SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
- -------
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
- -------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
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)
Registrant's telephone number, including area code: (713) 881-8900
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, par value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
---- ----
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 27, 2000 was approximately $177,941,709. For these purposes,
the term "affiliate" is deemed to mean officers and directors of the registrant.
On such date, the closing price of the Common Stock on the New York Stock
Exchange was $8.125 and there were a total of 23,640,613 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Document Part
--------------------------------- ---------
Definitive Proxy Statement for III
2000 Annual Stockholders Meeting
<PAGE>
ITEM 1. BUSINESS
--------
General
Seitel, Inc. (the "Company") is a leading provider of seismic data and
related geophysical services and expertise to the petroleum industry. The
Company licenses its proprietary seismic data to oil and gas companies and
participates in petroleum exploration and development projects. See Note P to
the Company's Consolidated Financial Statements for financial information
relating to industry segments.
Seismic Operations
Since its inception in 1982, the Company has developed a proprietary
library of seismic data by contracting with crew companies to acquire data and
by buying existing data libraries from other companies. The Company's seismic
data library is primarily owned and marketed by Seitel Data, Ltd., a partnership
wholly-owned by the Company through subsidiaries, and Olympic Seismic, Ltd., a
wholly-owned Canadian subsidiary. The data library, which consists of both
two-dimensional ("2D") and three-dimensional ("3D") data, is marketed to major
and independent oil and gas companies under license agreements. Seismic surveys
and the analysis of seismic data for the identification and definition of
underground geological structures are principal techniques used in oil and gas
exploration and development to determine the existence and location of
subsurface hydrocarbons.
At December 31, 1999, the Company owned approximately 1,150,000 linear
miles of 2D and approximately 16,300 square miles of 3D seismic data which it
maintained in its library and the Company marketed an additional 270,000 linear
miles of 2D data owned by others. The Company's seismic data library constitutes
the largest seismic database marketed publicly in North America based solely on
management's knowledge and beliefs regarding the industry. The Company's U.S.
seismic surveys extend to virtually every major domestic exploration and
development region, with the majority of the seismic surveys covering onshore
and offshore the U.S. Gulf Coast. In addition, the Company's international
seismic surveys are concentrated in Western Canada and the Continental Shelf
offshore the United Kingdom and Ireland.
The Company's marketing team of 20 seismic sales specialists markets data
from its library and from newly initiated seismic surveys. The Company's
marketing philosophy is that seismic data, like most other products, must be
sold aggressively as opposed to waiting passively for customer purchases. The
marketing team monitors energy industry exploration and development activities
through close interaction with oil and gas companies on a daily basis to
maximize seismic sales opportunities.
The Company has a 14 member staff of geoscientists dedicated to its seismic
operations, who have in excess of 270 years of collective geophysical
experience. Together, the marketing team and geoscientists help clients evaluate
their respective seismic requirements, design seismic data programs to meet
market demand, and supervise the reprocessing of data in the Company's library
to enhance future resales.
Three-dimensional seismic data provides a graphic geophysical depiction of
the earth's subsurface from two horizontal dimensions and one vertical
dimension, rendering a more detailed picture than 2D data, which presents a
cross-sectional view from one vertical and one horizontal dimension. The more
comprehensive geophysical information provided by 3D surveys significantly
enhances an interpreter's ability to evaluate the probability of the existence
and location of oil and gas deposits. The proper use of 3D surveys can
significantly increase drilling success rates and, correspondingly,
significantly lower exploration and development finding costs. However, the cost
to create 3D seismic data is significantly more than the cost to create 2D
seismic data, particularly for onshore data. As a result, 2D data remains
economically more efficient for preliminary, broad-scale exploration evaluation
and to determine the location for 3D surveys. Also, the best way to design a 3D
survey is from 2D data grids of the respective area. The 3D surveys can then be
used for more site-specific analysis to maximize actual drilling potential.
The Company creates new seismic data for its library through multi-client
surveys. Prior to undertaking a seismic survey, the Company pre-licenses the
data to several oil and gas companies. The license fee commitments from these
customers cover the majority of the costs of the survey. The Company's
investment in the survey is limited to the excess of the cost of the survey over
the customer license fee commitments. The customers share in the expense of a
survey, which reduces their cost of the survey while the Company reduces its
initial capital investment in the survey. In a multi-client survey, the Company
retains ownership of the newly created data, which is added to its data library.
The Company then markets licenses to use the data to other customers. Seismic
<PAGE>
data cannot be transferred by a licensee to another party; each individual user
must purchase a license. The Company contracts with seismic acquisition crew
companies to conduct both onshore and offshore seismic surveys.
The Company has developed fully-integrated 3D technology and operations,
which extend from its expansive 2D seismic library from which to best design the
parameters for 3D surveys, its large and growing 3D data library, a processing
center and proprietary computer technology coupled with extensive geophysical
application expertise to effectively interpret 3D data.
Oil and Gas Exploration and Production Operations
In addition to licensing its seismic data to customers, the Company also
utilizes its seismic expertise to participate directly in oil and gas projects.
The Company participates in these projects as a working interest owner, sharing
costs and revenues of oil and gas exploration and production projects with other
oil and gas companies. The Company's strategy is to combine its 3D and 2D
seismic expertise and related geophysical expertise with the geological,
engineering and drilling expertise and land positions of oil and gas companies
in exploration and development programs. The Company believes that this
combination will result in higher drilling success rates, thereby allowing the
Company to participate in oil and gas exploration and development on a
relatively low cost and low risk basis, and to build an asset base of oil and
gas reserves which complement its seismic data library.
Since its formation in 1993, the Company's wholly-owned exploration and
production subsidiary, DDD Energy, Inc. ("DDD Energy"), has entered into and
maintained cost and revenue-sharing relationships with more than 100 oil and gas
companies and, in doing so, has received the benefit of these oil and gas
companies' land, geological, engineering and drilling staffs. DDD Energy has
conducted over 2,000 square miles of advanced 3D surveys, located primarily in
the Gulf Coast areas of onshore Texas, Louisiana, Alabama and Mississippi, as
well as California and Arkansas. DDD Energy's working interest in these projects
ranges from approximately 10% to 90%, with an average working interest of
approximately 31%. More than 160 square miles of 3D surveys are scheduled to be
conducted in 2000 by DDD Energy and its partners. The majority of the well
locations pinpointed by the surveys that have already been completed and
interpreted should be drilled during the next three years. DDD Energy
exclusively utilizes the Company's processing and interpretation technology and
operations to provide optimum quality control and confidentiality for the
exploration and production programs in which DDD Energy participates.
From March 1993 through December 31, 1999, DDD Energy has participated in
the drilling of 300 wells, 205 of which were commercially productive for a 68%
success rate.
In November 1999, the Company's 19% owned subsidiary, Vision Energy, Inc.
("Vision Energy"), filed a registration statement with the Securities and
Exchange Commission ("SEC") to accomplish the spin-off of DDD Energy through an
initial public offering. In the proposed offering, Vision Energy would acquire
all of the stock of DDD Energy from the Company in exchange for the issuance of
shares of Vision Energy stock to the Company, and the Company would sell most of
these Vision Energy shares in the public offering for cash. Completion of the
offering is expected to occur during the second or third quarter of 2000;
however, its completion is dependent upon market conditions and other factors.
The Company continues to explore opportunities to maximize the value of DDD
Energy.
Customers
The Company markets its seismic data to major and independent oil and gas
companies. The Company generally sells its oil and gas to numerous customers
through the operators of its oil and gas properties. No one customer accounted
for as much as 10% of the Company's revenues during the years 1999, 1998 or
1997. As a result, the Company does not believe that the loss of any customer
would have a material adverse impact on its seismic or oil and gas business.
Competition
The creation and resale of seismic data are highly competitive in North
America. There are a number of independent oil-service companies that create and
market data, and numerous oil and gas companies create seismic data and maintain
their own seismic data banks. However, as a result of the energy industry's
collapse in 1985 and major industry consolidation in the 1990's, significant
seismic competitors to the Company have been reduced from approximately 15
companies in 1985 to less than 10 today. The Company's largest competitors, most
of whom are engaged in acquiring seismic data as well as a data library, are
<PAGE>
Baker Hughes, Petroleum Geo-Services, Schlumberger, TGS Nopec, Veritas DGC and
Compagnie Generale de Geophysique. In addition, the Company has positioned
itself to take advantage of the increased outsourcing trend by exploration and
production companies for their seismic data services. The Company believes it
can compete favorably because of the expansiveness of its data library base, the
expertise of its marketing staff and the technical proficiency and exploration
experience of its geoscientists. These resources enable the Company to provide
high-quality service and to create and market high-grade data.
In the oil and gas exploration and production business, there are numerous
oil and gas companies competing for the acquisition of mineral properties. The
Company believes it can participate effectively in the exploration for and
development of natural gas and crude oil reserves because of its
fully-integrated seismic resources and geophysical expertise combined with the
geological and engineering experience and land positions of the Company's oil
and gas company partners.
Seasonality and Timing Factors
The Company's results of operations can fluctuate from quarter to quarter.
The fluctuations are caused by a number of factors.
With respect to the Company's seismic licensing revenue, the Company's
results are influenced by oil and gas industry capital expenditure budgets and
spending patterns. These budgets are not necessarily spent in either equal or
progressive increments during the year, with spending patterns affected by
individual oil and gas company requirements as well as industry-wide conditions.
As a result, the Company's seismic data revenue does not necessarily flow evenly
or progressively on a sequential quarterly basis during the year. In addition,
certain weather-related events may delay the creation of seismic data for the
Company's library during any given quarter. Although the majority of the
Company's seismic resales are under $500,000 per sale, occasionally a single
data resale from the Company's library can be as large as $5 million or more.
Such large resales can materially impact the Company's results during the
quarter in which they occur, creating an impression of a trend of increasing
revenue that may not be achieved in subsequent periods.
With respect to revenue from the Company's oil and gas operations, bringing
a small number of high-production wells on line in a given quarter can
materially impact the results of that quarter since many of the wells in which
the Company participates experience high initial flow rates for the first 60 to
90 days of production and then taper off to a lower, steady rate for the
remainder of their lives. If several of these wells are brought on line in a
quarter, the results for that quarter will appear unusually strong, and then
later, when production decreases to its long-term, steady rate, the Company's
results may not be able to sustain the trend of increased performance indicated
by the strong results of the previous quarter. The Company's oil and gas
exploration and production operations also can be impacted by certain
weather-related events as well as by mechanical and equipment problems or
shortages and other factors, which may delay the hookup of successfully
completed wells and delay the resultant production revenue. Also, due to the
high percentage of gas reserves in the Company's portfolio and the seasonal
variations in gas prices, the Company's results from its oil and gas operations
also are subject to significant fluctuations due to variations in commodity
prices. In addition, some producing wells may be required to go off line
periodically for pipeline and other maintenance. The Company does not believe
that these fluctuations in quarterly results are indicative of the Company's
long-term prospects and financial performance.
See Note Q to the Company's Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Employees
As of December 31, 1999, the Company and its subsidiaries had 120 full-time
employees and two employees who devote part of their time to the Company who are
also officers of other corporations. None of the Company's employees are covered
by collective bargaining agreements. Of these employees, 82 are related to the
seismic operations and 20 are related to the oil and gas operations. The balance
provides accounting and administrative support for all operations. The Company
has employment contracts with five of its senior corporate executives.
Risk Factors
Any investment in our securities involves risk. Investors should carefully
consider, in addition to the other information contained in this report, the
risks described below before making any investment decision.
<PAGE>
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY LOW EXPLORATION, DEVELOPMENT
AND PRODUCTION SPENDING BY OIL AND GAS COMPANIES AND BY LOW OIL AND GAS PRICES.
Our seismic business depends upon exploration, development and production
spending by oil and gas companies. Although overall conditions in the oil and
gas industry have improved recently as a result of strong oil prices, the level
of capital expenditures by oil and gas companies has not been as quick to
recover. This could affect our seismic data operations. Any decreases in oil and
gas prices could result in decreased exploration, development and production
spending by oil and gas companies, which could affect our seismic data business.
Although oil and gas prices have increased recently, any future decline could
result in decreased revenues from our oil and gas exploration and production
business.
WE INVEST SIGNIFICANT AMOUNTS OF MONEY IN ACQUIRING AND PROCESSING SEISMIC
DATA FOR OUR DATA LIBRARY WITH ONLY PARTIAL UNDERWRITING OF THE COSTS BY
CUSTOMERS.
We invest significant amounts of money in acquiring and processing new
seismic data to add to our data library. Although we generally obtain customer
commitments covering in excess of 60% of the costs of acquiring and processing
this data, we assume the risk that we will not be able to fully recover our
portion of the costs through future licensing of the data. The amounts of these
future data licensing fees are uncertain and depend on a variety of factors,
including the market prices of oil and gas, customer demand for seismic data in
our library, availability of similar data from competitors and governmental
regulations affecting oil and gas exploration. Many of these factors are beyond
our control. In addition, the timing of these sales can vary greatly from period
to period. Technological or regulatory changes or other developments could
adversely affect the value of the data.
BECAUSE OUR BUSINESS IS CONCENTRATED IN THE U.S. GULF COAST AND CANADA, IT
COULD BE ADVERSELY AFFECTED BY DEVELOPMENTS IN THE OIL AND GAS BUSINESS THAT
AFFECT THESE AREAS.
Most of the seismic data in our seismic data library covers areas along the
U.S. Gulf Coast, offshore in the U.S. Gulf of Mexico or in Canada. Also, most of
our existing interests in oil and gas properties are located along the coast of
the U.S. Gulf of Mexico. Because of this geographic concentration, our results
of operations could be adversely affected by events relating primarily to one
these regions even if conditions in the oil and gas industry worldwide were
favorable. Some examples of possible events that would adversely affect the U.S.
Gulf Coast region would be changes in governmental regulations adversely
affecting offshore drilling in the U.S. Gulf of Mexico, shortages of drilling or
other necessary equipment in this region, or increases in gas transportation
costs from this region to the Northeastern U.S., where much of the gas produced
in this region is consumed.
THE AMOUNTS WE AMORTIZE FROM OUR DATA LIBRARY EACH PERIOD MAY FLUCTUATE,
AND THESE FLUCTUATIONS CAN AFFECT OUR REPORTED RESULTS OF OPERATIONS.
We amortize the cost of our multi-client data library based in part on our
estimates of future sales of data. These estimates are imprecise and may vary
from period to period depending upon market developments and our expectations.
Substantial changes in amortization rates can have a significant effect on our
reported results of operations.
DRILLING HAZARDS AND DRY HOLES COULD AFFECT OUR OIL AND GAS ACTIVITIES.
We may not discover commercial quantities of oil and gas when we
participate in drilling wells. Our oil and gas operations could be adversely
affected by the occurrence of drilling hazards. These include:
o cratering;
o explosions;
o uncontrollable flows of oil, gas or well fluids;
o fires;
o pollution; and
o other environmental risks.
Some of these hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, environmental damage and
suspension of operations. We do not act as operator in our oil and gas drilling
business and depend on our partners to minimize these operating risks.
<PAGE>
WE HAVE RECORDED WRITE-DOWNS BECAUSE OF LOW OIL AND GAS PRICES AND MAY BE
REQUIRED TO DO SO AGAIN IN THE FUTURE. FUTURE WRITE-DOWNS WOULD RESULT IN A
CHARGE TO OUR EARNINGS AND POSSIBLE LOSSES.
Under SEC oil and gas accounting rules, we may have to write-down our
assets if oil and gas prices decline significantly or if we have significant
downward adjustments to our oil and gas reserves. We recorded a $9.6 million
pre-tax, $6.2 million after tax, non-cash write-down of the carrying value of
our proved oil and gas properties as of December 31, 1997 due to low oil and gas
prices. If oil and gas prices fall significantly, or if we have significant
downward reserve adjustments in the future, it is possible that additional
write-downs will occur again. These write-downs would result in a charge to our
earnings and possible losses, but would not impact cash flows from operating
activities.
OUR DEBT AGREEMENTS MAY LIMIT OUR FLEXIBILITY IN RESPONDING TO CHANGING
MARKET CONDITIONS OR IN PURSUING BUSINESS OPPORTUNITIES.
Our debt agreements contain restrictions and requirements relating to,
among other things:
o additional borrowing;
o maintaining financial ratios;
o granting liens on our assets;
o selling assets;
o paying dividends; and
o merging.
These restrictions and requirements may limit our flexibility in responding
to market conditions or in pursuing business opportunities that we believe would
have a positive effect on our business.
EXTENSIVE GOVERNMENTAL REGULATION OF OUR BUSINESS AFFECTS OUR DAILY
OPERATIONS.
Our seismic data customers are subject to extensive governmental
regulation. In addition, our oil and gas exploration and production operations
are subject to regulations. These regulations, among other things:
o govern environmental quality and pollution control; and
o limit rates of production.
New laws or regulations or changes to existing laws or regulations
affecting the oil and gas industry could reduce customer demand for our seismic
data or increase the operating costs of our oil and gas business.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
We depend on a relatively small group of management and technical
personnel. The loss of one or more of these individuals could have a material
adverse effect on our business.
<PAGE>
Other
The Company is not dependent on any particular raw materials, patents,
trademarks or copyrights for its business operations.
The following organization chart gives an overview of the structure of
the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------------
+----| Seitel Delaware, Inc. | 1%
| | 100% |----+ ----------------------------
| --------------------------- | |Seitel Data, Ltd. |
| |----| |
| --------------------------- 99%| ----------------------------
|----| Seitel Data Corp. |----+
| | 100% |----+ ----------------------------
| --------------------------- | |Seitel Offshore Corp. |
| |----|100% |
| --------------------------- | ----------------------------
|----| DDD Energy, Inc. | |
| | 100% | | ----------------------------
- ------------------ | --------------------------- | |Seitel International, Inc.|
++++++++++++++++++ | |----|100% |
+ + | --------------------------- | ----------------------------
+ SEITEL, INC. +----+----| Matrix Geophysical, Inc.| |
+ + | | 100% | | ----------------------------
++++++++++++++++++ | --------------------------- | |Datatel, Inc. |
- ------------------ | +----|100% |
| --------------------------- ----------------------------
|----| Seitel Canada Holdings, |
| | Inc. | ----------------------------
| | 100% |----+----|Olympic Seismic Ltd. |
| --------------------------- | |100% |
| | ----------------------------
| --------------------------- | ----------------------------
|----| Seitel Management, Inc. | | |818312 Alberta Ltd. |
| | 100% | +----|100% |
| --------------------------- ----------------------------
|
| --------------------------- ----------------------------
|----| Seitel Geophysical, Inc.|----+----|African Geophysical, Inc. |
| | 100% *<F1> | | |100% *<F1> |
| --------------------------- | ----------------------------
| |
| --------------------------- | ----------------------------
|----| Alternative Communica- | +----|EHI Holdings, Inc. |
| | tions Enterprises, Inc. | |100% *<F1> |
| | 100% | ----------------------------
| | *<F1> |
| ---------------------------
|
| ---------------------------
|----| Exsol, Inc. |
| | 100% |
| | *<F1> |
| ---------------------------
|
| ---------------------------
|----| Geo-Bank, Inc. |
| | 100% |
| | *<F1> |
| ---------------------------
|
| --------------------------- ----------------------------
|----| Seitel Gas & Energy |---------|Seitel Natural Gas, Inc. |
| | Corp. | |100% *<F1> |
| | 100% *<F1> | ----------------------------
| ---------------------------
|
| ---------------------------
+----| Seitel Power Corp. |
| | 100% |
| | *<F1> |
| ---------------------------
|
| ---------------------------
+----| Vision Energy, Inc. |
| 19% |
| *<F1> |
---------------------------
<FN>
<F1> * Dormant
</FN>
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
----------
The Company, through its wholly-owned subsidiary DDD Energy, participates
in oil and gas exploration and development efforts. For estimates of the
Company's net proved and proved developed oil and gas reserves as of December
31, 1999, see Note S to the Company's Consolidated Financial Statements. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer. The
reserve data set forth in Note S to the Company's Consolidated Financial
statements represents only estimates. Reserve engineering is a subjective
process of estimating underground accumulations of natural gas and liquids,
including crude oil, condensate and natural gas liquids, that cannot be measured
in an exact manner. The accuracy of any reserve estimate is a function of the
amount and quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates of different engineers
normally vary. In addition, results of drilling, testing and production
subsequent to the date of an estimate may justify revision of such estimate.
Accordingly, reserve estimates are often different from the quantities
ultimately recovered. The meaningfulness of such estimates is highly dependent
upon the accuracy of the assumptions upon which they were based.
In general, the volume of production from oil and gas properties owned by
the Company declines as reserves are depleted. Except to the extent that the
Company acquires additional properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved reserves
of the Company will decline as reserves are produced. Volumes generated from
future activities of the Company are therefore highly dependent upon the level
of success in finding or acquiring additional reserves and the costs incurred in
so doing.
The following table sets forth the number of productive oil and gas wells
(including producing wells and wells capable of production) in which the Company
owned an interest as of December 31, 1999. Gross oil and gas wells include 10
with multiple completions. All of the wells are operated by the Company's oil
and gas company partners. A "gross" well is a well in which the Company owns a
working interest. "Net" wells refer to the sum of the fractional working
interests owned by the Company in gross wells.
Gross Wells Net Wells
----------- ---------
Oil 54 12.74
Gas 124 34.28
The following table sets forth the number of net wells drilled in the last
three fiscal years in which the Company participated.
<TABLE>
<CAPTION>
Exploratory Development
-------------------------------- --------------------------------
Productive Dry Total Productive Dry Total
<S> <C> <C> <C> <C> <C> <C>
1999
Texas 1.14 .28 1.42 1.09 - 1.09
Louisiana .52 - .52 - - -
California .30 - .30 - - -
1998
Texas .57 1.68 2.25 1.10 - 1.10
Mississippi 1.00 1.00 2.00 - - -
Louisiana 1.50 1.75 3.25 .66 .33 .99
California .15 .15 .30 - - -
Arkansas - .13 .13 - - -
Michigan - .25 .25 - - -
1997
Texas 5.29 4.05 9.34 1.88 .52 2.40
Mississippi 2.64 2.00 4.64 1.24 - 1.24
Louisiana 2.35 1.05 3.40 1.05 - 1.05
</TABLE>
As of December 31, 1999, the Company was participating in the drilling of 1
gross and .25 net wells.
<PAGE>
The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of December 31, 1999. The table does
not include additional acreage, which the Company may earn upon completion of
pending 3D seismic data projects. "Gross" acres refer to the number of acres in
which the Company owns a working interest. "Net" acres refer to the sum of the
fractional working interests owned by the Company in gross acres.
