<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(1)
<S> <C> <C>
Common Stock, par value $.01 per share.......................... $43,125,000 $13,068
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
--------------------------
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.................................... Not Applicable
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>
2,500,000 SHARES
[LOGO]
3DX TECHNOLOGIES INC.
- ------------------------------------------
COMMON STOCK
All of the 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 are being sold by the Company. 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
$13 and $15 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
---------------------
Application has been made to have the shares of Common Stock approved for
quotation on the Nasdaq National Market under the symbol "TDXT."
------------------------
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
TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................. $ $ $
Total (3)................. $ $ $
</TABLE>
(1) The Company has 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 375,000 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>
[PICTURES TO FOLLOW]
------------------------
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 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 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 joint venture agreements 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 which 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 operating partners,
are conducive to the application of advanced 3-D technology, have significant
upside potential and may be extended into exploration trends.
The Company's current portfolio includes 10 active partners and 21
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 activities beyond the Gulf Coast region, the Company
believes that its business plan can be expanded to 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 survey is being conducted, giving
the Company's explorationists the ability to ensure data quality and to steer
data collection toward more prospective areas. Utilizing this technology, the
Company has been able to image and analyze an increased number of projects
concurrently and more rapidly and accurately identify potential drilling sites.
Since its formation, the Company has participated in the drilling of 31
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 41.2 Bcfe (2.9 Bcfe net to the Company's interest), of which
27.9 Bcfe (2.2 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 25 and 35 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>
Common Stock offered hereby (1)... 2,500,000 shares
Common Stock to be outstanding
after the Offering (1)(2)....... 7,005,049 shares
Use of proceeds................... The net proceeds of the Offering, estimated to be
approximately $32.2 million (approximately $37.0 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 Series B Preferred
Stock and payment of all accrued but unpaid dividends on
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."
Proposed NASDAQ National Market
symbol.......................... TDXT
</TABLE>
- ------------------------
(1) Excludes 375,000 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, but excludes 852,719 shares of Common
Stock reserved for issuance upon exercise of stock options available for
grant under the 1994 Stock Option Plan, as amended (the "Stock Option
Plan"), under which options to purchase 761,908 shares of Common Stock,
exercisable at prices ranging from $0.19 to $0.58 per share, have been
granted and were outstanding as of September 30, 1996. See
"Management--Stock Option Plan."
THE TRANSACTIONS
The following transactions (collectively, the "Transactions") will be
effected in connection with the consummation of the Offering: (i) the redemption
immediately after the closing of this Offering of all issued and outstanding
shares of the Company's Redeemable Preferred Stock, Series B, $0.01 par value
per share (the "Series B Preferred Stock") at a price of $100 per share, (ii)
the exercise at or prior to the closing of this Offering of all outstanding
warrants for the purchase of a total of 266,224 shares of the Company's Senior
Redeemable Convertible Preferred Stock, Series C, $0.01 par value per share (the
"Series C Preferred Stock"), at a price of $3.00 per share, and (iii) the
conversion into 1,514,016 shares of Common Stock of all outstanding shares of
the Series C Preferred Stock, $0.01 par value per share.
4
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The financial information set forth below for the period from inception
(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 Company's Financial Statements, the
notes related thereto and the other financial data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(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:
Oil and gas 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.......... 596,267 598,244 854,072 652,671 704,264
Interest and other.................. 88,006 -- -- -- 289
---------- ---------- ---------- ---------- ----------
Total costs and expenses.......... 749,641 842,628 3,006,276 2,461,994 2,696,043
---------- ---------- ---------- ---------- ----------
Net loss.............................. (615,079 ) (385,013) (2,437,384) (2,088,697) (1,949,808)
Dividends on preferred stock.......... -- (503,400) (783,700) -- (798,672)
Accretion on preferred stock.......... (3,966 ) (30,367) (48,408) (34,681) (41,133)
---------- ---------- ---------- ---------- ----------
Net loss applicable to common
stockholders........................ $(619,045 ) $ (918,780) $(3,269,492) $(2,123,378) $(2,789,613)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Primary and fully diluted net loss per
common share........................ $(0.62 ) $ (0.39) $ (1.09) $ (0.71) $ (0.93)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding.................. 993,412 2,373,258 2,987,908 2,987,908 2,989,480
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net loss applicable to
common stockholders (1)............. $(2,437,384) $(1,949,808)
Pro forma primary and fully diluted
net loss per share.................. $ (0.49) $ (0.39)
Pro forma weighted average number of
common shares outstanding (2)....... 4,984,908 4,986,479
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
AS
ACTUAL ADJUSTED(3)
---------- ----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $3,435,650 $28,898,550
Property and equipment, net......... 4,852,759 4,852,759
Total assets........................ 8,994,140 34,457,040
Long-term debt...................... -- --
Common stockholders' (deficit)
equity............................ $(6,789,729) $33,761,600
</TABLE>
- ------------------------------
(1) Adjusted to eliminate dividends and accretion on the Series B Preferred
Stock and Series C Preferred Stock as if the Series B Preferred Stock had
been redeemed and Series C Preferred Stock had been converted into 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 the
Series B Preferred Stock.
(3) Adjusted to give effect to the Transactions, the Offering and the proposed
application of net proceeds therefrom as described in "Use of Proceeds."
5
<PAGE>
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):
Oil and gas 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.
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."
<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 2,275
Oil and condensate (MBbls).......... 4 40 41 30
Total equivalent (MMcfe)............ 44 1,477 689 2,455
Pre-tax present value of proved
reserves discounted at 10%........ $ 60,000 $1,606,000 $ 771,000 $2,730,000
</TABLE>
RISK FACTORS
See "Risk Factors" beginning on page seven 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."
6
<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, $2.4 million and $1.9 million, respectively.
At September 30, 1996, the Company had an accumulated deficit of $7.6 million.
The development of the Company's business and its participation in an
increasingly larger number of projects has 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 natural 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" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
VOLATILITY OF OIL AND NATURAL GAS PRICES
Although the Company's primary efforts are focused on reducing the 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 natural 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 natural 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."
RELIANCE ON SIGNIFICANT PARTNERS
The Company has in the past and expects in the future to rely upon its
existing partners to offer opportunities for the Company to participate in
exploration projects. To date, all of the Company's oil and gas revenues have
been derived from its participation in projects involving four partners. The
Company's inability to secure future business opportunities generated by these
or other partners could limit the
7
<PAGE>
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 analysis 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 the 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 term leases 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 certain 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 Natural 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 capital
expenditures of $2.2 million during 1995 and $2.9 million during the nine months
ended September 30, 1996, respectively, and plans to incur capital expenditures
of approximately $2.1 million during the remainder of 1996 and approximately
$22.0 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 as a result of
lower oil and gas prices, operating difficulties or any other reason are lower
than the Company anticipates, the Company will not have the funds necessary to
undertake or complete its 1997 exploration program. There 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."
8
<PAGE>
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 natural
gas that cannot be measured in an exact manner. Estimates of economically
recoverable oil and natural gas reserves and of future net cash flows
necessarily 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 natural 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 Company's reserves will likely vary from estimates,
and such variances may be material. See "Business-- Oil and Natural 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 alternative forms of traditional drilling strategies. 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."
COMPETITION
The exploration for and production of oil and gas is 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 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 labor 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
9
<PAGE>
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
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."
10
<PAGE>
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 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 $22.0 million, or 69%, 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
which 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 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 $14.00 per share of Common
Stock, purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $9.62 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
11
<PAGE>
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 Third Amended and
Restated Certificate of Incorporation (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 Company's 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 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 Company's Certificate of Incorporation and Bylaws" and "Description of
Capital Stock-- Delaware Anti-Takeover Law."
12
<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
its organization, the Company has acquired working interests (generally ranging
from 6% to 20%, although the Company has increased its working interest in
certain selected exploration trends) in 26 projects and has found 41.2 Bcfe (2.9
Bcfe net to the Company's interest), of which 27.9 Bcfe (2.2 Bcfe net to the
Company's interest) was found during the first nine months of 1996.
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 to each of the Company's founders of approximately 768,117
shares of Common Stock 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. Thereafter, in November 1993
and October 1994 the Company raised additional capital in the amount of $5.3
million through the sale of units ("Units"), each Unit consisting of one share
of Series B Preferred Stock and 30.22 shares of Common Stock. Additional capital
in the amount of $7.9 million was raised by the Company in a private placement
of Series C Preferred Stock during the third quarter of 1995. 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, Sandpiper & Co., an affiliate of State Street Research,
Centennial Energy Partners, L.P. and Dawson/Samberg Capital Management, all of
which invested exclusively in Series C Preferred Stock. See "Principal
Stockholders."
The Company's principal executive offices are located at 12012 Wickchester,
Suite 250, Houston, Texas. Its telephone number is (713) 579-3398.
13
<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 $32.2 million ($37.0 million if the Underwriters' over-allotment
option is exercised in full).
Of the net proceeds of the Offering, the Company intends to use (i)
approximately $22.0 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.
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.
14
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of September 30, 1996 was
approximately $1.9 million or $0.36 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 and the exercise of options to purchase 761,908
shares of Common Stock. 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 $14.00 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 $34.0 million, or $4.38 per share of Common Stock. This represents
an immediate increase in net tangible book value of $4.02 per share to existing
stockholders and an immediate dilution in net tangible book value of $9.62 per
share to new investors purchasing shares of Common Stock in the Offering. The
following table illustrates this dilution on a per share basis to the new
investors:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share of Common Stock...... $ 14.00
Pro forma net tangible book value per share of Common Stock at
September 30, 1996............................................... $ 0.36
Increase in net tangible book value per share attributable to net
proceeds of the Offering......................................... 4.02
---------
Pro forma net tangible book value per share after giving effect to
the Offering....................................................... 4.38
---------
Immediate dilution in net tangible book value per share of Common
Stock to new investors............................................. $ 9.62
---------
---------
</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 $14.00 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............................ 5,266,957 67.8% $ 9,977,574 22.2% $ 1.89
New investors.................................... 2,500,000 32.2% 35,000,000 77.8% 14.00
---------- --------- ------------- ---------
Total........................................ 7,766,957 100.0% $ 44,977,574 100.0% 5.79
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The above tables assume the exercise of options to purchase 761,908 shares
of Common Stock at exercise prices ranging from $0.19 to $0.58, which have been
granted under the Stock Option Plan and were outstanding as of September 30,
1996 and no exercise of the Underwriters' over-allotment option. See
"Management--Stock Option Plan."
15
<PAGE>
CAPITALIZATION
The following table sets forth each of the historical capitalization of the
Company as of September 30, 1996 and the as adjusted capitalization of the
Company after giving effect to the Transactions and the issuance of the shares
of Common Stock pursuant to the Offering at an assumed initial public offering
price of $14.00 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
----------------------------
HISTORICAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Cash and cash equivalents........................................................... $ 3,762,208 $ 29,225,108
------------- -------------
------------- -------------
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........................................................... 6,377,389 --
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...................................... 7,912,368 --
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 70,050
Paid-in capital (net)(2)............................................................ 777,291 41,598,191
Accumulated deficit................................................................. (7,596,930) (7,906,641)
------------- -------------
Common stockholders' (deficit) equity............................................... (6,789,729) 33,761,600
------------- -------------
Total capitalization.............................................................. $ 7,500,028 $ 33,761,600
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Excludes 852,719 shares of Common Stock reserved for issuance upon the
exercise of stock options available for grant under the Stock Option Plan as
to which options to purchase 761,908 shares of Common Stock have been
granted and are outstanding on the date hereof. See "Management-- Stock
Option Plan." Prior to the closing of this Offering, the Company intends to
amend its Certificate of Incorporation to, among other things, authorize a
total of 21,000,000 shares of capital stock, comprised of 20,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock, par value $0.01 per
share.
(2) Net of notes receivable from the sale of shares of Common Stock in the
amount of $16,448.
16
<PAGE>
SELECTED FINANCIAL DATA
The financial information set forth below as of December 31, 1993 and for
the period from inception (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 September30, 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 Company's
Financial Statements, the notes related thereto and the other financial data
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION 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:
Oil and gas 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............... 596,267 598,244 854,072 652,671 704,264
Interest and other....................... 88,006 -- -- -- 289
----------------- ----------- ------------ ------------ ------------
Total costs and expenses............... 749,641 842,628 3,006,276 2,461,994 2,696,043
----------------- ----------- ------------ ------------ ------------
Net loss................................... (615,079) (385,013) (2,437,384) (2,088,697) (1,949,808)
Dividends on preferred stock............... -- (503,400) (783,700) -- (798,672)
Accretion on preferred stock............... (3,966) (30,367) (48,408) (34,681) (41,133)
----------------- ----------- ------------ ------------ ------------
Net loss applicable to common
stockholders.............................. $ (619,045) $ (918,780) $ (3,269,492) $ (2,123,378) $ (2,789,613)
----------------- ----------- ------------ ------------ ------------
----------------- ----------- ------------ ------------ ------------
Primary and fully diluted net loss per
common share.............................. $ (0.62) $ (0.39) $ (1.09) $ (0.71) $ (0.93)
----------------- ----------- ------------ ------------ ------------
----------------- ----------- ------------ ------------ ------------
Weighted average number of common shares
outstanding............................... 993,412 2,373,258 2,987,908 2,987,908 2,989,480
----------------- ----------- ------------ ------------ ------------
----------------- ----------- ------------ ------------ ------------
Proforma net loss applicable to common
stockholders (1).......................... $ (2,437,384) $ (1,949,808)
Proforma primary and fully diluted net loss
per share................................. $ (0.49) $ (0.39)
Proforma weighted average number of common
shares outstanding (2).................... 4,984,908 4,986,479
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, --------------------------
-------------------------------------- AS
1993 1994 1995 ACTUAL ADJUSTED(3)
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 2,003,266 $ 2,102,586 $ 7,264,763 $ 3,435,650 $ 28,898,550
Property and equipment, net................... 635,696 2,669,177 2,935,093 4,852,759 4,852,759
Total assets.................................. 2,791,694 5,196,795 10,450,504 8,994,140 34,457,040
Accrued dividends............................. -- -- -- 798,672 --
Long-term debt................................ -- -- -- -- --
Series B Preferred Stock...................... 2,630,825 5,518,487 6,344,791 6,377,390 --
Series C Preferred Stock...................... -- -- 7,912,368 7,903,833 --
Common Stockholders' (deficit) equity......... $ 16,365 $ (740,987) $ (4,032,028) $ (6,789,729) $ 33,761,600
</TABLE>
- ------------------------
(1) Adjusted to eliminate dividends and accretion on the Series B Preferred
Stock and Series C Preferred Stock as if the Series B Preferred Stock had
been redeemed and Series C Preferred Stock had been converted into 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 the
Series B Preferred Stock.
(3) Adjusted to give effect to the Transactions, the Offering and the proposed
application of net proceeds therefrom as described in "Use of Proceeds."
18
<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 Company's Financial Statements, 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 joint venture agreements 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.
During 1993, the Company commenced its business operations and participated
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 1993. To finance its operations
and acquire funds for capital expenditures, the Company sold equity securities
through private placement offerings raising approximately $3.4 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 $7.9 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. The Company intends to use approximately $22.0 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.
The Company currently anticipates that it will participate in the drilling
of between 25 and 35 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
19
<PAGE>
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 Natural 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.
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" as incurred. The Company
records depletion of its full-cost pool using the unit of production method. To
the extent that such capitalized costs in the 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 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 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 Note 12 to the Financial Statements included
elsewhere herein.
20
<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):
Oil and gas 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.
OIL AND GAS OPERATING EXPENSE. Oil and gas 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. Oil and gas 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 oil and gas 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 operating
costs per Mcfe than wells from which production had been obtained in the
comparable prior period.
21
<PAGE>
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 73% to
$336,000 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 $413,000 during the nine months ended September 30, 1996.
IMPAIRMENT OF OIL AND GAS PROPERTIES. Oil and gas property impairment
charges recorded as of March 31, 1996 and June 30, 1996 totaled approximately
$1.5 million, which was comparable to the charges recorded during the nine-month
period of 1995. The Company incurred such impairment charges as a result of the
Company's determination that its investment in developed and abandoned projects
exceeded the present value of the Company's proved reserves at certain
measurement dates within these periods.
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 $700,000 as of September 30,
1996.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense, net
of overhead capitalized to exploration and development projects, increased by 8%
to $704,000 for the nine months ended September 30, 1996 from $653,000 for the
comparable 1995 period. This increase was primarily attributable to increased
compensation expense for new employees.
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 the use of
certain of its 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 revenue 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 decreased by
10% to $1.9 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 of gas.
Production decreased by 3% to 137.3 MMcfe for the year ended December 31, 1995
from 141.8 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 declines
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
22
<PAGE>
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.
OIL AND GAS OPERATING EXPENSE. Oil and gas 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 operating expenses relating to producing wells on the Bright Falcon
project. Oil and gas operating 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 oil and gas operating expense per Mcfe was
related to those workovers and higher 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 909 Mcfe downward
revision 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 43% to $854,000
for the year ended December 31, 1995 from $598,000 in the comparable 1994
period. This increase was primarily attributable to compensation expense for new
employees.
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.
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
$2.4 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 141.8 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.
23
<PAGE>
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's net loss of $1.9 million for the nine months ended September
30, 1996 included non-cash expenses aggregating $1.9 million comprising $1.5
million of impairment of oil and gas properties and depreciation and
amortization of technical and other equipment of $463,000.
Cash used in investing activities for the nine months ended September 30,
1996 was $2.3 million. The acquisition, exploration and development of oil and
gas properties 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 capital expenditures. To meet its goal, the Company in the future
will be required to make 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 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 $22.0
million. See "Risk Factors--Broad Discretion over Use of Proceeds" and "Use of
Proceeds."
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 through the end of 1997, PROVIDED, that (i) there are no significant
decreases 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.
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 curtail the
implementation of its operating strategy unless additional financing is
available. There can be no assurance such financing
24
<PAGE>
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 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, its provisions are not applicable to the Company's oil
and gas properties as they are accounted for under the full cost method of
accounting. The effect of adopting SFAS No. 121 was not material for any period
presented.
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, under
which no compensation costs have been recognized.
25
<PAGE>
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 joint venture agreements 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 which 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 operating partners, are
conducive to the application of advanced 3-D technology, have significant upside
potential and may be extended into exploration trends.
The Company's current portfolio includes 10 active partners and 21
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 activities beyond the Gulf Coast region, the Company
believes that its business plan can be expanded to 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 survey is being conducted, giving
the Company's explorationists the ability to ensure data quality and steer data
collection toward more prospective areas. Utilizing this technology, the Company
has been able to image and analyze a larger number of projects concurrently and
more rapidly and accurately identify potential drilling sites.
Since its formation, the Company has participated in the drilling of 31
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 41.2 Bcfe (2.9 Bcfe net to the Company's interest), of which
27.9 Bcfe (2.2 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 25 and 35 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:
26
<PAGE>
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 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 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, all of 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 stock options to each of its
experts and other key 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
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 survey is being conducted, giving the Company's explorationists the ability
to ensure data quality and steer data collection toward more prospective areas.
Utilizing this technology, the Company has been able to image and analyze a
larger number of projects concurrently and more rapidly and accurately identify
potential drilling sites. This ability to effect near-real time acquisition,
processing and analysis allows the Company to achieve optimum data and image
quality, resulting in an improved ability to economically locate commercial
quantities of hydrocarbons. The Company believes 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, adapts
continually 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
27
<PAGE>
mitigated by the application of 3-D imaging and analysis technologies. In
addition, the Company believes aggressive management of its portfolio enables it
to maximize its use of available capital by limiting the Company's exposure to
any individual exploratory project and by allowing it to focus its resources
toward trend play opportunities arising from 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. 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 it
satisfies 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 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 identifies economically attractive drilling opportunities.
The economic return expected from drilling must satisfy certain criteria
and must be 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 on each project.
28
<PAGE>
PROJECT GENERATION
By its participation in multiple projects, many with multiple partners, the
Company seeks to demonstrate its ability to improve project economics to its
best resource for future high quality projects--its current partners. 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 receives 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 old 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. This data provides the foundation required to design an
acquisition and processing program that optimizes seismic resolution at targeted
reservoirs. These data also 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, the Company and its partners have drilled seven wells in the trend, six of
which have encountered commercial quantities of oil and gas. 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 two other 3-D imaging programs totaling approximately 88
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
29
<PAGE>
and deltas. The trend's primary historical oil and gas producing formations
include the Wilcox, Frio, Yegua and Miocene. The Company believes that
cumulative production to date from the trend has exceeded 60 TCF.
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 believes that its recent discovery in Gila Bend
may lead to the drilling of a second well during early 1997 in this Karnes
County, south Texas project. The Company joined its partner 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
being completed in one of those 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 currently is conducting a 77-square mile 3-D
seismic survey 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
immediate area. The project area covers approximately 25,000 gross acres in
which the Company owns a 15% working interest.
BRIGHT FALCON. The Company joined its partner in 1993 in the Bright
Falcon project, the Company's first project in the Texas Gulf Coast trend.
Since then, the Company and its partner have drilled seven wells, five of
which were discoveries. At September 30, 1996, production from three wells
in Bright Falcon totaled approximately 700 Mcf/d. The Company currently
plans a recompletion of one of these wells in late 1996. 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 $4.0
million net to the Company's working interest. The Company and its partner
control over 41,000 gross acres in the trend, and the Company currently is
conducting a 3-D seismic survey utilizing the 3DXPRESS process on a 64-square
mile area that is scheduled to be completed in October 1996. The Company's first
well in this trend is expected to spud in November 1996. 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,
30
<PAGE>
Lower Haynesville, Smackover and Norphlet. The Company believes that cumulative
production from the trend to date has exceeded 100 MMBOE.
SUNNILAND TREND
The Company's partner in the Sunniland trend project is Plains Resources,
Inc. ("Plains"). In its initial exploration of the Sunniland trend during 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. 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.
The Company believes that cumulative production from the trend to date has
exceeded 100 MMBOE.
SOUTH LOUISIANA PROJECTS
FOUR ISLE DOME. To date, the Company has identified four distinct
drilling targets in the upper Miocene zone of Four Isle Dome, located in
Terrebone Parish, Louisiana. The first of these wells is expected to be spud
by the Company and its partner, Plains, before November 1996 and will target
the upper Miocene at depths ranging from 12,000 feet to 15,000 feet. 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 the seismic data, and has identified drilling
targets. The Company and its partner control approximately 19,000 gross
acres on this project. The Company owns a 20% working interest in the first
well to be drilled.
HAYES. The Company and its partner expect to spud the first well in the
Hayes project in late 1996. 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 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.
FAUSSE POINTE. Fausse Pointe is a 15,000 gross acre project area in
which the Company and its partner, Bellwether Exploration Company, are
evaluating the Fausse Pointe salt dome, located in
31
<PAGE>
St. Martin and Iberia Parishes, Louisiana. Cumulative production from fields
over the salt dome has exceeded 45 MMBbls and 200 Bcf. The Company conducted
a 52-square mile 3-D survey and identified exploitation opportunities in
known producing, shallower formations and exploration opportunities in
deeper sands (10,000 feet to 14,000 feet). Two wells have been drilled on
the project to date. The first well was abandoned prior to reaching the
objective formation due to mechanical difficulties. The second well
encountered the primary objective in a structurally optimal position but
found no hydrocarbons. Other potential wells on the project currently are
being evaluated by the Company. The Company owns an average working interest
in the project equal to 5%.
EAST CAMERON 42. The Company and its partner 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 November 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
DOUBLE DIAMOND. The Company recommended and drilled with its partner
two discoveries in 1995 and 1996 in the Double Diamond project. Both wells
were extensions of the Block A-7 field in which the primary production is
from the Devonian formation. At September 30, 1996, gross production from
these two wells totaled over 210 BOE/d. The project area is located in Lea
County, New Mexico and Gaines County, Texas, and the partners currently
control over 15,000 acres in the project. The Company owns a 10% working
interest in these wells.
LANELL FARMS. The Company and its partner currently are drilling a well
at Lanell Farms, located in Gaines County, west Texas, targeting the
Devonian and Wolfcamp formations. 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 conducted by the Company.
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
In February 1996, the Company formed a joint venture and strategic alliance
with Plains under 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 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.
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<PAGE>
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 results in more
accurate images than are possible using 2-D seismic and other conventional
methods. The productive application of 3-D 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 engineers has between five to 20 years
of experience involving the utilization of seismic data imaging and analysis and
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 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 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 finding oil and gas quickly and economically, the Company's
project managers are responsible for 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 maximize 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 provide the Company with
significant competitive advantages. The Company enhances its ongoing research
program by forging strategic alliances with select suppliers of
33
<PAGE>
hardware and software which have demonstrated foresight in the science of earth
imaging. The Company believes its strategy of applied research and development
will allow it to remain at the forefront of oil and gas exploration technology.
Through the effective application of its applied research and development
strategy, the Company was able to adapt and refine concurrent imaging methods to
create the Company's 3DXPRESS process. In its first commercial application of
the 3DXPRESS process, the Company commenced and completed a project 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 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.
OIL AND NATURAL 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>
DECEMBER 31,
--------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
----- --------- --------- -------------
<S> <C> <C> <C> <C>
Net Proved Reserves(1)
Gas (MMcf)............................................................ 20 1,237 443 2,275
Oil and condensate (MBbbl)............................................ 4 40 41 30
Gas equivalents (MMcfe)............................................... 44 1,477 689 2,455
Pre-tax present value of proved reserves discounted at 10%(1)........... $ 60 $ 1,606 $ 771 $ 2,730
Standardized Measure of Discounted Future Net Cash Flows (in
thousands)(1)(2)...................................................... $ 60 $ 1,606 $ 771 $ 2,730
</TABLE>
- ------------------------
(1) Because the Company has substantial net operating loss carryforwards, the
amounts reflected are both before taxes and after projected income taxes.
(2) 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 Securities and Exchange Commission (the "Commission").
34
<PAGE>
At December 31, 1993, 1994 and 1995 and September 30, 1996, the Company held
interests in the following productive wells.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
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 total number of wells in which the Company
owns a working interest.
(2) The number of net wells shown equals the sum of the Company's fractional
working interests owned in gross wells.
In general, estimates of economically recoverable oil and natural 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 natural 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.
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 natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs.
35
<PAGE>
OIL AND NATURAL 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 one
gross and 0.06 net exploratory wells.
PRODUCTION
The following table summarizes the net volumes of oil and natural 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 1.31 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 $0.24, $0.57 and $0.33
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
36
<PAGE>
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, the Company currently 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 natural 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 natural gas and oil 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 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.
REGULATION
The Company's operations are subject to numerous 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 prohibits or
restricts onshore and offshore drilling or imposes 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 regulations 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. While liability limits apply
in some circumstances, a party cannot take advantage of liability limits if the
spill was caused
37
<PAGE>
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 Oil Pollution Act of 1990 ("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 million if the facility is located seaward of the seaward
boundary of a State, or $10 million if located landward of the boundary. These
limitations can be adjusted upward should MMS believe there are additional
risks.
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.
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. 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") for the regulation of
hazardous wastes.
The Texas Railroad Commission has issued rules for management of certain
types of hazardous waste generated in the oilfield. The Texas Railroad
Commission and the Texas Natural Resource Conservation Water Commission regulate
pollution of groundwater and surface water resulting from various oilfield
operations.
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.
38
<PAGE>
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, of the risks described above. The insurance
maintained by project operator partners generally does not cover business
interruption or protect against loss of revenues. There can be no assurance that
any insurance obtained by project operator partners will be adequate to cover
any losses or liabilities which may be incurred within projects in which the
Company participates. The Company cannot predict the continued availability of
such insurance or the availability of insurance at premium levels that justify
its purchase. If each 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.
EMPLOYEES AND INDEPENDENT CONSULTANTS
At September 30, 1996, the Company had 14 full-time employees including ten
geoscientists and engineers. The Company believes that its relationship with its
employees is good. None of the Company's employees is covered by a collective
bargaining agreement. From time to time, the Company utilizes the services of
independent consultants and contractors to perform various professional
services. The agreements with these consultants generally provide for a monthly
retainer and the payment of expenses and additional fees for services rendered
in excess of a minimum specified level. The Company has commenced and expects to
continue a program to hire recent college graduates and advanced degree holders.
See "Management."
LEGAL PROCEEDINGS
To date, 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.
39
<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 the Company's inception. 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 Actoutie 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.
C. EUGENE ENNIS. Mr. Ennis, who co-founded the Company with Peter M. Duncan
and Douglas C. Nester, has served as the Company's Chief Executive Officer since
the Company's inception in December 1992. From 1984 to 1992, Mr. Ennis was
President and Chief Executive Officer of Landmark Graphics Corp., 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.
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 in December 1992. Prior to joining the Company, Dr. Duncan was
employed by Landmark Concurrent Solutions Inc., an affiliate of Landmark
Graphics, 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 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 in December 1992. Prior to joining
40
<PAGE>
the Company, Mr. Nester was employed by Landmark Concurrent Solutions Inc., an
affiliate of Landmark Graphics Corp. that merged with ExploiTech, as Director of
Technology from 1988 to 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 and an 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. 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. 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 served as a Director to 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 also a Managing Director of the
Dallas, Texas office of NationsBanc Capital Corporation in the Venture Capital
Group.
41
<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 technologies.
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 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 arenas, 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.
42
<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 has 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 of which she was a co-founder, 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 this time, he served as 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 Mr. Bayless and Mr. 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
an annual fee of $ , a meeting fee of $ for every board meeting
attended and each committee meeting held separately and a $ fee for each
board meeting or committee meeting participated in by telephone. All directors
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.
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
$100,000 in the aggregate.
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ------------------------------------------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
C. Eugene Ennis
President and Chief Executive Officer.................................. 1995 $ 150,000 $ --
Peter M. Duncan
Vice President of Technology........................................... 1995 103,920 12,000
</TABLE>
STOCK OPTION GRANTS
Since January 1, 1996, the Company has granted options to purchase an
aggregate of 80,135 shares of Common Stock exercisable at a price of $0.58 per
share. The exercise price was based upon the estimated fair market value
excluding goodwill of the Company as of the date of grant as determined by the
Company's Board of Directors.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding the exercise of stock
options during fiscal 1995 and the number and year-end value of unexercised
options held at December 31, 1995, by each of the Named Executives. No stock
options or stock appreciation rights were exercised by the Named Executives
during fiscal 1995.
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISABLE "IN-THE-MONEY"
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
C. Eugene Ennis........................................... 10,911/9,233 4,221/3,572
Peter M. Duncan........................................... 10,911/9,233 4,221/3,572
</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.
(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 $.58 per share, the fair market value
of the Common Stock issuable upon exercise of options at December 31, 1995
(as determined by the Board of Directors) and the exercise price of the
option, multiplied by the applicable number of options. Based on an assumed
initial public offering price of $14.00 per share of Common Stock, the value
of unexercised "in the money" options at year end would be as follows: Mr.
Ennis-- $150,644/$127,476 (exercised/unexercisable) and Dr.
Duncan--$150,644/$127,476 (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, 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 between 80% and 200% of its
targeted performance goals and are then prorated accordingly. Dr. Duncan is
among the employees entitled to participate in the Bonus Plan.
44
<PAGE>
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
852,719 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. Common Stock subject to a restricted stock purchase or bonus
agreement is transferable only as provided in such agreement. 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 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 September 30, 1996, options to
purchase 761,908 shares of Common Stock were outstanding under the Stock Option
Plan at exercise prices ranging from $.19 to $.58 per share.
45
<PAGE>
Promptly 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 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 Graphic
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. On a quarterly basis, the Company reimburses Landmark Graphics
for the employer costs of such employee benefits. In addition, the Company pays
Landmark Graphics a de minimis monthly fee for administering these plans and
allowing participation in such plans by the Company's employees.
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 September 30, 1996, 240,037 of the 256,039 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan were vested, and the remaining shares
vest at the rate of 5,334 shares per month. All such shares will fully vest on
January 27, 1997.
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
$.19. As of September 30, 1996, 80,992 of the 86,391 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan were vested and the remaining shares
vest at the rate of 1,800 shares per month. All such shares will fully vest on
December 31, 1996.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of October 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 and (iv)
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>
BENEFICIAL OWNERSHIP(1)
-----------------------------------------
PRIOR TO SUBSEQUENT TO
NAME NUMBER OFFERING OFFERING(2)
- ----------------------------------------------------------------------- --------------- --------- -------------
<S> <C> <C> <C>
C. Eugene Ennis........................................................ 482,661(3) 10.68% 6.87%
Peter M. Duncan........................................................ 370,058(4) 8.19% 5.27%
Douglas C. Nester...................................................... 370,058(5) 8.19% 5.27%
Jon W. Bayless......................................................... 673,996(6) 14.96% 9.62%
Robert H. Chaney....................................................... 340,059(7) 7.55% 4.85%
Charles E. Edwards..................................................... 17,002(8) 0.38% 0.24%
Douglas C. Williamson.................................................. 758,226(9) 16.83% 10.82%
NationsBanc Capital Corporation........................................ 758,226(10) 16.83% 10.82%
Citi Growth Fund L.P................................................... 639,991(11) 14.21% 9.14%
R. Chaney & Partners - 1993 L.P........................................ 340,059(12) 7.55% 4.85%
Landmark Graphics Corporation.......................................... 449,862(13) 9.99% 6.42%
Sandpiper & Co......................................................... 284,350(14) 6.31% 4.06%
Centennial Associates L.P./Centennial Energy Partners L.P.............. 245,861(15) 5.46% 3.51%
All directors and executive officers as a group (9 persons)............ 3,210,892(16) 68.13% 44.52%
</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 15,528 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 4,616 shares of Common Stock which are not vested.
(4) Includes vested and exercisable options to purchase 15,528 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 4,616 shares of Common Stock which are not vested.
(5) Includes vested and exercisable options to purchase 15,528 shares of Common
Stock which were granted pursuant to the Stock Option Plan, excludes options
to purchase 4,616 shares of Common Stock which are not vested.
(6) Excludes options to purchase 5,170 shares of Common Stock which were granted
pursuant to the Stock Option Plan which are not vested. Includes 639,991
shares held 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.
47
<PAGE>
(7) Excludes options to purchase 5,170 shares of Common Stock which options were
granted pursuant to the Stock Option Plan which are not vested. Includes
310,059 shares held by R. Chaney and Partners-1993 L.P. Mr. Chaney is the
general partner of R. Chaney & Partners-1993 L.P.
(8) Excludes options to purchase 5,170 shares of Common Stock which were granted
pursuant to the Stock Option Plan which are not vested.
(9) Excludes options to purchase 5,170 shares of Common Stock which were granted
pursuant to the Stock Option Plan 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 Corporation is 15150 Memorial
Drive, Houston, Texas 77079.
(14) The business address of Sandpiper & Co. is c/o State Street Research, One
Financial Center, Boston, Massachusetts 02111.
(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 207,559 shares of
Common Stock which were granted pursuant to the Stock Option Plan, excludes
options to purchase 184,694 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, par value $0.01 per
share (the "Common Stock") and (ii) 1,000,000 shares of Preferred Stock, par
value $0.01 per share (the "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 Company's 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.
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
48
<PAGE>
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
Company has filed an application to have the Common Stock approved for quotation
on the Nasdaq National Market under the proposed symbol "TDXT."
PREFERRED STOCK
Prior to the completion of the Offering, the Certificate of Incorporation of
the Company 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 currently does not 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.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's 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 Company's 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,
49
<PAGE>
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 Company's 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 of the Company 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 Company's 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 of the Company 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
will be amended to provide that the affirmative vote of the holders of 67% of
the Voting Stock will be required to amend, modify or repeal any provision of
the Bylaws or the provisions of the Certificate of Incorporation 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 which 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.
50
<PAGE>
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 person 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 is 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 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. No registration rights have been exercised by any
holder of Common Stock in connection with this Offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is , whose
address is .
51
<PAGE>
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 approximately
7,005,049 shares of Common Stock outstanding (7,380,049 if the Underwriters'
over-allotment option is exercised in full), including 2,500,000 shares of
Common Stock offered hereby (2,875,000 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.
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."
The Company and 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."
52
<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 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......................................... 2,500,000
--------------
--------------
</TABLE>
The Company is 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
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 375,000 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 2,500,000
shares of Common Stock offered hereby.
The Company has 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 its stockholders, holding an aggregate of 4,505,049 shares
of Common Stock and option to purchase stock options to purchase up to 761,908
additional shares of Common Stock, 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 0.517-to-1 reverse stock
split to be effected prior to the Offering and (iii) shares issued in connection
with the Offering.
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
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<PAGE>
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., owns 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 17,877 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 (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.
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.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files 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 filed can be obtained from the Public Reference
Section of the Commission, upon payment of fees prescribed by the Commission.
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.
54
<PAGE>
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.
BOE/D. Barrels of oil equivalent production per day.
BTU. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water one degree Fahrenheit at or near its
point of maximum density (39.1 DEG. F).
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.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
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".
55
<PAGE>
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.
FINDING COSTS. Costs associated with acquiring and developing proved oil and
gas reserves which are capitalized by the Company pursuant to generally accepted
accounting principles.
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.
MBBLS/D. One thousand barrels of crude oil or other liquid hydrocarbons per
day.
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.
MMBTU. One million Btus.
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 LOCATION. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
56
<PAGE>
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.
ROYALTY INTEREST. An interest in an oil and gas property entitling the owner
to a share of oil or gas production free of costs of production.
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.
WORKOVER. Operations on a producing well to restore or increase production.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and unaudited as of September 30, 1996..................... F-3
Statements of Operations for the period from inception (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-4
Statements of Changes in Common Stockholders' Equity (Deficit) for the period from inception (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-5
Statements of Cash Flows for the period from inception (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-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<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 (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 (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-2
<PAGE>
3DX TECHNOLOGIES INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
-------------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
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:
Deposits............................................................... -- 12,886 7,886
Organization costs, net of accumulated amortization.................... 5,787 3,854 2,405
---------- ---------- -------------
$5,196,795 $10,450,504 $ 8,994,140
---------- ---------- -------------
---------- ---------- -------------
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............................ -- -- 798,672
---------- ---------- -------------
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..................... 5,518,487 6,344,791 6,377,389
---------- ---------- -------------
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.... -- 7,903,833 7,912,368
---------- ---------- -------------
Common stockholders' equity (deficit):
Common stock, $.01 par value, 12,000,000 shares authorized, 2,987,908,
2,987,908 and 2,991,032 shares issued and outstanding,
respectively......................................................... 29,879 29,879 29,910
Paid-in capital........................................................ 793,166 793,166 793,739
Notes receivable from stock sales...................................... (26,157) (47,756) (16,448)
Accumulated deficit.................................................... (1,537,825) (4,807,317) (7,596,930)
---------- ---------- -------------
Total common stockholders' deficit................................. (740,937) (4,032,028) (6,789,729)
---------- ---------- -------------
$5,196,795 $10,450,504 $ 8,994,140
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(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:
Oil and gas 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.......... 596,267 598,244 854,072 652,671 704,264
Interest and amortization of loan
guarantee fees.................... 88,006 -- -- -- 289
--------------- ----------- ------------- ------------- -------------
Total costs and expenses........ 749,641 842,628 3,006,276 2,461,994 2,696,043
--------------- ----------- ------------- ------------- -------------
Net loss.............................. (615,079) (385,013) (2,437,384) (2,088,697) (1,949,808)
Dividends on preferred stock.......... -- (503,400) (783,700) -- (798,672)
Accretion on preferred stock.......... (3,966) (30,367) (48,408) (34,681) (41,133)
--------------- ----------- ------------- ------------- -------------
Net loss applicable to common
stockholders........................ $ (619,045) $ (918,780) $ (3,269,492) $ (2,123,378) $ (2,789,613)
--------------- ----------- ------------- ------------- -------------
--------------- ----------- ------------- ------------- -------------
Primary and fully diluted net loss per
common share........................ $(.62) $(.39) $(1.09) $(.71) $(.93)
--------------- ----------- ------------- ------------- -------------
--------------- ----------- ------------- ------------- -------------
Weighted average number of common
shares outstanding.................. 993,412 2,373,258 2,987,908 2,987,908 2,989,480
--------------- ----------- ------------- ------------- -------------
--------------- ----------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (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 ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
---------- --------- ---------- ------------- ------------ -------------
<S> <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 7,554 138,554 -- (12,492) 133,616
Accrual of dividends....................... -- -- -- (503,400) -- (503,400)
Accretion on preferred stock............... -- -- -- (30,367) -- (30,367)
Net loss................................... -- -- -- (385,013) -- (385,013)
---------- --------- ---------- ------------- ------------ -------------
Balance at December 31, 1994............... 2,987,907 29,879 793,166 (1,537,825) (26,157) (740,937)
Principal collections...................... -- -- -- -- 36,156 36,156
Shares issued in 1995...................... -- -- -- -- (57,755) (57,755)
Accrual of dividends....................... -- -- -- (783,700) -- (783,700)
Accretion on preferred stock............... -- -- -- (48,408) -- (48,408)
Net loss................................... -- -- -- (2,437,384) -- (2,437,384)
---------- --------- ---------- ------------- ------------ -------------
Balance at December 31, 1995............... 2,987,907 29,879 793,166 (4,807,317) (47,756) (4,032,028)
UNAUDITED:
Principal collections...................... -- -- -- -- 31,308 31,308
Shares issued in June 1996................. 3,124 31 573 -- -- 604
Accrual of dividends....................... -- -- -- (798,672) -- (798,672)
Accretion on preferred stock............... -- -- -- (41,133) -- (41,133)
Net loss................................... -- -- -- (1,949,808) -- (1,949,808)
---------- --------- ---------- ------------- ------------ -------------
Balance at September 30, 1996.............. 2,991,031 $ 29,910 $ 793,739 $ (7,596,930) $ (16,448) $ (6,789,729)
---------- --------- ---------- ------------- ------------ -------------
---------- --------- ---------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
3DX TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(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) $(2,437,384) $(2,088,697) $(1,949,808)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization..... 65,368 210,347 446,350 287,933 462,769
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) (216,327)
------------ ---------- ---------- ---------- ----------
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....................... -- (196,190) (800,573) (509,730) (443,940)
(Purchase of) proceeds from securities held to
maturity..................................... -- -- (1,595,167) -- 1,595,167
Other.......................................... (2,736) 500 (12,886) (7,886) 5,001
------------ ---------- ---------- ---------- ----------
Net cash used in investing activities.......... (400,743) (2,017,864) (4,113,499) (1,294,237) (1,757,391)
------------ ---------- ---------- ---------- ----------
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
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest....... $ 8,006 $ -- $ -- $ -- $ 289
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Stock dividends................................ $ -- $ 503,400 $ 783,700 $ -- $ --
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Dividends declared but not paid................ $ -- $ -- $ -- $ -- $ 798,672
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<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. 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
direct and certain indirect 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
determination of impairment occurs.
F-7
<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)
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, its provisions are not applicable to the Company's oil
and gas properties as they are accounted for under the full-cost method of
accounting. 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 and office furniture and equipment are
recorded at cost, and depreciation is determined on a straight-line basis over
the estimated useful lives of the assets, which range from 3 to 5 years.
Depletion, depreciation and amortization expense includes depreciation related
to equipment and furniture 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.
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.
F-8
<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)
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 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 NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods. The effects of all stock options
and potential conversion of other securities to common stock are anti-dilutive
in all periods presented. The effect of treating common stock and options issued
since October 18, 1995 as outstanding for all periods presented, which is the
treatment contemplated in Staff Accounting Bulletin No. 83, is immaterial to net
loss per common share for all the periods being reported.
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-9
<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'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 to reflect the estimated
amount of deferred tax assets for which realization is uncertain. 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 12.), 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.
The Company paid legal, accounting and consulting fees of $150,357 in 1993,
$57,867 in 1994 and $163,997 in 1995 to stockholders of the Company (or the
firms of stockholders). During the unaudited nine month periods ended September
30, 1995 and 1996, the Company paid to such persons $119,591 and $57,055,
respectively.
F-10
<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 Class A common stock, and 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.
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 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 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 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. 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.
F-11
<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)
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. 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 quarterly, commencing on
September 30, 1995.
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, 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, since the
warrant exercise price equaled the price recently paid for the stock.
During the nine months ended September 30, 1996, the Company accrued a
dividend on the Series C preferred stock of $798,672.
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)
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 -- --
Issuance costs.............................. -- -- -- (103,659) -- --
Accretion to redemption value............... -- -- -- 3,966 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1993................ -- -- 29,000 2,630,825 -- --
Shares issued in October 1994............... -- -- 25,000 2,353,895 -- --
Accrual of dividends........................ -- -- 5,034 503,400 -- --
Accretion to redemption value............... -- -- -- 30,367 -- --
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1994................ -- -- 59,034 5,518,487 -- --
Shares issued in 1995....................... -- -- -- -- 2,662,241 7,986,723
Offering Costs.............................. -- -- -- (860) -- (87,834)
Accrual of dividends........................ -- -- 7,837 783,700 -- --
Accretion to redemption value............... -- -- -- 43,464 -- 4,944
---------- ----------- --------- ------------ ---------- ------------
Balance at December 31, 1995................ -- -- 66,871 6,344,791 2,662,241 7,903,833
UNAUDITED:
Accretion to redemption value............... -- -- -- 32,598 -- 8,535
---------- ----------- --------- ------------ ---------- ------------
Balance of September 30, 1996............... -- $ -- 66,871 $ 6,377,389 2,662,241 $ 7,912,368
---------- ----------- --------- ------------ ---------- ------------
---------- ----------- --------- ------------ ---------- ------------
</TABLE>
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-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)
6. COMMON STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
On May 24, 1995, the Board of Directors authorized 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 852,719 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............................ 413,936 165,776 90,811
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........... -- $ 0.42 $ 0.47
</TABLE>
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.
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)
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.
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 two
significant prospects to a group of individual investors who are stockholders in
the Company (through a limited partnership). Proceeds from the sale, which
represented approximately 66.67% of 3DX's total costs incurred to date on the
prospects, amounted to $480,931. No gain or loss was recorded on this
transaction.
12. 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 Series C
preferred stock into shares of common stock will also be adjusted for this
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)
12. EVENTS SUBSEQUENT TO AUDITORS' REPORT DATE (CONTINUED)
reverse split. 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 $32.2 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.
13. 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
Oil and gas 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)
---------- ------------- -------------
---------- ------------- -------------
</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.
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)
14. 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>
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 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 1,950,304 1,611,192 2,884,020
Development costs............................... 0 0 0 103,210
---------- ------------ ------------ -------------
$ 809,554 $ 2,322,438 $ 2,101,333 $ 3,412,152
---------- ------------ ------------ -------------
---------- ------------ ------------ -------------
</TABLE>
15. 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
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)
15. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
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 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 7,000
Revisions of previous estimates...................... -- -- (18,000) (12,000)
Production........................................... -- (6,114) (6,693) (6,499)
--------- ---------- ---------- -------------
Proved reserves at the end of the period............. 4,000 39,886 41,193 29,694
--------- ---------- ---------- -------------
--------- ---------- ---------- -------------
<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 2,126,000
Revisions of previous estimates...................... -- -- (801,000) (176,000)
Production........................................... -- (105,085) (97,120) (117,772)
--------- ---------- ---------- -------------
Proved reserves at the end of the period............. 20,000 1,236,915 442,795 2,275,023
--------- ---------- ---------- -------------
--------- ---------- ---------- -------------
</TABLE>
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)
15. 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 $ 4,574,000
Future production, development and abandonment costs...... ( --) (755,000) (329,000) (746,000)
---------- ------------ ------------- -------------
Future cash flows before income taxes..................... 84,000 2,242,000 1,076,000 3,828,000
Future income taxes....................................... -- -- -- --
---------- ------------ ------------- -------------
Future net cash flows..................................... 84,000 2,242,000 1,076,000 3,828,000
10% Discount factor....................................... (24,000) (636,000) (305,000) (1,098,000)
---------- ------------ ------------- -------------
Standardized measure of discounted future net cash flow... $ 60,000 $ 1,606,000 $ 771,000 $ 2,730,000
---------- ------------ ------------- -------------
---------- ------------ ------------- -------------
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 2,333,000
Revisions of estimates of reserves proved in prior
years:
Quantities estimated.................................. -- (1,280,000) (343,000)
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) $ 1,959,000
------------ ------------- -------------
------------ ------------- -------------
</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-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)
15. 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-20
<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.............................................................. 7
The Company............................................................... 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 26
Management................................................................ 40
Certain Transactions...................................................... 46
Principal Stockholders.................................................... 47
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 54
Glossary of Certain Industry Terms........................................ 55
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1996 (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.
2,500,000 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................ $ 13,068
NASD filing fee.................................................... 4,813
Nasdaq National Market listing application fee..................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue Sky fees and expenses (including legal fees).................. *
Transfer agent and registrar fees and expensesp.................... *
Miscellaneous...................................................... *
---------
Total.......................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
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 Common Stock to each of
Messrs. Ennis and Nester and Dr. Duncan at a price per share of $0.06. 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 September 30, 1996, 80,992 of the 86,391 shares issued to each of
Messrs. Ennis and Nester and Dr. Duncan have vested and the remaining shares
vest at the rate of 1,800 shares per month. All such shares will fully vest on
December 31, 1996.
