<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to ___________
COMMISSION FILE NUMBER: 0-22076
ZYDECO ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
76-0404904
(I.R.S. Employer Identification No.)
333 NORTH SAM HOUSTON PARKWAY EAST, SUITE 1160
HOUSTON, TEXAS
(Address of principal executive offices)
77060
(Zip Code)
(713) 820-2481
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ------
As of March 31, 1996, there were 5,807,170 shares of Zydeco Energy, Inc. Common
Stock, $.001 par value, issued and outstanding.
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION AND SIGNATURES
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
Page 2 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 475,287 $ 517,781
Marketable securities 9,082,923 10,938,674
Oil and gas revenue receivable 150,101 67,024
Other receivables 964,019 46,546
Prepaid expenses 25,600 -
----------- -----------
Total Current Assets 10,697,930 11,570,025
----------- -----------
Oil & gas properties, using successful efforts method of accounting
Proved properties 319,182 309,110
Unproved properties - -
Equipment and software, at cost 995,626 789,710
----------- -----------
1,314,808 1,098,820
Less: Accumulated depreciation, depletion and amortization (509,905) (399,541)
----------- -----------
804,903 699,279
Operating bond and other assets 317,187 313,101
----------- -----------
TOTAL ASSETS $11,820,020 $12,582,405
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 366,464 $ 284,219
Accrued liabilities 252,601 355,833
Exploration obligation 3,120,211 3,210,477
Short-term bridge financing notes payable - 225,028
Capital lease obligations-current portion 167,992 160,693
----------- -----------
Total Current Liabilities 3,907,268 4,236,250
----------- -----------
Capital lease obligation 112,700 157,537
----------- -----------
Commitments and contingencies
Stockholders' Equity
Convertible preferred stock, par value $.001 per share; 1,000,000
shares authorized; 781,255 shares issued and outstanding 781 781
Common stock, par value $.001 per share; 50,000,000 shares
authorized; 6,588,425 and 6,562,530 shares issued; 5,807,170
and 5,781,275 shares outstanding, respectively 6,589 6,563
Additional paid-in capital 9,495,027 9,495,053
Accumulated deficit (1,695,093) (1,306,527)
Less Treasury stock, at cost; 781,255 shares (7,252) (7,252)
----------- -----------
Total Stockholders' Equity 7,800,052 8,188,618
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,820,020 $12,582,405
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------
1996 1995
----------- ---------
<S> <C> <C>
Revenues
Oil and gas production $251,535 $ 21,094
Gain on sales of unproved leases - 50,000
Seismic services - 200,000
Interest income 86,499 17,823
-------- --------
Total Revenues 338,034 288,917
Expenses
Lease operating expenses 6,549 3,126
Exploration and dry hole costs - 259,368
Seismic service costs - 200,000
General and administrative expenses 595,998 185,342
Depreciation, depletion and amortization 110,365 83,220
Interest expense 13,688 30,404
-------- --------
Total Expenses 726,600 761,460
NET LOSS $(388,566) $(472,543)
========= =========
Per Common Share and Share Equivalent --
Weighted average number of common shares
and common share equivalents outstanding 5,799,117 3,708,088
========= =========
Loss per common equivalent share $(0.07) $(0.13)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Total
----------------- ----------------- Paid-in Accumulated Treasury Stockholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
------- -------- -------- ------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 781,255 $781 4,468,777 $4,469 $2,195,278 $ (132,881) $ - $2,067,647
(Unaudited):
Acquisition of Treasury Stock - - (781,255) - - - (7,252) $ (7,252)
Net Loss - - - - - (472,543) - $ (472,543)
Private issuance of Common Stock - - 76,688 77 (77) - - -
------- ------ --------- ------- ---------- ----------- -------- ----------
Balance at March 31, 1995 781,255 $781 3,764,210 $4,546 $2,195,201 $ (605,424) $(7,252) $1,587,852
------- ------ --------- ------- ---------- ----------- -------- ----------
Balance at December 31, 1995 781,255 $781 5,781,275 $6,563 $9,495,053 $(1,306,527) $(7,252) $8,188,618
(Unaudited):
Net Loss - - - - - (388,566) - (388,566)
Warrants Exercised for Common Stock - - 25,895 26 (26) - - -
------- ------ --------- ------- ---------- ----------- -------- ----------
Balance at March 31, 1996 781,255 $781 5,807,170 $6,589 $9,495,027 $(1,695,093) $(7,252) $7,800,052
======= ====== ========= ======= ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (388,566) $ (472,543)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 110,365 83,220
Gain on sales of unproved leases 0 50,000
Exploration and dry hole costs 0 259,368
Changes in operating assets and liabilities
Decrease in marketable securities 1,855,751 -
(Increase) in oil & gas revenue receivable (83,077) (21,094)
(Increase) Decrease in other current assets (6,390) 9,697
Increase (Decrease) in accounts payable 82,245 87,131
Increase in accrued liabilities (103,232) -
Other (4,088) (7,277)
----------- ----------
Net cash provided by (used in) operating activities 1,463,008 (111,498)
Cash flows from investing activities:
Acquisition of oil and gas properties $ (10,072) $ (319,064)
Proceeds from the sale of unproved leases - 50,000
Cost recovery on exploration agreement (936,683) 628,547
Net advance on exploration obligation - 60,298
Expenditures against exploration obligation (90,266) -
Purchase of equipment and software (205,916) (58,356)
Investment in marketable securities - -
----------- ----------
Net cash (used in) investing activities (1,242,937) 361,425
Cash flows from financing activities:
Principal repayments of short-term Bridge Financing $ (225,028) $ -
Principal payments of capital lease obligations (37,537) (105,868)
Common stock proceeds - 26
----------- ----------
Net cash provided by financing activities (262,565) (105,842)
----------- ----------
Net increase (decrease) in cash and cash equivalents $ (42,494) $ 144,085
Cash and cash equivalents at beginning of period 517,781 875,927
----------- ----------
Cash and cash equivalents at end of period $ 475,287 $1,020,012
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do
not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements
include all adjustments, which are of a normal recurring nature, necessary
to present fairly the financial position at March 31, 1996 and March 31,
1995 and the results of operations and changes in cash flows for the three
months ended March 31, 1996 and 1995, respectively. These financial
statements should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
2. ORGANIZATION AND BUSINESS OPERATIONS.
Zydeco Energy, Inc. was incorporated in Delaware in June 1993 as a "special
purpose acquisition corporation" under the name TN Energy Services
Acquisition Corp. ("TN Energy"), for the purpose of raising funds and
acquiring an operating business engaged in the energy services industry.
Other than its efforts to acquire an energy services business, TN Energy
did not engage in any business activities prior to December 1995. On
December 20, 1995, the Company acquired all the outstanding common stock
and preferred stock of Zydeco Exploration, Inc. ("Zydeco") pursuant to a
merger and changed its name to Zydeco Energy, Inc. As used herein, unless
the context indicates otherwise, the term "Company" refers to Zydeco
Energy, Inc. and Zydeco, its wholly-owned subsidiary. See "Note 4--Reverse
Acquisition by Zydeco".
For accounting purposes the acquisition has been treated as a
recapitalization of Zydeco with Zydeco as the acquiror (reverse
acquisition). Accordingly, the historical financial statements prior to
December 20, 1995 are those of Zydeco. No pro forma information giving
earlier effect to the transaction has been presented since the transaction
is accounted for as a recapitalization. The consolidated financial
statements at December 31, 1995 and for all periods and dates subsequent to
such date include the accounts of the Company and Zydeco Exploration, Inc.,
the wholly-owned subsidiary of the Company. All significant intercompany
transactions have been eliminated in consolidation.
The Company is engaged in acquiring leases, drilling, and producing
reserves from those properties utilizing focused geologic concepts and
advanced 3D seismic technology. In addition to utilizing advanced 3D
seismic technology to evaluate and analyze prospects for the Company, the
Company performs advanced geophysical seismic analysis services for third
parties. The Company's current focus is to explore for oil and gas in the
Louisiana Transition Zone, the region of land and shallow waters within a
few miles of the shoreline.
The Company's future operations are dependent upon a variety of factors,
including, but not limited to, successful application of 3D seismic
evaluation and interpretation expertise in developing oil and gas
prospects, profitable exploitation of future prospects, and the Company's
ability to access capital sources necessary for continued growth.
Use of 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. Significant estimates with regard to these financial
statements include the estimate of proved oil and gas reserve volumes and
the related discounted future net cash flows therefrom.
Page 7 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
3. FORTUNE EXPLORATION AGREEMENT.
In February 1995, Zydeco entered into an Exploration Agreement (the
"Fortune Agreement") with a predecessor of Fortune Petroleum Corporation
("Fortune"). Under the Fortune Agreement, Fortune advanced $4.8 million in
a series of payments to purchase a 50% interest in certain potential
prospects ("Prospects") owned by the Company and fund the initial
development of the potential Prospects. Pursuant to the Fortune Agreement,
$628,547 represented a reimbursement of certain of the costs previously
incurred by the Company on the potential Prospects. The remaining
$4,171,453 is designated to fund all third-party costs of preparing
potential Prospects for evaluation, including lease acquisition, lease
maintenance, and the acquisition, processing and interpretation of seismic
data. Thereafter, the Fortune Agreement provides that the parties shall
bear any additional costs equally. At March 31, 1996 and December 31,
1995, the portion not yet expended is recorded as an exploration obligation
and classified as a current liability. Future expenditures incurred on
Prospect leads will be charged against the obligation. No expenditures
incurred pursuant to the Fortune Agreement will be capitalized by the
Company until the parties begin sharing equally in such costs, if any. At
March 31, 1996, inception to date expenditures under the Fortune Agreement
aggregated $1,831,159, net of income from prospect sales and interest
earned of $151,370.
