-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KAZ39TPMEN1eZnj4Lt8dWTvXFOwX9gHS2eTcWYn1ReXq4wPbOTHLqnz0XC44Co2A 8QIislT7mubsTOa/RhQ2dw== 0000950129-96-000287.txt : 19960306 0000950129-96-000287.hdr.sgml : 19960306 ACCESSION NUMBER: 0000950129-96-000287 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960305 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGICON INC CENTRAL INDEX KEY: 0000028866 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760343152 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-01037 FILM NUMBER: 96531442 BUSINESS ADDRESS: STREET 1: 3701 KIRBY DR STREET 2: STE 112 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7135265611 MAIL ADDRESS: STREET 1: 3701 KIRBY DRIVE SUITE 112 CITY: HOUSTON STATE: TX ZIP: 77098 S-2/A 1 DIGICON, INC. - FORM S-2 - AMEND. #1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1996 REGISTRATION NO. 333-01037 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 DIGICON INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0343152 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
3701 KIRBY DRIVE, SUITE 112 HOUSTON, TEXAS 77098 (713) 526-5611 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) RICHARD W. MCNAIRY 3701 KIRBY DRIVE, SUITE 112 HOUSTON, TEXAS 77098 (713) 526-5611 (Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: T. WILLIAM PORTER J. MARK METTS PORTER & HEDGES, L.L.P. VINSON & ELKINS L.L.P. 700 LOUISIANA, 35TH FLOOR 1001 FANNIN HOUSTON, TEXAS 77002 2300 FIRST CITY TOWER (713) 226-0600 HOUSTON, TEXAS 77002 (713) 758-2222
Approximate date of commencement of proposed sale 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 the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, 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 of 1933 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, check the following box and list the Securities Act of 1933 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, please check the following box. / / THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 DIGICON INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-2 ---------------------
ITEM FORM S-2 CAPTION LOCATION IN PROSPECTUS - ----- --------------------------------------------- ---------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Facing Page; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors; The Company; Selected Consolidated Financial Data 4. Use of Proceeds.............................. Use of Proceeds 5. Determination of Offering Price.............. * 6. Dilution..................................... * 7. Selling Stockholders......................... Selling Stockholder 8. Plan of Distribution......................... Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to be Registered... Description of Capital Stock 10. Interests of Named Experts and Counsel....... Experts; Legal Matters 11. Information with Respect to the Registrant... Prospectus Summary; Risk Factors; The Company; Use of Proceeds; Capitalization; Price Range of Common Stock and Dividend Policy; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Description of Capital Stock; Consolidated Financial Statements 12. Incorporation of Certain Information by Reference.................................... Incorporation of Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................. *
- --------------- * Omitted inasmuch as the response to the item is negative or inapplicable. 3 *************************************************************************** * * * 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 State. * * * *************************************************************************** SUBJECT TO COMPLETION, DATED MARCH 5, 1996 3,700,000 SHARES DIGICON INC. LOGO COMMON STOCK OF THE 3,700,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OFFERED HEREBY, 3,500,000 SHARES ARE BEING OFFERED BY DIGICON INC. (THE "COMPANY") AND 200,000 SHARES ARE BEING OFFERED BY A SELLING STOCKHOLDER (THE "SELLING STOCKHOLDER"). SEE "SELLING STOCKHOLDER." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER. THE COMMON STOCK IS LISTED ON THE AMERICAN STOCK EXCHANGE UNDER THE SYMBOL "DGC." ON MARCH 5, 1996, THE CLOSING SALES PRICE OF THE COMMON STOCK ON THE AMERICAN STOCK EXCHANGE WAS $6.625 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY." FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7-8. --------------------- 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. ---------------------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS* COMPANY+ STOCKHOLDER PER SHARE........................ $ $ $ $ TOTAL++.......................... $ $ $ $
- --------------- * THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933. SEE "UNDERWRITING." + BEFORE DEDUCTING EXPENSES OF THIS OFFERING PAYABLE BY THE COMPANY ESTIMATED TO BE $380,000. ++ THE COMPANY HAS GRANTED THE UNDERWRITERS A 45-DAY OPTION TO PURCHASE UP TO 555,000 ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS PER SHARE SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ , THE TOTAL UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ AND THE TOTAL PROCEEDS TO COMPANY WILL BE $ . SEE "UNDERWRITING." --------------------- THE COMMON STOCK IS BEING OFFERED BY THE UNDERWRITERS AS SET FORTH UNDER "UNDERWRITING" HEREIN. IT IS EXPECTED THAT THE DELIVERY OF THE CERTIFICATES THEREFOR WILL BE MADE AT THE OFFICES OF DILLON, READ & CO. INC., NEW YORK, NEW YORK, ON OR ABOUT , 1996, AGAINST PAYMENT THEREFOR IN NEW YORK FUNDS. THE UNDERWRITERS INCLUDE: DILLON, READ & CO. INC. RAYMOND JAMES & ASSOCIATES, INC. RODMAN & RENSHAW, INC. THE DATE OF THIS PROSPECTUS IS MARCH , 1996 4 IN CONNECTION WITH THIS 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 AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C., a Registration Statement on Form S-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered by this Prospectus. Certain portions of the Registration Statement have not been included in this Prospectus. For further information, reference is made to the Registration Statement. Statements made in this Prospectus regarding the contents of any contract or document filed as an exhibit to the Registration Statement are not necessarily complete and, in each instance, reference is hereby made to the copy of such contract or document so filed. Each such statement is qualified in its entirety by such reference. The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. The Registration Statement, as well as such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 13, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials also can be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006, on which the Common Stock is listed. The Company furnishes holders of its Common Stock with unaudited financial statements for the first three quarters of each year and audited financial statements for each year. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents, which have been filed with the Commission by the Company, are incorporated herein by reference (i) the Company's Annual Report on Form 10-K for the year ended July 31, 1995, and (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1995. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request, a copy of any or all of the documents incorporated by reference as a part of the Registration Statement, other than exhibits to such documents. Requests should be directed to Allan C. Pogach, Secretary, Digicon Inc., 3701 Kirby Drive, Suite 112, Houston, Texas 77098, telephone (713) 526-5611. 2 5 PROSPECTUS SUMMARY The following summary should be read in conjunction with and is qualified in its entirety by the information and consolidated financial statements (including the notes thereto) appearing elsewhere in this Prospectus and the documents incorporated by reference herein. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. See "Underwriting." Unless the context otherwise requires, the number of shares, per share prices, weighted average number of shares outstanding and per share amounts in this Prospectus have been adjusted to reflect a one-for-three reverse stock split effected in January 1995. THE COMPANY GENERAL The Company was founded in 1965 and provides seismic data acquisition and processing services to the petroleum industry in selected markets worldwide. Oil and gas companies utilize seismic data for the determination of suitable locations for drilling exploratory wells and, increasingly, in reservoir management for the development and production of oil and gas reserves. The Company acquires seismic data in land, in marine and in marsh, swamp and tidal ("transition zone") environments and processes data acquired by its own crews and crews of other operators. In addition, the Company acquires and processes seismic data on a non-exclusive basis for future sale to multiple customers. In conjunction with certain changes in senior management in 1994, the Company initiated a comprehensive program designed to restructure and refocus each of the Company's geographic and operational lines of business. The Company's actions included: (i) selling its marine and land seismic equipment manufacturing operations; (ii) selling its joint venture interests in the former Soviet Union ("FSU"); (iii) deploying its land and transition zone crews and its marine crews into markets where the Company's presence would likely be significant, such as the Gulf Coast transition zone; (iv) expanding its accumulation and sale of proprietary seismic data to exploit the historically higher margins associated with non-exclusive data sales; (v) emphasizing its research and development on the proprietary seismicTANGO software in order to capitalize on its reputation for seismic data processing innovation; and (vi) streamlining its cost structure through personnel reductions, office consolidations, vessel deactivations and the outsourcing of certain development and manufacturing functions. The continued implementation of this program has increased revenues and significantly improved operating efficiencies. INDUSTRY OVERVIEW The seismic industry and its role in petroleum exploration, development and production have changed substantially in recent years. Advances in seismic technology have shifted the emphasis from two-dimensional ("2D") surveys to three-dimensional ("3D") surveys. The greater precision and improved subsurface resolution obtainable from 3D seismic data have assisted oil and gas companies in finding new fields and more accurately delineating existing fields, as well as enhancing existing reservoir management and production monitoring techniques. Enhanced subsurface resolution obtainable from 3D studies has been a key factor in improving success ratios and lowering finding and field extension costs during the past several years. Accordingly, demand for 3D seismic data by the major oil and gas companies and independents has increased. Three-dimensional surveys involve the acquisition of a very dense grid of seismic data over a precisely defined area. This heavy concentration of data requires extensive computer processing, involving the use of sophisticated proprietary mathematical techniques, to produce an accurate image of the subsurface. Computer analysis of the 3D surveys allows explorationists to better examine and interpret important subsurface features. COMPANY OVERVIEW The Company's principal areas of service include (i) land and transition zone data acquisition, (ii) marine data acquisition, (iii) data processing and (iv) sale of proprietary seismic data. 3 6 Land and transition zone data acquisition. The Company's land and transition zone data acquisition crews consist of (i) a surveying unit that lays out the lines to be recorded, (ii) an explosives or mechanical vibrating unit and (iii) a recording unit that lays out the geophones and recording instruments. The Company's land and transition zone data acquisition services are conducted by five seismic crews, three of which operate in the continental United States and two of which are dedicated to South America and currently operate in Argentina. In fiscal 1995, land and transition zone data acquisition accounted for approximately 33% of the Company's revenues. The success of 3D seismic offshore has led to a significant increase in demand for 3D seismic onshore and in transition zone areas. In recent years, exploration activity in land and transition zone areas by the major oil and gas companies and independents has increased. In fiscal 1993, the Company acquired GFS Company, a contractor in the Gulf Coast transition zone, and has subsequently upgraded four crews utilizing advanced technology, high capacity Input/Output ("I/O") equipment. Two of these land crews are working in the Gulf Coast area and the other two have been dedicated to the expanding South American marketplace. The Company expects to upgrade the fifth crew to I/O System Two Remote Seismic Recorder ("RSR") equipment during calendar year 1996. Marine data acquisition. The Company's marine data acquisition crews operate on chartered vessels equipped with seismic, navigational and communications equipment. All of the vessels operated by the Company are equipped to perform both 3D and 2D seismic surveys. As of January 31, 1996, the Company had six vessels in operation, with three located in the Gulf of Mexico and one located in each of Australia, Indonesia and the North Sea. In fiscal 1995, marine data acquisition accounted for approximately 25% of the Company's revenues. Vessels with multiple streamers and multiple energy sources acquire more lines of data with each pass, reducing time to completion and the effective acquisition cost. Accordingly, the Company has upgraded one vessel so that it can be configured with up to four streamers and two energy sources, which enables that vessel to simultaneously record up to eight seismic lines. The Company has also developed a multi-boat configuration as a cost effective alternative to large multi-element vessels for simultaneously acquiring multiple lines of data. The multi-boat configuration utilizes up to three smaller vessels operating parallel to each other and working together to acquire multiple lines of data. This configuration is particularly effective in obstructed areas, which place a premium on maneuverability and versatility. The three vessels located in the Gulf of Mexico are currently operating in this configuration. The two vessels currently located in the Far East are acquiring predominantly 2D surveys. Data processing. The Company currently operates seven geophysical data processing centers, including one under contract to a major oil and gas company. These centers process data acquired by the Company's own crews and crews of other operators. The centers are located in Houston, Texas; Singapore; London, England; Brisbane, Australia; Jakarta, Indonesia; Kuala Lumpur, Malaysia; and Assen, Holland. In each of these locations, the Company operates high capacity, advanced technology data processing systems based on Convex and Hewlett Packard computer systems with high speed networks. In fiscal 1995, data processing accounted for approximately 27% of the Company's revenues. The Company has developed seismicTANGO, advanced proprietary data processing software which has been installed at all of the Company's data processing centers and on three vessels and three land crews. The seismicTANGO software is a fast, efficient and accurate system which enhances quality control, facilitates the movement of data from the field to data processing centers and may be used on a variety of hardware platforms. Current development is aimed at enhancing the resolution of data from geologically complex formations, such as those present in Gulf of Mexico subsalt plays. Sale of proprietary seismic data. The Company also acquires and processes seismic data for its own account through surveys partially funded by multiple customers. Such surveys are offered for sale to other customers on a nonexclusive basis. Since the beginning of fiscal 1995 through January 31, 1996, 117,000 line miles of new seismic data were added to the Company's library, and the Company expects to continue its emphasis on sales of proprietary seismic data. 4 7 The industry has experienced a proliferation of both offshore and onshore multi-customer surveys as a result of modifications in oil and gas company spending strategies. In response to this increased demand, the Company has begun and is expecting to continue to selectively add data to its library, primarily in the Gulf of Mexico and the North Sea. Recent surveys have received significant initial funding from customers, which has reduced the related risk for the Company. Generally, the Company obtains pre-funding commitments for a majority of the cost of such surveys. Historically, proprietary seismic data sales have produced higher returns than the Company's other classes of services. THE OFFERING Common Stock offered by the Company.......................... 3,500,000 shares Common Stock offered by the Selling Stockholder.............. 200,000 shares Common Stock to be outstanding after this Offering.............. 14,623,422 shares(1) American Stock Exchange Symbol... DGC Use of Proceeds.................. To repay outstanding indebtedness, consisting of the Company's revolving credit facility (approximately $12.9 million at January 31, 1996), a $4.5 million secured term loan and the balance to retire outstanding equipment purchase obligations. See "Use of Proceeds." - --------------- (1) Excludes an aggregate of 1,356,401 shares reserved for issuance upon exercise of outstanding warrants and options. 5 8 SUMMARY CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED YEARS ENDED JULY 31, JANUARY 31, ---------------------------------------------------------- ------------------ 1991(1)(2) 1992(2) 1993(2) 1994 1995 1995 1996 ---------- -------- -------- -------- -------- ------- ------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues...................... $ 94,217 | $111,428 $117,709 $117,978 $132,569 $62,266 $78,246 Net income (loss)(3).......... 20,311 | 4,554 (1,258) (14,426) 2,778 1,436 1,829 Earnings (loss) per share..... .23 | .74 (.15) (1.48) .25 .13 .17 STATEMENT OF CASH FLOWS DATA: Net cash provided (used) by operating activities........ 636 1,392 (1,999) 885 (3,520) (5,752) 7,132 Net cash provided (used) by financing activities........ 3,895 10,880 17,981 7,865 (4,341) (1,032) (2,985) Net cash provided (used) by investing activities........ (4,137) (5,796) (18,861) (5,699) 3,660 1,099 (4,477) OTHER FINANCIAL DATA: EBITDA(4)..................... 9,178 13,699 11,426 11,567 22,229 12,393 12,039 EBIT(4)....................... 3,472 7,248 1,806 (2,191) 8,466 5,547 4,517
AS OF ADJUSTED AS OF JANUARY 31, JANUARY 31, 1996 1996(5) ----------- -------------- (UNAUDITED) BALANCE SHEET DATA: Working capital.......................................................... $ 14,280 $ 16,648 Total assets............................................................. 131,396 131,396 Long-term debt........................................................... 22,510 3,478 Stockholders' equity..................................................... 64,683 86,083
- --------------- (1) 1991 statement of operations data reflects results prior to the Company's quasi-reorganization which was effected as of July 31, 1991 following its emergence from Chapter 11 proceedings. (2) Excludes financial results of GFS Company prior to October 30, 1992, the acquisition date. See Note 9 of Notes to Consolidated Financial Statements. (3) In fiscal 1991, net income includes extraordinary gains of $26,361,000. (4) EBITDA represents earnings before interest, taxes, depreciation and amortization, restructuring charges, write-off/reserve for impairment of assets, equity in (earnings) loss of 50% or less owned companies and joint ventures, reorganization costs, gain on sale of investment in FSU joint ventures, other and extraordinary gains. EBIT consists of the same items but includes depreciation and amortization. Neither EBITDA nor EBIT should be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a better measure of liquidity. (5) Reflects the issuance of the 3,500,000 shares of the Common Stock offered by the Company in this Offering and the application of the estimated net proceeds as described in "Use of Proceeds." 6 9 RISK FACTORS Prospective investors should carefully consider the following factors, as well as the other information contained in this Prospectus. ENERGY INDUSTRY SPENDING Demand for the Company's seismic services depends upon the level of capital expenditures by oil and gas companies for exploration, production, development and field management activities. These activities depend in part on oil and gas prices, expectations about future prices, the cost of exploring for, producing and delivering oil and gas, the sale and expiration dates of leases in the United States and abroad, local and international political, regulatory and economic conditions and the ability of oil and gas companies to obtain capital. In addition, a decrease in oil and gas expenditures could result from such factors as unfavorable tax and other legislation or uncertainty concerning national energy policies. No assurance can be given that current levels of oil and gas activities will be maintained or that demand for the Company's services will reflect the level of such activities. Decreases in oil and gas activities could have a significant adverse effect upon the demand for the Company's services and the Company's results of operations. COMPETITION FOR SEISMIC BUSINESS Competition among seismic contractors historically has been intense. Competitive factors include price, crew experience, equipment availability, technological expertise and reputation for quality and dependability. Most of the Company's major competitors operate more data acquisition crews than the Company, have substantially greater revenues than the Company and are subsidiaries or divisions of major industrial enterprises having far greater financial and other resources than the Company. There can be no assurance that the Company will be able to compete successfully against its competitors for contracts to conduct seismic surveys and process data. See "Business -- Competition and Other Business Conditions." SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS The Company's seismic operations and quarterly financial results historically have been subject to seasonal fluctuation, with the greatest volume of both data acquisition and data processing occurring during the summer and fall in the Northern Hemisphere. However, as a result of the expansion of the Company's foreign operations and the deployment of its seismic vessels and crews into regions having opposing seasons or less severe weather conditions, the Company believes that the impact of seasonal fluctuations has been reduced. In addition to seasonality, the Company historically has experienced quarterly fluctuations in operating results. Operating results in any fiscal quarter may vary as a result of (i) the magnitude of certain contracts for the acquisition or sale of data, (ii) customers' budgetary cycles and (iii) seismic data sales occurring as a result of offshore lease sales. In light of customer budgetary considerations, the majority of the Company's sales of proprietary seismic data has historically tended to occur in the Company's fiscal first and second quarters. HAZARDOUS OPERATING CONDITIONS The Company's data acquisition activities involve operating under extreme weather and other hazardous conditions. Accordingly, these operations are subject to risks of loss to property and injury to personnel from such causes as fires and accidental explosions. The Company carries insurance against these risks in amounts that it considers adequate. The Company may not, however, be able to obtain insurance against certain risks or for certain equipment located from time to time in certain areas of the world. HIGH FIXED COSTS; CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE Because of the high fixed costs involved in the major components of the Company's business, downtime or low productivity due to reduced demand, weather interruptions, equipment failures or other causes can result in significant operating losses. In recent years, the Company's contracts for data acquisition have been predominately on a turnkey or on a combination of turnkey/time basis. Under the turnkey method, payments 7 10 for data acquisition services are based upon the amount of data collected, and the Company bears substantially all of the risk of business interruption caused by inclement weather and other hazards. When a combination of both turnkey and time methods is used, the risk of business interruptions is shared in an agreed percentage by the Company and the customer. Seismic data acquisition and processing is a capital intensive business. The development of seismic data acquisition and processing equipment has been characterized by rapid technological advancements in recent years and the Company expects this trend to continue. There can be no assurance that manufacturers of seismic equipment will not develop new systems that have competitive advantages over systems now in use that either render the Company's current equipment obsolete or require the Company to make significant capital expenditures. The Company intends to upgrade its data acquisition and processing equipment as often as necessary to maintain its competitive position. However, to do so may require large expenditures of capital in addition to the Company's planned capital expenditures. There can be no assurance that the Company will have the necessary capital or that financing will be available on favorable terms. If the Company is unable to raise the capital necessary for its capital expenditure program and to update its data acquisition and processing equipment to the extent necessary, it may be materially and adversely affected as a result. RISKS INHERENT IN INTERNATIONAL OPERATIONS In fiscal years 1994 and 1995, 55% and 54%, respectively, of the Company's revenues were derived from international operations and export sales, which are subject in varying degrees to risks inherent in doing business abroad. Such risks include the possibility of unfavorable changes in tax or other laws. For example, the Company has approximately 6,500 line miles of offshore Peru seismic data (book value approximately $2.0 million) which will become saleable only upon receipt of previously expected governmental licenses which have been delayed for more than a year and a $2.6 million delinquent account receivable from a foreign national oil company (no book carrying value) which will become collectible only upon receipt of necessary host country tax authorization. In addition, foreign operations include risks of partial or total expropriation; currency exchange rate fluctuations and restrictions on currency repatriation; the disruption of operations from labor and political disturbances, insurrection or war; and the requirements of partial local ownership of operations in certain countries. To minimize such risks, the Company generally denominates its contracts in U.S. dollars and other currencies it believes to be stable. The Company also obtains insurance against war, expropriation, confiscation and nationalization when such insurance is available and when management considers it advisable to do so. Such coverage is not always available, and when available, is subject to unilateral cancellation by the insuring companies on short notice. GOVERNMENTAL REGULATION The Company's operations are subject to a variety of federal, state, foreign and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with such laws and related permit requirements in its operations and anticipates that it will continue to do so in the future. In recent years, an increased number of the Company's data acquisition contracts have provided for customers to obtain all necessary permits. Customers' failure to timely obtain the required permits may result in crew downtime and operating losses. In the past, the Company's cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are changed frequently makes it impossible for the Company to predict the cost or impact of such laws and regulations on its future operations. The adoption of laws and regulations which have the effect of curtailing exploration by oil and gas companies could adversely affect the Company's operations by reducing the demand for its geophysical services. 8 11 THE COMPANY The Company provides seismic data acquisition and processing services to the petroleum industry in selected markets worldwide. The Company was incorporated in Texas in 1965 and was reincorporated in Delaware in 1969. In conjunction with the implementation of the Company's Second Amended Joint Plan of Reorganization, on June 7, 1991, Digicon Inc. was merged into a newly-formed, wholly-owned subsidiary incorporated under Delaware law. The Company's executive offices are located at 3701 Kirby Drive, Houston, Texas 77098, and its telephone number is (713) 526-5611. Unless the context otherwise requires, all references in this Prospectus to the "Company" include Digicon Inc. and its subsidiaries. USE OF PROCEEDS The net proceeds from the sale of the Common Stock offered hereby are estimated to be $21.4 million ($24.9 million if the overallotment option is exercised in full). The net proceeds will be used as follows: first to repay the outstanding balance under the Company's revolving credit facility (approximately $12.9 million at January 31, 1996) bearing interest at a prime rate plus 3% and maturing in April 1997; next to repay and retire a $4.5 million secured term loan bearing interest at 10.75% per annum and maturing in June 1997; and then any remaining proceeds to repay equipment purchase obligations bearing interest at an average rate of 11.85% per annum and maturing through August 1998. A portion of the equipment purchase obligations to be repaid has been incurred during the past 12 months and was used to upgrade the data acquisition equipment on a vessel. The Company intends either to seek a reduction in the cost of its existing revolving credit facility or to obtain a new credit facility with a commercial lender. While the Company will seek to obtain such a modified or new facility on more favorable terms than its existing facility, no assurances can be given that any such facility will be available. The Company may reborrow amounts from time to time under its revolving credit facility. 9 12 CAPITALIZATION The following table sets forth the consolidated short-term debt and capitalization of the Company as of January 31, 1996, and as adjusted to reflect the sale of the 3,500,000 shares of Common Stock offered by the Company hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds."