In 1994, the Company issued 256,039 shares of Common Stock to each of
Messrs. Ennis and Nester and Dr. Duncan at a price per share of $0.06. As of
September 30, 1996, 240,037 of the 256,039 shares issued to each of Messrs.
Ennis and Nester and Dr. Duncan have vested, and the remaining shares vest at
the rate of 5,334 shares per month. All such shares will fully vest 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 30.22
shares of Common Stock, to various accredited investors. The purchase price for
each Unit was $100, of which $94.1558 was allocated to each share of Series B
Preferred Stock and $0.19 was allocated to 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 266,244 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 Amended and 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.*
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.+
23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on page II-5 hereof).
27.1 Financial Data Schedule (December 31, 1995).
27.2 Financial Data Schedule (September 30, 1996).
</TABLE>
- ------------------------
* To be filed by amendment.
+ 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 consolidated 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 18th day of October, 1996.
3DX TECHNOLOGIES INC.
By: /s/ C. Eugene Ennis
------------------------------------
C. Eugene Ennis
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints C. Eugene Ennis, Peter M. Duncan and Douglas C.
Nester, and each of them, as his true and lawful attorneys-in-fact and agents
for the undersigned, with full power of substitution, for and in the name, place
and stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement, (ii)
any registration statement relating to this offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, (iii) any exhibits to any such registration statement or pre-effective
or post-effective amendments, (iv) any and all applications and other documents
in connection with any such registration statement or pre-effective or
post-effective amendments, and (v) generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable 3DX Technologies Inc. to comply with the provisions of the Securities Act
of 1933, as amended, and all requirements of the Securities and Exchange
Commission.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed on the 18th day of October,
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)
/s/ Peter M. Duncan
- ------------------------------------------------ Vice President, Technology
Peter M. Duncan
/s/ Douglas C. Nester
- ------------------------------------------------ Vice President, Exploration
Douglas C. Nester
/s/ Robert J. Bacon, Jr.
- ------------------------------------------------ Vice President, Joint Ventures
Robert J. Bacon, Jr.
/s/ Joseph Schuchardt, III
- ------------------------------------------------ Vice President, Business Development
Joseph Schuchardt, III
/s/ Jon W. Bayless
- ------------------------------------------------ Director
Jon W. Bayless
/s/ Robert H. Chaney
- ------------------------------------------------ Director
Robert H. Chaney
/s/ Charles E. Edwards
- ------------------------------------------------ Director
Charles E. Edwards
/s/ Douglas C. Williamson
- ------------------------------------------------ Director
Douglas C. Williamson
</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 Amended and 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.*
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
November9, 1993.
10.6 Stock Purchase and Restriction Agreement between the Company and Peter M. Duncan dated
November9, 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.+
23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on page II-5 hereof).
27.1 Financial Data Schedule (December 31, 1995).
27.2 Financial Data Schedule (September 30, 1996).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Management contract or compensatory plan or arrangement.
<PAGE>
THIRD 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 date of filing of the original
Certificate of Incorporation of the Corporation with the Secretary of State of
the State of Delaware is December 8, 1992.
2. The Certificate of Incorporation of the Corporation, as previously
amended and restated, is hereby further amended by (i) increasing the number of
authorized shares of Common Stock and Preferred Stock of the Corporation; and
(iii) creating a new series of Preferred Stock, to be designated as "Senior
Redeemable Convertible Preferred Stock, Series C", and in connection therewith,
deleting Article Fourth thereof in its entirety and inserting in lieu thereof a
new Article Fourth, which is set forth in the Restated Certificate of
Incorporation hereinafter provided for.
3. The provisions of the Certificate of Incorporation of the Corporation,
as previously and as herein amended, are hereby restated and integrated into the
single instrument that is hereinafter set forth, and that is entitled "Third
Restated Certificate of Incorporation of 3DX Technologies Inc." without any
further amendments other than the amendments herein certified and without any
discrepancy between the provisions of the Certificate of Incorporation as
heretofore amended and supplemented and the provisions of the said single
instrument hereinafter set forth.
4. The amendments and the restatement of the Third 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>
"THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
3DX TECHNOLOGIES INC.
FIRST: The name of the corporation is 3DX Technologies Inc. (the
"Corporation"), and the name under which it was incorporated was Novera Energy
Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the city of Dover, County of
Kent. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: 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.
FOURTH: The Corporation shall have the authority to issue two (2) classes
of shares, 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 Fifteen Million Five Hundred Thousand (15,500,000). The
total number of shares of Preferred Stock that the Corporation shall have
authority to issue is Three Million Five Hundred Thousand (3,500,000), 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"), and
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"). The total number of shares of Common Stock that the
Corporation shall have the authority to issue is Twelve Million (12,000,000),
par value $.01 per share (the "Common Stock").
The relative preferences, powers, rights, qualifications, limitations
and restrictions in respect of the Designated Preferred Stock and the Common
Stock are as follows:
A. DESIGNATED PREFERRED STOCK
1. VOTING RIGHTS. Each holder of shares 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
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accordance with Delaware law. Except as otherwise expressly provided herein
or as required by 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
on or about 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, 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
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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
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.
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(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 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.
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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 such holder's 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 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,
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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 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 1,850,010 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.
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"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
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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 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
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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 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.
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(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 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.
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(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 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
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:
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(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 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").
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(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").
(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
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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
(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.
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(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 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,
the Corporation's Certificate of Incorporation or 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;
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(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:
(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 Third
Restated Certificate of Incorporation of the Corporation);
(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
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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 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.
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B. COMMON STOCK
The Common Stock shall consist of Twelve Million (12,000,000) 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 them. 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.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, 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, after payment is made to the
holders of the Designated Preferred Stock as indicated in Section A.3 above.
FIFTH: 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) The number of directors of the Corporation shall be fixed and may
be altered from time to time in the manner provided in the By-Laws of the
Corporation (the "By-Laws"), and vacancies in the Board of Directors and
newly created directorships resulting from any increase in the authorized
number of directors may be filled, and directors may be removed, as
provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved
by the stockholders at the time that such election is held and need not be
by ballot.
(c) All corporate power and authority of the Corporation (except as
at the time otherwise provided by law, by this Certificate of Incorporation
or by the By-Laws) shall be vested in and exercised by the Board of
Directors.
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(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the By-Laws
unless the By-Laws or this Certificate of Incorporation otherwise provide.
SIXTH: 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 acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (the
"DGCL"), or (iv) for any transaction from which the director derived an improper
personal benefit. In the event the DGCL 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 DGCL, as so amended
from time to time.
SEVENTH: The Corporation shall indemnify any person:
(a) 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 (other than an action by or in the
right of the Corporation) by reason of the fact that such person 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 attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he or she 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 or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person 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 reasonable cause to believe such person's
action was unlawful, or
(b) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person 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) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in or not
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opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matters as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) and (b), or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specified case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct set forth in subsections (a) and (b). Such determination
shall be made (1) by the board of directors of a majority vote of the quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Expenses (including legal fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article Seventh. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article Seventh shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses 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.
The Corporation may purchase and maintain, insurance on behalf of 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 enterprise against any liability asserted against him and incurred by him
in such capacity or arising out of his status as such, whether
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or not the Corporation would have the power to indemnify such person against
such liability under the provisions of this Article Seventh.
For purposes of this Article Seventh, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have the power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article Seventh with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
For purpose of this Article Seventh, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
Seventh.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article Seventh shall, unless otherwise provided when
authorized or ratified, 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."
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IN WITNESS WHEREOF, the undersigned do execute this Certificate and
affirm and acknowledge, under penalties of perjury, that this Certificate are
their act and deed and that the facts stated herein are true, this __ day of
July, 1995.
-------------------------------------
President
Attest:
- --------------------------------
Secretary
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AMENDED AND RESTATED BY-LAWS
OF
3DX TECHNOLOGIES INC.
(FORMERLY NOVERA ENERGY INC.)
EFFECTIVE JULY 26, 1995
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation 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,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the President
and shall be called by the President or the Secretary at the request in writing
of stockholders holding together at least twenty-five percent of the number of
shares of stock outstanding and entitled to vote at such meeting. 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. At a special meeting of the
stockholders, no business shall be transacted and no corporate action shall be
taken other than that stated in the notice of the meeting unless all of the
stockholders are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
<PAGE>
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
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
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at 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
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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. 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. 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 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. The President or, in his absence, a Vice
President shall call all meetings of the stockholders to order, and shall act as
Chairman of such meetings. In the absence of the President and all 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 may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten 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
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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
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 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation 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, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation,
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 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
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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. INSPECTORS. When required by law or directed by the presiding
officer, but not otherwise, the polls shall be opened and closed, the proxies
and ballots shall be received and taken in charge, and all questions touching
the qualification of voters, the validity of proxies and the acceptance or
rejection of votes shall be decided at any meeting of the stockholders by one or
more Inspectors who may be appointed by the Board of Directors before the
meeting, or if not so appointed, shall be appointed by the presiding officer at
the meeting. If any person so appointed fails to appear or act, the vacancy may
be filled by appointment in like manner.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. To the fullest
extent permitted by law, any action required to be taken or which may be taken
at any annual or special meeting of the stockholders of the Corporation, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
any such corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not so consented in
writing.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of not less
than three nor more than five Directors. The Directors shall, except as
hereinafter otherwise provided for filling vacancies, be elected at the annual
meeting of stockholders, and shall hold office until their respective successors
are elected and qualified or until their earlier resignation or removal. The
initial number of Directors constituting the Board shall be three. The number
of Directors may be altered from time to time by amendment of these By-Laws or
by resolution of the Board of Directors.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The stockholders
may, 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; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, 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 such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, 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, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship
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shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
When one or more Directors shall resign 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 as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. 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 may determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing
the time or place of regular meetings shall be mailed to every Director at least
five days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the President, or by any two of
the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two days before the meeting or by causing
the same to be transmitted by telegraph, cable or wireless at least one day
before the meeting to each Director. Unless otherwise indicated in the notice
thereof, any and all business other than an amendment of
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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 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.
SECTION 6. QUORUM. Subject to the provisions of Section 2 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 there is less than a quorum present, a majority of
those present may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. A Chairman shall be elected from the Directors
present to preside at all meetings of the Board of Directors. 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 8. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one 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
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voting, whether or not he or they 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, 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;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, 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 property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these By-Laws; and unless such resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation 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 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, and such participation
shall constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any
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committee thereof, may be taken without a meeting if all members of the Board
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 or
committee, as the case may be.
SECTION 11. 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 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 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 6 of this Article III. The President, one
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.
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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, his 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.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers 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 PRESIDENT. Unless otherwise
determined by the Board of Directors, the President shall be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall have general charge and control of all its business and affairs
and shall perform all duties incident to the office of President. He shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors and 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 3. 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 other powers and
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perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors or the President.
SECTION 4. 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 all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; 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 or the President shall direct, 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 also 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 or the President.
SECTION 5. 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 the purpose full and accurate accounts of all moneys
received or paid or otherwise
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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 during business
hours; and he shall perform all duties incident to the office of Treasurer
and shall also 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 by the Board of
Directors or the President.
SECTION 6. 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 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 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 7. 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 shall require.
SECTION 8. 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
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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 such stock. The
Board of Directors may from time to time, by resolution, confer like powers
upon any other person or persons.
SECTION 9. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Compensation Committee of the Board of
Directors.
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
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the 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.
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 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.
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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. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number,
date and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall
be transferred on the books of the Corporation by the holder thereof, in person
or by his attorney
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duly authorized in writing, upon surrender and cancellation of certificates
for the number of shares of stock to be transferred, except as provided in
the preceding section.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or 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 not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor 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
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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 Certificate of
Incorporation, 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 Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors 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, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board 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. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so
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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.
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 2. 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 3. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. The
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attendance of any person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business on the ground that the meeting is not lawfully called or
convened.
SECTION 4. OFFICES OUTSIDE OF DELAWARE. 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.
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, 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 Certificate of Incorporation,
other By-law, agreement, vote of
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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. VOTING AS STOCKHOLDER. Unless otherwise determined by
resolution of the Board of Directors, the 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 7. 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 Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation 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
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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 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.
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TECHNICAL SERVICES AGREEMENT, dated as of January ___, 1993, between
LANDMARK GRAPHICS CORPORATION, with an office at 15150 Memorial Drive,
Houston, Texas 77079-4304 ("Landmark"), and NOVERA ENERGY INC., with an
office at 16001 Park Ten Place, Suite 200, Houston, Texas 77084-5120 (the
"Company").
W I T N E S S E T H :
Concurrently herewith, Landmark and the Company are entering into a
Preferred Stock Purchase Agreement pursuant to which Landmark is acquiring
stock in the Company, agreeing to make certain bank guarantees on behalf of
the Company and delivering certain hardware and software to the Company.
The parties desire to enter into a mutually beneficial relationship
involving the license and use by the Company of software of Landmark in
connection with oil and gas exploration and drilling in which the Company
intends to become engaged.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, Landmark and the Company hereby agree as follows:
1. LICENSES OF SOFTWARE. Landmark agrees to furnish to the Company,
at the request of the Company, and at mutually agreed on prices and terms,
licenses to use Landmark software as soon as such software is made available
to Landmark customers. Landmark also agrees to make any improvements or
enhancements to such licensed software products available to the Company as
soon as such software products are ready for release at mutually agreed on
prices.
<PAGE>
2. ALPHA TEST SITE. Landmark and the Company agree that from time to
time, at mutually agreeable times and places and on mutually agreed
conditions, Landmark will enhance or modify existing Landmark software or
develop new software to be used in oil and gas exploration, as proposed in
writing by the Company, on the agreement of the Company to act as an alpha
test site for such software and to license and pay for such software if such
software performs in accordance with mutually agreed upon specifications.
3. INFORMATION FROM THE COMPANY. During normal use by the Company of
Landmark licensed software, the Company may become aware of information
resulting from the use of such software which may lead to improvements or
enhancements of Landmark software or to the development of new Landmark
products usable by the Company or by other Landmark customers. The Company
agrees to use its reasonable efforts to transmit such information to the
Landmark Liaison (as hereinafter defined).
4. LANDMARK REPRESENTATIVE. Landmark hereby appoints James A.
Downing, II (the "Landmark Liaison") to act as the liaison between Landmark
and the Company to implement this Agreement, to assist in the flow of
information between the parties and to attempt to assure the progress of
endeavors of the parties as set forth in this Agreement (the "Project").
5. THE COMPANY'S REPRESENTATIVE. The Company hereby appoints Peter M.
Duncan (the "Company Liaison") to act as the liaison between the Company and
Landmark to implement this Agreement, to assist in the flow of information
between the parties and to attempt to assure the progress of the Project.
2
<PAGE>
6. SHOWCASE FOR LANDMARK PRODUCTS. Landmark shall have the right to
use the name of the Company in connection with publicity and advertising, to
refer to the Company as a licensee and user of Landmark products and to
inform clients and prospects of the license and use by the Company of
Landmark products, subject to the prior written approval by the Company of
the content of the proposed Landmark material, and only in a manner so as not
to unduly interfere with the business of the Company.
7. INFORMATION ACCESS. In order to realize the optimum benefit for
both parties to the Agreement from the relationship set forth herein,
Landmark agrees to give to the Company's management preferred access to
senior geophysicists and other personnel of Landmark for the purpose of
developing and improving Landmark software for use in computer-aided
exploration.
8. MEETINGS. Robert P. Peebler and C. Eugene Ennis, or such other
representatives as the Company and Landmark may designate shall meet as often
as they agree is necessary or advisable to insure the smooth and successful
implementation of the purposes of this Agreement, PROVIDED that in any event
such meetings will be held at least monthly, commencing on the last business
day of the month in which this Agreement is executed and delivered.
9. NON-SOLICITATION. (a) For so long as Landmark (or any of its
affiliates) owns any shares of capital stock of the Company, the Company
shall not, directly or indirectly, without the prior written consent of
Landmark, (i) solicit or induce any employee of Landmark to leave the employ
of Landmark or hire for any purpose any employee of
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<PAGE>
Landmark or any employee who has left the employment of Landmark within six
months of the termination of said employee's employment with Landmark.
(b) For so long as Landmark (or any of its affiliates) owns any shares
of capital stock of the Company, Landmark shall not, directly or indirectly,
without the prior written consent of the Company, (i) solicit or induce any
employee of the Company to leave the employ of the Company or hire for any
purpose any employee of the Company or any employee who has left the
employment of the Company within six months of the termination of said
employee's employment with the Company.
10. NOTICES. All notices, requests and other communications hereunder
will be in writing and sent by first class certified mail, postage prepaid,
or delivery by recognized same-day or overnight courier service, or facsimile
transmission as follows:
If to Landmark:
Landmark Graphics Corporation
15150 Memorial Drive
Houston, TX 77079-4304
Attention: Vice President-Finance
Fax Number: (713) 560-1383
If to the Company:
Novera Energy Inc.
16001 Park Ten Place
Suite 200
Houston, TX 77084-5120
Attention: Mr. Peter M. Duncan
Fax Number: (713) 573-9227
or to such other persons or addresses as each of the parties hereto may
provide from time to time in writing to the other.
4
<PAGE>
11. MODIFICATIONS; WAIVER. This Agreement may be changed or terminated
only in a writing executed by both parties hereto.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated hereby and
supersedes all negotiations, agreements, representations and warranties
relating to the subject matter hereof, whether in writing or oral, prior to
the date hereof.
13. SUCCESSORS AND ASSIGNS. All of the terms of this Agreement will be
binding upon and inure to the benefit of and be enforceable by the successors
and assigns of the parties hereto therein.
14. GOVERNING LAW AND SEVERABILITY. This Agreement will be governed by
the internal laws of the State of Texas without regard to principles of
conflicts of law, and will, to the maximum extent practicable, be deemed to
call for performance in Harris County, Texas.
5
<PAGE>
15. HEADINGS. The descriptive headings of the sections hereof are
inserted for convenience only and do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LANDMARK GRAPHICS CORPORATION
By:
-------------------------------------
Name:
Title:
NOVERA ENERGY INC.
By:
-------------------------------------
Name:
Title:
6
<PAGE>
3DX TECHNOLOGIES INC.
STOCK PURCHASE AGREEMENT
DATED AS OF NOVEMBER 9, 1993
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 First Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Second Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Closings of Purchase and Sale . . . . . . . . . . . . . . . . . . . . . 2
2.1 Closings; Closing Dates . . . . . . . . . . . . . . . . . . . . . 2
2.2 Transactions at Closings. . . . . . . . . . . . . . . . . . . . . 2
3. Representations and Warranties of the Company . . . . . . . . . . . . . 3
3.1 Organization, Standing and Qualification. . . . . . . . . . . . . 3
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Validity of Stock . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Authorization; Approvals. . . . . . . . . . . . . . . . . . . . . 5
3.7 No Conflict with Other Instruments. . . . . . . . . . . . . . . . 6
3.8 Patents, Trademarks and Other Intangible Assets . . . . . . . . . 6
3.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Title to Properties; Liens and Encumbrances . . . . . . . . . . . 7
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Compliance with Other Instruments . . . . . . . . . . . . . . . . 8
3.13 Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Private Offering. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.17 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.18 Fees and Commissions. . . . . . . . . . . . . . . . . . . . . . . 9
3.19 Interested Party Transactions . . . . . . . . . . . . . . . . . . 9
3.20 Section 83(b) Elections . . . . . . . . . . . . . . . . . . . . . 10
4. Representations, Warranties and Covenants of the Investors. . . . . . . 10
4.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Investment Representations. . . . . . . . . . . . . . . . . . . . 10
4.3 Investment Experience; Access to Information. . . . . . . . . . . 10
4.4 Absence of Registration . . . . . . . . . . . . . . . . . . . . . 10
4.5 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . 11
4.6 Transfer Instructions . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Economic Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Fees and Commissions. . . . . . . . . . . . . . . . . . . . . . . 11
5. Conditions to Closings of the Investors.. . . . . . . . . . . . . . . . 12
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5.1 Conditions Precedent to each Investor's Investment
on the First Closing Date . . . . . . . . . . . . . . . . . . . . 12
5.2 Conditions Precedent to each Investor's Investment
on the Second Closing Date. . . . . . . . . . . . . . . . . . . . 13
6. Conditions to Closings of Company . . . . . . . . . . . . . . . . . . . 14
7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3 Financial Statements; Reports . . . . . . . . . . . . . . . . . . 15
7.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Public Information. . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.7 Execution of Agreements by Employees of Company . . . . . . . . . 17
7.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.9 Right of First Refusal. . . . . . . . . . . . . . . . . . . . . . 18
7.10 Maintenance of Existence and Properties, etc. . . . . . . . . . . 20
8. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Required Registration . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . 22
8.4 Limitations on Required Registrations . . . . . . . . . . . . . . 24
8.5 Incidental Registration . . . . . . . . . . . . . . . . . . . . . 25
8.6 Limitations on Incidental Registration. . . . . . . . . . . . . . 25
8.7 Designation of Underwriter. . . . . . . . . . . . . . . . . . . . 26
8.8 Form S-3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.9 Cooperation by Prospective Sellers. . . . . . . . . . . . . . . . 27
8.10 Expenses of Registration. . . . . . . . . . . . . . . . . . . . . 27
8.11 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.12 Rights That May Be Granted to Subsequent Investors. . . . . . . . 30
8.13 Transfer of Registration Rights . . . . . . . . . . . . . . . . . 31
8.14 "Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . 31
8.15 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . 31
9. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. Transfers of Securities by Investors. . . . . . . . . . . . . . . . . . 33
11. Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ii
<PAGE>
13. Survival of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 35
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15. Modifications; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 36
16. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
17. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 37
18. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19. Execution and Counterparts. . . . . . . . . . . . . . . . . . . . . . . 38
20. Governing Law and Severability. . . . . . . . . . . . . . . . . . . . . 38
21. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SCHEDULES
1 - Investors
3.2 - Capitalization
3.5 - Financial Statements
3.8 - Patents, Trademarks, etc.
3.9 - Litigation
3.10 - Liens and Encumbrances
3.11 - Taxes
3.12 - Compliance
3.14 - Contracts
3.18 - Fees and Commissions
3.19 - Interested Party Transactions
EXHIBITS
A - Form of Restated Certificate of Incorporation
B - Form of Proprietary Information, Inventions and Non-Solicitation
Agreement
C - Form of Amended and Restated Co-Sale Agreement
D-1 - Form of Amendment No. 1 to Stock Purchase and Restriction Agreement
(C. Eugene Ennis)
D-2 - Form of Amendment No. 1 to Stock Purchase and Restriction Agreements
(Douglas C. Nester and Peter M. Duncan)
E - Form of Kelley Drye & Warren Opinion
iii
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F - Form of Escrow Agreement
iv
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement, dated as of November 9, 1993, among 3DX TECHNOLOGIES INC.
(formerly Novera Energy Inc.), a Delaware corporation (the "Company"), with
an office at 16001 Park Ten Place, Suite 200, Houston, Texas 77084-5120, and
the investors identified on Schedule 1 hereto (individually an "Investor" and
collectively, the "Investors"), and (although they are also Investors
hereunder) as founders of the Company and not as Investors, solely for the
purposes of Sections 8, 11 and 15 hereof, C. Eugene Ennis, Douglas C. Nester
and Peter M. Duncan (collectively, the "Founders").
W I T N E S S E T H:
WHEREAS, the Investors desire to purchase shares of Common Stock, $.01
par value (the "Common Stock"), and Redeemable Preferred Stock, Series B,
$.01 par value (the "Series B Preferred"), of the Company, having the rights,
preferences, privileges and restrictions set forth in the Company's Restated
Certificate of Incorporation in the form attached hereto as Exhibit A (the
"Restated Certificate") and incorporated herein by reference, and the Company
desires to sell to the Investors shares of Common Stock and Series B
Preferred (collectively, the "Stock") in units (the "Units") each consisting
of one share of Series B Preferred and 5.8442 shares of Common Stock;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE.
1.1 FIRST CLOSING. Subject to the provisions of this Agreement, on
the First Closing Date (as hereinafter defined) the Company will sell to the
Investors, and the Investors will purchase from the Company, an aggregate of
up to 29,000 Units consisting of an aggregate of 29,000 shares of Series B
Preferred and 169,482 shares of Common Stock, each Investor to purchase the
number of Units set forth opposite such Investor's name under the heading
"Units to be Purchased at First Closing" on Schedule 1 annexed hereto, at a
purchase price per Unit consisting of $94.1558 per share of Series B
Preferred and $1.00 per share of Common Stock.
1.2 SECOND CLOSING. Subject to the provisions of this Agreement, on
the Second Closing Date (as hereinafter defined) the Company will sell to the
Investors, and the Investors will purchase from the Company, an aggregate of
25,000 Units consisting of an aggregate of 25,000 shares of Series B
Preferred and 146,105 shares of Common Stock, each Investor to purchase the
number of Units set forth opposite such Investor's name under the heading
"Units to be Purchased at Second Closing" on Schedule 1 annexed hereto, at a
purchase price per Unit consisting of $94.1558 per share of Series B
Preferred and $1.00 per share of Common Stock.
<PAGE>
2. CLOSINGS OF PURCHASE AND SALE.
2.1 CLOSINGS; CLOSING DATES. (a) The purchase and sale of the Units
pursuant to Section 1.1 (the "First Closing") shall take place at the offices
of Kelley Drye & Warren, 101 Park Avenue, New York, New York 10178, at 1:00
p.m. local New York time on November 9, 1993 or at such other place and time
as may be agreed upon by the Company and the Investors (the "First Closing
Date").
(b) In the event the Company does not at the First Closing sell and
issue, and/or receive commitments to purchase, all 54,000 Units authorized
herein to be issued and sold to the Investors, the Company may sell and issue
additional Units at a subsequent closing (hereinafter referred to as the
"Deferred Closing"), PROVIDED that such sales occur within 15 days of the
First Closing described in Section 2.1 above at the same price and on the
same terms and conditions set forth herein and that the total number of Units
shall not exceed the number of Units authorized to be sold at the First
Closing and PROVIDED FURTHER that for purposes of such Deferred Closing, each
of the conditions precedent set forth in Section 5.1 hereof shall be deemed
to have been met without any further action necessary on the part of the
Company or its counsel. At the Deferred Closing, upon execution of this
Agreement, the Amended and Restated Co-Sale Agreement referred to in Section
5.1(g), and the Escrow Agreement (as defined in Section 5.1(q)), a purchaser
shall become a party hereto and shall be included within the meaning of
Investor hereunder and Schedule 1 shall be amended to include such Investor,
without any further consent or action on the part of the Investors.
(c) The purchase and sale of the Units pursuant to Section 1.2
(the "Second Closing") shall take place at the offices of Kelley Drye &
Warren, 101 Park Avenue, New York, New York 10178, or such other place as may
be agreed upon by the Company and the Investors at 1:00 p.m. local New York
time on such date (following at least ten (10) business days' notice from the
Company) as all of the conditions set forth in Section 5.2 shall be satisfied
or waived by Investors holding at least 66-2/3% in interest of the Units
purchased by all Investors at the First Closing, but in no event later than
November 1, 1994 (the "Second Closing Date").
2.2 TRANSACTIONS AT CLOSINGS. (a) At the First Closing, the
Company shall deliver (i) to Kelley Drye & Warren, as escrow agent (the
"Escrow Agent") under the Escrow Agreement (as defined in Section 5.1(q)
hereof), certificates representing the Stock being purchased hereunder by the
Investors other than Landmark Graphics Corporation ("Landmark") at such
Closing, to be held by the Escrow Agent under the terms of the Escrow
Agreement until the Second Closing and (ii) to Landmark, certificates
representing the Stock being purchased by Landmark at the First Closing, in
each case against delivery by the Investor of a wire transfer of immediately
available funds or a check in the amount of the purchase price therefor,
except as otherwise agreed to pursuant to Section 5.1(k) hereof. The parties
hereto agree that (i) performance by each of the Investors at the Second
Closing of his or its obligation to purchase the shares of Stock to be
purchased by such Investor at the Second Closing is critical to the Company,
(ii) the Company will be damaged by an Investor's non-
2
<PAGE>
compliance with its obligations hereunder; and (iii) damages are not readily
calculable. Accordingly, each Investor (other than Landmark) agrees that, in
the event such Investor does not fulfill his obligation to so purchase the
Stock at the Second Closing (the "Defaulting Investor"), the Company shall
repurchase all of the Stock purchased by the Defaulting Investor at the First
Closing for $1.00. The parties agree that the foregoing repurchase is an
appropriate remedy for and bears a reasonable relationship to the damage that
would be suffered by the Company as a result of the breach by a Defaulting
Investor of its obligations, and that such repurchase is not a penalty. Each
of the parties hereby agrees that at the Second Closing, the Escrow Agent
shall deliver to the Company certificates representing the Stock purchased by
each Defaulting Investor at the First Closing, against delivery by the
Company of an amount equal to the product of (x) $1.00 multiplied by (y) the
number of Defaulting Investors, all pursuant to the terms and conditions of
the Escrow Agreement.
(b) At the Second Closing, the Company shall deliver to each Investor
certificates representing the Stock being purchased hereunder at such
Closing, against delivery by the Investor of a wire transfer of immediately
available funds or a certified check in the amount of the purchase price
therefor, except as otherwise agreed to pursuant to Section 5.1(k) hereof.
In addition, at the Second Closing, the Escrow Agent shall deliver
certificates for the Stock purchased at the First Closing or the Deferred
Closing by each Investor (other than Landmark) to each Investor who at the
Second Closing purchases the Units to be purchased by him or it on the Second
Closing Date, all pursuant to the terms and conditions of the Escrow
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants that:
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
own, lease and operate its property and assets and to conduct its business as
currently conducted and as proposed to be conducted by it as contemplated by
the Business Plan of the Company dated June 1, 1993, as modified by financial
statements dated September 27, 1993 (as so modified, the "Business Plan").
The Company has full corporate power and authority to enter into and perform
its obligations under this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business
as a foreign corporation and is in good standing in Texas and the nature of
its business and its ownership or leasing of property do not require that the
Company become so qualified as a foreign corporation in any other state or
jurisdiction.
3.2 CAPITALIZATION. The authorized capital stock of the Company, as
of the Closing Date, will consist of (a) 300,000 shares of preferred stock
(the "Preferred Stock"), of which (i) 100,000 shares are designated
Convertible Preferred Stock, Series A ("Series A Preferred"), all of which
were issued and outstanding prior to the First Closing Date and all of which
will have been exchanged for shares of Common Stock prior to the First
Closing Date
3
<PAGE>
pursuant to the Exchange Agreement (as defined in Section 5.1(n) hereof), and
(ii) 200,000 shares will be designated Series B Preferred, of which no shares
will be issued and outstanding prior to the First Closing Date; (b) 100,000
shares of Class A Common Stock, par value of $.01 per share ("Class A Common
Stock"), of which no shares are issued or outstanding and all of which shares
are reserved for issuance upon conversion of the Series A Preferred; and (c)
1,000,000 shares of Common Stock, of which (i) 262,339 shares are issued and
outstanding as of the date of this Agreement and (ii) 100,000 shares are
reserved for issuance upon conversion of the Class A Common Stock. The list
set forth in Schedule 3.2 hereto is a complete and correct list of all
security holders of the Company, showing their holdings of issued and
outstanding shares of Company securities (including options) as of the date
of this Agreement. The outstanding shares of Common Stock and Series A
Preferred are duly authorized and validly issued in accordance with
applicable law (including federal and state securities laws), fully paid and
non-assessable. Except as set forth in this Agreement, holders of shares of
the Company's capital stock have no preemptive rights. Except for the
transactions contemplated by this Agreement and the Exchange Agreement, and
as set forth on Schedule 3.2 hereto, there are (a) no outstanding warrants,
options, convertible securities or rights to subscribe for or purchase any
capital stock or other securities from the Company, (b) no voting trusts or
voting agreements among, or irrevocable proxies executed by, stockholders of
the Company, (c) no existing rights of stockholders to require the Company to
register any securities of the Company or to participate with the Company in
any registration by the Company of its securities, (d) no agreements among
stockholders providing for the purchase or sale of the Company's capital
stock and (e) no obligations (contingent or otherwise) of the Company to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
3.3 VALIDITY OF STOCK. The Series B Preferred and the Common Stock,
when issued, sold, and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and non-assessable.
3.4 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any other corporation, partnership, association or business
entity.
3.5 FINANCIAL STATEMENTS. The Company has furnished the Investors
with its (i) an unaudited balance sheet as of August 31, 1993 (the "Unaudited
Balance Sheet") and (ii) unaudited statements of income (loss) for the period
then ended (the "Unaudited Statements of Income"), (all of which in (i) and
(ii) are collectively referred to as the "Financial Statements" and are
attached hereto as Schedule 3.5). Except as described in Schedule 3.5, the
Financial Statements are true and correct in all material respects, are in
accordance with the books and records of the Company and have been prepared
in accordance with generally accepted accounting principles ("GAAP") and
fairly and accurately present in all material respects the financial position
of the Company as of such date and the results of its operations for the
periods then ended, provided that the Financial Statements may not contain
all footnotes required by GAAP and the Unaudited Balance Sheet and Unaudited
Statements of
4
<PAGE>
Income are subject to normal year-end audit adjustments, which the Company
does not have reason to believe will be material in the aggregate. Except as
described in Schedule 3.5, the Company has no liabilities, debts or
obligations, whether accrued, absolute or contingent other than (i)
liabilities reflected or reserved against in the Unaudited Balance Sheet, and
(ii) liabilities incurred since August 31, 1993 in the ordinary and usual
course of business. Since August 31, 1993, except as contemplated by this
Agreement the Company has been operated in the ordinary and usual course of
business, and there has not been:
(i) any change in the (x) assets, liabilities, condition
(financial or otherwise) or business of the Company from that reflected in
the Unaudited Balance Sheet, or (y) the trend of operating results of the
Company from that reflected in the Unaudited Statements of Income;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
condition (financial or otherwise), operating results, prospects or business
of the Company (as such business is presently conducted and as it is proposed
to be conducted as set forth in the Business Plan;
(iii) any waiver by the Company of a valuable right or of a
material debt owed to it;
(iv) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not individually or in the aggregate
adverse to the assets, properties, condition (financial or otherwise),
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(v) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is bound or subject;
(vi) any material change in any compensation arrangement or
agreement with any employee;
(vii) any payment of dividends or repurchase by the Company of
shares of its capital stock; or
(viii) to the Company's knowledge, any other event or condition
of any character that would materially adversely affect the assets,
properties, condition (financial or otherwise), operating results, prospects
or business of the Company (as such business is presently conducted and as it
is proposed to be conducted pursuant to the Business Plan.
3.6 AUTHORIZATION; APPROVALS. All corporate action on the part of the
Company necessary for the authorization, execution, delivery, and performance
of all its obligations under this Agreement and for the authorization,
issuance, and delivery of the
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Common Stock and the Series B Preferred being sold under this Agreement has
been (or will be) taken prior to the Closing. This Agreement, when executed
and delivered by or on behalf of the Company, shall constitute the valid and
legally binding obligation of the Company, legally enforceable against the
Company in accordance with its terms. The Company has obtained or will
obtain prior to the Closing Date all necessary consents, authorizations,
approvals and orders, and has made all registrations, qualifications,
designations, declarations or filings with all federal, state, or other
relevant governmental authorities required on the part of the Company in
connection with the consummation of the transactions contemplated by this
Agreement.
3.7 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement does not and will not, with or without the
passage of time or giving of notice or both, (i) result in any violation of,
be in conflict with, or constitute a default under, any terms or provisions
of (a) the Company's Restated Certificate or By-laws; (b) any agreement,
contract, understanding, indenture or other instrument to which the Company
is a party, the effect of which would have a material adverse effect on the
Company or would give rise to any right of termination, cancellation or
acceleration; or (c) any statute, rule or governmental regulation applicable
to the Company, or (ii) result in the creation of a security interest, lien,
or other encumbrance on the assets of the Company.
3.8 PATENTS, TRADEMARKS AND OTHER INTANGIBLE ASSETS. (a) Schedule
3.8 hereto is a true and complete list and summary description of all
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held
by the Company or used in the Company's business as currently conducted, none
of which is in dispute or in any conflict with the right of any other person
or entity. Except as set forth on Schedule 3.8, the Company (i) owns or has
the right to use, free and clear of all liens, claims and restrictions, all
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights with respect to the foregoing, used in
the conduct of its business as now conducted or proposed to be conducted, as
contemplated by the Business Plan, without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensor of, or other claimant
to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(b) The Company owns or has the unrestricted right to use all
trade secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs (with the exception of normal software
purchased and sold as such) and technical data and information (collectively
herein "Intellectual Property") required for or incident to the development,
operation and sale of all services or products sold or currently proposed to
be sold by the Company, free and clear of and without violating any right,
lien, or claim of
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others, including without limitation, former employees and former employers
of its past and present employees.
(c) The Company has taken security measures to protect the
secrecy, confidentiality and value of all the Intellectual Property, which
measures are reasonable and customary in the industry in which it intends to
operate. Each of the Company's employees and other persons who, either alone
or in concert with others, developed, invented, discovered, derived,
programmed or designed the Intellectual Property, or who has knowledge of or
access to information about the Intellectual Property, has entered into a
written agreement with the Company in the form of Exhibit B hereto, (i)
providing that the Intellectual Property and other information are
proprietary to the Company and are not to be divulged or misused and (ii)
transferring to the Company, without any further consideration being given
therefor by the Company, all of such employee's or other person's right,
title and interest in and to such Intellectual Property and other information
and to all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to such Intellectual Property and
information. The Company is not aware that any of its employees, consultants
or prospective employees who have signed such agreements are in violation
thereof, nor is it aware, or does it have any basis to believe, that any
former employee or consultant has made any claim of ownership in or rights
with respect to any of the Intellectual Property.
Neither the execution or delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company as
currently conducted, nor the conduct of the Company's business as proposed to
be conducted as contemplated by the Business Plan, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.
3.9 LITIGATION. Except as set forth in Schedule 3.9 hereto, no
action, proceeding or governmental inquiry or investigation is pending or to
the best knowledge of the Company threatened against the Company or any of
its officers, directors or employees (in their capacity as such) or any of
the Company's properties before any court, arbitration board or tribunal or
administrative or other governmental agency, nor is the Company aware that
there is any basis for the foregoing. The foregoing includes, without
limiting its generality, actions pending or known to the Company to be
threatened involving the prior employment of any of the Company's employees
or use by any of them in connection with the Company's business of any
information, property or techniques allegedly proprietary to any of their
former employers. The Company is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or
governmental agency or instrumentality.
3.10 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as set forth
on Schedule 3.10 hereto, the Company has good and marketable title to all of
the properties and assets, both real and personal, tangible and intangible,
that it purports to own, including the properties and assets reflected on the
Financial Statements and they are not subject to any mortgage, pledge, lien,
security interest, conditional sale agreement, encumbrance or charge
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except routine statutory liens securing liabilities not yet due and payable
and minor liens, encumbrances, restrictions, exceptions, reservations,
limitations and other imperfections that do not materially detract from the
value of the specific asset affected or the present use of such asset.
3.11 TAXES. Except as set forth on Schedule 3.11, the Company has
accurately prepared and timely filed all federal income tax returns and all
state and municipal tax returns that are required to be filed by it (the "Tax
Returns") and has paid or made provision for the payment of all amounts due
pursuant to such returns. The Tax Returns are true and complete in all
material respects. None of the Tax Returns have been audited by the Internal
Revenue Service or any state taxing authority, as the case may be, the
Company has not been advised that any of such Tax Returns will be so audited,
and there are no waivers in effect of the applicable statute of limitations
for any period. No deficiency assessment or proposed adjustment of federal
income taxes or state or municipal taxes of the Company is pending and the
Company has no knowledge of any proposed liability for any tax to be imposed.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on
Schedule 3.12 hereto, the Company is not in default (a) under its Restated
Certificate or its By-laws or, in any material respect, under any material
note, indenture, mortgage, lease, agreement, contract, purchase order or
other instrument, document or agreement to which the Company is a party or by
which it or any of its property is bound or affected or (b) with respect to
any order, writ, injunction or decree of any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which default, in any such case,
would materially and adversely affect or in the future is reasonably likely
to materially and adversely affect the Company's business, prospects,
condition (financial or otherwise), affairs, operations or assets. To the
best of the Company's knowledge, no third party is in material default under
any material agreement, contract or other instrument, document or agreement
to which the Company is a party or by which it or any of its property is
affected.
3.13 BUSINESS. The Company has all franchises, permits, licenses and
other rights and privileges necessary to permit it to own its property and to
conduct its business as presently conducted, except those the non-obtainment
of which would not have a material adverse effect on its business, properties
or prospects. The Company is not in material violation of any law,
governmental regulation, authorization or order of any public authority
relevant to the ownership of its properties or the carrying on of its
business as presently conducted.
3.14 CONTRACTS. Except as set forth on Schedule 3.14 hereto, the
Company is not a party to any contract, and has no obligation or commitment,
in each case (i) involving aggregate payments by the Company or having an
aggregate value of more than $50,000, or (ii) that is otherwise material to
the business of the Company. Except as set forth on Schedule 3.14 hereto,
the Company has no employment or consulting contracts, deferred compensation
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agreements or bonus, incentive, profit-sharing, or pension plans currently in
force and effect, or any understanding with respect to any of the foregoing.
3.15 ERISA. The Company does not maintain, sponsor, or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan," or a "multiemployer plan", as those terms
are defined in Sections 3(2), 3(1), and 3(37) of the Employee Retirement
Income Security Act of 1974, as amended. Except as listed in Schedule 3.14,
the Company has no incentive or benefit arrangements.
3.16 PRIVATE OFFERING. Neither the Company nor anyone acting on its
behalf has offered or will offer Units of the Company or any part thereof or
any similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, anyone so as to make the issuance and sale of
the Units not exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"). The Company
agrees that neither the Company nor anyone acting on its behalf has offered
or will offer such securities of the Company or any part thereof or any
similar securities for issuance or sale to, or solicit any offer to acquire
any of the same from, anyone so as to make the issuance and sale of the Units
not exempt from the registration requirements of Section 5 of the Securities
Act. None of the shares of the Company's capital stock issued and
outstanding has been offered or sold in such a manner as to make the issuance
and sale of such shares not exempt from such registration requirements, and
all such shares of capital stock have been offered and sold in compliance
with all applicable federal and state securities laws. Assuming that the
Investors' representations and warranties contained in Section 4 of this
Agreement are true and correct at the First and Second Closing, the offer,
issuance and sale of the Stock are and will be exempt from the registration
and prospectus delivery requirements of the Securities Act, as currently in
effect, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws, as
currently in effect.
3.17 FULL DISCLOSURE. Neither this Agreement, the Business Plan nor
any other certificates made or delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading, in view of
the circumstances in which they were made, PROVIDED, HOWEVER, that the
Company makes no representation or warranty (i) with respect to matters
specified in the Business Plan as based on a source other than the Company or
(ii) with respect to any projections, other than that such projections were
prepared in good faith and that the Company reasonably believes there is a
reasonable basis for such projections. There is no material fact known to
the Company relating to the business, prospects, condition (financial or
otherwise), affairs, operations, or assets of the Company that has not been
disclosed to the Investors in writing by the Company.
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3.18 FEES AND COMMISSIONS. Except as set forth on Schedule 3.18 hereto, as
to which the Company shall be solely liable, the Company has not retained, or
otherwise authorized to act, any finder, broker, agent, financial advisor or
other intermediary (collectively "Intermediary") in connection with the
transactions contemplated by this Agreement and the Company and the Founders
shall jointly and severally indemnify and hold harmless the Investors from
liability for any compensation to any Intermediary retained or otherwise
authorized to act by, or on behalf of, the Company, other than those
Intermediaries set forth on Schedule 3.18, and the fees and expenses of
defending against such liability or alleged liability.
3.19 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 3.19,
no officer, director or stockholder of the Company or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Securities Act) of any such person or entity or the Company has or has had,
either directly or indirectly, (a) an interest in any person or entity which
(i) furnishes or sells services or products that are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or
sells or furnishes to the Company any goods or services, or (b) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth on Schedule 3.19
hereto, there are no existing arrangements or proposed transactions between
the Company and any officer, director, or holder of more than 5% of the
capital stock of the Company, or any affiliate or associate of any such
person.
3.20 SECTION 83(b) ELECTIONS. To the best of the Company's knowledge, all
elections and notices permitted by Section 83(b) of the Internal Revenue Code of
1986, as amended, and any analogous provisions of applicable state tax laws have
been timely filed by all individuals who have purchased shares of the Company's
Common Stock other than pursuant to any stock option plans of the Company. The
Company makes no representation or warranty regarding the content or accuracy of
any such election or notice.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTORS. Each
Investor, severally and not jointly, represents and warrants that:
4.1 AUTHORIZATION. It has full power and authority to enter into and to
perform this Agreement in accordance with its terms. This Agreement has been
duly executed and delivered by it and constitutes its valid and legally binding
obligation.
4.2 INVESTMENT REPRESENTATIONS. It is acquiring the Stock for its own
account, for investment purposes and not with a view to, or for sale in
connection with, any distribution of such Stock or any part thereof.
4.3 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION. It (a) is an
"accredited investor" as that term is defined in Rule 501(a) promulgated under
the Securities Act, (b) is an investor experienced in the evaluation of
businesses similar to the Company, (c) is able to fend for itself in the
transactions contemplated by this Agreement, (d) has such knowledge and
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experience in financial, business and investment matters as to be capable of
evaluating the merits and risks of this investment, (e) has the ability to bear
the economic risks of this investment, (f) has been furnished with or has had
access to such information as is specified in subparagraph (b)(2) of Rule 502
promulgated under the Securities Act, (g) was not organized or reorganized for
the specific purpose of acquiring the Stock purchased by it, and (h) has been
afforded prior to the Closing Date the opportunity to ask questions of, and to
receive answers from, the Company and to obtain any additional information, to
the extent the Company has such information or could have acquired it without
unreasonable effort or expense, all as necessary for the Investor to make an
informed investment decision with respect to the purchase of the Stock.
4.4 ABSENCE OF REGISTRATION. It understands that:
(a) The Stock to be sold and issued hereunder is unregistered and may
be required to be held indefinitely unless it is subsequently registered under
the Securities Act, or an exemption from such registration is available.
(b) Except as provided in Section 8, the Company is under no
obligation to file a registration statement with the Securities and Exchange
Commission (the "Commission") with respect to the Stock.
(c) Rule 144 promulgated under the Securities Act ("Rule 144"), which
provides for certain limited sales of unregistered securities, is not presently
available with respect to the Stock, and the Company is under no obligation to
make Rule 144 available except as otherwise provided in Section 7.5.
4.5 RESTRICTIONS ON TRANSFER. (a) It will not offer, sell, pledge,
hypothecate, or otherwise dispose of the Stock unless such offer, sale, pledge,
hypothecation or other disposition is (i) registered under the Securities Act,
or (ii) in compliance with an opinion of counsel to the Company to the effect
that such offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act, and (b) the certificate(s) representing the
Stock shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF.
Upon request of a holder of Stock, the Company shall remove the legend set
forth above from the certificates evidencing such Stock, or issue to such holder
new
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certificates therefor free of such legend, if with such request the Company
shall have received an opinion of counsel to the Company to the effect that
such Stock is not required by the Securities Act to continue to bear the
legend.
4.6 TRANSFER INSTRUCTIONS. It agrees that the Company may provide for
appropriate transfer instructions to implement the provisions of Section 4.5
hereof.
4.7 ECONOMIC RISK. It understands that it must bear the economic risk of
the investment represented by the purchase of Stock for an indefinite period.
4.8 FEES AND COMMISSIONS. It represents and warrants that it has not
retained, or otherwise authorized to act, any Intermediary in connection with
the transactions contemplated by this Agreement and agrees to indemnify and hold
harmless the Company from liability for any compensation to any Intermediary
retained or otherwise authorized to act by, or on behalf of, the Investor and
the fees and expenses of defending against such liability or alleged liability.
5. CONDITIONS TO CLOSINGS OF THE INVESTORS.
5.1 CONDITIONS PRECEDENT TO EACH INVESTOR'S INVESTMENT ON THE FIRST
CLOSING DATE. The obligation of each Investor on the First Closing Date to
purchase the Units to be purchased under this Agreement by it shall be subject
to each of the following conditions precedent, any one or more of which may be
waived by Investors purchasing at least 66-2/3% of the Units to be purchased at
the First Closing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Company herein shall be true and accurate on and as of the First
Closing Date as if made on such Date.
(b) PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained herein or in other ancillary documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by it prior to or at the First Closing.
(c) CONSENTS, ETC. The Company shall have secured all permits, consents
and authorizations that shall be necessary or required lawfully to consummate
this Agreement and to issue the Stock to be purchased by each Investor at the
First Closing and the Second Closing, except for those filings to be made after
the First Closing and/or the Second Closing, and the Restated Certificate shall
have been duly filed with the Secretary of State of the State of Delaware.
