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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Fiscal Year Ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
OF 1934
[No Fee Required] For the transition period ____________ to _______________
Commission File Number 0-18842
FIRST SEISMIC CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 76-0062729
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
2470 GRAY FALLS
SUITE 190
HOUSTON, TEXAS 77077-6513
(Address of principal (Zip Code)
executive offices)
(281) 556-5656
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. No X
Indicate by check mark if disclosure of delinquent files 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 Common stock of the Registrant is not currently listed on any Exchange,
however the Registrant's common stock has traded from time to time on NASD
"Pink Sheets". On October 20, 1999, a stock transaction reported on the OTC
bulletin board indicated that 400 shares of the stock traded for $0.05 per
share. This activity may not represent market value, however the aggregate
market value obtained by using this valuation on the 6,922,722 shares of the
voting stock held by non-affiliates of the registrant in December 1999 would
be approximately $346,136. For these purposes, the term "affiliate" is deemed
to mean officers and directors of the registrant.
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FIRST SEISMIC CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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<S> <C> <C>
PART I
Item 1. Business ................................................ 3
Item 2. Properties............................................... 12
Item 3. Legal Proceedings........................................ 12
Item 4. Submission of Matters to a Vote of Security Holders...... 12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters............................ 12
Item 6. Selected Consolidated Financial Data..................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 18
Item 8. Financial Statements and Supplementary Data.............. 18
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant....... 18
Item 11. Executive Compensation .................................. 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................... 22
Item 13. Certain Relationships and Related Transactions........... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................... 25
SIGNATURES ......................................................... 26
</TABLE>
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PART ONE
ITEM 1. BUSINESS
GENERAL
FIRST SEISMIC Corporation provides to its customers seismic data and
other geoscientific information that is primarily used in oil and gas
exploration and production efforts. We sell licenses to use our proprietary
information as well as information owned by others under broker and agency
arrangements to oil and gas companies. We also invest in select upstream oil
and natural gas exploration through our recently acquired wholly owned
subsidiary FORTESA Corporation, a Texas Corporation. See Note 10 to our
Consolidated Financial Statements for financial information relating to our
March 30, 1999 acquisition of FORTESA. We were originally incorporated in
Delaware in July 1990. Our data information operations are primarily
conducted through our three wholly owned subsidiaries, which are FIRST
EXCHANGE Corporation, a Delaware corporation, FIRST EXCHANGE Limited, a
United Kingdom corporation, and Blackwell Supply, Inc., d.b.a. Blackwell
Trading, Inc., a Delaware corporation.
Since 1993, sales of licenses to use our seismic information have
substantially declined due to reduced demand for 2-D seismic data. Prior to
1993, license sales of 2D data had been the source of substantially all of
our business. In response, we have redefined our business. Our main source of
revenues since 1993 have been license sales, brokerage, packaging,
publication, and related services pertaining to diverse geoscientific
information which we seek to acquire, package, own or represent in order to
make it available for licensing to oil and gas industry exploration
customers. This geoscientific information is comprised of studies, research,
measurements, interpretations, information compilations, translations,
special reports, well data, correlations, graphical displays, databases of
values, and maps. The scientific disciplines covered by these geoscientific
information packages include geophysics, geology, geochemistry, engineering,
environmental, and regional synthesis of such information in various
combinations, all oriented towards providing exploration visibility in
specific geographic areas to our customers. We have copyrighted the completed
published materials in each geographic area of our endeavor, and our
customers license the use of this information from us for their own internal
use.
We have made capital expenditures of over $1,000,000 in the
acquisition, processing and packaging of such geoscientific information
during the four years ended December 31, 1998 and are actively pursuing the
licensing of this data, as well as related geoscientific services which are
required by our customer base.
As discussed in detail below under Oil & Gas Exploration and
Production Operations, we are also pursuing select opportunities in the oil &
gas exploration and production business where such endeavors complement
relationships with our suppliers, customers and co-venturers. We plan to
devote a greater percentage of our financial and other resources in the
future to oil and gas exploration and production and the promotion of
investment opportunities for the oil and gas industry at large. Management
believes that our future financial success depends largely on the success of
these related oil and gas ventures. See "Oil and gas Exploration and
Production Operations" below for a discussion of these oil and gas ventures.
SEISMIC OPERATIONS
Historically, we have engaged in the development of a proprietary
seismic data library. Our seismic data library consists exclusively of
two-dimensional or 2D data, and was developed over a period of approximately
ten years. As of 1991 our seismic data library consisted of over 11,000 miles
of domestic 2D seismic line data. As of December 31, 1998, our seismic data
library consisted of approximately 8,500 miles of domestic and foreign 2D
seismic line data. Our library is marketed to major and independent oil and
gas companies under use-license arrangements. Additionally, we have been
involved in the sale of licenses for seismic data owned by others, under
brokerage and agency agreements. Seismic surveys and the analysis of seismic
data for the identification and definition of underground geological features
and structures are principal techniques used in oil and gas exploration and
development to determine possible locations of subsurface hydrocarbons.
Beginning in 1992, technology that enabled geoscientists to obtain
seismic data in three dimensions ("3D") became much more cost effective and
universally available. 3D seismic data makes possible a graphic geophysical
depiction of the substrata geology from two (instead of just one, as in 2D
seismic) horizontal dimensions and one vertical dimension. This process
provides a substantially more accurate representation than 2D data and
significantly enhances the ability to evaluate the probable existence and
location of subsurface hydrocarbons.
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Accordingly, 3D seismic data became the information of choice among
our historical customers, and as a result, the demand for and the relative
value of our extensive 2D library decreased significantly. Both the volume of
2D seismic licenses sold and the prices which customers were willing to pay
for such information suffered severe downturns beginning in late 1991. While
a market remains for this information and the Company continues to engage in
this business, management believes that future prospects for growth in
ownership and marketing of 2D information are below a critical mass necessary
to be of significant commercial interest to the Company. During 1998, sales
of 2D seismic information accounted for approximately 20% of the Company's
revenues. Approximately 30% of our revenues come from associated services
such as reproduction and interpretation of such data.
GEO-TECHNICAL PUBLISHING AND SERVICES
Cash flow from our operations since 1993 has increasingly come from
license fee and service revenue generated by our exploration and
geoscientific research, as well as geo-technical services performed directly
for our customers. In these areas, we compete on the basis of expertise in
packaging, marketing, and supplying interrelated data for a particular area
of geologic interest. We perform these functions exclusively for oil
companies, either by our preparation of direct information on an exclusive
basis for the customer, or as multi-client studies on which (i) we attempt to
retain an ownership interest in the resulting study for on-going income, and
(ii) our customer receives the right to use the compiled information for
internal use under a licensing agreement.
We have developed and added geotechnical publications used for
multi-client sales into our data library. Typically we realize a better
margin in these products due to our partial or full ownership position in
them, as compared to information brokerage and commission revenue from data
that we do not own. Potential customers may inspect abstracts of information
and data types and determine their usefulness for a particular project via
our website at www.first-exchange.com. Our geotechnical publication products
and services tend to be more cost effective for customers than those which
they develop at their own expense as we provide the needed exploration
information in a useful form with pricing based on a percentage of our costs
for originating the information. Further licenses for these same reports are
sold or resold for varying prices based on market demand.
In conjunction with these services, we generate commission and
service revenue related to the compilation, interpretation, imaging and
marketing of geoscientific data. These services typically involve fees for
performance arrangements with customers who own or desire to obtain mineral
rights and are seeking to determine viability for drilling programs. We seek
to compete in this area by exploiting our upstream relationships, data
sources, and experience in emerging areas such as Africa, South America and
Eurasia. Revenue from geoscientific information and services accounted for
approximately 50% of our revenue in 1998.
OIL AND GAS EXPLORATION AND PRODUCTION OPERATIONS
We intend to utilize our expertise in the application of
geoscientific technology, as well as our relationships with suppliers and
owners of information and our customers to participate in oil and gas
exploration and production in selected situations which do not conflict with
the business interests of our customers. Through our subsidiary FORTESA, we
are currently pursuing several oil & gas prospects in the U.S. as well as in
West Africa. These prospects are in various stages of development, however
none are actively drilling as of December 1999. The majority of these
investments were accounted for at cost as the Company held a minority
ownership interest in 1998 in the West African opportunity. At December 31,
1998, the Company wrote down a prospect in East Texas by $34,920 due to a
decline in fair market value. The Company's cost basis in all of these oil &
gas positions totaled approximately $171,000. During 1998, two wells in
Kansas began producing with cash distributions expected to begin after the
operator has recovered the drilling costs.
RECENT DEVELOPMENTS
FORTESA ACQUISITION
Effective March 30, 1999, we purchased all of the outstanding shares
of stock of FORTESA Corporation, a Texas corporation, from the Beall Living
Trust, its sole shareholder, the trustee for which is Rogers E. Beall, our
chairman and chief executive officer, in exchange for 50,000 shares of the
Company's Series A Convertible Preferred Stock plus 8,055 shares of Common
stock. At the time of the acquisition, FORTESA's assets consisted of oil and
gas interests located in East Texas and the Republic of Senegal and were
valued at approximately $171,000, a figure that represents the book value of
the assets to FORTESA.
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FORTESA ASSETS
Mr. Rogers E. Beall, our chairman and chief executive officer formed
FORTESA in May 1997 to pursue an opportunity to develop natural gas reserves
in an onshore block owned by Petrosen, the national oil company of the
Republic of Senegal and referred to as the THIES Block. Such opportunity was
not available to us at the time due to our financial condition. The THIES
Block consists of approximately 998,000 onshore acres adjacent to Dakar, the
Capital of Senegal. In February 1997, Petrosen drilled an exploratory well on
the acreage that was tested successfully in two zones, including a flow of
4.3 million cubic feet per day from one of the intervals, a Campanian sand
interval, at 4,200 feet. The Company estimates that the required expenditures
for the initial development of the THIES Block will be approximately $5.4
million.
To develop the THIES Block, FORTESA entered into a joint venture in
December 1997 with Benton Oil and Gas Company under which FORTESA retained a
15% working interest in the project. The terms of the joint venture required
Benton to act as the operator of the venture and to commit the first $5.4
million required to develop the interest. FORTESA was required to fund its
share of capital requirements after Benton's committed expenditures were
made. We estimated that the development of the THIES Block will require
drilling two to five additional wells and the construction of a pipeline to
deliver the natural gas produced to the local power generating facility
approximately 42 kilometers from the field. In November 1999 we entered into
a gas sales agreement to sell our future production to this power plant. See
"Recent Developments Concerning Fortesa" below.
FORTESA also holds a small position in exploration acreage in east
Texas that we believe is prospective for gas exploration. This acreage is
adjacent to known productive areas that have exhibited commercial production
in the 1990's.
RECENT DEVELOPMENTS CONCERNING FORTESA
On October 23, 1999, our subsidiary FORTESA entered into a new
agreement with Benton Oil and Gas Company (Senegal) Ltd. by which FORTESA has
assumed all obligations and rights of Benton Oil and Gas Company under the
joint venture in the THIES Block. In addition, Benton purchased 135,000
shares of the Company's Series B Convertible Preferred Stock, liquidation
value $10.00, for $750,000 in cash, and in consideration for services
rendered consisting of Benton's prior development expenditures on the THIES
Block. In connection with the issuance of Series B Convertible Preferred
Stock, the Company also granted Benton registration rights for common stock
underlying Benton's shares of preferred stock.
A condition precedent to this agreement was the granting of a
release from Petrosen to Benton of the latter's obligations under the prior
joint venture agreement. On November 16, 1999, we obtained that release for
Benton from our other partner, PETROSEN. Under this agreement, we also
released Benton on our behalf from Benton's above obligation to spend
$5,400,000 to develop the Gadiaga Field. As a result, we are now obligated to
develop the Gadiaga Field without Benton, and we have assumed the role of
`operator' of this project from Benton, with the consent of PETROSEN.
Our agreement with Benton requires FORTESA to obtain additional
equity financing of at least $500,000 on terms equivalent to those of the
Series B Convertible Preferred Stock. Upon obtaining a letter of intent to
fund the additional equity, FORTESA was required to issue a purchase order
for pipe to be used in our construction of the pipeline that will transport
gas produced from the Gadiaga Field in the THIES Block. FORTESA issued the
required purchase order for the pipe on November 24, 1999. FORTESA is also
required promptly to commence efforts to obtain additional financing in the
form of a construction loan of up to $1,000,000 to complete installation of
the pipeline. As of the date of this filing FORTESA is engaged in discussions
to secure the required additional equity financing from third-party investors
and the required construction financing from an international bank with
offices in Senegal.
On November 23, 1999 FORTESA executed a gas sales agreement to
supply natural gas produced from the THIES Block to the main Senegalese power
plant at Cap Des Biches, Senegal. Under the terms of this agreement we have
agreed to dedicate to the main power plant, and the power plant has agreed to
take, all of the natural gas to be produced from the Gadiaga field for at
least two years, at a fixed price. The Company may also sell any production
from the THIES Block, outside of its Gadiaga Field, to the same power plant
or other local energy users and industries.
We plan to complete construction of the gas delivery pipeline in the
second quarter of 2000, and realize cash flow from gas sales within 90 days
of the first gas transmission. Concurrent with the commencement of this cash
flow, we plan the drilling of two to five additional wells in 2000 and 2001.
In order to satisfy our obligations under the contract with Benton, we must
raise or otherwise promote from new co-venturers the additional funds to
drill at least two wells before February 2001. We plan to use a combination
of cash flow from the production of the first well discussed above, new
capital from private or other sources, project financing or capital from
future co-venturers to fund the additional required wells. We intend to fund
further
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development of the Gadiaga gas field, as well as other exploration on the
THIES Block, in the same manner. We have no assurance that we will be able to
successfully obtain this financing on terms acceptable to us, complete the
project and realize continuing revenues from the gas supply contracts.
TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK
The terms of the Series A Convertible Preferred Stock provide for
dividends at a rate of 6% of the liquidation value per annum which will
accrue and accumulate beginning March 31, 2001. We may not pay dividends on
our common stock unless and until all accrued and unpaid dividends on the
Series A Convertible Preferred Stock are paid. Shares of the Series A
Convertible Preferred Stock are convertible into shares of common stock at
the holders' option after March 31, 2001 at a conversion ratio that varies
proportionally with an increase in value of the assets of FORTESA. Initially
the Series A Convertible Preferred Stock will be convertible at a ratio of 10
shares of Common stock for each share of Series A Convertible Preferred
Stock. On each of December 31, 2001, 2002 and 2003, the conversion ratio
shall be adjusted in proportion to the increase in value of the assets of
FORTESA, if any, as determined by an annual PV10 valuation of the assets
performed by an independent engineer. In any event, the conversion ratio
shall not exceed a maximum of 40 shares of common stock for each share of
Series A Convertible Preferred Stock. The maximum ratio would correspond to
an increase in value for the FORTESA assets acquired on March 30, 1999 to
$2,925,000 as determined by the independent valuation.
TERMS OF THE SERIES B CONVERTIBLE PREFERRED STOCK
The terms of the Series B Convertible Preferred Stock entitle the
holder(s) at any time to convert each share into 10 shares of Common stock at
their option. In addition, we have the right to redeem all or part of the
outstanding shares of Series B Convertible Preferred Stock at the $10.00 per
share liquidation value. If the shares are redeemed prior to three years from
the date of issuance, we must also pay a premium equal to 6% of the
liquidation value per annum from the date of issuance until the date of such
redemption.
EXCHANGE OF COMMON STOCK FOR 12% SENIOR NOTES
In October 1997, we entered into agreements with the current holders
of all of the Company's 12% Senior Notes due December 31, 1996 which modified
the terms of these Senior Notes. Prior to entering into these individual loan
modification agreements, we had been in non-compliance with various
provisions including payment of interest on these Senior Notes since
September 30, 1993. The provisions of the loan modification agreements
reduced the balance due on the Senior Notes to the outstanding principal
amount only and forgave unpaid interest and suspended other remedies
available to the Note holders. These modification agreements required us to
retire these Senior Notes prior to September 30, 1999. In March of 1999, we
were able to satisfy the balance of our obligations that were not already
paid in cash under the terms of the modification agreement by issuing
1,241,596 shares of common stock, valued at two times the book value of the
Company, in exchange for most of the outstanding Senior Notes. We paid the
remaining outstanding principal balance on the Senior Notes as of September
1999.
EXCHANGE OF COMMON STOCK FOR 6% NOTES, AND WARRANTS TRANSACTIONS
In March 1999 we issued 977,508 shares of common stock, together
with new warrants to purchase an aggregate 475,000 additional shares of
common stock at a price of $0.30 per share, in exchange for all of our
outstanding 6% Secured Promissory Notes. These 6% Notes had an original
principal amount of $500,000, with an outstanding principal balance of
$411,178 plus accrued interest as of March 29, 1999. In connection with this
transaction, the Noteholders, who were also the warrant holders, agreed to
exercise at least 80% of the outstanding $0.50 warrants, thereby purchasing
shares of new common stock for cash. As an inducement, we offered 150% of the
number of shares of common stock called for by the warrants as originally
issued in 1993 for each warrant exercised. As of October 1999 all of the
Noteholders accepted the offer to exchange their Note for common stock. Of
these converting Noteholders, 92.5% also purchased an aggregate 712,500
shares of common stock for $237,500 in cash. One holder of 25,000 warrants
issued in 1993 at a strike price of $0.50 chose not to exercise his warrants
early. Those 25,000 warrants expire in June 2000.
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CUSTOMERS
We market our geoscientific products and services to major and
independent oil and gas companies. During 1998, 35% of revenues were
attributable to three customers, each of which individually accounted for
over 10% of our revenues. During 1997 and 1996 no one customer accounted for
as much as 10% of our revenues. Although we believe that revenues from our
seismic and geoscientific data library operations will maintain a minimum
level of activity sufficient to sustain that effort, we believe any future
revenue growth is limited to our oil and gas exploration and promotion
activities. We also believe that these activities will require more
co-venturing and partnering with our historical customers and others with
whom we have relationships, than do those of our geoscientific information
business
COMPETITION
The sale of seismic data and geoscientific analysis, information and
reports is highly competitive in the United States and Western Europe where
we earn most of our revenues. We rely on supplier and owner relationships to
obtain information, data, analysis, and previously compiled studies to market
to our customer base. Our relationships and supplier contracts are with major
and independent oil and gas companies, national oil companies in the U.S. and
Europe, independent geological and geophysical data compilers that own
proprietary equipment, processes, and technologies, and technical institutes
and agencies that employ scientists to advance such research. Due to our
supplier and owner relationships, we are able to leverage expertise from our
suppliers and realize significant efficiencies in data gathering, processing
and analysis activities. We have successfully built these relationships in
key areas of Western Europe, the Caspian Sea, West Africa, and South America.
In addition, we use our proprietary data library of geotechnical reports and
seismic data to provide information cost-effectively to our customer base
compared to similar alternative products offered by our competitors.
There are a number of other independent oil service companies and
numerous oil and gas companies that create and market seismic data, create
research studies and maintain their own seismic data libraries. Many of our
competitors have longer operating histories, greater financial resources and
larger sales volumes than we have. In 1998, there were approximately ten
companies with operations similar to our operations. Additionally, over one
hundred service companies create new information for sale to the upstream oil
industry in competition with us worldwide. We consider all of these entities
to be significant competitors.
In the oil and gas exploration and production business there are
many companies competing for the acquisition of mineral properties. Many of
these competitors are better capitalized than we are. We seek to compete in
the exploration for and development of natural gas and crude oil reserves on
the basis of our contacts, relationships, understanding of the application
and use of geoscientific technology and information in the location and
extraction of commercially producible hydrocarbons, and our expertise in
geoscientific disciplines. No assurances can be made that we will have the
resources necessary to fully develop the properties that we currently own or
to acquire new properties for development.
SEASONALITY AND TIMING FACTORS
Our results of operations can fluctuate from quarter to quarter. The
fluctuations are caused by a number of factors.
Our seismic licensing, brokering, geotechnical publishing and
service activities are significantly influenced by oil and gas industry
capital expenditure budgets and spending patterns. The timing of oil and gas
industry capital expenditures can be irregular, since spending patterns are
affected by individual oil and gas company requirements as well as
industry-wide conditions. As a result, our geoscientific data licensing
revenue does not necessarily flow evenly or progressively on a sequential
quarterly basis during the year.
No revenues have been realized from our Oil and Gas activities as of
December 31, 1998. We may bring wells on-line in the future that may cause
significant fluctuations in our financial results. Our future oil and gas
exploration and production operations may 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
seasonal variations in oil and gas prices, our results from future oil and
gas operations may be subject to significant fluctuations due to variations
in commodity prices.
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EMPLOYEES
As of December 31, 1998 in all of our operations we had 16 full-time
employees and several employees who devote part of their time to our business
who are also officers of other affiliated corporations. Of these full-time
employees, 7 work in geoscientific information, 7 in corporate staff or
administrative operations, and 2 in oil and gas operations. None of our
employees are covered under collective bargaining agreements, and we believe
we have a favorable relationship with our employees. We have employment
contracts with our chief executive officer who also acts as the president of
our FIRST EXCHANGE subsidiary, and also with the president of FORTESA, our
oil and gas subsidiary.
RISK FACTORS AND INFORMATION REGARDING FORWARD LOOKING STATEMENTS
ANY INVESTMENT IN OUR SECURITIES INVOLVES RISK. INVESTORS SHOULD CAREFULLY
CONSIDER, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT,
RISKS SUCH AS THOSE DESCRIBED BELOW BEFORE MAKING ANY INVESTMENT DECISION.
This Annual Report on Form 10-K includes forward-looking statements
and assumptions we have made within the meaning of Section 27A of the
Securities Act of 1933 and Section 21 E of the Securities Exchange Act of
1934. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other
factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by the forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or other comparable terminology. Although we believe that our
expectations are based on reasonable assumptions, we can give no assurance
when or if our goals will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking
statements we have made in this report include at a minimum changes in the
exploration budgets of our customers for seismic data, geoscientific studies
and related services. Some additional factors will be actual customer demand
for our seismic data, geoscientific studies and related services, the extent
of our 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 and equity markets during the periods
covered by the forward looking statements. These are all factors that will be
experienced in the future that we have based our estimates and plans on, and
they may vary significantly from the present and cause us not to realize our
plans in the future.
DECREASES IN ENERGY INDUSTRY SPENDING COULD ADVERSELY AFFECT OUR BUSINESS
Overall demand for 2D seismic data, geoscientific information, and
the type of related services that we provide depends primarily upon the level
of spending by oil and gas companies for exploration, production and
development activities. Industry spending levels may follow increases and
decreases in the commodity prices for oil and gas, so that demand for our
products and services may be affected to some degree by market prices for
natural gas and crude oil. These prices have historically been very volatile
due to the sensitivity of product prices to market demand. As a result of the
very significant weaknesses in oil and gas commodity prices starting in
mid-1998 and through mid-1999, the level of overall oil and gas industry
exploration activity had declined from levels experienced in recent years.
This has resulted in a significant consolidation in the number of major
customers for our geoscientific products. Our customers' capital spending
decreased significantly in the period immediately after the 1998 annual
report contained herein, due to these recent industry trends. This resulted
in a significant adverse effect in 1999 upon the demand for our services and
our resulting level of operations and cash flow. In addition, potential
revenues to be generated in the future by our oil and gas exploration and
development business may fluctuate with increases and decreases in the market
prices of oil and gas. Many factors beyond our control may affect such oil
and gas operations. These factors include financing activities, the level of
worldwide supply of natural gas and oil, the availability of adequate
pipeline and other transportation and processing facilities and the marketing
of competitive fuels, and similar worldwide factors.
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DATA LIBRARY INVESTMENT AND FUTURE LICENSING
Our method of selling use-licenses for our data library allows us to
sell the same information to multiple buyers. However, data that we have
developed and invested in may not continue to be of interest to customers in
the future due to changes in areas of interest, licensing of the underlying
lands for hydrocarbon exploration by companies, product pricing factors,
political risk changes and perceptions, and changes in financial and other
conditions that can reduce the viability of hydrocarbon extraction in areas
for which we own data. In such cases, we may not fully recover our costs in
acquiring and developing geophysical and other geoscientific data through
future licenses of that data. As a result, we would have to expense costs of
that data library asset without having corresponding revenues, thereby
causing a loss in those periods affected.
AMORTIZATION OF OUR DATA LIBRARY
Our methods for accounting for investment in our data library can
have a significant effect on the results of our operations for any given
period of time. We amortize our data library based in part on our estimates
of future sales of licenses to our data or over a regular minimum period,
whichever is greater. Estimates are inherently imprecise and may vary from
period to period depending on market developments and our expectations. If we
see that the values in our data library are not being recovered through
revenues at any point in time, we may increase the amortization rates. This
may result in impairments of our data library assets in periods of low
exploration industry interest, and such impairments can have a significant
effect on our reported results of operations.
GOVERNMENT REGULATIONS
Our operations are affected by a variety of laws and regulations,
including laws relating to the use of information, the environment, taxes,
exports and imports, safety, permitting operations, and investment in certain
countries that may become out of favor with the U.S. or other governments. We
invest in financial and management resources in order to comply with such
regulations and laws, but we cannot always anticipate changes in the laws and
politics, and errors in compliance by operatives of our company. Such
modifications and non-compliance can cause us to lose our investment or
become liable for errors in judgment or actions that will result in losses.
INTERNATIONAL EXPOSURE AND RISKS
As we increase our investment in countries outside of the U.S., we
increase our exposure to risks that we cannot always anticipate or control by
the rule of law or compliance with standards normal for our business. In the
future, we believe that an increasing amount of our revenue will come from
sales of information and natural resources originating in Senegal and other
countries outside of the U.S., and these revenues will be subject to risks
that are inherent in doing business abroad. These risks include the
possibilities of expropriation of our assets and investments, changes in tax
and other laws, currency exchange rate fluctuations and devaluations, labor
and political disturbances, insurrection or war, disruptions or delays of
licensing, permitting, or leasing activities, and the requirements of partial
local ownership of our operations.
INSURANCE LIMITATIONS
We attempt to insure against normal liabilities, and to protect our
assets and investments against losses. However, we cannot always obtain
insurance for our operating risks. In addition, sometimes insurance is not
available at cost-effective rates. We will periodically review the insurance
coverage we have in effect, and try to insure against possible losses when
coverage is available at rates that do not make our projects non-commercial.
9
<PAGE>
DRILLING HAZARDS AND DRY HOLES COULD AFFECT OUR OIL AND GAS ACTIVITIES
Our oil and gas operations will be subject to hazards incident to
the drilling of oil and gas wells, such as cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution, or other
environmental risks, as well as to the risk that we may not encounter
commercially productive natural gas or oil reserves. 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.
However, since we sometimes may not act as operator in our oil and gas
drilling business, these factors may be dependent upon our petroleum company
co-venturers to conduct operations in a manner so as to minimize these
operating risks. In accordance with industry practice, we will maintain
insurance against some, but not all, of these operating risks. There can be
no assurance that adequate insurance will be available in the future, or that
we will be able to maintain adequate insurance on terms and conditions
acceptable to management. As a result of the risks inherent in oil and gas
operations, the success of our oil and gas exploration, development and
production activities is uncertain.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our operations are dependent upon 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 operations and future
results. Equity ownership and other incentives are offered to attract and
retain our key employees. In addition, we have employment agreements with our
chairman and chief executive officer, Rogers E. Beall, who also acts as the
President of our FIRST EXCHANGE subsidiary, and also with FORTESA president,
Hayne S. Blakely.
OUR ABILITY TO OBTAIN ADDITIONAL FINANCING COULD IMPAIR OUR FUTURE OIL AND
GAS ACTIVITIES
The success of our oil and gas development activities depends
substantially on our ability to obtain additional financing. In particular,
our activities in Senegal require us to make significant capital expenditures
to continue the development of that project, which will depend upon our
ability to obtain additional financing. See "Oil and Gas Exploration and
Production Operations - Recent Developments." Although discussions with
potential equity and debt investors and lenders are ongoing, we have no firm
commitments for such additional financing, and no assurances can be made that
additional financing will be obtained.
REGIONAL EVENTS MAY AFFECT OUR GEOGRAPHICALLY CONCENTRATED OPERATIONS
Most of the seismic data in our library is 2D data covering lands
located in the Rocky Mountains, Michigan Basin and other onshore areas of the
U.S. The majority of our compiled geoscientific data and studies cover areas
in the Caspian Sea, South America and western Africa. Our interests in oil &
gas properties are concentrated in east Texas and The Republic of Senegal in
western Africa. Any regional events that increase costs, reduce availability
of equipment or supplies, reduce demand or limit production will impact us
adversely in these specific areas.
EXTENSIVE GOVERNMENTAL REGULATION
The oil and gas industry in general is subject to extensive
governmental regulation, which changes from time to time in response to
economic or political conditions. In particular, oil and gas exploration and
production are subject to international and U.S. federal and state
regulations governing environmental quality and pollution control, state
limits on allowable rates of production by well or peroration unit, and other
similar regulations. These regulations generally are intended to prevent
waste of natural gas and oil, protect rights to produce natural gas and oil
between owners in a common reservoir and control the amount of natural gas
and oil produced in order to avoid waste and reservoir damage, by assigning
allowable rates of production and control contamination of the environment.
Environmental regulations will affect our operations on a daily basis. Also,
we believe that the trend toward more expansive and stricter environmental
laws and regulations will continue. At present, we do not yet expend material
amounts to comply with such regulations. The implementation of new, or
changing of existing laws or regulations affecting the oil and gas industry
could have a material adverse impact on us in the future.
10
<PAGE>
The following organization chart gives an overview of our structure,
organization and operations.
[CORPORATE COMPANY CHART]
11
<PAGE>
ITEM 2. PROPERTIES
We lease office space under non-cancelable operating leases. Our
lease for our corporate and operating offices in Houston, Texas amounts to
7,650 square feet and expires in January 2001. Our lease for our U.K.
operations amounts to 1,565 square feet for our facilities just south of
London, England, and expires in June 2000. Our offices in Baku, Azerbaijan
are in the facilities of one of our publication co-venturers and the space is
made available to us at no charge.
We hold rights to a natural gas discovery known as the Gadiaga Field
that is located in the THIES Block in the Republic of Senegal through our
wholly owned FORTESA subsidiary. Proven reserves from the initial well in the
THIES Block are approximately 2BCF of natural gas. In order to exploit our
rights under the agreement with Petrosen, we are obligated to make
expenditures in the amount of $5,400,000 to fund the construction of a
delivery pipeline and the drilling of two development wells in the Gadiaga
gas field. See "Liquidity and Capital Resources" and "Oil and Gas Exploration
and Production Operations - Recent Developments".
We also hold various mineral lease rights on certain speculative oil
& gas acreage located in east Texas. Expenditures made to secure these rights
are recorded at cost in the accompanying financial statements. We
periodically evaluate the expected future value of these rights in order to
determine if they have become impaired or reduced in value. As of December
1998 the value of these rights was approximately $171,000. (See Note 1
- - - Summary of Accounting Policies, Oil & Gas Properties in the accompanying
financial statements)
ITEM 3. LEGAL PROCEEDINGS
We are a defendant in a lawsuit filed on October 28, 1997 in the
U.S. District Court for the Northern District of Oklahoma, brought by two
parties claiming to be the successors-in-interest to McKenzie Management
Inc., a minority owner of 1,200 miles of 2-D seismic data acquired by us in
September 1990 from McMoran Oil & Gas Company and Adobe Resources
Corporation. A portion of this data was originally owned by a joint venture
comprised of McMoran, Adobe and McKenzie Management Inc. At the time of our
original purchase of this data, McMoran and Adobe could not locate McKenzie
and indemnified us "against any and all future claims, costs, expenses or
causes of action that may be asserted by the referenced minority owner...."
In June 1994, we sold our interest in this data to Seitel Corporation and
indemnified Seitel against claims relating to the seismic data being sold.
The plaintiffs seek approximately $600,000 to $1,500,000, plus punitive
damages and attorney's fees. We believe we are indemnified against loss based
on our purchase contract with McMoran and Adobe. This lawsuit is still in the
early stages of discovery and we cannot predict the extent of our liability,
if any. No specific provision has been recorded in the accompanying financial
statements for any loss that may be realized from this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock was formerly traded on the NASDAQ NMS system. In
March of 1993 our common stock was de-listed from the NASDAQ and any trading
activity since that time has taken place through the OTC Bulletin Board
System (Pink Sheets) The following table sets forth the high and low bid
information for the common stock for 1998 and 1997 as reported by the OTC
Bulletin Board System.
<TABLE>
<CAPTION>
1998 1997
------------------------------------
Low High Low High
------------------------------------
<S> <C> <C> <C> <C>
First Quarter $.02 $.20 $.02 $.20
Second Quarter .02 .20 .02 .20
Third Quarter .02 .20 .02 .20
Fourth Quarter .02 .20 .02 .20
</TABLE>
12
<PAGE>
This Annual Report on Form 10-K represents the first filing we have
submitted to the Securities and Exchange Commission since our filing on Form
10-Q for the period ended September 30, 1992. See "Fortesa Acquisition" above
for description of the Company's Convertible Preferred Stock series A and B
that was issued during 1999.
To our knowledge as of November 30, 1999 there are approximately 600
holders of record of our Common stock.
DIVIDEND POLICY
We have not paid cash dividends since 1990, and we intend to retain
future earnings from the next several years to provide funds for use in the
expansion of our business. We do not intend to pay dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1996 the President of the Company purchased 253,790
shares common stock at $.02 per share. The issuance of such shares was exempt
from registration under Section 4(2) of the Securities and Exchange Act of
1933.
On January 1, 1997, the Company issued 150,000 shares of its common
stock at par value to its Executive Vice President in exchange for all of the
shares of Blackwell Supply, Inc. Through Blackwell, the Company conducts its
domestic geophysical information activity, including the marketing and sale
of airborne remote sensing surveys. The issuance of such shares was exempt
from registration under Section 4(2) of the Securities and Exchange Act of
1933.
Effective March 30, 1999, we issued 50,000 shares of our Series A
Preferred Stock and 8,055 shares of our common stock in exchange for all of
the common stock of Fortesa. Shares of our Series A Preferred Stock are
convertible to shares of common stock at an initial ratio of 10 shares of
common stock for each share of Series A Preferred Stock. The conversion ratio
is adjustable in proportion to an increase in value for the FORTESA assets
acquired on March 30, 1999. In any event the conversion ratio shall not
exceed a maximum of 40 shares of common stock for each share of Series A
Convertible Preferred Stock. The issuance of such shares was exempt from
registration under Section 4(2) of the Securities and Exchange Act of 1933.
In March 1999 we issued 977,508 shares of common stock, together
with new warrants to purchase an aggregate 475,000 additional shares of
common stock at a price of $0.30 per share, in exchange for all of our
outstanding 6% Secured Promissory Notes. The issuance of such shares and
warrants was exempt from registration under Section 3(a)(9) of the Securities
and Exchange Act of 1933.
In March of 1999, we issued 1,241,596 shares of common stock, valued
at two times the book value of the Company, in exchange for outstanding 12%
Senior Notes. The issuance of such shares was exempt from registration under
Section 3(a)(9) of the Securities and Exchange Act of 1933.
As part of our transaction with Benton, we issued 135,000 shares of
the Company's Series B Convertible Preferred Stock, liquidation value $10.00,
for $750,000 in cash and in consideration for the prior expenditures of
Benton to develop our interest in the Senegal gas prospect. Each share of
Series B Convertible Preferred Stock is convertible into 10 shares of common
stock. The issuance of such shares was exempt from registration under Section
4(2) of the Securities and Exchange Act of 1933. See "Recent
Developments - RECENT DEVELOPMENTS CONCERNING FORTESA" in Item 1 for a
discussion of this transaction.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED FINANCIAL STATEMENT INFORMATION
The following table sets forth selected historical consolidated financial
data for the periods indicated.
All intangible and tangible assets are recorded at cost
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUES:
Company owned Geophysical $ 149,750 $ 236,244 $ 188,569 $ 556,395
Company owned Geological 1,294,646 699,732 412,856 245,333
Net revenue interest 89,889 216,870 159,486 148,938
Brokerage of third party Geophysical 694,474 378,009 672,853 1,301,124
Brokerage of third party Geological 406,981 449,882 649,343 287,028
Commissions 54,002 270,063 35,734 55,330
Reproduction and other 274,688 119,572 112,353 150,819
------------ ------------ ------------ ------------
Total Revenues $ 2,964,430 $ 2,370,372 $ 2,231,194 $ 2,744,967
============ ============ ============ ============
COST OF SALES 1,454,145 1,120,119 1,018,708 1,456,953
EXPENSES
Selling, general and administrative
expenses 1,056,397 949,968 953,411 1,247,285
Depreciation and amortization 447,294 295,240 753,877 1,018,044
Interest expense 42,293 25,458 12,247 14,213
Interest income (3,857) (2,121) (2,388) (928)
Other income (1,006) - - -
Other expense 34,920 - 32,896 824
------------ ------------ ------------ ------------
Total Expenses 1,576,041 1,268,545 1,750,043 2,279,438
------------ ------------ ------------ ------------
NET LOSS BEFORE SETTLEMENTS/LIABILITY
EXTINGUISHMENTS (65,756) (18,292) (537,557) (991,424)
SETTLEMENTS/LIABILITY EXTINGUISHMENTS
(Includes $48,687 gain from a FORTESA
transaction in 1998) 305,489 177,324 925,178 1,755,554
------------ ------------ ------------ ------------
NET INCOME 239,733 159,032 387,621 764,130
COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS (6,509) (5,420) - -
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 233,224 $ 153,612 $ 387,621 $ 764,130
============ ============ ============ ============
BASIC EARNINGS PER SHARE:
NET LOSS BEFORE SETTLEMENTS/
LIABILITY EXTINGUISHMENTS
PER SHARE $ (0.01) $ (0.00) $ (0.11) $ (0.20)
============ ============ ============ ============
SETTLEMENTS/LIABILITY
EXTINGUISHMENTS PER SHARE $ 0.05 $ 0.03 $ 0.19 $ 0.36
============ ============ ============ ============
NET INCOME PER SHARE $ 0.04 $ 0.03 $ 0.08 $ 0.16
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
BALANCE SHEET DATA: 1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS:
Total Current Assets 580,359 706,760 660,034 1,335,389
Data library, net 2,462,964 2,117,109 2,257,401 2,513,319
Data and Agency use positions, net 23,185 26,435 41,232 155,144
Property and equipment, net 52,983 45,705 47,620 43,209
Investment in oil and gas properties,
at cost 170,710 178,630 102,025 102,025
Other assets 40,384 42,670 37,232 31,655
------------ ------------ ------------ ------------
TOTAL ASSETS $ 3,330,585 $ 3,117,309 $ 3,145,544 $ 4,180 741
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Long-term debt 1,442,674 1,613,919 1,375,607 1,715,607
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 564,681 266,957 11,845 (634,642)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 3,330,585 $ 3,117,309 $ 3,145,544 $ 4,180,741
============ ============ ============ ============
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES OF SEISMIC AND GEOSCIENTIFIC DATA
Total revenue for the year ended December 31, 1998 increased
approximately $594,000 or 25% compared to the same period in 1997. Revenues
by category fluctuated but the primary net increase was due to increased
licensing and brokerage of geoscientific products related to the Caspian Sea
region. Declines in revenue from our commission income are primarily
attributable to a decrease in oil and gas exploration activity in East Texas
and a resultant decrease in demand for our domestic sales of geophysical
information. We also experienced a decline in net revenue interest payments
accruing to us from the sale of seismic data, in which we have an expiring
interest, by third parties. Revenues for the year ended December 31, 1997
were up over 1996 by approximately $139,000 or 6%, as a result of
international promotion successes in 1997 in West Africa, and increases
realized in our Caspian Sea geologic products.
OIL AND GAS
Our investments in oil & gas properties have produced no operational
revenue as of this filing. The natural gas reserves held by our subsidiary
FORTESA are not yet producing. Revenue associated with these reserves is
subject to certain capital expenditures for which we are obligated and which
have yet to be made. See "- Liquidity and Capital Resources" for a discussion
of these capital expenditure requirements.
COST OF SALES
Cost of sales is composed of employee and administrative costs directly
associated with specific projects or sales, and of partner and data owner
payments for licensed and brokered data. These costs do not include the
amortization of the associated data library that is included in Expenses after
Gross Margin. Costs of sales have regularly averaged approximately 50% of
revenues during the period covered herein, in spite of product mix fluctuations.
CORPORATE AND OTHER
Selling and General and Administrative expenses increased
approximately 12% or $110,000 for the year ended December 31, 1998 as
compared to year ended December 31, 1997 primarily as the result of increased
accounting costs associated with our efforts to comply with public company
reporting requirements and increased bad debt expense. Such expenses did not
materially change during fiscal years 1996 and 1997.
Depreciation and amortization expense, which consists primarily of
amortization of our data libraries, increased approximately 50% or $152,000
for the year ended December 31, 1998 as compared to the year ended December
31, 1997. This was due to the increased level of capital expenditures for new
geoscientific reports in the Caspian Sea region that were completed and
placed on the market during 1998. These reports are normally amortized over
approximately three years. Depreciation and amortization expense for the year
ended December 31, 1997 decreased approximately 60% compared to the 1996
period such decrease was due to a final regular amortization of our 2D
seismic library to its residual carrying value made in 1996. Subsequent to
December 31, 1996, amortization charges to the 2D library were made on only
the residual value of the seismic library, which represents a 10% residual on
the original cost, over a 15 year period which resulted in significantly
lower amortization charges than were previously made.
During the three years ended December 31, 1998, we recognized gains
totaling approximately $1.4 million in connection with settlements and
statutory extinguishments of debt with certain trade creditors. These
non-cash gains occurred in connection with the decline of our 2D seismic
brokerage activities and were substantially offset by the associated
product-line final regular amortization costs of the 2D data library. These
costs were shown as operating costs. These final settlements and
extinguishments are shown as extraordinary items in the accompanying
financial statements. We do not believe significant gains or compromised
amounts of this nature are likely to be realized in the future, as these
amounts resulted from the substantial elimination of our operations in the
domestic seismic brokerage business by the end of 1993.
15
<PAGE>
Interest expense increased in each of the last three years in
connection with the 6% Notes until they were converted into common stock and
warrants in March 1999. After 1993, due to the uncertainty of our ability to
pay amounts due until they were converted into common stock and warrants in
March 1999 for interest on our outstanding debt, interest was not accrued
ratably on any of our debt obligations, except for interest that was actually
paid. See Note 10 - Subsequent Events in the accompanying financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flow from operations was $1,106,439, $540,742 and $347,181
for each of the three years ended 1998, 1997 and 1996 respectively. A line of
credit with our bank for $100,000 is secured by our Accounts Receivable, and
has an available amount of $100,000 as of December 31, 1999. Our president
had personally guaranteed this line of credit, pending completion of our
restructuring.
We had a working capital deficit at December 31, 1998 of
approximately $670,000. Of this, we expect to be able to settle liabilities
included in the current section of the accompanying balance sheet in the
amount of approximately $200,000 from non-cash transactions in the form of
services or trades of information.
Expenditures on acquisition of data for resale were approximately
$765,000 and $81,000 in 1998 and 1997 respectively. We expect to fund capital
expenditures in the next 12 months through customer pre-commitments to any
approved new projects, prior to capital expenditures exceeding $25,000 on any
single project.
We believe that cash flows from operations will be sufficient to
fund our working capital needs for the next 12 months, except for required
expenditures in conjunction with Oil and Gas development in the Republic of
Senegal, which will require additional financing.
See "FORTESA Acquisition" and "Recent Developments" in ITEM 1 for
possible future impacts to Liquidity and Capital Resources.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on
the hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement 133 is effective for fiscal years
beginning after June 15, 1999 and cannot be applied retroactively. Statement
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at our election, before
January 1 1998). We have not, and we are not engaging in hedging activities,
and we do not buy or sell derivative instruments. Therefore we do not believe
that application of this recent statement will have any effect on our
consolidated financial statements.
16
<PAGE>
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four-digit entries
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software used by many companies may need to be upgraded
to comply with such "Year 2000" requirements. Significant uncertainty exists
concerning the potential effects associated with such compliance, but systems
that do not properly recognize such information could generate erroneous data
or cause a system to fail.
Compliance Program. In order to address the Year 2000 issue, our
information technology manager reviewed key automated systems and related
processors to assess if they would remain functional through the year 2000.
We have concluded that the software and systems utilized in our operations
are compliant regarding Year 2000 issues. All of the software and systems
utilized are of the "off the shelf" variety and the various vendors have
supplied certifications to us to the effect that their software will not be
subject to problems related to the date change.
Our State of Readiness. A review and assessment of the information
technology and non-information technology systems was completed as of October
29, 1999 and did not identify any systems which are not Year 2000 compliant.
Due to the non-automated nature of our relationships with both our suppliers
and customers we believe that our operations will not be significantly
disrupted, even if third parties with whom we have relationships are not Year
2000 compliant. In the event that our customers are not Year 2000 compliant,
their businesses could be affected such that they might not order our
products during periods of their internal correction methods
Costs to Address Year 2000 Compliance Issues. We believe that we
will not be required to make any material expenditure to address the Year
2000 problem as it relates to our existing systems. To date, costs incurred
to address Year 2000 compliance have been related to or licensing updated
software systems for our internal computers, the costs of which have not been
material. We have charged to income those upgrading costs as we incurred
them. These costs have been funded from cash provided by operating activities.
Risk of Non-Compliance and Contingency Plan. The goal of the Year
2000 project has been to ensure that all of the critical systems and
processes, which are under our direct control, remain functional. However,
because certain systems and processes may be interrelated with systems
outside of our control, there can be no assurance that all of our
implementations have been successful. There can be no assurance that
unexpected Year 2000 compliance problems from either the Company or our
vendors, customers and service providers would not materially and adversely
affect our business, financial condition or operating results. We will
continue throughout 1999 to consider the likelihood of a material business
interruption due to the Year 2000 issue.
IMPACT OF INFLATION AND CHANGING PRICES
The general levels of exploration activity in the oil and gas
industry directly affect the cost of acquiring, processing and reselling
geoscientific data and exploration and development costs of advancing our gas
projects. The pricing of our products and services, and of the costs we must
pay for hydrocarbon development are primarily a function of these factors.
For these reasons, we do not believe inflationary trends have had any
significant impact on its financial operating results during the three years
ended December 31, 1998. But management believes the large fluctuations in
the worldwide hydrocarbon product pricing during this period, and oil field
services excesses and shortages resulted in cost fluctuations that presented
significant challenges to us for planning the development of the Senegalese
project, and our cash flow management
17
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk, including adverse changes in commodity
prices, interest rates and foreign currency exchange rates is discussed below.
COMMODITY PRICE RISK
We have not produced revenues as of December 1999 related to sales
of natural gas, crude oil, condensate and natural gas liquids. We have no
program in place to undertake to hedge our position with respect to these
commodities and does not originate or buy derivative type instruments.
However, to initially minimize price fluctuation risk factors of our gas
development project in Senegal, we agreed to a fixed price per MCF in our gas
supply agreement over the next two years with the power plant that is party
to such agreement.
Fluctuations in hydrocarbon commodity prices could have a material
impact on the level of revenues in future periods.
INTEREST RATE RISK
We have no variable rate debt, and therefore we have no open
interest `rate swap' or interest rate `lock agreements'.
CURRENCY EXCHANGE RATES
We conduct some of our business in British `pounds sterling', and in
`CFA' in the Republic of Senegal (the CFA is directly tied monetarily to the
French Franc which will be replaced by the `Euro' in the next year).
Therefore we are 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 the Republic of
Senegal, where the Company's functional currency is the CFA, and in the
United Kingdom, where the Company's functional currency is British Pounds
Sterling, is not material at this time, but future increases in the strength
of the USA `dollar' could have a negative effect on our revenues from
international information license sales and gas sales transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules required
by this Item are set forth on pages F1 through F26 hereof and incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
ROGERS E. BEALL, CHAIRMAN--52 years old. FIRST SEISMIC and its predecessors
have employed Mr. Rogers Beall continuously since February 1974 (26 years).
Previously Mr. R. E. Beall was employed for 3 years as the Comptroller of the
NATIONAL AERONAUTICAL AND SPACE ADMINISTRATION'S Slidell Louisiana Computer
Center, during the Skylab program. Prior to that time, Arthur Andersen & Co.
employed him in their audit and tax divisions in Cleveland Ohio for 4 years.
Mr. Beall received his CPA certification in Ohio and Louisiana, and a
Bachelor of Arts degree in Business Administration, with a concentration in
Accounting and a minor in Economics from Baldwin-Wallace College in Berea
Ohio.
18
<PAGE>
ALEXANDER E. BENTON, DIRECTOR--55 years old. Mr. Benton has served as a
Director of FIRST SEISMIC since September 1990. In 1988, he was a founder,
and is presently on the Board and an Executive Officer of an affiliate of
BENTON OIL & GAS Company, of Carpinteria California, a NYSE listed,
international oil & gas operator. Previously he served as the President of
Benton Petroleum Company from 1985 to 1988. Mr. Benton began his career at
Amoco Production Company and ultimately became a `Director of Applied
Geophysical Research' at Amoco's research center in Tulsa Oklahoma. Mr.
Benton also was employed in senior positions with TransOcean Oil Co., May
Petroleum, and also with MOBIL Oil Company. Mr. Benton has a B.S. in
Geophysics from California State University, and served as the American
Association of Geologists as one of their AAPG Distinguished Lecturers in
1998.
EDWARD M. TRAPP, DIRECTOR--70 years old. Mr. Trapp is a shareholder in FIRST
SEISMIC, presently owning 110,000 shares of our common stock. Mr. Trapp
serves on the Audit and Compensation Committees of the Company. Mr. Trapp
worked as a geophysical consultant from 1989 to present, and assists the
Company in this regard, as requested. From 1953 to 1989, Mr. Trapp was
employed by AMOCO Production in Europe and the USA, in varying responsible
positions in Geophysical Operations, ending his career at Amoco as the
Regional Geophysicist for the Europe, Latin America, and Far East Region. Mr.
Trapp has a Bachelor of Science degree in geophysics from St. Louis
University, and is a veteran of the US Army from the Korean era.