4. REVERSE ACQUISITION BY ZYDECO.
On December 20, 1995, the shareholders of TN Energy approved a merger with
Zydeco (the "Merger"). Pursuant to the Merger Agreement, each outstanding
share of common stock of Zydeco, par value $.000333 per share, was
converted into the right to receive 1.56251 shares of Common Stock of TN
Energy, par value $.001 per share; each share of convertible preferred
stock of Zydeco, par value $5.00 per share, was converted into the right to
receive 1.56251 shares of Convertible Preferred Stock of TN Energy, par
value $.001 per share, and any fractional shares settled in cash.
In addition, TN Energy assumed Zydeco's existing stock options issued in
connection with Zydeco's 1995 Employee Stock Option Plan (the "Plan"),
substituting shares of Common Stock of TN Energy as the shares subject to
purchase under the Plan. Further, TN Energy assumed each existing common
stock warrant issued by Zydeco, substituting Common Stock of TN Energy as
the shares subject to purchase under the warrants. The number of shares
subject to purchase under option and warrant agreements was adjusted by
multiplying the number of Zydeco option or warrant shares by the exchange
ratio of 1.56251 shares . The exercise prices for Zydeco options and
warrants were adjusted by dividing the stated exercise price by the
exchange ratio. After completion of the Merger, TN Energy changed its name
to Zydeco Energy, Inc. At the conclusion of the Merger on December 21,
1995, Zydeco Energy, Inc. had 5,781,275 shares of Common Stock outstanding
and 781,255 shares of Convertible Preferred Stock outstanding.
The Merger has been treated as a reverse acquisition for accounting
purposes with Zydeco as the acquiror and TN Energy as the acquiree based
upon Zydeco's current officers and directors assuming management control of
the resulting entity and the value and ownership interest being received by
current Zydeco stockholders exceeding that received by TN Energy
stockholders. The effect of the Merger for accounting purposes was treated
as if Zydeco issued additional capital stock to TN Energy shareholders for
cash. The net assets of TN Energy on the date of the Merger was $7,971,255
and, accordingly, the common shares of TN Energy on such date have been
recorded as an increase in common stock and additional paid-in capital.
The costs incurred in connection with the Merger of approximately $669,700
were charged to additional paid-in capital at December 31, 1995.
Page 8 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
5. INDEBTEDNESS.
Long-term Obligations. Balances of the Company's long-term obligations at
March 31, 1996 and December 31, 1995 consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------- -------------------
Current Long-term Current Long-term
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Capital Lease -
Computer Hardware & Software $ 167,992 $112,700 $160,693 $ 157,537
</TABLE>
Bridge Financing. In connection with the Merger, TN Energy entered into a
financing arrangement ("Bridge Financing") and ultimately borrowed $225,028
from three investors ("Bridge Lenders") to finance TN Energy's share of
legal, accounting and printing costs of the Merger. The notes, including
accrued interest at 10%, were repaid in January 1996. In December 1995, in
connection with arranging the Bridge Financing, the Company issued to the
Bridge Lenders, five-year warrants to purchase, at a purchase price of
$5.33 per share, 225,028 shares of Common Stock.
Options to purchase 225,000 outstanding shares of the Company were granted
in December 1995 by certain stockholders of the Company. The options were
granted by the stockholders for 150,000 shares to the Bridge Lenders as an
inducement to make the Bridge Financing and for 75,000 shares to other
Principals in connection with discussions with TN Energy that resulted in
the introduction of Zydeco. The aggregate exercise price for all the
options granted was approximately $30. The cost of such options was
reflected as a financing expense and capital contribution by the Company
prior to the Merger.
6. CONVERTIBLE PREFERRED STOCK AND COMMON STOCK.
During the three month period ended March 31, 1995, the Company issued
76,688 common shares for nominal consideration. In connection with the
Merger, 1,875,000 shares of Common Stock were effectively issued to the
shareholders of TN Energy with entries to common stock and additional paid-
in capital for $7,971,525, the net assets of TN Energy on the date of the
Merger (comprised primarily of cash and marketable securities).
Outstanding shares of convertible preferred stock were issued in a
$2,500,000 private placement offering completed by Zydeco in December 1994.
Convertible Preferred Stock. Shares of Convertible Preferred Stock, par
value $.001, are entitled to one vote (non-voting prior to December 20,
1995) together with the Company's Common Stock on all matters as a single
class. No dividends accrue on Convertible Preferred Stock. The preference
in liquidation of such shares is $3.20 per share. The Convertible
Preferred Stock is subject to a conversion rate of one share of Common
Stock for each share of Convertible Preferred Stock upon the occurrence of
an "Automatic Conversion Triggering Event", which as defined, occurs if the
Company undertakes a public offering of shares of Common Stock for $5
million or more, and the price per share paid in such offering is $7.00 or
more.
Additionally, the Convertible Preferred Stock may be converted, at the
option of the Company, upon the occurrence of an "Optional Conversion
Triggering Event", which as defined, occurs if the Closing Price for the
Common Stock, as reported on a national securities exchange or certain
other trading facilities shall be $6.50 or more for a period of 30
consecutive trading days. The conversion rate is subject to adjustment in
certain circumstances.
Page 9 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
Warrants. In connection with the private placement offering and subject
to certain terms and conditions, Zydeco issued or is obligated to issue up
to 72,268 Common Stock purchase warrants to the underwriters, each of which
entitles the holder to purchase one share of Common Stock at an exercise
price of $1.60 per share at any time during the five-year period commencing
from the Closing Date, December 2, 1994. The initial value of such
warrants issued in connection with the private placement was immaterial.
During the three months ended March 31, 1996, warrants were exercised for
25,895 shares of Common Stock, net of 9,575 shares tendered upon exercise.
On December 21, 1993, the Company sold 1,500,000 units ("Units") in its
initial public offering ("Public Offering"). Each Unit consists of one
share of the Company's Common Stock, $.001 par value, and two Redeemable
Common Stock Purchase Warrants ("Public Warrants"). Each Public Warrant
entitles the holder to purchase, during the period commencing on the later
of the consummation by the Company of a Business Combination or one year
from the effective date of the Public Offering and ending seven years from
the effective date of the Public Offering, from the Company one share of
Common Stock at an exercise price of $5.50. The Public Warrants will be
redeemable at a price of $.01 per warrant upon 30 days' notice at any time,
only in the event that the last sale price of the Common Stock is at least
$10.00 per share for 20 consecutive trading days ending on the third day
prior to date on which notice of redemption is given.
The Company also issued, in connection with the Public Offering, an
aggregate of $150,000 of promissory notes to certain accredited investors.
These notes bore interest at the rate of 10% per annum and were repaid on
the consummation of the Public Offering with accrued interest thereon. In
addition, the investors were issued 300,000 warrants (valued at a nominal
amount) which are identical to the Public Warrants discussed above.
On December 21, 1993, the Company sold to the underwriters in the Public
Offering and their designees, for nominal consideration, the right to
purchase up to 150,000 units ("Unit Purchase Option"). The underwriters'
units issuable upon the exercise of the Unit Purchase Option are identical
to the Units discussed above except that the Public Warrants contained
therein expire five years from the effective date of the Public Offering
and cannot be redeemed. At March 31, 1996, no Public Warrants or Unit
Purchase Options had been exercised.
Treasury Stock. Treasury stock is recorded at cost and represents the
value of 781,255 common shares purchased in January 1995 from an officer of
the Company in consideration for an overriding royalty interest in certain
properties in which the Company had an interest at the time of the treasury
stock purchase. The Company had no proved reserves at the time of the
transaction. The cost of treasury stock of $7,252 was determined on the
basis of a pro-rata allocation of the Company's accumulated cost in
unproved properties at the time of the transaction in comparison to the net
revenue interest transferred.
7. RELATED-PARTY TRANSACTIONS.
In September 1995, the Company engaged the services of a law firm,
including the services of a partner in the firm who is a relative of a
Zydeco officer. The Company incurred expenses of approximately $119,000,
primarily related to the Merger, to this firm during 1995 and approximately
$21,980 during the three months ended March 31, 1996.
The Company entered into an exchange agreement, dated January 1, 1995, with
an entity where certain officers and/or directors are officers and/or
directors of the Company, and agreed to provide 3D seismic
analysis services in exchange for a license to such data. The value of
this exchange was determined by the parties to be $200,000. As this
exchange agreement represents an exchange of dissimilar goods, income
and expense for 1995 reflects the gross value of seismic service revenues
and related data costs associated with this transaction for the three
months ended March 31, 1995.
Page 10 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
Effective January 1, 1995, the Company assumed an obligation for office
facilities under an operating lease agreement, expiring in March 1997, from
an entity where certain officers and/or directors are officers and/or
directors of the Company. The agreement contains typical renewal options
and escalation clauses, and required no deposit or prepayment at
assumption. The lease agreement provides for a base monthly payment of
$3,122 plus a defined percentage of the landlord's operating expenses which
are subject to adjustment. Rental expense related to this lease was $9,861
and $9,735 which is included in general and administrative expenses for the
three months ended March 31, 1996 and 1995, respectively.
