<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1996
REGISTRATION NO. 333-14473
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
3DX TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 76-0386601
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification
incorporation or organization) no.)
</TABLE>
12012 WICKCHESTER, SUITE 250
HOUSTON, TEXAS 77079
(713) 579-3398
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
C. EUGENE ENNIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3DX TECHNOLOGIES INC.
12012 WICKCHESTER, SUITE 250
HOUSTON, TEXAS 77079
(713) 579-3398
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
Copies to:
ANDREA J. CORCORAN, ESQ. G. MICHAEL O'LEARY, ESQ.
KELLEY DRYE & WARREN LLP ANDREWS & KURTH LLP
TWO STAMFORD PLAZA 4200 TEXAS COMMERCE TOWER
281 TRESSER BOULEVARD 600 TRAVIS STREET
STAMFORD, CONNECTICUT 06901 HOUSTON, TEXAS 77002
(203) 324-1400 (713) 220-4200
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
--------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
3DX TECHNOLOGIES INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM
NUMBER AND HEADING LOCATION IN PROSPECTUS
- ----------------------------------------------------------------------- -------------------------------------------------
<C> <S> <C> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus..... Additional Information; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges............................................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............................. Outside Front Cover Page; Underwriting
6. Dilution.................................................... Dilution
7. Selling Security Holders.................................... Principal and Selling Stockholders
8. Plan of Distribution........................................ Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered.................. Outside Front Cover Page; Prospectus Summary;
Dividend Policy; Description of Capital Stock;
Shares Eligible For Future Sale
10. Interests of Named Experts and Counsel...................... Experts
11. Information with Respect to the Registrant
(a) Description of Business.......................... Prospectus Summary; Business
(b) Description of Property.......................... Business
(c) Legal Proceedings................................ Business
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder
Matters........................................ Dividend Policy; Description of Capital Stock
(e) Financial Statements............................. Index to Financial Statements
(f) Selected Historical Financial Data............... Selected Financial Data
(g) Supplementary Financial Information.............. Prospectus Summary; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations............ Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............ Not Applicable
(j) Directors and Executive Officers................. Management
(k) Executive Compensation........................... Management
(l) Security Ownership of Certain Beneficial Owners
and Management................................. Principal Stockholders; Shares Eligible For
Future Sale
(m) Certain Relationships and Related Transactions... Certain Transactions
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.................................. Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,949,862 SHARES
[LOGO]
3DX TECHNOLOGIES INC.
- ------------------------------------------
COMMON STOCK
Of the 2,949,862 shares of Common Stock, par value $0.01 per share ("Common
Stock"), of 3DX Technologies Inc., a Delaware corporation (the "Company" or "3DX
Technologies"), offered hereby, 2,500,000 shares are being sold by the Company
and 449,862 shares are being sold by Landmark Graphics Corporation (the "Selling
Stockholder"). See "Principal and Selling Stockholders." Prior to this offering
(the "Offering"), there has been no public market for the Common Stock of the
Company. It is estimated that the initial public offering price will be between
$12 and $14 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholder.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
---------------------
The shares of Common Stock have been approved for quotation on the Nasdaq
National Market under the symbol "TDXT," subject to official notice of issuance.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share..... $ $ $ $
Total (3)..... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting Offering expenses payable by the Company estimated to be
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 442,480 additional shares of Common Stock, at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock will be made
at the office of Howard, Weil, Labouisse, Friedrichs Incorporated, Energy
Centre, 1100 Poydras Street, Suite 3500, New Orleans, Louisiana, or through the
facilities of The Depository Trust Company, on or about , 1996.
--------------------------
HOWARD, WEIL, LABOUISSE, FRIEDRICHS PETRIE PARKMAN & CO.
INCORPORATED
The date of this Prospectus is , 1996.
<PAGE>
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS OF THE
COMPANY AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND GIVES EFFECT TO A
REVERSE SPLIT (THE "REVERSE SPLIT") OF THE COMMON STOCK AT A RATIO OF 0.517-TO-1
TO BE EFFECTED IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE OFFERING. SEE THE
"GLOSSARY OF CERTAIN OIL AND GAS TERMS" APPEARING ELSEWHERE HEREIN FOR
DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY
CONSIDER THE INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS."
THE COMPANY
3DX Technologies is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D seismic imaging
and other advanced technologies in the search for commercial quantities of
hydrocarbons. The Company only enters into arrangements that enable it to
combine its expertise and exploration capabilities with the operating skills of
other oil and gas companies. The Company participates in carefully selected
exploration projects as a non-operating, working interest owner, sharing both
risks and rewards with its partners. The Company commenced operations in January
1993 to take advantage of perceived opportunities emerging from changes in the
domestic oil and gas industry, including the divestiture of domestic oil and gas
properties, advances in technology and the outsourcing of specialized technical
capabilities. By reducing drilling risk through 3-D imaging and analysis, the
Company seeks to improve the expected return on investment in its oil and gas
projects.
The Company has developed a rigorous screening process that it applies to
all projects that it considers. The screening process, which is adapted
continually to incorporate the Company's ongoing experience, is designed to
produce a balanced portfolio of projects that have reliable and experienced
operating partners, are conducive to the application of advanced 3-D technology,
have significant upside potential and may be extended into exploration trends.
As of the date of this Prospectus, the Company's current portfolio includes
11 active operator partners and 23 exploration projects, primarily located
onshore and near shore within the Gulf Coast region from South Texas to Southern
Florida. Although the Company has no current plan to expand its geographic focus
beyond the Gulf Coast region, the Company will pursue opportunities that may
become available in other select geographic areas as its capital resources
increase.
The Company believes that it can effectively and efficiently participate in
an increasing number of concurrent projects by continually improving its
techniques for acquiring and analyzing data. One example of such an improvement
is the Company's 3DXPRESS process, an innovative exploration technique that
improves the quality of seismic data and significantly compresses the time frame
traditionally required for acquisition, processing, imaging and analysis. This
process allows analysis of 3-D data while the seismic survey is being conducted,
giving the Company's explorationists the ability to ensure data quality and to
steer data collection toward more promising prospective areas. Utilizing this
technology, the Company has been able to image and analyze an increased number
of projects concurrently and to identify potential drilling sites more rapidly
and accurately.
Since its formation through the date of this Prospectus, the Company has
participated in the drilling of 32 gross wells that have been drilled based on
the Company's site and target depth recommendations. Twenty of these wells were
successful and discovered estimated proved reserves of 40.3 Bcfe (2.8 Bcfe net
to the Company's interest), of which 27.0 Bcfe (2.1 Bcfe net to the Company's
interest) were discovered during the first nine months of 1996. The Company
currently expects to participate in the drilling of between 35 and 40 wells
during 1997, although the number of wells may increase as additional projects
are added to the Company's portfolio. The Company believes that the disciplined
approach it utilizes to select its partners and projects, together with its
technological expertise, will result in improved exploration success and project
economics. This success should position the Company to acquire larger working
interests in an increased number of exploration projects.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered:
By the Company (1).............. 2,500,000
By the Selling Stockholder...... 449,862
Total....................... 2,949,862
Shares of Common
Stock Outstanding (1)(2):
Before the Offering............. 4,505,049
After the Offering.............. 7,005,049
Use of proceeds................... The net proceeds of the shares of Common Stock sold in
the Offering by the Company, estimated to be
approximately $29.5 million (approximately $34.0 million
if the Underwriters' over-allotment option is exercised
in full), will be used by the Company for (i) capital
expenditures to fund the Company's exploration and
development program; (ii) redemption of all of the
issued and outstanding shares of the Company's
Redeemable Preferred Stock, Series B, $0.01 par value
per share (the "Series B Preferred Stock") and payment
of all accrued but unpaid dividends on the Company's
Senior Redeemable Convertible Preferred Stock, Series C,
$0.01 par value per share (the "Series C Preferred
Stock") prior to the conversion thereof; and (iii)
general corporate purposes including expenses associated
with hiring additional personnel. See "Use of Proceeds."
Nasdaq National Market symbol..... TDXT
</TABLE>
- ------------------------
(1) Excludes 442,480 shares of Common Stock subject to issuance pursuant to the
over-allotment option granted to the Underwriters. See "Underwriting."
(2) Gives effect to the Transactions defined below, but excludes 1,501,813
shares of Common Stock reserved for issuance upon exercise of stock options
which may be granted under the 1994 Stock Option Plan, as amended (the
"Stock Option Plan"), of which options to purchase 794,479 shares of Common
Stock, exercisable at prices ranging from $0.19 to $11.20 per share, have
been granted and are outstanding as of the date hereof. See
"Management--Stock Option Plan."
4
<PAGE>
THE TRANSACTIONS
The following transactions (collectively, the "Transactions") will be
effected in connection with the consummation of the Offering: (i) the exercise
of each of the 266,224 shares of Series C Preferred Stock issuable upon exercise
of certain outstanding warrants (the "Series C Preferred Stock Warrants") at a
price of $3.00 per share, (ii) the conversion of each of the then outstanding
2,928,465 shares of Series C Preferred Stock (consisting of the 2,662,241 shares
of Series C Preferred Stock issued and outstanding as of the date of this
Prospectus and the 266,224 shares to become outstanding upon exercise of the
Series C Preferred Stock Warrant) into 1,514,017 shares of common stock (giving
effect to the .517 Reverse Common Stock Split), with a total recorded value of
$8,711,040 (consisting of the September 30, 1996 book value of the outstanding
Series C Preferred Stock of $7,986,723 minus unamortized issuance costs of
$74,355 plus the gross proceeds of $798,672 from exercise of the Series C
Preferred Stock Warrant), (iii) the redemption immediately after the closing of
this Offering of all issued and outstanding shares of the Series B Preferred
Stock (including the effects of a $305,917 redemption premium and $70,759 of
unamortized issuance costs recorded against accumulated deficit which adjusts
the Series B Preferred Stock carrying value to the liquidation price of $100 per
share), and (iv) the payment immediately after the closing of this Offering of
Series C Preferred Stock dividends currently accrued on the September 30, 1996
balance sheet of $780,423. See "Risk Factors--Benefits of the Offering to
Existing Stockholders." For the pro forma effects of these Transactions on the
Company's balance sheet as of September 30, 1996 see the "Prospectus
Summary--Summary Historical Financial Data," "Capitalization," "Selected
Financial Data," and the Company's Financial Statements.
5
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The financial information set forth below for the period from inception of
operations (January 6, 1993) through December 31, 1993 and for the years ended
December 31, 1994 and 1995 is derived from the Financial Statements of the
Company, which were audited by Arthur Andersen LLP. The financial information
set forth below as of September 30, 1996 and for the nine month periods ended
September 30, 1995 and 1996 is derived from unaudited financial statements of
the Company which, in the opinion of management, include all adjustments
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. The results of operations for
interim periods are not necessarily indicative of a full year's operations. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Financial
Statements of the Company, the notes related thereto and the other financial
data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
OF
OPERATIONS
(JANUARY
6, 1993) YEAR ENDED DECEMBER NINE MONTH PERIODS
THROUGH 31, ENDED SEPTEMBER 30,
DECEMBER ---------------------- ----------------------
31, 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Oil and gas......................... $ -- $ 303,836 $ 274,511 $ 202,185 $ 408,459
Rental income....................... 127,034 100,962 58,195 45,563 120,098
Interest and other.................. 7,528 52,817 236,186 125,549 217,678
---------- ---------- ---------- ---------- ----------
Total revenues.................... 134,562 457,615 568,892 373,297 746,235
Costs and expenses:
Lease operating..................... -- 14,225 60,877 31,443 28,463
Production taxes.................... -- 19,812 17,656 12,380 22,764
Impairment of oil and gas
properties........................ -- -- 1,627,321 1,477,567 1,476,690
Depletion, depreciation &
amortization...................... 65,368 210,347 446,350 287,933 463,573
General and administrative.......... 596,267 598,244 905,063 652,671 1,343,660
Interest and other.................. 88,006 -- -- -- 289
---------- ---------- ---------- ---------- ----------
Total costs and expenses.......... 749,641 842,628 3,057,267 2,461,994 3,335,439
---------- ---------- ---------- ---------- ----------
Net loss from continuing operations... (615,079 ) (385,013) (2,488,375) (2,088,697) (2,589,204)
Dividends on preferred stock.......... -- (474,489) (1,058,956) (113,257) (505,167)
Accretion on preferred stock.......... (3,966 ) (30,367) (48,408) (34,681) (41,133)
---------- ---------- ---------- ---------- ----------
Net loss from continuing operations
applicable to common stockholders... $(619,045 ) $ (889,869) $(3,595,739) $(2,236,635) $(3,135,504)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net loss from continuing
operations applicable to common
stockholders (unaudited) (1)........ $(2,488,375) $(2,589,204)
---------- ----------
Pro forma primary and fully diluted
net loss from continuing operations
per share (unaudited)............... $ (0.49) $ (0.51)
---------- ----------
Pro forma weighted average number of
common shares outstanding
(unaudited) (2)..................... 5,098,768 5,123,705
---------- ----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------------
(UNAUDITED)
PRO FORMA AS ADJUSTED FOR
ACTUAL ADJUSTMENTS PRO FORMA OFFERING (6)
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $3,435,650 $ 798,672(3) $4,234,322 $26,216,799
Property and equipment, net......................... 4,852,759 -- 4,852,759 4,852,759
Total assets........................................ 9,139,254 653,558( (5) 9,792,812 31,775,289
Long-term debt...................................... -- -- -- --
Accrued dividends................................... 780,423 -- 780,423 --
Mandatorily redeemable Series B preferred stock..... 6,381,183 305,917(5) 6,687,100 --
Mandatorily redeemable Series C preferred stock..... 7,986,723 (7,986,723)(4) -- --
Common Stockholders' (deficit) equity............... $(6,704,515) $8,334,364(2 (5) $1,629,849 $31,079,849
</TABLE>
- ------------------------------
(1) Adjusted to eliminate dividends and accretion on the Series B Preferred
Stock and Series C Preferred Stock as if the shares of Series B Preferred
Stock had been redeemed and the shares of Series C Preferred Stock had been
converted into shares of Common Stock as of the beginning of the respective
periods.
(2) Adjusted for both periods to give effect to the issuance and sale of a
sufficient number of shares of Common Stock in the Offering to redeem all
the issued and outstanding shares of Series B Preferred Stock and pay the
accrued dividends.
(3) Adjustments required to give effect for the exercise of the Series C
Preferred Stock Warrants as described on page 5. See "--The Transactions."
(4) Adjustments to give effect to the conversion of all outstanding Series C
Preferred Stock and to give effect to $74,355 of unamortized issuance cost.
See "--The Transactions."
(5) Adjustment to give effect to the $305,917 redemption premium and $70,759 of
unamortized issuance cost on the Series B Preferred Stock.
(6) Adjusted to give effect to the Offering and the proposed application of net
proceeds therefrom as described in "Use of Proceeds."
SUMMARY OPERATING AND RESERVE DATA
The following table sets forth certain summary operating data for the
Company for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA (NET):
Gas (MMcf).......................... -- 105.1 97.1 73.3 117.8
Oil and condensate (MBbls).......... -- 6.1 6.7 4.5 6.5
Total equivalent (MMcfe)............ -- 141.7 137.3 100.3 156.8
AVERAGE SALES PRICE PER UNIT:
Gas (Mcf)........................... -- $ 1.93 $ 1.59 $ 1.63 $ 2.41
Oil and condensate (Bbl)............ -- 16.58 17.89 18.35 19.17
AVERAGE EXPENSES (PER MCFE):
Lease operating (1)................. -- $ 0.24 $ 0.57 $ 0.44 $ 0.33
Depletion of oil and gas properties
(2)............................... -- 0.64 1.15 0.94 0.81
</TABLE>
- ------------------------
(1) Includes all direct expenses of operating the Company's properties, as well
as severance and ad valorem taxes.
(2) Excludes depreciation and amortization of technical interpretation
equipment, office furniture and equipment and office leasehold improvements,
impairments of oil and gas properties and amortization of organization
costs.
7
<PAGE>
The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves as of each of the dates
indicated, which estimates have been prepared by the Company. Crude oil and
condensate are converted to Mcfe on the basis of one barrel of crude oil and
condensate to six Mcfe. See "Risk Factors--Uncertainty of Estimates of Oil and
Gas Reserves" and "Business--Oil and Gas Reserves."
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------- AT SEPTEMBER 30,
1993 1994 1995 1996
--------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
ESTIMATED NET PROVED RESERVES DATA:
Gas (MMcf).......................... 20 1,237 443 2,169(1)
Oil and condensate (MBbls).......... 4 40 41 31(1)
Total equivalent (MMcfe)............ 44 1,477 689 2,355
Pre-tax present value of proved
reserves discounted at 10%........ $ 60,000 $ 1,606,000 $ 771,000 $ 2,775,000(1)
</TABLE>
- ------------------------
(1) Estimates of the Company's net proved gas and oil and condensate reserves
and related revenue estimates as of September 30, 1996 were prepared by the
Company and with the exception of minor royalty interests in certain wells
have been the subject of a reserve report (the "Ryder Scott Reserve Report")
prepared by Ryder Scott Company ("Ryder Scott"). A summary report prepared
by Ryder Scott is included as Appendix A hereto.
RISK FACTORS
See "Risk Factors" beginning on page nine for a discussion of certain
factors that should be considered by prospective purchasers of the shares of
Common Stock offered hereby.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," including statements
regarding anticipated capital expenditures, estimates of proved reserves, future
rates of production and timing of capital expenditures and regulatory reform,
and other statements contained herein regarding matters that are not historical
facts, are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Because such statements include risks
and uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
under "Risk Factors."
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON
STOCK OFFERED HEREBY.
LIMITED OPERATING HISTORY AND SIGNIFICANT HISTORICAL OPERATING LOSSES
The Company commenced its operations in 1993 and has only a limited
operating history. Potential investors, therefore, have limited historical
financial and operating information upon which to base an evaluation of the
Company's performance and an investment in shares of Common Stock. For example,
the producing wells within exploration projects in which the Company is
participating have been on production only for a short period of time.
Therefore, estimations with respect to the proved reserves and level of future
production attributable to these wells are difficult to determine and there can
be no assurance as to the volume of recoverable reserves that will be realized
from such wells. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in the
early stages of their development. As a result of operating expenses, the
Company has incurred significant operating and net losses to date. Net losses
for 1993, 1994 and 1995 and the nine months ended September 30, 1996 were
approximately $615,000, $385,000, $2.5 million and $2.6 million, respectively.
At September 30, 1996, the Company had an accumulated deficit of $8.2 million.
The development of the Company's business and its participation in an
increasingly larger number of projects has required and will continue to require
substantial expenditures. The Company's future financial results will depend
primarily on its ability to economically locate hydrocarbons in commercial
quantities, to provide drilling site and target depth recommendations resulting
in profitable productive wells and on the market prices for oil and gas. There
can be no assurance that the Company will achieve or sustain profitability or
positive cash flows from operating activities in the future. See "--Substantial
Capital Requirements and Liquidity,"
"--Variability of Operating Results," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Oil and Gas Reserves."
VOLATILITY OF OIL AND GAS PRICES
Although the Company's primary efforts are focused on reducing the
hydrocarbon finding costs in those projects in which it participates, the
Company's revenues, profitability, cash flow and future growth are affected by
changes in prevailing oil and gas prices. Oil and gas prices have been subject
to wide fluctuations in recent years in response to relatively minor changes in
the supply and demand for oil and gas, market uncertainty and a variety of
additional factors that are beyond the control of the Company, including
economic, political and regulatory developments and competition from other
sources of energy. It is impossible to predict future oil and gas price
movements with any certainty. Currently, the Company does not engage in hedging
activities. As a result, the Company may be more adversely affected by
fluctuations in oil and gas prices than other industry participants that do
engage in such activities. No assurances can be given as to the future level of
activity in the oil and gas exploration and development industry and its
relationship to the future demand for the expertise offered by the Company. An
extended or substantial decline in oil and gas prices could have a material
adverse effect on the Company's financial position and results of operations,
the volume of oil and gas that may be economically produced by operations of
projects in which the Company participates and the Company's access to capital.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Oil and Gas Reserves."
RELIANCE ON SIGNIFICANT PARTNERS
The Company has in the past and expects in the future to rely extensively
upon its existing and future partners to offer opportunities for the Company to
participate in exploration projects. As of the date of this Prospectus, all of
the Company's oil and gas revenues have been derived from its participation in
9
<PAGE>
projects involving four partners. These four partners are Cox & Perkins
Exploration, Inc., Browning Oil Company, Prime Energy Management Corporation and
Parallel Petroleum Company. The Company's inability to secure future business
opportunities generated by these or other partners could limit the Company's
ability to fully implement its business plan and could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Significant Business Relationships."
NON-OPERATOR STATUS
The Company focuses exclusively on providing 3-D imaging and relies upon
other project partners to provide and complete all other project operations and
responsibilities including land acquisition, drilling, marketing and project
administration. As a result, the Company has only a limited ability to exercise
control over a significant number of a project's operations or the associated
costs of such operations. The success of a project is dependent upon a number of
factors which are outside of the Company's area of expertise and project
responsibilities. Such factors include: (i) the availability of favorable lease
terms and required permitting for projects, (ii) the availability of future
capital resources by the Company and the other participants for the purchasing
of leases and the drilling of wells, (iii) the approval of other participants to
the purchasing of leases and the drilling of wells on the projects and (iv) the
economic conditions at the time of drilling, including the prevailing and
anticipated prices for oil and gas. The Company's reliance on other project
partners and its limited ability to directly control certain project costs could
have a material adverse effect on the realization of expected rates of return on
the Company's investment in projects.
ABILITY TO DISCOVER ADDITIONAL RESERVES
The Company's future success is dependent upon its ability to economically
locate additional oil and gas reserves in commercial quantities. The Company's
ability to do so is dependent upon a number of factors, including its
participation in multiple exploration projects and its technological capability
to locate oil and gas in commercial quantities. Because the Company does not
generate or develop its own projects (except in instances relating to trend
plays), relying instead upon other industry participants to do so, no assurances
can be given that the Company will have the opportunity to participate in
projects which economically produce commercial quantities of hydrocarbons in
amounts necessary to meet its business plan or that the projects in which it
elects to participate will be successful. Except to the extent that the Company
successfully locates commercial quantities of economically recoverable oil and
gas, the Company's proved reserves will decline as reserves are produced. There
can be no assurance that the Company will be able to discover additional
commercial quantities of oil and gas or that the Company's project partners will
have success drilling productive wells and acquiring properties at low finding
costs. See "--Non-Operator Status" and "Business--Oil and Gas Reserves."
SUBSTANTIAL CAPITAL REQUIREMENTS AND LIQUIDITY
The Company makes, and will continue to make, substantial capital
expenditures for the development, exploration, acquisition and production of oil
and natural gas reserves. Historically, the Company has financed these
expenditures primarily with proceeds from the sale of its equity securities in
private offerings and cash generated by operations. The Company had oil and gas
capital expenditures of $2.2 million during 1995 and $2.9 million during the
nine months ended September 30, 1996, respectively, and as of November 1, 1996
planned to incur oil and gas capital expenditures of approximately $2.1 million
during the three months ended December 31, 1996 and approximately $20.0 million
in 1997. Management believes that the Company will have sufficient cash provided
by this Offering and by operating activities to fund planned capital
expenditures through 1997. However, if operating revenues are lower than the
Company anticipates, as a result of lower oil and gas prices, operating
difficulties or any other reason, the Company will not have the funds necessary
to undertake or complete its 1997 exploration program. There
10
<PAGE>
can be no assurance that additional debt or equity financing will be available
to meet these requirements. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES
There are numerous uncertainties inherent in estimating oil and gas reserves
and in projecting future rates of production. Petroleum engineering is a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. Estimates of economically recoverable oil
and gas reserves and of future net cash flows depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies, and assumptions concerning future oil and gas prices,
future operating cost, severance and excise taxes, development costs and
workover and remedial costs, all which may in fact vary considerably from actual
results. For these reasons, estimates of the economically recoverable quantities
of oil and gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of the
future net cash flows expected therefrom prepared by different engineers or by
the same engineers at different times may vary substantially. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material. See "Business--Oil and
Gas Reserves."
RISK OF EXPLORATORY DRILLING ACTIVITIES
Pursuant to the Company's business plan, the Company's revenues and cash
flow will be principally dependent upon the success of the exploratory drilling
projects in which the Company participates. The success of such projects is
determined by the economical location, development and production of commercial
quantities of hydrocarbons. Exploratory drilling is subject to numerous risks,
including the risk that no commercially productive oil and gas reservoirs will
be encountered. The cost of drilling, completing and operating wells is often
uncertain and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors including unexpected formation and drilling
conditions, pressure or other irregularities in formations, equipment failures
or accidents, as well as weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment. In addition,
the Company's reliance upon 3-D imaging requires greater pre-drilling
expenditures than the alternative forms of more traditional drill site location
strategies, including 2-D imaging. For example, in one current project in which
the Company is participating, the Company estimates the pre-drilling
expenditures attributable to 3-D imaging in identifying an initial exploratory
drilling location were $2.25 million. The Company believes that the pre-drilling
expenditures which would have been incurred in identifying an initial
exploratory drilling location within such project utilizing 2-D imaging would
have been approximately $750,000. The inability to successfully locate and drill
wells that will economically produce commercial quantities of oil and gas would
have a material adverse effect on the Company's business, financial position and
results of operations. See "--Non-Operator Status" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
Upon the consummation of the Offering, the Company intends to use
approximately $6.7 million or 23% of the net proceeds (20% of the net proceeds
if the Underwriters' over-allotment option is exercised in full) for the
immediate redemption of all issued and outstanding shares of Series B Preferred
Stock and approximately $780,000 or 3% of the net proceeds (2% of the net
proceeds if the Underwriters' over-allotment option is exercised in full) to pay
accrued but unpaid dividends on the issued and outstanding shares of Series C
Preferred Stock, prior to the conversion of such shares into Common Stock. See
"Prospectus Summary--The Transactions," "The Company" and "Use of Proceeds."
11
<PAGE>
COMPETITION
The exploration for and production of oil and gas are highly competitive.
Many companies and individuals are engaged in the business of acquiring
interests in and developing onshore and near onshore oil and gas properties in
the United States. The industry is not dominated by any single competitor or a
small number of competitors. The Company competes with a large number of
independent, technology-driven service companies and major and independent oil
and gas companies for the acquisition of desirable oil and gas properties, as
well as for the equipment and expertise required to operate and develop such
properties. Many of these competitors have financial and other resources
substantially in excess of those available to the Company. Such competitive
disadvantages could adversely affect the Company's ability to participate in
projects with favorable rates of return. See "Business--Competition."
TECHNOLOGICAL CHANGES
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
other oil and gas finding companies may implement new technologies before the
Company, and consequently such companies may be able to provide enhanced
capabilities and superior quality compared with that which the Company is able
to provide. There can be no assurance that the Company will be able to respond
to such competitive pressures and implement such technologies on a timely basis
or at an acceptable cost. One or more of the technologies currently utilized by
the Company or implemented in the future may become obsolete. In such case, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely affected.
See "Business--Competition."
OPERATING HAZARDS
The exploration and development projects in which the Company participates
are subject to the usual hazards incident to the drilling of oil and gas wells,
such as cratering, explosions, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. In addition, the offshore
projects are subject to the additional hazards of marine operations, such as
capsizing, collision and damage or loss from severe weather. These hazards can
cause personal injury and loss of life, severe damage to and destruction of
property and equipment, environmental damage and suspension of operations. The
Company indirectly, through operator partners, maintains insurance against some,
but not all, of the risks described above. See "Business--Operating Hazards and
Insurance."
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
Oil and gas operations are subject to extensive governmental regulation,
which may be changed from time to time in response to economic or political
conditions. The Company believes that the trend of more expansive and stricter
environmental laws and regulations will continue. The implementation of new, or
the modification of existing, environmental laws or regulations, including
regulations to be promulgated pursuant to the Oil Pollution Act of 1990, could
have a material adverse impact on the Company. See "Business--Regulation."
VARIABILITY OF OPERATING RESULTS
The Company's operating results have in the past and may in the future
fluctuate significantly depending upon a number of factors including industry
conditions, prices of oil and gas, rate of drilling success, rates of production
from completed wells and the timing of capital expenditures. Such variability
12
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, any failure or delay in the
realization of expected cash flows from operating activities could limit the
Company's ability to invest and participate in economically attractive projects.
See "--Limited Operating History and Significant Historical Operating Losses"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH STRATEGY
The Company's rapid growth has placed, and is expected to continue to place,
a significant strain on the Company's financial, technical, operational and
administrative resources. As the Company increases its services and enlarges the
number of projects it is evaluating or in which it is participating, there will
be additional demands on the Company's financial, technical and administrative
resources. The failure to continue to upgrade the Company's technical,
administrative, operating and financial control systems or the occurrence of
unexpected expansion difficulties, including the recruitment and retention of
geoscientists and engineers, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Prospect Generation."
DEPENDENCE ON KEY PERSONNEL
The Company has assembled a team of geologists, geophysicists and engineers
who have considerable experience effectively applying 3-D imaging technologies.
The Company is dependent upon the knowledge, skills and experience of these
experts to provide 3-D imaging and assist the Company in reducing the risks
associated with its participation in oil and gas exploration projects. In
addition, the success of the Company's business also depends to a significant
extent upon the abilities and continued efforts of its management, particularly
C. Eugene Ennis, the Company's President and Chief Executive Officer, Peter M.
Duncan, Vice President of Technology and Douglas C. Nester, Vice President of
Exploration. The Company maintains key man insurance on the lives of each of
Messrs. Ennis and Nester and Dr. Duncan in the amounts of $1.5 million, $500,000
and $500,000, respectively. The Company does not have employment agreements with
any of its employees. The loss of the services of key management personnel or
the Company's technical experts, or the inability to attract additional
qualified personnel, could have a material adverse effect on the Company's
business, financial condition, results of operations, development efforts and
ability to expand. There can be no assurance that the Company will be successful
in attracting and retaining such executives, geoscientists and engineers. See
"Management--Directors and Executive Officers" and "Management--Geoscientists
and Engineers."
BROAD DISCRETION OVER USE OF PROCEEDS
Approximately $20.0 million, or 68%, of the estimated net proceeds of the
Offering has been allocated for capital expenditures to implement the Company's
exploration and development program. Due to the number and variability of the
factors that will be analyzed before the Company specifically identifies and
commits to participate in projects or otherwise apply such net proceeds, the
Company will have broad discretion to allocate a significant portion of the net
proceeds from the Offering without any action or approval of the Company's
stockholders. Accordingly, investors in the Common Stock will not have the
opportunity to evaluate the economic, financial and other relevant information
that will be considered by the Company in determining the application of such
net proceeds. See "Use of Proceeds."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering there has been no public market for the Common Stock,
and although the Company intends to have the Common Stock listed on the Nasdaq
National Market System there can be no assurance that following the Offering an
active trading market will develop or be maintained. The initial public offering
price of the Common Stock offered hereby will be determined by negotiation
between the Company and the representatives of the Underwriters and may bear no
relationship to the price at which
13
<PAGE>
the Common Stock will trade after completion of the Offering. For factors to be
considered in determining the initial public offering price, see "Underwriting."
After completion of the Offering, the market price of the Common Stock could be
subject to significant fluctuations in response to various factors and events,
including the liquidity of the market for the Common Stock, variations in the
Company's quarterly operating results, regulatory or other changes in the oil
and gas industry generally, announcements of business developments by the
Company or its competitors, changes in operating costs and changes in general
market conditions. See "--Variability of Operating Results."
IMMEDIATE AND SUBSTANTIAL DILUTION
At an assumed initial public offering price of $13.00 per share of Common
Stock, purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $8.58 per share in net tangible book value of
outstanding Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act of 1933, as amended (the "Securities Act"), through
the exercise of outstanding registration rights or otherwise, could have an
adverse effect on the market price of the Common Stock and the ability of the
Company to raise capital in the future. The shares of Common Stock sold in the
Offering will be eligible for immediate resale, except to the extent acquired by
affiliates of the Company. Commencing 180 days after the effective date of the
Registration Statement of which this Prospectus is a part (the "Effective
Date"), approximately 2,987,908 additional shares of Common Stock will be
eligible for sale in the public market pursuant to Rule 144 upon expiration of
lock-up agreements with the Underwriters. The remaining 1,517,140 shares
outstanding upon completion of the Offering will be eligible for sale pursuant
to Rule 144 upon the expiration of the current two-year holding period. Certain
existing stockholders have rights under certain circumstances to require the
Company to register a total of 4,501,925 shares of Common Stock commencing 180
days after the effective date of the Registration Statement of which this
Prospectus forms a part. See "Description of Capital Stock--Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
The Securities and Exchange Commission (the "Commission") has proposed
amendments to Rule 144 which would reduce the holding period required for shares
subject to Rule 144 to become eligible for resale on the public market. This
proposal, if adopted, would increase the number of shares of the Company's
Common Stock eligible for immediate resale following the expiration of lock-up
agreements.
ANTI-TAKEOVER CONSIDERATIONS
Prior to completion of the Offering, the Company's Restated Certificate of
Incorporation, filed with the office of the Secretary of State of the State of
Delaware on July 26, 1995 (the "Certificate of Incorporation") and Amended and
Restated By-laws (the "Bylaws") will be amended and restated to include certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors. These
provisions may have the effect of delaying, deterring or preventing a future
takeover or change in control of the Company unless such takeover or change in
control is approved by the Company's Board of Directors, even though such a
transaction may offer the holders of Common Stock the opportunity to sell their
stock at a price above the prevailing market price. Such provisions may also
render the removal of directors and management more difficult. Specifically, the
Certificate of Incorporation and Bylaws, as the case may be, will be amended to
provide for a classified Board of Directors serving staggered, three-year terms
and certain advance notice requirements for stockholder nominations of
candidates for election to the Company's Board of Directors and certain other
stockholder proposals. Such provisions could limit the price that certain
persons might be willing to pay in the future for shares of Common Stock. In
addition, prior to completion of the Offering, the Certificate of Incorporation
will be amended and restated to authorize the Board of Directors of the
14
<PAGE>
Company to issue from time to time, without any further action of stockholders,
up to one million shares of Preferred Stock (as defined herein), on such terms
and with such rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may determine. The issuance of such
Preferred Stock, depending upon the rights, designations, preferences,
qualifications, limitations and restrictions thereof, may have the effect of
delaying, deterring or preventing a change in control of the Company or may
otherwise adversely affect the interests of holders of Common Stock. Further,
certain provisions of the Delaware General Corporation Law (the "DGCL") prevent
certain stockholders from engaging in business combinations with the Company,
subject to certain exceptions. See "Description of Capital Stock--Preferred
Stock," "Description of Capital Stock--Certain Provisions of the Certificate of
Incorporation and Bylaws" and "Description of Capital Stock--Delaware
Anti-Takeover Law."
15
<PAGE>
THE COMPANY
3DX Technologies is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D seismic imaging
and other advanced technologies in the search for commercial quantities of
hydrocarbons. The Company was founded by C. Eugene Ennis, Peter M. Duncan and
Douglas C. Nester and began operations in January 1993 to take advantage of
perceived opportunities emerging from changes in the domestic oil and gas
industry, including the divestiture of domestic oil and gas properties, advances
in technology and the outsourcing of specialized technical capabilities. Since
it commenced operations, the Company has acquired working interests (generally
ranging from 5% to 20%, although the Company has increased its working interest
in certain selected exploration trends) in 29 projects and has found 40.3 Bcfe
(2.8 Bcfe net to the Company's interest), of which 27.0 Bcfe (2.1 Bcfe net to
the Company's interest) was found during the first nine months of 1996. As of
the date of this Prospectus, the Company has working interests in 23 projects.
During its initial phase of operations in 1993 and 1994, the Company pursued
projects in West Texas and other domestic onshore areas. Although drilling
results from these projects were favorable, the Company generally held small
interests in such projects and ultimately determined that the Gulf Coast would
provide the Company with a greater opportunity for the development of its
business plan. Since that time the Company has focused its efforts in the Gulf
Coast region. Additionally, as a result of its initial experiences, the Company
has developed a unique method of evaluating business opportunities, assembled a
team of experienced explorationists and created innovative exploration
techniques based on advanced technology to enable it to identify and participate
in economically attractive projects. The Company believes that its technological
expertise together with increased capital resources will enable the Company to
further implement its business plan and growth strategy and achieve its
operational and financial goals.
The Company was initially capitalized in January 1993 through (i) the
issuance and sale of 768,117 shares of Common Stock to the Company's three
founders and (ii) the issuance of 100,000 shares of Convertible Preferred Stock,
Series A, par value $0.01 per share ("Series A Preferred Stock"), to Landmark
Graphics Corporation ("Landmark Graphics") for total consideration valued by the
parties at $500,000. The issued and outstanding shares of Series A Preferred
Stock were subsequently exchanged by Landmark Graphics for 329,003 shares of
Common Stock. Thereafter, in November 1993 and October 1994 the Company raised
additional capital in the amount of $5.4 million through the sale of units
("Units"), each Unit consisting of one share of Series B Preferred Stock and
30.215 shares of Common Stock. Additional capital in the amount of $8.0 million
was raised by the Company in a private placement of Series C Preferred Stock
during the third quarter of 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company's largest stockholders include Citi Growth Fund L.P., R. Chaney &
Partners-1993 L.P., Centennial Associates, L.P. and each of the founders, all of
which have invested in both the Units and the Series C Preferred Stock, and
NationsBanc Capital Corporation, Metropolitan Life Insurance Company and
Centennial Energy Partners, L.P., all of which have invested exclusively in
Series C Preferred Stock. See "Principal Stockholders and Selling Stockholders."
The Company's principal executive offices are located at 12012 Wickchester,
Suite 250, Houston, Texas. Its telephone number is (713) 579-3398.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Common Stock offered hereby, after deducting estimated underwriting discounts
and commissions and estimated expenses of the Offering, are estimated to be
approximately $29.5 million ($34.0 million if the Underwriters' over-allotment
option is exercised in full).
Of the net proceeds of the Offering to be received by the Company, the
Company intends to use (i) approximately $20.0 million to fund the Company's
exploration and development program, (ii) approximately $7.5 million to redeem
all of the issued and outstanding shares of Series B Preferred Stock and to pay
accrued but unpaid dividends on the Series C Preferred Stock and (iii) the
remainder for general corporate purposes, including expenses associated with
hiring additional personnel. Specifically, during 1997, the Company intends to
apply the net proceeds of the Offering in connection with budgeted oil and gas
exploration and development expenditures which relate to estimated costs
expected to be incurred as follows: (i) $13.7 million in projects within the
Texas Gulf Coast trend; (ii) $2.5 million in projects within the
Mississippi/Alabama trend; (iii) $870,000 in projects within the Sunniland
trend; and (iv) $2.9 million in projects located in South Louisiana. The
budgeted expenditures relate to costs incurred in connection with the
acquisition of land and seismic data, the interpretation of seismic data and the
drilling of exploratory and development wells. No assurances can be given
however that actual expenditures will not vary significantly from such budgeted
amounts.
Because of the number and variability of factors that determine the
Company's use of the net proceeds of the Offering, management will retain a
significant amount of discretion over their application. There can be no
assurance that such application will not vary substantially from the Company's
plans described above. In addition, there can be no assurance that the Company
will be able to generate or raise sufficient capital to enable it to realize
fully all of its strategic objectives. See "Risk Factors--Substantial Capital
Requirements and Liquidity" and "Risk Factors--Broad Discretion Over Use of
Proceeds."
Pending application of the net proceeds of the Offering, the Company expects
that it will invest such funds in interest-bearing accounts or in United States
government securities or other short term interest bearing investment grade
securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its formation and does not presently anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain any future earnings to finance the expansion and continued development of
its business. The future payment of cash dividends on the Common Stock will be
within the sole discretion of the Company's Board of Directors and will depend
upon the earnings, capital requirements and financial position of the Company,
applicable requirements of the DGCL, general economic conditions and other
factors considered relevant by the Company's Board of Directors.
17
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of September 30, 1996 was
approximately $1.5 million or $0.33 per share. Pro forma net tangible book value
per share represents the total amount of tangible assets of the Company, less
the total amount of liabilities of the Company, divided by the number of shares
of Common Stock outstanding on a fully diluted basis. All of the amounts below
give effect to the Transactions. After giving effect to the sale by the Company
of the 2,500,000 shares of Common Stock pursuant to the Offering at an assumed
initial public offering price of $13.00 per share, less estimated underwriting
discounts and commissions and estimated expenses of the Offering payable by the
Company, and the application of the estimated net proceeds therefrom, the
Company's pro forma net tangible book value as of September 30, 1996 would have
been approximately $30.9 million, or $4.42 per share of Common Stock. This
represents an immediate increase in net tangible book value of $4.09 per share
to existing stockholders and an immediate dilution in net tangible book value of
$8.58 per share to new investors purchasing shares of Common Stock in the
Offering (based upon an assumed offering price of $13 per share). The following
tables provide the computation of pro forma net tangible book value and
illustrate this dilution on a per share basis to the new investors:
<TABLE>
<CAPTION>
AMOUNT
--------------------------
COMMON SHARES TOTAL PER SHARE
--------------- ------------- -----------
<S> <C> <C> <C>
Actual net tangible book value at September 30, 1996..................... 2,991,032 $ (6,852,034) $ (2.29)
Conversion of all issued and outstanding shares of Series C Preferred
Stock.................................................................. 1,376,379 7,912,368
Exercise and conversion of Series C Preferred Stock Warrants............. 137,638 798,672
Premium incurred on redemption of all issued and outstanding shares of
Series B Preferred Stock............................................... (376,676)
--------------- -------------
Pro forma net tangible book value at September 30, 1996.................. 4,505,049 1,482,330 $ 0.33
Net Offering proceeds.................................................... 2,500,000 29,450,000
--------------- -------------
Pro forma net tangible book value at September 30, 1996 after the
Offering............................................................... 7,005,049 $ 30,932,330 $ 4.42
Assumed initial public offering price per share of Common Stock.......... $ 13.00
Pro forma net tangible book value per share of Common Stock at
September 30, 1996................................................... $ 0.33
Increase in net tangible book value per share attributable to net
proceeds of the Offering............................................. 4.09
---------------
Pro forma net tangible book value per share after giving effect to the
Offering............................................................... 4.42
-------------
Immediate dilution in net tangible book value per share of Common Stock
to new investors....................................................... $ 8.58
-------------
-------------
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors in this Offering at an assumed
initial public offering price of $13.00 per share before deducting the estimated
underwriting discounts and commissions and estimated expenses of the Offering
payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 4,505,049 64.3% $ 9,696,294 23.0% $ 2.15
New investors.................................... 2,500,000 35.7% 32,500,000 77.0% 13.00
---------- --------- ------------- ---------
Total........................................ 7,005,049 100.0% $ 42,196,294 100.0% 6.02
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The above tables exclude options to purchase 794,479 shares of Common Stock
at exercise prices ranging from $0.19 to $11.20, which have been granted under
the Stock Option Plan and are outstanding as of the date hereof and assume no
exercise of the Underwriters' over-allotment option. See "Management--Stock
Option Plan."
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<PAGE>
CAPITALIZATION
The following table sets forth each of the historical capitalization of the
Company as of September 30, 1996 and the pro forma and as adjusted
capitalization of the Company after giving effect to the Transactions and the
issuance and sale of the shares of Common Stock by the Company pursuant to the
Offering at an assumed initial public offering price of $13.00 per share and the
application of the estimated net proceeds from the Offering as described in "Use
of Proceeds." This table should be read in conjunction with the Financial
Statements of the Company, the notes thereto and the other financial data
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------------------------------
PRO FORMA AS ADJUSTED FOR
HISTORICAL ADJUSTMENTS(3) PRO FORMA OFFERING(4)
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 3,762,208 $ 798,672 $ 4,560,880 $ 26,543,357
------------- -------------- ------------- ---------------
------------- -------------- ------------- ---------------
Long-term debt.................................... $ -- $ -- $ -- $ --
------------- -------------- ------------- ---------------
------------- -------------- ------------- ---------------
Mandatorily Redeemable Preferred Stock, Series B,
$0.01 par value; 200,000 shares authorized,
66,871 issued and outstanding, historical; no
shares issued and outstanding, as adjusted....... 6,381,183 305,917 6,687,100 --
Senior Mandatorily Redeemable Convertible
Preferred Stock, Series C, $0.01 par value;
3,300,000 shares authorized, 2,662,241 issued and
outstanding, historical; no shares issued and
outstanding, as adjusted......................... 7,986,723 (7,986,723) -- --
Common Stockholders' deficit:
Common Stock, $0.01 par value; 12,000,000 shares
authorized, 2,991,032 shares issued and
outstanding, historical; 20,000,000 shares
authorized, 7,005,049 shares issued and
outstanding, as adjusted(1)...................... 29,910 15,140 45,050 70,050
Paid-in capital (net)(2).......................... 3,035,502 8,695,900 11,731,402 41,156,402
Deferred compensation related to certain stock
options.......................................... (1,529,773) -- (1,529,773) (1,529,773)
Accumulated deficit............................... (8,240,154) (376,676) (8,616,830) (8,616,830)
------------- -------------- ------------- ---------------
Common stockholders' (deficit) equity............. (6,704,515) 8,334,364 1,629,849 31,079,849
------------- -------------- ------------- ---------------
Total capitalization............................ $ 7,663,391 $ 653,558 $ 8,316,949 $ 31,079,849
------------- -------------- ------------- ---------------
------------- -------------- ------------- ---------------
</TABLE>
- ------------------------
(1) Excludes 1,501,813 shares of Common Stock reserved for issuance upon the
exercise of stock options which may be granted under the Stock Option Plan,
of which options to purchase 794,479 shares of Common Stock have been
granted and are outstanding as of the date hereof. See "Management--Stock
Option Plan." Upon consummation of the Offering, the Company's authorized
capital will consist of a total of 21,000,000 shares of capital stock, which
will be comprised of 20,000,000 shares of Common Stock and 1,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock").
(2) Net of notes receivable from the sale of shares of Common Stock in the
amount of $16,448.
(3) Adjustments required to give effect for the exercise of the Series C
Preferred Stock Warrants, the conversion of the Series C Preferred Stock
into Common Stock (including the effects of $74,355 in unamortized issuance
costs), and the charge to accumulated deficit of the $305,917 redemption
premium and $70,759 of unamortized issuance cost for the Series B Preferred
Stock as described on page 5. See "Prospectus Summary--The Transactions."
(4) Adjusted to give effect to the Offering and the proposed application of net
proceeds therefrom to redeem the issued and outstanding shares of Series B
Preferred Stock and pay accrued but unpaid dividends on the issued and
outstanding shares of Series C Preferred Stock as described in "Use of
Proceeds."
19
<PAGE>
SELECTED FINANCIAL DATA
The financial information set forth below as of December 31, 1993 and for
the period from inception of operations (January 6, 1993) through December 31,
1993 and as of and for the years ended December 31, 1994 and 1995 is derived
from the Financial Statements of the Company, which were audited by Arthur
Andersen LLP. The financial information set forth below as of September 30, 1996
and for the nine month periods ended September 30, 1995 and 1996 is derived from
unaudited financial statements of the Company which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations of the Company for such periods.