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(d) COMPLIANCE CERTIFICATES. The Company shall have delivered to the
Investors or their representative at the First Closing an Officer's Certificate
to the effect that all conditions specified in Sections 5.1(a) through (c) (f),
(h) and (m) have been fulfilled.
(e) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Investors and their counsel, and the
Investors and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as the Investors or their counsel
may reasonably request.
(f) PROPRIETARY INFORMATION, INVENTIONS AND NON-COMPETITION AGREEMENTS.
Each employee of and consultant to the Company shall have executed a proprietary
information, inventions and non-solicitation agreement (a "Proprietary
Information Agreement"), substantially in the form annexed hereto as Exhibit B,
or shall have executed an amendment to his existing form of Proprietary
Information Agreement in form and substance satisfactory to counsel to the
Investors.
(g) AMENDED AND RESTATED CO-SALE AGREEMENT. Each of the Founders and the
Company shall have entered into an Amended and Restated Co-Sale Agreement with
the Investors, substantially in the form annexed hereto as Exhibit C.
(h) AMENDMENT TO STOCK PURCHASE AND RESTRICTION AGREEMENT. Each of the
Founders and the Company shall have entered into an amendment to the various
Stock Purchase and Restriction Agreements, dated as of December 31, 1992,
between each such Founder and the Company, substantially in the form of
Exhibit D-1, in the case of C. Eugene Ennis, and D-2, in the case of the other
Founders, providing for revised vesting of the Common Stock owned by such
Founder, restrictions on transfer of such stock, and repurchase by the Company
of such stock on termination of employment.
(i) COMPOSITION OF BOARD OF DIRECTORS. The Board of Directors shall
consist of C. Eugene Ennis, Jon W. Bayless and Robert H. Chaney.
(k) FOUNDERS' STOCK PURCHASE. The Founders shall have purchased, in the
aggregate, 400 Units hereunder for an aggregate purchase price of $400,000, and
an additional 50,130 shares of Common Stock under Stock Purchase and Restriction
Agreements for an aggregate purchase price of $50,130, all payable in cash or
pursuant to promissory notes secured by collateral reasonably satisfactory to
the Investors in view of the financial assets of the Founders.
(l) ADDITIONAL DELIVERY BY THE COMPANY. The Company shall have delivered
to the Investors a summary of all accounting transactions that have taken place
in the Company from its inception to the First Closing Date.
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(m) INSURANCE. The Company shall have obtained (i) catastrophe insurance
covering the Company's offices and material equipment and (ii) an umbrella
liability policy, each of which shall be acceptable to the Investors and each of
which shall be in full force and effect on the First Closing Date.
(n) LANDMARK AGREEMENT. Immediately prior to the First Closing, the
Company and Landmark Graphics Corporation ("Landmark") shall have executed,
delivered and consummated the transactions contemplated by the Purchase and
Exchange Agreement (the "Exchange Agreement") in form and substance reasonably
satisfactory to the Investors, pursuant to which Landmark will have exchanged
its 100,000 shares of Series A Preferred for 63,637 shares of the Company's
Common Stock.
(o) OPINION OF COUNSEL. The Company shall have delivered to the Investors
the opinion of Kelley Drye & Warren, counsel to the Company, in the form annexed
hereto as Exhibit E.
(p) OPERATING CONCEPT PROPOSAL. The Company shall have delivered to the
Investors the Operating Concept Proposal in form and substance satisfactory to
Investors holding at least 66-2/3% of the Series B Preferred to be purchased at
the First Closing.
(q) ESCROW AGREEMENT. The Company, each of the Investors (other than
Landmark) and the Escrow Agent shall have executed and delivered the Escrow
Agreement in the form annexed hereto as Exhibit F (the "Escrow Agreement").
5.2 CONDITIONS PRECEDENT TO EACH INVESTOR'S INVESTMENT ON THE SECOND
CLOSING DATE. The obligation of each Investor on the Second Closing Date to
purchase the Units to be purchased under this Agreement by it shall be subject
to each of the following conditions precedent, any one or more of which may be
waived by Investors purchasing at least 66-2/3% of the Units purchased at the
Second Closing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Company herein shall be true and accurate on and as of the Second
Closing Date as if made on such Date.
(b) PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained herein or in other ancillary documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by it prior to or at the Second Closing.
(c) COMPLIANCE CERTIFICATES. The Company shall have delivered to the
Investors or their representative at the Second Closing an Officer's Certificate
to the effect that all conditions specified in Sections 5.2(a) and (b) have been
fulfilled.
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(d) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Investors and their counsel, and the
Investors and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as the Investors or their counsel
may reasonably request.
(e) NOTICE. The Board of Directors of the Company shall have determined,
by affirmative vote or consent of 66-2/3% of its members, that the Company (i)
reasonably anticipates that it will have $200,000 or less in available cash by
the Second Closing Date or (ii) has obligations or opportunities under its
various prospect agreements that it would not otherwise have sufficient
available cash to meet, and the Company shall have delivered a notice thereof to
the Investors.
6. CONDITIONS TO CLOSINGS OF COMPANY. The obligation of the Company on
each Closing Date to issue and sell the Stock to be purchased under this
Agreement shall be subject to each of the following conditions precedent, either
of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Investors herein shall be true and accurate on and as of the
applicable Closing Date as if made on such Date.
(b) ESCROW AGREEMENT. Each of the Investors (other than Landmark) and the
Escrow Agent shall have executed and delivered the Escrow Agreement on or prior
to the First Closing Date.
7. AFFIRMATIVE COVENANTS.
7.1 INSPECTION. The Company covenants and agrees that, for so long as an
Investor (together with its limited partners and affiliates) holds at least
4,000 shares of Series B Preferred, or 21,000 shares of Common Stock acquired
hereunder or under the Exchange Agreement, each as adjusted for stock splits,
stock dividends, recapitalizations, reclassifications and similar events
(together herein called "Recapitalization Events")
(a) the Company will permit any authorized representatives of such
Investor free and full access at all reasonable times and upon reasonable notice
to all of the books, records, personnel and properties of the Company, for any
purpose whatsoever, subject to Section 7.8 hereof; and
(b) the Investor shall be entitled to have one designee attend (but
not to vote at) meetings of the Board of Directors (and business discussions
immediately prior to such meeting) as an observer, PROVIDED that such designee
shall not be entitled to be present at those portions of any such meeting that
the Board of Directors will be discussing issues that
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are competitive with the business of the Investor, such determination to be
made in the Board's good faith business judgment.
7.2 ACCOUNTING. The Company will maintain and cause each of its
Subsidiaries (other than inactive Subsidiaries) to maintain a system of
accounting established and administered in accordance with GAAP consistently
applied, and will set aside on its books and cause each of its operating
Subsidiaries to set aside on its books all such proper reserves as shall be
required by GAAP. For purposes of this Agreement, "Subsidiary" means any
corporation or entity at least a majority of whose voting securities are at the
time owned by the Company, or by one or more Subsidiaries, or by the Company and
one or more Subsidiaries.
7.3 FINANCIAL STATEMENTS; REPORTS. The Company will deliver to the
Investors:
(a) within 45 days after the end of each of the first three quarterly
fiscal periods in each fiscal year of the Company, an unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end of each such
period and unaudited consolidated statements of (i) income and (ii) cash flow of
the Company and its Subsidiaries for each period and, in the case of the first,
second and third quarterly periods, for the period from the beginning of the
current fiscal year to the end of such quarterly period, setting forth in each
case in comparative form the figures for the corresponding period of the
previous fiscal year, all in reasonable detail and certified, subject to changes
resulting from year-end audit adjustments, by the chief financial officer of the
Company or other appropriate officer, in the event the Company does not have a
chief financial officer (an "Appropriate Officer"), that such financial
statements were prepared in accordance with GAAP applied on a basis consistent
(except as otherwise disclosed therein and consented to by a majority of the
Board of Directors) with that of preceding periods, and except as otherwise
stated therein, fairly present the financial position of the Company as of their
date;
(b) within 90 days after the end of each fiscal year of the Company,
a consolidated balance sheet of the Company and its Subsidiaries as at the end
of such year and statements of income and of statements of cash flow of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by the opinion thereon of a "Big Six" firm of independent
public accountants, which opinion shall state that such balance sheet and
statements of income and cash flow have been prepared in accordance with GAAP
applied on a basis consistent with that of the preceding fiscal year (except as
otherwise approved by the Board of Directors), and present fairly and accurately
the financial position of the Company as of their date, and that the audit by
such accountants in connection with such financial statements has been made in
accordance with GAAP; and
(c) within 30 business days after the end of each month, an unaudited
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such
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month and unaudited consolidated statements of (i) income and (ii) cash flow
for such month and for the period from the beginning of the current fiscal
year to the end of such month, setting forth in each case in comparative form
the figures for the budget in respect of such period, all in reasonable
detail and certified, subject to changes resulting from year-end adjustments,
by the Appropriate Officer;
(d) within the first 30 days after the beginning of each fiscal year,
projections of the statements referred to in paragraph (c) of this Section 7.3
for each month in such year;
(e) within the first 30 days after the beginning of the third fiscal
quarter in each fiscal year either (i) a certificate of the Appropriate Officer
that the projections referred to in paragraph (d) of this Section 7.3 with
respect to the last six months of the fiscal year, made again as of the
certificate date, have not materially changed or (ii) revised projections of the
statements referred to in paragraph (c) of this Section 7.3 for each of the last
six months in the fiscal year;
(f) within 45 days after the end of each quarterly fiscal period, a
written statement executed by the Appropriate Officer as to whether the Company
is in compliance with its covenants under this Agreement.
(g) at least 30 days prior to the beginning of each fiscal year, a
budget for such fiscal year, in the form determined by the Board of Directors of
the Company, setting forth in detail reasonably acceptable to the Investors the
Company's budget for such fiscal year.
(h) within 90 days after the beginning of each fiscal year, an annual
reserve analysis covering oil and gas properties to which the Company has
rights, covering such properties as the Board of Directors of the Company shall
determine in good faith from time to time, prepared by a major reserve
engineering firm reasonably acceptable to the Board;
(i) promptly upon the filing thereof, reports and statements filed by
the Company or any of its Subsidiaries with the Commission (or any governmental
authority succeeding to any of its functions) or with any securities exchange;
and
(j) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as from time to time may be
reasonably requested.
7.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Stock (i) for working capital purposes and (ii) to pay off in full its
revolving promissory note to Texas Commerce Bank National Association within ten
(10) business days after the First Closing, PROVIDED that no such proceeds may
be used to repurchase any of the Company's outstanding securities or to pay
dividends on any such securities.
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7.5 PUBLIC INFORMATION. At any time and from time to time after the
earliest of the close of business on such date as (a) a registration statement
filed by the Company under the Securities Act becomes effective, (b) the Company
registers a class of securities under Section 12 of the Securities Exchange Act
of 1934, as amended, or any federal statute or code which is a successor thereto
(the "Exchange Act"), or (c) the Company issues an offering circular meeting the
requirements of Regulation A under the Securities Act, the Company shall
undertake to make publicly available and available to the Holders (as
hereinafter defined in Section 8), pursuant to Rule 144, such information as is
necessary to enable the Holders to make sales of Registrable Stock (as
hereinafter defined in Section 8) pursuant to that Rule. Thereafter, the
Company shall comply with the current public information requirements of
Rule 144 and shall furnish to any Holder, upon request, a written statement
executed by the Company as to the steps it has taken to so comply.
7.6 INSURANCE. The Company shall obtain and keep in effect so long as the
Board of Directors deems advisable, term life insurance on the lives of such key
employees as, and in the principal amounts as, the Board of Directors shall
determine, in each case with proceeds payable to the Company, including without
limitation a $2 million key man policy on the life of C. Eugene Ennis. The
Company will keep and maintain in full force and effect fire, casualty and
umbrella liability insurance policies, with extended coverage, reasonably
sufficient in amount to allow it to replace any of its properties that might be
damaged or destroyed.
7.7 EXECUTION OF AGREEMENTS BY EMPLOYEES OF COMPANY. The Company shall
cause all of its current and future employees and consultants to execute
proprietary information, inventions and non-solicitation agreements
substantially in the form annexed hereto as Exhibit B. Except as specifically
approved by the Company's Board of Directors, all shares of Common Stock and all
options granted by the Company to employees, consultants, officers and
non-investor directors for shares of Common Stock (a) shall, until a
Qualified IPO (as defined in Section 7.12), be subject to a right of first
refusal in favor of the Company, (b) shall vest over a four-year period as
follows: (i) 1/4 at the end of the twelfth calendar month following the
commencement of such person's employment or other retention, (ii) 1/4 at the
end of the twenty-fourth calendar month following the commencement of such
person's employment or other retention, and (iii) 1/48 at the end of each
month for the next 24 months of such employment or other retention, and shall
be subject to the right of the Company to repurchase any non-vested stock at
the price paid by the employee prior to full vesting and (c) shall be subject
to a restriction against transfer of non-vested stock, other than to a family
trust. The rights of the Company in (a) and (b) hereof are assignable by the
Company, subject to the approval of a majority of the Board of Directors,
except that any assignment pursuant to Section 7.9(e) hereof shall not
require Board approval.
7.8 CONFIDENTIALITY. Any information disclosed at meetings of the Board
of Directors and any written information provided pursuant to Sections 7.1, 7.3
and 7.4 shall be used by each Investor solely in furtherance of its interests as
an investor in the Company, and each Investor shall (except as otherwise
required by law) maintain the confidentiality of all
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non-public information of the Company obtained under said sections, PROVIDED
that the Company makes an appropriate written designation of any such written
confidential information, PROVIDED FURTHER that R. Chaney & Partners - 1993,
L.P. may disclose such information to those of its limited partners as have
executed a confidentiality agreement in form and substance satisfactory to
the disinterested directors of the Company and PROVIDED FURTHER that, any
other term of this Agreement to the contrary notwithstanding, the Company
shall not be obligated to disclose any information, the disclosure of which
it believes in good faith would be detrimental to the business of the
Company. The term "confidential information" shall not include such
information that (i) is or becomes generally available to the public other
than as a result of a disclosure by an Investor or its agents, representatives
or employees; (ii) is or becomes available to an Investor on a
non-confidential basis from a source (other than the Company or one of its
directors, officers, agents, representative or employees) that is not
prohibited from disclosing such information by a legal, contractual or
fiduciary obligation; or (iii) was known to an Investor on a non-confidential
basis prior to its disclosure to such Investor by the Company.
In the event that an Investor, or anyone to whom an Investor transmits any
confidential information, becomes legally compelled to disclose any confidential
information, such person will provide the Company with prompt notice so that it
may seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Section 7.8. In the event that such protective
order or other remedy is not obtained, or the Company waives compliance with the
provisions of this Section 7.8, the Investor will furnish only that portion of
the confidential information that it is advised by written opinion of counsel is
legally required and will exercise its best efforts to obtain reliable assurance
that confidential treatment will be accorded the confidential information.
7.9 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Investor
the right of first refusal to purchase, pro-rata, all (or any part) of (x) New
Securities (as defined in Section 7.9(a) below) that the Company may, from time
to time, propose to sell and issue and (y) Employee Stock (as defined in
Section 7.9(d) below) that the Company is entitled to, but shall not, repurchase
from an employee. The Investor's pro rata share shall be the ratio of the
number of shares of Series B Preferred and Common Stock then held by the
Investor as of the date of the Rights Notice (as defined in Section 7.9(b)) or
the Repurchase Notice (as defined in Section 7.9(e)), as the case may be, to the
sum of the total number of shares of Series B Preferred and Common Stock then
held by all Investors (including for this purpose permitted transferees of the
Investor pursuant to Section 7.9(f) hereof) as of such date; PROVIDED that for
purposes of this Section 7.9, the shares of Common Stock held by the Founders
that are not purchased hereunder shall not be included in the calculation of
each Investor's pro rata share. This right of first refusal shall be subject to
the following provisions:
(a) "New Securities" shall mean any Common Stock or preferred shares
of any kind of the Company, whether now or hereafter authorized, and rights,
options, or warrants to purchase said Common Stock or preferred shares, and
securities of any type whatsoever that are, or may become, convertible into said
Common Stock or preferred shares;
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provided, however, that "New Securities" shall not include (i) securities
issuable with respect to Series B Preferred; (ii) securities offered to the
public pursuant to a registration statement filed under the Securities Act;
(iii) securities issued in connection with the acquisition of another
corporation, business entity or line of business of another business entity
by the Company by merger, consolidation, purchase of all or substantially all
of the assets, or other reorganization as a result of which the Company owns
not less than fifty-one percent (51%) of the voting power of such
corporation; (iv) shares of the Company's Common Stock or preferred shares
issued in connection with any Recapitalization Event by the Company; (v)
securities authorized by the Company's Board of Directors to be issued in
connection with the leasing or acquisition of assets by the Company or supply
arrangements for the Company; (vi) securities reserved under employee stock
option or purchase plans or shares to be issued to consultants, vendors or
customers of the Company or in connection with an acquisition or the
formation of a joint venture, in each case as approved by the Board of
Directors; or (vii) securities issued pursuant to Section 18 hereof.
(b) If the Company proposes to issue New Securities, it shall give
the Investors written notice (the "Rights Notice") of its intention, describing
the New Securities, the price, and the general terms upon which the Company
proposes to issue them. Each Investor shall have twenty-five (25) days from
delivery of the Rights Notice to agree to purchase (i) all or any part of its
pro-rata share of such New Securities and (ii) all or any part of the pro-rata
share of any other Investor (including for this purpose any permitted transferee
of the Investor under Section 7.9(f) hereof) to the extent that such other
Investor does not elect to purchase its full pro-rata share, in each case for
the price and upon the general terms specified in the Rights Notice, by giving
written notice to the Company setting forth the quantity of New Securities to be
purchased. If the Investors who elect to purchase their full pro-rata shares
also elect to purchase in the aggregate more than 100% of the New Securities,
such New Securities shall be sold to such Investors in accordance with their
respective pro-rata shares.
(c) If the Investors fail to exercise in full the right of first
refusal within the period or periods specified in Section 7.9(b), the Company
shall have one hundred twenty (120) days after delivery of the Rights Notice to
sell the unsold New Securities at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice. If
the Company has not sold the New Securities within said one hundred twenty (120)
day period the Company shall not thereafter issue or sell any New Securities
without first offering such securities to the Investors in the manner provided
above.
(d) "Employee Stock" shall mean any Common Stock of the Company,
whether now or hereafter authorized, that the Company has issued or sold 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 by the Company to employees of the Company subject to agreements of
restriction by the Company.
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(e) If the Company has the right to repurchase any Employee Stock
from any employee for any reason, including, without limiting the generality of
the foregoing, the termination of such employee's employment, and if it shall
not repurchase all of the shares of such Employee Stock, it shall promptly give
each Investor written notice (the "Repurchase Notice") of the Investor' right to
repurchase, describing the Employee Stock, the price and the general terms upon
which such Employee Stock is available for repurchase. Each Investor shall have
fifteen (15) days from delivery of any such notice in accordance with Section 14
to agree to purchase (i) all or any part of its pro-rata share of such Employee
Stock and (ii) all or any part of the pro-rata share of any other Investor to
the extent that such other Investor does not elect to purchase his full pro-rata
share, in each case for the price and upon the general terms specified in the
notice by giving written notice to the Company setting forth the quantity of
Employee Stock to be purchased. If the Investors who elect to purchase their
full pro-rata shares also elect to purchase in the aggregate more than 100% of
the Employee Stock, such Employee Stock shall be sold to such Investors in
accordance with their respective pro-rata shares.
(f) The rights of first refusal described in this Section 7.9 are
nonassignable except to an affiliate or limited partner of each Investor or to a
Transferee (as defined in Section 10 hereof) of an Investor who has acquired all
of the Series B Preferred and Common Stock purchased by such Investor hereunder.
7.10 MAINTENANCE OF EXISTENCE AND PROPERTIES, ETC. The Company will, and
will cause each of its Subsidiaries to (a) maintain its corporate existence,
rights, governmental approvals and franchises necessary to the conduct of its
business, (b) keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, (c) give appropriate notice of events of
default pursuant to any agreements of the Company, (d) enter into transactions
with "affiliates" or "associates" (as those terms are defined in Rule 405
promulgated under the Securities Act) only on fair and reasonable terms and (e)
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company or any
Subsidiary; PROVIDED, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall at the time be contested in good
faith by appropriate proceedings and PROVIDED further that, unless otherwise
approved by the Board of Directors, the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
7.11 AMENDMENT OF RESTATED CERTIFICATE. Within 30 days after the First
Closing, each Investor and Founder shall execute an Action by Consent of
Stockholders of the Company approving an amendment to the Restated Certificate
that cancels the Series A Preferred and the Class A Common, and the Company
shall file a Restated Certificate of Incorporation effectuating such amendment.
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7.12 TERMINATION OF COVENANTS. The covenants set forth in Sections 7.1
through 7.4, 7.9 and 7.10 shall terminate and be of no further force or effect
on the consummation of the first firm commitment underwritten public offering of
securities of the Company pursuant to a registration statement filed by the
Company under the Securities Act, where the aggregate sales price of such
securities (before deduction of underwriting discounts and expenses of sale) is
not less than $10,000,000 (a "Qualified IPO").
7.13 EQUITY TREATMENT. The Company and the Investors shall, for all
purposes, treat the Series B Preferred as equity and not as debt securities.
8. REGISTRATION. The following provisions govern the registration of
Common Stock:
8.1 DEFINITIONS. As used herein, the following terms have the following
meanings:
FORMS S-1, S-2 AND S-3: The forms so designated, promulgated by the
Commission for registration of securities under the Securities Act, and any
forms succeeding to the functions of such forms, whether or not bearing the
same designation.
HOLDER: A holder of Registrable Stock (subject to Section 8.13 hereof),
PROVIDED that anyone who acquires any Registrable Stock in a distribution
pursuant to a registration statement filed by the Company under the
Securities Act shall not thereby be deemed to be a "Holder".
KEY EMPLOYEES: The Founders (as to the Shares of Common Stock held by them
that were not purchased hereunder) and certain employees of the Company
unanimously designated in writing by the Board of Directors from time to
time as "Key Employees"; provided that a person shall immediately cease to
be a Key Employee for purposes of this Section 8 on the date that such
person is no longer employed by the Company.
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
REGISTRABLE STOCK: All shares of Common Stock issued hereunder or under
the Exchange Agreement or held by a person to whom registration rights have
been transferred pursuant to the provisions of this Section 8, all shares
of Common Stock issued by the Company in respect of such shares and all
shares of Common Stock that the Investors may hereafter purchase pursuant
to their
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rights of first refusal or otherwise, or Common Stock issued on conversion
or exercise of securities so purchased.
REQUIRED DEMAND AMOUNT: 51% of the Registrable Stock then outstanding.
SUBJECT STOCK: All Registrable Stock held by the Investors and the shares
of Common Stock held by the Key Employees other than shares acquired in a
distribution pursuant to a registration statement filed by the Company
under the Securities Act.
8.2 REQUIRED REGISTRATION. (a) If (i) the holder or holders of an
aggregate of at least the Required Demand Amount propose to dispose of at least
20% of the then outstanding Registrable Stock (such holder or holders being
herein called the "Initiating Holders"), and (ii) such disposition may not, in
the opinion of such Initiating Holders, be effected in the public marketplace
(as opposed to a private transaction under the Securities Act) on equally
favorable net terms to the Initiating Holders without registration of such
shares under the Securities Act, the Initiating Holders may request the Company
in writing to effect such registration, stating the number of shares of
Registrable Stock to be disposed of by such Initiating Holders (which, in the
aggregate, shall be not less than 20% of the then outstanding Registrable Stock)
and the intended method of disposition. Upon receipt of such request, the
Company will give prompt written notice thereof to all other Holders whereupon
such other Holders shall give written notice to the Company within 20 days after
the date of the Company's notice (the "Notice Period") if they propose to
dispose of any shares of Registrable Stock pursuant to such registration,
stating the number of shares of Registrable Stock to be disposed of by such
Holder or Holders and the intended method of disposition.
(b) The Key Employees may register securities for sale for their own
account in the registration requested pursuant to this Section 8.2, subject to
limitations on the number of shares which may be imposed by the underwriter as
set forth in Section 8.4(d) below. At the time the Company shall give the
notice to Holders required by Section 8.2(a), it shall also give the same notice
to the Key Employees whereupon each Key Employee shall give written notice to
the Company within the Notice Period if such Key Employee proposes to dispose of
any shares of Common Stock held by him or her pursuant to such registration,
stating the number of shares of Common Stock to be disposed of by such Key
Employee and the intended method of disposition.
(c) The Company will use its best efforts to effect promptly after
the Notice Period the registration under the Securities Act of all shares of
Subject Stock specified in the requests of the Initiating Holders, the requests
of the other Holders and the requests of the Key Employees, subject, however, to
the limitations set forth in Section 8.4.
8.3 REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Section 8 to use its best efforts to effect promptly the
registration of shares of Registrable Stock, the Company will:
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(a) prepare and file with the Commission a registration statement
with respect to such shares and use its best efforts to cause such registration
statement to become and remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the disposition of all shares covered by such registration statement, including
such amendments and supplements as may be necessary to reflect the intended
method of disposition from time to time of the prospective seller or sellers of
such shares, but for no longer than one hundred twenty (120) days subsequent to
the effective date of such registration in the case of a registration statement
on Form S-1 or S-2 and for no longer than ninety (90) days in the case of a
registration statement on Form S-3;
(c) furnish to each prospective seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the public sale or other disposition
of the shares owned by such seller;
(d) use its best efforts to register or qualify the shares covered by
such registration statement under such other securities or blue sky or other
applicable laws of such jurisdiction within the United States as each
prospective seller shall reasonably request, to enable such seller to consummate
the public sale or other disposition in such jurisdictions of the shares owned
by such seller; provided, however, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not at the
time so qualified or to take any action which would subject it to service of
process in suits other than those arising out of the offer or sale of the
Subject Stock covered by such registration statement in any jurisdiction where
it is not at the time so subject; and
(e) furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, of (i) an opinion of counsel for the
Company, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
"comfort" letter) with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
opinions of issuer's counsel and in "comfort" letters delivered to the
underwriters in underwritten public offerings of securities.
(f) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering; each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement:
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(g) notify each Holder of Registrable Stock covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(h) apply for listing and use its best efforts to list the
Registrable Stock being registered on any national securities exchange on which
a class of the Company's equity securities are listed or, if the Company does
not have a class of equity securities listed on a national securities exchange,
apply for qualification and use its best efforts to qualify the Registrable
Stock being registered for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc. or on a national securities
exchange.
8.4 LIMITATIONS ON REQUIRED REGISTRATIONS.
(a) The Company shall not be required to effect more than three
registrations on behalf of the Investors pursuant to Section 8.2.
(b) The Company shall not be required to cause a registration
requested pursuant to Section 8.2 to become effective prior to the earlier of
[(i) January 2, 1998] and (ii) the expiration of six (6) months after the
effective date of the first registration statement initiated by the Company
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 of the Commission is applicable).
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to Section 8.2 unless permitted
to do so by the written consent of Holders who hold at least 51% of the
Registrable Stock as to which registration has been requested. The Company may
not cause any other registration of securities for sale for its own account
(other than a registration effected solely to implement an employee benefit
plan) to be initiated after a registration requested pursuant to Section 8.2 and
to become effective less than 120 days after the effective date of any
registration requested pursuant to Section 8.2.
(d) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting may be
included in the registration. Notwithstanding the provisions of Sections 8.2(b)
and 8.4(c), if the underwriter determines that (i) marketing factors require a
limitation of the total number of shares to be underwritten or a limitation of
the total number of shares of the Key Employees to be underwritten, or (ii) the
offering price per share would be reduced by the inclusion of the shares of the
Key Employees and/or the Company, then the number of shares to be included in
the registration and underwriting shall first be allocated among all Holders who
indicated to the Company their decision to distribute any of their Registrable
Stock through such underwriting, in proportion, as nearly as practicable, to the
respective numbers of shares of
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Registrable Stock owned by such Holders at the time of filing the
registration statement, then to the Key Employees who have indicated to the
Company their decision to distribute any of their Subject Stock through such
underwriting, in proportion, as nearly as practicable, to the respective
numbers of shares of Subject Stock owned by the Key Employees at the time of
filing the registration statement, and the remainder, if any, to the Company;
PROVIDED, HOWEVER, that if the underwriter determines that marketing factors
require a limitation of the number of shares of the Key Employees to be
underwritten or that the offering price per share would be reduced by the
inclusion of the shares of the Key Employees, then the number of shares of
the Key Employees that may be so included shall be reduced, or eliminated
from registration, as the underwriter shall advise. No stock excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder, Key Employee or the Company
disapproves of any such underwriting, such person may elect to withdraw
therefrom by written notice to the Initiating Holders and the underwriter.
The securities so withdrawn from such underwriting shall also be withdrawn
from such registration.
(e) The Company shall not be required to effect a registration
pursuant to Section 8.2 unless the proposed disposition of shares of Subject
Stock has an aggregate expected offering price (before deduction of underwriting
discounts and expenses of sale) of not less than $5,000,000.
(f) If at the time of any request to register Registrable Stock
pursuant to Section 8.2 hereof, the Company is engaged, or has fixed plans to
engage within 90 days of the time of the request, in a registered public
offering as to which the Holders may include such Stock pursuant to Section 8.5
hereof or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of six months from the effective date of such offering, or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once while the
rights set forth in Section 8.2 are in effect.
8.5 INCIDENTAL REGISTRATION. If the Company at any time proposes to
register any of its securities under the Securities Act (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable), it will each
such time give written notice to all Holders and to the Key Employees of its
intention so to do. Upon the written request of a Holder or Holders or a Key
Employee or Key Employees given within 20 days after receipt of any such notice
(stating the number of shares of Subject Stock to be disposed of by such Holder
or Holders or such Key Employee or Key Employees and the intended method of
disposition), the Company will use its best efforts to cause all such shares of
Subject Stock intended to be disposed of, the Holders or the Key Employees
owners of which shall have requested registration thereof, to be registered
under the Securities Act so as to permit the disposition (in accordance with the
methods in said
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request) by such Holder or Holders or such Key Employee or Key Employees of
the shares so registered, subject, however, to the limitations set forth in
Section 8.6.
8.6 LIMITATIONS ON INCIDENTAL REGISTRATION. If the registration of which
the Company gives notice pursuant to Section 8.5 is for an underwritten
offering, only securities that are to be included in the underwriting may be
included in the registration. Notwithstanding any provision of Section 8.5, if
the underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may eliminate or reduce the
number of shares of Subject Stock to be included in the registration and
underwriting. The Company shall so advise all Holders and the Key Employees
(except those Holders and Key Employees who have not indicated to the Company
their decision to distribute any of their Subject Stock through such
underwriting), and the number of shares of Subject Stock that may be included in
the registration and underwriting shall be allocated among such Holders and Key
Employees in proportion, as nearly as practicable, to the respective amounts of
Subject Stock owned by such Holders and Key Employees at the time of filing the
registration statement. No Subject Stock excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Holder or Key Employee disapproves of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter. The Subject Stock and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such registration.
The registration rights granted under Section 8.5 shall terminate as to any Key
Employee or Holder or permissible transferees or assignee of such rights if such
person (a) holds one percent (1%) or less of the outstanding shares of Common
Stock of the Company and (b) would be permitted to sell all of the Subject Stock
held by him pursuant to Rule 144(k).
8.7 DESIGNATION OF UNDERWRITER. (a) In the case of any registration
effected pursuant to Section 8.2 or 8.8, a majority in interest of the
requesting Holders shall have the right to designate the managing underwriter(s)
in any underwritten offering.
(b) In the case of any registration initiated by the Company, the
Company shall have the right to designate the managing underwriter in any
underwritten offering.
8.8 FORM S-3. The Company shall register its Common Stock under the
Exchange Act as soon as legally permissible following the effective date of the
first registration of any securities of the Company on Form S-1 and the Company
shall thereafter file all reports and effect all qualifications and compliances
as would permit or facilitate the sale and distribution of its stock on
Form S-3. After the Company has qualified for the use of Form S-3, the Holders
shall have the right to request up to four registrations on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Stock to be disposed of and the intended method of disposition) subject only to
the following:
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(a) The Company shall not be required to effect a registration
pursuant to this Section 8.8 unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Stock having an
aggregate expected public offering price (before deduction of underwriting
discounts and expenses of sale) of at least $250,000.
(b) The Company shall not be required to effect a registration
pursuant to this Section 8.8 more frequently than once during any six month
period.
The Company shall give notice to all Holders and Key Employees of the receipt of
a request for registration pursuant to this Section 8.8 and shall provide a
reasonable opportunity for other Holders and Key Employees to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of paragraph (d) of Section 8.4 shall apply to all participants in
such offering. Subject to the foregoing, the Company will use its best efforts
to effect promptly the registration of all shares of Subject Stock on Form S-3
to the extent requested by the Holder or Holders thereof or by a Key Employee.
8.9 COOPERATION BY PROSPECTIVE SELLERS.
(a) Each prospective seller of Subject Stock, and each underwriter
designated by a majority in interest of the requesting Holders, will furnish to
the Company such information as the Company may reasonably require from such
seller or underwriter in connection with the registration statement (and the
prospectus included therein).
(b) Failure of a prospective seller of Subject Stock to furnish the
information and agreements described in this Section 8.9 shall not affect the
obligations of the Company under this Section 8 to remaining sellers who furnish
such information and agreements unless, in the reasonable opinion of counsel to
the Company or the underwriters, such failure impairs or may impair the
viability of the offering or the legality of the registration statement or the
underlying offering.
(c) The Holders of and the Key Employees holding shares included in
the registration statement will not (until further notice) effect sales thereof
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update a registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial statements in the
registration statement initially filed pursuant to the Holder or Holders'
request and (ii) such correction or update did not result from the Company's
acts or failures to act.
At the end of the period during which the Company is obligated to keep the
registration statement current and effective as described in paragraph (b) of
Section 8.3 (and any extensions thereof required by the preceding sentence), the
Holders and the Key Employees holding shares included in the registration
statement shall discontinue sales of
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shares pursuant to such registration statement upon receipt of notice from
the Company of its intention to remove from registration the shares covered
by such registration statement which remain unsold, and such Holders and Key
Employees shall notify the Company of the number of shares registered which
remain unsold immediately upon receipt of such notice from the Company.
8.10 EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to this Section 8 including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company, expenses, fees
and disbursements of one special counsel retained by the Holders and/or the Key
Employees not to exceed $10,000, and expenses of any audits incidental to or
required by any such registration, shall be borne by the Company, except
(a) that all expenses, fees and disbursements of any additional counsel retained
by the Holders and/or the Key Employees, and all underwriting discounts and
commissions shall be borne by the Holders of and the Key Employees holding the
securities registered pursuant to such registration, pro rata according to the
quantity of their securities so registered; (b) the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 8.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 8.2; PROVIDED,
HOWEVER, that if immediately prior to the time of such withdrawal, the Holders
have learned of a materially adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 8.2; and (c) with respect to
registrations effectuated under Section 8.2, the Company shall be required to
pay expenses only in respect of the first two such registrations.
8.11 INDEMNIFICATION. (a) To the extent permitted by law, the Company
will indemnify each Holder and Key Employee requesting or joining in a
registration, each agent, officer and director of such Holders, each person
controlling such Holder and each underwriter and selling broker of the
securities so registered (collectively, "Indemnitees") against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act, the Exchange Act or state
securities laws or any rule or regulation promulgated under the Securities
Act, the Exchange Act or a state securities law, in each case applicable to
the Company, and will reimburse each such Indemnitee for any legal and any
other fees and expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, PROVIDED,
HOWEVER, that the Company will not be liable to any Indemnitee in any such
case to the extent that any such claim, loss, damage or
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liability is caused by any untrue statement or omission so made in strict
conformity with written information furnished to the Company by an instrument
duly executed by such Indemnitee and stated to be specifically for use
therein and except that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in the
preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any underwriter, or any Indemnitee if there is no
underwriter, if a copy of the Final Prospectus was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act; PROVIDED,
FURTHER, that this indemnity shall not be deemed to relieve any underwriter
of any of its due diligence obligations; PROVIDED, FURTHER, that the
indemnity agreement contained in this subsection 8.11(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder and each Key Employee
requesting or joining in a registration and each underwriter and selling broker
of the securities so registered will indemnify the Company and its officers and
directors and each person, if any, who controls any thereof within the meaning
of Section 15 of the Securities Act and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) or any 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 the
Company and each other person indemnified pursuant to this paragraph (b) for any
legal and any other fees and expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
PROVIDED, HOWEVER, that this paragraph (b) shall apply only if (and only to the
extent that) such statement or omission was made in reliance upon and in strict
conformity with written information (including, without limitation, written
negative responses to inquiries) furnished to the Company by an instrument duly
executed by such Holder, Key Employee, underwriter or selling broker and stated
to be specifically for use in such prospectus, offering circular or other
document (or related registration statement, notification or the like) or any
amendment or supplement thereto; and except that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
made in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the Final Prospectus, such indemnity agreement shall not
inure to the benefit of (i) the Company and (ii) any underwriter, Holder or Key
Employee, if there is no underwriter, if a copy of the Final Prospectus was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is
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required by the Securities Act; PROVIDED, FURTHER, that this indemnity shall
not be deemed to relieve any underwriter of any of its due diligence
obligations; PROVIDED, FURTHER, that the indemnity agreement contained in
this subsection 8.11(b) shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability or action if such settlement is effected
without the consent of the Holder, Key Employee or underwriter, as the case
may be, which consent shall not be unreasonably withheld; and PROVIDED,
FURTHER, that the obligations of such Holders or Key Employees shall be
limited to an amount equal to the net proceeds received by such Holder or Key
Employee from the sale of Subject Stock in such offering as contemplated
herein, unless such claim, loss, damage, liability or action resulted from
such Holder's or Key Employee's fraudulent misconduct.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party') promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, PROVIDED that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and PROVIDED
FURTHER that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 8.11 except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give notice. No indemnifying party, in the
defense of any such claim or litigation, shall consent, except with the consent
of each indemnified party, to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) The reimbursement required by this Section 8.11 shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(e) The obligation of the Company under this Section 8.11 shall
survive the redemption, if any, of the Series B Preferred, and the completion of
any offering of Subject Stock in a registration statement under this Section 8
or otherwise.
8.12 RIGHTS THAT MAY BE GRANTED TO SUBSEQUENT INVESTORS. (a) Within the
limitations prescribed by this paragraph (a), but not otherwise, the Company may
grant to subsequent investors in the Company rights of incidental registration
(such as those provided in Section 8.5). Such rights may only pertain to shares
of Common Stock, including shares of Common Stock into which any other
securities may be converted. Such rights may be granted with respect to
(i) registrations actually requested by Initiating Holders pursuant to
Section 8.2, but only in respect of that portion of any such registration as
remains after inclusion of all Registrable Stock requested by Holders but before
inclusion of any Subject
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Stock requested by the Key Employees and (ii) registrations initiated by the
Company, but only in respect of that portion of such registration as remains
after inclusion of all Subject Stock. With respect to registrations which
are for underwritten public offerings, "available portion" shall mean the
portion of the underwritten shares that is available as specified in clauses
(i) and (ii) of the third sentence of this paragraph (a). Shares not included
in such underwriting shall not be registered.
(b) The Company may not grant to subsequent investors in the Company
rights of registration upon request (such as those provided in Section 8.2)
unless (i) such rights are limited to shares of Common Stock, (ii) all Holders
and the Key Employees are given enforceable contractual rights to participate in
registrations requested by such subsequent investors (but subject to the right
of priority of registration in the following order: such subsequent investors
and the Holders on a pro-rata basis and then the Key Employees), such
participation to be on a pro-rata basis, and subject to the limitations,
described in the final three sentences of paragraph (a) of this Section 8.12,
(iii) such rights shall not become effective prior to 90 days after the
effective date of the first registration pursuant to Section 8.2 and (iv) such
rights shall not be more favorable than those granted to the Holders.
8.13 TRANSFER OF REGISTRATION RIGHTS. (a) The registration rights
granted to the Investors under this Section 8 may be transferred but only to
(i) a transferee who shall acquire not less than 21,000 shares of Registrable
Stock (as adjusted for Recapitalization Events), (ii) affiliates and limited
partners of the Investors, and (iii) any Transferee of an Investor that
acquires all of the shares of Series B Preferred and Common Stock purchased
by such Investor hereunder.
(b) Notwithstanding any provision of this Section 8.13, the registration
rights granted to the Investors under this Section 8 may not be assigned to any
person or entity that, in the Company's reasonable judgment, is a competitor of
the Company.
(c) The registration rights granted to the Key Employees under this
Section 8 may not be transferred, PROVIDED that each of C. Eugene Ennis, Peter
M. Duncan and Douglas C. Nester may transfer registration rights granted
hereunder as to shares of Registrable Stock acquired in their capacity as
Investors hereunder, subject to Sections 8.13(a) and (b) hereof.
8.14 "STAND-OFF" AGREEMENT. In consideration for the Company performing
its obligations under this Section 8, each Investor and each Key Employee
severally agrees for a period of time (not to exceed 180 days) from the
effective date of any registration (other than a registration effected solely to
implement an employee benefit plan) of securities of the Company (upon request
of the Company or of the underwriters managing any underwritten offering of the
Company's securities) not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Subject Stock or any
other stock of the Company held by each Investor or Key Employee, other than
shares of Subject Stock included in the registration, without the prior written
consent of the Company or such underwriters, as
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the case may be, provided that all officers and directors of the Company and
each holder of more than 2% of the outstanding Common Stock shall enter into
similar agreements.
8.15 DELAY OF REGISTRATION. The Investors and the Key Employees shall have
no right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 8.
9. NEGATIVE COVENANTS. (a) So long as any shares of Series B Preferred
are outstanding, the Company shall not, without the affirmative vote of the
holders of record of at least 66-2/3% of the outstanding shares of Series B
Preferred, voting as a separate class:
(i) amend, repeal or modify any provision of, or add any provision
to, the Company's Certificate of Incorporation or 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 Series B Preferred;
(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, 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 Company 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 as to dividends,
liquidation, redemption or assets into shares of Series B Preferred 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.
(b) So long as not less than 4,000 shares of Series B Preferred are
outstanding, the Company 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, voting as a separate class:
(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 or Common Stock
(other than (i) 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, includible without limitation all
shares sold to employees of the Company subject to agreements of restriction by
the Company or redemptions effected upon the terms contained in the Restated
Certificate);
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(iii) 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;
(iv) 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 Company or such Controlled Entity, in
any case to secure a debt in excess of $250,000;
(v) sell, convey or otherwise dispose of all or substantially all of
the property or business of the Company;
(vi) merge or consolidate the Company 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 Company 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;
(vii) permit the assignment in whole or in part of amounts otherwise
due to the Company from the discovery and production of hydrocarbons to any
stockholder of the Company, or officer of the Company, or any founding
stockholder of the Company, unless such assignment has been approved by the
unanimous consent of the non-management members of the Board of Directors of the
Company; or
(viii) pay any agency, transaction or other fees to any stockholder
of the Company unless such payment has been approved by the unanimous consent of
the non-management members of the Board of Directors of the Company.
(c) So long as not less than 4,000 shares of Series B Preferred 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 Company, 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 Company for
consideration in excess of an aggregate of $500,000;
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(iii) sell, lease, convey or otherwise dispose of any "material
assets" (which, for the purposes of this Section 9(c)(iii), are defined as
assets having an aggregate fair market value of at least $250,000) of the
Company or its subsidiaries or business operations of material subsidiaries of
the Company that in the aggregate constitute a material asset of the Company; or
(iv) replace the chief executive officer of the Company upon his
death, retirement or disability, or retain a chief financial officer.
10. TRANSFERS OF SECURITIES BY INVESTORS. The Investors shall have the
right, without the consent of the Company, to sell, or transfer or otherwise
dispose of all or a portion of their Stock to an affiliate of (i) Citicorp
Venture Capital Ltd. or Citi Growth Fund L.P., (ii) one or more limited partners
of R. Chaney & Partners - 1993 L.P. or (iii) one or more partners of Centennial
Associates, L.P., PROVIDED that in any such case such partner transferee has
entered into a confidentiality agreement in form and substance satisfactory to
the disinterested directors of the Company. In addition, the Investors may
transfer all or any portion of their Stock to a non-affiliated third party with
the unanimous approval of the non-management members of the Board of Directors
of the Company, which approval shall not be unreasonably withheld (each of such
permitted transferees is hereafter referred to as a "Transferee").
11. BOARD OF DIRECTORS. (a) The Investors shall be entitled to appoint
(x) 66-2/3% of the members of the Board of Directors, so long as the Investors
hold at least 157,794 shares of the Common Stock acquired (or prior to the
Second Closing, to be acquired hereunder) hereunder or under the Exchange
Agreement, (y) 33-1/3% of the Board of Directors, so long as the Investors hold
less than 157,794 shares of Common Stock but at least 63,117 shares of the
Common Stock acquired (or prior to the Second Closing, to be acquired hereunder)
hereunder or under the Exchange Agreement, and (z) one director, so long as the
Investors hold less than 63,117 shares but at least 3,156 shares of the Common
Stock acquired (or prior to the Second Closing, to be acquired hereunder)
hereunder or under the Exchange Agreement (in each case as adjusted for
Recapitalization Events). The Board shall be limited to no more than five
members, so long as (i) not less than 8,800 shares of the Series B Preferred are
outstanding and (ii) the Investors or their Transferees hold at least 3,156
shares of the Common Stock acquired hereunder or under the Exchange Agreement
(each as adjusted for Recapitalization Events) (the "Requisite Shares").
Notwithstanding the foregoing, upon the occurrence of an Event of Noncompliance
(as defined in Article Fourth, Section B.4(b) of the Restated Certificate), the
Investors shall be entitled to appoint 66-2/3% of the members of the Board of
Directors.
(b) The Investors and the Founders shall act in all capacities and
vote the shares of capital stock of the Company now or hereafter owned or
controlled by them so as to cause and maintain the election to the Board of
Directors of (i) the chief executive officer of the Company from time to time;
and (ii) the persons designated by the holders of a majority in interest of the
Series B Preferred as will enable the Investors to designate the number of
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members of the Board of Directors to which they are entitled under Section 11(a)
hereof. The designees set forth in clause (ii) above shall be determined by the
affirmative vote or consent of Investors holding 66-2/3% of the outstanding
shares of Stock purchased hereunder, with such shares having the voting rights
set forth in the Restated Certificate, as amended from time to time.
(c) The Investors and the Founders shall act in all capacities and
vote the shares of capital stock of the Company now or hereafter owned or
controlled by them so as to cause and maintain the number of directors on the
Board of Directors to be limited to the number of directors required by Section
11(a) above.
(d) Each certificate for shares of capital stock of the Company owned
by the Founders and the Investors shall bear thereon substantially the following
legend:
"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS OF A
STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 9, 1993, WITH RESPECT TO THE
VOTING OF THE SHARES, OR ANY INTEREST THEREIN, WHICH AGREEMENT MAY BE
EXAMINED AT THE OFFICES OF THE COMPANY."
(e) The provisions of this Section 11 shall continue in effect until the
earliest to occur of (i) the Investors no longer holding, in the aggregate, the
Requisite Shares, (ii) a Qualified IPO or (ii) ten years from the date hereof.
12. EXPENSES. The Company will pay (a) all the costs and expenses of the
reproduction of this Agreement, of all agreements and documents referred to
herein and of the certificates for the Stock; (b) all taxes (if any) payable
with respect to this Agreement and the issuance of its Stock; (c) all costs of
complying with the securities or Blue Sky laws of any jurisdiction with respect
to the offering or sale of the Stock; (d) the cost of delivering to such address
as each Investor shall specify the certificates for the Stock purchased by each
such Investor; (e) the reasonable fees of (x) special counsel for the Investors,
not to exceed $15,000 and (y) counsel to the Company, not to exceed $_________,
in each case plus actual expenses and disbursements, in each case in connection
with the subject matter of this Agreement and the transactions contemplated
hereby (other than events described in Section 8 hereof); and (f) the fees and
expenses incurred with respect to any amendments to this Agreement or the
Restated Certificate proposed by the Company (whether or not the same become
effective).
13. SURVIVAL OF AGREEMENTS. All representations and warranties contained
herein or made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the Investors or
on their behalf) for a period of twenty-four months and all covenants and
agreements contained herein by the Company shall survive the execution and
delivery of this Agreement in accordance with their terms. All statements
contained in any certificate or other instrument executed and delivered by the
Company or its
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duly authorized officers or representatives pursuant hereto in connection
with the transactions contemplated hereby shall be deemed representations by
the Company hereunder.
14. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 14) shall be in
writing and shall be deemed to be delivered (i) on the date delivered, if
personally delivered or transmitted via facsimile with return confirmation of
such transmission; (ii) on the business day after the date sent, if sent by
recognized overnight courier service and (iii) on the fifth day after the date
sent, if mailed by first-class certified mail, postage prepaid and return
receipt requested, as follows:
(a) If to the Company:
3DX Technologies Inc.