AUTHUR O. BEALL, P.H.D. DIRECTOR--65 years old. Dr. Beall (no relation to Mr.
Rogers E. Beall) was appointed to the Board in early 1998, and serves on the
Audit & Compensation Committees. Since 1994, Dr. Beall has worked as an
international Oil & Gas Consultant, and advisor to J. Ray McDermott Co., and
to others. Since 1997, ELF Exploration, Inc., of France has retained Dr.
Beall as International Business Development Advisor, in Houston. From 1989 to
1994, Dr. Beall was the President/General Manager of British Gas (Americas)
(formerly Tenneco International) running an international exploration program
with 450 employees and working in Africa, Latin America, and the USA. Prior
to 1989, Dr. Beall ran international exploration programs for Tenneco Int'l,
Hamilton Int'l Oil Co. (VP), and CONOCO. Dr. Beall received his Ph.D. in
Geology from Stanford University (1964), MS in Management from M.I.T. (1976),
and his MS and BS in Geology from Baylor University where he completed his
studies in 1961.
EXECUTIVE OFFICERS
The current executive officers of the Company are:
ROGERS E. BEALL, CEO and Acting Chief Accounting Officer of FIRST SEISMIC,
and President of FIRST EXCHANGE. Biographical information regarding Rogers
E. Beall is set forth above, under the Directors' section.
The following biographies describe the business experience of the remaining
executive officers.
HAYNE S. BLAKELY, PRESIDENT OF FORTESA--49 years old. Mr. Blakely joined
Fortesa on January 1, 1998. Previously he was the President of Quintana
Minerals - Peru and served as Vice President of Operations and as a
consultant for Quintana Minerals Corporation in Houston, for a total of
eleven years. He began his career in oil and gas industry in 1974 with
Schlumberger, and then worked in various engineering positions for AMOCO and
Terra Resources. Later he served as Vice President and partner of Pure Energy
Production Company, and President and owner of Blakely Engineering &
Associates providing consulting services. Mr. Blakely has a Bachelor of
Science degree in Industrial Engineering from the University of Tennessee and
is a registered engineer in the states of Texas and Kansas.
NICHOLAS E. ROCKECHARLIE, VICE PRESIDENT OF FINANCE--53 years old. Mr.
Rockecharlie is the Managing Director of Rockecharlie & Co., a merchant
banking firm he founded in 1979. Rockecharlie & Co. has sponsored and/or
arranged a variety of transactions including leveraged buyouts,
recapitalizations, mergers, acquisitions and private equity placements. From
1984-1993 Mr. Rockecharlie organized and served as managing general partner
of Elisa Research Ltd., a Texas limited partnership engaged in medical
diagnostic research performed by leading virologists from the Baylor College
of Medicine. From 1977-1979, he was vice president of Charter New York
Leasing Corporation (a unit of Irving Trust Co.). Mr. Rockecharlie was vice
president of Commercial Credit Capital Corp. responsible for institutional
placement of equity interests in leveraged leases arranged by the firm. In
1968-1971, Mr. Rockecharlie served in the US Army, graduated from the
Infantry Officer Candidate School at Ft. Benning, GA, and served in the
Republic of Viet Nam. He holds a Bachelor of Science Degree in Mathematics
from Loyola College in Baltimore and a Master of Administrative Science
Degree from Johns Hopkins University.
19
<PAGE>
WALTER H. WALNE, III, SECRETARY--52 years old. Mr. Walne is an attorney in
private practice. From 1980 to 1986, Mr. Walne was an officer and founding
director of Blackstone Oil Company, an exploration company. Mr. Walne's
practice is focused on energy industry related matters, including reserve
based loan document preparation for commercial banks; providing counsel to
various independent oil & gas producers engaged in domestic onshore and
offshore exploration and production operations regarding issues arising out
of acquisitions, operations, financing, administrative compliance, and
operating agreements. Mr. Walne holds a BA in English from Princeton
University (1969), and a law degree from the University of Texas (1973). He
served in the United States Marine Corps Reserve from 1969 to 1975, obtaining
the rank of captain.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") requires the directors, executive officers and persons
who own more than ten percent of the outstanding shares of common stock of
the Company to file initial reports of ownership and reports of changes in
ownership (Forms 3, 4, and 5) of common stock with the SEC. Directors,
executive officers and greater than ten percent stockholders are required by
SEC regulation to furnish the Company with copies of all such forms that they
file.
To the Company's knowledge based solely on its review of the copies
of such reports received by it and on written representations by certain
reporting persons that no reports on Forms 3, 4 and 5 were required, the
Company believes that during the fiscal year ending December 31, 1998, all
Section 16(a) filing requirements applicable to its directors, executive
officers and ten percent stockholders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table summarizes, with respect to the cash
compensation paid by our subsidiary First Exchange to the chief
executive officer. No other executive officer received cash
compensation in excess of $100,000 in years 1996 through 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG-TERM
COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL SALARY BONUS SECURITIES ALL OTHER
YEAR UNDERLYING COMPENSATION (2)
OPTIONS
(NUMBER)
<S> <C> <C> <C> <C> <C>
Rogers E. Beall, CEO of First Seismic, 1998 $105,000 - 300,000 $ 167
President of First Exchange
1997 93,500 - 50,000 951
1996 71,500 - 50,000 3,782
</TABLE>
----------------
(1) During the years ending December 31, 1996, 1997 and 1998, perquisites
for the individual named in the Summary Compensation Table aggregated
less than 10% of the total annual salary and bonus reported for such
individual in the Summary Compensation Table. Accordingly, no such
amounts are included in the Summary Compensation Table.
(2) Consists of matching contributions and Company contributions through its
retirement plans, amounts paid under certain insurance plans and a
transportation allowance.
20
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information with respect to
stock option grants made to the Named Executive Officer during 1998 under
the Company's Stock Option Plan, (the "Stock Option Plan").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NAME NUMBER OF % OF TOTAL EXERCISE OF EXPIRATION POTENTIAL REALIZABLE
SECURITIES OPTIONS BASE PRICE DATE VALUE AT ASSUMED
UNDERLYING GRANTED TO ($/SH) ANNUAL RATE
OPTIONS EMPLOYEES OF-STOCK-PRICE
GRANTED IN 1998 APPRECIATION-FOR
OPTION TERM (1)
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Rogers E. Beall 300,000 60% $0.20 6/00 - -
CEO and Chairman
</TABLE>
--------------
(1) The dollar amounts under these columns represent the potential
realizable value of each grant of options assuming that the market price
of common shares appreciate in value from the date of grant at the 5%
and 10% annual rates prescribed by the SEC and therefore is not intended
to forecast possible future appreciation, if any, of the price of common
shares.
1998 OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth for the Named Executive Officers in
the Summary Compensation Table above information regarding options held by
them at December 31, 1998.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS HELD AT UNEXERCISED OPTIONS HELD AT
DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
NAME SHARES VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
ACQUIRED REALIZED
ON
EXERCISE
OF OPTION
<S> <C> <C> <C> <C> <C> <C>
Rogers E. Beall (2) 300,000 - - - - -
</TABLE>
- - ----------------
(1) Computed based on the difference between aggregate fair market
value and aggregate exercise price. The fair market value of the
common stock on December 31, 1998 was based on the average of the
high and low sales prices on the OTB Bulletin Board on the most
recent date preceding December 31, 1998 on which a sale of common
stock occurred.
(2) The value of the acquired shares was less than the exercise price.
21
<PAGE>
COMMITTEES OF THE BOARD
The board has two standing committees, the identities, memberships
and functions of which are described below.
AUDIT COMMITTEE. The members of the Audit Committee of the board are
Edward M. Trapp and Arthur O. Beall. The Audit Committee's functions include
making recommendations concerning the engagement of independent auditors,
reviewing with the independent auditors the plan and results of the auditing
engagement, approving professional services provided by the independent
auditors, and reviewing the adequacy of the Company's internal accounting
controls and reviewing our refinancing plans and strategies.
COMPENSATION COMMITTEE. All of the outside directors are members of
the Compensation Committee. They are Edward M. Trapp and Arthur O. Beall. The
Compensation Committee's functions include a general review of the Company's
compensation and benefit plans to ensure that they meet corporate objectives.
The Compensation Committee reviews the Chief Executive Officer's
recommendations on (a) compensation of the senior executive officers of the
Company, (b) granting of awards under the Company's stock option and other
benefit plans and (c) adopting and changing major Company compensation
policies and practices. In addition to reviewing the compensation for the
Chief Executive Officer, the Compensation Committee reports its
recommendations to the whole board for approval.
INFORMATION REGARDING MEETINGS
The Board and the Audit Committee each held two meetings in 1998.
Compensation Committee issues were also discussed at each board meeting and
all outside directors are members of the Compensation Committee. Each
director attended all of the meetings of the board and of the committees
(if any) on which such person served.
EMPLOYEE STOCK OPTION PLAN
In July 1990, the Company reserved 500,000 shares of common stock for
issuance under its Employee Stock Option Plan. All Incentive Stock Options
("ISO's") will be granted to employees at an exercise price of not less than
the fair market value of the stock on the date of grant. All Non-incentive
Stock Options ("NSO's") will be granted at an exercise price of not less than
85% of the fair market value of the stock on the date of grant. The Company
and the Board's Compensation Committee, on February 3, 1998, re-assigned the
entire 500,000 options from terminated employees to current employees of the
Company. The strike price was set at $.20 per share. Of the 500,000 shares
granted, the Company's President was granted 300,000 shares or 60% of the
total available shares. Due to the Company's liquidity requirements in August
1998, the President agreed to exercise all of his options, thereby infusing
$60,000 of cash into the Company. The remaining 200,000 options are
outstanding at December 31, 1998.
DIRECTOR STOCK OPTIONS
In July 1990, we also reserved 150,000 shares of common stock for
issuance under its Directors' Stock Option Plan. All options will be granted
to non-employee directors at an exercise price of not less than the fair
market value on the date of grant. Each year, the directors are granted
options to purchase 10,000 shares of common stock as compensation for their
services.
DIRECTOR COMPENSATION
In addition to the stock options discussed above, the directors were
paid 10,000 shares of common stock as compensation for their services. The
directors are reimbursed for all out of pocket expenses incurred in attending
any meeting of the board or any committee thereof.
ITEM 12. SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information, as of September 30,
1999, with respect to the common shares beneficially owned by (a) each person
known by the Company to own beneficially five percent or more of the
outstanding shares of common stock, (b) each director and nominee for
director, (c) each of the executive officers and (d) all directors, nominees
for director and executive officers as a group.
22
<PAGE>
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER (1) SHARES OF COMMON STOCK PERCENTAGE OF
OF FIRST SEISMIC OUTSTANDING SHARES
BENEFICIALLY OWNED OF COMMON STOCK
<S> <C> <C>
Rogers E. Beall, Chairman and
Chief Executive Officer 2,956,288 (2) 32.65%
Edward M. Trapp, Director 117,500 (3) 1.21%
Alexander E. Benton, Director 32,500 (4) *
Arthur O. Beall, P.H.D. 17,500 (3) *
All directors and
executive officers as a group 3,086,288 34.08%
</TABLE>
- - ----------
* Represents less than 1%.
(1) Unless otherwise indicated, each person has sole voting power and
investment power with respect to the shares of Common stock listed.
(2) Includes 100,000 shares underlying warrants exercisable at $.30 per
share. The Beall Living Trust owns the remaining shares, the
trustees of which are Rogers E. Beall and his spouse.
(3) Includes 7,500 shares underlying stock options exercisable within 60
days after December 31, 1998 at a strike price of $0.20 per share.
(4) Includes 22,500 shares underlying stock options exercisable within
60 days after December 31, 1998 at a strike price of $0.20 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered
into between the Company and certain of its directors, nominees for director
and stockholders.
During the period 1993 until 1996, the President of the Company had
not received his contracted salary amount in cash compensation due to cash
liquidity problems. The unpaid salary was accrued. In December 1996, the
President entered into an agreement to purchase 253,000 shares of common
stock at $0.02 cash per share and to forego the $253,000 compensation due
him, for a total value increase to the Company of $258,860. The accompanying
financial statements reflect this agreement to forego cash compensation, and
to reflect the issuance of stock.
In 1993, the President of the Company agreed to act as the general
partner of a limited partnership formed to make investments in oil and gas
exploration, development, reserves, and to make financing investments to
facilitate portions of our business plan that were outside of our financing
capabilities. The 15 owners of this limited partnership consist of our
shareholders and our noteholders. FIRST SEISMIC owns a minority interest in
the limited partnership which was granted in exchange for data use positions
extended by us to the limited partnership. The limited partnership is engaged
in leasing interests in East Texas with natural gas prospects.
In 1993, the Company sold one license for its East Texas data-set to
the limited partnership, prior to posting that data-set for sale for the
benefit of the Senior Noteholders, for consideration of $16,000 in cash and
$84,000 upon our successful promotion of the East Texas prospect(s) and
receiving reimbursement for seismic data costs from the promoted incoming
partners. We successfully leased the prospect but elected not to promote it
until a 3-D seismic survey could be arranged over the prospect. In 1997,
arranged for a 3-D seismic survey over this acreage that was interpreted in
1998 and indicated only moderate commercial viability. Therefore, the $84,000
contingent receivable is not reflected in the financial statements, and will
be reported as a gain in the year received from LTD, if the Company promotes
this first, or one of the other prospects successfully with seismic costs
reimbursed.
On January 1, 1997, the Company issued 150,000 shares of its common
stock at par value to its Executive Vice President in exchange for all of the
shares of Blackwell Supply, Inc. Blackwell is used to conduct the domestic
geophysical activity of the Company, including its airborne remote sensing
surveys.
23
<PAGE>
We entered into a series of transactions in March 1999 with the
holders of our 6% Notes and our 12% Notes. Please refer to the section of
this report entitled "Recent Transactions" for a detailed discussion of these
transactions.
In March of 1999, we acquired all of the shares of stock of Fortesa
Corporation, a Texas Corporation ("Fortesa"), from its sole shareholder,
Rogers Beall who is our President and CEO. Mr. Beall formed Fortesa in May of
1997 for the purpose of acquiring certain oil and gas interests in the
country of Senegal. Prior to forming Fortesa, Mr. Beall presented this
development opportunity to our board of directors. After considering the
opportunity, we declined to invest in the opportunity due to our financial
position. Subsequent to its formation, Fortesa entered into a joint venture
with Benton Oil, a Delaware corporation, ("Benton") to develop these
interests. In February 1999, Mr. Beall again presented our board the
opportunity to participate in the Senegal joint venture through the purchase
of Fortesa stock. Upon consideration of the prospects of the venture and the
potential return of the investment, the members of the board, other than Mr.
Beall who did not take part in the meeting, voted to acquire all of the
outstanding shares of Fortesa in exchange for 50,000 shares of the Company's
Series A Preferred Stock and 8,055 shares of our Common stock.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement between First Seismic Corporation and
the Beall Living Trust, dated as of March 29, 1999.
3.1 Certificate of Incorporation of First Seismic Corporation, as
amended.
3.2 Bylaws of First Seismic Corporation, as amended.
4.1 Form of common stock certificate.
4.2 Series A Convertible Preferred Stock, Certificate of
Designation.
4.3 Series B Convertible Preferred Stock, Certificate of
Designation
4.4 Form of Warrant - 1993 $0.50 per share
4.5 Form of Warrant - 1999 $0.30 per share
4.6 6% Notes purchase Agreement
4.7 Loan Modification Agreement
10.1 Senegal pre-1999 Contract with Benton
10.2 Revolving Credit Agreement
10.3 Management Contract with Hayne Blakely
10.4 Management Contract with Rogers Beall
10.5 Directors' Stock Option Plan
10.6 Employees' Stock Option Plan
10.7 October 1999 Agreement with Benton
10.8 Assignment and Release with Benton
10.9 Registration Rights Agreement for Benton
11 Statement Regarding Computation of Earnings per Share
21 List of Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 10th of January, 2000.
FIRST SEISMIC Corporation
By: /s/ Rogers E. Beall
------------------------------------
Rogers E. Beall
President, Chief Executive Officer,
Principle Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, the following
persons in their official capacities and on the date indicated have signed
this Report on Form 10-K below.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Rogers E. Beall Chairman January 10, 2000
- - ------------------------
Rogers E. Beall
/s/ Alexander E. Benton Director January 10, 2000
- - ------------------------
Alexander E. Benton
/s/ Edward M. Trapp Director January 10, 2000
- - ------------------------
Edward M. Trapp
/s/ Arthur O. Beall Director January 10, 2000
- - ------------------------
Arthur O. Beall
26
<PAGE>
FIRST SEISMIC Corporation and Subsidiaries
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
<TABLE>
<S> <C>
Independent Auditors Report........................................................................................... F-2
Consolidated Balance Sheets as of
December 31, 1998, 1997, 1996, 1995.............................................................................. F-3
Consolidated Statements of Income and Comprehensive Income for the years ended
December 31, 1998, 1997, 1996, 1995.............................................................................. F-4
Consolidated Statements of Stockholders' Equity as of
December 31, 1998, 1997, 1996, 1995.............................................................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, 1996, 1995.............................................................................. F-6
Notes to Consolidated Financial Statements
December 31, 1998, 1997, 1996, 1995.............................................................................. F-7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
FIRST SEISMIC Corporation and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of FIRST SEISMIC
Corporation and Subsidiaries as of December 31, 1998, 1997, 1996 and 1995,
and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FIRST
SEISMIC Corporation and Subsidiaries at December 31, 1998, 1997, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company has a substantial working capital deficit.
/s/ Harper & Pearson Company
Houston, Texas
October 22, 1999
F-2
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996 1995
------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 169,487 $ 184,186 $ 209,999 $ 439,818
Accounts receivables, trade, net 385,568 491,768 450,035 895,571
Due from FORTESA 25,304 30,806 - -
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 580,359 706,760 660,034 1,335,389
Data library, net (Notes 1 and 2) 2,462,964 2,117,109 2,257,401 2,513,319
Data and agency use position, net (Notes 1 and 2) 23,185 26,435 41,232 155,144
Property and equipment, net (Notes 1 and 2) 52,983 45,705 47,620 43,209
Investment in oil and gas prospects, at cost (Note 1) 170,710 178,630 102,025 102,025
Other assets 40,384 42,670 37,232 31,655
----------- ----------- ----------- -----------
TOTAL ASSETS $ 3,330,585 $ 3,117,309 $ 3,145,544 $ 4,180,741
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Current portion of long-term debt (Note 3) $ - $ 175,321 $ 751,178 $ 679,490
Accounts payable, trade 1,083,581 671,286 470,951 1,719,196
Accrued expenses 148,431 60,199 39,217 35,901
Accrued compensation 17,408 10,000 10,000 263,790
Unearned Income - 56,888 - -
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 1,249,420 973,694 1,271,346 2,698,377
Long-term debt (Note 3) 1,442,674 1,613,919 1,375,607 1,715,607
Data use payables, net 73,810 112,739 186,746 101,399
Reserve for potential liabilities (Note 1) - 150,000 300,000 300,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES 2,765,904 2,850,352 3,133,699 4,815,383
----------- ----------- ----------- -----------
COMMITMENTS (NOTE 6)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 4)
Preferred stock, $1.00 par value, 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, voting, $.01 par value, 10,000,000
shares authorized; 5,776,865, 5,365,365, 5,115,365
and 4,861,575 shares issued and 5,733,010, 5,321,510,
5,071,510 and 4,817,720 shares outstanding at
December 31, 1998, 1997, 1996 and 1995, respectively 57,769 53,654 51,154 48,616
Additional paid-in capital 9,531,278 9,470,893 9,371,893 9,115,565
Retained earnings (deficit) (8,947,083) (9,186,816) (9,345,848) (9,733,469)
Foreign currency translation adjustments (11,929) (5,420) - -
Less treasury stock, 43,855 shares at cost (65,354) (65,354) (65,354) (65,354)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 564,681 266,957 11,845 (634,642)
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,330,585 $ 3,117,309 $ 3,145,544 $ 4,180,741
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-3
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AS OF DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE (Note 2)
Company owned geophysical $ 149,750 $ 236,244 $ 188,569 $ 556,395
Company Owned geological 1,294,646 699,732 412,856 245,333
Net revenue interest 89,889 216,870 159,486 148,938
Brokerage of third party geophysical 694,474 378,009 672,853 1,301,124
Brokerage of third party geological 406,981 449,882 649,343 287,028
Commissions 54,002 270,063 35,734 55,330
Reproduction and other 274,688 119,572 112,353 150,819
----------- ----------- ----------- -----------
2,964,430 2,370,372 2,231,194 2,744,967
COST OF SALES 1,454,145 1,120,119 1,018,708 1,456,953
----------- ----------- ----------- -----------
Gross Margin 1,510,285 1,250,253 1,212,486 1,288,014
----------- ----------- ----------- -----------
EXPENSES
Selling, general and administrative expenses 1,056,397 949,968 953,411 1,247,285
Depreciation and amortization (Note 1) 447,294 295,240 753,877 1,018,044
Interest expense (Note 3) 42,293 25,458 12,247 14,213
Interest income (3,857) (2,121) (2,388) (928)
Other income (1,006) - - -
Other expense 34,920 - 32,896 824
----------- ----------- ----------- -----------
Total Expenses 1,576,041 1,268,545 1,750,043 2,279,438
----------- ----------- ----------- -----------
NET LOSS BEFORE SETTLEMENTS/LIABILITY
EXTINGUISHMENTS (65,756) (18,292) (537,557) (991,424)
SETTLEMENTS/LIABILITY EXTINGUISHMENTS (Note 1)
(Includes $48,687 gain from a FORTESA transaction in 1998) 305,489 177,324 925,178 1,755,554
----------- ----------- ----------- -----------
NET INCOME 239,733 159,032 387,621 764,130
COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (6,509) (5,420) - -
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 233,224 $ 153,612 $ 387,621 $ 764,130
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
NET LOSS BEFORE SETTLEMENTS/LIABILITY
EXTINGUISHMENTS PER SHARE $ (0.01) $ (0.00) $ (0.11) $ (0.20)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SETTLEMENTS/LIABILITY EXTINGUISHMENTS PER
SHARE $ 0.05 $ 0.03 $ 0.19 $ 0.36
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME PER SHARE (Note 12) $ 0.04 $ 0.03 $ 0.08 $ 0.16
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED NUMBER OF SHARES USED IN
COMPUTING NET INCOME (LOSS) PER SHARE 5,552,869 5,251,647 5,071,510 4,817,720
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-4
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Retained Currency Treasury Stock Total
------------ Paid-In Earnings Translation -------------- Equity
Shares Par Value Capital (Deficit) Adjustments Shares Cost (Deficit)
------ --------- ------- -------- ----------- ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1994 4,861,575 $ 48,616 9,115,565 (10,497,599) $ - 43,855 (65,354) (1,398,772)
NET INCOME - - - 764,130 - - - 764,130
--------- -------- --------- ---------- -------- ------ ------ ---------
BALANCE,
December 31, 1995 4,861,575 48,616 9,115,565 (9,733,469) - 43,855 (65,354) (634,642)
STOCK ISSUE TO
OFFICER FOR
SERVICES 253,790 2,538 256,328 - - - - 258,866
NET INCOME - - - 387,621 - - - 387,621
--------- -------- --------- ---------- -------- ------ ------ ---------
BALANCE,
December 31, 1996 5,115,365 51,154 9,371,893 (9,345,848) - 43,855 (65,354) 11,845
STOCK ISSUE IN
SETTLEMENT OF
DEBT 100,000 1,000 99,000 - - - - 100,000
STOCK ISSUE TO
PURCHASE
BLACKWELL 150,000 1,500 - - - - - 1,500
TRANSLATION
ADJUSTMENT - - - - (5,420) - - (5,420)
NET INCOME - - - 159,032 - - - 159,032
--------- -------- --------- ---------- -------- ------ ------ ---------
BALANCE,
December 31, 1997 5,365,365 53,654 9,470,893 (9,186,816) (5,420) 43,855 (65,354) 266,957
EXERCISE OF EMPLOYEE
STOCK OPTIONS BY
OFFICER 300,000 3,000 57,000 - - - - 60,000
STOCK ISSUED
FOR SERVICES 111,500 1,115 3,385 - - - - 4,500
TRANSLATION
ADJUSTMENT - - - - (6,509) - - (6,509)
NET INCOME - - - 239,733 - - - 239,733
--------- -------- --------- ---------- -------- ------ ------ ---------
BALANCE,
December 31, 1998 5,776,865 $ 57,769 9,531,278 $(8,947,083) $ (11,929) 43,855 (65,354) $ 564,681
--------- -------- --------- ---------- -------- ------ ------ ---------
--------- -------- --------- ---------- -------- ------ ------ ---------
</TABLE>
F-5
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 239,733 $ 159,032 $ 387,621 $ 764,130
---------- ---------- ---------- ---------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization (Note 1) 447,294 295,240 753,877 1,018,044
Net change in allowance for doubtful accounts 124,481 - - -
Settlements/liability extinguishments (Note 1) (155,489) (27,324) (925,178) (1,755,554)
Reserve for potential liabilities (Note 1) (150,000) (150,000) - 300,000
Reduction in carrying value of oil & gas investment 34,920 - - -
Stock issued as compensation 4,500 - - -
Changes in operating assets and liabilities:
Accounts receivable, trade (18,281) (41,733) 445,536 (272,663)
Other current assets - - - 700
Accounts payable, trade 540,529 227,657 (323,066) 529,318
Accrued expenses 88,232 20,982 3,316 (2,968)
Accrued compensation, officer (Note 5) 7,408 - 5,075 65,190
Unearned Income (56,888) 56,888 - -
---------- ---------- ---------- ---------
Total adjustments 866,706 381,710 (40,440) (117,933)
---------- ---------- ---------- ---------
Net cash flows provided by operating activities 1,106,439 540,742 347,181 646,197
---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of other assets - (34,744) (10,075) (10,000)
Disposition of other assets 15,786 - 4,500 -
Acquisition of property and equipment (19,444) (18,146) (17,980) (20,990)
Acquisition of data library (765,793) (81,006) (378,000) 60,000
Investment in oil and gas prospects - (76,605) - (102,017)
Acquisition of data and agency use positions - - - (25,000)
Dispositions of data library - - 7,522 -
Increase/(Decrease) in data use payables (70,794) (118,510) 85,346 13,247
---------- ---------- ---------- ---------
Net cash used by investing activities (840,245) (329,011) (308,687) (84,760)
---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted stock issued 60,000 - - -
Payments to FORTESA (21,607) - - -
Borrowings on line of credit 693,000 - - -
Payments on line of credit (693,000) - - -
Principal payments on long-term debt (319,286) (237,544) (268,313) (233,966)
---------- ---------- ---------- ---------
Net cash used by financing activities (280,893) (237,544) (268,313) (233,966)
---------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH (14,699) (25,813) (229,819) 327,471
CASH AT BEGINNING OF YEAR 184,186 209,999 439,818 112,347
---------- ---------- ---------- ---------
CASH AT END OF YEAR $ 169,487 $ 184,186 $ 209,999 $ 439,818
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 42,293 $ 25,488 $ 12,247 $ 14,213
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
F-6
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES
The reporting entity in these financial statements consists of
FIRST SEISMIC Corporation ("FIRST"), its three wholly-owned
subsidiaries: FIRST EXCHANGE Corporation ("FEC"), First Exchange
Limited ("FEL") and Blackwell Supply, Inc., d.b.a. Blackwell
Trading, Inc. (BTI) collectively referred to as the Company.
FIRST, FEC and BTI are incorporated in the State of Delaware. FEL
is a United Kingdom Corporation. The Company originates, markets,
and owns domestic geophysical and international geological
information for licensing to oil and gas exploration companies.
The Company's customers are primarily located in the United States
and Western Europe, and its suppliers are primarily major oil
companies, national government oil companies, or independent
geo-scientific consulting firms and oil service providers.
The Company acquired 100% of the stock of its former 75% net
revenue interest affiliate, Blackwell Supply, Inc., effective
January 1, 1997 for issuance of stock. (See Note 5)
The Company went public in September 1990, however the last 10-K
filed with the SEC was for the period ending December 31, 1991.
Currently, the Company is not in compliance with SEC requirements
for filing and reporting. However, the Company intends to become
current with all SEC requirements as soon as practicable.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
FIRST, FEC, BTI and FEL. All material intercompany accounts and
transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade
receivables and cash. The Company places its cash with high credit
quality financial institutions. Generally, no collateral or other
security is required to support customer receivables. To reduce
credit risk, a customer's credit history is reviewed before
extending credit. In addition, an allowance for doubtful accounts
is established as needed based upon factors surrounding the credit
risk of specific customers, historical trends, and other
information. Management has established an allowance for doubtful
accounts at December 31, 1998 in the amount of $124,481. There was
no allowance as of December 31, 1997, 1996 and 1995. During 1998,
35% of revenues were attributable to three customers.
CASH
The Company has an interest bearing account primarily dedicated
for payments to the 12% Senior Noteholders. In addition to other
uses, the Company has used this account to deposit funds earned by
the Company from the sale of certain licenses of Company owned
data or revenue interest payments, pending disbursements to the
Senior Noteholders. Payments to these Noteholders have been
periodically made when sufficient levels of cash have accumulated
to justify disbursement. Cash pledged for payment to the Senior
Noteholders held in this account at December 31, 1998, 1997, 1996
and 1995 was $11,786, $93,357, $27,024 and $50,143, respectively.
The amounts were subsequently disbursed by the Company pro rata to
each of the 12% Senior Noteholders.
Cash and cash equivalents consist of demand deposits and money
market funds and other unrestricted liquid investments held at
depository institutions with maturity of three months or less.
DATA LIBRARY
The costs included in Data Library represent company owned seismic
data, net revenue interests in seismic data previously owned and
sold to third parties, and geo-scientific reports. The Company
capitalizes third party costs plus internal direct costs loaded
with overhead relating to the acquisition of the Data Library.
Amortization of these costs commences as soon as a new project is
completed.
F-8
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Seismic costs are amortized over the greater of the estimated
volume of anticipated revenues that the Company expects to realize
from the licensing of its Company owned seismic data or a five
year period with a (10%) ten percent residual value using the 150%
declining balance method. In 1992, the Company's investment in its
data library had a residual value of $2,653,290. Beginning in
1992, the Company elected to amortize the residual balances on a
straight-line basis over a fifteen-year period. The residual value
amortization amounted to $176,886 for each of the years ending
December 31, 1998, 1997, 1996, and 1995.
Net revenue interest in seismic data previously owned and sold to
third parties is amortized over a five-year period with no
residual value using the 150% declining balance method.
The Company's ownership interest in geo-scientific reports is
amortized over three years to a ten-percent residual value. The
amortization during the three-year period is the greater of 4.5%
per sale up to 20 licenses or 2.5% per month cumulative minimum.
The residual value is then amortized over 15 years on a
straight-line basis.
DATA AND AGENCY POSITIONS
Data and agency positions include Seismic Data Rights and agency
agreements with certain foreign governments. The Company
capitalizes third party costs plus an allocation of internal
overhead costs relating to the acquisition of data and agency
positions.
Data Use Rights represent the value of data that the Company has
to use or has to give to others regarding the license of seismic
data relative to third parties. Such rights were obtained or are
owned primarily by trade of the use of seismic data or of services
provided by the Company.
Agency agreements represent the Company's costs of organizing
third parties' data and opportunities into marketable products or
promotion for fees to energy companies on a multi client basis.
Such costs are amortized over five years, or written off if the
Company concludes the relationship has no future earning value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of
property and equipment is provided using accelerated methods over
the estimated useful lives of three to five years.
F-9
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN OIL AND GAS PROSPECTS
In 1993, the Company initiated efforts and agreements to earn
interests in oil and gas reserves in both the domestic and the
international arena by organizing and promoting acreage and
opportunities, and by using its information to obtain rights for
hydrocarbon reserve ownership. As of 1997, the Company has
positions in East Texas (See Note 5), Kansas, and Guinea-Bissau,
West Africa. The necessary investment to advance these positions
had either been raised from third parties, thus carrying the
Company on a portion of the exploration results, or the acreage
has been analyzed and leased for exploration rights which include
the Company. The Company owns the "right of first refusal' to
acquire a similar and more presently significant interest in
Senegal, West Africa (See Note 10).
These investments are accounted for at cost as the Company holds a
minor ownership interest. At December 31, 1998, the Company wrote
down one prospect by $34,920 due to a decline in fair value. The
Company's cost basis in these investments totaled approximately
$170,710. During 1998, two wells in Kansas began producing with
cash distributions expected to begin after drilling costs are
paid.
INCOME TAXES
The Company uses the balance sheet approach for recording deferred
taxes. The balance sheet approach accounts for deferred income
taxes by applying statutory tax rates in effect at the balance
sheet date to differences between the book basis and the tax basis
of assets and liabilities. The resulting deferred tax assets and
liabilities are adjusted to reflect changes in tax law or rates.
The Company and its wholly owned U.S. subsidiaries file a
consolidated federal income tax return.
OPERATIONS
As shown in the accompanying financial statements, the Company had
losses before settlements/liability extinguishments of $65,756,
$18,292, $537,557 and $991,424 in 1998, 1997, 1996 and 1995,
respectively. As of December 31, 1998, current liabilities
exceeded current assets by $669,061.
F-10
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The Company's trade payables are reviewed periodically to
determine the requirement for payment. Due to the Company's
liquidity crisis since 1992 resulting from the loss of commercial
viability of the domestic 2-D seismic licensing business, the
Company ended many related contracts and operations. Payables from
discontinued contracts over four years in age with no
correspondence, negotiations or payments involving the vendor
during the four year period for the particular payable in question
exceed the statute of limitations whereby such accounts payable
may be enforceable and have been written down by the Company.
Formal settlements of liabilities resulting in reduced payment
requirements were also recorded in this settlements/gain account
and not against regular operations. At December 31, 1998, the
Company anticipates no further settlement gains resulting from
trade payables for which the statute of limitations will expire.
During 1995 the Company established a $300,000 reserve for
liabilities which had been written off in prior periods but which
could possibly have been subject to future collection efforts by
the creditors involved. Management subsequently determined that
this reserve was no longer required as no such liabilities became
known, nor were any asserted over the passage of time. Accordingly
the reserve was decreased to $150,000 at December 31, 1997, and
eliminated at December 31, 1998.
REVENUE RECOGNITION
Gross revenues for Company owned information (Data Library) are
recognized when the information is transmitted to clients. Any
related expenses incurred as a result of data licensing, such as
commissions or revenue sharing arrangements, are expensed at the
time revenues are recognized. In instances where the Company owns
only a revenue interest in seismic data, then only the Company's
net proceeds are recorded as revenue. The Company changed its
accounting procedures effective January 1, 1998 to align itself
with SEC policy. The effect was to allow the recognition of
revenues when the materials licensed were completed products and
available for delivery by the Company, but held temporarily at the
request of the customer. This new policy would have had no impact
on the 1995, 1996, or 1997 financial statements. In 1998, $36,000
of revenues were recognized for data available for delivery but
not picked up by the customer at year end.
Third Party Data revenues are recognized when the information is
transmitted to the clients. The Company assists certain of its
clients in qualifying their seismic data licensing and trading
transactions as "like kind exchange" transactions qualifying for
nonrecognition of gain under Section 1031 of the Internal Revenue
Code.
F-11
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Commission revenues are generated when the Company serves only as
an agent for licensing geoscientific information owned by another
company. Commission revenues are recognized on a pro rata basis as
the completion of such firm orders progress.
Reproduction and other revenue are recognized as the service is
completed.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income
(loss) by the common and common equivalent shares considered
outstanding during each period. Equivalent shares issuable under
stock options are determined using the treasury stock method.
There is no difference between basic and fully diluted earnings
per share for all periods presented.
NOTE 2 SELECTED FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
All intangible and tangible assets are
recorded at cost 1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
DATA LIBRARY:
Company owned seismic data $ 26,659,117 $ 26,585,533 $ 26,545,505 $ 26,545,505
Net revenue interest 12,296,044 12,296,044 12,296,044 12,296,044
Geoscientific reports 1,312,847 576,978 536,000 166,282
Less accumulated amortization (37,805,044) (37,341,446) (37,120,148) (36,494,512)
------------ ------------ ------------ ------------
Data library, net $ 2,462,964 $ 2,117,109 $ 2,257,401 $ 2,513,319
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
AGENCY USE POSITIONS:
Agency agreements $ 255,983 $ 255,983 $ 255,983 $ 255,983
Less accumulated amortization agency
agreements (232,798) (229,548) (214,751) (100,839)
------------ ------------ ------------ ------------
Agency use positions, net $ 23,185 $ 26,435 $ 41,232 $ 155,144
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Office furniture and equipment $ 126,138 $ 94,564 $ 76,418 $ 58,438
Less accumulated depreciation (73,155) (48,859) (28,798) (15,229)
------------ ------------ ------------ ------------
Property and equipment, net $ 52,983 $ 45,705 $ 47,620 $ 43,209
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-12
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 2 SELECTED FINANCIAL STATEMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
DATA USE PAYABLES/(RECEIVABLES), NET:
Data use payables $ 233,854 $ 282,112 $ 360,118 $ 274,771
Seismic data rights (776,317) (798,715) (798,715) (798,715)
Less valuation allowance, seismic data
rights 616,273 629,342 625,343 625,343
----------- ----------- ----------- -----------
Data use payables/(receivables), net $ 73,810 $ 112,739 $ 186,746 $ 101,399
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
REVENUES:
Company owned Geophysical $ 149,750 236,244 $ 188,569 $ 556,395
Company owned Geological 1,29,646 699,732 412,856 245,333
Net revenue interest 89,889 216,870 159,486 148,938
Brokerage of third party Geophysical 694,474 378,009 672,853 1,301,124
Brokerage of third party Geological 406,981 449,882 649,343 287,028
Commissions 54,002 270,063 35,734 55,330
Reproduction and other 274,688 119,572 112,353 150,819
----------- ----------- ----------- -----------
Revenues $ 2,964,430 $ 2,370,372 $ 2,231,194 $ 2,744,967
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 3 DEBT
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
LONG-TERM DEBT:
Senior noteholders $ 1,031,496 $ 1,303,062 $ 1,410,607 $ 1,668,919
Six percent noteholders 411,178 411,178 411,178 421,178
Convertible debenture - - 100,000 100,000
Vendor note payable - 75,000 205,000 205,000
----------- ----------- ----------- -----------
Total debt 1,442,674 1,789,240 2,126,785 2,395,097
Less current portion - 175,321 751,178 679,490
----------- ----------- ----------- -----------
Long-term debt 1,442,674 $ 1,613,919 $ 1,375,607 $ 1,715,607
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Scheduled principal payments or demand balances due for the years
subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $1,442,674
----------
----------
</TABLE>
The Company was granted a line of credit by its principal bank in
the amount of $100,000 on August 13, 1997. This line of credit,
which expires October 29, 1999, is secured by the accounts
receivable of the Company and was obtained through a personal
guaranty of the President of the Company. Interest at prime plus
1.5% is payable monthly. No balance was payable on this line as
of December 31, 1998.
F-13
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 3 DEBT (CONTINUED)
During 1991, FIRST issued $2,240,000 of 12% senior notes. These
notes required 10% principal payments annually for four years
beginning December 31, 1992 along with a final 60% principal
payment on December 31, 1996. Interest was payable quarterly.
These notes are secured by FIRST's seismic data library. Only one
scheduled 10% principal payment was paid to the noteholders.
Subsequent to 1993, all payments made by FIRST were applied to the
reduction of principal, due to the uncertainty of complete
satisfaction of the debt. The outstanding principal balances at
December 31, 1998, 1997, 1996 and 1995 were $1,031,496,
$1,303,062, $1,410,607 and $1,668,919, respectively. The
outstanding principal balance is past due. On October 7, 1997,
FIRST offered a loan modification agreement to the holders of the
notes.
The loan modification agreement extends the maturity date of the
notes to September 30, 1999, waives any and all unpaid interest,
and at the option of FIRST can be converted into FIRST's common
stock in one of three ways: FIRST may convert the outstanding
principal balance to shares of the Company's common stock by
dividing the average five day ask price of the public market
trading price five days prior to the proposed exchange; FIRST may
convert the outstanding principal balance valued at a stock price
per share within forty-five days of a significant private
placement; or FIRST may convert the outstanding principal balance
at two times the actual net book value of FIRST's equity per share
per the most recent quarterly financial statements immediately
prior to such exchange.
In addition to the loan modification agreement in 1998, FORTESA
signed agreements with certain noteholders whereby their notes
would be satisfied for a discounted amount. The substance of the
transaction was for FORTESA to transfer funds to the Company to
facilitate a payoff to the noteholders. The gain from the
extinguishments of debt was $48,687 and is included in the
$305,489 settlements/liability extinguishments on the Company's
1998 statement of income and comprehensive income. With the
intercession of FORTESA (See Note 10), all present holders of the
12% senior notes accepted the loan modification agreement as of
June 1998. Consequently, these amounts are classified as
non-current in the accompanying balance sheets.
During 1993, FIRST issued $500,000 of 6% notes. The 6% notes
required interest only quarterly payments with the principal due
in full, May 31, 1996. The 6% notes are secured by 100% of the
stock of the Company's subsidiary for international information
licensing, FEC. In addition, the 6% noteholders received 500,000
warrants to purchase the Company's common stock at $.50 per share
expiring June 1, 2000. Total assets and equity of FEC at December
31, 1998 were $1,117,300 and 474,069, respectively. The
outstanding principal balance of these 6% notes amounted to
$411,178 at December 31, 1998, 1997 and 1996 and $421,178 at
December 31, 1995. On December 28, 1998, the Company offered to
exchange the principal and interest balances owed on the 6% notes
for equity in the Company contingent upon at least 80% of the
warrants held by these 6% noteholders being exercised early. As of
October 1999, all of the 6% noteholders had accepted this offer.
F-14
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 3 DEBT (CONTINUED)
The $100,000 convertible debenture, which matured on June 30,
1991, was reissued with interest at the rate of 10% payable
semi-annually, maturing June 30, 1992. On September 12, 1997,
interest was waived and the debenture was converted into 100,000
shares of the Company's common stock. Consequently, this amount is
classified as non-current in the accompanying 1996 and 1995
balance sheets.
On May 17, 1993, FIRST entered into a settlement agreement with a
vendor for $300,000. The terms of the agreement have been modified
several times due to the Company's liquidity crisis. In September
1997, FIRST renegotiated the terms of the vendor settlement
agreement which then had a $205,000 balance. A payment of $30,000
was paid on September 30, 1997, $100,000 was paid on December 15,
1997 and the $75,000 balance was paid by December 15, 1998.
Therefore, the outstanding principal balance at December 31, 1998,
1997 and 1996 was $0, $75,000 and $205,000, respectively.
NOTE 4 STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 10,000,000 shares of
common stock with a par value of $.01 per share and up to
1,000,000 shares of preferred stock with a par value of $1.00 per
share. At a meeting held on January 7, 1999 the Board of Directors
recommended re-establishing the original 1990 authorized
capitalization, which was 20,000,000 common shares and 10,000,000
preferred shares. A majority of the shareholders is required to
approve this transaction.
STOCK RIGHTS OUTSTANDING
EMPLOYEE STOCK OPTION PLAN - In July 1990, the Company reserved
500,000 shares of common stock for issuance under its Employee
Stock Option Plan. All Incentive Stock Options ("ISO's") will be
granted to employees at an exercise price of not less than the
fair market value of the stock on the date of grant. All
Non-incentive Stock Options ("NSO's") will be granted at an
exercise price of not less than 85% of the fair market value of
the stock on the date of grant. The Company and the Board's
Compensation Committee, on February 3, 1998, re-assigned the
entire 500,000 options from terminated employees to current
employees of the Company. The strike price was set at $.20 per
share. The fair market value was difficult to access due to the
fact that the Company's common stock is traded on the pink sheets
which is not a clear indicator of fair market value. Of the
500,000 shares granted, the Company's President was granted
300,000 shares or 60% of the total available. Due to the Company's
liquidity requirements in August 1998, the President agreed to
exercise all of his options, thereby infusing $60,000 of cash into
the Company. As a further inducement for the early exercise of
these options, the Company granted the President a security
interest in its tangible personal property. The remaining 200,000
options are outstanding at December 31, 1998.
F-15
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 4 STOCKHOLDERS' EQUITY (CONTINUED)
DIRECTOR STOCK OPTIONS - In July 1990, the Company also reserved
150,000 shares of common stock for issuance under its Directors'
Stock Option Plan. All options will be granted to non-employee
directors at an exercise price of not less than the fair market
value on the date of grant.
NOTEHOLDERS WARRANTS - Warrants are outstanding to the 6%
Noteholders Group for 500,000 shares at $.50 per share which
expire June 1, 2000. The Company's offer of December 28, 1998 to
the 6% noteholders would call for early exercise of most of these
warrants (see Note 3) and cause the issuance of the same number of
new warrants to these warrant holders (see Note 10).
NOTE 5 TRANSACTIONS WITH RELATED PARTIES
During the period 1993 until 1996, the President of the Company
had not received his contracted salary amount in cash compensation
due to the Company's cash liquidity problems. The unpaid salary
was accrued. In December 1996, the President entered into an
agreement to purchase 253,000 shares of common stock at $0.02 cash
per share and to forego the $253,000 compensation due him, for a
total value increase to the Company of $258,860. The accompanying
financial statements reflect this agreement to forego cash
compensation, and to reflect the issuance of stock.
In 1993, a limited partnership ("LTD") was established and the
Company's President agreed to act as the general partner of this
enterprise. LTD was founded to make investments in oil and gas
exploration, development, reserves, and to make financing
investments to facilitate portions of the Company's business plan
that were outside of the financing capabilities of the Company.
The 15 owners of LTD are all shareholders or noteholders of the
Company. The Company itself also owns a minority percentage of
LTD, granted for data use positions extended by the Company to LTD
for the benefit of LTD leasing land in East Texas over one of the
Company's prospects for natural gas. LTD funded all of the cash to
acquire those leases, resulting in the Company having a 33%
interest in the prospect and LTD having a 12% interest for its
lease money and reimbursable data use rights expended thereon.
However, it was LTD's cash extended to lease acreage that enabled
the Company to complete the cycle to obtain the exclusive drilling
rights to the first of the five prospects in East Texas generated
in which the Company has an interest.
F-16
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 5 TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
In 1993, the Company sold one license for its East Texas data-set
to LTD, prior to posting that data-set for sale for the benefit of
the Senior Noteholders, LTD agreed to pay a total of $100,000 on
terms of $16,000 cash advanced to the Company and the $84,000
balance to be paid if the Company successfully promotes the East
Texas prospect(s) and receives reimbursement for seismic data
costs from the promoted incoming partners. The Company
successfully leased the prospect but elected not to promote it
until a 3-D seismic survey could be arranged over the prospect.
The Company was successful in arranging for a 3-D seismic survey
over this acreage in 1997. The 3-D seismic data was interpreted in
1998 and indicated only moderate commercial viability. The
Company's $84,000 contingent receivable is not reflected in the
financial statements, and will be reported as a gain in the year
received from LTD, if the Company promotes this first, or one of
the other prospects successfully with seismic costs reimbursed.
On January 1, 1997, the Company issued 150,000 shares of its
common stock at par value to its Executive Vice President in
exchange for all of the shares of Blackwell Supply, Inc. Blackwell
is used to conduct the domestic geophysical activity of the
Company, including its airborne remote sensing surveys. (See
Note 1)
During 1998 and 1997, the Company provided office space and
administrative services to FORTESA at no charge.
In March 1998, a company controlled by the President leased a
laser copier to the Company for a period of 24 months at $424 per
month on terms substantially identical to those paid by the
President's company. The Company required use of the machine in
connection with its new geologic report publishing business. At
the end of the lease term, the Company will own the copier.
See Note 10 for additional disclosures of related party
transactions which occurred after 1998.
F-17
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 6 COMMITMENTS
The Company entered into an agreement with a major oil company to
use certain geo-scientific information to create a synthesized
study of current interest to the industry. Among other things, the
agreement requires the Company to make five annual payments,
depending on the level of sales, starting December 31, 1996
through December 31, 2000. The minimum payments required are
$75,000, $75,000, $75,000, $25,000 and $25,000, respectively. In
1997, the agreement was amended satisfying the December 31, 1997
payment of $75,000 through performance of consulting services by
the Company and $60,000 of the $75,000 due in 1998 were paid as of
December 31, 1998. In 1999, the agreement was further amended
satisfying the final $75,000, $25,000, and $25,000 minimum
payments through successful 1998 performance of consulting
services by the Company for this major oil company.
LEASES
The Company leases office space under noncancelable operating
lease agreements. Rent expense for the years ended December 31,
1998, 1997, 1996 and 1995 was $118,602, $67,136, $71,835 and
$62,442, respectively. The Company leases office space until March
2000 for FEL and January 2001 for FEC.
The minimum rental commitment under these leases, as currently
modified to reflect the subsequent amendment/extension of lease
agreements, at December 31, 1998 is as follows:
<TABLE>
<S> <C>
1999 $ 89,416
2000 75,427
2001 6,116
---------
Total $ 170,959
---------
---------
</TABLE>
NOTE 7 INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current $ - $ - $ - $ -
Deferred - - - -
------- ------- ------- -------
$ - $ - $ - $ -
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
F-18
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 7 INCOME TAXES (CONTINUED)
No income tax is expensed as the Company is in an NOL Carryforward
position and has been charging income against prior losses on its
income tax return. The difference between the effective rate of
income tax expense and the amount which would be determined by
applying the statutory U.S. income tax rates to income before
income tax expense is explained below according to the tax
implications of the various items of income or expense:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal income tax expense at statutory
rate $ (81,509) $ (60,290) $ (131,791) $ (259,804)
Change in deferred tax valuation
allowance 81,509 60,290 131,791 259,804
------------- -------------- -------------- -------------
$ - $ - $ - $ -
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Deferred Tax Asset:
Net operating loss carryover (as
amended, at 34%) $ 5,018,830 $ 5,100,339 $ 5,232,310 $ 5,492,114
Deferred Tax Liability:
Valuation allowance for net deferred
tax assets (5,018,830) (5,100,339) (5,232,310) (5,492,114)
------------ ------------ ------------ ------------
Deferred Taxes, Net $ - $ - $ - $ -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Although the Company has reported taxable income in each of the
past four years, management believes there is a greater than 50%
possibility that the deferred tax assets may not be realized with
the next fiscal year; therefore, a valuation allowance has been
established to offset these assets. If the proposed restructuring
succeeds, including the merger of Fortesa into the Company, and
successful development of its Senegal, West Africa gas field, the
Company believes the future tax benefit resulting from its net
operating losses will be more substantially realizable.