The results of operations for interim periods are not necessarily indicative of
a full year's operations. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements of the Company, the notes related thereto
and the other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION OF
OPERATIONS YEAR ENDED NINE MONTH PERIODS
(JANUARY 6, 1993) DECEMBER 31, ENDED SEPTEMBER 30,
THROUGH ------------------------- --------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas.............................. $ -- $ 303,836 $ 274,511 $ 202,185 $ 408,459
Rental income............................ 127,034 100,962 58,195 45,563 120,098
Interest and other....................... 7,528 52,817 236,186 125,549 217,678
----------------- ----------- ------------ ------------ ------------
Total revenues......................... 134,562 457,615 568,892 373,297 746,235
Costs and expenses:
Lease operating.......................... -- 14,225 60,877 31,443 28,463
Production taxes......................... -- 19,812 17,656 12,380 22,764
Impairment of oil and gas properties..... -- -- 1,627,321 1,477,567 1,476,690
Depletion, depreciation & amortization... 65,368 210,347 446,350 287,933 463,573
General and administrative............... 596,267 598,244 905,063 652,671 1,343,660
Interest and other....................... 88,006 -- -- -- 289
----------------- ----------- ------------ ------------ ------------
Total costs and expenses............... 749,641 842,628 3,057,267 2,461,994 3,335,439
----------------- ----------- ------------ ------------ ------------
Net loss from continuing operations........ (615,079) (385,013) (2,488,375) (2,088,697) (2,589,204)
Dividends on preferred stock............... -- (474,489) (1,058,956) (113,257) (505,167)
Accretion on preferred stock............... (3,966) (30,367) (48,408) (34,681) (41,133)
----------------- ----------- ------------ ------------ ------------
Net loss from continuing operations
applicable to common stockholders......... $ (619,045) $ (889,869) $ (3,595,739) $ (2,236,635) $ (3,135,504)
----------------- ----------- ------------ ------------ ------------
----------------- ----------- ------------ ------------ ------------
Pro forma net loss from continuing
operations applicable to common
stockholders (unaudited) (1).............. $ (2,488,375) $ (2,589,204)
------------ ------------
------------ ------------
Pro forma primary and fully diluted net
loss from continuing operations per share
(unaudited)............................... $ (0.49) $ (0.51)
------------ ------------
------------ ------------
Pro forma weighted average number of common
shares outstanding (unaudited) (2)........ 5,098,768 5,123,705
------------ ------------
------------ ------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------
DECEMBER 31, (UNAUDITED)
-------------------------------- PRO FORMA AS ADJUSTED FOR
1993 1994 1995 ACTUAL ADJUSTMENTS PRO FORMA OFFERING(6)
--------- --------- ---------- ---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $2,003,266 $2,102,586 $7,264,763 $3,435,650 $ 798,672(3) $4,234,322 $26,216,799
Property and equipment,
net..................... 635,696 2,669,177 2,935,093 4,852,759 -- 4,852,759 4,852,759
Total assets.............. 2,791,694 5,287,017 10,612,863 9,139,254 653,558( (5) 9,792,812 31,775,289
Accrued dividends......... -- -- -- 780,423 -- 780,423 --
Long-term debt............ -- -- -- -- -- -- --
Series B Preferred
Stock................... 2,630,825 5,541,744 6,357,295 6,381,183 305,917(5) 6,687,100 --
Series C Preferred
Stock................... -- -- 7,986,723 7,986,723 (7,986,723)(4) -- --
Common Stockholders'
equity (deficit)........ $ 16,365 $(673,972) $(4,240,319) $(6,704,515) $ 8,334,364( (5) $1,629,849 $31,079,849
</TABLE>
- ------------------------------
(1) Adjusted to eliminate dividends and accretion on the issued and outstanding
shares of Series B Preferred Stock and Series C Preferred Stock as if the
shares of Series B Preferred Stock had been redeemed and the shares of
Series C Preferred Stock had been converted into shares of Common Stock as
of the beginning of the respective periods.
(2) Adjusted for both periods to give effect to the issuance and sale of a
sufficient number of shares of Common Stock in the Offering to redeem all
the issued and outstanding shares of Series B Preferred Stock and pay the
accrued dividends.
(3) Adjustments required to give effect for the exercise of the Series C
Preferred Stock Warrants as described on page 5. See "Prospectus
Summary--The Transactions."
(4) Adjustments required to give effect to the conversion of all outstanding
Series C Preferred Stock and to give effect to $74,355 of unamortized
issuance costs as described on page 5. See "--The Transactions."
(5) Adjustment required to give effect to the $305,917 redemption premium and
$70,759 of unamortized issuance cost on the Series B Preferred Stock.
(6) Adjusted to give effect to the Offering and the proposed application of net
proceeds therefrom as described in "Use of Proceeds."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the nine months ended September 30, 1995 and 1996
and the three years ended December 31, 1993, 1994 and 1995. This discussion
should be read in conjunction with the Financial Statements of the Company, the
notes related thereto and the other financial data included elsewhere in this
Prospectus.
OVERVIEW
3DX Technologies is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D imaging and other
advanced technologies in the search for commercial quantities of hydrocarbons.
The Company only enters into arrangements that enable it to combine its
expertise and exploration capabilities with the operating skills of other oil
and gas companies. The Company participates in carefully selected exploration
projects as a non-operating, working interest owner, sharing both risks and
rewards with its partners. The Company commenced operations in January 1993 to
take advantage of perceived opportunities emerging from changes in the domestic
oil and gas industry, including the divestiture of domestic oil and gas
properties, advances in technology and the outsourcing of specialized technical
capabilities. By reducing drilling risk through 3-D imaging and analysis, the
Company seeks to improve the expected return on investment in its oil and gas
projects.
The working interest acquired by the Company in any project is determined
through negotiations among the Company and its prospective partners prior to the
Company's commitment to participate. The percentage working interest which the
Company seeks to acquire varies with each project and is dependent upon the
project's anticipated costs, risk and potential return. During the course of the
project, the Company's working interest is subject to change as a result of
negotiated cost and working interest sharing arrangements, the terms of which
are known to the Company prior to its commitment to participate.
Expenditures made in oil and gas exploration vary with each project
depending principally on the costs related to the acquisition of land and
seismic data, analysis of seismic data and the expenses incurred in drilling
exploratory and development wells. In addition, costs attributable to the
acquisition of 3-D seismic data are initially greater than those which would be
incurred if 2-D seismic data were acquired. The Company, however believes that
the benefits derived from the use of 3-D imaging greatly outweigh the
incremental costs which are incurred through the utilization of 3-D imaging
rather than 2-D imaging. Specifically, by utilizing 3-D imaging technology, the
Company is able to acquire greater volumes and enhanced quality of subsurface
information not attainable with 2-D seismic data. Through the use of 3-D imaging
technologies, the Company is able to acquire in one instance seismic data
covering a prospective well target which may have been previously identified and
any other prospective well targets in the surrounding geographic area. As a
result of the Company's utilization of the higher quality and significantly
larger quantity of information obtainable only from 3-D imaging technology, the
Company has enhanced its ability to identify drill site locations which are
expected to maximize production from any particular well, may enhance the
Company's overall project return through the identification of multiple
prospective wells, and enable the Company to avoid unnecessary drilling
expenditures which it might otherwise incur had it relied only upon 2-D seismic.
As a working interest partner, the Company shares all project costs in
proportion to its working interest percentage. In instances in which exploration
and development activities are unsuccessful, the Company incurs a loss equal to
its proportionate share of project costs prior to the time the project is
abandoned. Similarly, the Company will incur a loss if the Company's
proportionate share of revenue generated from production is insufficient to
cover the Company's share of project costs.
During 1993, the Company commenced its business operations and initiated
participation as a working interest partner in two projects, the Bright Falcon
project and the Fausse Pointe project. See "Business--Significant Projects and
Properties." The Company did not have oil and gas revenues during
22
<PAGE>
1993. To finance its operations and acquire funds for capital expenditures, the
Company sold equity securities through private placement offerings raising
approximately $3.5 million. See "The Company."
During 1994, the Company acquired working interests in seven projects and
successfully drilled and completed seven gross wells. The Company's oil and gas
revenues in 1994 totaled $304,000. To supplement operating revenues and enable
it to continue to implement its exploration program, the Company raised
additional capital in the approximate amount of $2.5 million through a private
placement of its equity securities in October 1994. See "The Company."
During 1995, the Company continued to expand its operating activities by
acquiring working interests in six additional projects and successfully drilling
and completing two gross wells. The Company recognized total oil and gas
revenues in the amount of $275,000 during 1995. Through a private placement, the
Company raised additional capital in the approximate amount of $8.0 million to
finance continued capital expenditures in connection with the further
implementation of its exploration and development program.
During the nine months ended September 30, 1996, the Company recognized oil
and gas revenues totaling $408,000 and owned working interests in 21 projects,
11 of which were acquired during this period. During the nine months ended
September 30, 1996, the Company drilled and completed eight gross successful
wells. See "--Working Interests Acquired Subsequent to September 30, 1996." The
Company intends to use approximately $20.0 million of net proceeds from this
Offering for capital expenditures to increase the number of projects in which it
is participating and to enable the Company to acquire working interests larger
than the working interest percentages the Company has had the available capital
to acquire in the past. See "Use of Proceeds."
Since it commenced operations in January 1993, the Company has acquired
working interests in 29 projects of which it has discontinued its participation
in six projects. As of the date of this Prospectus, the Company is currently
participating in 23 projects. The Company elected to discontinue its
participation in the six projects after determining that such projects were
unlikely to produce commercial quantities of hydrocarbons. Such determinations
were made after drilling an unsuccessful well in each of three projects and
after reviewing "seismic data" prior to drilling in each of the other three
projects. Subsequent to September 30, 1996, the Company has acquired working
interests in three additional projects and discontinued its participation in one
project in which it had a working interest as of September 30, 1996. See
"--Working Interests Acquired Subsequent to September 30, 1996."
The Company currently anticipates that it will participate in the drilling
of between 35 and 40 gross wells during 1997, although the number of wells may
increase as additional projects are added to the Company's portfolio. However,
there can be no assurance that such wells will be drilled and if drilled that
such wells will be successful. See "Risk Factors--Risks of Exploratory Drilling
Activities."
The Company's future financial results will depend primarily on: (i) the
Company's ability to continue to source and screen potential projects; (ii) the
Company's ability to discover commercial quantities of hydrocarbons; (iii) the
market price for oil and gas; and (iv) the Company's ability to fully implement
its exploration and development program. There can be no assurance that the
Company will be successful in any of these respects or that the prices of oil
and gas prevailing at the time of production will be at a level allowing for
profitable production. See "Risk Factors--Limited Operating History and
Significant Historical Operating Losses," "Risk Factors--Volatility of Oil and
Gas Prices," "Risk Factors--Ability to Discover Additional Reserves," "Risk
Factors--Substantial Capital Requirements and Liquidity" and "Risk
Factors--Risks of Exploratory Drilling Activities."
In connection with the implementation of its exploration and development
program, the Company intends to use a portion of the net proceeds of the
Offering to expand its technical and support staff. As a result, the Company
anticipates that its general and administrative expenses will increase in 1997.
Further, the Company anticipates incurring additional legal, administrative and
accounting costs in future periods as a result of the Company becoming a
publicly-held company.
23
<PAGE>
The Company uses the full-cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" for each country as they are
incurred. The Company records depletion of its full-cost pool using the unit of
production method. To the extent that such capitalized costs in each full-cost
pool (net of depreciation, depletion and amortization and related deferred
taxes) exceed the present value (using a 10% discount rate) of estimated future
net after-tax cash flows from proved oil and gas reserves, such excess costs are
charged to operations. Once incurred, a write-down of oil and gas properties is
not reversible at a later date. The Company incurred such charges in the
aggregate amount of $1.6 million and $1.5 million for the year ended December
31, 1995 and the nine months ended September 30, 1996, respectively, as a result
of a determination that the Company's aggregate investment in developed and
abandoned projects exceeded the present value of the Company's proved reserves
as of December 31, 1995 and as of March 31, 1996 and June 30, 1996. The Company
believes that its increasingly stringent criteria for project selection which
results in participation in higher quality projects, its geographic focus in the
Gulf Coast Region, its increasing base of knowledge and experience, its ability
to acquire unpromoted working interests and its participation in a larger number
of projects have made the probability of future impairment writedowns less
likely. However, no assurance can be given that future impairment writedowns,
which may be material in amount, will not be incurred by the Company.
The Company has recorded a valuation allowance against the estimated amount
of deferred tax assets for which realization is uncertain. The Company will
review the valuation allowance at the end of each quarter and will make
adjustments if it is determined that it is more likely than not that the
deferred tax assets will be realized. As of December 31, 1995, the Company had
tax net operating loss carryforwards ("NOL's") of $3,642,000 which begin to
expire in 2008. As a result of this Offering, there may be a limitation placed
on the Company's utilization of its NOL's by Section 382 of the Internal Revenue
Code of 1986, as amended. See Notes 3 and 13 to the Financial Statements of the
Company included elsewhere herein.
WORKING INTERESTS ACQUIRED SUBSEQUENT TO SEPTEMBER 30, 1996
The Company continually reviews opportunities for participation in
exploration projects. Subsequent to September 30, 1996, the Company has acquired
working interests in the following additional projects:
<TABLE>
<CAPTION>
ANTICIPATED
PROJECT -----------------------
PROJECT LOCATION COMMENCEMENT DATE ACQUISITION DRILLING
- --------------------------------------------------------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
Karnes Co., Texas.................................................... October 1996 $ 255,000 $ 296,000
Brazoria Co., Texas.................................................. November 1996 300,000 100,000
Matagorda Co., Texas................................................. November 1996 334,000 220,000
----------- ----------
Total.............................................................. $ 889,000 $ 616,000
----------- ----------
----------- ----------
</TABLE>
The amounts described as "acquisition" include the estimated costs expected
to be incurred by the Company based on its respective working interest
percentage prior to drilling, specifically with respect to land acquisition and
seismic imaging. The amounts described as "drilling" are estimates of the
expenses that the Company anticipates incurring, based on its respective working
interest percentage, in connection with drilling of the first exploration well.
Future drilling costs will be dependent upon the success of the initial
exploration well, the target depths of wells and the number of wells drilled.
The Company is currently unable to predict or estimate with any certainty the
amounts of such expenditures. As of the date hereof, the Company is currently
evaluating other projects in which to acquire working interests and believes
that the costs attributable to projects which it is currently evaluating and in
which it is probable that the Company will acquire a working interest do not, as
of the date of this Prospectus, exceed $1,000,000.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the Company
during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTH
PERIODS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRODUCTION:
Gas (MMcf)...................................................... -- 105.1 97.1 73.3 117.8
Oil and condensate (MBbls)...................................... -- 6.1 6.7 4.5 6.5
Total equivalent (MMcfe)........................................ -- 141.7 137.3 100.3 156.8
AVERAGE SALES PRICE:
Gas (per Mcf)................................................... -- $ 1.93 $ 1.59 $ 1.63 $ 2.41
Oil and condensate (per Bbl).................................... -- 16.58 17.89 18.35 19.17
AVERAGE EXPENSES (PER MCFE):
Lease operating (1)............................................. -- $ 0.24 $ 0.57 $ 0.44 $ 0.33
Depletion of oil and gas properties (2)......................... -- 0.64 1.15 0.94 0.81
</TABLE>
- ------------------------
(1) Includes all direct expenses of operating the Company's properties, as well
as severance and ad valorem taxes.
(2) Excludes depreciation and amortization of technical interpretation
equipment, office furniture and equipment and office leasehold improvements,
impairments of oil and gas properties and amortization of organization
costs.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1995
OIL AND GAS REVENUES. Oil and gas revenues increased by 102% to $408,000
for the nine months ended September 30, 1996 from $202,000 for the same period
of 1995. Of this increase, $114,000, or 55%, was attributable to an increase in
production and $92,000, or 45%, was attributable to an increase in the average
sales price for natural gas and oil. Production increased by 56% to
approximately 156.8 MMcfe for the nine months ended September 30, 1996, from
100.3 MMcfe for the comparable 1995 period. The increased production reflected
production for the entire nine months ended September 30, 1996 from the
successful wells drilled during the last six months of 1995. In addition,
production for the nine months ended September 30, 1996 included production from
a well completed in June 1996 and four successful wells completed in a single
project during July and August 1996. The average sales prices for oil increased
4% to $19.17 during the nine months ended September 30, 1996 from $18.35 for the
comparable 1995 period. The average sales price for natural gas increased by 48%
to $2.41 per Mcf for the nine months ended September 30, 1996 from $1.63 per Mcf
for the comparable 1995 period.
LEASE OPERATING EXPENSE. Lease operating expense increased by 16% to
$51,000 for the nine months ended September 30, 1996 from $44,000 for the
comparable 1995 period. This increase was primarily attributable to the increase
in 1996 production. Lease operating expense per Mcfe decreased by 25% to $0.33
for the nine months ended September 30, 1996 from $0.44 for the comparable 1995
period. Substantially all of the decrease in lease operating expense per Mcfe
was the result of the successful completion of four wells within a single
project during July and August 1996. These wells had lower lease operating costs
per Mcfe than wells from which production had been obtained in the comparable
prior period. The lower lease operating expense per Mcfe of the four wells
completed during July and August 1996 relate principally to the nature and
location of the completed wells. These four wells are producing from onshore,
shallow, highly permeable gas sands and produce relatively small amounts of
water, so there
25
<PAGE>
are negligible treating or disposal costs associated with such wells. These
completed wells require no artificial lift or compression so that the power and
maintenance costs associated with such wells are minimal. Additionally, the
highly permeable nature of the producing zones results in relatively high
production rates, which lowers all fixed expenses associated with production
from these wells on a per Mcfe basis.
By contrast, wells completed in prior periods, in general, have had higher
expenses due to the need for artificial lift and/or compression associated with
producing these wells. Also, many of the wells have produced water in addition
to hydrocarbons, resulting in additional expenses for treatment and disposal of
such fluid.
Although the Company is unable to predict with certainty the lease operating
expense per Mcfe that may be incurred in the future, the Company does not
anticipate that such expenses on a per Mcfe basis will be in amounts less than
those which were incurred during the nine months ended September 30, 1996.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSE. The major components of
depletion, depreciation and amortization are depletion of oil and gas properties
and administrative depreciation and amortization.
Depletion of oil and gas properties for the nine months ended September 30,
1996 increased by 34% to $126,000 from $94,000 for the comparable period in
1995. The increase in depletion of oil and gas properties resulted from the
increase in oil and gas production. Depletion of oil and gas properties per Mcfe
for the nine months ended September 30, 1996 declined by 14% to $0.81 from $0.94
due to an increase in reserves at a faster rate in 1996 than the Company's full
cost pool of capitalized costs.
Depreciation and amortization of technical interpretation equipment, office
furniture and equipment and office leasehold improvements increased 74% to
$337,000 for the nine months ended September 30, 1996 from $194,000 for the
comparable 1995 period. This increase was primarily attributable to the
acquisition of additional technical interpretation equipment and software with
an approximate cost of $422,000 during the nine months ended September 30, 1996.
IMPAIRMENT OF OIL AND GAS PROPERTIES. Oil and gas impairment charges
recorded as of March 31, 1996 and June 30, 1996 totaled approximately $1.5
million, primarily as a result of completion of the evaluation of two prospects
which had poor drilling results during these periods. The addition of the total
investment in these prospects to evaluated costs resulted in impairment charges
under the Company's accounting policy for oil and gas properties. As described
in Note 2 to the Financial Statements.
The Company incurred similar oil and gas impairment charges during the nine
months ended September 30, 1995 of approximately $1.5 million, as a result of
completion of the evaluation of two prospects which had poor drilling results
during these periods and the downward revision of oil and gas reserve estimates
in 1995.
As a result of the completion of four wells in July and August 1996 and the
related increase in the Company's estimate of proved reserves, the present value
(using a 10% discount rate) of estimated future net after-tax cash flow from
proved oil and gas reserves exceeded the Company's aggregate investment in
developed and abandoned projects by approximately $800,000 as of September 30,
1996.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense, net
of costs capitalized to exploration and development projects, increased by 106%
to $1,344,000 for the nine months ended September 30, 1996 from $653,000 for the
comparable 1995 period. This increase was primarily attributable to compensation
expense recognized in connection with stock options granted within one year of
the initial filing of the Registration Statement of which this Prospectus forms
a part, which expense is based on the difference between the option price and
the initial $14.00 per share estimate of the initial public offering price of
the Common Stock.
26
<PAGE>
RENTAL INCOME. Rental income increased by 161% to $120,000 for the nine
months ended September 30, 1996 from $46,000 for the comparable 1995 period. The
Company derives rental income pursuant to an agreement to exchange use of
certain of the Company's technical and office equipment by an independent
seismic processing company for a percentage of the gross fee billings of such
seismic processing company. As a result, the rental income recognized by the
Company varies significantly from period to period.
INTEREST AND OTHER INCOME. Interest and other income increased by 73% to
$218,000 for the nine months ended September 30, 1996 from $126,000 for the
comparable 1995 period, primarily as a result of an increase in short-term
investments made with the proceeds of the sale of Series C Preferred Stock.
NET LOSS. As a result of the foregoing, the Company's net loss increased by
24% to $2.6 million for the nine months ended September 30, 1996 from $2.1
million for the comparable 1995 period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
OIL AND GAS REVENUES. Oil and gas revenues decreased by 10% to $275,000 for
the year ended December 31, 1995 from $304,000 for the comparable 1995 period.
Of this decrease, $9,000 or 31% was attributable to a decrease in production and
$20,000 or 69% was attributable to a decrease in the average sales price for
gas. Production decreased by 3% to 137.3 MMcfe for the year ended December 31,
1995 from 141.7 MMcfe for the comparable 1994 period, primarily as a result of a
decline during 1995 in production from certain wells in the Bright Falcon
project as compared to 1994. The reduction in revenue attributable to a decline
in production from this particular project was partially offset by new
production from other wells completed in the last six months of 1995. The
average sales price for oil increased by 8% to $17.89 per Bbl during the year
ended December 31, 1995 from $16.58 per Bbl during the year ended December 31,
1994. The average sales price for gas decreased by 18% to $1.59 per Mcf during
the year ended December 31, 1995 from $1.93 per Mcf during the year ended
December 31, 1994.
LEASE EXPENSE. Lease operating expense for the year ended December 31, 1995
increased by 132% to $79,000 from $34,000 for the year ended December 31, 1994.
This increase was primarily attributable to workovers and higher lease operating
expenses relating to producing wells on the Bright Falcon project. Lease expense
per Mcfe increased to $0.57 during the year ended December 31, 1995 from $0.24
for the comparable 1994 period. Substantially all of the increase in lease
operating expense per Mcfe was related to the workovers and higher lease
operating expenses described above.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSE. Depletion of oil and gas
properties for the year ended December 31, 1995 increased 74% to $158,000 from
$91,000 for the prior year. Depletion per Mcfe for the year ended December 31,
1995 increased 80% to $1.15 from $0.64 for the prior year. The increases in both
total depletion and depletion per Mcfe were the result of a downward revision in
the amount of 909 Mcfe in the Company's oil and gas reserves in 1995.
Depreciation and amortization of technical interpretation equipment, office
furniture and equipment and office leasehold improvements increased by 140% to
$288,000 during the year ended December 31, 1995 from $120,000 for the
comparable 1994 period. This increase was due primarily to the acquisition
during 1995 of additional technical interpretation equipment and software with
an approximate cost of $620,000.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company incurred oil and gas
property impairment charges during 1995 of $1.6 million. No such charges were
incurred in 1994. The 1995 charges resulted from the Company's determination
that its investment in developed and abandoned projects exceeded the present
value of the Company's proved reserves at December 31, 1995.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense,
which is net of overhead capitalized to projects, increased by 51% to $905,000
for the year ended December 31, 1995 from $598,000
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in the comparable 1994 period. This increase was primarily attributable to
compensation expense for new employees and compensation expense in the amount of
$51,000 attributable to stock options issued within one year of the initial
filing of the Registration Statement of which this Prospectus forms a part.
RENTAL INCOME. Rental income decreased by 43% to $58,000 for the year ended
December 31, 1995 from $101,000 for the comparable 1994 period. This decrease is
attributable to a decrease during 1995 in the gross fee billings of the seismic
processing company which utilizes certain of the Company's technical and office
equipment. The Company earns rental income by exchanging use of its equipment
for a percentage of the seismic processing company's gross fee billings.
INTEREST AND OTHER INCOME. Interest and other income increased to $236,000
for the year ended December 31, 1995 from $53,000 for the comparable 1994
period, as a result of an increase in short-term investments made with the
proceeds from the sale of Series C Preferred Stock.
NET LOSS. As a result of the foregoing, the Company's net loss increased to
$2.5 million for the year ended December 31, 1995 from $385,000 for the year
ended December 31, 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
OIL AND GAS REVENUES AND EXPENSES. Oil and gas revenues were $304,000 for
the year ended December 31, 1994. Production during 1994 was 141.7 MMcfe. No oil
and gas revenues, operating expenses or depletion of oil and gas properties were
recognized by the Company in 1993.
Depreciation and amortization of technical interpretation equipment, office
furniture and equipment and office leasehold improvements increased by 85% to
$120,000 for the year ended December 31, 1994 from $65,000 for the comparable
1993 period. This increase was primarily attributable to the acquisition during
1994 of additional technical interpretation equipment with an approximate cost
of $227,000.
RENTAL INCOME. Rental income decreased by 20% to $101,000 for the year
ended December 31, 1994 from $127,000 for the comparable 1993 period.
INTEREST AND OTHER INCOME. Interest and other income increased to $53,000
for year ended December 31, 1994 from $8,000 during the comparable 1993 period.
This increase is primarily attributable to the short term investment of the
proceeds of the sale of the Units.
NET LOSS. Primarily as a result of the foregoing, the Company's net loss
decreased by 37% to $385,000 for 1994 from $615,000 for the comparable 1993
period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital in the amount of $3.4
million. To date, the Company has funded its oil and gas exploration activities
principally through cash provided by the sale of equity securities.
The Company was initially capitalized in January 1993 through (i) the
issuance and sale of 768,117 shares of Common Stock to the Company's three
founders and (ii) the issuance of 100,000 shares of Series A Preferred Stock to
Landmark Graphics for total consideration valued by the Company and Landmark
Graphics to be $500,000. The Series A Preferred Stock was initially convertible
into 517,000 shares of non-voting Common Stock that was similar in all other
respects to the Common Stock. As part of the consideration for the Series A
Preferred Stock, Landmark Graphics guaranteed a $400,000 bank loan for the
Company. In November 1993 and October 1994, the Company raised additional
capital in the amount of $5.4 million through the sale of 54,000 Units.
Immediately prior to the sale of the Units, the Company had a working capital
deficit of $765,588 and an equity deficit of $55,141 and did not believe that
financing alternatives for funding of the Company's planned capital expenditures
and exploration activities except for the sale of Units were available. As a
condition to their investment, the prospective purchasers
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of Units required Landmark Graphics to convert the Series A Preferred Stock to
329,003 shares of Common Stock rather than the 517,000 shares which Landmark
Graphics was entitled pursuant to the original terms of the Series A Preferred
Stock. Rather than being required to perform under its guarantee, Landmark
Graphics agreed to convert the shares of Series A Preferred Stock which it
owned, accepting the reduced number of shares of Common Stock. The prospective
Unit purchasers (who were unaffiliated with each of the Company and Landmark
Graphics) required Landmark Graphics to convert its shares of Series A Preferred
Stock on the terms described above to effect an increase in such persons'
prospective ownership in the Company. Additional capital in the amount of $8.0
million was raised by the Company in a private placement of Series C Preferred
Stock during the third quarter of 1995. Shortly after the sale of the Series C
Preferred Stock was completed, the Company completed a review and analysis of
its estimated oil and gas reserves and concluded that a downward revision in its
estimates was appropriate since certain proved undeveloped reserves were no
longer considered likely to be recoverable. The investors who had purchased
Series C Preferred Stock were issued warrants to purchase additional shares
equal to 10% of the number of shares of Series C Preferred Stock they had
purchased. See "The Company."
The Company's net loss of $2.6 million for the nine months ended September
30, 1996 included non-cash expenses comprised of impairment of oil and gas
properties in the amount of $1.5 million, compensation expense in the amount of
$600,000 related to stock options granted within one year of the initial filing
of the Registration Statement of which this Prospectus forms a part, and
depreciation and amortization of technical and other equipment in the amount of
$464,000.
Net cash used in investing activities for the nine months ended September
30, 1996 was $1.8 million. The acquisition, exploration and development of oil
and gas properties in the amount of $2.9 million was the principal use of cash
in the Company's investing activities. The principal source of cash from the
Company's investing activities was the maturity of debt securities totaling $1.6
million.
The Company has no outstanding long-term debt and is not a party to any debt
or collateral-based lending arrangements. The Company has never utilized
commodity swaps for its oil and gas production and it does not anticipate doing
so in the foreseeable future. In addition, the Company has not entered into any
hedging transactions and has no current intention to do so in the future.
The development of the Company's business has in the past required
substantial oil and gas capital expenditures. To meet its goal, the Company in
the future will be required to make oil and gas capital expenditures
substantially in excess of historical levels to acquire, explore and develop oil
and gas properties. See "Risk Factors--Substantial Capital Requirements and
Liquidity." Capital expenditures for oil and gas exploration and production
activities during 1993, 1994, and 1995, and for the nine months ended September
30, 1996, were $0.8 million, $1.8 million, $2.2 million and $2.9 million,
respectively. Capital expenditures for oil and gas exploration for the three
months ended December 31, 1996 are expected to be approximately $2.1 million and
budgeted capital expenditures for the Company's oil and gas exploration and
production activities during 1997, assuming completion of this Offering, are
currently estimated to be approximately $22.9 million. See "Risk Factors--Broad
Discretion over Use of Proceeds" and "Use of Proceeds."
As a result of the Company's periodic review of each of its portfolio of oil
and gas exploration and development properties and its available capital, the
Company has on two occasions sold partial interests in specific oil and gas
projects to other investors to reduce its total investment commitment to such
projects. In each such instance, the Company sold one-half and two-thirds of its
working interests in such projects, respectively, in exchange for proceeds in an
amount approximating one-half and two-thirds of the costs incurred by the
Company in connection with such projects, respectively. No gain or loss was
recognized on either transaction.
Although the Company presently has no current commitment to sell all or any
portion of its working interests, such sales could be used as a source of
liquidity by the Company in the future.
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The Company expects that its available cash, expected cash flows from
operating activities, and the proceeds from the Offering will be sufficient to
meet its financial obligations and fund its planned exploration and drilling
activities for the short term (which is considered by the Company to be the
twelve months following the consummation of the Offering), PROVIDED, that (i)
there are no significant declines in oil and gas prices below current levels or
anticipated seasonal lows, (ii) there are no significant declines in oil and gas
production from existing properties other than declines in production currently
anticipated based on engineering estimates of the decline curves associated with
such properties and (iii) the Company is able to discover and produce commercial
quantities of oil and gas and within the time frame the Company has predicted.
The Company intends to satisfy its long-term liquidity requirements from a
combination of expected cash flow generated from operations, borrowings from
financial institutions (which may be secured by the Company's oil and gas
reserves) and from future public or private offerings of equity and/or debt
securities. For liquidity purposes, the Company considers "long-term" to be the
second, third and fourth twelve month periods following the consummation of the
Offering.
In the event the cash flows from the Company's operating activities and the
net proceeds from the Offering are not sufficient to fund development and
exploration expenditures, or results from developmental drilling are not as
successful as anticipated, the Company will be required to modify the
implementation of its operating strategy unless additional financing is
available. There can be no assurance such financing would be available on terms
which would be acceptable to the Company. See "Risk Factors--Substantial Capital
Requirements and Liquidity."
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by changing
oil and gas prices. If the price of oil and gas increases (decreases), there
could be a corresponding increase (decrease) in the operating cost that the
Company is required to bear for operations, as well as an increase (decrease) in
revenues. Inflation has had a minimal effect on the Company.
OTHER
In connection with stock options granted within one year of the initial
filing of the Company's registration statement, the Company has recorded
deferred compensation expense based on the difference between the option prices
and the fair value of the Company's common stock at the date of grant (using the
initial $14.00 per share estimate of the initial public offering common stock
price as an estimate of the fair value). As of September 30, 1996, the Company
had unamortized deferred compensation of $1,529,773 which will be charged to
expense during the next four years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121") regarding accounting for
the impairment of long-lived assets. The Company adopted SFAS No. 121 effective
January 1, 1996. However, such adoption did not affect the primary test of asset
recoverability because the Company's oil and gas properties are accounted for
under the full cost method of accounting, as discussed in Note 2 to the
Financial Statements of the Company. The adoption of SFAS No. 121 had no effect
on the Company's results of operations for the nine month period ended September
30, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"). SFAS No. 123 is a
new standard of accounting for stock-based compensation and establishes a fair
value method of accounting for awards granted after December 31, 1995 under
stock compensation plans. SFAS No. 123 encourages, but does not require,
companies to adopt the fair value method of accounting in place of the existing
method of accounting for stock-based compensation whereupon compensation costs
are recognized only in situations where stock compensation plans award intrinsic
value to recipients at the date of grant.
The Company has elected not to adopt the fair value accounting of SFAS No.
123 and continues to account for these plans under APB Opinion No. 25.
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BUSINESS
OVERVIEW
3DX Technologies is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D seismic imaging
and other advanced technologies in the search for commercial quantities of
hydrocarbons. The Company only enters into arrangements that enable it to
combine its expertise and exploration capabilities with the operating skills of
other oil and gas companies. The Company participates in carefully selected
exploration projects as a non-operating, working interest owner, sharing both
risks and rewards with its partners. The Company commenced operations in January
1993 to take advantage of perceived opportunities emerging from changes in the
domestic oil and gas industry, including the divestiture of domestic oil and gas
properties, advances in technology and the outsourcing of specialized technical
capabilities. By reducing drilling risk through 3-D imaging and analysis, the
Company seeks to improve the expected return on investment in its oil and gas
projects.
The Company has developed a rigorous screening process that it applies to
all projects that it considers. The screening process, adapted continually to
incorporate the Company's ongoing experience, is designed to produce a balanced
portfolio of select projects that have reliable and experienced operating
partners, are conducive to the application of advanced 3-D technology, have
significant upside potential and may be extended into exploration trends.
As of the date of this Prospectus, the Company's current portfolio includes
11 active operator partners and 23 exploration projects primarily located
onshore and near shore within the Gulf Coast region from south Texas to southern
Florida. Although the Company has no current plan to expand its geographic focus
beyond the Gulf Coast region, the Company will pursue opportunities that may
become available in other select geographic areas as its capital resources
increase.
The Company believes that it can effectively and efficiently participate in
an increasing number of concurrent projects by continually improving its
techniques for acquiring and analyzing data. One example of such an improvement
is the Company's 3DXPRESS process, an innovative exploration technique that
improves the quality of seismic data and significantly compresses the time frame
traditionally required for acquisition, processing, imaging and analysis. This
process allows analysis of 3-D data while the seismic survey is being conducted,
giving the Company's explorationists the ability to ensure data quality and
steer data collection toward more promising prospective areas. Utilizing this
technology, the Company has been able to image and analyze a larger number of
projects concurrently and to identify potential drilling sites more rapidly and
accurately.
Since its formation through the date of this Prospectus, the Company has
participated in the drilling of 32 gross wells that have been drilled based on
the Company's site and target depth recommendations. Twenty of these wells were
successful and discovered estimated proved reserves of 40.3 Bcfe (2.8 Bcfe net
to the Company's interest), of which 27.0 Bcfe (2.1 Bcfe net to the Company's
interest) were discovered during the first nine months of 1996. The Company
currently expects to participate in the drilling of between 35 and 40 wells
during 1997, although the number of wells may increase as additional projects
are added to the Company's portfolio. The Company believes that the disciplined
approach it utilizes to select its projects, together with its technological
expertise will result in improved exploration success and project economics.
This success should position the Company to acquire larger working interests in
an increasing number of exploration projects.
STRATEGY
The Company's goal is to increase its proved reserves, production and cash
flow by quickly, accurately and economically locating commercial quantities of
hydrocarbons for itself and its partners. To reach its goal, the Company is
pursuing a business strategy that includes the following principal elements:
FOCUSING OPERATIONAL EFFORTS EXCLUSIVELY ON THE COMPANY'S EXPERTISE IN 3-D
IMAGING AND ANALYSIS. The Company focuses all of its technical resources on
obtaining the best possible subsurface image and on
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identifying the most effective location and target depth for each prospective
well. To allow it to focus its efforts exclusively on 3-D imaging and analysis,
the Company relies on its project partners to undertake the project's other
operating functions, including land acquisition, drilling and marketing. The
Company believes that its methods of applying 3-D imaging and analytical
technology provide it with knowledge and information superior to that produced
by companies engaged in many aspects of finding and producing oil and gas.
Although 3-D seismic technology is now routinely used in oil and gas exploration
projects, the Company believes that its focus, experience and innovative methods
of applying the technology provide it with advantages in extracting useful
information from seismic and other data.
DEVELOPING AND SUPPORTING A TEAM OF TECHNOLOGICALLY SOPHISTICATED
EXPLORATIONISTS. The Company believes that the quality of information obtained
from its application of 3-D imaging is dependent to a large extent on its
ability to capitalize on the intelligence, acquired knowledge and creativity of
the experienced geoscientists and engineers it employs. These experts have broad
expertise and experience from their collective participation in over 300 3-D
seismic projects in diverse geologic trends throughout the world. To allow the
Company to capitalize fully on the intellectual resources offered by such
experts, the Company's administrative operations and infrastructure are directed
toward providing tools and support to the Company's technical specialists. To
enhance its ability to recruit, retain and motivate such experts, the Company is
committed to providing its oil and gas finding geoscientists and engineers with
the most advanced imaging and analytical technology commercially available and
awards options to purchase Common Stock to each of its experts and other
employees.
MAINTAINING A RESEARCH PROGRAM TO DEVELOP INNOVATIVE APPLICATION TECHNIQUES
INVOLVING ADVANCED EXPLORATION TECHNOLOGY. The Company relies upon its ongoing
research to continually develop and adapt technology that the Company believes
will enable it to retain its position as a leading high technology exploration
company. For example, through its research efforts, the Company has developed
the 3DXPRESS process. The Company's 3DXPRESS process is an innovative technique
used in exploration that improves the quality of seismic data and significantly
compresses the time frame traditionally required for acquisition, processing,
imaging and analysis. This process allows analysis of 3-D data while the survey
is being conducted, giving the Company's explorationists the ability to ensure
data quality and steer data collection toward more areas where prospects are
more likely to exist. Utilizing this technology, the Company has been able to
image and analyze a larger number of projects concurrently and identify
potential drilling sites more rapidly and accurately. This ability to effect
near-real time acquisition, processing and analysis of seismic data allows the
Company to achieve optimum data and image quality, resulting in an improved
ability to economically locate commercial quantities of hydrocarbons. The
Company also believes that its application of emerging technologies, such as
migration velocity analysis and depth migration technology, provides the Company
with a competitive advantage in its ability to effectively and efficiently
locate commercial quantities of hydrocarbons.
PURSUING A DISCIPLINED APPROACH TO SELECTIVE PROJECT PARTICIPATION,
PARTNERING AND DRILLING EFFORTS. The Company adheres to the strict application
of its rigorous screening process and, based on its experience, continually
adapts the selection criteria to ensure that the Company participates only in
those projects that are likely to maximize the return on its capital investment.
The Company considers high quality projects to be projects that: (i) are managed
by reliable and successful operating partners; (ii) are located on properties to
which 3-D imaging can be effectively applied to evaluate the primary geologic
risk; (iii) have high upside potential; (iv) may be extended into trend plays;
and (v) have projected rates of return which make the production of hydrocarbons
economically attractive.
ACTIVELY MANAGING THE COMPANY'S PORTFOLIO OF OIL AND GAS PROJECTS. The
Company has developed and actively manages a balanced portfolio of partners,
projects and producing assets having a diverse range of risk/reward ratios.
Active portfolio management enables the Company to reduce its exposure to non-
geologic project risks such as land acquisition, operator performance and
drilling operations that are not mitigated by the application of 3-D imaging and
analysis technologies. In addition, the Company believes
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that aggressive management of its portfolio enables it to maximize its use of
available capital by limiting the Company's exposure to any individual
exploration project and by allowing it to focus its resources toward trend play
opportunities arising from carefully selected projects. In exploration trends,
the Company is generally able to obtain a larger working interest than it
possessed with respect to its initial project investment.
PROJECT SELECTION AND MANAGEMENT METHODOLOGY
Successful application of the Company's business plan is dependent upon the
Company's participation as an active working interest partner in select high
quality projects. The working interest acquired by the Company in any project is
determined through negotiation among the Company and its prospective partners
prior to the Company's commitment to participate. The percentage working
interest which the Company seeks to acquire varies with each project and is
dependent upon the project's anticipated costs, risk and potential return.
During the course of the project, the Company's working interest is subject to
change as a result of negotiated cost and working interest sharing arrangements,
the terms of which are known to the Company prior to its commitment to
participate. To identify these projects, the Company undertakes a rigorous
evaluation of the numerous projects proposed to it by its existing partners and
other project generators. The Company engages in the following steps to
evaluate, identify and manage high quality projects in which the Company
participates.
- INITIAL SCREENING. Prior to committing technical resources to the
evaluation of a potential project, the Company's business development team
reviews both the potential project and its partners to determine if they
satisfy certain initial business criteria. During the first nine months of
1996, the Company reviewed 78 potential projects, of which 17 met the
Company's basic business initial screening criteria. Subsequent to
September 30, 1996 through the date of this Prospectus, the Company has
reviewed 14 additional potential projects of which eight met the Company's
basic business initial screening criteria. To evaluate a potential
project, the Company considers geographic location, scale, geological
model, anticipated drilling prospects, number of pay zones and trend
potential and expected project economics. To evaluate a potential partner,
the Company considers that partner's financial stability, reputation and
record of success in exploration and production activities.
- TECHNICAL EVALUATION. If the project satisfies the Company's initial
business screening criteria, it is then evaluated by a multidisciplinary
team of the Company's technical experts. Such technical evaluation allows
the Company to analyze and evaluate further the basic geological model,
determine the seismic character of reservoirs within the project site,
determine if the application of 3-D imaging technology will adequately
address the primary geologic risk, investigate local and regional
production trends for target reservoirs, refine its evaluation of project
economics and determine if the capital required conforms to the Company's
investment guidelines. If the project meets these criteria, the Company
will participate in the project, committing its capital, technological
resources and 3-D imaging and analytical expertise.
- EARTH IMAGING. Once a project is approved for investment, the project
team, led by one of the Company's geoscientists or engineers and including
representatives of all or substantially all of the project's partners,
commences its efforts to create the most accurate subsurface image
possible. By integrating 3-D seismic data with other geologic and
engineering data, the project team uses the derived subsurface image to
model all potential reservoirs within the project's area. The data
collection, processing and analysis are managed by the Company to assure
its integrity and consistency.
- DRILLING DECISION. After the project team completes the earth imaging and
analysis of a selected project, the project team determines if the
applicable data identify economically attractive drilling opportunities.
The economic return expected from drilling must satisfy certain criteria
and must be
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commensurate with the perceived risk. Thereafter, the project team makes
recommendations to the partnership regarding drill sites and target
depths.
- POST-DRILLING APPRAISAL. Subsequent to the drilling of each well in a
project, the Company integrates the information it has acquired in the
drilling phase with its earth model enabling it to enhance the model based
on the best available data and knowledge. As a result, the Company builds
an increasing base of knowledge upon which to make future drilling
decisions with respect to each project.
As a working interest partner, the Company shares all project costs in
proportion to its working interest percentage. In instances in which exploration
and development activities are unsuccessful, the Company incurs a loss equal to
its proportionate share of project costs prior to the time the project is
abandoned. Similarly, the Company will incur a loss if the Company's
proportionate share of revenue generated from production is insufficient to
cover the Company's share of project costs.
The Company believes that its application of increasingly stringent criteria
for project selection which results in participation in higher quality projects,
its geographic focus in the Gulf Coast Region, its increasing base of knowledge
and experience, its ability to acquire unpromoted working interests and its
participation in a larger number of projects have made the probability of future
impairment writedowns less likely. However, no assurance can be given that
future impairment writedowns, which may be material in amount, will not be
incurred by the Company.
PROJECT GENERATION
By its participation in multiple projects, many with multiple partners, the
Company seeks to demonstrate its ability to improve project economics. Its
current partners are its best resource for future high quality projects. The
Company believes that its existing partners, which have benefited from the
Company's ability to improve project economics by reducing primary geologic
risk, will seek such benefits with respect to future projects and will therefore
solicit the Company's involvement in such new projects. By participating in
projects with partners possessing experience and knowledge in exploration
operations that are complementary to the Company's imaging and analytical focus
area, the Company believes that it and each project partner receive the benefit
of the other's knowledge and expertise while achieving results that are greater
than any particular partner might be able to achieve independently. The Company
further believes that establishing long-term partner relationships will enhance
the flow of prospective opportunities and the quality and stability of the
business relationship, as well as reduce significant risks, such as the
partner's operating capabilities and financial stability.
SIGNIFICANT PROJECTS AND PROPERTIES
The Company's exploration activities are currently focused on three Gulf
Coast trends, the Texas Gulf Coast trend, the Mississippi/Alabama trend and the
Sunniland trend. In addition, the Company pursues select projects in South
Louisiana. Geologically, 3-D imaging of the structural and stratigraphic
complexities common in the Gulf Coast provides the Company with an ability to
identify significant hydrocarbon potential in and around existing fields that
could not be detected with 2-D and conventional exploration techniques. Due to
geologic complexities within this region, it may be possible to identify
multiple prospects within a single project. These prospects typically offer
multiple drilling opportunities with individual wells capable of encountering
multiple reservoirs. As its capital resources increase, the Company believes it
can extend its trend strategy into other select geographic areas where the
application of 3-D imaging technology can be utilized to reduce the primary
geological risks prior to drilling.
Technically, the extensive drilling history within Gulf Coast trends
provides a powerful subsurface and production database to which seismic data can
be calibrated. These data provide the foundation required to design a seismic
program that optimizes resolution at targeted reservoirs. These data, when
combined
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with 3-D seismic data, provide a more accurate assessment of reservoir quality,
productivity and reserve potential and in some instances, fluid type.
The following sets forth a brief summary of the Company's exploration trend
areas and significant projects and properties. Although the Company is
aggressively pursuing activities in each of the following areas, there can be no
assurance that drilling opportunities will be identified or, if drilled, will be
successful.
TEXAS GULF COAST TREND
In the Texas Gulf Coast trend, the Company anticipates drilling between 20
to 30 gross wells in 1997 with budgeted capital expenditures approximating $10
to $15 million net to the Company's working interest. The Company and its
partners control in excess of 93,000 gross acres in this trend. Since February
1996 through the date of this Prospectus, the Company and its partners have
drilled seven wells in the trend, six of which have encountered commercial
quantities of oil and gas and are currently drilling one additional well. The
Company has successfully utilized the 3DXPRESS process on 8,400 acres overlying
four of these discoveries. At September 30, 1996, production rates for these
four wells totaled approximately 9.0 MMcfe/d. The Company is currently utilizing
the 3DXPRESS process on three other 3-D imaging programs totaling approximately
143 square miles in the trend. The Company's working interests in this trend
currently range from 6% to 40%.