JANUARY 31, 1996 ---------------------- ACTUAL AS ADJUSTED ------- ----------- (DOLLARS IN THOUSANDS) (UNAUDITED) Short-term debt(1): Current maturities of long-term debt.......................... $ 9,479 $ 7,111 ======= ======= Long-term debt(1): Revolving credit agreement due April, 1997, at prime plus 3%......................................................... $12,937 $ 0 Secured term loan due June 1997, at 10.75%.................... 3,000 0 Equipment purchase obligations maturing through February 1999, at an average rate of 11.11% in fiscal 1996................ 6,573 3,478 ------- ------- Total long-term debt....................................... 22,510 3,478 ------- ------- Stockholders' equity: Common Stock, $.01 par value; 20,000,000 shares authorized; 11,123,422 shares issued and outstanding; 14,623,422 shares as adjusted(2)............................................. 111 146 Additional paid-in capital.................................... 71,095 92,460 Accumulated deficit from August 1, 1991....................... (6,523) (6,523) ------- ------- Total stockholders' equity................................. 64,683 86,083 ------- ------- Total capitalization..................................... $87,193 $89,561 ======= =======
- --------------- (1) For a description of the terms of the Company's debt, see Note 3 of Notes to Consolidated Financial Statements. (2) Excludes an aggregate of 1,356,401 shares reserved for issuance upon exercise of outstanding warrants and options. 10 13 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY PRICE RANGE OF COMMON STOCK The Common Stock is traded on the American Stock Exchange under the symbol "DGC." The following table sets forth the reported high and low sales prices for the Common Stock on the American Stock Exchange for the periods shown.
HIGH LOW ------ ------ Year ended July 31, 1994: First Quarter........................................................ $9 3/8 $6 3/4 Second Quarter....................................................... 8 7/16 6 Third Quarter....................................................... 9 3/8 5 5/8 Fourth Quarter....................................................... 6 2 13/16 Year ended July 31, 1995: First Quarter........................................................ $6 $3 3/8 Second Quarter....................................................... 5 13/16 3 3/8 Third Quarter........................................................ 5 1/8 3 1/8 Fourth Quarter....................................................... 6 4 1/4 Year ended July 31, 1996: First Quarter........................................................ $6 3/8 $4 3/4 Second Quarter....................................................... 8 3/4 5 3/8 Third Quarter (through March 5, 1996)................................ 7 1/2 6 1/4
On March 5, 1996, the last reported sales price for the Common Stock on the American Stock Exchange was $6 5/8 per share. As of January 31, 1996, there were approximately 300 record holders of the Common Stock. DIVIDEND POLICY Historically, the Company has not paid any dividends on its Common Stock and has no present plans to pay any dividends. The payment of any future dividends on Common Stock would depend, among other things, upon the current and retained earnings and financial condition of the Company, and upon a determination by its board of directors that the payment of dividends would be desirable. In addition, the Company's principal revolving credit facility prohibits, and its secured term loan contains certain restrictions, regarding the payment of dividends. 11 14 SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial data presented below is derived from the Company's Consolidated Financial Statements. The selected financial data as of and for the six-month periods ended January 31, 1995 and 1996, is unaudited and, in the opinion of management, includes all adjustments that are of a normal recurring nature and necessary for the fair presentation of the interim periods. The following selected financial data should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, contained in this Prospectus.
SIX MONTHS ENDED YEARS ENDED JULY 31, JANUARY 31, ------------------------------------------------------ ------------------ 1991(1)(2) 1992(2) 1993(2) 1994 1995 1995 1996 ---------- -------- -------- -------- -------- -------- ------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues........................... $ 94,217 | $111,428 $117,709 $117,978 $132,569 $ 62,266 $78,246 Costs and expenses: | Operating expenses: | Cost of services............... 81,959 | 93,546 101,866 101,310 105,912 47,709 63,680 Restructuring(3)............... | 1,363 800 Write-off/reserve for impairment | of assets(4)................... | 6,523 Depreciation and amortization.... 5,706 | 6,451 9,620 13,758 13,763 6,846 7,522 Selling, general and | administrative................. 3,080 | 4,183 4,417 5,101 4,428 2,164 2,527 Interest......................... 3,571 | 1,839 1,217 3,085 5,142 2,501 2,625 Equity in (earnings) loss of 50% | or less-owned companies and | joint ventures................. (115) | (121) 54 445 1,485 640 5 Reorganization costs............. 4,348 | Gain on sale of investment in FSU | joint ventures(4).............. | (4,370) Other............................ (407) | (320) 184 (702) 598 (74) 63 ------- | -------- -------- -------- -------- ------- ------- Total costs and | expenses................ 98,142 | 105,578 117,358 130,883 127,758 59,786 76,422 ------- | -------- -------- -------- -------- ------- ------- Income (loss) before provision for | (benefit from) income taxes and | extraordinary gains.............. (3,925) | 5,850 351 (12,905) 4,811 2,480 1,824 Provision for (benefit from) income | taxes............................ 2,125 | 1,296 1,609 1,521 2,033 1,044 (5) ------- | -------- -------- -------- -------- ------- ------- Income (loss) before extraordinary | gains............................ (6,050) | 4,554 (1,258) (14,426) 2,778 1,436 1,829 Extraordinary gains(5)............. 26,361 | ------- | -------- -------- -------- -------- ------- ------- Net income (loss).................. $ 20,311 | $ 4,554 $ (1,258) $(14,426) $ 2,778 $ 1,436 $ 1,829 ======= | ======== ======== ======== ======== ======= ======= Earnings (loss) per share.......... $ .23 | $ .74 $ (.15) $ (1.48) $ .25 $ .13 $ .17 ======= | ======== ======== ======== ======== ======= ======= Cash dividends -- common stock..... None | None None None None None None ======= | ======== ======== ======== ======== ======= ======= STATEMENT OF CASH FLOWS DATA: Net cash provided (used) by operating activities............. $ 636 $ 1,392 $ (1,999) $ 885 $ (3,520) $ (5,752) $ 7,132 Net cash provided (used) by financing activities............. 3,895 10,880 17,981 7,865 (4,341) (1,032) (2,985) Net cash provided (used) by investing activities............. (4,137) (5,796) (18,861) (5,699) 3,660 1,099 (4,477) OTHER FINANCIAL DATA: EBITDA(6).......................... 9,178 13,699 11,426 11,567 22,229 12,393 12,039 EBIT(6)............................ 3,472 7,248 1,806 (2,191) 8,466 5,547 4,517
12 15
ADJUSTED AS OF AS OF AS OF JULY 31, JANUARY 31, JANUARY 31, -------------------------------------------------- ------------------- ------------ 1991(2) 1992(2) 1993 1994 1995 1995 1996 1996(7) ------- ------- -------- -------- -------- -------- -------- ------------ (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Working capital........................ $ 6,217 $19,342 $ 16,752 $ 6,152 $ 7,330 $ 6,303 $ 14,280 $ 16,648 Total assets........................... 60,619 84,487 126,000 131,856 135,070 135,200 131,396 131,396 Long-term debt......................... 19,076 8,813 17,444 23,922 25,243 24,077 22,510 3,478 Stockholders' equity................... 9,652 44,739 65,717 58,550 58,882 62,283 64,683 86,083
- --------------- (1) 1991 statement of operations data reflects results prior to the Company's quasi-reorganization which was effected as of July 31, 1991 following its emergence from Chapter 11 proceedings. (2) Excludes financial results of GFS Company prior to October 30, 1992, the acquisition date. See Note 9 of Notes to Consolidated Financial Statements. (3) See Note 17 of Notes to Consolidated Financial Statements. (4) Results for the year ended July 31, 1994 include $6,523,000 for the write-off/reserve for the impairment of assets to their net realizable value. Results for the year ended July 31, 1995 include a gain of $4,370,000 for the net effect of the sale of the Company's investment in the FSU joint ventures. See Notes 17 and 16, respectively, of Notes to Consolidated Financial Statements. (5) In fiscal 1991, net income includes extraordinary gains of $1,153,000 for utilization of net operating loss carryforwards and $25,208,000 related to extinguishment of debt. (6) EBITDA represents earnings before interest, taxes, depreciation and amortization, restructuring charges, write-off/reserve for impairment of assets, equity in (earnings) loss of 50% or less owned companies and joint ventures, reorganization costs, gain on sale of investment in FSU joint ventures, other and extraordinary gains. EBIT consists of the same items but includes depreciation and amortization. Neither EBITDA nor EBIT should be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a better measure of liquidity. (7) Reflects the issuance of the 3,500,000 shares of the Common Stock offered by the Company in this Offering and the application of the estimated net proceeds as described in "Use of Proceeds." 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Selected Consolidated Financial Data" included elsewhere herein. RESULTS OF OPERATIONS Six Months Ended January 31, 1996 compared with Six Months Ended January 31, 1995 Revenues. For the six month period ended January 31, 1996, total revenues increased 26% from $62.3 million to $78.2 million. Land revenues increased 14% from $18.5 million to $21.1 million, primarily from two of the Company's North American crews operating on higher revenue producing 3D and transition zone surveys and increased rates and production on Argentina land surveys. These increases were partially offset by downtime during a domestic crew's conversion to an I/O System Two -- RSR system and permitting delays for another crew. Marine revenues increased 15%, from $18.5 million to $21.3 million, primarily resulting from the addition of a new vessel and the reassignment of two vessels to contract work. This increase was partially offset by a decline in revenues from the Company's other vessels due to weather delays, lower prices in the Far East and the start-up of a new vessel which is working in tandem with two other vessels. Data processing revenues increased 7% from $17.5 million to $18.7 million, due to improved contract terms at the Assen, Holland center, increased capacity at the Houston and Singapore centers and the improved Far East market. These increases were partially offset by the closing of the Company's Bogota, Colombia and Oklahoma City centers and depressed European data processing prices. Proprietary seismic data revenues increased 128% from $7.5 million to $17.1 million, resulting from an expansion of the Company's library. This expansion has been in response to modifications in oil and gas companies' spending strategies. Operating Expenses. Cost of services for the period increased 33% from $47.7 million to $63.7 million, and, as a percentage of total revenues, cost of services increased from 77% to 81%. The increase as a percentage of total revenues resulted from a weakness in marine acquisition margins, lower profitability on the mix of proprietary data sales and $929,000 in Argentina social security taxes retroactively applied to compensation of employees converted from temporary to permanent employment classification. Depreciation and Amortization. Depreciation and amortization expense increased 10% from $6.8 million to $7.5 million, due to equipment purchases for South American land crews, two of the Company's vessels and the Houston, Singapore and London data processing centers. Selling, General and Administrative. Selling, general and administrative expenses increased 17% from $2.2 million to $2.5 million, resulting primarily from additional costs incurred in implementing a new administrative data processing system. Interest. Interest expense increased 5% from $2.5 million to $2.6 million, resulting from additional financing for equipment purchases and an increase in overall borrowing costs. Equity in Loss. The FSU joint ventures were sold in June 1995, therefore equity losses declined from $640,000 to $5,000. Other. Other expenses (income) increased from income of $74,000 to an expense of $63,000. The current year includes losses on damaged cables and the prior year includes a gain on the sale of a seismic vessel partially offset by losses on damaged cables. Income Taxes. Provision for (benefit from) income taxes decreased from an expense of $1.0 million to a benefit of $5,000. In the current year, provision for income taxes from taxable income in Malaysia were offset by an $876,000 tax benefit resulting from taxable losses in South America generated by deductions for the Argentina social security taxes and compensation previously discussed. Provision for income taxes in the prior year related primarily to taxable income in Malaysia and South America and a tax assessment in Jakarta. 14 17 Fiscal Year 1995 Compared with Fiscal Year 1994 Revenues. For the fiscal year ended July 31, 1995, total revenues increased 12% from $118.0 million to $132.6 million. Land revenues increased 12% from $38.5 million to $43.1 million, resulting from increased production in Argentina, partially offset by reduced North America and Far East revenues. Land acquisition revenues in the Far East declined as a result of the decommissioning of an Australian crew. Marine revenues decreased 11% from $36.9 million to $32.8 million, resulting from the derigging of two seismic vessels, lower production from three vessels due to offshore obstructions and bad weather, and the reassignment of one vessel from contract work to proprietary data acquisition. Improved market conditions for 2D surveys continued in the Far East where marine revenues increased by $7.0 million during the current year. Data processing revenues increased 20% from $30.0 million to $36.1 million, primarily resulting from additional capacity. The improved data processing performance was partially offset by lower revenues generated by the Company's processing center in Jakarta, which is expected to be closed during 1997. Proprietary seismic data sales increased 74% from $11.7 million to $20.4 million, resulting from an expansion of the Company's data library. This expansion has been in response to modifications in oil and gas companies' spending strategies. Operating Expenses. Cost of services increased 5% from $101.3 million to $105.9 million, primarily resulting from increased operating levels. Cost of services as a percentage of sales declined from 86% to 80% due to savings from the restructuring program implemented during fiscal 1994 and higher profitability of proprietary data sales. During fiscal 1995, the Company accrued $800,000 of costs related to the closing of the Jakarta processing center. In fiscal 1994, restructuring charges of $1.4 million were recognized, primarily relating to severance costs associated with a reduction in the Company's workforce. Depreciation and Amortization. Depreciation and amortization expense remained essentially unchanged at $13.8 million. Fiscal 1995 reflects decreases in charges resulting from the prior year's restructuring program of $2.4 million, offset primarily by an increase in charges on new asset purchases. Selling, General and Administrative. Selling, general and administrative expenses decreased by 13% from $5.1 million to $4.4 million, primarily resulting from the accrual of $607,000 in the prior year for benefits payable over five years under an employment contract with a former executive. Interest. Interest expense increased 67% from $3.1 million to $5.1 million as a result of increased borrowings on working capital facilities and equipment financing, as well as higher borrowing costs. FSU Joint Venture. In April 1994, the Company acquired interests in joint ventures that operate in the FSU. In acquiring these interests, the Company exchanged common stock and cash commitments valued in excess of the fair market value of the net assets received. The excess value was being amortized over a 20-year period, and the Company recorded $392,000 of amortization expense during fiscal 1995. The joint ventures were in the start-up phase and the Company recorded $1.5 million of equity losses during fiscal 1995. In June 1995, the Company disposed of its FSU interests and recorded a $4.4 million gain on the sale. See Note 16 to Notes to Consolidated Financial Statements. Other. Other expenses (income) decreased from income of $702,000 to an expense of $598,000. In fiscal 1995, net losses were recorded on the disposition of property and equipment, partially offset by a gain on the sale of a vessel. Income recorded in the prior year resulted primarily from a gain on the sale of a vessel. Income Taxes. Provisions for income taxes increased from $1.5 million to $2.0 million resulting from higher taxable income (including a prior year assessment) in foreign jurisdictions. Fiscal Year 1994 Compared with Fiscal Year 1993 Revenues. During the year ended July 31, 1994, total revenue increased from $117.7 million to $118.0 million. Land revenue increased 116% from $17.8 million to $38.5 million, resulting from the addition of three land crews during fiscal 1993 and 1994. Marine revenue decreased 38% from $59.1 million to $36.9 million, primarily resulting from the Company derigging four of its vessels during fiscal 1993 and 1994. Data processing revenues decreased 16% from $35.8 million to $30.0 million, primarily resulting from excess 15 18 capacity in the industry's marine segment. Proprietary seismic data sales increased 232% from $3.5 million to $11.7 million, resulting from the increase in the book value of the Company's proprietary data library from $10.3 million to $19.6 million. This expansion has been in response to modifications in oil and gas companies' spending strategies. Operating Expenses. Cost of services decreased from $101.9 million to $101.3 million, and as a percentage of total revenue, cost of services declined from 87% to 86%. This decrease in operating expense as a percentage of revenue resulted from improved margins on proprietary data sales and savings in the fourth quarter as a result of the restructuring. In fiscal 1994, the Company incurred restructuring charges of $1.4 million as discussed above. Write-off of Assets. In fiscal 1994, the Company recorded $6.5 million in expenses associated with the write-off/reserve of certain assets including $2.4 million of marine and $552,000 of land acquisition assets related to decommissioned marine vessels and stacked land crews. The write-off/reserve also included the write-down of other marine and land acquisition assets of $1.0 million. In addition, due to decreased activity in Indonesia the Company wrote down data processing equipment by $2.1 million and wrote off $430,000 of proprietary data. Depreciation and Amortization. Depreciation and amortization expense increased 43% from $9.6 million to $13.8 million. During fiscal 1993 and 1994, the Company spent approximately $51.0 million for upgrades to marine vessels, equipment for new land crews and new processing equipment to enhance its market position. As a result, depreciation expense for the year ended July 31, 1994 increased a net $3.9 million. This increase includes approximately $600,000 in depreciation savings recognized as a result of the write-off and reserve for impairment of assets. Selling, General and Administrative. Selling, general and administrative expenses increased 15% from $4.4 million to $5.1 million, primarily resulting from expensing severance benefits of $607,000. Interest. Interest expense increased 153% from $1.2 million to $3.1 million. To provide additional working capital during fiscal 1994, the Company obtained a new revolving credit facility providing advances up to $15.0 million, borrowed approximately $900,000 against its Indonesian credit facility, borrowed $6.1 million in short-term related party debt (of which $3.4 million was outstanding for a majority of fiscal 1994) and financed approximately $4.2 million of equipment purchases. FSU Joint Venture. During fiscal 1994, the Company exchanged 1,024,317 shares of Common Stock valued at $7.125 per share, or $7.3 million, and a cash commitment in the amount of $1.0 million in return for interests in four joint ventures which operate in the FSU. Subsequent to year-end, the Company increased its ownership interest in two of the joint ventures by exchanging an additional 684,181 shares of Common Stock valued at $3.375 per share, or $2.3 million and committing to an additional $2.0 million in cash plus loan guaranties. The excess of the purchase price over the fair value of the net assets received was being amortized over a 20-year period and for the fiscal year ended 1994, the Company recorded $100,000 in amortization expense. Other. Other expenses (income) decreased from an expense of $184,000 to income of $702,000, resulting from improved U.S. to foreign currency exchange rates and gains on the sale of property and equipment. Income Taxes. Provisions for income taxes decreased from $1.6 million to $1.5 million. The provision for income taxes in fiscal 1994 related primarily to taxes on South American operations. The provision for income taxes in fiscal 1993 related primarily to operations in Mexico. LIQUIDITY AND CAPITAL RESOURCES The Company's internal sources of liquidity are cash balances ($3.9 million at January 31, 1996) and cash flow from operations ($7.1 million for the six months ended January 31, 1996). External sources include the proceeds of this Offering, the unutilized portion of its working capital facility described below (approximately $9.0 million at March 5, 1996), equipment financing and trade credit. To provide additional working capital, the Company maintains a $17.0 million revolving credit facility with a commercial finance company which provides for borrowings of up to 80% of the majority of the Company's domestic and foreign receivables 16 19 at an interest rate of 3% over a prime rate, secured by most of the Company's world-wide assets. The Company plans to repay the entire outstanding balance on this revolving credit facility with proceeds of this Offering. Following such repayment, $17.0 million will be available under this revolver until its maturity in April 1997, although the Company will seek to either reduce the cost of the facility or replace it with a more cost-effective facility. The Company requires significant amounts of working capital to support its operations and to fund its capital spending and research and development programs. The Company's foreign operations, which accounted for 54% of fiscal 1995 revenues and 56% of revenues in the first half of fiscal 1996, require greater amounts of working capital than similar domestic activities, as the average collection period for foreign receivables is generally longer than for comparable domestic accounts. In addition, the Company has increased its participation in non-exclusive data surveys and has significantly expanded its library of proprietary data. Because of the lead time between survey execution and sale, non-exclusive surveys generally require greater amounts of working capital than contract work. During the past six months, this problem was exacerbated as, for budgeting purposes, several clients deferred payments on data library purchases totaling in excess of $5.0 million until January and February 1996, at which time substantially all of such receivables were collected. Depending on the timing of future sales of the data and the collection of the proceeds from such sales, the Company's liquidity will continue to be affected; however, the Company believes that these non-exclusive surveys have good long-term sales, earnings and cash flow potential. In recent years, the Company has updated and increased its data processing capabilities, invested significant capital to outfit a new seismic vessel and has, more recently, allocated significant resources to its land and transition zone activities. Since July 31, 1992, the Company has committed approximately $77.6 million for new capital equipment and invested approximately $13.2 million in its research and development efforts. During fiscal 1996, the Company expects to spend approximately $13.7 million for capital expenditures and $2.7 million for research and development activities. In addition, $6.2 million of equipment was purchased by a commercial finance company and leased to the Company under an operating lease entered into in December 1995. The majority of capital spending in fiscal 1996 will be to upgrade and expand the Company's land and marine data acquisition capabilities. The utilization of net operating loss carryforwards ("NOLs") is subject to certain limitations. Additionally, when such NOLs are utilized, the benefit will be recognized as an addition to paid-in capital and will not be reflected in the consolidated statements of operations. See "Income Taxes" in Note 1 to the Consolidated Financial Statements, as well as Note 4 to the Consolidated Financial Statements. The Company believes that it possesses sufficient liquidity to continue operations on a satisfactory basis. If additional working capital were to become necessary as a result of deterioration in demand for or pricing of the Company's services, and if additional financing were not available, the Company's operating results and financial condition could be adversely affected. 17 20 BUSINESS GENERAL The Company was founded in 1965 and provides seismic data acquisition and processing services to the petroleum industry in selected markets worldwide. Oil and gas companies utilize seismic data for the determination of suitable locations for drilling exploratory wells and, increasingly, in reservoir management for the development and production of oil and gas reserves. The Company acquires seismic data in land, in marine, and in marsh, swamp and tidal ("transition zone") environments and processes data acquired by its own crews and crews of other operators. In addition, the Company acquires and processes seismic data on a non-exclusive basis for future sale to multiple customers. In conjunction with certain changes in senior management in 1994, the Company initiated a comprehensive program designed to restructure and refocus each of the Company's geographic and operational lines of business. The Company's actions included: (i) selling its marine and land seismic equipment manufacturing operations; (ii) selling its joint venture interests in the FSU; (iii) deploying its land and transition zone crews and its marine crews into markets where the Company's presence would likely be significant, such as the Gulf of Mexico transition zone; (iv) expanding its accumulation and sale of proprietary seismic data to exploit the historically higher margins associated with non-exclusive data sales; (v) emphasizing its research and development on the proprietary seismicTANGO software in order to capitalize on its reputation for seismic data processing innovation; and (vi) streamlining its cost structure through personnel reductions, office consolidations, vessel deactivations and the outsourcing of certain development and manufacturing functions. The continued implementation of this program has increased revenues and significantly improved operating efficiencies. INDUSTRY OVERVIEW Geophysical services enable oil and gas companies to determine whether subsurface conditions are likely to be favorable for finding new oil and gas accumulations and assist oil and gas companies in determining the size and structure of previously identified oil and gas fields. These services consist of the acquisition and processing of 3D and 2D seismic and other geophysical data, which is used to produce computer-generated graphic cross-sections and maps of the subsurface strata. The resulting cross-sections and maps are then analyzed and interpreted by geophysicists and are used by oil and gas companies in the acquisition of new leases, the selection of drilling locations on exploratory prospects and in reservoir development and management. Geophysical data is acquired by marine, land and transition zone crews. In data acquisition, a source of acoustical energy is employed at or below the earth's surface and an acoustical wave is produced through the discharge of compressed air, the detonation of small explosive charges, or other energy generating techniques. As the acoustical wave travels through the earth, portions are reflected by variations in the underlying rock layers, and the reflected energy is captured by geophones situated at intervals along specified paths from the point of acoustical impulse. The resulting signals are then transmitted to a recording unit which amplifies the reflected energy wave and converts it into digital data. This data is then input into a specialized data processing system that enhances the recorded signal by reducing noise and distortion and improving resolution and arranges the input data to produce, with the aid of plotting devices, an image of the subsurface strata. By interpreting seismic data, oil and gas companies create detailed maps of prospective areas and producing oil and gas reservoirs. Advances in seismic technology have shifted the emphasis from 2D to 3D seismic surveys. Three dimensional surveys generate extremely large data volumes and involve the acquisition of a very dense grid of seismic data over a precisely defined area. This heavy concentration of data requires extensive computer processing to produce an accurate image of the subsurface. Processing of 3D data is a complex operation involving the use of sophisticated proprietary mathematical techniques to image the subsurface layers. Although 3D surveys are acquired in a dense grid, computer analysis allows the geophysicist to focus the data to closely examine and interpret important subsurface features. 18 21 COMPANY OVERVIEW The Company's principal areas of service include (i) land and transition zone data acquisition, (ii) marine data acquisition, (iii) data processing and (iv) sale of proprietary seismic data. Land and transition zone data acquisition. The Company's land and transition zone data acquisition crews consist of (i) a surveying unit that lays out the lines to be recorded, (ii) an explosives or mechanical vibrating unit and (iii) a recording unit that lays out the geophones and recording instruments. The Company's land and transition zone data acquisition services are conducted by five seismic crews, three of which operate in the continental United States and two of which are dedicated to South America and currently operate in Argentina. In fiscal 1995, land and transition zone data acquisition accounted for approximately 33% of the Company's revenues. The success of 3D seismic offshore has led to a significant increase in demand for 3D seismic onshore and in transition zone areas. In recent years, exploration activity in land and transition zone areas by the major oil and gas companies and independents has increased. In fiscal 1993, the Company acquired GFS Company, a contractor in the Gulf Coast transition zone, and has subsequently upgraded four crews utilizing advanced technology, high capacity I/O equipment. Two of these land crews are working in the Gulf Coast area and the other two have been dedicated to the expanding South American marketplace. The Company expects to upgrade the fifth crew to RSR equipment during calendar year 1996. Marine data acquisition. The Company's marine data acquisition crews operate on chartered vessels equipped with seismic, navigational and communications equipment. All of the vessels operated by the Company are equipped to perform both 3D and 2D seismic surveys. As of January 31, 1996, the Company had six vessels in operation, with three located in the Gulf of Mexico and one located in each of Australia, Indonesia and the North Sea. In fiscal 1995, marine data acquisition accounted for approximately 25% of the Company's revenues. Vessels with multiple streamers and multiple energy sources acquire more lines of data with each pass, reducing time to completion and the effective acquisition cost. Accordingly, the Company has upgraded one vessel so that it can be configured with up to four streamers and two energy sources, which enables that vessel to simultaneously record up to eight seismic lines. The Company has also developed a multi-boat configuration as a cost effective alternative to large multi-element vessels for simultaneously acquiring multiple lines of data. The multi-boat configuration utilizes up to three smaller vessels operating parallel to each other and working together to acquire multiple lines of data. This configuration is particularly effective in obstructed areas, which place a premium on maneuverability and versatility. The three vessels located in the Gulf of Mexico are currently operating in this configuration. The two vessels currently located in the Far East are acquiring predominantly 2D surveys. Data processing. The Company currently operates seven geophysical data processing centers, including one under contract to a major oil and gas company. These centers process data acquired by the Company's own crews and crews of other operators. The centers are located in Houston, Texas; Singapore; London, England; Brisbane, Australia; Jakarta, Indonesia; Kuala Lumpur, Malaysia; and Assen, Holland. In each of these locations, the Company operates high capacity, advanced technology data processing systems based on Convex and Hewlett Packard computer systems with high speed networks. In fiscal 1995, data processing accounted for approximately 27% of the Company's revenues. The Company has developed seismicTANGO, advanced proprietary data processing software which has been installed at all of the Company's data processing centers and on three vessels and three land crews. The seismicTANGO software is a fast, efficient and accurate system which enhances quality control, facilitates the movement of data from the field to data processing centers and may be used on a variety of hardware platforms. Current development is aimed at enhancing the resolution of data from geologically complex formations, such as those present in Gulf of Mexico subsalt plays. Sale of proprietary seismic data. The Company also acquires and processes seismic data for its own account through surveys partially funded by multiple customers. Such surveys are offered for sale to other customers on a nonexclusive basis. Since the beginning of fiscal 1995 through January 31, 1996, 117,000 line 19 22 miles of new seismic data were added to the Company's library, and the Company expects to continue its emphasis on sales of proprietary seismic data. The industry has experienced a proliferation of both offshore and onshore multi-customer surveys as a result of modifications in oil and gas company spending strategies. In response to this increased demand, the Company has begun and is expecting to continue to selectively add data to its library, primarily in the Gulf of Mexico and the North Sea. Recent surveys have received significant initial funding from customers, which has reduced the related risk for the Company. Generally, the Company obtains pre-funding commitments for a majority of the cost of such surveys. Historically, proprietary seismic data sales have produced higher returns than the Company's other classes of services. SERVICES AND MARKETS The Company acquires seismic data in marine, land and transition zone environments and processes data acquired from its own crews as well as data acquired by other geophysical crews. As of January 31, 1996, the Company operated three land and transition zone crews in the U.S. and two land crews in Argentina. The Company's six marine crews operate in selected markets worldwide. The Company also operates seven seismic data processing facilities in major petroleum centers around the world. In fiscal 1995 and the first half of fiscal 1996, 54% and 56%, respectively, of the Company's revenues were attributable to international operations and export sales. When performing geophysical services under contract for oil and gas producers, the Company may be employed to acquire and/or process geophysical data. Under any of these arrangements, the Company's entire work-product belongs to the contracting party. The Company also accumulates and processes geophysical data for its own account, preserving its work-product in a data library for later sale to interested parties on a non-exclusive basis. When acquiring data for its library, the Company generally obtains pre-funding commitments for a majority of the cost of such surveys. The following tables set forth the Company's revenues by service group and geographical segment: REVENUES BY SERVICE GROUP(1)
YEARS ENDED JULY 31, ------------------------------ 1993 1994 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Land and transition zone data acquisition.............. $ 17,801 $ 38,454 $ 43,108 Marine data acquisition................................ 59,104 36,871 32,781 Data processing........................................ 35,773 30,017 36,104 Sale of proprietary seismic data....................... 3,522 11,710 20,351 Other.................................................. 1,509 926 225 -------- -------- -------- Total........................................ $117,709 $117,978 $132,569 ======== ======== ========
- --------------- (1) Revenues from data acquisition and data processing services are recorded as revenues based on contractual rates set forth in the related contract if the contract provides a separate rate for each segment. If the contract only provides a rate for the overall service, revenue is recognized based on the percentage of the work effort completed compared with the total work effort involved in the contract. 20 23 REVENUES BY GEOGRAPHICAL SEGMENT
YEARS ENDED JULY 31, ------------------------------ 1993 1994 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) United States(1)....................................... $ 37,476 $ 54,467 $ 63,048 Europe and Middle East................................. 24,699 29,891 20,230 Africa................................................. 13,020 Far East............................................... 38,569 19,401 27,360 South America.......................................... 3,945 14,219 21,931 -------- -------- -------- Total........................................ $117,709 $117,978 $132,569 ======== ======== ========