8. STOCK OPTION PLAN.
On January 4, 1996 the Board of Directors approved and adopted, subject to
stockholder approval, the Zydeco Energy, Inc. 1996 Equity Incentive Plan.
The Plan authorizes the grant of various stock and stock-related awards to
key management and other personnel on the basis of individual and corporate
performance. The Plan provides for the granting of stock options to
purchase an aggregate of 350,000 shares of Common Stock, which are reserved
for such purpose. During the three months ended March 31, 1996, options to
purchase 175,000 shares were granted to employees at exercise prices
ranging between $6 and $7 per share. The grants are subject to stockholder
approval of the Plan, which approval is expected to be sought at the
Company's 1996 Annual Meeting of Stockholders. At March 31, 1996, no such
options had been exercised. Such options are non-compensatory, vest over a
four-year period and terminate no later than ten years after the date of
grant unless otherwise determined by the Compensation Committee.
Also on January 4, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Non-employee Director Stock Option Plan and
granted an aggregate of 45,000 shares of Common Stock to three non-employee
directors. The options granted become exercisable, one third on April 1,
1997 and one third each of the next two succeeding years. The options were
granted at $7, the average of the high and low sales price of the Company's
Common Stock on the date of grant. The grants are subject to stockholder
approval of the Plan, which approval is expected to be sought at the
Company's 1996 Annual Meeting of Stockholders. At March 31, 1996, no such
options had been exercised. The options terminate no later than ten years
after the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, a new standard for
accounting for stock-based compensation. This standard established a fair-
value based method of accounting for stock options awarded after December
31, 1995 and encourages companies to adopt SFAS No. 123 in place of the
existing accounting method, which requires expense recognition only in
situations where stock compensation plans award intrinsic value to
recipients at the date of grant. Companies that do not follow SFAS No. 123
for accounting purposes must make annual pro forma disclosures of its
effects. Adoption of the standard is required in 1996, although earlier
implementation is permitted. The Company does not intend to adopt SFAS No.
123 for accounting purposes; however, it will make annual pro forma
disclosures of its effects commencing in 1996.
9. WEST CAMERON SEISMIC PROJECT.
On February 14, 1996, the Company purchased an exclusive seismic option
permit from the state of Louisiana covering approximately 51,000 acres of
state waters in western Cameron Parish, Louisiana. The Company paid
$783,753 for the seismic permit and is required to provide a 3D survey over
the area within 18 months. Under the Agreement with the state of
Louisiana, the Company is obligated to deliver a 3D seismic survey over the
state acreage included in the permit or pay a penalty equivalent to the
initial payment for the permit and/or unspecified damages.
In April 1996, the Company executed an Exploration Agreement with Cheniere
Energy Operating Co., Inc. ("Cheniere", a company formed by and to be
funded by a group of private investors) covering an area of land and waters
in western Cameron Parish, Louisiana, including the area covered by the
seismic option
Page 11 of 17
<PAGE>
ZYDECO ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
permit described above ("West Cameron Seismic Project"). The Agreement, as
amended, provides that Cheniere may receive up to a 50% interest in the
West Cameron Seismic Project, conditioned upon receipt of $3 million cash
from Cheniere before June 14, 1996. At March 31, 1996, the Company had
incurred costs of approximately $937,000 in connection with the Project,
which are to be reimbursed upon the initial funding, and, accordingly, such
costs have been classified as a receivable from Cheniere. The agreement
provides for aggregate payments to Zydeco of $13.5 million to fund the
estimated costs of seismic acquisition, including the purchase of seismic
rights or lease options on the related onshore acreage of the Project, and
to complete data acquisition and processing of a 3-D seismic survey of the
onshore and offshore areas. The data will be used to identify seismically
controlled drilling prospects, if any, within the Project area. The Company
expects to begin seismic field work in June 1996.
On February 7, 1996, the Company entered into a technology agreement with
an individual to develop, test and evaluate certain proprietary technology
related to 3D seismic processing and imaging. The Company committed to
providing the test environment including personnel, computing hardware,
software and certain data in exchange for an option to receive a license to
use the resulting technology in certain exclusive areas of the Gulf of
Mexico. The Company completed its testing in April 1996 and expects to
exercise its option in May 1996. The Company's intends to utilize the
processing technology in the project described above. The license provides
for annual royalty payments, at the option of the Company, upon exercise of
the option.
Page 12 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in June 1993 as a "special purpose acquisition
corporation" for the purpose of raising funds and acquiring an operating
business engaged in the energy services industry. In December 1995 the Company
acquired Zydeco Exploration, Inc. ("Zydeco") by merger (the "Merger"). Other
than its efforts to acquire an energy services business, the Company did not
engage in any business activities prior to December 1995. The Company, through
its operating subsidiary, Zydeco, is now active as an independent oil and gas
exploration company. The Company's future operations will be dependent upon a
variety of factors, including successful application of 3D seismic evaluation
and interpretation expertise to develop potential drilling prospects, profitable
exploration and exploitation of such prospects, the ability to joint venture
with third parties utilizing the Company's 3D seismic analysis and experience
and the Company's ability to access capital sources necessary for continued
growth. The Company's revenues, profitability and future rate of growth will be
substantially dependent upon prevailing prices for natural gas, oil and
condensate, which are dependent upon numerous factors beyond the Company's
control.
The Company has been acquiring, and will continue to acquire, oil and gas
leases in the Louisiana Transition Zone and the Timbalier Trench. From such
lease positions, the Company is developing and intends to develop 3D seismic
survey programs or obtain existing non-exclusive 3D seismic data for analysis.
The Company intends to analyze such data with the goal of developing a number of
drilling prospects. Prior to drilling such prospects, the Company will likely
seek participation in such prospects from industry partners or by including as
drilling participants oil and gas companies owning working interests in
adjoining or nearby acreage. There is no assurance, however, that the Company
will be able to generate any particular number of drilling prospects, or that
the Company will achieve a particular success rate in finding paying quantities
of oil and gas. The Company also intends to offer its technical expertise in 3D
seismic analysis and interpretation to other oil and gas companies in
negotiating joint venture or property interests.
On December 20, 1995, TN Energy Acquisition, the Company's wholly-owned
subsidiary, merged with and into Zydeco. For accounting purposes, the Merger
was treated as a recapitalization of Zydeco with Zydeco as the acquiror, or a
reverse acquisition, based upon Zydeco's officers and directors assuming
management control of the resulting entity and Zydeco Exploration's stockholders
receiving value and ownership interest exceeding that received by the TN Energy
stockholders. Under this accounting treatment, the historical financial
statements of Zydeco prior to the Merger have become those of the Company.
On February 7, 1996, the Company entered into a technology agreement with
an individual to develop, test and evaluate certain proprietary technology
related to 3D seismic processing and imaging ("Technology License Agreement").
The Company committed to providing the test environment including personnel,
computing hardware, software and certain data in exchange for an option to
receive a license to use the resulting technology worldwide and exclusively in
certain areas of the Gulf of Mexico. The Company completed its testing in April
1996 and expects to exercise its option in May 1996. The Company's intends to
utilize the processing technology in the project described below. The license
provides for annual royalty payments, at the option of the Company, upon
exercise of the option.
On February 14, 1996, the Company purchased an exclusive seismic option
permit from the state of Louisiana covering approximately 51,000 acres of state
waters in western Cameron Parish, Louisiana. The Company paid $783,753 for the
seismic permit and is required to provide a 3D survey over the area within 18
months. On April 4, 1996, the Company executed an Exploration Agreement with
Cheniere Energy Operating Co., Inc. ("Cheniere", a company formed by and to be
funded by a group of private investors) covering an area of land and waters in
western Cameron Parish, Louisiana, including the area covered by the seismic
option permit described above ("West Cameron Seismic Project"). Cheniere's
interest in the Project is conditioned upon receipt of $3 million cash from
Cheniere by June 14, 1996. The agreement, as amended, provides for aggregate
payments to Zydeco of $13.5 million to fund the estimated costs of seismic
acquisition, including the purchase of
Page 13 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(Continued)
seismic rights or lease options on the related onshore acreage of the Project,
and to complete data acquisition and processing of a 3-D seismic survey of the
onshore and offshore areas. The data will be used to identify seismically
controlled drilling prospects within the Project area. The Company expects to
begin seismic field work in June 1996.
RESULTS OF OPERATIONS- MARCH 31, 1996 COMPARED TO MARCH 31, 1995.
During 1996 and 1995, the Company's primary operations consisted of the
acquisition of federal and state oil and gas leases, the acquisition of 3D
seismic analysis hardware and software, and the purchase of an interest in a gas
well which commenced production in January 1995, the farmout of two leases (one
of which resulted in commercial production commencing in December 1995) and a
one-eighth participation in the drilling of an exploratory well, which resulted
in a dry hole. Due to its limited operations and because Zydeco had completed
only one full fiscal year prior to 1996, analysis of comparable interim periods
prior to 1995 is not meaningful.