The Texas Gulf Coast trend includes both onshore and offshore properties and
generally extends along the Texas coast from Houston south to the Mexican
border. Prospective geology in the trend is characterized by numerous stacked
sand formations that were deposited continuously by river channels and deltas.
The trend's primary historical oil and gas producing formations include the
Wilcox, Frio, Yegua and Miocene.
Certain of the projects the Company is pursuing in the Texas Gulf Coast
trend are described below:
COVE AND MCPAC FIELDS. The Company proposed and drilled a well with its
partner, Bellwether Exploration Company, into a new fault block of the Cove
and McPac Fields in August 1996 and discovered commercial quantities of oil
and gas in two reservoirs. The well currently is shut-in but is expected to
be flowing into existing production facilities by year end. The Company owns
a 7% working interest in the well. In addition, the Company has defined a
separate prospect adjacent to these fields and currently is evaluating
whether to drill a well to test the prospect. The Cove and McPac Fields'
acreage is held by production and is located in Matagorda Island Block
487-L, Texas state waters, 96 miles southwest of Houston in 60 feet of
water.
GILA BEND. The Company joined its partner, Ameritex Ventures, Ltd., in
the project in December 1995. Integration of a 16-square mile 3-D seismic
survey with the geology and production data resulted in a well being spud in
July 1996. This well discovered four distinct pay zones of oil and gas and
currently is producing 3.9 MMcfe and 80 Bbls of condensate per day from the
first of the four pay zones. The Company and its partners control 3,525
gross acres in Gila Bend, and the Company owns working interests ranging
from 6% to 10%.
GERONIMO. The Company completed acquisition of a 77-square mile 3-D
seismic survey in October 1996 utilizing the 3DXPRESS process in the
Geronimo project, which is located in San Patricio County, Texas. Primary
target formations include the Frio and Vicksburg sands, which are currently
producing in fields in the area. The project area covers approximately
25,000 gross acres in which the Company owns a 15% working interest. The
Company's partners in this project include Esenjay Petroleum Corporation
("Esenjay").
BRIGHT FALCON. The Company joined its partner, Cox & Perkins
Exploration, Inc., in 1993, in the Bright Falcon project, the Company's
first project in the Texas Gulf Coast trend. Since then, the
35
<PAGE>
Company and its partner have drilled seven wells, five of which were
discoveries. As of the date of this Prospectus, three wells, one of which
was recompleted in November 1996, are producing in the Bright Falcon
project. The Bright Falcon wells were drilled into Yegua and Frio gas
formations after a 26-square mile 3-D seismic survey covering the Lost
Bridge-Bright Falcon fields was analyzed by the Company. The project is
located in Jackson County, Texas and its acreage is held by production. The
Company owns a 17% working interest in this project.
MISSISSIPPI/ALABAMA TREND
In the Mississippi/Alabama trend, the Company anticipates drilling six to
eight gross wells in 1997 with budgeted capital expenditures approximating $2.5
million net to the Company's working interest. The Company and its partner,
Esenjay, control over 41,000 gross acres in the trend. The Company completed
acquisition of a 3-D seismic survey utilizing the 3DXPRESS process on a
64-square mile area in November 1996. The Company's first well in this trend is
expected to spud in the first quarter of 1997. The Company currently has a
working interest of approximately 15% in its properties in the trend.
The Mississippi/Alabama trend includes onshore properties and generally
extends across a seven-county area from Newton County in Southern Mississippi
eastward through Southern Alabama to the Florida border. Prospective geology in
the trend is characterized by discrete occurrences of basement and salt-related
features that deform shallower sand formations to create potential structural
traps for oil and gas. The primary historical oil and gas producing formations
in the trend have been the Cotton Valley, Lower Haynesville, Smackover and
Norphlet.
SUNNILAND TREND
The Company's partner in the Sunniland trend project is Plains Resources,
Inc. ("Plains"). As part of its anticipated initial exploration of the Sunniland
trend in 1997, the Company plans to acquire a 3-D survey utilizing the 3DXPRESS
process and to drill a well on a prospect that the Company believes may confirm
an extension of the Raccoon Point Field. Cumulative production from this field,
located in Collier County, Florida, has exceeded 9.5 MMBOE. The Company and its
partner currently are exploring other 3-D project opportunities within the
Sunniland trend by acquiring, reprocessing and analyzing 2-D seismic data along
with other evaluation methods. The Company and its partner control approximately
81,000 gross acres in the trend. The Company owns an 8% working interest therein
excluding the currently established production.
The Raccoon Point Field is within the Cretaceous Sunniland Trend, which
extends from south of Ft. Myers, Florida to northwest of Miami, Florida.
Prospective geology in the trend is characterized by carbonate reefs and shoals.
The trend's primary historical oil and gas producing formation is the Sunniland
formation.
SOUTH LOUISIANA PROJECTS
FOUR ISLE DOME. To the date of this Prospectus, the Company has
identified multiple drilling targets in the upper Miocene zone of Four Isle
Dome, located in Terrebone Parish, Louisiana. The first of these wells in
which the Company owned a 20% working interest was spud by the Company and
its partner, Plains, in October 1996 targeting the upper Miocene at an
approximate depth of 14,000 feet. Although the primary objective sands were
encountered, electric logs indicated that those sands would not produce
commercial quantities of hydrocarbons. The Company also is participating
with Plains in an additional well scheduled to be drilled in December 1996.
Prior to the Company's involvement in the project, Plains and its partners
acquired a 51-square mile 3-D seismic survey in late 1995. In February 1996,
the Company signed a joint venture agreement with Plains covering Four Isle
Dome. Since then, the Company has assisted with completion of the seismic
processing, has analyzed
36
<PAGE>
the seismic data and has identified drilling targets. The Company and its
partner control approximately 19,000 gross acres on this project. The
Company will own a 5% working interest in the well to be spud in December
1996.
HAYES. The Company and its partner, Alta Mesa Resources, Inc. expect to
spud the first well in the Hayes project during the first quarter of 1997.
The Company has analyzed a 25-square mile 3-D seismic survey utilizing the
3DXPRESS process. The survey area included the Hayes Field and selected
adjacent acreage in Calcasieu and Jefferson Davis Parishes, Louisiana.
Cumulative production from the Hayes Field has exceeded 157 Bcf and 1.64
MMBbls. The Company does not own an interest in the field, but the Company
believes that it has identified several drilling targets on the adjacent
acreage. The Company and its partner control over 7,800 gross acres in this
project in which the Company owns a 10% working interest.
RACELAND. The Company and its partner, Texoil, Inc., plan to drill the
first exploratory well, targeted at Miocene formations, in the Raceland
project during the first quarter of 1997. The Raceland project is located
near the Raceland Field in Lafourche Parish, Louisiana. Acquisition of a
64-square mile 3-D seismic survey on the underlying salt dome was completed
in August 1996 and the Company currently is analyzing the seismic data. The
nearby Raceland Field has produced over 24 MMBbls and 134 Bcf from Miocene
sands at depths of 7,000 feet to 16,000 feet. The Company and its partner
control over 17,000 gross acres in the Raceland project in which the Company
owns a 5% working interest.
EAST CAMERON 42. The Company and its partners, Gulf Star Energy, Inc.
and Santa Fe Energy Resources, Inc., drilled a gas discovery in Miocene
sands on East Cameron 42, the Company's Hollywood project, in July 1996. The
well is scheduled to be connected to existing production facilities in
December 1996. East Cameron 42 is located in federal waters approximately
175 miles southwest of New Orleans in 45 feet of water. The project acreage
is held by production, and the Company owns a 5% working interest in this
well.
OTHER PROJECTS
LANELL FARMS. The Company and its partner, Browning Oil Company, have
completed drilling operations on a well at Lanell Farms, located in Gaines
County, West Texas, which targeted the Devonian and Wolfcamp formations. The
Company and its partner have commenced completion operations on the well
with respect to the Wolfcamp formation and have concluded that the Devonian
formation will not produce commercial quantities of hydrocarbons. A second
well, targeting the Wolfcamp formation, is scheduled to be spud in the first
quarter 1997. The 2,000-acre project area is covered by a 3-D seismic survey
in which the Company participated. The Company owns a 6% working interest in
the first well and a 10% working interest in the second well to be drilled.
SIGNIFICANT BUSINESS RELATIONSHIPS
As of December 15, 1996 the Company's current portfolio included 11 active
operator partners. Such partners are identified below:
<TABLE>
<CAPTION>
Alta Mesa Resources, Inc. Esenjay Petroleum Corporation
<S> <C>
Ameritex Ventures, Ltd. Harrison Interests, Ltd.
Bellwether Exploration Company Plains Resources, Inc.
Browning Oil Company PrimeEnergy Management Corporation
Cox & Perkins Exploration, Inc. Texoil Inc.
EnerVest Management Co.
</TABLE>
37
<PAGE>
In February 1996, the Company formed a joint venture and strategic alliance
with Plains, the Company's partner in the Sunniland trend, pursuant to which the
companies agreed to jointly pursue exploitation and exploration opportunities.
Pursuant to the joint venture, the Company acquired a working interest of up to
8% in the Sunniland trend exploration project and an initial working interest of
approximately 7% in the Four Isle Dome project. In addition to their joint
venture, the Company and Plains have entered into a strategic alliance which has
an initial term of five years. Under the terms of the alliance, the Company has
the right to participate in exploitation or exploration projects where 3-D
seismic is applicable (i) for up to 15% of Plains' interest in the Illinois
Basin, located in southern Illinois, and in the Los Angeles Basin, located in
Los Angeles County, California, and (ii) for up to 20% of Plains' interest in
any additional properties Plains might acquire.
The Company also has a strategic alliance with PrimeEnergy Management
Corporation, a subsidiary of PrimeEnergy Corporation, covering an area of mutual
interest in the Texas Gulf Coast trend and a contractual relationship on
projects with Esenjay Petroleum Corporation, a privately held corporation, in
the Texas Gulf Coast trend and the Mississippi/Alabama trend which, if
successful, could lead to a broader geographic alliance. See "--Significant
Projects and Properties." The Company believes that these types of joint
ventures and alliances involving long-term partner relationships enhance the
flow of opportunities presented to the Company and reduce the risk involved in
determining the quality of the partner and the relationship. As part of its
strategy, the Company attempts to convert successful relationships on individual
projects with quality partners into long-term strategic alliances.
In addition to its relationship with certain operator partners, the Company
maintains an agreement with Landmark Graphics pursuant to which the Company has
acquired a license to use certain software manufactured by Landmark Graphics.
The Company also maintains informal agreements with Landmark Graphics which
entitle the Company's employees to participate in Landmark Graphics' medical
insurance plan, life insurance plans and 401(k) plan. The Company currently
anticipates that its informal agreements with Landmark Graphics will remain in
place until at least December 31, 1997. See "Certain Transactions--Agreements
with Landmark Graphics."
3-D IMAGING TECHNOLOGY
The Company's oil and gas finding capabilities are dependent upon the
effective application of 3-D imaging technologies. Although the initial
application of 3-D imaging technology began in the late 1960's, its cost through
the 1970s justified use only in deep offshore applications and other
environments with substantial drilling costs and risk. By the mid-to-late 1980's
3-D imaging was a principal tool used in exploration activities in both the
North Sea and the Gulf of Mexico. Advances in technology during the 1980's made
the use of 3-D imaging more cost advantageous and more readily available for use
onshore.
In general, 3-D imaging technology provides an "image" of the subsurface
geology by collecting seismic data along multiple parallel lines and creating a
cube of information which is spatially sampled throughout. The data acquired by
use of 3-D imaging technology is of a significantly better quality and provides
significantly greater advantages than the data acquired by 2-D seismic
technology. The higher fidelity and resolution of 3-D data result in more
accurate images than are possible using 2-D seismic and other conventional
methods. The productive application of 3-D imaging technology requires the
skills of highly trained experts.
GEOLOGIC, GEOPHYSICAL AND ENGINEERING EXPERTISE
The Company has assembled a group of talented and experienced geologists,
geophysicists and engineers that work in multidisciplinary teams to enable the
Company to exploit fully the advantages afforded by 3-D imaging technologies.
The Company currently has ten full-time experts who design and manage the
process of seismic data acquisition, processing, imaging and analysis and drill
site selection using computer systems and software owned or licensed by the
Company. Each of those geoscientists and
38
<PAGE>
engineers has between five to 20 years of experience involving the utilization
of seismic data imaging and analysis, and they have collectively participated in
over 300 3-D seismic projects in diverse geologic trends throughout the world.
By assembling in-house technical expertise, the Company is able to manage fully
and effectively the imaging and analytical phase of the projects in which it
participates. The Company provides its technical expertise exclusively to those
projects in which it participates as a working interest partner. See
"Management--Geoscientists and Engineers."
By assembling for each project a multidisciplinary team of Company and
project partner experts, led by one of the Company's geoscientists or engineers,
the Company is able to capitalize on the expertise and experience of its
partners' technical staff while retaining management and overall responsibility
for the imaging and analytical phase of the project. If a project requires
technical expertise not available from the Company's or project partners'
personnel, the Company's project manager will identify and recruit an industry
expert to join the project team. In addition to being responsible for finding
oil and gas quickly and economically, the Company's project managers are in
charge of scheduling, budgeting and timely reporting. To insure that all
responsibilities assigned to various team members are completed in a systematic
manner and that all variables arising in connection with the imaging and
analysis of a specific project are thoroughly reviewed and integrated into the
imaging and analysis procedures, all of the Company's project managers are
required to adhere to the Company's technical template for each project for
which they are responsible. Generally, the Company's project manager maintains
responsibility for the project throughout the project life, which typically
extends through drilling of the last exploratory well.
RESEARCH AND DEVELOPMENT
The Company believes that it possesses a competitive advantage over other
oil and gas companies by utilizing the experience of its in-house scientific
experts to continually develop innovative techniques and tools to optimize the
Company's utilization of 3-D imaging technologies. The Company's ongoing
research and development and its continuous accumulation of knowledge have
resulted in technical improvements and innovations that the Company believes
provide it with significant competitive advantages. Application of the 3DXPRESS
process, AVO, inversion and geostatistics to the process of reservoir
characterization and innovative utilization of technologies including digital
orthomaps and GPS locators are examples of such improvements which the Company
believes enable it to acquire higher quality seismic data than that which may be
acquired without effective utilization of such technologies and techniques. The
Company believes such higher quality data enable it to locate hydrocarbon
reserves more accurately thereby creating for it and its project partners a
significant competitive advantage. The Company enhances its ongoing research
program by forging strategic alliances with select suppliers of hardware and
software which have demonstrated foresight in the science of earth imaging. The
Company believes that its strategy of applied research and development will
allow it to remain at the forefront of oil and gas exploration technology.
The Company has been able to adapt and refine concurrent imaging methods to
create the Company's 3DXPRESS process through the effective application of its
applied research and development strategy. In its first commercial application
of the 3DXPRESS process, the Company commenced and completed a project's imaging
and analysis phase in a four week period. Thereafter, the project operator
successfully drilled and completed four of the five resulting wells in a complex
geologic setting relying upon the Company's drill site and target depth
recommendations.
Other innovations and improvements to the imaging process resulting from the
Company's ongoing research include the use of digital orthomaps for survey
planning and control, the use of GPS locators on seismic vibrators for
positioning control, application of AVO, inversion and geostatistics to the
process of reservoir characterization and the application of interactive
migration velocity analysis and depth migration to achieve superior image
reconstruction. Many of these innovations and improvements are the result of
strategic alignments with pioneering technology suppliers such as GPS
Technologies, Inc., Hampton-Russell Software, Inc., Landmark Graphics and
Paradigm Geophysical, Inc.
39
<PAGE>
OIL AND GAS RESERVES
All of the Company's proved reserves described below were located onshore in
West Texas and onshore and near-shore in the Louisiana and Texas Gulf Coast
region. All of the Company's proved reserves reflected in the table were proved
developed reserves. The Company's estimated total proved reserves of oil and
natural gas as of December 31, 1993, 1994 and 1995, and September 30, 1996,
based upon estimates prepared by the Company, were as set forth in the following
table:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------- AT SEPTEMBER
1993 1994 1995 30, 1996
----- --------- --------- -------------
<S> <C> <C> <C> <C>
Estimated Net Proved Reserves Data:
Gas (MMcf).............................................................. 20 1,237 443 2,169(1)
Oil and condensate (MBbl)............................................... 4 40 41 31(1)
Total equivalent (MMcfe)................................................ 44 1,477 689 2,355
Pre-tax present value of proved reserves discounted at 10%(2)............. $ 60 $ 1,606 $ 771 $ 2,775
Standardized Measure of Discounted Future Net Cash Flows (in
thousands)(2)(3)........................................................ $ 60 $ 1,606 $ 771 $ 2,775(1)
</TABLE>
- ------------------------
(1) Estimates of the Company's net proved gas and oil and condensate reserves
and related revenue estimates as of September 30, 1996 were prepared by the
Company and with the exception of minor royalty interests have been the
subject of the Ryder Scott Reserve Report prepared by Ryder Scott. A summary
report prepared by Ryder Scott is included as Appendix A hereto.
(2) Because the Company has substantial net operating loss carryforwards, the
amounts reflected are the same before taxes and after projected income
taxes.
(3) In accordance with requirements of the Securities and Exchange Commission,
represents the present value of estimated future net revenues after income
taxes discounted at 10%.
In addition to the discussion below, reference is made to the Financial
Statements including the Supplemental Oil and Gas Information (unaudited)
included in the notes thereto included elsewhere herein. Such discussion also
contains information with respect to the Company's reserves at December 31,
1993, 1994, 1995 and at September 30, 1996.
The Company has not included estimates of total proved reserves, comparable
to those disclosed herein, in any reports filed with federal authorities or
agencies other than the Commission.
At December 31, 1993, 1994 and 1995 and September 30, 1996, the Company held
interests in the following productive wells:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------- AT
SEPTEMBER
1993 1994 1995 30, 1996
------------------------ ------------------------ ------------------------ -----------
GROSS(1) NET(2) GROSS(1) NET(2) GROSS(1) NET(2) GROSS(1)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Oil Wells....................... 3 0.03 6 0.06 7 0.16 8
Gas Wells....................... -- -- 4 0.56 5 0.74 10
<CAPTION>
NET(2)
-----------
<S> <C>
Oil Wells....................... 0.25
Gas Wells....................... 1.50
</TABLE>
- ------------------------
(1) The number of gross wells equals the total number of wells in which the
Company owns a working interest.
(2) The number of net wells equals the sum of the Company's fractional working
interests owned in gross wells.
40
<PAGE>
In general, estimates of economically recoverable oil and gas reserves and
of the future net revenues therefrom are based upon a number of variable factors
and assumptions, such as historical production from the subject properties, the
assumed effects of regulation by governmental agencies and assumptions
concerning future oil and natural gas prices and future operating costs, all of
which may vary considerably from actual results. All such estimates are to some
degree speculative and classifications of reserves are only attempts to define
the degree of speculation involved. For these reasons, estimates of the
economically recoverable oil and gas reserves attributable to any particular
group of properties, classifications of such reserves based on risk of recovery
and estimates of the future net revenues expected therefrom, prepared by
different engineers or by the same engineers at different times, may vary
substantially. Therefore, the actual production, revenues, severance and excise
taxes, development and operating expenditures with respect to the Company's
reserves will likely vary from such estimates, and such variances could be
material.
The Company's producing wells have been producing for only a short period of
time. Accordingly, estimates of future production based on this limited history
are subject to various uncertainties with regard to the rate at which current
production will decline. Estimates with respect to proved reserves that may be
developed and produced in the future are often based upon volumetric
calculations and upon analogy to similar types of reserves rather than actual
production history. Estimates based on these methods are generally less reliable
than those based on actual production history, and subsequent evaluation of the
same reserves, based upon production history, will result in variations, which
may be substantial, in the estimated reserves. See "Risk Factors--Limited
Operating History and Significant Historical Operating Losses."
In accordance with applicable requirements of the Commission, the estimated
discounted future net revenues from estimated proved reserves are based on
prices and costs as of the date of the estimate unless such prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net revenues also will be affected by
factors such as actual production, supply and demand for oil and gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. See
"Risk Factors--Volatility of Oil and Gas Prices."
OIL AND GAS DRILLING ACTIVITIES
The following table sets forth the gross and net number of productive, dry
and total exploratory and development wells that the Company drilled in each of
1993, 1994, 1995 and during the first nine months of 1996.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
------------------------------------- ------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY
------------- --- ----- ------------- ---------
<S> <C> <C> <C> <C> <C>
EXPLORATORY WELLS(1)
Year ended December 31, 1993................................. 3 0 3 0.03 --
Year ended December 31, 1994................................. 7 5 12 0.59 0.70
Year ended December 31, 1995................................. 2 0 2 0.28 --
Nine months ended September 30, 1996......................... 6 6 12 0.69 0.67
DEVELOPMENT WELLS
Year ended December 31, 1993................................. -- -- -- -- --
Year ended December 31, 1994................................. -- -- -- -- --
Year ended December 31, 1995................................. -- -- -- -- --
Nine months ended September 30, 1996......................... 2 -- 2 0.40 --
<CAPTION>
TOTAL
---------
<S> <C>
EXPLORATORY WELLS(1)
Year ended December 31, 1993................................. 0.03
Year ended December 31, 1994................................. 1.29
Year ended December 31, 1995................................. 0.28
Nine months ended September 30, 1996......................... 1.36
DEVELOPMENT WELLS
Year ended December 31, 1993................................. --
Year ended December 31, 1994................................. --
Year ended December 31, 1995................................. --
Nine months ended September 30, 1996......................... 0.40
</TABLE>
- ------------------------
(1) As of the date of this Prospectus, the Company was participating in two
gross and 0.26 net exploratory wells.
41
<PAGE>
PRODUCTION
The following table summarizes the net volumes of oil and gas produced and
sold, and the average prices received with respect to such sales, from all
properties in which the Company held an interest during the three years ended
December 31, 1995 and for the nine months ended September 30, 1996.
<TABLE>
<CAPTION>
GAS OIL
-------------------------------- ----------------------------------
NET PRODUCTION AVERAGE SALES NET PRODUCTION AVERAGE SALES
(MMCF) PRICE/MCF (MMCF) PRICE/BBL
--------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993........................ -- $ -- -- $ --
Year ended December 31, 1994........................ 105.1 1.93 6.1 16.58
Year ended December 31, 1995........................ 97.1 1.59 6.7 17.89
Nine months ended September 30, 1996................ 117.8 2.41 6.5 19.17
</TABLE>
Average oil and gas operating expenses per Mcfe were $0.10, $0.44 and $0.18
for the years ended December 31, 1994 and 1995 and the nine month period ended
September 30, 1996, respectively. With the addition of severance and ad valorem
taxes, the total average oil and gas operating expenses per Mcfe were $0.24,
$0.57 and $0.33 for the years ended December 31, 1994 and 1995 and nine months
ended September 30, 1996, respectively.
ACREAGE
The following table sets forth the developed and undeveloped oil and gas
acreage in which the Company held an interest as of September 30, 1996.
Undeveloped acreage is considered to be those lease acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether or not such acreage
contains proved reserves.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
-------------------- --------------------
GROSS NET GROSS NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Alabama...................................................................... -- -- -- --
Florida...................................................................... -- -- 5,000 400
Texas........................................................................ 2,976 462 46,219 6,381
Louisiana.................................................................... 2,880 144 8,900 499
Mississippi.................................................................. -- -- 3,280 492
--------- --------- --------- ---------
Total........................................................................ 5,856 606 63,399 7,772
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
In addition to the above acreage, as of the date of this Prospectus, the
Company has options or farm-ins to acquire leases on 217,420 gross (27,523 net)
acres of undeveloped land located in Alabama, Florida, Louisiana, Mississippi
and Texas.
COMPETITION
Competition in the oil and gas industry is intense, particularly with
respect to the acquisition of acreage and capital. The Company's competitors in
the provision of seismic imaging, analytical and other related services include
numerous major and independent oil and gas companies, smaller, technology-driven
service companies, individual proprietors, drilling and income programs and
partnerships. Many of the Company's competitors possess and employ financial and
personnel resources substantially in excess of those available to the Company
and may, therefore, be able to define, evaluate, bid for and participate in a
greater number of oil and gas properties than the Company. The Company believes
that technology, experience and reliability are the primary basis of competition
in the industry, as oil and gas exploration companies demand higher quality
seismic data delivered and analyzed in increasingly shorter time frames
42
<PAGE>
and greater assurances that the interests of such company are respected and
advanced. Although the Company believes that it competes effectively in each of
these areas, there can be no assurance that the Company's ability to attract and
invest in high quality projects will not be adversely affected if its current
competitors or new market entrants introduce new services with better quality
technology than those offered by the Company. See "Risk Factors--Competition."
REGULATION
The Company's operations are subject to numerous federal, state and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years.
Offshore drilling in certain areas has been opposed by environmental groups and,
in certain areas, has been restricted. The Company believes that the trend of
more expansive and stricter environmental legislation and regulations will
continue. To the extent laws are enacted or other governmental action is taken
that prohibit or restrict onshore and offshore drilling or impose environmental
protection requirements that result in increased costs to the oil and gas
industry in general, the business and prospects of the Company could be
adversely affected.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder impose
a variety of requirements on "responsible parties" related to the prevention of
oil spills and liability for damages resulting from such spills in United States
waters. A "responsible party" includes the owner or operator of a facility or
vessel, or the lessee or permittee of the area in which an offshore facility is
located. The OPA assigns liability to each responsible party for oil removal
costs and a variety of public and private damages including natural resource
damages. While liability limits apply in some circumstances, a party cannot take
advantage of liability limits if the spill was caused by gross negligence or
willful misconduct or resulted from violation of a federal safety, construction
or operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, liability limits likewise do not apply. Few defenses exist
to the liability imposed by the OPA.
Under the OPA, the Minerals Management Service ("MMS") has the authority to
promulgate regulations requiring financial assurance from owners and operators
of "offshore facilities" to cover potential environmental cleanup and
restoration costs. Although there has been uncertainty about the scope and
applicability of these requirements, Congress recently adopted legislation that
has been signed by the President that excludes certain inland facilities with a
worst-case oil spill risk of 1,000 barrels or less from the financial assurance
requirements. Under this new legislation, the amount of financial responsibility
that must be demonstrated for an offshore facility was reduced to $35.0 million
if the facility is located seaward of the seaward boundary of a State, or $10.0
million if located landward of the boundary. These limitations can be adjusted
upward should MMS believe there are additional risks. In projects in which the
Company has a participating working interest, the operator partner is
responsible for all demonstrations of financial responsibility including the
posting of any indemnity bonds which are required by applicable governmental
regulations. The expenses incurred in the operator partner's demonstration of
financial responsibility are expenses which are allocated to each project
partner based on the respective partner's working interest.
The OPA also imposes other requirements, such as the preparation of an oil
spill contingency plan. The Company has such a plan in place. Failure to comply
with ongoing requirements or inadequate cooperation during a spill event may
subject a responsible party to civil or criminal enforcement actions.
To complement the OPA, the State of Texas enacted the Oil Spill Prevention
and Response Act (OSPRA). The Texas General Land Office (GLO) is the lead agency
for carrying out OSPRA and to that end the GLO has promulgated regulations
affecting anyone who owns or operates a vessel or facility that stores or
transfers oil in areas where a spill could reach Texas coastal waters.
43
<PAGE>
In addition, the Outer Continental Shelf Lands Act ("OCSLA") authorizes
regulations relating to safety and environmental protection applicable to
lessees and permittees operating on the Outer Continental Shelf (the "OCS").
Specific design and operational standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources. Additionally, it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment. Further, certain oilfield wastes are subject to
the Resource Conservation & Reservation Act ("RCRA") with respect to the
regulation of hazardous wastes. The RCRA regulates the generation,
transportation and disposal of hazardous wastes.
The Texas Railroad Commission has issued rules for management of certain
types of hazardous waste generated in the oilfield, however, until delegation of
the RCRA program to the Railroad Commission, hazardous wastes generated in the
oilfield are regulated by the Texas Natural Resources Conservation Commission.
The Texas Railroad Commission regulates pollution of groundwater and surface
water resulting from exploration, production and development of oil and natural
gas resources.
Management believes that the Company is in substantial compliance with
current applicable environmental laws and regulations. Compliance with such laws
and regulations has not historically represented a significant expense for the
Company and management does not foresee the need for material expenditures to
ensure continued compliance with currently existing laws and regulations. Laws
and regulations in these areas are, however, subject to change and there can be
no assurance that future laws or regulations will not have a material adverse
effect on the Company. See "Risk Factors--Compliance with Governmental
Regulations."
OPERATING HAZARDS AND INSURANCE
The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-out, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. In addition
to the foregoing, offshore operations are subject to the additional hazards of
marine operations, such as capsizing, collision and adverse weather and sea
conditions.
Through operator partners, the Company indirectly maintains insurance
against some, but not all, operating risks. The insurance maintained by project
operator partners generally does not cover claims relating to failure of title
to oil and gas leases, trespass during 3-D survey acquisition or surface damage
attributible to seismic operations, business interruption or protect against
loss of revenues due to well failure. There can be no assurance that any
insurance obtained by project operator partners covering claims related to
worker's compensation, comprehensive general liability for bodily injury and
property
44
<PAGE>
damage, comprehensive automobile liability and pollution, cleanup, underground
blowout and evacuation will be adequate to cover any losses or liabilities which
may be incurred within projects in which the Company participates. The Company
is an additional named insured on the insurance policies procured and maintained
by operator partners. The Company cannot predict the continued availability of
such insurance or the availability of insurance at premium levels that justify
its purchase. If any project operator partner were unable to procure insurance
at an acceptable cost with respect to each of the projects in which the Company
participates, the occurrence of significant adverse events not fully insured or
indemnified against could materially and adversely affect the Company's
financial condition and operations. See "Risk Factors--Operating Hazards."
EMPLOYEES AND INDEPENDENT CONSULTANTS
At December 15, 1996, the Company had 14 full-time employees including ten
geoscientists and engineers and one person, the President and Chief Executive
Officer, engaged principally in the management of the Company. The Company
believes that its relationship with its employees is good. None of the Company's
employees is covered by a collective bargaining agreement. At December 15, 1996,
the Company had arrangements with eight individuals to provide, from time to
time, various consulting and professional services. The agreements with these
consultants provide for the payment of fees and expenses for services rendered.
The Company has commenced and expects to continue a program to hire recent
college graduates and advanced degree holders. See "Management."
LEGAL PROCEEDINGS
Since its organization through the date of this Prospectus, the Company has
not been involved in any legal proceedings. There can be no assurance, however,
that the Company will not in the future be involved in litigation incidental to
the conduct of its business.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ----------- ------------------------------------------------------------
<S> <C> <C>
Jon W. Bayless (1).................. 56 Director, Chairman of the Board
C. Eugene Ennis..................... 52 President and Chief Executive Officer; Director
Peter M. Duncan..................... 44 Vice President of Technology; Treasurer
Douglas C. Nester................... 39 Vice President of Exploration; Secretary
Robert J. Bacon, Jr................. 42 Vice President of Joint Ventures
Joseph Schuchardt III............... 44 Vice President of Business Development
Robert H. Chaney (1)................ 37 Director
Charles E. Edwards (2).............. 71 Consultant; Director
Douglas C. Williamson (2)........... 45 Director
</TABLE>
- ------------------------
(1) Member of the Company's Compensation Committee.
(2) Member of the Company's Audit Committee.
Upon completion of the Offering, the term of office of the members of the
Board of Directors will be staggered into three classes. The initial term of
each of Class I, Class II and Class III will expire at the first, second and
third annual meetings, respectively, of the Board of Directors which is held
after the completion of this Offering. Each class will thereafter have a term of
three years.
JON W. BAYLESS. Mr. Bayless has been Chairman of the Board of the Company
since October 1996 and a Director since November 1993. Since 1983, Mr. Bayless
has been a general partner of Sevin Rosen Funds, a venture capital investment
firm. Mr. Bayless is also the controlling stockholder and sole director of Jon
W. Bayless, Inc., the general partner of Atlantic Partners L.P., which is the
general partner of Citi Growth Fund L.P., a venture capital investment firm, and
serves as a director of a number of privately held companies. Mr. Bayless is
also Chairman of the Board of Directors of Shared Resource Exchange, Inc. Shared
Resource Exchange, Inc. filed for reorganization under Chapter 11 of the Federal
Bankruptcy Code in August 1996. A plan under Chapter 11 has been approved.
C. EUGENE ENNIS. Mr. Ennis, who co-founded the Company with Peter M. Duncan
and Douglas C. Nester, has served as the Company's President and Chief Executive
Officer and as a Director since the Company's inception in December 1992. From
September 1984 to December 1992, Mr. Ennis was President and Chief Executive
Officer of Landmark Graphics, a provider of interdisciplinary interpretation
tools for the petroleum industry. Mr. Ennis holds a Bachelor of Science in
electrical engineering from the University of Houston and began his career in
1969 as a design engineer in the Geophysical Products Division of Texas
Instruments where he was employed until 1983.
PETER M. DUNCAN. Dr. Duncan, a co-founder of the Company, has served as the
Company's Vice President of Technology and Treasurer since the Company's
inception. Prior to joining the Company, Dr. Duncan was employed by Landmark
Concurrent Solutions Inc., an affiliate of Landmark Graphics, that merged with
ExploiTech, as Vice President from July 1991 until December 1992. Dr. Duncan was
a founder in 1987 of ExploiTech, a company specializing in integrated
multi-disciplinary reservoir description studies for exploration and
exploitation that merged with Landmark Graphics in 1989. From 1986 to 1987, Dr.
Duncan served as Vice President of Marine Operations and Chief Geophysicist of
North America for Digicon Inc., a major geophysical contractor. From 1984 to
1986, Dr. Duncan was employed as Chief Geophysicist of Pulsonic Geophysical of
Calgary Inc., a former subsidiary of Digicon Inc. From 1978 to 1984, Dr. Duncan
held various positions with Shell Canada Resources Inc. ("Shell"), including
Party Chief
46
<PAGE>
for Shell's offshore seismic programs. Dr. Duncan holds a Ph.D in geophysics
from the University of Toronto.
DOUGLAS C. NESTER. Mr. Nester, a co-founder of the Company, has served as
the Company's Vice President of Exploration and Secretary since the Company's
inception. Prior to joining the Company, Mr. Nester was employed by Landmark
Concurrent Solutions Inc., an affiliate of Landmark Graphics that merged with
ExploiTech, as Director of Technology from June 1988 to December 1992. From 1981
to 1988, Mr. Nester was employed in various geophysical positions by Pennzoil
Corp., and held the position of Geophysical Specialist at the time of his
departure. Mr. Nester began his career as an engineering geologist for Bechtel
Corporation. Mr. Nester holds a Bachelor of Science in Geology from Indiana
University of Pennsylvania and a Masters in Business Administration in Finance
from the University of St. Thomas.
ROBERT J. BACON, JR. Mr. Bacon has been Vice President of Joint Ventures
since September 1995. Prior to joining the Company, Mr. Bacon was Manager of
Business Development for Scientific Software-Intercomp, Inc., a software
company, from May 1994 to June 1995 and served as Vice President of Sales and
Marketing for JetFax Inc, a manufacturer of facsimile machines and facsimile
peripherals, from September 1990 to May 1994. From 1988 to 1990, Mr. Bacon was
employed by ExploiTech as the Director of Marketing for consulting services.
From 1985 to 1987, Mr. Bacon held positions in key account management at
Landmark Graphics. Mr. Bacon is a founder and currently serves on the Board of
Directors of Innovative Transducers Inc., a privately held designer and
manufacturer of solid towed hydrophonic arrays for the military and geophysical
marine markets. Mr. Bacon holds a Bachelor of Science in Advertising from the
University of Texas.
JOSEPH SCHUCHARDT III. Mr. Schuchardt has served as the Company's Vice
President of Business Development since November 1993. Prior to his employment
with the Company, Mr. Schuchardt served as Vice President of Land for Great
Western Resources Inc. from April 1992 to November 1993. Mr. Schuchardt also
served as Vice President of Land for Paramount Petroleum Company from 1991 to
1992. Mr. Schuchardt was employed as Land Manager of Horizon Exploration Company
from 1980 to 1991 and has held positions with Texas Oil & Gas Corporation,
Coastal States Oil and Gas Corporation and Texaco Inc. Mr. Schuchardt holds a
B.B.A. in Management from the University of Texas.
ROBERT H. CHANEY. Mr. Chaney has served as a Director of the Company since
November 1993. Mr. Chaney is Chairman and Chief Executive Officer of R. Chaney &
Co., Inc., an investment firm specializing in equity investments in emerging
energy technology companies. Mr. Chaney was a co-founder of Paramount Petroleum
Company, an independent oil and gas company, and served as its President and
Chief Executive Officer from 1986 to July 1993.
CHARLES E. EDWARDS. Mr. Edwards has served as a Director of the Company
since August 1995. Since August 1985 to present, Mr. Edwards has acted as a
consultant in petroleum technologies. Prior to August 1985, Mr. Edwards was
employed by Chevron Corp. for a period in excess of 37 years and most recently
served as Chief Geophysicist with responsibility for global exploration
activities. Mr. Edwards has also served as a director for Digicon Inc. and
Landmark Graphics.
DOUGLAS C. WILLIAMSON. Mr. Williamson has served as a Director to the
Company since July 1995. Mr. Williamson is a Managing Director in the Venture
Capital Group in the Dallas, Texas office of NationsBanc Capital Corporation.
47
<PAGE>
GEOSCIENTISTS AND ENGINEERS
In addition to Dr. Duncan and Mr. Nester, the Company has assembled a group
of talented and experienced geologists, geophysicists and engineers to enable it
to exploit fully the advantages afforded by 3-D imaging technology. Information
with respect to those experts is set forth below.
HERBERT R. ROHLOFF. Mr. Rohloff has served as a Senior Reservoir Engineer
since joining the Company in January 1995. He is a registered professional
engineer in the State of Texas. Prior to joining the Company, Mr. Rohloff was
employed by Amoco Production Company from 1979 to 1993 in various engineering,
economic and supervisory positions beginning in 1979 and served most recently as
Project Manager--Production New Ventures. Mr. Rohloff holds a Bachelor of
Science in Chemical Engineering from Texas A&M University.
DOUGLAS W. BECKMAN. Mr. Beckman has served as a Project Manager since
joining the Company in September 1994. Mr. Beckman has over 12 years of
experience in the oil and gas industry. Prior to joining the Company, Mr.
Beckman was employed by Exxon Corp. from May 1982 to August 1994, and served
most recently as a seismic applications specialist. Mr. Beckman holds a Bachelor
of Arts in Geology from Wittenberg University.
ERIC B. GARDNER. Mr. Gardner has served as Project Manager since joining
the Company in September 1994. Mr. Gardner has over ten years of industry
experience and has worked in many geoscience areas, including production,
exploration, seismic technology, and research. Mr. Gardner began his career with
Amoco Production Company in 1985 as a technical geophysicist and served most
recently as a staff geophysicist. Mr. Gardner holds a Bachelor of Science in
Engineering Physics from Colorado School of Mines.
JEFFREY K. OWENS. Mr. Owens has served as a Project Manager since joining
the Company in August 1994. Prior to joining the Company, Mr. Owens was employed
by Amoco Production Company where he began his career in 1984 as a production
and reservoir engineer and served most recently as a staff geophysicist. Mr.
Owens holds a Bachelor of Science in Petroleum Engineering from Mississippi
State University.
RICHMOND MILLER. Mr. Miller has served as a Senior Geophysicist since
joining the Company in September 1996. Prior to joining the Company, Mr. Miller
held various positions with Digicon Geophysical Corp. beginning in 1987 and
served most recently as Marine Acquisition Manager. Mr. Miller holds a Bachelor
of Science in Geology from Stephen F. Austin State University.
MICHAEL A. SAUNDERS. Mr. Saunders has served as a Senior Geophysicist since
joining the Company in December 1994. Mr. Saunders began his career with
Pulsonic Geophysical of Calgary Inc. as a Processing Geophysicist. From 1987 to
1994, Mr. Saunders was employed by Digicon Geophysical Corp., and served most
recently as Manager of Marine Technology. Mr. Saunders has a Bachelor of Science
in Geophysics from the University of Alberta, Edmonton, Alberta.
CAROL ANNE ESTES. Ms. Estes has served as an Explorationist since joining
the Company in June 1996. Prior to joining the Company, Ms. Estes was employed
as a Senior Geophysicist for Exxon Exploration Company from April 1994 to June
1996. Ms. Estes holds a Bachelor of Science in Geophysics from Texas A&M
University and a Master of Science in Geophysics from Stanford University.
BRENDA HAGAN. Ms. Hagan has served as a Senior Exploration Technologist
since joining the Company in December 1993. Ms. Hagan began her career with
Houston Oil & Minerals Corp. in 1977. From 1989 to November 1993 she was
employed as a geological technician at British Gas Exploration and Production.
48
<PAGE>
OTHER EMPLOYEES
GAYLE ANDERSON. Ms. Anderson has served as Office Manager of the Company
since April 1996. Prior to joining the Company, Ms. Anderson held positions in
various areas, including accounts payable and commercial loans. Ms. Anderson
also served as office manager of R.J. Power & Associates from September 1995 to
April 1996. From June 1989 to September 1995, Ms. Anderson managed Andco, Inc.,
a business which she co-founded, serving as Comptroller, Human Relations and
Payroll Officer.
CONSULTANTS
HARDIE W. MORGAN. Mr. Morgan is a Certified Public Accountant and has
served as a consultant to the Company since January 1993. Mr. Morgan has been
self-employed since January 1992 as a consultant providing business and
financial services to a number of public and private companies. From April 1985
until December 1991, Mr. Morgan served as Chief Financial Officer of Landmark
Graphics.
JOHN M. JAMES. Mr. James is a Certified Public Accountant and has served as
a consultant to the Company since January 1993. Mr. James founded his own
accounting firm in 1990. Prior to that time, Mr. James was a partner at Ernst &
Young LLP.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees, a Compensation
Committee and an Audit Committee. The Compensation Committee currently consists
of Messrs. Bayless and Chaney and the Audit Committee currently consists of
Messrs. Edwards and Williamson. The Compensation Committee reviews general
policy matters relating to compensation and benefits of officers and employees
of the Company and administers the Stock Option Plan. The Audit Committee,
established in October 1996, is responsible for recommending to the Board of
Directors the annual engagement of a firm of independent accountants and for
reviewing with the independent accountants the scope and results of audits, the
internal accounting controls of the Company and audit practices and professional
services rendered to the Company by the independent accountants.
COMPENSATION OF DIRECTORS
Following the completion of the Offering, independent Directors will receive
a fee in the amount of $750 for every board meeting attended in person or by
telephone and a fee of $500 for each committee meeting held separately attended
in person or by telephone. All Directors who are not employees of the Company,
will be reimbursed for out-of-pocket expenses. Under the Stock Option Plan, the
Company may, from time to time, and in the discretion of the Board of Directors,
grant stock options to Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, the Company's Chief
Executive Officer and the Company's other most highly compensated executive
officers, whose aggregate cash and cash equivalent compensation exceeded
$100,000 (the "Named Executives"), with respect to the year ended December 31,
1995. The table also identifies the principal capacity in which each of the
Named Executives served the Company at the end of 1995. No other executive
officer of the Company received cash and cash equivalent compensation which
exceeded $100,000 in the aggregate.
49
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ------------------------------------------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
C. Eugene Ennis
President and Chief Executive Officer.................................. 1995 $ 150,000 $ --
Peter M. Duncan
Vice President of Technology; Treasurer................................ 1995 103,920 12,000
</TABLE>
STOCK OPTION GRANTS
The following table sets forth certain information regarding options to
purchase Common Stock which the Company has granted since January 1, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK EXERCISE
DATE OF UNDERLYING PRICE PER
GRANT GRANTEE OPTIONS(1) SHARE
- --------- -------------------------------------------------------------- ----------------- -----------
<S> <C> <C> <C>
1/4/96 Independent Board Members..................................... 20,680 $ 0.58
4/11/96 Employee...................................................... 2,585 0.58
4/11/96 Consultant.................................................... 5,170 0.58
6/7/96 Employee...................................................... 18,095 0.58
7/11/96 Employee...................................................... 25,850 0.58
8/2/96 Employee...................................................... 7,755 0.58
10/4/96 Consultants................................................... 27,401 7.79
11/1/96 Consultant.................................................... 5,170 11.20
-------
Total options granted in 1996.......................................... 112,706
-------
-------
</TABLE>
- ------------------------
(1) All options to purchase Common Stock were granted pursuant to the Stock
Option Plan.
(2) The total number of options granted is net of cancelled options to purchase
155,100 shares of Common Stock that were granted to an executive officer who
both commenced and terminated his service to the Company during 1996.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding the exercise of stock
options during fiscal 1995 and the number and year-end value of unexercised
options held at December 31, 1995, by each of the Named Executives. No stock
options or stock appreciation rights were exercised by the Named Executives
during fiscal 1995.
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISABLE "IN-THE-MONEY"
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
C. Eugene Ennis........................................... 10,911/9,233 150,644/127,476
Peter M. Duncan........................................... 10,912/9,233 150,657/127,476
</TABLE>
- ------------------------
(1) The number of unexercised options held by each of the Named Executive
Officers represents approximately 3% of the total options outstanding under
the Stock Option Plan.
50
<PAGE>
(2) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. Prior to the Offering,
there was no public market for the Common Stock. Therefore, the amounts set
forth represent the difference between $0.58 per share and the fair market
value of the Common Stock issuable upon exercise of options at December 31,
1995 (as determined using the initially estimated offering price for the
Common Stock), multiplied by the applicable number of options. Based on an
assumed initial public offering price of $13.00 per share of Common Stock,
the value of unexercised "in the money" options at December 31, 1995 would
have been as follows: Mr. Ennis--$139,733/$118,243 (exercised/unexercisable)
and Dr. Duncan--$139,745/$118,243 (exercisable/unexercisable).
CASH BONUS PLAN
In 1996 the Company adopted the 1996 Incentive Compensation Plan (the "Bonus
Plan") which provides for the payment of annual cash bonuses, in an amount up to
40% of the participant's base salary, if certain pre-established Company-based
performance criteria are satisfied. All full-time employees of the Company are
eligible to participate in the Bonus Plan, with the exception of the Chief
Executive Officer. Bonuses are awarded if the Company achieves at least 80% of
its targeted performance criteria. The bonuses are then prorated accordingly.
The bonus of the Chief Executive Officer is separately determined in the
discretion of the Board of Directors.
STOCK OPTION PLAN
In January 1994, the Company adopted the Stock Option Plan under which
"non-qualified" stock options ("NQSOs") to acquire shares of Common Stock may be
granted to directors of and consultants to the Company and "incentive" stock
options ("ISOs") to acquire shares of Common Stock may be granted to employees
and directors who are also employees of the Company.