- --------------- (1) Includes export sales of $10,138,000; $1,501,000; and $2,228,000 in fiscal 1993, 1994 and 1995, respectively. See Note 11 of Notes to the Consolidated Financial Statements for additional segment information. Geophysical services are marketed from the Company's Houston offices and from its regional administrative centers by personnel whose duties also typically include technical, supervisory or executive responsibilities. Contracts are obtained either through competitive bidding in response to invitations for bids, by direct negotiation with the prospective customer or through the initiation by the Company of surveys for its library of data, which surveys are then offered for sale to oil and gas companies on a non-exclusive basis. Contracts for exclusive data acquisition involve payments on either a "turnkey" or a "time" basis or on a combination of both methods. Under the turnkey method, payments for data acquisition services are based upon the amount of data collected, and the Company bears substantially all of the risk of business interruption caused by inclement weather and other hazards. When operating on a time basis, payments are based on agreed rates per unit of time, which may be expressed in periods ranging from days to months, and most of the risk of business interruption (except for interruptions caused by failure of the Company's equipment) is borne by the customer. When a combination of both turnkey and time methods is used, the risk of business interruptions is shared in an agreed percentage by the Company and the customer. In each case, progress payments are usually required unless it is expected that the job can be accomplished in a brief period. In recent years, the Company's contracts for data acquisition have been predominately on a turnkey or on a combination of turnkey/time basis. Except for services performed at the Assen, Holland contract data processing center, substantially all exclusive data processing work is done on a turnkey basis. DATA ACQUISITION SERVICES Land and Transition Zone. The Company's land and transition zone data acquisition services are conducted by five seismic crews, three of which operate in the continental United States and two of which are dedicated to South American markets and currently operate in Argentina. Two of the Company's domestic crews were acquired in October 1992 as a result of the purchase of GFS Company, which had extensive 3D experience in the transition zone environment. Each of the Company's crews consists of a surveying unit which lays out the lines to be recorded and marks the site for shot-hole placement or equipment location, an explosives or mechanical vibrating unit and a recording unit that lays out the geophones and recording instruments, directs shooting operations and records the acoustical signal reflected from subsurface strata. On the typical land seismic survey, the seismic crew is supported by several drill crews, which are furnished by third parties under short-term contracts. Drill crews operate in advance of the seismic crew and bore shallow holes for explosive charges which, when detonated by the seismic crew, produce the necessary acoustical impulse. In locations where the use of explosives is precluded due to population density, technical requirements or ecological factors, a mechanical vibrating unit or compressed air is substituted for explosives as the acoustical source. 21 24 The Company's land and transition zone crews are equipped to perform both 3D and 2D surveys, utilizing seismic recording instruments, geophones and a variety of other seismic equipment, tools and stores. Each crew is capable of recording seismic data utilizing any energy source. Company vehicles assigned to each crew consist of a recording truck, two or more cable and geophone trucks, an explosives unit or vibrator trucks and several personnel vehicles with off-road capability. A summary of the Company's land and transition zone seismic recording equipment as of January 31, 1996, is shown below:
SEISMIC RECORDING CAPACITY CREW NO. LOCATION EQUIPMENT TYPE (CHANNELS) - -------- ------------- ------------------ ------------------- 301............................ United States I/O System Two 1,800 303............................ United States Seismic Group 2,200 Recorder 325............................ United States I/O System Two-RSR 1,800 309............................ Argentina I/O System Two 1,400 312............................ Argentina I/O System Two 600
Marine. Marine data acquisition services are carried out by the Company's crews operating from vessels which have been modified or equipped to Company specifications and outfitted with a full complement of seismic, navigational and communications equipment. The following table sets forth certain information concerning the geophysical vessels operated by the Company as of January 31, 1996:
SEISMIC YEAR LOCATION AT RECORDING ENTERED JANUARY 31, CAPACITY VESSEL SERVICE 1996 LENGTH BEAM (CHANNELS) --------------------------- ------- --------------- --------- -------- --------- Acadian Commander.......... 1981 Gulf of Mexico 217 feet 44 feet 240/3D Acadian Searcher........... 1983 Australia 217 feet 44 feet 240/3D Ross Seal.................. 1987 Indonesia 176 feet 38 feet 240/3D Seacor Surf................ 1991 Gulf of Mexico 135 feet 35 feet 240/3D Polar Search............... 1992 North Sea 300 feet 51 feet 1,920/3D Pearl Chouest.............. 1995 Gulf of Mexico 210 feet 40 feet 240/3D
The Polar Search is chartered from a ship operator for an initial term which expires on December 31, 1999. The vessel has recently been upgraded and equipped with advanced technology including the capability to simultaneously record up to eight seismic lines utilizing any combination of up to four Syntrak 480 streamers and two energy sources, as well as the most advanced navigation and positioning equipment obtainable. The Company's vessels (other than the Polar Search) are operated under charter arrangements expiring at various times through January 1997. Historically, the Company has been able to extend its vessel charters on terms and at rates closely approximating the expiring terms and rates. The Company has the right to renew the charters for the Ross Seal, the Seacor Surf and the Polar Search for periods ranging from two to six years. Decisions on whether to extend or renew expiring vessel charters or enter into charters with other vessel owners are pending and will be made prior to each charter expiration date. All of the vessels operated by the Company are equipped to perform both 3D and 2D seismic surveys. During the last several years, a majority of the marine seismic data acquisition services performed by the Company involved 3D surveys. The Company frequently upgrades seismic survey equipment on its vessels to enhance performance quality and incorporate new technology. Each vessel has an equipment complement consisting of seismic recording instrumentation, 4,500 to 6,000 meters of digital seismic streamer cable (21,000 meters on the Polar Search), cable location and seismic data location (binning) systems, multiple navigation systems, a source control system which controls the synchronization of the energy source (except in the case of the Seacor Surf) and a firing system which generates the acoustical impulses. The streamer cable contains hydrophones (marine geophones) that receive the acoustical impulses reflected by variations in the 22 25 subsurface strata. Data acquired by each channel in the digital cable is partially processed before it is transmitted to recording instruments for storage on magnetic media, thus reducing subsequent processing time and the effective acquisition costs to the customer. In August 1994, the Company signed a series of agreements with Syntron, Inc. ("Syntron"), pursuant to which the Company expects to upgrade the recording systems on each of its vessels (other than the Polar Search which has recently been upgraded) to the Syntrak 480 marine digital telemetry system. Each marine seismic crew consists of approximately 20 persons, excluding the ship's captain and ship personnel. Seismic personnel live aboard ship during their tours of duty, which are staggered to permit continuous operations. During seismic operations, Company personnel direct the positioning of the vessel using sophisticated navigational equipment, deploy and retrieve the seismic streamer cable and energy-source array, and operate all other systems relating to data collection activities. Company personnel do not, however, have ultimate responsibility for the vessel, which is operated by the captain and personnel who are employees of the vessel owner. DATA PROCESSING The Company currently operates seven geophysical data processing centers, including one under contract to a major oil and gas company. At each of the centers, data received from the field, both from Company and other geophysical crews, is processed to produce an image of the earth's subsurface using proprietary computer software and techniques developed by the Company. The Company also reprocesses older seismic data using new techniques designed to enhance the quality of the data. A majority of the Company's data processing services are performed on 3D seismic data. A summary of the Company's processing centers is as follows:
YEAR OPENED ---- Houston, Texas.............................................. 1966 Singapore................................................... 1970 London, England............................................. 1973 Brisbane, Australia......................................... 1982 Jakarta, Indonesia(1)....................................... 1984 Kuala Lumpur, Malaysia...................................... 1991 Assen, Holland(2)........................................... 1982
- --------------- (1) Operated by an 80%-owned subsidiary. The minority owner has an option to reduce the Company's ownership to 41%. The Company plans to close the center in fiscal 1997. (2) Operated under customer contract, which expires in December 1996. The Company's centers operate high capacity, advanced technology data processing systems based on Convex and Hewlett Packard ("HP") systems with high speed networks. Recent installations in Houston, London and Singapore of HP's new K class servers ("KittyHawk") have been carried out to take advantage of price/performance improvements. The Company has installed its proprietary software, seismicTANGO, on three land acquisition crews (two in North America and one in South America) and three marine vessels. These systems run seismicTANGO software identical to that utilized in the Company's data processing centers, allowing for ease in the movement of data from the field to the data processing centers. Continuing development of seismicTANGO is aimed at enhancing the resolution of data from geologically complex formations, such as those present in Gulf of Mexico subsalt plays. PROPRIETARY SEISMIC DATA In its data acquisition and processing efforts, the Company acquires and processes data for its own account through surveys partially funded by multiple customers. Once acquired and processed, such surveys are then offered for sale to other customers on a nonexclusive basis. Factors considered in determining 23 26 whether to undertake such surveys include the availability of initial participants to underwrite a majority of the costs, the location to be surveyed, the probability and timing of future lease, concession and development activity in the area, and the availability, quality and price of competing data. During the past three years, the Company has increased its emphasis on its proprietary data activities. Since the beginning of fiscal 1995 through January 31, 1996, 117,000 line miles of new seismic data were added to the Company's library. The Company expects to continue its emphasis on the sale of proprietary seismic data and in 1996 expects to selectively add additional Gulf of Mexico and North Sea data to its library. TECHNOLOGY The geophysical industry is highly technical, and the requirements for the acquisition and processing of seismic data have evolved continuously over the past 50 years. Accordingly, it is of significance to the Company that its technological capabilities remain comparable to those of its competitors, whether through continuing research and development, strategic alliances with equipment manufacturers or by acquiring technology under license from others. The Company has introduced several technological innovations in its geophysical service business, which have become industry standard practice in both acquisition and processing. In August 1994, the Company sold certain inventory, data acquisition equipment and technology and transferred its marine and land engineering and manufacturing department personnel to Syntron. Syntron is a leading manufacturer of advanced digital data acquisition systems which have gained wide acceptance in the industry. The Company has upgraded one vessel and plans to upgrade each of its other vessels to Syntron equipment pursuant to agreements that continue for approximately 18 months. Until such time as currently operated data acquisition equipment is replaced, the Company will continue to have access to the equipment and technology sold to Syntron through leasing arrangements. Currently, the Company employs approximately 40 persons in its research and development activities, substantially all of whom are scientists, engineers or programmers. During fiscal year 1993, 1994 and 1995, research and development expenditures were $4.2 million, $4.9 million and $2.9 million, respectively. The reduced level of expenditures in 1995 reflects the transfer of the Company's marine and land engineering department to Syntron in August 1994. The Company only periodically applies for patents on internally developed technology. This policy is based upon the belief that most proprietary technology, even where regarded as patentable, can be more effectively protected by maintaining confidentiality than through disclosure and a patent enforcement program. Certain of the equipment, processes and techniques used by the Company are subject to the patent rights of others, and the Company holds non-exclusive licenses with respect to a number of such patents. While the Company regards as beneficial its access to others' technology through licensing, the Company believes that substantially all presently licensed technology could be replaced without significant disruption to the business should the need arise. The Company's continual upgrading of technology, together with the purchase of new equipment during the previous three years, has required a major commitment to capital spending. The amount of future capital expenditures will depend on the availability of funding and market requirements as dictated by oil and gas company activity levels. 24 27 The following table sets forth, for the three years ended July 31, 1995, the Company's capital expenditures for each of its significant operations.
YEARS ENDED JULY 31, --------------------------------- 1993 1994 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Land and transition zone seismic crews............ $ 8,670 $ 5,066 $ 5,791 Marine seismic crews.............................. 25,177(1) 3,370 8,296 Data processing centers........................... 6,257 1,931 3,438 Other............................................. 322 324 717 ------- ------- ------- Total................................... $40,426 $10,691 $18,242 ======= ======= =======
- --------------- (1) Includes $7,800,000 of assets purchased in exchange for deferred credits on future seismic services. See Note 10 to Consolidated Financial Statements. COMPETITION AND OTHER BUSINESS CONDITIONS Competition. The acquisition and processing of seismic data for the oil and gas exploration industry has historically been highly competitive worldwide. However, as a result of changing technology and increased capital requirements, the seismic industry has consolidated substantially since the late 1980's. The consolidation has reduced the number of competitors, and the largest competitors remaining in the market are Western Geophysical (a division of Western Atlas Inc.), Geco-Prakla (a division of Schlumberger), Compagnie Generale Geophysique and Petroleum Geo-Services A/S. Although reliable comparative figures are not available in all cases, the Company believes that its largest competitors have more extensive and diversified operations and have financial and operating resources in excess of those available to the Company. Competition for available seismic surveys is based on several competitive factors, including price, performance, dependability, crew experience and equipment availability. Operating Conditions/Seasonality. The Company's data acquisition activities often are conducted under extreme weather and other hazardous conditions. Accordingly, these operations are subject to risks of injury to personnel and loss of equipment. The Company carries insurance against the destruction of, or damage to, its chartered vessels and its geophysical equipment in amounts that it considers adequate. The Company may not, however, be able to obtain insurance against certain risks or for equipment located from time to time in certain areas of the world. The Company obtains insurance against war, expropriation, confiscation and nationalization when such insurance is available and when management considers it advisable to do so. Such coverage is not always available and, when available, is subject to unilateral cancellation by the insuring companies on short notice. The Company also carries insurance against pollution hazards and injury to persons and property that may result from its operations and considers the amounts of such insurance to be adequate. Fixed costs, including costs associated with vessel charters and operating leases, labor costs, depreciation and interest expense, account for more than one-half of the Company's costs and expenses. As a result, downtime or low productivity resulting from reduced demand, equipment failures, weather interruptions or otherwise, can result in significant operating losses. The Company's seismic operations and quarterly financial results historically have been subject to seasonal fluctuation, with the greatest volume of both data acquisition and data processing occurring during the summer and fall in the Northern Hemisphere. However, as a result of the expansion of the Company's foreign operations and the deployment of its seismic vessels and crews into regions having opposing seasons or less severe weather conditions, the Company believes that the impact of seasonal fluctuations has been reduced. In addition to seasonality, the Company historically has experienced quarterly fluctuations in operating results. Operating results in any fiscal quarter may vary as a result of (i) the magnitude of certain contracts for the acquisition or sale of data, (ii) customers' budgetary cycles and (iii) seismic data sales occurring as a result of offshore lease sales. In light of customer budgetary considerations, the majority of the Company's sales of proprietary seismic data has historically tended to occur in the Company's first and second quarters. 25 28 BACKLOG At January 31, 1996, the Company's backlog of commitments for services was $82.5 million, compared with $86.6 million at July 31, 1995. Such backlog consisted of written orders or commitments believed to be firm. Contracts for services are occasionally varied or modified by mutual consent and in certain instances are cancelable by the customer on short notice without penalty; consequently, the Company's backlog as of any particular date may not be indicative of the Company's actual operating results for any succeeding fiscal period. It is anticipated that approximately 76% of the orders and commitments included in backlog at January 31, 1996, will be completed prior to the end of fiscal 1996. SIGNIFICANT CUSTOMERS Historically, the Company's principal customers have been international oil and gas companies, foreign national oil companies and independent oil and gas companies. In fiscal 1993, Royal Dutch Shell and its subsidiaries and affiliates accounted for 11% of the Company's revenues. In fiscal 1993 and 1994, Mobil Oil Corporation and its subsidiaries and affiliates accounted for 16% and 10% respectively, of the Company's revenues. In fiscal 1995, no single customer accounted for 10% or more of total revenues. Due to the contractual nature of the Company's operations, it is anticipated that significant portions of future consolidated revenues may continue to be attributable to a few customers, although it is likely that the identity of such customers may change from period to period. EMPLOYEES At January 31, 1996, the Company employed approximately 1,200 full-time personnel. The Company has no collective bargaining agreements with its United States employees. However, the Company's employees in its data processing center in Singapore have been organized by the Singapore Industrial and Services Employees' Union. The Company considers the relations with its employees to be good. 26 29 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The table below sets forth certain information regarding the Company's executive officers and directors.