Developed Acres Undeveloped Acres
---------------------------- -----------------------------
Gross Net Gross Net
------------- ------------ ------------- -------------
California 240 36 130,650 39,353
Texas 23,186 10,405 86,730 23,597
Louisiana 6,864 1,446 67,300 20,411
Mississippi 4,100 1,321 28,376 11,350
Michigan 260 130 3,300 1,100
Alabama 160 5 1,516 270
------------- ------------ ------------- -------------
Total 34,810 13,343 317,872 96,081
============= ============ ============= =============
The following table describes for each of the last three fiscal years,
crude oil (including condensate and natural gas liquids) and natural gas
production for the Company, average production costs and average sales prices.
All such production comes from the U.S. Gulf Coast region. The Company has not
filed any different estimates of its December 31, 1999 reserves with any federal
agencies.
<TABLE>
<CAPTION>
Net Production Average Sales Price
--------------------- Average -------------------------
Year Ended Oil Gas Production Oil Gas
December 31, (Mbbls) (Mmcf) Cost per Mcfe (Bbls) (Mcf)
------------ ------- ------ ------------- ------ -----
<S> <C> <C> <C> <C> <C>
1999 346 5,693 $.61 $16.35 $2.28
1998 386 6,216 .55 11.78 2.27
1997 420 6,926 .55 16.83 2.63
</TABLE>
The amounts in 1997 include 56,000 barrels and 1,795 million cubic feet
delivered under the terms of a volumetric production payment agreement effective
July 1, 1996 at an average price of $14.04 per barrel and $1.84 per mcf.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary, routine claims and
lawsuits incidental to its business. In the opinion of management, uninsured
losses, if any, resulting from the ultimate resolution of these matters should
not be material to the Company's financial position or results of operations.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth the high and low sales prices for the Common Stock
for 1999 and 1998 as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
High Low High Low
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter $ 15.25 $ 9.31 $ 17.25 $ 13.19
Second Quarter 18.13 12.38 19.31 14.69
Third Quarter 16.50 9.56 17.25 8.69
Fourth Quarter 10.19 5.50 16.00 9.56
</TABLE>
On March 27, 2000, the closing price for the Common Stock was $8.125. To
the best of the Company's knowledge, there are approximately 1,006 record
holders of the Company's Common Stock as of March 27, 2000.
<PAGE>
Dividend Policy
The Company did not pay cash dividends during 1998 or 1999, and it intends
to retain future earnings in order to provide funds for use in the operation and
expansion of its business. Because the payment of dividends is dependent upon
earnings, capital requirements, financial conditions, any required consents of
lenders and other factors, there is no assurance that dividends, whether in the
form of stock or cash, will be paid in the future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share
data)
The following table summarizes certain historical consolidated financial
data of the Company and is qualified in its entirety by the more detailed
consolidated financial statements and notes thereto included in Item 8 hereof.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
Statement of Operations Data: 1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue $ 128,707 $ 144,857 $ 127,556 $ 106,002 $ 74,439
Expenses and costs:
Depreciation, depletion and
amortization 59,624 69,890 49,679 39,249 26,872
Impairment of oil and gas
properties - - 9,560 - -
Cost of sales 5,016 4,874 17,953 19,402 13,071
Selling, general and
administrative 28,587 26,599 23,043 19,165 15,393
----------- ----------- ----------- ------------ -----------
93,227 101,363 100,235 77,816 55,336
----------- ----------- ----------- ------------ -----------
Income from operations 35,480 43,494 27,321 28,186 19,103
Interest expense, net (11,077) (5,540) (3,554) (2,900) (3,078)
Equity in earnings (loss) of
affiliate (91) 222 146 (186) -
Impairment due to dividend
distribution of affiliate stock (7,794) - - - -
Gain on sale of subsidiary
stock - - 18,449 - -
Increase (decrease) in under-
lying equity of affiliate - (193) 10,750 - -
Extinguishment of volumetric
production payment - - (4,133) - -
----------- ----------- ----------- ------------ -----------
Income from continuing
operations before provision
for income taxes 16,518 37,983 48,979 25,100 16,025
Provision for income taxes 7,138 13,623 17,422 8,863 5,898
------------ ----------- ----------- ------------ -----------
Income from continuing
operations 9,380 24,360 31,557 16,237 10,127
Loss from discontinued
operations, net of tax - - - (988) (1,196)
Loss on disposal of
discontinued operations,
net of tax - - - - (252)
------------ ----------- ----------- ------------ -----------
Net income $ 9,380 $ 24,360 $ 31,557 $ 15,249 $ 8,679
============ =========== =========== ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
Statement of Operations Data: 1999 1998 1997 1996 1995
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Earnings per share: (1)
Basic:
Income from continuing
operations $ .39 $ 1.07 $ 1.48 $ .83 $ .55
Discontinued operations - - - (.05 ) (.08 )
------------ ----------- ----------- ------------ -----------
Net income $ .39 $ 1.07 $ 1.48 $ .78 $ .47
============ =========== =========== ============ ===========
Diluted:
Income from continuing
operations $ .39 $ 1.05 $ 1.43 $ .79 $ .49
Discontinued operations - - - (.05 ) (.07 )
------------ ----------- ----------- ------------ -----------
Net income $ .39 $ 1.05 $ 1.43 $ .74 $ .42
============ =========== =========== ============ ===========
Weighted average shares: (1)
- Basic 23,863 22,720 21,380 19,646 18,408
- Diluted 24,063 23,124 22,050 20,660 20,976
As of December 31,
------------------------------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995
------------ ----------- ----------- ------------ -----------
Data bank, net $ 329,885 $ 262,950 $ 180,936 $ 126,998 $ 105,369
Oil and gas properties, net 150,167 148,977 112,915 86,572 42,424
Total assets 555,919 495,767 365,682 294,679 209,567
Total debt 225,223 150,690 90,566 86,488 61,283
Stockholders' equity 243,024 237,587 207,273 155,641 120,378
Stockholders' equity per
common share outstanding
at December 31 $ 10.30 $ 10.05 $ 9.26 $ 7.51 $ 6.38
Common shares outstanding at
December 31 (1)<F1> (2)<F2> 23,605 23,629 22,373 20,724 18,873
<FN>
(1)<F1> All number of shares and per share amounts has been restated to give
effect to the two-for-one stock split effected in the form of a 100%
stock dividend in December 1997.
(2)<F2> Net of treasury shares.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The following table sets forth selected financial information (in
thousands) for the periods indicated, and should be read in conjunction with the
discussion of Results of Operations below.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Seismic:
Revenue $ 109,671 $ 125,863 $ 85,560
Amortization 49,375 57,117 35,163
Cost of sales 296 191 394
Oil and Gas:
Revenue 19,036 18,994 25,680
Depletion 9,093 11,872 12,666
Impairment of oil and gas properties - - 9,560
Cost of sales 4,720 4,683 5,168
Geophysical Services:
Revenue - - 16,316
Depreciation - - 983
Cost of sales - - 12,391
Other depreciation 1,156 901 867
Selling, general and administrative 28,587 26,599 23,043
Net interest expense 11,077 5,540 3,554
Equity in earnings (loss) of affiliate (91) 222 146
------------- ------------- -------------
Income before provision for income
taxes and special items (1)<F1> 24,312 38,176 23,913
Provision for income taxes 9,866 13,692 8,498
------------- ------------- -------------
Income before special items (1)<F1> $ 14,446 $ 24,484 $ 15,415
============= ============= =============
Net income $ 9,380 $ 24,360 $ 31,557
============= ============= =============
- ----------------------------------
<FN>
(1)<F1> Special items for the year ended December 31, 1999, include a
pre-tax loss of $7,794,000 related to an impairment due to the
dividend distribution of affiliate stock. Special items for
the year ended December 31, 1998 include a pre-tax loss of
$193,000 related to the decrease in the underlying equity of
an affiliate. Special items for the year ended December 31,
1997 include a pre-tax gain of $29,199,000 related to the
spin-off of the Company's seismic acquisition crew subsidiary
and a pre-tax loss of $4,133,000 related to the extinguishment
of the Company's volumetric production payment.
</FN>
</TABLE>
Results of Operations
Seismic
Most oil and gas companies consider seismic data an essential tool to
generate and delineate drilling prospects for the oil and gas industry. Oil and
gas companies are increasingly using seismic data in oil and gas exploration and
development efforts to increase the probability of drilling success. By properly
utilizing seismic data, oil and gas companies can significantly increase
drilling success rates and reduce the occurrence of dry holes. By participating
in multi-client surveys, oil and gas companies can share the cost of expensive
surveys that they could not otherwise afford. Further, seismic can increase
recoveries of reserves from existing, mature oil fields by optimizing the
drilling location of development wells and by revealing additional, or
"step-out," locations that would not otherwise be apparent.
<PAGE>
The Company generates seismic revenue by licensing data from our existing
data library and creating new data for customers. Revenue from the marketing of
seismic data was $109,671,000, $125,863,000 and $85,560,000 during 1999, 1998
and 1997, respectively. In May 1999, the Company made a management decision to
focus its marketing team on licensing of existing data ("library sales") that
would generate cash flow. Library sales in 1999 increased to the record level of
$63,058,000, an increase of 36% over the previous record year of $46,359,000 in
1998. The Company's decision to reduce data creation in 1999 caused total
seismic revenue to be lower than 1998 levels, but also reduced capital
expenditures, producing solid financial results under difficult industry
conditions. In 1998, the increase in seismic revenue from 1997 levels was
primarily attributable to increased efforts and investment in the creation of
new seismic data. In February 1999, the Company acquired substantially all of
the seismic assets of Amoco Canada, making Seitel, Inc. the largest seismic data
library company in North America.
As witnessed by the strength of the Company's library sales in 1999, demand
for its seismic data continues to be strong despite the uncertainty surrounding
oil and gas prices. Furthermore, demand for its 2D data continues to be strong,
with 1999 sales levels increasing over 1998 levels. The first three months of
2000 have produced higher than expected commodity prices which is expected to
generate strong cash flow for the oil and gas industry and lead to rising levels
of capital expenditures. This scenario should lead to improving demand for
Seitel, Inc. products and services, including our library data and new data
creation.
Data bank amortization amounted to $49,375,000, $57,117,000 and $35,163,000
for the years ended December 31, 1999, 1998 and 1997, respectively. The amount
of seismic data amortization fluctuates based on the level of seismic marketing
revenue. As a percentage of revenue from licensing seismic data, data bank
amortization was 46%, 46% and 42% for 1999, 1998 and 1997, respectively. These
changes between years are primarily due to the mix of sales of 2D and 3D data
amortized at varying percentages based on each data program's current and
expected future revenue. For a discussion of the Company's accounting policy
related to seismic data amortization refer to Note A of the Company's
Consolidated Financial Statements.
The Company's (and its industry's) seismic revenue trends are evaluated and
results are used in estimating future revenue expected to be received on its
seismic data. When economic conditions indicate, the Company may reduce its
estimates of future revenue, causing the amortization rate to rise and liquidity
and operating results to decline. If the Company perceives an impairment in
value due to reduced, or a lack of, estimated future revenue, a write-down of
the asset is recognized. In periods of upturn, the opposite may occur, except,
however, the prior write-downs are not reversed. Management believes that the
economic outlook for the Company's seismic business is stable and the
possibility for significant improvement exists.
Oil and Gas
Net volume and price information for the Company's oil and gas production
for the years ended December 31, 1999, 1998 and 1997 is summarized in the
following table (amounts include deliveries made under the terms of a volumetric
production payment agreement effective from July 1, 1996 to June 30, 1997):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Natural gas volumes (mmcf) 5,693 6,216 6,926
Average natural gas price ($/mcf) $ 2.28 $ 2.27 $ 2.63
Crude oil/condensate volumes (mbbl) 346 386 420
Average crude oil/condensate price ($/bbl) $ 16.35 $ 11.78 $ 16.83
</TABLE>
Oil and gas revenue was $19,036,000, $18,994,000 and $25,680,000 during
1999, 1998 and 1997, respectively. The increase in oil and gas revenue from 1998
to 1999 was primarily attributable to higher average oil prices received by the
Company offset by lower oil and gas production. The decline in oil and gas
production between 1998 and 1999 was primarily due to normal production declines
experienced on several of the Company's older wells. Additionally, in July 1999,
the Company sold its interest in 11 oil and gas wells, five of which were
producing. The decrease in oil and gas revenue from 1997 to 1998 was primarily
due to lower realized commodity prices along with lower natural gas production.
The production decline from several of the Company's shallow short-lived
producing properties had not yet been offset by production from new wells.
Several wells with high initial flow rates experienced production declines
earlier and greater than was expected. Additionally, some development wells were
<PAGE>
not drilled in the time frame anticipated by the Company as a result of some of
its partners delaying plans to drill these wells due to lower commodity prices,
reallocation of budget funds and consolidations within the industry.
Depletion of oil and gas properties, excluding the impairment in 1997
discussed below, was $9,093,000, $11,872,000 and $12,666,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, which amounted to $1.17, $1.39
and $1.34, respectively, per mcfe of gas produced during such periods. The rate
per mcfe varies with the estimate of proved oil and gas reserves of the Company
at each quarter end, as well as evaluated property costs.
At December 31, 1997, the Company recorded a non-cash impairment of oil and
gas properties totaling $9,560,000 ($6,160,000, net of taxes) based on its
December 31, 1997, estimated proved reserves valued at March 18, 1998 market
prices. The impairment was primarily due to substantially lower commodity
prices.
Oil and gas production costs amounted to $.61, $.55, and $.55 per mcfe of
gas produced during 1999, 1998 and 1997, respectively. The increase in the rate
from 1998 to 1999 is primarily attributable to an increase in compression costs
for the Company's East Texas Smackover properties.
Geophysical Services
The Company completed an initial public offering of Eagle Geophysical, Inc.
("Eagle"), its former seismic acquisition crew subsidiary, in August 1997.
Consequently, the Company had no operations from geophysical services in 1998 or
1999.
Corporate and Other
The Company's selling, general and administrative expenses were $28,587,000
in 1999, $26,599,000 in 1998 and $23,043,000 in 1997. The increase from 1998 to
1999 was primarily due to legal and other non-recurring expenses incurred during
1999 and an increase in costs resulting from the Company's expansion in Canada.
These increases were partially offset by a reduction of variable expenses,
including commissions on revenue and compensation tied to pre-tax profits. The
increase from 1997 to 1998 was primarily a result of variable expenses,
including commissions on revenue and compensation tied to pre-tax profits,
related to the increased volume of business. As a percentage of total revenue,
these expenses were 22% in 1999 and 18% in 1998 and 1997.
The Company's interest expense was $11,791,000 in 1999, $5,963,000 in 1998
and $4,609,000 in 1997. The increase between 1998 and 1999 was primarily due to
the addition of $138 million of senior notes on February 12, 1999 at an average
interest rate of 7.3% partially offset by lower interest expense on the
Company's revolving line of credit due to lower amounts being borrowed
throughout 1999. The increase from 1997 to 1998 was primarily due to increased
borrowings made under the Company's revolving line of credit during 1998.
Interest income was $714,000 in 1999, $423,000 in 1998 and $1,055,000 in
1997. The increase from 1998 to 1999 was primarily attributable to interest
income received on the notes receivable from officers and employees entered into
in October 1998. The decrease between 1997 to 1998 was primarily due to the
fluctuations in cash balances available for investment.
On August 11, 1997, Eagle completed an initial public offering in which the
Company sold 1,880,000 of its 3,400,000 shares of Eagle common stock as a
selling stockholder. The Company received net proceeds of $29,723,000 from its
participation in the offering, resulting in a pre-tax gain, net of costs, of
$18,449,000 from its sale of Eagle stock in 1997. Additionally, the Company
recorded a pre-tax gain, net of costs, of $10,750,000 in 1997, representing an
increase in the Company's underlying equity of Eagle as a result of Eagle's
issuance of stock in connection with the offering. In 1998, Eagle issued stock
in connection with two acquisitions, which caused the Company to record a
pre-tax loss of $193,000. The Company's equity in earnings (loss) of Eagle was
$146,000 for the period from August 11, 1997 to December 31, 1997, $222,000 for
the year ended December 31, 1998 and $(91,000) for the year ended December 31,
1999.
On April 22, 1999, the Board of Directors of Seitel, Inc. declared to its
common stockholders a dividend consisting of the remaining 1,520,000 shares of
the common stock of Eagle owned by the Company. The fair market value of the
common stock of Eagle held by the Company on the date the 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 year ended December 31, 1999.
<PAGE>
The Company entered into an agreement, which was effective July 1, 1997, to
extinguish its volumetric production payment. The cost to acquire the production
payment liability exceeded its book value. As a result of this transaction, the
Company recorded a pre-tax loss of $4,133,000 in 1997.
The Company's effective income tax rate on income before provision for
income taxes and special items was 40.6%, 35.9% and 35.5% for the years ended
December 31, 1999, 1998 and 1997, respectively. The increase in the effective
income tax rate from 1998 to 1999 was primarily a result of Canadian operations,
which are taxed at a higher rate than the U.S. rate, representing a larger
percentage of pre-tax profits than in prior years.
Liquidity and Capital Resources
The Company's cash flow from operations was $74,494,000, $97,493,000 and
$76,161,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The decrease from 1998 to 1999 was primarily attributable to (i) a decrease in
cash received from customers due to the decrease in revenue in 1999, (ii) an
increase in payments to suppliers in 1999 and (iii) an increase in interest
expense paid due to the issuance of $138 million senior notes in 1999. The
increase from 1997 to 1998 was primarily due to (i) an increase in cash received
from customers due to higher revenue in 1998 and (ii) a decrease in cash paid to
suppliers and employees due to lower cost of sales incurred in 1998 resulting
from the 1997 spin-off of the Company's crew subsidiary and increased payable
balances at December 31, 1998.
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 1
1/2%, 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 borrowing that the Company can make under this facility. The balance
outstanding on the revolving line of credit at March 27, 2000 was $37 million
bearing an average interest rate of 6.89%.
On November 9, 1999, the Company's wholly-owned subsidiary, Olympic Seismic
Ltd. ("Olympic"), entered into revolving credit facilities which allow it to
borrow up to $5 million (Canadian dollars) by way of prime based loans, bankers'
acceptances, or letters of credit. Prime based loans and bankers' acceptances
bear interest at the rate of the bank's prime rate plus 0.35% per annum and
0.50% per annum, respectively. Letter of credit fees are based on scheduled
rates in effect at the time of issuance. The facility is secured by Olympic's
assets, but is not guaranteed by Seitel, Inc. or any of its other subsidiaries.
Borrowings under the facility are limited to 75% of trade receivables less than
90 days old. The facility is subject to repayment upon demand and is available
from time to time at the Bank's sole discretion. Olympic did not have any
amounts outstanding under this line of credit at December 31, 1999, or at March
27, 2000. Olympic is not a party to any of the debt held by Seitel, Inc.
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 on
February 15 and August 15. The Company used a majority of the proceeds to repay
amounts outstanding under its revolving lines of credit and the remainder for
capital expenditures.
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 which began on 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. As of March 27, 2000, the balance outstanding on the Series A,
B, and C Notes was $46,667,000.
The Company may offer from time to time in one or more series (i) unsecured
debt securities, which may be senior or subordinated, (ii) preferred stock and
(iii) common stock, or any combination of the foregoing, up to an aggregate of
$41,041,600 pursuant to an effective "shelf" registration statement filed with
<PAGE>
the SEC. In addition, under another effective "shelf" registration statement
filed with the SEC, the Company may offer up to an aggregate of $200,000,000 of
the following securities, in any combination, from time to time in one or more
series: (i) unsecured debt securities, which may be senior or unsubordinated;
(ii) preferred stock; (iii) common stock, and (iv) trust preferred securities.
From January 1, 1999, through March 27, 2000, the Company received
$5,317,000 from the exercise of common stock purchase warrants and options. In
connection with these exercises, the Company will also receive approximately
$620,000 in tax savings.
On July 26, 1999, the Company's wholly-owned subsidiary, DDD Energy, 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 net
proceeds of approximately $11.7 million.
In November 1999, the Company's 19% owned subsidiary, Vision Energy, filed
a registration statement with the SEC to accomplish the spin-off of DDD Energy
through an initial public offering. In the proposed offering, Vision Energy
would acquire all of the stock of DDD Energy from the Company in exchange for
the issuance of shares of Vision Energy stock to the Company, and the Company
would sell most of these Vision Energy shares in the public offering for cash.
Completion of the offering is expected to occur during the second or third
quarter of 2000; however, its completion is dependent upon market conditions and
other factors. As of December 31, 1999, the Company had incurred costs relating
to this offering totaling $757,000 which are included in prepaid expenses in the
Company's balance sheet as of December 31, 1999. The Company continues to
explore opportunities to maximize the value of DDD Energy. The Company intends
to use the cash proceeds from this spin-off of DDD Energy to reduce debt and
provide funds for seismic data bank capital expenditures.
During November and December 1999, the Company repurchased 504,700 shares
of its common stock in the open market at a cost of $3,302,000, pursuant to a
stock repurchase program authorized by the Board of Directors in 1997. The Board
has authorized expenditures of up to $25 million towards the repurchase of its
common stock. As of March 27, 2000, the Company has repurchased 679,700 shares
of its common stock at a cost of $6,275,000 under this plan.
During 1999, gross seismic data bank additions and capitalized oil and gas
exploration and development costs amounted to $116,343,000 and $21,939,000
respectively. These capital expenditures, as well as taxes, interest expenses,
cost of sales and general and administrative expenses, were funded by
operations, proceeds from the sale of oil and gas properties, 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 to total
approximately $70 million for seismic data bank additions during fiscal 2000 and
approximately $11 million for oil and gas exploration and development efforts
during the first half of 2000. If the proposed spin-off of DDD Energy has not
been completed by the end of the second quarter, oil and gas exploration and
development capital expenditures are expected to be $9 million for the second
half of 2000. 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 currently anticipated 2000 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 2000, the Company could arrange for additional
debt or equity financing during 2000; 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. Upon consummation of the proposed spin-off of
DDD Energy, proceeds from such offering would be used to reduce debt and provide
funds for additional seismic data bank capital expenditures.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, is required to be adopted on January 1, 2001, although
earlier adoption is permitted. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
<PAGE>
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 formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting treatment. The Company has not yet
quantified the impact of adopting SFAS No. 133. However, management does not
believe that the adoption of SFAS No. 133 will have a material impact on the
Company's financial position or results of operations.
Year 2000
The Company did not experience any significant operational difficulties or
incur any significant expenses in connection with the Year 2000 issue. The
Company will continue to monitor all critical systems for any incidents of
delayed complications or disruptions and problems encountered through third
parties with whom the Company deals so that they may be timely addressed.
Impact of Inflation and Changing Prices
The general availability of seismic equipment and crews and the level of
exploration activity in the oil and gas industry directly affect the cost of
creating seismic data. The pricing of the Company's products and services is
primarily a function of these factors. For these reasons, the Company does not
believe inflationary trends have had any significant impact on its financial
operating results during the three years ended December 31, 1999.