16001 Park Ten Place, Suite 200
Houston, Texas 77084-5120
Attention: C. Eugene Ennis, President
Facsimile: (713) 579-9227
with a copy to:
Frederic A. Rubinstein, Esq.
Kelley Drye & Warren
101 Park Avenue
New York, N.Y. 10005
Facsimile: (212) 808-7897
(b) If to the Investors other than Landmark, at their respective
addresses set forth in Schedule 1 hereto;
with a copy to:
Larry W. Sonsini, Esq.
Wilson, Sonsini Goodrich & Rosati
Two Palo Alto Square
Palo Alto, California 94306
Facsimile: (415) 493-6811
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(c) If to Landmark:
Landmark Graphics Corporation
15150 Memorial Drive
Houston, Texas 77079
Attention: Patti Massaro, Esq.
Facsimile: (713) 560-1383
with a copy to:
Robert E. Crawford, Jr., Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Facsimile: (214) 745-5390
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. The financial statements and other
reports required by Section 7 may be mailed by first-class regular mail.
15. MODIFICATIONS; WAIVER. (a) Except as set forth in Section 15(b),
neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally or in writing, except that any provision of this
Agreement (other than Section 10) may be amended and the observance of any such
provision may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of
(i) the Company, (ii) the holders of at least 66-2/3% of the aggregate voting
power of shares of the Series B Preferred and Registrable Stock (excluding from
both the numerator and denominator of the fraction from which such percentage is
derived all shares theretofore disposed of by the Investors or their Transferees
pursuant to one or more registration statements under the Securities Act or
pursuant to Rule 144) acting together as a single class, (iii) Landmark, as to
Sections 7.2, 7.3, 7.9, 7.13 and 8, and (iv) in the event the Key Employees'
registration rights in Section 8 are modified, waived or terminated, the holders
of at least 51% of the aggregate number of shares of Common Stock outstanding as
of the date of such modification, waiver or termination that are held by the Key
Employees who at such time are stockholders of the Company; PROVIDED that this
Section 15 may not be modified or amended without the written consent of all the
parties hereto (including, however, only those Key Employees who at the time of
such modification or waiver are stockholders of the Company); and PROVIDED,
FURTHER, that the Board of Directors shall be permitted to grant to any officer
of the Company registration rights that are the equivalent of the Key Employees'
registration rights and the granting of such officer registration rights shall
not be deemed a modification of the Key Employees' registration rights, for
purposes of this Section 16(a) if granted with the approval of the entire Board
of Directors.
38
<PAGE>
(b) Notwithstanding anything to the contrary contained in
Section 16(a), the Board of Directors of the Company may, from time to time,
designate in writing additional employees of the Company as "Key Employees," as
such term is used in this Agreement. Each person so designated shall execute
all such documents as shall be necessary so that he or she shall be considered a
"Key Employee" within the meaning of this Agreement, and only after the
execution of all such documents by the Company and such Key Employee, all
references to "Key Employees" in this Agreement shall be deemed to include such
designee; PROVIDED that in no event shall a person be considered a Key Employee
if such person is no longer employed by the Company.
16. ENTIRE AGREEMENT. This Agreement, together with the schedules and
exhibits attached hereto and made a part hereof, contains the entire agreement
between the parties with respect to the transactions contemplated hereby, and
supersedes all negotiations, agreements, representations, warranties,
commitments, whether in writing or oral, prior to the date hereof.
17. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, all of the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
Transferees of the parties hereto, except that the rights set forth in
Sections 7.1, 7.3, 7.4 and 8.13 hereof may be assigned but only to (i) a
Transferee who shall acquire not less than 4,000 shares (as adjusted for
Recapitalization Events) of Series B Preferred Stock and 21,000 shares of
Registrable Stock (as adjusted for Recapitalization Events) or (ii) a Transferee
of any Investor who shall acquire all of the Series B Preferred Stock and Common
Stock purchased by such Investor hereunder.
18. ENFORCEMENT.
(a) REMEDIES AT LAW OR IN EQUITY. If the Company shall default in
any of its obligations under this Agreement or if any representation or warranty
made by or on behalf of the Company in this Agreement or in any certificate,
report or other instrument delivered under or pursuant to any term hereof shall
be untrue or misleading in any material respect as of the date of this Agreement
or as of an applicable Closing Date or as of the date it was made, furnished or
delivered, the Investors may proceed to protect and enforce their rights by suit
in equity or action at law, whether for the specific performance of any term
contained in this Agreement or the Restated Certificate, injunction against the
breach of any such term or in furtherance of the exercise of any power granted
in this Agreement or the Restated Certificate, or to enforce any other legal or
equitable right of such Investors or to take any one or more of such actions.
In the event the Investors bring such an action against the Company, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Restated Certificate,
including without limitation such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
39
<PAGE>
(b) REMEDIES CUMULATIVE; WAIVER. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to the Investors at law or
in equity. No express or implied waiver by the Investors of any default shall
be a waiver of any future or subsequent default. The failure or delay of the
Investors in exercising any rights granted them hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any particular
right by the Investors shall not exhaust the same or constitute a waiver of any
other right provided herein.
19. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and all such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
20. GOVERNING LAW AND SEVERABILITY. This agreement shall be governed by
the internal laws of the state of Texas, without regard to principles of
conflicts of law and will, to the maximum extent practicable, be deemed to call
for performance in Harris County, Texas. In the event any provision of this
agreement or the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this agreement shall remain in full force and effect.
40
<PAGE>
21. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.
3DX TECHNOLOGIES INC.
By:
-----------------------------------
Name:
Title:
CITI GROWTH FUND L.P.
By:
-----------------------------------
Name:
Title:
R. CHANEY & PARTNERS - 1993 L.P.
By:
-----------------------------------
Name:
Title:
LANDMARK GRAPHICS CORPORATION
By:
-----------------------------------
Name:
Title:
41
<PAGE>
CENTENNIAL ASSOCIATES, L.P.
By:
-----------------------------------
Name:
Title:
---------------------------------------
Peter Gough
---------------------------------------
Frederic A. Rubinstein
---------------------------------------
Jon W. Bayless
---------------------------------------
C. Eugene Ennis
---------------------------------------
Douglas C. Nester
---------------------------------------
Peter M. Duncan
---------------------------------------
Hardie Morgan
42
<PAGE>
---------------------------------------
Charles Edwards
---------------------------------------
Kenneth Strode
---------------------------------------
John V. Jaggers
---------------------------------------
Joseph "Buddy" Schuchardt
---------------------------------------
Peter Schleider
---------------------------------------
John F. James
43
<PAGE>
---------------------------------------
Peter G. Gerry
---------------------------------------
Kilin To
---------------------------------------
James L. Luikart
---------------------------------------
Michael Delaney
---------------------------------------
David I. Fann
---------------------------------------
Robert J. Fitzsimmons
44
<PAGE>
Agreed to and accepted in their
capacity as Founders of the Company
as to Sections 8, 11 and 15 only:
- ------------------------------------
C. Eugene Ennis
- ------------------------------------
Douglas C. Nester
- ------------------------------------
Peter M. Duncan
45
<PAGE>
EXECUTED AND DELIVERED AS OF NOVEMBER 12, 1993
---------------------------------------
William F. Harnisch
---------------------------------------
Michael S. Cohen
---------------------------------------
Jack Aydin
---------------------------------------
Audrey Jones
---------------------------------------
Richard Adelaar
---------------------------------------
Peter A. Lusk
46
<PAGE>
3DX TECHNOLOGIES INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF JULY 26, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Closing of Purchase and Sale. . . . . . . . . . . . . . . . . . . . . 2
2.1 Closing; Closing Date . . . . . . . . . . . . . . . . . . . . 2
2.2 Transactions at Closing . . . . . . . . . . . . . . . . . . . 2
3. Representations and Warranties of the Company . . . . . . . . . . . . 2
3.1 Organization, Standing and Qualification . . . . . . . . . . . 2
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Validity of Stock. . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Financial Statements.. . . . . . . . . . . . . . . . . . . . . 3
3.6 Authorization; Approvals . . . . . . . . . . . . . . . . . . . 5
3.7 No Conflict with Other Instruments . . . . . . . . . . . . . . 5
3.8 Patents, Trademarks and Other Intangible Assets. . . . . . . . 5
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.10 Title to Properties; Liens and Encumbrances. . . . . . . . . . 7
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Compliance with Other Instruments. . . . . . . . . . . . . . . 7
3.13 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.15 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Private Offering . . . . . . . . . . . . . . . . . . . . . . . 8
3.17 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 8
3.18 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . 9
3.19 Interested Party Transactions. . . . . . . . . . . . . . . . . 9
3.20 Section 83(b) Elections. . . . . . . . . . . . . . . . . . . . 9
3.21 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 9
4. Representations, Warranties and Covenants of the Purchasers. . . . . . 10
4.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Investment Representations . . . . . . . . . . . . . . . . . . 10
4.3 Investment Experience; Access to Information . . . . . . . . . 10
4.4 Absence of Registration. . . . . . . . . . . . . . . . . . . . 11
4.5 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . 11
4.6 Transfer Instructions. . . . . . . . . . . . . . . . . . . . . 11
4.7 Economic Risk. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . 11
5. Conditions to Closing of the Purchasers .. . . . . . . . . . . . . . . 12
5.1 Representations and Warranties . . . . . . . . . . . . . . . . 12
i
<PAGE>
5.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Consents, etc. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.5 Compliance Certificates. . . . . . . . . . . . . . . . . . . . 12
5.6 Proceedings and Documents. . . . . . . . . . . . . . . . . . . 12
5.7 Proprietary Information, Inventions and Non-Competition
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 Second Amended and Restated Co-Sale Agreement. . . . . . . . . 13
5.9 Composition of Board of Directors. . . . . . . . . . . . . . . 13
5.10 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . 13
6. Conditions to Closing of Company . . . . . . . . . . . . . . . . . . . 13
7. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Financial Statements; Reports. . . . . . . . . . . . . . . . . 14
7.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Public Information . . . . . . . . . . . . . . . . . . . . . . 16
7.6 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.7 Execution of Agreements by Employees of Company. . . . . . . . 17
7.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 17
7.9 Investor Right of First Refusal. . . . . . . . . . . . . . . . 18
7.10 Company Right of First Refusal . . . . . . . . . . . . . . . . 20
7.11 Maintenance of Existence and Properties, etc.. . . . . . . . . 21
7.12 Termination of Covenants . . . . . . . . . . . . . . . . . . . 21
7.13 Chief Financial Officer. . . . . . . . . . . . . . . . . . . . 22
7.14 Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . 22
7.15 Option Pool. . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.16 SBA Repurchase Obligation. . . . . . . . . . . . . . . . . . . 22
8. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Required Registration. . . . . . . . . . . . . . . . . . . . . 24
8.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . 24
8.4 Limitations on Required Registrations. . . . . . . . . . . . . 26
8.5 Incidental Registration. . . . . . . . . . . . . . . . . . . . 27
8.6 Limitations on Incidental Registration . . . . . . . . . . . . 28
8.7 Designation of Underwriter . . . . . . . . . . . . . . . . . . 28
8.8 Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Cooperation by Prospective Sellers . . . . . . . . . . . . . . 29
8.10 Expenses of Registration . . . . . . . . . . . . . . . . . . . 30
8.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 30
8.12 Rights That May Be Granted to Subsequent Investors . . . . . . 32
ii
<PAGE>
8.13 Transfer of Registration Rights. . . . . . . . . . . . . . . . 33
8.14 "Stand-Off" Agreement. . . . . . . . . . . . . . . . . . . . . 33
8.15 Delay of Registration. . . . . . . . . . . . . . . . . . . . . 34
9. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10. Transfers of Securities by Nations . . . . . . . . . . . . . . . . . . 35
11. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13. Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . 37
14. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15. Modifications; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . 38
16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
17. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 39
18. Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
19. Amendments to Prior Agreement. . . . . . . . . . . . . . . . . . . . . 40
20. Execution and Counterparts . . . . . . . . . . . . . . . . . . . . . . 40
21. Governing Law and Severability . . . . . . . . . . . . . . . . . . . . 40
22. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iii
<PAGE>
Schedules
1 - Purchasers
2 - Prior Investors
3.2 - Capitalization
3.3 - Validity of Stock
3.5 - Financial Statements
3.8 - Patents, Trademarks, etc.
3.9 - Litigation
3.10 - Liens and Encumbrances
3.11 - Taxes
3.12 - Compliance
3.14 - Contracts
3.17 - Full Disclosure
3.19 - Interested Party Transactions
Exhibits
A - Form of Third Restated Certificate of Incorporation
B - Form of Proprietary Information, Inventions and Non-Solicitation
Agreement
C - Form of Second Amended and Restated Co-Sale Agreement
D - Form of Kelley Drye & Warren Opinion
iv
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
Agreement, dated as of July 26, 1995, among (a) 3DX TECHNOLOGIES INC.
(formerly Novera Energy Inc.), a Delaware corporation (the "Company"), with an
office at 12012 Wickchester, Suite 250, Houston, Texas 77079-1218; (b) the
parties identified as Purchasers on Schedule 1 hereto (individually a
"Purchaser" and collectively, the "Purchasers"); (c) solely for the purposes of
Sections 7, 8, 11, and 14 through 21, the parties identified as prior investors
on Schedule 2 hereto (individually a "Prior Investor", collectively the "Prior
Investors", and together with the Purchasers, the "Investors"); and (d)
(although they are also Prior Investors hereunder) as founders of the Company
and not as Prior Investors, solely for the purposes of Sections 8, 11 and 15
hereof, C. Eugene Ennis, Douglas C. Nester and Peter M. Duncan (collectively,
the "Founders").
W I T N E S S E T H :
WHEREAS, the Purchasers desire to purchase shares of Senior Redeemable
Convertible Preferred Stock, Series C, $.01 par value (the "Series C
Preferred"), of the Company, having the rights, preferences, privileges and
restrictions set forth in the Company's Third Restated Certificate of
Incorporation in the form attached hereto as Exhibit A (the "Third Restated
Certificate") and incorporated herein by reference, and the Company desires to
sell to the Purchasers shares of Series C Preferred (collectively, the
"Shares"); and
WHEREAS, the Prior Investors are parties to a Stock Purchase Agreement,
dated as of November 9, 1993 (the "Prior Agreement"), among the Company, the
Prior Investors and, as to certain provisions therein, the Founders (solely as
Founders of the Company and not as Prior Investors), pursuant to which the Prior
Investors purchased Units consisting of shares of Redeemable Preferred Stock,
Series B, $.01 par value (the "Series B Preferred" and, together with the Series
C Preferred, the "Preferred Shares"), of the Company and shares of Common Stock,
$.01 par value ("Common Stock"), of the Company; and
WHEREAS, the Prior Investors, the Company and the Founders desire to amend
the Prior Agreement in the manner set forth in this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined) the Company will sell to the
Purchasers, and the Purchasers will purchase from the Company, an aggregate of
up to 3,000,000 shares of Series C Preferred, each Purchaser to purchase the
number of Shares set forth opposite such Purchaser's name on Schedule 1 annexed
hereto, at a purchase price per Share of $3.00.
<PAGE>
2. CLOSING OF PURCHASE AND SALE.
2.1 CLOSING; CLOSING DATE. (a) The purchase and sale of the Shares
pursuant to Section 1 (the "Closing") shall take place at the offices of Kelley
Drye & Warren, 101 Park Avenue, New York, New York 10178, at 1:00 p.m. local New
York time on July 26, 1995 or at such other place and time as may be agreed upon
by the Company and the Purchasers (the "Closing Date").
(b) In the event the Company does not at the Closing sell and issue,
and/or receive commitments to purchase, all 3,000,000 Shares authorized herein
to be issued and sold to the Purchasers, the Company may sell and issue
additional Shares at a subsequent closing (hereinafter referred to as the
"Deferred Closing"), PROVIDED that such sales occur within 15 days of the
Closing at the same price and on the same terms and conditions set forth herein
and that the total number of Shares sold at the Closing and the Deferred Closing
shall not exceed the number of Shares authorized to be sold at the Closing and
PROVIDED FURTHER that for purposes of such Deferred Closing, each of the
conditions precedent set forth in Section 5.1 hereof shall be deemed to have
been met without any further action necessary on the part of the Company or its
counsel. At the Deferred Closing, upon execution of this Agreement and the
Second Amended and Restated Co-Sale Agreement referred to in Section 5.8, a
purchaser shall become a party hereto and shall be included within the meaning
of "Purchaser" and "Investor" hereunder, the shares of Series C Preferred so
issued shall be included within the term "Shares" hereunder and Schedule 1 shall
be amended to include such Purchaser, without any further consent or action on
the part of the Investors. Each Investor irrevocably waives any and all rights
of first refusal or other rights in respect of any Shares purchased at a
Deferred Closing.
2.2 TRANSACTIONS AT CLOSING. (a) At the Closing, the Company shall
deliver to each Purchaser one or more certificates representing the Shares being
purchased hereunder by such Purchaser at such Closing, against delivery by the
Purchaser of a wire transfer of immediately available funds or a check in the
amount of the purchase price therefor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants that:
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own,
lease and operate its property and assets and to conduct its business as
currently conducted and as proposed to be conducted by it as contemplated by the
Business Plan of the Company dated March 10, 1995, as modified by financial
statements dated May 31, 1995 (as so modified, the "Business Plan"). The
Company has full corporate power and authority to enter into and perform its
obligations under this Agreement and to carry out the transactions contemplated
by this Agreement. The Company is duly qualified to do business as a foreign
corporation and is in good standing in
2
<PAGE>
the State of Texas and the nature of its business and its ownership or
leasing of property do not require that the Company become so qualified as a
foreign corporation in any other state or jurisdiction.
3.2 CAPITALIZATION. The authorized capital stock of the Company, as of
the Closing Date, will consist of (a) 3,500,000 shares of preferred stock (the
"Preferred Stock"), of which (i) 200,000 shares are designated Series B
Preferred, 59,034 of which are issued and outstanding, and (ii) 3,300,000 shares
are designated Series C Preferred, of which no shares will be issued or
outstanding prior to the Closing Date; and (b) 12,000,000 shares of Common
Stock, of which 5,779,290 shares are issued and outstanding as of the date of
this Agreement. The list set forth in Schedule 3.2 hereto is a complete and
correct list of all security holders of the Company, showing their holdings of
issued and outstanding shares of Company securities (including options) as of
the date of this Agreement. The outstanding shares of Common Stock and Series B
Preferred are duly authorized and validly issued in accordance with applicable
law (including federal and state securities laws), fully paid and non-
assessable. Except as set forth in this Agreement, holders of shares of the
Company's capital stock have no preemptive rights. Except for the transactions
contemplated by this Agreement and the Exchange Agreement, dated as of November
9, 1993 (the "Exchange Agreement"), between the Company and Landmark Graphics
Corporation ("Landmark"), and as set forth on Schedule 3.2 hereto, there are
(a) no outstanding warrants, options, convertible securities or rights to
subscribe for or purchase any capital stock or other securities from the
Company, (b) no voting trusts or voting agreements among, or irrevocable proxies
executed by, stockholders of the Company, (c) no existing rights of stockholders
to require the Company to register any securities of the Company or to
participate with the Company in any registration by the Company of its
securities, (d) no agreements among stockholders providing for the purchase or
sale of the Company's capital stock and (e) no obligations (contingent or
otherwise) of the Company to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
3.3 VALIDITY OF STOCK. Except as set forth in Schedule 3.3, the Series C
Preferred, when issued, sold, and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and non-assessable and
free of all encumbrances and restrictions, except restrictions on transfer
imposed by applicable securities laws and this Agreement.
3.4 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any other corporation, partnership, association or business entity.
3.5 FINANCIAL STATEMENTS. The Company has furnished the Purchasers with
its (i) unaudited balance sheet as of May 31, 1995 (the "Unaudited Balance
Sheet"), (ii) unaudited statements of income (loss) for the period then ended
(the "Unaudited Statements of Income"), and (iii) audited financial statements
as of and for the year ended December 31, 1994 (all of which in (i), (ii) and
(iii) are collectively referred to as the "Financial Statements"
3
<PAGE>
and are attached hereto as Schedule 3.5). Except as described in Schedule
3.5, the Financial Statements are true and correct in all material respects,
are in accordance with the books and records of the Company and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
and fairly and accurately present in all material respects the financial
position of the Company as of such date and the results of its operations for
the periods then ended, provided that the Financial Statements do not contain
all footnotes required by GAAP and the Unaudited Balance Sheet and Unaudited
Statements of Income are subject to normal year-end audit adjustments, which
the Company does not have reason to believe will be material in the aggregate.
Except as described in Schedule 3.5, the Company has no liabilities, debts or
obligations, whether accrued, absolute or contingent other than (i) liabilities
reflected or reserved against in the Unaudited Balance Sheet, and
(ii) liabilities incurred since May 31, 1995 (the "Balance Sheet Date") in
the ordinary and usual course of business. Since the Balance Sheet Date,
except as contemplated by this Agreement, the Company has been operated in
the ordinary and usual course of business, and there has not been:
(i) any change in the (x) assets, liabilities, condition (financial
or otherwise) or business of the Company from that reflected in the Unaudited
Balance Sheet, or (y) the trend of operating results of the Company from that
reflected in the Unaudited Statements of Income;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, condition
(financial or otherwise), operating results, prospects or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted as set forth in the Business Plan);
(iii) any waiver by the Company of a valuable right or of a
material debt owed to it;
(iv) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not individually or in the aggregate adverse to the assets,
properties, condition (financial or otherwise), operating results or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted);
(v) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(vi) any material change in any compensation arrangement or agreement
with any employee;
(vii) any payment of dividends or repurchase by the Company of
shares of its capital stock; or
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(viii) to the Company's knowledge, any other event or condition of
any character that would materially adversely affect the assets, properties,
condition (financial or otherwise), operating results, prospects or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted pursuant to the Business Plan).
3.6 AUTHORIZATION; APPROVALS. All corporate action (including any
stockholder action) on the part of the Company necessary for the authorization,
execution, delivery, and performance of all its obligations under this Agreement
and for the authorization, issuance, and delivery of the Series C Preferred
being sold under this Agreement has been (or will be) taken prior to the
Closing. This Agreement, when executed and delivered by or on behalf of the
Company, shall constitute the valid and legally binding obligation of the
Company, legally enforceable against the Company in accordance with its terms.
The Company has obtained or will obtain prior to the Closing Date all necessary
consents, authorizations, approvals and orders, and has made all registrations,
qualifications, designations, declarations or filings with all federal, state,
or other relevant governmental authorities required on the part of the Company
in connection with the consummation of the transactions contemplated by this
Agreement.
3.7 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement does not and will not, with or without the passage
of time or giving of notice or both, (i) result in any violation of, be in
conflict with, or constitute a default under, any terms or provisions of (a) the
Company's Third Restated Certificate or By-laws; (b) any agreement, contract,
understanding, indenture or other instrument to which the Company is a party,
the effect of which would have a material adverse effect on the Company or would
give rise to any right of termination, cancellation or acceleration; or (c) any
statute, judgment, decree, order, rule or governmental regulation applicable to
the Company, or (ii) result in the creation of a security interest, lien, or
other encumbrance on the assets of the Company.
3.8 PATENTS, TRADEMARKS AND OTHER INTANGIBLE ASSETS. (a) Schedule 3.8
hereto is a true and complete list and summary description of all patents,
patent applications, trademarks, service marks, trade names and copyrights, and
licenses and rights to the foregoing presently owned or held by the Company or
used in the Company's business as currently conducted, none of which is in
dispute or in any conflict with the right of any other person or entity. Except
as set forth on Schedule 3.8, the Company (i) owns or has the right to use, free
and clear of all liens, claims and restrictions, all patents, patent
applications, trademarks, service marks, trade names and copyrights, and
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted or proposed to be conducted, as contemplated by the
Business Plan, without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner or licensor of, or other claimant to, any patent, trademark, service mark,
trade name, copyright or other
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intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(b) Except as set forth on Schedule 3.8 hereto, the Company owns or
has the unrestricted right to use all trade secrets, including know-how,
inventions, designs, processes, works of authorship, computer programs (with the
exception of normal software purchased and sold as such) and technical data and
information (collectively herein "Intellectual Property") required for or
incident to the development, operation and sale of all services or products sold
or currently proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employees and former employers of its past and present employees.
(c) The Company has taken security measures to protect the secrecy,
confidentiality and value of all the Intellectual Property, which measures are
reasonable and customary in the industry in which it intends to operate. Each
of the Company's employees and other persons who, either alone or in concert
with others, developed, invented, discovered, derived, programmed or designed
the Intellectual Property, or who has knowledge of or access to information
about the Intellectual Property, has entered into a Proprietary Information
Agreement (as defined Section 5.7) with the Company, (i) providing that the
Intellectual Property and other information are proprietary to the Company and
are not to be divulged or misused and (ii) transferring to the Company, without
any further consideration being given therefor by the Company, all of such
employee's or other person's right, title and interest in and to such
Intellectual Property and other information and to all patents, trademarks,
service marks, trade names, copyrights, licenses and rights with respect to such
Intellectual Property and information. The Company is not aware that any of its
employees, consultants or prospective employees who have signed such agreements
are in violation thereof, nor is it aware, or does it have any basis to believe,
that any former employee or consultant has made any claim of ownership in or
rights with respect to any of the Intellectual Property.
(d) Neither the execution or delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company as
currently conducted, nor the conduct of the Company's business as proposed to be
conducted as contemplated by the Business Plan, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.
3.9 LITIGATION. Except as set forth in Schedule 3.9 hereto, no action,
proceeding or governmental inquiry or investigation is pending or to the best
knowledge of the Company threatened against the Company or any of its officers,
directors or employees (in their capacity as such) or any of the Company's
properties before any court, arbitration board or tribunal or administrative or
other governmental agency, nor is the Company aware that there is any basis for
the foregoing. The foregoing includes, without limiting its generality, actions
pending or known to the Company to be threatened involving the prior employment
of
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any of the Company's employees or use by any of them in connection with the
Company's business of any information, property or techniques allegedly
proprietary to any of their former employers. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality.
3.10 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as set forth on
Schedule 3.10 hereto, the Company has good and marketable title to all of the
properties and assets, both real and personal, tangible and intangible, that it
purports to own, including the properties and assets reflected on the Financial
Statements and they are not subject to any mortgage, pledge, lien, security
interest, conditional sale agreement, encumbrance or charge except routine
statutory liens securing liabilities not yet due and payable and minor liens,
encumbrances, restrictions, exceptions, reservations, limitations and other
imperfections that do not materially detract from the value of the specific
asset affected or the present use of such asset.
3.11 TAXES. Except as set forth on Schedule 3.11, the Company has
accurately prepared and timely filed all federal income tax returns and all
state and municipal tax returns that are required to be filed by it (the "Tax
Returns") and has paid or made provision for the payment of all amounts due
pursuant to such returns. The Tax Returns are true and complete in all material
respects. None of the Tax Returns have been audited by the Internal Revenue
Service or any state taxing authority, as the case may be, the Company has not
been advised that any of such Tax Returns will be so audited, and there are no
waivers in effect of the applicable statute of limitations for any period. No
deficiency assessment or proposed adjustment of federal income taxes or state or
municipal taxes of the Company is pending and the Company has no knowledge of
any proposed liability for any tax to be imposed.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on Schedule
3.12 hereto, the Company is not in default (a) under its Third Restated
Certificate or its By-laws or, in any material respect, under any material note,
indenture, mortgage, lease, agreement, contract, purchase order or other
instrument, document or agreement to which the Company is a party or by which it
or any of its property is bound or affected or (b) with respect to any order,
writ, injunction or decree of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which default, in any such case, would
materially and adversely affect or in the future is reasonably likely to
materially and adversely affect the Company's business, prospects, condition
(financial or otherwise), affairs, operations or assets. To the best of the
Company's knowledge, no third party is in material default under any material
agreement, contract or other instrument, document or agreement to which the
Company is a party or by which it or any of its property is affected.
3.13 BUSINESS. The Company has all franchises, permits, licenses and
other rights and privileges necessary to permit it to own its property and to
conduct its business as presently conducted, except those the non-obtainment
of which would not have a material
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adverse effect on its business, properties or prospects. The Company is not
in material violation of any law, governmental regulation, authorization or
order of any public authority relevant to the ownership of its properties or
the carrying on of its business as presently conducted.
3.14 CONTRACTS. Except as set forth on Schedule 3.14 hereto, the Company
is not a party to any contract, and has no obligation or commitment, in each
case (i) involving aggregate payments by the Company or having an aggregate
value of more than $50,000, or (ii) that is otherwise material to the business
of the Company. Copies of all of such contracts have been furnished to counsel
for NationsBanc Capital Corporation ("Nations"), one of the Purchasers. Except
as set forth on Schedule 3.14 hereto, (i) the Company has no employment or
consulting contracts, deferred compensation agreements or bonus, incentive,
profit-sharing, or pension plans currently in force and effect, or any
understanding with respect to any of the foregoing, and (ii) neither the Company
nor any of its employees is a party to, or covered by, any collective bargaining
agreement.
3.15 ERISA. The Company does not maintain, sponsor, or contribute to any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan," or a "multiemployer plan", as those terms are defined in
Sections 3(2), 3(1), and 3(37) of the Employee Retirement Income Security Act of
1974, as amended. Except as listed in Schedule 3.14, the Company has no
incentive or benefit arrangements.
3.16 PRIVATE OFFERING. Neither the Company nor anyone acting on its
behalf has offered or will offer Shares of the Company or any part thereof or
any similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, anyone so as to make the issuance and sale of
the Shares not exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"). The Company
agrees that neither the Company nor anyone acting on its behalf has offered
or will offer such securities of the Company or any part thereof or any
similar securities for issuance or sale to, or solicit any offer to acquire
any of the same from, anyone so as to make the issuance and sale of the
Shares not exempt from the registration requirements of Section 5 of the
Securities Act. None of the shares of the Company's capital stock issued and
outstanding has been offered or sold in such a manner as to make the issuance
and sale of such shares not exempt from such registration requirements, and
all such shares of capital stock have been offered and sold in compliance
with all applicable federal and state securities laws. Assuming that the
Purchasers' representations and warranties contained in Section 4 of this
Agreement are true and correct at the Closing, the offer, issuance and sale
of the Shares are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, as currently in effect, and have
been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements
of all applicable state securities laws, as currently in effect.
3.17 FULL DISCLOSURE. This Agreement, the Business Plan and all other
certificates and documents made or delivered to the Purchasers or to the
Purchasers' counsel in
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connection with the sale of the Shares hereunder, when taken as a whole, do
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made, PROVIDED,
HOWEVER, that the Company makes no representation or warranty (i) with
respect to matters specified in the Business Plan as based on a source other
than the Company or (ii) with respect to any projections, other than that
such projections were prepared in good faith and that the Company reasonably
believes there is a reasonable basis for such projections. Including the
information contained in Schedule 3.17, there is no material fact known to
the Company relating to the business, prospects, condition (financial or
otherwise), affairs, operations, or assets of the Company that has not been
disclosed to the Purchasers in writing by the Company.
3.18 FEES AND COMMISSIONS. The Company has not retained, or otherwise
authorized to act, any finder, broker, agent, financial advisor or other
intermediary (collectively "Intermediary") in connection with the transactions
contemplated by this Agreement and the Company shall indemnify and hold harmless
the Purchasers from liability for any compensation to any Intermediary retained
or otherwise authorized to act by, or on behalf of, the Company, and the fees
and expenses of defending against such liability or alleged liability.
3.19 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 3.19,
no officer, director or stockholder of the Company or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Securities Act) of any such person or entity or the Company has or has had,
either directly or indirectly, (a) an interest in any person or entity which
(i) furnishes or sells services or products that are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or sells
or furnishes to the Company any goods or services, or (b) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected. Except as set forth on Schedule 3.19 hereto, there are no
existing arrangements or proposed transactions between the Company and any
officer, director, or holder of more than 5% of the capital stock of the
Company, or any affiliate or associate of any such person.
3.20 SECTION 83(b) ELECTIONS. To the best of the Company's knowledge, all
elections and notices permitted by Section 83(b) of the Internal Revenue Code of
1986, as amended, and any analogous provisions of applicable state tax laws have
been timely filed by all individuals who have purchased shares of the Company's
Common Stock other than pursuant to any stock option plans of the Company. The
Company makes no representation or warranty regarding the content or accuracy of
any such election or notice.
3.21 ENVIRONMENTAL MATTERS. Except for instances of noncompliance with or
exceptions to the following that could not reasonably be expected to have
individually, or in the aggregate, a material adverse effect on the financial
condition or prospects of the Company: (a) (i) to the best of the Company's
knowledge, the Company is in full compliance with all environmental laws and
(ii) the Company is neither aware of, nor has it received
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notice of, any conditions, events, activities, practices or incidents which
could prevent the compliance by the Company in all material respects with
applicable environmental laws; (b) to the best of the Company's knowledge, no
hazardous substance, waste, pollutant, chemical, contaminant, constituent, or
other similar material which is listed, regulated or addressed under any
environmental law ("Hazardous Material") exists on, or is being used,
generated, stored, transported, disposed of on, or released from, any of the
properties of the Company, except in compliance with applicable environmental
laws; (c) neither the Company nor any of its currently-owned or leased
properties or to the best of its knowledge, operations, is subject to any
outstanding or, to the best of the Company's knowledge, threatened,
administrative or judicial order from or written agreement with any
governmental authority or other person, or is subject to any pending judicial
or administrative proceeding, with respect to (i) the Company's failure to
comply with environmental laws, (ii) actions required to be undertaken by the
Company under applicable environmental laws in order to remediate Hazardous
Materials present in soils or groundwater, or (iii) environmental liabilities
arising from a release or threatened release of Hazardous Materials by the
Company; (d) to the best of the Company's knowledge, there are no conditions
at the currently-owned or leased properties or operations of the Company that
could reasonably be expected to give rise to any environmental liabilities on
the part of the Company; and (e) no lien arising under any environmental law
has been filed with regard to any property or revenues of the Company.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each
Purchaser, severally and not jointly, represents and warrants that:
4.1 AUTHORIZATION. It has full power and authority to enter into and to
perform this Agreement in accordance with its terms. This Agreement has been
duly executed and delivered by it and constitutes its valid and legally binding
obligation.
4.2 INVESTMENT REPRESENTATIONS. It is acquiring the Shares for its own
account, for investment purposes and not with a view to, or for sale in
connection with, any distribution of such Shares or any part thereof.
4.3 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION. It (a) is an
"accredited investor" as that term is defined in Rule 501(a) promulgated under
the Securities Act, (b) is an investor experienced in the evaluation of
businesses similar to the Company, (c) is able to fend for itself in the
transactions contemplated by this Agreement, (d) has such knowledge and
experience in financial, business and investment matters as to be capable of
evaluating the merits and risks of this investment, (e) has the ability to bear
the economic risks of this investment, (f) has been furnished with or has had
access to such information as is specified in subparagraph (b)(2) of Rule 502
promulgated under the Securities Act, (g) was not organized or reorganized for
the specific purpose of acquiring the Shares purchased by it, and (h) has been
afforded prior to the Closing Date the opportunity to ask questions of, and to
receive answers from, the Company and to obtain any additional information, to
the extent the Company has such information or could have acquired it without
unreasonable effort or
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expense, all as necessary for the Purchaser to make an informed investment
decision with respect to the purchase of the Shares.
4.4 ABSENCE OF REGISTRATION. It understands that:
(a) The Shares to be sold and issued hereunder are unregistered and
may be required to be held indefinitely unless they are subsequently registered
under the Securities Act, or an exemption from such registration is available.
(b) Except as provided in Section 8, the Company is under no
obligation to file a registration statement with the Securities and Exchange
Commission (the "Commission") with respect to the Shares.
(c) Rule 144 promulgated under the Securities Act ("Rule 144"), which
provides for certain limited sales of unregistered securities, is not presently
available with respect to the Shares, and the Company is under no obligation to
make Rule 144 available except as otherwise provided in Section 7.5.
4.5 RESTRICTIONS ON TRANSFER. (a) It will not offer, sell, pledge,
hypothecate, or otherwise dispose of the Shares unless such offer, sale, pledge,
hypothecation or other disposition is (i) registered under the Securities Act,
or (ii) in compliance with an opinion of counsel to the Company to the effect
that such offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act, and (b) the certificate(s) representing the
Shares shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF.
Upon request of a holder of Shares, the Company shall remove the legend set
forth above from the certificates evidencing such Shares, or issue to such
holder new certificates therefor free of such legend, if with such request the
Company shall have received an opinion of counsel to the Company to the effect
that such Shares are not required by the Securities Act to continue to bear the
legend.
4.6 TRANSFER INSTRUCTIONS. It agrees that the Company may provide for
appropriate transfer instructions to implement the provisions of Section 4.5
hereof.
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4.7 ECONOMIC RISK. It understands that it must bear the economic risk
of the investment represented by the purchase of Shares for an indefinite
period.
4.8 FEES AND COMMISSIONS. It represents and warrants that it has not
retained, or otherwise authorized to act, any Intermediary in connection with
the transactions contemplated by this Agreement and agrees to indemnify and
hold harmless the Company from liability for any compensation to any
Intermediary retained or otherwise authorized to act by, or on behalf of, the
Purchaser and the fees and expenses of defending against such liability or
alleged liability.
5. CONDITIONS TO CLOSING OF THE PURCHASERS. The obligation of each
Purchaser on the Closing Date to purchase the Shares to be purchased under
this Agreement by it shall be subject to each of the following conditions
precedent, any one or more of which may be waived by Purchasers purchasing at
least 66 2/3% of the Shares to be purchased at the Closing:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company herein shall be true and accurate on and as of
the Closing Date as if made on such Date.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained herein or in other ancillary
documents incident to the transactions contemplated by this Agreement
required to be performed or complied with by it prior to or at the Closing.
5.3 CONSENTS, ETC. The Company shall have secured all permits,
consents and authorizations that shall be necessary or required lawfully to
consummate this Agreement and to issue the Shares to be purchased by each
Purchaser at the Closing, except for those filings to be made after the
Closing, and the Third Restated Certificate shall have been duly filed with
the Secretary of State of the State of Delaware.
5.4 INSURANCE. The Company shall have delivered evidence satisfactory
to the Purchasers that it has obtained (i) catastrophe insurance covering the
Company's offices and material equipment, (ii) an umbrella liability policy
and (iii) term life insurance on the life of C. Eugene Ennis in the amount of
$2 million, all of which shall be in full force and effect on the Closing
Date.
5.5 COMPLIANCE CERTIFICATES. The Company shall have delivered to the
Purchasers or their representative at the Closing an Officer's Certificate to
the effect that all conditions specified in Sections 5.1, 5.2, 5.3 and 5.7
have been fulfilled.
5.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents (including without limitation, any SBA documents reasonably
requested by the Purchasers sufficiently in
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advance of the Closing to permit the Company to complete such documents) and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and their counsel, and the Purchasers
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as the Purchasers or their
counsel may reasonably request.
5.7 PROPRIETARY INFORMATION, INVENTIONS AND NON-COMPETITION
AGREEMENTS. Each employee of and consultant to the Company shall have
executed a proprietary information, inventions and non-solicitation
agreement, substantially in the form annexed hereto as Exhibit B (a
"Proprietary Information Agreement"), or shall have executed an amendment to
his existing form of Proprietary Information Agreement in form and substance
satisfactory to counsel to the Purchasers.
5.8 SECOND AMENDED AND RESTATED CO-SALE AGREEMENT. Each of the
Founders, a requisite majority of the Prior Investors and the Company shall
have entered into a Second Amended and Restated Co-Sale Agreement (the
"Co-Sale Agreement") with the Purchasers, substantially in the form annexed
hereto as Exhibit C.
5.9 COMPOSITION OF BOARD OF DIRECTORS. The Board of Directors shall
consist of C. Eugene Ennis, Jon W. Bayless, Robert H. Chaney and Douglas C.
Williamson.
5.10 OPINION OF COUNSEL. The Company shall have delivered to the
Purchasers the opinion of Kelley Drye & Warren, counsel to the Company, in
the form annexed hereto as Exhibit D.
6. CONDITIONS TO CLOSING OF COMPANY. The obligation of the Company
on the Closing Date to issue and sell the Shares to be purchased under this
Agreement shall be subject to the conditions precedent that the
representations and warranties made by the Purchasers herein shall be true
and accurate on and as of the Closing Date as if made on such Date.
7. AFFIRMATIVE COVENANTS.
7.1 INSPECTION. The Company covenants and agrees that, for so long as
(i) a Purchaser holds at least 100,000 shares of Series C Preferred or,
subject to Section 7.12, 100,000 shares of Common Stock acquired upon
conversion of shares of Series C Preferred or (ii) a Prior Investor (together
with its limited partners and affiliates) holds at least 4,000 shares of
Series B Preferred or, subject to Section 7.12, 21,000 shares of Common Stock
acquired or under the Prior Agreement or the Exchange Agreement, in each case
as adjusted for stock splits, stock dividends, recapitalizations,
reclassifications and similar events (together herein called
"Recapitalization Events"):
(a) the Company will permit any authorized representatives of
such Investor free and full access at all reasonable times and upon
reasonable notice to all of the
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books, records, personnel and properties of the Company, for any purpose
whatsoever, subject to Section 7.8 hereof; and
(b) the Investor shall be entitled to have one designee attend (but
not to vote at) meetings of the Board of Directors (and business discussions
immediately prior to such meeting) as an observer, PROVIDED that such designee
shall not be entitled to be present at those portions of any such meeting that
the Board of Directors will be discussing issues that are competitive with the
business of the Investor, such determination to be made in the Board's good
faith business judgment.
7.2 ACCOUNTING. The Company will maintain and cause each of its
Subsidiaries (other than inactive Subsidiaries) to maintain a system of
accounting established and administered in accordance with GAAP consistently
applied, and will set aside on its books and cause each of its operating
Subsidiaries to set aside on its books all such proper reserves as shall be
required by GAAP. For purposes of this Agreement, "Subsidiary" means any
corporation or entity at least a majority of whose voting securities are at
the time owned by the Company, or by one or more Subsidiaries, or by the
Company and one or more Subsidiaries.
7.3 FINANCIAL STATEMENTS; REPORTS. (a) The Company will deliver to
the Investors:
(i) within 45 days after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, an unaudited
consolidated balance sheet of the Company and its Subsidiaries as at the end
of each such period and unaudited consolidated statements of (A) income and
(B) cash flow of the Company and its Subsidiaries for each period and, in the
case of the first, second and third quarterly periods, for the period from
the beginning of the current fiscal year to the end of such quarterly period,
setting forth in each case in comparative form the figures for the
corresponding period of the previous fiscal year, all in reasonable detail
and certified, subject to changes resulting from year-end audit adjustments,
by the chief financial officer of the Company or other appropriate officer,
in the event the Company does not have a chief financial officer (an
"Appropriate Officer"), that such financial statements were prepared in
accordance with GAAP applied on a basis consistent (except as otherwise
disclosed therein and consented to by a majority of the Board of Directors)
with that of preceding periods, and except as otherwise stated therein,
fairly present the financial position of the Company as of their date;
(ii) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its Subsidiaries as
at the end of such year and statements of income and of statements of cash
flow of the Company and its Subsidiaries for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and accompanied by the opinion thereon of a "Big Six" firm
of independent public accountants, which opinion shall state that such
balance sheet and statements of income and cash flow have been prepared in
accordance with GAAP applied on
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a basis consistent with that of the preceding fiscal year (except as
otherwise approved by the Board of Directors), and present fairly and
accurately the financial position of the Company as of their date, and that
the audit by such accountants in connection with such financial statements
has been made in accordance with GAAP;
(iii) within 30 business days after the end of each month, an
unaudited consolidated balance sheet of the Company and its Subsidiaries as
at the end of such month and unaudited consolidated statements of (A) income
and (B) cash flow for such month and for the period from the beginning of the
current fiscal year to the end of such month, setting forth in each case in
comparative form the figures for the budget in respect of such period, all in
reasonable detail and certified, subject to changes resulting from year-end
adjustments, by the Appropriate Officer;
(iv) within the first 30 days after the beginning of each fiscal
year, projections of the statements referred to in paragraph (iii) of this
Section 7.3(a) for each month in such year;
(v) within the first 30 days after the beginning of the third
fiscal quarter in each fiscal year either (A) a certificate of the
Appropriate Officer that the projections referred to in paragraph (iv) of
this Section 7.3(a) with respect to the last six months of the fiscal year,
made again as of the certificate date, have not materially changed or (B)
revised projections of the statements referred to in paragraph (iii) of this
Section 7.3(a) for each of the last six months in the fiscal year;
(vi) within 45 days after the end of each quarterly fiscal
period, a written statement executed by the Appropriate Officer as to whether
the Company is in compliance with its covenants under this Agreement;
(vii) at least 30 days prior to the beginning of each fiscal
year, a budget for such fiscal year, in the form determined by the Board of
Directors of the Company, setting forth in detail reasonably acceptable to
the Investors the Company's budget for such fiscal year;
(viii) within 90 days after the beginning of each fiscal year, an
annual reserve analysis covering oil and gas properties to which the Company
has rights, covering such properties as the Board of Directors of the Company
shall determine in good faith from time to time, prepared by a major reserve
engineering firm reasonably acceptable to the Board;
(ix) promptly upon the filing thereof, reports and statements
filed by the Company or any of its Subsidiaries with the Commission (or any
governmental authority succeeding to any of its functions) or with any
securities exchange; and
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(x) with reasonable promptness, such other information and data
with respect to the Company or any of its Subsidiaries as from time to time
may be reasonably requested.
(b) The Company shall timely report to the Small Business
Administration ("SBA") the use of proceeds from the sale of the Series C
Preferred on SBA Form 1031 and will provide the Purchasers with a copy of
such report as soon as practicable after its filing with the SBA. In
addition, the Company shall promptly provide to any Purchaser that is a small
business investment company (an "SBIC Purchaser"), as defined in Title 15,
Section 662 of the U.S.C.A., or the SBA, as the case may be, all such
information specified in Section 304(b) of the SBA regulations. The Company
shall provide each SBIC Purchaser and/or the SBA, upon written request from
such SBIC Purchaser or the SBA, as the case may be, access to the Company's
books and records during normal business hours, so long as such access does
not interfere with the usual business activities of the Company, to confirm
the use of proceeds reported by the Company to the SBA on SBA Form 1031;
PROVIDED, HOWEVER, that the Company shall have no obligation to reveal to any
SBIC Purchaser any information which would cause the Company to violate any
confidentiality agreement to which the Company is a party; PROVIDED, FURTHER,
HOWEVER, that the Company shall use its reasonable best efforts to produce
such information in a form or manner which would not cause any such violation.
(c) Within twenty (20) days after any SBIC Purchaser shall have
made a request therefor, the Company will furnish to such SBIC Purchaser in
writing all information reasonably available to the Company that such SBIC
Purchaser shall request with respect to the Company, or any firm or
corporation in which the Company may from time to time have or have had any
interest, which information is needed in connection with the preparation of
SBA forms or any other report or form that such SBIC Purchaser may be
required to make to the SBA in connection with such SBIC Purchaser's purchase
and/or ownership of the Series C Preferred; PROVIDED, HOWEVER, that the
Company shall have no obligation to reveal to any SBIC Purchaser any
information which would cause the Company to violate any confidentiality
agreement to which the Company is a party; PROVIDED, FURTHER, HOWEVER, that
the Company shall use its reasonable best efforts to produce such information
in a form or manner which would not cause any such violation.
7.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Shares for working capital, capital expenditures, corporate
acquisitions, and other permitted uses under the rules and regulations
promulgated by the SBA. The Company will use the proceeds from the sale of
the Series C Preferred for only those purposes specified in SBA Form 1031.
7.5 PUBLIC INFORMATION. At any time and from time to time after the
earliest of the close of business on such date as (a) a registration
statement filed by the Company under the Securities Act becomes effective,
(b) the Company registers a class of securities under Section 12 of the
Securities Exchange Act of 1934, as amended, or any federal statute or code
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which is a successor thereto (the "Exchange Act"), or (c) the Company issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, the Company shall undertake to make publicly available and
available to the Holders (as hereinafter defined in Section 8), pursuant to
Rule 144, such information as is necessary to enable the Holders to make
sales of Registrable Stock (as hereinafter defined in Section 8) pursuant to
that Rule. Thereafter, the Company shall comply with the current public
information requirements of Rule 144 and shall furnish to any Holder, upon
request, a written statement executed by the Company as to the steps it has
taken to so comply.
7.6 INSURANCE. The Company shall obtain and keep in effect term life
insurance on the lives of such key employees as, and in the principal amounts
as, the Board of Directors shall determine, in each case with proceeds
payable to the Company, including without limitation a $2 million key man
policy on the life of C. Eugene Ennis. The Company will keep and maintain in
full force and effect fire, casualty and umbrella liability insurance
policies, with extended coverage, reasonably sufficient in amount to allow it
to replace any of its properties that might be damaged or destroyed.