For the first three months of 1996, operations resulted in a net loss of
$389,566 ($.07 per share) compared to a net loss of $472,543 for the comparable
period in 1995. The decrease in net loss of $83,977 is comprised of increased
revenue of $49,117 and decreased expenses of $34,860. The loss per share also
decreased as a result of the additional dilution from shares outstanding which
increased due to the shares issued in the Merger. First quarter revenues in
1996 represented an increase of $99,117 when compared to the same quarter in
1995. Oil and gas sales in 1996 increased $230,441 primarily due to the
commencement of new production in December 1995 from a well completed by Bois d'
Arc Corporation in which the Company has an overriding royalty interest of 4.33%
(before payout). In first quarter 1996, the Company's oil and gas revenue
represented production from two wells of approximately 3,500 barrels of oil and
74,300 mcf of natural gas which was sold for prices averaging approximately
$19.64 per barrel and $2.47 per mcf, respectively. This compared to first
quarter 1995 production from one well of approximately 120 barrels and 12,800
mcf at prices averaging $17.60 per barrel and $1.48 per mcf, respectively.
Offsetting the increased oil and gas production were decreases in revenue from
seismic services ($200,000) and sales of unproved property interests as compared
to the first quarter of 1995. Interest income increased $68,676 as a result of
the increase in cash of approximately $7.3 million resulting from the Merger in
December 1995. Although total expenses decreased in the first quarter in 1996
when compared to first quarter 1995, the components of expense changed
significantly as a result of the different mix of operating activities between
the two quarters. Exploration costs decreased in 1996 as a result of the
absence of drilling activities in the first quarter. Seismic services costs
represented a single transaction occurring in 1995 and thus accounts for the
decrease in 1996. General and administrative expense increased approximately
$411,000 primarily as a result of increased personnel costs ($219,000) due to
the addition of personnel and increased legal and accounting costs ($117,000)
following the Merger. Depletion, depreciation and amortization increased
$27,145 primarily due to increased oil and gas production and additions of
hardware and software used in connection with the Company's seismic processing
activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated funds from a public offering, private equity
offering, company operations and cash payments under the Fortune Agreement.
Sources of funds include the December 1993 public offering of the Company's
Common Stock and Warrants which raised net proceeds, after offering costs, of
approximately $7.9 million; the December 1994 offering of the convertible
preferred stock by Zydeco Energy with proceeds to the Company, after offering
costs, of approximately $2.2 million, and cash payments of $4.8 million advanced
in 1995 under the Fortune Agreement. Under the Fortune Agreement, approximately
$629,000 represented a direct reimbursement of lease acquisition and seismic
expenses previously incurred by the Company. The remainder received from
Fortune is required to be used by the Company for leasehold acquisitions and
related seismic development on leases in which Fortune has obtained an interest.
The Cheniere Exploration Agreement executed in April 1996, provides for funding
of $13.5 million of Project expenditures including $937,000 of costs incurred
by
Page 14 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--(Continued)
the Company during the first quarter of 1996 which are to be reimbursed upon the
initial funding. Other sources of capital for the Company include lease
financing from computer hardware equipment and software vendors. The Company
expects that a significant portion of any additional computer equipment and
software acquired by the Company could be financed under vendor lease financing
arrangements.
The Company does not maintain any credit facilities. The Company may in the
future explore the possibility of obtaining such a facility in the event the
Company increases oil and gas production through the successful completion of
oil and gas wells drilled by the Company or as it increases its seismic services
business.
The Company expects that capital needs for 1996 will be satisfied through
(i) cash on hand (including cash available from liquidation of marketable
securities), (ii) cash made available under the Fortune Agreement, and (iii)
cash to be made available under the Cheniere Exploration Agreement. Additional
capital needs may be met through additional issuances of equity securities,
including the exercise of outstanding warrants and options of the Company.
The Company may use its cash for any general corporate purposes, except for
the funds advanced by Fortune which are committed for geophysical exploration of
the jointly owned leases and additional lease acquisitions under the Fortune
Agreement.
Because of rapidly changing available technology and the uncertainties
associated with the identification of specific exploration prospects, and as a
result of the time and effort that was required to accomplish the Merger, the
Company only began to develop capital expenditure budgets in early 1996. The
Company is in the process of adjusting its activities to a level commensurate
with the amount of capital available to it. Although not complete, the Company
is currently estimating the costs of the projects it has undertaken; especially
the costs expected to be incurred in connection with the seismic project in
western Cameron Parish which was undertaken in February 1996 (the "West Cameron
Seismic Project"). The Company currently estimates its capital expenditures at
approximately $4.6 million, including $1.9 million for exploration and
development, $80,000 for capital costs associated with the Technology License
Agreement, $2.0 million for the acquisition of oil and gas properties, $442,000
related to the purchase of computer equipment and software, and $130,000 for
office relocation and improvements. In connection with the West Cameron Seismic
Project, the Company's preliminary estimates of costs to complete the two-year
project are between $12 million and $15 million. In addition to the Cheniere
Exploration Agreement, the Company is currently negotiating with other potential
partners which may be required to complete the West Cameron Seismic Project.
Other significant additional capital expenditures may include the acquisition of
additional oil and gas leases, the drilling of prospects identified on the
Company's current portfolio of oil and gas leases, the acquisition of interests
in producing wells and other corporate investment opportunities determined by
the board to be in the interest of the Company. The amount and timing of these
expenditures will be dependent upon numerous factors, including the availability
of seismic data, the number and type of drilling prospects identified as a
result of the Company's 3D seismic analysis, the terms under which industry
partners may participate in the Company prospects and the cost of drilling and
completion of wells in the Louisiana Transition Zone and the Timbalier Trench.
The Company currently maintains a required $300,000 bond in order to hold
its present federal oil and gas leases. This bond is collaterlized by a United
States Treasury Note. In the event the Company determines to act as operator on
federal offshore lease or is otherwise required to increase its bonding by
federal or state authorities, such additional bonding may require significant
amounts of capital as collateral.
Page 15 of 17
<PAGE>
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -------------
10.1 Option Agreement dated February 7, 1996 between the Company
and Norman Neidell concerning certain wave field imaging
Technology.
(b) Reports on Form 8-K
1. January 17, 1996- Item 4- Changes in Registrant's
Certifying Accountant-
The registrant reported that Arthur Andersen LLP had
succeeded BDO Seidman, LLP as its independent public
accountants following the merger of the registrant with
Zydeco Exploration, Inc., effective December 20, 1995.
Arthur Andersen LLP had acted as independent public
accountants of Zydeco Exploration, Inc. prior to the merger.
The Company reported no disagreements with BDO Seidman, LLP.
Page 16 of 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYDECO ENERGY, INC.
/s/ Sam B. Myers, Jr.
----------------------------------------------
Sam B. Myers, Jr., Chief Executive Officer and
President (Principal Executive Officer)
/s/ W. Kyle Willis
----------------------------------------------
W. Kyle Willis, Vice President and Treasurer
(Principal Financial Officer)
Dated: May 15, 1996
Page 17 of 17
<PAGE>
EXHIBIT 10.1
OPTION AGREEMENT
This Option Agreement (the "Agreement") is entered into on the 7th day
of February, 1996 (the "Option Effective Date") by and between ZYDECO ENERGY,
INC., a Delaware corporation (hereinafter "Zydeco") with offices at 333 N. Sam
Houston Pkwy. E., Suite 1160, Houston, Texas 77060, and Norman Neidell, an
individual (hereinafter "Neidell"), residing in Houston, Texas with an office at
10200 Richmond Ave., Suite 200A, Houston, Texas 77042.
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
intentions and understandings:
A. Neidell is the inventor and owner of a method of wave field
imaging (the "Technology"); the Technology may have applications in the analysis
of seismic data, in medical imaging and other fields;
B. Zydeco is a publicly held oil and gas exploration and service
company with extensive experience in computer aided exploration;
C. Zydeco is willing to support certain testing of the Technology; and
D. Zydeco desires to obtain an option, on the terms and conditions
herein, to obtain a license to all proprietary rights to the Technology,
including all patents, trade secrets, copyrights and know-how, and Neidell is
willing to grant Zydeco such an option on the terms and conditions herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. Option Grant. Neidell hereby grants to Zydeco an option (the
------------
"Option") to obtain a license to the Technology, including all patents, trade
secrets, copyrights and know-how relating to the Technology, on the terms and
conditions contained in the License Agreement attached as Exhibit A hereto (the
"License Agreement").
2. Testing Period Support. Promptly after the Option Effective Date,
----------------------
Zydeco shall provide to Neidell a software shell which Neidell will use to
modify the current computer program for the Technology. Using the software
shell Neidell will furnish to Zydeco a pre-stack Kirchoff migration program for
an SPP Convex computer which will allow the testing of the Technology on a 3D
seismic data set supplied by Zydeco (the "Data Set"). Zydeco will pay Neidell
Ten Thousand Dollars ($10,000) upon delivery of the completed functioning
program for testing on the Data Set.
<PAGE>
3. Testing of the Technology. Zydeco, at its sole cost, will provide
-------------------------
the use of a SPP Convex computer to test the Technology with the data set for a
period not to exceed two months. During the testing period, Neidell will
furnish Maggie Smith's services to Zydeco, for the equivalent of one month's
time, to assist Zydeco in the processing of the test data with the Technology.