Information Regarding Forward Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include,
but are not limited to, changes in the exploration budgets of the Company's
seismic data and related services customers, actual customer demand for the
Company's seismic data and related services, the extent of the Company's success
in acquiring oil and gas properties and in discovering, developing and producing
reserves, the timing and extent of changes in commodity prices for natural gas,
crude oil and condensate and natural gas liquids and conditions in the capital
markets and equity markets during the periods covered by the forward looking
statements. See Item 1 - Business-Risk Factors.
ITEM 7A. 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 as
discussed below.
Commodity Price Risk
The Company produces and sells natural gas, crude oil, condensate and
natural gas liquids. The Company currently sells most of its oil and gas
production under price sensitive or market contracts. As a result, the Company's
financial results can be significantly affected as oil and gas prices fluctuate.
The Company has a price risk management program that utilizes derivative
financial instruments, principally natural gas swaps, to reduce the price risks
associated with fluctuations in natural gas prices. However, these contracts
also limit the benefits the Company would realize if prices increase. These
financial instruments are designated as hedges and accounted for on the accrual
basis, recognizing gains and losses in oil and gas production revenues when the
associated production occurs. These contracts usually are placed with major
derivative dealers that the Company believes are minimal credit risks. The
Company defers and recognizes in income the net gains and losses on natural gas
swaps designated as hedges of anticipated transactions, including accrued gains
or losses upon maturity or termination of the contract, when the associated
hedged gas is produced.
During 1998, the Company recognized net hedging gains of $653,000. As of
December 31, 1998, the Company did not have any open commodity price hedges.
During 1999, the Company entered into natural gas swaps in order to hedge a
portion of anticipated natural gas production. During 1999, the Company
recognized net hedging losses of $308,000. As of December 31, 1999, the Company
had open commodity price hedges totaling 2,285,000 MMBtu at an average price of
2.51 per MMBtu. The estimated fair value of these open commodity price hedges as
of December 31, 1999 was $(377,000). The Company continually reviews and may
alter its hedged positions. The Company's strategy is to seek arrangements with
guaranteed minimum prices and flexibility to participate in improving commodity
prices.
<PAGE>
As of December 31, 1999, the Company had the following hedges in place:
Volume Per
Month Hedge Price
Month (MMBtu) ($/MMBtu)
- ------------------------------------- --------------- ---------------
January 2000 310,000 $2.51
February 2000 290,000 2.51
March 2000 310,000 2.51
April 2000 300,000 2.51
May 2000 310,000 2.51
June 2000 300,000 2.51
July 2000 310,000 2.51
August 2000 155,000 2.57
---------------
Total volume hedged 2,285,000
===============
Interest Rate Risk
The Company may enter into various financial instruments, such as interest
rate swaps, to manage the impact of changes in interest rates. Currently, the
Company has no open interest rate swap or interest rate lock agreements.
Therefore, the Company's exposure to changes in interest rates primarily results
from its short-term and long-term debt with both fixed and floating interest
rates. The following table presents principal or notional amounts (stated in
thousands) and related average interest rates by year of maturity for the
Company's debt obligations and their indicated fair market value at December 31,
1999:
<TABLE>
<CAPTION>
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities - Long-Term Debt:
Variable Rate $ - $ 40,500 $ - $ - $ - $ - $ 40,500 $ 40,500
Average Interest Rate - 7.22% - - - - 7.22% -
Fixed Rate $ 18,378 $ 18,333 $ 10,000 $ - $ 32,500 $ 105,500 $ 184,711 $ 182,656
Average Interest Rate 7.25% 7.25% 7.31% - 7.13% 7.34% 7.28% -
</TABLE>
The following table presents principal or notional amounts (stated in
thousands) and related average interest rates by year of maturity for the
Company's debt obligations and their indicated fair market value at December 31,
1998:
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 TOTAL VALUE
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Liabilities - Long-Term Debt:
Variable Rate $ 19,000 $ - $ 66,500 $ - $ 85,500 $ 85,500
Average Interest Rate 6.41% - 6.33% - 6.35% -
Fixed Rate $ 18,461 $ 18,378 $ 18,333 $ 10,000 $ 65,172 $ 65,149
Average Interest Rate 7.25% 7.25% 7.25% 7.31% 7.26% -
</TABLE>
Foreign Currency Exchange Rate Risk
The Company conducts business in the Canadian dollar and pounds sterling
and is therefore subject to foreign currency exchange rate risk on cash flows
related to sales, expenses, financing and investing transactions. Exposure from
market rate fluctuations related to activities in Canada, where the Company's
functional currency is the Canadian dollar, and in the Cayman Islands, where the
Company's functional currency is pounds sterling, is not material at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules required by this
Item are set forth at the pages indicated in ITEM 14(a) (1) and (2) below.
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Company's definitive proxy
statement relating to the 2000 annual meeting of its stockholders to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K (hereinafter the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth in this Item is incorporated
by reference to a similarly titled heading in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth in this Item is incorporated by
reference to a similarly titled heading in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report Page
(1) Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1999
and 1998 F-2
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998, and 1997 F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
(2) All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the
notes to the financial statements.
(3) Exhibits:
3.1 Certificate of Incorporation of the Company filed May 7,
1982 and Amendment to Certificate of Incorporation filed
April 25, 1984 (1)
3.2 Amendment to Certificate of Incorporation filed August 4,
1987 (3)
3.3 Amendment to Certificate of Incorporation filed January 18,
1989 (4)
3.4 Amendment to Certificate of Incorporation filed July 13,
1989 (5)
<PAGE>
3.5 Amendment to Certificate of Incorporation filed August 3,
1993 (11)
3.6 Amendment to Certificate of Incorporation filed November 21,
1997 (22)
3.7 By-Laws of the Company (1)
3.8 Corporate Resolution reflecting an Amendment to the By-Laws
of the Company adopted January 6, 1989 (3)
3.9 Corporate Resolution reflecting an Amendment to the By-Laws
of the Company adopted May 19, 1986
(5)
4.1 Specimen of Common Stock Certificate (1)
4.2 Form of Warrant Certificate granted to certain employees and
one Director of the Company in December 1990 and expiring in
December 2000 (8)
4.3 Form of Promissory Note for Employee Stock Purchase dated
July 21, 1992 (10)
4.4 Form of Subscription Agreement for Employee Stock Purchase
dated July 21, 1992 (10)
4.5 Form of Pledge for Employee Stock Purchase dated July 21,
1992 (10)
4.6 Form of Warrant Certificate granted under the 1994 Warrant
Plans (14)
4.7 Form of Warrant Certificate granted under the 1995 Warrant
Reload Plan (16)
4.8 Form of Executive Warrant Certificate granted to certain
employees of the Company in November
1997 and expiring in November 2002 (22)
4.9 Form of Bonus Warrant Certificate granted to an employee of
the Company in November 1997 and expiring in November 2002
(22)
4.10 Form of Departure Warrant granted to certain employees of
the Company in August 1997 (24)
4.11 Form of Employment Warrant granted to an employee of the
Company in April 1998 and expiring in April 2008 (24)
4.12 Form of Employment Warrant granted to an employee of the
Company in April 1998 and expiring in April 2008 (24)
4.13 Amended and Restated 1998 Employee Stock Purchase Plan (27)
10.1 Incentive Stock Option Plan of the Company (1)
10.2 Non-Qualified Stock Option Plan of the Company (1)
10.3 1993 Incentive Stock Option Plan of the Company (11)
10.4 Amendment No. 1 to the Seitel, Inc. 1993 Incentive Stock
Option Plan (15)
10.5 Statement of Amendments effective November 29, 1995, to the
Seitel, Inc. 1993 Incentive Stock Option Plan (18)
10.6 Statement of Amendments effective April 22, 1996, to the
Seitel, Inc. 1993 Incentive Stock Option Plan (18)
10.7 Amendment to the Seitel, Inc. 1993 Incentive Stock Option
Plan effective December 31, 1996 (20)
<PAGE>
10.8 Amendment to Limit Options Granted to a Single Participant
under the Seitel, Inc. 1993 Incentive Stock Option Plan (22)
10.9 Amendment to Increase Number of Shares Available for
Granting Options under the Seitel, Inc. 1993 Incentive Stock
Option Plan (22)
10.10 Non-Employee Directors' Stock Option Plan of the Company
(13)
10.11 Amendment to the Seitel, Inc. Non-Employee Directors' Stock
Option Plan effective December 31, 1996 (20)
10.12 Seitel, Inc. Non-Employee Directors' Deferred Compensation
Plan (18)
10.13 Non-Employee Directors' Retirement Plan (27)
10.14 Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan
(19)
10.15 Amendment to the Seitel, Inc. Amended and Restated 1995
Warrant Reload Plan effective December 31, 1996 (20)
10.16 Memorandum of Understanding between the Company and Triangle
Geophysical Company dated as of June 7, 1984 (1)
10.17 Lease Agreement by and between the Company and Commonwealth
Computer Advisors, Inc. (2)
10.18 The Company's 401(k) Plan adopted January 1, 1998 (22)
10.19 Executive Services Agreement dated April 3, 1990 between
the Company and Helm Resources, Inc. (7)
10.20 Employment Agreement effective as of January 1, 1991
between the Company and Paul A. Frame, Jr.
(9)
10.21 Amendment to Employment Agreement dated effective as of
January 1, 1998 between the Company and Paul A. Frame, Jr.
(22) 10.22 Employment Agreement effective as of January 1,
1991 between the Company and Horace A. Calvert (9)
10.23 Amendment to Employment Agreement dated effective as of
January 1, 1998 between the Company and Horace A. Calvert
(22)
10.24 Employment Agreement effective as of January 1, 1991
between the Company and Herbert M. Pearlman (9)
10.25 Amendment to Employment Agreement dated effective as of
January 1, 1998 between the Company and Herbert M. Pearlman
(22)
10.26 Employment Agreement effective as of January 1, 1991
between the Company and David S. Lawi (9)
10.27 Amendment to Employment Agreement dated effective as of
January 1, 1998 between the Company and David S. Lawi (22)
10.28 Employment Agreement effective as of January 1, 1993
between the Company and Debra D. Valice (12)
10.29 Amendment to Employment Agreement dated effective as of
January 1, 1998 between the Company and Debra D. Valice (22)
<PAGE>
10.30 Amendment to Employment Agreement dated effective as of
June 10, 1998 between the Company and Debra D. Valice (23)
10.31 Joint Venture Agreement dated April 5, 1990 by and between
Seitel Offshore Corp., a wholly-owned subsidiary of the
Company, and Digicon Data Inc., a wholly-owned subsidiary of
Digicon Geophysical Corp. (6)
10.32 Revolving Credit Agreement dated as of July 22, 1996, among
Seitel, Inc. and The First National Bank of Chicago (18)
10.33 First Amendment to Seitel, Inc. Revolving Credit Agreement
dated as of August 30, 1996 among the Company and The First
National Bank of Chicago (19)
10.34 Second Amendment to Revolving Credit Agreement dated as of
July 22, 1996, among Seitel, Inc. and The First National
Bank of Chicago (21)
10.35 Ratable Note in the amount of $20,000,000 among Seitel,
Inc. and Bank One, Texas, N.A. dated as
of May 1, 1997 (21)
10.36 Ratable Note in the amount of $30,000,000 among Seitel,
Inc. and The First National Bank of
Chicago dated as of May 1, 1997 (21)
10.37 Third Amendment to Revolving Credit Agreement dated as of
March 16, 1998 among Seitel, Inc. and The First National
Bank of Chicago (22)
10.38 Ratable Note in the amount of $40,000,000 among Seitel,
Inc. and The First National Bank of Chicago dated March 16,
1998 (22)
10.39 Ratable Note in the amount of $35,000,000 among Seitel,
Inc. and Bank One, Texas, N.A. dated as of March 16, 1998
(22)
10.40 Amendment No. 4, dated as of August 10, 1999, among Seitel,
Inc., a Delaware Corporation; the Lenders executing this
Agreement and the First National Bank of Chicago, as Agent
for the Lenders (27)
10.41 Incentive Compensation Agreement (10)
10.42 Terms Agreement dated July 28, 1994, between the Company
and Bear, Stearns & Co., Inc. (13)
10.43 Note Purchase Agreement dated as of December 28, 1995,
between the Company and the Series A Purchasers, the Series
B Purchasers and the Series C Purchasers (17)
10.44 First Amendment to Note Purchase Agreement dated as of
February 12, 1999 between the Company and Senior Noteholders
as of December 28, 1995 (26)
10.45 Second Amendment, dated as of July 14, 1999, to the
Separate Note Purchase Agreements, dated as of December 28,
1995, among Seitel, Inc. and the Noteholders (27)
10.46 Third Amendment, dated as of November 22, 1999, to the
Separate Note Purchase Agreements, dated as of December 28,
1995, among Seitel, Inc. and the Noteholders*
10.47 Revolving Credit Agreement dated as of December 11, 1998,
between the Company and Suntrust Bank, Atlanta (25)
10.48 Note Purchase Agreement dated as of February 12, 1999,
between the Company and the Series D Purchasers, the Series
E Purchasers and the Series F Purchasers (25)
10.49 First Amendment, dated as of July 14, 1999, to the Separate
Note Purchase Agreements, dated as of February 12, 1999,
among Seitel, Inc. and the Noteholders (27)
<PAGE>
10.50 Second Amendment, dated as of November 22, 1999, to the
Separate Note Purchase Agreements, dated as of February 12,
1999, among Seitel, Inc. and the Noteholders *
10.51 Revolving Credit Agreement, dated as of November 9, 1999,
between Olympic Seismic Ltd. and Royal Bank of Canada *
10.52 Amendment, dated as of March 2, 2000, to the Revolving
Credit Agreement, dated as of November 9, 1999, between
Olympic Seismic Ltd. and Royal Bank of Canada *
21.1 Subsidiaries of the Registrant *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Garb Grubbs Harris & Associates, Inc.*
(b) Reports on Form 8-K filed during the quarter ended December 31,
1999:
NONE
------------------
* Filed herewith
(1) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-1, No. 2-92572 as filed
with the Securities and Exchange Commission on August 3,
1984.
(2) Incorporated by reference to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-2, File
No. 33-32838, as filed with the Securities and Exchange
Commission on October 10, 1991.
(3) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-2, No. 33-21300 as filed
with the Securities and Exchange Commission on April 18,
1988.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989.
(6) Incorporated by reference to the Company's Form 8 amending
the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
(7) Incorporated by reference to the Company's Registration
Statement, as amended, on Form S-2, No. 33-34217 as filed
with the Commission on April 6, 1990.
(8) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990.
(9) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1991.
(10) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
(11) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1993.
(12) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1993.
<PAGE>
(13) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1994.
(14) Incorporated by reference to the Company's Registration
Statement on Form S-8, No. 33-89934 as filed with the
Securities and Exchange Commission on March 2, 1995.
(15) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1995.
(16) Incorporated by reference to the Company's Registration
Statement on Form S-8, No. 333-01271 as filed with the
Securities and Exchange Commission on February 28, 1996.
(17) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(18) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(19) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1996.
(20) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(21) Incorporated by reference to the Company's Form 10-Q for the
quarter ended March 31, 1997.
(22) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(23) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1998.
(24) Incorporated by reference to the Company's Registration
Statement on Form S-8, No. 333-64557 as filed with the
Securities and Exchange Commission on September 29, 1999.
(25) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
(26) Incorporated by reference to the Company's Form 10-Q for the
quarter ended March 31, 1999.
(27) Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEITEL, INC.
By: /s/ Paul A. Frame
---------------------------------------
Paul A. Frame
President
Date: March 29, 2000
Pursuant to the requirements of the Securities Act of 1934, this Report on Form
10-K has been signed below by the following persons in the capacities and on the
date indicated.
Signature Title Date
--------- ----- ----
/s/ Herbert M. Pearlman Chairman of the Board of Directors March 29, 2000
- -------------------------
Herbert M. Pearlman
/s/ Paul A. Frame President and Chief Executive March 29, 2000
- ------------------------- Officer, Director
Paul A. Frame
/s/ Horace A. Calvert Executive Vice President and March 29, 2000
- ------------------------- Chief Operating Officer,
Horace A. Calvert Director
/s/ Debra D. Valice Executive Vice President-Finance, March 29, 2000
- ------------------------- Chief Financial Officer,
Debra D. Valice Secretary and Treasurer, Director
/s/ David S. Lawi Director March 29, 2000
- -------------------------
David S. Lawi
/s/ Walter M. Craig, Jr. Director March 29, 2000
- -------------------------
Walter M. Craig, Jr.
/s/ William Lerner Director March 29, 2000
- -------------------------
William Lerner
/s/ John Stieglitz Director March 29, 2000
- -------------------------
John Stieglitz
/s/ Fred S. Zeidman Director March 29, 2000
- -------------------------
Fred S. Zeidman
/s/ Marcia H. Kendrick Chief Accounting Officer March 29, 2000
- -------------------------
Marcia H. Kendrick
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Seitel, Inc.:
We have audited the accompanying consolidated balance sheets of Seitel, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seitel, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 25, 2000
F-1
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and equivalents $ 5,188 $ 3,161
Receivables
Trade, less allowance for doubtful accounts of $1,183 and $936
at December 31, 1999 and 1998, respectively 62,240 59,244
Notes and other 436 581
Data bank 629,380 513,037
Less: Accumulated amortization (299,495) (250,087)
--------- ---------
Net data bank 329,885 262,950
Property and equipment, at cost:
Oil and gas properties, full-cost method of accounting,
including $54,426 and $53,458 not being amortized at
December 31, 1999 and 1998, respectively 204,858 194,576
Furniture, fixtures and other 7,343 6,237
--------- ---------
212,201 200,813
Less: Accumulated depreciation, depletion and amortization (59,614) (49,542)
--------- ---------
Net property and equipment 152,587 151,271
Investment in marketable securities 993 -
Investment in affiliate - 15,544
Prepaid expenses, deferred charges and other assets 4,590 3,016
--------- ---------
TOTAL ASSETS $ 555,919 $ 495,767
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- continued
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 35,497 $ 58,956
Accrued liabilities 11,302 6,882
Employee compensation payable 2,986 5,717
Income taxes payable 373 1,056
Debt
Senior Notes 184,667 65,000
Line of credit 40,500 85,500
Term loans 33 172
Obligations under capital leases 23 18
Contingent payables 274 274
Deferred income taxes 32,778 28,039
Deferred revenue 4,462 6,566
--------- ---------
Total Liabilities 312,895 258,180
--------- ---------
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 December 31, 1999 and 1998, respectively 243 238
Additional paid-in capital 147,549 141,826
Retained earnings 110,117 107,102
Treasury stock, 680,518 and 175,818 shares at cost at
December 31,1999 and 1998, respectively (6,279) (2,977)
Notes receivable from officers and employees (6,915) (8,651)
Accumulated other comprehensive income (loss) (1,691) 49
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 243,024 237,587
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 555,919 $ 495,767
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUE $ 128,707 $ 144,857 $ 127,556
EXPENSES
Depreciation, depletion and amortization 59,624 69,890 49,679
Impairment of oil and gas properties - - 9,560
Cost of sales 5,016 4,874 17,953
Selling, general and administrative expenses 28,587 26,599 23,043
--------- --------- ---------
93,227 101,363 100,235
--------- --------- ---------
INCOME FROM OPERATIONS 35,480 43,494 27,321
Interest expense (11,791) (5,963) (4,609)
Interest income 714 423 1,055
Equity in earnings (loss) of affiliate (91) 222 146
Impairment due to dividend distribution of
affiliate stock (7,794) - -
Gain on sale of subsidiary stock - - 18,449
Increase (decrease) in underlying equity of affiliate - (193) 10,750
Extinguishment of volumetric production payment - - (4,133)
--------- --------- ---------
Income before provision for income taxes 16,518 37,983 48,979
Provision for income taxes 7,138 13,623 17,422
--------- --------- ---------
NET INCOME $ 9,380 $ 24,360 $ 31,557
========= ========= =========
Earnings per share:
Basic $ .39 $ 1.07 $ 1.48
Diluted $ .39 $ 1.05 $ 1.43
Weighted average number of common and common equivalent shares:
Basic 23,863 22,720 21,380
========= ========= =========
Diluted 24,063 23,124 22,050
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Receivable Accumulated
Compre- Common Stock Additional Treasury Stock from Other
hensive ------------------ 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, 1996 10,362,102 $ 104 $105,544 $ 51,185 (409)$ (4) $ (1,205) $ 17
Net proceeds from
issuance of common stock 912,472 8 17,318 - - - - -
Two-for-one stock split 11,273,834 113 (113) - (409) - - -
Tax reduction from
exercise
of stock options - - 5,657 - - - - -
Treasury stock purchased - - - - (175,000) (2,973) - -
Payments received on
notes receivable from
officers and employees - - - - - - 96 -
Net income $ 31,557 - - - 31,557 - - - -
Foreign currency
translation
adjustments (31) - - - - - - - (31)
--------
Comprehensive income $ 31,526
======== ---------- ------ -------- ------- -------- ------ -------- ----------
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 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 5,126 - - - - -
Tax reduction from
exercise
of stock options - - 597 - - - - -
Treasury stock purchased - - - - (504,700) (3,302) - -
Payments received on
notes receivable from
officers and employees - - - - - - 1,736 -
Distribution of Eagle
Geophysical, Inc.
shares - - - (6,365) - - - -
Net income $ 9,380 - - - 9,380 - - - -
Foreign currency
translation
adjustments (695) - - - - - - - (695)
Unrealized loss on
marketable
securities net of
income
tax benefit of $526 (1,045) - - - - - - - (1,045)
--------
Comprehensive income $ 7,640
======== ---------- ------ -------- ------- -------- ------ -------- ----------
Balance, December 31, 1999 24,285,795 $ 243 $147,549 $110,117 (680,518)$ (6,279) $ (6,915) $ (1,691)
========== ======= ======== ======= ======== ====== ======== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 117,085 $ 128,747 $ 123,795
Cash paid to suppliers and employees (32,534) (22,549) (41,652)
Interest paid (8,926) (5,792) (4,584)
Interest received 623 398 955
Income taxes paid (1,754) (3,311) (2,353)
---------- --------- ----------
Net cash provided by operating activities 74,494 97,493 76,161
---------- --------- ----------
Cash flows from investing activities:
Cash invested in seismic data (128,194) (119,267) (76,616)
Cash invested in oil and gas properties (27,857) (40,929) (55,480)
Cash paid to acquire property and equipment (1,073) (839) (8,772)
Net proceeds from sale of oil and gas properties 11,657 - -
Cash from disposal of property and equipment - 17 28
Proceeds from sale of stock of subsidiary - - 29,723
Costs related to sale of stock of subsidiary - - (5,435)
Cash received from affiliate for advances - - 2,094
Collections on loans made - - 5,415
Investment in marketable securities (3,043) - -
Deferred offering costs (80) - -
---------- --------- ----------
Net cash used in investing activities (148,590) (161,018) (109,043)
---------- --------- ----------
Cash flows from financing activities:
Borrowings under line of credit agreement 91,314 108,812 63,500
Principal payments under line of credit
agreement (136,314) (38,312) (48,500)
Borrowings under term loans - - 7,925
Principal payments on term loans (139) (305) (2,301)
Principal payments under capital lease
obligations (28) (71) (828)
Proceeds from issuance of senior notes 138,000 - -
Principal payments under senior notes (18,333) (10,000) -
Proceeds from issuance of common stock 5,167 1,063 17,361
Costs of debt and equity transactions (1,571) (79) (35)
Repurchase of common stock (3,302) - (2,735)
Payments on notes receivable from officers
and employees 1,736 649 96
---------- --------- ----------
Net cash provided by financing activities 76,530 61,757 34,483
---------- --------- ----------
Effect of exchange rate changes (407) 48 (60)
---------- --------- ----------
Net increase (decrease) in cash and equivalents 2,027 (1,720) 1,541
Cash and equivalents at beginning of period 3,161 4,881 3,340
---------- --------- ----------
Cash and equivalents at end of period $ 5,188 $ 3,161 $ 4,881
========== ========= ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 9,380 $ 24,360 $ 31,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of subsidiary stock - - (18,449)
Decrease (increase) in underlying equity of affiliate - 193 (10,750)
Extinguishment of volumetric production payment - - 4,133
Impairment due to dividend distribution of affiliate
stock 7,794 - -
Equity in loss (earnings) of affiliate 91 (222) (146)
Depreciation, depletion and amortization 59,624 69,890 62,293
Deferred income tax provision 5,501 9,989 8,257
Non-cash sales (6,522) (1,140) -
Gain on sale of property and equipment - (32) (16)
Amortization of deferred revenue - - (4,079)
Increase in receivables, net (2,851) (14,706) (3,544)
Decrease (increase) in other assets 402 (314) (849)
Discount on note receivable - - (198)
Increase in accounts payable and other liabilities 1,075 9,475 7,952
----------- ---------- ----------
Total adjustments 65,114 73,133 44,604
----------- ---------- ----------
Net cash provided by operating activities $ 74,494 $ 97,493 $ 76,161
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Seitel, Inc. (the "Company") is a leading
diversified energy company providing seismic data and related geophysical
services to the oil and gas industry and directly participating in exploration,
development and ownership of natural gas and crude oil reserves. The majority of
the Company's seismic surveys cover onshore and offshore the U.S. Gulf Coast
region. The Company's oil and gas exploration, development and production
activities are on properties located primarily in the onshore Gulf Coast areas
of Texas, Louisiana, Alabama and Mississippi, as well as California and
Arkansas.