The Stock Option Plan provides for the issuance of up to a maximum of
1,504,937 shares of Common Stock and is administered by the Compensation
Committee. Under the Stock Option Plan, the option price of any ISO may not be
less than the fair market value of a share of Common Stock on the date on which
the option is granted. The option price of an NQSO may be less than the fair
market value on the date the NQSO is granted if the Compensation Committee so
determines, but may not in any event be less than 85% of such fair market value.
An ISO may not be granted to a "ten percent stockholder" (as such term is
defined in Section 422A of the Code) unless the exercise price is at least 110%
of the fair market value of the Common Stock at the time of grant and the option
must be exercised within five years. Each option granted pursuant to the Stock
Option Plan will be evidenced by a written agreement executed by the Company and
the grantee, which will contain the terms, provisions and conditions of the
grant. Stock options may not be assigned or transferred during the lifetime of
the holder except as may be required by law or pursuant to a qualified domestic
relations order. The maximum term of each stock option is ten years from the
date of grant.
In order for the options to qualify as ISOs, the aggregate fair market
value, determined on the date of grant, of the shares with respect to which the
ISOs are exercisable for the first time by the grantee during any calendar year
may not exceed $100,000. Payment by option holders upon exercise of an option
may be made (i) in cash, (ii) by tender to the Company of shares of the
Company's stock owned by the optionee having a fair market value, as determined
by the Compensation Committee (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the exercise price, (iii) by delivery of a promissory note made by the
optionee in a form approved by the Company, (iv) by the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of the option, (v) by the withholding of shares being acquired upon exercise of
the option bearing a fair market value, as determined by the Compensation
Committee (but without regard to any restrictions on transferability
51
<PAGE>
applicable to such stock by reason of federal or state securities laws or
agreements with an underwriter for the Company), not less than the exercise
price, or (vi) by any combination thereof. The Compensation Committee may at any
time or from time to time grant options which do not permit all of the foregoing
forms of consideration to be used in payment of the exercise price and/or which
otherwise restrict the use of one or more forms of consideration. In addition,
the Compensation Committee, in its sole discretion, may authorize the surrender
by an optionee of all or part of an unexercised stock option and authorize a
payment in consideration thereof of an amount equal to the difference between
the aggregate fair market value of the Common Stock subject to such stock option
and the aggregate option price of such Common Stock. In the Compensation
Committee's discretion, such payment may be made in cash, shares of Common Stock
with a fair market value on the date of surrender equal to the payment amount or
some combination thereof.
The Stock Option Plan provides that outstanding options vest in their
entirety and become exercisable in the event of certain mergers, consolidations
or sales of all or substantially all of the assets of the Company, unless the
successor corporation assumes such options. As of the date hereof, options to
purchase 794,479 shares of Common Stock are outstanding under the Stock Option
Plan at exercise prices ranging from $0.19 to $11.20 per share.
After the completion of the Offering, the Company expects to file with the
Commission a Registration Statement on Form S-8 covering the shares of Common
Stock issued pursuant to the Stock Option Plan and the shares of Common Stock
underlying options granted under the Stock Option Plan.
CERTAIN TRANSACTIONS
AGREEMENTS WITH LANDMARK GRAPHICS
In connection with its initial capitalization, the Company entered into a
Technical Services Agreement with Landmark Graphics pursuant to which Landmark
Graphics agreed to grant to the Company ongoing licenses to use Landmark
Graphics software as it is first made available to Landmark Graphics customers.
In addition, the agreement provides for a strategic alliance between Landmark
Graphics and the Company, which enables the Company to request, and requires
Landmark Graphics to deliver, enhancements and modifications to existing
Landmark Graphics software and, in certain instances, to develop new software
for use in the Company's oil and gas exploration efforts. In exchange for such
rights, the Company has agreed to serve as an alpha test site for software
developed by Landmark Graphics. Neither this agreement nor any of the licenses
granted by Landmark Graphics to the Company contain any provisions with respect
to expiration or termination. In addition, the Company and Landmark Graphics are
also partners to an informal agreement pursuant to which the Company's employees
participate in Landmark Graphics' medical insurance plan, life insurance plans
and 401(k) plan. See "Business-- Significant Business Relationships."
In connection with the informal agreements pursuant to which the Company
purchases medical and life insurance for its employees and their dependents as a
part of the Landmark Graphics benefit plan and those agreements which enable the
Company's employees to participate in the Landmark Graphics' 401(k) Plan, the
Company reimburses Landmark Graphics for all direct costs associated with such
benefits and programs and pays Landmark Graphics a quarterly administrative and
billing fee in an aggregate amount less than $1,500 annually. The Company
believes these informal arrangements result in an administrative convenience for
the Company, and may allow the Company's employees and their dependents to
obtain better insurance coverage than would be available from other plans that
the Company could obtain independently. Such arrangements do not result in any
material financial benefit to the Company since the Company reimburses Landmark
Graphics for all of costs which Landmark Graphics incurs in connection with such
arrangements. See "Business--Significant Business Relationships."
52
<PAGE>
PURCHASES OF COMMON STOCK BY CERTAIN OFFICERS
In January 1993, the Company issued 256,039 shares of restricted Common
Stock to each of Messrs. Ennis and Nester and Dr. Duncan at a price per share of
$0.06. As of November 30, 1996, 250,705 of the 256,039 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan were vested and the remaining shares
will vest in full on December 31, 1996.
In November 1993, the Company issued 86,391 shares of restricted Common
Stock to each of Messrs. Ennis and Nester and Dr. Duncan at a price per share of
$0.19. As of November 30, 1996, 84,592 of the 86,391 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan were vested and the remaining shares
will vest in full on December 31, 1996.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of December 15, 1996, before and
after giving effect to the Offering, by (i) each person known to the Company to
own beneficially 5% or more of the Company's outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each of the Named Executives, (iv) the
Selling Stockholder and (v) all executive officers and directors of the Company
as a group. All information with respect to beneficial ownership has been
furnished to the Company by the respective stockholders of the Company.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY OWNED BEING SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING(1) SOLD AFTER THE OFFERING(1)(2)
-------------------------- --------- --------------------------
NAME NUMBER PERCENT NUMBER NUMBER PERCENT
- ----------------------------------------------- --------------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
C. Eugene Ennis................................ 483,502(3) 10.69% -- 483,502(3) 6.43%
Peter M. Duncan................................ 370,899(4) 8.20% -- 370,899(4) 5.28%
Douglas C. Nester.............................. 370,899(5) 8.20% -- 370,899(5) 5.28%
Jon W. Bayless................................. 676,581(6) 15.01% -- 676,581(6) 9.65%
Robert H. Chaney............................... 342,644(7) 7.60% -- 342,644(7) 4.89%
Charles E. Edwards............................. 19,587(8) 0.43% -- 19,587(8) 0.28%
Douglas C. Williamson.......................... 760,851(9) 16.88% -- 760,851(9) 10.86%
NationsBanc Capital Corporation................ 758,266(10) 16.83% -- 758,266(10) 10.82%
Citi Growth Fund L.P........................... 639,991(11) 14.21% -- 639,991(11) 9.14%
R. Chaney & Partners - 1993 L.P................ 340,059(12) 7.55% -- 340,059(12) 4.85%
Landmark Graphics Corporation.................. 449,862(13) 9.99% 449,862 -- --
Metropolitan Life Insurance Company............ 284,350(14) 6.31% -- 284,350(14) 4.06%
Centennial Associates L.P./Centennial Energy
Partners L.P.................................. 245,861(15) 5.46% -- 245,861(15) 3.51%
All directors and executive officers as a group
(9 persons)................................... 3,230,703(16) 68.27% -- 3,230,703(16) 44.67%
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of December 15, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table, each stockholder named in the
table has sole voting and investment power with respect to the shares set
forth opposite such stockholder's name. The information contained in this
table is adjusted to give effect to the Transactions.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Includes vested and exercisable options to purchase 16,369 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 3,775 shares of Common Stock which are not vested.
(4) Includes vested and exercisable options to purchase 16,369 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 3,775 shares of Common Stock which are not vested.
(5) Includes vested and exercisable options to purchase 16,369 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 3,775 shares of Common Stock which are not vested.
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(6) Includes vested and exercisable options to purchase 2,585 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 2,585 shares of Common Stock which are not vested. Includes
639,991 shares beneficially owned by Citi Growth Fund L.P. Mr. Bayless is
the controlling stockholder and sole director of Jon W. Bayless Inc., the
general partner of Atlantic Partners L.P., the general partner of Citi
Growth Fund L.P. beneficially owned by Citi Growth Fund L.P.
(7) Includes vested and exercisable options to purchase 2,585 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 2,585 shares of Common Stock which are not vested. Includes
340,059 shares held by R. Chaney and Partners-1993 L.P. Mr. Chaney is the
general partner of R. Chaney & Partners-1993 L.P.
(8) Includes vested and exercisable options to purchase 2,585 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 2,585 shares of Common Stock which are not vested.
(9) Includes vested and exercisable options to purchase 2,585 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 2,585 shares of Common Stock which are not vested. Includes
758,266 shares of Common Stock held by NationsBanc Capital Corporation. Mr.
Williamson is a Managing Director in the Venture Capital Group of
NationsBanc Capital Corporation.
(10) The business address of NationsBanc Capital Corporation is 901 Main Street,
Dallas, Texas 75202.
(11) The business address of Citi Growth Fund L.P. is c/o CitiGrowth Funds,
Sycamore Partners, 989 Lenox Drive, Lawrenceville, New Jersey 08648.
(12) The business address of R. Chaney & Partners--1993 L.P. is 909 Fannin,
Houston, Texas 77010.
(13) The business address of Landmark Graphics is 15150 Memorial Drive, Houston,
Texas 77079. Landmark Graphics is a wholly-owned subsidiary of Halliburton
Company.
(14) The business address of Metropolitan Life Insurance Company is c/o State
Street Research, One Financial Center, Boston, Massachusetts 02111. State
Street Research & Management Company, a wholly-owned subsidiary of
Metropolitan Life Insurance Company, has the power to vote and dispose of
these shares which are held by it on behalf of Metropolitan Life Insurance
Company.
(15) The business address of each of Centennial Associates L.P. and Centennial
Energy Partners L.P. is 900 Third Avenue, New York, New York 10022.
(16) Includes vested and exercisable options to purchase 227,371 shares of
Common Stock which were granted pursuant to the Stock Option Plan, excludes
options to purchase 164,882 shares of Common Stock which are not vested.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Effective upon completion of the Offering, the Company's authorized capital
stock will consist of (i) 20,000,000 shares of Common Stock, and (ii) 1,000,000
shares of Preferred Stock, of which 7,005,049 shares of Common Stock and no
shares of Preferred Stock will be issued and outstanding.
The statements set forth below are brief summaries of all material
provisions of the Certificate of Incorporation and Bylaws which are filed as
exhibits to the Registration Statement of which this Prospectus is a part,
relating to the Company's capital stock. Such summaries do not purport to be
complete, and are subject to, and are qualified in their entirety by reference
to, such documents.
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<PAGE>
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than 50%
of the shares voting for the election of directors can elect all of the
directors if they choose to do so; in such event, the holders of the remaining
shares of Common Stock will not be able to elect any person to the Board of
Directors. Subject to the rights of the holders of shares of any series of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. See "Dividend Policy." Holders
of shares of Common Stock have no preemptive, conversion, redemption,
subscription or similar rights. In the event of a liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, holders of shares
of Common Stock are entitled to share ratably in the assets of the Company that
are legally available for distribution, if any, remaining after the payment or
provision for the payment of all debts and other liabilities of the Company and
the payment and setting aside for payment of any preferential amount due to the
holders of shares of any series of Preferred Stock. All outstanding shares of
Common Stock are, and all shares of Common Stock offered hereby when issued will
be, upon payment therefor, validly issued, fully-paid and nonassessable.
At present there is no established trading market for the Common Stock. The
shares of Common Stock have been approved for quotation on the Nasdaq National
Market under the proposed symbol "TDXT," subject to official notice of issuance.
PREFERRED STOCK
Prior to the completion of the Offering, the Certificate of Incorporation
will be amended to authorize the Board of Directors of the Company to issue from
time to time up to one million shares of Preferred Stock in one or more series
and to fix the rights, designations, preferences, qualifications, limitations
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, without any
further action by the stockholders of the Company. The issuance of Preferred
Stock with voting rights could have an adverse effect on the voting power of
holders of Common Stock by increasing the number of outstanding shares having
voting rights. In addition, if the Board of Directors authorizes Preferred Stock
with conversion rights, the number of shares of Common Stock outstanding could
potentially be increased up to the authorized amount. The issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock. Any such issuance could also have the
effect of delaying, deterring or preventing a change in control of the Company
and may adversely affect the rights of holders of Common Stock. The Board of
Directors does not presently intend to issue any shares of Preferred Stock.
CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
The unissued and unreserved shares of capital stock may be issued for a
variety of proper corporate purposes, including future public or private
offerings to raise additional capital or facilitate acquisitions. The Company's
Board of Directors does not currently have any plans to issue additional shares
of Common Stock or Preferred Stock (other than in connection with this Offering
or the Stock Option Plan).
One of the effects of the existence of such unissued and unreserved shares
may be to enable the Company's Board of Directors to discourage an attempt to
change control of the Company (by means of a tender offer, proxy contest or
otherwise) and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock, whether or not related to any attempt
to effect a change in control, may adversely affect the rights of the holders of
shares of Common Stock.
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CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation provides that no director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of his fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. These provisions will not limit the liability
of directors under the federal securities laws of the United States.
The Bylaws require the Company to indemnify any legal representative,
director or officer of the Company or any person who is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, to the fullest extent
authorized by the DGCL. Prior to the completion of the Offering, the Company
intends to acquire officer's and directors' liability insurance in the amount of
$10 million for members of its Board of Directors and executive officers. In
addition to the indemnification provided in the Certificate of Incorporation and
Bylaws, prior to the completion of the Offering, the Company will enter into
agreements to indemnify its directors and officers.
Prior to the completion of the Offering, the Certificate of Incorporation
and Bylaws will be amended to provide that the Company's Board of Directors will
be divided as equally as possible into three classes serving staggered, three
year terms. The Bylaws will be amended to establish advance notice procedures
with regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of stockholders of the Company.
In general, notice must be received by the Company not less than 80 days prior
to the meeting and must contain certain specified information concerning the
person to be nominated or the matter to be brought before the meeting and
concerning the stockholder submitting the proposal.
OTHER PROVISIONS. The Bylaws will be further amended to provide that
directors can be removed only for cause and only by the affirmative vote of
holders of at least 67% of the voting power of all then outstanding shares of
capital stock of the Company entitled to vote generally for the election of
directors (the "Voting Stock") and that a vacancy on the Company's Board of
Directors, including a vacancy created by an increase in the authorized number
of directors, may be filled only by a majority of the directors then in office
(and not by the stockholders unless no directors are then in office). Under the
DGCL, if at the time of filling any such vacancy the directors then in office
constitute less than a majority of the entire Board, the Delaware Court of
Chancery may order, upon the application of the holders of at least 10% of the
outstanding shares of capital stock of the Company entitled to vote for the
election of the directors filling such vacancies, that a meeting of stockholders
be held for the purpose of electing directors to fill such vacancies or to
replace directors filling such vacancies elected by the Company's Board of
Directors.
In addition, the Certificate of Incorporation and Bylaws will be amended to
provide that stockholders are not permitted to call a special meeting of
stockholders or to require the Company's Board of Directors or officers to call
such a special meeting, that only a majority of the entire Board, certain
committees of the Company's Board of Directors, certain directors or the
president or chief executive officer will be able to call such a special meeting
and that stockholder action may be taken only at an annual or a special meeting
of stockholders and may not be taken by written consent.
Prior to the completion of the Offering, the Certificate of Incorporation
and Bylaws will be amended to provide that the affirmative vote of the holders
of 67% of the Voting Stock will be required to amend,
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<PAGE>
modify or repeal any provisions of the Certificate of Incorporation or any
provision of the Bylaws discussed above. The Certificate of Incorporation will
be amended to provide that the Company's Board of Directors, pursuant to (but
only pursuant to) a resolution adopted by the affirmative vote of a majority of
the entire Board, will be able to amend, modify or repeal the Bylaws.
Such provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors and may have
the effect of delaying, deterring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Company's Board of Directors. Such provisions may also render the removal of
the directors and management more difficult.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to Section 203 of the DGCL because it is a Delaware
corporation. Section 203 of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) prior to the date the interested stockholder becomes an
interested stockholder, the business combination or the transaction by which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors, (ii) the interested stockholder acquired at least 85% of the
voting stock of the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in which it
became an interested stockholder or (iii) the business combination is approved
by a majority of the board of directors and by the affirmative vote of 66 2/3%
of the outstanding voting stock that is not owned by the interested stockholder.
REGISTRATION RIGHTS
Holders of approximately 4,501,925 shares of Common Stock have certain
rights with respect to the registration of such shares under the Securities Act.
Pursuant to the terms of the Series C Preferred Stock Purchase Agreement, at any
time after the six month anniversary of the effective date of the Registration
Statement of which this Prospectus forms a part, holders of shares of Common
Stock acquired in connection with the Series C Preferred Stock offering may
require the Company, subject to certain conditions and limitations, to effect a
registration of all or part of the shares of Common Stock held by such persons
on an unlimited number of occasions. Also, the holders of shares of Common Stock
acquired in connection with the Series B Preferred Stock offering have certain
rights to require the Company, at any time after the six month anniversary of
the effective date of the Registration Statement of which this Prospectus forms
a part, to effect a registration of all or part of the shares of Common Stock
held by such persons on two occasions. The holders of 1,514,017 shares of Common
Stock issuable upon conversion of the Series C Preferred Stock which are
issuable upon exercise of certain outstanding Warrants also have certain rights
to require the Company to register such shares. At such time as the Company is
qualified to use a Registration Statement on Form S-3 to register additional
securities, the number of occasions on which the holders of shares of Common
Stock acquired in connection with the Series B Preferred Stock may request
registration of such shares shall be, subject to certain conditions, unlimited
in number. Additionally, if at any time the Company proposes to register any of
its securities under the Securities Act, either for its own account or for the
account of other security holders, holders of shares of Common Stock issued in
connection with each of the Series B Preferred Stock offering and the Series C
Preferred Stock offering, Messrs. Ennis and Nester, Dr. Duncan and certain other
key employees, are entitled to written notice of such registration and to
include therein shares of Common Stock held by such holder. The
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<PAGE>
registration rights of all parties are subject to certain conditions and
limitations, including the right of the underwriters of any offering to limit
the number of shares included in the registration. The Company generally is
required to bear all the fees, costs and expenses of such registrations other
than underwriting discounts and commissions. In connection with this Offering,
no registration rights have been exercised by any holder of Common Stock except
for Landmark Graphics.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, whose address is 2 Broadway, New York, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
Sales of a substantial amount of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock prevailing from time to time in the public market and could
impair the Company's ability to raise additional capital through the sale of its
equity securities in the future.
Upon completion of the Offering, the Company will have 7,005,049 shares of
Common Stock outstanding (7,447,529 if the Underwriters' over-allotment option
is exercised in full), including 2,949,862 shares of Common Stock offered hereby
(3,392,342 if the Underwriters' over-allotment option is exercised in full) and
4,505,049 "restricted" shares of Common Stock. Of the restricted shares held by
persons other than "affiliates" of the Company within the meaning of Rule 144
promulgated under the Securities Act, 908,545 shares of Common Stock are
currently eligible for sale under Rule 144 as currently in effect, and the
remaining 593,171 shares of Common Stock held by persons other than affiliates
will become eligible for sale under Rule 144 at varying times commencing July
27, 1997.
The shares of Common Stock offered in the Offering will be freely tradeable
without restriction or further registration under the Securities Act by persons
other than "affiliates" of the Company within the meaning of Rule 144
promulgated under the Securities Act. The holders of restricted shares generally
will be entitled to sell these shares in the public securities market without
registration under the Securities Act to the extent permitted by Rule 144 or any
exemption under the Securities Act.
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, the holder is entitled to sell within any
three-month period such number of shares of Common Stock that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume of shares of Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain restrictions on the manner of
sale, notice requirements and the availability of current public information
about the Company. If three years have elapsed since the holder acquired the
restricted shares from the Company or from any "affiliate" of the Company, and
the holder is deemed not to have been an affiliate of the Company at any time
during the 90 days preceding a sale, such person will be entitled to sell such
Common Stock in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. The Commission has proposed an amendment to Rule 144 that
would reduce the holding period for shares subject to Rule 144 to become
eligible for sale in the public market. This proposal, if adopted, would
increase the number of shares of Common Stock eligible for immediate sale
following the expiration of the "lock-up period" described below.
After the completion of the Offering, the Company intends to file a
registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under or issued pursuant to the Stock Option Plan,
thereby permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. See "Management--Stock
Option Plan."
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The Company and certain of its stockholders have entered into "lock-up"
agreements with the Underwriters, providing that, subject to certain exceptions,
they will not, for a period of 180 days following the date of this Prospectus,
without the prior written consent of Howard, Weil, Labouisse, Friedrichs
Incorporated, offer, sell or contract to sell, or otherwise dispose of, directly
or indirectly, or announce an offering of, any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock,
provided that, the Company may issue and sell shares of Common Stock pursuant to
the Stock Option Plan. See "Underwriting."
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Howard, Weil,
Labouisse, Friedrichs Incorporated and Petrie Parkman & Co., Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholder the number of shares of Common Stock set
forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- -------------------------------------------------- --------------
<S> <C>
Howard, Weil, Labouisse, Friedrichs
Incorporated....................................
Petrie Parkman & Co., Inc.........................
--------------
Total......................................... 2,949,862
--------------
--------------
</TABLE>
The Company and the Selling Stockholder are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholder that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow selected dealers a concession of
$ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the public offering, the offering price
and the concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 442,480 additional
shares of Common Stock at the initial public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number of shares set forth
next to such Underwriter's name in the table above bears to the total number of
shares set forth in the table above. The Underwriters may exercise such option
only to cover over-allotments in connection with the sale of the 2,949,862
shares of Common Stock offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Company and each of its directors and executive officers and certain of
its stockholders have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of an option to purchase or other disposition) of any
shares of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock or other capital stock of the Company,
without the prior written consent of Howard, Weil, Labouisse, Friedrichs
Incorporated on behalf of the Underwriters for a period of 180 days after the
date of this Prospectus, except for (i) shares issued in connection with any
employee benefit plan of the Company existing as of the date of this Prospectus,
(ii) shares issued in connection with the conversion of the Series C Preferred
Stock into Common Stock and the Reverse Split to be effected prior to the
Offering and (iii) shares issued in connection with the Offering.
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Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives, the history of and future prospects for the industry in which
the Company competes, the skills and experience of the Company's management, the
general conditions of the securities market at the time of the Offering, and the
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. There can be no
assurance that the price at which shares of Common Stock will sell in the public
market after the Offering will not be lower than the price at which they are
sold in the Offering by the Underwriters.
Peter Gough, a Director of Petrie Parkman & Co., Inc., is the beneficial
owner of 51,007 shares of the Company's Common Stock.
LEGAL MATTERS
The validity of the shares will be passed upon for the Company by Kelley
Drye & Warren LLP, New York, New York. Frederic A. Rubinstein, a partner of
Kelley Drye & Warren LLP is the beneficial owner of 18,154 shares of Common
Stock. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Andrews & Kurth LLP, Houston, Texas.
EXPERTS
The audited balance sheets of the Company as of December 31, 1994 and 1995,
and the related statements of operations, changes in common stockholders' equity
(deficit) and cash flows for the period from inception of operations (January 6,
1993) to December 31, 1993 and for the years ended December 31, 1994 and 1995,
included in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The Reserve Report of Ryder Scott, set forth in this Prospectus as Appendix
A, has been included herein in reliance upon the authority of that firm as an
expert in petroleum engineering.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares being sold in the
Offering. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedule thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedule filed as a
part thereof. Statements contained in the Prospectuses as to the contents of any
contract, agreement or other document referred to are brief summaries of the
material provisions thereof but are not necessarily complete, and in each
instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Judiciary Plaza, Room
1024, Washington, D.C. 20549 and at the following regional offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, upon payment of fees
prescribed by the Commission.
As a result of the Offering, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the reports and
information so
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filed can be obtained from the Public Reference Section of the Commission, upon
payment of fees prescribed by the Commission. So long as the Company is subject
to the periodic reporting requirements of the Exchange Act, it will furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish holders of its Common Stock with annual reports containing
among other information audited financial statements certified by an independent
accounting firm. The Company also intends to furnish such other reports as it
may determine or as may be required by law.
The Commission maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http:\\www.sec.gov.
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GLOSSARY OF CERTAIN INDUSTRY TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
2-D SEISMIC. The method by which a cross-section of the earth's subsurface
is created through the interpretation of reflecting seismic data collected along
a single source profile.
3-D IMAGING. The method by which a three dimensional image of the earth's
subsurface is created through the interpretation of reflection seismic data
collected over surface grid. 3-D seismic surveys allow for a more detailed
understanding of the subsurface than do conventional surveys and contribute
significantly to field appraisal, development and production.
AVO ANALYSIS. A geophysical technique depending upon the principle of
reflection coefficient change with angle of incidence that when applied under
certain conditions allows interpreters to distinguish gas bearing sands from
other bright spot causes such as hard streaks, wet sands and lignite.
BCF. Billion cubic feet of natural gas.
BCFE. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
COMPLETION. The installation of permanent equipment for the production of
oil or gas, or in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
DISCOUNTED PRESENT VALUE. A method of determining the present value of
proved reserves in accordance with Commission requirements. Under the Commission
method, the future net revenues before income taxes from proved reserves are
estimated assuming that oil and natural gas prices and production costs remain
constant. The resulting stream of revenues is then discounted at the rate of 10%
per year to obtain the present value.
DRY HOLE OR WELL. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
EXPLORATORY WELL. A well drilled to find and produce oil or gas reserves not
classified as proved, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.
FARM-IN OR FARM-OUT. An agreement whereunder the owner of a working interest
in an oil and gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a "farm-in" while the
interest transferred by the assignor is a "farm-out."
FIELD. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
GPS. Global positioning system.
GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be, in
which a working interest is owned.
MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.
64
<PAGE>
MCF. One thousand cubic feet of natural gas.
MCF/D. One thousand cubic feet of natural gas per day.
MCFE. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMBBLS. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million barrels of oil equivalent.
MMCF. One million cubic feet of natural gas.
MMCFE/D. One million cubic feet of natural gas equivalent per day.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned in
gross acres or gross wells.
PAY. An industry term used to describe reservoirs in the subsurface which
contain hydrocarbons.
PRESENT VALUE. When used with respect to oil and gas reserves, the estimated
future gross revenue to be generated from the production of proved reserves, net
of estimated production and future development costs, using prices and costs in
effect as of the date indicated, without giving effect to non-property related
expenses such as general and administrative expenses, debt service and future
income tax expense or to depreciation, depletion and amortization, discounted
using an annual discount rate of 10%.
PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
PROVED DEVELOPED RESERVES. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
PROVED DEVELOPED NONPRODUCING RESERVES. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
RECOMPLETION. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
RESERVOIR. A porous and permeable underground formation containing a natural
accumulation of producible oil and/or gas that is confined by impermeable rock
or water barriers and is individual and separate from other reservoirs.
TCF. Trillion cubic feet of natural gas.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
WORKING INTEREST. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Introduction to Pro forma Financial Statements............................................................ F-2
Pro forma Balance Sheet as of September 30, 1996.......................................................... F-3
Pro forma Statement of Operations for the nine month period ended September 30, 1996...................... F-4
Pro forma Statement of Operations for the year ended December 31, 1995.................................... F-5
Notes to Pro forma Financial Statements................................................................... F-6
Report of Independent Public Accountants.................................................................. F-7
Balance Sheets as of December 31, 1994 and 1995 and unaudited as of September 30, 1996.................... F-8
Statements of Operations for the period from inception of operations (January 6, 1993) through December
31, 1993, the years ended December 31, 1994 and 1995 and unaudited for the nine month periods ended
September 30, 1995 and 1996.............................................................................. F-9
Statements of Changes in Common Stockholders' Equity (Deficit) for the period from inception of operations
(January 6, 1993) through December 31, 1993, the years ended December 31, 1994 and 1995 and unaudited for
the nine month period ended September 30, 1996........................................................... F-10
Statements of Cash Flows for the period from inception of operations (January 6, 1993) through December
31, 1993, the years ended December 31, 1994 and 1995 and unaudited for the nine month periods ended
September 30, 1995 and 1996.............................................................................. F-11
Notes to Financial Statements............................................................................. F-12
</TABLE>
F-1
<PAGE>
PRO FORMA FINANCIAL STATEMENTS OF 3DX TECHNOLOGIES INC.
The accompanying unaudited pro forma balance sheet as of September 30, 1996
and statements of operations for the year ended December 31, 1995 and the nine
month period ended September 30, 1996 give effect to certain transactions which
will take place upon the closing of the Offering as if the transactions had
taken place on September 30, 1996 in the case of the pro forma balance sheet
and, January 1, 1995 in the case of the pro forma statements of operations.
The pro forma financial statements do not purport to present the financial
position or results of operations of 3DX Technologies Inc. (the "Company") had
the transactions to be effected at the closing of this offering actually been
completed as of the dates indicated. In addition, the pro forma financial
statements are not necessarily indicative of the results of future operations of
the Company and should be read in conjunction with the Company's historical
financial statements and notes thereto contained elsewhere herein.
F-2
<PAGE>
3DX TECHNOLOGIES INC.
PRO FORMA BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
------------- ------------------ -------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 3,762,208 $ -- $ 3,762,208
Accounts receivable............................................... 287,548 287,548
Prepaid expenses.................................................. 81,334 81,334
------------- ------------------ -------------
Total current assets.......................................... 4,131,090 4,131,090
------------- ------------------ -------------
Property and equipment:
Oil and gas properties (full-cost method-- including $1,993,753,
not subject to depletion, depreciation and amortization)........ 7,435,604 7,435,604
Technical interpretation equipment................................ 1,496,925 1,496,925
Office furniture and equipment.................................... 162,717 162,717
Office leasehold improvements..................................... 39,101 39,101
------------- ------------------ -------------
9,134,347 9,134,347
------------- ------------------ -------------
Less accumulated depletion, depreciation and amortization......... (4,281,588) (4,281,588)
------------- ------------------ -------------
4,852,759 4,852,759
Other assets:
Mandatorily redeemable preferred stock issuance costs, net of
accumulated amortization........................................ 145,114 (70,759)(B) --
(74,355)(A)
Deposits.......................................................... 7,886 7,886
------------- ------------------ -------------
Organization costs, net of accumulated amortization............... 2,405 2,405
------------- ------------------ -------------
$ 9,139,254 $ (145,114) $ 8,994,140
------------- ------------------ -------------
------------- ------------------ -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.................................................. $ 620,557 $ 620,557
Accrued liabilities............................................... 74,883 74,883
------------- ------------------ -------------
Total current liabilities..................................... 695,440 695,440
------------- ------------------ -------------
Dividends payable on Series C preferred stock....................... 780,423 (780,423)(C)(D) --
------------- ------------------ -------------
Commitments (Note 10)
Mandatorily redeemable Series B preferred stock, $.01 par value,
$100 per share redemption price, 200,000 shares authorized, issued
and outstanding: 66,871 shares actual, no shares pro forma........ 6,381,183 (6,687,100)(B) --
------------- ------------------ -------------
305,917(B)
------------- ------------------ -------------
Mandatorily redeemable Series C senior preferred stock, $.01 par
value, $3 per share redemption price, 3,300,000 shares authorized,
issued and outstanding: 2,662,241 shares actual, no shares pro
forma............................................................. 7,986,723 (7,986,723)(A) --
------------- ------------------ -------------
Common stockholders' equity (deficit):
Common stock, $.01 par value, 12,000,000 shares authorized, issued
and outstanding: 2,991,032 shares actual, 5,001,327 shares pro
forma........................................................... 29,910 13,764(A) 50,013
6,339(D)
------------- ------------------ -------------
Paid-in capital................................................... 3,051,950 7,898,604(A) 18,411,738
7,461,184(D)
Deferred compensation related to certain stock options............ (1,529,773) (1,529,773)
Notes receivable from stock sales................................. (16,448) (16,448)
Accumulated deficit............................................... (8,240,154) (305,917)(B) (8,616,830)
(70,759)(B)
------------- ------------------ -------------
Total common stockholder's equity (deficit)................... (6,704,515) 15,003,215 8,298,700
------------- ------------------ -------------
$ 9,139,254 $ (145,114) $ 8,994,140
------------- ------------------ -------------
------------- ------------------ -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
F-3
<PAGE>
3DX TECHNOLOGIES INC.
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
NINE MONTH PERIOD NINE MONTH PERIOD
ENDED SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
------------------- -------------- -----------------
<S> <C> <C> <C>
Revenues:
Oil and gas................................................ $ 408,459 $ 408,459
Rental Income.............................................. 120,098 120,098
Interest and other......................................... 217,678 217,678
------------------- -------------- -----------------
Total revenues......................................... 746,235 746,235
------------------- -------------- -----------------
Costs and Expenses:
Lease operating............................................ 28,463 28,463
Production and ad valorem taxes............................ 22,764 22,764
Impairment of oil and gas properties....................... 1,476,690 1,476,690
Depletion, depreciation, and amortization.................. 463,573 463,573
General and administrative................................. 1,343,660 1,343,660
Interest and amortization of loan guarantee fees........... 289 289
------------------- -------------- -----------------
Total costs and expenses............................... 3,335,439 3,335,439
------------------- -------------- -----------------
Net loss..................................................... (2,589,204) (2,589,204)
Dividends on preferred stock................................. (505,167) 505,167(E) --
Accretion on preferred stock................................. (41,133) 41,133(F) --
------------------- -------------- -----------------
Net loss applicable to common stockholders................... $ (3,135,504) $ 546,300 (2,589,204)
------------------- -------------- -----------------
------------------- -------------- -----------------
Primary and fully diluted net loss per common share.......... $ (0.51)
-----------------
-----------------
Weighted average number of common shares outstanding......... 5,123,705
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
F-4
<PAGE>
3DX TECHNOLOGIES INC.
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, PRO FORMA DECEMBER 31,
1995 ADJUSTMENTS 1995
------------- ----------------- -------------
<S> <C> <C> <C>
Revenues:
Oil and gas........................................................ $ 274,511 $ 274,511
Rental Income...................................................... 58,195 58,195
Interest and other................................................. 236,186 236,186
------------- ----------------- -------------
Total revenues................................................. 568,892 568,892
------------- ----------------- -------------
Costs and Expenses:
Lease operating.................................................... 60,877 60,877
Production and ad valorem taxes.................................... 17,656 17,656
Impairment of oil and gas properties............................... 1,627,321 1,627,321
Depletion, depreciation, and amortization.......................... 446,350 446,350
General and administrative......................................... 905,063 905,063
Interest and amortization of loan guarantee fees................... -- --
------------- ----------------- -------------
Total costs and expenses........................................... 3,057,267 3,057,267
------------- ----------------- -------------
Net loss............................................................. (2,488,375) (2,488,375)
Dividends on preferred stock......................................... (1,058,956) 1,058,956(E) --
Accretion on preferred stock......................................... (48,408) 48,408(F) --
------------- ----------------- -------------
Net loss applicable to common stockholders........................... $ (3,595,739) $ 1,107,364 $ (2,488,375)
------------- ----------------- -------------
------------- ----------------- -------------
Primary and fully diluted net loss per common share.................. $ (0.49)
-------------
-------------
Weighted average number of common shares outstanding................. 5,098,768
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
F-5
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The following pro forma adjustments have been prepared as if the
transactions to be effected at the closing of the Offering had taken place on
September 30, 1996, in the case of the pro forma balance sheet or as of January
1, 1995, in the case of the pro forma statements of operations. The adjustments
are based upon currently available information and certain estimates and
assumptions, and therefore the actual adjustments made to effect the
transactions may differ from the pro forma adjustments. However, management
believes that the assumptions provide a reasonable basis for presenting the
significant effects of the transactions as contemplated and that the pro forma
adjustments give appropriate effect to these assumptions and are properly
applied in the pro forma financial information.
PRO FORMA ADJUSTMENTS TO THE BALANCE SHEET
A. Reflects the conversion of each of the 2,662,241 shares of Series C Preferred
Stock issued and outstanding as of the date of this Prospectus into
1,376,379 shares of common stock (giving effect to the .517 Reverse Common
Stock Split), with a total recorded value of $7,912,368 (consisting of the
September 30, 1996 book value of the outstanding Series C Preferred Stock of
$7,986,723 net of the "Mandatorily redeemable preferred stock issuance
costs" in the amount of $74,355). The recorded value of $7,912,368 has been
allocated to Common Stock and Paid in capital in the amounts of $13,764 and
$7,898,604 respectively.
B. Reflects the redemption immediately after the closing of this Offering of
all issued and outstanding shares of the Series B Preferred Stock (including
the effects of a $305,917 redemption premium recorded against accumulated
deficit which adjusts the Series B Preferred Stock carrying value to the
liquidation price of $100 per share). Additionally, reflects the netting
against accumulated deficit of the remaining balance of "Mandatorily
redeemable preferred stock issuance costs" in the amount of $70,759.
C. Reflects the payment immediately after the closing of this Offering of
Series C Preferred Stock dividends currently accrued on the September
30,1996 balance sheet of $780,423.
D. Reflects the issuance of 633,916 shares of common stock at $13 per share
pursuant to the Offering, net of expenses, to fund payments of $780,423 to
pay accrued dividends and $6,687,100 for the redemption of the Series B
Mandatorily Redeemable Preferred Stock.
PRO FORMA ADJUSTMENTS TO THE STATEMENT OF OPERATIONS
E. Reflects the elimination of accrued dividends on Series B and Series C
Mandatorily Redeemable Preferred Stock.
F. Reflects the elimination of accretion on Series B and Series C Mandatorily
Redeemable Preferred Stock.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of 3DX Technologies Inc.:
We have audited the accompanying balance sheets of 3DX Technologies Inc. (a
Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, changes in common stockholders' equity (deficit) and
cash flows for the period from inception of operations (January 6, 1993) through
December 31, 1993 and for the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 3DX Technologies Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from inception of operations (January 6, 1993) through December
31, 1993 and for the years ended December 31, 1994 and 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 7, 1996
F-7
<PAGE>
3DX TECHNOLOGIES INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents................................................... $2,444,014 $5,704,014 $ 3,762,208
Securities held to maturity................................................. -- 1,595,167 --
Accounts receivable......................................................... 68,219 113,704 287,548
Prepaid expenses............................................................ 9,598 85,786 81,334
---------- ---------- -------------
Total current assets.................................................... 2,521,831 7,498,671 4,131,090
---------- ---------- -------------
Property and equipment:
Oil and gas properties (full-cost method--including $828,321, $1,375,145 and
$1,993,753, respectively, not subject to depletion, depreciation and
amortization)............................................................. 2,403,467 4,023,869 7,435,604
Technical interpretation equipment.......................................... 464,105 1,083,925 1,496,925
Office furniture and equipment.............................................. 73,444 139,570 162,717
Office leasehold improvements............................................... -- 31,307 39,101
---------- ---------- -------------
2,941,016 5,278,671 9,134,347
Less accumulated depletion, depreciation and amortization................... (271,839) (2,343,578) (4,281,588)
---------- ---------- -------------
2,669,177 2,935,093 4,852,759
Other assets:
Mandatorily redeemable preferred stock issuance costs, net of accumulated
amortization.............................................................. 90,222 162,359 145,114
Deposits.................................................................... -- 12,886 7,886
Organization costs, net of accumulated amortization......................... 5,787 3,854 2,405
---------- ---------- -------------
$5,287,017 $10,612,863 $ 9,139,254
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 365,539 $ 194,742 $ 620,557
Accrued liabilities......................................................... 53,706 39,166 74,883
---------- ---------- -------------
Total current liabilities............................................... 419,245 233,908 695,440
---------- ---------- -------------
Dividends payable on Series C preferred stock................................. -- 275,256 780,423
---------- ---------- -------------
Commitments (Note 10)
Mandatorily redeemable Series B preferred stock, $.01 par value, $100 per
share redemption price, 200,000 shares authorized, 59,034, 66,871 and 66,871
shares issued and outstanding, respectively................................. 5,541,744 6,357,295 6,381,183
---------- ---------- -------------
Mandatorily redeemable Series C senior preferred stock, $.01 par value, $3 per
share redemption price, 3,300,000 shares authorized, 0, 2,662,241 and
2,662,241 shares issued and outstanding, respectively....................... -- 7,986,723 7,986,723
---------- ---------- -------------
Common stockholders' equity (deficit):
Common stock, $.01 par value, 12,000,000 shares authorized, 2,987,907,
2,987,907 and 2,991,031 shares issued and outstanding, respectively....... 29,879 29,879 29,910
Paid-in capital............................................................. 831,217 1,975,987 3,051,950
Deferred compensation related to certain stock options...................... -- (1,093,779) (1,529,773)
Notes receivable from stock sales........................................... (26,157) (47,756) (16,448)
Accumulated deficit......................................................... (1,508,911) (5,104,650) (8,240,154)
---------- ---------- -------------
Total common stockholders' deficit...................................... (673,972) (4,240,319) (6,704,515)
---------- ---------- -------------
$5,287,017 $10,612,863 $ 9,139,254
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION OF
OPERATIONS
(JANUARY 6,
1993) NINE MONTH PERIODS
THROUGH YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------- ----------------------------
1993 1994 1995 1995 1996
--------------- ----------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas......................... $ -- $ 303,836 $ 274,511 $ 202,185 $ 408,459
Rental income....................... 127,034 100,962 58,195 45,563 120,098
Interest and other.................. 7,528 52,817 236,186 125,549 217,678
--------------- ----------- ------------- ------------- -------------
Total revenues.................. 134,562 457,615 568,892 373,297 746,235
--------------- ----------- ------------- ------------- -------------
Costs and expenses:
Lease operating..................... -- 14,225 60,877 31,443 28,463
Production and ad valorem taxes..... -- 19,812 17,656 12,380 22,764
Impairment of oil and gas
properties........................ -- -- 1,627,321 1,477,567 1,476,690
Depletion, depreciation, and
amortization...................... 65,368 210,347 446,350 287,933 463,573
General and administrative.......... 596,267 598,244 905,063 652,671 1,343,660
Interest and amortization of loan
guarantee fees.................... 88,006 -- -- -- 289
--------------- ----------- ------------- ------------- -------------
Total costs and expenses........ 749,641 842,628 3,057,267 2,461,994 3,335,439
--------------- ----------- ------------- ------------- -------------
Net loss.............................. (615,079) (385,013) (2,488,375) (2,088,697) (2,589,204)
Dividends on preferred stock.......... -- (474,489) (1,058,956) (113,257) (505,167)
Accretion on preferred stock.......... (3,966) (30,367) (48,408) (34,681) (41,133)
--------------- ----------- ------------- ------------- -------------
Net loss applicable to common
stockholders........................ $ (619,045) $ (889,869) $ (3,595,739) $ (2,236,635) $ (3,135,504)
--------------- ----------- ------------- ------------- -------------
--------------- ----------- ------------- ------------- -------------
Pro forma net loss applicable to
common stockholders (Note 2)
(unaudited)......................... $ (2,488,375) $ (2,589,204)
------------- -------------
------------- -------------
Pro forma primary and fully diluted
net loss per common share (Note 2)
(unaudited)......................... $(.49) $(.51)
------------- -------------
------------- -------------
Pro forma weighted average number of
common shares outstanding (Note 2)
(unaudited)......................... 5,098,768 5,123,705
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION OF OPERATIONS (JANUARY 6, 1993) THROUGH
DECEMBER 31, 1993, AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND UNAUDITED FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------------------------------------------------
COMMON STOCK STOCK
---------------------- PAID-IN DEFERRED ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT RECEIVABLE TOTAL
--------- ----------- ---------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued for cash at
inception........................ 768,117 $ 7,681 $ 36,891 $ -- $ -- $ -- $ 44,572
Shares issued to founders in
November 1993.................... 259,172 2,592 47,538 -- -- (16,543) 33,587
Conversion of shares to common
stock............................ 329,003 3,290 409,460 -- -- -- 412,750
Shares issued in November 1993..... 876,237 8,762 160,723 -- -- (24,984) 144,501
Accretion on preferred stock....... -- -- -- -- (3,966) -- (3,966)
Net loss........................... -- -- -- -- (615,079) -- (615,079)
--------- ----------- ---------- ------------- ------------ ------------- ----------
Balance at December 31, 1993....... 2,232,529 22,325 654,612 -- (619,045) (41,527) 16,365
Principal collections.............. -- -- -- -- -- 27,862 27,862
Shares issued in October 1994...... 755,378 7,554 176,605 -- -- (12,492) 171,667
Accrual of dividends............... -- -- -- -- (474,486) -- (474,486)
Accretion on preferred stock....... -- -- -- -- (30,367) -- (30,367)
Net loss........................... -- -- -- -- (385,013) -- (385,013)
--------- ----------- ---------- ------------- ------------ ------------- ----------
Balance at December 31, 1994....... 2,987,907 29,879 831,217 -- (1,508,911) (26,157) (673,972)
Principal collections.............. -- -- -- -- -- 36,156 36,156
Shares issued in 1995.............. -- -- -- -- -- (57,755) (57,755)
Accrual of dividends............... -- -- -- -- (1,058,956) -- (1,058,956)
Accretion on preferred stock....... -- -- -- -- (48,408) -- (48,408)
Deferred compensation related to
certain stock options............ -- -- 1,144,770 (1,144,770) -- -- --
Compensation expense related to
certain stock options............ -- -- -- 50,991 -- -- 50,991
Net loss........................... -- -- -- -- (2,488,375) -- (2,488,375)
--------- ----------- ---------- ------------- ------------ ------------- ----------
Balance at December 31, 1995....... 2,987,907 29,879 1,975,987 (1,093,779) (5,104,650) (47,756) (4,240,319)
UNAUDITED:
Principal collections.............. -- -- -- -- -- 31,308 31,308
Shares issued in June 1996......... 3,124 31 573 -- -- -- 604
Accrual of dividends............... -- -- -- -- (505,167) -- (505,167)
Accretion on preferred stock....... -- -- -- -- (41,133) -- (41,133)
Deferred compensation related to
certain stock options............ -- -- 1,075,390 (1,075,390) -- -- --
Compensation expense related to
certain stock options............ -- -- -- 639,396 -- -- 639,396
Net loss........................... -- -- -- -- (2,589,204) -- (2,589,204)
--------- ----------- ---------- ------------- ------------ ------------- ----------
Balance at September 30, 1996...... 2,991,031 $ 29,910 $3,051,950 $(1,529,773) $(8,240,154) $ (16,448) $(6,704,515)
--------- ----------- ---------- ------------- ------------ ------------- ----------
--------- ----------- ---------- ------------- ------------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION OF
OPERATIONS
(JANUARY 6, NINE MONTH PERIODS
1993) YEARS ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------- ----------------------
1993 1994 1995 1995 1996
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (615,079) $ (385,013) $(2,488,375) $(2,088,697) $(2,589,204)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization..... 65,368 210,347 446,350 287,933 463,573
Compensation expense related to certain stock
options.................................... -- -- 50,991 -- 639,396
Amortization of loan guarantee fees.......... 80,000 -- -- -- --
Non-cash general and administrative
expenses................................... 26,751 -- -- -- --
Impairment of oil and gas properties......... -- -- 1,627,321 1,477,567 1,476,690
(Increase) decrease in accounts receivable... (216,147) 147,928 (45,485) 27,672 (173,844)
(Increase) decrease in prepaid expenses...... (1,361) (8,237) (76,188) (118,709) 4,452
Increase (decrease) in accounts payable...... 15,025 24,441 (3,005) (341,112) (72,303)
Increase (decrease) in accrued liabilities... 26,929 26,777 (14,540) 47,641 35,717
------------ ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities................................... (618,514) 16,243 (502,931) (707,705) (215,523)
------------ ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, exploration and development of oil
and gas properties........................... (794,377) (1,822,174) (2,185,804) (1,257,552) (2,913,619)
Sales proceeds--undeveloped oil and gas
interests.................................... 396,370 -- 480,931 480,931 --
Purchase of technical and office equipment and
leasehold improvements....................... -- (108,817) (395,093) (104,250) (224,479)
Purchase of technical equipment from Landmark
Graphics..................................... -- (87,373) (405,480) (405,480) (219,461)
(Purchase of) proceeds from securities held to
maturity..................................... -- -- (1,595,167) -- 1,595,167
Other.......................................... (2,736) 500 (12,886) (7,886) 4,197
------------ ---------- ---------- ---------- ----------
Net cash used in investing activities.......... (400,743) (2,017,864) (4,113,499) (1,294,237) (1,758,195)
------------ ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock proceeds, net of issuance costs... 247,644 162,651 -- -- 604
Series A preferred stock cash proceeds......... 100,000 -- -- -- --
Series B preferred stock proceeds, net of
issuance costs............................... 2,601,875 2,352,722 25,297 25,297 --
Series C preferred stock proceeds, net of
issuance costs............................... -- -- 7,851,133 7,802,874 31,308
Proceeds from issuance of long-term debt....... 400,000 -- -- -- --
Repayments of long-term debt................... (400,000) -- -- -- --
------------ ---------- ---------- ---------- ----------
Net cash provided by financing activities...... 2,949,519 2,515,373 7,876,430 7,828,171 31,912
------------ ---------- ---------- ---------- ----------
Net change in cash and cash equivalents.......... 1,930,262 513,752 3,260,000 5,826,229 (1,941,806)
Cash and cash equivalents at beginning of year... -- 1,930,262 2,444,014 2,444,014 5,704,014
------------ ---------- ---------- ---------- ----------
Cash and cash equivalents at end of the year..... $1,930,262 $2,444,014 $5,704,014 $8,270,243 $3,762,208
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
3DX Technologies Inc. ("3DX" or the "Company"), began operations in January
1993 to offer its 3-D seismic data and computer-aided exploration capabilities
as a partner to experienced oil and gas operators in its geographical areas of
interest. By combining the operator's local knowledge and infrastructure with
3DX's imaging capabilities, 3DX believes it is able to evaluate and exploit
drilling opportunities at lower-than-normal cost. The Company primarily invests
in prospects where 3-D seismic evaluation and interpretation is expected to
reduce drilling risk. Working interests in major prospects have ranged from 5%
up to 40% in property investments to date. All of the Company's operations are
currently located in the United States. The Company's future operations are
dependent on a variety of factors, including its successful application of its
technical expertise, profitable exploitation of its oil and gas properties,
successful access to capital sources and variable oil and gas prices and costs,
among others. See "Risk Factors" included elsewhere in this document.