Consequently, the valuation account may be substantially reduced
depending upon the effects of the restructuring and acquisition of
Fortesa. A significant increase in equity would result at that
time.
F-19
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 7 INCOME TAXES (CONTINUED)
Tax basis net operating loss carryforwards at December 31, 1998
and their respective expiration dates are as follows:
<TABLE>
<S> <C>
2006 $ 1,269,471
2007 5,256,991
2008 355,091
2009 7,879,712
-----------
Total $14,761,265
-----------
-----------
</TABLE>
The amount of these net operating loss carryovers have been
revised for recent amendments to the Company's federal income tax
returns. These carryovers could be revised upon IRS audit or
restricted as to the Company's ability to utilize them to offset
future taxable income.
NOTE 8 FAIR VALUES
The estimated fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1998 1997 1997 1996 1996 1995 1995
---- ---- ---- ---- ---- ---- ---- ----
Carrying Fair Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value Value Value
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents $ 169,487 $ 169,487 $ 184,186 $ 184,186 $ 209,999 $ 209,999 $ 439,818 $ 439,818
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES
Senior noteholders 1,031,496 933,504 1,303,062 1,117,496 1,410,607 1,136,337 1,668,919 1,305,161
Convertible
debenture 0 0 0 0 100,000 100,000 100,000 100,000
Six percent
noteholders 411,178 397,273 411,178 397,273 411,178 384,279 421,178 381,879
Vendor note payable 0 0 75,000 68,738 205,000 182,357 205,000 168,128
--------- --------- --------- --------- --------- --------- --------- ---------
$1,442,674 $1,330,777 $1,789,240 $1,583,507 $2,126,785 $1,802,973 $2,395,097 $1,955,068
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
F-20
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 8 FAIR VALUES (CONTINUED)
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practical to estimate fair value.
Cash and cash equivalents - The carrying amount approximates fair
value because of the short maturity of those instruments.
Long-term debt - The fair value is based upon discounting the debt
such that the effective interest rate is prime plus 1% (9.5%)
utilizing actual and intended repayments. No discount was applied
to the convertible debenture.
NOTE 9 GEOGRAPHIC AREAS
The Company's geographic data for the years ended December 31, are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
United States $1,996,715 $1,685,112 $1,865,999 $1,781,553
Foreign Subsidiary 967,715 685,260 365,195 963,414
---------- ---------- ---------- ----------
Revenue $2,964,430 $2,370,372 $2,231,194 $2,744,967
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME/(LOSS) BEFORE
SETTLEMENTS/LIABILITY EXTINGUISHMENTS:
United States $ (40,987) $ (13,800) $ (418,420) $ (970,978)
Foreign Subsidiary (24,769) (4,492) (119,137) (20,446)
---------- ---------- ---------- ----------
Net Income/(Loss) Before
Settlements/Liability Extinguishments $ (65,756) $ (18,292) $ (537,557) $ (991,424)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL ASSETS:
United States $3,281,524 $3,044,413 $3,001,927 $3,400,736
Foreign Subsidiary 49,061 72,896 143,617 780,005
---------- ---------- ---------- ----------
Total Assets $3,330,585 $3,117,309 $3,145,544 $4,180,741
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-21
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 10 SUBSEQUENT EVENTS
On December 28, 1998 the Company made a proposal to its 6%
Noteholders to participate in a restructuring program, the major
components of which are as follows:
- Conversion of the entire outstanding 6% Note balance
($448,285 including accrued interest as of December 31,
1998) into 977,508 FIRST common shares.
- Early exercise of a minimum of 400,000 of the 6%
Noteholders' 500,000 $0.50/share warrants (at an effective
price of $0.33 per share) and issuance of a new $0.30 per
share warrant in exchange for each $0.50/share warrant
exercised early.
- Issuance of an additional number of shares of common stock
equal to 50% of the number of shares issued in connection
with the $.50 warrants.
- Merger of FORTESA into FIRST, and the changing of FIRST'S
name to FORTESA.
- Conversion of 100% of the outstanding (55) FIRST 12 % Senior
Notes into 1,241,596 FIRST common shares, as provided for in
the existing October 7, 1997 Loan Modification Agreements
with each of said 12% Noteholders.
All of the 6% Noteholders agreed to the offer to convert, and the
key elements of this restructuring program were completed on the
30th of March 1999. To date, 475,000 of the $.50 and $.33 warrants
have been exercised. Common stock was issued to both the 12% and
the 6% Noteholders. Concurrently with this extinguishing of all of
the Company's long-term debt, the Company acquired FORTESA
Corporation from the President of the Company. This included a
working interest in a commercially viable gas discovery in
Senegal, West Africa with a carried interest to allow the pipeline
to be connected to the local market, and most existing Warrant
Holders exercised causing a cash infusion of $237,000 of new
working capital.
The President sold FORTESA at his cost basis to the Company for
50,000 shares of a special convertible preferred stock in the
Company and 8,055 shares of common stock. These preferred shares
are convertible into not less than 500,000 common shares and not
more than 2 million common shares, based on 40% of the net value
actually realized by the Company from FORTESA assets over the
ensuing five-year period. The Company will have to either 1)
purchase additional shares in the open market as Treasury Stock,
or 2) increase its authorized number of common shares in the
future to honor an ultimate conversion by the President of the
Preferred Stock to common, should the FORTESA assets cause the
subsequent issuance of the additional 1,500,000 shares of Common
Stock to the President as a result of successful value increase of
FORTESA assets. Regarding the West African working interest,
FORTESA had paid for all the technical costs of defining and
presenting the geoscientific basis for the gas development
project, and the Company had paid for communication thereof to
potential partners in return for the right to acquire the results.
F-22
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 10 SUBSEQUENT EVENTS (CONTINUED)
A firm commitment for $5,400,000 in development expenditures was
obtained from a third party co-venturer in January 1998. This
partner commenced expenditures in the first quarter of 1998 to
advance the commercial exploitation of the 1997 Senegalese Gas
Discovery, including the position of FORTESA and its co-venturers
in this development project. FORTESA is not required to expend any
development funds until the $5,400,000 has been expended. FORTESA
owns a 15% working interest in the entire development project,
after project payout, and benefits from 7.5% (50% of 15%) of the
project's cash flow after production costs prior to payout of the
$5,400,000 of carried development expenditures. The discovery well
made in January 1997 on the block indicated a minimum of 2 BCF of
reserves in just this first well. (See Note 5)
The FORTESA acquisition will be accounted for similarly to a
pooling of interests using the historical cost basis of the
President.
During 1999, oil prices fell dramatically. As a result, the
Company's database of exploration materials and opportunities was
temporarily impaired for licensing to the exploration industry, as
many of those companies suffered significantly reduced capital
expenditure budgets. The Company has adjusted during the period
subsequent by suspending most all new projects, and seeking to
deliver contract services using its experienced staff directly to
certain of its oil industry customers. Revenues in the first half
of 1999 were at very low levels, below that necessary to sustain
the Company. Prices have subsequently recovered. The Company
believes that revenues for the balance of 1999 will be adequate to
recover the momentum enjoyed by the Company in 1998.
NOTE 11 LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit brought by two parties
claiming to be the successors-in-interest to McKenzie Management
Inc., a minority owner of certain seismic data acquired by the
Company in September 1990 from McMoRan Oil & Gas Company and Adobe
Resources Corporation. The data was originally owned by a joint
venture comprised of McMoRan, Adobe and McKenzie Management Inc.
At the time of its assignment to the Company, McMoRan and Adobe
could not locate McKenzie and indemnified the Company "against any
and all future claims, costs, expenses or causes of action that
may be asserted by the referenced minority owner...." In June
1994, the Company resold the data to Seitel Corporation and
indemnified Seitel against claims relating to the seismic data
being sold. The plaintiffs seek approximately $600,000 to
$1,500,000, plus punitive damages and attorney's fees.
F-23
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 11 LEGAL PROCEEDINGS (CONTINUED)
Management believes it is indemnified against loss based on its
purchase contract with McMoRan and Adobe. The Company has hired
defense counsel and has made demand on IMC Global (as successor to
McMoRan) and Santa Fe Resources (as successor to Adobe) to honor
the indemnity running to First Seismic, but so far they have
refused. Merits discovery is just commencing and it cannot be
predicted what, if any, liability the Company may ultimately have
in the case. The Company intends to offer a vigorous defense based
on several theories including statute of limitations, and a claim
the McKenzie did not even own an interest in all the subject
seismic data. No specific provision has been recorded in the
accompanying financial statements for any loss which may be
realized from this matter.
NOTE 12 EARNINGS PER SHARE
The following sets forth the computation of basic earnings per
share at December 31, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
NUMERATOR 1998 1997 1996 1995
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NET LOSS BEFORE SETTLEMENTS/LIABILITY
EXTINGUISHMENTS $ (65,756) $ (18,292) $ (537,557) $ (991,424)
SETTLEMENTS/LIABILITY EXTINGUISHMENTS (Note 1) 305,489 177,324 925,178 1,755,554
---------- ---------- ---------- ----------
NET INCOME $ 239,733 $ 159,032 $ 387,621 $ 764,130
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DENOMINATOR FOR BASIC EARNINGS PER SHARE
WEIGHTED NUMBER OF SHARES USED
IN COMPUTING NET INCOME (LOSS)
PER SHARE 5,552,869 5,251,647 5,071,510 4,817,720
NET LOSS BEFORE SETTLEMENTS/
LIABILITY EXTINGUISHMENTS
PER SHARE $ (0.01) $ (0.00) $ (0.11) $ (0.20)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SETTLEMENTS/LIABILITY
EXTINGUISHMENTS PER SHARE $ 0.05 $ 0.03 $ 0.19 $ 0.36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER SHARE $ 0.04 $ 0.03 $ 0.08 $ 0.16
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Based on estimated fair market values, outstanding options and
warrants are considered antidilutive for all years presented.
After year end, 50,000 shares of convertible preferred stock and
8,055 shares of common stock were issued in connection with the
FORTESA merger, as well as common shares issued in connection with
the conversion of long-term debt.
F-24
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 13 PROFORMA MERGER
Following is selected proforma data of the company for the year
ended December 31, 1998 had the merger with Fortesa Corporation
taken place as of that date. FORTESA had no significant operations
prior to 1998.
<TABLE>
<S> <C>
REVENUE $3,131,360
----------
----------
NET INCOME $ 357,171
----------
----------
EARNINGS PER SHARE $ .05
----------
----------
</TABLE>
There are no anticipated changes in accounting methods in
conjunction with the merger.
NOTE 14 NONCASH INVESTING AND FINANCING ACTIVITIES
During 1998 the Company received consulting services from Fortesa
totaling $40,500, which were capitalized. This amount is included
in investment in oil and gas prospects on the balance sheet and
is a reduction in the amount due from Fortesa.
During 1998 the Company financed the purchase of an automobile
with an $11,940 note payable.
F-25
<PAGE>
FIRST SEISMIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996 & 1995
- - -------------------------------------------------------------------------------
NOTE 15 STOCK OPTIONS AND WARRANTS
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees (APB
25) and related interpretations in accounting for its employee
stock options. Under APB 25, because the exercise price of
employee stock options is equal to the estimated market price of
the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. The value of
options and warrants granted during 1998 as computed under SFAS
123, is deemed insignificant.
The following summarizes the option and warrant activity and
balances for the year ended December 31, 1998:
At December 31, 1998, outstanding options and warrants consisted
of the following:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Shares Price Date
--------- ---------- -------------
<S> <C> <C> <C>
Outstanding Options 200,000 $ .20 Feb. 4, 2008
Outstanding Warrants 500,000 $ .50 June 1, 2000
</TABLE>
All warrants are currently exercisable.
All outstanding options were nonqualified options. No
compensation expense related to stock option grants was recorded,
as the option exercise prices were equal to the estimated fair
market value on the date of the grant.
F-26
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
FIRST SEISMIC CORPORATION
AND
BEALL LIVING TRUST
------------------
MARCH 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I--DEFINITIONS
ARTICLE II--PURCHASE AND SALE; CLOSING
2.01 TRANSFER OF STOCK............................................... 1
2.02 PURCHASE PRICE.................................................. 1
2.04 CLOSING......................................................... 2
2.05 DELIVERIES AT CLOSING........................................... 2
2.06 CONDITIONS TO CLOSING........................................... 2
ARTICLE III---REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
3.01 GOOD TITLE...................................................... 2
3.02 AUTHORIZATION AND VALIDITY OF AGREEMENT......................... 2
3.03 ORGANIZATION.................................................... 3
3.04 QUALIFICATION................................................... 3
3.05 CONSENTS; ABSENCE OF CONFLICTS.................................. 3
3.06 CAPITALIZATION OF THE COMPANY; TRANSFER OF SHARES............... 3
3.07 EQUITY INVESTMENTS AND AFFILIATES............................... 4
3.08 ABSENCE OF CHANGES.............................................. 4
3.09 ASSETS.......................................................... 5
3.10 PERMITS......................................................... 5
3.11 CONTRACTS....................................................... 5
3.12 BROKERS' FEES................................................... 5
3.13 FINANCIAL STATEMENTS............................................ 6
3.14 LEGAL COMPLIANCE................................................ 6
3.15 TAXES........................................................... 6
3.16 EMPLOYEES; EMPLOYEE RELATIONS................................... 7
3.17 EMPLOYEE BENEFIT MATTERS........................................ 7
3.18 BOOKS AND RECORDS............................................... 7
3.19 CERTAIN PAYMENTS................................................ 7
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF BUYER
4.01 ORGANIZATION.................................................... 8
4.02 QUALIFICATION................................................... 8
4.03 AUTHORITY AND VALIDITY OF AGREEMENT............................. 8
ARTICLE V--ADDITIONAL AGREEMENTS
5.01 SHAREHOLDER APPROVAL............................................ 8
-ii-
<PAGE>
ARTICLE VI--INDEMNIFICATION
6.01 BY SHAREHOLDER.................................................. 9
6.02 BY BUYER........................................................ 9
6.03 DEFENSE OF THIRD PARTY CLAIMS................................... 9
ARTICLE VII--MISCELLANEOUS
7.01 AMENDMENT....................................................... 10
7.02 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES..................... 10
7.03 ASSIGNMENT...................................................... 10
7.04 NOTICES......................................................... 11
7.05 EXPENSES........................................................ 11
7.06 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES......... 11
7.07 GOVERNING LAW................................................... 11
7.08 SEVERABILITY.................................................... 11
7.09 COUNTERPARTS.................................................... 12
7.10 HEADINGS........................................................ 12
7.11 FORUM........................................................... 12
7.12 FURTHER ASSURANCES.............................................. 12
EXHIBITS:
Exhibit A -- Defined Terms
</TABLE>
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into
as of this 30th day of March, 1999 by and between First Seismic Corporation,
a Delaware corporation ("Buyer"), and The Beall Living Trust, the sole
shareholder (the "Shareholder") of Fortesa Corporation, a Texas corporation
(the "Company").
WHEREAS, the Shareholder is the sole record and beneficial owner of all
of the issued and outstanding shares of capital stock of the Company; and
WHEREAS, pursuant to the terms and subject to the conditions set forth
in this Agreement, the Shareholder desires to sell all of the issued and
outstanding shares (the "Shares") of Common Stock, par value $1.00 per share,
of the Company owned by the Shareholder, and Buyer desires to acquire all of
the issued and outstanding Shares;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement but not defined in the body
hereof shall have the meanings ascribed to them in Exhibit A.
ARTICLE II
PURCHASE AND SALE; CLOSING
2.01 TRANSFER OF STOCK. Upon the terms and subject to the conditions
of this Agreement, Buyer agrees to purchase from the Shareholder 1,000 issued
and outstanding Shares for the consideration set forth in Section 2.02 (the
"Purchase Price"), and the Shareholder agrees to sell to Buyer 1,000 Shares
in exchange for the Purchase Price.
2.02 PURCHASE PRICE. At the Closing, as defined herein, Buyer shall
issue to the Shareholder 50,000 shares of the Buyer's Series A convertible
preferred stock (the "Preferred Shares") and 8,055 shares of the Buyer's
Common Stock ("First Seismic Common").
Exhibit A -- Page 4
<PAGE>
2.03 ASSET VALUATION. Prior to each of March 31, 2001, March 31, 2002,
and March 31, 2003 (each a "Valuation Date" and collectively the "Valuation
Dates") Buyer shall cause to be performed a PV10 valuation of the Company's
Assets in compliance with the Securities Exchange Act of 1934, as amended, to
determine the value of the Assets as of the December 31 preceding such
Valuation Date (the "Asset Value"); PROVIDED that the Asset Value shall be
net of all direct costs paid by Buyer for development or improvement of the
Assets. Upon receipt of the results of such valuation, the Buyer shall
calculate the increase in value of the Assets (the "Attributable Value") from
the closing of this Agreement by subtracting $[175,000] from the Asset
Value.
2.04 CLOSING. The closing (the "Closing") shall take place at the
offices of First Seismic Corporation, 2470 Gray Falls, Suite 190, Houston,
Texas, at 10:00 a.m., Houston time, on March 31, 1999, or at such other date,
place and time as the parties hereto may agree in writing (the "Closing
Date").
2.05 DELIVERIES AT CLOSING. At the Closing (a) the Shareholder will
deliver to Buyer a certificate, registered in the name of the Buyer,
representing the number of Shares specified in Section 2.01 of this
Agreement; (b) Buyer will deliver to the Shareholder certificates, registered
in the name of the Shareholder, representing the number of Preferred Shares
specified in Section 2.02 of this Agreement and the number of shares of First
Stock specified in Section 2.01 of this Agreement; and (c) the parties shall
take all other actions and execute such other documents, certificates, and
instruments reasonably required by the other party in order to consummate the
transaction contemplated hereunder.
2.06 CONDITIONS TO CLOSING. The obligations of the parties to this
Agreement are subject to each of the following conditions:
(a) The Note Purchase Agreement entered into between First
Seismic Corporation ("First") and its 6% note holders and the Warrant
Agreement entered into between First and certain of its $0.50 warrant holders
shall have closed simultaneously with this Agreement.
(b) The representations and warranties contained in Article III
and Article IV shall be true and correct when made and shall be true and
correct as of the Closing Date as if made on the Closing Date.
Exhibit A -- Page 5
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholder represents and warrants to Buyer that:
3.01 GOOD TITLE. The Shareholder is the sole record and beneficial
owner of, and has good and valid title to, the number of shares of the
Company set forth in Section 2.01 of this Agreement, free and clear of all
Liens. Upon Closing of the transaction contemplated hereunder, Buyer shall
be the owner of, and have good and valid title to, all of the issued and
outstanding Shares of the Company, free and clear of all Liens.
3.02 AUTHORIZATION AND VALIDITY OF AGREEMENT. The Shareholder has the
full power, legal right, capacity and authority to enter into, execute and
deliver this Agreement and any other Transaction Documents to which it is a
party and to carry out and perform its obligations hereunder and thereunder.
This Agreement and any other Transaction Documents to which it is a party
constitutes a valid and binding obligation of the Shareholder, enforceable
against the Shareholder in accordance with its terms, except as the
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar law now or hereafter in effect relating to or
affecting creditors' rights generally, or subject to the limitations imposed
by general rules of equity (regardless of whether such enforceability is
considered at law or in equity) (collectively "Creditors' Rights").
3.03 ORGANIZATION. The Company is a duly organized corporation under
the laws of its jurisdiction of incorporation and is validly existing and in
good standing under the laws of such jurisdiction. The Company has furnished
complete and correct copies of its charter and bylaws or the equivalent
organizational documents in each case as amended or restated to the date
hereof and the Company is not in violation of such charter or bylaws.
3.04 QUALIFICATION. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the Business as now conducted or the character of the property
owned or leased by it makes such qualification necessary, which jurisdictions
are listed on Schedule 3.04. The Company has all requisite corporate power
and authority to own its properties and assets and to carry on its Business
as it currently conducts.
Exhibit A -- Page 6
<PAGE>
3.05 CONSENTS; ABSENCE OF CONFLICTS. Neither the execution and
delivery of this Agreement or the other Transaction Documents by the
Shareholder nor the consummation of the transactions contemplated hereby and
thereby will (a) violate or breach the terms of, cause a default under,
conflict with, cancel, require any notice or consent or give rise to any
preferential purchase or similar right under (i) any applicable Law, (ii) the
Company's charter or bylaws or (iii) any contract to which the Company is a
party or by which it, or any of its properties, is bound; (b) result in the
creation or imposition of any Lien on any of the Shares or the Assets; (c)
result in the cancellation, forfeiture, revocation, suspension or
modification of any existing consent, approval, authorization, license,
permit, certificate or order of any Governmental Authority that adversely
affects such entity; or (d) with the passage of time or the giving of notice
or the taking of any action of any third party have any of the effects set
forth in clause (a), (b) or (c) of this Section 3.05.
3.06 CAPITALIZATION OF THE COMPANY; TRANSFER OF SHARES.
(a) The authorized capital stock of the Company consists of
10,000 shares of Common Stock, par value $1.00 per share, of which 1000
shares are issued and outstanding. All of the issued and outstanding shares
of Common Stock of the Company have been duly authorized, are validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights of any Person. All of the shares of Common Stock of the
Company are held beneficially and of record by the Shareholder, and will be
free and clear of all Liens at or before the Closing.
(b) There are no Contracts (including, without limitation,
options, warrants, calls and preemptive rights) obligating the Shareholder or
the Company (i) to issue, sell, pledge, dispose of or encumber any shares of
any class of capital stock of the Company, or any securities convertible,
exercisable or exchangeable into any class of capital stock of the Company,
(ii) to redeem, purchase or acquire in any manner any class of capital stock
of the Company or any securities that are convertible, exercisable or
exchangeable into any shares of any class of capital stock of the Company or
(iii) to make any dividend or distribution of any kind with respect to the
capital stock of the Company.
(c) There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights affecting the capital
stock of the Company. There are no voting trusts, proxies, or other
shareholder or similar agreements or understandings with respect to the
voting of the Common Stock of the Company.
(d) Upon delivery of the certificates or other documentation
reasonably acceptable to Buyer evidencing the Shares, together with any other
documents reasonably requested by Buyer, the Shareholder at Closing will
transfer valid title thereto to Buyer, free of any Lien.
Exhibit A -- Page 7
<PAGE>
3.07 EQUITY INVESTMENTS AND AFFILIATES. The Company does not own,
directly or indirectly, any equity interest, or any security convertible,
exercisable or exchangeable into any equity interest, in any Person other
than the Buyer. The Company is not a party to, or bound by, any Contract
that would require Buyer to make a capital contribution to any Person.
Fortesa acts as a fiduciary holder of certain senior debt and equity of the
Buyer, which securities shall be eliminated or placed in the Treasury of
Buyer upon closing.
3.08 ABSENCE OF CHANGES. Except as set forth on Schedule 3.08, since
June 30 1998:
(a) there has not been any Material Adverse Effect on the Company;
(b) there has been no declaration or payment of any dividend on,
or any other distribution with respect to, the securities of the Company;
(c) there has been no borrowing of funds or agreement to borrow
funds by the Company;
(d) the Company has not entered into any employment, consulting,
severance or indemnification agreement with any of its employees;
(e) there has been no payment by the Company to any director,
officer, shareholder, partner or employee, or any Affiliate of the foregoing
(whether as a loan or otherwise) except regular compensation and usual
benefits payments consistent with past practices;
(f) the Company has not entered into any Contract with any
director, officer, shareholder or employee or any Affiliate of the foregoing;
(g) there has been no purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition,
of any Assets of the Company;
(h) there has not been any contingent liability incurred by the
Company as a guarantor or otherwise with respect to the obligations of others or
any cancellation of any material debt or claim owing to or waiver of any
material right of the Company;
(i) there has not been any Lien placed on any of the Assets of
the Company that remain in existence on the date hereof;
(j) there is no lawsuit is pending or threatened against the
Company; and
(k) there is no Contract to do any of the foregoing.
Exhibit A -- Page 8
<PAGE>
3.09 ASSETS. Schedule 3.09 lists all Assets owned by the Company (the
"Scheduled Assets"). The Scheduled Assets are not encumbered by any Lien.
All material licenses, permits, authorizations, and approvals required by any
Governmental Authority having jurisdiction over the Scheduled Assets, have
been issued for the Company's use of each of the Scheduled Assets and all
such certificates, licenses, permits, authorizations and approvals have been
paid for and are in full force and effect. The Shareholder and the Company
have received no notice of any pending or threatened condemnation, eminent
domain or similar proceeding or special assessment affecting any of the
Scheduled Assets, nor has the Shareholder or the Company received
notification that any such proceeding or assessment is contemplated.
3.10 PERMITS. Schedule 3.10 lists all permits, licenses, certificates,
authorizations and approvals granted by any Governmental Authority (each, a
"Permit") and used or held by the Company in connection with the ownership
and operation of the Business (the "Scheduled Permits"). The Scheduled
Permits constitute all Permits necessary for the continued ownership, use and
operation of the Business of the Company. The Scheduled Permits are valid
and in full force and effect and no Scheduled Permit is in default, and no
condition exists that with notice or lapse of time or both would constitute a
default, under the Scheduled Permits. All fees and other payments due and
owing in connection with the Scheduled Permits have been paid in full and in
a timely manner so as to prevent any lapse or revocation thereof.
3.11 CONTRACTS. Schedule 3.11 identifies each of the Contracts to
which the Company is a party or by which it or its properties are bound
(each, a "Material Contract"). True and complete copies (including all
amendments) of each Material Contract have been made available to Buyer.
With respect to each Material Contract: (i) the Material Contract is the
legal, valid obligation of the Company and any other Person that is a party
thereto, binding and enforceable against the Company and any other Person
that is a party thereto, in accordance with its terms, subject to Creditors'
Rights; (ii) the Material Contract has not been terminated, and neither the
Company nor any other Person is in material breach or default thereunder, nor
has any event occurred that with notice or lapse of time, or both, would
constitute a material breach or default, or permit termination, modification
in any manner adverse to the Company or acceleration thereunder; and (iii) no
party has asserted nor has (except by operation of law) any right to offset,
discount or otherwise abate any amount owing under the Material Contract
except as expressly set forth in such Material Contract.
3.12 BROKERS' FEES. Neither the Company nor the Shareholders has any
liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement for
which Buyer (including the Company after the Closing) could become liable or
obligated other than those listed on Schedule 3.12.
Exhibit A -- Page 9
<PAGE>
3.13 FINANCIAL STATEMENTS. The Company has delivered to Buyer true and
complete copies of the following un-audited financial statements
(collectively, the "Financial Statements"): the balance sheet of the Company
as of December 31, 1998, and the related statements of income, cash flow and
retained earnings for the fiscal years then ended (including the notes
thereto). Except as disclosed in the Financial Statements, the Company has
no liabilities or obligations (whether accrued, absolute, contingent or
otherwise). The Financial Statements present fairly the financial position
of the Company and the results of its operations and changes in cash flow as
of the dates and for the periods indicated therein and have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby. As of the date of this Agreement, the Company has no Debt
other than as listed in Schedule 3.08(c).
3.14 LEGAL COMPLIANCE. Except as otherwise disclosed in Schedule 3.14,
the Company is in compliance in all material respects with all applicable Law.
3.15 TAXES.
(a) Except as set forth in Schedule 3.15(a), (i) all returns
(including, without limitation, income, franchise, corporation, capital
gains, VAT, sales and use, unemployment compensation, excise, severance,
property, gross receipts, profits, payroll and withholding tax returns and
information returns) and reports (all such returns and reports herein
referred to collectively as the "Tax Returns" or singularly as a "Tax
Return") of or relating to any foreign, federal, state or local tax,
assessment, impost, duty, levy or charge of any nature whatsoever (all,
together with any penalties, additions to tax, fines and interest thereon, or
related thereto, herein referred to collectively as "Taxes" or singularly as
a "Tax") which are required to be filed on or before the Closing Date by or
with respect to the Company have been or will be duly and timely filed or the
filing due date thereof has been or will be timely extended, (ii) all Tax
Items required to be included in each such Tax Return have been so included
and all information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which are or have become due with respect to the
period covered by each such Tax Return have been paid or accrued, and (iv)
all withholding Tax and Tax deposit requirements imposed on or with respect
to the Company or its employees for any and all periods or portions thereof
ending on or prior to the Closing Date have been or will be paid or accrued
by the Company.
(b) There is no claim against the Company for any Taxes, and no
assessment, deficiency or adjustment has been asserted, proposed or
threatened with respect to any Tax Return of or with respect to the Company,
other than those disclosed (and to which are attached true and complete
copies of all audit or similar reports) in Schedule 3.15(b). None of the
property of the Company is subject to any Lien for any Tax except Liens for
current Taxes not yet due.
(c) None of the Tax Returns of or with respect to the Company for
which the statute of limitations is open are currently under audit by the
applicable governmental or jurisdictional authority, nor have the
Shareholders received written notice by any such governmental or
jurisdictional authority of any intent to audit such Tax Returns.
Exhibit A -- Page 10
<PAGE>
(d) Except as set forth in Schedule 3.15(d), there is not in
force any extension of time with respect to the due date for the filing of
any Tax Return of or with respect to the Company or any waiver or agreement
for any extension of time for the assessment or payment of any Tax of or with
respect to the Company.
(e) Schedule 3.15(e) contains a list of all countries, states and
jurisdictions to which any Tax may be payable by the Company.
3.16 EMPLOYEES; EMPLOYEE RELATIONS.
Schedule 3.16(a) identifies for the Company the following:
(i) the name and current weekly salary (or rate of pay) of each
of its employees now payable to each of its salaried employees;
(ii) any increase to become effective after the date of this
Agreement in the total compensation or rate of total compensation
(including, without limitation, normal bonus, profit-sharing, pension
benefits and other compensation) payable to each such person;
(iii) the name of each director and officer of such entity
(including the title of any officer).
3.17 EMPLOYEE BENEFIT MATTERS.
(a) The Company is not a party to any agreement, nor has the
Company established any policy or practice, requiring it to make a payment or
provide any other form of compensation or benefit to any person performing
services for the Company upon termination of such services which would not be
payable or provided in the absence of the consummation of the transactions
contemplated by this Agreement.
(b) The Company has furnished to Buyer true, correct and complete
copies of the form of each employment agreement to which the Company is a
party and a list of each employee who is a party to each such form of
agreement that includes the compensation level of such employee pursuant to
such agreement and the termination date of such agreement.
3.18 BOOKS AND RECORDS. All books and records relating to the
ownership and operation of the Business and of the Company are located at the
premises of the Business to which such books and records primarily relate,
have been maintained substantially in accordance with applicable Law,
comprise all of the books and records relating to the ownership of the
Company and the operation of the Business.
3.19 CERTAIN PAYMENTS. Neither the Company nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company has made any direct or indirect unlawful payment to any foreign or
domestic governmental official or employee, violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977 or made any
illegal bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
Exhibit A -- Page 11
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholder as follows:
4.01 ORGANIZATION. Buyer is a corporation duly organized under the
laws of the State of Delaware and is validly existing and in good standing
under the laws of such jurisdiction. Buyer is registered to do business in
the State of Texas.
4.02 QUALIFICATION. Buyer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the Business as now conducted or the character of the property
owned or leased by it makes such qualification necessary. Buyer has all
requisite corporate power and authority to own its properties and assets and
to carry on the Business as it currently conducts.
4.03 AUTHORITY AND VALIDITY OF AGREEMENT. Upon approval of the Buyer's
stockholders of an increase in the authorized number of shares of Common
Stock and reservation of such shares by the Buyer's Directors of a sufficient
number to convert the Preferred Shares and the Earned Shares into shares of
Common Stock. Buyer will have all requisite corporate power and authority to
enter into, execute and deliver this Agreement and any other Transaction
Documents to which such entity is a party and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
the other Transaction Documents to which Buyer is a party and the performance
of such entity's obligations contemplated hereby and thereby have been duly
and validly approved by all corporate action, if any, necessary on behalf of
such entity. This Agreement and each of the Transaction Documents to which
Buyer is a party constitutes the legal, valid and binding obligations of such
entity, enforceable against it in accordance with their terms, subject to
Creditors' Rights. All other documents required hereunder to be executed and
delivered by Buyer at the Closing have been duly authorized, executed and
delivered by such entity and constitute the legal, valid and binding
obligations of such entity, enforceable against it in accordance with their
terms, subject to the Creditors' Rights.
ARTICLE V
ADDITIONAL AGREEMENTS
5.01 SHAREHOLDER APPROVAL. Prior to the next stockholder meeting of
Buyer, the Board of Directors of Buyer shall recommend to Buyer's
stockholders that they approve an increase in the number of authorized shares
of First Stock by a sufficient number to permit the conversion of the
Preferred Shares and the Earned Shares to Common Stock and shall thereafter
use its reasonable best efforts to effect such increase.
Exhibit A -- Page 12
<PAGE>
ARTICLE VI
INDEMNIFICATION
6.01 BY SHAREHOLDER. Subject to the terms and conditions of this
Article VI, the Shareholder hereby agrees to indemnify, defend and hold
harmless Buyer and their respective directors, officers, employees,
consultants, Affiliates and controlling persons (hereinafter, including the
Company after the Closing, collectively, the "Buyer Indemnified Parties"),
but only to the extent of the value of the Assets (which indemnity shall be
payable in First Seismic Series A Preferred Stock or in First Seismic Common
Stock at the option of the Shareholder) from and against all Claims (as
defined below) asserted against, imposed upon or incurred by Buyer or any
Buyer Indemnified Party, directly or indirectly, by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any representation or
warranty of the Shareholder contained in or made pursuant to this Agreement;
and (b) the breach of any covenant or agreement of the Shareholders contained
in or made pursuant to this Agreement. As used in this Article VI, the term
"Claim" shall include (i) all debts, liabilities and obligations; (ii) all
losses, damages, reasonable costs and expenses (including, without
limitation, interest (including prejudgment interest in any litigated matter)
penalties, court costs and reasonable legal, accounting, consultant and/or
engineering fees and expenses; and (iii) all demands, Claims, actions, costs
of investigation, causes of action, proceedings, arbitrations, judgments,
settlements and assessments, whether or not ultimately determined to be valid.
6.02 BY BUYER. Subject to the terms and conditions of this Article VI,
Buyer hereby agrees to indemnify, defend and hold harmless the Shareholder
from and against all Claims (as defined below) asserted against, imposed upon
or incurred by the Shareholder Indemnified Party by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any representation or
warranty of Buyer contained in or made pursuant to this Agreement; and (b)
the breach of any covenant or agreement of Buyer contained in or made
pursuant to this Agreement.
6.03 DEFENSE OF THIRD PARTY CLAIMS. The obligation of the Shareholder
to indemnify the Buyer under this Article VI with respect to Claims under
Section 6.01 and the obligation of Buyer to indemnify the Shareholder under
this Article VI with respect to Claims under Section 6.02 relating to or
arising from third parties (a "Third Party Claim") shall be subject to the
terms and conditions set forth below. As used in this Section 6.03, Buyer
and Shareholder are each referred to as an "Indemnified Party."
(a) NOTICE AND DEFENSE. The Indemnified Party will give the
party obligated to indemnify the Indemnified Party under this Article VI
(referred to in this Section as the "Indemnifying Party") prompt written
notice of any such Third Party Claim, and the Indemnifying Party may
undertake the defense thereof by representatives chosen by the Indemnifying
Party upon written notice to the Indemnified Party provided within 20 days of
receiving notice of such Third Party Claim (or sooner if the nature of the
Third Party Claim so requires and an extension cannot be obtained with
minimal expense or cost). Failure of the Indemnified Party to give such
notice shall not affect the indemnification obligations under this Article
VI, except to the extent the Indemnifying Party's defense of a Third Party
Claim is materially prejudiced thereby. The Indemnified Party shall make
available to the Indemnifying Party or its representatives all records and
other materials required by the Indemnifying Party and in the possession or
under the control of the Indemnified Party for the use
Exhibit A -- Page 13
<PAGE>
of the Indemnifying Party and its representatives in defending any such claim,
and shall in other respects give reasonable cooperation in such defense. If
notice or consent is required to be given or obtained under this Section 6.03
to or from the Shareholder, then notice will be sent to or consent will be
requested from the Shareholder at the address for the Shareholder set forth
on the signature page; if notice or consent is required to be given or
obtained under this Section 6.03 to or from Buyer, then notice will be sent
to or consent will be requested from Buyer at the address for Buyer set forth
on the signature page.
(b) FAILURE TO DEFEND. If the Indemnifying Party, within 20 days
after notice of any such Third Party Claim (or sooner if the nature of any
Third Party Claim so requires), fails to undertake the defense of such Third
Party Claim actively and in good faith, then the Indemnified Party will have
the right to undertake the defense, compromise or settlement of such Third
Party Claim, or consent to the entry of a judgment with respect thereto.
(c) INDEMNIFIED PARTY'S RIGHTS. Anything in this Article VI to
the contrary notwithstanding, (i) if there is a reasonable probability that
the Third Party Claim may materially adversely affect the Indemnified Party
other than as a result of money damages and such Third Party Claim is
reasonably likely to result in money payments in an aggregate amount of less
than $2,500, the Indemnified Party shall have the right to defend, compromise
or settle such Third Party Claim (provided that the Indemnified Party shall
not settle such Third Party Claim or consent to any judgment without first
obtaining the written consent of the Indemnifying Party, which shall not be
unreasonably withheld), and (ii) the Indemnifying Party shall not without the
written consent of the Indemnified Party, settle or compromise any Third
Party Claim or consent to the entry of any judgment that does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party of an unconditional release from all liability in
respect of such Third Party Claim.
ARTICLE VII
MISCELLANEOUS
7.01 AMENDMENT. This Agreement may not be amended or supplemented at
any time, except by an instrument in writing signed on behalf of each party
hereto. The waiver by any party hereto of any condition or of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any other condition or subsequent breach.
7.02 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement
(including the Schedules, Annexes and Exhibits hereto) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
oral and written, among the parties or any of them, with respect to the
subject matter hereof. Neither this Agreement nor any of the Transaction
Documents delivered in connection with this Agreement confers upon any person
not a party hereto any rights or remedies hereunder.
Exhibit A -- Page 14
<PAGE>
7.03 ASSIGNMENT. This Agreement shall inure to the benefit of and will
be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. Except as set forth in
this Agreement, this Agreement shall not be assignable by any party hereto
without the consent of the other parties hereto.
7.04 NOTICES. All notices, requests, demands, claims and other
communications that are required to be or may be given under this Agreement
shall be in writing and (i) delivered in person or by courier, (ii) sent by
telecopy or facsimile transmission, or (iii) mailed, certified first class
mail, postage prepaid, return receipt requested, to the appropriate party at
the following addresses:
if to the Shareholder:
BEALL LIVING TRUST
c/o Beth F. Beall, Trustee
9376 Briar Forest Drive
Houston, Texas 77063
fax: (713) 785-9239
If to the Buyer:
FIRST SEISMIC Corporation
2470 Gray Falls, Suite 190
Houston, Texas 77077
attn: the Board of Directors
fax: (281) 598-8887
or to such other address as the parties set forth above shall have furnished
to the other parties set forth above by notice given in accordance with this
Section 7.04. Such notices shall be effective (i) if delivered in person or
by courier, upon actual receipt by the intended recipient, (ii) if sent by
telecopy or facsimile transmission, when the sender receives telecopier
confirmation that such notice was received at the telecopier number of the
addressee, or (iii) if mailed, upon the earlier of five days after deposit in
the mail and the date of delivery as shown by the return receipt therefor.
7.05 EXPENSES. The party incurring such expenses shall pay all costs
and expenses incurred by the Shareholders or by Buyer in connection with this
Agreement and the transactions contemplated hereby.
7.06 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. All
representations and warranties contained herein or pursuant to this Agreement
shall survive the Closing.
7.07 GOVERNING LAW. THE CONSTRUCTION, INTERPRETATION, AND VALIDITY OF
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAW OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.
Exhibit A -- Page 15
<PAGE>
7.08 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated so long as the economic
or legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any
term, provision, covenant or restriction is invalid, void or unenforceable,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
7.09 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.10 HEADINGS. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
7.11 FORUM. BUYER AND THE SHAREHOLDER, FOR THEMSELVES, THEIR
SUCCESSORS AND ASSIGNS, HEREBY (A) IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS LOCATED IN TEXAS AND AGREE AND CONSENT THAT
SERVICE OF PROCESS MAY BE MADE UPON ANY OF THEM IN ANY LEGAL PROCEEDING
ARISING EXCLUSIVELY OUT OF OR IN CONNECTION WITH THIS AGREEMENT BY SERVICE OF
PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY LITIGATION ARISING EXCLUSIVELY OUT OF OR IN
CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS LOCATED IN TEXAS, (C)
FOR SUCH PURPOSES IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS WITH RESPECT TO ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO SUCH PARTY AND ITS
COUNSEL AT THEIR ADDRESSES SET FORTH HEREIN, AND (E) IRREVOCABLY AGREES THAT
ANY LEGAL PROCEEDING AGAINST THE COMPANY, BUYER OR THE SHAREHOLDER ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ITS OBLIGATIONS HEREUNDER
SHALL, BE BROUGHT IN THE COURTS OF TEXAS.
Exhibit A -- Page 16
<PAGE>
7.12 FURTHER ASSURANCES. Buyer and the Shareholder each agree that
they will, upon request of the other at any time after the Closing Date and
without further consideration, execute and deliver such other documents and
instruments and take such other action as may reasonably be requested to
carry out more effectively the purpose and intent of this Agreement.
IN WITNESS WHEREOF, Buyer and the Shareholder have each executed or
caused this Agreement to be executed on its behalf by its officer, thereunto
duly authorized, as applicable, all as of the date first above written.
FIRST SEISMIC CORPORATION
ATTEST:
/s/ Rogers E. Beall
------------------------------
By Rogers E. Beall, Chairman
/s/ Walter H. Walne
- - -------------------------------
Walter H. Walne, III, Secretary
BEALL LIVING TRUST:
/s/ Beth F. Beall
------------------------------
Beth F. Beall, Trustee
Exhibit A -- Page 17
<PAGE>
EXHIBIT A
DEFINED TERMS
"Affiliate" means with respect to any Person, any Person which, directly
or indirectly, controls, is controlled by, or is under a common control with,
such Person. The term "control" (including the terms "controlled by" and
"under common control with") as used in this definition means the possession,
directly or indirectly, of the power to direct or cause the direction of
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise. With respect to any natural person,
the term "Affiliate" shall also mean (1) the spouse and children (including
those by adoption) of such Person; and any trust whose primary beneficiary is
such Person, such Person's spouse and/or one or more members of such Person's
lineal descendants, (2) the legal representative or guardian of such Person
or of any such immediate family member in the event such Person or any such
immediate family member becomes mentally incompetent and (3) any Person
controlled by or under the common control with any one or more of such Person
and the Persons described in clauses (1) or (2) preceding.
"Assets" means those assets owned by the Company specified on schedule
3.09.
"Business" means the business and operations as are currently being
performed by the Company.
"Claim" means any and all claims, causes of action, demands, lawsuits,
suits, proceedings, governmental investigations or audits and administrative
orders.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any contract, agreement, option, right to acquire,
preferential purchase right, preemptive right, warrant, indenture, debenture,
note, bond, loan, loan agreement, collective bargaining agreement, lease,
mortgage, franchise, license, purchase order, bid, commitment, letter of
credit, guaranty, surety or any other legally binding arrangement, whether
oral or written.
"control" (including the terms "controlled," "controlled by" and "under
common control with") shall mean the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or
as trustee or executor, by contract or credit arrangement or otherwise;
"Debt" means, without duplication, (i) all indebtedness of the Company
for borrowed money, (ii) all obligations of the Company evidenced by bonds,
notes, debentures or other similar instruments, (iii) all obligations of the
Company as lessee under leases that have been or should be, in accordance
with GAAP, recorded as capital leases, (iv) all Debt of the type described in
clauses (i) through (iii) above secured by any Lien on property of the
Company.
"Governmental Authority" means any governmental, quasi-governmental,
state, county, city or other political subdivision of the United States or
any other country, or any agency, court or instrumentality, foreign or
domestic, or statutory or regulatory body thereof.
Exhibit A -- Page 18
<PAGE>
"Law" means any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, franchise, permit, certificate, license,
authorization, or other directional requirement (including, without
limitation, any of the foregoing that relates to environmental standards or
controls, energy regulations and occupational, safety and health standards or
controls including those arising under Environmental Laws) of any
Governmental Authority.
"Lien" means any lien, pledge, condemnation award, claim, restriction,
charge, preferential purchase right, security interest, mortgage or
encumbrance of any nature whatsoever.
"Material Adverse Effect" means, in relation to any Person, any material
and adverse effect on the assets, liabilities, financial condition, business,
operations, affairs or prospects, taken as a whole, of the Person referred to.
"Ordinary Course of Business" means, when used in reference to any
Person, the ordinary course of business consistent with past customs and
practices of such Person.
"Person" means any natural person, firm, partnership, association,
corporation, limited liability company, company, trust, entity, public body
or government.
"Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies,
assessments, duties or other amounts payable to any federal, state, local or
foreign taxing authority or agency, including, without limitation, (i)
income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment compensation,
utility, severance, excise, stamp, windfall profits, transfer and gains
taxes, (ii) customs, duties, imposts, charges, levies or other similar
assessments of any kind, and (iii) interest, penalties and additions to tax
imposed with respect thereto.
"Tax Item" means all items of income, gain, loss, deduction and credit
and other tax items.
"Third-Party Claim" means a third-party claim asserted against an
Indemnified Party by a Person.
"Transaction Documents" means this Agreement and all agreements,
conveyances, documents, instruments and certificates delivered at the Closing
pursuant to this Agreement.
SCHEDULE 3.08(c)
$75,000 was borrowed in the quarter ending March 31, 1999 by the Company from
Shareholder for the purpose of Company providing operating financing to Buyer
via the `forward sale' by Buyer to Company of certain license rights
("Forward Sale Debt"), 100% of the principal of which is outstanding as of
Closing. Shareholder has the right to convert $50,000 of the principal of the
Forward Sale Debt into payment for warrants exercised by Shareholder under
the terms of the 6% Note Purchase Agreement between Shareholder and Buyer
dated as of even date herewith.
Exhibit A -- Page 19
<PAGE>
SCHEDULE 3.09 -- ASSETS
SENEGAL PROPERTY: Fortesa has an interest in the THIES Onshore Block of the
Republic of Senegal, as defined in the 28th of December 1998 Offer to the
FIRST SEISMIC 6% Noteholders. This interest is a 1/8 carried interest, with a
1/8 back-in at cash payout with BENTON Oil & Gas, and partnered with
Petrosen. In addition, Fortesa has a 2% NPI with Benton in the shallow water
offshore blocks, to the extent that Benton earns a profit in their
concessions in the shallow water areas.
EAST TEXAS PROPERTY: Fortesa has acreage in the Gallatin prospect in
Cherokee County.
SCHEDULE 3.16
(i) Hayne Blakely, President; $7,500 per month cash compensation, plus
other compensation in the form of benefits, profit-sharing, and stock rights.
(ii) None.
(iii) Rogers E. Beall CEO, and Director
Walter H. Walne, III Secretary
Hayne Blakely President
Exhibit A -- Page 20
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
FIRST SEISMIC CORPORATION
ARTICLE I
The name of the corporation is FIRST SEISMIC Corporation (hereinafter
referred to as the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. AUTHORIZED SHARES. The number of shares of capital stock of
all classes which the Corporation shall have authority to issue is thirty
million (30,000,000) shares, of which twenty million (20,000,000) shares
shall be of a class designated as Common Stock, with a par value of One Cent
($.01) per share, and ten million (10,000,000) shares shall be of a class
designated as Preferred Stock, with a par value of One Dollar ($1.00).
Section 2. DESIGNATIONS, POWERS AND PREFERENCES. The designations and
the powers, preferences and rights, and the qualifications, limitations or
restrictions of the shares of each class of stock are as follows:
A. PREFERRED STOCK. Shares of Preferred Stock may be
issued in one or more series at such time or times as the Board of Directors
may determine. All shares of any one series of Preferred Stock shall be of
equal rank and identical in all respects except as to the dates from and
after which dividends thereon shall cumulate, if cumulative. The number of
authorized shares of preferred stock may be increased or decreased by the
affirmative vote of a majority of the stock of the Corporation entitled to
vote without the separate vote of holders of
<PAGE>
Preferred Stock as a class. Subject to the limitations hereof and the
limitation prescribed by law, the Board of Directors is expressly authorized
to fix from time to time, by resolution or resolutions adopted prior to the
issuance of and providing for the establishment and/or issuance of any series
of Preferred Stock, the designation of such series and the powers,
preferences, and rights of such series, and the qualifications, limitations
or restrictions thereof. The authority of the Board of Directors with respect
to each such series shall include, but shall not be limited to, determination
of the following:
(i) The distinctive serial designation and number of
shares comprising each such series (provided that the aggregate number
of shares constituting all series of Preferred Stock shall not exceed
one million (1,000,000), which number may (except where otherwise
provided by the Board of Directors in creating such series) be increased
or decreased (but not below the number of shares of such series then
outstanding) from time to time by action of the Board of Directors;
(ii) The rate of dividends, if any, on the shares of
that series, whether dividends shall be non-cumulative, cumulative to
the extent earned or cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property, or rights,
or in shares of the Corporation's capital stock, and the relative shares
of priority, if any, of payment of dividends on shares of that series
over shares of any other series;
(iii) Whether the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, the event or events upon or after which they shall be
redeemable or at whose option they shall be redeemable, and the amount
per share payable in case of redemption (which amount may vary under
different conditions and at different redemption dates) or the property
or rights, including securities of any other corporation, payable in
case of redemption;
(iv) Whether that series shall have sinking fund for
the redemption or purchase of shares of that series and, if so, the
terms and amounts payable into such sinking fund;
(v) The rights to which the holders of the shares of
that series shall be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series
in any such event;
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(vi) Whether the shares of that series shall be
convertible into or exchangeable for shares of stock of any other class
or any other series and, if so, the terms and conditions of such
conversion or exchange, including the rate or rates of conversion or
exchange, the date or dates upon or after which they shall be
convertible or exchangeable or at whose option they shall be convertible
or exchangeable, and the method (if any) of adjusting the rates of
conversion or exchange in the event of a stock split, stock dividend,
combination of shares or similar event;
(vii) Whether the issuance of any additional shares of
such series shall be subject to restrictions, or whether any shares of
any other series shall be subject to restrictions as to issuance, or as
to the powers, preferences or rights of any such other series;
(viii) Voting rights, if any, including, without
limitation, the authority to confer multiple votes per share, voting
rights as to specified matters or issues or, subject to the provisions
of this Certificate of Incorporation, voting rights to be exercised
either together with holders of common stock as a single class, or
independently as a separate class; and
(ix) Any other preferences, privileges and powers and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions of such series, as the Board
of Directors may deem advisable and as shall not be inconsistent with
the provisions of this Certificate of Incorporation and to the full
extent now or hereafter permitted by the laws of the State of Delaware.