In the course of its operations, the Company is subject to certain risk
factors, including, but not limited to, the following: competition, industry
conditions, volatility of oil and gas prices, operating risks, dependence of key
personnel, geographic concentration of operations and compliance with
governmental regulations.
Use of Estimates: The preparation of these consolidated financial
statements in conformity with accounting principles generally accepted in the
United States requires the use of certain estimates by management in determining
the Company's assets, liabilities, revenues and expenses. Actual results could
differ from estimates. Data bank amortization is determined using estimates of
ultimate revenues from licensing of the seismic data. Refer to the data bank
discussion below for additional information on data bank amortization.
Depreciation, depletion and amortization of oil and gas properties and the
impairment of oil and gas properties are determined using estimates of proved
oil and gas reserves and the present value of estimated cash flows therefrom.
There are numerous uncertainties in estimating the quantity of proved reserves
and in projecting the future rates of production and timing of development
expenditures. Refer to Note S, "Supplemental Oil and Gas Information" for
additional information regarding the process of estimating proved oil and gas
reserve quantities and related values.
Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Seitel, Inc., the accounts of its
wholly-owned subsidiaries and the Company's pro rata share of its investments in
joint ventures. Investments in less than majority owned companies over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. All material intercompany accounts and transactions
have been eliminated in consolidation. Certain reclassifications have been made
to the amounts in the prior years' financial statements to conform to the
current year's presentation.
The Company presents its consolidated balance sheets on an unclassified
basis. Because the portion of seismic data acquisition costs to be amortized
during the next year cannot be classified as a current asset, and classification
of all of these costs as noncurrent would be misleading to the reader because it
would not indicate the level of assets expected to be converted into cash in the
next year, the Company believes that the use of an unclassified balance sheet
results in improved financial reporting.
Data Bank: Costs incurred in the creation of proprietary seismic data,
including the direct and incremental costs of Company personnel engaged in
project management and design, are capitalized. Substantially all (greater than
88%) 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. 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 expectations, amortization is accelerated. 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. As of December 31, 1999,
almost all (97%) of the net costs of the Company's data bank are expected to be
fully amortized within 10 years from when such data becomes available for
resale. On a periodic basis, the carrying value of seismic data is compared to
F-8
<PAGE>
its estimated future revenue and, if appropriate, is reduced to its estimated
net realizable value. Net data bank at December 31, 1999 and 1998 was comprised
of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
2D data created by the Company $ 11,475 $ 14,269
3D data created by the Company 279,577 230,163
Data purchased by the Company 38,833 18,518
------------ ------------
Net data bank $ 329,885 $ 262,950
============ ============
</TABLE>
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 are capitalized, including salaries,
benefits and other internal costs, directly attributable to these activities.
Costs associated with production and general corporate activities are expensed
in the period incurred. For the years ended December 31, 1999, 1998 and 1997,
exploration and development related overhead costs of $1,938,000, $1,795,000 and
$1,431,000, respectively, have been capitalized to oil and gas properties.
Interest costs related to unproved properties and certain properties under
development are also capitalized to oil and gas properties. For the years ended
December 31, 1999, 1998 and 1997, interest costs of $3,101,000, $2,486,000 and
$2,105,000, respectively, have been capitalized to oil and gas properties.
No gains or losses are recognized upon the sale of oil and gas
properties unless a significant portion of the Company's proved oil and gas
reserves are sold (generally greater than 25 percent). Instead, proceeds from
the sale of oil and gas properties are accounted for as a reduction of
capitalized costs. In July 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 $11.7 million, net of
costs.
Depreciation, depletion and amortization ("DD&A") expense is calculated
quarterly using the units-of-production method based upon production and
estimates of proved reserves. Estimated future development costs and site
restoration, dismantlement and abandonment costs, net of salvage values, are
included in the amortization base. Capitalized costs associated with the
acquisition and evaluation of unproved properties and certain properties under
development are not included in the amortization base until the properties
associated with these costs are evaluated.
Capitalized costs of oil and gas properties, net of accumulated DD&A
and deferred income taxes, are limited to the present value, discounted at 10
percent, of future net cash flows from estimated proved oil and gas reserves,
based on current economic and operating conditions, plus the lower of cost or
fair value of unproved properties, adjusted for the effects of related income
taxes. If capitalized costs exceed this limit, the excess is charged to
impairment of oil and gas properties. Based on the Company's December 31, 1997
estimated proved reserves valued at March 18, 1998 market prices, the Company
recorded a non-cash impairment of oil and gas properties of $9,560,000
($6,160,000 net of taxes) in 1997. At March 31, 1999, the Company's capitalized
costs of oil and gas properties exceeded the limitation thereon based on
quarter-end oil and gas prices; however, an impairment was not recorded at that
time because price increases in April 1999 indicated that capitalized costs were
not impaired. Given the volatility of oil and gas prices, it is reasonably
possible that the Company's estimate of discounted future net cash flows from
proved oil and gas reserves could change in the near term. If oil and gas prices
decline significantly in the future, even if only for a short period of time, it
is possible that additional impairments of oil and gas properties could occur.
Substantially all of the Company's exploration and development
activities are conducted jointly with others and, accordingly, the Company's oil
and gas property balance reflects only its proportionate interest in such
activities.
Other Property and Equipment: Depreciation of other property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets of three to five years.
Marketable Equity Securities: The Company accounts for its marketable
equity securities in accordance with Statement of Financial Accounting Standards
("SFAS") 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
F-9
<PAGE>
gains and losses, net of taxes, reflected in accumulated other comprehensive
income (loss) included in stockholders' equity until realized. For the purpose
of computing realized gains and losses, cost is identified on a specific
identification basis.
At December 31, 1999, unrealized losses on marketable securities were
$1,571,000. The deferred tax benefit on this loss was $526,000 at December 31,
1999, resulting in a net charge of $1,045,000 to other comprehensive income.
Debt Issue Costs: Debt issue costs related to the Company's Senior
Notes and line of credit are included in prepaid expenses, deferred charges and
other assets in the consolidated balance sheet. Such costs are amortized over
the scheduled maturities of the debt. As of December 31, 1999 and 1998,
unamortized debt issue costs were $1,762,000 and $532,000, respectively.
Income Taxes: The Company and all of its U.S. subsidiaries file
a consolidated federal income tax return. The Company does not provide U.S.
taxes on the undistributed earnings of its foreign subsidiaries whose earnings
are intended to be permanently reinvested in foreign operations. At December 31,
1999, accumulated net earnings of non-U.S. subsidiaries for which no U.S.
federal taxes have been provided were $6,609,000.
Income Recognition: Revenue from seismic data licensing agreements is
recognized when each seismic data program is available for use by the licensees,
and is presented net of revenue shared with other entities. Revenue from the
acquisition of seismic data for non-affiliated parties is recognized on the
percentage-of-completion method based on the work effort completed compared with
the total work effort estimated for the contract. These contracts generally
provide that the customer accepts work completed throughout the performance
period and owes the Company, based on pricing provisions, amounts for job
completion, measured in terms of performance progress. Revenue received in
advance of being earned is deferred until earned.
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 parties for similar seismic
data.
Cost of Sales: Cost of sales consists of expenses associated with oil
and gas production, seismic resale support services and the acquisition of
seismic data for non-affiliated parties (until August 11, 1997). The cost of
acquiring seismic data for non-affiliated parties includes all direct material
and labor costs and indirect costs related to the acquisition such as supplies,
tools, repairs and depreciation.
Foreign Currency Translation: For subsidiaries whose functional
currency is deemed to be other than the U.S. dollar, asset and liability
accounts are translated at period-end exchange rates and revenue and expenses
are translated at the current exchange rates as of the dates on which they are
recognized. Resulting translation adjustments are included in accumulated other
comprehensive income (loss) in stockholders' equity. Any gains or losses
realized on transactions or monetary assets or liabilities in currencies other
than the functional currency are included in net income in the current period.
Transaction gains (losses) totaling $455,000, $108,000 and $(87,000) for the
years ended December 31, 1999, 1998 and 1997, respectively, are included in
selling general and administrative expenses in the consolidated statements of
operations.
Use of Derivatives: The Company has a price risk management program
that utilizes derivative financial instruments, principally natural gas swaps,
to reduce the price risks associated with fluctuations in natural gas prices.
Such contracts usually are placed with major derivative dealers that the Company
believes are minimal credit risks. The Company accounts for its derivative
financial instruments using the hedge (or deferral) method of accounting. Under
this method, realized gains and losses from the Company's price risk management
activities are recognized in oil and gas production revenues when the associated
production occurs and the resulting cash flows are reported as cash flows from
operating activities. Gains and losses on derivative financial instruments that
are closed before the hedged production occurs are deferred until the production
month originally hedged.
F-10
<PAGE>
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS No. 137, is required to be adopted on January
1, 2001, although earlier adoption is permitted. 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 formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. The
Company has not yet quantified the impact of adopting SFAS No. 133. However,
management does not believe that the adoption of SFAS No. 133 will have a
material impact on the Company's financial position or results of operations.
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 years 1999, 1998 and 1997 consist of the following (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 9,380 $ 24,360 $ 31,557
========== ========== ==========
Basic weighted average shares 23,863 22,720 21,380
Effect of dilutive securities: (1)<F1>
Options and warrants 200 404 670
---------- ---------- ----------
Diluted weighted average shares 24,063 23,124 22,050
========== ========== ==========
Per share net income:
Basic $ .39 $ 1.07 $ 1.48
Diluted $ .39 $ 1.05 $ 1.43
- -------------------
<FN>
(1)<F1> A weighted average year-to-date number of options and warrants to
purchase 5,517,000, 187,000 and 1,007,000 shares of common stock were
outstanding during 1999, 1998 and 1997, respectively, but were not
included in the computation of diluted per share net income because
their exercise prices were greater than the average market price of the
common shares.
</FN>
</TABLE>
Stock-Based Compensation: The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Reference is made to Note H, "Stock Options and Warrants," for a
summary of the pro forma effect of SFAS No. 123, "Accounting for Stock-Based
Compensation" on the Company's results of operations in 1999, 1998 and 1997.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The estimated fair value amounts have been
determined by the Company using available market data and valuation
methodologies. The book values of cash and equivalents, receivables and accounts
payable approximate their fair value as of December 31, 1999 and 1998, because
of the short-term maturity of these instruments. Based upon the rates available
to the Company, the fair value of the Senior Notes and the term loans
approximates $182,656,000 and $65,149,000 as of December 31, 1999 and 1998,
respectively. The book value of the Company's revolving line of credit
approximates fair value due to the variable interest rates under the line.
F-11
<PAGE>
Impairment of Long-Lived Assets: In accordance with SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," the Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be realizable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment of such asset is necessary. The
effect of any impairment would be to expense the difference between the fair
value of such asset and its carrying value. There were no such impairments
recorded under SFAS No. 121 in 1999, 1998 or 1997.
Accounting For Sales of Stock By Subsidiary Companies: The Company
recognizes gains or losses on sales of stock by its subsidiary companies when
such sales are not made as part of a larger plan of corporate reorganization.
Such gains or losses are based upon the difference between the book value of the
Company's investment in the subsidiary immediately after the sale and the
historical book value of the Company's investment immediately prior to the sale.
Comprehensive Income: In accordance with SFAS No. 130, "Reporting
Comprehensive Income," the Company has reported comprehensive income in the
consolidated statements of stockholders' equity for the three years ended
December 31, 1999. Accumulated other comprehensive income for the Company
consists of foreign currency translation adjustments and unrealized gains
(losses) on marketable securities. Cumulative translation adjustments are not
adjusted for income taxes as they relate to indefinite investments in non-U.S.
subsidiaries.
Allowance for Doubtful Accounts: Activity in the Company's allowance
for doubtful accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Balance at beginning of period $ 936 $ 561
Additions to costs and expenses 365 400
Deductions for uncollectible receivables written off and recoveries (118) (25)
------------ ------------
Balance at end of period $ 1,183 $ 936
============ ============
</TABLE>
NOTE B--INCOME TAXES
The provision for income taxes for each of the three years ended
December 31, 1999, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Current - Federal $ 1,456 $ 3,018 $ 8,709
- State 156 165 314
- Foreign 25 451 142
--------- ---------- ---------
1,637 3,634 9,165
--------- ---------- ---------
Deferred - Federal 1,678 9,463 8,256
- State - - 1
- Foreign 3,823 526 -
--------- ---------- ---------
5,501 9,989 8,257
--------- ---------- ---------
Tax provision - Federal 3,134 12,481 16,965
- State 156 165 315
- Foreign 3,848 977 142
--------- ---------- ---------
$ 7,138 $ 13,623 $ 17,422
========= ========== =========
</TABLE>
F-12
<PAGE>
The differences between the U.S. Federal income taxes computed at the
statutory rate (35%) and the Company's income taxes for financial reporting
purposes are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Statutory Federal income tax $ 5,781 $ 13,294 $ 17,143
State income tax, less Federal benefit 101 107 206
Tax difference on foreign earnings 913 211 -
Other, net 343 11 73
-------- ------- --------
Income tax expense $ 7,138 $ 13,623 $ 17,422
======== ======= ========
</TABLE>
The components of the net deferred income tax liability reflected in
the Company's consolidated balance sheets at December 31, 1999 and 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
Deferred Tax Assets
(Liabilities) at December 31,
-----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Alternative minimum tax credit carryforward $ 1,136 $ 4,324
Partnership earnings 1,243 945
Canadian tax credits 1,358 -
Investment tax credits 44 44
Other 2,742 1,407
---------- ----------
Total deferred tax assets 6,523 6,720
Less: Valuation allowance (44) (44)
---------- ----------
Deferred tax assets, net of
valuation allowance 6,479 6,676
---------- ----------
Depreciation, depletion and amortization (34,256) (30,615)
Deferred revenue (3,168) -
Financial gain on sale of subsidiary stock - (2,934)
Other (1,833) (1,166)
----------
----------
Total deferred tax liabilities (39,257) (34,715)
---------- ----------
Net deferred tax liability $ (32,778) $ (28,039)
========== ==========
</TABLE>
As of December 31, 1999, the Company has an alternative minimum tax
(AMT) credit carryforward of approximately $1,136,000 which can be used to
offset regular Federal income taxes payable in future years. The AMT credit has
an indefinite carryforward period.
In connection with the exercise of non-qualified stock options and
common stock purchase warrants by employees during 1999, 1998 and 1997, the
Company received $597,000, $344,000 and $5,657,000, respectively, in Federal
income tax savings which has been reflected as a credit to additional paid-in
capital.
F-13
<PAGE>
NOTE C--DEBT
The following is a summary of the Company's debt at December 31, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Senior notes, Series A, 7.17%, maturing in equal
amounts of $8,333 through 2001 $ 16,667 $ 25,000
Senior notes, Series B, 7.17%, maturing in equal
amounts of $5,500 through 2002 16,500 22,000
Senior notes, Series C, 7.48%, maturing in equal
amounts of $4,500 through 2002 13,500 18,000
Senior notes, Series D, 7.03%, maturing in 2004 20,000 -
Senior notes, Series E, 7.28%, maturing in equal
amounts of $12,500 beginning 2004
through 2009 75,000 -
Senior notes, Series F, 7.43%, maturing in 2009 43,000 -
Parent revolving credit agreement, maturing
in 2001 (average 7.22% at December 31,
1999) 40,500 66,500
Parent revolving credit agreement, cancelled
in 1999 - 19,000
Subsidiary revolving credit agreement - -
Term loans, 7.9%, maturing in varying
amounts through 2000 33 172
---------- ----------
$ 225,200 $ 150,672
========== ==========
</TABLE>
Senior Notes: The Company has issued six series of unsecured Senior
Notes totaling $213 million through private placement. Interest on the Series
A, B and C Senior Notes is payable semi-annually on June 30 and December 30 and
interest on the Series D, E and F Senior Notes is payable semi-annually on
February 15 and August 15. Accrued interest of $3,735,000 is included in accrued
liabilities at December 31, 1999. At December 31, 1998, the Company did not have
any accrued interest on the Senior Notes.
Lines of Credit: 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 1 1/2%, 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 the
credit facility.
In February 1999, the Company paid all amounts outstanding under a $25
million line of credit and cancelled the line of credit.
On November 9, 1999, the Company's wholly-owned subsidiary, Olympic
Seismic Ltd. ("Olympic"), entered into revolving credit facilities which allow
it to borrow up to $5 million (Canadian dollars) by way of prime based loans,
bankers' acceptances or letters of credit. Prime based loans and bankers'
acceptances bear interest at the rate of the bank's prime rate plus 0.35% per
annum and 0.50% per annum, respectively. Letter of credit fees are based on
scheduled rates in effect at the time of issuance. The facility is secured by
Olympic's assets, but is not guaranteed by Seitel, Inc. or any of its other
subsidiaries. Borrowings under the facility are limited to 75% of trade
receivables less than 90 days old. The facility is subject to repayment upon
demand and is available from time to time at the Bank's sole discretion. Olympic
did not have any amounts outstanding under this line of credit at December 31,
1999.
The financial covenant restrictions for the Senior Notes and line of
credit include, among others, interest coverage, maintenance of minimum net
worth and limitations on liens, total debt, debt issuance and disposition of
assets. The Company was in compliance with the financial convenants at December
31, 1999.
Aggregate maturities of the Company's debt over the next five years and
thereafter are as follows: $18,367,000 in 2000; $58,833,000 in 2001; $10,000,000
in 2002, $0 in 2003, $32,500,000 in 2004 and $105,500,000 thereafter.
F-14
<PAGE>
NOTE D--LEASE OBLIGATIONS
Assets recorded under capital leases obligations of $30,000 and $17,000
at December 31, 1999 and 1998, respectively, are included in property and
equipment.
The Company leases office space under operating leases. Rental expense
for 1999, 1998 and 1997 was approximately $1,112,000, $757,000 and $606,000,
respectively.
Future minimum lease payments for the five years subsequent to December
31, 1999 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -----------
<S> <C> <C>
2000 $ 24 $ 900
2001 - 697
2002 - 423
2003 - 153
2004 153
----------- -----------
Total minimum lease payments 24 $ 2,326
===========
Less amount representing interest (1)
-----------
Present value of net minimum
lease payments $ 23
===========
</TABLE>
NOTE E--VOLUMETRIC PRODUCTION PAYMENT
In June 1996, the Company sold a volumetric production payment for $19
million to certain limited partnerships. Under the terms of the production
payment agreements, the Company conveyed a mineral property interest of
approximately 7.6 billion cubic feet of certain natural gas and approximately
363,000 barrels of other hydrocarbons to the purchasers. The Company retained
responsibility for its working interest share of the cost of operations. The
Company accounted for the proceeds received in the transaction as deferred
revenue which was amortized into revenue and income as natural gas and other
hydrocarbons were produced and delivered.
The Company entered into an agreement to extinguish the remaining
portion of its volumetric production payment which was effective July 1, 1997.
The cost to acquire the production payment liability exceeded its book value. As
a result of this transaction, the Company recorded a pre-tax loss of $4,133,000
in the accompanying consolidated statement of operations for the year ended
December 31, 1997.
NOTE F--CONTINGENCIES AND COMMITMENTS
At both December 31, 1999 and 1998, $274,000 of charges for seismic
surveys which are payable to joint venture partners only from the collection of
sales proceeds from those seismic surveys are included in contingent payables.
The Company has employment agreements with certain of its key employees
and other incentive compensation arrangements that commit it to commissions
based on revenue, bonuses based on pre-tax profits, and other amounts based on
seismic data program and oil and gas project profitability. Part III of the
Company's Form 10-K contains a more complete discussion of these contractual
obligations.
The Company guarantees borrowings up to $750,000 made by its president
under a line of credit. The Company is only obligated to make payment in the
event of default by its president. The Company has a contractual right of offset
against any salary, bonus, commission or other amounts due from the Company to
its president for any amounts paid by the Company pursuant to this guaranty. At
December 31, 1999, $700,000 was outstanding on this line of credit, which
represented the maximum amount outstanding on this line of credit for the year.
The Company did not make any payments under this guaranty during 1999.
The Company is involved from time to time in or threatened with
litigation and is subject to governmental and regulatory controls arising in the
ordinary course of business. It is the opinion of the Company's management that
all claims and litigation involving the Company are not likely to have a
material adverse effect on its financial position or results of operations.