NAME AGE POSITION(S) - ----------------------------------- --- ------------------------------------------- Douglas B. Thompson................ 46 Chairman of the Board, Director Stephen J. Ludlow.................. 45 President and Chief Executive Officer, Director Richard W. McNairy................. 55 Vice President and Chief Financial Officer Nicholas A. C. Bright.............. 49 Regional Manager -- Europe, Africa, and Middle East Operations David E. Graham.................... 48 Regional Manager -- North America Operations Timothy L. Wells................... 42 Regional Manager -- Far East Operations Allan C. Pogach.................... 51 Vice President, Secretary, and Treasurer George F. Baker.................... 56 Director James B. Clement................... 50 Director Clayton P. Cormier................. 63 Director Steven J. Gilbert.................. 48 Director Jack C. Threet..................... 67 Director
Douglas B. Thompson. Mr. Thompson has served as chairman of the board since May 1994 and has been president of Jupiter Management Co., Inc. ("Jupiter Management"), a general partner of Jupiter & Associates ("Jupiter"), since Jupiter Management's formation in 1989. He is also the sole director and shareholder of Jupiter Investment Company and J/D Funding Corp., both general partners of Jupiter, and is the sole shareholder of Jupiter Management. In addition, he is chairman of the board and president of WellTech, Inc., a well servicing company based in Houston, Texas. Stephen J. Ludlow. Mr. Ludlow has been employed by the Company for 24 years and has served as chief executive officer since May 1994. He was executive vice president of the Company for the preceding four years following eight years of service in a variety of progressively more responsible management positions, including several years of service as the executive responsible for operations in Europe, Africa and the Middle East. Richard W. McNairy. Mr. McNairy has served as vice president and chief financial officer of the Company since February 1994, prior to which he was corporate controller of Halliburton Energy Services Group for three years and vice president -- finance for its geophysical services subsidiary for the preceding two years. Prior to 1989 and since 1974 he was employed in various financial and operational management capacities with predecessor companies acquired by Halliburton. Mr. McNairy has 26 years of experience in the oil service industry. Nicholas A. C. Bright. Mr. Bright is the regional manager in charge of all Company operations in Europe, Africa and the Middle East. He joined the Company in 1980 and served in a succession of more responsible management positions prior to assuming his present position in 1989. David E. Graham. Mr. Graham joined the Company in July 1995, was designated an executive officer in October 1995, and is the regional manager in charge of North American geophysical operations. Mr. Graham has 26 years of experience in the exploration business including the past eight years with Schlumberger, where he most recently served as Western Hemisphere sales and marketing manager for Geco-Prakla, a geophysical subsidiary of Schlumberger. Timothy L. Wells. Mr. Wells was appointed to his present position as the regional manager in charge of the Company's Far Eastern geophysical operations in August 1995, was designated an executive officer in 27 30 October 1995, and has been employed by the Company in a series of progressively more responsible, technical, and managerial positions since 1981. Allan C. Pogach. Mr. Pogach has served as vice president and treasurer of the Company since 1981 and as corporate secretary since July 1994. Mr. Pogach has 25 years of experience in energy-related companies. George F. Baker. Mr. Baker has been president of Cambridge Capital Holdings, Inc., a private investment firm, for more than five years. He also serves as chairman of the board and president of Whitehall Corporation, a manufacturer of seismic towed arrays for offshore oil exploration, and through its Aerocorp subsidiary, is a provider of aircraft maintenance for the airline industry. James B. Clement. Mr. Clement has served as the president and chief executive officer of Offshore Logistics, Inc., a supplier of helicopter, transportation, and related services to the oil and gas industry since November 1987, where he is also a director. Mr. Clement also is a member of the board of directors of Pride Petroleum Services, Inc. Clayton P. Cormier. Mr. Cormier is currently a financial and insurance consultant. From 1986 to 1991, Mr. Cormier was a senior vice president in the oil and gas division of Johnson & Higgins, an insurance broker. From 1979 to 1986, he was the chairman of the board, president, and chief executive officer of Ancon Insurance Company, S.A. Prior to that time, he was an assistant treasurer of Exxon Corporation. Steven J. Gilbert. Mr. Gilbert has been managing general partner of Soros Capital L.P. since 1992. Soros Capital L.P. is the principal venture capital and leveraged transaction entity of Quantum Group of Funds. He is also the managing director of Commonwealth Capital Partners, L.P., a private equity investment fund. From 1984 to 1988, Mr. Gilbert was the managing general partner of Chemical Venture Partners, which he founded. Mr. Gilbert is a director of Katz Media Group, Inc., NFO Research, Inc., The Asian Infrastructure Fund, Peregrine Indonesia Fund, Inc., Terra Nova (Bermuda) Holdings, Ltd., GTS-Duratek, Inc., Sydney Harbour Casino Holdings, Ltd., and UroMed, Inc., and is a member of the Advisory Committee of Donaldson, Lufkin & Jenrette Merchant Banking. Jack C. Threet. Mr. Threet was formerly vice president for exploration of Shell Oil Company. Prior to his retirement from Shell Oil Company in 1987, Mr. Threet was also a member of the boards of directors of several affiliates of Shell Oil Company. DESCRIPTION OF CAPITAL STOCK COMMON STOCK The Company is authorized to issue 20,000,000 shares of Common Stock, par value $.01 per share, and at March 5, 1996, there were 11,123,422 shares outstanding, and 1,356,401 shares were reserved for issuance upon exercise of outstanding warrants and options. Each share of Common Stock has one vote on all matters presented to the stockholders. Subject to the rights and preferences of any Preferred Stock (as defined below) which may be designated and issued, the holders of Common Stock are entitled to receive dividends, if and when declared by the board of directors, and are entitled on liquidation to all assets remaining after the payment of liabilities. The Common Stock has no preemptive or other subscription rights. Outstanding shares of Common Stock are and the shares of Common Stock offered by the Company, when issued and paid for, will be fully paid and nonassessable. Since the Common Stock does not have cumulative voting rights, the holders of more than 50% of the shares may, if they choose to do so, elect all of the directors and, in that event, the holders of the remaining shares will not be able to elect any directors. For additional provisions relating to the ability of certain persons to elect directors, see "-- Certain Provisions of Governing Documents." Chemical Mellon Shareholder Services, Dallas, Texas, is the transfer agent and registrar for the Common Stock. PREFERRED STOCK The board of directors of the Company, without any action by the stockholders of the Company, is authorized to issue up to 1,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), in 28 31 one or more series and to determine the voting rights (including the right to vote as a series on particular matters), preferences as to dividends and in liquidation and the conversion and other rights of each such series. There are no shares of Preferred Stock outstanding, and no series of Preferred Stock has been designated. Although the board of directors has no present intention of doing so, it could issue a series of Preferred Stock that could, depending on the terms of such series, provide for a liquidation preference over the Common Stock or impede the completion of a merger, tender offer or other takeover attempt. The board of directors, in so acting, could issue Preferred Stock having terms that could discourage an acquisition attempt through which an acquiror may be otherwise able to change the composition of the board of directors, including a tender or exchange offer or other transaction that some, or a majority, of the Company's stockholders might believe to be in their best interests. CERTAIN PROVISIONS OF GOVERNING DOCUMENTS The Company's bylaws also contain provisions which may affect control of the Company and restrict its ability to engage in certain transactions. In general, the Company's bylaws require that, until such time as a group of individual and institutional investors (collectively, the "Jupiter Group") and Quantum Partners LDC, a Netherlands Antilles corporation ("Quantum"), no longer own more than 20% of the Company's outstanding Common Stock, they will have the right to (i) designate an aggregate of six nominees for election as directors (out of a present seven positions) at each annual meeting of the stockholders, (ii) appoint one additional director to an expanded board of directors if the Company defaults in any payment obligation on any of its then outstanding debt instruments or equity securities or if the Company were to incur losses for any five consecutive fiscal quarters and (iii) designate two of the three members of the executive committee of the board. Both the Jupiter Group and Quantum have agreed that during such time they will vote their shares in favor of the other's nominees. Upon consummation of this Offering, the Jupiter Group and Quantum will collectively own less than 20% of the Company's outstanding Common Stock, and accordingly, they will no longer have the right to designate board members for election pursuant to the Company's bylaws. See "Selling Stockholder." In addition, the bylaws prohibit the Company from engaging in certain transactions, except upon the prior approval of at least five of the directors designated by the Jupiter Group and Quantum, including (i) mergers, consolidations, restructuring and recapitalizations, (ii) any issuance of Common Stock or securities convertible into or exchangeable for Common Stock in quantities exceeding approximately 933,333 shares, (iii) any sale of substantially all of the assets or a majority of the equity securities of any "significant subsidiary" and certain other sales of assets outside the ordinary course of business, (iv) any repurchase by the Company of its outstanding securities, or (v) any transaction between the Company and Jupiter, any member of the Jupiter Group or Quantum except for certain transactions in the ordinary course of business and certain other transactions entered into in connection with or contemplated by the plan of reorganization consummated in connection with the Company's emergence from Chapter 11 proceedings in July 1991. 29 32 SELLING STOCKHOLDER The Selling Stockholder has agreed to sell the number of shares of Common Stock set forth opposite its name. The table sets forth information with respect to ownership of the Common Stock by the Selling Stockholder as of the date of, and as adjusted to reflect, the sale of shares covered by this Prospectus.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE OFFERING OWNED AFTER OFFERING ---------------------- ------------------------ PERCENT SHARES TO NUMBER PERCENT OF NAME NUMBER OF CLASS BE SOLD OF SHARES CLASS(1) - ---------------------------------------- ---------- -------- --------- --------- ---------- Quantum Partners LDC(2)................. 1,024,263 9.17% 200,000 824,263 5.62%
- --------------- (1) Assuming the Underwriters' over-allotment option is not exercised. (2) Includes 40,443 shares of Common Stock which may be acquired upon the exercise of warrants by Quantum. For a discussion of Quantum's right to designate directors to the Company's board of directors and their relationship to the Jupiter Group, see "Description of Capital Stock -- Certain Provisions of Governing Documents." UNDERWRITING The names of the Underwriters of the shares of Common Stock offered hereby and the aggregate number of shares which each has severally agreed to purchase from the Company and the Selling Stockholder (subject to the terms and conditions specified in the Underwriting Agreement) are as follows:
NUMBER OF UNDERWRITERS SHARES -------------------------------------------------------------------------- --------- Dillon, Read & Co. Inc.................................................... Raymond James & Associates, Inc........................................... Rodman & Renshaw, Inc..................................................... --------- Total........................................................... 3,700,000 =========
The Managing Underwriters are Dillon, Read & Co. Inc., Raymond James & Associates, Inc. and Rodman & Renshaw, Inc. If any shares of Common Stock offered hereby are purchased by the Underwriters, all such shares will be so purchased. The Underwriting Agreement contains certain provisions whereby if any Underwriter defaults in its obligation to purchase such shares and if the aggregate obligations of the Underwriters so defaulting do not exceed 10% of the shares hereby, the remaining Underwriters, or some of them, must assume such obligations. The shares of Common Stock offered hereby are being offered severally by the Underwriters for sale at the price set forth on the cover page hereof, or at such price less a concession not to exceed $ per share on sales to certain dealers. The Underwriters may allow, and such dealers may reallow a concession not to exceed $ per share on sales to certain other dealers. The offering of the shares of Common Stock is made for delivery when, as, and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation, or modification of the offer without notice. The Underwriters reserve the right to reject any order for the purchase of the shares. After the shares are released for sale to the public, the public offering price, the concession and the reallowance may be changed by the Managing Underwriters. 30 33 The Company has granted to the Underwriters an option to purchase up to an additional 555,000 shares of Common Stock on the same terms per share. If the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same proportion of the aggregate shares so purchased as the number of shares to be purchased by it shown in the above table bears to the total number of shares in such table. The Underwriters may exercise such option on or before the 45th day from the date of the public offering of the shares offered hereby and only to cover over-allotments made of the shares in connection with this Offering. The Company and certain of its directors and executive officers have agreed not to offer, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible or exchangeable into or exercisable for Common Stock other than the shares offered hereby for a period of 120 days after the date of this Prospectus without the prior written consent of Dillon, Read & Co. Inc., except that the Company may, without that consent, issue shares of Common Stock pursuant to its existing stock and benefit plans. The Company and the Selling Stockholder have agreed in the Underwriting Agreement to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. LEGAL MATTERS Certain legal matters in connection with the validity of the shares of Common Stock offered hereby will be passed upon for the Company and the Selling Stockholder by Porter & Hedges, L.L.P., Houston, Texas. Certain legal matters in connection with the Common Stock offered hereby are being passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. EXPERTS The financial statements as of July 31, 1994 and 1995 and for each of the three years in the period ended July 31, 1995, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 31 34 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE --- Independent Auditors' Report......................................................... F-2 Consolidated Statements of Operations for the years ended July 31, 1993, 1994 and 1995 and for the six months ended January 31, 1995 and 1996........................ F-3 Consolidated Balance Sheets as of July 31, 1994 and 1995 and January 31, 1996........ F-4 Consolidated Statements of Cash Flows for the years ended July 31, 1993, 1994 and 1995 and for the six months ended January 31, 1995 and 1996........................ F-5 Consolidated Statements of Changes in Stockholders' Equity for the years ended July 31, 1993, 1994 and 1995 and for the six months ended January 31, 1996.............. F-7 Notes to Consolidated Financial Statements........................................... F-8
F-1 35 INDEPENDENT AUDITORS' REPORT Digicon Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Digicon Inc. and Subsidiaries (the "Company") as of July 31, 1994 and 1995, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for each of the three years in the period ended July 31, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas October 12, 1995 F-2 36 DIGICON INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) FOR THE SIX FOR THE YEARS ENDED MONTHS ENDED JULY 31, JANUARY 31, -------------------------------- ------------------ 1993 1994 1995 1995 1996 -------- -------- -------- ------- ------- REVENUES.................................. $117,709 $117,978 $132,569 $62,266 $78,246 COSTS AND EXPENSES: Operating expenses: Cost of services..................... 101,866 101,310 105,912 47,709 63,680 Restructuring........................ 1,363 800 Write-off/reserve for impairment of assets............................... 6,523 Depreciation and amortization........... 9,620 13,758 13,763 6,846 7,522 Selling, general and administrative..... 4,417 5,101 4,428 2,164 2,527 Interest................................ 1,217 3,085 5,142 2,501 2,625 Equity in loss of 50% or less-owned companies and joint ventures......... 54 445 1,485 640 5 Gain on sale of investment in FSU joint ventures............................. (4,370) Other................................... 184 (702) 598 (74) 63 -------- -------- -------- ------- ------- Total........................... 117,358 130,883 127,758 59,786 76,422 -------- -------- -------- ------- ------- Income (loss) before provision for (benefit from) income taxes............. 351 (12,905) 4,811 2,480 1,824 Provision for (benefit from) income taxes................................... 1,609 1,521 2,033 1,044 (5) -------- -------- -------- ------- ------- NET INCOME (LOSS)......................... $ (1,258) $(14,426) $ 2,778 $ 1,436 $ 1,829 ======== ======== ======== ======= ======= PER SHARE OF COMMON STOCK: Earnings (loss) per share............... $ (.15) $ (1.48) $ .25 $ .13 $ .17 ======== ======== ======== ======= ======= Weighted average shares................. 8,674 9,769 10,958 11,046 10,848 ======== ======== ======== ======= ======= Cash dividends -- common stock.......... None None None None None ======== ======== ======== ======= =======
See Notes to Consolidated Financial Statements F-3 37 DIGICON INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)
JULY 31, (UNAUDITED) ---------------------- JANUARY 31, 1994 1995 1996 -------- -------- -------- ASSETS Current assets: Cash............................................................. $ 8,365 $ 4,209 $ 3,907 Restricted cash investments...................................... 320 670 332 Accounts and notes receivable (net of allowance for doubtful accounts: 1994, $701; 1995, $703; January 31, 1996, $595)...... 30,427 40,662 42,130 Note receivable from FSU joint venture, current portion.......... 443 Materials and supplies inventory (net of reserves: 1994, $68; 1995, $66; January 31, 1996, $66).............................. 5,410 1,335 1,388 Prepayments and other............................................ 4,692 6,619 5,714 -------- -------- -------- Total current assets...................................... 49,657 53,495 53,471 Property and equipment: Seismic equipment................................................ 48,622 53,615 57,855 Data processing equipment........................................ 27,795 26,703 23,737 Seismic ships.................................................... 8,291 Leasehold improvements and other................................. 30,809 29,394 30,694 -------- -------- -------- Total..................................................... 115,517 109,712 112,286 Less accumulated depreciation.................................. 66,625 60,874 63,390 -------- -------- -------- Property and equipment -- net............................. 48,892 48,838 48,896 Proprietary seismic data........................................... 19,638 28,444 24,859 Investment in FSU joint ventures................................... 8,478 Goodwill (net of accumulated amortization: 1994, $743; 1995, $1,168; January 31, 1996, $1,379)................................ 3,502 3,077 2,866 Other assets....................................................... 802 1,216 1,304 Note receivable from FSU joint venture, non-current portion........ 887 -------- -------- -------- Total..................................................... $131,856 $135,070 $131,396 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term related party loans................................... $ 2,695 Current maturities of long-term debt............................. 6,166 $ 10,915 $ 9,479 Accounts payable -- trade........................................ 23,740 18,875 15,112 Accrued interest................................................. 293 409 422 Other accrued liabilities........................................ 9,205 14,869 12,767 Income taxes payable............................................. 1,406 1,097 1,411 -------- -------- -------- Total current liabilities................................. 43,505 46,165 39,191 Non-current liabilities: Long-term debt--less current maturities.......................... 23,922 25,243 22,510 Deferred credits................................................. 5,538 3,675 3,669 Other non-current liabilities.................................... 341 1,105 1,343 -------- -------- -------- Total non-current liabilities............................. 29,801 30,023 27,522 Commitments and contingent liabilities (Note 7) Stockholders' equity: Common stock, $.01 par value; July 31, 1994 -- authorized: 60,000,000 shares; issued: 31,352,273 shares; July 31, 1995 and January 31, 1996 -- authorized: 20,000,000 shares; issued: 11,134,939 shares and 11,123,422 shares, respectively.......... 314 111 111 Additional paid-in capital....................................... 69,366 71,895 71,095 Accumulated deficit from August 1, 1991.......................... (11,130) (8,352) (6,523) Less: Treasury stock, at cost; 858,497 shares.................... (4,772) -------- -------- -------- Stockholders' equity...................................... 58,550 58,882 64,683 -------- -------- -------- Total..................................................... $131,856 $135,070 $131,396 ======== ======== ========
See Notes to Consolidated Financial Statements F-4 38 DIGICON INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
(UNAUDITED) FOR THE SIX FOR THE YEARS ENDED MONTHS ENDED JULY 31, JANUARY 31, ------------------------------ ----------------- 1993 1994 1995 1995 1996 -------- -------- -------- ------- ------- OPERATING ACTIVITIES: Net income (loss)................................................. $ (1,258) $(14,426) $ 2,778 $ 1,436 $ 1,829 Non-cash items included in income (loss): Restructuring accrual........................................... 777 14 (537) Write-off/reserve for impairment of assets...................... 6,523 Depreciation and amortization................................... 9,620 13,758 13,763 6,846 7,522 Amortization of warrants issued with short-term related party loans......................................................... 89 27 Amortization of deferred gain on sale/leaseback................. (898) (496) (90) (Gain) loss on disposition of property and equipment............ (129) (746) 755 (87) 52 Equity in loss of 50% or less-owned companies and joint ventures...................................................... 54 445 1,485 640 5 Gain on sale of investment in FSU joint ventures................ (4,370) Gain on settlement of deferred credits.......................... (864) Write-down of proprietary seismic data to market................ 589 348 1,786 198 198 Other........................................................... (131) (148) Change in operating assets/liabilities (exclusive of the effects of the purchase of GFS): Accounts and notes receivable................................... 2,937 5,203 (7,314) (2,678) (1,468) Accounts and notes receivable from FSU joint ventures........... 59 Materials and supplies inventory................................ (2,312) 1,145 291 93 (53) Prepayments and other........................................... (608) (610) (1,326) (2,296) 905 Proprietary seismic data........................................ (4,174) (10,153) (10,592) (6,540) 3,387 Other........................................................... (515) 508 207 (118) Accounts payable -- trade....................................... (2,623) (4,500) (5,331) (5,403) (3,584) Accrued interest................................................ (68) 133 116 131 13 Other accrued liabilities....................................... (1,188) 3,679 5,551 2,787 (2,012) Income taxes payable............................................ (1,361) 546 (309) 193 314 Deferred credits................................................ (832) (1,430) (414) (415) (6) Other non-current liabilities................................... 341 762 83 238 -------- -------- -------- -------- -------- Total cash provided (used) by operating activities......... (1,999) 885 (3,520) (5,752) 7,132 FINANCING ACTIVITIES: Payment of long-term debt......................................... (8,102) (3,158) (7,206) (2,505) (4,889) Net borrowings (payments) under credit agreements................. 5,000 8,368 1,648 2,534 (2,068) Net proceeds from sale of common stock............................ 21,083 (40) (72) (39) Net proceeds from sale of treasury stock.......................... 3,984 3,972 Borrowings of short-term related party loans...................... 6,081 30 30 Payments of short-term related party loans........................ (3,386) (2,725) (1,052) -------- -------- -------- -------- -------- Total cash provided (used) by financing activities......... 17,981 7,865 (4,341) (1,032) (2,985) INVESTING ACTIVITIES: (Increase) decrease in restricted cash investments................ 79 304 (350) (432) 338 Increase in investment in FSU joint ventures...................... (1,535) (1,875) (807) Sale to Syntron, Inc.: Inventories and technologies.................................... 1,630 1,630 Property and equipment.......................................... 1,370 1,370 Sale of investment in FSU joint ventures.......................... 6,000 Purchase of property and equipment................................ (21,485) (5,406) (4,552) (1,757) (5,185) Sale of property and equipment.................................... 2,545 938 1,437 1,095 370 -------- -------- -------- -------- -------- Total cash provided (used) by investing activities......... (18,861) (5,699) 3,660 1,099 (4,477) Currency (gain) loss on foreign cash.............................. (241) (88) 45 39 28 -------- -------- -------- -------- -------- Change in cash and cash equivalents............................... (3,120) 2,963 (4,156) (5,646) (302) Beginning cash and cash equivalents balance....................... 8,522 5,402 8,365 8,365 4,209 -------- -------- -------- -------- -------- Ending cash and cash equivalents balance.......................... $ 5,402 $ 8,365 $ 4,209 $ 2,719 $ 3,907 ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements F-5 39 DIGICON INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