The Company was initially funded by its three founding stockholders and by
Landmark Graphics Corporation (Landmark), a publicly-traded Houston company
which is a leading supplier of interactive computer-aided exploration systems
used by geoscientists to analyze subsurface data in the process of exploring for
and producing petroleum reserves. Landmark's initial investment included cash of
$100,000, technical equipment and office furniture valued at approximately
$150,000 and $50,000, respectively (which approximated predecessor cost),
organization costs valued at approximately $6,000, a $400,000 bank loan
guarantee valued at approximately $80,000, the payment of certain 3DX general
and administrative expenses of approximately $27,000, and preferred stock
issuance costs of approximately $87,000. The three founding stockholders of 3DX
were formerly employed by Landmark.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS PROPERTIES
3DX accounts for its oil and gas properties using the full-cost method. All
costs associated with the acquisition, exploration and development of oil and
gas properties (including such costs as leasehold acquisition costs, geological
and geophysical expenditures, dry hole costs and tangible and intangible
development costs) are capitalized as incurred. Included in capitalized costs
for the period ended December 31, 1993, the years ended December 31, 1994 and
1995 and the nine month periods ended September 30, 1995 and 1996 are general
and administrative costs of $156,652, $375,922, $618,614, $449,678, and
$649,885, respectively, that are directly attributable to the Company's
acquisition, exploration and development activities.
Dispositions of oil and gas properties are reported as adjustments to
capitalized costs, with gains and losses not recognized unless such adjustments
would significantly alter the relationship between capitalized costs and
estimated proved oil and gas reserves.
The evaluated costs of oil and gas properties plus estimated future
development and dismantlement costs (including plugging, abandonment and
site-restoration costs) are charged to operations as depreciation, depletion,
and amortization using the unit-of-production method based on the ratio of
current production to proved recoverable oil and gas reserves as estimated by
the Company and corroborated by independent petroleum engineering firms. The
Company excludes unevaluated property costs from the depreciation, depletion and
amortization computations until the discovery of proved reserves or a
F-12
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
determination of impairment occurs. Unevaluated properties are evaluated for
impairment on a property-by-property basis annually through 1995 and quarterly
beginning in 1996. When the determination has been made that an unproved
property has either encountered proved reserves or has been impaired, the
related costs are transferred to the evaluated cost pool which is compared in
total to the estimated values of proved reserves in the full-cost ceiling test
of asset recoverability discussed further below.
Information regarding the number of, and total investment in, abandoned
projects at the time of abandonment by the Company is set forth below:
<TABLE>
<CAPTION>
NUMBER OF INVESTMENT IN
PROJECTS ABANDONED
ACCOUNTING PERIOD ABANDONED PROJECTS
- ------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Period from Inception through December 31, 1993.................... 0 $ 0
Year ended December 31, 1994....................................... 0 0
Year ended December 31, 1995....................................... 3 1,173,644
<CAPTION>
UNAUDITED
- -------------------------------------------------------------------
<S> <C> <C>
Nine Months ended September 30, 1995............................... 3 1,023,889
Nine Months ended September 30, 1996............................... 2 927,366
</TABLE>
Impairment of capitalized costs of oil and gas properties is determined for
each cost center, determined on a country-by-country basis. The Company's only
active cost center since inception has been the United States of America. For
each cost center, to the extent that capitalized costs of oil and gas
properties, net of related accumulated depreciation, depletion and amortization
and related deferred income taxes, exceed the discounted future net revenues of
estimated proved oil and gas reserves plus the lower of cost or fair value of
unevaluated properties, net of income tax effects, such excess costs are charged
to operations as an impairment of oil and gas properties. No such writedowns
were required during 1993 or 1994. A writedown of $1,627,321 was required for
the year ended December 31, 1995. Write-downs of $1,477,567 and $1,476,690 were
required for the nine month periods ended September 30, 1995 and 1996,
respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 ("SFAS No. 121") regarding accounting for
the impairment of long-lived assets. The Company adopted SFAS No. 121 effective
January 1, 1996. However, such adoption did not affect the primary test of asset
recoverability because the Company's oil and gas properties are accounted for
under the full-cost method of accounting as discussed above. The adoption of
SFAS No. 121 had no effect on the Company's results of operations for the nine
month period ended September 30, 1996.
Technical interpretation equipment, including software, and office furniture
and equipment are recorded at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives of the assets. The estimated
useful life of the technical interpretation equipment, including software, is 3
years, and for office furniture and equipment, it is 5 years. Depletion,
depreciation and amortization expense includes depreciation related to technical
interpretation equipment, including software, and office furniture and equipment
of $65,368, $119,675, $288,014, and $336,427 for the period ended December 31,
1993, the years ended December 31, 1994 and 1995, and the nine month period
ended September 30, 1996.
F-13
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 1995 include various types of
government debt securities which matured on March 31, 1996, and are carried at
amortized cost at December 31, 1995.
ACCOUNTING FOR INCOME TAXES
The Company provides deferred income taxes at the balance sheet date for the
estimated tax effects of differences in the existing tax basis of assets and
liabilities and their financial statement carrying amounts.
NATURAL GAS REVENUES
Natural gas revenues are recorded using the sales method, whereby the
Company recognizes natural gas revenues based on the amount of gas sold to
product purchasers on its behalf. The Company has no material gas imbalances.
RENTAL INCOME
In January 1993, the Company entered into an informal revenue-sharing
arrangement with a seismic processing company whereby the Company would receive
a percentage of the seismic processing company's gross billings in exchange for
providing office space and use of the Company's technical equipment. Revenues
under this ongoing arrangement amounted to $89,718, $100,962 and $58,195 in
1993, 1994 and 1995, respectively. Revenues under this arrangement amounted to
$45,563 and $120,098 in the nine month periods ended September 30, 1995 and
1996, respectively.
STATEMENTS OF CASH FLOWS
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
All of the Company's receivables are due from oil and gas producing
companies located in the United States. The Company has not experienced any
significant credit losses related to its receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, securities held to
maturity and accounts receivable, approximate their fair values due to their
short-term nature.
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, if any, at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could
F-14
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
differ from those estimates. Oil and gas reserve estimates, which are the basis
for units-of-production depletion and the ceiling test, are inherently imprecise
and are expected to change as future information becomes available.
COMPUTATION OF PRO FORMA NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
(UNAUDITED)
Because of the significance of the planned redemption of Series B Preferred
Stock at its $100 liquidation value per share and conversion of a total of
2,662,241 shares of Series C Preferred Stock that will automatically convert
into 1,376,378 shares of common stock upon effectiveness of the Offering (see
Note 13), historical net loss per common share is not presented herein. The
effects of these transactions are included in pro forma net loss applicable to
common stockholders per share for 1995 and the nine month period ended September
30, 1996 assuming such redemption and conversion transactions occurred as of
January 1, 1995. Pro Forma net loss applicable to common stockholders is
computed using the weighted average number of common shares outstanding during
the periods after giving effect to the issuance and sale of a sufficient number
of shares of common stock in the filing of the Registration Statement on Form
S-1 (Note 13) to redeem all the issued and outstanding shares of Series B
Preferred Stock and the conversion of all Series C Preferred Stock into shares
of Common Stock. All common stock and options issued since October 18, 1995 have
been, for purposes of calculating net loss per common share, treated as
outstanding for all periods presented, which is the treatment contemplated in
Staff Accounting Bulletin No. 83.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited financial statements as of September 30, 1996, and for the
nine month periods ended September 30, 1995 and 1996 and all related footnote
information for these periods have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and results of operations and cash flows in
accordance with generally accepted accounting principles.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current presentation.
F-15
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
3. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -------------
<S> <C> <C>
Deferred tax liability:
Exploration and development expenditures deducted for tax and
capitalized for books......................................... $ 345,831 $ (103,867)
Other items, net................................................ -- (37,523)
----------- -------------
Total deferred tax liability................................ (345,831) (141,390)
----------- -------------
Deferred tax assets:
Net operating loss carryforwards................................ 653,394 1,238,317
Other items, net................................................ 28,419 66,375
----------- -------------
Total deferred tax assets................................... 681,813 1,304,692
Less: Valuation allowance....................................... (335,982) (1,163,302)
----------- -------------
Net deferred tax assets........................................... 345,831 141,390
----------- -------------
Net deferred tax liability........................................ $ -- $ --
----------- -------------
----------- -------------
</TABLE>
The Company did not record any current or deferred income tax provision or
benefit in any of the periods presented. The Company's provision for income
taxes differs from the amount computed by applying the statutory rate due
principally to the valuation allowance recorded against its deferred tax asset
account relating to net operating tax loss carryforwards. Management believes
that such allowance is necessary until there is greater assurance that the net
operating tax loss carryforwards can be utilized.
The Company has recorded a valuation allowance against its deferred tax
assets in each year to reflect the estimated portion for which realization is
uncertain. Such valuation allowance amounted to $208,183, $335,982 and
$1,163,302 as of December 31, 1993, 1994 and 1995 respectively. As of December
31, 1995, the Company has tax net operating loss carryforwards of $3,642,108
which begin to expire in 2008. As a result of the pending initial public
offering (See Note 13), there may be a limitation placed on the Company's
utilization of its NOL's by Section 382 of the Internal Revenue Code. The
Company will review the valuation allowance at the end of each quarter and will
make adjustments if it is determined that it is more likely than not that the
deferred tax assets will be realized.
4. RELATED-PARTY TRANSACTIONS
The Company purchased technical equipment, supplies, and software and
hardware maintenance amounting to $174,374 in 1993, $118,630 in 1994 and
$521,128 in 1995 from Landmark. During the unaudited nine month periods ended
September 30, 1995 and 1996, the Company purchased $405,480 and $219,461,
respectively, from Landmark.
F-16
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. MANDATORILY REDEEMABLE PREFERRED STOCK
On January 27, 1993, the Company sold 100,000 shares of Series A preferred
stock to Landmark for a total consideration of $500,000, composed of cash,
technical and office equipment, furniture, organizational costs, a bank loan
guarantee, payment of certain general and administrative expenses, and preferred
stock issuance costs. The Series A preferred stock contained no voting rights,
was convertible into 517,000 shares of Class A common stock, contained a
mandatory-redemption feature which allowed the holder of the Series A preferred
stock to require 3DX to redeem the stock at the higher of the original issue
value or the then-current fair market value of the stock at the time of
redemption, and was entitled to receive, when, as and if declared by the Board
of Directors, dividends in cash at the annual rate of $.50 per share, payable
quarterly and senior in ranking to any common stock dividends. Until January 1,
1998, the right to dividends upon the issued and outstanding shares of Series A
preferred stock were non-cumulative and were not deemed to accrue unless and
until said dividends were declared by the Board. From and after January 1, 1998,
the right to dividends upon the issued and outstanding shares of Series A
preferred stock were cumulative. The Series A preferred stock held preferential
liquidation rights for $5 per share plus any dividends payable at the date of
liquidation, and also contained an automatic conversion provision in the event
of an initial public offering.
The Series A preferred stock was exchanged for 329,003 shares of common
stock in connection with the issuance of Series B preferred stock in connection
with the sale of equity units in November 1993.
The Company's Series B and Series C redeemable preferred stocks described
below are presented on the balance sheet outside of common equity because they
both have mandatory-redemption provisions outside the control of the Company,
and both are being accreted to their projected redemption values through a
charge to common equity during the periods such securities were outstanding.
In November 1993, the Company negotiated an agreement pursuant to which
certain investors agreed to purchase 54,000 units (each unit consisting of one
share of redeemable Series B preferred stock and 30.215 shares of common stock)
for total consideration in the amount of $5,400,000. The sales of the units was
timed to be funded in two traunches to match the projected cash flow needs of
the Company, with the first traunch (consisting of 29,000 units) funded in
November 1993 and the second traunch (consisting of 25,000 units) funded in
October 1994. The terms of the agreement provided a substantial penalty for any
investor who committed to purchase units in the second traunch and failed to do
so. All investors who committed to purchase units in the second traunch did so
in October 1994. Sales of the 54,000 units were as follows: 4,500 units were
sold to members of management (8.3% of the total units sold), 4,000 units were
sold to Landmark (7.4% of the total units sold), 1,750 units were sold to
Consultants to the Company (3.2% of the total units sold), 28,820 units were
sold to two investment funds whose purchase was conditioned on the ability of
each investor group to designate one member of the Board of Directors (53.4% of
the total units sold), 1,500 units were sold to one investor-designated member
and one future member of the Board of Directors (2.8% of the total units sold),
and the remaining 13,430 units were sold to other unrelated investors (24.9% of
the total units sold).
In November 1993, the Company sold 29,000 equity units consisting of an
aggregate of 29,000 shares of the Company's redeemable Series B preferred stock,
par value of $.01 per share, and 876,237 shares of common stock, par value of
$.01 per share. The stock was sold for net proceeds of $94.1558 per share of
Series B preferred stock and $.19 per share of common stock. The difference
between the sales price and the redemption price of $100 per share is subject to
an annual pro-rata accretion charge to retained
F-17
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
earnings, so that at the time of the mandatory redemption, the value of each
share of preferred stock will equal the redemption price of $100. The Series B
preferred stockholders are entitled to 100 votes for each share held, and shall
vote together with holders of common stock and not as a separate class. The
Series B preferred stockholders are entitled to receive (out of any funds
legally available therefor) dividends (in cash or in shares of Series B
preferred stock, as determined by the Board of Directors) at an annual rate per
share of $12.50 if in cash or .13276 shares of Series B preferred stock if in
stock, payable annually on December 31, commencing in December 1994. In the
event the Board of Directors fails to declare the dividend in stock or cash ten
working days prior to the end of each year, the dividend is deemed declared in
stock as of the end of the year. As a result, the dividend is constructively
cumulative. The Series B preferred stock has a redemption price of $100 per
share. The Series B preferred stock also contains a mandatory-redemption feature
under which the stock will be redeemed at the redemption price in two
installments (50% on November 9, 2002 and 50% on November 9, 2003). 3DX has the
option to redeem the outstanding Series B Preferred stock at any time with funds
legally available therefor. As consideration for the Series B preferred and
common stock sale, the Company received $2,875,019 in cash and promissory notes
from two of its founders amounting to $24,984. The Company incurred legal and
other offering costs of $103,659 in connection with this Series B preferred
stock unit sale.
On October 24, 1994, the Company sold 25,000 equity units consisting of an
aggregate of 25,000 shares of the Company's redeemable Series B preferred stock,
par value of $.01 per share, and 755,378 shares of common stock, par value of
$.01 per share. The stock was sold for net proceeds of $94.1558 per share of
Series B preferred stock and $.19 per share of common stock. As consideration
for the Series B preferred and common stock sale, the Company received
$2,487,511 in cash and a promissory note from one of its founders amounting to
$12,492.
Dividends on the Series B preferred stock have been paid in stock rather
than in cash as determined by the Board of Directors.
During the period from July 26, 1995 until September 25, 1995, the Company
sold a total of 2,662,241 shares of the Company's senior redeemable convertible
Series C preferred stock, par value of $.01 per share. The stock was sold for $3
per share. Purchasers of the 2,662,241 shares of Series C Preferred Stock
consisted of members of management who purchased 89,237 shares (3.4% of the
total Series C shares sold), consultants to the Company who purchased 17,134
shares (0.6% of the total Series C shares sold), two members of the Board of
Directors who purchased 10,000 shares (0.4% of the total Series C shares sold),
other previous Series B unit investors who purchased 329,203 shares (12.3% of
the total Series C shares sold), a venture capital group whose purchase of
1,333,333 shares was conditioned on its ability to designate a member of the
Company's Board of Directors (50.1% of the total Series C shares sold), and the
remaining 883,334 shares were sold to other unaffiliated investors (33.2% of the
total Series C shares sold). The Series C preferred stockholders are entitled to
1 vote for each number of common shares their Series C preferred stock is
convertible into, and shall vote together with holders of common stock and not
as a separate class. The Series C preferred stockholders are entitled to receive
when, as and if declared by the Board of Directors (out of any funds legally
available therefor) dividends (in cash or in shares of Series C preferred stock,
as determined by the Board of Directors) at an annual rate per share of $.24 if
in cash or .08 shares of Series C preferred stock if in stock, payable or
accruing quarterly, commencing on September 30, 1995. If dividends are accrued,
the unpaid dividends compound at an annual interest rate of
F-18
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
8%. In the event the Board of Directors fails to declare the dividend in stock
or cash ten working days prior to the end of each calendar quarter, the dividend
is automatically deemed declared in cash as of the end of the quarter. As a
result the dividend is constructively cumulative.
The Series C preferred stock also contains a right to convert to common
stock on a one share for one share basis at any time (See Note 13 for discussion
of the impact of the October 1996 reverse stock split), and the shares shall be
automatically converted upon the occurrence of certain automatic conversion
events (including the successful completion of an initial public offering of the
Company's common stock if certain pricing and other criteria are met). The
Series C preferred stock also contains a mandatory-redemption feature under
which the stock will be redeemed (if requested in writing with at least 30 days
notice by at least 67% of the holders) at the liquidation price in two
installments (50% on November 9, 2002 and 50% on November 9, 2003). In the event
of a merger, sale or dissolution of the Company, or initiation of mandatory
redemption of the senior preferred Series C stock where the proceeds to the
holders are less than two times the holders' original basis plus accrued
dividends, then in such event the holders will receive the face value of their
investment plus accrued dividends and will also be entitled to participate on an
"as if converted" basis in all remaining net proceeds of the Company. As
consideration for the Series C preferred stock sale, the Company received
$7,928,968 in cash, and promissory notes from two of its founders and one board
member amounting to $57,755. The Company incurred legal and other offering costs
of $87,844 in connection with this Series C preferred stock sale.
At its October 6, 1995 meeting, the Board of Directors of the Company
granted each purchaser of shares of senior redeemable convertible Series C
preferred stock a warrant to purchase additional shares equal to 10% of the
shares owned by such purchaser, at an exercise price of $3 per share, such
shares to be exercisable at any time until the earlier of (a) five years from
the date of issuance and (b) the effective date of an initial public offering of
the Company's securities. No value was assigned to these warrants as the
computed value of the warrants using the Black-Scholes model was zero.
During the nine months ended September 30, 1996, the Company accrued a
dividend on the Series C preferred stock of $505,167.
F-19
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
The following table summarizes the inception to date activity of mandatorily
redeemable preferred stock:
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
--------------------------------------------------------------------------
SERIES A SERIES B SERIES C
----------------------- ----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued for cash and other assets in
January 1993.............................. 100,000 $ 500,000 -- $ -- -- $ --
Issuance costs.............................. -- (87,250) -- -- -- --
Conversion of shares to common stock........ (100,000) (412,750) -- -- -- --
Shares issued in November 1993.............. -- -- 29,000 2,730,518 -- --
Accretion to redemption value............... -- -- -- 2,046 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1993................ -- -- 29,000 2,732,564 -- --
Shares issued in October 1994............... -- -- 25,000 2,315,844 -- --
Accrual of dividends........................ -- -- 5,034 474,486 -- --
Accretion to redemption value............... -- -- -- 18,850 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1994................ -- -- 59,034 5,541,744 -- --
Shares issued in 1995....................... -- -- -- -- 2,662,241 7,986,723
Accrual of dividends........................ -- -- 7,837 783,700 -- --
Accretion to redemption value............... -- -- -- 31,851 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1995................ -- -- 66,871 6,357,295 2,662,241 7,986,723
UNAUDITED:
Accretion to redemption value............... -- -- -- 23,888 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance of September 30, 1996............... -- $ -- 66,871 $ 6,381,183 2,662,241 $ 7,986,723
---------- ----------- --------- ------------ ---------- ------------
---------- ----------- --------- ------------ ---------- ------------
</TABLE>
The Company also recorded in net loss attributable to common stockholders
additional accretion of issuance costs related to redeemable preferred stock of
$1,920, $11,517, $16,557 and $17,245 in 1993, 1994, 1995 and the nine-month
period ended September 30, 1996, respectively.
6. COMMON STOCKHOLDERS' EQUITY (DEFICIT)
On January 27, 1993, the Company sold 768,117 shares of common stock to its
founding stockholders for $44,572 ($.06 per share). These shares are subject to
a stock purchase and restriction agreement under which the Company has retained
a right to repurchase any "unvested" shares at the original sales price of $.06
per share. For purposes of determining vesting, the shares vest over a period of
4 years based on the continued employment of the applicable stockholder,
annually the first two years and monthly the next 24 months.
On November 9, 1993, the Company sold 259,172 shares of common stock to its
founding stockholders at $.19 per share. As consideration for the common stock
sale, the Company received net proceeds of $33,587 in cash and a promissory note
from one of its founders amounting to $16,543.
F-20
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
6. COMMON STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
On May 24, 1995, the stockholders approved a 10-for-1 stock split of the
Company's common stock. See also Note 12 for information on the reverse stock
split which occurred in October 1996. All references in this report to the
number of common shares outstanding reflect these splits.
7. STOCK OPTIONS
In June 1994, the Board of Directors approved the 1994 Stock Option Plan
(the Plan) for employees, officers, directors and certain consultants of the
Company. The ten year options vest for employees over four years (annually for
the first two years and monthly the last two years) and for directors and
consultants over three years (annually with 50% in year one) and certain of
these options are eligible for accelerated vesting upon a change of control of
the Company. At December 31, 1995 the Company had reserved 987,937 shares of
common stock for issuance under this Plan. All options to purchase common stock
were granted at or above the fair value of the Company's common stock as
determined by the Board of Directors.
The following table summarizes option balances and activity for the Plan:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1994 1995
----------- ----------- PERIOD ENDED
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Option shares outstanding:
Beginning of period.................................................. -- 438,783 686,943
Granted.............................................................. 438,783 248,160 235,235
Exercised............................................................ -- -- (3,124)
Canceled............................................................. -- -- (157,146)
----------- ----------- -------------
End of period........................................................ 438,783 686,943 761,908
Shares available for grant at end of period............................ 549,154 300,994 222,905
Weighted average price of options exercised during period.............. -- -- $ 0.19
Range of exercise price of options outstanding at end of period........ $ 0.19-0.26 $ 0.19-0.58 $ 0.19-0.58
Weighted average exercise price of options outstanding at end of
period............................................................... $ 0.22 $ 0.42 $ 0.47
Weighted average fair value of options granted during period........... -- $ 4.75 $ 13.55
</TABLE>
Prior to the fourth quarter of 1995, the Company did not record any
compensation expense related to the above options because the related exercise
prices were at or above the estimated fair values of the Company's common stock
at the time such options were granted. In connection with stock options granted
within one year of the initial filing of the Form S-1 registration statement of
which this Prospectus forms a part (see Note 13), the Company has recorded
deferred compensation as additional paid in capital and an offsetting
contra-equity account. Such compensation accrual is based on the difference
between the option price and the fair value of the Company's common stock when
such options are granted (using the initial $14.00 per share estimate of the
initial public offering common stock price as an estimate of fair value). Such
deferred compensation is recorded as general and administrative expenses over
the period underlying the options become vested, which resulted in $51,000 and
$639,000 of expenses in 1995 and the nine-month period ended September 30, 1996,
respectively.
F-21
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 ("SFAS No. 123"). SFAS No. 123 is a new standard of accounting for
stock-based compensation and establishes a fair value method of accounting for
awards granted after December 31, 1995 under stock compensation plans. SFAS No.
123 encourages, but does not require, companies to adopt the fair value method
of accounting in place of the existing method of accounting for stock-based
compensation whereupon compensation costs are recognized only in situations
where stock compensation plans award intrinsic value to recipients at the date
of grant. Companies that do not adopt the fair value method of accounting
prescribed in SFAS No. 123 must, nonetheless, make annual pro forma disclosures
of the estimated effects on net income and earnings per share in their year-end
1996 financial statements as if the fair value method had been used for grants
after December 31, 1994.
8. NOTES RECEIVABLE FROM STOCK SALES
During 1993, 1994 and 1995, two officers and one member of the Board of
Directors purchased common or preferred stock for notes, which are reflected as
an offset to equity in the accompanying financial statements. The notes are full
recourse promissory notes bearing interest at a fixed rate of 6% per annum. The
notes from the two employees are collateralized by certain vested stock options
the individuals hold from their former employer. The principal and all accrued
interest on the notes held at December 31, 1995 and at September 30, 1996 are
due in or before January 1997.
9. SAVINGS PLAN
The Company has joined with Landmark in offering its employees an employee
401-K savings plan (the Plan) which became effective upon inception of the
Company. The Plan covers substantially all employees and entitles them to
contribute up to 15% of their annual compensation, subject to maximum
limitations imposed by the Internal Revenue Code. While the Plan allows for
employer matching of a portion of the employee contributions, the Company has
elected not to match contributions.
10. COMMITMENTS
Effective March 1, 1995, the Company entered into a 5-year office facilities
operating lease agreement which required an 18-month rent prepayment at
inception, and contains typical renewal options and escalation clauses. Rental
expense under office facilities operating leases was approximately $61,000 in
1994 and $90,370 in 1995. Rental expense under office facilities operating
leases was $66,599 and $72,136 for the nine months ended September 30, 1995 and
1996, respectively.
F-22
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
10. COMMITMENTS (CONTINUED)
Future minimum payments under non-cancelable operating leases having initial
terms of one year or more are as follows at December 31, 1995:
<TABLE>
<S> <C>
1996.................................................... $ 31,544
1997.................................................... 94,633
1998.................................................... 94,633
1999.................................................... 94,633
Thereafter.............................................. 15,772
---------
Total minimum lease payments.............................. $ 331,215
---------
---------
</TABLE>
11. SALE OF ASSETS
In April 1995, the Company sold 66.67% of its working interest in the Double
Diamond/Jones Ranch prospect to a group of individual investors who are
stockholders in the Company (through a limited partnership). Proceeds from the
sale, which represented both the estimated fair market value of the interest
sold as well as 3DX's proportionate cost to date on the prospect, amounted to
$480,931. No gain or loss was recorded on this transaction.
F-23
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes cash paid for interest and taxes as well as
non-cash transactions for the indicated periods:
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 30,
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid during period for interest.................. $ 8,006 $ -- $ -- $ -- $ 289
Cash paid during period for taxes..................... -- -- -- -- --
<CAPTION>
NON-CASH TRANSACTIONS:
<S> <C> <C> <C> <C> <C>
Dividends declared but not paid....................... $ -- $ -- $ 275,256 $ -- $ 505,167
Accretion on preferred stock.......................... 3,966 30,367 48,408 34,681 41,133
Sale of Series A preferred stock to Landmark in
exchange for technical & office equipment,
furniture, organizational costs, bank loan
guarantee, payment of certain general &
administrative expenses and preferred stock issuance
costs............................................... 400,000 -- -- -- --
Exchange of Series A preferred stock for 329,003
shares of common stock.............................. 412,750 -- -- -- --
Sale of common stock in exchange for promissory note
from one of the founders............................ 16,543 -- -- -- --
Sale of common stock in exchange for promissory note
from one of the founders (November 1993)............ 24,984 -- -- -- --
Sale of Series B preferred and common stock in
exchange for promissory note from one of the
founders (October 24, 1994)......................... -- 12,492 -- -- --
Stock dividend on Series B preferred stock............ -- 474,486 783,700 -- --
Sale of Series C preferred stock in exchange for
promissory notes from two of the founders........... -- -- 57,755 -- --
10 for 1 common stock split (Note 13)................. -- -- -- -- --
</TABLE>
13. EVENTS SUBSEQUENT TO AUDITORS' REPORT DATE
In October 1996, the Board of Directors authorized a reverse stock split
whereby stockholders of common stock will receive .517 shares of common stock
for every 1 share previously owned. The previous conversion ratio of 1 share of
Series C Preferred Stock for 1 share of Common Stock will also be adjusted for
this reverse split so that 1 share of Series C Preferred Stock will be
convertible into .517 shares of common stock. In addition, authorized, issued,
and outstanding options under the Company's 1994 stock option plan will be
revised to reflect the impact of the reverse stock split on share and option
prices. All references in this report to number of common shares outstanding
reflect this reverse stock split retroactively to inception of the Company.
The Company anticipates filing a registration statement on Form S-1 for the
sale of 2,500,000 shares of common stock in the fourth quarter of 1996. The
offering is expected to raise approximately $29.5
F-24
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
13. EVENTS SUBSEQUENT TO AUDITORS' REPORT DATE (CONTINUED)
million in net proceeds, which are expected to be used, among other purposes, to
redeem all the outstanding Series B preferred stock and for future capital and
exploration expenditures. In connection with such offering, the Series C
preferred stock is expected to be converted to common stock and the Series C
dividends payable will be paid in cash.
14. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth the Company's results of operations for oil
and gas producing activities for the years ended December 31, 1994 and 1995 and
for the nine months ended September 30, 1996. There were no oil and gas
producing activities for the period from inception (January 6, 1993) through
December 31, 1993.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Oil and gas revenues.......................................... $ 303,836 $ 274,511 $ 408,459
Lease operating costs......................................... 14,225 60,877 28,463
Production taxes.............................................. 19,812 17,656 22,764
Impairment of oil and gas properties.......................... -- 1,627,321 1,476,690
Depletion, depreciation and amortization...................... 90,672 158,336 126,342
---------- ------------- -------------
Income (loss) before income taxes............................. 179,127 (1,589,679) (1,245,800)
Income tax expense (credit)................................... -- -- --
---------- ------------- -------------
Net income (loss)............................................. $ 179,127 $ (1,589,679) $(1,245,800)
---------- ------------- -------------
---------- ------------- -------------
Amortization per physical unit of production (equivalent Mcf
of gas)..................................................... $ .64 $ 1.15 $ .81
---------- ------------- -------------
</TABLE>
The results of operations from oil and gas producing activities were
determined in accordance with Statement of Financial Accounting Standards No.
69, "Disclosures About Oil and Gas Producing Activities" ("SFAS No. 69") and,
therefore, do not include corporate overhead, interest and other general income
and expense items.
15. COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The aggregate amounts of capitalized costs relating to the Company's oil and
gas producing activities and the related accumulated depletion, depreciation,
and amortization and impairment at December 31, 1994 and 1995 and at September
30, 1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Unproved properties......................................... $ 828,321 $ 1,375,145 $ 1,993,753
Proved properties........................................... 1,575,146 2,648,724 5,441,851
------------ ------------- -------------
Total capitalized costs..................................... 2,403,467 4,023,869 7,435,604
Less--accumulated depletion, depreciation and
amortization.............................................. (90,672) (1,876,329) (3,479,361)
------------ ------------- -------------
$ 2,312,795 $ 2,147,540 $ 3,956,243
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
F-25
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
15. COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
Unevaluated properties and associated costs not currently being amortized
and included in oil and gas properties were $828,321, $1,375,145, and $1,993,753
at December 31, 1994, and 1995 and September 30, 1996, respectively. The
projects represented by these costs were at such dates undergoing exploration or
development activities or projects in which the Company intends to commence such
activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined. The Company
believes that the unevaluated properties at December 31, 1995 will be fully
evaluated in 24 to 36 months.
The following table represents an analysis of remaining unevaluated oil and
gas property costs at December 31, 1995, and the periods in which they were
incurred:
<TABLE>
<CAPTION>
1994 1995
---------- ------------
<S> <C> <C>
Acquisition costs............................................................. $ 238,219 $ 418,027
Exploration costs............................................................. 104,596 614,303
Development costs............................................................. 0 0
---------- ------------
Total..................................................................... $ 342,815 $ 1,032,330
---------- ------------
---------- ------------
</TABLE>
The following table sets forth the costs incurred in the Company's oil and
gas property acquisition, exploration and development activities for the years
presented:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1993 1994 1995 1996
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Property acquisition costs--
Proved........................................ $ 0 $ 0 $ 0 $ 0
Unproved...................................... 96,558 372,134 490,141 424,922
Exploration costs............................... 712,996 1,618,149 1,611,192 2,883,603
Development costs............................... 0 0 0 103,210
---------- ------------ ------------ -------------
$ 809,554 $ 1,990,283 $ 2,101,333 $ 3,411,735
---------- ------------ ------------ -------------
---------- ------------ ------------ -------------
</TABLE>
16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
RESERVES
The process of estimating proved developed and proved undeveloped oil and
gas reserves is very complex, requiring significant subjective decisions in the
evaluation of available geologic, engineering and economic data for each
reservoir. The data for a given reservoir may change over time as a result of,
among other things, additional development activity, production history and
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates may occur in the future.
Although every reasonable effort is made to ensure that reserve estimates are
based on the most accurate and complete information possible, the significance
of the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
F-26
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
The Company began its exploration program in 1993, by participating in an
exploration program as a royalty owner. The Company did not produce any
discovered oil and gas reserves in 1993.
The Company added proved oil and gas reserves in 1994 as a result of
exploration efforts on one prospect.
In 1995, the Company added proved reserves from one additional well in the
1994 prospect, and drilled one additional successful well in a new prospect.
In the nine months ended September 30, 1996, the Company added proved
reserves from eight successful wells from drilling on various prospects.
The Company's oil and gas reserves, shown below, all of which are located in
the continental United States, consist of proved reserves which are estimated to
be recoverable in the future under economic and operating conditions.
The following table sets forth the changes in the Company's total proved
reserves (all of which are developed) for the years ended December 31, 1993,
1994 and 1995. The reserve estimates for the Company were prepared by the
Company and corroborated (with the exception of minor royalty interests) by
independent petroleum engineering firms.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- ---------- ---------- -------------
OIL (BBLS)
------------------------------------------------
<S> <C> <C> <C> <C>
Proved reserves at the beginning of the period....... -- 4,000 39,886 41,193
Extensions, discoveries, and other additions......... 4,000 42,000 26,000 5,066
Revisions of previous estimates...................... -- -- (18,000) (8,972)
Production........................................... -- (6,114) (6,693) (6,499)
--------- ---------- ---------- -------------
Proved reserves at the end of the period............. 4,000 39,886 41,193 30,788
--------- ---------- ---------- -------------
--------- ---------- ---------- -------------
<CAPTION>
GAS (MCF)
------------------------------------------------
<S> <C> <C> <C> <C>
Proved reserves at the beginning of the period....... -- 20,000 1,236,915 442,795
Extensions, discoveries, and other additions......... 20,000 1,322,000 104,000 1,980,032
Revisions of previous estimates...................... -- -- (801,000) (136,318)
Production........................................... -- (105,085) (97,120) (117,772)
--------- ---------- ---------- -------------
Proved reserves at the end of the period............. 20,000 1,236,915 442,795 2,168,737
--------- ---------- ---------- -------------
--------- ---------- ---------- -------------
</TABLE>
F-27
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS
The Company's standardized measure of discounted future net cash flows, and
changes therein, related to proved oil and gas reserves are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Future cash inflow........................................ $ 84,000 $ 2,997,000 $ 1,405,000 $ 4,336,000
Future production, development and abandonment costs...... ( --) (755,000) (329,000) (743,000)
---------- ------------ ------------- -------------
Future cash flows before income taxes..................... 84,000 2,242,000 1,076,000 3,593,000
Future income taxes....................................... -- -- -- --
---------- ------------ ------------- -------------
Future net cash flows..................................... 84,000 2,242,000 1,076,000 3,593,000
10% Discount factor....................................... (24,000) (636,000) (305,000) (818,000)
---------- ------------ ------------- -------------
Standardized measure of discounted future net cash flow... $ 60,000 $ 1,606,000 $ 771,000 $ 2,775,000
---------- ------------ ------------- -------------
---------- ------------ ------------- -------------
Changes in standardized measure of discounted future net
cash flows:
Sales of oil, gas and natural gas liquids, net of
production costs...................................... $ (270,000) $ (196,000) $ (357,000)
Extensions, discoveries and other additions............. 1,878,000 349,000 2,373,000
Revisions of estimates of reserves proved in prior
years:
Quantities estimated.................................. -- (1,280,000) (338,000)
Net changes in price and production cost.............. -- (71,000) 153,000
Accretion of discount................................... 6,000 161,000 58,000
Changes in future development costs..................... (112,000) 103,000 31,000
Changes in production rates (timing) and other.......... 44,000 99,000 84,000
------------ ------------- -------------
Net change.............................................. $ 1,546,000 $ (835,000) $ 2,004,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Estimated future cash inflows are computed by applying year-end prices of
oil and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expense is calculated by applying year-end statutory tax rates to estimated
future pretax net cash flows related to proved oil and gas reserves, less the
tax basis (including net operating loss carryforwards projected to be usable) of
the properties involved.
These estimates were determined in accordance with SFAS No. 69. Because of
unpredictable variances in expenses and capital forecasts, crude oil and gas
prices and oil and gas reserve volume estimates, as well as the arbitrary
pricing and discounting assumptions used in these cash flow estimates,
F-28
<PAGE>
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
management believes the usefulness of this data is limited. These estimates of
future net cash flows do not necessarily represent management's assessment of
estimated fair market value, future profitability or future cash flow to the
Company. Management's investment and operating decisions are based upon reserve
estimates that include proved as well as probable reserves and upon different
price and cost assumptions from those used herein.
The future cash flows presented in the "Standardized Measures of Discounted
Future Net Cash Flows" are based on year-end oil and gas prices for oil and gas
reserves. The Company does not have oil and gas reserves which are committed
under oil and gas contracts.
F-29
<PAGE>
APPENDIX A
October 22, 1996
3DX Technologies Inc.
12012 Wickchester, Suite 250
Houston, TX 77079-1218
Gentlemen:
The estimated reserve volumes and future income amounts presented in this
report are related to hydrocarbon prices. September 1996 hydrocarbon prices were
used in the preparation of this report as required by the Securities and
Exchange Commission (SEC) and Financial Accounting Standards Bulletin No. 69
(FASB 69) guidelines; however, actual future prices may vary significantly from
September 1996 prices. Therefore, volumes of reserves actually recovered and
amounts of income actually received may differ significantly from the estimated
quantities presented in this report.
The Company's reserves are located in onshore and offshore Texas and in
Federal waters offshore Louisiana. Our estimates of the net proved reserves
attributable to the interests of 3DX Technologies Inc. (referred to herein as
the Company), as of September 30, 1996 are presented below:
<TABLE>
<CAPTION>
PROVED NET RESERVES
AS OF SEPTEMBER 30, 1996
------------------------------
GAS, MMCF LIQUID, BARRELS
------------- ---------------
<S> <C> <C>
Developed and Undeveloped....................................... 2,146 27,305
Developed....................................................... 2,146 27,305
</TABLE>
All hydrocarbon liquid reserves are expressed in standard 42 gallon barrels.
All gas volumes are sales gas expressed in MMCF at the pressure and temperature
bases of the area where the gas reserves are located.
Proved reserves of crude oil, concentrate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from known
reservoirs under existing conditions. Reservoirs are considered proved if
economic producibility is supported by actual production or formation tests. In
certain instances, proved reserves are assigned on the basis of a combination of
core analysis and electrical and other type logs which indicate the reservoirs
are analogous to reservoirs in the same field which are producing or have
demonstrated the ability to produce on a formation test. The area of a reservoir
considered proved includes (1) that portion delineated by drilling and defined
by fluid contacts, if any, and (2) the adjoining portions not yet drilled that
can be reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir. Proved reserves are estimates of hydrocarbons to be
recovered from a given date forward. They may be revised as hydrocarbons are
produced and additional data become available. Proved natural gas reserves are
comprised of non-associated, associated, and dissolved gas. An appropriate
reduction in gas reserves has been made for the expected removal of natural gas
liquids, for lease and plant fuel, and the exclusion of non-hydrocarbon gases if
they occur in significant quantities and are removed prior to sale. Reserves
that can be produced economically through the application of improved recovery
techniques are included in the proved classification when these qualifications
are met: (1) successful testing by a pilot project or the operation of an
installed program in the reservoir provides support for the engineering analysis
on which the project or program was based, and
A-1
<PAGE>
(2) it is reasonably certain the project will proceed. Improved recovery
includes all methods for supplementing natural reservoir forces and energy, or
otherwise increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.
Estimates of proved reserves do not include crude oil, natural gas, or natural
gas liquids being held in underground storage. Depending on the status of
development, these proved reserves are further subdivided into:
(i) "developed reserves" which are those proved reserves reasonably
expected to be recovered through existing wells with existing equipment and
operating methods, including (a) "developed producing reserves" which are
those proved developed reserves reasonably expected to be produced from
existing completion intervals now open for production in existing wells, and
(b) "developed non-producing reserves" which are those proved developed
reserves which exist behind the casing of existing wells which are
reasonably expected to be produced through these wells in the predictable
future where the cost of making such hydrocarbons available for production
should be relatively small compared to the cost of a new well; and
(ii) "undeveloped reserves" which are those proved reserves reasonably
expected to be recovered from new wells on undrilled acreage, from existing
wells where a relatively large expenditure is required, and from acreage for
which an application of fluid injection or other improved recovery technique
is contemplated where the technique has been proved effective by actual
tests in the area in the same reservoir. Reserves from undrilled acreage are
limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units are included only where it can be demonstrated with
reasonable certaintity that there us continuity of production from the
existing productive formation.
The Company has interests in certain tracts which have substantial
additional hydrocarbon quantities which cannot be classified as proved and
consequently are not included herein. The Company has active exploratory and
development drilling programs which may result in the reclassification of
significant additional volumes to the proved category.
In accordance with the requirements of FASB 69, our estimates of future cash
inflows, future costs and future net cash inflows before income tax as of
September 30, 1996 from this report are presented as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
<S> <C>
Future Cash Inflows.................................................. $ 4,239,599
Future Costs
Production......................................................... $ 549,092
Development........................................................ 183,571
-----------
Future Net Cash Inflows Before Income Tax............................ $ 3,506,936
Present Value at 10% Before Income Tax............................... $ 2,723,338
</TABLE>
The future cash inflows are gross revenues before any deductions. The
production costs were based on current data and include production taxes, ad
valorem taxes and certain other items such as transportation costs in addition
to the operating costs directly applicable to the individual leases or wells.
The development costs were based on current data and include dismantlement and
abandonment costs net of salvage for properties where such costs are relatively
significant.
The Company furnished us with gas prices in effect at September 30, 1996 and
with its forecasts of future gas prices which take into account SEC guidelines,
current market prices, and contract prices. In accordance with SEC guidelines,
the future gas prices used in this report make no alllowances for future gas
price increases which may occur as a result of inflation nor do they account for
seasonal variations in
A-2
<PAGE>
gas prices which may occur future yearly average gas prices to be somewhat lower
than September 30, 1996 gas prices.
The Company furnished us with liquid prices in effect at September 30, 1996
and these prices were held constant to depletion of the properties. In
accordance with SEC guidelines, changes in liquid prices subsequent to September
30, 1996 were not considered in this report.
Operating costs for the leases and wells in this report were based on the
operating expense reports of the Company and include only these costs directly
applicable to the leases or wells. When applicable, the operating costs include
a portion of general and administrative costs allocated directly to the leases
and wells under terms of operating agreements. Development costs were furnished
to us by the Company and are based on authorizations for expenditure for the
proposed work or actual costs for similar projects. The current operating and
development costs were held constant throughout the life of the properties. The
estimated net cost of abandonment after salvage was included for properties
where abandonment costs net of salvage are significant. The estimates of the net
abandonment costs furnished by the Company were accepted without independent
verification. No deduction was made for indirect costs such as general
administration and overhead expenses, loan repayments, interest expenses and
exploration and development prepayments. No attempt was made to quantify or
otherwise account for any accumulated gas production imbalances that may exist.
