agreement with the purchaser that the purchaser will assume the
obligations of the Company as to all outstanding Warrants; (ii) reach an
agreement with the purchaser that the purchaser will convert each outstanding
Warrant into a Warrant of at least equal value as to stock of the purchaser; or
(iii) not later than thirty (30) days prior to the effective date of the
purchase, notify all Eligible Employees who hold Warrants of the proposed
purchase and afford to each such Eligible Employee the right prior to such
purchase to exercise any then unexercised portion of all Warrants held by him,
which exercise may be contingent upon consummation of the purchase.
XI. LIMITATION OF RIGHTS
Nothing in this Plan shall be construed to: (1) give an Eligible Employee
or permitted transferee any rights whatsoever with respect to Shares issuable
upon the exercise of Warrants until the Warrants are exercised and Shares are
issued to the Eligible Employee or permitted transferee; (2) give an Eligible
Employee or any person any interest in any fund or in any specific asset or
assets of the Company; (3) limit in any way the right of the Company or a
Subsidiary to terminate an Eligible Employee's employment with the Company or a
Subsidiary at any time; or (4) be evidence of any agreement or understanding,
express or implied, that the Company or a Subsidiary will employ an Eligible
Employee in any particular position or at any particular rate of remuneration.
The existence of outstanding Warrants shall not affect in any way the right
or power of the Company or its Subsidiaries or their stockholders to make or
authorize any or all adjustments, recapitalization, reorganization or other
changes in the capital structure of the Company or its Subsidiaries or their
businesses, or any merger or consolidation of the Company or its Subsidiaries or
any issue of bonds, debentures, preferred stock or the right to acquire any
thereof, or the dissolution or liquidation of the Company or its Subsidiaries,
or any sale or transfer of all or any part of their assets or business, or any
other corporate act or proceeding whether of a similar character or otherwise.
<PAGE>
XII. GOVERNMENT REGULATIONS
The Plan, and the granting and exercise of Warrants hereunder, and the
obligation of the Company to sell and deliver Shares under such Warrants, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.
PURCHASE FOR INVESTMENT
Whether or not the Warrants and Shares covered by the Plan have been
registered under the Securities Act of 1933, as amended, each Eligible Employee
or permitted transferee exercising a Warrant may be required by the Company to
give a representation in writing that he is acquiring such Shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
GOVERNING LAW
The place of administration of the Plan shall be conclusively deemed to be
within the State of Texas; and the validity, construction, interpretation and
effect of the Plan and all rights of any of the persons having or claiming to
have any interest in the Plan shall be governed by the laws of the State of
Texas.
<PAGE>
Exhibit A
to
Seitel, Inc. 1998 Employee Stock Purchase Plan
Maximum Number of Shares of Common
Maximum Annual Compensation Stock and Original Warrants
-------------------------------- ----------------------------------
$2,000,001 and over 75,000/75,000
$750,001 to $2,000,000 50,000/50,000
$200,001 to $750,000 25,000/25,000
$100,001 to $200,000 12,500/12,500
$50,001 to $100,000 6,250/6,250
$25,001 to $50,000 3,000/3,000
under $25,001 1,000/1,000
<PAGE>
Exhibit B
to
Seitel, Inc. 1998 Employee Stock Purchase Plan
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION. Subject to the terms and conditions hereof and of the
Seitel, Inc. 1998 Employee Stock Purchase Plan, (the "Subscriber") hereby
irrevocably subscribes for and agrees to purchase shares of Common Stock, par
value $0.01 per share (the "Shares"), of Seitel, Inc., a Delaware corporation
(the "Company"), and warrants to purchase an equal number of shares of Common
Stock of the Company for $ per share (the"Warrants") and agrees to become
------
a shareholder of the Company and to be bound by the terms of this Subscription
Agreement ("Agreement"). As consideration for the Shares and the Warrants, the
Subscriber hereby delivers to the Company a duly executed Promissory Note in the
amount of $ (the "Purchase Price").
------
This Agreement shall not become binding unless this subscription is
accepted by the Company, the Purchase Price has been received and accepted by
the Company and such additional closing conditions as the Company, in its sole
discretion, shall require are satisfied. This subscription shall not be deemed
accepted by the Company until this Agreement is signed by a duly authorized
officer of the Company. If this subscription is accepted, this Agreement shall
become effective as between the Company and the Subscriber. If this subscription
is rejected, this Agreement and the Purchase Price will be returned to the
Subscriber as soon as reasonably practicable, and this subscription shall be
rendered void and of no further force or effect.