(UNAUDITED) FOR THE SIX FOR THE YEARS ENDED MONTHS ENDED JULY 31, JANUARY 31, ------------------------------- ------------------ 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------ SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase in materials and supplies inventories for deferred credits..... $ 987 Increase in assets/liabilities due to purchase of GFS Company: Cash.................................................................. 65 Restricted cash investments........................................... 75 Accounts and notes receivable......................................... 3,025 Materials and supplies inventory...................................... 183 Prepayments and other................................................. 363 Property and equipment -- net......................................... 3,168 Goodwill.............................................................. 4,245 Long-term debt........................................................ 2,431 Accounts payable -- trade............................................. 6,558 Accrued interest...................................................... 13 Other accrued liabilities............................................. 969 Common stock.......................................................... 1,153 Increase (decrease) in investment in FSU joint ventures for: Common stock.......................................................... $ 7,299 $ 2,309 $ 2,309 Accounts and note receivable from FSU joint ventures.................. (409) (409) Other assets.......................................................... 135 Other accrued liabilities............................................. 841 Long-term debt........................................................ 245 Increase (decrease) in property and equipment for: Accounts and notes receivable......................................... 2,045 Execution of capital leases and notes................................. 9,844 4,227 11,224 843 2,788 Accounts payable -- trade............................................. 2,289 1,058 334 257 (179) Deferred credits payable.............................................. 6,813 (1,449) Prepayments and other................................................. (1,104) Increase in prepayments on property and equipment for notes payable..... 601 Increase in notes receivable for: Sale of property and equipment........................................ 250 Sale of other assets.................................................. 1,330 Sale of investment in FSU joint ventures resulting in an increase (decrease) in: Accounts and notes receivable from purchaser.......................... 1,790 Accounts and note receivable from FSU joint ventures.................. (1,740) Accounts payable -- trade............................................. 78 Treasury stock........................................................ 8,756 Sale of inventories, property and equipment, and technologies to Syntron, Inc. resulting in an increase (decrease) in: Accounts and notes receivable -- deferred credits..................... 3,255 3,255 Materials and supplies inventory...................................... (2,154) (2,034) Other assets -- deferred credits receivable........................... 857 857 Accounts payable -- trade............................................. 957 957 Other accrued liabilities -- deferred gain............................ 891 1,011 Other non-current liabilities -- deferred gain........................ 110 110 Sale of accounts receivable and property and equipment resulting in a decrease in: Accounts and notes receivable......................................... (78) Property and equipment -- net......................................... (247) Long-term debt........................................................ (199) Accounts payable -- trade............................................. (18) Other non-current liabilities......................................... (108) Increase in additional paid-in capital as a result of warrants issued with short-term related party loans................................... 89 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest -- Equipment purchase obligations and unsecured notes payable.......... 384 879 1,060 560 901 Secured term loan................................................... 584 585 635 312 242 Credit agreements................................................... 227 664 1,915 930 1,036 Short-term related party loans...................................... 206 199 Other............................................................... 239 339 1,388 534 443 Income taxes.......................................................... 3,178 1,293 1,963 826 436
See Notes to Consolidated Financial Statements F-6 40 DIGICON INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED JANUARY 31, 1996 (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
ADDITIONAL ACCUMULATED PAID-IN CAPITAL EARNINGS COMMON STOCK ISSUED TREASURY STOCK, ------------------- (DEFICIT) ------------------- AT COST EMPLOYEE FROM PAR --------------------- NOTES AUGUST 1, SHARES VALUE SHARES AMOUNT OTHER RECEIVABLE 1991 ----------- ---- ---------- ------ ------- ---------- -------- BALANCE, JULY 31, 1992........... 22,597,423 $226 $40,007 $ (48) $ 4,554 Common stock issued in acquisition of GFS, net of issue costs.................... 225,000 2 1,137 Common stock issued for cash, net of issue costs................. 5,456,900 55 20,994 Collections of employee notes receivable..................... 48 Net loss......................... (1,258) ---------- ---- -------- ------ ------- -------- -------- BALANCE, JULY 31, 1993........... 28,279,323 283 62,138 3,296 Common stock issued for investment in FSU joint ventures, net of issue costs... 3,072,950 31 7,228 Net loss......................... (14,426) ---------- ---- -------- ------ ------- -------- -------- BALANCE, JULY 31, 1994........... 31,352,273 314 69,366 (11,130) Common stock issued for investment in FSU joint ventures, net of issue costs... 2,052,543 20 2,265 One for three reverse stock split, net of issue costs...... (22,269,877) (223) 175 Warrants issued in conjunction with short-term related party loans.......................... 89 Common stock reacquired in sale of investment in FSU joint ventures....................... (1,708,497) $(8,756) Treasury stock issued for cash... 850,000 3,984 Net income....................... 2,778 ---------- ---- -------- ------ ------- -------- -------- BALANCE, JULY 31, 1995........... 11,134,939 111 (858,497) (4,772) 71,895 (8,352) Treasury stock issued for cash, net of issue costs (unaudited).................... 858,497 4,772 (800) Common stock, previously held in escrow, cancelled (unaudited).................... (11,517) Net income (unaudited)........... 1,829 ---------- ---- -------- ------ ------- -------- -------- BALANCE, JANUARY 31, 1996 (UNAUDITED).................... 11,123,422 $111 $ $71,095 $ $( 6,523) ========== ==== ======== ====== ======= ======== ========
See Notes to Consolidated Financial Statements F-7 41 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED JANUARY 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The accompanying consolidated financial statements include the accounts of Digicon Inc. ("the Company") and all majority-owned domestic and foreign subsidiaries. Investments in 50% or less-owned companies and joint ventures are carried on the equity basis. All material intercompany balances and transactions have been eliminated in consolidation. RESTRICTED CASH INVESTMENTS Restricted cash investments in the amounts of $320,000 at July 31, 1994 and $670,000 at July 31, 1995 were pledged as collateral on certain bank guarantees. TRANSLATION OF FOREIGN CURRENCIES The Company has determined that the U.S. dollar is its functional currency. Property and equipment (and related depreciation) and inventories are translated into U.S. dollars at the exchange rates in effect at the time of their acquisition. Other assets and liabilities are translated at year-end rates. Operating results (other than depreciation) are translated at the average rates of exchange prevailing during the year. Remeasurement gains and losses are included in the determination of net income and are reflected in other costs and expenses. See Note 5. REVENUES Revenues from data acquisition and data processing services are recorded as revenues based on contractual rates set forth in the related contract if the contract provides a separate rate for each segment. If the contract only provides a rate for the overall service, revenue is recognized based on the percentage of the work effort completed compared with the total work effort involved in the contract. ACCOUNTS RECEIVABLE Included in accounts and notes receivable at July 31, 1994 and 1995 are unbilled amounts of approximately $8,800,000 and $10,700,000, respectively. Such amounts are either not billable to the customer at July 31 in accordance with the provisions of the contract and generally will be billed in one to four months or are currently billable and will be invoiced in the next monthly statement cycle. PROPRIETARY SEISMIC DATA The direct cost of collecting and processing seismic data for the Company's own account is capitalized using a percentage of estimated sales method. The cost of proprietary seismic data is charged to operations either in (i) the periods in which sales occur as a percentage of the revenue obtained, or (ii) in periods when the estimated market value of such data is less than the cost of the data. MOBILIZATION COST Transportation and make-ready expenses of seismic operations prior to commencement of business in an area are amortized over the period of expected operations in that area. Amounts applicable to operations for the Company's own account are included in the cost of proprietary seismic data. Unamortized mobilization costs, if any, are shown as a prepaid expense. F-8 42 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES Inventories of materials and supplies are stated at the lower of average cost or market. DEPRECIATION Provision for depreciation is computed using the straight-line method based on estimated useful lives as follows:
AVERAGE YEARS --- Seismic equipment...................................... 5 Data processing equipment.............................. 5-6 Seismic ships.......................................... 14 Leasehold improvements and other....................... 3-7
Expenditures for routine repairs and maintenance are charged to expense as incurred; expenditures for additions and improvements are capitalized and depreciated over the estimated remaining life of the related asset. Significant vessel repairs and biennial drydocking expenses are recorded as deferred charges in prepayments and other and are amortized over a six to 24 month period. The net gain or loss on items of property and equipment retired or disposed of is included in other costs and expenses. See Note 5. It is the Company's policy to periodically review property and equipment lives. In fiscal 1993, a study indicated that the actual lives for certain asset categories generally were longer than the useful lives used for depreciation purposes in the Company's financial statements and the Company extended the estimated useful lives for certain of its seismic acquisition equipment. The effect of this change was to reduce 1993 depreciation expense by $490,000 and decrease the net loss by $490,000, or $.06 per share (as restated for the Reverse Split -- See Note 19). In fiscal 1994, the Company wrote off or reserved for the impairment of assets to their net realizable value the amount of $6,523,000, or $.67 per share (as restated for the Reverse Split -- See Notes 17 and 19). RESEARCH AND DEVELOPMENT Research and development costs are charged to expense when incurred. Research and development costs for the years ended July 31, 1993, 1994 and 1995 were $4,235,000, $4,908,000 and $2,851,000, respectively. INCOME TAXES The Company's policy is not to provide for the income taxes, if any, which would be payable if undistributed earnings of foreign consolidated subsidiaries were paid as dividends to the parent company, since such earnings have been or will be reinvested in the business. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", which requires the use of the "liability method" in place of the previously required "deferred method". Under the liability method, deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. SFAS 109 allows recognition of all or a portion of benefits from the utilization of net operating loss carryforwards as deferred tax assets if realization is "more likely than not". In periods of changing income tax rates, the liability method will cause fluctuations in net income of companies with deferred taxes. The Company adopted SFAS 109 effective August 1, 1993. The adoption of this standard did not result in a cumulative effect adjustment to equity or income for the year ended July 31, 1994. F-9 43 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Recognition is given in the accompanying consolidated balance sheets to the future income tax benefits of loss carryforwards only to the extent that they can be used to offset existing deferred taxes. Since the Company's quasi-reorganization on July 31, 1991, in accordance with Staff Accounting Bulletin No. 86, the tax benefits of loss carryforwards existing at the date of the quasi-reorganization, when realized, have been recognized in the consolidated statements of operations by a charge in lieu of income taxes, representing the additional income taxes which otherwise would have been provided, with an equal and offsetting direct addition to paid-in capital reflecting the utilization of the loss carryforward. EARNINGS (LOSS) PER SHARE Weighted average shares and earnings (loss) per share have been restated for all periods presented to reflect the effect of the Reverse Split consummated on January 17, 1995. See Note 19. Primary loss per share is computed based on the weighted average number of shares of common stock. Primary earnings per share is computed based on the weighted average number of shares of common stock plus common stock equivalents. Common stock equivalents include (i) stock options (see Note 6), (ii) warrants (see Note 8) and (iii) contingent shares issuable. Shares issuable upon the conversion of stock options and warrants were disregarded since the treasury stock method of calculation produced no incremental shares or resulted in dilution of less than 3%. For the year ended July 31, 1994, contingent shares issuable under the second stage of the agreements discussed in Note 16 were disregarded due to net losses incurred. Fully diluted earnings per share is not presented for the year ended July 31, 1993 and 1994 due to net losses incurred. Fully diluted earnings per share is not presented for the year ended July 31, 1995 and the six months ended January 31, 1995 and 1996 since stock options and warrants referenced above had no dilutive effect. LEASES Operating leases include those for office space, specialized seismic equipment rented for short periods of time, and the Company's seismic ships which generally are chartered on a short-term basis. CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, the Company has elected to define "cash equivalents" as items readily convertible into known amounts of cash with original maturities of three months or less. QUASI-REORGANIZATION The Company effected a quasi-reorganization adjustment as of July 31, 1991 in which the accumulated deficit at July 31, 1991 of $139,751,000 was offset against additional paid-in capital. GOODWILL The Company has recorded the purchase price of businesses or joint venture interests in excess of the fair value of net assets acquired as goodwill which is amortized over the period benefits are expected to be derived. The Company periodically reviews the carrying value of goodwill in relation to the current and expected operating results of the businesses or joint ventures in order to assess whether there has been a permanent impairment of such amounts. See also Notes 9 and 16 relating to the purchase of GFS Company and investment in FSU joint ventures. F-10 44 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECLASSIFICATION OF PRIOR YEAR BALANCES Certain balances as of July 31, 1994 have been reclassified for consistent presentation. UNAUDITED INTERIM FINANCIAL INFORMATION In the opinion of Management, the unaudited consolidated financial statements as of January 31, 1996 contain all adjustments necessary to present fairly the financial position of Digicon Inc. and subsidiaries, and the results of its operations and its cash flows for the six-month periods ended January 31, 1995 and 1996. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year, as such results could be affected by changes in demand for geophysical services and products, which is directly related to the level of oil and gas exploration and development activity. Governmental actions, foreign currency exchange rate fluctuations, seasonal factors, weather conditions and equipment problems also could impact future operating results. 2. SHORT-TERM RELATED PARTY LOANS The short-term related party loans provided for up to $3,000,000 in advances and were collateralized, on a subordinated basis, by a majority of the assets of the Company. Interest was payable at prime plus 3% through January 26, 1995 and at prime plus 6% thereafter. Interest expense for the years ended July 31, 1994 and 1995 was $206,000 and $376,000, respectively. The loans were subject to mandatory prepayment from a portion of the proceeds of certain specified transactions, if and when such transactions occurred. As a result of the completion of several such transactions, the loans were fully repaid on June 13, 1995. As further consideration for the facility, the Company issued common stock purchase warrants in an amount directly related to the average outstanding balance of the loans. See Notes 8 and 13. 3. LONG-TERM DEBT The Company's long-term debt is as follows:
(UNAUDITED) JULY JULY JANUARY 31, 31, 31, 1994 1995 1996 ------- ------- ------- (IN THOUSANDS OF DOLLARS) Revolving credit agreement due April 1997, at prime plus 3% (11.50% at January 31, 1996)................ $12,446 $14,123 $12,937 Secured term loan due June 1997, at 10.75%............ 6,000 4,500 4,500 Secured Indonesian Rupiah revolving credit agreement due September 1995, at 19%.......................... 922 894 Unsecured notes maturing through January 1995, at 10%................................................. 35 Equipment purchase obligations maturing through February 1999, at an average rate of 11.11% at January 31, 1996.................................... 10,605 16,641 14,552 Real estate note maturing April 1995, at prime plus 1.25%............................................... 80 ------- ------- ------- Total....................................... 30,088 36,158 31,989 Less current maturities............................... 6,166 10,915 9,479 ------- ------- ------- Due after one year.......................... $23,922 $25,243 $22,510 ======= ======= =======
The revolving credit agreement is with a finance company and provides a revolving credit facility of up to $17,000,000 (increased from $15,000,000 in April 1995) through April 11, 1997. Advances under the agreement are limited by a borrowing formula and are collateralized by a majority of the assets of the Company. The agreement limits, among other things, the Company's right, without consent of the lender, to F-11 45 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) take certain actions, including creating indebtedness, prohibits paying dividends and requires the Company to maintain certain financial ratios. The agreement also provides for the deposit of collections of certain of the Company's accounts receivable into cash collateral accounts and for the repayment of outstanding advances and monthly interest with such proceeds. Amounts applied against outstanding advances are available for reborrowing upon presentation of evidence of adequate borrowing base coverage. At July 31, 1995, $2,877,000 was available for borrowing under this agreement. The secured term loan is due June 30, 1997, with interest at 10.75% payable quarterly. A principal payment of $1,500,000 is due June 30, 1996, and the remaining unpaid principal is due June 30, 1997. The loan agreement limits, but does not prohibit, the Company's ability to pay dividends and to incur indebtedness for borrowed money and requires the Company to maintain certain financial ratios. The Company has obtained a waiver for noncompliance at July 31, 1995 with the debt service coverage ratio. The ratio has been revised subsequent to year-end. In April 1994, in conjunction with the execution of the revolving credit agreement, the lender was granted a security interest in a majority of the Company's equipment. In connection with the loan, the Company issued common stock purchase warrants to the lender. See Note 8. The secured Indonesian Rupiah revolving credit facility in the amount of two billion Rupiahs is the obligation of P.T. Digicon Mega Pratama, a consolidated subsidiary of the Company, and provides working capital and certain bank guarantees for its Indonesian operations. The facility was repaid in September 1995. The unsecured notes payable represented agreements executed in settlement of certain unsecured obligations. The Company's equipment purchase obligations represent installment loans and capitalized lease obligations primarily related to computing and seismic equipment. The real estate note was secured by land and a building and was payable in installments of $8,987 per month plus interest through April 1995. Annual maturities of long-term debt for the next five years are as follows:
FISCAL YEAR MATURITIES --------------------------------------------------- ------- (IN THOUSANDS OF DOLLARS) 1996............................................. $10,915 1997............................................. 21,931 1998............................................. 3,105 1999............................................. 207
During the year ended July 31, 1993, the Company incurred interest costs of $1,421,000. The Company capitalized $204,000 of this amount as a cost of leasehold improvements to a chartered vessel. No interest was capitalized during the years ended July 31, 1994 and 1995. F-12 46 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INCOME TAXES The tax effects of significant items comprising the Company's net deferred tax position are as follows:
JULY 31, JULY 31, 1994 1995 -------- -------- (IN THOUSANDS OF DOLLARS) Deferred tax assets: Difference between book and tax basis of property and equipment.................................... $ 3,488 $ 4,544 Reserves not currently deductible................... 396 156 Operating loss carryforwards........................ 47,046 50,920 Tax credit carryforwards............................ 6,023 5,761 Other............................................... 2,142 4,526 -------- -------- Total....................................... 59,095 65,907 Deferred tax liabilities: Other............................................... (483) (314) -------- -------- Net deferred tax assets............................... 58,612 65,593 Valuation allowance................................... (58,612) (65,593) -------- -------- Net deferred tax position............................. $ 0 $ 0 ======== ========
Provision for income taxes consists of the following:
(UNAUDITED) FOR THE SIX FOR THE YEARS ENDED MONTHS ENDED JULY 31, JANUARY 31, ---------------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ (IN THOUSANDS OF DOLLARS) Current -- U.S................ $ 54 $ 34 $ (2) $ (56) Current -- foreign............ 1,601 $1,675 2,112 1,085 $ 118 Deferred -- foreign........... (46) (154) (113) (39) (67) ----- ----- ----- ----- ----- Total............... $1,609 $1,521 $2,033 $1,044 $ (5) ===== ===== ===== ===== =====
As of July 31, 1995, the Company had U.S. net operating loss carryforwards ("NOL's") of approximately $88,756,000 which expire in the years 1998 through 2010. Included in such amounts are $76,885,000 of NOL's that existed prior to the quasi-reorganization. See Note 1. As of July 31, 1995, approximately $5,761,000 of investment tax credit carryforwards, which will expire in the years 1996 through 1998, were available to reduce future U.S. income taxes. Foreign operations had NOL's of approximately $64,681,000 at July 31, 1995, which are available indefinitely to reduce future foreign taxable income in specific jurisdictions. Included in such amounts are $48,900,000 of NOL's that existed prior to the quasi-reorganization. See Note 1. The foreign component of income (loss) before provision for income taxes was $(5,315,000), $(8,982,354) and $(9,038,919) for the years ended July 31, 1993, 1994 and 1995, respectively. Income tax expense is different from the amount computed by multiplying income (loss) before provision for income taxes by the corporate tax rate of 34% for the years ended July 31, 1993, 1994 and 1995 because of the inability to obtain any income tax benefits from operating losses in foreign countries. Additionally, during 1995 other permanent differences arose for both U.S. and foreign income tax purposes. For U.S. income tax purposes, such differences included approximately $16,500,000 relating to the write-off of uncollectible F-13 47 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) advances to certain foreign subsidiaries. For foreign income tax purposes, such differences included a payment of approximately $600,000 for prior year tax assessments and the payment of approximately $1,400,000 in withholding taxes. IRS regulations restrict utilization of NOL's for any company in which an "ownership change" (as defined in Section 382 of the Internal Revenue Code) has occurred. The Company has performed required testing and has concluded that an "ownership change" occurred in connection with the issuance of common stock through a public offering made by the Company on January 6, 1992. As a result, the future utilization of U.S. NOL's existing at the date of the "ownership change" will be limited to approximately $4,000,000 per year. This limitation had no effect on the provision for income taxes for the years ended July 31, 1993, 1994 and 1995. To the extent that any portion of this annual limitation is not used in any year, it may be carried over and added to the annual limitation of succeeding years. At July 31, 1995, the accumulated unused limitation on NOL's existing at the date of the "ownership change" was approximately $12,373,000. 5. OTHER COSTS AND EXPENSES Other costs and expenses consist of the following:
(UNAUDITED) FOR THE SIX FOR THE YEARS ENDED MONTHS ENDED JULY 31, JANUARY 31, ------------------------ --------------- 1993 1994 1995 1995 1996 ---- ----- ----- ----- ----- (IN THOUSANDS OF DOLLARS) Net foreign currency exchange losses..... $532 $ 94 $ 51 $ 91 $ 55 Net (gain) loss on disposition of property and equipment................. (129) (746) 755 (87) 52 Interest income.......................... (255) (82) (208) (85) (44) Other.................................... 36 32 7 ---- ---- ---- ---- ---- Total.......................... $184 $(702) $ 598 $ (74) $ 63 ==== ==== ==== ==== ====
6. EMPLOYEE BENEFITS The Company maintains a 401(k) plan in which employees of all the majority-owned domestic subsidiaries and certain foreign subsidiaries are eligible to participate. However, employees of foreign subsidiaries who are covered under a foreign deferred compensation plan are not eligible. Employees are permitted to make contributions of up to 10% of their salary to a maximum of $9,240 per year. Generally, the Company will contribute an amount equal to one-half of the employee's contribution up to $6,000 or 6% (whichever is less) of the employee's salary; however, if consolidated pre-tax income for any fiscal year is less than the amount required to be contributed by the Company, the Company may elect to reduce its contribution, but in no event may it reduce the total contribution to less than 25% of the employee contribution. The Company may make additional contributions from its current or cumulative net profits in an amount to be determined by the Board of Directors. Employer matching contributions to the 401(k) plan were $136,981 in 1993, $286,471 in 1994 and $280,981 in 1995. The Company initiated an employee nonqualified stock option plan on September 1, 1992. Options are granted to key employees and are exercisable beginning six months after the date of grant. The option price per share shall not be less than the lesser of (i) fair market value of the common stock on the date the option is granted or (ii) the average fair market value for the common stock during the 30 trading days ending on the trading day next preceding the date the option is granted. Options expire ten years from the date of grant. No options under the plan have been exercised. The exercise prices and number of options existing prior to F-14 48 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) January 17, 1995 have been adjusted for the Reverse Split. See Note 19. The Company has authorized 658,333 shares of post-Reverse Split common stock to be issued under the plan.