F-15
<PAGE>
The Company, as an owner of oil and gas properties, is subject to
various federal, state and local laws and regulations relating to discharge of
materials into, and protection of, the environment. These laws and regulations
may, among other things, impose liability on the lessee under an oil and gas
lease for the cost of pollution clean-up resulting from operations and subject
the lessee to liability for pollution damages. The Company maintains insurance
coverage, which it believes is customary in the industry, although it is not
fully insured against all environmental risks. The Company is not aware of any
environmental claims existing as of December 31, 1999, which would have a
material impact on its financial position or results of operations.
NOTE G--FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The Company has a price risk management program that utilizes
derivative financial instruments, principally natural gas swaps, to reduce the
price risk associated with fluctuations in natural gas prices. Such contracts
usually are placed with major derivative dealers that the Company believes are
minimal credit risks. The derivative financial instruments call for the Company
to receive or make payments based upon the differential between a fixed and a
variable commodity price as specified in the contract. As a result of these
activities, the Company recognized net hedging gains (losses) of $(308,000),
$653,000 and $474,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
As of December 31, 1999, the Company had open natural gas swaps through
July 2000 covering 10,000 MMBtu per day at a fixed price of $2.51 per MMBtu and
for August 2000 covering 5,000 MMBtu per day at a fixed price of $2.57 per
MMBtu.
The estimated fair value of open commodity price hedges as of December
31, 1999 and December 31, 1997 was $(377,000) and $183,000, respectively. As of
December 31, 1998, the Company did not have any open commodity price hedges.
NOTE H--STOCK OPTIONS AND WARRANTS
The Company presently maintains four stock option plans under which the
Company's officers, directors and employees may be granted options or warrants
to purchase the Company's common stock. The exercise price, term and other
conditions applicable to each option or warrant granted under the Company's
plans are generally determined by the Compensation Committee at the time of
grant and may vary with each option or warrant granted. All options and warrants
issued under the Company's plans are issued at or above the market price of the
Company's common stock as of the date of issuance, have a term of no more than
ten years and vest under varying schedules in accordance with the terms of the
respective option or warrant agreements.
The following summarizes information with regard to the stock option
and warrant plans for the years ended December 31, 1999, 1998 and 1997 (shares
in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 6,768 $ 12.99 5,659 $ 16.33 4,758 $ 11.50
Granted 878 12.98 5,015 13.75 3,444 20.18
Exercised (481) 10.75 (102) 9.74 (1,809) 9.26
Cancelled (312) 11.87 (3,804) 19.00 (734) 20.53
-------- -------- --------
Outstanding at end of year 6,853 13.01 6,768 12.99 5,659 16.33
======== ======== ========
Options exercisable at end of year 5,626 5,363 4,147
======== ======== ========
Available for grant at end of year 1,636 1,170 1,256
======== ======== ========
</TABLE>
F-16
<PAGE>
The following table summarizes information for the options and warrants
outstanding at December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Number of Weighted Weighted Number of Weighted
Options Average Average Options Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/99 Life in Price at 12/31/99 Price
Years
- ----------------------------- ----------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 2.65 - $ 11.82 1,776 3.25 $ 9.73 1,480 $ 10.00
$ 12.31 - $ 12.50 680 5.85 12.41 680 12.41
$ 12.87 - $ 13.73 3,663 3.46 13.72 2,810 13.71
$ 14.34 - $ 24.60 684 4.26 17.45 606 17.77
$ 24.93 - $ 24.93 50 6.73 24.93 50 24.93
----------- -----------
$ 2.65 - $ 24.93 6,853 13.01 5,626 13.11
=========== ===========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. APB Opinion No. 25 generally
does not require compensation costs to be recorded on options which have
exercise prices at least equal to the market price of the stock on the date of
grant. Accordingly, no compensation cost has been recognized for the Company's
stock-based plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the optional accounting method
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income As reported $ 9,380 $ 24,360 $ 31,557
Pro forma $ 5,331 $ 15,159 $ 17,039
Basic earnings per share As reported $ .39 $ 1.07 $ 1.48
Pro forma $ .22 $ .67 $ .80
Diluted earnings per share As reported $ .39 $ 1.05 $ 1.43
Pro forma $ .22 $ .66 $ .78
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1999, 1998 and 1997, respectively: (1) risk-free interest rates ranging from
5.56% to 6.73%, 4.44% to 5.03% and 5.79% to 6.79%; (2) dividend yield of 0%, 0%
and 0%; (3) stock price volatility ranging from 47.84% to 482.90%, 44.34% to
57.10% and 37.23% to 45.77%, and (4) expected option lives ranging from .67 to
10 years, .42 to 10 years and 1.67 to 10 years. The weighted-average fair value
of options granted during 1999, 1998 and 1997 was $12.57, $11.94 and $9.98 per
option, respectively, for options granted at fair market value and $7.13, $13.75
and $10.15 per option for options granted above fair market value in 1999, 1998
and 1997, respectively. The pro forma amounts shown above may not be
representative of future results because the SFAS No. 123 method of accounting
has not been applied to options granted prior to January 1, 1995.
NOTE I--NON-EMPLOYEE DIRECTORS' PLANS
The Company has a Non-Employee Directors' Deferred Compensation Plan
which permits each non-employee director to elect to receive annual director
fees in the form of stock options and to defer receipt of any director fees in a
deferred cash account or as deferred shares. As of December 31, 1999, 60,000
shares have been reserved for issuance under this plan and directors have
accumulated 7,067 deferred shares in their accounts of which 656 shares have
been distributed and 6,411 will be distributed in future years.
In 1999, the Company's Board of Directors adopted the Non-Employee
Directors' Retirement Plan which provides that each non-employee director with
10 or more years continuous service is eligible to receive a retirement benefit
based on a formula defined in the plan. In 1999, the Company expensed $18,000
related to this plan.
F-17
<PAGE>
NOTE J--COMMON STOCK
On November 20, 1997, the shareholders of the Company approved an
increase in the Company's authorized common stock to 50,000,000 shares to
facilitate a two-for-one stock split, effected in the form of a 100% stock
dividend, which was approved by the Board of Directors on October 7, 1997. The
two-for-one stock split was paid in the form of a stock dividend to shareholders
of record as of December 3, 1997. All numbers of shares and per share amounts in
the accompanying consolidated financial statements and footnotes have been
restated to give effect to the two-for-one stock split except where noted.
In December 1997, the Company's Board of Directors approved the
expenditure of up to $25 million to repurchase the Company's common stock. As of
December 31, 1999, the Company has repurchased 679,700 shares of common stock at
a cost of $6,275,000 under this plan.
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 and (iii) common stock 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 ("SEC"). In addition, under
another effective "shelf" registration statement filed with the SEC, the Company
may offer up to an aggregate of $200,000,000 of the following securities, in any
combination, from time to time in one or more series: (1) unsecured debt
securities, which may be senior or subordinated; (2) preferred stock; (3) common
stock, and (4) trust preferred securities.
On July 21, 1992, the Company granted ten-year loans at an interest
rate of 4% to most of its employees for the purchase of 800,000 shares of the
Company's common stock at the then market price of $2.69 per share. Payment of
5% of the original principal balance plus accrued interest are due annually
August 1, with a balloon payment of the remaining principal and interest due
August 1, 2002. On October 2, 1998, the Company granted five-year loans at an
interest rate of 4% to most of its employees for the purchase of 794,300 shares
of the Company's common stock at the then market price of $10.31 per share.
Payment of 60% of the loan amount plus accrued interest is being made in equal
monthly, quarterly or annual payments, as applicable, and a balloon payment of
the remaining 40% is due on October 2, 2003. The Company recorded related
compensation expense due to the below market interest rate on these loans of
$114,000, $54,000 and $43,000 for the years ended December 31, 1999, 1998 and
1997, respectively. During 1999, 1998 and 1997, the Company received $1,736,000,
$649,000 and $96,000, respectively, as principal payments on these notes. The
stock certificates are held by the Company as collateral until payment is
received.
NOTE K--PREFERRED STOCK
The Company is authorized by its Amended Certificate of Incorporation
to issue 5,000,000 shares of preferred stock, the terms and conditions to be
determined by the Board of Directors in creating any particular series. As of
December 31, 1999, no preferred stock had been issued.
NOTE L--INVESTMENT IN EAGLE GEOPHYSICAL, INC.
On August 11, 1997, the Company's wholly-owned seismic data acquisition
crew subsidiary, Eagle Geophysical, Inc. ("Eagle"), completed an initial public
offering ("Offering") in which the Company sold 1,880,000 of its 3,400,000
shares of Eagle common stock as a selling stockholder. The Company received net
proceeds of $29,723,000 from its participation in the Offering, resulting in a
pre-tax gain, net of costs of $18,449,000 on the sale of Eagle common stock in
1997. Additionally, the Company recorded a pre-tax gain, net of costs, of
$10,750,000 in 1997 representing an increase in the Company's underlying equity
of Eagle as a result of Eagle's issuance of stock in connection with the
Offering.
In 1998, Eagle issued stock in connection with two acquisitions which
caused the Company to record a pre-tax loss of $193,000 for the year ended
December 31, 1998.
On April 22, 1999, the Board of Directors of Seitel, Inc. declared to
its common stockholders a dividend consisting of the remaining 1,520,000 shares
of the common stock of 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 year ended December 31, 1999.
F-18
<PAGE>
NOTE M--RELATED PARTY TRANSACTIONS
The Company periodically uses the seismic data acquisition services of
Eagle. The Company incurred charges of $27,385,000, $79,900,000 and $22,200,000
for these services for the four months ended April 30, 1999, for the year ended
December 31, 1998 and from the period August 11, 1997 through December 31, 1997,
respectively.
The Company owed Helm Resources, Inc. and its subsidiaries ("Helm"), a
company that has three executive officers who are directors of the Company,
$2,000 as of December 31, 1999 and 1998 for sales of seismic data they jointly
own and for general and administrative expenses paid by Helm on behalf of the
Company. The Company incurred charges of $115,000, $99,000 and $76,000, for
these general and administrative expenses during 1999, 1998 and 1997,
respectively. Management believes that these expenses, which were specifically
related to the Company's business, represented costs which would have been
incurred in similar amounts by the Company if such services that were performed
by Helm were performed by an unaffiliated entity.
Certain employees and directors of the Company contributed cash to
partnerships in 1994 through 1997 which invested in the exploration and
development of oil and gas properties on a working interest basis along with DDD
Energy, Inc. ("DDD Energy"). Each partnership's working interest amounted to
2.5% of the total investment made by such partnership and DDD Energy for the
partnership formed in 1997, 3% for the partnership formed in 1996 and 5% for the
partnerships formed in 1995 and 1994. On October 1, 1998, DDD Energy purchased
the oil and gas interests owned by each of the partnerships in exchange for
355,733 shares of the Company's common stock, payment of $824,000 and assumption
of each partnership's liabilities totaling $1,555,000.
NOTE N--MAJOR CUSTOMERS
No customers accounted for 10% or more of revenues during the years
1999, 1998 or 1997.
The Company extends credit to various companies in the oil and gas
industry for the purchase of their seismic data, which results in a
concentration of credit risk. This concentration of credit risk may be affected
by changes in economic or other conditions and may accordingly impact the
Company's overall credit risk. However, management believes that the risk is
mitigated by the number, size, reputation and diversified nature of the
companies to which they extend credit. Historical credit losses incurred on
receivables by the Company have been immaterial.
NOTE O--STATEMENT OF CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers all
highly liquid investments or debt instruments with original maturity of three
months or less to be cash equivalents.
Operating cash flows reported in the consolidated statements of cash
flows do not reflect effects of changes in inventory levels because the Company
reports no inventories and classifies cash expenditures for its seismic data
library as an investing, rather than an operating, activity.
Significant non-cash investing and financing activities are as follows:
1. During 1999, the Company declared to its common stockholders a
dividend consisting of the remaining 1,520,000 shares of
common stock of Eagle owned by the Company with a fair market
value of $6,365,000.
2. During 1999 and 1997, capital lease obligations totaling
$33,000 and $374,000, respectively, were incurred when the
Company entered into leases for property and equipment.
3. During 1998, the Company issued 355,733 shares of its common
stock valued at $3,914,000 to acquire interests in certain oil
and gas properties and assumed liabilities totaling
$1,555,000.
4. During 1998, the Company issued 794,300 shares of its common
stock to its officers and employees in exchange for notes
receivable of $8,191,000.
F-19
<PAGE>
NOTE P--INDUSTRY SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. SFAS No. 131 establishes standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports.
The Company operates in two reportable segments - seismic and
exploration and production. In 1997, the Company had an additional reporting
segment - geophysical services. The long-term financial performance of each of
the reportable segments is affected by similar economic conditions. The
accounting policies of the segments are the same as those described in Footnote
A to these consolidated financial statements. Intersegment sales are accounted
for at prices comparable to those received from unaffiliated customers. The
Company evaluates performance of each reportable segment based on operating
income (loss) before selling, general and administrative expenses, interest
income and expense, income taxes, non-recurring items and accounting changes.
Financial information by reportable segment for the three years ended
December 31, 1999, was as follows (in thousands):
<TABLE>
<CAPTION>
Exploration
and Geophysical Total
Seismic Production Services Segments
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1999
Revenue from external purchasers $ 109,671 $ 19,036 $ - $ 128,707
Depreciation, depletion
and amortization 49,375 9,093 - 58,468
Cost of sales 296 4,720 - 5,016
Segment operating income 60,000 5,223 - 65,223
Assets 391,849 157,925 - 549,774
Capital expenditures (a)<F1> 116,525 22,318 - 138,843
1998
Revenue from external purchasers $ 125,863 $ 18,994 $ - $ 144,857
Depreciation, depletion
and amortization 57,117 11,872 - 68,989
Cost of sales 191 4,683 - 4,874
Segment operating income 68,555 2,439 - 70,994
Assets 317,292 156,623 - 473,915
Capital expenditures (a)<F1> 139,167 48,173 - 187,340
1997
Revenue from external purchasers $ 85,560 $ 25,680 $ 16,316 $ 127,556
Intersegment revenue - - 18,456 18,456
Depreciation, depletion
and amortization 35,163 12,666 983 48,812
Impairment of oil and gas
properties - 9,560 - 9,560
Cost of sales 394 5,168 26,855 32,417
Segment operating income (loss) 50,003 (1,714) 6,934 55,223
Assets 219,288 122,930 - 342,218
Capital expenditures (a)<F1> 89,472 64,418 8,478 162,368
<FN>
(a)<F1> Includes other ancillary equipment.
</FN>
</TABLE>
F-20
<PAGE>
The following geographic information for the three years ended December
31, 1999 pertains to the Company's seismic segment (in thousands):
<TABLE>
<CAPTION>
Other
United Foreign
States Canada Countries Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Revenue from external customers $ 83,532 $ 26,139 $ - $ 109,671
Assets 347,672 42,654 1,523 391,849
1998
Revenue from external customers $ 117,623 $ 7,370 $ 870 $ 125,863
Assets 301,704 13,797 1,791 317,292
1997
Revenue from external customers $ 82,228 $ 2,748 $ 584 $ 85,560
Assets 215,273 1,986 2,029 219,288
</TABLE>
All exploration and production activities are conducted in the United
States.
The following table reconciles segment information to consolidated
totals: (in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Revenue from external purchasers $ 128,707 $ 144,857 $ 127,556
Intersegment revenue - - 18,456
Intercompany eliminations - - (18,456)
----------- ----------- ------------
Total consolidated revenue $ 128,707 $ 144,857 $ 127,556
=========== =========== ============
Depreciation, depletion and amortization:
Total reportable segment depreciation,
depletion and amortization $ 58,468 $ 68,989 $ 48,812
Corporate and other 1,156 901 867
----------- ----------- ------------
Total consolidated depreciation,
depletion and amortization $ 59,624 $ 69,890 $ 49,679
=========== =========== ============
Cost of Sales:
Total reportable segment cost of sales $ 5,016 $ 4,874 $ 32,417
Intercompany eliminations - - (14,464)
----------- ----------- ------------
Total consolidated cost of sales $ 5,016 $ 4,874 $ 17,953
=========== =========== ============
Income from continuing operations before income taxes:
Total reportable segment operating
income $ 65,223 $ 70,994 $ 55,223
Selling general and
administrative expense (28,587) (26,599) (23,043)
Interest expense, net (11,077) (5,540) (3,554)
Equity in earnings (loss) of affiliate (91) 222 146
Impairment due to dividend
distribution of affiliate stock (7,794) - -
Gain on sale of subsidiary stock - - 18,449
Increase (decrease) in underlying
equity of affiliate - (193) 10,750
Extinguishment of volumetric
production payment - - (4,133)
Eliminations and other (1,156) (901) (4,859)
----------- ----------- ------------
Income from continuing operations
before income taxes $ 16,518 $ 37,983 $ 48,979
=========== =========== ============
Assets:
Total reportable segment assets $ 549,774 $ 473,915 $ 342,218
Corporate and other 6,145 21,852 23,464
----------- ----------- ------------
Total consolidated assets $ 555,919 $ 495,767 $ 365,682
=========== =========== ============
</TABLE>
F-21
<PAGE>
NOTE Q--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------
(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Revenue $ 37,881 $ 34,127 $ 24,617 $ 32,082
Gross profit(1)<F1> 19,130 18,181 11,641 16,271
Provision for income taxes 848 2,879 850 2,561
Net income 750 4,875 824 2,931
Earnings per share: (2)<F2>
Basic .03 .20 .03 .12
Diluted .03 .20 .03 .12
1998
Revenue $ 30,927 $ 36,976 $ 38,332 $ 38,622
Gross profit(1)<F1> 14,851 18,123 17,825 20,195
Provision for income taxes 2,873 3,741 3,693 3,316
Net income 4,865 6,369 6,288 6,838
Earnings per share: (2)<F2>
Basic .22 .28 .28 .29
Diluted .21 .28 .28 .29
<FN>
(1)<F1> Gross profit represents revenue less data bank amortization, depletion
of oil and gas properties and cost of sales.
(2)<F2> The sum of the individual quarterly earnings per share may not agree
with the year to date earnings per share as each period's computation
is based on the weighted average number of common shares outstanding
during the period.
</FN>
</TABLE>
NOTE R--PROPOSED SALE OF OIL AND GAS SUBSIDIARY
In November 1999, the Company's 19% owned subsidiary, Vision Energy,
Inc. ("Vision Energy"), filed a registration statement with the SEC to
accomplish the spin-off of DDD Energy, a wholly-owned subsidiary, through an
initial public offering. In the proposed offering, Vision Energy would acquire
all of the stock of DDD Energy from the Company in exchange for the issuance of
shares of Vision Energy stock to the Company, and the Company would sell most of
these Vision Energy shares in the public offering for cash. Completion of the
offering is expected to occur during the second or third quarter of 2000;
however, its completion is dependent upon market conditions and other factors.
The Company continues to explore opportunities to maximize the value of DDD
Energy. In the event the sale is not completed, DDD Energy will continue to be a
wholly-owned subsidiary of the Company. The Company does not anticipate a loss
will be incurred on this transaction.
As of December 31, 1999, the Company had incurred costs totaling
$757,000 in connection with the proposed initial public offering. The costs have
been included in prepaid expenses, deferred charges and other assets in the
consolidated balance sheet as of December 31, 1999. If the offering is
completed, the costs will be deducted from the proceeds received from the
offering. If the offering is not completed, the costs will be charged to expense
in the period a decision is made to terminate the offering.
NOTE S--SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following information concerning the Company's oil and gas
operations is presented in accordance with SFAS No. 69, "Disclosures about Oil
and Gas Producing Activities."
F-22
<PAGE>
Oil and Gas Reserves: Proved oil and gas reserves represent estimated
quantities of natural gas, crude oil, condensate and natural gas liquids that
geological and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs under economic and operating
conditions existing at the time the estimates were made. Proved developed
reserves are proved reserves expected to be recovered through wells and
equipment in place and under operating methods being utilized at the time the
estimates were made.
The following table sets forth estimates of proved reserves and proved
developed reserves of natural gas and crude oil (including condensate and
natural gas liquids) attributable to the Company's interest in oil and gas
properties. The reserve estimates presented herein were prepared by the
independent petroleum engineering firms of Garb Grubbs Harris & Associates, Inc.
(formerly Forrest A. Garb & Associates, Inc.) at December 31, 1999 and 1998, and
Miller and Lents, Ltd. and Garb Grubbs Harris & Associates, Inc. at December 31,
1997 in accordance with guidelines established by the SEC. It should be noted
that these reserve quantities are estimates and may be subject to substantial
upward or downward revisions. The estimates are based on the most current and
reliable information available; however, additional information obtained through
future production and experience and additional development of existing
reservoirs may significantly alter previous estimates of proved reserves.
<TABLE>
<CAPTION>
Oil Gas
(Mbbl) (MMcf)
------------ ------------
<S> <C> <C>
Proved reserves at December 31, 1996 2,294 23,761
Revisions of previous estimates (500) (3,863)
Repurchase of volumetric production payment 98 3,736
Extensions and discoveries 1,110 28,491
Production (364) (5,131)
------------ ------------
Proved reserves at December 31, 1997 2,638 46,994
Revisions of previous estimates 2,374 12,698
Purchases of reserves in place 284 2,898
Extensions and discoveries 2,428 17,685
Production (386) (6,216)
------------ ------------
Proved reserves at December 31, 1998 7,338 74,059
Revisions of previous estimates (1,494) (6,978)
Purchases of reserves in place 118 6,600
Sales of reserves in place (1,307) (11,336)
Extensions and discoveries 152 5,405
Production (346) (5,693)
------------ ------------
Proved reserves at December 31, 1999 4,461 62,057
============ ============
Proved developed reserves -
December 31, 1996 902 11,563
============ ============
December 31, 1997 1,744 18,483
============ ============
December 31, 1998 5,265 37,844
============ ============
December 31, 1999 2,355 19,608
============ ============
</TABLE>
In addition to the production indicated above, in 1997 the Company
delivered 56,000 barrels and 1,795 million cubic feet under the terms of a
volumetric production payment agreement.
The proved reserves disclosed above exclude proved sulfur reserves of
260,000 long tons, 420,000 long tons and 174,000 long tons at December 31, 1999,
1998 and 1997, respectively.
F-23
<PAGE>
Capitalized Costs of Oil and Gas Properties: As of December 31, 1999
and 1998, the Company's capitalized costs of oil and gas properties were as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- ---------
<S> <C> <C>
Unproved properties $ 54,426 $ 53,458
Proved properties 150,432 141,118
---------- ---------
Total capitalized costs 204,858 194,576
Less: Accumulated depreciation,
depletion and amortization (54,692) (45,599)
---------- ---------
Net capitalized costs $ 150,166 $ 148,977
========== =========
</TABLE>
Of the total costs excluded from the amortization calculation as of
December 31, 1999, $15,951,000 was incurred during 1999, $22,243,000 was
incurred during 1998, $5,761,000 was incurred during 1997, $6,702,000 was
incurred during 1996, $1,932,000 was incurred during 1995 and $1,837,000 was
incurred during 1994. The Company cannot accurately predict when these costs
will be included in the amortization base, but it is expected that these costs
will be evaluated in the next three to five years.