2. ACCEPTANCE OF SUBSCRIPTION. The Subscriber acknowledges and agrees that
this subscription is made subject to the following terms and conditions:
(a) the Subscriber is committing to purchase the Shares and Warrants
for which he has subscribed upon executing this Agreement; and
(b) the Company shall have the right to reject this subscription, in
whole or in part, for any reason whatsoever.
3. ACKNOWLEDGMENTS, REPRESENTATIONS AND COVENANTS OF THE SUBSCRIBER. The
Subscriber represents and warrants that:
(a) The Subscriber has been provided with a copy of the prospectus
dated September 14, 1998, and prospectus supplement dated ,
--------------
1998, relating to the Shares and the Warrants.
(b) The Subscriber understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Shares or
Warrants.
<PAGE>
4. OTHER MATTERS.
(a) The Subscriber recognizes that the sale of the Shares to him is
based upon representations and warranties contained herein, and the
Subscriber agrees to indemnify the Company and its officers, directors and
shareholders and to hold each of them harmless against any liability, costs
or expenses (including reasonable attorneys' fees and costs) arising by
reason of or in connection with any misrepresentation or any breach of such
warranties by the Subscriber. The covenants, warranties and representations
contained herein shall be for the benefit of the Company and its officers,
directors and shareholders and each of them shall be entitled to all of the
rights that such covenants, warranties and representations shall confer.
(b) The Subscriber agrees that, except as provided herein, this
Agreement or any agreement made hereunder or pursuant hereto may not be
canceled, terminated or revoked by him except upon the written consent of
the Company.
(c) The Subscriber agrees to execute any and all further documents
necessary or advisable, in the sole discretion of the Company, in
connection with his becoming a holder of the Shares or any portion thereof.
(d) Any notice, consent, or other communication to be given under this
Agreement by any party to any other party shall be in writing and shall be
either (a) personally delivered, (b) mailed by registered or certified
mail, postage prepaid with return receipt requested, (c) delivered by
overnight express delivery service or same-day local courier service, or
(d) delivered by telex or facsimile transmission to the address set forth
beneath the signature of the parties, or at such other address as may be
designated by the parties from time to time in accordance with this
Section. Notices delivered personally, by overnight express delivery
service or by local courier service shall be deemed given as of actual
receipt. Mailed notices shall be deemed given business days after mailing.
Notices delivered by telex or facsimile transmission shall be deemed given
upon receipt by the sender of the answerback (in the case of a telex) or
transmission confirmation (in the case of a facsimile transmission).
(e) The parties acknowledge and agree that this Agreement and the
obligations and undertakings of the parties hereunder will be performable
in Houston, Harris County, Texas. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas.
If any action is brought to enforce or interpret this Agreement, venue for
such action shall be in Harris County, Texas.
(f) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, and may be amended only
by a writing executed by the party to be bound thereby.
<PAGE>
IN WITNESS WHEREOF, the Subscriber has hereby executed this Agreement as of
the date set forth below.
- ------------------------------------- --------------------------------------
Printed Name of Subscriber Subscriber's Street Address
--------------------------------------
City
- ------------------------------------- --------------------------------------
Signature of Subscriber State Zip Code
- ------------------------------------- --------------------------------------
Title (if applicable) Subscriber's Social Security
or Tax ID Number
Date:
--------------------------------
Accepted:
SEITEL, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
Exhibit C
to
Seitel, Inc. 1998 Employee Stock Purchase Plan
PROMISSORY NOTE
$ September , 1998
----------- ---
(the "Maker"), for value received, hereby promises
------------------------
to pay to the order of Seitel, Inc. (together with any successors or assigns,
the "Payee"), at the time and in the manner hereinafter provided, the principal
sum of Dollars ($ ), together with interest
------------------- -----------
computed thereon at the rate hereinafter provided. This Note shall be payable at
the office of the Payee at 50 Briar Hollow Lane West, Houston, Texas 77027, or
at such other address in Houston, Texas as the holder of this Note shall from
time to time designate. This Note is made and issued as consideration for the
purchase by the Maker of certain shares ("Shares") of common stock, par value
$0.01 per share, of Payee (the "Common Stock") and certain warrants to purchase
shares of Common Stock (the "Warrants") pursuant to the Payee's 1998 Employee
Stock Purchase Plan.