Neidell will pay all Smith's salary and any benefits owed for the period of
service. Upon completion of Smith's services, Zydeco will pay Neidell Ten
Thousand Dollars ($10,000). Zydeco will use reasonable efforts to assist Neidell
in obtaining the right to use the Data Set and test results in his marketing of
the Technology.
4. Exercise of the Option. Upon completion of the testing period,
----------------------
Zydeco will have sixty (60) days in which to exercise the Option. Zydeco shall
exercise the Option by delivering written notice of exercise, along with a copy
of the License Agreement executed by Zydeco, to Neidell at the address provided
above. If Zydeco fails to deliver notice of exercise within such period, the
Option shall expire and all rights to the Technology shall remain with Neidell.
5. Payment. If Zydeco exercises its Option, Neidell shall promptly
-------
sign and return to Zydeco a fully executed copy of the License Agreement.
Within twenty (20) days of receipt of the fully executed License Agreement
Zydeco shall pay Neidell the royalty for the first year due thereunder.
6. Representations and Warranties / Negative Covenants.
---------------------------------------------------
Neidell hereby represents and warrants to Zydeco the following: (a) Neidell owns
all right, title and interest in and to the Technology; (b) Neidell is the sole
inventor of the Technology; (c) Neidell has not filed any patent applications
relating to the Technology; (d) the patentable aspects of the Technology have
not been published; and (e) to Neidell's actual knowledge, use of the Technology
will not infringe the rights of any third party. Notwithstanding the foregoing,
Zydeco acknowledges that Neidell has discussed certain concepts regarding the
Technology, under confidentiality agreements, with Texaco, Inc. and Digicon Inc.
So long as the Option has not expired, Neidell shall not burden or encumber the
rights to the Technology or transfer any interest in the Technology in any
manner which would prevent him from granting the license pursuant to the License
Agreement.
7. Patent Applications. Upon exercise of this Option, or earlier if
-------------------
necessary to preserve the ability to obtain a patent, Neidell will, at his sole
cost, promptly and diligently prepare, file and prosecute one or more
applications for patents and copyrights to protect the Technology in the United
States. Zydeco may, in its sole discretion, agree to pay all reasonable costs
associated with obtaining a patent and/or copyright registration in the
Republic of Mexico. Upon receipt of Zydeco's notice that it will pay such
costs, Neidell shall promptly and diligently prepare, file and prosecute one or
more applications for patents and copyrights to protect the Technology in the
Republic of Mexico. Zydeco shall thereafter promptly reimburse Neidell for all
such costs.
8. Confidentiality. The parties recognize that in the course of
---------------
performance hereunder each party may disclose to the other party information
("Proprietary Information") which is proprietary to the disclosing party. The
disclosing party must identify information which constitutes Proprietary
Information by clearly labeling any written disclosure "Proprietary,"
-2-
<PAGE>
"Confidential" or with some similar label. If any Proprietary Information is
orally disclosed, the disclosing party shall identify the information as
Proprietary Information at such time and, within thirty (30) days, and shall
provide the receiving party with a written memorandum recording the disclosure
and briefly summarizing the Proprietary Information disclosed. Each party agrees
(a) to hold the Proprietary Information disclosed to it by the other party in
strict confidence and to take reasonable precautions to protect such Proprietary
Information (including, without limitation, all precautions the receiving party
employs with respect to its own confidential information), (b) not to divulge
any such Proprietary Information or any information derived therefrom to any
third person, (c) to use such Proprietary Information only as contemplated
herein. Without granting any right or license, each party agrees that the
foregoing provisions shall not apply with respect to any information that the
receiving party can document (i) is (through no improper action or inaction by
the receiving party or any affiliate, agent, consultant or employee) generally
known to the public, (ii) was in its possession or known by it prior to receipt
from the disclosing party, (iii) was rightfully disclosed to it by a third party
without restriction, or (iv) is disclosed pursuant to court order after
reasonable notice to the disclosing party. Upon Zydeco's failure to exercise its
Option, each party will return to the other all copies of Proprietary
Information disclosed to it.
9. Miscellaneous.
-------------
(a) This Agreement shall be governed by the internal laws of the State
of Texas excluding the conflict of laws principles thereof.
(b) All disputes arising in connection with this Agreement shall be
resolved by arbitration pursuant to the Commercial Rules of the American
Arbitration Association. The place of the arbitration shall be Houston, Texas.
The award of the arbitrators shall be final and binding. The parties waive any
right to appeal the arbitral award, to the extent a right to appeal may be
lawfully waived. Each party retains the right to seek judicial assistance: (a)
to compel arbitration; (b) to obtain interim measures of protection pending
arbitration; and (c) to enforce any decision of the arbitrator, including the
final award. The decision and award of the arbitration may be enforced in any
court of competent jurisdiction.
(c) Section 8 shall survive termination of this Agreement.
(d) This Agreement sets forth the entire agreement between the parties
and supersedes all prior and contemporaneous oral agreements, understandings and
negotiations and all prior written agreements, understandings and negotiations,
except for any agreement relating to confidential disclosure.
(e) This Agreement may be amended only by written document signed by
both parties.
(f) Neidell may not assign his obligations under this Agreement.
-3-
<PAGE>
(g) Except as provided elsewhere herein, all communications and
notices provided for in this Agreement shall be in writing and shall be
effective two (2) days after notice is sent via telefax or other form of
electronic transmission or otherwise personally delivered to the other party.
(h) This Agreement may be executed in separate counterparts, any one
of which need not contain signatures of the other party, but all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed
this Agreement on the day and the year first written above.
"ZYDECO"
ZYDECO ENERGY, INC.
By: /s/ Sam B. Myers, Jr.
----------------------------------
Sam B. Myers, Jr. President, Chief
Executive Officer and Chairman
"NEIDELL"
/s/ Norman Neidell
-----------------------------------
Norman Neidell
-4-
<PAGE>
EXHIBIT A
LICENSE AGREEMENT
BY AND BETWEEN
ZYDECO ENERGY, INC.
A DELAWARE CORPORATION
AND
NORMAN NEIDELL
AN INDIVIDUAL RESIDING IN HOUSTON, TEXAS
DATED AS OF ______________________________________, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1 - DEFINITIONS AND REFERENCES
<S> <C> <C>
Section 1.01 Defined Terms.................................. 1
ARTICLE 2 - GRANT OF RIGHTS
Section 2.01 License........................................ 3
Section 2.02 Licensor's Covenants........................... 3
Section 2.03 Sublicenses.................................... 4
ARTICLE 3 - ROYALTIES
Section 3.01 Annual Royalty................................. 4
Section 3.02 Payment of Royalties........................... 4
Section 3.03 Late Fees...................................... 4
ARTICLE 4 - INTELLECTUAL PROPERTY FILINGS, PROSECUTION
AND MAINTENANCE
Section 4.01 Licensor Prosecution and Maintenance........... 4
Section 4.02 Licensee Prosecution and Maintenance........... 4
Section 4.03 Notices on Application and Maintenance Matters. 5
ARTICLE 5 - INFRINGEMENT AND ENFORCEMENT
Section 5.01 Notification................................... 5
Section 5.02 Licensor's Obligation to Prosecute Infringement 5
Section 5.03 Licensor's Failure to Terminate Infringement... 5
Section 5.04 Termination of Royalties....................... 6
Section 5.05 Cooperation.................................... 6
Section 5.06 Third Party Claim of Infringement.............. 6
ARTICLE 6 - DISPUTES
Section 6.01 Negotiation.................................... 7
Section 6.02 Arbitration of Disputes........................ 7
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 7 - WARRANTIES AND INDEMNIFICATION
Section 7.01 Licensor's Representations..................... 8
Section 7.02 Licensee's Representations..................... 8
Section 7.03 Indemnification................................ 9
ARTICLE 8 - TERM AND TERMINATION
Section 8.01 Term........................................... 10
Section 8.02 Default........................................ 10
Section 8.03 Bankruptcy..................................... 10
Section 8.04 Post-Termination Use........................... 10
Section 8.05 Surviving Sections............................. 11
ARTICLE 9 - CONFIDENTIALITY..................................... 11
ARTICLE 10 - GENERAL PROVISIONS
Section 10.01 No Waiver...................................... 11
Section 10.02 Improvements................................... 11
Section 10.03 Counterparts................................... 12
Section 10.04 Captions and Headings.......................... 12
Section 10.05 Construction................................... 12
Section 10.06 Severability................................... 12
Section 10.07 Modifications.................................. 12
Section 10.08 Governing Law.................................. 12
Section 10.09 Notices........................................ 12
Section 10.10 Assignment..................................... 12
Section 10.11 No Third Party Beneficiary..................... 13
Section 10.12 Expenses; Prevailing Party Costs............... 13
Section 10.13 Entire Agreement............................... 13
Signatures...................................................... 13
</TABLE>
Exhibit A Annual Royalty
-ii-
<PAGE>
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT (the "Agreement") is entered into as of this
---------
__________ day of ___________________, 1996 (the "Effective Date") by Zydeco
--------------
Energy, Inc., a Delaware corporation ("Licensee") with its principal office at
--------
333 N. Sam Houston Pkwy. E., Suite 1160, Houston, Texas 77060, and Norman
Neidell, an individual residing in Houston, Texas with an office at 10200
Richmond Ave., Suite 200A, Houston, Texas 77042.