Costs Incurred in Oil and Gas Activities: The following table sets
forth the Company's costs incurred for oil and gas activities for the years
ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Acquisition of properties:
Evaluated $ - $ 4,701 $ 13,813
Unevaluated 8,303 15,207 10,857
Exploration costs 12,789 22,708 26,961
Development costs 847 5,318 12,318
----------- ----------- ---------
Total costs incurred $ 21,939 $ 47,934 $ 63,949
=========== =========== =========
</TABLE>
Results of Operations for Oil and Gas Producing Activities: The
following table sets forth the results of operations for oil and gas producing
activities for the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Revenue $ 18,637 $ 18,663 $ 25,282
Production costs (4,706) (4,673) (5,155)
Depreciation, depletion and amortization (9,093) (11,872) (12,666)
Impairment of oil and gas properties - - (9,560)
----------- ----------- --------
Income (loss) before income taxes 4,838 2,118 (2,099)
Income tax benefit (expense) (1,693) (741) 735
----------- ----------- --------
Results of operations $ 3,145 $ 1,377 $ (1,364)
=========== =========== ========
</TABLE>
In addition to the revenues and production costs disclosed above, the
Company had revenues from sulfur sales and related production costs of $399,000
and $14,000, respectively, for the year ended December 31, 1999, $331,000 and
$10,000, respectively, for the year ended December 31, 1998 and $398,000 and
$13,000, respectively, for the year ended December 31, 1997.
Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves: The following table sets forth the standardized
measure of the discounted future net cash flows attributable to the Company's
proved oil and gas reserves as prescribed by SFAS No. 69. Future cash inflows
were computed by applying year-end prices of oil and gas to the estimated future
production of proved oil and gas reserves. Future prices actually received may
differ from the estimates in the standardized measure.
F-24
<PAGE>
Future production and development costs represent the estimated future
expenditures (based on current costs) to be incurred in developing and producing
the proved reserves, assuming continuation of existing economic conditions.
Future income tax expenses were computed by applying statutory income tax rates
to the difference between pre-tax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis of proved oil and gas properties,
adjusted for tax credits and allowances. The resulting annual net cash flows
were then discounted to present value amounts by applying a 10 percent annual
discount factor.
Although the information presented is based on the Company's best
estimates of the required data, the methods and assumptions used in preparing
the data were those prescribed by the FASB. Although not market sensitive, they
were specified in order to achieve uniformity in assumptions and to provide for
the use of reasonably objective data. It is important to note here that this
information is neither fair market value nor the present value of future cash
flows and it does not reflect changes in oil and gas prices experienced since
the respective year-end. It is primarily a tool designed by the FASB to allow
for a reasonable comparison of oil and gas reserves and changes therein through
the use of a standardized method. Accordingly, the Company cautions that this
data should not be used for other than its intended purpose.
Management does not rely upon the following information in making
investment and operating decisions. The Company, along with its partners, bases
such decisions upon a wide range of factors, including estimates of probable as
well as proved reserves, and varying price and cost assumptions considered more
representative of a range of possible economic conditions that may occur in the
future.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997
---------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Cash inflows $ 247,158 $ 248,608 $ 162,762
Production costs (56,308) (43,065) (21,417)
Development costs (37,099) (17,131) (21,659)
Income taxes (36,554) (47,541) (27,453)
---------- ---------- ---------
Future net cash flows 117,197 140,871 92,233
10 percent annual discount (45,133) (59,328) (27,636)
---------- ---------- ---------
Standardized measure of discounted future net cash flows (1)<F1> (2)<F2> $ 72,064 $ 81,543 $ 64,597
========== ========== =========
<FN>
(1)<F1> Estimated future net cash flows before income tax expense, discounted
at 10 percent per annum, totaled approximately $94,796,000,
$107,649,000 and $83,282,000 as of December 31, 1999, 1998 and 1997,
respectively.
(2)<F2> The above table excludes future net cash flows before income taxes of
$5,029,000, $9,167,000 and $3,187,000, and discounted future net cash
flows before income taxes of $2,854,000, $4,310,000 and $2,350,000, as
of December 31, 1999, 1998 and 1997, respectively, related to proved
sulfur reserves.
</FN>
</TABLE>
F-25
<PAGE>
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended December 31,
1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Standardized measure, beginning of year $ 81,543 $ 64,597 $ 52,090
Extensions and discoveries, net of related costs 13,001 34,102 45,193
Sales of oil and gas produced, net of production costs (13,931) (13,990) (16,035)
Net changes in prices and production costs 26,992 (25,385) (28,384)
Change in future development costs (9,608) 3,626 (2,650)
Development costs incurred during the period that reduced
future development costs 227 4,330 7,802
Revision of previous quantity estimates (19,232) 31,358 (8,927)
Repurchase of volumetric production payment - - 8,319
Purchases of reserves in place 6,222 4,609 -
Sales of reserves in place (23,402) - -
Accretion of discount 10,765 8,328 7,276
Net change in income taxes 3,375 (7,422) 1,988
Change in production rates and other (3,888) (22,610) (2,075)
--------- ---------- ----------
Standardized measure, end of year $ 72,064 $ 81,543 $ 64,597
========= ========== ==========
</TABLE>
F-26
<PAGE>
EXHIBIT
INDEX
- ------- ----------------------------------------------------------- ------
Exhibit Title Page
Number
- ------- ----------------------------------------------------------- ------
10.46 Third Amendment, dated as of November 22, 1999, to the 53
Separate Note Purchase Agreements, dated as of December 28,
1995, among Seitel, Inc. and the Noteholders
10.50 Second Amendment, dated as of November 22, 1999, to the 58
Separate Note Purchase Agreements, dated as of February 12,
1999, among Seitel, Inc. and the Noteholders
10.51 Revolving Credit Agreement, dated as of November 9, 1999, 63
between Olympic Seismic Ltd. and Royal Bank of Canada
10.52 Amemdment, dated as of March 2, 2000, to the Revolving 87
Credit Agreement, dated as of November 9, 1999, between
Olympic Seismic Ltd. and Royal Bank of Canada
21.1 Subsidiaries of the Registrant 89
23.1 Consent of Arthur Andersen LLP 91
23.2 Consent of Garb Grubbs Harris & Associates, Inc. 93
EXHIBIT 10.46
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
THIS THIRD AMENDMENT, dated as of November 22, 1999 (the "Amendment"), to
the separate Note Purchase Agreements, dated as of December 28, 1995, is among
Seitel, Inc. (the "Company") and each of the institutions which is a signatory
to this Amendment (collectively, the "Noteholders").
RECITALS:
A. The Company and each of the Noteholders have heretofore entered into
separate Note Purchase Agreements dated as of December 28, 1995 (collectively,
as amended and in effect immediately prior to the effectiveness of this
Amendment, the "Existing Note Purchase Agreement"), pursuant to which the
Company issued: (a) $25,000,000 aggregate principal amount of its 7.17% Series A
Senior Notes due December 30, 2001 (the "Series A Notes"), (b) $27,500,000
aggregate principal amount of its 7.17% Series B Senior Notes due December 30,
2002 (the "Series B Notes"), and (c) $22,500,000 of its 7.48% Series C Senior
Notes due December 30, 2002 (the "Series C Notes", and together with the Series
A Notes and the Series B Notes, the "Notes").
B. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Existing Note Purchase Agreement unless herein defined
or the context shall otherwise require.
C. The Company and the Noteholders now desire to amend the Existing Note
Purchase Agreement in the respects, but only in the respects, hereinafter set
forth.
D. All requirements of law have been fully complied with and all other acts
and things necessary to make this Amendment a legal, valid and binding
instrument according to its terms for the purposes herein expressed have been
done or performed.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and the Noteholders do
hereby agree as follows:
SECTION 1. AMENDMENTS.
<PAGE>
1.1 Amendment to Section 10.6(b)(i). Section 10.6(b)(i) of the Existing
Note Purchase Agreement is hereby amended and restated in its entirety as
follows:
"(i) Notwithstanding the provisions of Section 10.6(a), the
determination of whether a Transfer involves a Substantial Portion of the
property of the Company and the Restricted Subsidiaries, as provided in
Section 10.6(a)(iii)(A), shall be made without taking into account the same
proportion of the book value attributable to the property subject to such
Transfer as shall be equal to the proportion of the Net Asset Sale Proceeds
Amount (the "Designated Portion") to be applied to either (x) a prepayment
of the Notes pursuant to Section 8.2 of this Agreement and a prepayment of
the New Notes pursuant to Section 8.2 of the New Note Purchase Agreement,
pro rata based on the then outstanding principal amount of and required
Make-Whole Amount (with respect to the New Notes, as defined in the New
Note Purchase Agreement) due with respect to the prepayment of each series
of the Notes and the New Notes (a "Prepayment Transfer") or (y) the
acquisition of assets similar to the assets which were the subject of such
Transfer (a "Reinvested Transfer") within one hundred eighty (180) days of
the consummation of such Transfer, as specified in an Officer's Certificate
delivered to each holder prior to, or contemporaneously with, the
consummation of such Transfer."
1.2 Amendment to Schedule B. Schedule B to the Existing Note Purchase
Agreement is hereby amended to add, in the proper alphabetical order, the
following defined terms:
"New Notes -- means the Company's 7.03% Series D Senior Notes due
February 15, 2004 in the original aggregate principal amount of
$20,000,000, 7.28% Series E Senior Notes due February 15, 2009 in the
original aggregate principal amount of $75,000,000, and 7.43% Series F
Senior Notes due February 15, 2009 in the original aggregate principal
amount of $43,000,000 issued pursuant to the New Note Purchase Agreement."
"New Note Purchase Agreement -- means each of the separate Note
Purchase Agreements between the Company and the purchasers of the New
Notes, dated February 12, 1999, as amended from time to time."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce the Noteholders to execute and deliver this Amendment (which
representations shall survive such execution and delivery), the Company
represents and warrants to the Noteholders that:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware;
(b) this Amendment has been duly authorized, executed and delivered by
the Company and this Amendment constitutes a legal, valid and binding
obligation, contract and agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally;
(c) the Existing Note Purchase Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation, contract
and agreement of the Company enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally;
(d) the execution, delivery and performance by the Company of this
Amendment (i) has been duly authorized by all requisite corporate action
and, if required, shareholder action, (ii) does not require the consent or
approval of any governmental or regulatory body or agency, and (iii) will
not (A) violate (1) any provision of law, statute, rule or regulation or
its certificate of incorporation or bylaws, (2) any order of any court or
any rule, regulation or order of any other agency or government binding
upon it, or (3) any provision of any material indenture, agreement or other
instrument to which it is a party or by which its properties or assets are
or may be bound, or (B) result in a breach of or constitute (alone or with
due notice or lapse of time or both) a default under any indenture,
agreement or other instrument referred to in clause (iii)(A)(3) of this
paragraph (d); and
(e) as of the date hereof and after giving effect to this Amendment,
no Default or Event of Default has occurred which is continuing.
SECTION 3. MISCELLANEOUS.
3.1 This Amendment shall be construed in connection with and as part of the
Existing Note Purchase Agreement, and except as modified and expressly amended
by this Amendment, all terms, conditions and covenants contained in the Existing
Note Purchase Agreement and the Notes are hereby ratified and shall be and
remain in full force and effect.
3.2 This Amendment constitutes a contract between the Company and the
Noteholders for the uses and purposes hereinabove set forth, and may be executed
in any number of counterparts, each executed counterpart constituting an
original, but all together only one agreement.
3.3 Whenever any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party, and all the
promises and agreements contained in this Amendment by or on behalf of the
Company and the Noteholders shall bind and inure to the benefit of the
respective successors and assigns of such parties, whether so expressed or not.
3.4 This Amendment constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
3.5 This Amendment shall be governed by and construed in accordance with
the internal laws of the State of New York.
3.6 This Amendment shall become effective at such time as it has been
executed by the Company and the Required Holders.
[The remainder of this page is intentionally left blank.
Next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
Amendment by duly authorized officers of each as of the date hereof.
SEITEL, INC.
By /s/ Debra D. Valice
------------------------------------
Debra D. Valice,
Executive Vice President - Finance
Accepted and Agreed to:
[NOTEHOLDER]
By
-------------------------------
Name:
Title:
EXHIBIT 10.50
SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT
THIS SECOND AMENDMENT, dated as of November 22, 1999 (the "Amendment"), to
the separate Note Purchase Agreements, dated as of February 12, 1999, is among
Seitel, Inc. (the "Company") and each of the institutions which is a signatory
to this Amendment (collectively, the "Noteholders").
RECITALS:
A. The Company and each of the Noteholders have heretofore entered into
separate Note Purchase Agreements dated as of February 12, 1999 (collectively,
as amended and in effect immediately prior to the effectiveness of this
Amendment, the "Existing Note Purchase Agreement"), pursuant to which the
Company issued: (a) $20,000,000 aggregate principal amount of its 7.03% Series D
Senior Notes due February 15, 2004 (the "Series D Notes"), (b) $75,000,000
aggregate principal amount of its 7.28% Series E Senior Notes due February 15,
2009 (the "Series E Notes"), and (c) $43,000,000 of its 7.43% Series F Senior
Notes due February 15, 2009 (the "Series F Notes", and together with the Series
D Notes and the Series E Notes, the "Notes").
B. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Existing Note Purchase Agreement unless herein defined
or the context shall otherwise require.
C. The Company and the Noteholders now desire to amend the Existing Note
Purchase Agreement in the respects, but only in the respects, hereinafter set
forth.
D. All requirements of law have been fully complied with and all other acts
and things necessary to make this Amendment a legal, valid and binding
instrument according to its terms for the purposes herein expressed have been
done or performed.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and the Noteholders do
hereby agree as follows:
SECTION 1. AMENDMENTS.
<PAGE>
1.1 Amendment to Section 10.6(b)(i). Section 10.6(b)(i) of the Existing
Note Purchase Agreement is hereby amended and restated in its entirety as
follows:
"(i) Notwithstanding the provisions of Section 10.6(a), the
determination of whether a Transfer involves a Substantial Portion of the
property of the Company and the Restricted Subsidiaries, as provided in
Section 10.6(a)(iii)(A), shall be made without taking into account the same
proportion of the book value attributable to the property subject to such
Transfer as shall be equal to the proportion of the Net Asset Sale Proceeds
Amount (the "Designated Portion") to be applied to either (x) a prepayment
of the Notes pursuant to Section 8.2 of this Agreement and a prepayment of
the Old Notes pursuant to Section 8.2 of the Old Note Purchase Agreement,
pro rata based on the then outstanding principal amount of and required
Make-Whole Amount (with respect to the Old Notes, as defined in the Old
Note Purchase Agreement) due with respect to the prepayment of each series
of the Notes and the Old Notes (a "Prepayment Transfer") or (y) the
acquisition of assets similar to the assets which were the subject of such
Transfer (a "Reinvested Transfer") within one hundred eighty (180) days of
the consummation of such Transfer, as specified in an Officer's Certificate
delivered to each holder prior to, or contemporaneously with, the
consummation of such Transfer."
1.2 Amendment to Schedule B. Schedule B to the Existing Note Purchase
Agreement is hereby amended to add, in the proper alphabetical order, the
following defined terms:
"Old Notes -- means the Company's 7.17% Series A Senior Notes due
December 30, 2001 in the original aggregate principal amount of
$25,000,000, 7.17% Series B Senior Notes due December 30, 2002 in the
original aggregate principal amount of $27,500,000 and 7.48% Series C
Senior Notes due December 30, 2002 in the original aggregate principal
amount of $22,500,000 issued pursuant to the Old Note Purchase Agreement."
"Old Note Purchase Agreement -- means each of the separate Note
Purchase Agreements between the Company and the purchasers of the Old
Notes, dated December 28, 1995, as amended from time to time."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce the Noteholders to execute and deliver this Amendment (which
representations shall survive such execution and delivery), the Company
represents and warrants to the Noteholders that:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware;
(b) this Amendment has been duly authorized, executed and delivered by
the Company and this Amendment constitutes a legal, valid and binding
obligation, contract and agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally;
(c) the Existing Note Purchase Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation, contract
and agreement of the Company enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally;
(d) the execution, delivery and performance by the Company of this
Amendment (i) has been duly authorized by all requisite corporate action
and, if required, shareholder action, (ii) does not require the consent or
approval of any governmental or regulatory body or agency, and (iii) will
not (A) violate (1) any provision of law, statute, rule or regulation or
its certificate of incorporation or bylaws, (2) any order of any court or
any rule, regulation or order of any other agency or government binding
upon it, or (3) any provision of any material indenture, agreement or other
instrument to which it is a party or by which its properties or assets are
or may be bound, or (B) result in a breach of or constitute (alone or with
due notice or lapse of time or both) a default under any indenture,
agreement or other instrument referred to in clause (iii)(A)(3) of this
paragraph (d); and
(e) as of the date hereof and after giving effect to this Amendment,
no Default or Event of Default has occurred which is continuing.
SECTION 3. MISCELLANEOUS.
3.1 This Amendment shall be construed in connection with and as part of the
Existing Note Purchase Agreement, and except as modified and expressly amended
by this Amendment, all terms, conditions and covenants contained in the Existing
Note Purchase Agreement and the Notes are hereby ratified and shall be and
remain in full force and effect.
3.2 This Amendment constitutes a contract between the Company and the
Noteholders for the uses and purposes hereinabove set forth, and may be executed
in any number of counterparts, each executed counterpart constituting an
original, but all together only one agreement.
3.3 Whenever any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party, and all the
promises and agreements contained in this Amendment by or on behalf of the
Company and the Noteholders shall bind and inure to the benefit of the
respective successors and assigns of such parties, whether so expressed or not.
3.4 This Amendment constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
3.5 This Amendment shall be governed by and construed in accordance with
the internal laws of the State of New York.
3.6 This Amendment shall become effective at such time as it has been
executed by the Company and the Required Holders.
[The remainder of this page is intentionally left blank.
Next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
Amendment by duly authorized officers of each as of the date hereof.
SEITEL, INC.
By /s/ Paul A. Frame
-------------------------------------
Paul A. Frame,
President and Chief Executive Officer
Accepted and Agreed to:
[NOTEHOLDER]
By
-------------------------------
Name:
Title:
EXHIBIT 10.51
November 9, 1999
Olympic Seismic Ltd.
3750, 205 - 5th Ave. S.W.
Calgary, Alta.
T2P 2V7
Attention: Suzanne Bowden
Dear Sirs:
Re: Credit Facilities
Further to our discussions, we are pleased to confirm the availability of the
credit facilities described in this letter (the "Credit Facility"), subject to
the following terms and conditions. Should you find the following terms and
conditions of the Credit Facility to be acceptable, please acknowledge by
signing and retuning the duplicate copy of this letter by November 30, 1999.
The Credit Facility described below is in addition to the undernoted facilities
which are governed by separate agreements:
$100,000 Corporate Visa
BORROWER: OLYMPIC SEISMIC LTD. (the "Borrower')
- ---------
LENDER: Royal Bank of Canada (the "Bank") through its branch of account
- -------
(Branch of Account") at 339 - 8th Ave. S.W., Calgary, Alberta.
AMOUNT: *$5,000,000 is available by way of:
- -------
(a) Prime Based Loans;
(b) Bankers' Acceptances; and/or
(c) Letters of Credit.
*5,000,000 is available between October 1st and May 30th annually.
*2,000,000 is available between June 1st and Sept. 30th annually.
<PAGE>
Olympic Seismic Ltd. Page 2
Confirmation of Credit Facilities Letter
November 9, 1999
PURPOSE: Operating purposes.
- --------
MARGIN
REQUIREMENTS:Total amounts outstanding under this credit facility plus the
- ------------ amount of all claims having priority to the Bank shall not at any
time exceed 75 % of good trade accounts receivable acceptable to
the Bank excluding inter-company accounts, holdbacks receivable
and the entire outstanding balance of accounts where any portion
exceeds 90 days.
INTEREST
RATES: Prime Based Loans: Prime + .35% per annum
- --------
All Segments
The Borrower shall pay the Bank interest on all Prime Based Loans
in the currency in which such loans are denominated. The Borrower
shall pay such interest monthly in arrears at the applicable
rates per annum set out above calculated on a daily basis on the
outstanding amount of such loans and based on the actual number
of days elapsed in the period for which such interest is payable.
Such interest shall be payable on the last day of each month or
on such other day in each month as may be specified by the Bank
from time to time.
ACCEPTANCE
FEES: RBPAF +. 50% per annum
- ----------
All Segments
The Borrower shall pay to the Bank acceptance fees in Canadian
Dollars in advance at the rate set forth above at the time of
issue of each Bankers' Acceptance. Acceptance fees shall be
calculated on the face amount of the Bankers' Acceptance issued
and based upon the number of days in the term of the Bankers'
Acceptance issued.
COMMITMENT
FEE: A non-refundable commitment fee of $12,750 shall be paid on the
- ---------- acceptance of this Agreement.
LETTER OF
CREDIT FEES: Scheduled Rates
- -----------
Letter of Credit fees are payable to the Bank at the scheduled
rates of the Bank from time to time in effect on the date of
issue in the currency in which the Letter of Credit is issued.
The Letter of Credit fee shall be based upon the amount of the
Letter of Credit issued and calculated on the number of days that
the Letter of Credit is to be outstanding.
<PAGE>
Olympic Seismic Ltd. Page 3
Confirmation of Credit Facilities Letter
November 9, 1999
REVOLVING
FUNDS
ARRANGEMENT: A loan administration fee of $125 is payable monthly in arrears
- ----------- on the first business day of each month for the automatic
revolvement of loans on behalf of the Borrower.
STANDBY FEES:The Borrower shall pay to the Bank a standby fee of.125 % per
- ------------ annum payable monthly in arrears on the 3rd day of each month
calculated on a daily basis on the unutilized portion of this
credit facility for the period commencing on Dec. 1, 1999 with
the first payment to be made January 3rd, 2000. All or any
portion of the maximum amount available under this credit
facility may be permanently cancelled by the Borrower without
penalty provided the Borrower prepays such amounts as may be
necessary to ensure amounts outstanding under this credit
facility are not in excess of the maximum amount available under
this credit facility after giving effect to such cancellation.
NOTICE
REQUIREMENTS:The Borrower agrees that the Bank may from time to time establish
- ------------ reasonable notice requirements for obtaining advances and making
repayments hereunder.