The outstanding principal amount of this Promissory Note shall bear
interest from the date hereof at four percent (4.0%) per annum and be payable as
follows: (i) 60 equal monthly payments of principal and interest of
$ and (ii) all outstanding principal and accrued but unpaid interest
------------
shall be due on September , 2003 (the "Stated Date"). Such monthly payments
----
shall be made by payroll deduction (one-half of such payment twice per month for
non-commission employees, or the full amount of such payment monthly for
commission employees). Notwithstanding the foregoing, (i) if the Maker receives
commissions quarterly rather than monthly, the Maker may elect to defer monthly
payments under this Note and instead make quarterly payments of accrued interest
and principal at the time of payment of such quarterly commission, provided that
such payment shall in any event be due on or before each April 30, July 30,
October 30 and January 30 prior to the Stated Date, and (ii) if the Maker is
eligible to receive an annual bonus from the Payee pursuant to a written
employment contract with Payee, the Maker may elect to defer monthly payments
under this Note and instead make annual payments of accrued interest and
principal at the time of payment of such bonus, provided that such payment shall
in any event be due on or before each March 15 prior to the Stated Date.
Notwithstanding any other provision hereof, in the event that the amount of a
paycheck, commission or bonus is not sufficient to discharge a payment due
hereunder, the Maker shall be required to pay any difference to the Company in
cash at the time such payment is due. All payments hereunder shall be applied
first to accrued interest and the balance, if any, shall be applied to reduce
the principal amount hereof. If the period during which the Maker may exercise
the Warrants expires on a date (the"Expiration Date") prior to the Stated Date,
all amounts due under this Note shall become immediately due and payable on the
Expiration Date.
The Payee shall have an express contractual right of setoff against any
amounts otherwise due to the Maker for any payments due under this Promissory
Note, including any amounts due upon acceleration of the maturity hereof.
<PAGE>
All sums of principal and interest past due under the terms of this Note
shall bear interest at a per annum interest rate equal to the maximum rate
allowed by law from the due date thereof until paid.
Any one or more of the following shall constitute an "Event of Default"
hereunder:
1. Failure by the Maker to pay any amount that has become due and payable
pursuant to any provision of this Note and such amount has remained
unpaid for a period of 10 days from the date of written demand by the
Payee;
2. Termination of the Maker's employment with the Payee for any reason
whatsoever, whether voluntary or involuntary, and whether with or
without cause;
3. A court of competent jurisdiction enters (i) a decree or order for
relief in respect of the Maker in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law and such decree or order remains
in effect for a period of 60 days or (ii) a decree or order adjudging
the Maker a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Maker under any applicable federal
or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Maker
or of any substantial part of the property of the Maker and such
decree or order remains in effect for a period of 30 days; and
4. The Maker (i) commences a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or any other case or proceeding to be adjudicated a
bankrupt or insolvent; (ii) files a petition, answer or consent
seeking reorganization or similar relief under any applicable federal
or state law; (iii) makes an assignment for the benefit of creditors;
or (iv) admits in writing its inability to pay its debts generally as
they become due.
In the event of a default hereunder or if this Note is placed in the hands
of an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through bankruptcy proceedings, the
Maker agrees to pay in addition to all sums then due hereon, including principal
and interest, all expenses of collection, including, without limitation,
reasonable attorneys' fees.
This Note may be prepaid in whole or in part from time to time, without
premium or penalty. Each prepayment of principal shall be accompanied by an
amount equal to the accrued interest on the principal amount prepaid to the date
of such prepayment.
The Payee shall be entitled to accelerate this Note and declare all sums
due hereunder immediately due and payable upon default by the Maker in any of
its obligations under the Seitel, Inc. 1998 Employee Stock Purchase Plan, any
agreement executed in connection therewith or this Note.
<PAGE>
The Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, notice of dishonor, protest and notice of
protest, notice of intention to accelerate, notice of acceleration, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of any
security now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for the holder hereof, in order to enforce payment of this Note, to first
institute or exhaust such holder's remedies against the Maker or any other party
liable therefor or against any security for this Note. No delay on the part of
the Payee in exercising any power or right under this Note shall operate as a
waiver of such power or right, nor shall any single or partial exercise of any
power of right preclude further exercise of that power or right.