B. COMMON STOCK. Subject to all of the rights of the
Preferred Stock, and except as may be provided with respect to the Preferred
Stock herein, by law or by the Board of Directors pursuant to this Article IV:
(i) Dividends may be declared and paid or set apart
for payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends.
(ii) The holders of Common Stock shall have the
exclusive right to vote for the election of directors and on all other
matters requiring stockholder action, each share being entitled to one
vote; and
(iii) Upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of the Common
Stock in accordance with their respective rights and interests.
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<PAGE>
C. PREEMPTIVE RIGHTS. No holder of any stock of the
Corporation of any class shall have the preemptive right to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into or
exchangeable for stock of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or by way of
dividend.
ARTICLE V
For the management of the business and for the conduct of the affairs of
the Corporation, and in further creation, definition, limitation and
regulation of the powers of the Corporation and of its directors and of its
stockholders, it is further provided.
Section 1. ELECTIONS OF DIRECTORS. Elections of Directors need not be
by written ballot unless the By-Laws of the Corporation shall so provide.
Section 2. NUMBER, ELECTION, AND TERMS OF DIRECTORS. Except as
otherwise fixed pursuant to the provisions of Article IV hereof relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be fixed from time to time by or pursuant to the By-Laws,
provided, however, that the number of directors shall at no time be less than
three nor greater than nine. The directors, other than those who may be
elected by the holders of any class or series of stock having preference over
the Common Stock as to dividends or upon liquidation, shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, as shall be provided in the
manner specified in the By-Laws, Class I to hold office initially for a term
expiring at the annual meeting of stockholders to be held during the fiscal
year ending in 1991, Class II to hold office initially for a term expiring at
the annual meeting of stockholders to be held during the fiscal year ending
in 1992, and Class III to hold office initially for a term expiring at the
annual meeting of stockholders to be held during the fiscal year ending in
1993, with the members of each class to hold office until their successors
are elected and qualified. At each annual meeting of the stockholders of the
Corporation, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election.
Section 3. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES. Advance
notice of nominations for the election of
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<PAGE>
directors, other than by the Board of Directors or a Committee thereof, shall
be given in the manner provided in the By-Laws.
Section 4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise fixed pursuant to the provisions of Article IV hereof relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a majority of
the remaining Directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 5. REMOVAL OF DIRECTORS. Subject to the rights of any class or
series of stock having preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances, any
director may be removed from office without cause only by the affirmative
vote of the holders of two-thirds (66.67%) of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
Section 6. STOCKHOLDER ACTIONS. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such stockholders and may not be effected
by any consent in writing by such stockholders. Except as otherwise required
by law and subject to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, the President or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board
of Directors.
Section 7. BY-LAW AMENDMENTS. The Board of Directors shall have power
to make, alter, amend and repeal the By-Laws (except so far as the By-Laws
adopted by the stockholders shall otherwise provide). Any By-Laws made by the
directors under the powers conferred hereby may be altered, amended or
repealed by the directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation to the
contrary, Articles II and III of the By-Laws shall not be altered, amended or
repealed and no provision
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<PAGE>
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least two-thirds (66.67%) of the voting power of all the shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class.
Section 8. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least two thirds (66.67%) of the voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting as a single class, shall be required to alter, amend, adopt any
provision inconsistent with, or repeal, this Article V or any provision
hereof.
ARTICLE VI
Section 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
A. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In
addition to any affirmative vote required by law or this Certificate of
Incorporation, and except as otherwise expressly provided in Section 2 of
this Article VI:
(i) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; and
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any Affiliate of
any Interested Stockholder of any assets of the Corporation having an
aggregate Fair Market Value of $2,000,000 or more; or
(iii) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof) having
an aggregate Fair Market Value of $2,000,000 or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of any Interested Stockholder or any Affiliate of any Interested
Stockholder; or
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<PAGE>
(v) any reclassification of securities (including any
reverse stock split), recapitalization, reorganization, merger or
consolidation of the Corporation, or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of Equity Security (as
hereinafter defined) of the Corporation or any Subsidiary which is
directly or indirectly owned by an Interested Stockholder or any
Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds
(66.67%) of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class (it being understood
that for the purposes of this Article VI, each share of the Voting Stock
shall have the number of votes granted to it pursuant to or in accordance
with the provisions of Article IV of this Certificate of Incorporation). Such
affirmative vote shall be required notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. DEFINITION OF "BUSINESS COMBINATION." The term
"Business Combination" used in this Article VI shall mean any transaction
which is referred to in any one or more of clauses (i) through (v) of
Paragraph A of this Section 1.
Section 2. WHEN HIGHER VOTE IS NOT REQUIRED.
The provisions of Section 1 of this Article VI shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation, if all of the conditions
specified in either of the following paragraphs A or B are met:
A. APPROVAL BY DISINTERESTED DIRECTORS. The Business
Combination shall have been approved by a majority of the Disinterested
Directors (as hereinafter defined).
B. PRICE AND PROCEDURE REQUIREMENTS. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the consummation
of the Business Combination of the consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination, shall be at least equal to the higher of the following:
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(a) if applicable, the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of Common Stock acquired by it (1) within the
two-year period immediately prior to the first public
announcement of the terms of the proposed Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder,
whichever is higher; or
(b) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder
(such latter date is referred to in this Article VI as the
"Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by
holders of shares of any other class of outstanding Voting Stock shall
be at least equal to the highest of the following (it being intended
that the requirements of this paragraph B(ii) shall be required to be
met with respect to every class of outstanding Voting Stock, whether or
not the Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(a) if applicable, the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it
(1) within the two-year period immediately prior to the
Announcement Date or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher; or
(b) if applicable, the highest preferential
amount per share to which the holders of shares of such
class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation); or
(c) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting Stock
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<PAGE>
with varying forms of consideration, the form of consideration for such
class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously
acquired by it. The price determined in accordance with paragraph B(i)
and B(ii) of this Section 2 shall be subject to appropriate adjustment
in the event of any stock dividend, stock split, combination of shares
or similar event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over the Common
Stock as to dividends or upon liquidation; (b) there shall have been (1)
no reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common Stock),
except as approved by a majority of the Disinterested Directors, and (2)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of
reducing the number of outstanding shares of the Common Stock, unless
the failure to so increase such annual rate is approved by a majority of
the Disinterested Directors; and (c) such Interested Stockholder shall
have not become the beneficial owner of any additional shares of Voting
Stock except as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except proportionately as
a stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall have been mailed to public stockholders of
the Corporation at least thirty (30) days prior to the consummation of
such Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
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Section 3. CERTAIN DEFINITIONS.
For the purposes of this Article VI:
A. A "person" shall mean any individual, firm, corporation
or other entity.
B. "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly,
of five percent (5%) or more of the voting power of the outstanding
Voting Stock; or
(ii) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was in beneficial owner, directly or indirectly, of 5% or more
of the voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended.
C. A person shall be "beneficial owner" of any Voting Stock:
(i) which such person of any of its Affiliates or
Associates (as hereinafter defined) beneficially owns directly or
indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares
of Voting Stock.
D. For the purpose of determining whether a person is an
Interested Stockholder pursuant to paragraph B of
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this Section 3, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of paragraph C of this
Section 3 but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on January 1, 1990.
F. "Subsidiary" means any corporation of which a majority
of any class of Equity Security is owned, directly or indirectly, by the
Corporation, provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph B of this Section 3, the term
"Subsidiary" shall mean only a corporation of which a majority of each class
of Equity Security is owned, directly or indirectly, by the Corporation.
G. "Disinterested Director" means any member of the Board
of Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder
and is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
H. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for the New
York Stock Exchange -- Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, on the principal United
States securities exchange registered under the Securities Exchange Act of
1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, on the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") National Market, or, if such stock is
not traded on the NASDAQ National Market, the highest closing bid quotation
with respect to a share of such stock during the 30-day period preceding the
date in question on the NASDAQ or any system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by the Board of Directors in good faith;
and (ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board of
Directors in good faith.
I. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraph B(i) and (ii) of Section 2 of this Article VI
shall include the shares of Common
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<PAGE>
Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
J. "Equity Security" shall have the meaning ascribed to
such term in Section 3(a)(11) of the Securities Exchange Act of 1934, as in
effect on January 1, 1990.
Section 4. POWERS OF THE BOARD OF DIRECTORS.
A majority of the directors shall have the power and duty to determine
for the purposes of this Article VI, on the basis of information known to
them after reasonable inquiry, (A) whether a person is an Interested
Stockholder, (B) the number of shares of Voting Stock beneficially owned by
any person, (C) whether a person is an Affiliate or Associate of another, (D)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $2,000,000 or more. A majority of the
directors shall have the further power to interpret all of the terms and
provisions of this Article VI.
Section 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS.
Nothing contained in this Article VI shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
Section 6. AMENDMENT, REPEAL, ETC.
Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws) the affirmative vote of the holders of two-thirds (66.67%) or more
of the outstanding Voting Stock, voting together as a single class, shall be
required to amend or repeal, or adopt any provision inconsistent with this
Article VI or any provision hereof.
ARTICLE VII
No director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the Delaware General Corporation Law is amended after approval by the
stockholders of this
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<PAGE>
provision to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of directors of the
Corporation shall be eliminated or limited to the full extent permitted by
the Delaware General Corporation Law, as so amended.
ARTICLE VIII
The Corporation shall indemnify to the full extent permitted by the laws
of the State of Delaware as from time to time in effect any person who was or
is a party or is threatened to be made a party to, or otherwise requires
representation by counsel in connection with, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (whether or not an action by or in the right of the
Corporation), by reason of the fact that he is or was a director or officer
of the Corporation, or, while serving as a director or officer of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged
to have been taken or omitted in such capacity. The right to indemnification
conferred by this Article IX shall also include the right of such persons to
be paid in advance by the Corporation for their expenses to the full extent
permitted by the laws of the State of Delaware as from time to time in
effect. The right to indemnification conferred on such persons by this
Article IX shall be a contract right.
Unless otherwise determined by the Board of Directors of the
Corporation, the Corporation shall indemnify to the full extent permitted by
the laws of the State of Delaware as from time to time in effect any person
who was or is a party or is threatened to be made a party to, or otherwise
requires representation by counsel in connection with, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether or not an action by or in the right
of the Corporation), by reason of the fact that he is or was an employee
(other than an officer) or agent of the Corporation, or is or was serving as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged
to have been taken or omitted in such capacity.
The rights and authority conferred in this Article IX shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of this Certificate of Incorporation or By-Laws
of the Corporation, agreement, vote of stockholders or Disinterested
Directors or otherwise.
Neither the amendment nor repeal of this Article IX, nor the adoption of
any provision of the Certificate of
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<PAGE>
Incorporation or By-Laws or of any statute inconsistent with this Article IX,
shall eliminate or reduce the effect of this Article IX, in respect of any
acts or omissions occurring prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE IX
The names and mailing addresses of the persons who shall serve as the
initial directors of the Corporation, and, pursuant to Article V, Section 2,
the Classes to which they are assigned, are as follows:
CLASS I
Marvin Hewitt
5916 So. Indianapolis Ave., Tulsa, Oklahoma 74135
CLASS II
Warren DeMoss
1007 Tulip Tree, Houston, Texas 77090
CLASS III
Rogers E. Beall
9400 East Maplewood Ave., Englewood, Colorado 80111
Each such director shall serve for the term specified in Article V, Section
2, for his respective Class and until his successor is elected and qualified.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
The name and mailing address of the sole incorporator is: David A.
Dilger, 370 17th Street, Suite 4700, Denver, Colorado 80202. The powers of
the incorporator shall terminate upon the filing of this Certificate of
Incorporation in the office of the Secretary of State of the State of Delaware.
The undersigned, being the sole incorporator herein before named, for
the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, does make this Certificate of Incorporation, hereby
declaring,
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<PAGE>
affirming, acknowledging and certifying, under penalties of perjury, that
this is the act and deed of the undersigned and that the facts stated herein
are true, and accordingly has hereunto set his hand this 7 day of June, 1990.
SOLE INCORPORATOR
/s/ David A. Dilger
------------------------------
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<PAGE>
PAGE 1
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF FIRST SEISMIC CORPORATION FILED IN THIS OFFICE ON THE
SEVENTEENTH DAY OF SEPTEMBER, A.D. 1990, AT 10:30 O'CLOCK A.M.
* * * * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
[SEAL] AUTHENTICATION: *3835647
911215111 DATE: 05/01/1991
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:30 AM 09/17/1990
730260047 - 2232755
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FIRST SEISMIC CORPORATION
FIRST SEISMIC Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of FIRST SEISMIC
Corporation, resolutions were duly adopted setting forth the proposed
amendments of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing Article V, Section 4 and Section 6 so that, as
amended said Article shall be and read as follows:
Section 4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Except as otherwise fixed pursuant to the provisions of
Article IV hereof relating to the rights of the holders of
any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created
directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal
or other cause shall be filled solely by the affirmative
vote of a majority of the remaining Directors then in
office, even though less than a quorum of the Board of
Directors; provided that any vacancy created by a removal of
a director of the Corporation pursuant to Section 5 of this
Article V may be filled by action of the stockholders taken
at the same meeting at which the vacancy was created. Any
director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of
the class of directors in which the new directorship was
created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease
in the number of directors
<PAGE>
constituting the Board of Directors shall shorten the term
of any incumbant director.
Section 6. STOCKHOLDER ACTIONS. Any action required or
permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting
of such stockholders and may not be effected by any consent
in writing by such stockholders. Except as otherwise
required by law and subject to the rights of the holders of
any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, special
meetings of stockholders of the Corporation may be called
only by the Chairman of the Board, the President or the Board
of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors, and shall be called by the
President or Secretary at the written request of
stockholders holding at least 10% of the outstanding capital
stock of the Corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of
the proposed meeting.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares were
voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, FIRST SEISMIC Corporation has caused this
certificate to be signed by Rogers E. Beall, its President, and Eric A.
Simons, its Secretary, this 15 day of September, 1990.
By: /s/ Rogers E. Beall
-----------------------------------
President
Attest: /s/ Eric A. Simons
-------------------------------
Secretary
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<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/23/1992
922065067 - 2232755
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
FIRST SEISMIC Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of FIRST SEISMIC
Corporation resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolutions setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Article IV" so that, as
amended, said Article shall be and read as follows:
Section 1. AUTHORIZED SHARES. The number of shares of capital stock of
all classes which the Corporation shall have authority to issue is
eleven million (11,000,000) shares, of which ten million (10,000,000)
shares shall be of a class designed as Common Stock, with a par value of
One Cent ($.01) per share, and one million (1,000,000) shares shall be
of a class designed as Preferred Stock, with a par value of One Dollar
($1.00).
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
an annual meeting of the stockholders of said corporation was duly called and
held on June 18, 1992, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the provision
of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said FIRST SEISMIC Corporation has caused this
certificate to be signed by Rogers E. Beall, its President, and James Wilson,
its Secretary this 14th day of July, 1992.
By: /s/ Rogers E. Beall
-----------------------------------
President
By: /s/ James Wilson
------------------------------
Secretary
<PAGE>
EXHIBIT 3.2
FIRST SEISMIC CORPORATION
Bylaws
Article I
OFFICES
The registered office of FIRST SEISMIC Corporation (the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation shall have offices
at such other places as the Board of Directors may from time to time
determine.
Article II
STOCKHOLDERS
Section 1. ANNUAL MEETINGS.
The annual meeting of the stockholders for the election of Directors and
for the transaction of such other business as may properly come before the
meeting shall be held on such date as the Board of Directors shall each year
fix. Each such annual meeting shall be held at such place, within or without the
State of Delaware, and hour as shall be determined by the Board of Directors.
The day, place and hour of each annual meeting shall be specified in the notice
of such annual meeting. Any annual meeting of stockholders may be adjourned from
time to time and place to place until its business is completed.
Section 2. BUSINESS CONDUCTED AT MEETINGS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than sixty days nor
more than ninety days prior to the meeting; provided, however, that in the event
that less than seventy days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so
<PAGE>
received not later than the close of business on the tenth day following the
date on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before
the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting, (b) the name and address, as they appear
on the Corporation's books, of the stockholder proposing such business, (c)
the class and number of shares of the Corporation which are beneficially
owned by the stockholder, and (d) any material interest of the stockholder in
such business. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Section 2. The presiding officer of an
annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 3. SPECIAL MEETINGS.
Except as otherwise required by law and subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or on liquidation, special meetings of the stockholders
may be called only by the Chairman of the Board, the President and Chief
Executive Officer, or the Board of Directors pursuant to a resolution approved
by a majority of the entire Board of Directors. The term "entire Board of
Directors", as used in these Bylaws, means the total number of Directors which
the Corporation would have if there were no vacancies.
Section 4. STOCKHOLDER ACTION: HOW TAKEN.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such stockholders.
Section 5. NOTICE OF MEETING.
Written notice stating the place, date and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, except as otherwise required by statute or the Certificate
of Incorporation, either personally or by mail, prepaid telegram, telex,
cablegram, or radiogram, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, addressed to the stockholder at his
address as
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<PAGE>
it appears on the stock records of the Corporation. If given personally or
otherwise than by mail, such notice shall be deemed to be given when either
handed to the stockholder or delivered to the stockholder's address as it
appears on the stock records of the Corporation.
Section 6. WAIVER.
Attendance of a stockholder of the Corporation, either in person or by
proxy, at any meeting, whether annual or special, shall constitute a waiver of
notice of such meeting, except where a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice of any such meeting signed by a stockholder
or stockholders entitled to such notice, whether before, at or after the time
for notice or the time of the meeting, shall be equivalent to notice. Neither
the business to be transacted at, nor the purposes of, any meeting need be
specified in any written waiver of notice.
Section 7. VOTING LIST.
The Secretary shall prepare and make available, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 8. QUORUM.
Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, the holders of not less than one-third of the shares entitled to
vote at any meeting of the stockholders, present in person or by proxy, shall
constitute a quorum, and the act of the majority of such quorum shall be deemed
the act of the stockholders. If a quorum shall fail to attend any meeting, the
chairman of the meeting may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then, except as otherwise required by law,
those present at such adjourned meeting shall constitute a
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<PAGE>
quorum, and all matters shall be determined by a majority of votes cast at
such meeting.
Section 9. QUALIFICATION OF VOTERS.
The Board of Directors may fix, in advance, a day and hour not more than
sixty nor less than ten days prior to the day of holding any meeting of the
stockholders as the time as of which the stockholders entitled to notice of and
to vote at such meeting shall be determined. Only those persons who were holders
of record of voting stock at such time shall be entitled to notice of and to
vote at such meeting.
Section 10. PROCEDURE.
The order of business and all other matters of procedure at every
meeting of the stockholders may be determined by the presiding officer.
Article III
DIRECTORS
Section 1. NUMBER, ELECTION. AND TERMS.
Except as otherwise fixed pursuant to the provisions of Article IV of
the Certificate of Incorporation relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the number of Directors shall be fixed from time to time by the
Board of Directors but shall not be less than three nor greater than nine. The
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be classified with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as determined by the Board of Directors, Class I to hold office
initially for a term expiring at the annual meeting of stockholders to be held
during the fiscal year ending in 1991, Class II to hold office initially for a
term expiring at the annual meeting of stockholders to be held during the fiscal
year ending in 1992, and Class III to hold office initially for a term expiring
at the annual meeting of stockholders to be held during the fiscal year ending
in 1993, with the members of each class to hold office until their successors
are elected and qualified. At each annual meeting of stockholders, the
successors of the class of Directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election.
-4-
<PAGE>
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of Directors may be made by the Board of Directors
or a committee appointed by the Board of Directors or by any stockholder
entitled to vote in the election of Directors generally. However, any
stockholder entitled to vote in the election of Directors generally may nominate
one or more persons for election as Directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation no later than (i) with respect to
an election to be held at an annual meeting of stockholders, ninety days prior
to the anniversary date of the immediately preceding annual meeting, and (ii)
with respect to an election to be held at a special meeting of stockholders for
the election of Directors, the close of business on the tenth day following the
date on which notice of such meeting is first given to stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (b)
representation that the Stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (e)
the consent of each nominee to serve as a Director of the Corporation if so
elected. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Section 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Except as otherwise fixed pursuant to the provisions of Article IV of
the Certificate of Incorporation relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect Directors under specified circumstances,
newly created directorships resulting from any increase in the number of
Directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. Any Director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the
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<PAGE>
vacancy occurred and until such Director's successor shall have been elected
and qualified. No decrease in the number of Directors constituting the Board
of Directors shall shorten the term of any incumbent Director.
Section 3. REMOVAL.
Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect Directors under specified circumstances, any Director may be removed from
office without cause, only by the affirmative vote of the holders of two-thirds
of the combined voting power of the then outstanding shares of stock entitled to
vote generally in the election of Directors, voting together as a single class.
Section 4. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such
times and places as the Board of Directors may from time to time determine.
Section 5. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called at any time,
at any place and for any purpose by the Chairman of the Executive Committee,
the Chairman of the Board, or the President and Chief Executive Officer, or
by any officer of the Corporation upon the request of a majority of the
entire Board of Directors.
Section 6. NOTICE OF MEETINGS.
Notice of regular meetings of the Board of Directors need not be
given.
Notice of every special meeting of the Board of Directors shall be
given to each Director at his usual place of business or at such other
address as shall have been furnished by him for such purpose. Such notice
shall be properly and timely given if it is (a) deposited in the United
States mail not later than the seventh calendar day preceding the date of the
meeting, or (b) personally delivered, mailed, telegraphed, or communicated by
telephone at least forty-eight hours before the time of the meeting. Such
notice need not include a statement of the business to be transacted at, or
the purpose of, any such meeting.
Section 7. WAIVER.
Attendance of a Director at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction
-6-
<PAGE>
of any business because the meeting is not lawfully called or convened. A
written waiver of notice signed by a Director or Directors entitled to such
notice, whether before, at, or after the time for notice or the time of the
meeting, shall be equivalent to the giving of such notice.
Section 8. QUORUM.
Except as may be otherwise provided by law or in these
Bylaws, the presence of a majority of the entire Board of Directors shall be
necessary and sufficient to constitute a quorum for the transaction of business
at any meeting of the Board of Directors, and the act of a majority of such
quorum shall be deemed the act of the Board of Directors. Less than a quorum may
adjourn any meeting of the Board of Directors from time to time without notice.
Section 9. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall be appointed by the Board of Directors
and shall have such general powers and duties of supervision and management as
are usually vested in the office of Chairman of the Board. He shall preside at
all meetings of the stockholders and Directors at which he may be present and
shall have such other duties, powers and authority as may be prescribed
elsewhere in these Bylaws. The Board of Directors may delegate such other
authority and assign such additional duties to the Chairman of the Board, other
than those conferred by law exclusively upon the President and Chief Executive
Officer, as it may from time to time determine. The Chairman of the Board shall
hold his position at the pleasure of the Board of Directors and may be removed
at any time by the Board of Directors with or without cause.
Section 10. PARTICIPATION IN MEETINGS BY TELEPHONE.
Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
Section 11. POWERS.
The business, property and affairs of the Corporation shall be managed
by or under the direction of its Board of Directors, which shall have and may
exercise all the powers of the Corporation to do all such lawful acts and things
as are not by law, or by the Certificate of Incorporation, or by these Bylaws,
directed or required to be exercised or done by the stockholders.
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Section 12. COMPENSATION OF DIRECTORS.
Directors shall receive such compensation for their services as shall
be determined by a majority of the entire Board of Directors, provided that
Directors who are serving the Corporation as officers or employees and who
receive compensation for their services as such officers or employees shall
not receive any salary or other compensation for their services as Directors.
Section 13. ACTION WITHOUT A MEETING.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or any committee thereof may be taken without a
meeting if written consent thereto is signed by all members of the Board of
Directors or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee.
Article IV
COMMITTEES
The Board of Directors may, by resolution adopted by a majority vote
of the entire Board of Directors, designate one or more committees as
provided by law. Any such committee or committees shall have and may exercise
all the powers and authority set forth in the resolution designating such
committee, except as provided by law, the Certificate of Incorporation, and
these Bylaws.
Article V
OFFICERS
Section 1. NUMBER.
The officers of the Corporation shall be appointed or elected by the
Board of Directors. The officers shall be a President and Chief Executive
Officer, such number of vice presidents as the Board of Directors may from
time to time determine, a Secretary, and a Treasurer. Any person may hold two
or more offices, other than the offices of President and Chief Executive
Officer and Secretary, at the same time. The President and Chief Executive
Officer shall be chosen from among the Board of Directors, but the other
officers need not be members of the Board. The election or appointment of an
officer shall not create any contract of employment.
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<PAGE>
Section 2. ADDITIONAL OFFICERS.
The Board of Directors may appoint such other officers as it shall
deem appropriate.
Section 3. TERMS OF OFFICE.
All officers, agents and employees of the Corporation shall hold
their respective offices or positions at the pleasure of the Board of
Directors and may be removed at any time by the Board of Directors with or
without cause.
Section 4. DUTIES.
The officers of the Corporation shall perform the duties and exercise
the powers as may be assigned to them from time to time by the Board of
Directors or the President and Chief Executive Officer. In the absence of
such assignation, the officers shall have the duties and powers described in
Sections 5 through 9 of this Article V.
Section 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER.
The President and Chief Executive Officer shall be the chief
executive officer of the Corporation and, subject to the direction and
control of the Board of Directors, shall manage the business of the
Corporation. The President and Chief Executive Officer may execute contracts,
deeds and other instruments on behalf of the Corporation. In the absence of
the Chairman of the Board or in the event of his disability, inability or
refusal to act, the President and Chief Executive Officer shall perform the
duties and exercise the power of the Chairman of the Board. The President and
Chief Executive Officer shall have full authority on behalf of the
Corporation to attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other rights
of ownership with respect to any shares of capital stock or other securities
held by the Corporation and issued by any other corporation or with respect
to any partnership, trust or similar held by the Corporation.
Section 6. VICE PRESIDENT.
Each Vice President, if any, shall perform such functions as may be
prescribed by the Board of Directors or the President and Chief Executive
Officer. Upon the death, disability or absence of the President and Chief
Executive Officer, the Vice President (or if more than one holds office, the
Vice President among those present who has held such office for the longest
continuous period, unless another method of selection has been established by
resolution of the Board of Directors) shall perform the duties and exercise
the powers of the President and Chief Executive Officer. Each Vice President
shall perform such other duties as the Board, the Chairman of the
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Board, or the President and Chief Executive Officer may from time to time
prescribe or delegate to him.
Section 7. SECRETARY.
The Secretary shall give notice of all meetings of the stockholders
and, upon the request of a person entitled to call a special meeting of the
Board of Directors, he shall give notice of any such special meeting. He
shall keep the minutes of all meetings of the stockholders, the Board of
Directors, or any committee established by the Board of Directors. The
Secretary shall be responsible for the maintenance of all records of the
Corporation and may attest documents on behalf of the Corporation. The
Secretary shall perform such other duties as the Board, the Chairman of the
Board, or the President and Chief Executive Officer may from time to time
prescribe or delegate to him.
Section 8. TREASURER.
The Treasurer shall be responsible for the control of the funds of
the Corporation and the custody of all securities owned by the Corporation.
The Treasurer shall perform such other duties as the Board, the Chairman of
the Board, or the President and Chief Executive Officer may from time to time
prescribe or delegate to him.
Article VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. DIRECTORS AND OFFICERS.
The Corporation shall indemnify to the full extent permitted by, and
in the manner permissible under, the laws of the State of Delaware, any
person made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director or officer of
the Corporation or any predecessor of the Corporation, or served any other
enterprise as a director or officer at the request of the Corporation or any
predecessor of the Corporation. The Corporation may advance expenses to any
such person incurred in defending any such action or proceeding upon terms
and conditions, if any, deemed appropriate by the Board of Directors upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized by the laws of
the State of Delaware.
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Section 2. CONTRACT.
The foregoing provisions of this Article VI shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while this By-Law is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole
in part upon any such state of facts.
The foregoing rights of indemnification shall not be deemed exclusive
of any other rights to which any director or officer may be entitled apart
from the provisions of this Article VI.
Section 3. OTHER PERSONS.
The Board of Directors in its discretion shall have power on behalf
of the Corporation to indemnify any person, other than a director or officer,
made a party to any action, suit or proceeding by reason of the fact that he,
his testator or intestate, is or was an employee or agent of the Corporation.
Article VII
SEAL
The Corporate seal shall bear the name of the Corporation, the date
1990, and the words "Corporate Seal, Delaware".
Article VIII
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duly called for that purpose)
by a majority vote of the shares represented and entitled to vote at such
meeting; provided that in the notice of such special meeting, notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the Board of Directors may, by
majority vote of those present at any meeting at which a quorum is present,
amend these Bylaws, or
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enact such other Bylaws as in their judgment may be advisable for the
regulation of the conduct of the affairs of the Corporation.
------------------------
Secretary
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<PAGE>
[CERTIFICATE]
F1RST SEISMIC
CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
COMMON STOCK SEE REVERSE FOR
PAR VALUE $.O1 EACH CERTAIN DEFINITIONS
CUSIP 336397 10 4
THIS CERTIFIES THAT SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.O1
PER SHARE, OF
FIRST SEISMIC CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
/s/ Eric A. Simons /s/ Rogers Beall
ERIC A. SIMONS, SECRETARY ROGERS BEALL, PRESIDENT
[SEAL]
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER, INC.
Denver, Colorado
By
-------------------------------------------------
Transfer Agent & Registrar Authorized Signature
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to authority conferred upon the Board of Directors of the
Corporation by its Certificate of Incorporation, such Board of Directors duly
adopted a resolution on March 31, 1999 providing for the issuance of a series
of 50,000 shares of the Corporation's Preferred Stock, $1.00 par value per
share, to be designated "Series A Preferred Stock", and fixing the voting
powers, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof. The following is
a Certificate of Designation, Preferences, Rights and Limitations to reflect
such resolution:
There shall be established and authorized for issuance a series
of the Corporation's Preferred Stock, $1.00 par value per share,
designated "Series A Preferred Stock" (herein referred to as "Series A
Preferred Stock"), consisting of 50,000 shares, each of the par value of
$1.00 per share, and having the voting powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations or restrictions set forth below:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified.
CHANGE OF CONTROL. The term "Change of Control" shall mean the first to
occur of the following: (i) the acquisition by any Person of the power, directly
or indirectly, to vote or direct the voting of securities having more than fifty
percent (50%) of the ordinary voting power for the election of directors of the
Corporation or (ii) the acquisition by any Person of capital stock of the
Corporation that would entitle such Person upon the liquidation of the
Corporation to a majority of the proceeds attributable to the holders of the
Corporation's capital stock assuming all shares that are convertible or
exchangeable for Common Stock or other capital stock were so converted or
exchanged immediately prior to such liquidation.
COMMON STOCK. The term "Common Stock" shall mean the common stock of
the Corporation, par value $0.01.
JUNIOR STOCK. The term "Junior Stock" shall mean any other class or
series of stock of the Corporation (i) not entitled to receive any dividends
unless all dividends required to have been paid or declared and set apart for
payment on the Series A Preferred Stock shall have been so paid or declared
and set apart for payment, (ii) not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation
until the Series A Preferred Stock shall have received the entire amount to
which such stock is entitled upon such liquidation, dissolution or winding
up, and (iii) not entitled to redemption until the Series A Preferred Stock
shall have been redeemed in full.
LIQUIDATION PREFERENCE. The term "Liquidation Preference" shall mean
$1.00 per share.
<PAGE>
PARITY STOCK. The term "Parity Stock" shall mean any other class or
series of stock of the Corporation entitled to (a) redemption (b) receive
payment of dividends or (c) receive assets upon the liquidation, dissolution
or winding up the affairs of the Corporation, on a parity with the Series A
Preferred Stock.
PERSON. The term "Person" shall mean any natural person, corporation,
limited partnership, general partnership, joint stock company, joint venture,
association, company, trust, bank trust company, land trust, business trust,
or other organization, whether or not a legal entity, and any government or
agency or political subdivision thereof.
QUALIFIED PUBLIC OFFERING. The term "Qualified Public Offering" shall
mean the first closing after the date of issuance of the Series A Preferred
Stock and following the relisting of the Common Stock on the Nasdaq National
Market or other national exchange of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public generally, for which the net proceeds to the
Corporation are not less than $10 million, and pursuant to which such Common
Stock is authorized and approved for listing on the Nasdaq National Market or
such other national exchange.
REDEMPTION PRICE. The term "Redemption Price" shall mean the per share
price to be paid upon redemption of the Series A Preferred Stock, which shall
equal the Liquidation Preference, plus accrued and unpaid dividends (including
any accrued but unpaid dividends thereon) to and including the Redemption Date.
RESTRICTED PAYMENT. The term "Restricted Payment" shall mean (i) any
dividend or other distribution on any shares of Junior Stock (other than
dividends or distributions payable solely in shares of such Junior Stock), or
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of Junior Stock or (b) any option, warrant,
convertible or exchangeable security or other right to acquire shares of Junior
Stock.
SENIOR STOCK. The term "Senior Stock" shall mean any other class or
series of stock of the Corporation ranking senior to the Series A Preferred
Stock in respect of the right to (a) redemption, (b) receive payment of
dividends or (c) receive assets upon liquidation, dissolution or winding up of
the affairs of the Corporation.
SUBSIDIARY. The term "Subsidiary" shall mean any corporation of which
shares of stock possessing at least a majority of the general voting power in
electing the board of directors are, at the time as of which any
determination is being made, owned by the Corporation, whether directly or
indirectly through one or more Subsidiaries.
2. DIVIDENDS.
(a) The holders of Series A Preferred Stock, in preference to the
holders of Common Stock, shall be entitled to receive, but only out of any
funds legally available for the declaration of dividends, cumulative,
preferential dividends at an annual rate equal to six percent, payable
annually on or before the last calendar day of December in each year
following the Commencement Date in which the Series A Preferred Stock is
outstanding. Such dividends shall commence to accrue on the shares of Series
A Preferred Stock and be cumulative from and after March 31, 2001 (the
"Commencement Date") and shall be deemed to accumulate and accrue from each
year thereafter. So long as any shares of Series A Preferred Stock remain
outstanding, no dividends or distributions (other than dividends or
distributions on Common Stock payable in Common Stock) shall be paid
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upon, or declared or set apart for, the Common Stock, nor shall any Common Stock
(other than Common Stock acquired in exchange for, or out of cash proceeds of,
the issue of other Common Stock or out of cash contributions to the capital of
the Corporation) be purchased, redeemed, retired or otherwise acquired by the
Corporation, unless and until in either case all past due, cumulative dividends
on the then outstanding shares of Series A Preferred Stock for all past dividend
periods shall have been or concurrently shall be paid.
(b) Upon any consummation of (i) a Qualified Public Offering; (ii) a
merger or consolidation involving the Corporation or (iii) a Change of Control,
the Corporation shall pay on the date of such consummation all accrued and
unpaid dividends as of such date on all outstanding Series A Preferred Stock.
3. DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Corporation, before any distribution or
payment shall be made to the holders of Common Stock or to holders of any Junior
Stock, the holders of the Series A Preferred Stock shall be entitled to be paid
the Liquidation Preference on all outstanding shares of the Series A Preferred
Stock as of the date of such liquidation or dissolution or such other winding
up, plus any accrued but unpaid dividends, if any, to such date, and no more.
If, upon any such liquidation, dissolution or other winding up of the affairs of
the Corporation, the net assets of the Corporation distributable among the
holders of all outstanding shares of the Series A Preferred Stock and of any
Parity Stock shall be insufficient to permit the payment in full to such holders
of the preferential amounts to which they are entitled, then the entire net
assets of the Corporation shall be distributed among the holders of the Series A
Preferred Stock and the holders of any Parity Stock ratably in proportion to the
full amounts to which they would otherwise be respectively entitled. Neither the
consolidation or merger of the Corporation into or with another corporation or
corporations, nor the sale of all or substantially all of the assets of the
Corporation to another corporation or corporations shall be deemed a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Paragraph 3.
4. REDEMPTION BY THE CORPORATION.
(a) The Series A Preferred Stock shall not be redeemed in whole or in
part prior to March 31, 2004. On or after March 31, 2004, the Corporation may,
at its option, redeem in cash at any time in whole but not in part the Series A
Preferred Stock at the Redemption Price per share.
(b) Notice of redemption of the Series A Preferred Stock shall be sent
by or on behalf of the Corporation, by first class mail, postage prepaid, to the
holders of record of the outstanding shares of Series A Preferred Stock at their
respective addresses as they shall appear on the records of the Corporation, not
less than thirty (30) days nor more than sixty (60) days prior to the date fixed
for redemption (the "Redemption Date") (i) notifying such holders of the
election of the Corporation to redeem such shares and of the date of redemption,
(ii) stating the date on which the shares cease to be convertible, and the
Conversion Price (as defined herein) and (iii) the place or places at which the
shares called for redemption shall, upon presentation and surrender of the
certificates evidencing such shares, be redeemed, and the Redemption Price
therefor.
(c) If notice of redemption shall have been given as herein provided
each holder of shares called for redemption shall be entitled to all
preferences, relative and other rights accorded by this resolution until and
including the Redemption Date.
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5. CONVERSION RIGHTS. The Series A Preferred Stock shall be convertible
into Common Stock as follows:
(a) CONVERSION AT HOLDER'S OPTION. The holder of any shares of the
Series A Preferred Stock shall have the right at such holder's option, at any
time after March 31, 2001 and without the payment of any additional
consideration, to convert any or all of such shares of the Series A Preferred
Stock into fully paid and nonassessable shares of Common Stock upon the terms
hereinafter set forth.
(b) NUMBER OF SHARES. In the event of a conversion pursuant to
subparagraph 5(a) above, each share of the Series A Preferred Stock so converted
shall be converted into such number of shares of Common Stock as is determined
by dividing (x) the Liquidation Price by (y) the Conversion Price in effect on
the effective date of the conversion (the "Conversion Date"). The initial
Conversion Price shall be $0.10 per share of Common Stock (the "Initial
Conversion Price"). Such initial Conversion Price shall be subject to adjustment
in order to adjust the number of shares of Common Stock into which the Series A
Preferred Stock is convertible, as hereinafter provided.
(c) CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be subject
to adjustment from time to time as follows:
(i) ADJUSTMENT AT THE OPTION OF THE HOLDER. Upon the calculation
of the Attributable Value for each of the years ending December
31, 2001, 2002, and 2003 the Conversion Price in effect immediately
prior to such calculation shall immediately be reduced to the price
determined by dividing the Conversion Price in effect immediately prior
to such calculation by the sum of (x) one and (y) the Attributable Value
divided by 975,000; PROVIDED that the Attributable Value is greater than
zero; and PROVIDED FURTHER that the Conversion Price shall at no time be
reduced to an amount less than the Initial Conversion Price, as adjusted
according to Sections 5(c)(ii), (iv) and (v), divided by four. As used
herein the term "Attributable Value" shall have the meaning as such term
is described in that certain Stock Purchase Agreement between the
Corporation and The Beall Living Trust dated as of March 31, 1999.
(ii) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of
any shares of Series A Preferred Stock surrendered for conversion after
such date shall be entitled to receive the number of shares of Common
Stock which he would have owned or been entitled to receive had such
shares of the Series A Preferred Stock been converted immediately prior
to such date. Successive adjustments in the Conversion Price shall be
made whenever any event specified above shall occur.
(iii) OTHER DISTRIBUTIONS. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of
its Common Stock (i) of shares of any class other than its Common Stock
or (ii) of evidences of indebtedness of the Corporation or any
subsidiary or (iii) of assets (including cash but excluding dividends or
distributions referred to in subparagraph 5(c)(ii) above), or (iv) of
rights or warrants, in each case the Conversion Price in effect
immediately prior thereto shall be reduced immediately thereafter to the
price determined by dividing (1) an amount equal
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to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price
per share on such record date, less (B) the fair market value (as
determined by the Board, whose determination shall be conclusive) of
said shares or evidences of indebtedness or assets or rights or warrants
to be so distributed, by (2) the sum of the number of shares of Common
Stock outstanding on such record date. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that
such distribution is not so made, the Conversion Price then in effect
shall be readjusted, effective as of the date when the Board determines
not to distribute such shares, evidences of indebtedness, assets, rights
or warrants, as the case may be, to the Conversion Price which would
then be in effect if such record date had not been fixed.
(iv) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this subparagraph 5(c) shall be made to the nearest
cent or to the nearest one hundredth (1/100th) of a share, as the case
may be. Any provision of this Paragraph 5 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made if
the amount of such adjustment would be less than $0.001; but any such
amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.001 of more.
(v) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON CERTAIN
ADJUSTMENTS. In any case in which the provisions of this subparagraph
5(c) shall require that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of any share of the
Series A Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder
any amount of cash in lieu of a fractional share of Common Stock
pursuant to subparagraph 5(db); PROVIDED that the Corporation upon
request shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of the Series A Preferred Stock. If
more than one share of the Series A Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of the Series A Preferred Stock so
surrendered. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of the Series A Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the
then Current Market Price, as defined in subparagraph 5(e) below.
(e) CURRENT MARKET PRICE. The Current Market Price at any date shall
mean, in the event the Common Stock is publicly traded, the average of the
daily closing prices per share of Common Stock for ten (10) consecutive
trading days ending three (3) trading days before such date (as adjusted for
any stock dividend, split combination or reclassification that took effect
during such 10 trading day period). The closing price for each day shall be
the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the last closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading; or if not listed or
admitted to trading on any national securities exchange, the closing sale
price for such day reported by Nasdaq, if the Common Stock is traded
over-the-counter and quoted in the National Market System, or if the Common
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Stock is so traded, but not so quoted, the average of the closing reported bid
and asked prices of the Common Stock as reported by Nasdaq or any comparable
system, or, if the Common Stock is not listed on Nasdaq or any comparable
system, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose. If the Common Stock is not
traded in such manner that the quotations referred to above are available for
the period required hereunder, Current Market Price per share of Common Stock
shall be deemed to be the fair value per share of Common Stock as determined
in good faith by the Board of Directors, irrespective of any accounting
treatment.
(f) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion Price
shall be adjusted as provided in subparagraph 5(c), the Corporation shall
forthwith file, at the principal office of the Corporation, a statement
showing in detail the facts requiring such adjustment and the Conversion
Price that shall be in effect after such adjustment, and the Corporation
shall also cause a copy of such statement to be sent by mail, first class
postage prepaid, to each holder of shares of the Series A Preferred Stock at
its address appearing on the Corporation's records. Each such statement shall
be signed by the Corporation's chief financial officer. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions of subparagraph 5(g).
(g) NOTICE TO HOLDERS. In the event the Corporation shall propose to
take any action of the type described in clause (i) (but only if the action
of the type described in clause (i) would result in an adjustment in the
Conversion Price), (ii) or (iii) of subparagraph 5(c), or described in
subparagraph 5(k), the Corporation shall give notice to each holder of shares
of the Series A Preferred Stock, in the manner set forth in subparagraph
5(g), which notice shall specify the record date, if any, with respect to any
such action and the approximate date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect on the Conversion Price and the
number, kind or class of shares or other securities or property which shall
be deliverable upon conversion of shares of the Series A Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and
in case of all other action, such notice shall be given at least fifteen (15)
days prior to the taking of such proposed action. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of
any such action.
(h) MECHANICS OF CONVERSION. The holder of any shares of the Series A
Preferred Stock may exercise the conversion right specified in subparagraph
5(a) by surrendering to the Corporation the certificate or certificates
representing the shares of the Series A Preferred Stock to be converted,
accompanied by written notice specifying the number of such shares to be
converted. If the certificate representing shares of Common Stock issuable
upon conversion of shares of the Series A Preferred Stock is to be issued in
a name other than the name on the face of the certificate representing such
shares of the Series A Preferred Stock, such certificate shall be accompanied
by such evidence of the assignment and such evidence of the signatory's
authority with respect thereto as deemed appropriate by the Corporation and
such certificate shall be endorsed directly or through stock powers to the
Corporation or in blank. Conversion shall be deemed to have been effected on
the date when delivery of notice of an election to convert pursuant to
subparagraph 5(a) and of certificates representing the shares being converted
is made (the "Conversion Date"). As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to or upon the
written order of such holder a certificate or certificates for the number of
full shares of Common Stock to which such holder is entitled upon such
conversion. The person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become a holder of
record of such Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series A Preferred Stock surrendered for conversion,
the Corporation shall issue and deliver to or upon the
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written order of the holder of the certificate so surrendered for conversion, at
the expense of the Corporation, a new certificate representing the number of
shares of the Series A Preferred Stock representing the unconverted portion of
the certificate so surrendered. The Corporation shall pay on any Conversion Date
all accrued and unpaid dividends (including any accrued but unpaid dividends
thereon) to and including such date on all shares of Series A Preferred Stock to
be so converted.
(i) TREASURY STOCK. For the purposes of this Paragraph 5, the sale or
other disposition of any Common Stock theretofore held in the Corporation's
treasury shall be deemed to be an issuance thereof.
(j) COSTS. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance of delivery of shares of
Common Stock upon conversion of any shares of the Series A Preferred Stock,
PROVIDED that the Corporation shall not be required to pay any federal or state
income taxes or other taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of the Series A Preferred Stock
in respect of which such shares are being issued.
(k) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of any
consolidation with or merger of the Corporation with or into another corporation
or other entity, or in case of any sale, lease or conveyance to another
corporation or other entity of the assets of the Corporation as an entirety or
substantially as an entirety, each share of the Series A Preferred Stock shall
after the date of such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance, as if the Series A Preferred
Stock were then optionally convertible or mandatorily convertible, as the case
may be) upon conversion of such share of the Series A Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of the Series A
Preferred Stock (including without limitation the definition of Current Market
Price) shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of the Series A Preferred Stock.
6. VOTING RIGHTS.
So long as any shares of Series A Preferred Stock remain outstanding,
the Corporation shall not, without the affirmative consent or approval of the
holders of shares representing at least 50% of the voting power of the Series A
Preferred Stock then outstanding, acting separately as one class: (i) amend,
alter or repeal (whether by merger, consolidation or otherwise) any of the
provisions of this Certificate of Designation or the Certificate of
Incorporation or the Bylaws of the Corporation, (ii) authorize or issue any
Senior Stock or Parity Stock; (iii) sell, lease or convey all, or substantially
all, of the assets of the Corporation; (iv) consummate any merger or
consolidation of the Corporation with any other entity, or (v) make any
Restricted Payment.
7. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting rights, preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Corporation's Certificate of Incorporation.
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8. HEADINGS OF SUBDIVISIONS.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
9. SEVERABILITY OF PROVISIONS.
If any right, preference or limitation of the Series A Preferred Stock
set forth in this resolution (as such resolution may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
of law or public policy, all other rights, preferences and limitations set forth
in this resolution (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
10. STATUS OF REACQUIRED SHARES.
Shares of Series A Preferred Stock which have been issued and reacquired
in any manner shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares of
Preferred Stock issuable in series undesignated as to series and may be
redesignated and reissued.
IN WITNESS WHEREOF, this Certificate has been duly executed by the
undersigned President and Secretary of the Corporation this 31 day of March
1999.
FIRST SEISMIC CORPORATION
By: /s/ Rogers Z. Beall
-------------------------------
Chairman and President
-------------------------------
ATTEST:
/s/ W WALNE III
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Walter H. Walne, III
Secretary
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<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to authority conferred upon the Board of Directors of First
Seismic Corporation, a Delaware Corporation (the "Corporation") by its
Certificate of Incorporation, such Board of Directors duly adopted a resolution
on November 17, 1999 providing for the issuance of a series of 185,000 shares of
the Corporation's Preferred Stock, $1.00 par value ($10.00 liquidation value)
per share, to be designated "Series B Preferred Stock", and fixing the voting
powers, preferences and relative, participating, optional or other rights, and
the qualifications, limitations or restrictions thereof The following is a
Certificate of Designation, Preferences, Rights and Limitations to reflect such
resolution:
There shall be established and authorized for issuance a series
of the Corporation's Preferred Stock, $1.00 par value per share,
designated "Series B Preferred Stock" (herein referred to as "Series B
Preferred Stock"), consisting of 185,000 shares, each with the par value
of $1.00 (liquidation value of $10.00) per share, and having the voting
powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations or restrictions set forth
below:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified.
CHANGE OF CONTROL. The term "Change of Control" shall mean the first to
occur of the following: (i) the acquisition by any Person of the power, directly
or indirectly, to vote or direct the voting of securities having more than fifty
percent (50%) of the ordinary voting power for the election of directors of the
Corporation or (ii) the acquisition by any Person of capital stock of the
Corporation that would entitle such Person upon the liquidation of the
Corporation to a majority of the proceeds attributable to the holders of the
Corporation's capital stock assuming all shares that are convertible or
exchangeable for Common Stock or other capital stock were so converted or
exchanged immediately prior to such liquidation.
COMMON STOCK. The term "Common Stock" shall mean the common stock of the
Corporation, par value $0.01.