THE PARTIES enter this Agreement on the basis of the following facts,
intentions and understandings.
A. Pursuant to that certain Option Agreement (the "Option Agreement")
----------------
dated ____________, 1996 between Licensor and Licensee, Licensor granted
Licensee an Option to enter into this Agreement on the terms contained therein;
B. Licensor has developed, and is continuing to develop, a method of wave
field imaging which may have useful applications in the analysis of seismic data
(the "Technology");
----------
C. Licensor is the sole and exclusive owner of all rights to and interest
in the Technology; and
D. Licensor desires to grant a license to the Technology, and Licensee
desires to obtain such a license, all on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS AND REFERENCES
--------------------------
1.01 Defined Terms. Capitalized terms used in this Agreement and not
- - --------------------
otherwise defined herein shall have the following meanings:
"Affiliate" means with respect to any person, any other person (a) which
---------
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under direct or indirect common control with, such person.
The term "control" (including, with correlative meaning, the terms
-------
"controlling", "controlled by" and "under common control with") means the
----------- ------------- -------------------------
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
<PAGE>
"Claim" means any claim, demand, investigation, cause of action, suit, default,
-----
assessment, litigation or other proceeding, including arbitral proceedings and
proceedings by or before any Governmental Authority.
"Confidential Information" means all proprietary information, trade secrets,
------------------------
know-how and other information not publicly known that has been, is being or is
developed, owned or controlled by one of the parties.
"Effective Date" has the meaning specified in the introductory paragraph of this
--------------
Agreement.
"Exclusive Territory" means (a) the lands in the State of Louisiana south of
-------------------
Interstate 10 extending southward to marine waters six (6) miles offshore from
the beach along the coast of Louisiana, and (b) the Gulf of Mexico transition
area of the Republic of Mexico extending from six (6) miles onshore to six (6)
miles offshore.
"Field of Use" shall mean the collection and analysis of seismic data.
------------
"Governmental Approval" means any authorization, consent, approval, license,
---------------------
franchise, lease, ruling, tariff, rate, permit, certificate or exemption of, or
filing or registration with, any Governmental Authority.
"Governmental Authority" means any nation or government, any federal, state,
----------------------
county, province, city, town, municipality, local or other political subdivision
thereof or thereto and any court, tribunal, department, commission, board,
bureau, instrumentality, agency, council, arbitrator or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any other governmental entity with authority over
the applicable person or entity or assets and properties.
"Infringement" means the use of the Proprietary Property in the Field of Use in
------------
the Exclusive Territory or on seismic data from the Exclusive Territory by any
person other than Licensee or its sublicensees.
"Infringer" has the meaning specified in Section 5.02.
---------
"Indemnified Person" has the meaning specified in Section 7.03.
------------------
"Indemnifying Party" has the meaning specified in Section 7.03.
------------------
"Know-How" means all information, data, specifications, techniques, software,
--------
methods of manufacture, processes and similar proprietary information relating
to the Technology or use thereof.
-2-
<PAGE>
"Liability" means, with respect to any person or entity, any indebtedness,
---------
obligation and other liability of such person or entity, whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due.
"Licensed Process" means all processes and methods included in the Proprietary
----------------
Property.
"Licensed Product" means any product whose manufacture, use or sale requires the
----------------
use of Proprietary Property.
"Losses" means any and all damages (including consequential, punitive and
------
exemplary and including those related to death, personal injury, illness or
property damage), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants and
other experts and other reasonable expenses of any Claim.
"Nonexclusive Territory" means all of the world except the Exclusive Territory.
----------------------
"Patent Rights" means any United States or foreign patents and patent
-------------
applications claiming any part of the Technology and any divisions,
continuations and continuations-in-part based thereon.
"Proprietary Property" means the Patent Rights and the Know-How, and all
--------------------
copyrights, developments, techniques, methods, processes, apparatus, products,
data, trade secrets, confidential information, and other intellectual property
rights owned by, controlled by or licensed to Licensor or any Affiliates and
relating to the Technology.
"Territory" means the Exclusive Territory and the Nonexclusive Territory.
---------
ARTICLE 2
GRANT OF RIGHTS
---------------
2.01 License. Licensor hereby grants to Licensor and Licensee hereby accepts,
- - --------------
subject to the terms and conditions of this Agreement: (a) an exclusive license
in the Exclusive Territory and with respect to seismic data from the Exclusive
Territory, to the Proprietary Property to make and have made and to use Licensed
Products and to practice the Licensed Processes; and (b) a nonexclusive license
in the Nonexclusive Territory and with respect to seismic data from the
Nonexclusive Territory, to the Proprietary Property to make and have made and
to use Licensed Products and to practice the Licensed Processes.
2.02 Licensor's Covenant. Licensor agrees to include in all other licenses
---------------------
granted to the Proprietary Property a provision explicitly forbidding the
licensee from using the Proprietary Property to collect or analyze seismic data
from the Exclusive Territory. Licensor shall not use the Proprietary Property
to collect or analyze seismic data from the Exclusive Territory.
-3-
<PAGE>
2.03 Sublicenses. Licensee may grant nontransferable sublicenses hereunder to
-----------
any Affiliate. All sublicenses granted by Licensee hereunder shall be subject
to all of the terms contained herein.
ARTICLE 3
ROYALTIES
---------
3.01 Annual Royalty. Licensee shall pay to Licensor an annual royalty (the
- - ---------------------
"Annual Royalty") in the amounts provided for in Exhibit A within twenty (20)
days of execution of this Agreement and each anniversary of the Effective Date.
3.02 Payment of Royalties. Licensee shall pay the Annual Royalty by corporate
--------------------
check or wire transfer of immediately available funds to an account designated
by Licensor. Payment by check shall be made at Licensee's address as provided
for notices in Section 10.09 herein.
3.03 Late Fees. Any late payments shall include interest at the lesser of (i)
---------
ten percent (10%) per annum or (ii) the highest rate permitted by law from the
due date of such payment until such payment is made.
ARTICLE 4
INTELLECTUAL PROPERTY FILINGS,
PROSECUTION AND MAINTENANCE
---------------------------
4.01 Licensor Prosecution and Maintenance. Licensor agrees to use its best
- - ------------------------------------------
efforts to prosecute patent applications and copyright registrations claiming
the Proprietary Property in the United States and the Republic of Mexico.
Licensor shall also use its best efforts to maintain any patents, and copyrights
issued thereon. In response to a written request from Licensee, Licensor shall
promptly provide Licensee with copies of all filings and significant
correspondence regarding such applications or registrations and shall consult
with Licensee and take into consideration any comments or suggestions made by
Licensee with respect to the applications or registrations. Licensor may notify
Licensee at any time that Licensor has determined that prosecution of a patent
application or registration or maintenance of one or more patents or copyrights
in a particular country in the Nonexclusive Territory is not economically
viable, and Licensor shall not be obligated to file an application in such
country or may then abandon any existing application, patent or registration.
4.02 Licensee Prosecution and Maintenance. If Licensor decides to abandon an
------------------------------------
application or patent or registration in the United States or the Republic of
Mexico for any reason, it shall give notice to Licensee. Upon receipt of such
notice, Licensee, in its sole discretion, may elect to assume direct
responsibility (and to pay associated fees and expenses) with respect to the
application, patent or registration which Licensor intends to abandon.
-4-
<PAGE>
4.03 Notices on Application and Maintenance Matters. Each party shall provide
----------------------------------------------
to the other prompt notice as to all matters that come to its attention that may
affect the preparation, filing or prosecution of applications for, or
registration or maintenance of, the Proprietary Rights in the Exclusive
Territory.
ARTICLE 5
INFRINGEMENT AND ENFORCEMENT
----------------------------
5.01 Notification. Licensee and Licensor agree to notify each other promptly
- - -------------------
of each Infringement or possible Infringement of which each party becomes aware,
as well as any facts which may affect the validity, scope or enforceability of
the Proprietary Property in the Exclusive Territory of which either party
becomes aware.
5.02 Licensor's Obligation to Prosecute Infringement. Licensor agrees to use
-----------------------------------------------
its best efforts to protect the Proprietary Property in the Exclusive Territory,
in the Field of Use, from Infringement and to promptly initiate appropriate
proceedings to prosecute, at its sole cost and expense, any person or entity
responsible for such activities (an "Infringer"). If the Infringers are
---------
licensees of Licensor, Licensor shall exercise all of its rights under such
license, including termination thereof, if available, in order to terminate such
infringement or misappropriation. If Licensor shall recover profits and/or
damages from Infringers for use of the Proprietary Property in the Field of Use
in, or on seismic data from, the Exclusive Territory, Licensor agrees to pay to
Licensee fifty percent (50%) of any amounts so paid to Licensor after deducting
any of its actual expenses, including costs and legal fees incurred in such
litigation.