A security interest in the Stock has been granted by Maker to the Payee to
secure the payment of this Note pursuant to the terms and conditions of that
certain Pledge by the Maker, dated as of the date hereof, and to secure the
payment of any costs and expenses incurred by the Payee in the collection and
enforcement hereof.
The Maker understands that this Note may be pledged to secure certain
obligations of the Payee and hereby consents to any such pledge.
All agreements between the Maker and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid, or
agreed to be paid, to the holder hereof for the use, forbearance or detention of
the funds advanced pursuant to this Note, or otherwise, or for the payment or
performance of any covenant or obligation contained herein or in any other
document or instrument evidencing, securing or pertaining to this Note exceed
the maximum amount permissible under applicable law. If from any circumstances
whatsoever fulfillment of any provision hereof or any other document or
instrument exceeds the maximum amount of interest prescribed by law, then IPSO
FACTO, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstances the holder hereof shall ever
receive anything of value deemed interest by applicable law, which would exceed
interest at the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance of
this Note or on account of any other principal indebtedness of the Maker to the
holder hereof, and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance of this Note and such other indebtedness,
such excess shall be refunded to the Maker. All sums paid, or agreed to be paid,
by the Maker for the use, forbearance or detention of the indebtedness of the
Maker to the holder of this Note shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof. The terms
and provisions of this paragraph shall control and supersede every other
provision of all agreements between the Maker and the holder hereof.
<PAGE>
This Note shall be governed by and construed in accordance with the laws of
the State of Texas.
All references to the Maker herein shall, and shall be deemed to, include
its successors and assigns, and all covenants, stipulations, promises and
agreements contained herein by or on behalf of the Maker shall be binding upon
its successors and assigns, whether so expressed or not.
--------------------------------------
MAKER
<PAGE>
Exhibit D
to
Seitel, Inc. 1998 Employee Stock Purchase Plan
September , 1998
----
Seitel, Inc.
50 Briar Hollow Road West
7th Floor
Houston, Texas 77027
Re: 1998 Employee Stock Purchase
Ladies and Gentlemen:
I have on this date executed a promissory note in the principal amount of
$ (the "Note") as consideration for shares (the "Shares") of
--------- ----------
common stock, par value $0.01 per share, of Seitel, Inc. (the "Company"), and
warrants to purchase such Stock (the "Warrants," and together with the Stock,
the "Securities") purchased by me from the Company pursuant to the Seitel, Inc.
1998 Employee Stock Purchase Plan.
Pursuant to this letter, I hereby grant, assign, transfer and deliver to
the Company a security interest in the following property as security for all of
my obligations under the Note:
(i) the Shares;
(ii) stock powers executed in blank which are related to the Shares;
(iii) any and all stock rights, rights to subscribe, liquidating dividends,
cash dividends, stock dividends and dividends paid in stock, securities or other
property that I am or may hereafter become entitled to received on account of
the Shares, and in the event that I receive any such property, I will
immediately deliver same to the Company; provided, however, that I shall be
entitled to receive and retain any such property so long as no default shall
have occurred and be continuing under the Note; and
(iv) the proceeds of any and all property described in subparagraphs (i),
(ii) or (iii) above.
To perfect this security interest, I hereby agree to deliver with this
letter the certificate(s) representing the Stock, together with a stock power
executed in blank relating to the Stock, to the Chief Financial Officer of the
Company, as escrow agent, to hold until such time as the Note shall have been
paid in full.
<PAGE>
In the event of a default under the Note, the Company is hereby fully
authorized and empowered, at any time thereafter and from time to time, to sell
or otherwise dispose of the Shares to satisfy the remaining unpaid amounts under
the Note and any expenses associated with such satisfaction. Any excess proceeds
from the sale shall be returned to me. I shall remain liable for any deficiency.
I understand that to the extent that the Note is repaid, the Company from
time to time upon my request will take all actions as may be necessary to
release some of the Shares from this security agreement and pledge so long as
both (i) the market value of the remaining Shares at the time of the release and
(ii) the average market price of the remaining Shares for the six months prior
thereto are equal to or not less than 100% of the outstanding balance under the
Note.