The estimates of reserves presented herein are based upon a detailed study
of the properties in which the Company owns an interest; however, we have not
made any field examination of the properties. No consideration was given in this
report to potential environmental liabilities which may exist nor were any costs
included for potential liability to restore and clean up damages, if any, caused
by past operating practices. The Company has informed us that they have
furnished us all of the accounts, records, geological and engineering data and
reports, and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by the Company were accepted
without independent verification. The estimates presented in this report are
based on data available through September 1996.
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease as a result of future operations. The future
production rates from wells now on production may be more or less than estimated
because of changes in market demand or allowables set by regulatory bodies.
While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such
production may also increase or decrease from existing levels, such changes
were, in accordance with the rules adopted by the SEC, omitted from
consideration in making this evaluation.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation is
contingent on our estimates of reserves and future cash inflows for the subject
properties.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ DON P. GRIFFIN
------------------------------------------
Don P. Griffin, P.E.
VICE PRESIDENT
A-3
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Dilution.................................................................. 18
Capitalization............................................................ 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 31
Management................................................................ 46
Certain Transactions...................................................... 52
Principal and Selling Stockholders........................................ 54
Description of Capital Stock.............................................. 55
Shares Eligible for Future Sale........................................... 59
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Glossary of Certain Industry Terms........................................ 64
Index to Financial Statements............................................. F-1
Summary Report of Ryder Scott Company..................................... A-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,949,862 SHARES
3DX TECHNOLOGIES INC.
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PETRIE PARKMAN & CO.
DATED , 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All the amounts shown are estimated
except the Securities and Exchange Commission (the "Commission") registration
fee, the National Association of Securities Dealers, Inc. (the "NASD") filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 15,420
NASD filing fee................................................... 4,813
Nasdaq National Market listing application fee.................... 35,013
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 205,000
Blue Sky fees and expenses (including legal fees)................. 12,000
Transfer agent and registrar fees and expenses.................... 3,000
Miscellaneous..................................................... 99,754
---------
Total......................................................... $ 775,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify any person under such Section in connection
with a proceeding by or in the right of the corporation to procure judgment in
its favor, as provided in the preceding sentence, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action, except that no indemnification shall be
made in respect thereof unless, and then only to the extent that, a court of
competent jurisdiction shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper. A Delaware corporation must indemnify any person who was successful
on the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter in any proceeding, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation.
II-1
<PAGE>
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. Article Ninth of the Company's
Certificate of Incorporation eliminates the liability of directors to the
fullest extent permitted by Section 102(b)(7) of the DGCL. The DGCL permits the
purchase of insurance on behalf of directors and officers against any liability
asserted against directors and officers and incurred by such persons in such
capacity, or arising out of their status as such, whether or not the corporation
would have the power to indemnify directors and officers against such liability.
Prior to consummation of the Offering, the Company intends to acquire officers'
and directors' liability insurance of $10 million for members of its Board of
Directors and executive officers. In addition, the Company has entered into
agreements to indemnify its directors and officers.
At present, there is no pending litigation or other proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
Reference is made to the form of Underwriting Agreement, filed as Exhibit
1.1 to this Registration Statement which provides for indemnification of the
directors and officers signing this Registration Statement and certain
controlling persons of the Registrant against certain liabilities, including
those arising under the Securities Act, in certain instances by the
Underwriters.
Article Seventh of the Company's Restated Certificate of Incorporation and
Section 5 of the Company's Bylaws provide for indemnification of directors and
officers to the fullest extent permitted by Section 145 of the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information as to all securities issued by the
Registrant during the past three years which were not registered under the
Securities Act.
In January 1993 the Company sold 256,039 shares of restricted Common Stock
to each of Messrs. Ennis and Nester and Dr. Duncan at a price per share of
$0.06. As of November 30, 1996, 250,705 of the 256,039 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan have vested and the remaining shares
will vest in full on December 31, 1996.
Also, in January 1993, the Company sold 100,000 shares of Series A Preferred
Stock to Landmark Graphics Corp., an accredited investor. In November 1993, the
Company issued 329,003 shares of Common Stock in exchange for all of the issued
and outstanding shares of Series A Preferred Stock.
In November 1993, the Company issued 86,391 shares of restricted Common
Stock to each of Messrs. Ennis and Nester and Dr. Duncan at a price per share of
$0.19. As of November 30, 1996, 84,592 of the 86,391 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan have vested and the remaining shares
will vest in full on December 31, 1996.
In November 1993 and October 1994, the Company sold an aggregate of 54,000
Units, each Unit consisting of one share of Series B Preferred Stock and 30.215
shares of Common Stock, to various accredited investors. The purchase price for
each Unit was $100, of which $94.1558 was paid for each share of Series B
Preferred Stock and $0.19 was paid for each share of Common Stock. The aggregate
purchase price for the Units was $5.4 million.
II-2
<PAGE>
Between July 1995 and September 1995, the Company sold an aggregate of
2,662,241 shares of Series C Preferred Stock to various accredited investors.
The purchase price for each share of Series C Preferred Stock was $3.00, with
aggregate proceeds to the Company of $7,986,723.
On October 6, 1995, the Company issued to the holders of Series C Preferred
Stock, warrants to purchase an aggregate of 266,224 shares of Series C Preferred
Stock. The exercise price of each warrant is $3.00 per share, subject to
adjustment and cashless exercise based on a predetermined formula. The Warrants
expire on the earlier to occur of (i) five years from the date of issuance or
(ii) the effective date of the initial public offering of the Company's
securities.
No brokers or underwriters were involved in any of the above issuances
and/or sales. All certificates for the shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Common Stock so issued
bear restrictive legends. In connection with each of the offerings and sales
described above, the Company relied on Section 4(2) for an exemption from the
registration requirements of the Securities Act and each of the respective
purchasers represented that they were purchasing such securities for investment
only and without a view towards resale.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement between the Company and the Underwriters.
3.1(i)(a) Third Restated Certificate of Incorporation of the Company.**
3.1(i)(b) Fourth Restated Certificate of Incorporation of the Company.**
3.1(i)(c) Fifth Restated Certificate of Incorporation of the Company.
3.1(i)(d) Sixth Restated Certificate of Incorporation of the Company.
3.1(ii)(a) Amended and Restated Bylaws of the Company.**
3.1(ii)(b) Second Amended and Restated Bylaws of the Company.
4.1 Form of Specimen Stock Certificate.**
5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such firm)
as to the validity of the securities being offered.**
10.1 Technical Services Agreement between Landmark Graphics Corporation and
Novera Energy Inc. dated January 1993.**
10.2 Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C.
Nester, Peter M. Duncan and the Investors named therein dated November
9, 1993.**
10.3 Series C Preferred Stock Purchase Agreement among the Company, C. Eugene
Ennis, Douglas C. Nester, Peter M. Duncan and the Investors named
therein dated July 26, 1995.**
10.4 Second Amended and Restated Co-Sale Agreement among the Company, C. Eugene
Ennis, Douglas C. Nester, Peter M. Duncan and the Investors named
therein dated July 26, 1995.**
10.5 Stock Purchase and Restriction Agreement between the Company and C. Eugene
Ennis dated November 9, 1993.**
10.6 Stock Purchase and Restriction Agreement between the Company and Peter M.
Duncan dated November 9, 1993.**
10.7 Stock Purchase and Restriction Agreement between the Company and Douglas
C. Nester dated November 9, 1993.**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<S> <C>
10.8 Lease Contract dated January 22, 1995 between the Company and The Penn
Mutual Life Insurance Company and Letter dated March 1, 1995 from
Trammell Crow Houston, Inc.**
10.9 1994 Stock Option Plan.+**
10.10 1996 Incentive Compensation Program.+**
11.1 Computation of Earnings per Share.
23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).**
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ryder Scott Company.
24.1 Power of Attorney.**
27.1 Financial Data Schedule (December 31, 1995).**
27.2 Financial Data Schedule (September 30, 1996).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to provisions described in Item 14 above, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Company hereby undertakes: (1) that for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Company pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective;
(2) that for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(3) The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 16th day of December, 1996.
3DX TECHNOLOGIES INC.
By: /s/ C. Eugene Ennis
------------------------------------
C. Eugene Ennis
President and Chief Executive
Officer
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed on the 16th day of December,
1996, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
- ------------------------------------------------------ ------------------------------------------------------------------
<S> <C>
/s/ C. Eugene Ennis
- ------------------------------------------------ President, Chief Executive Officer; Director (Principal Executive
C. Eugene Ennis Officer and Principal Accounting Officer)
*
- ------------------------------------------------ Vice President, Technology
Peter M. Duncan
*
- ------------------------------------------------ Vice President, Exploration
Douglas C. Nester
*
- ------------------------------------------------ Vice President, Joint Ventures
Robert J. Bacon, Jr.
/s/ Joseph Schuchardt, III
- ------------------------------------------------ Vice President, Business Development
Joseph Schuchardt, III
*
- ------------------------------------------------ Director
Jon W. Bayless
*
- ------------------------------------------------ Director
Robert H. Chaney
*
- ------------------------------------------------ Director
Charles E. Edwards
*
- ------------------------------------------------ Director
Douglas C. Williamson
*By /s/ C. Eugene Ennis
-------------------------------------------
C. Eugene Ennis
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement between the Company and the Underwriters.
3.1(i)(a) Third Restated Certificate of Incorporation of the Company.**
3.1(i)(b) Fourth Restated Certificate of Incorporation of the Company.**
3.1(i)(c) Fifth Restated Certificate of Incorporation of the Company.
3.1(i)(d) Sixth Restated Certificate of Incorporation of the Company.
3.1(ii)(a) Amended and Restated Bylaws of the Company.**
3.1(ii)(b) Second Amended and Restated Bylaws of the Company.
4.1 Form of Specimen Stock Certificate.**
5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such firm) as to the
validity of the securities being offered.**
10.1 Technical Services Agreement between Landmark Graphics Corporation and Novera Energy Inc.
dated January 1993.**
10.2 Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C. Nester, Peter M.
Duncan and the Investors named therein dated November 9, 1993.**
10.3 Series C Preferred Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C.
Nester, Peter M. Duncan and the Investors named therein dated July 26, 1995.**
10.4 Second Amended and Restated Co-Sale Agreement among the Company, C. Eugene Ennis, Douglas
C. Nester, Peter M. Duncan and the Investors named therein dated July 26, 1995.**
10.5 Stock Purchase and Restriction Agreement between the Company and C. Eugene Ennis dated
November 9, 1993.**
10.6 Stock Purchase and Restriction Agreement between the Company and Peter M. Duncan dated
November 9, 1993.**
10.7 Stock Purchase and Restriction Agreement between the Company and Douglas C. Nester dated
November 9, 1993.**
10.8 Lease Contract dated January 22, 1995 between the Company and The Penn Mutual Life
Insurance Company and Letter dated March 1, 1995 from Trammell Crow Houston, Inc.**
10.9 1994 Stock Option Plan.+**
10.10 1996 Incentive Compensation Program.+**
11.1 Computation of Earnings per Share.
23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).**
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ryder Scott Company.
24.1 Power of Attorney.**
27.1 Financial Data Schedule (December 31, 1995).**
27.2 Financial Data Schedule (September 30, 1996).**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Management contract or compensatory plan or arrangement.
<PAGE>
DRAFT OF 12/12
3DX TECHNOLOGIES INC.
Common Stock
UNDERWRITING AGREEMENT
December , 1996
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS INCORPORATED
PETRIE PARKMAN & CO.
As Representatives of the several Underwriters
c/o Howard, Weil, Labouisse, Freidrichs Incorporated
Texaco Heritage Plaza
1111 Bagby, Suite 2250
Houston, Texas 77002
Ladies and Gentlemen:
Each of 3DX Technologies Inc., a Delaware corporation (the "Company") and
Landmark Graphics Corporation, a Delaware corporation (the "Selling
Stockholder") hereby confirms its agreement with the several underwriters named
in Schedule 1 hereto (the "Underwriters"), for whom you have been duly
authorized to act as representatives (in such capacities, the
"Representatives"), as set forth below. If you are the only Underwriters, all
references herein to the Representatives shall be deemed to be to the
Underwriters.
1. SECURITIES. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell, and the Selling Stockholder proposes to
sell, to the several Underwriters 2,500,000 shares and 449,862 shares,
respectively (such shares in the aggregate number of 2,949,862 shares will be
collectively referred to herein as "Firm Securities") of the Company's Common
Stock, par value $.01 per share ("Common Stock"). The Company also proposes to
issue and sell to the several Underwriters not more than 442,480 additional
shares of Common Stock if requested by the Representatives as provided in
Section 3 of this Agreement. Any and all shares of Common Stock to be purchased
by the Underwriters pursuant to such option are referred to herein as the
"Option Securities", and the Firm Securities and any Option Securities are
collectively referred to herein as the "Securities".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) A registration statement on Form S-1 (File No. 333-14473)
with respect to the Securities, including a prospectus subject to
completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the
-1-
<PAGE>
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the
Securities Act, either (A) if the Company relies on Rule 434 under the
Securities Act, a Term Sheet (as hereinafter defined) relating to the
Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as
is required or permitted by Rules 434, 430A and 424(b) under the
Securities Act or (B) if the Company does not rely on Rule 434 under the
Securities Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall
have been filed, in such registration statement), with such changes or
insertions as are required by Rule 430A under the Securities Act or
permitted by Rule 424(b) under the Securities Act, and in the case of
either clause (i)(A) or (i)(B) of this sentence as have been provided to
and approved by the Representatives; PROVIDED, HOWEVER, that such
approval by the Representatives is not unreasonably withheld and that
such approval shall not be required if the filing of such documents shall
be required by law or (ii) if such registration statement, as it may have
been amended, has not been declared by the Commission to be effective
under the Securities Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution
of this Agreement; PROVIDED, HOWEVER, that such approval by the
Representatives is not unreasonably withheld and that such approval shall
not be required if the filing of such documents shall be required by law.
The Company may also file a related registration statement with the
Commission pursuant to Rule 462(b) under the Securities Act for the
purpose of registering certain additional Securities, which registration
shall be effective upon filing with the Commission. As used in this
Agreement, the term "Original Registration Statement" means the
registration statement initially filed relating to the Securities, as
amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information
omitted therefrom pursuant to Rule 430A under the Securities Act and
included in the Prospectus (as hereinafter defined); the term "Rule
462(b) Registration Statement" means any registration statement filed
with the Commission pursuant to Rule 462(b) under the Securities Act
(including the Registration Statement and any Preliminary Prospectus or
Prospectus incorporated therein at the time such Registration Statement
becomes effective); the term "Registration Statement" includes both the
Original Registration Statement and any Rule 462(b) Registration
Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with any registration statement or any
amendment thereto (including the prospectus subject to completion, if
any, included in the Registration Statement or any amendment thereto at
the time it was or is declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the
Securities Act, the Term Sheet relating to the Securities that is
first filed pursuant to Rule 424(b)(7) under the Securities Act,
together with the Preliminary Prospectus identified therein that
such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the
Securities Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Securities Act; or
(C) if the Company does not rely on Rule 434 under the
Securities Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Securities Act, the prospectus
included in the Registration Statement;
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<PAGE>
and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Securities Act. Any reference herein
to the "date" of a Prospectus that includes a Term Sheet shall mean the
date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission it (i) contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Securities Act and the
rules and regulations of the Commission thereunder and (ii) did not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Securities
Act and the published rules and regulations of the Commission thereunder
and (ii) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any Term Sheet that is a
part thereof or any amendment or supplement to the Prospectus is filed
with the Commission pursuant to Rule 424(b) (or, if the Prospectus or
part thereof or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective) and on the Firm Closing Date and any Option Closing
Date (both as hereinafter defined), the Prospectus, as amended or
supplemented at any such time, (i) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the
Securities Act and the published rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing provisions of this
paragraph (b) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for
use therein.
(c) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared effective (i)
the Company has filed a Rule 462(b) Registration Statement in compliance
with and that is effective upon filing pursuant to Rule 462(b) and has
received confirmation of its receipt and (ii) the Company has given
irrevocable instructions for transmission of the applicable filing fee in
connection with the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 promulgated under the Securities Act or the
Commission has received payment of such filing fee.
(d) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of Delaware and is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have
a material adverse effect on the Company.
(e) The Company has no subsidiaries.
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<PAGE>
(f) The Company has full corporate power to own or lease its
properties and conduct its businesses as described in the Registration
Statement and the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by it.
(g) On the Firm Closing Date, the Company will have an
authorized, issued and outstanding capitalization as set forth in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus. All of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid
and nonassessable. The Firm Securities and the Option Securities have
been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. Except as
described in the Prospectus, no holders of outstanding shares of capital
stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Securities, and no holder of
securities of the Company has any right which has not been fully
exercised or waived to require the Company to register the offer or sale
of any securities owned by such holder under the Securities Act in the
public offering contemplated by this agreement.
(h) On the Firm Closing Date, the capital stock of the Company
will conform to the description thereof contained in the Prospectus or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus.
(i) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there are no outstanding (A) securities or obligations of the Company
convertible into or exchangeable for any capital stock of the Company,
(B) warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue any
shares of capital stock, any such convertible or exchangeable securities
or obligations, or any such warrants, rights or options.
(j) The financial statements and schedules of the Company
included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present the financial position of the Company and the results of
operations and changes in financial condition as of the dates and periods
therein specified. Such financial statements and schedules have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
noted therein). The selected financial data set forth under the caption
"Selected Financial Data" in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) fairly present, on
the basis stated in the Prospectus (or such Preliminary Prospectus), the
information included therein.
(k) Arthur Andersen LLP, who have certified certain financial
statements of the Company and delivered their report with respect to the
audited financial statements and schedules included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), are independent public
accountants as required by the Securities Act and the applicable
published rules and regulations thereunder.
(l) Ryder Scott Company ("Ryder Scott") are independent
petroleum engineers with respect to the Company.
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<PAGE>
(m) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(n) No legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject
that are required to be described in the Registration Statement or the
Prospectus and are not described therein (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and no such
proceedings have been threatened against the Company or with respect to
any of its properties; and no contract or other document is required to
be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement that is not described
therein (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or filed as required.
(o) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, such as may be required under state securities or blue sky
laws and, if the registration statement (as amended) filed with respect
to the Securities is not effective under the Securities Act as of the
time of execution hereof, such as may be required (and shall be obtained
as provided in this Agreement) under the Securities Act, and if
registration of the class of securities offered hereby is not effective
under the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") as of the time of execution hereof, such as may be required under
the Exchange Act, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, (x) any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company is a party or by which the
Company or any of its properties are bound, or (y) the charter documents
or by-laws of the Company, or (z) any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or
any arbitrator applicable to the Company other than with respect to (x),
such conflicts or breaches which would not, individually or in the
aggregate, have a material adverse effect on the Company.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus,
the Company has not sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding and there has not been any
material adverse change, or any development reasonably expected to
involve a material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth, or results of the
operations of the Company, except in each case as described in or
contemplated by the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(q) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other
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<PAGE>
securities of the Company; PROVIDED, HOWEVER, that the sale by the
Company and the Selling Stockholder to the Underwriters of the Securities
shall not be deemed to violate the terms of this representation, warranty
and agreement .
(r) The Company has good title to the interests in oil and gas
properties it owns, good and marketable title in fee simple to all other
real property it owns and good and marketable title to all personal
property it owns, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or any
Preliminary Prospectus or such as do not materially adversely affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and any real
property and buildings held under lease by the Company are held under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company.
(s) The partnership agreements, participation agreements, joint
development agreements, joint operating agreements, farm-out agreements
and other agreements described in the Prospectus or any Preliminary
Prospectus relating to the Company's rights with respect to the
ownership, lease or operation of oil and gas properties, the acquisition
of interests in oil and gas properties or the exploration for,
development of or production of oil and gas reserves thereon constitute
valid and binding agreements of the Company and, to the best knowledge of
the Company, of the other parties thereto, enforceable in accordance with
their terms, except as enforceability may be subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(t) The information underlying the estimates of the hydrocarbon
reserves of the Company, which was supplied by the Company to Ryder
Scott for purposes of auditing the hydrocarbon reserve reports and
estimates of the Company, including, without limitation, production,
costs of operation and development, current prices for production,
agreements relating to current and future operations and sales of
production, was true and correct in all material respects on the dates
such estimates were made and such information was supplied and was
prepared in accordance with customary industry practices; other than
normal production of the hydrocarbon reserves and intervening spot market
product price fluctuations described in the Prospectus or any Preliminary
Prospectus, the Company is not aware of any facts or circumstances that
would result in a materially adverse change in the hydrocarbon reserves,
or the present value of future net cash flows therefrom, as described in
the Prospectus or any Preliminary Prospectus; estimates of such
hydrocarbon reserves and present values as described in the Prospectus or
any Preliminary Prospectus comply in all material respects to the
applicable requirements of Regulation S-X and Industry Guide 2 under the
Securities Act.
(u) Except as described in the Prospectus or any Preliminary
Prospectus, as of the date hereof, (i) all royalties, rentals, deposits
and other amounts due on the oil and gas properties of the Company have
been properly and timely paid, and no proceeds from the sale or
production attributable to the oil and gas properties of the Company are
currently being held in suspense by any purchaser thereof, except where
such amounts due could not, singly or in the aggregate, have a material
adverse effect on the Company's financial condition or results of
operations and (ii) there are no claims under take-or-pay contracts
pursuant to which natural gas purchasers have any make-up rights
affecting the interest of the Company in its oil and gas properties,
except where such claims could not, singly or in the aggregate, have a
material adverse effect on the Company's financial condition or results
of operations.
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<PAGE>
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
(1) the Company has not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in
the ordinary course of business; (2) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (3) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company, except in each case as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which they are engaged.
(x) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business, and the Company has not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(y) The Company has filed all federal, state and local tax
returns that are required to be filed or has requested extensions thereof
required to be filed through the date hereof (except in any case in which
the failure so to file would not have a material adverse effect on the
Company) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as described
in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(z) The Company is not in violation of any federal or state law
or regulation relating to occupational safety and health or to the
storage, handling or transportation of hazardous or toxic materials and
the Company has received all permits, licenses or other approvals
required of them under applicable federal and state occupational safety
and health and environmental laws and regulations to conduct its
business, and the Company is in compliance with all terms and conditions
of any such permit, license or approval, except any such violation of law
or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the
aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(aa) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(bb) The Company does not own any shares of stock or any other
equity securities of any corporation or have any equity interest in any
firm, partnership, association or other entity,
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<PAGE>
except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(cc) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company is a party or by which the Company or any
of its properties is bound or which may affect the property, business or
operations of the Company, other than such defaults which would not,
individually or in the aggregate, have a material adverse effect on the
Company.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to, and agrees with, each of the
several Underwriters that:
(a) The Selling Stockholder has full corporate power to enter into
this Agreement and to sell, assign, transfer and deliver to the Underwriters the
Securities to be sold by the Selling Stockholder hereunder in accordance with
the terms of this Agreement; the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Selling
Stockholder; and this Agreement has been duly executed and delivered by the
Selling Stockholder.
(b) The Selling Stockholder has duly executed and delivered a power of
attorney and custody agreement (with respect to such Selling Stockholder, the
"Power-of-Attorney" and the "Custody Agreement", respectively), each in the form
heretofore delivered to the Representatives, appointing C. Eugene Ennis or Jon
W. Bayless, acting individually as such Selling Stockholder's attorney-in-fact
(the "Attorney-in-Fact") with authority to execute, deliver and perform this
Agreement on behalf of such Selling Stockholder and appointing Continental Stock
Transfer & Trust Co. as custodian thereunder (the "Custodian"). Certificates in
negotiable form, endorsed in blank or accompanied by blank stock powers duly
executed, with signatures appropriately guaranteed, representing the Securities
to be sold by such Selling Stockholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery pursuant
to this Agreement. Such Selling Stockholder has full corporate power to enter
into the Custody Agreement and the Power-of-Attorney, the execution and delivery
of which have been duly authorized by all necessary corporate action of such
Selling Stockholder; the Custody Agreement and the Power-of-Attorney have been
duly executed and delivered by such Selling Stockholder and, assuming due
authorization, execution and delivery by the Custodian, are the legal, valid,
binding and enforceable instruments of such Selling Stockholder. Such Selling
Stockholder agrees that each of the Securities represented by the certificates
on deposit with the Custodian is subject to the interests of the Underwriters
hereunder, that the arrangements made for such custody, the appointment of the
Attorney-in-Fact and the right, power and authority of the Attorney-in-Fact to
execute and deliver this Agreement, to agree on the price at which the
Securities (including such Selling Stockholder's Securities) are to be sold to
the Underwriters, and to carry out the terms of this Agreement, are to that
extent irrevocable and that the obligations of such Selling Stockholder
hereunder shall not be terminated, except as provided in this Agreement or the
Custody Agreement, by any act of such Selling Stockholder, by operation of law
or otherwise, by its liquidation or dissolution or by the occurrence of any
other event. If the Selling Stockholder shall liquidate or dissolve, or if any
other event should occur, before the delivery of such Securities hereunder, the
certificates for such Securities deposited with the Custodian shall be delivered
by the Custodian in accordance with the respective terms and conditions of this
Agreement as if such termination, liquidation or dissolution or other event had
not occurred, regardless of whether or not the Custodian or the Attorney-in-Fact
shall have received notice thereof.
(c) The Selling Stockholder has good and marketable title to the
Securities to be sold by it hereunder and upon sale and delivery of, and payment
for, such Securities, as provided herein, the
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<PAGE>
Selling Stockholder will convey good and marketable title to such Securities,
free and clear of any interests, liens, encumbrances, equities, claims or other
defects.
(d) The Selling Stockholder has not, directly or indirectly, (i) taken
any action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholder under this Agreement).
(e) The Selling Stockholder has reviewed the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and to the best knowledge of the Selling Stockholder,
the information regarding the Selling Stockholder set forth therein under the
captions "Principal and Selling Stockholders" is complete and accurate.
(f) The sale of the Securities to the Underwriters by the Selling
Stockholder pursuant to this Agreement, the compliance by the Selling
Stockholder with the other provisions of this Agreement, the Custody Agreement
and the consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as have been obtained, such as
may be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act and the Exchange
Act or (ii) conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder or any of the Selling
Stockholder's properties are bound, or the charter documents or by-laws of the
Selling Stockholder or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to the Selling Stockholder.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell, and the Selling Stockholder agrees to sell, to each of the
Underwriters, and each of the Underwriters, severally and not jointly, agrees to
purchase from the Company and the Selling Stockholder, at a purchase price of
$________ per share, the number of Firm Securities set forth opposite the name
of such Underwriter in Schedule 1 hereto, plus any additional number of
Securities which such Underwriter may be obligated to purchase pursuant to
Section 11 of this Agreement. One or more certificates in definitive form for
the Firm Securities that the several Underwriters have agreed to purchase
hereunder, and in such denomination or denominations and registered in such name
or names as the Representatives request upon notice to the Company at least 48
hours prior to the Firm Closing Date, shall be delivered by or on behalf of the
Company and the Selling Stockholder to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in same-day funds
(the "Wired Funds") to accounts designated by the Company and the Selling
Stockholder. Such delivery of and payment for the Firm Securities shall be made
at the offices of Andrews & Kurth L.L.P., 4200 Texas Commerce Tower, Houston,
Texas 77002 at 8:30 A.M., Central Standard Time, on December ___, 1996, or at
such other place, time or date as the Representatives and the Company may agree
upon or as the Representatives may determine pursuant to Section 9 hereof, such
time and date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company will make such certificate or
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certificates for the Firm Securities available for checking and packaging by the
Representatives at the offices in New York, New York of the Company's transfer
agent or registrar or of Howard, Weil, Labouisse, Friedrichs Incorporated
("Howard Weil") at least 24 hours prior to the Firm Closing Date. The Company
and the Selling Stockholder shall not be obligated to deliver any Firm
Securities on the Firm Closing Date except upon payment for such Firm Securities
to be purchased on such date as provided herein.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities (but not more than three times) within thirty days after
the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday
or a holiday, on the next business day thereafter when the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") is open for trading). The
Underwriters shall not be under any obligation to purchase any of the Option
Securities prior to the exercise of such option. The Representatives may
exercise the option granted hereby in whole or in part (but not more than three
times) by giving notice in writing or by telephone (confirmed in writing) to the
Company setting forth the aggregate number of Option Securities as to which the
several Underwriters are then exercising the option and the date and time for
delivery of and payment for such Option Securities. Any such date of delivery
shall be determined by the Representatives but shall not be earlier than two
business days or later than five business days after such exercise of the option
and, in any event, shall not be earlier than the Firm Closing Date. The time
and date set forth in such notice, or such other time on such other date as the
Representatives and Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (a) of this Section 3, except that reference therein to
the Firm Securities and the Firm Closing Date shall be deemed, for purposes of
this paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively. The Company shall not be obligated to deliver any Option
Securities on the Option Closing Date except upon payment for such Option
Securities to be purchased on such date as provided herein.
(c) The Company and the Selling Stockholder hereby acknowledge that
the wire transfer by or on behalf of the Underwriters of the purchase price for
any Securities does not constitute closing of a purchase and sale of the
Securities. Only execution and delivery of a receipt for Securities by the
Underwriters indicates completion of the closing of a purchase of the Securities
from the Company and the Selling Stockholder. Furthermore, in the event that
the Underwriters wire funds to the Company and the Selling Stockholder prior to
the completion of the closing of a purchase of Securities, the Company and the
Selling Stockholder hereby acknowledge that until the Underwriters execute and
deliver a receipt for the Securities, by facsimile or otherwise, the Company and
the Selling Stockholder will not be entitled to the wired funds and shall return
the wired funds to the Underwriters as soon as practicable (by wire transfer of
same-day funds) upon demand. In the event that the closing of a purchase of
Securities is not
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completed and the wire funds are not returned by the Company and the Selling
Stockholder to the Underwriters on the same day the wired funds were received by
the Company and the Selling Stockholder, the Company and the Selling Stockholder
agree to pay to the Underwriters in respect of each day the wire funds are not
returned by it, in same-day funds, interest on the amount of such wire funds in
an amount representing the Underwriters' cost of financing as reasonably
determined by Howard Weil.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.
5. OFFERING BY THE UNDERWRITERS. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters and the Selling Stockholder that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period
required by Rules 434 and 424(b) under the Securities Act. During any
time when a prospectus relating to the Securities is required to be
delivered under the Securities Act, the Company (i) will comply with all
requirements imposed upon it by the Securities Act and the rules and
regulations of the Commission thereunder to the extent necessary to
permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and of the Prospectus, as then
amended or supplemented, and (ii) will not file with the Commission the
prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such
Prospectus, Term Sheet or any amendment to the Registration Statement or
any Rule 462(b) Registration Statement of which the Representatives
previously have been advised and furnished with a copy for a reasonable
period of time prior to the proposed filing and as to which filing the
Representatives shall not have given their consent, which consent shall
not be unreasonably withheld and that such consent shall not be required
if the filing of such documents shall be required by law. The Company
will prepare and file with the Commission, in accordance with the
published rules and regulations of the Commission, promptly upon request
by the Representatives or counsel for the Underwriters, any amendments to
the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of
the Securities by the several Underwriters, and will use its best efforts
to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will
advise the Representatives, promptly after receiving notice thereof, of
the time when the Registration Statement or any amendment thereto has
been filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed and will provide evidence satisfactory
to the Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Original Registration Statement or any Rule 462(b) Registration
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Statement or any amendment thereto or any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, (ii) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (iii) the
initiation, threatening or contemplation of any proceeding for any such
purpose or (iv) any request made by the Commission for amending the
Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) To use its reasonable best efforts in cooperation with the
Representatives to qualify the Securities for offering and sale under the
securities or blue sky laws of such jurisdictions as the Representatives
may reasonably request and will continue such qualifications in effect
for as long as may be necessary to complete the distribution of the
Securities, PROVIDED, HOWEVER, that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date
when a prospectus relating to the Securities is required to be delivered
under the Securities Act or (ii) the Option Closing Date, any event
occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Securities Act or
the published rules or regulations of the Commission thereunder, the
Company will promptly notify the Representatives thereof and, subject to
Section 5(a) hereof, will prepare and file with the Commission, at the
Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of
the registration statement originally filed with respect to the
Securities and each amendment thereto (in each case including exhibits
thereto) or any Rule 462(b) Registration Statement, (ii) to each other
Underwriter, a conformed copy of such registration statement or any Rule
462(b) Registration Statement and each amendment thereto (in each case
without exhibits thereto) and (iii) so long as a prospectus relating to
the Securities is required to be delivered under the Securities Act, as
many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably
request; without limiting the application of clause (iii) of this
sentence, the Company, not later than (A) 9:00 AM, Central Standard Time,
on the business day following the date of determination of the public
offering price, if such determination occurred at or prior to 10:00 A.M.,
Central Standard Time, on such date or (B) 4:00 PM, Central Standard
Time, on the business day following the date of determination of the
public offering price, if such determination occurred after 10:00 A.M.,
Central Standard Time, on such date, will deliver to the Underwriters,
without charge, as many copies of the Prospectus and any amendment or
supplement thereto as the Representatives may reasonably request for
purposes of confirming orders that are expected to settle on the Firm
Closing Date. The Company will provide or cause to be provided to each
of the Representatives, and to each Underwriter that so requests in
writing, a copy of each report on Form SR filed by the Company as
required by Rule 463 under the Securities Act.
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(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives an earnings
statement of the Company that satisfies the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the
prior written consent of Howard Weil, on behalf of the Underwriters,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer
of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares
of Common Stock for a period of 180 days after the date hereof, except
pursuant to this Agreement and except for issuances of options for the
purchase of shares of Common Stock or issuance of shares of Common Stock
pursuant to employee benefit arrangements and plans existing on the date
hereof or pursuant to the terms of convertible securities of the Company
outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) (A) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Company under this Agreement).
(j) The Company will obtain the Lock-Up Agreements (as
hereinafter defined) described in Section 9(i) hereof prior to the Firm
Closing Date. In addition, the Company will use commercially reasonable
efforts to obtain Lock-Up Agreements prior to the Firm Closing Date from
each person who (i) owns two percent (2%) or more of the outstanding
shares of Common Stock and (ii) is not covered under Section 9(i).
(k) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) and pay the applicable fees in accordance
with Rule 111 promulgated under the Securities Act by the earlier of (i)
10:00 P.M. Eastern time on the date of this Agreement and (ii) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
(l) The Company will use its best efforts to cause the
Securities to be duly included for quotation on the Nasdaq National
Market, subject to official notice of issuance, prior to the Firm
Closing Date. The Company will use its best efforts to ensure that the
Securities remain included for quotation on the Nasdaq National Market
following the Firm Closing Date.
7. COVENANTS OF SELLING STOCKHOLDER.
(a) The Selling Stockholder will not, directly or indirectly, without
the prior written consent of Howard Weil, offer, sell, offer to sell, contract
to sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, pledge, offer of sale, contract of sale, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
legally or beneficially owned by
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<PAGE>
such Selling Stockholder or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the date
hereof.
(b) The Selling Stockholder will not, directly or indirectly, for 180
days from the date of this Agreement (i) take any action designed to cause or
result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or (ii) (a) sell,
bid for, purchase, or pay anyone any compensation for soliciting purchases of,
the Securities or any other securities of the Company convertible into, or
exchangeable or exercisable for, shares of Common Stock (except for the sale of
the Securities by the Selling Stockholder under this Agreement).
(c) The Selling Stockholder agrees to deliver to you prior to or at
the Firm Closing Date (as hereinafter defined) a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
8. EXPENSES. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 13 hereof, including all costs and expenses incident to (i)
the printing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed with
respect to the Securities and any amendment thereto, any Rule 462(b)
Registration Statement, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement and any blue sky memoranda, (ii)
all arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto provided that such filing fees and fees and disbursements of
the Underwriters counsel with respect to the qualification of the Securities
under state securities and blue sky laws shall not exceed an aggregate of
$12,000 if the Securities have been or will be included for quotation on the
Nasdaq National Market, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters), (ix) advertising relating to the offering of the Securities
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters) and (x) all costs and expenses incurred by the
Selling Stockholder with the exception of (A) any fees and disbursements for the
services of any outside counsel retained by the Selling Stockholder in excess of
$10,000 in the aggregate and (B) the Underwriters' discounts and commissions
with respect to the Securities being sold by the Selling Stockholder. In
addition, the Company shall pay directly to counsel to Howard Weil all out-of-
pocket expenses, including but not limited to printing, telecopying, telephone
and computer costs, secretarial overtime, air conditioning overtime and meals
incurred by counsel to the Company while at the offices of counsel to Howard
Weil, which expenses shall be described in reasonably detailed documentation
supporting such reimbursement request. If the sale of the Securities provided
for herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 9 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 13 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder other
than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including counsel fees and disbursements; PROVIDED, HOWEVER, that such legal
fees shall not exceed an aggregate of $75,000 during
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<PAGE>
the 90-day period commencing September 22, 1996 and provided, further, that
Howard Weil shall provide reasonably detailed records supporting such
reimbursement if so requested by the Company) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities. The
Company shall not in any event be liable to any of the Underwriters for the loss
of anticipated profits from the transactions covered by this Agreement.
9. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Stockholder
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's and the Selling Stockholder's officers made pursuant to the
provisions hereof, to the performance by each of the Company and the Selling
Stockholder of its covenants and agreements hereunder and to the following
additional conditions:
(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been declared
effective as of the time of execution hereof, the Original Registration
Statement or such amendment and, if the Company has elected to rely upon
Rule 462(b), the Rule 462(b) Registration Statement shall have been
declared effective not later than the earlier of (i) 11:00 A.M., Central
Standard Time, on the date on which the amendment to the registration
statement originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been
filed with the Commission and (ii) the time confirmations are sent or
given as specified by Rule 462(b)(2), or with respect to the Original
Registration Statement, or such later time and date as shall have been
consented to by the Representatives; if required, the Prospectus or any
Term Sheet that constitutes a part thereof and any amendment or
supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under
the Securities Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued,
and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission; and the Company shall have
complied with any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Kelley Drye & Warren LLP, counsel for the
Company, to the effect that:
(i) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of
Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a material
adverse effect on the Company;
(ii) the Company has the corporate power to own or lease
its properties and conduct its business as described in the
Registration Statement and the Prospectus, and the Company has the
corporate power to enter into this Agreement and to carry out all
the terms and provisions hereof to be carried out by it;
(iii) as of the date of such opinion, the Company has an
authorized, issued and outstanding capitalization as set forth in
the Prospectus; all of the issued shares of
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capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in
compliance with all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities;
the Firm Securities have been duly authorized by all necessary
corporate action of the Company and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement, will
be validly issued, fully paid and nonassessable; no holders of
outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the
Securities; and no holder of securities of the Company has any
right which has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by
such holder under the Securities Act in the public offering
contemplated by this Agreement;
(iv) the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as such
statements purport to summarize certain provisions of the
authorized capital stock of the Company, provide a fair summary of
such provisions; and the statements set forth under the headings
"Business--Regulation" and "Business--Legal Proceedings" in the
Prospectus, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein,
provide a fair summary of such legal matters, documents and
proceedings;
(v) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the
Company and this Agreement has been duly executed and delivered by
the Company;
(vi) (A) no legal or governmental proceedings are
pending to which the Company is a party or to which the property
of the Company is subject that are required to be described in the
Registration Statement or the Prospectus and are not described
therein, and, to the best knowledge of such counsel, no such
proceedings have been threatened against the Company or with
respect to any of its properties which, if determined adversely to
the Company, would have a material adverse effect on the financial
position, stockholders' equity, results of operations, business or
prospects of the Company and (B) no contract or other document is
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(vii) the issuance, offering and sale of the Securities
to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and such
as may be required under state securities or blue sky laws, or (B)
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, (x) any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company is a party
or by which the Company or any of its properties is bound, or (y)
the charter documents or by-laws of the Company, or (z) any
statute or any judgment, decree, order, rule or regulation of any
court or other governmental authority or any arbitrator known to
such counsel and applicable to the Company other than, with
respect to (x) such breaches or violations which would not,
individually or in the aggregate, have a material adverse effect
on the Company;
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<PAGE>
(viii) the Registration Statement is effective under the
Securities Act; any required filing of the Prospectus, or any Term
Sheet that constitutes a part thereof, pursuant to Rules 434 and
424(b) has been made in the manner and within the time period
required by Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment
thereto has been issued, and, to the best knowledge of such
counsel, no proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission;
(ix) the Registration Statement originally filed with
respect to the Securities and each amendment thereto, any Rule
462(b) Registration Statement and the Prospectus (in each case,
other than the financial statements and other financial
information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the applicable requirements of the Securities Act and the
published rules and regulations of the Commission thereunder; and
(x) if the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration
Statement at the time of its effectiveness or an effective post-
effective amendment thereto (including such information that is
permitted to be omitted pursuant to Rule 430A).
Such counsel shall also state that they have no reason to believe
that the Registration Statement (other than the financial statements and
other financial information contained therein as to which such counsel
need not comment), as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus, as of its date or the date of such
opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. In rendering such opinion, such counsel may
state that their opinion and belief are based upon their participation in
the preparation of the Registration Statement and the Prospectus and
review and discussion of the contents thereof but are without independent
check or verification.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Company and public officials and, as to
matters involving the application of laws of any jurisdiction other than
the State of New York or the United States, to the extent satisfactory in
form and scope to counsel for the Underwriters, upon the opinion of local
counsel acceptable to you and your counsel; PROVIDED, HOWEVER, that any
such opinion of local counsel shall also state that the Underwriters are
justified in relying upon such opinion and copies of such opinion shall
be delivered to the Representatives and counsel for the Underwriters.
The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus
except for the statements made under the captions "Description of Capital
Stock", "Business-Regulation", and "Business-Legal Proceedings" insofar
as such statements relate to the Securities and concern legal matters.
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<PAGE>
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at
the date of such opinion.
(c) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Andrews & Kurth L.L.P., 4200 Texas Commerce
Tower, 600 Travis, Houston, Texas 77002, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they may reasonably request
for the purpose of enabling them to pass upon such matters. In rendering
such opinion, such counsel may rely as to all matters of law upon the
opinion of Kelley Drye & Warren L.L.P. referred to in paragraph (b)
above.
(d) The Selling Stockholder shall have furnished to the
Representatives an opinion from Patti Massaro, General Counsel and
Corporate Secretary of the Selling Stockholder, dated the Firm Closing
Date, to the effect that:
(i) The Selling Stockholder has full corporate power to
enter into this Agreement, the Custody Agreement and the Power-of-
Attorney and to sell, transfer and deliver the Securities being
sold by such Selling Stockholder hereunder in the manner provided
in this Agreement and to perform its obligations under the Custody
Agreement; the execution and delivery of this Agreement, the
Custody Agreement and the Power-of-Attorney have been duly
authorized by all necessary corporate action of such Selling
Stockholder; this Agreement, the Custody Agreement and the Power-
of-Attorney have been duly executed and delivered by such Selling
Stockholder; assuming due authorization, execution and delivery by
the Custodian, the Custody Agreement and the Power-of-Attorney are
the legal, valid, binding and enforceable instruments of such
Selling Stockholder, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law);
(ii) the delivery by the Selling Stockholder to the
several Underwriters of certificates for the Securities being sold
hereunder by the Selling Stockholder against payment therefor as
provided herein, will convey good and marketable title to such
Securities to the several Underwriters, free and clear of all
security interests, liens, encumbrances, equities, claims or other
defects;
(iii) the sale of the Securities to the Underwriters by
the Selling Stockholder pursuant to this Agreement, the compliance
by the Selling Stockholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the other
transactions herein contemplated do not (i) require the consent,
approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and
such as may be required under state securities or blue sky laws,
or (ii) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under (A) any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Selling Stockholder or any of the Selling
Stockholder's properties are bound (other than such conflicts,
breaches, defaults or violations which would not impair the
Selling Stockholder's obligations hereunder or have any adverse
effect on the Underwriters as such or the title to the Shares),
(B) the charter documents or by-laws of the Selling Stockholder or
(C) any statute or, to the best of such
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counsel's knowledge, any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to the Selling Stockholder.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Selling Stockholder and public officials.
(e) The Representatives shall have received a certificate from
the Selling Stockholder, signed by an appropriate officer of the Selling
Stockholder, dated the Firm Closing Date, to the effect that:
(i) the representations and warranties of the Selling
Stockholder in this Agreement are true and correct as if made on
and as of the Firm Closing Date;
(ii) to the extent that any statements or omissions are
made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the
Company by the Selling Stockholder specifically for use therein,
the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and
(iii) the Selling Stockholder has performed all covenants
and agreements on its part to be performed or satisfied at or
prior to the Firm Closing Date.
(f) The Representatives shall have received from Arthur
Andersen LLP a letter or letters dated, respectively, the date hereof and
the Firm Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants with respect to
the Company within the meaning of the Securities Act and the
applicable rules and regulations thereunder;
(ii) in their opinion, the audited financial statements
and schedules and pro forma financial statements examined by them
and included in the Registration Statement and the Prospectus
comply in form in all material respects with the applicable
accounting requirements of the Securities Act and the related
published rules and regulations;
(iii) on the basis of a reading of the latest available
interim unaudited condensed financial statements of the Company,
carrying out certain specified procedures (which do not constitute
an examination made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters, nothing
came to their attention that caused them to believe that:
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<PAGE>
(A) the unaudited condensed financial statements
of the Company included in the Registration Statement and
the Prospectus do not comply in form in all material
respects with the applicable accounting requirements of the
Securities Act and the related published rules and
regulations thereunder or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement and the
Prospectus;
(B) at a specific date not more than five
business days prior to the date of such letter, there were
any changes in the capital stock or long-term debt of the
Company or any decreases in not current assets or
stockholders' equity of the Company, in each case compared
with amounts shown on the September 30, 1996 unaudited
condensed balance sheet included in the Registration
Statement and the Prospectus, or for the period from
October 1, 1996 to such specified date there were any
decreases in oil and gas revenues and total revenues and
any increase in net loss or per share amounts of net loss
of the Company, except in all instances for changes,
decreases or increases set forth in such letter; and
(iv) they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of the Company and are included in the
Registration Statement and the Prospectus and in Exhibit 11 to the
Registration Statement, and have compared such amounts,
percentages and financial information with such records of the
Company and with information derived from such records and have
found them to be in agreement, excluding any questions of legal
interpretation; and
(v) on the basis of a reading of the unaudited pro
forma financial statements included in the Registration Statement
and the Prospectus, carrying out certain specified procedures that
would not necessarily reveal matters of significance with respect
to the comments set forth in this paragraph (v), inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters and proving the arithmetic
accuracy of the application of the pro forma adjustments to the
historical amounts in the unaudited pro forma financial
statements, nothing came to their attention that caused them to
believe that the unaudited pro forma financial statements do not
comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
In the event that the letters referred to above set forth
any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that (A) such
letters shall be accompanied by a written explanation of the
Company as to the significance thereof, unless the Representatives
deem such explanation unnecessary, and (B) such changes, decreases
or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase
and delivery of the Securities as contemplated by the Registration
Statement, as amended as of the date hereof.
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References to the Registration Statement and the Prospectus in
this paragraph (f) with respect to either letter referred to above shall
include any amendment or supplement thereto at the date of such letter.