5.03 Licensor's Failure to Terminate Infringement. Notwithstanding Section
--------------------------------------------
5.02, if Licensor has not, within thirty (30) days from the date on which it is
notified or otherwise becomes aware of an Infringement, either terminated such
Infringement or initiated and thereafter continued to diligently prosecute legal
action against the Infringers, Licensee shall have the right to prosecute an
action against the Infringers. Licensor agrees, in the event that Licensee
cannot prosecute such Infringement in its own name, to sign and deliver to
Licensee, as soon as practicable, all necessary documents in order for Licensee
to prosecute, in the name of Licensor, such Infringement. Licensee shall be
entitled to deduct all its expenses, including costs and legal fees incurred in
bringing and prosecuting such Infringement action in the United States from any
royalties due Licensor after commencement of such Infringement action. If
Licensee recovers profits and/or damages from the Infringers, Licensee agrees to
turn over to Licensor fifty percent (50%) of any amounts paid to it by the
Infringers after deducting all of its expenses, including costs and legal fees
incurred in such litigation, which Licensee has not previously deducted from
royalties payable to Licensor. Nothing herein shall be construed to obligate
Licensee to prosecute any Infringement rather than exercise its rights to cease
payment of royalties under Section 5.04.
5.04 Termination of Royalties. If Licensor has been unable to eliminate an
------------------------
Infringement within thirty (30) days of becoming aware or receiving notification
from Licensee of the Infringement, or has not used his best efforts to institute
and diligently prosecute proceedings to stop such
<PAGE>
Infringement as herein required, then pursuant to Section 8.02 Licensee shall be
excused from the payment of all Annual Royalties which would otherwise be due
hereunder. Pursuant to Section 8.02 Licensee's obligation to pay Annual
Royalties shall resume upon the cessation of the Infringement or commencement of
Licensor's best efforts to stop such infringement as provided in the foregoing
sentence.
5.05 Cooperation. Each party shall cooperate fully with the other party in
-----------
connection with an Infringement action initiated by the other party. Each party
agrees to provide prompt access to all necessary documents and to render
reasonable assistance in response to a request by the party initiating the
Infringement action.
5.06 Third Party Claim of Infringement. If Licensee receives or becomes aware
---------------------------------
of any claim or assertion by any third party that Licensee's activities under
this Agreement constitutes an infringement of that party's intellectual property
rights, Licensee shall promptly notify Licensor and shall tender to Licensor the
right to defend Licensee against such claim. Thereupon:
(a) If Licensor accepts Licensee's tender of defense, Licensor shall:
(i) Bear all attorneys' fees, expert witness fees, and all other
fees, costs and expenses incurred in connection with such defense; and
(ii) Indemnify and save Licensee harmless from and against any
liability imposed against Licensee in any such action, whether by settlement
or court judgment; or
(b) If Licensor elects not to defend against a claim or assertion that
Licensee's activities hereunder constitute an infringement, Licensor agrees to
indemnify and save Licensee harmless from and against all attorneys' fees,
expert witness fees and all other fees, costs and expenses reasonably incurred
by Licensee in connection with the defense of such action, and from and against
any liability imposed upon Licensee therein, whether by settlement or court
judgment.
(c) Notwithstanding the foregoing, Licensor shall have no obligation
whatsoever to defend or indemnify Licensee if the claim of infringement arises
from Licensee's modification of the Proprietary Property.
ARTICLE 6
DISPUTES
--------
6.01 Negotiation. The parties shall meet in good faith to resolve promptly
-----------
and amicably any matter requiring mutual agreement or dispute which may arise in
connection with the interpretation or performance of this Agreement.
-6-
<PAGE>
6.02 Arbitration of Disputes.
-----------------------
(a) All disputes between the parties arising out of the parties' failure
to agree on issues arising under this Agreement, and not resolved under Section
6.01 of this Agreement, shall be resolved by binding arbitration. The
arbitration shall be held in Houston, Texas and administered by the American
Arbitration Association (the "AAA") in accordance with, and in the following
order of priority: (i) the terms of these arbitration provisions; (ii) the AAA
rules; and (iii) to the extent the foregoing are inapplicable, unenforceable or
invalid, the laws of the State of Texas. The validity and enforceability of
these arbitration provisions shall be determined in accordance with this same
order of priority. In the event of any inconsistency between these arbitration
provisions and such rules and statutes, these arbitration provisions shall
control. Judgment upon any award rendered hereunder shall be entered in any
court having jurisdiction.
(b) A single arbitrator shall be chosen and shall resolve the dispute. The
arbitrator shall be a retired Federal judge; if a retired Federal judge is not
available from anywhere in the United States, any retired judge may be chosen.
Any arbitrator shall be generally knowledgeable about the nature of the issues
to be arbitrated and shall be qualified by education, experience and training to
render a decision upon the issues in dispute. The proceedings shall be
conducted in English. The arbitrator is empowered to resolve disputes by
summary rulings substantially similar to summary judgments and motions to
dismiss. The arbitrator may grant any remedy, relief or make any determination
deemed just and equitable and within the scope of these arbitration provisions
and may also grant such ancillary relief as is necessary to make effective any
award. The determination of an arbitrator shall be binding on all parties and
shall not be subject to further review or appeal except as otherwise allowed by
applicable law.
(c) To the maximum extent practicable, the AAA, the arbitrator and the
parties shall take any action necessary to require that an arbitration
proceeding hereunder shall be concluded within one hundred eighty (180) days of
the filing of the dispute with the AAA. With respect to any dispute, each party
agrees that all discovery activities shall be expressly limited to matters
directly relevant to the dispute and any arbitrator and the AAA shall be
required to fully enforce this requirement. To the extent permitted by
applicable law, arbitrators shall have the power to award recovery of all costs
and fees (including attorneys' fees, administrative fees and arbitrator's fees)
to the prevailing party or, if no clear prevailing party, as the arbitrator
shall deem just and equitable. Each party agrees to keep all disputes and
arbitration proceedings strictly confidential, except for disclosures of
information required by applicable law.
-7-
<PAGE>
ARTICLE 7
WARRANTIES AND INDEMNIFICATION
------------------------------
7.01. Licensor's Representations. Licensor hereby represents and warrants to
- - ---------------------------------
Licensee as follows:
(a) Authority. Licensor has all requisite power and authority to execute
---------
and deliver this Agreement and to consummate the transactions contemplated
hereby. Licensor has duly and validly executed and delivered this Agreement
and this Agreement constitutes the legal, valid and binding obligation of
Licensor enforceable against Licensor in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and general equitable principles.
(b) No Conflict. The execution and delivery by Licensor of this Agreement
-----------
and the consummation of the transactions contemplated hereby, do not and shall
not, by the lapse of time, the giving of notice or otherwise (a) constitute a
violation of any law; or (b) constitute a breach of any provision contained in,
or a default under, any Governmental Approval, any writ, injunction, order,
judgment or decree of any Governmental Authority or any contract to which
Licensor is a party or by which Licensor or any of the Proprietary Property is
bound or affected.
(c) Consents and Approvals. No Governmental Approvals and no
----------------------
notifications, filings or registrations to or with any Governmental Authority or
any other person or entity is or will be necessary for the valid execution and
delivery by Licensor of this Agreement or the consummation of the transactions
contemplated hereby, or the enforceability hereof.
(d) Proprietary Property. Licensor owns or lawfully possesses, and has
--------------------
the right to use and license, all of the Proprietary Property, free and clear of
any lien or other encumbrance.
(e) Litigation. There are no Claims pending or, to the knowledge of
----------
Licensor, threatened against Licensor or affecting the Proprietary Property
before or by any Governmental Authority or any other person or entity. Licensor
has no knowledge of the basis for any Claim which seeks to restrain or enjoin
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. There are no judgments or outstanding orders,
injunctions, decrees, stipulations or awards (whether rendered by a Governmental
Authority or by an arbitrator) affecting Licensor's right to grant rights in and
to the Proprietary Property.
7.02. Licensee's Representations. Licensee hereby represents and warrants to
--------------------------
Licensor as follows:
(a) Organization and Qualification. Licensee is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Authority. Licensee has all requisite power and authority, corporate
---------
or otherwise, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Licensee and the consummation of the transactions
-8-
<PAGE>
contemplated hereby have been duly and validly authorized by the Board of
Directors of Licensee and no other corporate proceedings or approvals on the
part of Licensee are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. Licensee has duly and validly executed and
delivered this Agreement and this Agreement constitutes the legal, valid and
binding obligation of Licensee enforceable against Licensee in accordance with
its terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and general equitable principles.
7.03. Indemnification. Subject to the terms and conditions of this Section
---------------
7.03, each party (the "Indemnifying Party") agrees to indemnify, defend and hold
------------------
harmless the other party, its Affiliates, their respective present and former
directors, officers, shareholders, employees and agents and their respective
heirs, executors, personal representatives, administrators, successors and
assigns (the "Indemnified Persons"), from and against any and all Claims,
-------------------
Liabilities and Losses which may be imposed on, incurred by or asserted against
any Indemnified Person, arising out of or resulting from, directly or
indirectly:
(i) the inaccuracy or breach of any representation or warranty of the
Indemnifying Party contained in or made pursuant to this Agreement;
(ii) the breach of any covenant or agreement of the Indemnifying Party
contained in this Agreement; or
(iii) the negligence or intentional misconduct of the Indemnifying
Party, or its employees, officers, directors or agents;
provided, however, that the Indemnifying Party shall not be liable for any
portion of any Claims, Liabilities or Losses resulting from a breach by an
Indemnified Person of its obligations under this Agreement or from an
Indemnified Person's gross negligence, fraud or willful misconduct. The
Indemnifying Party shall promptly pay the Indemnified Person any amount due
under this Section 7.03 and reimburse each Indemnified Person for all reasonable
expenses (including reasonable counsel fees) for which the Indemnified Person is
entitled to be indemnified hereunder as they are incurred by such Indemnified
Person. Upon judgment, determination, settlement or compromise of any third
party Claim, the Indemnifying Party shall promptly pay on behalf of the
Indemnified Person, and/or to the Indemnified Person in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by such
judgment, determination, settlement or compromise and all other Claims of the
Indemnified Person with respect thereto.