EXCLUDED STOCK. The term "Excluded Stock" shall mean shares of Common
Stock issued by the Corporation as a stock dividend payable in shares of Common
Stock, or upon any subdivision or split-up of the outstanding shares of Capital
Stock in each case which is subject to Section 5(c)(i), or upon conversion of
shares of the Corporation's Preferred Stock and (ii) shares of Common Stock to
be issued to employees, directors, consultants and advisors of the Corporation.
ISSUE DATE. The term "Issue Date" shall mean the date upon which shares
of Series B Preferred Stock are issued.
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JUNIOR STOCK. The term "Junior Stock" shall mean any other class or
series of stock of the Corporation (i) not entitled to receive any dividends
unless all dividends required to have been paid or declared and set apart for
payment on the Series B Preferred Stock shall have been so paid or declared and
set apart for payment, (ii) not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series B Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up, or (iii) not
entitled to redemption until the Series B Preferred Stock shall have been
redeemed in full. Junior Stock shall include Common Stock.
LIQUIDATION PREFERENCE. The term "Liquidation Preference" shall mean
$10.00 per share.
PARITY STOCK. The term "Parity Stock" shall mean any other class or
series of stock of the Corporation entitled to (a) redemption (b) receive
payment of dividends or (c) receive assets upon the liquidation, dissolution
or winding up the affairs of the Corporation, on a parity with the Series B
Preferred Stock. Parity Stock shall include Series A Preferred Stock of the
Corporation.
PERSON. The term "Person" shall mean any natural person, corporation,
limited partnership, general partnership, joint stock company, joint venture,
association, company, trust, bank trust company, land trust, business trust, or
other organization, whether or not a legal entity, and any government or agency
or political subdivision thereof.
QUALIFIED PUBLIC OFFERING. The term "Qualified Public Offering" shall
mean the first closing after the date of issuance of the Series A Preferred
Stock and following the relisting of the Common Stock on the Nasdaq National
Market or other national exchange of an underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public generally, for which the net proceeds to the
Corporation are not less than $10 million, and pursuant to which such Common
Stock is authorized and approved for listing on the Nasdaq National Market or
such other national exchange.
REDEMPTION PRICE. The term "Redemption Price" shall mean the per
share price to be paid upon redemption of the Series B Preferred Stock, which
shall equal the Liquidation Preference, plus accrued and unpaid dividends
(including any accrued but unpaid dividends thereon) to and including the
Redemption Date.
RESTRICTED PAYMENT. The term "Restricted Payment" shall mean (i) any
dividend or other distribution on any shares of Junior Stock (other than
dividends or distributions payable solely in shares of such Junior Stock), or
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of Junior Stock or (b) any option, warrant,
convertible or exchangeable security or other right to acquire shares of Junior
Stock.
SENIOR STOCK. The term "Senior Stock" shall mean any other class or
series of stock of the Corporation ranking senior to the Series B Preferred
Stock in respect of the right to (a) redemption, (b) receive payment of
dividends or (c) receive assets upon liquidation, dissolution or winding up of
the affairs of the Corporation.
SUBSIDIARY. The term "Subsidiary" shall mean any corporation of which
shares of stock possessing at least a majority of the general voting power in
electing the board of directors are, at the time as of which
<PAGE>
any determination is being made, owned by the Corporation, whether directly
or indirectly through one or more Subsidiaries.
2. DIVIDENDS.
The holders of Series B Preferred Stock shall be entitled to receive
dividends only if, and to the extent, declared by the Board of Directors in its
sole discretion.
3. DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Corporation, before any distribution or
payment shall be made to the holders of Common Stock or to holders of any Junior
Stock, the holders of the Series B Preferred Stock shall be entitled to be paid
the Liquidation Preference on all outstanding shares of the Series B Preferred
Stock as of the date of such liquidation or dissolution or such other winding
up, plus any accrued but unpaid dividends (including any accrued but unpaid
dividends thereon), if any, to such date, and no more. If, upon any such
liquidation, dissolution or other winding up of the affairs of the Corporation,
the net assets of the Corporation distributable among the holders of all
outstanding shares of the Series B Preferred Stock and of any Parity Stock shall
be insufficient to permit the payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net assets of
the Corporation shall be distributed among the holders of the Series B Preferred
Stock and the holders of any Parity Stock ratably in proportion to the full
amounts to which they would otherwise be respectively entitled. Neither the
consolidation or merger of the Corporation into or with another corporation or
corporations, nor the sale of all or substantially all of the assets of the
Corporation to another corporation or corporations shall be deemed a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Paragraph 3.
4. REDEMPTION BY THE CORPORATION.
(a) On or after the Issue Date, the Corporation may, at its option,
redeem in cash at any time in whole or in part the Series B Preferred Stock at
the Redemption Price per share or such lesser amount as the Corporation and 100%
of the Holders of shares of Series B Preferred Stock shall agree. If the
Corporation exercises its option to redeem any or all shares of Series B
Preferred Stock prior to three (3) years from the Issue Date, the Redemption
Price shall include an amount equal to dividends of 6% per annum for each share
of Series B Preferred Stock to be redeemed, which dividends shall be deemed to
accrue and accumulate from the Issue Date to the Redemption Date.
(b) Notice of redemption of the Series B Preferred Stock shall be sent
by or on behalf of the Corporation, by first class mail, postage prepaid, to the
holders of record of the outstanding shares of Series B Preferred Stock at their
respective addresses as they shall appear on the records of the Corporation, not
less than thirty (30) days nor more than sixty (60) days prior to the date fixed
for redemption (the "Redemption Date") (i) notifying such holders of the
election of the Corporation to redeem such shares and of the date of redemption,
(ii) stating the date on which the shares cease to be convertible, and the
Conversion Price (as defined herein) and (iii) the place or places at which the
shares called for redemption shall, upon presentation and surrender of the
certificates evidencing such shares, be redeemed, and the Redemption Price
therefor.
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<PAGE>
(c) If notice of redemption shall have been given as herein provided
each holder of shares called for redemption shall be entitled to all
preferences, relative and other rights accorded by this resolution until and
including the Redemption Date.
5. CONVERSION RIGHTS. The Series B Preferred Stock shall be convertible
into Common Stock as follows:
(a) CONVERSION AT HOLDER'S OPTION. The holder of any shares of the
Series B Preferred Stock shall have the right at such holder's option, at any
time after the Issue Date and without the payment of any additional
consideration, to convert any or all of such shares of the Series B Preferred
Stock into fully paid and nonassessable shares of Common Stock upon the terms
hereinafter set forth.
(b) NUMBER OF SHARES. In the event of a conversion pursuant to
subparagraph 5(a) above, each share of the Series B Preferred Stock so converted
shall be converted into 10 fully paid and nonassessable shares of Common Stock
(the "Conversion Rate") upon satisfaction of the requirements set forth in
subparagraph 5(h). Such initial Conversion Rate shall be subject to adjustment
in order to adjust the number of shares of Common Stock into which the Series B
Preferred Stock is convertible, as hereinafter provided.
(c) CONVERSION RATE ADJUSTMENTS. The Conversion Rate shall be subject to
adjustment from time to time as follows:
(i) STOCK DIVIDENDS, SUBDIVISIONS, ISSUANCES RECLASSIFICATIONS
OR COMBINATIONS. If the Corporation shall (i) declare a dividend or make
a distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (iii) combine reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Rate in
effect at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of
any shares of Series B Preferred Stock surrendered for conversion after
such date shall be entitled to receive the number of shares of Common
Stock which he would have owned or been entitled to receive had such
shares of the Series B Preferred Stock been converted immediately prior
to such date. Successive adjustments in the Conversion Rate shall be
made whenever any event specified above shall occur.
(ii) COMMON STOCK ISSUED AT LESS THAN CONVERSION RATE. If the
Corporation issues or sells any Common Stock other than Excluded Stock
without consideration or for a consideration per share less than (x) the
Conversion Rate in effect immediately prior to such issuance or sale
divided by (y) the Liquidation Value, then the Conversion Rate in effect
immediately prior to each such issuance or sale will immediately (except
as provided below) be increased to the rate determined by multiplying
the Conversion Rate in effect immediately prior to such issuance or sale
by a fraction, (1) the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such issue or sale and (2)
the denominator of which shall be (i) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale plus (ii)
the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of such additional
shares of Common Stock so issued or sold would purchase at a price equal
to (x) the Conversion Rate in effect immediately prior to such
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<PAGE>
issuance or sale divided by (y) the Liquidation Value. For the purposes
of any adjustment of the Conversion Rate pursuant to this Section
5(c)(ii) the following provisions shall be applicable:
(A) in the case of the issuance of Common Stock for
cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash
proceeds received by the Corporation for such Common Stock
before deducting therefrom any discounts or commissions allowed,
paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof;
(B) in the case of the issuance of Common Stock
(otherwise than upon the conversion of shares of Capital Stock
or other securities of the Corporation) for a consideration in
whole or in part other than cash, including securities acquired
in exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed
to be the fair value thereof as reasonably determined by the
Board, irrespective of any accounting treatment;
(C) in the case of the issuance of (a) options, warrants
or other rights to purchase or acquire Common Stock (whether or
not at the time exercisable), (b) securities by their terms
convertible into or exchangeable for Common Stock (whether or
not at the time so convertible or exchangeable) or options,
warrants or rights to purchase such convertible or exchangeable
securities (whether or not at the time exercisable):
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of
such options, warrants or other rights to
purchase or acquire Common Stock shall be
deemed to have been issued at the time such
options, warrants or rights are issued and
for a consideration equal to the
consideration (determined in the manner
provided in Section 5(c)(ii)(A) and (B)), if
any, received by the Corporation upon the
issuance of such options, warrants or rights
plus the minimum purchase price provided in
such options, warrants or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of
or in exchange for any such convertible or
exchangeable securities, or upon the
exercise of options, warrants or other
rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been issued
at the time such securities were issued or
such options, warrants or rights were issued
and for a consideration equal to the
consideration, if any, received by the
Corporation for any such securities and
related options, warrants or rights (excluding
any cash received on account of accrued
interest or accrued dividends), plus the
additional consideration (determined in the
manner provided in Section 5(c)(ii)(A) and
(B)), if any, to be received by the
Corporation upon the conversion or exchange
of such securities, or upon the exercise of
any related options,
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<PAGE>
warrants or rights to purchase or acquire such
convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of
any such options, warrants or rights or
conversion or exchange of such convertible
or exchangeable securities or any change in
the consideration to be received by the
Corporation upon such exercise, conversion
or exchange, but excluding changes resulting
from the anti-dilution provisions thereof
(to the extent comparable to the
anti-dilution provisions contained herein),
the Conversion Rate as then in effect shall
forthwith be readjusted to such Conversion
Rate as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants or rights not
exercised prior to such change, or of such
convertible or exchangeable securities not
converted or exchanged prior to such change,
upon the basis of such change;
(4) on the expiration or cancellation of any
such options, warrants or rights (without
exercise), or the termination of the right
to convert or exchange such convertible or
exchangeable securities (without exercise),
if the Conversion Rate shall have been
adjusted upon the issuance thereof, the
Conversion Rate shall forthwith be
readjusted to such Conversion Rate as would
have been obtained had an adjustment been
made upon the issuance of such options,
warrants, rights or such convertible or
exchangeable securities on the basis of the
issuance of only the number of shares of
Common Stock actually issued upon the
exercise of such options, warrants or
rights, or upon the conversion or exchange
of such convertible or exchangeable
securities; and
(5) if the Conversion Rate shall have been
adjusted upon the issuance of any such
options, warrants, rights or convertible or
exchangeable securities, no further
adjustment of the Conversion Rate shall be
made for the actual issuance of Common Stock
upon the exercise, conversion or exchange
thereof;
PROVIDED, HOWEVER, that no decrease in the Conversion Rate shall
be made pursuant to subclauses (1) or (2) of this Section
5(c)(ii)(C).
(iii) OTHER DISTRIBUTIONS. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of
its Common Stock (i) of shares of any class other than its Common Stock
or (ii) of evidences of indebtedness of the Corporation or any
subsidiary or (iii) of assets (including cash but excluding dividends or
distributions referred to in subparagraph 5(c)(i) above), or (iv) of
rights or warrants, in each case the Conversion Rate in effect
immediately prior thereto shall be increased immediately thereafter to
the rate determined
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by dividing the Liquidation Preference by the quotient obtained by
dividing (1) an amount equal to the difference resulting from (A) the
number of shares of Common Stock outstanding on such record date
multiplied by the Liquidation Preference divided by the Conversion Rate
on such record date, less (B) the fair market value (as determined by
the Board, whose determination shall be conclusive) of said shares or
evidences of indebtedness or assets or rights or warrants to be so
distributed, by (2) the sum of the number of shares of Common Stock
outstanding on such record date. Such adjustment shall be made
successively whenever such a record date is fixed. In the event that
such distribution is not so made, the Conversion Rate then in effect
shall be readjusted, effective as of the date when the Board determines
not to distribute such shares, evidences of indebtedness, assets, rights
or warrants, as the case may be, to the Conversion Rate which would then
be in effect if such record date had not been fixed.
(iv) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this subparagraph 5(c) shall be made to the nearest
cent or to the nearest one hundredth (1/100th) of a share, as the case
may be. Any provision of this Paragraph 5 to the contrary
notwithstanding, no adjustment in the Conversion Rate shall be made if
the amount of such adjustment would be less than 1% of the then current
Conversion Rate; but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate 1%
or more.
(v) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON
CERTAIN ADJUSTMENTS. In any case in which the provisions of this
subparagraph 5(c) shall require that an adjustment shall become
effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of the Series B Preferred Stock converted
after such record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
shares of Common Stock issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of a fractional share of Common Stock pursuant to
subparagraph 5(d); PROVIDED that the Corporation upon request shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and
such cash, upon the occurrence of the event requiring such adjustment.
(d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of the Series B Preferred Stock. If
more than one share of the Series B Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of the Series B Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then Current Market Price,
as defined in subparagraph 5(e) below.
(e) CURRENT MARKET PRICE. The Current Market Price at any date shall
mean, in the event the Common Stock is publicly traded, the average of the daily
closing prices per share of Common Stock for twenty (20) consecutive trading
days ending three (3) trading days before such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 20
trading day period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported
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sale takes place on such day, the average of the last closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the closing sale price
for such day reported by Nasdaq, if the Common Stock is traded over-the-counter
and quoted in the National Market System, or if the Common Stock is so traded,
but not so quoted, the average of the closing reported bid and asked prices of
the Common Stock as reported by Nasdaq or any comparable system, or, if the
Common Stock is not listed on Nasdaq or any comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose. If the Common Stock is not traded in such manner
that the quotations referred to above are available for the period required
hereunder, Current Market Price per share of Common Stock shall be deemed to be
the fair value per share of Common Stock as determined in good faith by the
Board of Directors, irrespective of any accounting treatment.
(f) STATEMENT REGARDING ADJUSTMENTS. Whenever the Conversion Rate shall
be adjusted as provided in subparagraph 5(c), the Corporation shall forthwith
file, at the principal office of the Corporation, a statement showing in detail
the facts requiring such adjustment and the Conversion Rate that shall be in
effect after such adjustment, and the Corporation shall also cause a copy of
such statement to be sent by mail, first class postage prepaid, to each holder
of shares of the Series B Preferred Stock at its address appearing on the
Corporation's records. Each such statement shall be signed by the Corporation's
chief financial officer. Where appropriate, such copy may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of subparagraph 5(g).
(g) NOTICE TO HOLDERS. In the event the Corporation shall propose to
take any action of the type described in clause (i) (but only if the action of
the type described in clause (i) would result in an adjustment in the Conversion
Rate), (i) or (ii) of subparagraph 5(c), or described in subparagraph 5(k), the
Corporation shall give notice to each holder of shares of the Series B Preferred
Stock, in the manner set forth in subparagraph 5(g), which notice shall specify
the record date, if any, with respect to any such action and the approximate
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect on the Conversion Rate and the number, kind or class of shares or other
securities or property which shall be deliverable upon conversion of shares of
the Series B Preferred Stock. In the case of any action which would require the
fixing of a record date, such notice shall be given at least ten (10) days prior
to the date so fixed, and in case of all other action, such notice shall be
given at least fifteen (15) days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(h) MECHANICS OF CONVERSION. The holder of any shares of the Series B
Preferred Stock may exercise the conversion right specified in subparagraph 5(a)
by surrendering to the Corporation the certificate or certificates representing
the shares of the Series B Preferred Stock to be converted, accompanied by
written notice specifying the number of such shares to be converted. If the
certificate representing shares of Common Stock issuable upon conversion of
shares of the Series B Preferred Stock is to be issued in a name other than the
name on the face of the certificate representing such shares of the Series B
Preferred Stock, such certificate shall be accompanied by such evidence of the
assignment and such evidence of the signatory's authority with respect thereto
as deemed appropriate by the Corporation and such certificate shall be endorsed
directly or through stock powers to the Corporation or in blank. Conversion
shall be deemed to have been effected on the date when delivery of notice of an
election to convert pursuant to subparagraph 5(a) and of certificates
representing the shares being converted is made
-8-
<PAGE>
(the "Conversion Date"). As promptly as practicable after the Conversion Date,
the Corporation shall issue and deliver to or upon the written order of such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled upon such conversion. The person in whose
name the certificate or certificates for Common Stock are to be issued shall be
deemed to have become a holder of record of such Common Stock on the applicable
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series B Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate representing
the number of shares of the Series B Preferred Stock representing the
unconverted portion of the certificate so surrendered. The Corporation shall pay
on any Conversion Date all accrued and unpaid dividends (including any accrued
but unpaid dividends thereon) to and including such date on all shares of Series
B Preferred Stock to be so converted.
(i) TREASURY STOCK. For the purposes of this Paragraph 5, the sale or
other disposition of any Common Stock theretofore held in the Corporation's
treasury shall be deemed to be an issuance thereof.
(j) COSTS. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance of delivery of shares of
Common Stock upon conversion of any shares of the Series B Preferred Stock;
PROVIDED that the Corporation shall not be required to pay any federal or state
income taxes or other taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of the Series B Preferred Stock
in respect of which such shares are being issued.
(k) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of any
consolidation with or merger of the Corporation with or into another corporation
or other entity, or in case of any sale, lease or conveyance to another
corporation or other entity of the assets of the Corporation as an entirety or
substantially as an entirety, each share of the Series B Preferred Stock shall
after the date of such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance, as if the Series B Preferred
Stock were then optionally convertible or mandatorily convertible, as the case
may be) upon conversion of such share of the Series B Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of the Series B
Preferred Stock (including without limitation the definition of Current Market
Price) shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of the Series B Preferred Stock.
6. VOTING RIGHTS.
So long as any shares of Series B Preferred Stock remain outstanding,
the Corporation shall not, without the affirmative consent or approval of the
holders of shares representing at least 50% of the voting power of the Series B
Preferred Stock then outstanding, acting separately as one class: (i) amend,
alter or repeal any of the provisions of this Certificate of Designation, (ii)
authorize or issue any Parity or Senior Stock; or (iii) make any Restricted
Payment.
7. EXCLUSION OF OTHER RIGHTS.
-9-
<PAGE>
Except as may otherwise be required by law, the shares of Series B
Preferred Stock shall not have any voting rights, preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Corporation's Certificate of Incorporation.
8. HEADINGS OF SUBDIVISIONS.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
9. SEVERABILITY OF PROVISIONS.
If any right, preference or limitation of the Series B Preferred Stock
set forth in this resolution (as such resolution may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
of law or public policy, all other rights, preferences and limitations set forth
in this resolution (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
10. STATUS OF REACQUIRED SHARES.
Shares of Series B Preferred Stock which have been issued and reacquired
in any manner shall (upon compliance with any applicable provisions of the laws
of the State of Delaware) have the status of authorized and unissued shares of
Preferred Stock issuable in series undesignated as to series and may be
redesignated and reissued.
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<PAGE>
IN WITNESS WHEREOF, this Certificate has been duly executed by the
undersigned President and Secretary of the Corporation this [22] day of October
1999.
FIRST SEISMIC CORPORATION
By: /s/ Rogers E. Beall
------------------------------
Rogers E. Beall
------------------------------
President
ATTEST:
/s/ Walter H. Walne
- - ----------------------------------
Walter H. Walne
- - ---------------
Secretary
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<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
- - ------------------------------------------------------------------------------
Warrant No. Number of Shares:
(subject to adjustment)
Date of Issuance: May 17, 1993
FIRST SEISMIC CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after June 1, 2000)
First Seismic Corporation, a Delaware corporation (the "Company"), for
value received, hereby certifies that or his, her or its registered
assigns (the "Registered Holder"), is entitled, subject to the terms set
forth below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before June 1, 2000 at not later
than 5:00 p.m. (Houston, Texas time), shares of Common Stock, $ .01 par
value per share, of the Company, at a purchase price of $.50 per share. The
shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as EXHIBIT I duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the
<PAGE>
person or persons in whose name or names any certificates for Warrant Shares
shall be issuable upon such exercise as provided in subsection 1(d) below
shall be deemed to have become the holder or holders of record of the Warrant
Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the aggregate
on the face or faces thereof for the number of Warrant Shares equal (without
giving effect to any adjustment therein) to the number of such shares called
for on the face of this Warrant minus the number of such shares purchased by
the Registered Holder upon such exercise.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
changed to the number determined by dividing (i) an amount equal to the number
of shares issuable upon the exercise of this Warrant immediately prior to such
adjustment, multiplied by the Purchase Price in effect immediately prior to such
adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
-2-
<PAGE>
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2(a) or (b) above.
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value per share of
Common Stock, as determined by the Company's Board of Directors.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with
-3-
<PAGE>
an opinion of legal counsel, reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from the registration
requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or, (ii) a transfer made in accordance with Rule
144 under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may
not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise
-4-
<PAGE>
hereof, in addition to the Warrant Shares purchased upon such exercise, the
Liquidating Dividend which would have been paid to such Registered Holder if
he had been the owner of record of such Warrant Shares immediately prior to
the date on which a record is taken for such Liquidating Dividend or, if no
record is taken, the date as of which the record holders of Common Stock
entitled to such dividends or distribution are to be determined.
7. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon
-5-
<PAGE>
the exercise of this Warrant, such number of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions of
Section 4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change his, her or its address as shown on the warrant register by written
notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of EXHIBIT II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
-6-
<PAGE>
12. MAILING OF NOTICES, ETC. All notices and other communications
from the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
13. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
15. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the State of Texas.
FIRST SEISMIC CORPORATION
By:
--------------------------------
[Corporate Seal] Title:
ATTEST: -----------------------------
- - ------------------------------------
-7-
<PAGE>
EXHIBIT I
PURCHASE FORM
To: FIRST SEISMIC CORPORATION Dated:
----------------
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. __), hereby irrevocably elects to purchase ______ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$_____________________, representing the full purchase price for such shares at
the price per share provided for in such Warrant.
Signature:
-------------------
Address:
---------------------
---------------------
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant (No. ____) with respect to the number of shares of Common
Stock covered thereby set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- - ---------------- ------- -------------
Dated: Signature:
--------------------------- -----------------------------
Dated: Witness:
--------------------------- -------------------------------
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. Number of Shares:
(subject to adjustment)
Date of Issuance: October 15, 1999
FIRST SEISMIC CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after October 15, 2005)
First Seismic Corporation, a Delaware corporation (the "Company"),
for value received, hereby certifies that ________________, or its registered
assigns (the "Registered Holder"), is entitled, subject to the terms set
forth below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before October 15, 2005 at not
later than 5:00 p.m. (Houston, Texas time), 50,000 shares of Common Stock,
$.01 par value per share, of the Company, at a purchase price of $.30 per
share. The shares purchasable upon exercise of this Warrant, and the purchase
price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant
Shares" and the "Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as EXHIBIT I duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issued upon such exercise as provided
in subsection 1(d) below shall be deemed to have becomes the holder or holders
of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company,
at its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall
be entitled upon such exercise plus, in lieu of any
fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount
determined pursuant to Section 3 hereof; and
Page 1
<PAGE>
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor,
calling in the aggregate on the face or faces thereof
for the number of Warrant Shares equal (without
giving effect to any adjustment therein) to the
number of such shares called for on the face of this
Warrant minus the number of such shares purchased by
the Registered Holder upon such exercise.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
changed to the number determined by dividing (1) an amount equal to the number
of shares issuable upon the exercise of this Warrant immediately prior to such
adjustment, multiplied by the Purchase Price in effect immediately prior to such
adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2(a) or (b) above,.
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value per share of
Common Stock, as determined by the Company's Board of Directors.
Page 2
<PAGE>
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership. to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the: Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may
not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or `into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
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(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or. other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions of
Section 4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change his, her or its address as shown on the warrant register by written
notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all rights hereunder are transferable, in whole or. in part, upon surrender
of this Warrant with a properly executed assignment (in the form of EXHIBIT II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
12. MAILING OF NOTICES, ETC. All from the Company to the Registered
Holder of this Warrant shall be mailed by first-class certified or registered
mail, postage prepaid, to the address furnished to the Company in writing by the
last Registered Holder of this Warrant who shall have furnished an address to
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the Company in writing. All notices and other communications from the Registered
Holder of this Warrant or in connection herewith to the Company shall be mailed
by first-class certified or registered mail, postage prepaid, to the Company at
its principal office set forth below, If the Company should at any time change
the location of its principal office to a place other than as set forth below,
it shall give prompt written notice to the Registered Holder of this Warrant and
thereafter all references in this Warrant to the location of its principal
office at the particular time shall be as so specified in such notice.
13. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
15. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the State of Texas.
FIRST SEISMIC CORPORATION
----------------------------------
Rogers E. Beall , Chairman
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PURCHASE FORM EXHIBIT I
To: FIRST SEISMIC CORPORATION
Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.), hereby irrevocably elects to purchase ____ shares of the Common
Stock covered by such Warrant. The undersigned herewith makes payment of
$______________, representing the full purchase price for such shares at the
price per share provided for in such Warrant.
Signature
--------------------------
<PAGE>
ASSIGNMEMT FORM
EXHIBIT II
FOR VALUE RECEIVED,_________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant (No.
____) with respect to the number of shares of Common Stock covered thereby set
forth below, unto:
Name of Assignee Number of
Address Shares Assigned Signature:
- - ---------------- --------------- ------------------
Date:
------------------
Witness:
- - ------------------------
<PAGE>
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (the "Agreement") is entered into as of
December 31, 1998 by and among First Seismic Corporation, a Texas Corporation
("First"), and the undersigned holders (the "Noteholders" and each individually
a "Noteholder") of the 6% Secured Promissory Notes issued by First on May 12,
1993 in the aggregate principal amount of $500,000 (the "Notes").
RECITALS
1. First desires to purchase from the Noteholders the Notes in
exchange for 977,508 shares of First's common stock ("Common Stock"), par value
$0.01 per share, (the "Shares") and the Noteholders desire to sell such Notes to
First.
2. The Notes were secured by First through a Stock Pledge
Agreement, executed in May 1993, by the Noteholders and the Chairman of First,
Rogers Beall (the `Pledge Agreement"), by which the Noteholders received a
collateral interest in all of the shares of common stock of First Exchange
Corporation, a Delaware corporation and wholly-owned subsidiary of First (the
"Security Interests").
3. In addition to the Notes and the Security Interests, the
Noteholders received Warrants (the "Warrants") to purchase 500,000 shares of
First's common stock at a strike price of $.50 per share which will expire June
1, 2000.
4. The transactions contemplated by this Agreement are
conditioned upon and subject to each Noteholder conveying the Notes to First and
canceling all Security Interests held by such Noteholder, the holders of an
aggregate of 80% of the Warrants (the "80% Holders") entering into an agreement
with First to exercise all of the outstanding Warrants held by such Holders and
exchange all such Warrants for additional warrants to purchase shares of common
stock of First (the "Warrant Agreement") and the closing of such agreement
concurrently with the closing of this Agreement.
5. The Noteholders are familiar with the business, financial
condition and prospects of First and acknowledge that in connection with the
transactions contemplated by this Agreement and the Warrant Agreement they have
been afforded the opportunity to review certain financial information regarding
First and to ask questions of and receive satisfactory answers from management
of First concerning the business, financial condition and prospects of First.
In consideration of the premises and agreements contained herein, the
parties hereto hereby agree as follows:
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ARTICLE I
DEFINITIONS
In addition to the capitalized terms defined elsewhere in this
Agreement, the following capitalized terms shall have the following respective
meanings when used in this Agreement:
"BUSINESS DAY" means any day other than a Saturday, a Sunday,
or a day on which commercial banks in Houston, Texas are required or
authorized to be closed.
"FORTESA" shall mean Fortesa Corporation, a Texas corporation
whose principal place of business is 2470 Gray Falls, Suite 190,
Houston, TX 77077.
"GAAP" means generally accepted accounting principles
(including principles of consolidation) in the United States of
America, in effect from time to time, consistently applied.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, or other
direction or requirement (including but not limited to any of the
foregoing which relate to Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority.
"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and
any partnership, limited liability company or joint venture if more
than a 50% interest in the profits of capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries.
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"WARRANT AGREEMENT" means the Warrant Agreement to be executed
by First and holders of no less than 80% of the Warrants, substantially
in the form of Exhibit "A" hereto, as the same may be amended,
supplemented, or otherwise modified from time to time.
ARTICLE II
PURCHASE AND SALE OF THE NOTE; CLOSING
2.1 SALE AND PURCHASE OF NOTE AND SECURITY AGREEMENT. Upon the
terms and subject to the conditions set forth herein, each Noteholder shall sell
to First, and First shall purchase from such Noteholder, all Notes held by such
Noteholder, which Notes, including all outstanding principal and accrued
interest in connection therewith, shall be canceled in exchange for a number of
Shares equal to the outstanding balance of principal and interest of such Notes
in U.S. dollars multiplied by 2.18055 (the "Exchange Ratio"), resulting in an
aggregate of 977,508 Shares being issued pro rata to the Noteholders in exchange
for all Notes.
2.2 CLOSING. The closing (the "Closing") shall take place at the
offices of First Seismic Corporation, located at 2470 Gray Falls, Suite 190,
Houston, Texas on January 15, 1999, at 10:00 a.m., Houston time, or at such
other time, date and place as the parties may agree (the "Closing Date").
2.3 ACTIONS TO OCCUR AT CLOSING. At the Closing (i) each
Noteholder shall sell, transfer, convey and deliver to First, or its designated
closing agent, the Notes owned by such Noteholder and shall waive all rights and
claims to payment of principal and accrued interest thereunder evidenced by the
delivery of an assignment and release in form acceptable to First and its
counsel; (ii) First shall issue to each Noteholder the number of shares required
by Section 2.1, as evidenced by the delivery of a certificate representing such
number of Shares registered in the name of such Noteholder or its nominee, as
designated in writing by such Noteholder prior to the Closing; (iii) each
Noteholder shall deliver to First free of all liens all of the shares of common
stock of First Exchange Corporation held by such Noteholder as a Security
Interest; and (iv) each Noteholder shall file the necessary UCC filings to
record the removal of all Liens on the Security Interests. The closing of the
Warrant Agreement shall occur simultaneously with the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FIRST. First (on its own
behalf and on behalf of its Subsidiaries) represents and warrants to each
Noteholder that:
3.1.1 CORPORATE EXISTENCE. First is duly organized, legally
existing, and in good standing under the laws of the jurisdictions in
which it is incorporated and is duly qualified as a foreign corporation
(or other legal entity) in all jurisdictions in which the nature of its
business activities or its ownership or leasing of property makes such
qualification necessary, except where the failure to so qualify would
not have a material adverse effect on the business
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condition or results of operations of First and its Subsidiaries, taken
as a whole (a "Material Adverse Effect").
3.1.2 CORPORATE POWER AND AUTHORIZATION. First has the
requisite corporate power and authority to execute, deliver, and
perform its obligations under this Agreement and the Warrant Agreement,
and to consummate the transactions contemplated hereby and thereby. All
action on First's part, including approval of its Board of Directors,
requisite for the due execution, delivery, and performance of this
Agreement has been duly and effectively taken.
3.1.3 VALID ISSUANCE. The Shares have been duly and validly
authorized for issuance by First and, when issued in accordance with
the terms and conditions contained in this Agreement, the Shares will
be duly authorized, validly issued, fully paid and nonassessable and
will not be subject to any preemptive or similar rights.
3.1.4 BINDING OBLIGATIONS. This Agreement is and, upon the
execution, issuance, and delivery by First, will be enforceable in
accordance with its terms except that enforcement may be subject to (i)
any applicable bankruptcy, insolvency or other similar laws generally
affecting the enforcement of creditors' rights and (ii) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought.
3.1.5 NO VIOLATION. Neither the execution and delivery of
this Agreement nor the consummation of the transactions provided for
herein or contemplated hereby nor the fulfillment by First of the terms
hereof will (a) violate any provision of the Articles of Incorporation
or the bylaws of First, (b) require any consent or approval (other than
any consent or approval that has previously been obtained) under any of
the terms, conditions or provisions of any governmental permit, note,
bond, mortgage, indenture, loan, distribution agreement, license,
agreement, lease, or instrument or obligation to which First is a party
or by which First may be bound (except where the failure to obtain such
consent or approval will not have a Material Adverse Effect), or (c)
violate any law, judgment, order, writ, injunction, decree, statute,
rule, or regulation of any foreign or domestic federal, state, county,
municipal, or other governmental or regulatory authority, agency,
board, body, commission, instrumentality, court, or any political
subdivision thereof ("Governmental Authority")applicable to First
except where such violation will not have a Material Adverse Effect.
3.1.6 CONSENTS. All necessary consents, approvals,
qualifications, orders, or authorizations of, or filings with, any
Governmental Authority, and all consents under any material contracts,
agreements, or instruments by which First is bound or to which it is
subject, and required in connection with First's valid execution,
delivery, or performance of this Agreement and the offer, sale, and
delivery of the Shares and the consummation of any other transaction
contemplated on the part of First have been obtained or made.
3.1.7 MATERIAL ADVERSE CHANGES. Since December 31, 1997,
there has been no Material Adverse Effect.
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3.1.8 LITIGATION. Except as discussed in Schedule 3.1.8 or
as described in any report delivered to the Noteholders, there is no
action, suit, or proceeding, or any governmental investigation or any
arbitration, in each case pending or, to the knowledge of First,
threatened against First or any material property of First before any
court or arbitrator or any governmental or administrative body, agency
or official (i) which challenges the validity of this Agreement or the
issuance of the Shares; or (ii) which, if adversely determined, would
have a Material Adverse Effect.
3.1.9 FEES AND COMMISSIONS. Neither First nor, to the
knowledge of First, any of First's affiliates has retained a finder,
broker, agent, financial advisor, or other intermediary (collectively,
an "Intermediary") in connection with the transactions contemplated by
this Agreement. First has a regular investment banking agreement with
Nicholas Rockecharlie, for future fundraising which does not cover the
transactions contemplated by this Agreement.
3.1.10 STRUCTURE; CAPITALIZATION. As of the Closing Date and
after giving effect to the transactions contemplated in this Agreement
(i) First's authorized capital stock will consist of 11,000,000 shares,
of which 10,000,000 are designated Common Stock and 1,000,000 are
designated preferred stock, par value $1.00 ("Preferred Stock"); (ii)
8,708,593 shares of Common Stock will be issued and outstanding and
1,291,607 shares of Common Stock are or will be reserved for issuance
in connection with the Company's outstanding warrants and stock options
(500,000 of which will be reserved for issuance in connection with the
closing of the new Warrant Agreements), all of which, when issued in
accordance with the terms of such warrants and stock options, will be
validly issued, fully paid, and non-assessable; (iii) 50,000 shares of
Preferred Stock are issued and outstanding and 150,000 of Preferred
Stock are reserved for issuance in connection with the Fortesa Merger,
all of which, when issued in accordance with the Fortesa Merger
agreement will be validly issued, fully paid, and nonassessable; (iv)
except as disclosed on Schedule 3.1.10 no shares of Common Stock are
owned or held by or for the account of First or any of its
Subsidiaries; (v) except as disclosed on Schedule 3.1.10 neither First
nor any of its Subsidiaries has outstanding any stock or other
securities convertible into or exchangeable for any shares of capital
stock, any rights to subscribe for or to purchase or any options for
the purchase of or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of
any other character relating to the issuance of any capital stock, or
any stock or securities convertible into or exchangeable for any
capital stock which have not been waived (other than as contemplated by
this Agreement); and (vi) except as disclosed on Schedule 3.1.10,
neither First nor any of its Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire
any shares of capital stock.
3.2 REPRESENTATIONS AND WARRANTIES OF NOTEHOLDER. To induce First
to enter into this Agreement, each Noteholder represents and warrants to First
that:
3.2.1 PURCHASE FOR INVESTMENT.
(a) Each Noteholder is acquiring the Shares for its own
account and not with a view to the public resale or distribution of all
or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act.
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(b) Each Noteholder acknowledges that the shares of
Common Stock issuable by First under this Agreement have not been
registered under the Securities Act and may not be sold or otherwise
transferred unless (i) pursuant to an effective registration statement
under the Securities Act or (ii) pursuant to an available exemption
from registration under, or otherwise in compliance with the Securities
Act. Each Noteholder acknowledges and agrees that in the case of a
transfer or other disposition pursuant to clause (ii) above, such
Noteholder shall be required to provide to First an opinion of counsel
satisfactory to First to the effect that registration under the
Securities Act is not required.
(c) Each Noteholder is an "accredited investor" within
the meaning of Rule 501 under Regulation D promulgated under the
Securities Act, is experienced in evaluating investments in companies
such as First, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
its investment and has the ability to bear the entire economic risk of
its investment. Each Noteholder has made its own evaluation of its sale
of the Notes and First's issuance of Shares as contemplated by this
Agreement, based upon such information as is available to it and
without reliance upon First or any other person or entity, and each
Noteholder agrees that neither First nor any other person or entity has
any obligation to furnish any additional information to the Noteholders
except as expressly set forth herein.
(d) Each Noteholder acknowledges that the Shares may not
be sold, transferred, pledged, hypothecated, or otherwise disposed of
without registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration
statement covering the Shares, issuable upon conversion of the Note, or
an available exemption from registration under the Securities Act, the
Shares must be held indefinitely.
(e) Each Noteholder agrees that stock certificates issued
as part of the Consideration shall bear legends in substantially the
following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION TINDER THE SECURITIES
ACT. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH
SUCH SALE."
3.2.2 AUTHORIZATION; NO CONFLICT. The Noteholders have all
requisite power and authority to enter into this Agreement and to carry
out and perform their obligations under
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the terms of this Agreement. This Agreement is a legal, valid, and
binding obligation of the Noteholders. The execution, delivery, and
performance of this Agreement by the Noteholders and the consummation
by the Noteholders of the transactions contemplated hereby will not
conflict with or result in a default under the terms of any material
contract, agreement, obligation, commitment, or organizational document
applicable to any Noteholder.
3.2.3 OWNERSHIP OF NOTE. Each Noteholder is the sole owner
and holder of the Notes which such Noteholder will sell to First. There
is no adverse claim against each Noteholder's interest in the Notes;
nor is there any person who should claim to be a "bona fide purchaser"
of the Notes other than Noteholder.
ARTICLE 1V
REGISTRATION RIGHTS
4.1 PIGGY-BACK REGISTRATION RIGHTS. First covenants and agrees
with the Noteholder, that, in the event First proposes to file a registration
statement under the Securities Act with respect to a firm commitment offering of
Common Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or S-8 or other similar registration statements not
available to register securities included), First shall in each case give
written notice of such proposed filing to the Noteholders at least 30 days
before the earlier of the anticipated or the actual effective date of the
registration statement and at least ten days before the initial filing of such
registration statement and such notice shall offer to such holders the
opportunity to include in such registration statement such number of shares of
Common Stock issued pursuant to this Agreement (the `Piggy-back Securities") as
they may request. Those Noteholders desiring inclusion of Piggy-back Securities
in such registration statement shall so inform First by written notice, given
within ten days of the giving of such notice by First in accordance with the
provisions of this Section 4.1. First shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the holders of Piggy-back
Securities requested to be included in the registration to include such
securities in the proposed offering on the same terms and conditions as
applicable to securities of First. Notwithstanding the foregoing, if any such
managing underwriter shall advise First in writing that, in its opinion, the
distribution of all or a portion of the Piggy-back Securities requested to be
included in the registration concurrently with the securities being registered
by First would adversely affect the distribution of such securities by First for
its own account, then, provided that if any other securities are included in
such registration statement for the account of any person other than First and
the holders of Piggy-back Securities, such securities, including the Piggy-back
Securities, so included shall be apportioned among holders who wish to be
included therein pro rata according to amounts so requested to be included by
each such person. No such delay shall in any event impair any right granted
hereunder to make subsequent requests for inclusion pursuant to the terms of
this Agreement. All expenses of such registration shall be borne by First,
except that underwriting commissions and expenses attributable to the Piggy-back
Securities and fees and distributions of counsel and other advisors (if any) to
the holders requesting that the Piggy-back Securities be offered will be borne
by such holders.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 CONDITIONS TO CLOSING BY FIRST. The obligation of First to
purchase the Notes on the Closing Date is subject to the fulfillment to its
satisfaction at or prior to the Closing Date of each of the following
conditions:
5.1.1 ACCEPTANCE OF OFFER. This Agreement shall have been
signed by all of the Noteholders and First shall have received evidence
to First's satisfaction that each of the Noteholders is authorized to
enter into this Agreement and to perform the terms and conditions
thereof.
5.1.2 FORTESA MERGER. Fortesa and First shall have entered
into an agreement by which First will merge with and into Fortesa and
Fortesa will become a wholly-owned Subsidiary of First (the "Fortesa
Merger"). The Fortesa Merger shall have closed concurrently with the
Closing.
5.1.3 BOARD OF DIRECTORS APPROVALS. The Board of Directors
of First shall have approved the issuance of additional shares of
common stock of First pursuant to the exercise of the outstanding
Warrants in accordance with the terms of the Warrant Agreement and
subject to the conditions contained therein, the issuance of a new
warrant to purchase additional common stock of First at an exercise
price of $.30 per share issuable in accordance with the terms of the
Warrant Agreement and subject to the conditions contained therein and
the conversion of the outstanding 12% Senior Notes into shares of
Common Stock.
5.1.4 EXERCISE OF $0.50 WARRANTS. Holders of an aggregate
of at least 80% of the outstanding Warrants shall have entered into the
Warrant Agreement which agreement is required to close concurrently
with the Closing as a condition precedent to the Closing. Those
Noteholders party to the Warrant Agreement shall have performed and
complied with all agreements and conditions contained in the Warrant
Agreement required to be complied with by it prior to the closing of
the Warrant Agreement.
5.1.5 REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Section 3.2 shall be true and correct when
made and shall be true and correct as of the Closing Date as if made on
the Closing Date.
5.1.6 PERFORMANCE; DEFAULTS. The Noteholders shall have
performed and complied with all agreements and conditions contained in
this Agreement required to be performed or complied with by it prior to
or on the Closing Date and, after giving effect to the purchase and
sale of the Notes, no default or Event of Default shall have occurred
and be continuing.
5.1.7 LEGAL INVESTMENT. As of the Closing Date, the
purchase of the Notes and the issuance of Shares by First shall (a) be
legally permitted by all laws and regulations to which
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regulations of each jurisdiction to which each Noteholder and First are
subject, (b) not violate any applicable Governmental Requirement, and
(c) not subject to any tax, penalty, or liability under or pursuant to
any applicable Governmental Requirement.
5.1.8 PROCEEDINGS AND DOCUMENTS. As of the Closing Date,
all corporate, if applicable, and other proceedings in connection with
the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to First, and First shall have received on or
prior to the Closing Date copies of all such legal documents or
proceedings taken in connection with the consummation of such
transactions.
5.1.9 QUALIFICATIONS. As of the Closing Date, all
authorizations, approvals, or permits of or filings with any
Governmental Authority that are required by law in connection with the
lawful issuance, sale, and delivery of the Shares (as applicable) shall
have been duly obtained by each Noteholder and shall be effective on
and as of the Closing Date.
5.1.10 CONSENTS. On or prior to the Closing Date, each
Noteholder shall have received in writing consents required of third
parties for the consummation of the transactions contemplated hereby,
pursuant to any law, contract, agreement, or instrument by which such
Noteholder is bound or to which it is subject.
5.2 CONDITIONS TO CLOSING BY THE NOTEHOLDERS. The obligations of
the Noteholders to sell the Note and the Warrants to First are subject to the
fulfillment to its satisfaction on or prior to the Closing Date of each of the
following conditions:
5.2.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of First contained in Section 3.1 shall be true and
correct when made, and shall be true and correct as of the Closing Date
as if made on the Closing Date.
5.2.2 PERFORMANCE. All covenants, agreements, and
conditions contained in this Agreement to be performed or complied with
by First on or prior to the Closing Date.
ARTICLE VI
MISCELLANEOUS
6.1 TERMINATION OF NOTES. Upon completion of the transactions in
this Agreement the Notes will be canceled and will be of no further force or
effect.
6.2 TERMINATION OF SECURITY AGREEMENT. Upon completion of the
transactions in this Agreement the Security Agreement will be terminated and
will be of no further force or effect and all Liens upon the common stock of
First Exchange Corporation will be canceled and all necessary UCC filings shall
have been made to evidence the removal of such Liens.
6.3 CONSENT TO AMENDMENTS; WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived only
by the written agreement of the Noteholders and First. Any waiver, permit,
consent, or approval of any kind or character on the part
9
<PAGE>
of such holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing.
6.4 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of First for a period of
one year. Notwithstanding anything herein to the contrary, in the event the
Closing Date has not occurred on or before January 15, 1999 First may terminate
its obligations under this Agreement by written notice to the Noteholders.
6.5 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and the
permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of the Noteholders shall not be assigned without the prior written
consent of First.
6.6 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement unless the consummation of the transaction contemplated hereby
is materially and adversely affected thereby.
6.7 EXPENSES. First and the Noteholders hereby agree that each
party hereunder shall bear its own costs and expenses in connection with this
Agreement or any of the transactions contemplated hereby.
6.8 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
6.9 GOVERNING LAW. Each Noteholder hereby consents and agrees that
this Agreement shall be deemed a contract and instrument made under the laws of
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas without regard to principles of
conflicts of law.
10
<PAGE>
6.10 DISPUTES; EXCLUSIVE METHOD; JURISDICTION.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE NOTE OR THE
OTHER OPERATIVE DOCUMENTS, INCLUDING ANY CLAIM OR CONTROVERSY OF ANY KIND BASED
ON OR ARISING IN TORT, SHALL BE DETERMINED EXCLUSIVELY BY BINDING ARBITRATION IN
ACCORDANCE WITH THE U.S. FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE,
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES AND THE RULES SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, `THE RULES SET FORTH IN SECTION 6.10(b) BELOW SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THE NOTE OR THE OTHER OPERATIVE DOCUMENTS MAY BRING
AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH EITHER THE NOTE OR ANY OPERATIVE DOCUMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) THE ARBITRATION SHALL BE CONDUCTED IN HOUSTON, TEXAS AND
ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION. ALL ARBITRATION HEARINGS
WILL BE COMMENCE WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION. THE ARBITRATOR
SHALL, ONLY UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR AN ADDITIONAL 60 DAYS. THE ARBITRATOR SHALL NOT HAVE AUTHORITY
TO AWARD PUNITIVE, CONSEQUENTIAL, OR INCIDENTAL DAMAGES.
(c) THE PROVISIONS OF THIS SECTION 6.10 SHALL SURVIVE ANY
TERMINATION, AMENDMENT, OR EXPIRATION OF THE DOCUMENTS EVIDENCING THE
TRANSACTIONS. EACH PARTY AGREES TO KEEP ALL DISPUTES AND ARBITRATION
PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR DISCLOSURES OF INFORMATION
REQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PARTIES OR BY APPLICABLE
LAW OR REGULATION.
(d) Each of the parties hereto submits itself and its property to
the personal jurisdiction of the United States District Court for the Southern
District of Texas and the courts of the State of Texas sitting in and for Harris
County in any such action or proceeding.
6.11 FINAL AGREEMENT. THIS AGREEMENT, AND THE OTHER OPERATIVE
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE NOTEHOLDERS AND FIRST
CONCERNING THE MATTERS REFERRED TO HEREIN AND THEREIN, AND SUPERSEDE ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE NOTEHOLDERS AND FIRST RELATING
TO THE SUBJECT MATTER HEREOF AND THEREOF. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN OR AMONG THE PARTIES. Any conflict or ambiguity between
the terms and provisions of this Agreement and
11
<PAGE>
the terms and provisions of any
other Operative Document shall be controlled by the terms and provisions hereof.
6.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
6.13 FURTHER COOPERATION. At any time and from time to time, and at
its own expense, the Noteholders and/or First shall promptly execute and deliver
all such documents and instruments, and do all such acts and things, as any
party may reasonably request in order to further effect the purposes of this
Agreement.
6.14 NOTICES. Unless specifically provided otherwise, any notice
for purpose of this Agreement or any other document pursuant to this Agreement
shall be given in writing or by telex or by facsimile (fax) transmission and
shall be addressed or delivered to the respective addresses set forth at the end
of this Agreement, or to such other address as may have been previously
designated in writing by the intended recipient by notice given in accordance
with this paragraph. If sent by prepaid, registered or certified mail (return
receipt requested), the notice shall be deemed effective when the receipt is
signed or when the attempted initial delivery is refused or cannot be made
because of a change of address of which the sending party has not been notified;
and if transmitted by facsimile or personal delivery the notice shall be
effective when received. All notices, requests, and other communications to any
party hereunder shall be in writing (including bank wire, telecopy, or similar
teletransmission or writing) and shall be given to such party at its address or
telecopy number set forth on the signature pages hereof or such other address or
telecopy number as such party may hereafter specify by notice to the other
parties.
6.15 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of First in exercising any right or remedy under this Agreement and no
course of dealing between the Noteholders and First shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy under
this Agreement preclude any other or further exercise thereof or the exercise of
any other right or remedy under this Agreement. The rights and remedies
expressly provided are cumulative and not exclusive and any rights or remedies
that First would otherwise have. No notice to or demand on the Noteholders not
otherwise required by this Agreement in any case shall entitle the Noteholders
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of First to any other or further action in any
circumstances without notice or demand.
6.16 EXHIBITS; SCHEDULES. The exhibits and schedules attached to
this Agreement are incorporated herein and shall be considered to be a part of
this Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits or schedules and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first set forth above.