(g) Ryder Scott shall have delivered to you on the date of this
Agreement a letter dated on such date and also on the Closing Date a
letter dated the Closing Date, in each case in form and substance
reasonably satisfactory to you, stating, as of the date of such letter
(or, with respect to matters involving changes or developments since the
respective dates as of which specified information with respect to the
oil and gas reserves is given or incorporated in any Preliminary
Prospectus and the Prospectus as of the date not more than five days
prior to the date of such letter), the conclusions and findings of such
firm with respect to the Company's oil and gas reserves.
(h) The Representatives shall have received a certificate,
dated the Firm Closing Date, President and the Vice President-Business
Development of the Company to the effect that:
(i) the representations and warranties of the Company
in this Agreement that are qualified as to materiality are true
and correct, and such representations and warranties of the
Company that are not so qualified are true and correct in all
material respects, as of the Firm Closing Date; the Registration
Statement, as amended as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of
the Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and no proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss or
interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or
any development reasonably expected to involve a material adverse
change, in the condition (financial or otherwise), management,
business prospects, net worth or results of operations of the
Company, except in each case as described in or contemplated by
the Prospectus (exclusive of any amendment or supplement thereto).
(i) The Representatives shall have received from each person
who is a director or officer of the Company or who owns five percent (5%)
or more of the Company's outstanding shares of Common Stock an agreement
(a "Lock-Up Agreement") to the effect that such person will not, directly
or indirectly, without the prior written consent of Howard Weil, on
behalf of the Underwriters, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant
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of an option to purchase or other sale or disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after
the date of this Agreement.
(j) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further
certificates, documents or other information as they may have reasonably
requested from the Company.
(k) Prior to the commencement of the offering of the
Securities, the Securities shall have been included for quotation on the
Nasdaq National Market.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if
they are reasonably satisfactory in all material respects to the
Representatives and counsel for the Underwriters. The Company shall
furnish to the Representatives such conformed copies of such opinions,
certificates, letters and documents in such quantities as the
Representatives and counsel for the Underwriters shall reasonably
request.
The respective obligations of the several Underwriters to purchase
and pay for any Option Securities shall be subject, in their discretion,
to each of the foregoing conditions to purchase the Firm Securities,
except that all references to the Firm Securities and the Firm Closing
Date shall be deemed to refer to such Option Securities and the related
Option Closing Date, respectively.
10. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and the Selling Stockholder and
each person, if any, who controls any Underwriter or the Selling Stockholder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or the Selling Stockholder or such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, each
Underwriter or the Selling Stockholder and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives or by the Selling Stockholder specifically for use therein; and
PROVIDED, FURTHER, that the Company will not be liable to any Underwriter or the
Selling Stockholder or any person controlling such Underwriter or the Selling
Stockholder with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Securities from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person in any case where
such delivery of the Prospectus (as amended or supplemented) is required by the
Securities Act, unless such failure to deliver the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with Section 5(d) and
(e) of
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this Agreement. This indemnity agreement will be in addition to any liability
which the Company may otherwise have; PROVIDED, HOWEVER, that the foregoing
indemnity agreement with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter or the Selling Stockholder from whom the
person asserting such losses, claims, damages or liabilities purchased
Securities, or any person controlling such Underwriter or the Selling
Stockholder, if a copy of the Prospectus, as then amended or supplemented if the
Company shall have furnished any amendment or supplement thereto, was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of Securities to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 6(d) and 6(e) of this Amendment. The Company will not, without the
prior written consent of the Underwriter or Underwriters purchasing, in the
aggregate, more than fifty percent (50%) of the Securities, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not any such Underwriter or any person who controls any
such Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and the Selling Stockholder and
such controlling persons from all liability arising out of such claim, action,
suit or proceeding.
(b) The Selling Stockholder agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement or any amendment thereto, each Underwriter and each person who
controls the Company or any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which the Company, any such director, officer,
such Underwriter or any such controlling person may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with the written information furnished to the Company by the Selling
Stockholder for use therein; PROVIDED, HOWEVER, that the foregoing indemnity
agreement with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting such losses, claims,
damages or liabilities purchased Securities, or any person controlling such
Underwriter, if a copy of the Prospectus, as then amended or supplemented if the
Company shall have furnished any amendment or supplement thereto, was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of Securities to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 6(d) and 6(e) of this Amendment. Subject to the limitations set forth
in the immediately preceding sentence, the Selling Stockholder will reimburse,
as incurred, any legal or other expenses reasonably incurred by the Company, any
such director, officer, such Underwriter or any such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which the Selling Stockholder may otherwise have. The
Selling Stockholder will not, without the prior written
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<PAGE>
consent of the Underwriter or Underwriters purchasing, in the aggregate, more
than fifty percent (50%) of the Securities, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholder, each of its
directors and officers and each person, if any, who controls the Company or the
Selling Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company, the Selling Stockholder or any such director,
officer or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein: and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or the Selling Stockholder
or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 10, notify the indemnifying party of the commencement thereof; but
the omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 10. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; PROVIDED, HOWEVER, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 10 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it
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<PAGE>
being understood, however, that in connection with such action the indemnifying
party shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 10, representing the indemnified parties under
such paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 10 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering received by
the Company and the Selling Stockholder bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Stockholder or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Stockholder and the Underwriters agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to above
in this paragraph (e). Notwithstanding any other provision of this paragraph
(e), no Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities purchased
by such Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise been required to pay in respect of
the same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section II (f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting obligations
and not joint, and contributions among Underwriters shall be governed by the
provisions of the Howard Weil Master Agreement Among Underwriters. For purposes
of this paragraph (e), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the Registration
Statement and each person, if any, who controls the Company or the Selling
Stockholder within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, shall have the same rights to contribution as the Company.
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(f) The liability of the Selling Stockholder under this Section 10
shall not exceed the total public offering price of the Shares sold by the
Selling Stockholder, less applicable underwriting discounts and commissions.
Further, the provisions of this Section 10 shall not affect any other agreement
among the Company and the Selling Stockholder with respect to indemnification
and contribution.
11. DEFAULT OF UNDERWRITERS. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 13 hereof. In the event of any default by one or more Underwriters
as described in this Section 11, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 11. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
12. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Stockholder and the several Underwriters set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, the Selling
Stockholder, any Underwriter or any controlling person referred to in Section 10
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements set forth in Sections 8
and 10 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
13. TERMINATION. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Selling Stockholder given prior
to the Firm Closing Date or the related Option Closing Date, respectively, in
the event that the Company or the Selling Stockholder shall have failed, refused
or been unable to perform all obligations and satisfy all conditions on its part
to be performed or satisfied hereunder at or prior thereto or, if at or prior to
the Firm Closing Date or such Option Closing Date, respectively,
(i) the Company shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding or there shall have been any
material adverse change, or any
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development reasonably expected to involve a material adverse change
(including without limitation a change in management or control of the
Company), in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or Nasdaq National Market shall
have been suspended or minimum or maximum prices shall have been
established on either such exchange;
(iii) a banking moratorium shall have been declared by State of
New York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or inadvisable
to proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date
hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
14. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting"
and the legend concerning over-allotments on the inside front cover page in any
Preliminary Prospectus or the Prospectus (to the extent such statements relate
to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b) and 10 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
15. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Howard, Weil, Labouisse,
Friedrichs Incorporated, Energy Centre, 1100 Poydras Street, Suite 3500, New
Orleans, Louisiana 70163 Attention: Compliance, with a copy to Andrews & Kurth
L.L.P., 4200 Texas Commerce Tower, Houston, Texas 77002 Attention: G. Michael
O'Leary; if sent to the Company, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to the Company at
3DX Technologies, Inc., 12012 Wickchester, Suite 250, Houston, Texas 77079-1218
Attention: President, with a copy to Kelley Drye & Warren LLP, 281 Tresser
Boulevard, Stamford, Connecticut 06901-3229 Attention: Jay R. Schifferli; and if
sent to the Selling Stockholder, shall be delivered or sent by mail, telex, or
facsimile transmission and confirmed in writing to the Selling Stockholder at
Landmark Graphics Corporation, 15150 memorial Drive, Houston, Texas 77079
Attention: Patti L. Massaro, General Counsel and Corporate Secretary, with a
copy to Halliburton Company, 3600 Lincoln Plaza, 500 North Akard Street, Dallas,
Texas 75201-3391 Attention: Susan Keith, Vice President, Secretary and Corporate
Counsel.
16. SUCCESSORS. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company, the Selling
Stockholder and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed
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to give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement, or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person except that (i) the indemnities of the Company contained in Section 10 of
this Agreement shall also be for the benefit of any person or persons who
control any Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters
contained in Section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act. No purchaser of Securities from any Underwriter shall be deemed a
successor because of such purchase.
17. APPLICABLE LAW. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
3DX TECHNOLOGIES INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
LANDMARK GRAPHICS CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED
PETRIE PARKMAN & CO.
By: Howard, Weil, Labouisse, Friedrichs Incorporated
By: ________________________________________
Name: _________________________________
Title: _________________________________
For themselves and the other several Underwriters named in Schedule I hereto.
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SCHEDULE 1
UNDERWRITERS
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Howard, Weil, Labouisse, Friedrichs Incorporated
Petrie Parkman & Co.
_____________
Total .............. 2,949,862
-30-
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
3DX TECHNOLOGIES INC.
It is hereby certified that:
1. The name of the corporation is 3DX TECHNOLOGIES INC. (the
"Corporation"), and the name under which the Corporation was originally
incorporated is Novera Energy Inc. The original Certificate of Incorporation of
the Corporation was filed with the Office of the Secretary of State of the State
of Delaware on December 8, 1992. A Restated Certificate of Incorporation was
filed with the Office of the Secretary of State of the State of Delaware on
January 27, 1993. A second Restated Certificate of Incorporation was filed with
the Office of the Secretary of State of the State of Delaware on November 9,
1993. A third Restated Certificate of Incorporation was filed with the
Secretary of State of Delaware was filed on December 17, 1993. A fourth
Restated Certificate of Incorporation (the "Fourth Restated Certificate") was
filed with the Office of the Secretary of State of the State of Delaware on July
26, 1995.
2. The Fourth Restated Certificate is hereby restated and further
amended as follows: (i) to provide for a .517-to-1 reverse stock split of the
Corporation's Common Stock, par value $.01 per share, (ii) to authorize a total
of 1,000,000 additional shares of preferred stock, par value $.01 per share (the
"Preferred Stock") and (iii) to provide for the division of the Corporation's
Board of Directors into three classes.
3. Except for (i) the inclusion of the foregoing amendments, (ii) the
omission of matters of historical interest only, and (iii) the renumbering of
the Fourth Restated Certificate to effect the omission of such matters, there
are no discrepancies between the provisions of the Fourth Restated Certificate
as heretofore amended and supplemented and the provisions of the said single
instrument hereinafter set forth.
4. The amendments to the Fourth Restated Certificate and the
restatement of the Fourth Restated Certificate as amended as the fifth Restated
Certificate of Incorporation herein certified have been duly adopted by the
stockholders of the Corporation in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
<PAGE>
The text of the Fourth Restated Certificate is restated with the
amendments described above, effective as of ___ a.m. on December __, 1996 to
read as follows:
FIRST: The name of the corporation is 3DX Technologies Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is located at 1013 Centre Road, City of Wilmington, County of
New Castle. The name of its registered agent at such address is the Corporation
Service Company.
THIRD: The nature of the business and the purpose of the Corporation
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware ("Delaware
Corporation Law").
FOURTH: The Corporation shall have the authority to issue two (2)
classes of shares of capital stock, to be designated respectively "Preferred
Stock" and "Common Stock". The total number of shares of stock that the
Corporation shall have the authority to issue is Twenty Four Million Five
Hundred Thousand (24,500,000). The total number of shares of Preferred Stock
that the Corporation shall have authority to issue is Four Million Five Hundred
Thousand (4,500,000), par value $.01 per share, of which Two Hundred Thousand
(200,000) shall be designated as "Redeemable Preferred Stock, Series B" (the
"Series B Preferred Stock"), Three Million Three Hundred Thousand (3,300,000)
shall be designated "Senior Redeemable Convertible Preferred Stock, Series C"
(the "Series C Preferred Stock" and, together with the Series B Preferred Stock,
the "Designated Preferred Stock"), and the remainder of the shares of authorized
Preferred Stock shall be undesignated as of the date of filing of this Fourth
Restated Certificate (the "Undesignated Preferred Stock"). The total number of
shares of Common Stock that the Corporation shall have the authority to issue is
Twenty Million (20,000,000), par value $.01 per share (the "Common Stock").
Upon the filing of this Restated Certificate of Incorporation, the
Corporation's shares of Common Stock, par value $.01 per share, issued and
outstanding immediately prior to the filing of this Restated Certificate of
Incorporation (the "Old Common Stock") shall be changed so that every 1.934
shares of Old Common Stock will automatically, and without any action on the
part of the holder thereof, be converted into one (1) share of Common Stock;
PROVIDED, HOWEVER, that no fractional shares shall be issued pursuant to such
conversion and no payment shall be made for any fractional shares.
The following is a statement fixing certain of the designations and
the powers, voting rights, preferences and relative, participating, optional and
other rights of the Designated Preferred Stock, the Undesignated Preferred Stock
and the Common Stock of the Corporation, and the qualifications, limitations or
restrictions thereof, and of the authority with respect thereto expressly
granted to the Board of Directors of the Corporation to fix any such provisions
not fixed by this Restated Certificate of Incorporation.
<PAGE>
A. DESIGNATED PREFERRED STOCK
1. VOTING RIGHTS. Each holder of Series B Preferred Stock shall be
entitled to one hundred (100) votes for each share held. Each holder of Series
C Preferred Stock shall be entitled to the number of votes equal to the largest
whole number of shares of Common Stock into which such shares of Series C
Preferred Stock could be converted, pursuant to the provisions of Section A.4
hereof, on the record date for the determination of the stockholders entitled to
vote on such matters or, if no such record date is established, in accordance
with Delaware Corporation Law. Except as otherwise expressly provided herein or
as required by Delaware Corporation Law, the holders of Designated Preferred
Stock and the holders of Common Stock shall vote together and not as separate
classes.
2. DIVIDEND RIGHTS. (a) Each issued and outstanding share of
Series B Preferred Stock shall entitle the holder of record thereof to receive,
out of any funds legally available therefor, dividends in cash or in shares of
Series B Preferred Stock (with the determination of whether such payment shall
be in cash or in shares of Series B Preferred Stock to be made in good faith by
the Board of Directors of the Corporation), at the annual rate per share of
twelve dollars and fifty cents ($12.50), if in cash, or 0.13276 shares of Series
B Preferred Stock, if in stock, in each case as adjusted for stock splits, stock
dividends, recapitalizations, reclassifications and similar events (together
herein referred to as "Recapitalization Events"), payable annually on December
31 of each year commencing December 31, 1994; PROVIDED that if the Board of
Directors fails to make such determination at least ten (10) business days prior
to December 31 of each year, such dividends shall be paid in shares of Series B
Preferred Stock; and PROVIDED FURTHER that if, in respect of any fiscal year of
the Corporation, dividends on the Series C Preferred Stock are paid in shares of
Series C Preferred Stock, dividends on the Series B Preferred Stock will be paid
only in shares of Series B Preferred Stock, and not in cash; and PROVIDED
FURTHER that no dividends shall be paid to the holders of Series B Preferred
Stock in respect of any period so long as a default under Section 6 hereof or
under Section 7 or 9 of the Series C Preferred Stock Purchase Agreement, dated
as of July 26, 1995, among the Corporation and the other parties set forth
therein (the "Series C Preferred Stock Purchase Agreement") occurs and is
continuing. Dividends and distributions (other than those payable solely in
Common Stock) may be paid, or declared and set aside for payment, upon shares of
Common Stock in any calendar year only if dividends shall have been paid, or
declared and set apart for payment, on account of all shares of Series B
Preferred Stock then issued and outstanding, at the aforesaid rate for such
calendar year.
(b)(i) Each issued and outstanding share of Series C Preferred
Stock shall entitle the holder of record thereof to receive, when, as and if
declared by the Board of Directors, out of any funds legally available
therefor, dividends in cash or in shares of Series C Preferred Stock (with
the determination of whether such payment shall be in cash or in shares of
Series C Preferred Stock to be made in good faith by the Board of Directors
of the Corporation), at the annual rate per share of Twenty-Four Cents ($.24)
(or such greater amount per share as such Series C Preferred Stock would be
entitled if such Series C Preferred Stock were converted into Common Stock),
if in cash, or 0.08 shares of Series C Preferred Stock, if in stock, in each
case as adjusted for Recapitalization Events, payable or accruing quarterly
on the last day of March, June, September and December of each year,
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<PAGE>
commencing September 30, 1995; PROVIDED that if the Board of Directors fails
to make such determination at least ten (10) business days prior to the last
day of any such quarter, such dividends shall be paid in cash or shall
accrue; and PROVIDED FURTHER that no dividends shall be paid to the holders
of Series C Preferred Stock in respect of any period so long as a default
under Section 6 hereof or under Section 7 or 9 of the Series C Preferred
Stock Purchase Agreement occurs and is continuing. If such dividends are to
be paid in shares of Series C Preferred Stock, the Corporation shall issue
and deliver certificates in respect of such shares within 90 days after the
quarter in which the election to issue shares is made. Dividends and
distributions (other than those payable solely in Common Stock) may be paid,
or declared and set aside for payment, upon shares of (x) Common Stock in any
calendar year only if dividends shall have been paid, or declared and set
apart for payment, on account of all shares of Designated Preferred Stock
then issued and outstanding, at the aforesaid rate for such calendar year and
(y) Series B Preferred Stock only in accordance with the provisos set forth
in Section 2(a) above.
(ii) The right to dividends upon the issued and outstanding
shares of Series C Preferred Stock shall be cumulative so that such rights shall
be deemed to accrue whether there be funds legally available therefor, or
whether said dividends shall have been declared; and if such dividends in
respect of any period beginning with the Issuance Date (as defined in Section
A.4(c)), shall not have been declared and either paid or a sum sufficient for
the payment thereof set aside in full, the accumulated unpaid dividends shall
first be fully paid on the Series C Preferred Stock, before any dividend or
other distribution (other than those payable solely in Common Stock) may be
paid, or declared and set apart for payment, to the holders of shares of Common
Stock, and shall in any event be paid upon conversion of the Series C Preferred
Stock. Any accumulation of dividends on the shares of Series C Preferred Stock
shall bear interest at the rate of 8% per annum, compounded annually, until
paid.
(c) The restrictions on dividends and distributions with respect
to shares of Series B Preferred Stock and Common Stock set forth in Section 2
hereof are in addition to, and not in derogation of, the other restrictions on
such dividends and distributions set forth herein.
3. LIQUIDATION RIGHTS. (a) In the event of a voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation (a
"Liquidation"), the holders of record of shares of Series C Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of Series B Preferred Stock or Common
Stock by reason of their ownership thereof, on a Liquidation, out of the assets
of the Corporation legally available therefor, an amount per share equal to the
sum of (1) Three Dollars ($3.00) per share of Series C Preferred Stock (the
"Original Series C Issue Price"), adjusted for Recapitalization Events, plus
(2) a further amount per share equal to dividends, if any, (x) then declared and
unpaid on account of Series C Preferred Stock and (y) whether or not declared,
then accrued in accordance with the provisions of Section A.2(b) hereof, before
any payment shall be made or any assets distributed to the holders of shares of
Series B Preferred Stock or Common Stock. If, upon any Liquidation, the assets
available for distribution among the holders of the Series C Preferred Stock
shall be insufficient to permit payment to such holders of the full preferential
3
<PAGE>
amounts aforesaid, then such assets shall be distributed ratably among the
holders of Series C Preferred Stock as among the holders of Series C Preferred
Stock based on the number of shares of such series so held.
(b) After payment to the holders of record of the shares of
Series C Preferred Stock of the full amounts set forth in Section A.3(a), the
holders of record of shares of Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of Common Stock by reason of their ownership thereof,
out of the assets of the Corporation legally available thereof, an amount equal
to One Hundred Dollars ($100.00) per share of Series B Preferred Stock (the
"Series B Price"), as adjusted for Recapitalization Events, before any payment
shall be made or any assets distributed to the holders of shares of Common
Stock. If upon any Liquidation, after payment shall have been made to all
holders of record of Series C Preferred Stock of the full amounts to which such
holders shall be entitled pursuant to Section A.3(a) hereof, the assets
available for distribution among the holders of the Series B Preferred Stock
shall be insufficient to permit payment to such holders of the full preferential
amounts aforesaid, then such assets shall be distributed ratably among the
holders of Series B Preferred Stock as among the holders of Series B Preferred
Stock based on the number of shares so held.
(c) After payment to the holders of record of the shares of the
Designated Preferred Stock of the amounts set forth in Sections A.3(a) and
A.3(b), the remaining assets of the Corporation shall be distributed in equal
amounts per share to the holders of record of the Corporation's Common Stock and
Series C Preferred Stock (each share of Series C Preferred Stock being treated
as the number of shares of Common Stock (giving effect to fractional shares)
into which it could then be converted for such purpose), PROVIDED, HOWEVER, that
if the assets and the funds distributed hereunder and under Section 3(a) hereof
would be sufficient in the aggregate to permit the payment to the holders of
Series C Preferred Stock of an amount in excess of (A) Six Dollars ($6.00) per
share of Series C Preferred Stock (as adjusted for Recapitalization Events),
plus (B) dividends, if any, (x) then declared and unpaid on account of Series C
Preferred Stock and (y) whether or not declared, then accrued in accordance with
the provisions of Section A.2(b) hereof, then the holders of Series C Preferred
Stock shall be entitled to the full amounts otherwise payable to them pursuant
to the preceding provisions, but shall not be entitled to share in the remaining
assets and funds of the Corporation in excess of (A) Six Dollars ($6.00) per
share of Series C Preferred Stock (as adjusted for Recapitalization Events),
plus (B) dividends, if any, (x) then declared and unpaid on account of Series C
Preferred Stock and (y) whether or not declared, then accrued in accordance with
the provisions of Section A.2(b) hereof, after which payment the remaining
assets of the Corporation shall be distributed in equal amounts per share to the
holders of record of the Corporation's Common Stock.
(d) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall each be deemed to be a Liquidation within
the meaning of this Section A.3, unless holders of record of at least sixty-
seven percent (67%) of the outstanding shares of the Series B Preferred Stock
and the Series C Preferred Stock, each voting as a separate
4
<PAGE>
class, vote otherwise; PROVIDED that the holders of Designated Preferred
Stock receive at least 20 days' prior written notice of such consolidation,
merger or sale.
4. CONVERSION RIGHTS. The holders of the Series C Preferred Stock
shall have conversion rights (the "Conversion Rights") as follows:
(a) RIGHT TO CONVERT. Each holder of record of shares of
Series C Preferred Stock may, at any time, upon surrender to the Corporation
of the certificates therefor at the principal office of the Corporation or at
such other place as the Corporation shall designate, convert all or any part
of such holder's shares of Series C Preferred Stock into such number of fully
paid and non-assessable shares of Common Stock of the Corporation (as such
Common Stock shall then be constituted) equal to the product of (A) the
number of shares of Series C Preferred Stock which such holder shall then
surrender to the Corporation, multiplied by (B) the number determined by
dividing Three Dollars ($3.00) by the Conversion Price (as hereinafter
defined) per share for the Series C Preferred Stock in effect at the time of
conversion. If any holder of Series C Preferred Stock elects to convert any
of its shares of Series C Preferred Stock in connection with a Liquidation
under Section A.3(d), such holder may make such conversion conditional upon
the consummation of any transaction deemed to be a Liquidation under Section
A.3(d).
(b) AUTOMATIC CONVERSION. All outstanding shares of Series C
Preferred Stock shall be deemed automatically converted into such number of
shares of Common Stock as are determined in accordance with Section 4(a)
hereof upon the consummation of a firm commitment underwritten public
offering of the securities of the Corporation pursuant to a registration
statement filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, where (i) the aggregate proceeds to the
Corporation from the sale of such securities (before deduction of
underwriting discounts and expenses of sale) is not less than $10,000,000 and
the per share sales price of such securities before such deductions is not
less than Twelve Dollars ($12.00) (whether or not pursuant to a
Recapitalization Event) and (ii) the sales price per share of such securities
is equal to at least the product of (x) the Original Series C Issue Price, as
adjusted for Recapitalization Events, MULTIPLIED by (y) two (2) (an
"Automatic Conversion Event").
On or after the date of occurrence of an Automatic Conversion
Event, and in any event within 10 days after receipt of notice, by certified
or registered mail, postage prepaid, from the Corporation of the occurrence
of such Automatic Conversion Event, each holder of record of shares of Series
C Preferred Stock shall surrender the certificates evidencing such holder's
shares of Series C Preferred Stock at the principal office of the Corporation
or at such other place as the Corporation shall designate, and shall
thereupon be entitled to receive certificates evidencing the number of shares
of Common Stock into which such shares of Series C Preferred Stock are
converted (plus additional certificates representing shares of Series C
Preferred Stock not so converted, if any). On the date of the occurrence of
an Automatic Conversion Event, each holder of record of shares of Series C
Preferred Stock shall (i) receive from the proceeds of such offering an
amount per share equal to dividends, if any, (x) then declared and unpaid on
account of such Series C Preferred Stock and (y) whether or not declared,
then accrued in accordance with the
5
<PAGE>
provisions of Section A.2(b) hereof, and (ii) be deemed to be the holder of
record of the Common Stock issuable upon such conversion, notwithstanding
that the certificates representing such shares of Series C Preferred Stock
shall not have been surrendered at the office of the Corporation, that notice
from the Corporation shall not have been received by any holder of record of
shares of Series C Preferred Stock, or that the certificates evidencing such
shares of Common Stock shall not then be actually delivered to such holder.
(c) For purposes of this Restated Certificate of Incorporation:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued (or, pursuant to this Section 4, deemed to be issued) by the
Corporation, other than shares of Common Stock issued or issuable:
(i) upon conversion of shares of Series C Preferred Stock;
(ii) to officers, directors, or employees of, or consultants
to, the Corporation pursuant to a stock grant or sale or option plan
or other employee stock incentive program approved by the Board of
Directors, provided that such shares shall not exceed 956,455 in the
aggregate without the approval of holders of at least 66-2/3% of the
Designated Preferred Stock, voting together as a class;
(iii) as a dividend or distribution on Designated Preferred
Stock;
(iv) in any deferred closing under the Series C Preferred Stock
Purchase Agreement;
(v) in connection with (x) an acquisition or joint venture by
the Corporation, or (y) a bridge financing from institutional
investors, in each case as unanimously approved by the Board of
Directors; and
(vi) to consultants, vendors or customers as unanimously
approved by the Board of Directors.
"CONVERSION PRICE" shall mean the price at which shares of the
Common Stock shall be deliverable upon conversion of the Series C Preferred
Stock as adjusted from time to time as herein provided. The initial Conversion
Price per share for shares of Series C Preferred Stock shall be the Original
Series C Issue Price. The Conversion Price shall be subject to adjustment as
herein provided.
"CONVERSION SHARES OUTSTANDING" includes all Common Stock issued
or issuable upon conversion of (i) all outstanding shares of Series C Preferred
Stock issued on the Issuance Date and (ii) all Additional Shares of Common Stock
issued after the Issuance Date.
6
<PAGE>
"CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or securities, in each case convertible into or
exchangeable for Additional Shares of Common Stock.
"EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean
the quotient determined by dividing the total number of Additional Shares of
Common Stock issued or sold, or deemed to have been issued or sold by the
Corporation under Section A.4(d)(i), into the aggregate consideration received
or deemed to have been received by the Corporation for such issue under Section
A.4(d)(i).
"ISSUANCE DATE" shall mean the actual initial date of issuance of
the Series C Preferred Stock.
"OPTION" shall mean rights, options or warrants to subscribe for
purchase or otherwise acquire Common Stock or Convertible Securities.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SALE OF SHARES BELOW CONVERSION PRICE.
(A) If at any time or from time to time after the Issuance
Date, the Corporation issues or sells, or is deemed by the express provisions of
this Section A.4(d)(i) to have issued or sold, Additional Shares of Common
Stock, for an Effective Price per share of less than the Original Series C
Issuance Price (as adjusted for Recapitalization Events), then and in each such
case the then existing Conversion Price for Series C Preferred Stock shall be
reduced, as of the opening of business on the date of such issue or sale, to a
price determined by multiplying the Conversion Price for the Series C Preferred
Stock by a fraction (a) the numerator of which shall be (A) the number of
Conversion Shares Outstanding immediately prior to such issue or sale plus (B)
the number of shares of Common Stock which the aggregate consideration received
(or by express provision hereof deemed to have been received) by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price and (b) the denominator of which shall be the
number of Conversion Shares Outstanding at the close of business on the date of
such issue after giving effect to such issue of Additional Shares of Common
Stock.
(B) For the purpose of making any adjustment required under
this Section A.4(d)(i), the consideration received by the Corporation for any
issue or sale of securities shall (1) to the extent it consists of cash be
computed at the gross amount of cash received by the Corporation before
deduction of any expenses payable by the Corporation and any underwriting or
similar commissions, compensation or concessions paid or allowed by the
Corporation in connection with such issue or sale, (2) to the extent it consists
of property other than cash, be computed at the fair market value of that
property as determined in good faith by the Board of Directors and (3) if
Additional Shares of Common Stock, Convertible Securities, or rights or options
to purchase either Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities or other assets of
the Corporation for a consideration which covers both, be computed (as
7
<PAGE>
provided in clauses (1) and (2) above) as the portion of the consideration so
received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(C) For the purpose of the adjustment required under this
Section A.4(d)(i), if at any time or from time to time after the Issuance Date
for the Series C Preferred Stock, the Corporation issues or sells any Options or
Convertible Securities (other than options or rights exercisable for or
convertible into shares of Common Stock referred to in clause (ii) of the
definition of Additional Shares of Common Stock), then in each case the
Corporation shall be deemed to have issued at the time of the issuance of such
Options or Convertible Securities the maximum number of Additional Shares of
Common Stock (as set forth in the instruments relating thereto, giving effect to
any provision contained therein for a subsequent upward adjustment of such
number) issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such Options or Convertible Securities plus, in the case of such
Options, the minimum amounts of consideration, if any (as set forth in the
instruments relating thereto, giving effect to any provision contained therein
for a subsequent downward adjustment of such consideration), payable to the
Corporation upon the exercise of such Options and, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities which were deemed to have been received by the
Corporation on issuance of such Convertible Securities). No further adjustment
of the Conversion Price for Series C Preferred Stock, adjusted upon the issuance
of such Options or Convertible Securities, shall be made as a result of the
actual issuance of Additional Shares of Common Stock on the exercise of any such
Options or the conversion of any such Convertible Securities; PROVIDED, HOWEVER,
that if any such Options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, or are
exercised for a lesser number of Additional Shares of Common Stock or with a
greater consideration paid to the Corporation than was previously deemed to be
issued or received by the Corporation, the Conversion Price for Series C
Preferred Stock adjusted upon the issuance of such Options or Convertible
Securities shall be readjusted to the Conversion Price for Series C Preferred
Stock which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
Options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such Options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted plus the
consideration, if any, actually received by the Corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities which were deemed to have been received by the Corporation on
issuance of such Convertible Securities) on the conversion of such Convertible
Securities.
(D) In each case of an adjustment or readjustment of the
Conversion Price for the Series C Preferred Stock or the number of shares of
Common Stock
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<PAGE>
or other securities issuable upon conversion of the Series C Preferred Stock,
the Corporation, at its expense, shall cause the chief financial officer of
the Corporation to compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of the Series C Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based including a statement of (a)
the consideration received or deemed to be received by the Corporation for
any Additional Shares of Common Stock issued or sold or deemed to have been
issued or sold, (b) the Conversion Price for Series C Preferred Stock at the
time in effect (after giving effect to such adjustment or readjustment), (c)
the number of Additional Shares of Common Stock and (d) the type and amount,
if any, of other property which at the time would be received upon conversion
of Series C Preferred Stock.
(E) Except as expressly provided herein, no adjustment in
the Conversion Price of any share of Series C Preferred Stock shall be made in
respect of the issue of Additional Shares of Common Stock unless the
consideration per share for such Additional Shares of Common Stock issued or
deemed to be issued by the Corporation is less than the Conversion Price in
effect on the date of, and immediately prior to, such issue, for such share of
Series C Preferred Stock.
(F) No readjustment to the Conversion Price pursuant to
Section A.4(d)(i) shall (a) affect the Conversion Price in respect of, or any
shares of Common Stock previously issued upon conversion of, the Series C
Preferred Stock or (b) have the effect of increasing the Conversion Price for
the Series C Preferred Stock to an amount which exceeds the lower of (x) the
Conversion Price for the Series C Preferred Stock on such original adjustment
date or (y) the Conversion Price for the Series C Preferred Stock that would
have resulted from any issuance of Additional Shares of Common Stock between
such original adjustment date and each subsequent readjustment date.
(ii) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation at any time or from time to time after the Issuance Date effects a
subdivision of the outstanding Common Stock, the Conversion Price for Series C
Preferred Stock then in effect immediately before that subdivision shall be
proportionately decreased, and conversely, if the Corporation at any time or
from time to time after the Issuance Date combines the outstanding shares of
Common Stock, the Conversion Price for Series C Preferred Stock then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection (ii) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(iii) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the Corporation at any time, or from time to time after the
Issuance Date makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable
in Additional Shares of Common Stock, as the case may be, then and in each
such event the Conversion Price for Series C Preferred Stock then in effect
shall be decreased as of the time of such issuance or, in the event such a
record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price for
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<PAGE>
Series C Preferred Stock then in effect by a fraction (x) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date, and (y) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
total number of shares of Common Stock issuable in payment of such dividend
or distribution; PROVIDED, HOWEVER, that if such record date is fixed and
such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price for Series C Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for Series C Preferred Stock shall
be adjusted pursuant to this Section A.4(d)(iii) as of the time of actual
payment of such dividends or distributions.
(iv) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Issuance Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then in each such event
provision shall be made so that the holders of Series C Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their Series C Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
paragraph (d) with respect to the rights of the holders of the Series C
Preferred Stock.
(v) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If the Common Stock issuable upon the conversion of Series C Preferred Stock is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares, a stock dividend or a reorganization,
provided for elsewhere in this Section A.4), then and in any such event each
holder of Series C Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of Series
C Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(vi) REORGANIZATIONS. If at any time or from time to time
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section A.4), then, as a part of such
reorganization, provision shall be made so that the holders of Series C
Preferred Stock shall thereafter be entitled to receive, upon conversion of
Series C Preferred Stock, the number of shares of stock or other securities
or property of the Corporation to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization. In
any such case, appropriate adjustment shall
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be made in the application of the provisions of this Section A.4 with respect
to the rights of holders of the Series C Preferred Stock after the
reorganization to the end that the provisions of this Section A.4 (including
adjustment of the Conversion Price for Series C Preferred Stock then in
effect and number of shares purchasable upon conversion of Series C Preferred
Stock) shall be applicable after that event and be as nearly equivalent to
the provisions hereof as may be practicable.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of
this Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section A.4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series C Preferred Stock against dilution or other impairment.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Stock the full number of shares of Common Stock
deliverable upon the conversion of all the then outstanding shares of Series C
Preferred Stock and shall take all such action and obtain all such permits or
orders as may be necessary to enable the Corporation lawfully to issue such
Common Stock upon the conversion of Series C Preferred Stock.
(f) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series C Preferred Stock at least twenty (20) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
5. REDEMPTION.
(a) MANDATORY REDEMPTION. The Designated Preferred Stock shall be
redeemed by the Corporation in two equal installments with respect to the Series
B Preferred Stock and two equal installments with respect to the Series C
Preferred Stock, in each case in accordance with the following provisions:
(i) OBLIGATION OF CORPORATION TO REDEEM DESIGNATED PREFERRED
STOCK.
(A) The Corporation shall redeem the Series B Preferred Stock at
the times, and pursuant to the terms, set forth below, without any
action on the part of the holders of Series B Preferred Stock (other
than surrendering to the Corporation in the manner specified in
Section A.5(a)(v) hereof the certificate or certificates representing
the shares of Series B Preferred Stock to be redeemed), PROVIDED that
the Corporation shall not redeem any shares of Series B Preferred
Stock (x) so long as the Corporation, pursuant to the terms of this
Section A.5, is obligated but has failed to redeem any shares of
Series
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C Preferred Stock pursuant to the terms of this Section A.5, without
giving effect to any inability of the Corporation to redeem any
such shares of Series C Preferred Stock due to insufficient funds
being legally available therefor or (y) if the Corporation has not at
the time of such applicable Redemption Date, whether under Section
A.5(a) or A.5(b), demonstrated to the reasonable satisfaction of the
holders of a majority in interest of the Series C Preferred Stock
adequate resources to redeem the Series C Preferred Stock (either in
cash, borrowing capacity, fixed net cash flow net to the Corporation,
or other form of reserved assets) in accordance with this Section A.5.
(B) The Corporation shall redeem the Series C Preferred Stock at
the times, and pursuant to the terms, set forth below, if the
Corporation receives written certification (the "Redemption
Certificate") that holders of no less than sixty-seven percent (67%)
of the then outstanding Series C Preferred Stock (the "Electing
Holders") have elected in favor of redemption (the "Redemption
Election"). The Redemption Certificate shall be signed by the
Electing Holders and shall be delivered to the Corporation at its
principal office on or after October 1, 2002.
(ii) REDEMPTION PRICE. The Designated Preferred Stock shall
be redeemed by the Corporation (x) in the case of the Series B Preferred
Stock, paying in cash, out of funds legally available therefor, an amount
equal to the Series B Price per share (adjusted for any Recapitalization
Events with respect to such shares) (the "Series B Redemption Price"), and
(y) in the case of the Series C Preferred Stock, (1) paying in cash, out of
funds legally available therefor, an amount equal to the sum of (A) the
Original Series C Issue Price (as adjusted for any Recapitalization Events
with respect to such shares), PLUS (B) an amount per share equal to
dividends, if any, (I) then declared and unpaid on account of such Series C
Preferred Stock and (II) whether or not declared, then accrued in accordance
with the provisions of Section A.2(b) hereof to and including the date fixed
for redemption, and (2) issuing that number of shares of Common Stock into
which such Series C Preferred Stock would be convertible immediately prior to
the applicable Series C Redemption Date (collectively, the "Series C
Redemption Price").
(iii) TWO INSTALLMENTS.
(A) Except as otherwise set forth in Sections A.5.(a)(iii)(B)
and A.5(b) below, the Series B Preferred Stock shall be redeemed in
two installments, with the Corporation redeeming 50% of each holder's
shares of Series B Preferred Stock in the first installment and the
remaining shares of Series B Preferred Stock in the second
installment. Subject to the foregoing and to the Corporation having
funds legally available, the closing of the first installment of the
Series B Preferred Stock shall occur on November 9, 2002 (the "First
Series B Redemption Date") and the closing of the second installment
of the Series B Preferred Stock shall take place on November 9, 2003
(the "Second Series B Redemption Date") or, if either such Date is not
a business day, on the first business day after each such Date (each
such Date is referred to as a "Series B Redemption Date").
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(B) The Redemption Election constitutes an election in favor
of a mandatory redemption of all shares of Series C Preferred Stock.
Except as otherwise set forth in the following provisions of this
Section A.5.(a)(iii)(B), the Series C Preferred Stock shall be
redeemed in two installments, with the Corporation redeeming 50% of
each holder's shares of Series C Preferred Stock in the first
installment and the remaining shares of Series C Preferred Stock in
the second installment. Subject to the Corporation having funds
legally available, the closing of the first installment of the Series
C Preferred Stock (the "First Series C Redemption Date") shall occur
on the date specified in the Redemption Certificate (which shall be at
least 30 days after the date of the Redemption Certificate) and the
closing of the second installment of the Series C Preferred Stock (the
"Second Series C Redemption Date") shall occur on the one-year
anniversary of the First Series C Redemption Date, or, if either such
Date is not a business day, on the first business day after such Date
(each such Date is referred to as a "Series C Redemption Date"; either
Series B Redemption Date or Series C Redemption Date is sometimes
hereinafter referred to as a "Redemption Date"). If at either Series
C Redemption Date the funds legally available for payment of the
Series C Redemption Price are insufficient to pay the Series C
Redemption Price then due for the Series C Preferred Stock, the
Corporation shall (A) apply all of its available funds to redeem the
Series C Preferred Stock on a ratable basis as among the holders of
Series C Preferred Stock based on the number of shares so held and (B)
not redeem any shares of Series B Preferred Stock until such Series C
Preferred Stock is redeemed. If the Corporation shall not have
sufficient funds legally available for the redemption of the Series C
Preferred Stock on the First Series C Redemption Date or the Second
Series C Redemption Date, respectively, the Corporation shall redeem a
pro rata portion of each holder's shares of Series C Preferred Stock
out of funds legally available therefor and shall redeem the remaining
shares, as well as all shares of Series B Preferred Stock which the
Corporation shall have become obligated to redeem on any Series B
Redemption Date occurring on or prior to such Series C Redemption
Date, as soon as practicable after the Corporation has funds legally
available therefor.
(iv) REDEMPTION NOTICE. The Corporation shall give by certified
or registered mail, postage prepaid, not less than 30 days nor more than 60 days
prior to any Redemption Date, written notice thereof (the "Redemption Notice"),
to each holder of record of Series B Preferred Stock or Series C Preferred
Stock, as the case may be, at its post office address last shown on the records
of the Corporation. The Redemption Notice shall state:
(A) the number of shares of Series B Preferred Stock or Series C
Preferred Stock, as the case may be, held by the holder that the
Corporation shall redeem on the applicable Redemption Date specified
in the Redemption Notice;
(B) the applicable Redemption Date and Redemption Price; and
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(C) that the holder is to surrender to the Corporation, in the
manner and at the place designated, its certificate or certificates
representing the shares of Series B Preferred Stock or Series C
Preferred Stock to be redeemed.
(v) SURRENDER OF CERTIFICATES; PAYMENT. On or before each
Redemption Date, each holder of shares of Series B Preferred Stock or Series C
Preferred Stock to be redeemed on such Redemption Date shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and thereupon on
the applicable Redemption Date the Series B Redemption Price or Series C
Redemption Price, as the case may be, for such shares shall be paid to the order
of the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and retired.
In the event that fewer than all of the shares represented by such certificate
are redeemed, a new certificate representing the unredeemed shares shall be
issued forthwith.
(vi) RIGHTS SUBSEQUENT TO REDEMPTION. If the Redemption Notice
shall have been duly given, and if on each Redemption Date the Series B
Redemption Price or the Series C Redemption Price, as the case may be, for the
shares of Series B Preferred Stock or Series C Preferred Stock to be redeemed on
such Date is either paid or made available for payment through the deposit
arrangement specified in subparagraph (vii) below, then notwithstanding that the
certificates evidencing any of the shares of Series B Preferred Stock or Series
C Preferred Stock so called for redemption shall not have been surrendered, the
dividends with respect to such shares shall cease to accrue after the Redemption
Date and all rights with respect to such shares shall forthwith terminate after
the Redemption Date, except only the right of the holders to receive the Series
B Redemption Price or Series C Redemption Price, as the case may be, with
respect to such shares without interest upon surrender of their certificate or
certificates therefor.
(vii) DEPOSIT OF FUNDS. On or prior to each Redemption Date,
the Corporation shall deposit as a trust fund with any bank or trust company,
having a capital and surplus of at least $100,000,000, a sum equal to the
aggregate Series B Redemption Price and Series C Redemption Price of all shares
of Series B Preferred Stock or Series C Preferred Stock called for redemption on
such Redemption Date and not yet redeemed pursuant to subparagraph (v) above,
with irrevocable instructions and authority to the bank or trust company to pay,
on and after each such Redemption Date, the Series B Redemption Price or the
Series C Redemption Price, as the case may be, to the respective holders upon
the surrender of their share certificates. From and after the date of such
deposit (but not prior to each Redemption Date), the shares so called for
redemption on such Redemption Date shall be deemed to have been redeemed. The
deposit shall constitute full payment of the shares to their holders, and from
and after each Redemption Date the shares redeemed on such Redemption Date shall
be deemed to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive, from the bank or trust company, payment of
the Series B Redemption Price or the Series C Redemption Price, as the case may
be, of the shares, without interest, upon surrender of their certificates
therefor. Any funds so deposited and unclaimed at the end of one year from the
Second Series B Redemption Date and the Second Series C Redemption Date shall be
released or repaid to the Corporation, after which
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the holders of shares called for redemption shall be entitled to receive
payment of the Series B Redemption Price or the Series C Redemption Price, as
the case may be, only from the Corporation. All interest on the amounts
deposited with such bank or trust company shall be paid to the Corporation at
the end of one year from the Second Series B Redemption Date and the Second
Series C Redemption Date.
(b) OPTIONAL REDEMPTION. The Corporation may, at any time and
from time to time prior to the Second Series B Redemption Date, redeem any or
all shares of the Series B Preferred Stock at the Series B Redemption Price with
funds legally available therefore. In the event the Corporation elects to
effectuate any such redemption, it shall send a Redemption Notice in accordance
with Section A.5(a)(iv) above. Thereafter, the shares to be redeemed pursuant
to the Redemption Notice shall be redeemed in accordance with the provisions of
Sections A.5(a)(v) through (vii) above.
6. PROTECTIVE PROVISIONS. (a) So long as any shares of Series B
Preferred Stock or Series C Preferred Stock are outstanding, the Corporation
shall not, without the prior written consent or affirmative vote of the holders
of record of at least 66-2/3% of the outstanding shares of the Series B
Preferred Stock and the Series C Preferred Stock, each voting as a separate
class:
(i) amend, repeal or modify any provision of, or add any
provision to, this Restated Certificate of Incorporation or the Second Amended
and Restated By-laws, as such By-laws may, from time to time be further amended
or modified (as so amended, the "Second and Amended Restated By-laws") if such
action would alter or change the rights, preferences, privileges or powers of,
or the restrictions provided for the benefit of, the Designated Preferred Stock;
(ii) authorize, create or issue shares of any class or series of
stock having any preference or priority as to dividends, liquidation, redemption
or assets superior to or on a parity with any such preference or priority of the
Series B Preferred Stock or the Series C Preferred Stock, or authorize, create
or issue shares of any class or series or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having optional rights to
purchase, any shares of capital stock of the Corporation having any such
preference or priority; or
(iii) reclassify the shares of Common Stock or any other shares
of stock hereafter created junior to the Series B Preferred Stock or Series C
Preferred Stock as to dividends, liquidation, redemption or assets into shares
of Series B Preferred Stock or Series C Preferred Stock or into shares having
any preference or priority as to dividends or assets superior to or on a parity
with that of the Series B Preferred Stock or Series C Preferred Stock.