NUMBER OF EXERCISE OPTIONS PRICE ------- ------------ Balance, July 31, 1993.............................. 560,000 $13.50 Options cancelled................................. (70,667) $13.50 ------- Balance, July 31, 1994.............................. 489,333 $13.50 Options issued.................................... 13,333 $6.00 Options cancelled................................. (79,666) $13.50 ------- Balance, July 31, 1995.............................. 423,000 $6.00-$13.50 =======
The Company also initiated a stock option plan for non-employee directors (the "Director Plan") providing for stock options to be granted to each non-employee director of the Company. The Director Plan provides that on December 31 of each year, each eligible director shall be granted an option to purchase 3,333 shares of the Company's post-Reverse Split common stock, subject to an aggregate limit of 16,667 shares for each director. The exercise price for each option granted shall be the average closing price of the common stock for the 30 trading days prior to the date of grant. The exercise prices of options existing prior to January 17, 1995 have been adjusted for the Reverse Split. Options may be exercised at any time (i) after the later of six months following the date of grant or the first anniversary of the director's service on the board and (ii) before the sixth anniversary of the date of grant, when the option expires. No options under the Director Plan have been exercised. The Company has authorized 200,000 shares of post-Reverse Split common stock to be issued under the Director Plan.
NUMBER OF EXERCISE OPTIONS PRICE ------ ------------ Balance, July 31, 1993............................... 20,000 $12.87 Options issued..................................... 16,667 $6.72 ------ Balance, July 31, 1994............................... 36,667 $6.72-$12.87 Options issued..................................... 19,998 $4.13 ------ Balance, July 31, 1995............................... 56,665 $4.13-$12.87 ======
The Company maintains a contributory defined benefit pension plan (the "Pension Plan") for eligible participating employees in its United Kingdom offices. Monthly contributions by employees are equal to 3.5% of their salaries with the Company providing an additional contribution in an actuarially determined amount necessary to fund future benefits to be provided under the Pension Plan. Benefits provided are based upon 1/60 of the employee's final pensionable salary (as defined) for each complete year of service up to 2/3 of the employee's final pensionable salary and increase annually at 5%. The Pension Plan also provides for 50% of such actual or expected benefits to be paid to a surviving spouse upon the death of a participant. Pension Plan F-15 49 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assets consist mainly of investments in marketable securities which are held and managed by an independent trustee. The net periodic pension costs are as follows:
FOR THE YEARS ENDED JULY 31, ------------------- 1994 1995 ----- ----- (IN THOUSANDS OF DOLLARS) Service costs (benefits earned during the period)...... $ 288 $ 275 Interest costs on projected benefit obligation......... 249 253 Return on assets....................................... (226) (275) Net amortization and deferral.......................... 4 5 ----- ----- Net periodic pension costs............................. $ 315 $ 258 ===== =====
The funded status of the Pension Plan is as follows:
JULY JULY 31, 31, 1994 1995 ------- ------- (IN THOUSANDS OF DOLLARS) Plan assets at fair value.............................. $ 2,841 $ 3,444 Actuarial present value of accumulated vested benefit obligations.......................................... 2,472 3,026 Effect of future salary increases...................... 437 517 ------- ------- Projected benefit obligation......................... 2,909 3,543 ------- ------- Projected benefit obligation in excess of plan assets............................................... (68) (99) Unrecognized prior service cost........................ 68 13 ------- ------- Pension liability...................................... $ $ (86) ======= =======
The weighted average assumptions used to determine the projected benefit obligation and the expected long-term rate of return on assets for the years ended July 31, 1994 and 1995 are as follows: Discount rate......................................................... 8.5% Rates of increase in compensation levels.............................. 6.5% Expected long-term rate of return on assets........................... 9.0%
7. COMMITMENTS AND CONTINGENT LIABILITIES Total rentals of vessels, equipment and office facilities charged to operations amounted to $19,105,000, $21,914,000 and $24,884,000 for the years ended July 31, 1993, 1994 and 1995, respectively. F-16 50 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minimum rentals payable under operating leases, principally for office space, and vessel charters with remaining noncancellable terms are as follows:
FISCAL YEAR MINIMUM RENTALS ------- --------------- (IN THOUSANDS OF DOLLARS) 1996............................................. $14,583 1997............................................. 8,113 1998............................................. 7,244 1999............................................. 6,758 2000............................................. 3,546 2001-2013.......................................... 7,562
At July 31, 1995, the Company had placed orders for the purchase of certain equipment and services with an aggregate purchase price of $1,748,000. The Company has an employment agreement with an employee, who is also a director, that provides for salary payments of $25,417 per month plus certain employee benefits through December 31, 1995, the end of the employment period as defined. The agreement also contains a non-compete clause for a period of three years after the employment period during which time the employee will receive payments of $12,709 per month plus certain employee benefits. 8. WARRANTS The following number of warrants issued and exercise prices have been adjusted for the Reverse Split consummated on January 17, 1995. See Note 19. In conjunction with the cancellation of a previous issue of common and preferred stock and certain other liabilities, the Company authorized 454,545 warrants which may be exercised for 454,545 shares of common stock. The warrants were issued for a term of five years beginning July 5, 1991 at an exercise price of $18.00 per share. The warrants may only be exercised for cash. In conjunction with the Company's term loan due June 30, 1997, the Company issued 113,333 warrants which expire June 29, 1997. The warrants were exercisable for cash at a price of $18.00 per share. In conjunction with an amendment to the loan in August 1994, which revised certain financial ratio covenants, the price of the warrants was reduced to $6.00 per share. In conjunction with the Company's short-term related party loans, the Company issued to the lenders warrants to purchase 120,000 common shares. The warrants may be exercised for cash at a price of $4.50 per share and will expire July 26, 1999. 9. PURCHASE OF GFS COMPANY On October 30, 1992, the Company acquired GFS Company ("GFS") of Jackson, Mississippi. GFS operates land and transition zone seismic crews. Under the agreement, Digicon issued 225,000 shares of its pre-Reverse Split common stock (valued at $1,153,000) and $117,000 in notes in exchange for all of the outstanding stock of GFS. On completion of the transaction, GFS became a wholly-owned subsidiary of the Company. The acquisition was accounted for using the purchase method of accounting, and accordingly, goodwill of $4,245,000 was recorded representing the excess of the purchase price over the fair value of the net assets acquired. The goodwill is being amortized over a ten-year period and the operations of GFS are included in the consolidated financial statements beginning November 1, 1992. F-17 51 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. DEFERRED CREDITS In August 1992, the Company entered into agreements with a customer pursuant to which the Company was obligated to allow $7,800,000 in discounts at specified rates on future seismic services performed by the Company for such customer. Discounts were payable only out of a portion of the revenues received by the Company for the performance of the seismic services for such customer. At July 31, 1994, remaining discounts due were included in accounts payable -- trade in the amount of $536,000 and in deferred credits in the amount of $5,538,000. The agreement also required the customer to utilize the services of certain Company vessels for a minimum period of 15 months during a period ending in June 1995. In July 1995, the agreements were amended to terminate the remaining vessel usage requirement, revise the discount rates available on future seismic services and allow the customer to apply the discounts against the Company's invoices in return for a reduction in discounts allowed. As a result, the Company recognized a gain of $864,000 which is included in operating expenses for the year ended July 31, 1995. At July 31, 1995, remaining discounts of $3,675,000 are included in deferred credits. The Company also has $1,500,000 and $880,000 at July 31, 1994 and 1995, respectively, included in other accrued liabilities relating to deferred credits earned by certain customers in conjunction with their original participation in one of the Company's proprietary data surveys. These credits may be applied by the customers against future invoiced amounts. F-18 52 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. GEOGRAPHICAL INFORMATION Substantially all of the Company's operations consist of geophysical services. The following tables provide relevant information for the three years ended July 31, 1993, 1994 and 1995, grouped by major geographic areas. Intersegment sales between geographic areas are valued at current market prices.
REVENUES -------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS ------------ ------------ ----- -------- ------------ (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1993: Geographic areas: Europe & Middle East............. $ 24,699 $ 108 $ 24,807 $ 4,374 $ 38,516 Africa........................... 13,020 13,020 2,392 3,850 Far East......................... 38,569 74 38,643 (2,107) 26,267 South America.................... 3,945 3,945 638 7,723 Eliminations..................... (182) (182) -------- ------- -------- ------- -------- Totals...................... 80,233 80,233 5,297 76,356 United States.................... 37,476* 3,639 41,115* (908) 49,035 Eliminations..................... (3,639) (3,639) -------- ------- -------- ------- -------- Totals...................... 117,709 117,709 4,389 125,391 Other............................ (184) Corporate, general and administrative expenses........ (2,583) Interest......................... (1,217) Income taxes..................... (1,609) Investments in 50% or less-owned companies and joint ventures... (54) 254 Corporate assets................. 355 -------- ------- -------- ------- -------- Totals...................... $117,709 $ $117,709 $(1,258) $126,000 ======== ======= ======== ======= ========
- --------------- * Includes export sales of $10,138. During 1993, United States, Europe & Middle East, Africa and Far East revenues include sales to two clients which accounted for 16% and 11% of total revenues. Depreciation and amortization expense was $2,345,000 for Europe & Middle East, $230,000 for Africa, $2,209,000 for Far East, $140,000 for South America and $4,678,000 for United States. Capital expenditures were $21,310,000 for Europe & Middle East, $275,000 for Africa, $4,295,000 for Far East, $3,692,000 for South America and $10,809,000 for United States. F-19 53 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES -------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS ------------ ----------- ----- --------- ------------ (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1994: Geographic areas: Europe & Middle East............. $ 29,891 $1,697 $ 31,588 $ (3,120) $ 33,063 Far East......................... 19,401 19,401 (11,325) 19,330 South America.................... 14,219 14,219 (799) 9,758 Eliminations..................... (1,697) (1,697) -------- ------ -------- -------- -------- Totals...................... 63,511 63,511 (15,244) 62,151 United States.................... 54,467* 315 54,782* 7,187 60,649 Eliminations..................... (315) (315) -------- ------ -------- -------- -------- Totals...................... 117,978 117,978 (8,057) 122,800 Other............................ 702 Corporate, general and administrative expenses........ (2,020) Interest......................... (3,085) Income taxes..................... (1,521) Investments in 50% or less-owned companies and joint ventures... (445) 8,543 Corporate assets................. 513 -------- ------ -------- -------- -------- Totals...................... $117,978 $ $117,978 $(14,426) $131,856 ======== ====== ======== ======== ========
- --------------- * Includes export sales of $1,501. During 1994, United States, Europe & Middle East and Far East revenues include sales to a client which accounted for 10% of total revenues. Operating profit (loss) includes restructuring charges and write-off/reserve for impairment of assets of $1,258,000 for Europe & Middle East, $3,317,000 for Far East, and $3,808,000 for United States. Depreciation and amortization expense was $4,214,000 for Europe & Middle East, $1,942,000 for Far East, $1,551,000 for South America and $6,030,000 for United States. Capital expenditures were $2,031,000 for Europe & Middle East, $458,000 for Far East, $1,471,000 for South America and $6,720,000 for United States. F-20 54 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES -------------------------------- OPERATING UNAFFILIATED INTERSEGMENT PROFIT IDENTIFIABLE CUSTOMERS SALES TOTAL (LOSS) ASSETS ------------ ------------ ----- --------- ------------ (IN THOUSANDS OF DOLLARS) YEAR ENDED JULY 31, 1995: Geographic areas: Europe & Middle East............... $ 20,230 $ 579 $ 20,809 $ 2,188 $ 11,976 Far East........................... 27,360 22 27,382 (262) 23,436 South America...................... 21,931 21,931 (1,996) 16,998 Eliminations....................... (601) (601) -------- ----- -------- ------- -------- Totals........................ 69,521 69,521 (70) 52,410 United States...................... 63,048* 126 63,174* 9,263 82,227 Eliminations....................... (126) (126) -------- ----- -------- ------- -------- Totals........................ 132,569 132,569 9,193 134,637 Other.............................. (598) Corporate, general and administrative expenses.......... (1,527) Interest........................... (5,142) Income taxes....................... (2,033) Gain on sale of investment in FSU joint ventures................... 4,370 Investments in 50% or less-owned companies and joint ventures..... (1,485) 57 Corporate assets................... 376 -------- ----- -------- ------- -------- Totals........................ $132,569 $ $132,569 $ 2,778 $135,070 ======== ===== ======== ======= ========
- --------------- * Includes export sales of $2,228. There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1995. During 1995, depreciation and amortization expense was $3,984,000 for Europe & Middle East, $1,470,000 for Far East, $2,149,000 for South America and $5,762,000 for United States. Capital expenditures were $1,709,000 for Europe & Middle East, $1,240,000 for Far East, $4,252,000 for South America and $11,041,000 for United States. 12. ISSUANCE OF COMMON STOCK See Note 19 relating to the Reverse Split consummated on January 17, 1995. In December 1992, the Company sold, in an underwritten public offering, 5,456,900 shares of pre-Reverse Split common stock at $4.25 per share. The Company incurred approximately $2,104,000 of issuance costs in conjunction with the offering and these costs have been charged to additional paid-in capital. See also Notes 9 and 16 relating to the issuance of pre-Reverse Split common stock for the purchase of GFS Company and investment in FSU joint ventures. On June 6, 1995, 850,000 shares of treasury stock were sold to an institutional investor at a price of $4.6875 per share. See Note 15. F-21 55 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. CERTAIN TRANSACTIONS During fiscal 1994, the Company entered into two credit facilities with shareholders SOROS Capital L.P., CCF Jupiter L.P. and Jupiter Management Co., Inc. (collectively, "the Lenders"). In November 1993, the Company executed a secured term loan agreement with the Lenders which provided loans totaling $3,386,000. The loans were repaid in full in April 1994, and the facility was terminated. In July 1994, the Company executed a second secured loan agreement with the Lenders providing up to $3,000,000 of advances. See Note 2. The second facility was repaid in full in June 1995. In connection with the second facility, the Lenders received warrants to purchase the Company's common stock. See Note 8. During the fiscal year ended July 31, 1994 and 1995, $206,000 and $376,000, respectively, was paid to the Lenders as interest and fees under the two facilities. In fiscal 1994 and 1995, the Company performed certain data acquisition, processing, marketing and training services for various co-venturers and recorded sales in the amount of $1,279,000 and $1,633,000, respectively. At July 31, 1994 and 1995, there was approximately $310,000 and $300,000, respectively, in outstanding receivables related to these transactions. The Company sold certain assets during July 1994 to Caspian Geophysical, a joint venture in which the Company had an indirect 10% interest, for a note receivable payable in 36 monthly installments of $41,667 with an imputed interest rate of 10%. The net gain recorded after eliminating intercompany profits was $148,000. The note receivable was repaid in June 1995 as a result of the sale of the Company's interest in the joint venture. See Note 16. 14. EMPLOYEE STOCK PURCHASE In July 1991, the Company authorized 707,547 shares of pre-Reverse Split common stock for sale to its employees at a price of $2.12 per share. Employee purchases were voluntary and the stock was fully subscribed at the Closing Date. On the Closing Date, the Company issued the stock to the employees upon receipt of cash in an amount of par value. At the employee's option, the remaining purchase price could be paid in cash on the Closing Date or by payroll deductions over a period of 24 months. At July 31, 1992, agreements in the amount of $48,000 were outstanding and in accordance with Staff Accounting Bulletin No. 40, Topic 4-E were excluded from additional paid-in capital. As of July 31, 1993, all proceeds due under the agreements had been received and are included in additional paid-in capital. 15. SUBSEQUENT EVENTS In September 1995, the Company sold its 858,497 shares of treasury stock to a group of institutional investors at a price of $4.6875 per share for total cash proceeds of $4,024,204. 16. INVESTMENT IN FSU JOINT VENTURES During the year ended July 31, 1994, the Company entered into a joint venture agreement with MD Seis International Ltd. to perform geophysical services in the former Soviet Union ("FSU"). In connection with the agreement, the Company placed 5,431,615 shares of its pre-Reverse Split common stock in escrow to be distributed in stages upon the execution and completion of certain conditions. The first stage was completed on April 1, 1994 and the Company exchanged 3,072,950 shares of pre-Reverse Split common stock valued at $2.375 per share, or $7,298,256, and a $1,000,000 cash commitment in return for interests in certain jointly owned companies. The second stage of the agreement was completed on August 25, 1994, and the Company increased its ownership interest in certain of these companies by exchanging 2,052,543 shares of pre-Reverse Split common stock valued at $1.125 per share, or $2,309,111, and an additional $2,000,000 cash commitment. In addition, the Company agreed to guarantee certain F-22 56 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) liabilities of the joint ventures. After adjustment for the Reverse Split consummated on January 17, 1995, MD Seis owned 1,708,497 shares of common stock. The investments were being accounted for under the equity method. The FSU joint ventures generated total revenues of approximately $300,000 and $6,994,000 and net losses of approximately $921,000 and $2,954,000 during the years ended July 31, 1994 and 1995, respectively. The Company's share of net losses was approximately $391,000 and $1,477,000 during the years ended July 31, 1994 and 1995, respectively. The excess purchase price over the fair value of the net assets acquired in the amount of $9,292,000 was being amortized over a 20 year period. Amortization expense for the years ended July 31, 1994 and 1995 was $100,000 and $392,000, respectively. On June 6, 1995, the Company sold its interests in the joint ventures for $6,000,000 in cash and the return of the 1,708,497 shares of the post-Split common stock owned by MD Seis (valued at $5.125 per share). In addition, the Company received $2,992,144 in short-term notes, which were collected on July 31, 1995, representing payments for equipment sold and a return of amounts previously advanced to the joint ventures and is entitled to receive royalties of up to $1,500,000 based on future sales of speculative data currently being acquired by the joint ventures. The net effect of these transactions was a gain of $4,370,000. 