7.7 EXECUTION OF AGREEMENTS BY EMPLOYEES OF COMPANY. The Company
shall cause all of its current and future employees and consultants to
execute a Proprietary Information Agreement. Except as specifically approved
by the Company's Board of Directors, all shares of Common Stock and all
options granted by the Company to employees, consultants, officers and
non-investor directors for shares of Common Stock (a) shall, until a
Qualified IPO (as defined in Section 7.12), be subject to a right of first
refusal in favor of the Company, (b) shall vest over a four-year period as
follows: (i) 1/4 at the end of the twelfth calendar month following the
commencement of such person's employment or other retention, (ii) 1/4 at the
end of the twenty-fourth calendar month following the commencement of such
person's employment or other retention, and (iii) 1/48 at the end of each
month for the next 24 months of such employment or other retention, and shall
be subject to the right of the Company to repurchase any non-vested stock at
the price paid by the employee prior to full vesting and (c) shall be subject
to a restriction against transfer of non-vested stock, other than to a family
trust. The rights of the Company in (a) and (b) hereof are assignable by the
Company in accordance with Section 7.9(e) hereof.
7.8 CONFIDENTIALITY. Any information disclosed at meetings of the
Board of Directors and any written information provided pursuant to Sections
7.1, 7.3 and 7.4 shall be used by each Investor solely in furtherance of its
interests as an investor in the Company, and each Investor shall (except as
otherwise required by law) maintain the confidentiality of all non-public
information of the Company obtained under said sections, PROVIDED that the
Company makes an appropriate written designation of any such written
confidential information, PROVIDED FURTHER that R. Chaney & Partners - 1993,
L.P. may disclose such information to those of its limited partners as have
executed a confidentiality agreement in form and substance satisfactory to
the disinterested directors of the Company and PROVIDED FURTHER that, any
other term of this Agreement to the contrary notwithstanding, the Company
shall not be obligated to disclose any information, the disclosure of which
it believes in good
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faith would be detrimental to the business of the Company. The term
"confidential information" shall not include such information that (i) is or
becomes generally available to the public other than as a result of a
disclosure by an Investor or its agents, representatives or employees; (ii)
is or becomes available to an Investor on a non-confidential basis from a
source (other than the Company or one of its directors, officers, agents,
representatives or employees) that is not prohibited from disclosing such
information by a legal, contractual or fiduciary obligation; or (iii) was
known to an Investor on a non-confidential basis prior to its disclosure to
such Investor by the Company.
In the event that an Investor, or anyone to whom an Investor transmits
any confidential information, becomes legally compelled to disclose any
confidential information, such person will provide the Company with prompt
notice so that it may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Section 7.8. In the
event that such protective order or other remedy is not obtained, or the
Company waives compliance with the provisions of this Section 7.8, the
Investor will furnish only that portion of the confidential information that
it is advised by written opinion of counsel is legally required and will
exercise its reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded the confidential information.
7.9 INVESTOR RIGHT OF FIRST REFUSAL. The Company hereby grants to
each Investor the right of first refusal to purchase, pro-rata, all (or any
part) of (x) New Securities (as defined in Section 7.9(a) below) that the
Company may, from time to time, propose to sell and issue and (y) Employee
Stock (as defined in Section 7.9(d) below) that the Company is entitled to,
but shall not, repurchase from an employee. The Investor's pro rata share
shall be the ratio of the number of Preferred Shares and shares of Common
Stock then held by the Investor as of the date of the Rights Notice (as
defined in Section 7.9(b)) or the Repurchase Notice (as defined in Section
7.9(e)), as the case may be, to the sum of the total number of Preferred
Shares and shares of Common Stock then held by all Investors (including for
this purpose permitted transferees of the Investor pursuant to Section 7.9(f)
hereof) as of such date; PROVIDED that for purposes of this Section 7.9, the
shares of Common Stock held by the Founders that were not purchased under the
Prior Agreement shall not be included in the calculation of each Investor's
pro rata share. This right of first refusal shall be subject to the
following provisions:
(a) "New Securities" shall mean any Common Stock or preferred
shares of any kind of the Company, whether now or hereafter authorized, and
rights, options, or warrants to purchase said Common Stock or preferred
shares, and securities of any type whatsoever that are, or may become,
convertible into said Common Stock or preferred shares; provided, however,
that "New Securities" shall not include (i) securities issuable with respect
to the Shares; (ii) securities offered to the public pursuant to a
registration statement filed under the Securities Act; (iii) securities
issued in connection with the acquisition of another corporation, business
entity or line of business of another business entity by the Company by
merger, consolidation, purchase of all or substantially all of the assets, or
other reorganization as a result of which the Company owns not less than
fifty-one percent (51%) of the voting
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power of such corporation; (iv) shares of the Company's Common Stock or
preferred shares issued in connection with any Recapitalization Event by the
Company; (v) securities authorized by unanimous consent of the Company's
Board of Directors to be issued in connection with the leasing or acquisition
of assets by the Company or supply arrangements for the Company; (vi)
securities (1) reserved under employee stock option or purchase plans, (2) to
be issued to consultants, vendors or customers of the Company or in
connection with an acquisition or the formation of a joint venture or (3) to
be issued in connection with bridge loan financings from institutional
investors, in each case in this clause (vi) as approved by unanimous consent
of the Board of Directors; or (vii) securities issued pursuant to Section 18
hereof.
(b) If the Company proposes to issue New Securities, it shall
give the Investors written notice (the "Rights Notice") of its intention,
describing the New Securities, the price, and the general terms upon which
the Company proposes to issue them. Each Investor shall have twenty-five
(25) days from delivery of the Rights Notice to agree to purchase (i) all or
any part of its pro-rata share of such New Securities and (ii) all or any
part of the pro-rata share of any other Investor (including for this purpose
any permitted transferee of the Investor under Section 7.9(f) hereof) to the
extent that such other Investor does not elect to purchase its full pro-rata
share, in each case for the price and upon the general terms specified in the
Rights Notice, by giving written notice to the Company setting forth the
quantity of New Securities to be purchased. If the Investors who elect to
purchase their full pro-rata shares also elect to purchase in the aggregate
more than 100% of the New Securities, such New Securities shall be sold to
such Investors in accordance with their respective pro-rata shares.
(c) If the Investors fail to exercise in full the right of first
refusal within the period or periods specified in Section 7.9(b), the Company
shall have one hundred twenty (120) days after delivery of the Rights Notice
to sell the unsold New Securities at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice.
If the Company has not sold the New Securities within said one hundred twenty
(120) day period the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Investors in the
manner provided above.
(d) "Employee Stock" shall mean any Common Stock of the Company,
whether now or hereafter authorized, that the Company has issued or sold 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 by the Company to employees of the Company subject to
agreements of restriction by the Company. Employee Stock shall include,
without limitation, the Common Stock of the Founders subject to the Stock
Purchase and Restriction Agreements, dated as of December 31, 1992, as
amended by Amendment No. 1 thereto, dated as of November 9, 1993, and (ii)
the Stock Purchase and Restriction Agreements, dated as of November 9, 1993
(collectively, the "Restriction Agreements").
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(e) If the Company has the right to repurchase any Employee Stock
from any employee for any reason, including, without limiting the generality
of the foregoing, the termination of such employee's employment, and if it
shall not repurchase all of the shares of such Employee Stock, it shall
promptly give each Investor written notice (the "Repurchase Notice") of the
Investor's right to repurchase, describing the Employee Stock, the price and
the general terms upon which such Employee Stock is available for repurchase
and shall take all actions reasonably necessary for the assignment of such
rights to the Investors. Each Investor shall have fifteen (15) days from
delivery of any such notice in accordance with Section 14 to agree to
purchase (i) all or any part of its pro-rata share of such Employee Stock and
(ii) all or any part of the pro-rata share of any other Investor to the
extent that such other Investor does not elect to purchase his full pro-rata
share, in each case for the price and upon the general terms specified in the
notice by giving written notice to the Company setting forth the quantity of
Employee Stock to be purchased. If the Investors who elect to purchase their
full pro-rata shares also elect to purchase in the aggregate more than 100%
of the Employee Stock, such Employee Stock shall be sold to such Investors in
accordance with their respective pro-rata shares.
(f) The rights of first refusal described in this Section 7.9 are
nonassignable except to an affiliate or limited partner of each Investor or
to a Transferee (as defined in Section 10 of the Prior Agreement) of a Prior
Investor who has acquired all of the Series B Preferred and Common Stock
purchased by such Prior Investor thereunder or a transferee pursuant to the
terms of Section 10 of this Agreement.
7.10 COMPANY RIGHT OF FIRST REFUSAL. (a) In the event that a
Purchaser (the "Transferring Investor") shall propose to transfer all or any
part of his Shares and/or any shares of Common Stock or Series B Preferred
purchased pursuant to the Prior Agreement, other than shares transferred to a
Transferee in compliance with Section 10 of the Prior Agreement or Section 10
of this Agreement (collectively, the "Transfer Shares"), it shall first give
notice in writing to the Company. Such notice (the "Transfer Notice") shall
state the name of the proposed transferee (the "Transferee"), the
consideration for the transfer, if any, and the other material terms relating
to the transfer. A copy of any writing which sets forth the terms of the
transfer shall also be provided with the Transfer Notice. The Company shall
have the right, which right shall expire at 5:00 p.m. eastern standard time
on the 25th day after the Transfer Notice has been given, to purchase all of
the Transfer Shares at the price and upon the other terms set forth in the
Transfer Notice. The Company may exercise in full, but not in part, any
right to purchase Transfer Shares from a Transferring Investor. Every
exercise of an option shall be in writing, dated the date it is sent, and
signed by the Company.
(b) In the event that the Company exercises its option to
purchase all of the Transfer Shares, the closing (the "Transfer Closing") of
the sale of such Transfer Shares shall take place on a closing date agreed to
by the Transferring Investor and the Company, which in no event shall be
later than 15 days following the exercise by the Company of an option to
purchase Transfer Shares from the Transferring Investor. At the Transfer
Closing, the Transferring Investor shall deliver to the Company a certificate
or certificates representing
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the Transfer Shares to be sold, endorsed in blank with signature guaranteed,
and with the appropriate stock transfer stamps, if any, affixed thereto,
against delivery by the Company of a certified check or wire transfer of
funds to an account designated by the Transferring Investor at least three
business days before the Transfer Closing.
(c) If the Company does not elect to purchase all of the Transfer
Shares pursuant to the provisions of this Section 7.10, the Transferring
Investor may but shall not be required to sell such Transfer Shares pursuant
to this Section 7.10, and may instead transfer all the offered Transfer
Shares to the Transferee, PROVIDED THAT:
(i) such transfer must be made upon the terms set forth in the
Transfer Notice (or if the price set forth therein shall have been in
cash, at the same or any greater cash price);
(ii) the transfer must be of all the Transfer Shares;
(iii) the transfer must be made within 60 days after the
exercise or declination to exercise by Company (the "option
expiration date") of its option to purchase Transfer Shares from
the Transferring Investor;
(iv) upon such transfer, the Transferring Investor shall
promptly notify the Company of the name and address of the
Transferee;
(v) the Transferee shall be bound by the provisions of, and
assume the obligations of the Transferring Investor under this
Agreement as fully and to the same extent as though such Transferee
had executed this Agreement, and acceptance of a certificate
representing the Transfer Shares sold shall constitute agreement by
the Transferee to the terms of this Agreement; and
(vi) the Transferring Investor shall not be relieved of any of
its obligations under this Agreement arising prior to the sale of
the Transfer Shares to the Transferee, to the extent that such
obligations shall not be discharged by the Transferee, but the
Transferring Investor shall be relieved of its obligations under
the Agreement arising subsequent to such sale.
7.11 MAINTENANCE OF EXISTENCE AND PROPERTIES, ETC. The Company will,
and will cause each of its Subsidiaries to (a) maintain its corporate
existence, rights, governmental approvals and franchises necessary to the
conduct of its business, (b) keep its properties in good repair, working
order and condition, reasonable wear and tear excepted, (c) give appropriate
notice of events of default pursuant to any agreements of the Company, (d)
enter into transactions with "affiliates" or "associates" (as those terms are
defined in Rule 405
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promulgated under the Securities Act) only on fair and reasonable terms and
(e) promptly pay and discharge, or cause to be paid and discharged, when due
and payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company or any
Subsidiary; PROVIDED, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall at the time be contested in
good faith by appropriate proceedings and PROVIDED further that, unless
otherwise approved by the Board of Directors, the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
7.12 TERMINATION OF COVENANTS. The covenants set forth in Sections
7.1, 7.2, 7.3(a), 7.4 , 7.9, 7.10 and 7.11 shall terminate and be of no
further force or effect on the consummation of the first firm commitment
underwritten public offering of securities of the Company pursuant to a
registration statement filed by the Company under the Securities Act, where
the aggregate proceeds to the Company from the sales of such securities
(before deduction of underwriting discounts and expenses of sale) is not less
than $10,000,000 (a "Qualified IPO") and the per share sale price (before
such deductions) is not less than $12.00.
7.13 CHIEF FINANCIAL OFFICER. The Company shall hire a person in the
position of chief financial officer, reasonably acceptable to holders of 51%
of the Series C Preferred, within one year following the Closing Date.
7.14 BOARD MEETINGS. The Company's Board of Directors shall meet at
least once in every fiscal quarter ending on the last day of March, June,
September and December of each year, beginning with the quarter ending on
September 30, 1995.
7.15 OPTION POOL. Within 75 days following the Closing Date, the
Company shall create an incentive option pool (the "OPTION POOL") equal to no
more than 10% of the fully diluted Common Stock of the Company (including
shares with respect to which no options have been granted under any
then-existing stock option plan of the Company). A percentage of the Option
Pool to be determined by the Board of Directors of the Company shall be
reserved for issuance to non-employee directors, employees hired subsequent
to the Closing Date and other members of the management of the Company who
are not stockholders of the Company as of the Closing Date, all as determined
by the Board of Directors of the Company. The remainder of the Option Pool
shall be available for issuance at the discretion of the Board of Directors
of the Company. The amount of the fully diluted Common Stock of the Company
available for the Option Pool shall not be increased without the approval of
holders of 66 2/3% of all of the Preferred Shares, voting together as a class.
7.16 SBA REPURCHASE OBLIGATION. If the Company uses the proceeds
received from the sale of the Series C Preferred in violation of the rules
and regulations promulgated by the SBA, it shall give each SBIC Purchaser the
right in its sole and absolute discretion to demand, upon 30 days' notice,
that the Company repurchase, at the price paid hereunder by such SBIC
Purchaser to the Company (plus interest thereon at the highest legal rate
permitted
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under applicable law or SBA regulations), all of the Series C Preferred
purchased by such SBIC Purchaser hereunder; PROVIDED, HOWEVER, that if on the
date specified for repurchase in such notice, the Company shall not have
sufficient funds legally available for such repurchase, the Company shall
repurchase a pro rata portion of each such SBIC Purchaser's Series C
Preferred out of funds legally available therefor and shall repurchase the
remaining Series C Preferred of such holders as soon as practicable after the
Company has funds legally available therefor. All amounts due hereunder
shall be paid to such SBIC Purchaser by certified check, cashier's check or
wire transfer in immediately available funds. In the event any shares of
Series C Preferred are repurchased by the Company hereunder, the stock
certificates evidencing said shares shall be surrendered by such SBIC
Purchaser to the Company and canceled by the Company. Notwithstanding the
foregoing, to the extent that SBA regulations permit the Company to cure any
default under this Section 7.16, the Company may cure such default prior to
the expiration of the 30-day notice period above, and in such case the rights
of such SBIC Purchaser under this Section 7.16 shall cease with respect to
such default. Any such cure shall in no way be deemed to limit such SBIC
Purchaser's rights under this Section 7.16 with respect to any subsequent
default. Nothing in this Section 7.16 shall be construed to restrict or
otherwise limit such SBIC Purchaser's right to seek all other remedies
available to it as provided hereunder, or at law or in equity, including the
remedy of specific performance. The provisions of this Section 7.16 shall
expire upon evidence satisfactory to such SBIC Purchaser that the Company has
utilized the proceeds received pursuant to this Agreement in a manner that is
consistent with their use reported to the SBA on SBA Form 1031.
8. REGISTRATION. The following provisions govern the registration of
Common Stock:
8.1 DEFINITIONS. As used herein, the following terms have the
following meanings:
FORMS S-1, S-2 AND S-3: The forms so designated, promulgated by the
Commission for registration of securities under the Securities Act, and any
forms succeeding to the functions of such forms, whether or not bearing the
same designation.
HOLDER: A holder of Registrable Stock (subject to Section 8.13 hereof),
PROVIDED that anyone who acquires any Registrable Stock in a distribution
pursuant to a registration statement filed by the Company under the
Securities Act shall not thereby be deemed to be a "Holder".
KEY EMPLOYEES: The Founders (as to the Shares of Common Stock held by them
that were not purchased under the Prior Agreement) and certain employees of
the Company unanimously designated in writing by the Board of Directors
from time to time as "Key Employees"; provided that a person shall
immediately cease to be a Key Employee for purposes of this Section 8 on
the date that such person is no longer employed by the Company.
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"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
REGISTRABLE STOCK: All shares of Common Stock (i) issued under the Prior
Agreement or under the Exchange Agreement, (ii) issued or issuable upon
conversion of the Series C Preferred, (iii) held by a person to whom
registration rights have been transferred pursuant to the provisions of
this Section 8, (iv) issued by the Company in respect of such shares and
(v) that the Investors may hereafter purchase pursuant to their rights of
first refusal or otherwise, or Common Stock issued on conversion or
exercise of securities so purchased.
REQUIRED DEMAND AMOUNT: 51% of the Registrable Stock then outstanding.
SUBJECT STOCK: All Registrable Stock held by the Investors and the shares
of Common Stock held by the Key Employees other than shares acquired in a
distribution pursuant to a registration statement filed by the Company
under the Securities Act.
8.2 REQUIRED REGISTRATION. (a) If (i) the holder or holders of an
aggregate of at least the Required Demand Amount propose to dispose of at
least 20% of the then outstanding Registrable Stock (such holder or holders
being herein called the "Initiating Holders"), and (ii) such disposition may
not, in the opinion of such Initiating Holders, be effected in the public
marketplace (as opposed to a private transaction under the Securities Act) on
equally favorable net terms to the Initiating Holders without registration of
such shares under the Securities Act, the Initiating Holders may request the
Company in writing to effect such registration, stating the number of shares
of Registrable Stock to be disposed of by such Initiating Holders (which, in
the aggregate, shall be not less than 20% of the then outstanding Registrable
Stock) and the intended method of disposition. Upon receipt of such request,
the Company will give prompt written notice thereof to all other Holders
whereupon such other Holders shall give written notice to the Company within
20 days after the date of the Company's notice (the "Notice Period") if they
propose to dispose of any shares of Registrable Stock pursuant to such
registration, stating the number of shares of Registrable Stock to be
disposed of by such Holder or Holders and the intended method of disposition.
(b) The Key Employees may register securities for sale for their
own account in the registration requested pursuant to this Section 8.2,
subject to limitations on the number of shares which may be imposed by the
underwriter as set forth in Section 8.4(d) below. At the time the Company
shall give the notice to Holders required by Section 8.2(a), it shall also
give the same notice to the Key Employees whereupon each Key Employee shall
give written notice to the Company within the Notice Period if such Key
Employee proposes to dispose of any shares of Common Stock held by him or her
pursuant to such registration,
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stating the number of shares of Common Stock to be disposed of by such Key
Employee and the intended method of disposition.
(c) The Company will use its best efforts to effect promptly
after the Notice Period the registration under the Securities Act of all
shares of Subject Stock specified in the requests of the Initiating Holders,
the requests of the other Holders and the requests of the Key Employees,
subject, however, to the limitations set forth in Section 8.4.
8.3 REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Section 8 to use its best efforts to effect promptly the
registration of shares of Registrable Stock, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such shares and use its best efforts to cause such
registration statement to become and remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current and to comply with the provisions of the Securities Act
with respect to the disposition of all shares covered by such registration
statement, including such amendments and supplements as may be necessary to
reflect the intended method of disposition from time to time of the
prospective seller or sellers of such shares, but for no longer than one
hundred twenty (120) days subsequent to the effective date of such
registration in the case of a registration statement on Form S-1 or S-2 and
for no longer than ninety (90) days in the case of a registration statement
on Form S-3;
(c) furnish to each prospective seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller
may reasonably request in order to facilitate the public sale or other
disposition of the shares owned by such seller;
(d) use its best efforts to register or qualify the shares
covered by such registration statement under such other securities or blue
sky or other applicable laws of such jurisdiction within the United States as
each prospective seller shall reasonably request, to enable such seller to
consummate the public sale or other disposition in such jurisdictions of the
shares owned by such seller; provided, however, that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it
is not at the time so qualified or to take any action which would subject it
to service of process in suits other than those arising out of the offer or
sale of the Subject Stock covered by such registration statement in any
jurisdiction where it is not at the time so subject;
(e) furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, of (i) an opinion of counsel for the
Company, dated the effective date of the registration statement, covering
substantially the same matters with respect to the
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registration statement (and the prospectus included therein) as are
customarily covered (at the time of such registration) in opinions of
issuer's counsel delivered to the underwriters in underwritten public
offerings of securities, and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Stock;
(f) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(g) notify each Holder of Registrable Stock covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing; and
(h) apply for listing and use its best efforts to list the
Registrable Stock being registered on any national securities exchange on
which a class of the Company's equity securities are listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Stock being registered for inclusion on the automated
quotation system of the National Association of Securities Dealers, Inc. or
on a national securities exchange.
8.4 LIMITATIONS ON REQUIRED REGISTRATIONS.
(a) The Company shall not be required to effect more than three
registrations on behalf of the Prior Investors pursuant to Section 8.2.
There shall be no limitations on the number of demand registrations that may
be requested by the Purchasers.
(b) The Company shall not be required to cause a registration
requested pursuant to Section 8.2 to become effective prior to the earlier of
(i) January 2, 1998 and (ii) the expiration of six (6) months after the
effective date of the first registration statement initiated by the Company
(other than a registration effected solely to implement an employee benefit
plan or a transaction to which Rule 145 of the Commission is applicable).
(c) The Company shall not register securities for sale for its
own account in any registration requested pursuant to Section 8.2 unless
permitted to do so by the written consent of Holders who hold at least 51% of
the Registrable Stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale for its
own account (other than a registration effected solely to implement
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an employee benefit plan) to be initiated after a registration requested
pursuant to Section 8.2 and to become effective less than 120 days after the
effective date of any registration requested pursuant to Section 8.2.
(d) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting may be
included in the registration. Notwithstanding the provisions of Sections
8.2(b) and 8.4(c), if the underwriter determines that (i) marketing factors
require a limitation of the total number of shares to be underwritten or a
limitation of the total number of shares of the Key Employees to be
underwritten, or (ii) the offering price per share would be reduced by the
inclusion of the shares of the Key Employees and/or the Company, then the
number of shares to be included in the registration and underwriting shall
first be allocated among all Holders who indicated to the Company their
decision to distribute any of their Registrable Stock through such
underwriting, in proportion, as nearly as practicable, to the respective
numbers of shares of Registrable Stock owned by such Holders at the time of
filing the registration statement, then to the Key Employees who have
indicated to the Company their decision to distribute any of their Subject
Stock through such underwriting, in proportion, as nearly as practicable, to
the respective numbers of shares of Subject Stock owned by the Key Employees
at the time of filing the registration statement, and the remainder, if any,
to the Company; PROVIDED, HOWEVER, that if the underwriter determines that
marketing factors require a limitation of the number of shares of the Key
Employees to be underwritten or that the offering price per share would be
reduced by the inclusion of the shares of the Key Employees, then the number
of shares of the Key Employees that may be so included shall be reduced, or
eliminated from registration, as the underwriter shall advise. No stock
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If any Holder, Key
Employee or the Company disapproves of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Initiating Holders and
the underwriter. The securities so withdrawn from such underwriting shall
also be withdrawn from such registration.
(e) The Company shall not be required to effect a registration
pursuant to Section 8.2 unless the proposed disposition of shares of Subject
Stock has an aggregate expected offering price (before deduction of
underwriting discounts and expenses of sale) of not less than $5,000,000.
(f) If at the time of any request to register Registrable Stock
pursuant to Section 8.2 hereof, the Company is engaged, or has fixed plans to
engage within 90 days of the time of the request, in a registered public
offering as to which the Holders may include such Stock pursuant to Section
8.5 hereof or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely
affected by the requested registration to the material detriment of the
Company, then the Company may at its option direct that such request be
delayed for a period not in excess of six months from the effective date of
such offering, or the date of commencement of such other
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material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once while the rights set forth in
Section 8.2 are in effect.
8.5 INCIDENTAL REGISTRATION. If the Company at any time proposes to
register any of its securities under the Securities Act (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable), it will each
such time give written notice to all Holders and to the Key Employees of its
intention so to do. Upon the written request of a Holder or Holders or a Key
Employee or Key Employees given within 20 days after receipt of any such notice
(stating the number of shares of Subject Stock to be disposed of by such Holder
or Holders or such Key Employee or Key Employees and the intended method of
disposition), the Company will use its best efforts to cause all such shares of
Subject Stock intended to be disposed of, the Holders or the Key Employees
owners of which shall have requested registration thereof, to be registered
under the Securities Act so as to permit the disposition (in accordance with the
methods in said request) by such Holder or Holders or such Key Employee or Key
Employees of the shares so registered, subject, however, to the limitations set
forth in Section 8.6.
8.6 LIMITATIONS ON INCIDENTAL REGISTRATION. If the registration of which
the Company gives notice pursuant to Section 8.5 is for an underwritten
offering, only securities that are to be included in the underwriting may be
included in the registration. Notwithstanding any provision of Section 8.5, if
the underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may eliminate or reduce the
number of shares of Subject Stock to be included in the registration and
underwriting. The Company shall so advise all Holders and the Key Employees
(except those Holders and Key Employees who have not indicated to the Company
their decision to distribute any of their Subject Stock through such
underwriting), and the number of shares of Subject Stock that may be included in
the registration and underwriting shall be allocated among such Holders and Key
Employees in proportion, as nearly as practicable, to the respective amounts of
Subject Stock owned by such Holders and Key Employees at the time of filing the
registration statement. No Subject Stock excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Holder or Key Employee disapproves of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter. The Subject Stock and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such registration.
The registration rights granted under Section 8.5 shall terminate as to any Key
Employee or Holder or permissible transferees or assignee of such rights if such
person (a) holds one percent (1%) or less of the outstanding shares of Common
Stock of the Company and (b) would be permitted to sell all of the Subject Stock
held by him pursuant to Rule 144(k).
8.7 DESIGNATION OF UNDERWRITER. (a) In the case of any registration
effected pursuant to Section 8.2 or 8.8, a majority in interest of the
requesting Holders shall have the right to designate the managing underwriter(s)
in any underwritten offering.
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(b) In the case of any registration initiated by the Company, the
Company shall have the right to designate the managing underwriter in any
underwritten offering.
8.8 FORM S-3. The Company shall register its Common Stock under the
Exchange Act as soon as legally permissible following the effective date of the
first registration of any securities of the Company on Form S-1 and the Company
shall thereafter file all reports and effect all qualifications and compliances
as would permit or facilitate the sale and distribution of its stock on
Form S-3. After the Company has qualified for the use of Form S-3, the Holders
shall have the right to request unlimited registrations on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Stock to be disposed of and the intended method of disposition) subject only to
the following:
(a) The Company shall not be required to effect a registration
pursuant to this Section 8.8 unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Stock having an
aggregate expected public offering price (before deduction of underwriting
discounts and expenses of sale) of at least $250,000.
(b) The Company shall not be required to effect a registration
pursuant to this Section 8.8 more frequently than once during any six month
period.
The Company shall give notice to all Holders and Key Employees of the receipt of
a request for registration pursuant to this Section 8.8 and shall provide a
reasonable opportunity for other Holders and Key Employees to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of paragraph (d) of Section 8.4 shall apply to all participants in
such offering. Subject to the foregoing, the Company will use its best efforts
to effect promptly the registration of all shares of Subject Stock on Form S-3
to the extent requested by the Holder or Holders thereof or by a Key Employee.
8.9 COOPERATION BY PROSPECTIVE SELLERS.
(a) Each prospective seller of Subject Stock, and each underwriter
designated by a majority in interest of the requesting Holders, will furnish to
the Company such information as the Company may reasonably require from such
seller or underwriter in connection with the registration statement (and the
prospectus included therein).
(b) Failure of a prospective seller of Subject Stock to furnish the
information and agreements described in this Section 8.9 shall not affect the
obligations of the Company under this Section 8 to remaining sellers who furnish
such information and agreements unless, in the reasonable opinion of counsel to
the Company or the underwriters, such failure impairs or may impair the
viability of the offering or the legality of the registration statement or the
underlying offering.
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(c) The Holders of and the Key Employees holding shares included in
the registration statement will not (until further notice) effect sales thereof
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update a registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial statements in the
registration statement initially filed pursuant to the Holder or Holders'
request and (ii) such correction or update did not result from the Company's
acts or failures to act.
At the end of the period during which the Company is obligated to keep the
registration statement current and effective as described in paragraph (b) of
Section 8.3 (and any extensions thereof required by the preceding sentence), the
Holders and the Key Employees holding shares included in the registration
statement shall discontinue sales of shares pursuant to such registration
statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such registration statement which remain
unsold, and such Holders and Key Employees shall notify the Company of the
number of shares registered which remain unsold immediately upon receipt of such
notice from the Company.
8.10 EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to this Section 8 including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company, expenses, fees
and disbursements of one special counsel retained by the Holders and/or the Key
Employees not to exceed $10,000, and expenses of any audits incidental to or
required by any such registration, shall be borne by the Company, except
(a) that all expenses, fees and disbursements of any additional counsel retained
by the Holders and/or the Key Employees, and all underwriting discounts and
commissions shall be borne by the Holders of and the Key Employees holding the
securities registered pursuant to such registration, pro rata according to the
quantity of their securities so registered; (b) the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 8.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Stock to be registered
(in which case all participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Stock agree to forfeit their right to
one demand registration pursuant to Section 8.2; PROVIDED, HOWEVER, that if
immediately prior to the time of such withdrawal, the Holders have learned of a
materially adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 8.2; and (c) with respect to registrations effectuated under
Section 8.2 by the Purchasers, the Company shall be required to pay expenses
only in respect of the first two such registrations.
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8.11 INDEMNIFICATION. (a) To the extent permitted by law, the Company
will indemnify each Holder and Key Employee requesting or joining in a
registration, each agent, officer and director of such Holders, each person
controlling such Holder and each underwriter and selling broker of the
securities so registered (collectively, "Indemnitees") against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act, the Exchange Act or state
securities laws or any rule or regulation promulgated under the Securities
Act, the Exchange Act or a state securities law, in each case applicable to
the Company, and will reimburse each such Indemnitee for any legal and any
other fees and expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, PROVIDED,
HOWEVER, that the Company will not be liable to any Indemnitee in any such
case to the extent that any such claim, loss, damage or liability is caused
by any untrue statement or omission so made in strict conformity with written
information furnished to the Company by an instrument duly executed by such
Indemnitee and stated to be specifically for use therein and except that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission
at the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter, or any Indemnitee if there is no underwriter, if a copy of the
Final Prospectus was not furnished to the person or entity asserting the
loss, liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act; PROVIDED, FURTHER, that this indemnity shall
not be deemed to relieve any underwriter of any of its due diligence
obligations; PROVIDED, FURTHER, that the indemnity agreement contained in
this subsection 8.11(a) shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably
withheld.
(b) To the extent permitted by law, each Holder and each Key Employee
requesting or joining in a registration and each underwriter and selling broker
of the securities so registered will indemnify the Company and its officers and
directors and each person, if any, who controls any thereof within the meaning
of Section 15 of the Securities Act and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) or any 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 the
Company and each other person indemnified pursuant to this paragraph (b)
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for any legal and any other fees and expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, PROVIDED, HOWEVER, that this paragraph (b) shall apply
only if (and only to the extent that) such statement or omission was made in
reliance upon and in strict conformity with written information (including,
without limitation, written negative responses to inquiries) furnished to the
Company by an instrument duly executed by such Holder, Key Employee,
underwriter or selling broker and stated to be specifically for use in such
prospectus, offering circular or other document (or related registration
statement, notification or the like) or any amendment or supplement thereto;
and except that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file with
the Commission at the time the registration statement becomes effective or in
the Final Prospectus, such indemnity agreement shall not inure to the benefit
of (i) the Company and (ii) any underwriter, Holder or Key Employee, if there
is no underwriter, if a copy of the Final Prospectus was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act; PROVIDED,
FURTHER, that this indemnity shall not be deemed to relieve any underwriter
of any of its due diligence obligations; PROVIDED, FURTHER, that the
indemnity agreement contained in this subsection 8.11(b) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, Key
Employee or underwriter, as the case may be, which consent shall not be
unreasonably withheld; and PROVIDED, FURTHER, that the obligations of such
Holders or Key Employees shall be limited to an amount equal to the net
proceeds received by such Holder or Key Employee from the sale of Subject
Stock in such offering as contemplated herein, unless such claim, loss,
damage, liability or action resulted from such Holder's or Key Employee's
fraudulent misconduct.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party') promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, PROVIDED that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and PROVIDED
FURTHER that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 8.11 except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give notice. No indemnifying party, in the
defense of any such claim or litigation, shall consent, except with the consent
of each indemnified party, to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
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(d) The reimbursement required by this Section 8.11 shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(e) The obligation of the Company under this Section 8.11 shall
survive the redemption, if any, of the Series B Preferred and the Series C
Preferred, and the completion of any offering of Subject Stock in a registration
statement under this Section 8 or otherwise.
8.12 RIGHTS THAT MAY BE GRANTED TO SUBSEQUENT INVESTORS. (a) Within the
limitations prescribed by this paragraph (a), but not otherwise, the Company may
grant to subsequent investors in the Company rights of incidental registration
(such as those provided in Section 8.5). Such rights may only pertain to shares
of Common Stock, including shares of Common Stock into which any other
securities may be converted. Such rights may be granted with respect to
(i) registrations actually requested by Initiating Holders pursuant to
Section 8.2, but only in respect of that portion of any such registration as
remains after inclusion of all Registrable Stock requested by Holders but before
inclusion of any Subject Stock requested by the Key Employees and
(ii) registrations initiated by the Company, but only in respect of that portion
of such registration as remains after inclusion of all Subject Stock. With
respect to registrations which are for underwritten public offerings, "available
portion" shall mean the portion of the underwritten shares that is available as
specified in clauses (i) and (ii) of the third sentence of this paragraph (a).
Shares not included in such underwriting shall not be registered.
(b) The Company may not grant to subsequent investors in the Company
rights of registration upon request (such as those provided in Section 8.2)
unless (i) such rights are limited to shares of Common Stock, (ii) all Holders
and the Key Employees are given enforceable contractual rights to participate in
registrations requested by such subsequent investors (but subject to the right
of priority of registration in the following order: such subsequent investors
and the Holders on a pro-rata basis and then the Key Employees), such
participation to be on a pro-rata basis, and subject to the limitations,
described in the final three sentences of paragraph (a) of this Section 8.12,
(iii) such rights shall not become effective prior to 90 days after the
effective date of the first registration pursuant to Section 8.2 and (iv) such
rights shall not be more favorable than those granted to the Holders.
8.13 TRANSFER OF REGISTRATION RIGHTS. (a) The registration rights
granted to the Investors under this Section 8 may be transferred but only to
(i) a transferee who shall acquire not less than (x) in the case of the Prior
Investors, 21,000 shares of Registrable Stock, and (y) in the case of the
Purchasers, 100,000 shares of Registrable Stock, in each case as adjusted for
Recapitalization Events, (ii) affiliates and limited partners of the
Investors, (iii) any Transferee of a Prior Investor that acquires all of the
shares of Series B Preferred and Common Stock purchased by such Prior
Investor under the Prior Agreement, and (iv) any transferee of Nations
pursuant to Section 10 of this Agreement that acquires all of the Shares
purchased by Nations pursuant to this Agreement.
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(b) Notwithstanding any provision of this Section 8.13, the registration
rights granted to the Investors under this Section 8 may not be assigned to any
person or entity that, in the Company's reasonable judgment, is a competitor of
the Company.
(c) The registration rights granted to the Key Employees under this
Section 8 may not be transferred, PROVIDED that each of C. Eugene Ennis, Peter
M. Duncan and Douglas C. Nester may transfer registration rights granted
hereunder as to shares of Registrable Stock acquired in their capacity as Prior
Investors under the Prior Agreement, subject to Sections 8.13(a) and (b) hereof.
8.14 "STAND-OFF" AGREEMENT. In consideration for the Company performing
its obligations under this Section 8, each Investor and each Key Employee
severally agrees for a period of time (not to exceed 180 days) from the
effective date of any registration (other than a registration effected solely to
implement an employee benefit plan) of securities of the Company (upon request
of the Company or of the underwriters managing any underwritten offering of the
Company's securities) not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Subject Stock or any
other stock of the Company held by each Investor or Key Employee, other than
shares of Subject Stock included in the registration, without the prior written
consent of the Company or such underwriters, as the case may be, provided that
all officers and directors of the Company and each holder of more than 2% of the
outstanding Common Stock shall enter into similar agreements.
8.15 DELAY OF REGISTRATION. The Investors and the Key Employees shall
have no right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 8.
9. NEGATIVE COVENANTS. So long as at least 750,000 Shares are
outstanding, as adjusted for Recapitalization Events, the Company shall not,
without the affirmative vote of the holders of record of at least 66 2/3% of
the outstanding shares of Series C Preferred, voting as a separate class:
(a) amend, repeal or modify any provision of, or add any provision
to, the Company's Certificate of Incorporation or 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 Series C Preferred;
(b) 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 C Preferred, 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 Company having any such preference or priority;
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(c) reclassify the shares of Common Stock or Series B Preferred or
any other shares of stock hereafter created junior to the Series C Preferred as
to dividends, liquidation, redemption or assets into shares of Series C
Preferred or into shares having any preference or priority as to dividends or
assets superior to or on a parity with that of the Series C Preferred;
(d) 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;
(e) sell, convey or otherwise dispose of all or substantially all of
the property or business of the Company, or merge or consolidate the Company
into or with any other corporation, partnership or other entity (each, a "Sale
Event") unless upon consummation of such merger or consolidation, the holders of
voting securities of the Company 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; PROVIDED that no such approval shall
be required if, in connection with such Sale Event the Purchasers receive in
cash or publicly traded securities having a fair market value of at least (x)
$14 million, if such Sale Event occurs on or prior to the second anniversary of
the Closing Date, or (y) $21 million, if such Sale Event occurs thereafter;
(f) 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
$3,000,000 unless the acquired entity is wholly owned by the Company, and except
certificates of deposit, high quality commercial paper, United States government
securities and other short-term, high quality liquid investment grade
securities;
(g) acquire assets from or merge with one or more companies or merge
or consolidate one or more companies into a subsidiary of the Company for
consideration in excess of an aggregate of $3,000,000; or
(h) amend, repeal or modify any provision of, or add any provision to
the Co-Sale Agreement or the Restriction Agreements.
10. TRANSFERS OF SECURITIES BY NATIONS. Nations shall have the right,
without the consent of the Company, to sell, transfer or otherwise dispose
of, all or any portion of the Shares to an affiliate of Nations, PROVIDED
that any such transferee has entered into a confidentiality agreement in form
and substance satisfactory to the disinterested directors of the Company. In
addition, Nations may transfer all or any portion of its Shares to a
non-affiliated third party with the unanimous approval of the non-management
members of the Board of Directors of the Company, which approval shall not be
unreasonably withheld.
11. BOARD OF DIRECTORS. (a) The Investors and the Key Employees shall
act in all capacities and vote the shares of stock of the Company now or
hereafter owned or
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controlled by them so as to cause and maintain the election to the Board of
Directors of the Company (i) (x) two designees of the holders of at least
66-2/3% in interest of the Prior Investors (the "Requisite Prior Investor
Shares"), so long as the Prior Investors hold at least 157,794 shares of the
Common Stock acquired under the Prior Agreement or the Exchange Agreement, or
(y) one designee of the Requisite Prior Investor Shares, so long as the Prior
Investors hold less than 157,794 shares of Common Stock but at least 3,156
shares of the Common Stock acquired under the Prior Agreement or the Exchange
Agreement (in each case as adjusted for Recapitalization Events); (ii) one
designee of Nations, so long as Nations or its permitted transferees hold(s)
at least 75% of the Shares purchased by it pursuant to this Agreement (or
Common Stock acquired upon conversion of such Shares) (the "Nations Requisite
Shares") and the Purchasers hold at least 25% of the Shares (or Common Stock
acquired upon conversion of such Shares); (iii) one designee of the holders
of at least 51% in interest of the Series C Preferred (the "Requisite
Purchaser Shares"), so long as the Purchasers hold at least 25% of the Shares
(or Common Stock acquired upon conversion of such Shares) and Nations does
not hold the Nations Requisite Shares; (iv) the chief executive officer of
the Company from time to time; and (iv) up to one person with expertise in
the oil and gas drilling or exploration business who may be designated from
time to time by and be acceptable to a majority of the other members of the
Board of Directors.
(b) Notwithstanding the foregoing, the failure by the Company to
observe or perform any of the covenants contained in Section 7 or Section 9 of
this Agreement (such failure remaining uncured or unremedied for a period of 180
days after written notice from Nations) or the failure of the Company to redeem
the Shares pursuant to Article Fourth, Section A.5 of the Third Restated
Certificate, without giving effect to any inability of the Company to redeem
such Shares because of insufficient funds being legally available therefor, the
majority of the Board of Directors shall be appointed by 51% in interest of the
Series C Preferred; PROVIDED, HOWEVER, that so long as Nations holds the Nations
Requisite Shares, the designee appointed by Nations to the Board of Directors in
accordance with clause (ii) of the first sentence of Section 11(a) shall
continue to serve as a director. In any such event, the Investors and the Key
Employees shall act in all capacities and vote the shares of stock of the
Company now or hereafter owned or controlled by them so as to cause and maintain
the election to the Board of Directors of the Company the directors required
under this Section 11(b).
(c) The Investors and the Founders shall act in all capacities and
vote the shares of capital stock of the Company now or hereafter owned or
controlled by them so as to cause and maintain the number of directors to the
Board of Directors to be limited to five (5) members.
(d) Each certificate for shares of capital stock of the Company owned
by the Founders and the Investors shall bear thereon substantially the following
legend:
36
<PAGE>
"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS OF A
SERIES C PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF JULY 26, 1995, WITH
RESPECT TO THE VOTING OF THE SHARES, OR ANY INTEREST THEREIN, WHICH
AGREEMENT MAY BE EXAMINED AT THE OFFICES OF THE COMPANY."
(e) The provisions of this Section 11 shall continue in effect until
the earliest to occur of (i) the Purchasers no longer holding, in the aggregate,
the Requisite Purchaser Shares or (ii) a Qualified IPO.
(f) The Company agrees to maintain a counterpart of this Agreement in
its principal and/or registered office and, to the extent required by applicable
law, the Company agrees to execute and deliver any and all other agreements,
instruments and other documents and to do any and all other things reasonably
necessary or appropriate from time to time to comply with applicable law and to
maintain the enforceability of this Section 11.
12. EXPENSES. The Company will pay (a) all the costs and expenses of the
reproduction of this Agreement, of all agreements and documents referred to
herein and of the certificates for the Shares; (b) all taxes (if any) payable
with respect to this Agreement and the issuance of the Shares; (c) all costs of
complying with the securities or Blue Sky laws of any jurisdiction with respect
to the offering or sale of the Shares; (d) the cost of delivering to such
address as each Investor shall specify the certificates for the Shares purchased
by each such Investor; (e) the reasonable fees plus actual expenses and
disbursements of one special counsel for the Purchasers as well as the
reasonable out-of-pocket expenses of the Purchasers, including certain
consulting fees incurred with respect to due diligence, not to exceed $20,000 in
the aggregate, in connection with the subject matter of this Agreement and the
transactions contemplated hereby (other than events described in Section 8
hereof); and (f) the fees and expenses incurred with respect to any amendments
to this Agreement or the Third Restated Certificate proposed by the Company
(whether or not the same become effective).
13. SURVIVAL OF AGREEMENTS. All representations and warranties contained
herein or made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the Investors or
on their behalf) for a period of twenty-four (24) months and all covenants and
agreements contained herein by the Company shall survive the execution and
delivery of this Agreement in accordance with their terms. All statements
contained in any certificate or other instrument executed and delivered by the
Company or its duly authorized officers or representatives pursuant hereto in
connection with the transactions contemplated hereby shall be deemed
representations by the Company hereunder.
14. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 14) shall be in
writing and shall be deemed to be delivered (i) on the date delivered, if
personally delivered or transmitted via
37
<PAGE>
facsimile with return confirmation of such transmission; (ii) on the business
day after the date sent, if sent by recognized overnight courier service and
(iii) on the fifth day after the date sent, if mailed by first-class
certified mail, postage prepaid and return receipt requested, as follows:
(a) If to the Company:
3DX Technologies Inc.
12012 Wickchester, Suite 250
Houston, Texas 77079-1218
Attention: C. Eugene Ennis, President
Facsimile: (713) 579-9227
with a copy to:
Frederic A. Rubinstein, Esq.
Kelley Drye & Warren
101 Park Avenue
New York, New York 10178
Facsimile: (212) 808-7897
(b) If to the Investors other than Landmark, at their
respective addresses set forth in Schedule 1 or
Schedule 2 hereto;
with a copy to:
John Holzgraefe, Esq.
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Facsimile: (214) 855-4300
(c) If to Landmark:
Landmark Graphics Corporation
15150 Memorial Drive
Houston, Texas 77079
Attention: Patti Massaro, Esq.
Facsimile: (713) 560-1383
38
<PAGE>
with a copy to:
Robert E. Crawford, Jr., Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Facsimile: (214) 745-5390
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. The financial statements and other
reports required by Section 7 may be mailed by first-class regular mail.
15. MODIFICATIONS; WAIVER. (a) Except as set forth in Section 15(b),
neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally or in writing, except that any provision of
this Agreement may be amended and the observance of any such provision may be
waived (either generally or in a particular instance and either retroactively
or prospectively) with (but only with) the written consent of (i) the
Company, (ii) the holders of at least 66-2/3% of the aggregate voting power
of shares of the Series B Preferred and Registrable Stock held by the Prior
Investors (excluding from both the numerator and denominator of the fraction
from which such percentage is derived all shares theretofore disposed of by
the Investors or their Transferees pursuant to one or more registration
statements under the Securities Act or pursuant to Rule 144) acting together
as a single class, (iii) the holders of at least 66 2/3% of the aggregate
voting power of shares of the Series C Preferred (excluding from both the
numerator and denominator of the fraction from which such percentage is
derived all shares theretofore disposed of by the Investors or their
Transferees pursuant to one or more registration statements under the
Securities Act or pursuant to Rule 144), (iv) Landmark, as to Sections 7.2,
7.3, 7.9 and 8, and (v) in the event the Key Employees' registration rights
in Section 8 are modified, waived or terminated, the holders of at least 51%
of the aggregate number of shares of Common Stock outstanding as of the date
of such modification, waiver or termination that are held by the Key
Employees who at such time are stockholders of the Company; PROVIDED that
this Section 15 may not be modified or amended without the written consent of
all the parties hereto (including, however, only those Key Employees who at
the time of such modification or waiver are stockholders of the Company); and
PROVIDED, FURTHER, that the Board of Directors shall be permitted to grant to
any officer of the Company registration rights that are the equivalent of the
Key Employees' registration rights and the granting of such officer
registration rights shall not be deemed a modification of the Key Employees'
registration rights, for purposes of this Section 15(a) if granted with the
approval of the entire Board of Directors.
(b) Notwithstanding anything to the contrary contained in Section
15(a), the Board of Directors of the Company may, from time to time,
designate in writing additional employees of the Company as "Key Employees,"
as such term is used in this Agreement. Each person so designated shall
execute all such documents as shall be
39
<PAGE>
necessary so that he or she shall be considered a "Key Employee" within the
meaning of this Agreement, and only after the execution of all such documents
by the Company and such Key Employee, all references to "Key Employees" in
this Agreement shall be deemed to include such designee; PROVIDED that in no
event shall a person be considered a Key Employee if such person is no longer
employed by the Company.
16. ENTIRE AGREEMENT. This Agreement, together with the schedules and
exhibits attached hereto and made a part hereof, contains the entire agreement
between the parties with respect to the transactions contemplated hereby, and
supersedes all negotiations, agreements, representations, warranties,
commitments, whether in writing or oral, prior to the date hereof.
17. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, all of the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
Transferees of the parties hereto, except that the rights set forth in
Sections 7.1, 7.3, 7.4 and 8.13 hereof may be assigned but only to (i) a
Transferee who shall acquire not less than 4,000 shares (as adjusted for
Recapitalization Events) of Series B Preferred Stock and 21,000 shares of
Registrable Stock (as adjusted for Recapitalization Events), (ii) a transferee
who shall acquire not less than 100,000 Shares purchased hereunder (as adjusted
for Recapitalization Events), (iii) a Transferee of any Prior Investor who shall
acquire all of the Series B Preferred Stock and Common Stock purchased by such
Investor under the Prior Agreement or the Exchange Agreement or (iv) a permitted
transferee of Nations who shall acquire Shares pursuant to the provisions of
Section 10 hereof.