REPAYMENT: All amounts outstanding under this Credit Facility including the
- --------- face amount of all Bankers' Acceptances are payable on demand and
the following repayment provisions are in addition to and not in
substitution for the Bank's right to make such demand.
This is a revolving operating credit facility. The Borrower
authorizes the Bank to advance and repay Prime Based Loans in
minimum amounts of $5,000 in order to cover overdrafts and
utilize deposits in account #100-116-1 (Tr.00009) or in such
operating deposit accounts of the Borrower as may be specified by
the Borrower to the Bank from time to time.
SPECIAL
PROVISIONS: The Special Provisions contained in Schedule "A" attached hereto
- ---------- form part of this Agreement.
EVIDENCE OF
INDEBTEDNESS:The Bank shall maintain on the records of the Branch of Account,
- ------------ accounts evidencing the Borrower's liability to the Bank in
respect of amounts outstanding by the Borrower to the Bank under
this Agreement. The Bank shall record the amounts outstanding
under this Agreement, all payments made from time to time in
respect thereof and all other amounts becoming due to the Bank
under this Agreement which remain unpaid when due. The Bank's
accounts constitute, in the absence of manifest error, prima
facie evidence of ------------ the indebtedness of the Borrower
to the Bank pursuant to this
<PAGE>
Olympic Seismic Ltd. Page 4
Confirmation of Credit Facilities Letter
November 9, 1999
Agreement. The Borrower authorizes and directs the Bank to
automatically debit, by mechanical, electronic or manual means,
the bank accounts of the Borrower for all amounts payable under
this Agreement, including but not limited to the repayment of
principal and the payment of interest, fees and all charges for
the keeping of such bank account.
PREPAYMENTS: Subject to any provisions to the contrary which are contained in
- ----------- this Agreement or any other agreement entered into by the
Borrower with respect to amounts outstanding hereunder, amounts
outstanding may be prepaid at any time without penalty.
COVENANTS: Without affecting or limiting the right of the Bank at any time
- --------- to demand payment or cancel any undrawn portion of any demand
loan hereunder, the Borrower covenants and agrees with the Bank
to:
(1) it will pay duly and punctually all amounts due hereunder;
(2) it will deliver to the Bank such financial and other
information as the Bank may reasonably request from time to
time, including but not limited to the following:
(a) audited annual financial statements of the Borrower
within 120 days after each fiscal year end;
(b) quarterly company prepared Financial Statements within
30 days of each quarter end;
(c) monthly aged list of accounts receivables supported by
a Compliance Certificate within 25 days of each month
end;
(d) monthly aged list of accounts payable within 25 days of
each month end;
(e) any information that the Bank may require relating to
the state of Year 2000 readiness of the Borrower. For
the purpose of the foregoing, ?Year 2000 readiness?
means that all software embedded microchips, and other
processing capabilities utilized by, and material to
the business operations or financial condition of, the
Borrower are able to interpret and manipulate data on
and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in
relation to dates in and after the year 2000; and
(f) Annual Business Plan with 120 days after each fiscal
year end.
(3) it will promptly pay when due all business, income and other
taxes properly levied on its operations and property and
remit all statutory employee deductions when due;
(4) it will not and will not allow or permit its subsidiaries to
sell, transfer or otherwise dispose of a substantial portion
of its assets without the prior written consent of the Bank;
<PAGE>
Olympic Seismic Ltd. Page 5
Confirmation of Credit Facilities Letter
November 9, 1999
(5) it will, as of the end of each fiscal quarter, maintain a
ratio of debt to equity of not more than .50 to 1. For
purposes of the foregoing, debt means all liabilities less
the amount due to affiliates and equity means sum of share
capital, paid capital, retained earnings and amounts due to
affiliates minus the investment in marketable securities,
all as determined in accordance with generally accepted
accounting principles; and
(10) it will maintain a current ratio of 1:1.
All covenants contained herein shall remain in force for the
benefit of the Bank at all times before, on and after the making
of advances hereunder and/or the taking of security pursuant
hereto.
ENVIRONMENTAL
PROVISIONS: The Borrower confirms that it has disclosed to the Bank all
- ---------- environmental matters which could have a material effect on the
financial condition or operations of the Borrower and its
subsidiaries. The Borrower will keep the Bank fully informed of
all such matters and will comply (and will ensure its
subsidiaries comply) in all material respects with applicable
environmental laws and any environmental permits which may govern
its operations. The Bank shall have the right to make good faith
inquiries with governmental agencies regarding environmental
matters affecting the Borrower and its subsidiaries and, upon
reasonable notice to the Borrower, the Bank (and its consultants)
shall have the right to enter the premises of the Borrower and
its subsidiaries to carry out such environmental reviews as the
Bank in its sole discretion deems advisable.
PERFORMANCE
OF COVENANTS:If the Borrower fails to perform any covenant hereunder, the Bank
- ------------ may, in its sole discretion, perform any such covenant and expend
such money as may be necessary for purposes thereof. Any such
expenditure so made by the Bank shall be repaid by the Borrower
on demand and shall bear interest at the rate and in the manner
set forth hereunder for overdue amounts from the date the Bank
makes such expenditure until and including the date the Bank is
repaid.
COLLATERAL-
SECURITY: The Borrower agrees to provide to the Bank, in form and substance
- -------- satisfactory to the Bank, the following documentation which the
Borrower hereby acknowledges will be held by the Bank in
connection with this Credit Facility:
- General Security Agreement Floating Charge on Land.
<PAGE>
Olympic Seismic Ltd. Page 6
Confirmation of Credit Facilities Letter
November 9, 1999
CONDITIONS
PRECEDENT: The obligation of the Bank to make available any advances under
- --------- the Credit Facility is conditional upon the receipt in form and
substance satisfactory to the Bank of:
(a) a duly executed copy of this Agreement;
(b) duly executed copies of Security; and
(c) satisfactory scoring of Y2K questionnaire.
The obligation of the Bank to make available the Credit Facility
is subject to the Bank being satisfied, at the time of advance,
that a material adverse change in the financial condition or
operation of the Borrower has not occurred, that the Borrower is
not in default hereunder, and that no stay of proceedings against
the Borrower or their property is then in effect.
RESERVE
INDEMNITY: The Borrower shall reimburse the Bank that amount which
- --------- compensates the Bank for any additional cost or reduction in
income caused by an imposition, implementation or increase of
reserves, capital adequacy or similar requirement against assets
or liabilities held by the Bank, deposits in or for the account
of the Bank, loans made by the Bank, bankers' acceptances
accepted by the Bank, letters of credit issued by the Bank,
commitments by the Bank to fund loans or any acquisition by the
Bank of funds for loans made by the Bank.
GENERAL
INDEMNITY: The Borrower shall indemnify the Bank from and against all
- --------- losses, damages, expenses and liabilities which the Bank may
sustain or incur as a consequence of any default by the Borrower
under any provision of this Agreement or as a consequence of any
environmental matter, whether existent now or in the future,
which affects the property of the Borrower or its subsidiaries.
OTHER
CONDITIONS: The Credit Facility is made available at the sole discretion of
- ---------- the Bank and the Bank may cancel any unutilized portion of the
Credit Facility at any time and from time to time without notice.
PAYMENTS: References herein to "$" means Canadian Dollars. All payments
- -------- hereunder are payable for value on the date on which they are
due.
RENEWAL: The Credit Facility is available from time to time at the Bank's
- ------- sole discretion and is subject to review by the Bank at any time.
<PAGE>
Olympic Seismic Ltd. Page 7
Confirmation of Credit Facilities Letter
November 9, 1999
EXPENSES: All legal costs, fees and expenses incurred in connection with
- -------- the preparation, negotiation, documentation and operation of the
Credit Facility, including the enforcement of the Bank's fights
under each document delivered in connection with the Credit
Facility will be for the account of the Borrower.
We very much appreciate the opportunity to establish our relationship with your
company.
Yours truly,
ROYAL BANK OF CANADA
<PAGE>
SCHEDULE "A" TO A LETTER AGREEMENT DATED NOVEMBER 9, 1999 BETWEEN ROYAL BANK OF
CANADA AND OLYMPIC SEISMIC LTD.
SPECIAL PROVISIONS
PROVISIONS APPLICABLE TO BANKERS' ACCEPTANCES
The term "Bankers' Acceptances" means bankers acceptances denominated in
Canadian Dollars which are issued by the Borrower and accepted by the Bank. The
term "RBPAF" means the annual rate announced from time to time by the Bank as
its reference rate then in effect for determining fees on bankers' acceptances
accepted by the Bank in Canada. Bankers' Acceptances shall have a term of at
least thirty (30) days and not more than one hundred and eighty (180) days
excluding days of grace. Two business days prior written notice for the issue,
the reissue and the method of repayment on maturity of a Bankers' Acceptance
shall be given by the Borrower to the Bank and must be received by the Bank by
no later than 10:00 a.m. on the stipulated notice date. If the Borrower fails to
give notification to the Bank of the method of repayment of a Bankers'
Acceptance in accordance with the notice requirements set out above, then the
Borrower shall be deemed to have converted the Bankers' Acceptance into a Prime
Based Loan on the maturity date of the applicable Bankers' Acceptance.
PROVISIONS APPLICABLE TO PRIME BASED LOANS
The term "Prime Based Loans" means Prime rate based loans in Canadian Dollars
made by the Bank to the Borrower. The term "Prime" means the annual rate of
interest announced from time to time by the Bank as being its reference rate
then in effect for determining interest rates on Canadian Dollar commercial
loans in Canada.
PROVISIONS APPLICABLE TO LETTERS OF CREDIT
The term "Letters of Credit" means letters of credit issued by the Bank at the
request of the Borrower. Letters of Credit shall not be issued for a period
longer than one year without the prior consent of the Bank. Prior to utilizing
the Credit Facility by obtaining a Letter of Credit, the Borrower shall deliver
to the Bank a written Letter of Credit application in form and substance
satisfactory to the Bank. Each such application shall be executed by the
authorized signing officers of the Borrower and delivered to the Bank at least
one business day prior to the date on which the Letter of Credit is to be
issued.
<PAGE>
GENERAL SECURITY AGREEMENT - FLOATING CHARGE ON LAND
1. SECURITY INTEREST
(a) For value received, the undersigned ("Debtor") hereby grants to ROYAL
BANK OF CANADA ("RBC") a security interest, mortgage and charge (hereinafter
collectively referred to as the "Security Interest') as hereinafter provided:
(i) a security interest in the undertaking of Debtor and all of
Debtor's present and after acquired personal property including, without
limitation, all Goods (including all parts, accessories, attachments,
special tools, additions and accessions thereto), Chattel Paper, Documents
of title (whether negotiable or not), Instruments, Intangibles, Money and
Securities now owned or hereafter owned or acquired by or on behalf of
Debtor (including such as may be returned to or repossessed by Debtor) and
including, without limitation, all of the following now owned or hereafter
owned or acquired by or on behalf of Debtor:
(A) all Inventory of whatever kind and wherever situate;
(B) all equipment (other than Inventory) of whatever kind and
wherever situate, including, without limitation, all machinery, tools,
apparatus, plant, furniture, fixtures and vehicles of whatsoever
nature or kind;
(C) all Accounts and book debts and generally all debts, dues,
claims, choses in action and demands of every nature and kind
howsoever arising or secured and whether arising in connection with an
interest in real or personal property or otherwise, including letters
of credit and advices of credit, which are now due, owing or accruing
or growing due to or owned by or which may hereafter become due, owing
or accruing or growing due to or owned by Debtor ("Debts");
(D) all deeds, documents, writings, papers, books of account and
other books relating to or being records of Debts, Chattel Paper or
Documents of title or by which such are or may hereafter be secured,
evidenced, acknowledged or made payable;
(E) all contractual rights and insurance claims; and
(F) all patents, industrial designs, trade-marks, trade secrets
and know-how including without limitation environmental technology and
biotechnology, confidential information, trade-names, goodwill,
copyrights, personality rights, plant breeders' rights, integrated
circuit topographies, software and all other forms of intellectual and
industrial property, and any registrations and applications for
registration of any of the foregoing (collectively "Intellectual
Property");
(ii) a mortgage and charge as and by way of a floating charge, in all
of Debtor's present and after acquired interest in property, assets and
undertaking not secured in (i) above, including all real, immoveable and
leasehold property and all easements, rights-of-way, privileges, benefits,
licences, improvements and rights whether connected therewith or
appurtenant thereto or separately owned or held, including without
limitation, all structures, plant and other fixtures now owned or hereafter
owned or acquired by or on behalf of Debtor (hereinafter collectively
referred to as "Real Property"); and
(iii)a security interest in all property described in Schedule "C" or
any replacement or additional Schedule "C" now or hereafter annexed hereto;
<PAGE>
Page 2 of 15
and a Security Interest in all proceeds and renewals thereof, accretions thereto
and substitutions therefor, all of the foregoing being hereinafter collectively
referred to as the "Collateral".
(b) The Security Interest granted hereby shall not extend or apply to and
Collateral shall not include the last day of the term of any lease or agreement
therefor but upon the enforcement of the Security Interest Debtor shall stand
possessed of such last day in trust to assign the same to any person acquiring
such term.
(c) The terms "Goods", "Chattel Paper", "Document of Ttle", "Instrument",
"Intangible", "Security", "proceeds", "Inventory", "equipment", "accession",
"Money", "Account", "financing statement" and "financing change statement"
whenever used herein shall be interpreted pursuant to their respective meanings
when used in the Personal Property Security Act of the province where the herein
mentioned branch of RBC is located, which Act, including amendments thereto and
anyAct substituted therefor and amendments thereto is herein referred to as the
"P.P.S.A.". Provided always that the term "Goods" when used herein shall not
include "consumer goods" of Debtor as that term is defined in the P.P.S.A. and
the term "Inventory" when used herein shall include livestock and the young
thereof after conception and crops that become such during the term of this
Security Agreement. Any reference herein to "Collateral" shall, unless the
context otherwise requires, be deemed a reference to "Collateral or any part
thereof".
2. INDEBTEDNESS SECURED
The Security Interest granted hereby secures payment and performance of any
and all obligations, indebtedness and liability of Debtor to RBC (including
interest thereon) present or future, direct or indirect, absolute or contingent,
matured or not, extended or renewed, wheresoever and howsoever incurred and any
ultimate unpaid balance thereof and whether the same is from time to time
reduced and thereafter increased or entirely extinguished and thereafter
incurred again and whether Debtor be bound alone or with another or others and
whether as principal or surety (hereinafter collectively called the
"lndebtedness"). If the Security Interest in the Coliateral is not sufficient,
in the event of default, to satisfy all Indebtedness of Debtor, Debtor
acknowledges and agrees that Debtor shall continue to be liable for any
Indebtedness remaining outstanding and RBC shall be entitled to pursue full
payment thereof.
3. REPRESENTATIONSAND WARRANTIES OF DEBTOR
Debtor represents and warrants and so long as this Security Agreement
remains in effect shall be deemed to continuously represent and warrant that:
(a) the Collateral is genuine and owned by Debtor free of all security
interests, mortgages, liens, claims, charges, licences, leases, infringements by
third parties, encumbrances or other adverse ciaims or interests (hereinafter
collectively called "Encumbrances"), save for the Security Interest and those
Encumbrances shown on Schedule "A" or hereafter approved in writing by RBC,
prior to their creation or assumption;
(b) all Intellectual Property applications and registrations are valid and
in good standing and Debtor is the owner of the appications and registrations;
(c) each Debt, Chattel Paper and Instrument constituting Collateral is
enforceable in accordance with its terms against the party obligated to pay the
same (the "Account Debtor"), and the amount represented by Debtor to RBC from
time to time as owing by each Account Debtor or by all Account Debtors will be
the correct amount actually and unconditionally owing by such Account Debtor or
Account Debtors, except for normal cash discounts where applicable, and no
Account Debtor will have any defence, set off, claim or counterclaim against
Debtor which can be asserted against RBC, whether in any proceeding to enforce
Collateral or otherwise;
<PAGE>
Page 3 of 15
(d) the locations specified in Schedule "B" as to business operations and
records are accurate and complete and with respect to Real Property and Goods
(including Inventory) constituting Collateral, the locations specified in
Schedule "B" are accurate and complete save for Goods in transit to such
locations and Inventory on lease or consignment; and all buildings, fixtures or
Goods about to become fixtures and all crops and all oil, gas or other minerals
to be extracted and all timber to be cut which forms part of the Collateral will
be situate at one of such locations;
(e) Debtor has disclosed to RBC all environmental and other matters which
could have a material effect on the financial condition or operations of Debtor;
and
(f) the execution, delivery and performance of the obligations under this
Security Agreement and the creation of any security interest in or assignment
hereunder of Debtor's rights in the Collateral to RBC will not result in a
breach of any agreement to which Debtor is a party.
4. COVENANTS OFTHE DEBTOR
So long as this Security Agreement remains in effect Debtor covenants and
agrees:
(a) to defend the Collateral against the claims and demands of all other
parties claiming the same or an interest therein; to diligently initiate and
prosecute legal action against all infringers of Debtor~s rights in Intellectual
Property; to take all reasonable action to keep the Collateral free from all
Encumbrances, except for the Security Interest, licences which are cumpulsory
under federal or provincial legislation and those shown in Schedule "A" or
hereafter approved in writing by RBC, prior to their creation or assumption; and
not to sell, exchange, transfer, assign, lease, license or otherwise dispose of
Collateral or any interest therein without the prior written consent of RBC;
provided always that, until default, Debtor may, in the ordinary course of
Debtor's business, sell or lease Inventory and, subject to Clause 7 hereof, use
Money available to Debtor;
(b) to notify RBC promptly of:
(i) any change in the information contained herein or in the Schedules
hereto relating to Debtor, Debtor's business or Collateral;
(ii) the details of any significant acquisition of Collateral;
(iii) the details of any claims or litigation affecting Debtor or
Collateral;
(iv) any loss or damage to Collateral;
(v) any default by any Account Debtor in payment or other performance
of its obligations with respect to Collateral; and
(vi) the return to or repossession by Debtor of Collateral;
(c) to keep Collateral in good order, condition and repair and not to use
Collateral in violation of the provisions of this Security Agreement or any
other agreement relating to Collateral or any policy insuring Collateral or any
applicable statute, law, by-law, rule, regulation or ordinance; to keep all
agreements, registrations and applications relating to Intellectual Property and
intellectual property used by Debtor in its business in good standing and to
renew all agreements and registrations as may be necessary or desirable to
protect Intellectual Property, unless otherwise agreed in writing by RBC; to
apply to register all existing and future copyrights, trade-marks, patents,
integrated circuit topographies and industrial designs whenever it is
commercially reasonable to do so;
(d) to do, execute, acknowledge and deliver such financing statements,
financing change statements and further assignments, transfers, caveats,
mortgages, notices, documents, acts, matters and things (including further
schedules hereto) as may be reasonably requested by RBC of or with respect to
Collateral in order to give effect to these presents and to pay all costs for
searches and filings in connection therewith;
<PAGE>
Page 4 of 15
(e) to pay all taxes, rates, levies, assessments and other charges of every
nature which may be lawfully levied, assessed or imposed against or in respect
of Debtor or Collateral as and when the same become due and payable;
(f) to insure Collateral for such periods, in such amounts, on such terms
and against loss or damage by fire and such other risks as RBC shall reasonably
direct with loss payable to RBC and Debtor, as insureds, as their respective
interests may appear, and to pay all premiums therefor;
(g) to prevent Collateral, save Inventory sold or leased as permitted
hereby, from being or becoming an accession to other property not covered by
this Security Agreement;
(h) to carry on and conduct the business of Debtor in accordance with all
applicable laws, in a proper and efficient manner and so as to protect and
preserve Collateral and to keep, in accordance with generally accepted
accounting principles, consistently applied, proper books of account for
Debtor's business as weil as accurate and complete records concerning
Collateral, and mark any and all such records and Collateral at RBC's request so
as to indicate the Security Interest; and
(i) to deliver to RBC from time to time promptly upon request:
(i) any Documents of Title, Instruments, Securities, Chattel Paper and
duplicate certificates of title to Real Property constituting, representing
or relating to Collateral;
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and other writings
relating to Collateral for the purpose of inspecting, auditing or copying
the same;
(iii) all financial statements prepared by or for Debtor regarding
Debtor's business;
(iv) all policies and certificates of insurance relating to
Collateral; and
(v) such information concerning Collateral, Debtor and Debtor's
business and affairs as RBC may reasonably request.
5. USE AN D VERIFICATION OF COLLATERAL
Subject to compliance with Debtor's covenants contained herein and Clause 7
hereof, Debtor may, until default, possess, operate, collect, use and enjoy and
deal with Collateral in the ordinary course of Debtor's business in any manner
not inconsistent with the provisions hereof; provided always that RBC shall have
the right at any time and from time to time to verify compliance by Debtor with
Debtor's obligations under this Security Agreement (including through inquiries
with governmental agencies) and the existence and state of the Collateral in any
manner RBC may consider appropriate and Debtor agrees to furnish all assistance
and information and to perform all such acts as RBC may reasonably request in
connection therewith and for such purpose to grant to RBC or its agents access
to all places where Collateral may be located and to all premises occupied by
Debtor.
6. SECURITIES
If Collateral at any time includes Securities, Debtor authorizes RBC to
transfer the same or any part thereof into its own name or that of its
nominee(s) so that RBC or its nominee(s) may appear of record as the sole owner
thereof; provided that, until default, RBC shall deliver promptly to Debtor all
notices or other communications received by it or its nominee(s) as such
registered owner and, upon demand and receipt of payment of any necessary
expenses thereof, shall issue to Debtor or its order a proxy to vote and take
all action with respect to such Securities. After default, Debtor waives all
rights to receive any notices or communications received by RBC or its
nominee(s) as such registered owner and agrees that no proxy issued by RBC to
Debtor or its order as aforesaid shall thereafter be effective.
<PAGE>
Page 5 of 15
7. COLLECTION OF DEBTS
Before or after default under this Security Agreement, RBC may notify all
or any Account Debtors of the Security Interest and may also direct such Account
Debtors to make all payments on Collateral to RBC. Debtor acknowledges that any
payments on or other proceeds of Collateral received by Debtor from Account
Debtors, whether before or after notification of this Security Interest to
Account Debtors and whether before or after default under this Security
Agreement shall be received and held by Debtor in trust for RBC and shall be
turned over to RBC upon request.
8. INCOME FROM AND INTEREST ON COLLATERAL
(a) Until default, Debtor reserves the right to receive any Money
constituting income from or interest on Collateral and if RBC receives any such
Money prior to default, RBC shall either credit the same against the
Indebtedness or pay the same promptly to Debtor.
(b) After default, Debtor will not request or receive any Money
constituting income from or interest on Collateral and if Debtor receives any
such Money without any request by it, Debtor will pay the same promptly to RBC.
9. INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS
(a) Whether or not default has occurred, Debtor authorizes RBC:
(i) to receive any increase in or profits on Collateral (other than
Money) and to hold the same as part of Collateral. Money so received shall
be treated as income for the purposes of Clause 8 hereof and dealt with
accordingly; and
(ii) to receive any payment or distribution upon redemption or
retirement or upon dissolution and liquidation of the issuer of Collaterai;
to surrender such Collateral in exchange therefor; and to hold any such
payment or distribution as part of Collateral.
(b) If Debtor receives any such increase or profits (other than Money) or
payments or distributions, Debtor will deliver the same promptly to RBC to be
held by RBC as herein provided.
10. DISPOSITION OF MONEY
Subject to any applicable requirements of the P.P.S.A. or other applicable
law, all Money collected or received by RBC pursuant to or in exercise of any
right it possesses with respect to Collateral shall be applied on account of
Indebtedness in such manner as RBC deems best or, at the option of RBC, may be
held unappropriated in a collateral account or released to Debtor, all without
prejudice to the liability of Debtor or the rights of RBC hereunder, and any
surplus shall be accounted for as required by law.
11. EVENTS OF DEFAULT
The happening of any of the following events or conditions shall constitute
default hereunder which is herein referred to as "default":
(a) the nonpayment when due, whether by acceleration or otherwise, of any
principal or interest forming part of Indebtedness or the failure of Debtor to
observe or perform any obligation, covenant, term, provision or condition
contained in this Security Agreement or any other agreement between Debtor and
RBC;
(b) the death of or a declaration of incompetency by a court of competent
jurisdiction with respect to Debtor, if an individual;
(c) the bankruptcy or insolvency of Debtor; the filing against Debtor of a
petition in bankruptcy; the making of an authorized assignment for the benefit
of creditors by Debtor; the appointment of a receiver or trustee for Debtor or
for any assets of Debtor or the institution by or against Debtor of any other
type of insolvency proceeding under the Bankruptcy and Insolvency Act or
otherwise;
<PAGE>
Page 6 of 15
(d) the institution by or against Debtor of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against
or winding up of affairs of Debtor;
(e) if any Encumbrance affecting Collateral becomes enforceable against
Collateral;
(f) if Debtor ceases or threatens to cease to carry on business or makes or
agrees to make a sale of a substantial portion of Debtor's assets or commits or
threatens to commit an act of bankruptcy;
(g) if any execution, sequestration, extent or other process of any court
becomes enforceable against Debtor or if a distress or analogous process is
levied upon the assets of Debtor or any part thereof; and
(h) if any certificate, statement, representation, warranty or audit report
heretofore or hereafter furnished by or on behalf of Debtor pursuant to or in
connection with this Security Agreement or otherwise (including, without
limitation, the representations and warranties contained herein) or as an
inducement to RBC to extend any credit to or to enter into this or any other
agreement with Debtor, proves to have been false in any material respect at the
time as of which the facts therein set forth were stated or certified, or proves
to have omitted any substantial contingent or unliquidated liability or claim
against Debtor; or if upon the date of execution of this Security Agreement,
there shall have been any material adverse change in any of the facts disclosed
by any such certificate, representation, statement, warranty or audit report,
which change shall not have been disclosed to RBC at or prior to the time of
such execution.
11A. REALPROPERTY
(a) For all purposes, including without limitation any application to
register a crystailized floating charge under the Land Title Act (British
Columbia) against any Real Property, the floating charge created by this
Security Agreement shall be crystallized and become a fixed charge upon the
earliest of:
(i) any one of the events described in Section 11 hereof;
(ii) a declaration by RBC pursuant to Section 12 hereof; or
(iii) RBC taking any action pursuant to Section 13 hereof to appoint a
Receiver or to enforce its Security Interest or realize upon all or any
part of the Collateral.
(b) In accordance with the Property Law Act (British Columbia), the
doctrine of consolidation applies to this SecurityAgreement.
12. ACCELERATION
RBC, in its sole discretion, may declare all or any part of Indebtedness
which is not by its terms payable on demand to be immediately due and payable,
without demand or notice of any kind, in the event of default, or, if RBC
considers itself insecure or that the Collateral is in jeopardy. The provisions
of this clause are not intended in any way to affect any rights of RBC with
respect to any Indebtedness which may now or hereafter be payable on demand.
13. REMEDIES
(a) Upon default, RBC may appoint or reappoint by instrument in writing,
any person or persons, whether an officer or officers or an employee or
employees of RBC or not, to be a receiver or receivers (hereinafter called a
"Receiver", which term when used herein shall include a receiver and manager) of
Collateral (including any interest, income or profits therefrom) and may remove
any Receiver so appointed and appoint another in its stead. Any such Receiver
shall, so far as concerns responsibility for its acts, be deemed the agent of
Debtor and not RBC, and RBC shall not be in any way responsible for any
misconduct, negligence or non-feasance on the part of any such Receiver, its
servants, agents or employees. Subject to the provisions of the instrument
appointing it, any such Receiver shall have power to take possession of
Collateral, to preserve Collateral or its value, to carry on or concur in
<PAGE>
Page 7 of 15
carrying on all or any part of the business of Debtor and to sell, lease,
license or otherwise dispose of or concur in selling, leasing, licensing or
otherwise disposing of Collateral. To facilitate the foregoing powers, any such
Receiver may, to the exclusion of all others, including Debtor, enter upon, use
and occupy all premises owned or occupied by Debtor constituting Collateral or
wherein Collateral may be situate, maintain Collateral upon such premises,
borrow money on a secured or unsecured basis and use Collateral directly in
carrying on Debtor's business or as security for loans or advances to enable the
Receiver to carry on Debtor's business or otherwise, as such Receiver shall, in
its discretion, determine. Except as may be otherwise directed by RBC, all Money
received from time to time by such Receiver in carrying out its appointment
shall be received in trust for and paid over to RBC. Every such Receiver may, in
the discretion of RBC, be vested with all or any of the rights and powers of
RBC.
(b) Upon default, RBC may, either directly or through its agents or
nominees, exercise any or all of the powers and rights given to a Receiver by
virtue of the foregoing sub-clause (a).
(c) RBC may take possession of, collect, demand, sue on, enforce, recover
and receive Collateral and give valid and binding receipts and discharges
thereof and in respect thereof and, upon default, RBC may sell, lease, license
or otherwise dispose of Collateral in such manner, at such time or times and
place or places, for such consideration and upon such terms and conditions as to
RBC may seem reasonable.
(d) In addition to those rights granted herein and in any other agreement
now or hereafter in effect between Debtor and RBC and in addition to any other
rights RBC may have at law or in equity, RBC shall have, both before and after
default, all rights and remedies of a secured party under the P.P.S.A. provided
always, that RBC shall not be liable or accountable for any failure to exercise
its remedies, take possession of, collect, enforce, realize, sell, lease,
license or otherwise dispose of Collateral or to institute any proceedings for
such purposes. Furthermore, RBC shall have no obligation to take any steps to
preserve rights against prior parties to any Instrument or Chattel Paper or
prior encumbrancers on any Real Property whether Collateral or proceeds and
whether or not in RBC's possession and shall not be liable or accountable for
failure to do so.
(e) Debtor acknowledges that RBC or any Receiver appointed by it may take
possession of Collateral wherever it may be located and by any method permitted
by law and Debtor agrees upon request from RBC or any such Receiver to assemble
and deliver possession of Collateral at such place or places as directed.
(f) Debtor agrees to be liable for and to pay all costs, charges and
expenses incurred by RBC or any Receiver or agent appointed by it, whether
directly or for services rendered (including solicitors costs on a solicitor and
his own client basis and auditors costs and other legal expenses and Receiver
and agent remuneration), in operating Debtor's accounts, preparing or enforcing
this Security Agreement, inspecting and determining the state of the Collateral,
taking and maintaining custody of, preserving, repairing, processing, preparing
for disposition and disposing of Collateral and in enforcing or collecting
Indebtedness and all such costs, charges and expenses, together with any amounts
owing as a result of any borrowing by RBC or any Receiver appointed by it, as
permitted hereby, shall be a first charge on the proceeds of realization,
collection or disposition of Collateral and shall be secured hereby.
(g) RBC will give Debtor such notice, if any, of the date, time and place
of any public sale or of the date after which any private disposition of
Collateral is to be made as may be required by the P.P.S.A. or other applicable
law.
<PAGE>
Page 8 of 15
(h) Upon default and receiving written demand from RBC, Debtor shall take
such further action as may be necessary to evidence and effect an assignment or
licensing of Intellectual Property to whomoever RBC directs, including to RBC.
Debtor apponts any officer or director or branch manager of RBC upon default to
be its attorney in accordance with applicable legislation with full power of
substitution and to do on Debtor's behalf anything that is required to assign,
license or transfer, and to record any assignment, licence or transfer of the
Collateral. This power of attorney, which is coupled with an iterest, is
irrevocable until the release or discharge of the Security Interest.
14. MISCELLANEOUS
(a) Debtor hereby authorizes RBC to file such financing statements,
financing change statements, caveats, mortgages, forms, security notices and
other documents and do such acts, matters and things (including completing and
adding schedules hereto identifying Collateral or any permitted Encumbrances
affecting Collateral or identifying the locations at which Debtor's business is
carried on and Collateral and records relating thereto are situate) as RBC may
deem appropriate to perfect on an ongoing basis and continue the Security
Interest, to protect and preserve Collateral and to realize upon the Security
Interest and Debtor hereby irrevocably constitutes and appoints the Manager or
Acting Manager from time to time of the herein mentioned branch of RBC the true
and lawful attorney of Debtor, with full power of substitution, to do any of the
foregoing in the name of Debtor whenever and wherever it may be deemed necessary
or expedient.
(b) Without limiting any other right of RBC, whenever Indebtedness is
immediately due and payable or RBC has the right to declare indebtedness to be
immediately due and payable (whether or not it has so declared), RBC may, in its
sole discretion, set off against Indebtedness any and all amounts then owed to
Debtor by RBC in any capacity, whether or not due, and RBC shall be deemed to
have exercised such right to set off immediately at the time of making its
decision to do so even though any charge therefor is made or entered on RBC's
records subsequent thereto.
(c) Upon Debtor's failure to perform any of its duties hereunder, RBC may,
but shall not be obligated to, perform any or all of such duties, and Debtor
shall pay to RBC, forthwith upon written demand therefor, an amount equal to the
expense incurred by RBC in so doing plus interest thereon from the date such
expense is incurred until it is paid at the rate of 15% per annum.
(d) RBC may grant extensions of time and other indulgences, take and give
up security, accept compositions, compound, compromise, settle, grant releases
and discharges and otherwise deal with Debtor, debtors of Debtor, sureties and
others and with Collateral and other security as RBC may see fit without
prejudice to the liability of Debtor or RBC's right to hoid and realize the
Security Interest. Furthermore, RBC may demand, collect and sue on Collateral in
either Debtor's or RBC's name, at RBC's option, and may endorse Debtor's name on
any and all cheques, commercial paper, and any other Instruments pertaining to
or constituting Collateral.
(e) No delay or omission by RBC in exercising any right or remedy hereunder
or with respect to any Indebtedness shall operate as a waiver thereof or of any
other right or remedy, and no single or partial exercise thereof shall preclude
any other or further exercise thereof or the exercise of any other right or
remedy. Furthermore, RBC may remedy any default by Debtor hereunder or with
respect to any Indebtedness in any reasonable manner without waiving the default
remedied and without waiving any other prior or subsequent default by Debtor.
All rights and remedies of RBC granted or recognized herein are cumulative and
may be exercised at any time and from time to time independently or in
combination.
(f) Debtor waives protest of any Instrument constituting Collateral at any
time held by RBC on which Debtor is in any way liabie and, subject to Clause 13
(g) hereof, notice of any other action taken by RBC.
<PAGE>
Page 9 of 15
(g) This Security Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns. In any action brought by an assignee of this Security
Agreement and the Security Interest or any part thereof to enforce any rights
hereunder, Debtor shall not assert against the assignee any claim or defence
which Debtor now has or hereafter may have against RBC. If more than one Debtor
executes this Security Agreement the obligations of such Debtors hereunder shall
be joint and several and, unless the context otherwise requires, a reference to
"Debtor" herein shall be deemed to be a reference to each of the undersigned.
(h) Save for any schedules which may be added hereto pursuant to the
provisions hereof, no modification, variation or amendment of any provision of
this Security Agreement shall be made except by a written agreement, executed by
the parties hereto and no waiver of any provision hereof shall be effective
unless in writing.
(i) Subject to the requirements of Clauses 13 (g) and 14 0) hereof,
whenever either party hereto is required or entitled to notify or direct the
other or to make a demand or request upon the other, such notice, direction,
demand or request shall be in writing and shall be sufficiently given, in the
case of RBC, if delivered to it or sent by prepaid registered mail addressed to
it at its address herein set forth or as changed pursuant hereto and, in the
case of Debtor, if deiivered to it or if sent by prepaid registered mail
addressed to it at its last address known to RBC. Either party may notify the
other pursuant hereto of any change in such party's principal address to be used
for the purposes hereof.
(j) This Security Agreement and the security afforded hereby is in addition
to and not in substitution for any other security now or hereafter held by RBC
and is intended to be a continuing Security Agreement and shall remain in full
force and effect until the Manager or Acting Manager from time to time of the
herein mentioned branch of RBC shall actually receive written notice of its
discontinuance; and, notwithstanding such notice, shall remain in full force and
effect thereafter until all Indebtedness contracted for or created before the
receipt of such notice by RBC, and any extensions or renewals thereof (whether
made before or after receipt of such notice) together with interest accruing
thereon after such notice, shall be paid in full.
(k) The headings used in this Security Agreement are for convenience only
and are not to be considered a part of this Security Agreement and do not in any
way limit or amplify the terms and provisions of this Security Agreement.
(1) When the context so requires, the singular number shall be read as if
the plural were expressed and the provisions hereof shall be read with all
grammatical changes necessary dependent upon the person referred to being a
male, female, firm or corporation.
(m) In the event any provisions of this Security Agreement, as amended from
time to time, shall be deemed invalid or void, in whole or in part, by any Court
of competent jurisdiction, the remaining terms and provisions of this Security
Agreement shall remain in full force and effect.
(n) Nothing herein contained shall in any way obligate RBC to grant,
continue, renew, extend time for payment of or accept anything which constitutes
or would constitute Indebtedness.
(o) The Security Interest created hereby is intended to attach when this
Security Agreement is signed by Debtor and delivered to RBC.
(p) Debtor acknowledges and agrees that in the event it amalgamates with
any other company or companies it is the intention of the parties hereto that
the term "Debtor" when used herein shall apply to each of the amalgamating
companies and to the amalgamated company, such that the Security Interest
granted hereby:
<PAGE>
Page 10 of 15
(i) shall extend to "Collateral" (as that term is herein defined)
owned by each of the amalgamating companies and the amalgamated company at
the time of amalgamation and to any "Collateral" thereafter owned or
acquired by the amalgamated company; and
(ii) shall secure the "Indebtedness" (as that term is herein defined)
of each of the amalgamating companies and the amalgamated company to RBC at
the time of amalgamation and any "lndebtedness" of the amalgamated company
to RBC thereafter arising.
The Security Interest shall attach to "Collateral" owned by each company
amalgamating with Debtor, and by the amalgamated company, at the time of
amalgamation, and shall attach to any "Collateral" thereafter owned or acquired
by the amalgamated company when such becomes owned or is acquired.
(q) In the event that Debtor is a body corporate, it is hereby agreed that
The Limitation of Civil Rights Act of the Province of Saskatchewan, or any
provision thereof, shall have no application to this Security Agreement or any
agreement or instrument renewing or extending or collateral to this Security
Agreement. In the event that Debtor is an agricultural corporation within the
meaning of The Saskatchewan Farm Security Act, Debtor agrees with RBC that ail
of Part IV (other than Section 46) of that Act shall not apply to Debtor.
(r) This Security Agreement and the transactions evidenced hereby shall be
governed by and construed in accordance with the laws of the province where the
herein mentioned branch of RBC is located including, where applicable, the
P.P.S.A. and the Land Title Act.
15. COPY OF AGREEMENT AND FINANCING STATEMENT
(a) Debtor hereby acknowledges receipt of a copy of this Security
Agreement.
(b) Debtor waives Debtor's right to receive a copy of any financing
statement or financing change statement registered by RBC or any verification
statement pertaining to a registration by RBC.
<PAGE>
Page 11 of 15
16. RBC BRANCH ADDRESS:
12th floor, 335- 8 Ave SW, Calgary, Alberta
17. NAME AND ADDRESS OF DEBTOR
Debtor represents and warrants that the following information is accurate:
INDIVIDUAL DEBTOR
BUSINESS DEBTOR
NAME OF BUSINESS DEBTOR
OLYMPIC SEISMIC LTD.
ADDRESS OF BUSINESS DEBTOR
3750, 205 - 5TH Avenue S.W. Calgary, Alberta T2P 2V7
<PAGE>
Page 12 of 15
IN WITNESS WHEREOF Debtor has executed this Security Agreement on the date
specified below.
WITNESS / OFFICER SIGNATURE*
(as to all signatures)
Name:
Address:
Professional
Capacity:
* Officer certification required in B.C. only
* OFFICER CERTIFICATION
Your signature constitutes a representation that you are a solicitor, notary
public or other person authorized by the Evidence Act, R.S.B.C. 1979. c. 116, to
take affidavits for use in British Columbia and certifies the matters set out in
Part 5 of the Land Title Act as they pertain to the execution of this
instrument.
<PAGE>
Page 13 of 15
SCHEDULE "A"
(ENCUMBRANCES AFFECTING COLLATERAL)
<PAGE>
Page 14 of 15
SCHEDULE "B"
1. Locations of Debtor's Business Operations
3750, 205 - 5 Ave SW Calgary Alberta
2. Locations of Records relating to Collateral (if different from 1. above)
As above
3. Locations of Collateral (if different from 1. above)
As above
<PAGE>
Page 15 of 15
SCHEDULE "C"
(DESCRIPTION OF PROPERTY)
N/A
- END OF DOCUMENT
EXHIBIT 10.52
Royal Bank of Canada
Oil & Gas Banking Centre
1100, 335 - 8th Avenue S.W.
Calgary, Alberta T2P 1C9
Fax: (403)292-3436
March 2, 2000
Olympic Seismic Ltd.
3750, 205 - 5 Ave. SW
Calgary, AB
T2P 2V7
Attention: Suzanne Bowden, Controller
Dear Sirs:
Re: Credit Facilities
We hereby confirm that the following sections of the credit facilities letter
agreement dated November 9,1999 is hereby amended by deleting the existing
provisions of such sections in its entirety and substituting the following
provisions:
Amount: The authorized facility in the amount of $5,000,000 is available
------ on a margined basis year round.
Margin
Requirements: Total advances under Segment 1) plus preferred claims, should not
- ------------ exceed 75% of good accounts receivable excluding inter-company
accounts, holdbacks and the entire outstanding balance of
accounts where any portion exceeds 90 days. The first $2,000,000
is available - on an unmargined basis.
The letter agreement is hereby amended by the foregoing amendment and the credit
facilities available to the company will be governed by the provisions of the
letter agreement as amended by the provisions of this letter.
If you are in agreement with the foregoing, kindly execute and return the
enclosed copy of this letter by no later than March 10, 2000.
Yours truly, We acknowledge and accept the terms and conditions of
this agreement this 2 day of March , 2000.
------ -------
OLYMPIC SEISMIC LTD.
Per: /s/ S. Bowden
Title: Controller
D.A. Majeski
Manager, Energy Service & Supply
EXHIBIT 21.1
SEITEL, INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
** African Geophysical, Inc. (incorporated in Cayman Islands)
** Alternative Communication Enterprises, Inc. (incorporated in Texas)
Datatel, Inc. (incorporated in Delaware)
DDD Energy, Inc. (incorporated in Delaware)
** EHI Holdings, Inc. (incorporated in Delaware)
** Exsol, Inc. (incorporated in Delaware)
** GEO-BANK, INC. (incorporated in Texas)
Matrix Geophysical, Inc. (incorporated in Delaware)
* Olympic Seismic Ltd. (incorporated in Alberta, Canada)
Seitel Canada Holdings, Inc. (incorporated in Delaware)
Seitel Data Corp. (incorporated in Delaware)
Seitel Delaware, Inc. (incorporated in Delaware)
** Seitel Gas & Energy Corp. (incorporated in Delaware)
** Seitel Geophysical Inc. (incorporated in Delaware)
Seitel International, Inc. (incorporated in Cayman Islands)
Seitel Management, Inc. (incorporated in Delaware)
** Seitel Natural Gas, Inc. (incorporated in Delaware)
Seitel Offshore Corp. (incorporated in Delaware)
** Seitel Power Corp. (incorporated in Delaware)
* 818312 Alberta Ltd. (incorporated in Delaware)
* Incorporated in 1999
** Dormant
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K, into the Seitel, Inc.
previously filed Form S-3 Registration Statements File Nos. 33-71968, 33-78554,
33-80574, 33-89890, 333-71545, 333-85671, and Form S-8 Registration Statements
File Nos. 33-36914, 33-78560, 33-89934, 333-01271, 333-12549, 333-63383, and
333-64557.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 2000
EXHIBIT 23.2
GARB GRUBBS HARRIS & ASSOCIATES, INC.
(Formerly Forrest A. Garb & Associates, Inc.)
INTERNATIONAL PETROLEUM CONSULTANTS
5310 HARVEST HILL ROAD, SUITE 160
DALLAS, TEXAS 75230-5805
TEL: 972.788.1110 FAX: 972.991.3160
email: [email protected]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
------------------------------------------
Garb Grubbs Harris & Associates, Inc., petroleum consultants, hereby consent to
the incorporation by reference in any registration statement or other document
filed with the Securities and Exchange Commission by Seitel, Inc., our reserve
report dated December 31, 1999, and to all references to our firm included
therein.
Garb Grubbs Harris & Associates, Inc.
By: /s/ Ronald L. Grubbs
-----------------------------------
Name: Ronald L. Grubbs
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
Dallas, Texas
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,188
<SECURITIES> 0
<RECEIVABLES> 63,859
<ALLOWANCES> 1,183
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 212,201<F2>
<DEPRECIATION> 59,614
<TOTAL-ASSETS> 555,919
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 225,223
0
0
<COMMON> 243
<OTHER-SE> 242,781
<TOTAL-LIABILITY-AND-EQUITY> 555,919
<SALES> 128,707
<TOTAL-REVENUES> 128,707
<CGS> 5,016
<TOTAL-COSTS> 5,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,791
<INCOME-PRETAX> 16,518
<INCOME-TAX> 7,138
<INCOME-CONTINUING> 9,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,380
<EPS-BASIC> .39
<EPS-DILUTED> .39
<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
statements.
<F2> PP&E does not include seismic data bank assets with a cost of $629,380,000
and related accumulated amortization of $299,495,000.
</FN>
</TABLE>