-9-
<PAGE>
ARTICLE 8
TERM AND TERMINATION
--------------------
8.01 Term. This Agreement shall commence on the Effective Date and continue
- - -----------
for one year. Upon each anniversary of the Effective Date, the Agreement shall
be automatically extended for an additional one year, until terminated by
Licensee by notice given not less than sixty (60) days prior to the commencement
of any such one year extension or as otherwise provided below.
8.02 Default. If either party is in default in any material respect in the
-------
performance of any obligations of such party under this Agreement, the other
party may give written notice of the default. If within thirty (30) days after
the receipt of such notice the default has not been cured or, if the default
cannot be reasonably cured in thirty (30) days, a cure is commenced within such
time and diligently pursued to completion, the party not in default may
terminate this Agreement by written notice. If Licensor is the defaulting
party, Licensee may withhold payment of any royalties due hereunder until the
default is cured or, if the default is not reasonably curable within thirty (30)
days, until cure is commenced and so long as cure is diligently pursued to
completion. All remedies provided for herein shall be cumulative and
nonexclusive and shall be in addition to any other rights or remedies otherwise
available under any contract, or at law or in equity.
8.03 Bankruptcy. In the event that Licensee shall be adjudicated insolvent,
----------
or shall generally not pay, or admit in writing its inability to pay, its debts
as they mature, or make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by Licensee seeking to adjudicate itself
insolvent, seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
assets and properties, or if any similar proceeding is filed or commenced
against Licensee, or an order for relief is entered in an involuntary case under
the bankruptcy law of the United States, or an order, judgment or decree is
entered appointing a trustee, receiver, custodian, liquidator or similar
official or adjudicating Licensee insolvent or approving the petition in any
such proceeding, and such order, judgment or decree remains in effect for 90
days, Licensor shall have the right to terminate this Agreement by giving
Licensee written notice. Termination of this Agreement, in such event, is
effective upon Licensee's receipt of the written notice.
8.04 Post-Termination Use. Notwithstanding the termination of this Agreement
--------------------
and the license granted hereunder, Licensee shall retain a non-transferable,
non-exclusive license to the Proprietary Property for a period not to exceed
three months to make and to use Licensed Products and to practice License
Processes in the Territory for the purposes of: (a) completing the collection
and processing of any seismic data in the process of being gathered or analyzed
at the time of termination; and (b) completing any then existing contracts with
third parties requiring use of the Proprietary Property.
-10-
<PAGE>
8.05 Surviving Sections. Article 6, Section 7.03, and Article 9 this
------------------
Agreement shall survive termination of this Agreement.
ARTICLE 9
CONFIDENTIALITY
---------------
The parties recognize that in the course of performance hereunder each party may
disclose to the other information ("Proprietary Information") which is
proprietary to the disclosing party. The disclosing party must identify
information which constitutes Proprietary Information by clearly labeling any
written disclosure "Proprietary," "Confidential" or with some similar label.
If any Proprietary Information is orally disclosed, the disclosing party shall
identify the information as Proprietary Information at such time and, within
thirty (30) days, and shall provide the receiving party with a written
memorandum recording the disclosure and briefly summarizing the Proprietary
Information disclosed. Each party agrees (a) to hold the Proprietary
Information disclosed to it by the other party in strict confidence and to take
reasonable precautions to protect such Proprietary Information (including,
without limitation, all precautions the receiving party employs with respect to
its own confidential information), (b) not to divulge any such Proprietary
Information or any information derived therefrom to any third person, (c) to use
such Proprietary Information only as contemplated herein. Without granting any
right or license, each party agrees that the foregoing provisions shall not
apply with respect to any information that the receiving party can document (i)
is (through no improper action or inaction by the receiving party or any
affiliate, agent, consultant or employee) generally known to the public, (ii)
was in its possession or known by it prior to receipt from the disclosing party,
(iii) was rightfully disclosed to it by a third party without restriction, or
(iv) is disclosed pursuant to court order after reasonable notice to the
disclosing party. Upon termination of this Agreement, each party will return to
the other all copies of Proprietary Information disclosed to it.
ARTICLE 10
GENERAL PROVISIONS
------------------
10.01 No Waiver. Neither party may waive or release any of its rights or
- - -----------------
interests in this Agreement except in writing. The failure or delay of either
party to assert a right hereunder or to insist upon compliance with any term or
condition of this Agreement shall not constitute a waiver of that right or
excuse a similar subsequent failure to perform any such term or condition by the
other party.
10.02 Improvements. Neither party shall have any rights to improvements, or
------------
modifications to the Proprietary Property created by the other party after the
Effective Date.
-11-
<PAGE>
10.03 Counterparts. This Agreement may be executed in counterparts and by the
------------
different parties in separate counterparts, each of which when so executed shall
be deemed an original and all of which taken together shall constitute one and
the same agreement.
10.04 Captions and Headings. The captions and headings contained in this
---------------------
Agreement are inserted and included solely for convenience and shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise.
10.05 Construction. The parties acknowledge that each of them has had the
------------
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement with its legal counsel and that this Agreement shall be
construed as if jointly drafted by the parties hereto.
10.06 Severability. The provisions of this Agreement are severable, and in
------------
the event that any provision of this Agreement shall be determined to be invalid
or unenforceable under any controlling body of law, such determination shall not
in any way affect the validity or enforceability of the remaining provisions of
this Agreement.
10.07 Modifications. If either party desires a modification to this
-------------
Agreement, the parties shall, upon reasonable notice of the proposed
modification by the party desiring the change, confer in good faith to determine
the desirability of such modification. No modification will be effective until
a written amendment is signed by both the parties.
10.08 Governing Law. The construction, validity, performance and effect of
-------------
this Agreement shall be governed by the laws of the State of Texas without
regard to its principles of conflicts of laws.
10.09 Notices. All notices and reports required or permitted by this
-------
Agreement shall be given in writing and delivered by: (a) overnight, registered
or certified mail (return receipt requested), with first class postage prepaid;
(b) hand delivery; (c) facsimile transmission; or (d) overnight courier service,
to the parties at the addresses or facsimile numbers designated on the signature
pages hereto, or to such other address as may be designated in writing by either
such party to the other party hereto. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given: (i)
in the case of a notice sent by regular or certified or registered mail, three
business days after it is duly deposited in the mails; (ii) in the case of a
notice delivered by hand, when personally delivered; (iii) in the case of a
notice sent by facsimile, upon transmission subject to telephone confirmation of
receipt; and (iv) in the case of a notice sent by overnight mail or overnight
courier service, the next business day after such notice is mailed or delivered
to such courier, in each case given or addressed as aforesaid.
10.10 Assignment. This Agreement shall not be assigned by either party
----------
except: (a) with the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed; or (b) as part of a sale or
transfer of the majority of the business of such party in any country relating
to operations which concern this Agreement.
-12-
<PAGE>
10.11 No Third Party Beneficiary. The terms and provisions of this Agreement
--------------------------
are intended solely for the benefit of Licensee and Licensor and their
respective Affiliates, sublicensees, successors or assigns, and the Indemnified
Persons referenced in Section 7.03, and it is not the intention of the parties
to confer third-party beneficiary rights upon any other person or entity.
10.12. Expenses; Prevailing Party Costs. Each of the parties shall pay its own
--------------------------------
expenses incident to this Agreement and the transactions contemplated hereby,
including all legal and accounting fees and disbursements. Notwithstanding
anything contained herein or therein to the contrary, if any party commences an
action against another party to enforce the provisions of Article 6, the
prevailing party in any such action shall be entitled to recover its Losses,
including reasonable attorneys' fees, incurred in connection with the
prosecution or defense of such action, from the losing party.
10.13 Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties relating to the subject matter of the Proprietary Property
and all prior negotiations, representations, agreements and understandings are
merged into, extinguished by and completely expressed by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date(s) below.
ZYDECO ENERGY, INC.
By:
Name:
Title:
Mailing Address for Notices:
Attn: President
Zydeco Energy, Inc.
333 N. Sam Houston Pkwy. E., Suite 1160
Houston, Texas 77060
NORMAN A. NEIDELL
- - -------------------------------------
Mailing Address for Notices:
10200 Richmond Avenue, Suite 200A
Houston, Texas 77042
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 475,287
<SECURITIES> 9,082,923
<RECEIVABLES> 1,114,120
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,697,930
<PP&E> 1,314,808
<DEPRECIATION> 509,905
<TOTAL-ASSETS> 11,820,020
<CURRENT-LIABILITIES> 3,907,268
<BONDS> 0
0
781
<COMMON> 6,589
<OTHER-SE> 7,792,682
<TOTAL-LIABILITY-AND-EQUITY> 11,820,020
<SALES> 251,535
<TOTAL-REVENUES> 338,034
<CGS> 6,549
<TOTAL-COSTS> 6,549
<OTHER-EXPENSES> 706,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,688
<INCOME-PRETAX> (388,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (388,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (388,566)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