18. ENFORCEMENT.
(a) REMEDIES AT LAW OR IN EQUITY. If the Company shall default in
any of its obligations under this Agreement or if any representation or warranty
made by or on behalf of the Company in this Agreement or in any certificate,
report or other instrument delivered under or pursuant to any term hereof shall
be untrue or misleading in any material respect as of the date of this Agreement
or as of an applicable Closing Date or as of the date it was made, furnished or
delivered, the Investors may proceed to protect and enforce their rights by suit
in equity or action at law, whether for the specific performance of any term
contained in this Agreement or the Restated Certificate, injunction against the
breach of any such term or in furtherance of the exercise of any power granted
in this Agreement or the Restated Certificate, or to enforce any other legal or
equitable right of such Investors or to take any one or more of such actions.
In the event the Investors bring such an action against the Company, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Restated Certificate,
including without limitation such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
40
<PAGE>
(b) REMEDIES CUMULATIVE; WAIVER. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to the Investors at law or
in equity. No express or implied waiver by the Investors of any default shall
be a waiver of any future or subsequent default. The failure or delay of the
Investors in exercising any rights granted them hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any particular
right by the Investors shall not exhaust the same or constitute a waiver of any
other right provided herein.
19. AMENDMENTS TO PRIOR AGREEMENT. Sections 7, 8, 11 and 14 through 21 of
the Prior Agreement are hereby replaced in their entirety by Sections 7, 8, 11
and 14 through 22 of this Agreement. Except as amended and modified hereby, the
Prior Agreement shall continue in full force and effect in accordance with its
terms. By execution of this Agreement, (a) the Prior Investors, Key Employees
and the Company hereby consent to the amendment of the Prior Agreement as
contemplated herein, and (b) the Prior Investors waive their right of first
refusal under Section 7.11 of the Prior Agreement in respect of the sale of
Shares hereunder, such waiver to be effective on behalf of all the Investors
referred to in the Prior Agreement pursuant to Section 15 thereof.
20. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and all such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
21. GOVERNING LAW AND SEVERABILITY. This agreement shall be governed by
the internal laws of the state of Texas, without regard to principles of
conflicts of law and will, to the maximum extent practicable, be deemed to call
for performance in Harris County, Texas. In the event any provision of this
agreement or the application of any such provision to any party shall be held by
a court of competent jurisdiction to be contrary to law, the remaining
provisions of this agreement shall remain in full force and effect.
22. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.
THE COMPANY:
3DX TECHNOLOGIES INC.
By:
----------------------------------
Name:
Title:
PURCHASER:
- - - - - - - - - - - - - - - - - - - - -
By:
----------------------------------
Name:
Title:
PRIOR INVESTOR:
- - - - - - - - - - - - - - - - - - - - -
By:
----------------------------------
Name:
Title:
<PAGE>
Agreed to and accepted in their
capacity as Founders of the Company
as to Sections 8, 11 and 15 only:
- ----------------------------------
C. Eugene Ennis
- ----------------------------------
Douglas C. Nester
- ----------------------------------
Peter M. Duncan
<PAGE>
SECOND AMENDED AND RESTATED CO-SALE AGREEMENT
SECOND AMENDED AND RESTATED CO-SALE AGREEMENT, dated as of July 26, 1995,
by and among C. Eugene Ennis, residing at 513 White Wing, Houston, Texas 77079;
Douglas C. Nester, residing at 5410 Three Oaks Circle, Houston, Texas 77069; and
Peter M. Duncan, residing at 13715 Alchester Lane, Houston, Texas 77079
(collectively, the "Founders"); 3DX TECHNOLOGIES INC., a Delaware corporation
(the "Company"); the parties listed as Prior Investors on Schedule 1 annexed
hereto (the "Prior Investors"); and the parties listed as Purchasers on Schedule
2 annexed hereto (the "Purchasers" and, together with the Prior Investors, the
"Investors").
WHEREAS, the Prior Investors acquired from the Company units consisting of
shares of its Redeemable Preferred Stock, Series B, par value $.01 per share
("Series B Preferred"), and Common Stock, par value $.01 per share ("Common
Stock"), pursuant to a Stock Purchase Agreement dated as of November 9, 1993
(the "Prior Purchase Agreement") among the Company, the Prior Investors and, as
to certain provisions thereof, the Founders; and
WHEREAS, in connection with the execution of the Prior Purchase Agreement
and the consummation of the transactions contemplated thereby, the Founders, the
Company and the Prior Investors entered into an Amended and Restated Co-Sale
Agreement dated as of November 9, 1993 (the "Original Co-Sale Agreement"); and
WHEREAS, concurrently herewith the Purchasers are acquiring from the
Company 3,000,000 shares of its Senior Redeemable Convertible Preferred Stock,
Series C, par value $.01 per share ("Series C Preferred"), pursuant to a Series
C Preferred Stock Purchase Agreement dated as of the date hereof (the "Series C
Agreement") among the Company, the Purchasers, the Prior Investors and, as to
certain provisions thereof, the Founders; and
WHEREAS, the Founders are presently the legal owners of an aggregate of
2,220,780 shares of the outstanding Common Stock of the Company, 233,780 of
which were purchased pursuant to the Prior Purchase Agreement; and
WHEREAS, the Purchasers would not enter into the Series C Agreement without
the delivery by the Founders, the Company and the Prior Investors of this
Agreement; and
WHEREAS, in order to induce the Purchasers to enter into and carry out the
transactions contemplated by the Series C Agreement, the Founders, the Company
and the
<PAGE>
Prior Investors are willing to terminate the Original Co-Sale Agreement and
enter into this Agreement in lieu thereof;
NOW, THEREFORE, in consideration of the promises contained herein, the
parties hereby agree as follows:
SALES BY FOUNDERS
1.01 None of the Founders shall sell, assign, transfer, pledge,
hypothecate, mortgage or dispose of, by gift or otherwise, or in any way
encumber all or any of the shares of Common Stock now owned or hereafter
acquired by him, other than shares of Common Stock acquired under the Prior
Purchase Agreement, as to which this Agreement shall not be applicable (such
shares, excluding those acquired under the Prior Purchase Agreement, are
hereinafter collectively referred to as the "Securities"), except as
specifically provided in Section 1.05 of this Agreement. Should any Founder
receive one or more bona fide offers (collectively, the "Purchase Offer"), from
any person or entity (the "Offeror") to purchase from a Founder any of the
Securities that would result in aggregate sales of Securities by such Founder in
excess of (i) five percent (5%) of the number of shares of the Securities held
by such Founder in any 12-month period, based on the number of shares of the
Securities held by such Stockholder at the beginning of such period, or (ii) ten
percent (10%) of the Securities held by such Founder as of the date hereof, then
such Founder shall promptly notify the Investors of the name and address of the
Offeror and the terms and conditions of such Purchase Offer (the "Section 1.01
Notice").
1.02 In the event of a contemplated sale by a Founder of Securities to an
Offeror, the selling Founder will provide to the Investors the right to sell
certain of their shares of Registrable Stock (as defined in the Series C
Agreement) to the third party on the same terms and conditions, so that up to
50% of the aggregate shares of the Company's capital stock sold to such Offeror
shall consist of Investors' Registrable Stock and the remainder shall consist of
the Founder or Founders' Securities proposed to be sold. Each of the Investors
shall have the right, exercisable upon written notice to such Founder within
fifteen (15) business days after receipt of the Section 1.01 Notice, to
participate in the Founder's sale of Securities pursuant to the specified terms
and conditions of such Purchase Offer. To the extent one or more of the
Investors exercise such right of participation in accordance with the terms and
conditions set forth below, the number of shares of Securities that the Founder
may sell pursuant to such Purchase Offer shall be correspondingly reduced. Each
Investor's pro rata share shall be the ratio of the number of shares of
Registrable Stock then held by such Investor as of the date of the Purchase
Offer to the sum of the total number of shares of (i) Registrable Stock held by
all Investors and (ii) Securities held by the selling Founder as of such date.
The right of participation of each of the Investors shall be subject to the
following terms and conditions:
(a) Each of the Investors may sell all or any part of that number of
shares of Registrable Stock as is equal to the product obtained by multiplying
the aggregate number of
2
<PAGE>
shares of Securities covered by the Purchase Offer by such Investor's pro
rata share, subject in all events to the limitations in Section 1.02 hereof.
(b) If any Investor elects not to sell the full number of shares such
Investor is entitled to sell pursuant to subparagraph (a) above, the other
Investors shall have the right to sell the portion not sold by such Investor, on
a pro rata basis, by giving notice within three (3) business days after receipt
of notice from such Founder that an Investor has failed to exercise its right
hereunder to sell all of its pro rata share, but no later than twenty-five (25)
days from the date of mailing of the Section 1.01 Notice.
(c) Each Investor may effect his or its participation in the sale by
delivering to the Offeror or to such Founder for transfer to the Offeror, one or
more certificates, properly endorsed for transfer, which represent that number
of shares of (i) Common Stock and/or (ii) Series C Preferred that is at such
time convertible into the number of shares of Common Stock, in either such case,
that such Investor elects to sell pursuant to this Section 1.02; PROVIDED,
HOWEVER, that if the Offeror objects to the delivery of Series C Preferred in
lieu of Common Stock, the participating Investors may convert into Common Stock
the number of shares of Series C Preferred referred to in clause (ii) and
deliver such shares of Common Stock to the Offeror.
1.03 If an Investor elects to participate in the sale contemplated by the
Purchase Offer, its stock certificates representing the number of shares to be
sold by the Investor shall be transferred to the Offeror in consummation of the
sale of the Common Stock pursuant to the terms and conditions specified in the
Section 1.01 Notice. Upon its receipt of the stock certificates, the Offeror
shall promptly remit to each Investor in immediately available funds that
portion of the sale proceeds to which such Investor is entitled by reason of its
participation in such sale.
1.04 The exercise or non-exercise of the rights of the Investors hereunder
to participate in one or more sales of Securities made by a Founder shall not
adversely affect their rights to participate in subsequent Securities sales by
any Founder.
1.05 Notwithstanding the foregoing, the participation rights of the
Investors shall not pertain or apply to, and each Founder may effect without
incurring any liability under this Agreement, any (a) pledge of Common Stock
that creates a mere security interest made by such Founder in good faith to
secure bona fide full recourse debt of the Founder, which debt such Founder has,
at the time of such incurrence, a good faith and reasonable belief in his
ability to repay in accordance with its terms, and (b) sales or transfers of
securities to members of such Founder's immediate family (spouse, parents,
children or grandchildren) or to a trust or trusts of which such Founder or such
members of the immediate family are the sole beneficiaries, PROVIDED that such
transferee shall furnish the Investors with a written agreement to be bound by
and comply with all provisions of this Agreement applicable to such Founder.
All pledges of Common Stock made by a Founder in effect as of the date of this
3
<PAGE>
Agreement in compliance with Section 1.05 herein are set forth on Schedule 1.05
attached hereto.
RIGHTS UPON PROHIBITED TRANSFERS
2.01 In the event any Founder should sell any Securities in contravention
of the participation rights of the Investors under this Agreement (a "Prohibited
Transfer"), the Investors may, upon the determination of holders of 66-2/3% in
interest of the shares of Registrable Stock held by such Investors, proceed to
protect and enforce their rights by suit in equity or by action at law, whether
for the specific performance of any term contained in this Agreement or for an
injunction against the breach of any such term or in furtherance of the exercise
of any power granted in this Agreement, or to enforce any other legal or
equitable right of the Investor or to take one or more of such actions. In
addition to any other remedy at law or in equity available to the Investors, the
Investors shall have the option to sell to such Founder, on a pro rata basis, a
number of shares of Common Stock of the Company equal to the number of shares of
Securities sold by the Founder in contravention of such rights on the following
terms and conditions:
(a) The price per share at which the shares are to be sold to such Founder
shall be equal to the price per share paid to such Founder by the third party
purchaser or purchasers of such Founder's Securities.
(b) The Investors shall deliver to such Founder, within ninety (90) days
after they have received notice from such Founder or otherwise become aware of
the Prohibited Transfer, the certificate or certificates representing shares to
be sold, each certificate to be properly endorsed for transfer.
(c) Such Founder shall, upon receipt of the certificates for the
repurchased shares, pay the aggregate Section 2.01 purchase price therefor, by
certified check or bank draft made payable to the order of each Investor and
shall reimburse each Investor for any additional expenses, including legal fees
and expenses, incurred in effecting such purchase and resale.
LEGENDED CERTIFICATES
3.01 Each certificate representing Securities of each Founder shall be
endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SECOND AMENDED AND
RESTATED CO-SALE AGREEMENT DATED JULY 26, 1995 BY AND AMONG THE HOLDER
HEREOF, 3DX TECHNOLOGIES INC.
4
<PAGE>
(THE "COMPANY"), CERTAIN FOUNDERS OF THE COMPANY AND CERTAIN INVESTORS
IN THE CAPITAL STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
3.02 The Section 3.01 legend shall be removed upon termination of this
Agreement.
3.03 The Company shall make appropriate notation in its stock transfer
records of the restriction on transfer provided for in this Agreement.
MISCELLANEOUS PROVISIONS
4.01 The rights granted to the Investors under this Agreement may be
transferred but only
(a) to a transferee who shall acquire not less than twenty percent (20%)
of all of the shares of Series B Preferred, Series C Preferred, and Common Stock
owned by such Investor; or
(b) in connection with the distribution by Prior Investor of Series B
Preferred or of Common Stock to the beneficial owners (including without
limitation to partners of a limited or general partnership, stockholders of a
corporation and beneficiaries of a trust) of securities of the Investor.
4.02 All notices, requests, consents and other communications herein shall
be in writing and shall be deemed to be delivered (i) on the date delivered, if
personally delivered or transmitted via facsimile with return confirmation of
such transmission; (ii) on the business day after the date sent, if sent by
recognized overnight courier service and (iii) on the fifth day after the date
sent, if mailed by first-class certified mail, postage prepaid and return
receipt requested, as follows:
5
<PAGE>
(a) If to the Founders, at their respective addresses
set forth in the preamble hereto;
(b) If to the Company:
3DX Technologies Inc.
12012 Wickchester, Suite 205
Houston, Texas 77079-1218
Attention: C. Eugene Ennis, President
Facsimile: (713) 579-9227
with a copy to:
Frederic A. Rubinstein, Esq.
Kelley Drye & Warren
101 Park Avenue
New York, N.Y. 10005
Facsimile: (212) 808-7897
(c) If to the Investors, at their respective addresses set forth in
Schedule 1 and Schedule 2 hereto;
with copies to:
John R. Holzgraefe, Esq.
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Facsimile: (214) 855-4300
and
Robert E. Crawford, Jr., Esq.
Winstead Sechrest & Minick
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Facsimile: (214) 745-5390
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties in accordance with this Section 4.02.
6
<PAGE>
4.03 This Agreement and the rights and obligations of the parties hereunder
shall inure to the benefit of, and be binding upon, their respective successors,
assigns and legal representatives.
4.04 This Agreement contains the entire agreement among the parties with
respect to the transactions contemplated hereby, and supersedes all
negotiations, agreements, representations, warranties, commitments, whether in
writing or oral, prior to the date hereof, including without limitation the
Original Co-Sale Agreement, which is hereby terminated and of no further force
or effect. Any amendment or modification of this Agreement shall be effective
only if evidenced by a written instrument executed by duly authorized
representatives of the parties hereto. Any waiver by a party of its rights
hereunder shall be effective only if evidenced by a written instrument executed
by a duly authorized representative of such party.
4.05 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Texas, without regard to principles of
conflicts of law, and will, to the maximum extent practicable, be deemed to call
for performance in Harris County, Texas.
4.06 This Agreement may be executed one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year indicated above.
THE COMPANY:
3DX TECHNOLOGIES INC.
By:
-------------------------------------
Name:
Title:
PURCHASER:
- - - - - - - - - - - - - - - - - - - - - - - - -
By:
-------------------------------------
Name:
Title:
PRIOR INVESTOR:
- - - - - - - - - - - - - - - - - - - - - - - - -
By:
-------------------------------------
Name:
Title:
<PAGE>
FOUNDERS:
-------------------------------------
C. Eugene Ennis
-------------------------------------
Douglas C. Nester
-------------------------------------
Peter M. Duncan
<PAGE>
STOCK PURCHASE AND RESTRICTION AGREEMENT
AGREEMENT, dated as of November 9, 1993, by and between 3DX TECHNOLOGIES
INC. (formerly Novera Energy Inc.), a Delaware corporation (the "Company"), and
C. Eugene Ennis (the "Stockholder").
WHEREAS, the Company desires to sell and Stockholder desires to purchase
shares of the Company's common stock, $.01 par value (the "Common Stock"), on
the terms and conditions hereinafter set forth;
WHEREAS, the parties hereto deem it in their best interests to impose
certain restrictions upon such shares; and
WHEREAS, such parties desire to provide for certain other matters relating
to the Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, it is hereby agreed as follows:
1. PURCHASE AND SALE OF SHARES OF STOCK. Subject to the terms and
conditions of this Agreement, the Company hereby agrees to sell to Stockholder
and Stockholder agrees to purchase from the Company on the date hereof the
number of shares of Common Stock listed opposite Stockholder's name in SCHEDULE
1, at the purchase price per share listed in SCHEDULE 1 (the "Initial Purchase
Price"). (Such number of shares of Stockholder, and any shares of capital stock
of the Company acquired by Stockholder as a result of any subdivision,
combination or reclassification of outstanding shares of Common Stock into a
greater or smaller number of shares, recapitalization, reorganization,
reclassification of shares, stock dividend or like event (collectively,
"Recapitalization Events"), are hereinafter referred to as the "Shares".) The
purchase price shall be paid by cash or check.
2. INVESTMENT REPRESENTATIONS.
(a) REPRESENTATIONS OF STOCKHOLDER. Stockholder acknowledges that
the purchase of the Shares is a highly speculative investment. This Agreement
is made in reliance upon the express representations and warranties of
Stockholder that: (l) he is able, without impairing his financial condition, to
hold the Shares for an indefinite period of time and to suffer a complete loss
on his investment; (2) he has discussed the Company and its plans, operations
and financial condition with its officers and he has received all such
information as he deems necessary and appropriate to enable him to evaluate the
financial risk inherent in making an investment in the Shares, and has received
and had access to satisfactory and complete information concerning the business
and financial condition of the Company in response to his inquiries in respect
thereof; (3) the Shares are being acquired for his own account for investment
and not with a view to, or for sale in connection with, the
<PAGE>
distribution thereof, nor with any present intention of
distributing or selling the Shares; (4) Stockholder either (A) has
a pre-existing business or personal relationship with the Company
or any of its officers, directors or controlling persons or (B)
could be reasonably assumed to have the capacity to evaluate the
merits and risks of an investment in the Company and to protect
Stockholder's own interests in connection with this transaction by
reason of Stockholder's business or financial experience or the
business or financial experience of Stockholder's professional
advisors who are unaffiliated with and who are not compensated by
the Company or any affiliate or selling agent of the Company,
directly or indirectly; (5) Stockholder's principal residence is
within the State of Texas and is located at the address indicated
on Schedule 1 hereto; and (6) the Shares will not be sold without
registration under the Securities Act of 1933, as amended (the
"Act"), or exemption therefrom.
Stockholder understands and acknowledges that the Shares are
unregistered and may not be sold publicly unless they are subsequently
registered under the Act, or unless an exemption from such registration is
available; that the exemption from registration under Rule 144 promulgated under
the Act will not be available in any event for at least two years from the date
of purchase and payment of the Shares, and even then will not be available
unless (i) a public trading market then exists for the Common Stock of the
Company, (ii) adequate current information concerning the Company is then
available to the public, and (iii) other terms and conditions of Rule 144 are
complied with; and that any sale of the Shares may be made only in limited
amounts in accordance with such terms and conditions. Stockholder further
understands and acknowledges that: (i) there is not presently available, and
may not be available at the time he wishes to sell the Shares, adequate current
public information with respect to the Company that would permit offers or sales
of the Shares pursuant to Rule 144 promulgated under the Act, and, therefore,
compliance with Regulation A of the Act or some other exemption from the
registration and prospectus delivery requirements of the Act will be required
for any such offer or sale; and (ii) the Company is under no obligation to
register the Shares or to make Rule 144 available.
(b) SECURITIES LEGEND. Until such time as the Shares shall have
been registered under the Act, or shall have been transferred in accordance
with an opinion of counsel satisfactory to the Company that such registration is
not required, stop transfer instructions shall be issued to the Company's
transfer agent, if any, or, if the Company transfers its own securities, a
notation shall be made in the appropriate records of the Company with respect to
the Shares, and so long as required under the Act or the regulations promulgated
thereunder, the certificate(s) representing the Shares shall bear substantially
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES HAVE NOT BEEN
ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO
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<PAGE>
THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNDER
APPLICABLE STATE LAWS. MOREOVER, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND MAY NOT BE SOLD,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
IN ACCORDANCE WITH AND SUBJECT TO ALL THE TERMS AND CONDITIONS OF A CERTAIN
STOCK PURCHASE AND RESTRICTION AGREEMENT DATED AS OF NOVEMBER 9, 1993, A
COPY OF WHICH THE CORPORATION WILL FURNISH TO THE HOLDER OF THIS
CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.
3. RESTRICTIONS ON TRANSFER AND ESCROW.
(a) RESTRICTIONS ON TRANSFER. During the term of this
Agreement, Stockholder may not sell, assign, transfer, pledge, hypothecate,
mortgage or dispose of, by gift or otherwise, or in any way encumber all or
any of the Shares, except in accordance with the terms hereof. Any permitted
transferee of the Shares shall be subject to the terms of Section 2 without
any further action being required on the part of the Company or any other
person. As a precondition to such transfer, the Company, at its option, may
require that such transferee acknowledge in writing that such transferee is
subject to the terms of Section 2.
(b) ESCROW. Stockholder shall, simultaneously with the execution
hereof, deliver to and deposit with the Secretary of the Company (herein
referred to as the "Escrow Agent"), as Escrow Agent in this transaction, the
certificate(s) evidencing the Shares together with a stock transfer power
executed in blank; said documents are to be held by the Escrow Agent and
delivered by the Escrow Agent pursuant to the joint escrow instructions of the
Company and Stockholder set forth in Annex A annexed hereto and incorporated
herein by this reference. Subject to the provisions of Paragraph 3 of such
escrow instructions, Stockholder shall exercise all rights and privileges of a
stockholder of the Company while the Shares are held by him.
4. REPURCHASE UPON EMPLOYMENT TERMINATION.
(a) CIRCUMSTANCES AND PRICE OF REPURCHASE. If Stockholder shall
cease to be employed by the Company for any reason or no reason (including,
without limitation, for Stockholder's death or disability), the Company shall
have the right to purchase (the "Repurchase Right"), and Stockholder or his
heirs, assigns, executors, administrators or other legal representatives
(collectively, "Legal Representatives") shall, at the election of the Company,
be obligated to sell, all or any part of the Unvested Shares (as that term is
defined in Section 4(d)) at the Initial Purchase Price (as appropriately
adjusted for Recapitalization Events) and on the terms provided in Section 4(b).
(b) MECHANICS OF COMPANY'S REPURCHASE. The Company may exercise
its Repurchase Right at any time within 30 days after the termination of such
employment by written notice (the "Employment Repurchase Notice") to Stockholder
(or, if known, to his
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<PAGE>
Legal Representatives) stating that it is exercising such Right and
specifying the number of Unvested Shares to be repurchased. In addition, the
Employment Repurchase Notice shall specify a closing date and time for such
repurchase, which date shall not be less than five (5) nor more than thirty
(30) days from the date of the Employment Repurchase Notice. Such repurchase
shall take place at the principal office of the Company. At the closing,
Stockholder (or his Legal Representatives) or the Escrow Agent shall deliver
to the Company the certificate(s) representing all of such Shares to be
repurchased, duly endorsed, against delivery by the Company of the purchase
price by check or in cash.
(c) RELEASE OF SHARES FROM REPURCHASE RIGHTS. (i) On the date
of this Agreement, that number of Shares as is equal to 100% of the total
number of Shares listed opposite Stockholder's name in Schedule (i) shall be
subject to the Company's Repurchase Right. Subject to Sections 4(c)(ii) and
(iii) below, so long as Stockholder continues to be employed by the Company
(x) on January 1, 1994, one-fourth (1/4) of the total number of Shares shall
automatically be released from such Repurchase Right, and (y) on January 1,
1995 (the "Anniversary Date"), an additional one-fourth (1/4) of the total
number of Shares shall automatically be released from such Repurchase Right.
Subject to Sections 4(c)(ii) and (iii) below, after the Anniversary Date,
one-forty eighth (1/48) of the total number of Shares shall automatically be
released from the Repurchase Right on the last day of each month beginning
one month after the Anniversary Date and culminating twenty-four (24) months
after the Anniversary Date, unless Stockholder is no longer employed by the
Company for any reason, PROVIDED that in the event that after January 1,
1994, the Company shall adopt a plan of merger, consolidation or other
business combination (other than pursuant to which the Company is the
surviving entity), or adopt a plan or enter into an agreement providing for
the sale or disposition of substantially all of the business or assets of the
Company, the total number of Shares subject to the Company's Repurchase Right
shall automatically be released from such Rights concurrently with the
consummation of such merger, consolidation or sale.
(ii) Notwithstanding anything to the contained in Section
4(c)(i), in the event that Stockholder voluntarily terminates his employment
with the Company prior to the second anniversary of the date hereof, 100% of
the Shares shall be subject to the Company's Repurchase Right.
(iii) Notwithstanding anything to the contrary contained in
Section 4(c)(i), upon the occurrence and during the continuance of an Event
of Noncompliance (as defined in Article Fourth, Section B.4(b) of the
Company's Restated Certificate of Incorporation), as evidenced by a written
notice from holders of 66-2/3% in interest of the Company's Redeemable
Preferred Stock, Series B, par value $.01 per share, specifying in detail the
applicable Event of Noncompliance, the release of Unvested Shares (as defined
in Section 4(d) hereof) from the Company's Repurchase Right shall be
suspended until the date upon which the Board of Directors determines, by
affirmative vote or consent of 66-2/3% of its members, that the Event of
Non-Compliance has been cured, on which date the release of such Unvested
Shares from the Company's Repurchase Right shall resume.
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<PAGE>
(iv) The number of Shares so released under such vesting
schedule shall be appropriately adjusted for Recapitalization Events.
(d) VESTED AND UNVESTED SHARES. Shares that have been released
from the Company's Repurchase Right are referred to herein as "Vested
Shares". Any Shares that remain subject to the Company's Repurchase Right at
any point in time are referred to herein as "Unvested Shares". Unvested
Shares shall not be transferable. Any Shares with respect to which the
Company fails to exercise its Repurchase Right shall become Vested Shares
upon the expiration of such rights.
5. REFUSAL RIGHTS.
(a) COMPANY'S RIGHT OF FIRST REFUSAL. If Stockholder desires
to sell all or any part of the Vested Shares and he has received in writing
an irrevocable and unconditional bona fide offer (the "Bona Fide Offer") for
the purchase thereof in cash from a party (the "Offeror"), Stockholder shall
give written notice (the "BFO Option Notice") to the Company setting forth
Stockholder's desire to sell such Shares, which BFO Option Notice shall be
accompanied by a photocopy of the original executed Bona Fide Offer and shall
set forth at least the name and address of the Offeror and the price and
terms of the Bona Fide Offer. Upon receipt of the BFO Option Notice, the
Company shall have an option to purchase any or all of such Shares specified
in the BFO Option Notice, such option to be exercised by giving, within 30
days after receipt of the BFO Option Notice, a written counter-notice to
Stockholder. If the Company elects to purchase any or all of such Shares, it
shall be obligated to purchase, and Stockholder shall be obligated to sell to
the Company, such Shares at the price and in accordance with the terms
indicated in the Bona Fide Offer within 60 days from the date of receipt by
the Company of the BFO Option Notice (the "Company Exclusive Period").
(b) SUBSEQUENT SALE OF SHARES. Stockholder may sell any or all
of such Shares that the Company has not so elected to purchase during the 30
days following the expiration of the exercise period for such purchase by the
Company, provided that such sale is made only pursuant to the terms of the
Bona Fide Offer. If, however, any or all such Shares are not sold pursuant
to the Bona Fide Offer within such 30 days, the unsold Shares shall remain
subject to the terms of this Agreement.
(c) RESTRICTIONS ON OFFEROR. Any Offeror purchasing Shares
from Stockholder under Section 5(b) shall not be subject to the terms of this
Agreement other than Section 2 as to such Shares; PROVIDED, HOWEVER, that
such Offeror shall be subject to the terms of Section 2 without any further
action being required on the part of the Company or any other person. As a
precondition to such purchase, the Company, at its option, may require that
such Offeror acknowledge in writing that such Offeror is subject to the terms
of Section 2.
6. EXEMPTED SHARE TRANSFERS. Anything in this Agreement to the
contrary notwithstanding, Stockholder shall be permitted to transfer Vested
Shares owned by him without complying with the provisions of Section 5 in the
following situations: (i) any inter
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<PAGE>
vivos transfer by Stockholder to any member of his immediate family (spouse,
parents, children or grandchildren); (ii) to any trust for the benefit of any
such immediate family member or himself; or (iii) any transfer upon the death
of Stockholder to his Legal Representatives; PROVIDED that any permitted
transferee referred to above shall have delivered to the Company the written
agreement of such transferee to be bound by all of the provisions of this
Agreement to the same extent as his transferor, and until such delivery is
made no such transferee shall, with respect to the Shares being transferred,
be a stockholder and the Company shall not recognize any such transferee as a
stockholder for any purpose. It is understood and agreed that, in the event
of a permitted transfer of Shares pursuant to this Section 6, the calculation
of Vested Shares under Sections 4(c) and (d) shall nonetheless continue to
depend upon the continued employment by the Company of Stockholder named on
page 1 hereof.
7. SPECIFIC PERFORMANCE. Because the Shares cannot be readily purchased
or sold in the open market, and for other reasons deemed sufficient by them, the
parties hereto acknowledge that they will be irreparably damaged in the event
that this Agreement is not specifically enforced. Upon a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by either of
the parties hereto, the other, in addition to all other remedies, shall be
entitled, without showing any actual damage, to a temporary or permanent
injunction and/or a decree for specific performance, in accordance with the
provisions hereof.
8. CONTINUATION OF EMPLOYMENT. The Company is not by reason of this
Agreement or the issuance of any Shares obligated to continue Stockholder in its
employment.
9. GOVERNING LAW. This Agreement shall be construed under and governed by
the internal laws of the State of Texas, without regard to principles of
conflicts of law, and will, to the maximum extent practicable, be deemed to call
for performance in Harris County, Texas.
10. NOTICE. All notices or other communications required or otherwise
with respect to this Agreement shall be deemed to have been duly given and
delivered if in writing (i) when delivered personally (by courier service or
otherwise), (ii) on the business day after the date sent by a nationally
recognized overnight courier service, or (iii) three (3) days after being mailed
by first-class registered or certified mail, postage prepaid and return receipt
requested, if to the Company at its office at 16001 Park Ten Place, Suite 200,
Houston, Texas 77084-5120, or if to Stockholder at his address set forth in
Schedule A (or at such other addresses as the parties may notify each other in
accordance with the provisions of this Section 10).
11. TERM. This Agreement shall remain in effect until the consummation of
a firm underwriting for sale of stock to the public by the Company at a public
offering price not less than $5.00 per share, adjusted for any splits, with
gross proceeds of that public offering to the Company not less than $5,000,000.
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<PAGE>
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement supersedes all prior
written and oral agreements and understandings among the parties as to its
subject matter and constitutes the entire agreement of the parties with respect
to the subject matter hereof. This Agreement may not be modified, amended,
terminated or any provision thereof waived in whole or in part except by a
written agreement signed by the Company and Stockholder.
13. VALUATION OF COMMON STOCK AND RELATED TAX CONSIDERATIONS. Stockholder
understands that the Shares have been valued by Stockholder and the board of
directors of the Company and that the Company believes this valuation represents
a fair attempt at reaching an accurate appraisal of their worth; Stockholder
understands, however, that the Company can give no assurances that such price is
in fact the fair market value of the Shares and that it is possible that, with
the benefit of hindsight, the Internal Revenue Service (the "Service") would
successfully assert that the value of the Shares on the date of purchase is
greater than so determined.
If the Service were to succeed in a tax determination that the Shares
received had value greater than that upon which the transaction was based, the
additional value would constitute ordinary income as of the date of its receipt.
The additional taxes (and interest) and any related costs, expenses or penalties
due would be payable by Stockholder and there is no provision for the Company to
reimburse him for that tax liability, and Stockholder assumes all responsibility
for such potential liability and related costs. In the event such additional
value would represent more than 25 percent of Stockholder's gross income for the
year in which the value of the Shares were taxable, the Service would have six
years from the due date for filing the return (or the actual filing date of the
return if filed thereafter) within which to assess Stockholder the additional
tax and interest that would then be due.
The Company would have the benefit, in any such transaction, if a
determination was made prior to the three-year statute of limitations period
affecting the Company, of an increase in its deduction for compensation paid,
which would offset its operating profits, or, if not profitable, would create
net operating loss carry forward arising from operations in that year.
14. SECTION 83(b) ELECTION. Stockholder understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
Shares as provided in Section 4. In the event the Company has registered its
securities under the Securities Exchange Act of 1934, as amended, "restriction"
with respect to officers, directors and 10% shareholders also means the
six-month period after the closing during which such officers, directors and 10%
shareholders are subject to suit under Section 16(b) of such Exchange Act.
Stockholder understands that if Code Section 83 is applicable to him, he
may elect to be taxed at the time the Shares are purchased rather than when and
as the Shares vest or when the six-month Section 16(b) period expires by filing
with the Service an election under Section 83(b) of the Code (hereinafter the
"Election"). Stockholder understands that
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<PAGE>
he must file such an Election within thirty (30) days from the date of
purchase. Even if the fair market value of the Shares equals the amount paid
for the Shares, the Election must be made to avoid adverse tax consequences
in the future, I.E. the obligation to report as income the difference between
the value of the Shares at the time such Shares vest and the amount paid.
The form for making this election (and related form of transmittal letter to
the Service) are attached as Annex B hereto. Stockholder understands that
failure to make this filing on a timely basis will result in the recognition
of ordinary income by Stockholder, as the Shares vest, or after the lapse of
the six month Section 16(b) period, on the difference between the purchase
price and the fair market value of the Shares at the time such Shares vest.
STOCKHOLDER ACKNOWLEDGES THAT IT IS STOCKHOLDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER INTERNAL REVENUE CODE
SECTION 83(b) AND UNDER ANY CORRESPONDING PROVISIONS OF STATE TAX LAW, EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
STOCKHOLDER'S BEHALF.
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. SEVERABILITY; REFORMATION. If any provision of this Agreement shall
be determined by a court of law to be unenforceable for any reason, such
unenforceability shall not affect the enforceability of any of the remaining
provisions hereof; and this Agreement, to the fullest extent lawful, shall be
reformed and construed as if such unenforceable provision, or part of a
provision, had never been contained herein, and such provision or part reformed
so that it would be enforceable to the maximum extent legally possible.
17. HEADINGS. Headings are for convenience only and are not deemed to be
part of this Agreement.
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<PAGE>
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together, shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date and year first above written.
3DX TECHNOLOGIES INC.
By /s/ DOUGLAS C. NESTER
--------------------------------------
Vice President
STOCKHOLDER:
/s/ C. EUGENE ENNIS
--------------------------------------
C. Eugene Ennis
<PAGE>
STOCK PURCHASE AND RESTRICTION AGREEMENT
AGREEMENT, dated as of November 9, 1993, by and between 3DX TECHNOLOGIES
INC. (formerly Novera Energy Inc.), a Delaware corporation (the "Company"), and
Peter M. Duncan (the "Stockholder").
WHEREAS, the Company desires to sell and Stockholder desires to purchase
shares of the Company's common stock, $.01 par value (the "Common Stock"), on
the terms and conditions hereinafter set forth;
WHEREAS, the parties hereto deem it in their best interests to impose
certain restrictions upon such shares; and
WHEREAS, such parties desire to provide for certain other matters relating
to the Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, it is hereby agreed as follows:
1. PURCHASE AND SALE OF SHARES OF STOCK. Subject to the terms and
conditions of this Agreement, the Company hereby agrees to sell to
Stockholder and Stockholder agrees to purchase from the Company on the date
hereof the number of shares of Common Stock listed opposite Stockholder's
name in SCHEDULE 1, at the purchase price per share listed in SCHEDULE 1 (the
"Initial Purchase Price"). (Such number of shares of Stockholder, and any
shares of capital stock of the Company acquired by Stockholder as a result of
any subdivision, combination or reclassification of outstanding shares of
Common Stock into a greater or smaller number of shares, recapitalization,
reorganization, reclassification of shares, stock dividend or like event
(collectively, "Recapitalization Events"), are hereinafter referred to as the
"Shares".) At least one percent (1%) of such purchase price shall be paid in
cash and ninety-nine percent (99%) of such purchase price may be paid by
Stockholder's full recourse promissory note (the "Purchase Note") in the form
attached hereto as Annex A. As security for the payment of the Purchase Note
and any renewal or modification thereof, the Stockholder hereby grants to the
Company a security interest in, and pledges with and delivers to the Company,
the Shares, to be held pursuant to the escrow referred to in Section 3(b)
hereof. Upon the occurrence of a default in the payment of the Purchase Note
when due, the Company shall be entitled to immediate possession of such
Shares and all rights and remedies of a secured party under the Uniform
Commercial Code of the State of Texas. In the event that Stockholder prepays
a portion of the Purchase Note, Stockholder intends that the Shares
represented by the portion of the Purchase Note so repaid, including annual
interest thereon, shall continue to be held pursuant to the escrow described
in Section 3(b), to serve as independent collateral for the outstanding
portion of the Purchase Note, for the
<PAGE>
purpose of commencing the holding period set forth in Rule 144(d) promulgated
under the Securities Act of 1933, as amended (the "Act").
2. INVESTMENT REPRESENTATIONS.
(a) REPRESENTATIONS OF STOCKHOLDER. Stockholder
acknowledges that the purchase of the Shares is a highly speculative
investment. This Agreement is made in reliance upon the express
representations and warranties of Stockholder that: (l) he is able, without
impairing his financial condition, to hold the Shares for an indefinite
period of time and to suffer a complete loss on his investment; (2) he has
discussed the Company and its plans, operations and financial condition with
its officers and he has received all such information as he deems necessary
and appropriate to enable him to evaluate the financial risk inherent in
making an investment in the Shares, and has received and had access to
satisfactory and complete information concerning the business and financial
condition of the Company in response to his inquiries in respect thereof; (3)
the Shares are being acquired for his own account for investment and not with
a view to, or for sale in connection with, the distribution thereof, nor with
any present intention of distributing or selling the Shares; (4) Stockholder
either (A) has a pre-existing business or personal relationship with the
Company or any of its officers, directors or controlling persons or (B) could
be reasonably assumed to have the capacity to evaluate the merits and risks
of an investment in the Company and to protect Stockholder's own interests in
connection with this transaction by reason of Stockholder's business or
financial experience or the business or financial experience of Stockholder's
professional advisors who are unaffiliated with and who are not compensated
by the Company or any affiliate or selling agent of the Company, directly or
indirectly; (5) Stockholder's principal residence is within the State of
Texas and is located at the address indicated on Schedule 1 hereto; and (6)
the Shares will not be sold without registration under the Securities Act of
1933, as amended (the "Act"), or exemption therefrom.
Stockholder understands and acknowledges that the Shares
are unregistered and may not be sold publicly unless they are subsequently
registered under the Act, or unless an exemption from such registration is
available; that the exemption from registration under Rule 144 promulgated
under the Act will not be available in any event for at least two years from
the date of purchase and payment of the Shares (AND THAT PAYMENT BY A NOTE IS
NOT DEEMED PAYMENT UNLESS IT IS SECURED BY ASSETS OTHER THAN THE SHARES), and
even then will not be available unless (i) a public trading market then
exists for the Common Stock of the Company, (ii) adequate current information
concerning the Company is then available to the public, and (iii) other terms
and conditions of Rule 144 are complied with; and that any sale of the Shares
may be made only in limited amounts in accordance with such terms and
conditions. Stockholder further understands and acknowledges that: (i)
there is not presently available, and may not be available at the time he
wishes to sell the Shares, adequate current public information with respect
to the Company that would permit offers or sales of the Shares pursuant to
Rule 144 promulgated under the Act, and, therefore, compliance with
Regulation A of the Act or some other exemption from the registration and
prospectus delivery requirements of the Act will be
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<PAGE>
required for any such offer or sale; and (ii) the Company is under no
obligation to register the Shares or to make Rule 144 available.
(b) SECURITIES LEGEND. Until such time as the Shares
shall have been registered under the Act, or shall have been transferred in
accordance with an opinion of counsel satisfactory to the Company that such
registration is not required, stop transfer instructions shall be issued to
the Company's transfer agent, if any, or, if the Company transfers its own
securities, a notation shall be made in the appropriate records of the
Company with respect to the Shares, and so long as required under the Act or
the regulations promulgated thereunder, the certificate(s) representing the
Shares shall bear substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES HAVE NOT BEEN
ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNDER APPLICABLE STATE LAWS. MOREOVER, THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND MAY NOT BE SOLD, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE
TERMS AND CONDITIONS OF A CERTAIN STOCK PURCHASE AND RESTRICTION AGREEMENT
DATED AS OF NOVEMBER 9, 1993, A COPY OF WHICH THE CORPORATION WILL FURNISH
TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.
3. RESTRICTIONS ON TRANSFER AND ESCROW.
(a) RESTRICTIONS ON TRANSFER. During the term of this
Agreement, Stockholder may not sell, assign, transfer, pledge, hypothecate,
mortgage or dispose of, by gift or otherwise, or in any way encumber all or
any of the Shares, except in accordance with the terms hereof. Any permitted
transferee of the Shares shall be subject to the terms of Section 2 without
any further action being required on the part of the Company or any other
person. As a precondition to such transfer, the Company, at its option, may
require that such transferee acknowledge in writing that such transferee is
subject to the terms of Section 2.
(b) ESCROW. Stockholder shall, simultaneously with the
execution hereof, deliver to and deposit with the Secretary of the Company
(herein referred to as the "Escrow Agent"), as Escrow Agent in this
transaction, the certificate(s) evidencing the
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Shares together with a stock transfer power executed in blank; said documents
are to be held by the Escrow Agent and delivered by the Escrow Agent pursuant
to the joint escrow instructions of the Company and Stockholder set forth in
Annex B annexed hereto and incorporated herein by this reference. Subject to
the provisions of Paragraph 3 of such escrow instructions, Stockholder shall
exercise all rights and privileges of a stockholder of the Company while the
Shares are held by him.
4. REPURCHASE UPON EMPLOYMENT TERMINATION.
(a) CIRCUMSTANCES AND PRICE OF REPURCHASE. If
Stockholder shall cease to be employed by the Company for any reason or no
reason (including, without limitation, for Stockholder's death or
disability), the Company shall have the right to purchase (the "Repurchase
Right"), and Stockholder or his heirs, assigns, executors, administrators or
other legal representatives (collectively, "Legal Representatives") shall, at
the election of the Company, be obligated to sell, all or any part of the
Unvested Shares (as that term is defined in Section 4(d)) at the Initial
Purchase Price (as appropriately adjusted for Recapitalization Events) and on
the terms provided in Section 4(b).
(b) MECHANICS OF COMPANY'S REPURCHASE. The Company may
exercise its Repurchase Right at any time within 30 days after the
termination of such employment by written notice (the "Employment Repurchase
Notice") to Stockholder (or, if known, to his Legal Representatives) stating
that it is exercising such Right and specifying the number of Unvested Shares
to be repurchased. In addition, the Employment Repurchase Notice shall
specify a closing date and time for such repurchase, which date shall not be
less than five (5) nor more than thirty (30) days from the date of the
Employment Repurchase Notice. Such repurchase shall take place at the
principal office of the Company. At the closing, Stockholder (or his Legal
Representatives) or the Escrow Agent shall deliver to the Company the
certificate(s) representing all of such Shares to be repurchased, duly
endorsed, against delivery by the Company of the purchase price by check or
in cash.
(c) RELEASE OF SHARES FROM REPURCHASE RIGHTS. (i) On
the date of this Agreement, that number of Shares as is equal to 100% of the
total number of Shares listed opposite Stockholder's name in Schedule (i)
shall be subject to the Company's Repurchase Right. Subject to Section
4(c)(ii) below, so long as Stockholder continues to be employed by the
Company (x) on January 1, 1994, one-fourth (1/4) of the total number of
Shares shall automatically be released from such Repurchase Right and (y) on
January 1, 1995 (the "Anniversary Date"), an additional one-fourth (1/4) of
the total number of Shares shall automatically be released from such
Repurchase Right. Subject to Section 4(c)(ii) below, after the Anniversary
Date, one-forty eighth (1/48) of the total number of Shares shall
automatically be released from the Repurchase Right on the last day of each
month beginning one month after the Anniversary Date and culminating
twenty-four (24) months after the Anniversary Date, unless Stockholder is no
longer employed by the Company for any reason, PROVIDED that in the event
that after January 1, 1994, the Company shall adopt a plan of merger,
consolidation or other business combination (other than one pursuant to which
the Company is the surviving entity), or adopt a plan or enter into an
agreement providing for
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<PAGE>
the sale or disposition of substantially all of the business or assets of the
Company, the total number of Shares subject to the Company's Repurchase Right
shall automatically be released from such Rights concurrently with the
consummation of such merger, consolidation or sale.
(ii) Notwithstanding anything to the contrary contained
in Section 4(c)(i), upon the occurrence and during the continuance of an
Event of Noncompliance (as defined in Article Fourth, Section B.4(b) of the
Company's Restated Certificate of Incorporation), as evidenced by a written
notice from holders of 66-2/3% in interest of the Company's Redeemable
Preferred Stock, Series B, par value $.01 per share, specifying in detail the
applicable Event of Noncompliance, the release of Unvested Shares (as defined
in Section 4(d) hereof) from the Company's Repurchase Right shall be
suspended until the date upon which the Board of Directors determines, by
affirmative vote or consent of 66-2/3% of its members, that the Event of
Non-Compliance has been cured, on which date the release of such Unvested
Shares from the Company's Repurchase Right shall resume.
(iii) The number of Shares so released under such
vesting schedule shall be appropriately adjusted for Recapitalization Events.
(d) VESTED AND UNVESTED SHARES. Shares that have been
released from the Company's Repurchase Right are referred to herein as
"Vested Shares". Any Shares that remain subject to the Company's Repurchase
Right at any point in time are referred to herein as "Unvested Shares".
Unvested Shares shall not be transferable. Any Shares with respect to which
the Company fails to exercise its Repurchase Right shall become Vested Shares
upon the expiration of such rights.
5. REFUSAL RIGHTS.
(a) COMPANY'S RIGHT OF FIRST REFUSAL. If Stockholder
desires to sell all or any part of the Vested Shares and he has received in
writing an irrevocable and unconditional bona fide offer (the "Bona Fide
Offer") for the purchase thereof in cash from a party (the "Offeror"),
Stockholder shall give written notice (the "BFO Option Notice") to the
Company setting forth Stockholder's desire to sell such Shares, which BFO
Option Notice shall be accompanied by a photocopy of the original executed
Bona Fide Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the Bona Fide Offer. Upon receipt of the
BFO Option Notice, the Company shall have an option to purchase any or all of
such Shares specified in the BFO Option Notice, such option to be exercised
by giving, within 30 days after receipt of the BFO Option Notice, a written
counter-notice to Stockholder. If the Company elects to purchase any or all
of such Shares, it shall be obligated to purchase, and Stockholder shall be
obligated to sell to the Company, such Shares at the price and in accordance
with the terms indicated in the Bona Fide Offer within 60 days from the date
of receipt by the Company of the BFO Option Notice (the "Company Exclusive
Period").
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<PAGE>
(b) SUBSEQUENT SALE OF SHARES. Stockholder may sell any
or all of such Shares that the Company has not so elected to purchase during
the 30 days following the expiration of the exercise period for such purchase
by the Company, provided that such sale is made only pursuant to the terms of
the Bona Fide Offer. If, however, any or all such Shares are not sold
pursuant to the Bona Fide Offer within such 30 days, the unsold Shares shall
remain subject to the terms of this Agreement.
(c) RESTRICTIONS ON OFFEROR. Any Offeror purchasing
Shares from Stockholder under Section 5(b) shall not be subject to the terms
of this Agreement other than Section 2 as to such Shares; PROVIDED, HOWEVER,
that such Offeror shall be subject to the terms of Section 2 without any
further action being required on the part of the Company or any other person.
As a precondition to such purchase, the Company, at its option, may require
that such Offeror acknowledge in writing that such Offeror is subject to the
terms of Section 2.