(b) So long as not less than 4,000 shares of Series B
Preferred Stock or 100,000 shares of Series C Preferred Stock are
outstanding, the Corporation shall not, without the prior written consent or
affirmative vote of the holders of record of at least 66-2/3% of the
outstanding shares of Series B Preferred Stock and the Series C Preferred
Stock, each voting as a separate class:
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(i) declare or pay any dividends or make any other
distributions on shares of Common Stock, other than dividends payable solely
in shares of Common Stock;
(ii) repurchase any shares of Series B Preferred Stock or Common
Stock (other than shares of Common Stock issued or sold by the Corporation to an
employee pursuant to an employee stock purchase option or benefit plan,
agreement or other offering or arrangement, including without limitation all
shares sold to employees of the Corporation subject to agreements of restriction
by the Company or redemptions effected upon the terms contained in the Restated
Certificate of Incorporation);
(iii) sell, convey or otherwise dispose of all or substantially
all of the property or business of the Corporation;
(iv) merge or consolidate the Corporation into or with any other
corporation, partnership or other entity unless upon consummation of such merger
or consolidation, the holders of voting securities of the Corporation own
directly or indirectly 51% or more of the voting power to elect directors of the
surviving, acquiring or consolidated corporation, partnership or other entity;
(v) permit the assignment in whole or in part of amounts
otherwise due to the Corporation from the discovery and production of
hydrocarbons to any stockholder of the Corporation, or officer of the
Corporation, or any founding stockholder of the Corporation, unless such
assignment has been approved by the unanimous consent of the non-management
members of the Board of Directors of the Corporation; or
(vi) pay any agency, transaction or other fees to any
stockholder of the Corporation unless such payment has been approved by the
unanimous consent of the non-management members of the Board of Directors of the
Corporation.
(c) So long as not less than 4,000 shares of Series B
Preferred Stock or 100,000 shares of Series C Preferred Stock are
outstanding, the Company shall not, without the prior written consent or
affirmative vote of 66-2/3% of the entire Board of Directors:
(i) acquire, or permit any Controlled Entity to acquire, any
stock or other securities of any Controlled Entity or other corporation,
partnership or entity or acquire additional assets in any case for consideration
in excess of $500,000 unless the acquired entity is wholly owned by the
Corporation, and except certificates of deposit, high quality commercial paper,
United States government securities and other short-term, high quality liquid
investment grade securities;
(ii) acquire assets from or merge with one or more companies or
merge or consolidate one or more companies into a subsidiary of the Corporation
for consideration in excess of an aggregate of $500,000;
(iii) sell, lease, convey or otherwise dispose of any "material
assets" (which, for the purposes of this Section A.6(c)(iii), are defined as
assets having an aggregate
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fair market value of at least $250,000) of the Corporation or its
subsidiaries or business operations of material subsidiaries of the
Corporation that in the aggregate constitute a material asset of the
Corporation;
(iv) replace the chief executive officer of the Corporation upon
his death, retirement or disability;
(v) make, or permit any corporation, firm or entity under its
control (a "Controlled Entity") to make, any loans or advances or create any
liens or contingent liabilities in excess of $250,000; or
(vi) mortgage or pledge, or create a security interest in, or
permit any Controlled Entity to mortgage, pledge or create a security interest
in, a majority in value of the property of the Corporation or such Controlled
Entity, in any case to secure a debt in excess of $250,000.
B. UNDESIGNATED PREFERRED STOCK
The Board of Directors is hereby expressly vested with the
authority to adopt a resolution or resolutions providing for the issue of
authorized but unissued shares of Undesignated Preferred Stock, which shares may
be issued from time to time, in one or more series and in such amounts as may be
determined by the Board of Directors in such resolution or resolutions. The
powers, voting rights, designations, preferences and relative, participating,
optional or other special rights, if any, of each series of Undesignated
Preferred Stock and the qualifications, limitations or restrictions, if any, of
such preferences and/or rights (collectively, the "Series Terms"), shall be such
as are stated and expressed in the resolution or resolutions providing for the
issue of such series of such previously Undesignated Preferred Stock (the
"Series Terms Resolution") adopted by the Board of Directors. The powers of the
Board of Directors with respect to the Series Terms of a particular series (any
of which powers may by resolution of the Board of Directors be specifically
delegated to one or more of its committees, except as prohibited by Delaware
Corporation Law) shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and
the distinctive designation of that series;
(2) The dividend rate on the shares of that series,
whether such dividends, if any, shall be cumulative, and, if
so, the date or dates from which dividends payable on such
shares shall accumulate, and the relative rights of
priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights, in
addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
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(4) Whether that series shall have conversion
privileges with respect to shares of any other class or
classes of stock or of any other series of any class of
stock, and, if so, the terms and conditions of such
conversion upon the occurrence of such events as the Board
of Directors shall determine;
(5) Whether the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the relative rights of priority of the
shares of such series, if any, of redemption, the date or
dates upon or after which the shares of such series shall be
redeemable, provisions regarding redemption notices, and the
amount per share payable in case of redemption, which amount
may vary under different conditions and at different
redemption dates;
(6) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund;
(7) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series;
(8) The conditions or restrictions upon the creation
of indebtedness of the Corporation or upon the issuance of
additional Preferred Stock or other capital stock ranking on
a parity therewith, or prior thereto, with respect to
dividends or distribution of assets upon liquidation;
(9) The conditions or restrictions with respect to the
issuance of, payment of dividends upon, or the making of
other distributions to, or the acquisition or redemption of,
shares ranking junior to the Preferred Stock or to any
series thereof with respect to dividends or distribution of
assets upon liquidation; and
(10) Any other designation, preference, power and right
and any qualification, limitation or restriction thereon as
may be fixed by resolution or resolutions of the Board of
Directors under the Delaware Corporation Law.
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside this Restated Certificate and
the Series Terms Resolution, provided that the manner in which such facts shall
operate upon such Series Terms is clearly and expressly set forth in this
Restated Certificate or in the Series Terms Resolution.
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C. COMMON STOCK
The Common Stock shall consist of Twenty Million (20,000,000) shares.
The powers, preferences and rights, and the qualifications, limitations and
restrictions of the Common Stock are as follows:
1. VOTING, ETC. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share held. Each share of Common Stock is
vested with all of the same rights and powers in all respects, including,
without limitation, dividend and liquidation rights.
2. DIVIDENDS. No dividend may be declared on the Common Stock
unless dividends have been paid, or declared and set apart for payment, on
account of the Designated Preferred Stock, in accordance with the provisions of
Section A.2 above. When and as dividends are declared thereon, whether payable
in cash, property or securities of the Corporation, holders of Common Stock will
be entitled to share in such dividends ratably according to the number of shares
of Common Stock held by such holder, subject to the rights of holders of shares
of any series of Designated Preferred Stock or any series of Undesignated
Preferred Stock set forth in any Series Terms Resolution.
3. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment is made to the holders of the Designated Preferred Stock as
indicated in Section A.3 above and after payment or provision for the payment of
the debts and other liabilities of the Corporation and the payment or setting
aside for payment of any preferential amount due to the holders of shares of any
series of Undesignated Preferred Stock, the holders of Common Stock shall be
entitled to share, ratably according to the number of shares of Common Stock
held by them, in the remaining assets of the Corporation available for
distribution to its stockholders, subject to the rights of the holders of any
shares of any class of stock or series ranking on parity with the Common Stock
as to payment or distribution in such event.
4. ACTION BY STOCKHOLDERS. Except as otherwise provided in
this Restated Certificate, no action may be taken by holders of shares of Common
Stock except at a duly called annual or special meeting of stockholders.
FIFTH: In furtherance and not in limitation of the powers conferred
by statute, the Second Amended and Restated By-laws may be made, modified,
altered, amended or repealed by the Board of Directors pursuant only to a
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors.
SIXTH: The following provisions are inserted for purposes of the
management of the business and conduct of the affairs of the Corporation and for
creating, defining, limiting and regulating the powers of the Corporation and
its directors and stockholders:
A. GENERAL POWER OF BOARD OF DIRECTORS.
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The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be
managed under the direction of, a Board of Directors. The number of
directors may be increased or decreased by the Board of Directors from
time to time as provided in the By-laws of the Corporation.
B. CLASSIFIED BOARD OF DIRECTORS.
The Board of Directors of the Corporation shall be divided into
three classes, designated as Class A, Class B and Class C, each
initially composed of such number of directors as is nearly as equal
in number as is possible. Upon any change in the size of the Board of
Directors, each class shall consist, as nearly as may be possible, of
one-third (1/3) of the total number of directors constituting the
entire Board of Directors.
The initial term of office of Class A directors shall expire at
the next annual meeting of stockholders of the Corporation following
the filing of this Restated Certificate of Incorporation; the initial
term of office of Class B directors shall expire at the second annual
meeting of stockholders of the Corporation following the filing of
this Restated Certificate of Incorporation; and the initial term of
office of Class C directors shall expire at the third annual meeting
of stockholders of the Corporation following the filing of this
Restated Certificate of Incorporation. The initial designation of
directors among Class A, Class B and Class C shall be made by the
Board of Directors. At each annual meeting of stockholders, the
successors to the class of directors whose term shall then expire
shall be elected to hold office for a term expiring at the third
succeeding annual meeting of stockholders. Each director shall hold
office for the term for which he or she was elected and until his or
her successor is elected and qualified or until his or her resignation
or removal. Any vacancy on the Board of Directors for any reason
shall be filled in accordance with the By-laws.
SEVENTH: No director of the Corporation shall have personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that nothing in this Article shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for any
act or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. In the event the Delaware Corporation Law is amended after
the date hereof so as to authorize corporate action further eliminating or
limiting the liability of directors of the Corporation, the liability of the
directors shall thereupon be eliminated or limited to the maximum extent
permitted by the Delaware Corporation Law, as so amended from time to time. Any
repeal or modification of the foregoing provisions of this Article SEVENTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director existing at the time of such repeal or modification.
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EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under Section 145 from and against any and all expense, liability, or
other matter referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other right to which
those indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
any manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation and further subject
to the condition that any amendment to each of Article Fourth, Sections B and
C(4) of this Restated Certificate and this Article Ninth shall require the
affirmative vote of holders of at least 67% of the issued and outstanding shares
of the Corporation's capital stock entitled to vote thereon.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, 3DX Technologies Inc. has caused this fifth
Restated Certificate of Incorporation to be signed by its duly authorized
officer this ____ day of December, 1996.
-------------------------------------
C. Eugene Ennis
President and Chief Executive Officer
22
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
3DX TECHNOLOGIES INC.
It is hereby certified that:
1. The name of the corporation is 3DX TECHNOLOGIES INC. (the
"Corporation"), and the name under which the Corporation was originally
incorporated is Novera Energy Inc. The original Certificate of Incorporation of
the Corporation was filed with the Office of the Secretary of State of the State
of Delaware on December 8, 1992. A Restated Certificate of Incorporation was
filed with the Office of the Secretary of State of the State of Delaware on
January 27, 1993. A Second Restated Certificate of Incorporation was filed with
the Office of the Secretary of State of the State of Delaware on November 9,
1993. A third Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on December 17, 1993. A fourth
Restated Certificate of Incorporation was filed with the Office of the Secretary
of State of the State of Delaware on July 26, 1995. A fifth Restated
Certificate of Incorporation (the "Fifth Restated Certificate") was filed with
the Office of the Secretary of State of the State of Delaware on December __,
1996.
2. The Fifth Restated Certificate is hereby restated and further
amended as follows: (i) to eliminate the series of the Corporation's Preferred
Stock designated respectively as the Redeemable Preferred Stock, Series B and
the Senior Redeemable Convertible Preferred Stock, Series C, and (ii) to reduce
the total number of shares of capital stock that the Corporation shall have the
authority to issue from Twenty-Four Million Five Hundred Thousand (24,500,000)
shares to Twenty-One Million (21,000,000) shares, of which Twenty Million
(20,000,000) shares shall be Common Stock, par value $.01 per share, and One
Million (1,000,000) shares shall be designated Preferred Stock, par value $.01
per share.
3. Except for (i) the inclusion of the foregoing amendments, and
(ii) the renumbering of the Fifth Restated Certificate to effect the omission of
such matters, there are no discrepancies between the provisions of the Fifth
Restated Certificate as heretofore amended and supplemented and the provisions
of the said single instrument hereinafter set forth.
4. The amendments to the Fifth Restated Certificate and the
restatement of the Fifth Restated Certificate as amended as the sixth Restated
Certificate of Incorporation (the "Sixth Restated Certificate") herein certified
have been duly adopted by the stockholders of the Corporation in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
<PAGE>
The text of the Fifth Restated Certificate is restated with the
amendments described above, effective as of ___ a.m. on December __, 1996 to
read as follows:
FIRST: The name of the corporation is 3DX Technologies Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is located at 1013 Centre Road, City of Wilmington, County of
New Castle. The name of its registered agent at such address is the Corporation
Service Company.
THIRD: The nature of the business and the purpose of the Corporation
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware ("Delaware
Corporation Law").
FOURTH: The Corporation shall have the authority to issue two (2)
classes of shares of capital stock, to be designated respectively "Preferred
Stock" and "Common Stock". The total number of shares of stock that the
Corporation shall have the authority to issue is Twenty-One Million
(21,000,000). The total number of shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), that the Corporation shall have authority to
issue is One Million (1,000,000). The total number of shares of Common Stock,
par value $.01 per share (the "Common Stock"), that the Corporation shall have
the authority to issue is Twenty Million (20,000,000).
The following is a statement fixing certain of the designations and
the powers, voting rights, preferences and relative, participating, optional and
other rights of the Preferred Stock and the Common Stock of the Corporation, and
the qualifications, limitations or restrictions thereof, and of the authority
with respect thereto expressly granted to the Board of Directors of the
Corporation to fix any such provisions not fixed by this Fifth Restated
Certificate.
A. PREFERRED STOCK
The Board of Directors is hereby expressly vested with the authority to
adopt a resolution or resolutions providing for the issue of authorized but
unissued shares of Preferred Stock, which shares may be issued from time to
time, in one or more series and in such amounts as may be determined by the
Board of Directors in such resolution or resolutions. The powers, voting
rights, designations, preferences and relative, participating, optional or other
special rights, if any, of each series of Preferred Stock and the
qualifications, limitations or restrictions, if any, of such preferences and/or
rights (collectively, the "Series Terms"), shall be such as are stated and
expressed in the resolution or resolutions providing for the issue of such
series of such previously Preferred Stock (the "Series Terms Resolution")
adopted by the Board of Directors. The powers of the Board of Directors with
respect to the Series Terms of a particular series (any of which powers may by
resolution of the Board of Directors be specifically delegated to one or more of
its committees, except as prohibited by Delaware Corporation Law) shall include,
but not be limited to, determination of the following:
<PAGE>
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether
such dividends, if any, shall be cumulative, and, if so, the date or
dates from which dividends payable on such shares shall accumulate,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(3) Whether that series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms
of such voting rights;
(4) Whether that series shall have conversion privileges
with respect to shares of any other class or classes of stock or of
any other series of any class of stock, and, if so, the terms and
conditions of such conversion upon the occurrence of such events as
the Board of Directors shall determine;
(5) Whether the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including
the relative rights of priority of the shares of such series, if any,
of redemption, the date or dates upon or after which the shares of
such series shall be redeemable, provisions regarding redemption
notices, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(8) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith,
or prior thereto, with respect to dividends or distribution of assets
upon liquidation;
(9) The conditions or restrictions with respect to the
issuance of, payment of dividends upon, or the making of other
distributions to, or the acquisition or redemption of, shares ranking
junior to the Preferred Stock or to any series thereof with respect
to dividends or distribution of assets upon liquidation; and
(10) Any other designation, preference, power and right
and any qualification, limitation or restriction thereon as may be
fixed by resolution or resolutions of the Board of Directors under
the Delaware Corporation Law.
2
<PAGE>
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside this Restated Certificate and
the Series Terms Resolution, provided that the manner in which such facts shall
operate upon such Series Terms is clearly and expressly set forth in this
Restated Certificate or in the Series Terms Resolution.
B. COMMON STOCK
The Common Stock shall consist of Twenty Million (20,000,000) shares. The
powers, preferences and rights, and the qualifications, limitations and
restrictions of the Common Stock are as follows:
1. VOTING, ETC. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share held. Each share of Common Stock is
vested with all of the same rights and powers in all respects, including,
without limitation, dividend and liquidation rights.
2. DIVIDENDS. When and as dividends are declared thereon,
whether payable in cash, property or securities of the Corporation, holders of
Common Stock will be entitled to share in such dividends ratably according to
the number of shares of Common Stock held by such holder, subject to the rights
of the holders of shares of any series of Preferred Stock set forth in any
Series Terms Resolution.
3. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for the payment of the debts and other liabilities of
the Corporation and the payment or setting aside for payment of any preferential
amount due to the holders of shares of any series of Preferred Stock, the
holders of Common Stock shall be entitled to share, ratably according to the
number of shares of Common Stock held by them, in the remaining assets of the
Corporation available for distribution to its stockholders, subject to the
rights of the holders of any shares of any class of stock or series ranking on
parity with the Common Stock as to payment or distribution in such event.
4. ACTION BY STOCKHOLDERS. Except as otherwise provided in
this Restated Certificate, no action may be taken by holders of shares of Common
Stock except at a duly called annual or special meeting of stockholders.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Second Amended and Restated By-laws, as such By-Laws, may be from
time to time amended, modified or supplemented (as amended, the "By-Laws"), of
the Corporation may be modified, altered, amended or repealed by the Board of
Directors pursuant to a resolution adopted by the affirmative vote of a majority
of the entire Board of Directors.
SIXTH: The following provisions are inserted for purposes of the
management of the business and conduct of the affairs of the Corporation and for
creating, defining, limiting and regulating the powers of the Corporation and
its directors and stockholders:
3
<PAGE>
A. GENERAL POWER OF BOARD OF DIRECTORS.
The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be
managed under the direction of, a Board of Directors. The number of
directors may be increased or decreased by the Board of Directors from
time to time as provided in the By-laws.
B. CLASSIFIED BOARD OF DIRECTORS.
The Board of Directors of the Corporation shall be divided into
three classes designated as Class A, Class B and Class C, each initially
composed of such number of directors as is nearly as equal in number as is
possible. Upon any change in the size of the Board of Directors, each
class shall consist, as nearly as may be possible, of one-third (1/3) of
the total number of directors constituting the entire Board of Directors.
The initial term of office of Class A directors shall expire at
the next annual meeting of stockholders of the Corporation following the
filing of the Corporation's Restated Certificate of Incorporation which
was filed with the Office of the Secretary of State of the State of
Delaware on December _____, 1996 (the "December ____, 1996 Restated
Certificate"); the initial term of office of Class B directors shall
expire at the second annual meeting of stockholders of the Corporation
following the filing of the December ____, 1996 Restated Certificate of
Incorporation; and the initial term of office of Class C directors shall
expire at the third annual meeting of stockholders of the Corporation
following the filing of the December ____, 1996 Restated Certificate of
Incorporation. The initial designation of directors among Class A, Class
B and Class C shall be made by the Board of Directors. At each annual
meeting of stockholders, the successors to the class of directors whose
term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting of stockholders. Each director
shall hold office for the term for which he or she was elected and until
his or her successor is elected and qualified or until his or her
resignation or removal. Any vacancy on the Board of Directors for any
reason shall be filled in accordance with the By-laws.
SEVENTH: No director of the Corporation shall have personal liability to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that nothing in this Article SEVENTH shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for any
act or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. In the event the Delaware Corporation Law is amended after
the date hereof so as to authorize corporate action further eliminating or
limiting the liability of directors of the Corporation, the liability of the
directors shall thereupon be eliminated or limited to the maximum extent
permitted by the Delaware Corporation Law, as so amended from time to time. Any
repeal or modification of the foregoing provisions of this Article SEVENTH by
the stockholders of the Corporation shall
4
<PAGE>
not adversely affect any right or protection of a director existing at the
time of such repeal or modification.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under Section 145 from and against any and all expense, liability, or
other matter referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other right to which
those indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate, in any manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation and further subject to the
condition that any amendment to each of Article Fourth, Sections B and C(4) of
this Restated Certificate and this Article Ninth shall require the affirmative
vote of holders of at least 67% of the issued and outstanding shares of the
Corporation's capital stock entitled to vote thereon.
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5
<PAGE>
IN WITNESS WHEREOF, 3DX Technologies Inc. has caused this Restated
Certificate of Incorporation to be signed by its duly authorized officer
this ____ day of December, 1996.
---------------------------------------
C. Eugene Ennis
President and Chief Executive Officer
6
<PAGE>
SECOND AMENDED AND RESTATED BY-LAWS
OF
3DX TECHNOLOGIES INC.
(FORMERLY NOVERA ENERGY INC.)
EFFECTIVE DECEMBER __, 1996
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation for the purpose of electing Directors and for the transaction of
such other business as may be properly brought before the meeting shall be held
on such date, at such time and at such place within or without the State of
Delaware as may be designated by the Board of Directors or if no date and time
are so fixed, on the second Tuesday in May of each year at the office of the
Corporation at 10:00 a.m.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided by statute or
in the Corporation's Fourth Restated Certificate of Incorporation, as such
certificate of incorporation may be from time to time hereafter modified,
amended or supplemented (the "Restated Certificate"), a special meeting of the
stockholders of the Corporation may be called at any time by the Board of
Directors or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate.
SECTION 3. NOTICE OF MEETINGS. Written notice of each meeting
of the stockholders, which shall state the place, date and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which it is
called, shall be given, not less than ten (10) nor more than sixty (60) days
before the date of such meeting, either personally or
<PAGE>
by mail, to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, directed to the stockholder at the address of
such stockholder as it appears on the records of the Corporation. Whenever
notice is required to be given, a written waiver thereof signed by the
stockholder entitled thereto, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a stockholder at
a meeting shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting. If, at any meeting of
stockholders, action is proposed to be taken which would, if taken, entitle
stockholders to perfect appraisal rights with respect to their shares of the
Corporation's capital stock, the notice of meeting shall include a statement
to that effect and such notice shall comply with the requirements specified
in Section 262 of the General Corporation Law of the State of Delaware.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Restated Certificate or by these By-Laws, in which case the representation of
the number of shares so required shall constitute a quorum; provided that at
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<PAGE>
any meeting of the stockholders at which the holders of any class of stock of
the Corporation shall be entitled to vote separately as a class, the holders
of a majority in number of the total outstanding shares of such class,
present in person or represented by proxy, shall constitute a quorum for
purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present
in person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. At the adjourned meeting the stockholders, or the holders of any
class of stock entitled to vote separately as a class, as the case may be, may
transact any business which might have been transacted by them at the original
meeting. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board of Directors of the Corporation, or in the Chairman's
absence or inability to act, the Chief Executive Officer of the Corporation or
in such officer's absence or inability to act, a Vice President shall call all
meetings of the stockholders to order, and shall act as
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<PAGE>
chairman of such meetings. In the absence each of the Chairman, the Chief
Executive Officer and each of the Vice Presidents, the holders of a majority
in number of the shares of stock of the Corporation present in person or
represented by proxy and entitled to vote at such meeting shall elect a
Chairman. The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 7. VOTING. Except as otherwise provided in the Restated
Certificate or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. Except as
otherwise provided by law, every proxy shall be revocable at the pleasure of the
stockholder executing it. No such proxy shall be voted or acted upon after
three years from its date unless the proxy provides for a longer period. Unless
required by statute or determined by the chairman of the meeting to be
advisable, the vote on any matter need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting or by such stockholder's
proxy if there can be such proxy, and shall state the number of shares voted.
Except as otherwise provided by law or by the Restated Certificate,
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in the election and, whenever
any corporate action other than the election of
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<PAGE>
Directors is to be taken, it shall be authorized by a majority of the votes
cast at a meeting of stockholders by the stockholders entitled to vote
thereon.
Shares of the capital stock of the Corporation belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary
of the Corporation to prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of stockholders entitled to vote at
such meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting or, if
not so specified, at the place where the meeting is to be held, for the ten (10)
days next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 9. INSPECTORS. The Board of Directors, in advance of any meeting
of stockholders, shall appoint one or more inspectors to act at such meeting or
any adjournment thereof and to make a written report thereon. The Board of
Directors may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
the meeting of stockholders, the chairman of the meeting shall appoint one or
more inspectors to act at the meeting. Each inspector before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of
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<PAGE>
inspector at such meeting with strict impartiality and according to the best
of his ability. The inspectors shall ascertain the number of shares of each
kind, class or series of stock outstanding and the voting power of each,
determine the number of shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or
matter determined by them and shall execute a certificate of any fact found
by them. No Director or candidate for the office of Director shall act as an
inspector of an election of Directors. Inspectors need not be stockholders.
SECTION 10. BUSINESS BROUGHT BEFORE A MEETING. At an annual meeting of
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before the meeting of
stockholders. To be properly brought before an annual meeting of stockholders,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder who was a
stockholder of record at the time of giving of the notice provided for in this
section, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 10. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and such
business must otherwise be a proper matter for stockholder action. To be
timely, a
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<PAGE>
stockholder's notice must be delivered to or mailed and received by the
Corporation's Secretary at the principal executive offices of the
Corporation, not less than eighty (80) days prior to the first anniversary of
the preceding year's annual meeting of stockholders; PROVIDED, HOWEVER, that
in the event that the date of the annual meeting of stockholders is changed
by more than thirty (30) days from such anniversary date, notice by the
stockholder to be timely must be so received no later than the close of
business on the tenth (10) day following the day on which notice of the date
of the meeting was mailed. A stockholder's notice to the Corporation's
Secretary shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or re-election as a Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11
thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Director if elected); (b) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business sought to be brought before the
meeting; (c) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such nominee or business and any other
stockholders known by such stockholder to be supporting such nominee or
proposal; (d) the class and number of shares of the Corporation which, on the
date of such stockholder's notice, are beneficially owned by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee or proposal; and (e) any material interest of the stockholder in such
business. Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at an annual meeting of stockholders except in
accordance with the procedures set forth in this Section 10. The chairman of
the
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<PAGE>
annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 10; and if the chairman should
so determine, the chairman shall so declare at the meeting and any such
business not properly brought before such meeting shall not be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors. The
Board of Directors may exercise all such authority and powers of the
Corporation and do all such lawful acts and things as are not by statute, the
Restated Certificate or these By-laws directed or required to be done by the
stockholders.
SECTION 2. NUMBER AND QUALIFICATIONS. The Board of Directors shall
consist of not less than three (3) nor more than five (5) Directors.
Directors need not be stockholders. The Board of Directors, by the
affirmative vote of a majority of the entire Board of Directors, may increase
the number of Directors to a number not exceeding nine (9). Vacancies
occurring by reason of any such increase shall be filled in accordance with
Section 4 of this Article II. The Board of Directors, by the vote of a
majority of the entire Board of Directors, may decrease the number of
Directors to a number not less than three (3) but any such decrease shall not
affect the term of office of any Director.
SECTION 3. CLASSES, ELECTION AND TERM OF OFFICE. The Board of
Directors shall be divided into three classes serving staggered three-year
terms. Except for Directors elected to fill vacancies, all Directors shall
be elected at the annual meeting of stockholders and shall be nominated in
accordance with the provisions of Section 5 of this Article. Directors
elected to fill vacancies shall be appointed and elected in accordance with
the provisions of
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Section 4 of this Article. At each meeting of stockholders for the election
of Directors at which a quorum is present, the persons receiving the greatest
number of votes, up to the number of Directors to be elected, shall be the
Directors. Each Director shall hold office until his successor is elected
and qualified, or until his earlier resignation by written notice to the
Secretary of the Corporation, or until his removal from office.
SECTION 4. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The
stockholders may, by the affirmative vote of the holders of at least 67% of
the issued and outstanding shares of the Corporation's capital stock entitled
to vote with respect to the election of Directors, at any special meeting the
notice of which shall state that it is called for that purpose, remove, with
or without cause, any Director and fill the vacancy in accordance with these
By-laws; provided, however, that whenever any Director shall have been
elected by the holders of any class of stock of the Corporation voting
separately as a class pursuant to statute or the provisions of the Restated
Certificate, such Director may be removed and the vacancy filled only by the
holders of that class of stock voting separately as a class. Vacancies
caused by any removal, or any vacancy caused by the death or resignation of
any Director or for any other reason, and any newly created Directorship
resulting from any increase in the authorized number of Directors, shall be
filled by the affirmative vote of a majority of the Directors then in office,
although less than a quorum, and if there shall be no Directors then in
office, such vacancy or newly created Directorship shall be filled by holders
of at least 67% of the shares of the Corporation's capital stock entitled to
vote with respect to the election of Directors, and any Director so elected
to fill any newly created directorship shall hold office for a term that
shall coincide with the class of Directors to which such Director is elected
and each other Director elected to fill a vacancy nor resulting from an
increase in the
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number of Directors shall hold office for the same remaining term as that of
his or her predecessor.
When one (1) or more Directors shall resign from the Board of Directors
effective at a future date, a majority of the Directors then in office,
including those who have so resigned, shall have power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office until the next election of such class or classes for which such
Director or Directors have been chosen and until their successors shall be
elected and qualified.
SECTION 5. NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the
notice provided for in these By-laws, who is entitled to vote for the
election of Directors at the meeting and who shall have complied with the
notice procedures set forth in Article I, Section 10. At the request of the
Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee.
(b) No person shall be eligible to serve as a Director of the Corporation
unless nominated in accordance with the procedures set forth in these By-laws.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by these By-laws, and if the chairman should so declare, the
defective nomination shall be disregarded. A
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stockholder seeking to nominate a person to serve as a Director must also
comply with all applicable requirements of the Exchange Act, and the rules
and regulations promulgated thereunder, with respect to the nomination and
election of Directors matters set forth in this Section 5.
SECTION 6. PLACE OF MEETING. The Board of Directors may hold its
meetings in such place or places in or outside the State of Delaware as the
Board of Directors may from time to time determine or as specified in the
notice of any such meeting.
SECTION 7. ANNUAL MEETING. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business as soon as practicable after each annual meeting of the
stockholders, on the same day and at the same place where such annual meeting
of stockholders shall be held. Notice of such meeting need not be given.
Such meeting may be held at any other time or place, within or without the
State of Delaware, which shall be specified in a notice thereof given as
hereinafter provided in Section 10 of this Article II.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held monthly at the offices of the Corporation, or at such
other place as the Board of Directors may determine. No notice shall be
required for any regular meeting of the Board of Directors held at the
offices of the Corporation. A copy of every resolution fixing or changing
the time or place of regular meetings shall be delivered to every Director at
least five (5) days before the first meeting held pursuant thereto.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the President, or by
any two (2) of the Directors then in office.
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SECTION 10. NOTICE OF MEETINGS. Notice of the day, hour and place of
holding of each special meeting (and each annual or regular meeting for which
notice shall be required) shall be given by mailing the same at least five
(5) days before the meeting or by causing the same to be transmitted by
telegraph, cable or wireless at least one (1) day before the meeting to each
Director. Unless otherwise indicated in the notice thereof, any and all
business other than an amendment of these By-Laws may be transacted at any
special meeting, and an amendment of these By-Laws may be acted upon if the
notice of the meeting shall have stated that the amendment of these By-Laws
is one (1) of the purposes of the meeting. At any meeting at which every
Director shall be present, even though without any notice, any business may
be transacted, including the amendment of these By-Laws. A written waiver of
notice, signed by the Director entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance by
a Director at a meeting shall constitute a waiver of notice of such meeting,
except when the Director attends a meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 11. QUORUM. Subject to the provisions of Section 4 of this
Article II, a majority of the members of the Board of Directors in office
(but in no case less than one-third of the total number of Directors) shall
constitute a quorum for the transaction of business and the vote of the
majority of the Directors present at any meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors. If at
any meeting of the Board of Directors there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time. Notice
of the time and place of any such adjourned meeting shall be given to the
Directors who were not present at the time of the adjournment and, unless
such time and place were announced at the meeting at which the
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adjournment was taken, to the other Directors. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally called. The Directors shall act
only as a board and the individual Directors shall have no power as such.
SECTION 12. ORGANIZATION. At all meetings of the Board of Directors, a
chairman shall be elected from the Directors present to preside at such meeting.
The Secretary of the Corporation shall act as Secretary of all meetings of the
Directors; but in the absence of the Secretary, the Chairman may appoint any
person to act as secretary of the meeting.
SECTION 13. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one (1) or more committees, each
committee to consist of one (1) or more of the Directors of the Corporation.
The Board of Directors may designate one (1) or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and the
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; except that no such committee shall
have the power or authority in reference to amending the Restated Certificate,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's
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property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or an amendment to these
By-Laws; and unless such resolution, these By-Laws, or the Restated
Certificate expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep written minutes of its proceedings and shall report such
minutes to the Board of Directors when required.
SECTION 14. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Restated Certificate or by these By-Laws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board of Directors or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
such participation shall constitute presence in person at such meeting.
SECTION 15. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Restated Certificate or by these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or committee, as the case may be, consent thereto in writing
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee, as the case may be.
SECTION 16. COMPENSATION. The amount, if any, that each Director shall be
entitled to receive as compensation for his services as such shall be fixed from
time to time by resolution of the Board of Directors. Non-management Directors
shall be entitled to receive reimbursement from the Corporation for travel
expenses in connection with their
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attendance at any meeting of the Board of Directors, PROVIDED such expenses
do not exceed $500 per meeting for meetings held in the State of Texas.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, one (1) or more Vice Presidents, a Secretary and a Treasurer, and
such additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 8 of this Article III. The President, one
(1) or more Vice Presidents, the Secretary and the Treasurer shall be elected by
the Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors.
Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, such officer's resignation,
his removal, or otherwise, may be filled by the Board of Directors, and any
officer so elected shall hold office at the pleasure of the Board of Directors
for the unexpired portion of the term of office which shall be vacant.
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In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, each officer shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer, subject to the control of the Board of Directors, shall have
general responsibility for the business and affairs of the Corporation and shall
be the chief policy making officer of the Corporation. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside at all meetings
of each of the stockholders and the Board of Directors and he shall have such
other powers and duties as may be assigned to or required of such officer from
time to time by the Board of Directors or these By-laws.
SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. Unless otherwise
determined by the Board of Directors, the President, subject to the control of
the Board of Directors, shall perform all duties and services incident to the
office of President. In the absence of the Chairman of the Board and the Chief
Executive Officer, the President shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. In addition, the
President shall have such other powers and perform such other duties as may from
time to time be assigned to him by these By-Laws or by the Board of Directors.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall perform all duties incident to the office of Vice President and shall have
such powers and perform such other duties as may from time to time be assigned
to such office by these By-Laws or by the Board of Directors, the Chief
Executive Officer or the President.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of
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all notices of the Corporation; he shall have custody of the corporate seal
of the Corporation and shall affix the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be
a facsimile as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
he shall have charge of the stock certificate books, transfer books and stock
ledgers and such other books and papers as the Board of Directors, Chief
Executive Officer or the President shall direct, cause the books, reports,
statements, certificates and other documents and records required by law to
be kept and filed to be properly kept and filed all of which shall at all
reasonable times be open to the examination of any Director, upon application,
at the office of the Corporation during business hours; and he shall perform
all duties incident to the office of Secretary and shall have such other
powers and shall perform such other duties as may from time to time be
assigned to him by these By-Laws or the Board of Directors, the Chief
Executive Officer or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for that purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation upon application at the office of the Corporation
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during business hours; and he shall perform all duties incident to the office
of Treasurer and shall have such other powers and shall perform such other
duties as may from time to time be assigned to him by these By-Laws, the
Board of Directors, the Chief Executive Officer or the President.
SECTION 7. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Chief Financial Officer, and one or more Assistant Treasurers,
Assistant Secretaries and Assistant Controllers, as the Board of Directors may
deem advisable, and such officers shall have such authority and shall perform
such duties as may from time to time be assigned to them by the Board of
Directors, the Chief Executive Officer or the President. The Board of Directors
may from time to time by resolution delegate to any Assistant Treasurer or
Assistant Treasurers any of the powers or duties herein assigned to the
Treasurer; and may similarly delegate to any Assistant Secretary or Assistant
Secretaries any of the powers or duties herein assigned to the Secretary.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board of Directors shall require.
SECTION 9. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meetings of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meetings shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of
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such stock. The Board of Directors may from time to time, by resolution,
confer like powers upon any other person or persons.
SECTION 10. COMPENSATION OF OFFICERS. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors or a committee thereof; PROVIDED, HOWEVER, that
the Board of Directors or a committee thereof may delegate to the Chief
Executive Officer the power to fix the compensation of other officers and
agents. An officer of the Corporation shall not be prevented from receiving
compensation by reason of the fact that such officer is or was a Director of the
Corporation, but any such officer who shall also be a Director (except in the
event there is only one (1) Director of the Corporation) shall not have any vote
in the determination of the compensation to be paid to him.
ARTICLE IV
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Restated Certificate, as shall be approved by the Board of Directors. All
certificates certifying the kind, class or series and number of shares of the
Corporation's capital stock owned by such holder shall be signed by the Chairman
of the Board, Chief Executive Officer, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and shall not be valid unless so signed. Any or all of the signatures on the
certificate may be a facsimile.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been
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delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who
signed such certificate or certificates had not ceased to be such officer or
officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby
with the number of such shares and the date of issue thereof shall be entered on
the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Anything herein to the contrary
notwithstanding, the Corporation in its absolute discretion may refuse to issue
any new certificate, except pursuant to judicial proceedings under the laws of
the State of Delaware.
SECTION 3. TRANSFER OF SHARES; REGISTERED STOCKHOLDERS. Transfers of
shares of stock of the Corporation shall be made on the stock records of the
Corporation only upon
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authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate
or certificates for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. Except as
otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or other
distributions, and to vote as such owner, and the Corporation may hold any
such stockholder of record liable for calls and assessments and the
Corporation shall not be bound to recognize any equitable or legal claim to
or interest in any such share or shares on the part of any other person
whether or not it shall have express or other notice thereof. Whenever any
transfers of shares shall be made for collateral security and not absolutely,
and both the transferor and transferee request the Corporation to do so, such
fact shall be stated in the entry of the transfer.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations not inconsistent with these By-laws
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. The Board of Directors may
appoint or authorize any officer or officers to appoint, one (1) or more
transfer agents and one (1) or more registrars and may require all certificates
for shares of stock to bear the signature or signatures of any of them.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to (i) notice of or to vote at any meeting of stockholders
or any adjournment thereof, (ii) express consent to corporate action in writing
without a meeting, (iii) receive payment of any dividend or other distribution
or allotment of any rights, (iv)
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exercise any rights in respect of any change, conversion or exchange of stock
or (v) for the purpose of any other lawful action, as the case may be, the
Board of Directors may fix, in advance, a record date, which shall (i) not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, (ii) not be more than ten (10) days after the date upon which the
resolution fixing the record date for consent to corporate action in writing
is adopted by the Board of Directors and (iii) not be more than sixty (60)
days prior to any other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Restated
Certificate, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law. Subject to the
provisions of the Restated Certificate, any dividends declared upon the stock
of the Corporation shall be payable on such date or dates as the Board of
Directors
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shall determine. If the date fixed for the payment of any dividend shall in
any year fall upon a legal holiday, then the dividend payable on such date
shall be paid on the next day not a legal holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, which shall be circular in form, bear the name of the Corporation
and shall include the words and numbers "Corporate Seal", "Delaware" and the
year of incorporation. The seal shall be kept in the custody of the Secretary.
A duplicate seal may be kept and be used by any officer of the Corporation
designated by the Board, the Chief Executive Officer or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. EXECUTION OF CONTRACTS. Except as otherwise required by
statute, the Restated Certificate or these By-laws, any contract or other
instrument may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board of
Directors may determine. Unless authorized by the Board of Directors or
expressly permitted by these By-laws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it pecuniarily liable for any purpose or to
any amount.
SECTION 2. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money out
of the funds of the
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Corporation shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as
shall from time to time be designated by the Board of Directors or pursuant
to authority delegated by the Board of Directors.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depositary
by the Treasurer and/or such other officers or persons as shall from time to
time be designated by the Treasurer.
SECTION 3. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation
may effect loans and advances for the Corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 4. OFFICES OUTSIDE OF DELAWARE. The registered office and
registered agent of the Corporation will be as specified in the Restated
Certificate. Except as otherwise required by the laws of the State of Delaware,
the Corporation may have an office or offices and keep its books, documents and
papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the President.
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SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation shall, to the fullest extent permitted by applicable law from time
to time in effect, indemnify any and all persons who may serve or who have
served at any time as Directors or officers of the Corporation, or who at the
request of the Corporation may serve or at any time have served as directors or
officers of another corporation (including subsidiaries of the Corporation) or
of any partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said law.
Such indemnification shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. The Corporation may also indemnify any and all
other persons whom it shall have power to indemnify under any applicable law
from time to time in effect to the extent authorized by the Board of Directors
and permitted by such law. The indemnification provided by this Article shall
not be deemed exclusive of any other rights to which any person may be entitled
under any provision of the Restated Certificate, these By-laws, agreement, vote
of stockholders or disinterested Directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
For purposes of this Section 5, the term "Corporation" shall include
constituent corporations referred to in Subsection (h) of the Section 145 of the
General Corporation Law (or any similar provision of applicable law at the time
in effect).
SECTION 6. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was a Director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other
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enterprise, including service with respect to employee benefit plans, against
any such expense, liability or loss asserted against it or such person and
incurred by it or such person, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the General Corporation Law of the State of Delaware.
SECTION 7. VOTING AS STOCKHOLDER. Unless otherwise determined by
resolution of the Board of Directors, the Chief Executive Officer, President or
any Vice President shall have full power and authority on behalf of the
Corporation to attend any meeting of stockholders of any corporation in which
the Corporation may hold stock, and to act, vote (or execute proxies to vote)
and exercise in person or by proxy all other rights, powers and privileges
incident to the ownership of such stock. Such officers acting on behalf of the
Corporation shall have full power and authority to execute any instrument
expressing consent to or dissent from any action of any such corporation without
a meeting. The Board of Directors may by resolution from time to time confer
such power and authority upon any other person or persons.
SECTION 8. CONSTRUCTION. In the event of any conflict between the
provisions of these By-laws as in effect from time to time and the provisions of
the Restated Certificate as in effect from time to time, the provisions of such
Restated Certificate shall be controlling.
ARTICLE VI
AMENDMENTS
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of
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<PAGE>
the purposes of the meeting; but these By-Laws and any amendment thereof,
including the By-Laws adopted by the Board of Directors, may be altered,
amended or repealed and other By-Laws may be adopted by the holders of a
majority of the total outstanding stock of the Corporation entitled to vote
at any annual meeting or at any special meeting, provided, in the case of any
special meeting, that notice of such proposed alteration, amendment, repeal
or adoption is included in the notice of the meeting and further provided
that any alteration, modification or repeal to each of Article I, Sections 2,
3 and 10 and Article II, Sections 4 and 5 of these By-Laws shall require the
affirmative vote of holders of at least 67% of the issued and outstanding
shares of the Corporation's capital stock entitled to vote thereon.
ARTICLE VII
SEVERABILITY
The provisions of these By-laws shall be separable each from any and all
other provisions of these By-laws, and if any such provision shall be adjudged
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, or the powers granted to this Corporation by
the Restated Certificate or these By-laws.
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<PAGE>
EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE
CALCULATION OF PROFORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDING ENDING SEPTEMBER
CALCULATION OF PROFORMA NET LOSS ATTRIBUTABLE DECEMBER 31, 1995 30,1996
TO COMMON SHARES
<S> <C> <C> <C> <C>
Actual Net Loss Attributable To Common Shares $ (3,595,739) $ (3,135,504)
Plus: Preferred B Dividend 783,700 0
Plus: Preferred C Dividend 275,256 505,167
Plus: Preferred B Acretion 43,464 32,598
Plus: Preferred C Acretion 4,944 8,535
------------------ ------------------
Total Dividends & Acretion 1,107,364 546,300
------------------ ------------------
Proforma Net Loss Attributable to Common Shares $ (2,488,375) $ (2,589,204)
------------------ ------------------
------------------ ------------------
CALCULATION OF SHARES REQUIRED TO RETIRE
PREFERRED AND PAY DIVIDENDS
Redemption of Series B Preferred $ 6,687,100 $ 6,687,100
Payment of Series C Dividend $ 275,256
------------------ ------------------
Total Proforma Use of Proceeds $ 6,687,100 $ 6,962,356
Per Share Proceeds to Company $ 11.78 $ 11.78
------------------ ------------------
Shares Required 567,666 591,032
------------------ ------------------
------------------ ------------------
CALCULATION OF PROFORMA WEIGHTED AVERAGE SHARES
Actual Weighted Average Shares Outstanding 3,154,723 3,156,295
Post Split Series C Preferred Stock Conversion 1,376,379 1,376,379
Shares Required From Above 567,666 591,032
------------------ ------------------
Shares Used in Proforma Net Loss per Share 5,098,768 5,123,705
------------------ ------------------
------------------ ------------------
CALCULATION OF PROFORMA PRIMARY AND FULLY DILUTED
NET LOSS PER COMMON SHARE
Proforma Net Loss Attributable to Common Shares $ (2,488,375) $ (2,589,204)
Proforma Weighted Average Shares 5,098,768 5,123,705
------------------ ------------------
Proforma Net Loss Per Common Share $ (0.49) $ (0.51)
------------------ ------------------
------------------ ------------------
</TABLE>
<PAGE>
CALCULATION OF ACTUAL WEIGHTED AVERAGE SHARE OUTSTANDING
ISSUE ACTUAL WEIGHTED
DATED SHARES AVERAGE
Inception 1/27/93 768,117 768,117
Options Issued w/in 12 months of IPO 1/27/93 171,762 166,815
Common Stock Sales 11/9/93 1,464,413 225,294
------------- -------------
1993 Ending Balance 2,404,292 1,160,226
1994 Beginning Balance 2,399,345 2,399,345
Common Stock Sales 10/24/94 755,378 140,728
------------- -------------
1994 Ending Balance 3,159,670 2,545,020
1995 Beginning Balance 3,154,723 3,154,723
Common Stock Sales - -
------------- -------------
1995 Ending Balance 3,159,670 3,159,670
1996 Beginning Balance 3,154,723 3,154,723
Option Exercise 5/15/96 3,120 1,571
------------- -------------
September 30, 1996 Ending Balance 3,162,790 3,161,241
<TABLE>
<S> <C> <C>
CALCULATION OF TREASURY STOCK METHOD FOR OPTIONS ISSUED WITHIN ONE YEAR
OF INITIAL PUBLIC OFFERING
Number of Options Issued Within One Year of Initial Public Offering
Aggregate Option Price of Options Issued Within One Year of Initial Public Offering
Estimated Price Per Common Share in Initial Public Offering 198,011
Shares Assumed to be Repurchased Under Treasury Stock Method 367,490
Shares Deemed Outstanding Since Inception Due to Issue Within One
Year of Initial Public Offering $11.78 (31,196)
--------------
166,815
--------------
--------------
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
December 16, 1996
Houston, Texas
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF RYDER SCOTT COMPANY]
CONSENT OF RYDER SCOTT COMPANY
To the Board of Directors of 3DX Technologies Inc.:
We hereby consent to the inclusion of our report dated October 22, 1996
relating to the estimate of reserves, future production and income attributable
to certain leasehold interests of 3DX Technologies Inc. (the "Company"), as of
September 30, 1996, in the Company's Registration Statement on Form S-1 and the
prospectus incorporated therein, and all references to our firm therein.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
December 16, 1996