FIRST SEISMIC CORPORATION
By:
------------------------------------
Name: Rogers E. Beall
Title: Chairman
Address for Notice:
2470 Gray Falls, Suite 190
Houston, TX 77077
Attention: Holly Lee
Telecopy: (281) 597-8887
[CORPORATE SEAL)
ATTEST:
- - ----------------------------------
NOTEHOLDER
By:
------------------------------------
Name: ((Name))
Title: ((title))
Outstanding original balance plus
accrued interest: ((yellow))
Number of shares to be received upon
conversion: ((orange))
Address for Notice:
((Address))
((Address2))
((City)), ((State)) ((Zip))
Attention:
-----------------------------
Telecopy:
-------------------------------
with a copy to:
-------------------------
ATTEST:
-----------------------------
13
<PAGE>
EXHIBIT A
TO
NOTE PURCHASE AGREEMENT
FORM OF
WARRANT AGREEMENT
14
<PAGE>
SCHEDULE 3.1.8
PENDING LITIGATION
AND MATTERS FOR WHICH FORMAL WRITTEN
DEMANDS HAVE BEEN MADE
Filed 1997
Case No. 97CV981 BU(W); EAST TEXAS DATA, LLC AND CAPMAC EIGHTY-TWO
LIMITED PARTNERSHIP V. SEITEL DATA, INC. AND FIRST SEISMIC CORPORATION, In the
United States District Court, Northern District of Oklahoma.
This case involves suit by minority partners of the previous owners of
First Seismic's East Texas data library for 7 1/2% of proceeds of use of that
seismic data acquired by First Seismic in 1989 from the majority partners,
Freeport-McMoran and SantaFe Energy. This data was re-sold by First Seismic to
Seitel in 1994, with revenue interests therefrom pledged to the 12% Senior
Noteholders of First Seismic. First Seismic was indemnified by Freeport-McMoran
and SantaFe Energy when data was initially acquired by First Seismic against the
plaintiffs. First Seismic has subsequently indemnified Seitel, but Seitel has
still held up payment of approximately $70,000 which corresponds to two (2)
years of First Seismic's revenue interest proceeds, pending the outcome of the
suit.
Schedule 3.1.8-1
<PAGE>
SCHEDULE 3.1.10
CAPITAL STOCK OWNERSHIP
First Seismic currently holds 43,855 shares of Common Stock as Treasury stock.
<PAGE>
LOAN MODIFICATION AGREEMENT
The parties to this loan modification agreement ("AGREEMENT") dated and
effective as of October 1, 1997 (the "MODIFICATION DATE") are FIRST SEISMIC
C0RP0RATI0N, a Delaware corporation (the "COMPANY"), and C. H. Fitzpatrick, an
individual (the "SENIOR NOTE HOLDER"). For good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. BACKGROUND. The Senior Note Holder owns a 12% Senior Note due
December 31, 1996 made by the Company payable to the order of the Senior Note
Holder in the original principal face amount of $100,000.00, which promissory
note is, as it may have been renewed, extended, amended, or supplemented by one
or more documents, if any, dated before the Modification Date, herein called the
"NOTE"; and the Note as modified by this Agreement is herein called the
"MODIFIED NOTE." The Note was purchased by the Senior Note Holder pursuant to
the terms of a Note Purchase Agreement dated as of July 12, 1991 (the "NOTE
PURCHASE AGREEMENT"). The security for payment of the Note includes (without
limitation): a pro rata share in certain assets of the Company pledged pursuant
to that certain Security Agreement dated as of October 1, 1997, executed by the
Company as grantor (herein sometimes called "GRANTOR") in favor of Robert W.
Scharar, as agent for the Senior Secured Note Holders (defined below), which
Security Agreement is, as it may have been renewed, extended, amended, or
supplemented by one or more documents, if any, dated before the Modification
Date, herein called the "COLLATERAL DOCUMENT", reference being here made to the
Collateral Document and the recording thereof for all purposes. The Collateral
Document pledges certain personal property and revenue streams from general
intangible property of the Company (the "PROPERTY") therein described as
security for each holder of a 12% Senior Note due December 31, 1996, issued by
the Company (collectively, the "SENIOR SECURED NOTE HOLDERS") on a pro rata
basis.
In September 1992, the Company entered into an arrangement that modified the
Note in a manner mutually acceptable to the Company and the Senior Note Holder
and the notes of the other Senior Secured Note Holders (the "1992
MODIFICATION"). Pursuant to the 1992 Modification, the Company issued a total of
42,992 shares of common stock to the Senior Secured Note Holders on a pro rata
basis. Additionally, the Company executed the Collateral Document for purposes
of pledging the Property for the benefit of the Senior Secured Note Holders.
The Company has not paid any interest accruing on the Note since September 30,
1993. Interest accrued at a per annum rate of 12% from the date the Note was
issued and such accrued interest has been paid by the Company through September
30, 1993.
The Note, the Note Purchase Agreement, the Collateral Document, this Agreement,
and any other document now or hereafter securing, guaranteeing or executed in
connection with the loan evidenced by the Note, as such documents may have been
or may be herein or hereafter renewed, extended,
<PAGE>
amended or supplemented, are herein together called the "LOAN DOCUMENTS". The
Senior Note Holder is entitled to the benefits of the Loan Documents.
2. MODIFICATION: PRINCIPAL BALANCE OF THE NOTE. The Company and the
Senior Note Holder agree to extend the stated final maturity date of the Note
and to make certain other changes, as specified below in this Agreement. The
unpaid outstanding principal balance of the Note as of the Modification Date is
$58,078.54.
The Modified Note remains the obligation of the Company as borrower thereunder.
All provisions of the Note and the other Loan Documents remain in full force and
effect as therein written, except as expressly modified by this Agreement. To
the extent of any conflict between the Note (or any earlier modification of it)
and this Agreement, this Agreement shall control.
3. WAIVER AND SUSPENSION OF INTEREST. On and after the Modification
Date the unpaid principal balance of the Modified Note from day to day
outstanding shall bear no interest. The Senior Note Holder hereby waives any and
all demand and claim for any interest accrued and unpaid with respect to the
Note prior to the Modification Date. As of the Modification Date, the Company
shall no longer be liable for any interest on either the Note or the Modified
Note.
4. PAYMENT SCHEDULE AND MATURITY DATE. The maturity date of the
Modified Note is hereby extended to September 30, 1999. The Company promises to
satisfy its obligations under the Modified Note on or before September 30, 1999
through one of the following four options, which option shall be exercised in
the sole discretion of the Company:
A. The Company may issue common stock in exchange for the then
outstanding principal balance of the Modified Note valued at the average
ask price of such common stock in an amount equal to such principal
balance. The average ask price shall be established by taking the
average of the public market trading price (if any) for such stock for a
period of five (5) business days prior to the proposed exchange; or
B. The Company may issue common stock in exchange for the then
outstanding principal balance of the Modified Note valued at a stock
price per share that is derived from a significant private placement of
equity of the Company in an amount equal to such principal balance. The
exchange hereunder shall be accomplished within forty-five (45) days of
such significant private placement; or
C. The Company may issue common stock in exchange for the then
outstanding principal balance of the Modified Note valued at two times
the actual net book value of the Company's equity per share, as such
equity per share is determined
LOAN MODIFICATION AGREEMENT
PAGE 2
<PAGE>
in the most recent quarterly financial statements of the Company
immediately prior to such exchange; or
D. The Company may (i) pay the then outstanding principal
balance of the Modified Note in cash in an amount equal to the full
outstanding principal balance thereof or (ii) satisfy the Modified Note
by a payment in cash in an amount equal to a portion of the then
outstanding principal balance thereof together with the issuance of the
Company's common stock (valued as set forth in either of A, B, or C
above as determined by the Company) in an amount equal to the remaining
portion of such principal balance after the application of the cash
payment described in this Section D.
5. CERTAIN REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Senior Note Holder that (a) it has full power and
authority to execute and deliver this Agreement and to incur and to perform the
obligations provided for herein; (b) the execution, delivery and performance of
this Agreement by the Company do not contravene, breach, or constitute a default
under any charter, bylaw, stock provision, partnership agreement or other
document pertaining to the organization, power or authority the Company, or any
law, order, decree, rule or regulation, to which the Company or the Property is
subject; (c) the execution, delivery and performance of this Agreement have been
duly authorized by all proper and necessary action of the directors of the
Company and the Company is validly existing and in good standing under the laws
of the jurisdiction in which it is organized, and is in compliance with all
conditions prerequisite to its lawfully doing business in Texas, and is in good
standing, under Texas law; (e) this Agreement and the other Loan Documents to
which the Company is a party constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms.
Grantor hereby represents and warrants to the Senior Note Holder that Grantor is
the sole owner of the Property.
The Senior Note Holder hereby represents and warrants to the Company that it is
the sole owner of the Modified Note and that there is no adverse claim against
the Modified Note nor is there any person who could claim to be a bona fide
purchaser of the Modified Note, other than the Senior Note Holder.
6. LIENS. By this Agreement, all liens, security interests,
assignments, superior titles, rights, remedies, powers, equities and priorities
securing the Note (collectively, the "LIENS"), under the Collateral Document,
are hereby ratified and confirmed as valid, subsisting and continuing to secure
the Modified Note. Nothing in this Agreement shall in any manner diminish,
impair or extinguish any of the Liens or the Loan Documents or the principal
balance of the debt evidenced by the Note or be construed as a novation in any
respect. The Liens are not waived.
LOAN MODIFICATION AGREEMENT
PAGE 3
<PAGE>
7. EXPENSES. The Company and the Senior Note Holder hereby agree
that each party hereunder shall bear its own costs and expenses in connection
with this Agreement or any of the transactions contemplated hereby.
8. USE OF ASSETS. The Company's personal property that does not
constitute Property under the Collateral Document shall remain available to the
Company, free from Liens. The Senior Note Holder represents and warrants to the
Company that it neither holds nor claims an interest in such personal property.
The Company may use, packages, sell or dispose of such property in any manner
the Company shall choose, in its sole discretion, to generate cash flow to
satisfy the working capital needs of the Company. The Senior Note Holder
acknowledges that the Company shall continue to use its database resources
(other than the resources specifically pledged for the benefit of the Senior
Secured Note Holders as described in Section 11(b) and the Collateral Document)
and revenues and proceeded generated thereby in connection with licensing,
brokering and the generation of and participation in prospects for hydrocarbon
exploration in the domestic United States of America, including without
limitation, offshore exploration.
9. DEFAULT UNDER LOAN DOCUMENTS. It shall be a default under each
of the Loan Documents, subject to the applicable grace period (if any) under the
Loan Documents, entitling the Senior Note Holder to exercise any and all rights
and remedies provided therein or at law or in equity, including but not limited
to the right to declare the entire unpaid balance of principal of its Modified
Note to be immediately due and payable (and upon such declaration the same shall
be immediately due and payable), if the Company fails to make any payment, or
to perform any covenant or agreement, in this Agreement.
10. FURTHER ASSURANCES. The Company and the Senior Note Holder agree
to execute and deliver to the applicable party, promptly upon request, such
other and further documents as may be reasonably necessary or appropriate to
consummate the transactions contemplated herein.
11. ADDITIONAL PROVISIONS.
(a) QUALIFICATION OF COMPANY STOCK. The Company hereby agrees to use its
commercial best efforts to qualify the Company's common stock for trading on an
exchange that is subject to the jurisdiction of the Securities and Exchange
Commission of the United States of America.
(b) CONTINUED ESCROW ARRANGEMENT. The Company shall cause that cash
revenues received from Seitel Incorporated and CGG America Services, Inc. will
continue to be deposited in the escrow account number 230-96621 (the "Escrow
Account") established by the Company with Merrill Lynch & Co, Inc. Amounts on
deposit in the Escrow Account at the end of each calendar quarter, the first
such calendar quarter to end on December 31, 1997, the Senior Note Holder's pro
rata portion of such amounts shall be distributed to the Senior Note Holder at
the address set forth on the signature page of the Senior Note Holder. The
Senior Note Holder's pro rata portion thereof
LOAN MODIFICATION AGREEMENT
PAGE 4
<PAGE>
shall be determined by the then outstanding principal balance of the Modified
Note as a percentage of the total aggregate outstanding principal balance of all
the Senior Notes held by the Senior Secured Note Holders. As of the Modification
Date, the account balance in the escrow account equals $50,439, which amount
shall be included in the first distribution to all Senior Secured Note Holders,
on a pro rata basis, to be made after the Modification Date.
(c) APPOINTMENT OF AGENT. The Senior Note Holder, by his, her or its
execution of this Agreement, hereby ratifies the appointment of Mr. Robert
Scharar, or any successor, as his, her or its agent under the Note Purchase
Agreement, and for purposes of this Agreement hereby appoints Mr. Robert
Scharar, or any successor, as agent hereunder. The Senior Note Holder hereby
authorizes Mr. Robert Scharar, or any successor, on his, her or its behalf to
execute such documents, certificates or other instruments, and to perform such
obligations and other services, as are required to evidence and complete the
transaction contemplated by the Agreement and the Loan Documents. The Senior
Note Holder further ratifies all actions taken by Mr. Robert Scharar in his
capacity as agent for the Senior Secured Note Holders prior to the Modification
Date.
(d) INDEMNIFICATION OF AGENT. THE SENIOR NOTE HOLDER AND EACH HOLDER OF
THE MODIFIED NOTE SUBSEQUENT TO THE MODIFICATION DATE WILL REIMBURSE AND
INDEMNIFY ROBERT SCHARAR OR SUCCESSOR, AS AGENT, IN PROPORTION TO ITS PRO
RATA PORTION OF ALL THE OUTSTANDING SECURED NOTES HELD BY SENIOR SECURED NOTE
HOLDERS, FOR AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING REASONABLE
COUNSEL FEES AND DISBURSEMENTS) OR DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ROBERT
SCHARAR OR SUCCESSOR, AS AGENT, IN PERFORMING HIS DUTIES UNDER THE NOTE
PURCHASE AGREEMENT AND HEREUNDER, IN ANY WAY RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR THE NOTE PURCHASE AGREEMENT AND BY REASON OF THE ORDINARY
NEGLIGENCE OF ROBERT SCHARAR OR SUCCESSOR, AS AGENT; PROVIDED THAT THE SENIOR
NOTE HOLDER AND EACH SUBSEQUENT HOLDER OF THE MODIFIED NOTE SHALL NOT BE LIABLE
TO ROBERT SCHARAR OR SUCCESSOR, AS AGENT, FOR ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING FROM HIS GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(e) NOTICES. Unless specifically provided otherwise, any notice for
purposes of this Agreement or any other Loan Document shall be given in writing
or by telex or by facsimile (fax) transmission and shall be addressed or
delivered to the respective addresses set forth at the end of this Agreement, or
to such other address as may have been previously designated by the intended
recipient by notice given in accordance with this paragraph. If sent by prepaid,
registered or certified mail (return receipt requested), the notice shall be
deemed effective when the receipt is signed or when the attempted initial
delivery is refused or cannot be made because of a change of address of which
the sending party has not been notified; and if transmitted by facsimile or
personal delivery,
LOAN MODIFICATION AGREEMENT
PAGE 5
<PAGE>
the notice shall be effective when received. This paragraph shall be construed
any waiver of notice or demand provided in any Loan Document or to require
giving of notice or demand to or upon any person in any situation or for any
reason.
12. MISCELLANEOUS. This Agreement binds and benefits the parties
hereto and their respective heirs, beneficiaries, administrators, executors,
receivers, trustees, successors and assigns As used herein, the masculine gender
includes each other gender and the singular number includes the plural, and vice
versa, unless the context otherwise requires, and the term "PERSON" and words
importing persons shall include firms, associations, partnerships (including
limited partnerships), joint ventures, trusts, corporations and other legal
entities, including public or governmental bodies, agencies or
instrumentalities, as well as natural persons. Headings and titles used in this
Agreement are only for convenience and shall be disregarded in construing it.
The words "HEREIN", "HEREOF", "HEREUNDER" and similar terms used herein refer to
this Agreement and not to any particular section or other subdivision. The date
or dates of the acknowledgments indicate the date(s) of execution of this
Agreement but execution is as of the Modification Date, and for purposes of
identification and reference the date of this Agreement is the Modification
Date. This Agreement may be executed in several identical counterparts all of
which shall constitute one and the same instrument. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, AS MODIFIED HEREBY, SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE UNITED STATES
FEDERAL LAW. A determination that any provision of any Loan Document is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision and the determination that the application of any provision of
any Loan Document to any person or circumstance is illegal or unenforceable
shall not affect the enforceability or validity of such provision as it may
apply to other persons or circumstances. This Agreement may not be amended,
modified or supplemented without the written consent of both the Company and the
Senior Note Holder. All amendments, modifications or supplements to this
Agreement or any other Loan Document shall be in writing.
13. CONTROLLING AGREEMENT. The parties intend to comply with
applicable usury laws. All existing and future agreements regarding the debt
evidenced by the Modified Note are hereby limited and controlled by the
provisions of this paragraph. In no event (including but not limited to
prepayment, default, demand for payment, or acceleration) shall the interest
taken, reserved, contracted for, charged or received under the Modified Note or
otherwise exceed the highest lawful rate.
14. NOTICE OF FINAL AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties with respect to modifications of
documents provided for herein and supersedes all prior conflicting or
inconsistent agreements, consents and understandings relating to such subject
matter.
LOAN MODIFICATION AGREEMENT
PAGE 6
<PAGE>
THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
LOAN MODIFICATION AGREEMENT
PAGE 7
<PAGE>
FARMOUT AGREEMENT
THIES BLOCK, REPUBLIC OF SENEGAL
- - --------------------------------------------------------------------------------
THIS AGREEMENT is made and entered into effective December 17, 1997, by
and among each of Societe des Petroles du Senegal ("Petrosen"), the national oil
and gas company of the Republic of Senegal ("Senegal"), Benton Oil and Gas
Company ("Benton"), a Delaware USA corporation (or its designated affiliate),
and Fortesa Corporation ("Fortesa"), a Texas USA corporation (or its designated
affiliate).
Petrosen is a party to a Convention (the "Convention") issued by the
Government of Senegal, dated effective February 26, 1993, granted by the Decree
No. 93-155 of February 26, 1993, regarding the exploration, development and
production of oil and/or gas from the Thies Block (the "Block"), which covers
certain lands onshore in Senegal as described therein.
In consideration of the mutual benefits to be derived by each of them,
the parties to this Agreement (collectively, the "Parties," and individually, a
"Party") agree to the following terms and provisions regarding their acquisition
of their respective interests in the Block:
1. ONSHORE WORK PROGRAM. Benton and Fortesa (collectively, the "Benton
Group") shall conduct, over the twenty-four (24) month period commencing on
February 26, 1998, the following operations (collectively, the "Onshore Work
Program") on the Thies Block:
i. The drilling, testing and (if warranted) completion of two
additional wells on the Thies Block at locations selected by the
Benton Group. The Benton Group shall have the right to produce and
market the production from all existing and future productive wells
on the Thies Block;
ii. The construction of a 4 1/2" or larger diameter pipeline from
the Gadiaga No. 2 well, and other wells subsequently located near it
to the vicinity of the Diam Niadio field;
iii. The evaluation and, if necessary, reprocessing of existing
geophysical data covering the Block and the acquisition, if necessary
of additional new geophysical data for the development of new
drilling prospects on the Block.
In case of the non-completion of the Onshore Work Program within the
twenty-four month period contemplated above, Petrosen agrees to join with the
Benton Group in seeking a one year extension to the exploration period which
begins on or about February 26, 1998, under the Convention.
The Onshore Work Program shall include a budget of not less than
$5,400,000 to be expended by the Benton Group, after the expenditure of which
the Benton Group may elect to terminate their participation in the exploration
and development of the Block. With satisfactory initial results, the Benton
Group may spend an additional $5,400,000 on the Block.
2. OWNERSHIP SHARES. The ownership of the Block, the obligation to bear
expenses (except as otherwise provided below in this Section), and the
allocation of revenues from the sale of production from the Block shall be in
the following shares:
Petrosen 30%
Benton 45%
Fortesa 15%
Third party 10%
<PAGE>
The interest of Petrosen will be free of the obligation to bear any
expense (I.E. will be "carried") until the Benton Group has expended an
aggregate of $10,800,000 in the exploration and development of the Thies Block.
After the Benton Group has expended the sum of $10,800,000, Petrosen shall join
in bearing its share of all costs and expenses of conducting further operations
on the Block. All owners of the Block shall bear their respective shares of the
applicable royalty and other fiscal obligations imposed by the Convention and
shall pay their respective shares of all income taxes attributable to the
production and sale of hydrocarbons.
Except for the carried interest of Petrosen, all owners of the Block
shall bear their respective shares of all costs and expenses of conducting
operations on the Block.
In the event that any owner of the Block fails to bear its share of the
expenses of the Onshore Work Program, its ownership interest shall be allocated
to the Benton Group, unless otherwise agreed among the Parties.
Except for the fiscal obligations imposed by the Convention, including
the royalty payable to Senegal, there are no other burdens measured by or
payable out of production.
3. JOINT OPERATING AGREEMENT. The owners of the Block shall enter into a
mutually acceptable form of joint operating agreement, based upon the statutory
model form of joint operating agreement included in the petroleum legislation of
Senegal, governing operations on the Thies Block. The Parties shall negotiate
and conclude such agreement prior to the commencement of operations on the
Onshore Work Program. Benton shall be the initial operator designated under the
joint operating agreement.
4. GAS DISPOSITION PROJECTS. The Benton Group shall have the right, but
not the obligation, to participate as to the same shares set forth in
Section 2, above, in any project facilities concerning the disposition or
utilization of any natural gas produced from the Thies Block. In the event
that any other party elects not to participate in any such project, the
Parties shall have the right to acquire their pro rata shares of any such
unclaimed interest. In addition, any equity funding of any such project
facilities provided by the Benton Group shall be credited against the
$10,800,000 carry provided for above.
5. MISCELLANEOUS.
a. Currency. References in this Agreement to money shall be deemed to
mean US dollars.
b. Notices. Any notice required to be given pursuant to this Agreement
shall be in writing and shall be delivered in person, or by private
courier service, or by telecopier to each of the Parties at the address,
or at the telecopier number, set forth below. The agent for receipt of
any notice shall be the individual whose name is set forth below.
To Petrosen:
Societe des Petroles du Senegal
19, rue Parchappe Immueble Faycal
BP 2076 Dakar
Republic of Senegal, West Africa
Telephone: 221/82 20 444 or 221/82 20 595
Telecopier: 221/ 82 28 340 or 221/ 83 21 899
Attention: Mr. Ousmane Ndiaye, Director General
-2-
<PAGE>
To Benton:
Benton Oil and Gas Company
1145 Eugenia Place, Suite 200
Carpinteria, California USA 93013
Telephone: 805/566-5600
Telecopier: 805/566-5610
Attention: Sven Hagen, Senior Vice President
To Fortesa:
Fortesa Corporation
2470 Gray Falls, Suite 120
Houston, Texas USA 77077
Telephone: 281/556-5656
Telecopier: 281/556-6543
Attention: Rogers E. Beall, President
c. GOVERNING LAW. This Agreement and all issues of interpretation or
performance shall be governed by and construed under the Petroleum Code
86-13 of April 14, 1986 of Senegal.
d. SUCCESSORS AND ASSIGNS. This Agreement shall be deemed binding upon
the Parties and their respective successors and assigns, subject to the
statutory limitations on assignments of interests in the Block.
e. DISPUTE RESOLUTION. In the event of any dispute between or among
the Parties, the arbitration provisions of the joint operating agreement
shall govern and control.
f. FORCE MAJEURE. In the event that the Benton Group is unable to carry
out its duties and obligations as set forth in this Agreement as the
result of any condition of force majeure, as such term is used in
international oil and as transactions, the Benton Group shall be excused
from such performance for as long as such condition continues, and the
time lost as the result of such condition shall not be charged against
the Benton Group in any manner.
g. AMENDMENTS. No amendment or modification of this Agreement shall be
deemed effective unless and until executed in writing by all of the
Parties.
h. PRIOR AGREEMENTS SUPERSEDED. This Agreement replaces and supersedes
all agreements or understandings dated prior to the date hereof
pertaining to the Thies Block between Fortesa and Petrosen or among all
of the Parties.
Societe des Petroles du SENEGAL
By: /s/ Ousmane Ndiaye 12/17/97
---------------------------------- --------
Ousmane Ndiaye, Director General Date
-3-
<PAGE>
BENTON OIL AND GAS COMPANY
By: /s/ Alex E. Benton Date: 12/17/97
----------------------------- ----------
Alex E. Benton
Chief Executive Officer
FORTESA CORPORATION
By: /s/ Rogers Beall Date: 12/17/97
----------------------------- ----------
Rogers Beall
President
FOR APPROBATION BY:
The Minister of Energy, Mines and Industry
/s/ Magued Diouf Date: 24 DEC. 1997
- - ------------------------------- -------------
Magued Diouf
[SEAL]
<PAGE>
[LOGO] BORROWER
FIRST EXCHANGE CORPORATION
COMMERCIAL
REVOLVING OR DRAW
NOTE-VARIABLE RATE
ADDRESS
2470 GRAY FALLS, SUITE 120
HOUSTON, TX 77077
TELEPHONE NO. IDENTIFICATION NO.
281-556-5656 76-0364099
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C>
TS/bw VARIABLE $100,000.00 10/29/98 10/29/99
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROMISE TO PAY
FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE HUNDRED THOUSAND AND NO/100 Dollars
($100,000.00) or, if less, the aggregate unpaid principal amount of all
advances made by the Lender to the Borrower, plus interest on the unpaid
principal balance at the rate and in the manner described below. All amounts
received by Lender shall be applied first to expenses, then to accrued unpaid
interest, and then to outstanding principal or in any other manner as
determined by Lender, in Lender's sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note
may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days and the actual number of
days per year (and in any event, 365 or 366 days per year during periods when
the Maximum Lawful Rate which is defined on the reverse is in effect) and the
actual number of days elapsed. So long as there is no default under this
Note, interest on this Note shall be calculated at the variable rate of ONE
AND 500/1000 percent (1.500%) per annum over the Index Rate, provided that
such rate shall not exceed the Maximum Lawful Rate. The initial Index Rate is
currently EIGHT AND NO/1000 percent (8.000%) per annum. Therefore, the
initial interest rate on this Note shall be NINE AND 500/1000 percent
(9.500%) per annum. Any change in the interest rate resulting from a change
in the Index Rate will be effective on: the actual date of change.
INDEX RATE: The Index Rate for this Note shall be:
The prime rate as published in The Wall Street Journal's "Money Rates" table.
If multiple prime rates are quoted in the table, then the highest prime rate
will be the Index Rate.
If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a%) per annum. The Maximum interest rate on this Note shall not
exceed EIGHTEEN AND NO/1000 percent (18.000%) per annum, or the Maximum
Lawful Rate, whichever is less.
DEFAULT RATE: In the event of a default under this Note, the Lender may, in
its sole discretion, determine that all amounts owing to Lender shall bear
interest as follows:
18.00
or the Maximum Lawful Rate, whichever is less.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
INTEREST ONLY PAYMENTS BEGINNING NOVEMBER 29, 1998 AND CONTINUING AT MONTHLY
TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON OCTOBER 29, 1999.
All payments will be made to Lender at its address in the county described above
and in lawful currency of the United States of America.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, any partial
prepayment will not affect the due date or the amount of any subsequent
installment, unless agreed to, in writing, by Borrower and Lender. If this
Note is prepaid in full, there will be: /X/ No prepayment penalty.
/ / A prepayment penalty of:
LATE CHARGE: If an installment is received more than n/a days late, Borrower
will be charged a late charge of n/a% of the Installment. Borrower will pay this
late charge only once on any installment.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrowers rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax
penalties if so assigned), that are now or in the future in Lenders custody
or control. Upon default, and to the extent permitted by applicable law,
Lender may exercise its security interest in all such property which shall be
in addition to and cumulative of Lender's right of common law setoff. /X/ if
checked, the obligations under this Note are also secured by a lien and/or
security interest in the property described in the documents executed in
connection with this Note as well as any other property designated as
security for this Note now or in the future.
DISHONORED CHECK CHARGE: Borrower will pay a processing fee of $15.00 if
any check provided to Lender as payment on this loan is dishonored and
returned.
REVOLVING OR DRAW FEATURE: This Note possesses a revolving or draw feature as
indicated below.
/X/ This Note possesses a revolving feature. Borrower shall be entitled to
borrow up to the full principal amount of the Note from time to time during
the term of this Note.
/ / This Note possesses a draw feature. Borrower shall be entitled to make
one or more draws under this Note. The aggregate amount of such draws shall
not exceed the full principal amount of this Note.
Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the outstanding principal
amount owing and unpaid on this Note. The Lender's failure to record the date
and amount of any advance on such ledger shall not limit or otherwise affect
the obligations of the Borrower under this Note to repay the outstanding
principal amount of the advances together with all accrued, unpaid interest
thereon. Lender shall not be obligated to provide Borrower with a copy of the
ledger on a periodic basis, however, Borrower shall be entitled to inspect or
obtain a copy of the ledger during Lender's business hours.
CONDITIONS FOR ADVANCES: Borrower shall be entitled to borrow monies under this
Note (subject to the limitations described above) under the following
conditions:
RENEWAL: If checked /X/ this Note is given in renewal of, but not in novation
or discharge of loan number 248712801016725.
- - -------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: HARRIS
NOTE DATE: OCTOBER 29, 1998
BORROWER: FIRST EXCHANGE CORPORATION BORROWER:
- - ------------------------------------ ---------------------------------------
ROGERS E. BEALL
CHAIRMAN
BORROWER: BORROWER:
- - ------------------------------------ ---------------------------------------
BORROWER: BORROWER:
- - ------------------------------------ ---------------------------------------
BORROWER: BORROWER:
- - ------------------------------------ ---------------------------------------
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated effective as of January 1, 1999, between Fortesa
Corporation, a Texas corporation (the "Employer"), and Hayne S. Blakely (the
"Employee");
WITNESSETH:
1. EMPLOYMENT TERM. The Employer hereby employs the Employee,
subject to earlier termination as provided in Section 7 hereof, for the
period commencing on January 1, 1999 and ending on December 31, 2001 (the
"term of this Agreement"). This agreement will automatically renew for a term
of one year upon the anniversary date unless cancelled by either party in
writing no less than sixty days in advance of the anniversary date. The
Employee agrees to accept such employment and to perform the services
specified herein, all upon the terms and conditions hereinafter stated.
2. DUTIES. The Employee shall serve the Employer in an executive
capacity as President and shall report to, and be subject to the general
direction and control of, the CEO directly and the Board of Directors
indirectly of the Employer. The Employee shall perform the executive,
management and administrative duties as are required to administer
effectively the needs of the Employer. If the Employee in the future is
elected an officer with a different designation or director of the Employer
during the term of this Agreement, the Employee, after receipt of formal
notice of such designation and acceptance of said designation, will serve in
such capacity or capacities without additional compensation. The Employee
also agrees to perform such other services for the Employer and for any
subsidiary or affiliated corporations of the Employer or for any oil and gas
Partnerships or joint ventures in which the Employer has an interest, as the
CEO of the Employer and the Board of Directors of the Employer shall from
time to time specify. The term "Employer" as used hereinafter shall be
deemed to include and refer to Fortesa Corporation and all such subsidiaries,
parent corporation and affiliated corporations.
3. EXTENT OF SERVICE. The Employee on a full time basis shall
devote to the business of the Employer his best efforts, attention and energy
as shall be required to perform the duties of President and the other duties
assigned by the CEO and or the Board of Directors. The Employee has other
activities which he serves a Director or Officer on a pro bono basis but is
not in direct competition or conflict with the business activities of the
Employer. It is understood that the Employee shall continue to maintain those
positions provided those activities do not require a level of attention and
energy by the Employee such that a substantial and/or material conflict is
created with the business of the Employer. If its is determined by the CEO
that such activities do require a level of attention and energy by the
Employee that conflicts or competes with the business of the Employer, the
CEO and/or Board of Directors shall notify the Employee in writing setting
forth the conflict and setting a reasonable timeframe in which an acceptable
resolution of such conflicting activity must be reached. If the Employee and
Employer fail to reach an acceptable solution within the allowed timeframe
the Employee may be determined as terminated with cause as defined in Item 7(c)
herein.
<PAGE>
[CUTOFF COPY]
$168,000 per year, to be payable in installments in accordance with the
payroll policies of the Employer in effect from time to time during the term
of this Agreement and subject to the following conditions. The composition of
the base compensation shall consist of a minimum base salary component and an
additional amount. The additional amount excludes reimbursements from Benton
for Employee's services prior to June 1st, 1999, and is subject to the
successful efforts of creating revenues from billing or charging back the
Employee's activities to 3rd parties and/or the successful financing of the
Employer. Employee shall be entitled to an additional amount of Base Salary
component in the amount of $10,000 for his assistance upon the successful
execution of the gas Sales contract for the THIES Block in Senegal, under the
terms and provisions provided herein. Upon receipt of payment or credit
against account as payment of these activities (other components to the Base
Salary) from 3rd parties, the Employee shall receive payment for these at the
next regular pay period in accordance with payroll policies of the Employer.
Employer shall pay to Employee a minimum base salary of $7,500 per month and
the additional amount shall be equal to 40% of the gross amount billed to any
project for the Employee's activities or involvement in a project with the
maximum base compensation amount to be payable to the Employee during any one
month not exceeding $14,000. The Employee's base compensation and base salary
shall be further reviewed by the Employer on an annual basis and may be
adjusted as the Employee and the Employer may agree. Upon the execution of
this agreement the Employer shall issue to the Employee 100,000 shares of
stock in First Seismic Corporation, of which 50,000 shares shall vest monthly
over the next two years of this agreement. Should the Employee cease to be
employed for the reasons contemplated in Item 7 (c) or 7 (d) said stock shall
be determined as not being vested. Should the Employer have insufficient
cashflow or cash availability to be unable to filly compensate the Employee
for any of the cash consideration due within the time frame and manner
mentioned herein, the Employer shall grant to the Employee a secured note in
favor of the Employee to be disclosed and recorded on the financial
statements of the Employer.
5. BENEFITS, VACATION, ETC. The Employee shall be entitled to
the same benefits, vacation periods and sick leave as are in effect from time
to time with respect to other employees of the Employer, provided that, in no
event, shall the Employee's annual leave will be less than twenty (20) days
annually, verses the normal fifteen (15) days due other new employees.
Employee shall be entitled to participate in Employer's major medical benefit
plan at the cost and expense of the Employer. Employee shall be entitled to
life insurance in an amount equivalent to other executive employees of the
Employer. Employer shall pay Employee's dues for required professional
associations and costs and travel expenses and registration fees for
attending professional seminars necessary to maintain the Employee's
professional license provided said costs are included in the annual budget.
Employer shall pay for in-building parking, if required. Employee shall be
entitled to all other benefits and to participate in and be covered by all
such other employee benefit plans, including pension and deferred
compensation programs, if any, as are provided to other executive employees
of Employer from time to time.
6. BONUSES.
(a) PROFITS BONUS. With respect to each project, joint
venture, partnership or acquisition which involves Employer's oil and gas
leasehold interests (including wells included in
<PAGE>
pooled or unitized units), it is agreed that at such time as the proceeds
from the sale of oil and gas attributable to Employer's net leasehold working
interest in such well is equal to Employer's cost of acquisition, acreage,
prospect fees and the cost of drilling, completing, equipping and operating
such property, Employee shall receive an annual cash bonus equal to 40% of
the adjusted EBITDA (adjusted for depletion, inter-company and non-cash
charges), from a project or property until the base compensation equals the
amount contemplated in Item 4 above.
(b) DISCRETIONARY BONUS. From time to time, but not less than
once each year, preferably the first part of December, during the term of
this Agreement, the Employer will consider and may pay to the Employee such
other bonuses upon such terms and conditions as the Board of Directors of
Employer shall deem to be in its best business interest. The Employer shall
not be obligated to pay to the Employee any such bonus and the amount of any
such bonus shall be determined in the sole discretion of the CEO and/or the
Board of Directors of the Employer.
(c) DIRECT PARTICIPATION. the Employee may request his direct
participation in projects to the Employer to an extent, and the Employer
shall consider such requests, but have no obligation to allow direct
participation in Company projects by Employee, on which Employee is working
or directing for the interests of the Employer. As of the execution of this
agreement, the Employer is not completely restructured and funded to perform
all of the obligations anticipated by the transition of Employer from a
seismic brokerage company to an independent oil company. The Employer seeks
to rely on Employee's leadership to develop and promote the acquisition of the
Company's asset base in this regard. The Employer will adopt a qualified 401K
plan for the benefit of all employees, including Employee, as soon as
practical after the funding of the Company to more adequately pursue the
endeavors anticipated herein
7. TERMINATION.
(a) DEATH. If the Employee dies during the term of this
Agreement and while in the employ of Employer, this Agreement shall
automatically terminate and the Employer shall have no further obligation to
the Employee or his estate or heirs except for salary, earned vacation and
other benefits owed to the Employee. Subject to the Employee's insurability
on reasonable financial terms, the Employer shall pay for and obtain term
life insurance on the life of Employee in such amount and upon such terms as
is mutually agreeable to the Employer and Employee. Employee and Employer
equally shall have the right to name the beneficiaries of such life insurance
policy, as it is anticipated that this policy will be a key man policy having
death benefits to be shared equally by the Employee's heirs and the Employer.
This provision regarding the death of Employee controls in the event of
Employee's death and in the event that any other provisions or agreements
conflict with this provision.
(b) DISABILITY. If during the term of this Agreement, the
Employee shall be prevented from performing his duties hereunder by reason of
disability, then the Employer, on ninety (90) days' prior notice to the
Employee, may terminate this Agreement. For purposes of this Agreement, the
Employee shall be deemed to have become disabled when the Board of Directors,
upon medical advice, shall have determined that the Employee has become
physically or mentally incapable (excluding infrequent and temporary absences
due to ordinary illness) of performing his duties under this Agreement. In
making any determination of disability pursuant to this paragraph (b), the
Board of Directors shall act upon the mutual advice of two qualified
physicians, one of whom
<PAGE>
shall be designated by the Employee and one of whom shall be designated by
the Employer. If such physicians are unable to agree as to the physical or
mental capacity of the Employee, such physicians shall designate a third
physician who, as an expert and not as an arbitrator, shall advise the Board
of Directors in such regard and whose determination in that matter shall be
conclusive and binding on the parties hereto. In the event of a termination
pursuant to this paragraph (b), the Employer shall be relieved of all its
obligations under this Agreement, except that the Employer shall pay to the
Employee or his estate in the event of his subsequent death, the Employee's
salary and benefits through the end of the 90-day period following the month
during which such disability was conclusively determined, plus accrued
vacation pay, if any. All such payments to the Employee or his estate shall
be made in the same manner and at the same times as the Employee's salary
would have been paid to the Employee had he not become disabled.
(c) CERTAIN DISCHARGES. Prior to the end of the term of this
Agreement, the Employer may discharge the Employee for cause and terminate
this Agreement without any further liability hereunder to the Employee or his
estate, except the obligation of the Employer to pay the Employee's minimum
base salary including prorate of the 4O% bonus amount due to the date of
discharge. For purposes of this Agreement, a "discharge for cause" shall mean
a discharge resulting from a determination by the CEO and Board of Directors
that the Employee (i) has been convicted of a crime involving moral
turpitude, (ii) has regularly and willfully failed or refused to follow
written policies or directives established by the Board, (iii) has willfully
and persistently failed to attend to his duties, (iv) has committed acts
amounting to gross negligence or willful misconduct to the detriment of the
Employer or its affiliates. If the Employee shall be discharged by the
Employer for any reason other than those enumerated in this paragraph (c),
such discharge shall be deemed a "discharge without cause." In the event of a
discharge without cause or death (a), the Employer shall continue to pay the
Employee's base salary for the term of the contract and agrees to make all
payments for Employee for health insurance for Employee as were being paid by
or for the Employee upon the same terms as of the day preceding his
termination, said payments to be made under COBRA for the maximum period of
time allowed by COBRA. Further, any termination except for those enumerated
in this paragraph (c), any vesting stipulations for any compensation
contemplated herein or by subsequent agreement shall be determined as fully
vested as of the date of discharge. In the event of the Employer's insolvency
or inability at that time of being able to pay the termination costs accruing
to Employee of such event as herein specified, the Employers shall have the
option of settling any amounts still due to the Employee in common Stock at
the same per share price value as the Employers settlement of the 12% Senior
Noteholders April 1999 stock issuance.
(d) TERMINATION BY THE EMPLOYEE. Prior to the end of the term
of this Agreement, the Employee, at his option, may terminate this Agreement
upon (i) a substantial breach by the Employer of its obligations under this
Agreement or (ii) sixty (60) days prior written notice. In the event of
termination pursuant to this paragraph (d), the Employer shall be relieved of
all of its obligations under this Agreement, except that the Employer shall
pay to the Employee the Employee's salary until the date of termination, plus
accrued vacation pay, if any.
(e) CLOSE OF BUSINESS. Other than for insolvency as provided
above, should the business activities of Employer change and the Employee is
notified of discharge due to the close of business, merger, acquisition,
restructuring or other means prior to the end of this contract, Employee
<PAGE>
XXXXXXXXXXXXXX compensation and bonuses earned for the remaining term of the
contract, all vesting conditions pertaining to any issuance or vesting
requirement of any shares of stock or stock options shall be considered as
being fully vested. Further, the Employee shall be provided medical and life
insurance coverage for a maximum period of one year from such termination or
discharge by Employer. The Employer has the right to assign this agreement to
a successor Entity, in the event of the above business conditions, for
continuation of the employment of Employee under the same duties by such
successor entity.
8. CONFIDENTIAL INFORMATION. The Employee acknowledges that in
the course of his employment by the Employer he will receive certain trade
secrets, lists of customers and other confidential information and knowledge
concerning the business of the Employer which the Employer desires to
protect. The Employee understands that such information and knowledge is
confidential and he agrees not to reveal such information and knowledge to
anyone outside the Employer so long as the confidential or secret nature
thereof shall continue. The Employee further agrees during the term of this
agreement or immediately thereafter that he will at no time use any of such
information or knowledge in competing with the Employer on an opportunity,
acreage, or an arrangement that the Employer had under consideration or
agreement during the term of Employment of Employee. Upon termination of this
Agreement, the Employee shall surrender to the Employer all papers,
documents, writings and other property produced by his or coming into his
possession by or through his employment or relating to any such information
or knowledge and the Employee agrees that all such materials will at all
times remain the property of the Employer.
9. INDEMNIFICATION. Employee shall be indemnified and held
harmless by Employer from all claims, suits or causes of action brought or
asserted against Employee arising from his position as an officer, director,
employee or representative of Employer or from acts which he performs in good
faith on behalf of Employer, including, but not limited, payment of legal
expenses arising from the defense of such claims, suits or causes of action.
10. NOTICES. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be deemed
to have been delivered on the date personally delivered or on the date
mailed, postage prepaid, by certified mail, return receipt requested, or
telegraphed and confirmed if addressed to the respective parties as follows:
If to the Employee: Hayne S. Blakely
3763 Georgetown
Houston, Texas 77005
If to the Employer: Fortesa Corporation
Attn: Rogers E. Beall, CEO
2470 Gray Falls,Suite l9O
Houston, Texas 77077
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
<PAGE>
11. XXXXXXX PERFORMANCE. The Employee acknowledges that a remedy
at law for any breach or attempted breach of Section 8 of this Agreement will
be inadequate, agrees that the Employer shall be entitled to specific
performance and injunctive and other equitable relief in case of any such
breach or attempted breach, and further agrees to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any
such injunctive or any other equitable relief.
12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such provision or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
13. ASSIGNMENT. This Agreement may not be assigned by the
Employee. Neither the Employee, his spouse nor estate shall have any right to
commute, encumber or dispose of any right to receive payments hereunder, it
being that such payments and the right thereto are nonassignable and
nontransferable.
14. BINDING EFFECT. Subject to the provisions of Section 13 of
this Agreement, this Agreement shall be binding upon and inure to the benefit
of the parties hereto, the Employee's heirs and personal representatives, and
the successors and assigns of the Employer.
15. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with and governed by the law of the State of Texas.
16. PRIOR EMPLOYMENT AGREEMENTS. The Employee represents and
warrants to the Employer that he has fulfilled all of the terms and
conditions of all prior employment agreements and at the time of execution of
this Agreement is not a party to any other employment agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in multiple originals in Houston, Texas as of the date and year first above
written.
FORTESA CORPORATION
By: /s/ Rogers E. Beall
----------------------------------
Name: Rogers E. Beall
--------------------------------
Title: CEO
-------------------------------
HAYNE S. BLAKELY
By: /s/ Hayne S. Blakely
----------------------------------
<PAGE>
EXHIBIT 10.4
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT is made and entered into the 1st day of
June, 1990 by and between FIRST SEISMIC Corporation (COMPANY) and ROGERS E.
BEALL of Houston, Texas (BEALL).
WITNESSETH
WHEREAS, COMPANY and BEALL desire to reduce to writing their
agreements and understandings relating to the employment of BEALL by COMPANY:
NOW THEREFORE, IN CONSIDERATION OF THE PREMISES, and the sum of Ten
Dollars ($10.00) to BEALL in hand paid by COMPANY, and other valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties do contract and agree as follows:
1. EMPLOYMENT
The COMPANY agrees to employ BEALL as President and Chief Executive
Officer of the COMPANY at the discretion of the Board of Directors of the
COMPANY, and BEALL agrees to continue such employment and to perform the
duties and discharge the responsibilities hereinafter set out upon the terms
and conditions hereafter set forth.
2. DUTIES
As Chief Executive Officer of the COMPANY BEALL shall have the
responsibility of developing and implementing the business plan of the
COMPANY, developing and implementing special projects with the approval of
the Board of Directors and establishing and maintaining working relationships
with the investment and financial community.
As President of the COMPANY BEALL shall have the responsibility of
directing and supervising all of the activities of the COMPANY both new and
recurring, in its normal course of business. All officers of the COMPANY
shall report directly to BEALL. BEALL shall report directly to the Board of
Directors and BEALL agrees to perform such additional duties relating to his
primary duties as may be assigned to him by the Board of Directors, including
services for entities affiliated with the COMPANY, without additional
compensation.
3. EXTENT OF SERVICES
BEALL shall devote such time, attention and energy to the business
of the COMPANY and entities
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affiliated with the COMPANY as may be required by the Board of Directors of
the COMPANY and shall not, during the term of this Agreement, be engaged in
any other business activity if pursued for gain, profit or other pecuniary
advantage. The foregoing shall not be construed as preventing BEALL from
making investments in non-competing businesses or enterprises provided such
investments do not require any personal services from BEALL in the operation
or management of such businesses or enterprises.
4. COMPENSATION
As compensation for all services to be rendered by BEALL for the
COMPANY or any of its affiliates, COMPANY agrees to pay BEALL a yearly base
salary equal to one hundred twenty five thousand dollars ($125,000.00)
payable in equal semi-monthly installments. BEALL shall also be entitled to
receive, at the discretion and direction of the Compensation Committee of the
Board of Directors, a bonus to be awarded not less than annually.
Due to changes in the COMPANY's accounting procedures BEALL hereby
agrees that his ten percent (10%) net profits interest, as set forth in his
prior Employment Contract with the COMPANY, terminated as of January 1, 1990.
BEALL shall be entitled to participate in the COMPANY's Employee
Stock Option Plan with such participation and exercise of options granted
under the plan to be in compliance with the COMPANY's policies and state and
federal laws where applicable.
5. COMPANY BENEFITS
In addition to the above and foregoing compensation, COMPANY shall
make available to BEALL and BEALL shall have the right to participate in:
A. A group hospitalization, dental, disability and life insurance
plan to the extent same is available to all other full-time
employees.
B. Participation in COMPANY retirement and other benefit plans to
the extent same are available to all other full-time
employees.
C. Such other benefits as are made available to all other
full-time employees. BEALL shall be entitled to annual leave
based upon the number of years of service with the COMPANY.
6. EXPENSES
COMPANY agrees to reimburse BEALL for all expenses reasonably and
necessarily incurred by him
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in connection with the business of the COMPANY or any of its subsidiaries or
affiliates for meals, lodging, travel and entertainment.
7. DISCLOSURE OF INFORMATION
BEALL acknowledges that as President and Chief Executive Officer of
the COMPANY he will have access to confidential and proprietary information
of the COMPANY, of corporations affiliated with the COMPANY and of clients of
COMPANY and that such information constitutes valuable trade secrets of the
COMPANY and such other corporations. BEALL agrees that he will not, during
the term of this Agreement or thereafter, disclose any of such confidential
or proprietary information or trade secrets of the COMPANY, any of its
affiliates, or COMPANY's clients to any other person, firm, corporation,
association or other entity for any reason or for any purpose whatsoever. In
the event of a breach or threatened breach of the provisions of this
paragraph, the COMPANY shall without prejudice to any other remedy to which
it may be entitled, be entitled to an injunction restraining any such breach.
8. RESTRICTIVE COVENANTS
BEALL agrees that during the term of his employment with COMPANY he
will not be engaged as principal, agent, representative, consultant,
employee, trustee, or through the agency of any corporation, partnership,
association or agent or agency, in any business that is in competition with
the business conducted by COMPANY. BEALL further agrees that during the term
of his employment by the COMPANY, and for a period of one year (1)
thereafter, he will not own, directly or indirectly, any interest in, nor
will he serve as an officer, director, employee, or consultant to any
business in competition with the business of the COMPANY. Upon receipt by the
COMPANY of a 30-day advance written notice to terminate this Agreement on
amiable terms, the one year (1) restrictive covenant will not apply and then
BEALL may engage in competitive endeavors. BEALL agrees and acknowledges that
the remedy at law for any breach of the foregoing is and will be inadequate
and that COMPANY shall be entitled to injunctive relief to enforce the
foregoing covenants.
9. TERM AND TERMINATION
This Agreement shall be effective for the term of three (3) years,
beginning on the 1st day of July, 1990 and terminating on the date which is
thirty six (36) months thereafter, (i) unless BEALL shall sooner die,
whereupon this Agreement shall terminate, or (ii) unless this Agreement shall
be sooner
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terminated by either party, or (iii) unless the COMPANY shall terminate this
Agreement as provided for hereinafter.