6. EXEMPTED SHARE TRANSFERS. Anything in this Agreement to the
contrary notwithstanding, Stockholder shall be permitted to transfer Vested
Shares owned by him without complying with the provisions of Section 5 in the
following situations: (i) any inter vivos transfer by Stockholder to any
member of his immediate family (spouse, parents, children or grandchildren);
(ii) to any trust for the benefit of any such immediate family member or
himself; or (iii) any transfer upon the death of Stockholder to his Legal
Representatives; PROVIDED that any permitted transferee referred to above
shall have delivered to the Company the written agreement of such transferee
to be bound by all of the provisions of this Agreement to the same extent as
his transferor, and until such delivery is made no such transferee shall,
with respect to the Shares being transferred, be a stockholder and the
Company shall not recognize any such transferee as a stockholder for any
purpose. It is understood and agreed that, in the event of a permitted
transfer of Shares pursuant to this Section 6, the calculation of Vested
Shares under Sections 4(c) and (d) shall nonetheless continue to depend upon
the continued employment by the Company of Stockholder named on page 1 hereof.
7. SPECIFIC PERFORMANCE. Because the Shares cannot be readily
purchased or sold in the open market, and for other reasons deemed sufficient
by them, the parties hereto acknowledge that they will be irreparably damaged
in the event that this Agreement is not specifically enforced. Upon a breach
or threatened breach of the terms, covenants and/or conditions of this
Agreement by either of the parties hereto, the other, in addition to all
other remedies, shall be entitled, without showing any actual damage, to a
temporary or permanent injunction and/or a decree for specific performance,
in accordance with the provisions hereof.
8. CONTINUATION OF EMPLOYMENT. The Company is not by reason of this
Agreement or the issuance of any Shares obligated to continue Stockholder in
its employment.
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<PAGE>
9. GOVERNING LAW. This Agreement shall be construed under and governed
by the internal laws of the State of Texas, without regard to principles of
conflicts of law, and will, to the maximum extent practicable, be deemed to
call for performance in Harris County, Texas.
10. NOTICE. All notices or other communications required or otherwise
with respect to this Agreement shall be deemed to have been duly given and
delivered if in writing (i) when delivered personally (by courier service or
otherwise), (ii) on the business day after the date sent by a nationally
recognized overnight courier service, or (iii) three (3) days after being
mailed by first-class registered or certified mail, postage prepaid and
return receipt requested, if to the Company at its office at 16001 Park Ten
Place, Suite 200, Houston, Texas 77084-5120, or if to Stockholder at his
address set forth in Schedule A (or at such other addresses as the parties
may notify each other in accordance with the provisions of this Section 10).
11. TERM. This Agreement shall remain in effect until the consummation
of a firm underwriting for sale of stock to the public by the Company at a
public offering price not less than $5.00 per share, adjusted for any splits,
with gross proceeds of that public offering to the Company not less than
$5,000,000.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement supersedes all prior
written and oral agreements and understandings among the parties as to its
subject matter and constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may not be modified,
amended, terminated or any provision thereof waived in whole or in part
except by a written agreement signed by the Company and Stockholder.
13. VALUATION OF COMMON STOCK AND RELATED TAX CONSIDERATIONS.
Stockholder understands that the Shares have been valued by Stockholder and
the board of directors of the Company and that the Company believes this
valuation represents a fair attempt at reaching an accurate appraisal of
their worth; Stockholder understands, however, that the Company can give no
assurances that such price is in fact the fair market value of the Shares and
that it is possible that, with the benefit of hindsight, the Internal Revenue
Service (the "Service") would successfully assert that the value of the
Shares on the date of purchase is greater than so determined.
If the Service were to succeed in a tax determination that the Shares
received had value greater than that upon which the transaction was based,
the additional value would constitute ordinary income as of the date of its
receipt. The additional taxes (and interest) and any related costs, expenses
or penalties due would be payable by Stockholder and there is no provision
for the Company to reimburse him for that tax liability, and Stockholder
assumes all responsibility for such potential liability and related costs.
In the event such additional value would represent more than 25 percent of
Stockholder's gross income for the year in which the value of the Shares were
taxable, the Service would have six years from the due date for filing the
return (or the actual filing date of the return if filed thereafter) within
which to assess Stockholder the additional tax and interest that would then
be due.
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<PAGE>
The Company would have the benefit, in any such transaction, if a
determination was made prior to the three-year statute of limitations period
affecting the Company, of an increase in its deduction for compensation paid,
which would offset its operating profits, or, if not profitable, would create
net operating loss carry forward arising from operations in that year.
14. SECTION 83(b) ELECTION. Stockholder understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair
market value of the Shares as of the date any restrictions on the Shares
lapse. In this context, "restriction" means the right of the Company to buy
back the Shares as provided in Section 4. In the event the Company has
registered its securities under the Securities Exchange Act of 1934, as
amended, "restriction" with respect to officers, directors and 10%
shareholders also means the six-month period after the closing during which
such officers, directors and 10% shareholders are subject to suit under
Section 16(b) of such Exchange Act.
Stockholder understands that if Code Section 83 is applicable to him, he
may elect to be taxed at the time the Shares are purchased rather than when
and as the Shares vest or when the six-month Section 16(b) period expires by
filing with the Service an election under Section 83(b) of the Code
(hereinafter the "Election"). Stockholder understands that he must file such
an Election within thirty (30) days from the date of purchase. Even if the
fair market value of the Shares equals the amount paid for the Shares, the
Election must be made to avoid adverse tax consequences in the future, I.E.
the obligation to report as income the difference between the value of the
Shares at the time such Shares vest and the amount paid. The form for making
this election (and related form of transmittal letter to the Service) are
attached as Annex C hereto. Stockholder understands that failure to make this
filing on a timely basis will result in the recognition of ordinary income by
Stockholder, as the Shares vest, or after the lapse of the six month Section
16(b) period, on the difference between the purchase price and the fair
market value of the Shares at the time such Shares vest.
STOCKHOLDER ACKNOWLEDGES THAT IT IS STOCKHOLDER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER INTERNAL REVENUE CODE
SECTION 83(b) AND UNDER ANY CORRESPONDING PROVISIONS OF STATE TAX LAW, EVEN
IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS
FILING ON STOCKHOLDER'S BEHALF.
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. SEVERABILITY; REFORMATION. If any provision of this Agreement
shall be determined by a court of law to be unenforceable for any reason,
such unenforceability shall not affect the enforceability of any of the
remaining provisions hereof; and this Agreement, to the fullest extent
lawful, shall be reformed and construed as if such unenforceable
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<PAGE>
provision, or part of a provision, had never been contained herein, and such
provision or part reformed so that it would be enforceable to the maximum
extent legally possible.
17. HEADINGS. Headings are for convenience only and are not deemed to be
part of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together, shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date and year first above written.
3DX TECHNOLOGIES INC.
By /s/ C. EUGENE ENNIS
-----------------------------------
President
STOCKHOLDER:
/s/ PETER M. DUNCAN
-------------------------------------
Peter M. Duncan
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STOCK PURCHASE AND RESTRICTION AGREEMENT
AGREEMENT, dated as of November 9, 1993, by and between 3DX TECHNOLOGIES
INC. (formerly Novera Energy Inc.), a Delaware corporation (the "Company"), and
Douglas C. Nester (the "Stockholder").
WHEREAS, the Company desires to sell and Stockholder desires to purchase
shares of the Company's common stock, $.01 par value (the "Common Stock"), on
the terms and conditions hereinafter set forth;
WHEREAS, the parties hereto deem it in their best interests to impose
certain restrictions upon such shares; and
WHEREAS, such parties desire to provide for certain other matters relating
to the Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, it is hereby agreed as follows:
1. PURCHASE AND SALE OF SHARES OF STOCK. Subject to the terms and
conditions of this Agreement, the Company hereby agrees to sell to Stockholder
and Stockholder agrees to purchase from the Company on the date hereof the
number of shares of Common Stock listed opposite Stockholder's name in SCHEDULE
1, at the purchase price per share listed in SCHEDULE 1 (the "Initial Purchase
Price"). (Such number of shares of Stockholder, and any shares of capital stock
of the Company acquired by Stockholder as a result of any subdivision,
combination or reclassification of outstanding shares of Common Stock into a
greater or smaller number of shares, recapitalization, reorganization,
reclassification of shares, stock dividend or like event (collectively,
"Recapitalization Events"), are hereinafter referred to as the "Shares".) The
purchase price shall be paid by cash or check.
2. INVESTMENT REPRESENTATIONS.
(a) REPRESENTATIONS OF STOCKHOLDER. Stockholder acknowledges that
the purchase of the Shares is a highly speculative investment. This
Agreement is made in reliance upon the express representations and warranties
of Stockholder that: (l) he is able, without impairing his financial
condition, to hold the Shares for an indefinite period of time and to suffer
a complete loss on his investment; (2) he has discussed the Company and its
plans, operations and financial condition with its officers and he has
received all such information as he deems necessary and appropriate to enable
him to evaluate the financial risk inherent in making an investment in the
Shares, and has received and had access to satisfactory and complete
information concerning the business and financial condition of the Company in
response to his inquiries in respect thereof; (3) the Shares are being
acquired for
<PAGE>
his own account for investment and not with a view to, or for sale in
connection with, the distribution thereof, nor with any present intention of
distributing or selling the Shares; (4) Stockholder either (A) has a
pre-existing business or personal relationship with the Company or any of its
officers, directors or controlling persons or (B) could be reasonably assumed
to have the capacity to evaluate the merits and risks of an investment in the
Company and to protect Stockholder's own interests in connection with this
transaction by reason of Stockholder's business or financial experience or
the business or financial experience of Stockholder's professional advisors
who are unaffiliated with and who are not compensated by the Company or any
affiliate or selling agent of the Company, directly or indirectly; (5)
Stockholder's principal residence is within the State of Texas and is located
at the address indicated on Schedule 1 hereto; and (6) the Shares will not be
sold without registration under the Securities Act of 1933, as amended (the
"Act"), or exemption therefrom.
Stockholder understands and acknowledges that the Shares
are unregistered and may not be sold publicly unless they are subsequently
registered under the Act, or unless an exemption from such registration is
available; that the exemption from registration under Rule 144 promulgated
under the Act will not be available in any event for at least two years from
the date of purchase and payment of the Shares, and even then will not be
available unless (i) a public trading market then exists for the Common Stock
of the Company, (ii) adequate current information concerning the Company is
then available to the public, and (iii) other terms and conditions of Rule
144 are complied with; and that any sale of the Shares may be made only in
limited amounts in accordance with such terms and conditions. Stockholder
further understands and acknowledges that: (i) there is not presently
available, and may not be available at the time he wishes to sell the Shares,
adequate current public information with respect to the Company that would
permit offers or sales of the Shares pursuant to Rule 144 promulgated under
the Act, and, therefore, compliance with Regulation A of the Act or some
other exemption from the registration and prospectus delivery requirements of
the Act will be required for any such offer or sale; and (ii) the Company is
under no obligation to register the Shares or to make Rule 144 available.
(b) SECURITIES LEGEND. Until such time as the Shares
shall have been registered under the Act, or shall have been transferred in
accordance with an opinion of counsel satisfactory to the Company that such
registration is not required, stop transfer instructions shall be issued to
the Company's transfer agent, if any, or, if the Company transfers its own
securities, a notation shall be made in the appropriate records of the
Company with respect to the Shares, and so long as required under the Act or
the regulations promulgated thereunder, the certificate(s) representing the
Shares shall bear substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES HAVE NOT BEEN
ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
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<PAGE>
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNDER APPLICABLE STATE
LAWS. MOREOVER, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER AND MAY NOT BE SOLD, EXCHANGED, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AND SUBJECT TO ALL THE TERMS AND CONDITIONS OF A CERTAIN STOCK PURCHASE
AND RESTRICTION AGREEMENT DATED AS OF NOVEMBER 9, 1993, A COPY OF WHICH
THE CORPORATION WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE UPON
REQUEST AND WITHOUT CHARGE.
3. RESTRICTIONS ON TRANSFER AND ESCROW.
(a) RESTRICTIONS ON TRANSFER. During the term of this Agreement,
Stockholder may not sell, assign, transfer, pledge, hypothecate, mortgage or
dispose of, by gift or otherwise, or in any way encumber all or any of the
Shares, except in accordance with the terms hereof. Any permitted transferee of
the Shares shall be subject to the terms of Section 2 without any further action
being required on the part of the Company or any other person. As a
precondition to such transfer, the Company, at its option, may require that such
transferee acknowledge in writing that such transferee is subject to the terms
of Section 2.
(b) ESCROW. Stockholder shall, simultaneously with the execution
hereof, deliver to and deposit with the Secretary of the Company (herein
referred to as the "Escrow Agent"), as Escrow Agent in this transaction, the
certificate(s) evidencing the Shares together with a stock transfer power
executed in blank; said documents are to be held by the Escrow Agent and
delivered by the Escrow Agent pursuant to the joint escrow instructions of the
Company and Stockholder set forth in Annex A annexed hereto and incorporated
herein by this reference. Subject to the provisions of Paragraph 3 of such
escrow instructions, Stockholder shall exercise all rights and privileges of a
stockholder of the Company while the Shares are held by him.
4. REPURCHASE UPON EMPLOYMENT TERMINATION.
(a) CIRCUMSTANCES AND PRICE OF REPURCHASE. If Stockholder shall
cease to be employed by the Company for any reason or no reason (including,
without limitation, for Stockholder's death or disability), the Company shall
have the right to purchase (the "Repurchase Right"), and Stockholder or his
heirs, assigns, executors, administrators or other legal representatives
(collectively, "Legal Representatives") shall, at the election of the Company,
be obligated to sell, all or any part of the Unvested Shares (as that term is
defined in Section 4(d)) at the Initial Purchase Price (as appropriately
adjusted for Recapitalization Events) and on the terms provided in Section 4(b).
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<PAGE>
(b) MECHANICS OF COMPANY'S REPURCHASE. The Company may exercise its
Repurchase Right at any time within 30 days after the termination of such
employment by written notice (the "Employment Repurchase Notice") to Stockholder
(or, if known, to his Legal Representatives) stating that it is exercising such
Right and specifying the number of Unvested Shares to be repurchased. In
addition, the Employment Repurchase Notice shall specify a closing date and time
for such repurchase, which date shall not be less than five (5) nor more than
thirty (30) days from the date of the Employment Repurchase Notice. Such
repurchase shall take place at the principal office of the Company. At the
closing, Stockholder (or his Legal Representatives) or the Escrow Agent shall
deliver to the Company the certificate(s) representing all of such Shares to be
repurchased, duly endorsed, against delivery by the Company of the purchase
price by check or in cash.
(c) RELEASE OF SHARES FROM REPURCHASE RIGHTS. (i) On the date of
this Agreement, that number of Shares as is equal to 100% of the total number
of Shares listed opposite Stockholder's name in Schedule (i) shall be subject
to the Company's Repurchase Right. Subject to Section 4(c)(ii) below, so
long as Stockholder continues to be employed by the Company (x) on January 1,
1994, one-fourth (1/4) of the total number of Shares shall automatically be
released from such Repurchase Right and (y) on January 1, 1995 (the
"Anniversary Date"), an additional one-fourth (1/4) of the total number of
Shares shall automatically be released from such Repurchase Right. Subject
to Section 4(c)(ii) below, after the Anniversary Date, one-forty eighth
(1/48) of the total number of Shares shall automatically be released from the
Repurchase Right on the last day of each month beginning one month after the
Anniversary Date and culminating twenty-four (24) months after the
Anniversary Date, unless Stockholder is no longer employed by the Company for
any reason, PROVIDED that in the event that after January 1, 1994, the
Company shall adopt a plan of merger, consolidation or other business
combination (other than one pursuant to which the Company is the surviving
entity), or adopt a plan or enter into an agreement providing for the sale or
disposition of substantially all of the business or assets of the Company,
the total number of Shares subject to the Company's Repurchase Right shall
automatically be released from such Rights concurrently with the consummation
of such merger, consolidation or sale.
(ii) Notwithstanding anything to the contrary contained in
Section 4(c)(i), upon the occurrence and during the continuance of an Event
of Noncompliance (as defined in Article Fourth, Section B.4(b) of the
Company's Restated Certificate of Incorporation), as evidenced by a written
notice from holders of 66-2/3% in interest of the Company's Redeemable
Preferred Stock, Series B, par value $.01 per share, specifying in detail the
applicable Event of Noncompliance, the release of Unvested Shares (as defined
in Section 4(d) hereof) from the Company's Repurchase Right shall be
suspended until the date upon which the Board of Directors determines, by
affirmative vote or consent of 66-2/3% of its members, that the Event of
Non-Compliance has been cured, on which date the release of such Unvested
Shares from the Company's Repurchase Right shall resume.
(iii) The number of Shares so released under such vesting
schedule shall be appropriately adjusted for Recapitalization Events.
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(d) VESTED AND UNVESTED SHARES. Shares that have been released from
the Company's Repurchase Right are referred to herein as "Vested Shares". Any
Shares that remain subject to the Company's Repurchase Right at any point in
time are referred to herein as "Unvested Shares". Unvested Shares shall not be
transferable. Any Shares with respect to which the Company fails to exercise
its Repurchase Right shall become Vested Shares upon the expiration of such
rights.
5. REFUSAL RIGHTS.
(a) COMPANY'S RIGHT OF FIRST REFUSAL. If Stockholder desires to sell
all or any part of the Vested Shares and he has received in writing an
irrevocable and unconditional bona fide offer (the "Bona Fide Offer") for the
purchase thereof in cash from a party (the "Offeror"), Stockholder shall give
written notice (the "BFO Option Notice") to the Company setting forth
Stockholder's desire to sell such Shares, which BFO Option Notice shall be
accompanied by a photocopy of the original executed Bona Fide Offer and shall
set forth at least the name and address of the Offeror and the price and terms
of the Bona Fide Offer. Upon receipt of the BFO Option Notice, the Company
shall have an option to purchase any or all of such Shares specified in the BFO
Option Notice, such option to be exercised by giving, within 30 days after
receipt of the BFO Option Notice, a written counter-notice to Stockholder. If
the Company elects to purchase any or all of such Shares, it shall be obligated
to purchase, and Stockholder shall be obligated to sell to the Company, such
Shares at the price and in accordance with the terms indicated in the Bona Fide
Offer within 60 days from the date of receipt by the Company of the BFO Option
Notice (the "Company Exclusive Period").
(b) SUBSEQUENT SALE OF SHARES. Stockholder may sell any or all of
such Shares that the Company has not so elected to purchase during the 30 days
following the expiration of the exercise period for such purchase by the
Company, provided that such sale is made only pursuant to the terms of the Bona
Fide Offer. If, however, any or all such Shares are not sold pursuant to the
Bona Fide Offer within such 30 days, the unsold Shares shall remain subject to
the terms of this Agreement.
(c) RESTRICTIONS ON OFFEROR. Any Offeror purchasing Shares from
Stockholder under Section 5(b) shall not be subject to the terms of this
Agreement other than Section 2 as to such Shares; PROVIDED, HOWEVER, that such
Offeror shall be subject to the terms of Section 2 without any further action
being required on the part of the Company or any other person. As a
precondition to such purchase, the Company, at its option, may require that such
Offeror acknowledge in writing that such Offeror is subject to the terms of
Section 2.
6. EXEMPTED SHARE TRANSFERS. Anything in this Agreement to the contrary
notwithstanding, Stockholder shall be permitted to transfer Vested Shares owned
by him without complying with the provisions of Section 5 in the following
situations: (i) any inter vivos transfer by Stockholder to any member of his
immediate family (spouse, parents, children or grandchildren); (ii) to any trust
for the benefit of any such immediate family
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<PAGE>
member or himself; or (iii) any transfer upon the death of Stockholder to his
Legal Representatives; PROVIDED that any permitted transferee referred to
above shall have delivered to the Company the written agreement of such
transferee to be bound by all of the provisions of this Agreement to the same
extent as his transferor, and until such delivery is made no such transferee
shall, with respect to the Shares being transferred, be a stockholder and the
Company shall not recognize any such transferee as a stockholder for any
purpose. It is understood and agreed that, in the event of a permitted
transfer of Shares pursuant to this Section 6, the calculation of Vested
Shares under Sections 4(c) and (d) shall nonetheless continue to depend upon
the continued employment by the Company of Stockholder named on page 1 hereof.
7. SPECIFIC PERFORMANCE. Because the Shares cannot be readily purchased
or sold in the open market, and for other reasons deemed sufficient by them, the
parties hereto acknowledge that they will be irreparably damaged in the event
that this Agreement is not specifically enforced. Upon a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by either of
the parties hereto, the other, in addition to all other remedies, shall be
entitled, without showing any actual damage, to a temporary or permanent
injunction and/or a decree for specific performance, in accordance with the
provisions hereof.
8. CONTINUATION OF EMPLOYMENT. The Company is not by reason of this
Agreement or the issuance of any Shares obligated to continue Stockholder in its
employment.
9. GOVERNING LAW. This Agreement shall be construed under and governed by
the internal laws of the State of Texas, without regard to principles of
conflicts of law, and will, to the maximum extent practicable, be deemed to call
for performance in Harris County, Texas.
10. NOTICE. All notices or other communications required or otherwise
with respect to this Agreement shall be deemed to have been duly given and
delivered if in writing (i) when delivered personally (by courier service or
otherwise), (ii) on the business day after the date sent by a nationally
recognized overnight courier service, or (iii) three (3) days after being mailed
by first-class registered or certified mail, postage prepaid and return receipt
requested, if to the Company at its office at 16001 Park Ten Place, Suite 200,
Houston, Texas 77084-5120, or if to Stockholder at his address set forth in
Schedule A (or at such other addresses as the parties may notify each other in
accordance with the provisions of this Section 10).
11. TERM. This Agreement shall remain in effect until the consummation of
a firm underwriting for sale of stock to the public by the Company at a public
offering price not less than $5.00 per share, adjusted for any splits, with
gross proceeds of that public offering to the Company not less than $5,000,000.
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12. ENTIRE AGREEMENT; AMENDMENT. This Agreement supersedes all prior
written and oral agreements and understandings among the parties as to its
subject matter and constitutes the entire agreement of the parties with respect
to the subject matter hereof. This Agreement may not be modified, amended,
terminated or any provision thereof waived in whole or in part except by a
written agreement signed by the Company and Stockholder.
13. VALUATION OF COMMON STOCK AND RELATED TAX CONSIDERATIONS. Stockholder
understands that the Shares have been valued by Stockholder and the board of
directors of the Company and that the Company believes this valuation represents
a fair attempt at reaching an accurate appraisal of their worth; Stockholder
understands, however, that the Company can give no assurances that such price is
in fact the fair market value of the Shares and that it is possible that, with
the benefit of hindsight, the Internal Revenue Service (the "Service") would
successfully assert that the value of the Shares on the date of purchase is
greater than so determined.
If the Service were to succeed in a tax determination that the Shares
received had value greater than that upon which the transaction was based, the
additional value would constitute ordinary income as of the date of its receipt.
The additional taxes (and interest) and any related costs, expenses or penalties
due would be payable by Stockholder and there is no provision for the Company to
reimburse him for that tax liability, and Stockholder assumes all responsibility
for such potential liability and related costs. In the event such additional
value would represent more than 25 percent of Stockholder's gross income for the
year in which the value of the Shares were taxable, the Service would have six
years from the due date for filing the return (or the actual filing date of the
return if filed thereafter) within which to assess Stockholder the additional
tax and interest that would then be due.
The Company would have the benefit, in any such transaction, if a
determination was made prior to the three-year statute of limitations period
affecting the Company, of an increase in its deduction for compensation paid,
which would offset its operating profits, or, if not profitable, would create
net operating loss carry forward arising from operations in that year.
14. SECTION 83(b) ELECTION. Stockholder understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
Shares as provided in Section 4. In the event the Company has registered its
securities under the Securities Exchange Act of 1934, as amended, "restriction"
with respect to officers, directors and 10% shareholders also means the
six-month period after the closing during which such officers, directors and 10%
shareholders are subject to suit under Section 16(b) of such Exchange Act.
Stockholder understands that if Code Section 83 is applicable to him, he
may elect to be taxed at the time the Shares are purchased rather than when and
as the Shares vest or when the six-month Section 16(b) period expires by filing
with the Service an election
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<PAGE>
under Section 83(b) of the Code (hereinafter the "Election"). Stockholder
understands that he must file such an Election within thirty (30) days from
the date of purchase. Even if the fair market value of the Shares equals the
amount paid for the Shares, the Election must be made to avoid adverse tax
consequences in the future, I.E. the obligation to report as income the
difference between the value of the Shares at the time such Shares vest and
the amount paid. The form for making this election (and related form of
transmittal letter to the Service) are attached as Annex B hereto.
Stockholder understands that failure to make this filing on a timely basis
will result in the recognition of ordinary income by Stockholder, as the
Shares vest, or after the lapse of the six month Section 16(b) period, on the
difference between the purchase price and the fair market value of the Shares
at the time such Shares vest.
STOCKHOLDER ACKNOWLEDGES THAT IT IS STOCKHOLDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER INTERNAL REVENUE CODE
SECTION 83(B) AND UNDER ANY CORRESPONDING PROVISIONS OF STATE TAX LAW, EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
STOCKHOLDER'S BEHALF.
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. SEVERABILITY; REFORMATION. If any provision of this Agreement shall
be determined by a court of law to be unenforceable for any reason, such
unenforceability shall not affect the enforceability of any of the remaining
provisions hereof; and this Agreement, to the fullest extent lawful, shall be
reformed and construed as if such unenforceable provision, or part of a
provision, had never been contained herein, and such provision or part reformed
so that it would be enforceable to the maximum extent legally possible.
17. HEADINGS. Headings are for convenience only and are not deemed to be
part of this Agreement.
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<PAGE>
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together, shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date and year first above written.
3DX TECHNOLOGIES INC.
By /s/ C. EUGENE ENNIS
---------------------------------
President
STOCKHOLDER:
/s/ DOUGLAS C. NESTER
-----------------------------------
Douglas C. Nester
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L E A S E C O N T R A C T
This Lease Agreement is made and entered into this 22 day of January 1995, by
and between The Penn Mutual Life Insurance Company (hereinafter called
"Lessor"), and 3DX Technologies, Inc., a Texas corporation (hereinafter
called "Lessee"),
W I T N E S S E T H:
In consideration of the mutual covenants as set forth herein, Lessor and
Lessee hereby agree as follows:
1. LEASED PREMISES
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
approximately 8,603 square feet of Net Rentable Area ("NRA") on floor
two (2), Suite 250 in the building known as Penn Woodbranch
(hereinafter called "Building"), located at 12012 Wickchester, Houston,
Harris County, Texas. The legal description of said property is
contained in the attached Exhibit "A". The area hereby leased
(hereinafter called "Leased Premises") in the Building is shown
outlined and hatched on the floor plan (s) attached hereto and made a
part hereof as Exhibit "B". Lessor shall have the right at any time and
from time to time to change the name of the Building.
2. NET RENTABLE AREA ("NRA")
The NRA contained in the Leased Premises and the Building have been
determined in accordance with Exhibit "C" hereto. The total NRA in the
Building is hereby stipulated for all purposes hereof to be
approximately 109,950 square feet, whether the same should be more or
less as a result of minor variations resulting from actual construction
and completion of the Building. The NRA of the Leased Premises
represents 7.82% of the total NRA within the Building such percentage
is hereafter referred to as "Tenant's Building Percentage".
3. PARKING
Tenant shall at all times during the Lease Term, lease parking rights
for twenty-six (26) cars pursuant to the terms and conditions described
in Exhibit "D" attached hereto.
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4. LEASE TERM
A. Subject to all and upon the conditions as set forth herein, or any
addenda or exhibits hereto, this Lease shall continue in force for
a term of five (5) years (sixty (60) months) commencing on the 1st
day of March, 1995 and shall terminate on the 29th day of February,
2000.
B. In the event the Leased Premises should not be ready for occupancy
by the Commencement Date stated in Section 4A above, Lessor shall
not be liable for any claims, damages or liabilities in connection
therewith or by reason thereof, and the term of this Lease shall
commence at the time that the Leased Premises are ready for
occupancy by Lessee. Should the term of this Lease commence on a
date other than that specified in Section 4A above for any reason,
Lessor and Lessee will at the request of either, execute a
declaration specifying the beginning date of the term of this Lease
Agreement. In such event, rental under this Lease Agreement shall
not commence until said revised Commencement Date, and the stated
term in this Lease Agreement shall thereupon commence and the
expiration date shall be extended so as to give effect to the full
stated term.
5. USE
A. The Premises are to be used and occupied by the Lessee for the
purpose of general office use only and for no other purposes.
B. Lessee agrees not to commit or suffer to be committed on the
Leased Premises any nuisance or other act or thing against public
policy or which violates any law or governmental regulation or
which is disreputable or which may disturb the quiet enjoyment of
any other tenant of the Building of which the Leased Premises are
a part.
C. Lessee will not use, occupy, or permit the use or occupancy of
these Leased Premises for any unlawful, disreputable, immoral or
hazardous purpose; or maintain or permit the maintenance of any
public or private nuisance; or do or permit any act or thing which
may disturb the quiet enjoyment of any other tenant of the
Building; or keep any substance or carry on or permit any
operation which might emit offensive odors into other portions of
the Building or permit anything to be done which would increase
the fire insurance rate of the Building or contents.
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6. BASE RENTAL OVER THE PRIMARY TERM HEREOF
A. Lessee hereby agrees to pay without demand, deduction,
abatement or setoff except as specifically provided for herein a
base annual rental ("Base Annual Rental") equal to $11.00
multiplied by the Net Rentable Area (8,603 NRA) encompassed by the
Leased Premises. The Lessee shall also pay, as additional rent
(hereinafter called "Additional Rent"), all such other sums of
money as shall become due from and payable by Lessee to Lessor
under this Lease. The Lessor shall have the same remedies for
default for the payment of Additional Rent as are available to
Lessor in the case of a default in the payment of Base Rental.
Subject to the provisions of this Lease regarding the prepayment
of Base Rental and other amounts, such Base Rental, together with
any adjustment of rent provided for herein then in effect, shall
be due and payable on the first day of each calendar month during
the term of this Lease and Lessee hereby agrees to so pay such rent to
Lessor at Lessor's address as provided herein (or such other
address as may be designated by Lessor from time to time) monthly in
advance without demand. If the term of this Lease Agreement as
heretofore established commences on other than the first day of a
month, then the installments of Base Rental for such month or
months shall be prorated and the installment or installments so
prorated shall be paid in advance. All past due installments of
rent shall bear interest at the maximum lawful rate per annum
until paid.
7. BASE RENTAL ESCALATION.
A. In the event that the Operating Cost (as hereinafter defined) of
Lessor's operation of the Building during any Lease Year of the
Lease Term shall exceed the total Operating Cost of the Building
for the calendar year 1995 on a per square foot of Net Rentable
Area basis, grossed up to reflect ninety-five percent (95%)
Building occupancy, Lessee shall pay to Lessor, as Additional
Rent, its proportionate share of the increase in such Operating
Cost. The proportionate share of such increase to be paid by
Lessee shall be determined by multiplying the amount of such
increase by Tenant's Building Percentage. Said Additional Rent
shall be paid in the manner and at the times set forth in Section
8 below. The term "Lease Year" shall mean the twelve month period
commencing January 1 and ending December 31.
B. "Operating Cost", as said term is used herein, shall be defined as
the operating expenses of the Building, which shall be computed on
the accrual basis and shall consist of all expenditures by Lessor
to maintain all facilities in operation during each Lease Year and
such additional facilities in subsequent years as may be
determined by Lessor to be necessary. All operating expenses shall
be determined in accordance with generally accepted accounting
principles, which shall be consistently applied. The term
"operating expenses"
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as used herein shall mean all expenses, costs and
disbursements (but not replacement of capital investment items
except those made for the purposes of reducing operating expenses,
nor Lessor's home office expense, nor specific costs specially
billed to and paid, or payable by specific tenants nor rental
commissions) of every kind and nature which Lessor shall pay or
become obligated to pay because of or in connection with the
ownership and operation of the Building, including, but not
limited to, the following:
(1) Wages and salaries of all employees actually engaged in
operation and maintenance of the Building, including taxes,
insurance and benefits relating thereto.
(2) all supplies and materials used in operation and maintenance
of the Building.
(3) Cost of all utilities including electric, gas, water,
heating, lighting, air conditioning and ventilating the
Building.
(4) Cost of all maintenance and service agreements for the
Building and the therein equipment, including security
service, window cleaning, elevator maintenance and janitorial
service.
(5) Cost of casualty and liability insurance applicable to the
Building and Lessor's personal property used in connection
therewith.
(6) All taxes and assessments and governmental charges whether
Federal, State, County or Municipal, and whether they be by
taxing districts or authorities presently taxing the Leased
Premises or by others, subsequently created or otherwise, and
any other taxes and assessments attributable to the Building
or their operation excluding, however, Federal and State
taxes on income.
It is agreed that Lessee will be responsible for ad valorem
taxes on its personal property and on the value of all
special leasehold improvements to the Leased Premises to the
extent same are separately assessed. If any such taxes on
leasehold improvements are paid by Lessor, Lessee will
reimburse Lessor therefor upon receipt of a bill from Lessor,
together with a reasonable supporting statement setting forth
Lessor's calculation of the amount of such taxes chargeable
to Lessee's Leasehold Improvements.
(7) Cost of repairs and general maintenance undertaken by Lessor
in its sole discretion on or of the Building (excluding only
repairs and general structural maintenance, foundation and
exterior walls of the Building, repairs and general
maintenance paid by
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proceeds of insurance or by Lessee or other third parties,
and alterations attributable solely to tenants of the
Building other than Lessee).
(8) Cost of capital expenditures made for the specific purpose of
installing equipment, devices, or materials intended to reduce
operating expense of the Building or required by any
governmental authority as a result of any legislation,
ordinance, regulation or building code enacted after the
effective date of this Lease Agreement. Such costs will be
amortized over the reasonable useful life of such equipment,
giving effect to its salvage value, on a straight-line basis
together with interest at the rate of ten percent (10%) per
annum on the unamortized balance. The annual amortization
plus interest shall not exceed an amount determined by (i)
calculating the operating expense as if no such capital
expenditure has been made, and (ii) subtracting therefrom the
actual cost of building operation of the Lease Year in
question.
(9) The Management Fee incurred by Lessor for the Manager of the
Building calculated as a percent of base Rental plus
Additional Rental. Said Management Fee shall be comparable to
other comparable buildings in Houston, Texas.
If any of the factors included in "Operating Cost" are not
payable, billed or otherwise due so as to allow an accurate
calculation of said factors annually (e.g., ad valorem taxes
and long-term contracts), then Lessor, in its sole
discretion, may estimate and prorate said factors on an
annual basis, and said factors shall be properly adjusted by
Lessor when they actually become due and payable.
Notwithstanding anything to the contrary in Section 7.A.B. above, the
following items shall be excluded from the Building Operating Cost in
Lessor's operation of the Building and garage:
(1) Repairs or other work occasioned by fire, windstorm or other
casualty of an insurable nature, excluding deductible, or by
the exercise of the right of eminent domain, to the extent
covered by insurance;
(2) Leasing commission, attorney's fees, costs and disbursement
and other expenses incurred in connection with negotiations
or disputes with tenants/Lessee, other occupants, or
prospective tenants of other occupants, or purchasers or
mortgagees of the Building;
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(3) Expenses incurred in renovating or otherwise improving or
decorating, painting, or redecorating space for
tenants/Lessee or other occupants or vacant space, excluding
Building common areas;
(4) Lessor's costs of electricity and other services sold to
tenants/Lessee and for which Lessor is entitled to be
reimbursed by tenants/Lessee as an additional charge or
rental over and above the basic rent payable under the lease
with such tenant/Lessee;
(5) Except as otherwise provided herein, depreciation and
amortization;
(6) Expenses in connection with services or other benefits of
a type which are not provided Lessee but which are provided
to another tenant or occupant;
(7) Costs incurred due to violation by Lessor or any tenant or
other occupant of the terms and conditions of any lease;
(8) Overhead and profit increment paid to subsidiaries or
affiliates of Lessor for services on or to the real
property, to the extent only that the costs of services
exceed competitive costs of such services were they not so
rendered by a subsidiary or affiliate;
(9) Interest on debt or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying leases
or lease;
(10) Lessor's general partnership overhead, specifically
excluding salaries directly associated with managing the
Building, and Management Fees;
(11) Any compensation paid to clerks, attendants, or other
persons in commercial concessions operated by Lessor;
(12) Advertising and promotional expenditures;
(13) Any costs, fines or penalties incurred due to violations by
Lessor of any governmental rule or authority;
(14) Costs incurred in connection with the sale, refinancing,
mortgaging or selling or change of ownership of the
Building, including brokerage commissions, attorneys' and
accountants' fees, closing costs and interest charges;
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(15) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to the late payments of taxes,
utilities, bills and other costs incurred by Lessor's failure
to make such payments when due;
(16) Costs or expenses for owning, leasing and/or maintaining
sculpture, painting or other works of art (but excluding lobby
plants which are leased) installed in and on the Building or
the land;
(17) State, local or federal personal or corporate income taxes
measured by the income of Lessor from all sources or from
sources other than rent alone, estate and inheritance taxes,
franchise, succession and transfer taxes and interest on taxes
and penalties resulting from failure to pay real estate taxes.
Further, the amount of tax expenses paid by Lessee and
attributable to tenant improvements, or tax expenses in
connection with other alterations, additions, substitutions,
and improvements done by or for the tenants in the Building
which is separately assessed to and paid by such other tenants
or directly received by Lessor from such other tenants, shall
be excluded from Operating Costs;
(18) Expenses and costs relating in any way whatsoever to the control,
encapsulation, removal, replacement, repair and abatement of
any hazardous materials within the Building, Leased Premises
and the land;
(19) Costs with respect to Lessor's central office, if any, or its
operations conducted, or employees engaged, therein, except
costs that directly relate to or are otherwise allocable to
the land, the Building, or any portion thereof;
(20) The costs of correcting defects in the construction of the
Building or in the Building equipment, except that conditions
(not occasioned by construction defects) resulting from
ordinary wear and tear will not be deemed defects for the
purpose of this category;
(21) The cost incurred by Lessor or any other tenant of complying with
building codes, any other governmental rule or requirement;
however, the cost of complying with any building code or any
other governmental rule or requirements enacted after this
Lease is signed shall be borne by Lessee only in proportion to
Lessee's Premises' share of the total Building; in no instance
will Lessee pay any fines or penalties incurred by Lessor for
failure to comply with such codes, rules or regulations unless
code violations were committed by Lessee.
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8. MONTHLY PAYMENT OF ESCALATION
A. Lessor shall have the right to estimate and collect monthly in
advance from Lessee the escalations of Operating Cost owned or to
be owned by Lessee under Section 7, said monthly payments (the
"Monthly Escalation Payments") to be in such amounts as are
estimated in good faith by Lessor in its sole discretion. The
Monthly Escalation Payments shall be due and payable at the same
time as the Base Rental is due and payable under Section 6.
B. Lessor shall, within the period of one hundred twenty (120)
days after the close of any Lease Year for which Additional Rent
may be due under the provisions of Section 7, give written notice
thereof to Lessee, which notice shall also contain or be
accompanied by a statement of the actual Operating Cost of Lessor's
operation of the Building during the preceding Lease Year and by a
computation of such Additional Rent. Failure of Lessor to give
Lessee said notice within said time period shall not be a waiver of
Lessor's right to collect said additional rent. When the Lessor
presents Lessee with the statements of amounts due by Lessee for
any escalation set out in Section 7, Lessee shall pay Lessor the
difference between its proportionate share of said escalation and
the amount of Monthly Escalation Payments actually made by Lessee
during the preceding Lease Year, attributable to said escalation;
or Lessee shall receive a credit therefore if Lessee's proportionate
share is less than the amount of Monthly Escalation Payments
actually collected by Lessor during the preceding Lease Year, said
credit to be applied to the next accruing installments of Base
Rental and Additional Rent.
C. Notwithstanding any other provision herein to the contrary, it
is agreed that in the event the Building is not fully occupied
during the initial Lease Year or any subsequent Lease Year, an
adjustment shall be made in computing the operating expenses for
the Operating Cost for such period so that the cost of all
utilities including electricity, gas, water, heating, lighting, air
conditioning and ventilating the Building and the cost of
furnishing the janitorial service to the Building shall be computed
for such period as though the Building had been 95% occupied during
such period.
D. Lessee shall have the right to audit Lessor's books and records
for the previous Lease Year relating to this Lease for which
Additional Rental Payments described in this Section 8 become due.
In the event that Lessee desires to conduct an audit of the
Operating Cost, Lessor agrees to make its books and records
regarding Operating Cost available to Lessee's auditors during
business hours and to cooperate with such auditors. In the event
the results of such audit correctly reflect that Operating Cost
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for the calendar year 1995 (as adjusted for ninety-five percent (95%)
occupancy) were understated by six percent (6%) or more, or that
Operating Costs for any other such previous Lease Year relating to
this Lease for which Additional Rental Payments described in this
Section 8 became due were overstated by six percent (6%) or more,
then Lessor shall pay for the costs of such audit. Any
discrepancies revealed by any such audit shall be adjusted between
Lessor and Lessee within thirty (30) days after the completion of
such audit and the submission of the report.
9. PREPAID RENT AND SECURITY DEPOSIT
On the execution of this Lease Agreement by Lessee, Lessee shall be
required to pay Lessor the sum of $141,949.44 (hereinafter referred to
as "Prepaid Rent"), which sum shall be applied against the initial
eighteen (18) month's Base Rental due hereunder. Lessee hereby agrees
that said Prepaid Rent shall be paid as an inducement for Lessor to
enter into this Lease Agreement with Lessee. The total amount of Prepaid
Rent in addition to the Prepaid Additional Construction Allowance
described in Exhibit "F" Section 2. of this Lease Agreement is
equivalent to the majority of Lessor's up front lease cost Lessor has
incurred in conjunction with this Lease Agreement. In the event Lessee
should default in, or fail to timely perform any of its obligations
contained in this Lease Agreement, or breach any of the terms,
covenants, conditions or agreements herein contained prior to the
expiration of the eighteenth (18th) month of the Lease Term, Lessee
hereby agrees that the then unearned portion of said Prepaid Rent and
Prepaid Additional Construction Allowance shall be retained by Lessor as
a credit against any claims for damages Lessor may have against Lessee
as described in Section 25. of this Lease Agreement. In addition, Lessee
shall deposit, on the date hereof, the sum of $7,886.08 (the "Security
Deposit") as security for Lessee's faithful performance of Lessee's
obligations herein contained. If Lessee defaults in any manner
(including the payment of any rents or other sums due hereunder) in the
performance of Lessee's obligations herein contained, Lessor may use,
apply or retain all or any portion of the Security Deposit for the
payment of any rent or other sum in default or for the payment of any
other sum or expense to which Lessee may become obligated by reason of
such default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. Lessor and Lessee agree that the Security
Deposit shall not be an advance payment of rent or other sums due
hereunder, or a measure of Lessor's damages in case of Lessee's default.
If Lessor shall use or apply any or all of the Security Deposit as
herein provided, Lessee shall, on demand, deposit with Lessor the amount
of the Security Deposit so used or applied by Lessor so that Lessor
shall have the full Security Deposit on hand during the entire term of
this Lease. Lessor shall not be required to separately account for the
Security Deposit nor to maintain an escrow or separate account therefor.
If Lessee performs all of Lessee's obligations hereunder, the Security
Deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other
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increment for its use, to Lessee (or, at Lessee's option, the last
assignee, if any, of Lessee's interest hereunder) within sixty (60) days
of the expiration of the term hereto, and after Lessee has vacated the
Leased Premises. Lessor's right to so apply the Security Deposit shall in
no manner limit, impair or otherwise affect any of Lessor's remedies set
forth herein.
10. SERVICE TO BE PROVIDED BY LANDLORD
A. Subject to the rules and regulations hereinafter referred to, Lessor
shall furnish Lessee, at Lessor's expense, the following services
during the Lease Term:
(1) Air conditioning and heating, at such temperatures and in such
amounts as are reasonably considered to be standard for buildings
which are comparable to and similarly located in the Katy Freeway
submarket with the Building from 7:00 A.M. to 6:00 P.M. Monday
through Friday, and from 7:00 A.M. to 12:00 noon on Saturday, but
not on Saturday afternoons, Sundays and holidays (meaning New
Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day). Overtime service for same
shall be furnished only upon the request of Lessee, who shall bear
the cost thereof at the standard hourly rate as computed by Lessor
and charged to other tenants in the Building, said standard hourly
rate currently being $26.00 per hour per floor.
(2) Janitor service in and about the Building and the Leased Premises,
five days per week in accordance with the specifications as listed
in Exhibit "H".
(3) Proper facilities to furnish sufficient electrical power for
building standard lighting, typewriters, dictating equipment,
calculating machines, personal computers, printers, copiers and
other machines of similar low electrical consumption, but not
including electricity required for electronic data processing
equipment, special lighting in excess of building standard, or any
other item of electrical equipment which singly consumes more than
0.5 kilowatts per hour at rated capacity or requires a voltage
other than 120 volts single phase. Lessee shall pay to Lessor
monthly as billed, such charges as may be separately metered or as
Lessor's engineer may compute for any electrical service in excess
of that stated above.
(4) Water for drinking, lavatory, and toilet purposes.
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(5) Replacement of ballasts and fluorescent lamps in building standard
ceiling-mounted fixtures installed by Lessor and incandescent
bulb replacement in all public areas of the Building.
B. No interruption or malfunction of any such services shall constitute an
eviction or disturbance of Lessee's use and possession of the Leased
Premises or Building or a breach by Lessor of any of its obligations
hereunder or render Lessor liable for damages or entitle Lessee to be
relieved from any or its obligation hereunder (including the obligation
to pay rent) or grant Lessee any right of setoff or recoupment. In the
event of any such interruption, however, Lessor shall use reasonable
diligence to restore such service.
Notwithstanding anything to the contrary in Section 10.B. above, Lessor
and Lessee agree that there are certain Building services without which
Lessee can not occupy the Leased Premises for the purposes for which it
was originally leased. These services are heating, ventilation, air
conditioning, electrical service, elevator service, water and plumbing
services. Should Lessor fail to provide any one or more of these
services for a continued period of five (5) working days or longer,
then, to the extent that Lessor's failure to provide these services
causes Lessee to be unable to use the Leased Premises for the purpose
for which it was originally leased, rent shall abate (which abatement
shall relate back to the first day on which such services were
interrupted) proportionately to the extent that Lessee is not in
occupancy until such service or services are restored. After a period
of thirty (30) days during which Lessor has failed on a continual basis
to provide any one or more of these services, or has failed to commence
to repair or reinstall these services with due diligence, and such
repair or reinstallation efforts have not been maintained with
continuity, then Lessee, at its option, may cancel this Lease Agreement
upon written notice to Lessor.
C. Lessor shall provide security service for the Building during the
weekends and after normal working hours during the week; however,
Lessor shall have no responsibility to prevent, nor have liability to
Lessee for losses due to theft or burglary or damages done by persons
gaining access to the Leased Premises or the Building.
D. Lessor shall furnish Lessee, free of charge, with two keys for each
corridor door entering the Leased Premises, and additional keys will
be furnished at a charge by Lessor equal to its cost plus 15% on an
order signed by Lessee or Lessee's authorized representative. All such
keys shall remain the property of Lessor. No additional locks shall be
allowed on any door of Leased Premises, and Lessee shall not make or
permit to be made any duplicate keys except those furnished by Lessor.
Upon termination of
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this Lease, Lessee shall surrender to Lessor all key of the Leased
Premises and give to Lessor the explanation of the combination of all
locks for safes, safe cabinets and vault doors, if any, in the Leased
Premises.
E. To provide and install, at Lessor's cost, all identification on the
entry door to the Leased Premises, as set forth in the Work Letter
Agreement (hereinafter defined). All such letters and numerals shall
be in the Building's Standard graphics. Only Building Standard graphics
may be used in any public area or openings on to public areas.
F. Lessor agrees to furnish, at Lessor's cost, a Lobby Directory Board
Strip identifying Lessee on the Lobby Directory Board. The cost of any
changes or additions will be charged to Lessee.
11. IMPROVEMENTS TO BE MADE BY LESSOR
A. In preparing the Leased Premises for occupancy by Lessee, Lessor shall
be required to bear the expense of installing the items (said items
being considered as Building Standard items) listed on the certain Work
Letter Agreement (the "Work Letter" attached hereto as Exhibit "F") by
and between Lessor and Lessee relating to the Leased Premises, only to
the extent that they so not exceed the respective allowances indicated
in the Work Letter.
B. Lessor will endeavor to comply with the mutually determined Lessee
improvement schedule set forth in the Work Letter. After receipt of
approved price estimate and construction drawings, Lessor will
partition and prepare said Leased Premises in accordance therewith;
however, Lessor shall not be required to install any partitions or
improvements which are not in conformity with the plans and
specifications for the Building or which are not approved by Lessor or
Lessor's Architect, and Lessor shall be required to bear the expenses
of installing the items in the Work Letter only to the extent that they
do not exceed the respective allowances indicated in the Work Letter.