--------------------------------------
Employee
ACCEPTED AND AGREED TO:
Seitel, Inc.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
Exhibit E
to
Seitel, Inc. 1998 Employee Stock Purchase Plan
NEITHER THIS WARRANT NOR, IF THE WARRANT IS TRANSFERRED AS PERMITTED HEREIN, 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 REASONABLY SATISFACTORY TO COUNSEL TO SEITEL, INC., IN FORM
AND SUBSTANCE REASONABLY SATISFACTORY TO 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 [BLANK] SHARES OF COMMON STOCK
Certificate No. ESP-
----
This Warrant Certificate certifies that [EMPLOYEE NAME, ADDRESS, AND SSN]
is the registered holder ("Holder") of Common Stock Purchase Warrants
----------
(the "Warrants") to purchase shares of the $0.01 par value common stock ("Common
Stock") of SEITEL, INC., a Delaware corporation (the "Company"). Each Warrant
enables the Holder to purchase from the Company at any time until 5:00 p.m., New
York, New York, local time on , 2003, subject to earlier
-------------
termination as specified in Section 10 herein, one fully paid and non-assessable
share of Common Stock ("Share") upon presentation and surrender of this Warrant
Certificate and upon payment of the Exercise Price per Share determined in
accordance with the terms hereof. Payment shall be made in lawful money of the
United States of America in cash delivered to the Company at its principal
office at 50 Briar Hollow Lane, 7th Floor West, Houston, Texas 77027. As
hereinafter provided, the Exercise Price and number of Shares purchasable upon
the exercise of the Warrants are subject to modification or adjustment upon the
happening of certain events.
THIS WARRANT IS NOT ASSIGNABLE OR TRANSFERABLE BY THE HOLDER EXCEPT BY WILL
OR THE LAWS OF DESCENT AND DISTRIBUTION UPON THE HOLDER'S DEATH OR, BY THE
ORIGINAL PURCHASER OF THIS WARRANT FROM THE COMPANY, TO AN IMMEDIATE FAMILY
MEMBER OR A TRUST OR BUSINESS ENTITY FORMED FOR THE BENEFIT OF AN IMMEDIATE
FAMILY MEMBER AS PROVIDED HEREIN.
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
<PAGE>
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. Subject to the provisions
of Section 11 below, during the lifetime of the Holder, the Warrants may be
exercised only by the Holder. If the Holder dies or becomes disabled within
the meaning of Section 22(e)(3) of the Code prior to the termination date
specified herein without having exercised all of the Warrants, the
remaining Warrants may be exercised to the extent the Holder could have
exercised the Warrants on the date of his death or disability at any time
prior to the expiration hereof by (i) the Holder's estate or a person who
acquired the right to exercise the Warrants by bequest or inheritance or by
reason of the death of the Holder in the event of the Holder's death, or
(ii) the Holder or his personal representative in the event of the Holder's
disability, subject to the other terms of this Warrant Certificate and
applicable laws, rules and regulations. For purposes of this Warrant
Certificate, the Company shall determine the date of disability of the
Holder.
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. 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.
c. 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. For purposes of this Paragraph 3(c), the current public market
<PAGE>
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 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 of Directors may make an appropriate reduction in the
"current public market value" based upon any applicable trading
restrictions to particular shares of Common Stock.
(d) The Warrants are not exercisable until the Promissory Note
given by the Holder in payment of a portion of the purchase price for
the Warrants shall have been paid in full.
4. The Exercise Price per Share for the Warrants shall equal $ per
----
Share.
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 income or similar taxes of the holder
arising from such exercise or 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.
<PAGE>
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. The number of shares of Common Stock covered by this Warrant
Certificate, and the Exercise Price thereof, shall be subject to such adjustment
as the Board of Directors of the Company acting in good faith deems appropriate
to reflect any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company. In the event the Company shall be
a party to any merger, consolidation or corporate reorganization, as the result
of which the Company shall be the surviving corporation, the rights and duties
of the Holder and the Company shall not be affected in any manner. In the event
the Company shall sell all or substantially all of its assets or shall be a
party to any merger, consolidation or corporate reorganization, as the result of
which the Company shall not be the surviving corporation, or in the event any
other person or entity may make a tender or exchange offer for stock of the
Company (the surviving corporation, purchaser, or tendering corporation being
collectively referred to as the "Purchaser", and the transaction being
collectively referred to as the "Purchase"), then the Company may, at its
election, (a) reach an agreement with the Purchaser that the Purchaser will
assume the obligations of the Company under this Warrant Certificate; (b) reach
an agreement with the Purchaser that the Purchaser will convert the Warrants
represented by this Warrant Certificate into warrants of at least equal value as
to stock of the Purchaser; or (c) not later than thirty (30) days prior to the
effective date of the Purchase, notify the Holder of the proposed Purchase and
afford to the Holder the right prior to such Purchase to exercise any then
unexercised portion of the Warrants, which exercise may be contingent upon
consummation of the Purchase.