COMPANY may at any time after the commencement of the term of this
Agreement, by giving to BEALL 24 hours prior written notice, terminate this
Agreement if the Board of Directors of COMPANY, in the exercise of good faith
judgment, shall determine that BEALL has been negligent, dishonest, or
derelict in the performance of his duties hereunder.
The failure of COMPANY to exercise its right to terminate this
Agreement with respect to any one or more of the matters provided for or
referred to in the preceding paragraph shall not be taken or held to be a
waiver by COMPANY of its right to terminate this Agreement in respect of any
subsequent breach.
This Agreement shall be automatically renewed and extended for
successive one (1) year periods upon the same terms and conditions herein set
forth unless notice of termination shall have been given by either party as
permitted hereunder.
10. NOTICE
Any notice which either party hereto may be required or shall desire
to give hereunder shall be deemed to be duly given when delivered personally
or when mailed by certified or registered mail, postage prepaid, to the party
to whom such notice is being given at the address indicated below, or any
such other address or addresses of which such party shall have been given
written notice:
COMPANY FIRST SEISMIC Corporation
c/o Rogers E. Beall
600 17th Street, Suite 400
Denver, Colorado 80202
BEALL Rogers. E. Beall
c/o FIRST SEISMIC Corporation
10375 Richmond Ave., Suite 1100
Houston, Texas 77042
11. MISCELLANEOUS
The descriptive headings of the several sections of this Agreement
are inserted for the convenience of the parties only and do not constitute a
part of this Agreement.
This Agreement is made and entered into in Denver, Colorado, and all
rights and obligations of the parties hereunder shall be construed and
interpreted under and pursuant to the laws of the State of Colo-
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rado.
This Agreement supersedes all prior or contemporaneous agreements or
understandings between the parties hereto, whether written or oral.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal representatives, successors
and assigns; provided, however, that this Agreement shall be deemed to be
personal to BEALL and shall not be assignable by BEALL.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
FIRST SEISMIC Corporation
BY: /s/ [ILLEGIBLE]
-----------------------------------------
TITLE: TREASURER
--------------------------------------
BY: /s/ Rogers E. Beall
-----------------------------------------
ROGERS E. BEALL
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EXHIBIT 10.5
DIRECTORS' STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Directors' Stock Option Plan (the "Plan") is to
assist First Seismic Corporation in attracting, motivating and retaining
qualified non-employee directors by providing means whereby such persons will
be given an opportunity to acquire a proprietary interest in the Company's
future growth by purchasing shares of Common Stock.
2. DEFINITIONS.
When used in this Plan, unless the context otherwise requires:
(a) "Board of Directors" shall mean the Board of Directors of the
First Seismic Corporation as constituted at any time.
(b) "Committee" shall mean the Committee as hereinafter described in
Section 3 hereof.
(c) "Company" shall mean First Seismic Corporation.
(d) "Directors' Options" shall mean options to purchase shares
(subject to adjustment pursuant to Section 12 hereof) of Company Common Stock
which may be granted by the Company to each person serving as a director of
the Company who is not also an employee of the Company or any of its
Subsidiary corporations.
(e) "Fair Market Value". For the purpose of this Plan, the Fair
Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers through NASDAQ (its automated system for
reporting quotes) or, if applicable, the National Quotation Bureau's "pink
sheets," for the date in question, or, if the Common Stock is listed on the
NASDAQ National Market System or is listed on a national stock exchange, the
officially-quoted closing price on NASDAQ or such exchange, as the case may
be, on the date in question. In the event the Common Stock is not traded
publicly or such price information is not readily available, the Fair Market
Value of a share of Common Stock on any date shall be determined, in good
faith, by the Board or the Committee after such consultation with outside
experts as the Board or the Committee may deem advisable, and the Board or
the Committee shall maintain a written record of its method of determining
such value.
(f) "Options" shall mean the Directors' Options issued pursuant to
the Plan.
(g) "Plan" shall mean the Directors' Stock Option Plan of the
Company authorized and adopted by the Board of Directors at its meeting held
on June __, 1990 and as amended from time to time.
<PAGE>
(h) "Share" shall mean a share of Common Stock, par value $.01, of
the Company.
(i) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock.
3. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or by a
Committee which shall consist of such members of the Board of Directors of
the Company or such other persons as may be appointed by the Board of
Directors. The Board and, if any, the Committee, shall have full power and
authority to construe, interpret and administer the Plan and to make
determinations which shall be final, conclusive and binding upon all persons,
including but not limited to the Company, the stockholders and any person
having an interest in any Options. If a member of the Committee, for any
reason, shall cease to serve, the vacancy may be filled by the Board of
Directors. Any member of the Committee may be removed at any time, with or
without cause, by the Board of Directors.
4. ELIGIBILITY.
Options may be granted only to non-employee directors of the
Company; employees of the Company or any of its Subsidiary corporations are
not eligible to receive Options under the Plan.
5. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of Section 12 (relating to adjustments
upon changes in shares), the Shares which may be sold pursuant to Directors'
Options granted under the Plan shall not exceed in the aggregate 150,000
shares of the Company's authorized Common Stock, par value $.01. If any
Option under the Plan shall for any reason terminate or expire without having
been exercised in full, the Shares not purchased under such Option shall
again be available under the Plan.
6. ANNUAL OPTION GRANTS.
The number of Shares to be optioned to each non-employee director
shall be fixed at 2,500 Option Shares for each such director upon becoming a
director, and thereafter, 5,000 Option Shares for each full fiscal year
following December 31, 1990 of the Company served. An additional 5,000 Option
Shares shall be optioned to each member the Executive Committee of the board
upon becoming a member of the Executive Committee, and annually thereafter,
for each full fiscal year following December 31, 1990 served. Except for the
limitations upon the duration, vesting, exercise price and method of exercise
of Directors' Options as hereinafter set forth, the form of Option, including
the terms and provisions thereof, shall be as determined from time to time by
the Board of Directors or the Committee and each Option issued may
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<PAGE>
contain terms and provisions different from other Options granted to the same
or other Option recipients. An Option Agreement, signed by an officer of the
Company, shall be issued to each person to whom an Option is granted.
7. PRICE.
The purchase price per Share for the Shares to be purchased pursuant
to the exercise of any Option shall be fixed by the Board of Directors or the
Committee at the time of grant of the Option, but shall always equal 100% of
the Fair Market Value of the Shares on the date such Option is granted.
8. DURATION OF OPTIONS.
All Directors' Options issued under the Plan shall have a duration
of five (5) years from the date of grant, regardless of any termination of
the Plan prior to the exercise of such Options.
9. NON-TRANSFERABILITY OF OPTIONS.
Options shall not be transferable by the holder thereof otherwise
than by will or the laws of descent and distribution to the extent provided
herein, and Options may be exercised or surrendered during the holder's
lifetime only by the holder thereof.
10. EXERCISE OF OPTIONS.
(a) Except in the event of death, in which case they may be
exercised in full immediately, and except as provided in Section 12 below,
Directors' Options may be exercised only as follows: Options to purchase 50%
of the Shares may be exercised at any time from the date of grant; and
Options to purchase all of the shares subject to the Option may be exercised
after 12 months from the date of grant; PROVIDED, HOWEVER, that, in the event
the Company has any class of securities registered pursuant to the Securities
Exchange Act of 1934, as amended, Options may be exercised only during the
period beginning on the third business day following the date on which the
Company issues a news release containing the operating results of a fiscal
quarter or fiscal year and ending on the twelfth business day following such
date.
(b) An Option shall be exercised by the delivery of a duly signed
notice in writing to such effect, together with the full purchase price.
Payment of the purchase price shall be made in cash or outstanding Common
Stock of the Company already owned by the optionee (valued at fair market
value). Option Agreements under the Plan may contain a provision to the
effect that all Federal and state taxes required to be withheld or collected
from an Optionee upon exercise of an Option may be satisfied by the
withholding of a sufficient number of exercised Option shares which, valued
at fair market value on the date of exercise, would be equal to the total
withholding obligation of Optionee.
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<PAGE>
(c) The Company will, as soon as practicable after the exercise of
an Option, deliver to the person entitled thereto a certificate or
certificates for the Shares purchased pursuant to the exercise of the Option.
11. TERMINATION.
If a holder of a Director's Option shall resign or be removed as a
director, the Option of such holder shall terminate, except that, subject to
the limitation stated in the last sentence of this Section 11, (i) if his
director's status with the Company is terminated for any reason other than
his death, he may at any time within three (3) months after such termination
exercise his Option but only to the extent that it was exercisable by him on
the date of termination and only if his status was not terminated because of
a violation of his normal duties; and (ii) if he dies while serving as a
director of the Company, or within three (3) months after termination of such
status, his Option may be exercised by the person or persons to whom his
rights under the Option shall pass by will or by the laws of descent and
distribution, without regard to the vesting provisions included in the
Option. In no event may an Option be exercised to any extent by anyone after
the expiration of its term.
12. CHANGES IN CAPITALIZATION: SPLITS, LIQUIDATIONS, MERGERS AND
REORGANIZATIONS.
(a) The aggregate number of shares of Common Stock for which Options
may be granted to eligible persons under the Plan, the number of shares of
Common Stock covered by each outstanding Option and the price per share
thereof in each such Option may be proportionately adjusted by the Board of
Directors or the Committee for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a stock split, a
reverse stock split, a subdivision or consolidation of shares or other
similar capital adjustment, the payment of a stock dividend or any other
increase or decrease in such shares effected without receipt of consideration
by the Company. Any such determination by the Board of Directors of the
Company shall be conclusive.
(b) On the day following the dissolution or liquidation of the
Company or upon any reorganization, merger, consolidation pursuant to which
the Company does not survive (except for a reincorporation of the Company in
another state), or sale of all or substantially all of the assets of the
Company or upon a change in the composition of the Board of Directors (not
approved by a majority of the directors in office at the time of such change)
which results in a change in "control" of the Company (for purposes of this
subsection "control" is defined as in the Employee Stock Option Plan of the
Company) each outstanding Option shall terminate; provided that in such event
each outstanding unexercised Option shall become fully vested under the Plan
and shall be immediately exercisable as of thirty (30) days prior to the
effective date of such dissolution, liquidation, reorganization, merger,
consolidation, sale of assets or change in control, and each Optionee may
exercise, in whole or in part, any unexpired Option or Options held for at
least six (6) months at the time of exercise. The grant of an Option under
the Plan shall have no effect on the ability of the Company to change or
adjust its capital structure or to merge, consolidate, dissolve, liquidate or
to sell or transfer all or any part of its business or assets.
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13. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT.
The Company may postpone the issuance and delivery of Shares upon
any exercise of an Option until (a) the admission of such Shares to listing
on any stock exchange on which Shares of the Company of the same class are
then listed and (b) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or
regulation as the Company shall determine to be necessary or advisable. Any
person exercising an Option shall make such representations and furnish such
information as may, in the opinion of counsel for the Company, be appropriate
to permit the Company to issue the Shares in compliance with the provisions
of the Securities Act of 1933, as amended.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Except as hereinafter provided, the Board of Directors or the
Committee may at any time withdraw or from time to time amend the Plan and
the terms and conditions of any Options not theretofore issued, and the Board
of Directors or the Committee, with the consent of the affected holder of an
Option, may at any time amend the terms and conditions of such Options as
have been theretofore granted. Notwithstanding the foregoing, any amendment
to the Plan by the Board of Directors or Committee which would (i) increase
the number of Shares issuable under Options, (ii) change the class of persons
to whom Options may be granted or (iii) change in any material respect the
limitations or provisions pertaining to Options, shall be subject to the
approval of the holders of a majority of the shares of the Company present at
any meeting of stockholders and entitled to vote thereat either prior to or
within one year after such amendment.
(b) The determination of the Board of Directors or the Committee as
to any questions which may arise with respect to the interpretation of the
provisions of the Plan and Options granted hereunder shall be final and
conclusive.
(c) The Board of Directors or the Committee may authorize and
establish such rules, regulations and revisions thereof, not inconsistent
with the provisions of the Plan, as it may deem advisable to make the Plan
and Options effective or provide for their administration, and may take such
other action with regard to the Plan and Options as it shall deem desirable
to effectuate their purpose.
(d) The Plan shall remain in effect until such time as it is
terminated by the Board of Directors of the Company. No such termination
shall affect Options granted prior thereto.
15. EFFECTIVE DATE OF THE PLAN.
The Plan was adopted by the Board of Directors and became effective
on July 16, 1990 and was approved by the holders of a majority of the shares
of the Company on June __, 1990.
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EXHIBIT 10.6
FIRST SEISMIC CORPORATION
EMPLOYEES' STOCK OPTION PLAN
I. PURPOSE
The Employees' Stock Option Plan ("Plan") provides for the grant of
Stock Options, Stock Appreciation Rights, Limited Rights and Supplemental
Bonuses to Employees of First Seismic Corporation (the "Company"), and such
of its subsidiaries (as defined in Section 425(f) of the Internal Revenue
Code of 1986 (the "Code")) as the Board of Directors of the Company (the
"Board") shall from time to time designate ("Participating Subsidiaries"), in
order to advance the interests of the Company and its Participating
Subsidiaries through the motivation, attraction and retention of their
respective Employees.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either;
(a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422A of
the Code; or
(b) Nonstatutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under
Section 422A of the Code.
All Stock Options shall be ISOs unless the Option Agreement clearly
designates the Stock Options granted thereunder, or a specified portion
thereof, as NSOs. Subject to the other provisions of the Plan, a Participant
may receive ISOs and NSOs at the same time, provided that the ISOs and NSOs
are clearly designated as such.
Except as otherwise expressly provided herein, all of the provisions
and requirements of the Plan relating to Stock Options shall apply to ISOs
and NSOs.
III. ADMINISTRATION
3.1 COMMITTEE. With respect to grants of Stock Options to
Employees other than directors of the Company and grants of Stock
Appreciation Rights, Limited Rights and Supplemental Bonuses to Employees
other than officers and directors of the Company, the Plan shall be
administered by a committee ("Committee") composed of at least three members
of the Board of Directors. With respect to grants of Stock Options to
directors and grants of Stock Appreciation Rights, Limited Rights and
Supplemental Bonuses to officers and directors, the Plan shall be
administered by the Board of Directors, a majority of whom are Disinterested
Persons and a majority of the Directors acting on Plan matters are
Disinterested Persons, or by a committee of three more
<PAGE>
persons, all of whom are Disinterested Persons. Such committee may be the
Committee if all of the members thereof are Disinterested Persons, or a
special committee appointed by the Board of Directors composed of at least
three Disinterested Persons. The Committee or the Board, as the case may be,
shall have full authority to administer the Plan, including authority to
interpret and construe any provision of the Plan and any Stock Option, Stock
Appreciation Right, Limited Right or Supplemental Bonus granted thereunder,
and to adopt such rules and regulations for administering the Plan as it may
deem necessary in order to comply with the requirements of the Code or in
order that Stock Options that are intended to be ISOs will be classified as
incentive stock options under the Code, or in order to conform to any
regulation or to any change in any law or regulation applicable thereto. The
Committee or the Board may delegate any of its responsibilities under the
Plan, other than its responsibility to grant Stock Options or Limited Rights,
to determine whether the Stock Appreciation Rights or Supplemental Bonuses,
if any, payable to a Participant shall be paid in cash, in shares of Common
Stock or a combination thereof, or to interpret and construe the Plan. The
Board of Directors may reserve to itself any of the authority granted to the
Committee as set forth herein, and it may perform and discharge all of the
functions and responsibilities of the Committee at any time that a duly
constituted Committee is not appointed and serving. All references in this
Plan to the "Committee" shall be deemed to refer to the Board of Directors
whenever the Board is discharging the powers and responsibilities of the
Committee, and to any special committee appointed by the Board to administer
particular aspects of the Plan.
3.2 ACTIONS OF COMMITTEE. All actions taken and all
interpretations and determinations made by the Committee in good faith
(including determinations of Fair Market Value) shall be final and binding
upon all Participants, the Company and all other interested persons. No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation.
IV. DEFINITIONS
4.1 "STOCK OPTION". A Stock Option is the right granted under the
Plan to an Employee to purchase, at such time or times and at such price or
prices ("Option Price") as are determined by the Committee, the number of
shares of Common Stock determined by the Committee.
4.2 "STOCK APPRECIATION RIGHT". A Stock Appreciation Right is the
right to receive payment, in shares of Common Stock, cash or a combination of
shares of Common Stock and cash, of the Redemption Value of a specified
number of shares of Common Stock then purchasable under a Stock Option.
4.3 "REDEMPTION VALUE". The Redemption Value of shares of Common
Stock purchasable under a Stock Option shall be the amount, if any, by which
the Fair Market Value of one share of Common Stock on the date on which the
Stock Option is exercised exceeds the Option Price for such share.
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4.4 "COMMON STOCK". A share of Common Stock means a share of
authorized but unissued or reacquired Common Stock (par value $.01 per share)
of the Company.
4.5 "FAIR MARKET VALUE". If the Common Stock is not traded
publicly, the Fair Market Value of a share of Common Stock on any date shall
be determined, in good faith, by the Board or the Committee after such
consultation with outside legal, accounting and other experts as the Board or
the Committee may deem advisable, and the Board or the Committee shall
maintain a written record of its method of determining such value. If the
Common Stock is traded publicly, the Fair Market Value of a share of Common
Stock on any date shall be the average of the representative closing bid and
asked prices, as quoted by the National Association of Securities Dealers
through NASDAQ (its automated system for reporting quotes), for the date in
question or, if the Common Stock is listed on the NASDAQ National Market
System or is listed on a national stock exchange, the officially quoted
closing price on NASDAQ or such exchange, as the case may be, on the date in
question.
4.6 "EMPLOYEE". An Employee is an employee of the Company or any
Participating Subsidiary.
4.7 "LIMITED RIGHT". A Limited Right is the right to receive
payment, in cash, following a Change in Control, of an amount equal to the
product computed by multiplying (i) the excess of (a) the higher of (x) the
Minimum Price Per Share, if the Change in Control occurs as a result of a
Transaction, tender offer or exchange offer, or (y) the highest Fair Market
Value per share during the period commencing thirty days prior to a Change in
Control and ending immediately prior to the date the Limited Right is
exercised, over (b) the Option Price per share of a specified number of
shares of Common Stock then purchasable under a Stock Option to which such
Limited Right relates, by (ii) the number of shares of Common Stock as to
which such Limited Right is being exercised.
4.8 "MINIMUM PRICE PER SHARE". Minimum Price Per Share means the
highest gross price (before brokerage commissions and soliciting dealer's
fees) paid or to be paid for a share of Common Stock (whether by way of
exchange, conversion, distribution or upon liquidation or otherwise) in any
Transaction, tender offer or exchange offer occurring prior to the date on
which such Limited Right is exercised. If the consideration paid or to be
paid in any such Transaction, tender offer or exchange offer shall consist,
in whole or in part, of consideration other than cash, the Committee shall
take such action, as in its judgment it deems appropriate, to establish the
cash value of such consideration, but such valuation shall not be less than
the value, if any, attributed to such consideration by any party to such
Transaction, tender offer or exchange offer other than the Company.
4.9 "PARTICIPANT". A Participant is an Employee to whom a Stock
Option, Stock Appreciation Right or Supplemental Bonus is granted.
4.10 "DISINTERESTED PERSON". A Disinterested Person is a person
who, at the time he exercises discretion in administering the Plan, is not
eligible, and has not at
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any time within one year prior thereto been eligible for selection as a
person to whom Stock Options, Stock Appreciation Rights, Limited Rights or
Supplemental Bonuses may be granted under this Plan or any similar plan of
the Company.
4.11 "SUPPLEMENTAL BONUS". A Supplemental Bonus is the right to
receive payment, in shares of Common Stock, cash or a combination of shares
of Common Stock and cash, of an amount determined under Section 7.7.
4.12 "CHANGE OF CONTROL". The term "Change of Control" shall mean
any of the following events:
(A) The acquisition by any person as Beneficial Owner (as
defined in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended), directly or
indirectly, in one or more transactions, without the consent of the
Company's Board of Directors, of thirty-five percent (35%) or more
of the combined voting power of the outstanding shares of capital
stock of the Company entitled to vote generally in the election of
directors.
(B) Individuals who at the beginning of any period of three
(3) consecutive years constitute the entire Board of Directors of
the Company shall for any reason, other than for reasons of death,
disability or voluntary resignation, during such period cease to
constitute a majority thereof.
(C) A change of control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as
amended.
(D) The stockholders of the Company approve a Transaction.
For purposes of this Plan, the Board of Directors may, by resolution, clarify
the date as of which a Change of Control shall be deemed to have occurred.
4.13 "TRANSACTION". A Transaction is (A) any consolidation or
merger of the Company in which the Company is not the surviving corporation
other than a merger solely to effect a reincorporation or a merger of the
Company as to which stockholder approval is not required pursuant to Sections
251(f) or 253 of the Delaware General Corporation Law, or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of 50% or more of the assets or earnings power of the Company,
or (C) the adoption of any plan or proposal for the liquidation or
dissolution of the Company.
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V. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBLE EMPLOYEES. Grants of Stock Options, Stock
Appreciation Rights, Limited Rights and Supplemental Bonuses may be made to
Employees of the Company or any Participating Subsidiary. Any director of the
Company or of a Participating Subsidiary who is also an Employee shall also
be eligible to receive Stock Options, Stock Appreciation Rights, Limited
Rights and Supplemental Bonuses, but directors who are not Employees shall
not be eligible to receive Stock Options, Stock Appreciation Rights, Limited
Rights or Supplemental Bonuses under the Plan. The Committee shall from time
to time determine the Employees to whom Stock Options shall be granted, the
number of shares of Common Stock subject to each Stock Option to be granted
to each such Employee, the Option Price of such Stock Options, all as
provided in this Plan.
5.2 OPTION PRICE. The Option Price of any ISO shall be not less
than the Fair Market Value of a share of Common Stock on the date on which
the Stock Option is granted, but the Option Price of an NSO may be less than
the Fair Market Value on the date the NSO is granted if the Committee so
determines. If an ISO is granted to an Employee who then owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company,
the Option Price of such ISO shall be at least 110% of the Fair Market Value
of the Common Stock subject to the ISO at the time such ISO is granted, and
such ISO shall not be exercisable after five years after the date on which it
was granted.
5.3 OPTION AGREEMENT. Each Stock Option shall be evidenced by a
written agreement ("Option Agreement") containing such terms and provisions
as the Committee may determine, subject to the provisions of this Plan.
VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1 MAXIMUM NUMBER. The maximum aggregate number of shares of
Common Stock that may be made subject to Stock Options shall be 500,000
authorized but unissued shares. The aggregate Fair Market Value (determined
as of the time the ISO is granted) of the stock as to all ISOs granted to an
individual may first become exercisable in a particular calendar year may not
exceed $100,000. If any shares of Common Stock subject to Stock Options are
not purchased or otherwise paid for before such Stock Options expire, such
shares may again be made subject to Stock Options.
6.2 CAPITAL CHANGES. In the event any changes are made to the
shares of Common Stock (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of one percent
(1%) at any single time, stock split, combination of shares, exchange of
shares, change in corporate structure or otherwise), appropriate adjustments
shall be made in: (i) the number of shares of Common Stock theretofore made
subject to Stock Options, and in the purchase price of said shares; and (ii)
the aggregate number of shares which may be made subject to Stock Options. If
any of the foregoing adjustments shall result in a fractional share, the
fraction
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shall be disregarded, and the Company shall have no obligation to make any
cash or other payment with respect to such a fractional share.
VII. Exercise of Stock Options
7.1 TIME OF EXERCISE. Subject to the provisions of the Plan,
including without limitation Sections 7.3 and 7.8, the Committee, in its
discretion, shall determine the time when a Stock Option, or a portion of a
Stock Option, shall become exercisable, and the time when a Stock Option, or
a portion of a Stock Option, shall expire. Such time or times shall be set
forth in the Option Agreement evidencing such Stock Option. An ISO shall
expire, to the extent not exercised, no later than the tenth anniversary of
the date on which it was granted, and an NSO shall expire, to the extent not
exercised, no later than 10 years and one day after the date on which it was
granted. The Committee may accelerate the vesting of any Participant's Stock
Option by giving written notice to the Participant. Upon receipt of such
notice, the Participant and the Company shall amend the Option Agreement to
reflect the new vesting schedule. The acceleration of the exercise period of
a Stock Option shall not affect the expiration date of that Stock Option.
7.2 EXCHANGE OF OUTSTANDING STOCK. The Committee, in its sole
discretion, may permit a Participant to surrender to the Company shares of
the Common Stock previously acquired by the Participant as part of full
payment for the exercise of a Stock Option. Such surrendered shares shall be
valued at their Fair Market Value on the date of exercise. Unless otherwise
determined by the Committee, any such shares surrendered by the Participant
shall have been held by him for at least six months prior to surrender.
7.3 USE OF PROMISSORY NOTE; EXERCISE LOANS. The Committee may, in
its sole discretion, impose terms and conditions, including conditions
relating to the manner and timing of payments, on the exercise of Stock
Options. Such terms and conditions may include, but are not limited to,
permitting a Participant to deliver to the Company his promissory note as
full or partial payment for the exercise of a Stock Option; provided that,
with respect to any promissory note given as payment or partial payment for
the exercise of an ISO, all terms of such note shall be determined at the
time a Stock Option is granted and set forth in the Option Agreement. The
Committee, in its sole discretion, may authorize the Company to make a loan
to a Participant in connection with the exercise of Stock Options, or
authorize the Company to arrange or guaranty loans to a Participant by a
third party.
7.4 STOCK RESTRICTION AGREEMENT. The Committee may provide that
shares of Common Stock issuable upon the exercise of a Stock Option shall,
under certain conditions, be subject to restrictions whereby the Company has
a right of first refusal with respect to such shares or a right or obligation
to repurchase all or a portion of such shares, which restrictions may survive
a Participant's term of employment with the Company. The acceleration of time
or times at which the option becomes exercisable may be conditioned upon the
Participant's agreement to such restrictions.
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7.5 TERMINATION OF EMPLOYMENT BEFORE EXERCISE. (If a Participant's
employment with the Company or a Participating Subsidiary shall terminate for
any reason other than the Participant's disability, any Stock Option then
held by the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of three months.) If the Participant's employment is
terminated because the Participant is disabled within the meaning of Section
22(e)(3) of the Code, any Stock Option then held by the Participant, to the
extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of his employment for a period of
twelve months (but in no event beyond ten years from the date of grant of the
Stock Option). If the Stock Option is not exercised during the applicable
period, it shall be deemed to have been forfeited and of no further force or
effect.
7.6 DISPOSITION OF FORFEITED STOCK OPTIONS. Any shares of Common
Stock subject to Stock Options forfeited by a Participant shall not
thereafter be eligible for purchase by the Participant but may be made
subject to Stock Options granted to other Participants.
7.7 GRANT OF SUPPLEMENTAL BONUSES. The Committee, either at the
time of grant or at any time prior to exercise of any Stock Option, Limited
Right or Stock Appreciation Right, may provide for a Supplemental Bonus from
the Company or Participating Subsidiary in connection with a specified number
of shares of Common Stock then purchasable, or which may become purchasable,
under a Stock Option, or a specified number of Stock Appreciation Rights or
Limited Rights which may be or become exercisable. The grant of a
Supplemental Bonus, sufficient to discharge the entire tax liability of the
recipient (as described below), shall be deemed to have been made in the case
of each Limited Right granted under Section 9.3 hereof, and no further
Committee action shall be necessary to authorize such a Supplemental Bonus
upon the authorization of a grant of any such Limited Right; PROVIDED,
HOWEVER, that the Committee may, in its discretion, determine to rescind any
or all such grants of Supplemental Bonuses at any time prior to the
occurrence of a Change in Control. A Supplemental Bonus shall be payable
upon the exercise of the NSO, Limited Right or Stock Appreciation Right with
regard to which such Supplemental Bonus was granted; provided, that if the
Participant is subject to Section 16(b) of the Securities Exchange Act of
1934, as amended, the Committee may provide that such Supplemental Bonus will
be calculated and paid six months after such exercise. A Supplemental Bonus
shall not exceed the amount necessary to reimburse the Participant for the
income tax liability incurred by him upon the exercise of the Stock Option or
upon the exercise of such Stock Appreciation Right or Limited Right,
calculated using the maximum combined federal and applicable state income tax
rates then in effect and taking into account the tax liability arising from
the Participant's receipt of the Supplemental Bonus. The Committee may, in
its discretion, elect to pay any part or all of the Supplemental Bonus in:
(i) cash; (ii) shares of Common Stock; or (iii) any combination of cash and
shares of Common Stock; provided that bonuses payable in respect of Limited
Rights shall be payable only in cash. The provisions of Section 8.3 shall
apply to the giving of notice, the determination of the number of shares to
be delivered, and the time for delivering shares. In applying Section 8.3,
the Supplemental Bonus shall be treated as if it were a Stock Appreciation
Right that the Participant exercised on the day the Supplemental Bonus
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became payable. Shares of Common Stock issued pursuant to this Section 7.7
shall not be deemed to have been issued upon the exercise of a Stock Option
for purposes of the imitations imposed by Section 6.1 of the Plan.
7.8 OPTION VESTING UPON CHANGE OF CONTROL OF THE COMPANY. In the
event of a Change of Control of the Company, as that term is defined in
Section 4.10 of this Plan, the vesting of Stock Options granted pursuant to
the Plan shall automatically be accelerated, so that all Stock Options
outstanding at the time of such Change of Control will be exercisable
immediately.
VIII. STOCK APPRECIATION RIGHTS
8.1 GRANT OF STOCK APPRECIATION RIGHTS. The Committee may, from
time to time, grant Stock Appreciation Rights to a Participant with respect
to not more than the number of shares of Common Stock which are, or may
become, purchasable under any Stock Option held by the Participant. The
Committee may, in its sole discretion, specify the terms and conditions of
such rights, including without limitation the time period or time periods
during which such rights may be exercised and the date or dates upon which
such rights shall expire and become void and unexercisable; provided,
however, that in no event shall such rights expire and become void and
unexercisable later than the time when the related Stock Option is exercised,
expires or terminates. Each Participant to whom Stock Appreciation Rights are
granted shall be given written notice advising him of the grant of such
rights and specifying the terms and conditions of the rights, which shall be
subject to all the provisions of this Plan.
8.2 EXERCISE OF STOCK APPRECIATION RIGHTS. Subject to Section 8.3,
and in lieu of purchasing shares of Common Stock upon the exercise of a Stock
Option held by him, a Participant may elect to exercise the Stock
Appreciation Rights, if any, he has been granted and receive payment of the
Redemption Value of all, or any portion, of the number of shares of Common
Stock subject to such Stock Option with respect to which he has been granted
Stock Appreciation Rights; provided, however, that the Stock Appreciation
Rights may be exercised only when the Fair Market Value of the Common Stock
subject to such Stock Option exceeds the exercise price of the Stock Option.
A Participant shall exercise his Stock Appreciation Rights by delivering a
written notice to the Committee specifying the number of shares with respect
to which he exercises Stock Appreciation Rights and agreeing to surrender the
right to purchase an equivalent number of shares of Common Stock subject to
his Stock Option. If a Participant exercises Stock Appreciation Rights,
payment of his Stock Appreciation Rights shall be made in accordance with
Section 8.3 on or before the 90th day after the date of exercise of the Stock
Appreciation Rights.
8.3 FORM OF PAYMENT. If a Participant elects to exercise Stock
Appreciation Rights as provided in Section 8.2, the Committee may, in its
absolute discretion, elect to pay any part or all of the Redemption Value of
the shares with respect to which the Participant has exercised Stock
Appreciation Rights in: (i) cash; (ii) shares of Common Stock; or (iii) any
combination of cash and shares of Common Stock. The Committee's election
pursuant to this Section 8.3 shall be made by giving written notice to the
Participant within said 90-day period, which notice shall specify the
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<PAGE>
portion which the Committee elects to pay in cash, shares of Common Stock or
a combination thereof. In the event any portion is to be paid in shares of
Common Stock, the number of shares to be delivered shall be determined by
dividing the amount which the Committee elects to pay in shares of Common
Stock by the Fair Market Value of one share of Common Stock on the date of
exercise of the Stock Appreciation Rights. Any fractional share resulting
from any such calculation shall be disregarded. Said shares, together with
any cash payable to the Participant, shall be delivered within said 90-day
period.
IX. LIMITED RIGHTS
9.1 GRANT OF LIMITED RIGHTS. The Committee shall grant Limited
Rights to a Participant concurrently with the grant of each Stock Option to
such Participant. Such Limited Rights shall be exercisable with respect to
the number of shares of Common Stock which are, or may become, purchasable
under any such Stock Option. The Committee may, in its sole discretion,
specify the terms and conditions of such rights, including without limitation
the date or dates upon which such rights shall expire and become void and
unexercisable. In any event, Limited Rights shall not be exercisable within
six (6) months from the date of grant of the Limited Right. Each Participant
to whom Limited Rights are granted shall be given written notice advising him
of the grant of such rights and specifying the terms and conditions of the
rights, which shall be subject to all the provisions of this Plan.
9.2 EXERCISE OF LIMITED RIGHTS. Except as provided in Section 9.3,
and subject to the limitations set forth in Section 9.1, a Limited Right
may be exercised only during the period beginning on the first day following
the occurrence of a Change in Control and ending on the thirtieth day
following such date; provided, however, that if the Change in Control occurs
prior to the expiration of six months from the date of grant of a Limited
Right, then such Limited Right shall be exercisable for a period of 30 days
following expiration of such six-month period. Upon the occurrence of a
tender offer or exchange constituting a Change in Control, a Limited Right
may be exercised in such manner regardless of whether the Board supports or
opposes such tender offer or exchange offer. A Limited Right may be exercised
regardless of whether the Stock Option to which such Limited Right relates is
then exercisable. A Participant shall exercise his Limited Rights by
delivering a written notice to the Committee specifying the number of shares
with respect to which he exercises Limited Rights and agreeing to surrender
the right to purchase an equivalent number of shares of Common Stock subject
to his Stock Option. If a Participant exercises Limited Rights, payment of
his Limited Rights shall be made in accordance with Section 9.4 on or before
the thirtieth day after the date of exercise of the Limited Rights. A Limited
Right shall remain exercisable during the exercise periods described above in
this Section 9.2 in the event of a termination of employment of the
Participant holding the Limited Right after a Change in Control.
Notwithstanding the above, upon a termination of the employment of the holder
of the Limited Right before the occurrence of any Change in Control, the
Limited Right shall expire immediately. Upon the death or disability of the
holder of the Limited Right, the Limited Right shall be exercisable only by
the Participant or by such Participant's estate, personal representative or
beneficiary who has acquired the Stock Option by will or the laws of descent
and distribution.
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<PAGE>
9.3 LIMITED RIGHTS TRIGGERED BY A CHANGE IN CONTROL. If a Change
in Control occurs, then Limited Rights shall be deemed to have been granted
immediately, covering all shares of Common Stock available for grant under
Section 6.1 (the "Available Shares") to all those Participants then holding
unexercised and unexpired Stock Options, such that each such Participant
shall receive Limited Rights with respect to a number of shares of Common
Stock equal to the product computed by multiplying (i) the number of
Available Shares by (ii) a fraction, the numerator of which is the number of
shares of Common Stock then subject to Stock Options held by such
Participant, and the denominator of which is the total number of shares of
Common Stock then subject to Stock Options held by all Participants. The
amount payable to each such Participant in respect of such Limited Right
shall equal the amount computed in accordance with Section 4.7; provided,
that the option price per share shall be deemed to be the weighted average of
the exercise prices of each of such Participant's then outstanding Stock
Options. No notice of exercise need be delivered by the Participant as to the
Limited Rights described in this Section 9.3, but rather such Limited Rights
shall be deemed to have been exercised on the date which is six months after
the occurrence of the Change in Control and payment therefor shall be made in
accordance with Section 9.4 on or before the thirtieth day after the date of
such exercise. Notwithstanding the foregoing, no Limited Rights shall be
deemed to be granted under this Section 9.3 if the Board approves the event
constituting a Change in Control prior to the occurrence of such event, but
only if a majority of the directors acting favorably on such matter are
Continuing Directors.
9.4 FORM OF PAYMENT. If a Participant elects to exercise Limited
Rights as provided in Section 9.2, or in the case of the deemed exercise of
Limited Rights pursuant to Section 9.3, the Company shall pay to the
Participant in cash the amount set forth in Section 4.7 hereof, calculated
with respect to the shares as to which the Participant has exercised Limited
Rights, within thirty days of the date of exercise of the Limited Rights. If
such amount is not paid in full within the prescribed period, the Company
shall be liable to such Participant for the costs of collection of such
amount, including attorney's fees.
9.5 TERMINATION. When a Limited Right is exercised, the Stock
Option to which it relates, if any, shall cease to be exercisable to the
extent of the number of shares of Common Stock with respect to which such
Limited Right was exercised. Upon the exercise or termination of a Stock
Option, Limited Rights granted with respect thereto shall terminate to the
extent of the number of shares as to which such Stock Option was exercised or
terminated.
X. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to
continue in the employ of the Company, or any Participating Subsidiary, nor
shall it interfere in any way with the right of the Company, or any such
Participating Subsidiary, to discharge the Participant at any time for any
reason whatsoever, with or without cause. Nothing in the Article X shall
affect any rights or obligations of the Company or any Participant under any
written contract of employment.
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XI. No Rights as a Stockholder
A Participant shall have no rights as a stockholder with respect to
any shares of Common Stock subject to a Stock Option. Except as provided in
Section 6.2, no adjustment shall be made in the number of shares of Common
Stock issued to a Participant, or in any other rights of the Participant upon
exercise of a Stock Option by reason of any dividend, distribution or other
right granted to stockholders for which the record date is prior to the date
of exercise of the Participant's Stock Option.
XII. Assignability
No Stock Option, Stock Appreciation Right, Limited Right or
Supplemental Bonus right granted under this Plan, nor any other rights
acquired by a Participant under this Plan, shall be assignable or
transferable by a Participant, other than by will or the laws of descent and
distribution, and are exercisable, during his lifetime, only by him.
Notwithstanding the preceding sentence, the Committee may, in its sole
discretion, permit the assignment or transfer of an NSO and the exercise
thereof by a person other than a Participant, on such terms and conditions as
the Committee in its sole discretion may determine. Any such terms shall be
determined at the time the NSO is granted, and shall be set forth in the
Option Agreement. In the event of his death, the Stock Option or any Stock
Appreciation Right, Limited Right or Supplemental Bonus right may be
exercised by the Personal Representative of the Participant's estate or, if
no Personal Representative has been appointed, by the successor or successors
in interest determined under the Participant's will or under the applicable
laws of descent and distribution.
XIII. Merger or Liquidation of the Company
If the Company or its stockholders enter into an agreement to
dispose of all, or substantially all, of the assets or outstanding capital
stock of the Company by means of a sale or liquidation, or a merger or
reorganization in which the Company is not the surviving corporation, all
Stock Options outstanding under the Plan as of the day before the
consummation of such sale, liquidation, merger or reorganization, to the
extent not exercised, shall for all purposes under this Plan become
exercisable in full as of such date even though the dates of exercise
established pursuant to Section 7.1 have not yet occurred, unless the Board
shall have prescribed other terms and conditions to the exercise of the Stock
Options, or otherwise modified the Stock Options.
XIV. Amendment
The Board may from time to time alter, amend, suspend or discontinue
the Plan, including, where applicable, any modifications or amendments as it
shall deem advisable in order that ISOs will be classified as incentive stock
options under the Code, or in order to conform to any regulation or to any
change in any law or regulation applicable thereto; provided, however, that
no such action shall adversely affect the rights and obligations with respect
to Stock Options, Stock Appreciation Rights and Limited Rights at any time
outstanding under the Plan; and provided further that no such action shall,
without the approval of the stockholders of the Company, (i) increase the
maximum
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number of shares of Common Stock that may be made subject to Stock Options
(unless necessary to effect the adjustments required by Section 6.2), (ii)
materially increase the benefits accruing to Participants under the Plan, or
(iii) materially modify the requirements [ILLEGIBLE] eligibility for
participation in the Plan.
XV. Registration of Optioned Shares
The Stock Options shall not be exercisable unless the purchase of
such optioned shares is pursuant to an applicable effective registration
statement under the Securities Act of 1933, as amended, or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned
shares would be exempt from the registration requirements of the Securities
Act of 1933, as amended, and from the registration or qualification
requirements of applicable state securities laws.
XVI. Withholding Taxes
The Company or Participating Subsidiary may take such steps as it
may deem necessary or appropriate for the withholding of any taxes which the
Company or the Participating Subsidiary is required by any law or regulation
or any governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with any Stock Option, Stock Appreciation
Right, Limited Right or Supplemental Bonus, including, but not limited to,
the withholding of all or any portion of any payment or the withholding of
issuance of shares of Common Stock to be issued upon the exercise of any
Stock Option or Stock Appreciation Right or upon payment of any Limited Right
or Supplemental Bonus, until the Participant reimburses the Company or
Participating Subsidiary for the amount the Company or Participating
Subsidiary is required to withhold with respect to such taxes, or canceling
any portion of such payment or issuance in an amount sufficient to reimburse
itself for the amount it is required to so withhold.
XVII. Brokerage Arrangements
The Committee, in its discretion, may enter into arrangements with
one or more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options, Stock
Appreciation Rights or Supplemental Bonuses, including, without limitation,
arrangements for the simultaneous exercise of Stock Options, Stock
Appreciation Rights or Supplemental Bonuses, and sale of the shares acquired
upon such exercise.
XVIII. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of
the Plan to stockholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or
group of employees, which the Company or any Subsidiary now has [ILLEGIBLE] put
into effect, including, without limitation, any retirement, pension, savings
and
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stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
XIX. Effective Date
This Plan was adopted by the Board of Directors and became effective
on July 16, 1990 and was approved by the Company's stockholders on June __,
1990. No Stock Options or Limited Rights shall be granted subsequent to ten
years after the effective date of the Plan. Stock Options or Limited Rights
outstanding subsequent to ten years after the effective date of the Plan
shall continue to be governed by the provisions of the Plan.
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AGREEMENT
BY AND BETWEEN
FIRST SEISMIC CORPORATION
and
FORTESA CORPORATION
AND
BENTON OIL AND GAS COMPANY
and
BENTON OIL AND GAS COMPANY (SENEGAL), LTD.
THIES BLOCK
DATED: OCTOBER 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1: DEFINITIONS 1
1.1 CERTAIN DEFINED TERMS 1
ARTICLE 2: PETROSEN RELEASE 3
2.1 RELEASE 3
2.2 FAILURE TO OBTAIN RELEASE 3
ARTICLE 3: STOCK ACQUISITION 4
3.1 PREFERRED SHARES 4
3.2 PURCHASE PRICE 4
3.3 ESCROW 4
3.4 PIPELINE PURCHASE ORDER 4
3.5 CONVERSION OF PREFERRED SHARES 5
ARTICLE 4: ADDITIONAL EQUITY 5
4.1 ADDITIONAL EQUITY 5
4.2 TERMS OF ADDITIONAL EQUITY 6
ARTICLE 5: CONSTRUCTION LOAN 6
5.1 CONSTRUCTION LOAN 6
ARTICLE 6: PIPELINE REIMBURSEMENT 6
ARTICLE 7: ASSIGNMENT AND RELEASE AND INDEMNIFICATION 7
ARTICLE 8: REPRESENTATIONS OF FIRST AND FORTESA 8
8.1 OWNERSHIP OF THE STOCK 8
8.2 ORGANIZATION AND GOOD STANDING;
QUALIFICATION 9
8.3 CAPITALIZATION 9
8.4 AUTHORIZATION AND VALIDITY 9
8.5 FINANCIAL STATEMENTS 10
8.6 NO VIOLATION 10
8.7 FINDER'S FEE 11
8.8 PENDING CLAIMS 11
8.9 COMMITMENTS 11
8.10 COMPLIANCE WITH LAWS 11
8.11 TAXES 12
(a) FILING OF TAX RETURNS 12
<PAGE>
(b) PAYMENT OF TAXES 12
ARTICLE 9: REPRESENTATIONS OF BENTON AND BENTON SENEGAL 13
9.1 ORGANIZATION AND GOOD STANDING 13
9.2 AUTHORIZATION AND VALIDITY 13
9.3 NO VIOLATION 14
9.4 FINDER'S FEE 14
9.5 ABSENCE OF BANKRUPTCY PROCEEDINGS 14
ARTICLE 10: ACCESS TO INFORMATION AND INSPECTION; DUE DILIGENCE 14
10.1 RECORDS AND FILES 14
ARTICLE 11: CLOSING CONDITIONS 15
11.1 FIRST AND FORTESA'S CLOSING CONDITIONS 15
11.2 BENTON'S AND BENTON SENEGAL'S CLOSING CONDITIONS 15
ARTICLE 12: CLOSING 15
12.1 CLOSING 15
12.2 CLOSING OBLIGATIONS OF FIRST AND FORTESA 16
12.3 CLOSING OBLIGATIONS OF BENTON AND BENTON SENEGAL 16
12.4 CLOSING OBLIGATIONS OF BENTON AND FIRST 17
ARTICLE 13: DEFAULT AND TERMINATION 17
13.1 REMEDIES 17
13.2 RIGHT OF TERMINATION 18
ARTICLE 14: MISCELLANEOUS 18
14.1 ARBITRATION 18
14.2 CONFIDENTIALITY 18
14.3 PUBLIC ANNOUNCEMENTS 18
14.4 NOTICES 19
14.5 POST-CLOSING 20
14.6 ENTIRE AGREEMENT 20
14.7 GOVERNING LAW 21
14.8 COUNTERPARTS 21
14.9 WAIVER 21
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14.10 BINDING EFFECT; ASSIGNMENT 21
14.11 TIME PERIODS 21
14.12 CONSTRUCTION 22
14.13 BOARD APPROVAL 22
</TABLE>
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AGREEMENT
THIS AGREEMENT, dated effective as of the 23rd day of October, 1999,
is by and between First Seismic Corporation, a Delaware corporation ("First")
and its wholly owned subsidiary Fortesa Corporation, a Texas corporation
("Fortesa"), and Benton Oil and Gas Company, a Delaware corporation
("Benton"), and Benton Oil and Gas Company (Senegal), Ltd., a corporation
registered under the laws of the Cayman Islands ("Benton Senegal").
W I T N E S S E T H:
WHEREAS, by instrument dated December 17, 1997, the Societe Des
Petroles Du Senegal ("Petrosen") entered into a farmout agreement (the
"Farmout") with Fortesa and Benton to explore and exploit hydrocarbons and
undertake certain work programs in connection with Petrosen's Thies Block in
the onshore area of the Republic of Senegal (the "Thies Block"); and
WHEREAS, Fortesa desires to assume Benton's rights and obligations
under the Farmout, and Benton is willing to accommodate Fortesa's desires, all
subject to certain terms and conditions more fully set forth hereinafter;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties set forth in this Agreement, the
parties to this Agreement hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms, as used in this
Agreement, have the following meanings:
"Additional Equity" shall have the meaning given to it in Section 4.1.
"Agreement" means this Agreement between Benton, Benton Senegal,
First and Fortesa.
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"Assignment and Release" means the document attached hereto as Exhibit B.
"Closing" is defined in Section 12.1.
"Closing Date" is defined in Section 12.1.
"Escrowed Funds" shall have the meaning given to it in Section 3.3.
"Farmout" means that certain farmout agreement dated December 17, 1997,
entered into by Petrosen with Fortesa and Benton to explore and exploit
hydrocarbons and undertake certain work programs in connection with Petrosen's
Thies Block in the onshore area of the Republic of Senegal.
"Farmout Rights" means all of Benton's and Benton Senegal's rights under
the Farmout, the Memorandum of Understanding of November 25, 1997, between
Benton, Fortesa and Petrosen, the Memorandum of Understanding dated December 17,
1997, between Fortesa and Benton, the Joint Operating Agreement dated January
16, 1998 between Benton Senegal, Fortesa and Petrosen and all other documents,
agreements or rights related to the Farmout.
"Governmental Authorizations" shall have the meaning given to it in
Section 8.10.
"Letter of Intent" shall have the meaning given to it in Section 3.4.
"Petrosen" means Societe Des Petroles Du Senegal.
"Petrosen Release" shall have the meaning given to it in Section 2.1.
"Pipeline" shall have the same meaning as given it in the Farmout.
"Preferred Shares" shall have the meaning given to it in Section 3.1.
"Purchase Order" shall have the meaning given to it in Section 3.4.
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"Purchase Price" means the sum of one million three hundred fifty
thousand and no/100 ($1,350,000.00) dollars U.S.
"Tax Returns" means any reports, including all schedules or attachments
thereto, required to be filed by First in connection with any tax by the
United States or any state or any political subdivision thereof or any foreign
jurisdiction to be filed on or before the Closing Date.
ARTICLE 2
PETROSEN RELEASE
2.1 RELEASE. Fortesa shall continue to exercise its most vigorous
efforts in good faith to secure from Petrosen in writing a complete and
absolute release of Benton and Benton Senegal of any and all rights and
obligations that they jointly or severally may have under the Farmout
Agreement ("Petrosen Release"), which release shall be substantially in the
form attached hereto as Exhibit A.
2.2 FAILURE TO OBTAIN RELEASE. In the event Fortesa is unable to
obtain and furnish the Petrosen Release to Benton by the seventh (7th) day
following the issuance of the Purchase Order referred to in Section 3.4
hereinafter, Benton shall have the option, but not the obligation to require
that (i) the Escrowed Funds referred to in Section 3.3 hereinafter be
promptly returned to Benton, (ii) this Agreement be IPSO FACTO terminated and
that the parties hereto shall further obligations hereunder.
ARTICLE 3
STOCK ACQUISITION
3.1 PREFERRED SHARES. Subject to the completion of its due diligence
and satisfaction of the conditions of Closing, Benton hereby agrees to
acquire on behalf of itself or Benton Senegal from First 135,000 shares of
First's $0.01 par preferred stock ("Preferred Shares") for the sum of one
million three hundred fifty thousand and no/100 ($1,350,000.00) dollars U.S.
payable as set forth in Section 3.2 below ("Purchase Price").