Lessor hereby warrants that all improvements made to the Leased
Premises shall be free from material defects in workmanship for a
period of one (1) year after the Commencement Date.
12. REPAIR AND MAINTENANCE
A. Lessor will, at its own cost and expense, except as may be provided
elsewhere herein, make necessary repairs of damage to the building
corridors, lobby, structural members of the Building and equipment used
to provide the services referred to in Section 10
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above, unless any such damage is caused by acts of or omissions of
Lessee, its agents, customers, employees or invitees, in which
event Lessee will bear the cost of such repair. Lessee will
promptly give Lessor written notice of any damage in the Leased
Premises requiring repair by Lessor, as aforesaid.
B. Lessee will not damage the Leased Premises or the Building and
will maintain the Leased Premises in a clean, attractive condition
and in good repair, except as to damage to be repaired by Lessor,
as provided above. Upon termination of this Lease, Lessee will
surrender and deliver up the Leased Premises in good order and
repair, excepting ordinary wear and tear.
13. FIRE OR OTHER CASUALTY
A. The parties hereto mutually agree that if at any time
during the Lease Term if fifty percent (50%) or more of the Leased
Premises or of the Building are destroyed or totally destroyed by
fire or other casualty covered by the fire and extended coverage
insurance to be carried by Lessor under the terms hereof, then
Lessor may, at its option, upon thirty (30) days written notice to
Lessee, repair and restore the Leased Premises and Building as
soon as it is reasonably practicable, to substantially the same
condition in which the Leased Premises and the Building were
before such damage, or it may terminate the Lease; provided,
however, that in the event the Leased Premises are completely
destroyed or so badly damaged that repairs cannot be commenced
within sixty (60) days and completed within six (6) months
thereafter, then this Lease shall be terminable as of the date of
the occurrence of the damage or destruction by either party hereto
serving written notice upon the other, and provided further, that
in any event repairs have not been commenced within sixty (60)
days from the date of said damage and thereafter completed within
a reasonable time, in no case to exceed six (6) months, this Lease
may be immediately terminated by Lessee as of the date of
occurrence of the damage or destruction by serving notice upon the
Lessor.
B. In the event the Leased Premises are completely destroyed or so
damaged by fire or other casualty covered by the fire and extended
coverage insurance to be carried by Lessor under the terms hereof
that it cannot reasonably be used by Lessee for the purposes
herein provided and this Lease is not terminated as above provided,
then there shall be a total abatement of rent until the Leased
Premises are made usable. In the event the Leased Premises are
partially destroyed or damaged by fire or other hazard so that the
Leased Premises can be only partially used by Lessee for the
purposes herein provided, then there shall be a partial abatement
in the rent corresponding to the time and extent to which the
Leased Premises cannot be used by Lessee.
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C. If the Leased Premises shall be damaged by fire or other casualty
resulting from the fault or negligence of Lessee, or the agents,
employees, licensees, or invitees of Lessee, then such damage
shall be repaired by and at the expense of Lessee, under the
direction and supervision of Lessor, and rent shall continue
without abatement subject to the provisions of Section 30.
14. COMPLIANCE WITH LAWS
Lessee will comply with all Federal, State, Municipal and other laws,
ordinances, local restrictive covenants and rules and regulations
applicable to the Leased Premises and the business conducted therein
by Lessee.
Lessor represents that as of the Commencement Date the Building,
excluding all Leased Premises, will be in compliance with all
applicable governmental requirements whose compliance is required as of
the date thereof including, without limitation, the City of Houston
Life Safety Code, the Americans with Disabilities Act of 1990 and the
Clean Air Act, as currently interpreted by Lessor.
15. INDEMNITY AND HOLD HARMLESS
Lessee agrees to indemnify Lessor for, and hold Lessor harmless from
and against all fines, suits, claims, demands, liabilities and actions
(including reasonable costs and expenses of defending against such
claims) resulting or alleged to result from any breach violation or
non-performance of any covenant or condition hereof, or from the use
or occupancy of the Leased Premises, by Lessee or Lessee's agents,
employees, licensees, or invitees, for any injury to person or damage
to property resulting from any act or omission or of negligence of any
co-tenant, visitor or other occupant of the Leased Premises except as
Lessor's own gross negligence may contribute thereto, for which gross
negligence Lessor agrees to indemnify Lessee.
16. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
Lessee covenants and agrees not to permit the Leased Premises to be
used for any purpose other than that stated in the Use clause hereof,
or make or allow to be made any alterations or physical additions in or
to the Leased Premises which are visible from outside the Leased
Premises, or place any signs on the Leased Premises, or place any
safes or vaults (whether movable or not) upon or in the Leased Premises
or make any alterations to the structural, mechanical or electrical
components serving the Leased Premises, without first obtaining the
written consent of Lessor. Any and all alterations, additions, and
improvements, (including
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without limitations, partitions, wall-to-wall carpeting, paneling, wall
coverings and any other article attached or affixed to the floor, wall,
or ceiling of the Leased Premises, but excluding Lessee's unattached
and removable trade fixtures, office supplies, furniture and equipment
not attached to the Leased Premises) shall immediately upon the
installation or construction thereof or attachment or affixing thereto
become the property of Lessor, at Lessor's option, and shall remain
upon and be surrendered with the Leased Premises as a part thereof at
the expiration or sooner termination of this Lease, without disturbance
or injury, Lessee hereby waiving, all rights to any payment, credit or
compensation therefor. Lessee may remove its unattached and removable
trade fixtures, office supplies, furniture and equipment not attached
to the Leased Premises provided: (a) such removal is made prior to the
expiration or sooner termination of the term of this Lease; (b) Lessee
is not in default of any obligation or covenant under this Lease at the
time of such removal; and (c) Lessee promptly repairs all damage caused
by such removal in a good and workmanlike manner using high quality
materials prior to the expiration or sooner termination of the term of
this Lease; and if Lessee fails to remove the same prior to the
expiration or sooner termination of the term when permitted hereby,
such unattached and removable trade fixtures, office supplies,
furniture and equipment shall automatically become the property of
Lessor, Lessee hereby waiving all right to any payment, credit or
compensation therefor and all rights thereto. Lessor shall have the
option of requiring payment of estimated damage expenses in advance.
If, however, Lessor so requests in writing, Lessee shall, prior to
termination of this Lease, remove any and all alterations, additions,
improvements, fixtures, equipment, and property placed or installed by
Lessee in the Leased Premises and repair any damages caused by such
removal in a good and workmanlike manner using high quality materials,
and if Lessee fails to do so, to pay Lessor the cost incurred by Lessor
in so doing, as additional rent.
17. ASSIGNMENT
A. Lessee shall not assign this Lease or sublease the Leased Premises
or any part thereof or mortgage, pledge, or hypothecate its
leasehold interest without the prior express written permission of
Lessor, and any attempt to do any of the foregoing without the
prior express written permission of Lessor shall be void and of no
effect. No space shall be listed or offered to any Broker for
listing or advertisement, nor shall Lessee advertise for
subletting, without the prior written approval of Lessor. Lessee
must request Lessor's permission at least forty-five (45) days
prior to any such assignment, sublease or other transaction, and
provide Lessor with a copy of the proposed assignment or sublease
and other such information as Lessor might request concerning the
proposed sublessee or assignee to allow Lessor to make informed
judgments as to the financial condition, reputation, operations and
general desirability of the proposed
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sublessee or assignee. Within thirty (30) days after Lessor's receipt
of Lessee's proposed assignment or sublease, and all required
information concerning the proposed sublessee or assignee then Lessor
shall have the option, at its sole discretion, to either (i) cancel and
terminate this Lease as to the portion of the Leased Premises and the
term of Lease with respect to which Lessor has been requested to permit
such assignment, sublease or other transaction; and if Lessor elects to
cancel and terminate this Lease as to the aforesaid portion of the
Leased Premises and for the term proposed to be assigned or subleased,
then the rent and other charges payable hereunder shall thereafter be
proportionately reduced, (ii) consent to the proposed assignment or
sublease, in which event, however, if the rent due and payable by any
assignee or sublessee under any such permitted assignment or sublease
exceeds the Base Rental and Additional Rent payable under this Lease
for such space, Lessee shall pay to Lessor all such excess rent and
other excess consideration within ten (10) days following receipt
thereof by Lessee after deducting all marketing expenses (brokerage
fees, advertising expenses, renovation cost, architectural fees and
attorney fees), or, (iii) refuse its consent to the proposed assignment
or sublease, which option shall deemed to be elected unless Lessor
gives Lessee written notice providing otherwise.
Notwithstanding anything to the contrary in Section 17.A. above, none
of the provisions of said Section shall be applicable in the case of
sublettings and assignments to Lessee's affiliates or successors of
equal financial standing by merger, for which consent is hereby granted
by Lessor provided Lessee gives Lessor written notice of such
subletting or assignment.
B. In any case where Lessor consents to an assignment or sublease of the
leasehold, the undersigned Lessee will remain liable for the
performance of all of the covenants, duties and obligations hereunder
including, without limitation, the obligation to pay all rent and other
sums herein provided to be paid, and Lessor shall be permitted to
enforce the provisions of this instrument against the undersigned
Lessee and/or any assignee or sublessee without demand upon or
proceeding in any way against any other person.
C. In any case where Lessor consents to any such assignment, sublease
or other transaction, Lessor may require that Lessee pay to Lessor a
reasonable sum as attorney's fees rising incident to such transaction
and that the assignee or subtenant pay Lessor a reasonable sum
incurred by Lessor in moving the assignee or subtenant in and out of
the Leased Premises should Lessor provide such assistance; however,
Lessor is under no obligation to provide such service.
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18. SUBORDINATION
At the execution of this Lease, Lessor represents that neither the Building
nor the land on which it is located is currently subject to a mortgage.
Lessee accepts this Lease subject and subordinate to any mortgage, deed of
trust, or any lien hereafter placed upon the Leased Premises, and to any
renewals and extensions thereof; Lessee agrees that such mortgagee and/or
beneficiary of any deed of trust, or other lien ("Lessor's Mortgagee")
and/or Lessor shall have the right at any time to subordinate such
mortgage, deed of trust, or other lien to this Lease on such terms and
subject to such conditions as such Lessor's Mortgagee may deem appropriate
in its discretion. Lessee agrees upon demand to execute such further
instruments subordinating this Lease as Lessor or Lessor's Mortgagee may
request and such attornment agreements as any such Lessor's Mortgagee shall
request. In the event that Lessee shall fail to execute any such instrument
promptly as requested, Lessee hereby irrevocably constitutes Lessor as
attorney-in-fact to execute such instrument in Lessee's name, place, and
stead, it being stipulated by Lessor and Lessee that such agency is coupled
with an interest in Lessor and is, accordingly, irrevocable.
With respect to any first lien mortgages, deeds of trust, or other liens
entered into by Lessor and any mortgagee and/or beneficiary of any deed of
trust or other lien (Lessor's mortgagee). Lessor shall use its best
efforts to secure within sixty (60) days from the date same are entered
into (or within sixty (60) days of lease commencement, as the case may be)
a non-disturbance agreement in recordable form from Lessor's mortgagee for
the benefit of Lessee that will be executed and delivered by Lessor's
mortgagee to Lessee. The agreement should state that in the event of
foreclosure, foreclosure sale, or deed-in-lieu of foreclosure, the
successor to the Lessor agrees to recognize Lessee's rights under this
Lease Agreement, and further agrees to assume and perform all obligations
of the Lessor under this Lease Agreement.
19. CONDEMNATION AND LOSS OR DAMAGE
If the Leased Premises or any part thereof shall be taken or condemned for
any public purposes to such an extent as to render the remainder of the
Leased Premises, in the opinion of Lessor not reasonable suitable for
Lessee's occupancy, this Lease shall, at the option of either party,
forthwith cease and terminate. All proceeds from any taking or condemnation
of the Leased Premises shall belong to and be paid to Lessor. In addition,
Lessor shall not be liable or responsible to Lessee for any loss or damage
to any property or persons occasioned by theft, fire, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order,
requisition or order of governmental body or authority, or any other cause
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beyond the control of Lessor, or for any damage or inconvenience which may
arise through repair or alteration of any part of the Building, or failure
to make any such repairs.
20. ACCESS BY LESSOR
Lessor, its agents, and employees shall have the right to enter any portion
of the Leased Premises at all reasonable hours and with reasonable notice
except in emergencies to examine the condition thereof, to make any repairs
or alterations required to be made by Lessor hereunder, to show the Leased
Premises to prospective purchasers or tenants and for any other purpose
deemed reasonable by Lessor.
21. LESSOR'S LIEN
A. In additional to and cumulative of any statutory landlord's lien
provided by law, Lessee hereby grants to Lessor and fixes in Lessor's
favor a lien upon and a security interest in all goods, wares,
equipment, fixtures, furniture, furnishings, improvement, and other
personal property now or hereafter owned by Lessee which is presently
or which may hereafter be situated on the Leased Premises, and all
proceeds therefrom, including insurance proceeds which may accrue to
Lessee in connection with such property, to secure payment of all
rentals and other sums of money becoming due hereunder from Lessee, and
to secure payment of any damages or loss which Lessor may suffer by
reason of the breach by Lessee of any covenant, agreement, or condition
contained herein, or any default of Lessee hereunder, and such property
shall not be removed therefrom without the consent of Lessor until all
arrearages in rent as well as any and all other sums of money then due
to Lessor hereunder shall first have been paid and discharged and all
the covenants, agreements, and conditions hereof have been fully
complied with and performed by Lessee.
B. If Lessee should default in or fail to timely perform any of its
obligations contained in this Lease or breach any of the terms,
covenants, conditions or agreements herein contained, Lessor may, in
addition to any other remedies provided herein, after giving reasonable
notice of the intent to take possession, enter upon the Leased Premises
and take possession of any and all goods, wares, equipment, fixtures,
furniture, furnishings, improvements, and other personal property of
Lessee situated on the Leased Premises, without liability for trespass
or conversion, and sell the same at public or private sale, with or
without having such property at the sale, after giving Lessee
reasonable notice of the time and place of any public sale or of the
time after which any private sale is to be made, at which sale the
Lessor or its assigns may purchase unless otherwise prohibited by law.
Unless otherwise provided by law, and without intending to exclude
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any other manner of giving Lessee reasonable notice, the
requirement of reasonable notice shall be met if such notice is
given at least five (5) days before the time of sale. The proceeds
from any such disposition, less any and all expenses in connection
with the taking of possession, holding, and selling of the
property (including reasonable attorney's fees and other
expenses), shall be applied as a credit against the indebtedness
secured by the security interest granted in this Section. Any
surplus shall be paid to Lessee or as otherwise required by law
and the Lessee shall pay any deficiencies forthwith. Upon request
by Lessor, Lessee agrees to execute and deliver to Lessor a
financing statement in a form sufficient to perfect the security
interest of Lessor in the aforementioned property and proceeds
thereof under the provisions of the Uniform Commercial Code in
force in the State of Texas. Lessor, at its election, may file a
copy of this Lease as a financing statement. All exemption laws
are hereby waived by Lessee. Lessor shall have and be entitled to
all the rights and remedies afforded to a secured party under the
Uniform Commercial Code enacted and in force in the State of
Texas. The statutory lien for rent is not hereby waived, the
security interest herein granted being in addition and
supplementary thereto.
Notwithstanding anything to the contrary in Section 21.A.B.
above, provided Lessee is not in default of any of the terms,
conditions or covenants of this Lease. Lessor hereby agrees to
subordinate the liens herein retained to Lessee's institutional
lenders from time to time upon request.
22. HOLDING OVER
In the event of holding over by Lessee after expiration or termination
of this Lease without the written consent of Lessor, Lessee shall pay
as liquidated damages one hundred fifty percent (150%) of the Base
Rental Rate for the entire holdover period. No holding over by Lessee
after the term of this Lease shall operate to extend the Lease. In the
event of any unauthorized holding over, Lessee shall indemnify Lessor
against all claims for damages by any other Lessee to whom Lessor may
have leased all or any part of the premises covered hereby effective
upon the termination of this Lease. Any holding over with the consent
of Lessor in writing shall thereafter constitute this Lease a lease
from month to month.
23. ATTORNEY'S FEES
If either party successfully prosecutes an action against the other for
a breach of this Lease then such successful party shall be entitled to
recover its reasonable attorneys fees unless otherwise instructed by
the courts.
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24. ASSIGNMENT
Lessor shall have the right to transfer and assign, in whole or in
part, all its rights and obligations hereunder and in the Building and
property referred to herein, and in such event no further liability or
obligation shall thereafter accrue against Lessor hereunder except that
Lessor shall remain liable to Lessee for any loss by Lessee of the
unearned credit to which it is entitled on account of the Prepaid Rent
and the Prepaid Additional Construction Allowance within the initial
eighteen (18) months of the Term of this Lease.
25. DEFAULT BY LESSEE
If default shall be made in the payment of any sum to be paid by Lessee
under this Lease (no notice being required for default in payment of
Base Annual Rental), or default shall be made in the performance of any
of the other such covenants or conditions which Lessee is required to
observe and to perform, and such non-monetary default shall continue
for twenty (20) days after written notice to Lessee (said notice to be
given pursuant to Section 34), or if the interest of Lessee under this
Lease or any other property of Lessee shall be levied on under
execution, attachment, or other legal process, or if a petition is
filed or other action taken by or against Lessee in connection with a
voluntary or involuntary case under the Federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency or similar laws, or if any petition
shall be filed by or against Lessee to delay, reduce or modify Lessee's
debts or obligations, or if any petition shall be filed or other action
taken to reorganize, modify, wind-up, liquidate, or dissolve Lessee's
capital structure if Lessee be a corporation, partnership or other
entity, or if Lessee be declared insolvent according to law, or if
Lessee generally fails to pay its debts as they become due, or if
assignment of Lessee's property shall be made for the benefit of
creditors, or if a receiver, trustee, liquidator, assignee, custodian,
sequestrator (or similar official) is appointed for Lessee or its
property, or if Lessee shall abandon the Leased Premises during the
term of this Lease or any renewals or extensions thereof (which shall
mean that Lessee is absent from the Leased Premises for three (3)
consecutive days [Saturdays, Sundays and holidays excluded] while Lessee
is in default in the payment of any sum to be paid by Lessee
hereunder), then Lessor may treat the occurrence of any one or more of
the foregoing events as a breach of this Lease (provided that no such
levy, execution, legal
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process or petition filed against Lessee shall constitute a breach of
this Lease if Lessee shall vigorously contest the same by appropriate
proceedings and shall remove or vacate the same within thirty (30) days
from the date of its creation, service or filing) and thereupon, Lessor
at its option, may have any one or more of the following described
remedies in addition to all other rights and remedies provided herein
or at law or in equity, all or which shall be cumulative:
(1) Lessor may terminate this Lease and forthwith repossess the Leased
Premises and expel or remove Lessee or any other person who may be
occupying the Leased Premises, by force if necessary, without
being liable for prosecution or any claim of damages therefor, the
same being waived by Lessee, and Lessee agrees to pay to Lessor,
on demand, and Lessor shall be entitled to recover forthwith, as
liquidated damages, a sum of money equal to the total of (i) the
cost of recovering the Leased Premises (including attorneys' fees
and court costs), (ii) the unpaid rent earned and other sums due
Lessor at the time of termination, plus interest thereon at the
maximum lawful contract rate, (iii) the then present value of the
balance of the rent for the remainder of the term (had such Lease
not been terminated) less the then present value of the then fair
rental value of the Leased Premises for such period (discounted at
the rate of 10 percent per annum) and (iv) any other sum of money
and damages owed by Lessee to Lessor, including the costs incurred
by Lessor in removing Lessee's property and restoring the Leased
Premises as required hereby.
(2) Lessor may terminate Lessee's right of possession (but not the
Lease) and expel or remove Lessee or any other person who may be
occupying the Leased Premises, by force if necessary, without
being liable for prosecution or any claim of damages therefor, the
same being waived by Lessee, or may repossess the Leased Premises
by forcible entry or detainer suit or otherwise, without demand or
notice of any kind to Lessee and without terminating this Lease,
in which event Lessor may, but shall be under no obligation so to
do, relet the same or any part thereof either in Landlord's name
or otherwise, for a term or terms, which at Lessor's option, be
less than or exceed the balance of the term of this Lease, and for
such rent and upon such other terms as shall be satisfactory to
Lessor, and receive the rent therefor and apply such rent to the
rent and other sums due Lessor hereunder, including costs incurred
by Lessor in reletting. For the purpose of such reletting, Lessor
is authorized to decorate or to make any repairs, changes,
alterations or additions in or to Leased Premises that may be
necessary or convenient, and if Lessor shall fail or refuse to
relet the Leased Premises, or if the same are relet and a
sufficient sum shall not be realized from such reletting after
paying the following items (which shall be due to Lessor by
Lessee): (i) the unpaid Base Rent and Additional Rent due
hereunder earned but unpaid at the time of reletting
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plus interest thereon at the lesser of 18% per annum or the maximum
lawful contract rate, (ii) the cost of recovering possession (including
attorneys' fees and court costs); and (iii) all of the costs and expenses
of such decorations, repairs, changes, alterations and additions and the
expense of such reletting (including broker fees, advertising costs, and
costs incurred in removing and storing Lessee's or other occupants
property) and of the collection of the rent accruing therefrom; to
satisfy the rent and other sums provided for in this Lease to be paid,
then Lessee shall pay to Lessor as damages a sum equal to the amount of
the rental reserved in this Lease for such period or periods, or if the
Leased Premises have been relet, the Lessee shall satisfy and pay any such
deficiency upon demand therefor from time to time and Lessee agrees
that Lessor may file suit to recover any sums falling due under the
terms of this Section 25 (2) from time to time, and that no delivery
or recovery of any portion due Lessor hereunder shall be any defense
to any subsequent action brought for any amount not theretofore reduced
to judgment in favor of Lessor, nor shall such reletting be construed
as an election on the part of Lessor to terminate this Lease unless a
written notice of such intention be given to Lessee by Lessor. In no
event shall Lessee be entitled to any excess of rent (or rent plus
other sums) obtained by reletting over and above the rent and other
sums owed Lessor under this Lease. Notwithstanding any such reletting
without termination, Lessor may at any time thereafter elect to
terminate this Lease for such previous breach.
(3) Alter locks and other security devices at the Leased Premises.
No act or thing done by the Lessor or its agents during the term hereby
granted shall be deemed an acceptance of a surrender of the Leased
Premises, whether by agreement or operation of law, it being understood
that such surrender can be effected only by the written agreement by
Lessor and Lessee. Receipt by Lessor of Lessee's keys to the Leased
Premises shall not constitute an acceptance of surrender of the Leased
Premises. No alteration of security devices and no removal or other
exercise of dominion by Lessor over the property of Lessee or others
at the Leased Premises shall be deemed unauthorized or constitute a
conversion, Lessee hereby consenting after any default by Lessee in its
obligations hereunder or failure of Lessee to timely perform the same
or breach by Lessee of any of the terms, covenants, conditions or
agreements herein contained, to the aforesaid exercise of dominion over
Lessee's property within the Building. All claims for damages by reason
of such re-entry and/or repossession and/or alteration of locks or
other security devices are hereby waived as are all claims for damages
by reason of any distress warrant, forcible detainer proceedings,
sequestration proceedings or other legal process. Lessee agrees that
any re-entry by Lessor may be pursuant to judgment obtained, forcible
detainer proceedings or other legal proceedings or without the necessity
for legal proceedings, as Lessor may elect and Lessor shall not
22
<PAGE>
be liable in trespass or otherwise. In the event Lessor terminates the
lease or takes possession of the Leased Premises as provided above, the
Lessor shall not be obligated to relet the Leased Premises, nor shall
Lessor be liable in any way whatsoever for failure to relet the Leased
Premises or any part thereof, or in the event that the Leased Premises
are relet, Lessor shall not be liable for failure to collect the rent
thereof under such reletting, but Lessor shall have the option to relet,
or attempt to relet, and in the event of reletting, Lessor may relet
the whole or any part of the Leased Premises for any period, to any
tenant, for any purpose. Lessee hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in
the event of the Lessor's obtaining possession of the Leased Premises.
26. LESSOR'S RIGHT TO PERFORM LESSEE'S OBLIGATION
If Lessee shall fail to perform any one or more of its obligations
hereunder, within the time herein permitted, if any, Lessor, in addition
to its other rights and remedies hereunder, shall have the right,
without being under any obligation to do so and without thereby waiving
such default, to make payment and/or remedy any default for the account
of Lessee (and enter the Leased Premises for such purpose without being
liable for prosecution of any claim for damages therefor) and thereupon
Lessee shall be obligated to, and thereby agrees to, pay Lessor upon
demand, all costs, expenses and disbursement incurred by Lessor in
taking such remedial action, plus an additional amount of fifteen
percent (15%) to cover Lessor's overhead in taking such action, plus
interest thereon at the highest contract rate of interest per annum
permitted by applicable law (or if no rate is applicable, at the rate
of eighteen percent (18%) per annum), from the date of demand until
paid, plus all reasonable legal expenses incurred by Lessor, including
attorney's fees and court costs in connection therewith, and Lessee
further agrees that Lessor shall not be liable for any damages resulting
to Lessee from such action, whether caused by the negligence of Lessor
otherwise.
27. NON-WAIVER
Failure of Lessor to declare any default immediately upon occurrence
thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any
such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity.
28. INSURANCE BY LESSOR
Lessor shall maintain fire and extended coverage insurance of net less
than eighty percent (80%) of the replacement value of the portion of
the Building constructed by Lessor. Said
23
<PAGE>
insurance shall be maintained in an insurance company authorized to do
business in the State of Texas, and at the expense of Lessor, and
payment for losses thereunder shall be made solely to Lessor, subject,
however, to the rights of the holder of any first lien, mortgage or
deed of trust which may now or thereafter encumber the Building of
which the Leased Premises form a part. If the annual premiums to be
paid by Lessor shall exceed the standard rates because Lessee's
operations result in extra-hazardous exposure, Lessee shall promptly
pay the excess amount of the premium upon the request by Lessor.
29. INSURANCE BY LESSEE
A. Lessee shall at all times during the term of this Lease, at its
own expenses, maintain a policy or policies of insurance with premiums
fully pain in advance, issued by and binding upon a solvent insurance
company approved in writing by lessor, insuring all of Lessee's personal
property located in the Leased Premises and the improvements placed
upon the Leased Premises by Lessee (including all items covered by
Lessee's plans as approved by Lessor) against loss or damage by fire,
explosion or other hazard and contingencies for the full insurable
value thereof.
B. Lessor and Lessee, each at their respective expense, shall
maintain a policy or policies of comprehensive general liability
insurance with the premiums thereon fully paid in advance issued by
and binding upon a solvent insurance company (Lessee's insurance
company to be approved in writing by Lessor), such insurance to
afford minimum protection of not less than $300,000 in respect of
personal injury or death to any one person and not less than
$500,000 in the event of bodily injury or death to any number of
persons in any one occurrence, and with limits of not less than
$300,000 for property damage in any one occurrence, with overlying
umbrella liability insurance coverage of not less than $1,000,000.
Such policy or policies of public liability insurance shall contain
a landlord's protective liability endorsement in favor of Lessor.
C. The policy or policies of insurance to be maintained by
Lessee shall name Lessee and Lessor as co-insured and shall contain
an endorsement that such policies cannot be amended or modified
as to Lessor without fifteen (15) days prior written notice. Lessee
shall deliver duplicate original policies or certificates of
insurance in form satisfactory to Lessor not less than twenty (20)
days prior to the expiration of old policies.
24
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30. WAIVER OF SUBROGATION RIGHTS
Anything in this Lease to the contrary notwithstanding, Lessor and
Lessee each hereby waives any and all rights of recovery, claim,
action or cause of action against the other, its agents, officers,
or employees, for any loss of damage that may occur to the Leased
Premises, or any improvements thereto, or said Building of which
the Leased Premises are a part, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the
elements, or any other cause which are or, which by the terms of
this Lease are required to be insured against under the terms of
standard fire and extended coverage insurance policies, regardless
of cause or origin including negligence of the other party hereto,
its agents, officers or employees, and covenants that no insurer
shall hold any right of subrogation against such other party.
31. RULES AND REGULATIONS
Lessee shall perform, observe and comply with the Rules and
Regulations of the Building, as attached hereto and made a part
hereof, as Exhibit "G". With respect to the safety, care and
cleanliness of the Leased Premises and the Building, and the
preservation of good order thereon, and, upon written notice
thereof to Lessee, any changes, amendments, or additions thereto as
from time to time shall be established and deemed advisable by
Lessor for tenants of the Building. Lessor shall not have any
liability to Lessee for any failure of any other tenant or tenants
of the Building to comply with such Rules and Regulations.
32. LESSOR'S MORTGAGE
If the Building and/or Leased Premises are at any time subject to a
mortgage and/or mortgage and deed of trust, then in any instance in
which Lessee gives notice to Lessor alleging default by Lessor
hereunder, Lessee will also simultaneously give a copy of such
notice to Lessor's Mortgagee (provided Lessor or Lessor's Mortgagee
shall have advised Lessee of the name and address of Lessor's
Mortgagee) and each Lessor's Mortgagee shall have the right (but
not the obligation) to cure or remedy such default during the
period that is permitted to Lessor hereunder, plus an additional
period of thirty (30) days, and Lessee will accept such curative
or remedial action taken by Lessor's Mortgagee with the same effect
as if such action had been taken by Lessor.
33. ESTOPPEL
Lessee will, at such time or times as Lessor may request, sign a
certificate stating whether this Lease is in full force and effect;
whether any amendments or modifications exist;
25
<PAGE>
whether there are any defaults hereunder; and such other
information and agreements as may be reasonably requested.
34. NOTICE
Any notice which may or shall be given under the terms of this
Lease shall, unless otherwise provided herein, be in writing and
shall be either delivered by hand or sent by United States
Registered or Certified Mail, postage prepaid, if for Lessor, to
the Building office; or if for Lessee, to the Leased Premises. Such
addresses may be changed from time to time by either party deemed
given when delivered (if delivered by hand) or when postmarked (if
sent by mail).
LESSOR: The Penn Mutual Life Insurance Company
c/o Trammell Crow Houston, Inc.
1360 Post Oak Boulevard, Suite 1800
Houston, Texas 77056-3022
LESSEE: 3DX Technologies, Inc.
12012 Wickchester Lane, Suite 250
Houston, Texas 77079
35. SEVERABILITY
This Lease shall be construed in accordance with the laws of the
State of Texas. If any clause or provision of this Lease is
illegal, invalid or unenforceable, under present or future laws
effective during the term hereof, then it is the intention of the
parties hereto that the remainder of this Lease shall not be
affected thereby, and it is also the intention of both parties
that in lieu of each clause or provision that is illegal, invalid
or unenforceable, there be added as part of this Lease a clause or
provision as similar in terms to such illegal, invalid or
unenforceable clause or provision to make such illegal, invalid or
unenforceable clause or provision enforceable.
36. SIGNS
No signs of any kind or nature, symbol, or identifying mark shall
be put on the Building, in the halls, elevators, staircases,
entrances, parking areas or upon the doors or walls, whether plate
glass or otherwise, of the Leased Premises nor within the Leased
Premises so as to be visible from the public areas or exterior of
the Building, without prior written approval of Lessor. All sign or
lettering shall conform in all respects to the sign and/or
26
<PAGE>
lettering criteria established by Lessor. Lessor hereby grants
permission to Lessee to display a company logo and sign on the
reception room wall within the Leased Premises.
37. QUIET ENJOYMENT
Lessee, on paying the said Rent, and any Additional Rental, and
performing the covenants herein agreed to be by it performed, shall
and may peaceably and quietly have, hold and enjoy the Leased
Premises for the said term.
38. RELOCATION
Throughout the term of this Lease or any renewal or extension
thereof, the Lessor shall have the right and option, upon sixty (60)
days notice to Lessee, to require the Lessee to relocate the Leased
Premises to any substantially similar premises within the Building.
In the event of Lessor's exercise of its option to relocate the
Lessee in the manner hereinabove set forth, all reasonable expenses
of moving the Lessee and of decorating the new Leased Premises
shall be at the expense of the Lessor. In the event that comparable
Leased Premises are not available within the Building, and the
Lessee shall agree to relocate to less desirable premises or to
reduce the size of the Leased Premises, the Lessor and the Lessee
shall agree to a reduction in the amount of the Base Rental and the
percentage of the Total Rentable Area contained within the Leased
Premises so as to effect an equitable adjustment in rentals
commensurate with the relocated Leased Premises.
Notwithstanding anything to the contrary in Section 38, above,
Lessor hereby agrees that Lessor shall not relocate Lessee more than
once and that it shall not relocate Lessee except for the purposes
of leasing Lessee's Leased Premises to a prospective tenant which
would lease at least 25,000 square feet in the Building.
Additionally, in the event that Lessor exercises its option to
relocate Lessee, Lessor hereby agrees to grant Lessee a one (1)
month rental abatement. Said one (1) month rental abatement shall
be applied against the initial month of Lessee's Base Rental for
Lessee's relocated Leased Premises.
39. DEADLINE FOR RENEWAL OPTIONS
Time is of the essence; and all performance due dates, time
schedules, and conditions precedent to exercising a right shall be
strictly adhered to without delay except where otherwise expressly
provided.
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<PAGE>
40. TENANT'S RIGHT TO TERMINATE AFTER FORECLOSURE
In the event of foreclosure by any lienholder of the Building, Lessee
shall not have a right to terminate this lease solely as a result of such
foreclosure.
41. SUITABILITY FOR INTENDED PURPOSES
Lessor's duties and warranties are limited to those expressly stated in
this lease and shall not include any implied duties or implied warranties,
now or in the future. No representations or warranties have been made by
Lessor other than those contained in the lease.
42. ENTIRE AGREEMENT AND BINDING EFFECT
This Lease and the Work Letter, together with all addenda or exhibits
thereto, constitute the entire agreement between Lessor and Lessee; no
prior written or prior or contemporaneous oral promises or representations
shall be binding. Paragraph captions herein are for convenience only, and
neither limit nor amplify the provisions of this Lease. The provisions of
this Lease shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and assigns of the parties, but this
provision shall in no way alter the restriction herein in connection with
assignment and subletting by Lessee.
43. ALTERATION
This Lease may not be altered, changed or amended, except by an instrument
in writing signed by both parties hereto.
EXECUTED in multiple counterparts, together with Exhibits A, B, C, D, E, F,
G and H each of which shall have the force and affect of an original, on
the day and year first written above.
LESSEE:
3D Technologies, Inc., a Texas corporation
WITNESS:
/s/ JOSEPH SCHUCHARDT BY: /s/ DOUGLAS C. NESTER
- -------------------------------- ---------------------------------------
NAME: Douglas C. Nester
-------------------------------------
TITLE: VP Exploration
------------------------------------
LESSOR:
WITNESS:
/s/ [NAME ILLEGIBLE] BY: /s/ MICHAEL S. BARON
- -------------------------------- ---------------------------------------
NAME: Michael S. Baron
-------------------------------------
TITLE: Assistant Vice President and
Director, Real Estate Equity
------------------------------------
28
<PAGE>
[Letterhead]
March 1, 1995
Mr. Douglas C. Nester
Vice President
3DX Technologies
12012 Wickchester Lane, Suite 250
Houston, Texas 77079
Dear Mr. Nester:
In conformance with your Lease Agreement dated January 20, 1995 please let
this letter serve to document that the base rental for your facility located
at 12012 Wickchester, Suite 250 accrues as of March 1, 1995. The commencement
date of the Lease Agreement shall be established as March 1, 1995 and shall
continue until February 29, 2000. If you are in agreement with these dates,
please so indicate by signing one copy of this letter and returning the copy
to me.
New tenant rental coupons will be forthcoming for the 1995 calendar year.
Rental coupons for future years will be mailed on an annual basis. Please
enclose a rental coupon with each of your monthly payments to ensure proper
coding.
We are pleased to have you as a valued tenant in the Penn Woodbranch Office
Building. Do not hesitate to call should you have any questions or if we can
be of service in any way.
Very truly yours,
TRAMMELL CROW HOUSTON, INC. AGREED AND ACCEPTED:
Office Division
3DX Technologies, Inc.
Jacquelyn L. Brown, CPM By: /s/ Douglas C. Nester
Senior Property Manager -------------------------------
Douglas C. Nester
Title: Vice President Exploration
Date: March 2, 1995
JLB/kan
<PAGE>
3DX TECHNOLOGIES INC.
1994 STOCK OPTION PLAN
(Amended January 1, 1996)
1. ESTABLISHMENT AND PURPOSE.
(a) ESTABLISHMENT. The 3DX TECHNOLOGIES INC. Employee
Stock Option Plan was adopted effective January 4, 1994 (the "PLAN").
(b) PURPOSE. The purpose of the Plan is to attract,
retain and reward persons providing services to 3DX Technologies Inc., a
Delaware corporation, and any successor corporation thereto (collectively
referred to as the "COMPANY"), and any present or future parent and/or
subsidiary corporations of such corporation (all of which along with the
Company being individually referred to as a "PARTICIPATING COMPANY" and
collectively referred to as the "PARTICIPATING COMPANY GROUP"), and to
motivate such persons to contribute to the growth and profits of the
Participating Company Group in the future. For purposes of the Plan, a parent
corporation and a subsidiary corporation shall be as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the
"CODE").
2. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD AND/OR COMMITTEE. The Plan shall be
administered by the Board of Directors of the Company (the "BOARD") and/or by
a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references herein to the Board shall
also mean the committee if such committee has been appointed and, unless the
powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to terminate or amend the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law. All
questions of interpretation of the Plan or of any options granted under the
Plan (an "Option") shall be determined by the Board, and such determinations
shall be final and binding upon all persons having an interest in the Plan
and/or any Option.
(b) OPTIONS AUTHORIZED. Options may be either incentive
stock options as defined in Section 422 of the Code ("INCENTIVE STOCK
OPTIONS") or non-statutory stock options.
(c) AUTHORITY OF OFFICERS. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect
to any matter, right, obligation, or election which is the responsibility of
or which is allocated to the Company
<PAGE>
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, or election.
3. ELIGIBILITY.
(a) ELIGIBLE PERSONS. Options may be granted only to employees
(including officers) and directors of the Participating Company Group or to
individuals who are rendering services as consultants, advisors, or other
independent contractors to the Participating Company Group. The Board shall, in
its sole discretion, determine which persons shall be granted Options (an
"OPTIONEE"). Eligible persons may be granted more than one (1) Option.
(b) RESTRICTIONS ON OPTION GRANTS. A director of a Participating
Company may only be granted a non-statutory stock option unless the director
is also an employee of the Participating Company Group. An individual who is
rendering services as a consultant, advisor, or other independent contractor
may only be granted a non-statutory stock option.
4. SHARES SUBJECT TO OPTION. Options shall be for the purchase of
shares of the authorized but unissued common stock or treasury shares of
common stock $.01 par value of the Company (the "STOCK"), subject to
adjustment as provided in paragraph 10 below. The maximum number of shares of
Stock which may be issued under the Plan shall be fifty-three thousand two
hundred forty-seven (53,247) shares. In the event that any outstanding Option
for any reason expires or is terminated or canceled and/or shares of Stock
subject to repurchase are repurchased by the Company, the shares allocable to
the unexercised portion of such Option, or such repurchased shares, may again
be subject to an Option grant. Notwithstanding the foregoing any such shares
shall be made subject to a new Option only if the grant of such new Option
and the issuance of such shares pursuant to such new Option would not cause
the Plan or any Option granted under the Plan to contravene Rule 16b-3.
5. TIME FOR GRANTING OPTIONS. All Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted
by the Board or the date the Plan approved by the stockholders of the Company.
6. TERMS, CONDITIONS AND FORM OF OPTIONS. Subject to the provisions
of the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be
granted, the exercise price of the Option, the timing and terms of
exercisability and vesting of the Option, the time of expiration of the
Option, the effect of the Optionee's termination of employment or service,
whether the Option is to be treated as an Incentive Stock Option or as a
non-statutory stock option, the method for satisfaction of any tax
withholding obligation arising in connection with Option, including by the
withholding or delivery of shares of stock, and all other terms and
conditions of the Option not inconsistent with the Plan. Options granted
pursuant to the Plan shall be evidenced by written agreements specifying the
number of shares of Stock covered thereby, in such form as
-2-
<PAGE>
the Board shall from time to time establish, which agreements may incorporate
all or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however; that (i)
the exercise price per share for an Incentive Stock Option shall be not less
than the fair market value, as determined by the Board, of a share of Stock
on the date of the granting of the Option, (ii) the exercise price per share
for a non-statutory stock option shall not be less than eighty-five percent
(85%) of the fair market value, as determined by the Board, of a share of
Stock on the date of the granting of the Option and (iii) no Incentive Stock
Option granted to an Optionee who at the time the Option is granted owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of a Participating Company within the meaning
of Section 422(b)(6) of the Code (a "TEN PERCENT OWNER OPTIONEE") shall have
an exercise price per share less than one hundred ten percent (110%) of the
fair market value, as determined by the Board, of a share of Stock on the
date of the granting of the Option. Notwithstanding the foregoing, an Option
(whether an Incentive Stock Option or a non-statutory stock option) may be
granted with an exercise price lower than the minimum exercise price set
forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying with the provisions of
Section 424(a) of the Code.
(b) EXERCISE PERIOD OF OPTIONS. The Board shall have the power to
set, including by amendment of an Option, the time or times within which each
Option shall be exercisable or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable and the term of
each Option; provided, however, that (i) no Option shall be exercisable after
the expiration of ten (10) years after the date such Option is granted, and
(ii) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall
be exercisable after the expiration of five (5) years after the date such
Option is granted.
(c) PAYMENT OF EXERCISE PRICE.
(i) FORMS OF PAYMENT AUTHORIZED. Payment of the exercise
price for the number of shares of Stock being purchased pursuant to any
Option shall be made (1) in cash, by check, or cash equivalent, (2) 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 Board (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, (3) by the Optionee's recourse promissory
note in a form approved by the Company, (4) by the assignment of the proceeds
of a sale of some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board
of Governors of the Federal Reserve System), (5) by the withholding of shares
being acquired upon exercise of the Option having a fair market value, as
determined by the Board (but without regard to any restrictions on
transferability applicable to such stock
-3-
<PAGE>
by reason of federal or state securities laws or agreements with an
underwriter for the Company), not less than the exercise price, or (6) by any
combination thereof. The Board 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 one (1)
or more forms of consideration.
(ii) TENDER OF COMPANY STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares
of the Company's stock to the extent such tender of stock, as determined by
the Board, would constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised
by tender to the Company of shares of the Company's stock unless such shares
of the Company's stock either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(iii) PROMISSORY NOTES. No promissory note shall be
permitted if an exercise using a promissory note would be a violation of any
law. Any permitted promissory note shall be due and payable not more than
four (4) years after the Option is exercised, and interest shall be payable
at least annually and be at least equal to the minimum interest rate
necessary to avoid imputed interest pursuant to all applicable sections of
the Code. The Board shall have the authority to permit or require the
Optionee to secure any promissory note used to exercise an Option with the
shares of Stock acquired on exercise of the Option and/or with other
collateral acceptable to the Company. Unless otherwise provided by the Board,
in the event the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any
other governmental entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such
applicable regulations.
(iv) ASSIGNMENT OF PROCEEDS OF SALE. The Company reserves,
at any and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve and/or terminate any program
and/or procedures for the exercise of Options by means of an assignment of
the proceeds of a sale of some or all of the shares of Stock to be acquired
upon such exercise.
7. STANDARD FORMS OF STOCK OPTION AGREEMENT.
(a) INCENTIVE STOCK OPTIONS. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions
set forth in the form of incentive stock option agreement attached hereto as
EXHIBIT A and incorporated herein by reference.
(b) NON-STATUTORY STOCK OPTIONS. Unless otherwise provided for by
the Board at the time an Option is granted, an Option designated as a
"Non-statutory Stock
-4-
<PAGE>
Option" shall comply with and be subject to the terms and conditions set
forth in the forms of non-statutory stock option agreement attached hereto as
EXHIBIT B and incorporated herein by reference.
(c) STANDARD TERM FOR OPTIONS. Unless otherwise provided for by
the Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of [ten (10)] years.
8. AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of either of the standard forms of Stock
Option Agreement described in paragraph 7 above either in connection with the
grant or amendment of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the
terms and conditions of such revised or amended standard form or forms of
stock option agreement shall be in accordance with the terms of the Plan.
Such authority shall include, but not by way of limitation, the authority to
grant Options which are not immediately exercisable.
9. FAIR MARKET VALUE LIMITATION. To the extent that the aggregate
fair market value (determined at the time the Option is granted) of stock
with respect to which Incentive Stock Options are exercisable by an Optionee
for the first time during any calendar year (under all stock option plans of
the Company, including the Plan) exceeds One Hundred Thousand Dollars
($100,000), such Options shall be treated as non-statutory stock options.
This paragraph shall be applied by taking Incentive Stock Options into
account in the order in which they were granted.
10. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan
and to any outstanding Options and in the exercise price of any outstanding
Options in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or like change in the
capital structure of the Company.
In the event a majority of the shares which are of the same class as the
shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control (as
defined below)) shares of another corporation (the "New Shares"), the Company
may unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price of the outstanding Options shall be adjusted in a
fair and equitable manner.
11. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Company.
-5-
<PAGE>
(a) the acquisition of direct or indirect ownership of stock by
any person, entity or group of persons or entities acting in concert
possessing more than a majority of the beneficial interest in the voting
stock of the Company;
(b) the direct or indirect sale or exchange by the stockholders
of the Company of all or substantially all of the stock of the Company where
the stockholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company after such sale or exchange;
(c) a merger or consolidation where the stockholders of the
Company before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such merger or consolidation;
(d) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations (as defined in paragraph 1 above) of the
Company); or
(e) a liquidation or dissolution of the Company.
For purposes of the foregoing, if a group of persons or entities begins to act
in concert, and if such group meets the beneficial ownership requirements set
forth in clause (a) above, then such acquisition shall be deemed to have
occurred on the date the Company first becomes aware of such group or its
actions.
A Stock Option Agreement may, in the discretion of the Board, provide for
accelerated vesting in the event of a Transer of Control.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "ACQUIRING CORPORATION"), shall either assume the Company's rights
and obligations under outstanding stock option agreements or substitute options
for the Acquiring Corporation's stock for such outstanding Options. In the event
the Acquiring Corporation elects not to assume or substitute for such
outstanding Options in connection with the Transfer of Control, any
unexercisable and/or unvested shares subject to such outstanding stock option
agreements shall be immediately exercisable and fully vested as of the date
thirty (30) days prior to the proposed effective date of the Transfer of
Control. The exercise and/or vesting of any Option that was permissible solely
by reason of this paragraph 11 shall be conditioned upon the consummation of the
Transfer of Control. Any Options which are neither assumed or substituted for by
the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
-6-
<PAGE>
12. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders generally.
13. OPTIONS NON-TRANSFERABLE. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
14. TERMINATION OR AMENDMENT OF PLAN OR OPTIONS. The Board, including
any duly appointed committee of the Board, may terminate or amend the Plan or
any Option at any time; provided, however, that without the approval of the
Company's stockholders, there shall be (a) no increase in the total number of
shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 10 above), (b) no change in the class eligible to receive Incentive
Stock Options and (c) no expansion in the class eligible to receive
non-statutory stock options. In addition to the foregoing, the approval of
the Company's stockholders shall be sought for any amendment to the Plan for
which the Board deems stockholder approval necessary in order to comply with
Rule 16b-3. In any event, no amendment may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such amendment is required to enable an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock
Option.
-7-
<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.
/s/ ARTHUR ANDERSEN LLP
October 17, 1996
Houston, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,704,014
<SECURITIES> 1,595,167
<RECEIVABLES> 113,704
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,498,671
<PP&E> 5,278,671
<DEPRECIATION> 2,343,578
<TOTAL-ASSETS> 10,450,504
<CURRENT-LIABILITIES> 233,908
<BONDS> 0
14,248,624
0
<COMMON> 29,879
<OTHER-SE> (4,061,907)
<TOTAL-LIABILITY-AND-EQUITY> 10,450,504
<SALES> 274,511
<TOTAL-REVENUES> 568,892
<CGS> 78,533
<TOTAL-COSTS> 3,006,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,437,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,437,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,437,384)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL STATEMENTS OF THE COMPANY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,762,208
<SECURITIES> 0
<RECEIVABLES> 287,548
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,131,090
<PP&E> 9,134,347
<DEPRECIATION> 4,281,588
<TOTAL-ASSETS> 8,994,140
<CURRENT-LIABILITIES> 695,440
<BONDS> 0
14,289,757
0
<COMMON> 29,910
<OTHER-SE> (6,819,639)
<TOTAL-LIABILITY-AND-EQUITY> 8,944,140
<SALES> 408,459
<TOTAL-REVENUES> 746,235
<CGS> 51,227
<TOTAL-COSTS> 2,696,043
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,949,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,949,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,949,808)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
</TABLE>