9. The Warrants may not be exercised in whole or in part and no cash or
certificates representing Shares shall be delivered if any requisite approval or
consent of any government authority of any kind having jurisdiction over the
exercise of the Warrants or of any stock exchange on which the Common Stock is
listed shall not have been secured or if such exercise of delivery would cause
any violation of any applicable laws, regulations or stock exchange rules,
including but not limited to applicable Federal and State securities laws. The
Holder of this Warrant Certificate, each permitted 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
Securities Act of 1933, as amended (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 permitted 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
<PAGE>
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 permitted transferee thereof
deliver to the Company his written agreement to accept and be bound by all of
the terms and conditions in this Warrant Certificate.
10. The Warrants shall terminate before the date specified on the first
page of this Warrant Certificate upon the earlier of (i) five business days
after the date of termination of employment if the original purchaser of the
Warrants from the Company (the "Original Purchaser") ceases to be an employee of
the Company or a Subsidiary of the Company for any reason other than for death,
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")) or retirement after age 65, or (ii) one year
after the death, disability or retirement after age 65 of the Original Purchaser
if he ceases to be an employee of the Company or a Subsidiary because of his
death, disability or retirement after age 65.
11. The Warrants shall not be transferable other than by will or by the
laws of descent and distribution, except that the Warrants may be transferred by
the Original Purchaser to members of the Original Purchaser's immediate family
who are U.S. residents or to trusts or business entities formed for the benefit
of members of the Original Purchaser's immediate family who are U.S. residents.
As used herein, immediate family means a parent, child, grandchild, or spouse. A
Warrant may not be subsequently transferred by the immediate family member (or
the trust or business entity formed for the benefit of an immediate family
member) of the Original Purchaser to whom the Warrant is transferred other than
by will or by the laws of descent and distribution. If a Warrant is transferred
to an immediate family member (or a trust or business entity formed for the
benefit of an immediate family member), the Company may require investment
representations upon exercise of the Warrant and may impose such conditions upon
the exercise of the Warrant as may be required to comply with federal and state
securities laws, and the Shares of Common Stock issuable upon exercise of a
Warrant by such immediate family member (or such trust or business entity formed
for the benefit of an immediate family member) may be "restricted shares" as
such term is defined in Rule 144 under the Securities Act of 1933, as amended,
and may contain such restrictive legends as may be deemed necessary by the
Company.
12. In the event that the Original Purchaser transfers this Warrant to an
immediate family member, such transferee agrees and acknowledges that neither
this Warrant nor the shares of Common Stock issuable upon exercise of this
Warrant have been registered under the Securities Act of 1933, as amended, 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 reasonably satisfactory to
counsel to the Company in form and substance reasonably satisfactory to the
Company 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.
<PAGE>
WITNESS the following signatures as of this day of September, 1998.
---
SEITEL, INC.
BY:
----------------------------------
PAUL A. FRAME, President
BY:
----------------------------------
DEBRA D. VALICE, Secretary
<PAGE>
PURCHASE FORM
TO: SEITEL, INC. DATE:
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate, Certificate No. ESP- , to the extent of (number of shares)
-----
Shares of Common Stock, $0.01 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:
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,776
<SECURITIES> 2,050
<RECEIVABLES> 50,676
<ALLOWANCES> 1,142
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 215,240<F2>
<DEPRECIATION> 54,138
<TOTAL-ASSETS> 534,662
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 215,410
0
0
<COMMON> 243
<OTHER-SE> 243,286
<TOTAL-LIABILITY-AND-EQUITY> 534,662
<SALES> 72,008
<TOTAL-REVENUES> 72,008
<CGS> 2,479
<TOTAL-COSTS> 2,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,023
<INCOME-PRETAX> 9,352
<INCOME-TAX> 3,727
<INCOME-CONTINUING> 5,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,625
<EPS-BASIC> .24<F3>
<EPS-DILUTED> .23
<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 $592,163,000
and related accumulated amortization of $278,089,000.
<F3> Reflects basic earnings per share.
</FN>
</TABLE>