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3.2 PURCHASE PRICE. The Purchase Price shall be payable by the
payment of seven hundred fifty thousand and no/100 ($750,000.00) dollars U.S.
in cash with the balance due of six hundred thousand and no/100 ($600,000.00)
dollars U.S. being satisfied by a credit for that amount against expenditures
relative to the Farmout previously made by Benton and/or Benton Senegal, and
First and Fortesa hereby acknowledge the prior incurring and relevance of
such expenditures.
3.3 ESCROW. The cash portion of the purchase price for the Preferred
Shares shall be placed in escrow ("Escrowed Funds") contemporaneously with the
execution of this Agreement, subject to the terms and conditions of the Escrow
Agreement attached hereto as Exhibit B.
3.4 PIPELINE PURCHASE ORDER. Upon Fortesa obtaining a letter of
intent to fund the Additional Equity referred to in Section 4.1 hereinafter
in a form and with proposed investors whose financial condition are
reasonably satisfactory to Benton ("Letter of Intent"), Fortesa shall issue a
purchase order relative to the manufacture of pipe to be used in construction
of the pipeline ("Pipeline") referred to in the Farmout ("Purchase Order").
3.5 CONVERSION OF PREFERRED SHARES.
(a) Commencing three (3) years from the date hereof, First shall have
the right to redeem Benton's preferred shares free and clear of prior liens or
encumbrances upon terms to be mutually agreed upon, with the intention that
funds for such redemption shall come from a portion of the net cash flow from
the Thies Block operations after the satisfaction by Fortesa of the commitments
already made pursuant to the Farmout.
(b) Alternatively, Benton shall have the right at its option to convert
its preferred shares into common shares of First on a schedule to be mutually
agreed and at a conversion rate based on one dollar liquidation value to one
common share, or upon terms to be mutually agreed.
(c) If Benton exercises its common stock conversion option above, then
Benton shall have the right to sell any or all of its common shares into a
successful First
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secondary public offering and receive the net market proceeds per share received
by First from such an offering. If the quantity of shares to be sold by selling
shareholders in such offering is limited by underwriters or other reason, First
agrees to dedicate to Benton up to fifty (50%) percent of the selling
shareholders' stock permitted to be sold in such offering.
ARTICLE 4
ADDITIONAL EQUITY
4.1 ADDITIONAL EQUITY. Commencing as of the date of this Agreement,
First shall undertake a bona fide effort in good faith to raise within a period
of sixty (60) days from the date hereof, a minimum of five hundred thousand and
no/100 ($500,000.00) dollars U.S. in additional private capitalization
("Additional Equity").
4.2 TERMS OF ADDITIONAL EQUITY. In no event shall the terms under which
the Additional Equity is raised be more favorable than those pursuant to which
Benton or Benton Senegal acquires the Preferred Shares; notwithstanding if
such terms should be more favorable then the parties hereto agree that the terms
pursuant to which Benton or Benton Senegal acquires or is to acquire the
Preferred Shares shall be adjusted accordingly.
ARTICLE 5
CONSTRUCTION LOAN
5.1 CONSTRUCTION LOAN. At such time as First has obtained the Letter of
Intent it shall promptly commence a bona fide effort in good faith to obtain a
binding and bona fide commitment for an interim construction loan in an amount
of up to one million and no/100 ($1,000,000.00) dollars U.S. for construction of
the Pipeline.
ARTICLE 6
PIPELINE REIMBURSEMENT
6.1 Within ninety (90) days after the completion of the Pipeline
installation, Fortesa shall submit to Benton
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a full accounting of its costs associated with the Pipeline. If the
cumulative costs are less than one million nine hundred forty and no/100
($1,940,000.00) dollars U.S., Fortesa shall pay to Benton the difference
between that sum and the actual cumulative costs up to a total of fifty-five
thousand and no/100 ($55,000.00) dollars U.S. as reimbursement for the actual
surveying costs paid by Benton.
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ARTICLE 7
ASSIGNMENT AND RELEASE AND INDEMNIFICATION
7.1 At such time as the Escrowed Funds are to be released to Fortesa
pursuant to the terms of the Escrow Agreement, the parties hereto shall enter
into the Assignment and Release attached hereto as Exhibit C ("Assignment and
Release") pursuant to which Benton and Benton Senegal shall assign to Fortesa
all of their rights under the Farmout, the Memorandum of Understanding of
November 25, 1997, between Benton, Fortesa and Petrosen, the Memorandum of
Understanding dated December 17, 1997, between Fortesa and Benton, the Joint
Operating Agreement dated January 16, 1998 between Benton Senegal, Fortesa and
Petrosen and all other documents, agreements or rights related to the Farmout
(in the aggregate "Farmout Rights"), and First and Fortesa shall release Benton
and Benton Senegal from and indemnify them against any and all obligations to
Fortesa and First under the Farmout Rights. The Assignment and Release shall be
deemed to include all contracts, agreements and understandings between Benton
and/or Benton Senegal and any other party related or pertaining to the Thies
Block (including, without limitation, all confidentiality and non-competition
agreements entered into by Benton or Benton Senegal). The Assignment and Release
shall also be deemed to include all data related to the Thies Block (both
written and electronic or digitized). As soon as possible following the delivery
to Fortesa of the duly executed Assignment and Release, Benton shall cause to be
delivered to Fortesa all such contracts and data (Benton shall be entitled to
retaining copies of any of the items to be delivered, or Benton shall be
permitted access to any of such documents or data during normal business hours
upon its request for a period of four (4) years following the delivery of the
Assignment and Release.) In addition to the foregoing, within 60 days following
the delivery to Fortesa of the Assignment and Release, Benton shall have
prepared and shall deliver to Fortesa a full and complete accounting of all
expenses incurred and all credits received by Benton and/or Benton Senegal in
connection with the Thies Block. The Assignment and Release shall be deemed to
include the conveyance to Fortesa of all credits to which Benton or Benton
Senegal may be entitled under the terms of the Farmout or the Farmout
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Rights. Notwithstanding anything contained herein to the contrary, the
Parties hereto acknowledge that certain of the aforementioned data and other
materials may be subject to licensing and other agreements which shall
preclude Benton and/or Benton Senegal from delivering them to Fortesa.
7.2 The release and indemnification of Benton and Benton Senegal by
First and Fortesa in the Assignment and Release is limited to the duties and
obligations of Benton and Benton Senegal under the terms and provisions of
the Farmout and the related agreements described in Section 7.1, above. By
their execution and delivery to Benton and Benton Senegal of the Assignment
and Release, neither First nor Fortesa is assuming any liability or
obligation of Benton or Benton Senegal under the laws of the Republic of
Senegal for the acts or omissions of Benton or Benton Senegal outside of
their duties and obligations provided for in the various agreements which are
described in Section 7.1.
7.3 By their execution and delivery to Fortesa of the Assignment and
Release, Benton and Benton Senegal shall be deemed to have released Fortesa and
First from any and all claims that either of the former may have against the
latter arising out of any of the agreements referred to in the preceding Section
7.1, and Fortesa shall be deemed to have performed fully all of its duties and
obligations to Benton and Benton Senegal under all of the terms and provisions
of such agreements.
ARTICLE 8
REPRESENTATIONS OF FIRST AND FORTESA
First and Fortesa hereby represent and warrant to Benton and Benton
Senegal that:
8.1 OWNERSHIP OF THE STOCK. First, to the extent the Preferred
Shares have not yet been issued, has the right to issue them, and to the
extent they have been issued, First owns, beneficially and of record, good
and marketable title to the Preferred Shares, all free and clear of all
security interests, liens, adverse claims, proxies, options, stockholders'
agreements and other encumbrances, but subject to restrictions on transfers
thereof imposed by the applicable securities laws and the regulations issued
thereunder. At the Closing, subject to the terms and
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conditions of this Agreement, First will convey to Benton good and marketable
title to the Preferred Shares, free and clear of all security interests,
liens, adverse claims, proxies, options, stockholders' agreements and other
encumbrances. There exist no options, warrants, subscriptions, conversion
rights, rights of first refusal, or other rights to purchase, or securities
convertible into or exchangeable for, the Preferred Shares.
8.2 ORGANIZATION AND GOOD STANDING; QUALIFICATION. First and Fortesa
are corporations duly organized, validly existing and in good standing under the
laws of their states of incorporation, with all requisite corporate power and
authority to carry on the business in which they are engaged, to own the
properties they own, to execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
8.3 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of First consists of eleven million shares of capital stock,
comprised of (i) ten million shares of common stock, $0.01 par value, of which
9,046,867 shares are issued and outstanding, and (ii) one million shares of
preferred stock, $1.00 par value per share, 50,000 of which are issued or
outstanding. All of the issued and outstanding shares have been validly issued,
are fully paid and nonassessable, and were issued free of preemptive rights, in
compliance with any rights of first refusal, and in compliance with all legal
requirements.
8.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance
by First and Fortesa of this Agreement and the other agreements contemplated
hereby to which either or both of them are or will be a party, and the
consummation by either or both of them of the transactions contemplated hereby
and thereby, have been duly authorized. This Agreement has been, and each other
agreement contemplated hereby to which First and/or Fortesa is or will be a
party will as of the Closing Date be, duly executed and delivered and
constitutes or will constitute the legal, valid and binding obligation of First
and Fortesa, enforceable in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and subject to principles of equity and public policy that
affect enforceability of agreements generally. First and Fortesa have the full
right, power, and authority to make the
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representations, warranties, covenants, indemnities, and agreements herein.
8.5 FINANCIAL STATEMENTS. First has furnished to Benton the Financial
Statements, attached as Schedule 8.5. The Financial Statements fairly present,
in accordance with GAAP applied on a basis consistent with prior periods, the
consolidated financial position and results of operations and cash flow of First
as of the dates and for the periods indicated. There are no bankruptcy,
reorganization or arrangement proceedings pending against, being contemplated
by, or to First's knowledge threatened against, First or Fortesa.
8.6 NO VIOLATION. Neither the execution, delivery or performance of
this Agreement or the other agreements contemplated hereby nor the consummation
of the transactions contemplated hereby or thereby will (i) conflict with, or
result in a violation or breach of the terms, conditions and provisions of, or
constitute a default under, the Articles of Incorporation or Bylaws of First or
Fortesa or any material agreement, indenture or other instrument under which
First and/or Fortesa is bound or (ii) violate or conflict with any judgment,
decree, order, statute, rule or regulation of any Governmental Authority having
jurisdiction over First or the properties or assets of First or Fortesa.
8.7 FINDER'S FEE. Neither First nor Fortesa has incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated herein; provided, however, that in the event any such obligation is
alleged, First and Fortesa shall indemnify and hold Benton harmless from any
loss, cost, or expense with respect thereto.
8.8 PENDING CLAIMS. There are no suits, legal actions, claims, demands,
tax liens, or controversies, no governmental proceeding or investigation, or no
administrative, conservation, regulatory or arbitration proceedings pending, or,
to the best of First's and Fortesa's knowledge, threatened against First or
Fortesa before any court, or by or before any governmental commission, bureau or
any regulatory authority, that if decided adversely to the interest of First or
Fortesa could adversely affect them or the rights of Benton under this Agreement
or the documents to be delivered at the Closing. Neither First nor Fortesa has
knowledge of any set of facts
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or situation that is reasonably likely to give rise to any such suit, action,
proceeding or investigation that is reasonably likely to result in an
uninsured liability in excess of one hundred thousand and no/100 ($100,00.00)
dollars U.S. Neither First nor Fortesa is (i) subject to any material
continuing court or administrative order, writ, injunction or decree
applicable specifically to First or Fortesa or to their respective business,
assets, operations or employees or (ii) in default with respect to any such
order, writ, injunction or decree.
8.9 COMMITMENTS. To the best of First's and Fortesa's knowledge,
neither is in default under, nor has any event occurred that with the giving of
notice or lapse of time or both would constitute a default by First or Fortesa
under any material contract or arrangement that involves the payment of money.
8.10 COMPLIANCE WITH LAWS. To the best of their knowledge, except for
First's filing of its SEC reports, First and Fortesa have complied with all laws
and has filed with the proper authorities all necessary statements and reports
the failure to comply with or to file would have a material adverse effect on
either of them, there are no existing material violations by First or Fortesa of
any law that would adversely affect the property or business of First and
Fortesa and they possess all necessary material licenses, franchises, permits
and governmental authorizations, in full force and effect, to conduct their
business as now conducted (collectively, "Governmental Authorizations"), First
and Fortesa are not in material violation of any Governmental Authorization, and
no proceeding is pending, or to the knowledge of First or Fortesa, threatened,
which purports to challenge, revoke or limit any Governmental Authorization.
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8.11 TAXES.
(a) FILING OF TAX RETURNS. First and Fortesa have duly and timely filed
or will duly and timely file (in accordance with any extensions duly granted by
the appropriate governmental agency, if applicable) with the appropriate
governmental agencies all returns (including information returns) and reports,
including all schedules or attachments thereto, required by the United States or
any state or any political subdivision thereof or any foreign jurisdiction to be
filed on or before the Closing Date by First and/or Fortesa in connection with
any tax ("Tax Returns"). All such Tax Returns are, or will be, complete and
accurate and properly reflect the taxes of First and Fortesa for the periods
covered hereby. First and Fortesa have duly and timely filed or will duly and
timely file (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) all consolidated and combined unitary Tax
Returns required to be filed for each taxable period through and including the
Closing Date which Tax Returns were required to include Fortesa. All such Tax
Returns are, or will be, complete and accurate and properly reflect the taxes of
First and Fortesa for the periods covered thereby.
(b) PAYMENT OF TAXES. First and Fortesa have paid or accrued all
taxes that have become due with respect to any Tax Returns that they have filed.
ARTICLE 9
REPRESENTATIONS OF BENTON AND BENTON SENEGAL
Benton and Benton Senegal represent to First and Fortesa that:
9.1 ORGANIZATION AND GOOD STANDING.
(a) Benton is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
(b) Benton Senegal is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, with
all
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requisite corporate power and authority to carry on the business in which it is
engaged, to own the properties it owns, to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
9.2 AUTHORIZATION AND VALIDITY. The execution, delivery and performance
by Benton and Benton Senegal of this Agreement and the other agreements
contemplated hereby to which Benton and/or Benton Senegal is or will be a party,
and the consummation of the transactions contemplated hereby and thereby, have
been duly authorized. This Agreement has been, and each other agreement
contemplated hereby to which Benton and/or Benton Senegal is or will be a party
will as of the Closing Date be, duly executed and delivered and constitutes or
will constitute legal, valid and binding obligations of Benton and Benton
Senegal, enforceable against them in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and subject to principles of equity and
public policy that affect enforceability of agreements generally.
9.3 NO VIOLATION. Neither the execution, delivery or performance of
this Agreement or the other agreements contemplated hereby nor the consummation
of the transactions contemplated hereby or thereby will (i) conflict with, or
result in a violation or breach of the terms, conditions and provisions of, or
constitute a default under, the Articles of Incorporation or Bylaws of Benton or
Benton Senegal or any material agreement, indenture or other instrument under
which either of them is bound or (ii) violate or conflict with any judgment,
decree, order, statute, rule or regulation of any Governmental Authority having
jurisdiction over Benton and Benton Senegal or the properties or assets of
Benton and Benton Senegal.
9.4 FINDER'S FEE. Neither Benton nor Benton Senegal has not incurred
any obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
9.5 ABSENCE OF BANKRUPTCY PROCEEDINGS. There are no bankruptcy,
reorganization or arrangement proceedings pending against, being contemplated
by, or to Benton's and/or Benton Senegal's knowledge threatened against either
of them.
ARTICLE 10
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ACCESS TO INFORMATION AND INSPECTION; DUE DILIGENCE
10.1 RECORDS AND FILES. From the date hereof until the Closing,
First and Fortesa will give or cause to be given to Benton and its
representatives at reasonable times during normal business hours reasonable
access to examine, at their actual location, all accounting records,
payments, receipts, books, records, board minutes books, proxy statements,
annual reports, United States Securities and Exchange Commission ("SEC")
compliance filings, federal, state and foreign tax returns and records,
significant contracts, equity and other agreements pertaining to First and
Fortesa insofar as the same may now be in existence and in the possession or
control of First or Fortesa.
ARTICLE 11
CLOSING CONDITIONS
11.1 FIRST AND FORTESA'S CLOSING CONDITIONS. The obligations of First
and Fortesa under this Agreement are subject, at the option of First, to the
satisfaction at or prior to the Closing of the following conditions:
All representations of Benton and Benton Senegal contained in Article 9
will be true in all material respects at and as of the Closing as if such
representations were made at and as of the Closing, and Benton and Benton
Senegal will have performed and satisfied all agreements required by this
Agreement to be performed and satisfied by them at or prior to the Closing.
11.2 BENTON'S AND BENTON SENEGAL'S CLOSING CONDITIONS. The obligations
of First and Fortesa under this Agreement are subject, at the option of Benton,
to the satisfaction at or prior to the Closing of the following conditions:
All representations of First and Fortesa contained in Article 8 will be
true in all material respects at and as of the Closing as if such
representations were made at and as of the Closing, and First and Fortesa will
have performed and satisfied all agreements required by this Agreement to be
performed and satisfied by them at or prior to the Closing.
ARTICLE 12
CLOSING
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12.1 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") will be held at 10:00 a.m., at the offices of Benton,
6267 Carpinteria Avenue, Suite 200, Carpinteria, California, within no later
than seventy-two (72) hours after receipt by Benton of notification from First
and/or Fortesa that they are prepared to deliver the Petrosen Release to Benton
and to satisfy Benton's conditions of Closing and execute and deliver to
Benton the Assignment and Release, or at such other date or place as the parties
may agree in writing (the "Closing Date"). At the Closing, in addition to
compliance with Sections 12.2 and 12.3 hereinafter, the parties hereto shall
execute and deliver the Assignment and Release and all other documents
contemplated herein not previously executed and delivered.
12.2 CLOSING OBLIGATIONS OF FIRST AND FORTESA. At Closing, First and
Fortesa will deliver to Benton the following:
(a) Certificates representing all of the Preferred Shares, duly
endorsed and in proper form for transfer to Benton by delivery under
applicable law, or accompanied by duly executed instruments of transfer in
blank;
(b) A copy of resolutions of the Board of Directors of First
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, certified by the Secretary of First as being
true and correct copies of the originals thereof subject to no modifications or
amendments;
(c) A certificate of an executive officer of First, dated the Closing
Date (i) as to the truth and correctness of the representations of First and
Fortesa under Article 8 as of the Closing Date, (ii) as to the performance of
and compliance by First and Fortesa with the obligations of First and Fortesa
contained herein on and as of the Closing Date and (iii) certifying that all
conditions precedent of First and Fortesa to the Closing have been satisfied or
are waived.
(d) The Petrosen Release
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12.3 CLOSING OBLIGATIONS OF BENTON AND BENTON SENEGAL. At Closing,
Benton will deliver to First and Fortesa the following:
(a) A copy of the Unanimous Action or other resolution of the Board of
Directors of Benton authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements, each certified by Benton's
Secretary as being true and correct copies of the originals thereof subject to
no modifications or amendments;
(b) A certificate of an officer of Benton, dated the Closing Date (i)
as to the truth and correctness of the representations of Benton and Benton
Senegal under Article 9 on and as of the Closing Date, (ii) as to the
performance of and compliance by Benton or Benton Senegal with all covenants
contained herein on and as of the Closing Date and (iii) certifying that all
conditions precedent of Benton and Benton Senegal to the Closing have been
satisfied or are waived.
(c) Subsequent to the Closing, the terms provided for in Section 7.1
within the time period set forth in such section.
12.4 CLOSING OBLIGATIONS OF BENTON AND FIRST. Upon satisfaction of the
obligations contained in sections 12.2 and 12.3 above, Benton and First shall
jointly give the written notice referred to in Section 2 (b) of the Escrow
Agreement to the Escrow Agent and execute the Assignment and Release.
ARTICLE 13
DEFAULT AND TERMINATION
13.1 REMEDIES. Subject to the provisions of Section 14.1 hereinafter,
upon failure of either party to comply with this Agreement by the Closing Date,
as it may be extended in accordance with this Agreement, the other party will be
entitled to pursue, exercise and enforce any and all remedies, rights, powers
and privileges available at law or in equity
13.2 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing:
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(a) By mutual consent of the parties; or
(b) Pursuant to the express provisions hereof.
ARTICLE 14
MISCELLANEOUS
14.1 ARBITRATION. Any dispute or disagreement arising from this Agreement
which cannot be solved amicably within a term of thirty (30) days from the date
of notification of the disagreement sent by one party to the other, shall be
definitively solved by arbitration, pursuant to the Rules of the American
Arbitration Association then in force. The arbitration shall take place in
Houston, Texas, with each party to pay its own expenses. The arbitration
decision shall be final and binding upon the parties.
14.2 CONFIDENTIALITY. Each party shall maintain the confidentiality of
the existing of this Agreement and its terms, and neither party shall divulge
any aspect hereof to any third party until such disclosure is permitted by
separate formal agreement, or the other party's express prior written consent is
obtained; provided, however, that each party shall be permitted to disclose the
existence of this Agreement to its parent companies, and respective bankers,
accountants, attorneys and consultants, except for Petrosen or Ministries or
other governmental agencies of the Republic of Senegal,
14.3 PUBLIC ANNOUNCEMENTS. No party shall make formal statements or
releases to the press or any governmental organization (excluding any loan
application made to OPIC) or other third party concerning the existence or
content of this Agreement without the express prior written approval of such
statement or release by the other party, except where such formal statement or
release is required to be made in order to comply with applicable laws
(including without limitation any requirements of the United States Securities
Exchange Commission) upon advice of counsel, the other party shall act in a
cooperative and expeditious manner in reviewing such. The parties shall endeavor
at all times to act jointly and consistently in respect of any such statements
or releases, subject at all time to the foregoing requirement.
14.4 NOTICES. Except as otherwise expressly provided in this Agreement,
all communications required or
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permitted under this Agreement will be in writing and any such communication
or delivery will be deemed to have been duly given and received when actually
delivered to the address set forth below of the party to be notified
personally (by a recognized commercial courier or delivery service that
provides a receipt) or by telecopier (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent
by telecopy), addressed as follows:
If to Benton and/or Benton Senegal:
BENTON OIL AND GAS COMPANY
6267 Carpinteria Avenue, Suite 200
Carpinteria, California USA 93013
Attention: Mr. Michael B. Wray
Co Chief Executive Officer
Telephone: (805) 566-5600
Facsimile: (805) 566-5610
BENTON OIL AND GAS COMPANY (SENEGAL), LTD.
6267 Carpinteria Avenue, Suite 200
Carpinteria, California USA 93013
Attention: Mr. Michael B. Wray
Co Chief Executive Officer
Telephone: (805) 566-5600
Facsimile: (805) 566-5610
If to First and/or Fortesa:
FIRST SEISMIC CORPORATION
2470 Gray Falls, Suite 190
Houston, Texas USA 77977
Attention: Mr. Rogers E. Beall
Chairman
Telephone: (281) 597-8888
Facsimile: (281) 597-8887
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<PAGE>
FORTESA CORPORATION
2470 Gray Falls, Suite 190
Houston, Texas USA 77977
Attention: Mr. Hayne S. Blakely, President
Telephone: (281) 597-8888
Facsimile: (281) 597-8887
Any party may, by written notice so delivered to the other, change the address
to which delivery will thereafter be made.
14.5 POST-CLOSING. After the Closing has occurred, First shall
promptly furnish to Benton a copy of its annual reports, proxy statement, SEC
filing and other financial information and investor communications at such time
as they are filed or released for so long as Benton is a shareholder of First.
14.6 ENTIRE AGREEMENT. This Agreement and the Escrow Agreement embody
the entire agreement between the parties with respect to the subject matter of
this Agreement (superseding all prior agreements, including the Letter of Intent
and Confidentiality Agreement), arrangements, understandings and solicitations
of interest or offers related to the subject matter of this Agreement), and may
be supplemented, altered, amended, modified or revoked by writing only, signed
by both of the parties to this Agreement. The headings in this Agreement are for
convenience only and will have no significance in the interpretation of any term
or provision of this Agreement.
14.7 GOVERNING LAW. This Agreement will be governed and construed and
enforced in accordance with the laws of the State of Texas, without regard to
rules concerning conflicts of laws.
14.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart will be deemed for all purposes one
agreement.
14.9 WAIVER. Any of the terms, provisions, covenants, representations
or conditions contained in this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision of this Agreement will
in no manner affect such party's right to enforce the same. No waiver by any
party
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<PAGE>
of any condition, or of the breach of any term, provision, covenant or
representation contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of the breach of any other term, provision, covenant or
representation.
14.10 BINDING EFFECT; ASSIGNMENT. All the terms, provisions, covenants,
representations and conditions of this Agreement will be binding upon and inure
to the benefit of and be enforceable by the parties to this Agreement and their
respective successors and assigns; but this Agreement and the rights and
obligations hereunder will not be assignable or delegable by any party without
the prior written consent of the non-assigning or non-delegating parties,
which may be withheld at the sole discretion of such parties.
14.11 TIME PERIODS. Time is of the essence in the performance of
this Agreement.
14.12 CONSTRUCTION. Each party hereby acknowledges and agrees that such
party has consulted legal counsel in connection with the negotiation of this
Agreement and that such party has bargaining power equal to that of the other
party in connection with the negotiation and execution of this Agreement.
Accordingly, the parties agree the rule of contract construction to the effect
that an agreement will be construed against the draftsman will have no
application in the construction or interpretation of this Agreement.
14.13 BOARD APPROVAL. Notwithstanding anything contained herein to the
contrary, the parties hereto recognize that this Agreement is subject to the
approval by the Board of Directors of First, Fortesa, Benton and Benton Senegal.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
FIRST SEISMIC CORPORATION
/s/ [illegible] By: /s/ Rogers E. Beall
- - ----------------------------------
/s/ [illegible] Name: Rogers E. Beall
- - ----------------------------------
Title: Chairman
- - ----------------------------------
FORTESA CORPORATION
/s/ [illegible] By: /s/ Hayne S. Blakely
- - ----------------------------------
/s/ [illegible] Name: Hayne S. Blakely
- - ----------------------------------
Title: President
- - ----------------------------------
BENTON OIL AND GAS COMPANY
/s/ [illegible] By: /s/ Andrei Popov
- - ----------------------------------
/s/ [illegible] Name: Andrei Popov
- - ----------------------------------
Title: Vice President
- - ----------------------------------
BENTON OIL AND GAS COMPANY (SENEGAL), LTD.
/s/ [illegible] By: /s/ Andrei Popov
- - ----------------------------------
/s/ [illegible] Name: /s/ Andrei Popov
- - ----------------------------------
Title: Vice President
- - ----------------------------------
- 21 -
<PAGE>
EXHIBIT 10.8
EXHIBIT "C"
ASSIGNMENT AND RELEASE
THIS ASSIGNMENT AND RELEASE ("Assignment") is made by and between
Benton Oil and Gas Company, a Delaware corporation ("Benton") and Benton Oil
and Gas Company (Senegal), Ltd., a corporation registered under the laws of
the Cayman Islands ("Benton Senegal"), Fortesa Corporation, a Texas
corporation ("Fortesa") and First Seismic Corporation, a Delaware corporation
("First").
In consideration of the mutual promises made between the parties
hereto and other good and valuable consideration, and pursuant to and subject
to the terms of that certain Agreement (the "Agreement") dated October 23, 1999
between the parties hereto, Benton and Benton Senegal hereby:
BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER AND DELIVER unto Fortesa all
of their rights, title and interest under the following agreements:
(a) The Farmout Agreement dated December 17, 1997, by and between
the Societe Des Petroles Du Senegal ("Petrosen") and Fortesa
and Benton to explore and exploit hydrocarbons and undertake
certain work programs in connection with Petrosen's Thies
Block in the onshore area of the Republic of Senegal (the
"Farmout"), a copy of which is attached hereto as Exhibit A;
(b) The Memorandum of Understanding of November 25, 1997, between
Benton, Fortesa and Petrosen, a copy of which is attached
hereto as Exhibit B;
(c) The Memorandum of Understanding dated December 17, 1997,
between Fortesa and Benton, a copy of which is attached hereto
as Exhibit C;
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<PAGE>
(d) The Joint Operating Agreement dated January 16, 1998 between
Benton Senegal, Fortesa and Petrosen, a copy of which is
attached hereto as Exhibit D; and
(e) All other documents, agreements or rights related to the
Farmout (which shall be deemed to include agreements
pertaining to the Thies Block between Benton and/or Benton
Senegal and third parties).
The foregoing documents are collectively referred to herein as the "Farmout
Rights."
THIS ASSIGNMENT shall be subject to the following terms, conditions
and exceptions:
1. This Assignment shall be effective as of 7:00 a.m., Pacific
Standard Time, on the date of execution hereof.
2. Fortesa and First hereby relieve and release Benton and Benton
Senegal from any and all obligations, duties and requirements which Benton
and/or Benton Senegal has or might have to Fortesa and/or First pursuant to
the Farmout Rights.
3. First and Fortesa hereby agree to fully protect, indemnify and
defend Benton and Benton Senegal, their respective officers, agents and/or
employees and hold them harmless from any and all claims, losses, damages,
demands, suits, causes of action and liabilities (including without
limitation reasonable attorney's fees, costs of litigation and/or
investigation and other costs associated therewith) of every kind whatsoever
arising out the Farmout Rights or any part thereof, after the date hereof
regardless of cause or of Benton's and/or Benton Senegal's negligence or
fault, whether imposed by statute, rule or regulation or strict liability as
to Benton and/or Benton Senegal, their respective officers, agents and/or
employees. The indemnity of Benton and/or Benton Senegal provided for herein
is limited to the duties and obligations of Benton and/or Benton Senegal
arising out of the instruments denoted as the Farmout Rights herein and does
not cover or include claims,
- 2 -
<PAGE>
losses (damages, demands, suits, causes of action and liabilities (including
without limitation reasonable attorney's fees, costs of litigation and/or
investigation and other costs associated therewith) arising out of any act or
omission under the laws of the Republic of Senegal and not out of the
foregoing instruments.
4. The terms, conditions or exceptions contained herein shall
constitute covenants running with the land and shall be binding upon, and for
the benefit of, the respective successors and assigns of Benton, Benton
Senegal, First and Fortesa.
5. This Assignment does not negate the terms and provisions of the
Agreement and without limitation particularly Section 6.1 thereof.
6. This Assignment may be executed in any number of counterparts,
and each and every counterpart will be deemed for all purposes one agreement.
THIS ASSIGNMENT IS MADE WITHOUT WARRANTY OF ANY KIND, EXPRESS,
STATUTORY, OR IMPLIED, AND BENTON AND BENTON SENEGAL ARE TRANSFERRING THE
FARMOUT RIGHTS WITHOUT ANY EXPRESS STATUTORY OR IMPLIED WARRANTY WHATSOEVER
AS TO TITLE, DESCRIPTION, PHYSICAL CONDITION OF THE PROPERTY (INCLUDING
WITHOUT LIMITATION, TO ENVIRONMENTAL CONDITION OF THE PROPERTY), QUALITY,
VALUE, FITNESS FOR PURPOSE, MERCHANTABILITY, OR OTHERWISE EXCEPT AS SET FORTH
HEREIN.
Benton and Benton Senegal agrees to execute and deliver to Fortesa
all such other additional instruments and other documents and to do all such
other and further acts and things as may be reasonably necessary to more
fully and effectively grant, convey and assign to Fortesa the Farmout Rights.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to
be executed this 23 day of October, 1999.
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<PAGE>
BENTON OIL AND GAS COMPANY
By: /s/ Andrei E. Popov
-----------------------------------
Name: Andrei E. Popov
---------------------------------
Title: Vice President
--------------------------------
BENTON OIL AND GAS COMPANY (SENEGAL), LTD.
By: /s/ Andrei E. Popov
-----------------------------------
Name: Andrei E. Popov
---------------------------------
Title: Vice President
--------------------------------
FORTESA CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------
Name: [ILLEGIBLE]
---------------------------------
Title: Secretary
--------------------------------
FIRST SEISMIC CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------
Name: [ILLEGIBLE]
---------------------------------
Title: Vice President
--------------------------------
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<PAGE>
STATE OF California
COUNTY OF Santa Barbara
On this 19th day of November, 1999, before me, the undersigned, a
Notary Public, personally appeared Andrei Popov, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument Benton Oil and Gas Company executed the instrument.
WITNESS my hand and official seal.
/s/ Christina B. Doktor
-------------------------------------------------
NOTARY PUBLIC
My Commission Expires:
- - ---------------------- [SEAL]
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<PAGE>
STATE OF California
COUNTY OF Santa Barbara
On this 19th day of November, 1999, before me, the undersigned, a
Notary Public, personally appeared Andrei Popov, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on
the instrument Benton Oil and Gas Company (Senegal), Ltd. executed the
instrument.
WITNESS my hand and official seal.
/s/ Christina B. Doktor
-------------------------------------------------
NOTARY PUBLIC
My Commission Expires:
- - ---------------------- [SEAL]
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<PAGE>
STATE OF Texas
COUNTY OF Harris
On this 19th day of November, l999, before me, the undersigned, a
Notary Public, personally appeared Walter H. Walne, III, Secretary,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument Fortesa Corporation executed the
instrument.
WITNESS my hand and official seal.
/s/ Eva J. Hollingsworth
-------------------------------------------------
NOTARY PUBLIC
My Commission Expires:
- - ---------------------- [SEAL]
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<PAGE>
STATE OF Texas
COUNTY OF Harris
On this 19th day of November, l999, before me, the undersigned, a
Notary Public, personally appeared Nicholas E. Rockecharlie, Vice President,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument First Seismic Corporation,
executed the instrument.
WITNESS my hand and official seal.
/s/ Eva J. Hollingsworth
-------------------------------------------------
NOTARY PUBLIC
My Commission Expires:
- - ---------------------- [SEAL]
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<PAGE>
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of
October __, 1999, is between Benton Oil and Gas Company ("Benton"), of
Carpinteria, California and First Seismic Corporation ("First Seismic") of
Houston, Texas.
WITNESSETH:
WHEREAS, Benton is the owner of all the issued and outstanding
shares of Series B Preferred Stock of First Seismic, par value $.01 per share
(the "Preferred Stock"), of First Seismic, which are convertible into common
stock of First Seismic (the "Common Stock");
WHEREAS, under the provisions of the Securities Act of 1933 (the
"Securities Act") and the general rules and regulations promulgated by the
Securities and Exchange Commission thereunder, Benton may be limited in the
manner of selling shares of Common Stock acquired by Benton upon a conversion
of shares of Preferred Stock, absent registration under the Securities Act of
the sale of such Common Stock or the availability of another exemption from
the registration requirements of the Securities Act;
WHEREAS, the First Seismic wishes to establish certain other
restrictions on the sale of Common Stock owned by Benton, and the First
Seismic and Benton desire to set forth certain registration rights as to such
shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
The following terms have the meanings indicated:
"Directors" means the members of the First Seismic's board of
directors.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Holder" means Benton or any other Person holding Registrable
Shares.
"Participation Notice" means a written or oral notice by a Holder of
his desire to sell Registrable Shares in a registration by the First Seismic.
"Person" means any individual, firm, corporation, trust,
association, partnership, joint venture or other entity.
"Registrable Shares" means all shares of Common Stock owned by a
Holder resulting from the conversion of shares of Preferred Stock or other
securities issued or issuable upon any stock split, stock
<PAGE>
dividends, recapitalization or similar event with respect to shares of Common
Stock owned by a Holder resulting from the conversion of shares of Preferred
Stock.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act and the declaration or ordering of effectiveness of such
registration statement.
"Registration Notice" means a written or oral notice by to the
Holders of its intent to file a registration statement with the SEC.
"Rights" means rights, remedies, powers, benefits, and privileges.
"SEC" means the Securities and Exchange Commission or any successor
thereof.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECTION 2. REGISTRATION RIGHTS.
(a) Upon Benton's exercise of its option to convert its shares of
Preferred Stock into shares of Common Stock, Benton shall have the right to
sell any of all of its Registrable Shares into a successful First Seismic
secondary public offering and receive the net market proceeds per share
received by First Seismic from such an offering in accordance with the terms
of this Section 2.
(b) If, at any time, First Seismic proposes to file a registration
statement in connection with the public offering of shares of Common Stock to
be sold by First Seismic for its own account under the Securities Act (other
than a registration on Forms S-4, S-8 or any successor forms), prior to such
filing, First Seismic shall give each Holder a Registration Notice. Within
five days after receipt by any Holder of a Registration Notice, such Holder
shall deliver to First Seismic a Participation Notice of such Holder's desire
to sell Registrable Shares under such registration. The Participation Notice
shall state the number of Registrable Shares to be disposed in such
registration; provided, however, such holder's right to registration of such
Registrable Shares shall be subject to any limitations in the number thereof
required by the underwriters pursuant to Section 5. Notwithstanding, a Holder
may exercise its rights under this section 2(b) no more than two times.
(c) Upon receiving a Participation Notice in accordance with Section
2(b), First Seismic shall use reasonable efforts to promptly cause all such
Registrable Shares to be registered along with the other shares of Common
Stock to be registered.
(d) The Registrable Shares proposed to be registered under any
registration statement under Section 2(b) hereof will be offered for sale at
the same public offering price as the shares of Common Stock offered for sale
by First Seismic.
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
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<PAGE>
(e) As soon as practicable after delivering a Participation Notice,
each Holder so delivering a Participation Notice will execute and deliver a
custody agreement and power of attorney satisfactory to the First Seismic
with respect to the Registrable Shares to be registered (a "Custody
Agreement" and "Power of Attorney," respectively). The Custody Agreement and
Power of Attorney will provide, among other things, that such Holder will
deliver to and deposit in custody with the custodian named therein a
certificate or certificates representing such Registrable Shares (duly
endorsed in blank by the registered owner or owners thereof or accompanied by
duly executed stock powers in blank) and irrevocably appoint said custodian
and attorney-in-fact with full power and authority to act under the Custody
Agreement and Power of Attorney, respectively, on the Holder's behalf with
respect to matters specified therein, including the execution and delivery of
an underwriting agreement.
SECTION 3. OBLIGATIONS OF FIRST SEISMIC.
Whenever required under Section 2 to use reasonable efforts to
effect the registration of any Registrable Shares, First Seismic shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Shares and use reasonable efforts to
cause such registration statement to become and remain effective;
provided, however, that the First Seismic shall have no obligation to
maintain the effectiveness of any registration statement filed
hereunder or to cause the information therein to remain current for
more than 90 days following such registration statement's effective
date in the case of an underwritten public offering or for longer than
such period as is customary and is required by the underwriter in the
case of a firmly underwritten public offering.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to keep
such registration statement effective in order to dispose of the shares
registered thereunder in the manner described in the underwriting
agreement executed in connection therewith and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement; provided, however,
that First Seismic shall have no obligation to maintain the
effectiveness of any registration statement filed hereunder or to cause
the information therein to remain current for more than 90 days
following such registration statement's effective date in the case of
an underwritten public offering or for longer than such period as is
customary and is required by the underwriter in the case of a firmly
underwritten public offering.
(c) Furnish to the Holders registering securities in such
registration such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Shares owned by
the Holders.
(d) Use reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
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<PAGE>
shall be reasonably appropriate for the distribution of the securities
covered by the registration statement; provided that First Seismic
shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of
process in any such jurisdictions.
(e) With respect to any registration initiated by First
Seismic pursuant to Section 2(b) hereof, First Seismic shall have the
right to withdraw such registration at any time at its sole discretion
without the consent or approval of any Holder including Registrable
Shares in such registration.
SECTION 4. EXPENSES OF REGISTRATION.
All expenses incurred in connection with a registration pursuant to
Section 2 or otherwise in which First Seismic permits a Holder to participate
(excluding underwriters' discounts and commissions applicable to Registrable
Shares), including all registration and qualification fees, printing and
accounting fees, and fees and disbursements of counsel for First Seismic and
the Holder, shall be borne by First Seismic.
Each Holder of Registrable Shares shall pay the underwriters'
discounts and commissions applicable to the securities sold by such Holder.
In addition, each selling Holder shall pay its own costs for experts or
professionals (other than counsel) employed by it or on its behalf in
connection with the registration of Registrable Shares. No Holder shall have
the right to cause First Seismic to employ any expert or professional to act
on behalf of First Seismic.
SECTION 5. UNDERWRITING REQUIREMENTS.
In connection with any offering involving an underwriting of shares
being issued by First Seismic, First Seismic shall not be required to include
any of the Holders' Registrable Shares in such underwriting unless the
Holders accept the terms of the underwriting as agreed upon between First
Seismic and the underwriters.
Additionally, First Seismic shall be required to include in such
piggy-back registration under Section 2(b) only such quantity of the
Registrable Shares as will not, in the judgement of the underwriters,
jeopardize the success of the offering by First Seismic. If, however, the
underwriters have consented to inclusion in any such offering of securities
of any person other than First Seismic, then the Holders shall be entitled to
include such number of their Registrable Shares in such underwriting pro rata
to the total number of shares of Common Stock owned by all of such persons
who are entitled to sell securities in such offering (such apportionment
shall not include securities offered by First Seismic for its own account).
Subject to the above, in all cases the Holders collectively shall have the
right to include Registrable Shares in any registration under Section 2(b)
in an aggregate amount equal to at least fifty percent (50%) of the shares of
Common Stock being sold by all selling stockholders in such public offering.
SECTION 6. INDEMNIFICATION.
(a) In the event of registration of any of the Registrable Shares
under the Securities Act, First Seismic will indemnify and hold harmless the
seller of such Registrable Shares, each underwriter of such
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
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<PAGE>
Registrable Shares, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act,
or otherwise against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the registration
statement, or any amendment or supplement to such registration statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and First Seismic will reimburse such
seller, underwriter, and each such controlling person for any legal or any
other expenses reasonably incurred by such seller, underwriter, or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that First
Seismic will not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon any untrue
statement or omission made in such registration statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to First Seismic
through an instrument duly executed by or on behalf of such seller or
underwriter specifically for use in preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act, each seller of the Registrable Shares,
severally and not jointly, will indemnify and hold harmless First Seismic,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls First Seismic or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against losses, claims,
damages or liabilities, joint or several, to which First Seismic, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement of a material fact contained in any
registration statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the registration statement, or any amendment or supplement to
the registration statement, or arise out of or are based upon any omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to
First Seismic by or on behalf of such seller, specifically for use in
connection with the preparation of such registration statement, prospectus,
amendment or supplement.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 6. After notice
from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or litigation, the Indemnifying Party will
not be liable to such Indemnified Party for any legal or other
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
-5-
<PAGE>
expenses subsequently incurred by such Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation, unless the
Indemnifying Party abandons the defense of such claim or litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional, term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
SECTION 7. LOCKUP AGREEMENT.
In connection with any such registration, upon the request of the
underwriters managing any underwritten offering of Common Stock of First
Seismic, each Holder agrees not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any Registrable
Shares (other than those included in the registration) without the prior
written consent of such underwriters, as the case may be, for such period of
time (not to exceed 90 days) from the effective date of such registration as
the underwriters may specify.
SECTION 8. RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees that he will not sell, dispose of or
otherwise transfer any of the Registrable Shares except (i) upon registration
of such shares under the Securities Act, (ii) pursuant to Rule 144 under the
Securities Act or such comparable rules as shall from time to time be in
effect, or (iii) in a transaction exempt from the registration requirements
of the Securities Act. Each Holder agrees that First Seismic may issue stop
transfer instructions with respect to the restrictions contained herein on
the Registrable Shares.
(b) Each certificate representing the Registrable Shares shall bear
a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, UNLESS AND UNTIL SUCH SHARES
ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
SECTION 9. TERMINATION OF FIRST SEISMIC'S OBLIGATIONS.
First Seismic will have no obligations pursuant to this Agreement
with respect to any request or requests made by any Holder who holds 10% or
less of the Registrable Shares held by him on the date hereof.
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
-6-
<PAGE>
SECTION 10. COVENANTS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION
RIGHTS.
From and after the date of this Agreement, First Seismic shall not enter into
any agreement with any holder or prospective holder of any securities of
First Seismic which provides for the granting to such holder of registration
rights unless the rights granted under such agreement are pari-pasu with the
rights of Holders hereunder or unless First Seismic first obtains the
Holders' of a majority of the Registrable Shares consent to the terms thereof.
SECTION 11. TRANSFER OF REGISTRATION RIGHTS.
The registration rights of Holders under this Agreement may be
assigned and transferred to any transferee purchasing Registrable Shares,
other than in a public offering pursuant to a registration statement, in an
amount equal to at least 50,000 Registrable Shares; provided, however, that
First Seismic is given written notice by the Holder at the time of such
transfer stating the name and address of the transferee and identifying the
Registrable Shares with respect to which the rights under this Agreement are
being assigned. This Agreement shall also be binding upon and enforceable by
the heirs, executors, or other personal representatives of the Holders and
the successors and assigns of First Seismic.
SECTION 12. MISCELLANEOUS.
(a) RELATIONSHIPS AND RIGHTS OF THE HOLDERS. The Holders agree that,
notwithstanding that certain Rights of each Holder herein may be affected by
similar Rights of other Holders the Holders shall, in respect of the
ownership of the Registrable Shares, not be related as, or deemed to be, a
partnership, joint venture, or other "group" for the purpose of acquiring,
holding, voting, or disposing of capital stock of First Seismic.
(b) HEADINGS. The headings, captions, and arrangements used herein
are, unless specified otherwise, for convenience only and shall not be deemed
to limit, amplify, or modify the terms hereof, nor affect the meaning thereof.
(c) NOTICES. Unless otherwise specifically provided, whenever this
agreement requires or permits any consent, approval, notice, request or
demand from one party to another, such communication must be in writing,
shall be sent by registered or certified mail, postage prepaid, return
receipt requested and shall be deemed to have been duly received upon receipt
by the person to whom it is addressed. For purposes hereof, until changed by
written notice pursuant hereto, the address for First Seismic is as follows,
and the address for each Holder is set forth on Schedule One:
First Seismic Corporation
2470 Gray Falls, Suite 190
Houston, Texas USA 77077
(d) GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED BY
A NUMBER OF THE PARTIES HERETO, AND IS INTENDED TO BE PERFORMED, IN THE STATE
OF DELAWARE, AND THE INTERNAL LAWS OF SUCH STATE AND OF THE UNITED STATES OF
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
-7-
<PAGE>
AMERICA SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION HEREOF.
(e) INVALID PROVISIONS. If any provision hereof is held to be
illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision by its severance
here from. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, the parties hereto agree to add as a part hereof a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may
be possible and be legal, valid, and enforceable which preserves the same
economic benefits to the parties hereto.
(f) AMENDMENTS AND CONSENTS. This Agreement may be amended, or any
matter may be consented to, only by an instrument in writing executed by
authorized officers of First Seismic and Holders of a majority of the
Registrable Shares, and supplemented only by documents delivered or to be
delivered in accordance with the express terms hereof except that no
modification providing one or more Holders priority in registering such
Holder's or Holders' Registrable Shares or providing for the elimination of
registration rights shall be made without the consent of all Holders.
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the first above written.
FIRST SEISMIC CORPORATION
By:
------------------------------
Name:
Title:
BENTON OIL AND GAS COMPANY
By:
------------------------------
Name:
Title:
FIRST SEISMIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
-9-
<PAGE>
The following sets forth the computation of basic earnings per share at
December 31, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
NUMERATOR 1998 1997 1996 1995
- - --------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NET LOSS BEFORE SETTLEMENTS/
LIABILITY EXTINGUISHMENTS $ (65,756) $ (18,292) $ (537,557) $ (991,424)
SETTLEMENTS/LIABILITY
EXTINGUISHMENTS (Note 1) 305,489 177,324 925,178 1,755,554
----------- ----------- ----------- -----------
NET INCOME $ 239,733 $ 159,032 $ 387,621 $ 764,130
=========== =========== =========== ===========
DENOMINATOR FOR BASIC EARNINGS PER SHARE
- - ----------------------------------------
WEIGHTED NUMBER OF SHARES USED
IN COMPUTING NET INCOME (LOSS)
PER SHARE 5,552,869 5,251,647 5,071,510 4,817,720
NET LOSS BEFORE SETTLEMENTS/
LIABILITY EXTINGUISHMENTS
PER SHARE $ (0.01) $ (0.00) $ (0.11) $ (0.20)
=========== =========== =========== ===========
SETTLEMENTS/LIABILITY
EXTINGUISHMENTS PER SHARE $ 0.05 $ 0.03 $ 0.19 $ 0.36
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.04 $ 0.03 $ 0.08 $ 0.16
=========== =========== =========== ===========
</TABLE>
Based on estimated fair market values, outstanding options and warrants are
considered antidilutive for all years presented. After year end, 50,000 shares
of convertible preferred stock and 8,055 shares of common stock were issued in
connection with the FORTESA merger, as well as common shares issued in
connection with the conversion of long-term debt.
<PAGE>
EXHIBIT 21
List of Subsidiaries of First Seismic Corporation
FIRST SEISMIC Corporation, a Delaware Corporation (PARENT)
FORTESA Corporation, a Texas Corporation
FIRST EXCHANGE Corporation, a Delaware Corporation
FIRST EXCHANGE Limited, a United Kingdom Corporation
Blackwell Supply, Inc., d.b.a. Blackwell Trading, Inc., a Delaware corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 169,487
<SECURITIES> 0
<RECEIVABLES> 510,049
<ALLOWANCES> 124,481
<INVENTORY> 0
<CURRENT-ASSETS> 580,359
<PP&E> 126,138
<DEPRECIATION> 73,155
<TOTAL-ASSETS> 3,330,585
<CURRENT-LIABILITIES> 1,249,420
<BONDS> 0
57,769
0
<COMMON> 0
<OTHER-SE> 9,531,278
<TOTAL-LIABILITY-AND-EQUITY> 3,330,585
<SALES> 2,964,430
<TOTAL-REVENUES> 2,964,430
<CGS> 1,454,145
<TOTAL-COSTS> 1,454,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,293
<INCOME-PRETAX> 233,224
<INCOME-TAX> 0
<INCOME-CONTINUING> 233,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,224
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