17. RESTRUCTURING CHARGES AND EXIT COSTS In response to operating losses in certain markets which adversely impacted the Company's liquidity during the year ended July 31, 1994, management made a decision to restructure its operations and revalue certain assets in April 1994, including plans to close the Indonesian processing center, and accordingly incurred $9,116,000 in total expenses relating to such decision. Costs of $1,230,000 are included in cost of services and include non-recurring expenses associated with certain contract liabilities. Also included in the $9,116,000 is $6,523,000 for the write-off/reserve for the impairment of assets to their net realizable value. A portion of the write-off pertains to marine ($2,437,000) and land ($552,000) acquisition assets related to decommissioned marine vessels and stacked land crews. The write-off/reserve for impairment of assets also includes the write-down of certain other marine and land acquisition assets that were not a direct result of the restructuring program ($1,048,000). In addition, the Company wrote down data processing equipment ($2,056,000), particularly in the Far East, based on the declining market and the plan to close the Indonesian processing center, and Indonesian proprietary data ($430,000), since the Company's license to sell such data will not be extended by the Indonesian government. The remaining costs are restructuring charges of $1,363,000 of which $1,226,000 relates to severance costs for a reduction in the Company's workforce of 122 employees and $137,000 relates to office restoration expenses in the Indonesian processing center. Employees to be terminated are from the processing centers (including the Indonesian center), marine and land crews, marine support, manufacturing, research and development and corporate groups. The Company accrued an additional $450,000 of severance costs for 37 employees and $350,000 in lease obligations in the Indonesian processing center during the year ended July 31, 1995. As of July 31, 1995, 119 employees have been terminated and $1,061,000 in severance costs have been paid. The Company estimates that all remaining liabilities in the amount of $1,102,000 will be paid during fiscal 1996. 18. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES On August 31, 1994, the Company entered into a series of agreements with Syntron, Inc. ("Syntron") that provided for the sale of certain assets, inventories, and technologies by the Company to Syntron and the assumption of certain liabilities by Syntron. The sale price was $7,500,000 payable in cash of $3,000,000 and $4,500,000 in credits to be applied against future purchases from Syntron by the Company. The agreements also provide that for a period of three years, Syntron will be the sole supplier to the Company of certain acquisition, monitoring, and recording equipment that is competitively priced, deliverable on a timely basis and is technologically competitive. In addition, the Company has agreed to lease back certain marine and land F-23 57 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recording equipment from Syntron for a period of up to 36 months with minimum lease terms ranging from 7 1/2 to 17 1/2 months. The difference between the sale price and the net book value of the net assets sold after discounting the credits by 2 1/2% was a $1,001,000 gain which is being recognized on a pro rata basis over the minimum lease terms as a reduction in rental expense. Unused credits in the amount of $1,210,000 and $857,000 are included in accounts and notes receivable and other assets, respectively, at July 31, 1995. 19. REVERSE STOCK SPLIT On December 14, 1994, shareholders approved a one for three reverse stock split (the "Reverse Split") to holders of record on January 17, 1995, with no change in par value. On January 17, 1995, there were 33,404,816 shares of common stock outstanding which were converted into 11,134,939 shares of post-Reverse Split common stock. The net effect of these transactions was a charge to common stock and a credit to additional paid-in capital of approximately $223,000. On January 17, 1995, there were 1,363,637 publicly traded common stock purchase warrants expiring on July 5, 1996 with an exercise price of $6.00 per share. In connection with the Reverse Split and as required by the American Stock Exchange, the publicly traded warrants were converted, effective January 17, 1995, into approximately 454,545 post-Reverse Split common stock purchase warrants with an exercise price of $18.00. Also on January 17, 1995, there were 340,000 common stock purchase warrants expiring on June 29, 1997 with an exercise price of $2.00 per share which were adjusted in connection with the Reverse Split to represent 113,333 shares of post-Reverse Split common stock issuable upon exercise of these warrants at an exercise price of $6.00. Additionally, there were 1,975,000 and 600,000 shares of pre-Reverse Split common stock authorized under the 1992 Employee Nonqualified Stock Option Plan and 1992 Non-Employee Director Stock Option Plan, respectively. In connection with the Reverse Split, these authorized shares were decreased to 658,333 and 200,000 authorized shares of post-Reverse Split common stock under the Employee Plan and Director Plan, respectively, and the new exercise prices were tripled. F-24 58 DIGICON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. SELECTED UNAUDITED QUARTERLY FINANCIAL DATA FOR THE YEARS ENDED JULY 31, 1994 AND 1995 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)(*)
FOR THE YEAR ENDED JULY 31, 1994 -------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- -------- ------- Revenues........................................... $32,274 $30,475 $ 25,463 $29,766 Operating expense: Cost of services................................. 26,305 25,708 24,968 24,329 Restructuring.................................... 1,363 Write-off/reserve for impairment of assets......... 6,523 Depreciation and amortization...................... 3,374 3,560 3,541 3,283 Selling, general and administrative................ 1,080 1,716 1,438 867 Income (loss) before provision for income taxes.... 956 (735) (13,210) 84 Net income (loss).................................. 717 (982) (13,688) (473) Net income (loss) per share of common stock(*)..... .08 (.10) (1.40) (.05)
FOR THE YEAR ENDED JULY 31, 1995 -------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- -------- ------- Revenues........................................... $32,000 $30,266 $ 34,448 $35,855 Operating expense: Cost of services................................. 25,008 22,701 27,767 30,436 Restructuring.................................... 800 Depreciation and amortization...................... 3,393 3,453 3,469 3,448 Selling, general and administrative................ 1,106 1,058 1,244 1,020 Income before provision for income taxes........... 1,334 1,146 509 1,822 Net income......................................... 607 829 479 863 Net income per share of common stock(*)............ .06 .07 .04 .08
- ------------ (*) Reported quarterly earnings (loss) per share is based on each quarter's weighted average shares outstanding. The quarters may not total to the reported annual earnings (loss) per share due in part to fluctuations in common shares outstanding. Weighted average shares for all periods presented have been restated for the Reverse Split consummated on January 17, 1995. See Note 19. F-25 59 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 The Company........................... 9 Use of Proceeds....................... 9 Capitalization........................ 10 Price Range of Common Stock and Dividend Policy..................... 11 Selected Consolidated Financial Data................................ 12 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 14 Business.............................. 18 Management............................ 27 Description of Capital Stock.......... 28 Selling Stockholder................... 30 Underwriting.......................... 30 Legal Matters......................... 31 Experts............................... 31 Index to Consolidated Financial Statements.......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ [DIGICON LOGO] DIGICON INC. --------------------------------- 3,700,000 SHARES COMMON STOCK PROSPECTUS MARCH , 1996 --------------------------------- DILLON, READ & CO. INC. RAYMOND JAMES & ASSOCIATES, INC. RODMAN & RENSHAW, INC. - ------------------------------------------------------ - ------------------------------------------------------ 60 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses payable by the Company in connection with the offering of the Common Stock to be registered and offered hereby are as follows: Commission registration fee............................................... $ 9,629 National Association of Securities Dealers, Inc. fees..................... 3,293 American Stock Exchange listing fee....................................... 17,500 Printing expenses......................................................... 120,000 Legal fees and expenses................................................... 150,000 Blue Sky fees and expenses (including legal expenses)..................... 10,000 Accounting fees and expenses.............................................. 60,000 Transfer agent and registrar fees and expenses............................ 5,000 Miscellaneous............................................................. 4,578 -------- Total........................................................... $380,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware permits a corporation to 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, 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. In a suit brought to obtain a judgment in the corporation's favor, whether by the corporation itself or derivatively by a stockholder, the corporation may only indemnify for expenses, including attorney's fees, actually and reasonably incurred in connection with the defense or settlement of the case, and the corporation may not indemnify for amounts paid in satisfaction of a judgment or in settlement of the claim. In any such action, no indemnification may be paid in respect of any claim, issue or matter as to which such persons shall have been adjudged liable to the corporation except as otherwise approved by the Delaware Court of Chancery or the court in which the claim was brought. In any other type of proceeding, the indemnification may extend to judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with such other proceeding, as well as to expenses (including attorneys' fees). The statute does not permit indemnification unless the person seeking indemnification has 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, in the case of criminal actions or proceedings, the person had no reasonable cause to believe his conduct was unlawful. There are additional limitations applicable to criminal actions and to actions brought by or in the name of the corporation. The determination as to whether a person seeking indemnification has met the required standard of conduct is to be made (i) by a majority vote of a quorum of disinterested members of the board of directors, or (ii) by independent legal counsel in a written opinion, if such a quorum does not exist or if the disinterested directors so direct, or (iii) by the stockholders. The certificate of incorporation and bylaws of the Company require the Company to indemnify the Company's directors and officers to the fullest extent permitted under Delaware law, and to implement provisions pursuant to contractual indemnity agreements the Company has entered into with its directors and executive officers. The Company's Certificate of Incorporation limits the personal liability of a director to the corporation or its stockholders to damages for breach of the director's fiduciary duty. II-1 61 The Company has purchased insurance on behalf of its directors and officers against certain liabilities that may be asserted or incurred by, such persons in their capacities as directors or officers of the registrant, or that may arise out of their status as directors or officers of the registrant, including liabilities under the federal and state securities laws. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following is a list of all the exhibits and financial statement schedules filed as part of the Registration Statement. (a) Exhibits
EXHIBIT NO. DESCRIPTION ------- ----------- **1 -- Form of Underwriting Agreement by and among Dillon, Read & Co. Inc., Raymond James & Associates, Inc., Rodman & Renshaw, Inc., Digicon Inc., and the Selling Stockholder. 3-A -- Restated Certificate of Incorporation (with Amendments) of Digicon Inc. dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994) 3-B -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon's Registration Statement No. 33-43873, dated November 12, 1991) 3-C -- By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to Digicon's Registration Statement No. 33-43873, dated November 12, 1991). 3-D -- Certificate of Amendment of Certificate of Incorporation of Digicon Inc. dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994) *3-E -- Certificate of Amendment of Restated Certificate of Incorporation of Digicon Inc. dated January 16, 1995. *4 -- Specimen Digicon Inc. Common Stock certificate. *5 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of securities. 10-A -- Salary Continuation Agreement executed by Nicholas A. C. Bright, Kevin P. Callaghan, Richard W. McNairy and Allan C. Pogach. (Exhibit 10-E to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) *10-B -- Salary Continuation Agreement executed by Stephen J. Ludlow. 10-C -- Funding and Stockholders' Agreement dated April 9, 1991. (Exhibit 10.23 to Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-40197, dated June 7, 1991) 10-D -- Note Purchase Agreement dated June 29, 1992, between Digicon Inc. and Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1992) 10-E -- Memorandum of Agreement dated August 13, 1992, between Digicon Inc. and Mobil Tankships (U.S.A.) with respect to the purchase and sale of the M/V MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992) 10-F -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and Digicon Inc. (Exhibit 10-M to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994)
II-2 62
EXHIBIT NO. DESCRIPTION ------- ----------- 10-G -- Loan and Security Agreement dated April 11, 1994, between Foothill Capital Corporation and Digicon Inc., Digicon Geophysical Corp., Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration Ltd. (Exhibit 10-N to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) 10-H -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992) *10-I -- Amended and Restated 1992 Employee Nonqualified Stock Option Plan. 10-J -- Stock Purchase Agreement dated June 6, 1995, among Digicon Inc. and MD Seis International relating to the sale of the Company's interest in certain joint ventures established to pursue business opportunities in the former Soviet Union. (Exhibit 10-a to Digicon Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 30, 1995) *10-K -- Stock Purchase and Registration Rights Agreement dated June 6, 1995, between Digicon Inc. and Acorn Fund. *10-L -- Stock Purchase and Registration Rights Agreement dated September 19, 1995, between Digicon Inc. and Artform, N.V., Christian Humann and Francois Sicart Trustee under a deed of trust dated 2/2/88, Montber, S.A., Mellon Bank, N.A., as trustee for National Intergroup, Inc., Trace Inc., Jomacim, Inc., WKDL Investments Ltd., and The Tocqueville Fund. *10-M -- Stock Purchase and Registration Rights Agreement dated September 28, 1995, between Digicon Inc. and Value Partners, Ltd. 11-A -- Computation of Income (Loss) Per Common and Common Equivalent Share for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1995) 11-B -- Computation of Income Per Common and Common Equivalent Share for the three-month period ended October 31, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Quarterly Report on Form 10-Q for the period ended October 31, 1995) **23-A -- Consent of Deloitte & Touche LLP. *23-B -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5 opinion) 24 -- Power of Attorney. (included on the signature page hereto)
- --------------- * Previously filed. ** Filed herewith. (b) Financial Statement Schedules Schedules are omitted since the information required to be submitted has been included in the Consolidated Financial Statements of Digicon Inc. or the notes thereto, or the required information is not required. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act: (i) the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the registration statement as of the time it was declared effective; and (ii) each post-effective amendment that contains a form of II-3 63 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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant 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 registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant 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 registrant 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 of 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. II-4 64 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on March 5, 1996. DIGICON INC. By: /s/ STEPHEN J. LUDLOW -------------------------------------- Stephen J. Ludlow, President and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Amendment to the Registration Statement has been signed by the following persons in the indicated capacities and on the 5th day of March, 1996.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- DOUGLAS B. THOMPSON* Director and Chairman of the Board - --------------------------------------------- Douglas B. Thompson STEPHEN J. LUDLOW* Director, President and Chief Executive - --------------------------------------------- Officer Stephen J. Ludlow RICHARD W. McNAIRY* Chief Financial Officer - --------------------------------------------- Richard W. McNairy CHARLES H. ACKERMAN* Principal Accounting Officer - --------------------------------------------- Charles H. Ackerman GEORGE F. BAKER* Director - --------------------------------------------- George F. Baker JAMES B. CLEMENT* Director - --------------------------------------------- James B. Clement CLAYTON P. CORMIER* Director - --------------------------------------------- Clayton P. Cormier STEVEN J. GILBERT* Director - --------------------------------------------- Steven J. Gilbert *By: /s/ STEPHEN J. LUDLOW - --------------------------------------------- Stephen J. Ludlow Individually and as Attorney-in-Fact
II-5 65 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- **1 -- Form of Underwriting Agreement by and among Dillon, Read & Co. Inc., Raymond James & Associates, Inc., Rodman & Renshaw, Inc., Digicon Inc., and the Selling Stockholder. 3-A -- Restated Certificate of Incorporation (with Amendments) of Digicon Inc. dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994) 3-B -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon's Registration Statement No. 33-43873, dated November 12, 1991) 3-C -- By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to Digicon's Registration Statement No. 33-43873, dated November 12, 1991). 3-D -- Certificate of Amendment of Certificate of Incorporation of Digicon Inc. dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994) *3-E -- Certificate of Amendment of Restated Certificate of Incorporation of Digicon Inc. dated January 16, 1995. *4 -- Specimen Digicon Inc. Common Stock certificate. *5 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of securities. 10-A -- Salary Continuation Agreement executed by Nicholas A. C. Bright, Kevin P. Callaghan, Richard W. McNairy and Allan C. Pogach. (Exhibit 10-E to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) *10-B -- Salary Continuation Agreement executed by Stephen J. Ludlow. 10-C -- Funding and Stockholders' Agreement dated April 9, 1991. (Exhibit 10.23 to Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-40197, dated June 7, 1991) 10-D -- Note Purchase Agreement dated June 29, 1992, between Digicon Inc. and Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1992) 10-E -- Memorandum of Agreement dated August 13, 1992, between Digicon Inc. and Mobil Tankships (U.S.A.) with respect to the purchase and sale of the M/V MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992) 10-F -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and Digicon Inc. (Exhibit 10-M to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) 10-G -- Loan and Security Agreement dated April 11, 1994, between Foothill Capital Corporation and Digicon Inc., Digicon Geophysical Corp., Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration Ltd. (Exhibit 10-N to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1994) 10-H -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to Digicon Inc.'s Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992) *10-I -- Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
66
EXHIBIT NO. DESCRIPTION ------- ----------- 10-J -- Stock Purchase Agreement dated June 6, 1995, among Digicon Inc. and MD Seis International relating to the sale of the Company's interest in certain joint ventures established to pursue business opportunities in the former Soviet Union. (Exhibit 10-a to Digicon Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 30, 1995) *10-K -- Stock Purchase and Registration Rights Agreement dated June 6, 1995, between Digicon Inc. and Acorn Fund. *10-L -- Stock Purchase and Registration Rights Agreement dated September 19, 1995, between Digicon Inc. and Artform, N.V., Christian Humann and Francois Sicart Trustee under a deed of trust dated 2/2/88, Montber, S.A., Mellon Bank, N.A., as trustee for National Intergroup, Inc., Trace Inc., Jomacim, Inc., WKDL Investments Ltd., and The Tocqueville Fund. *10-M -- Stock Purchase and Registration Rights Agreement dated September 28, 1995, between Digicon Inc. and Value Partners, Ltd. 11-A -- Computation of Income (Loss) Per Common and Common Equivalent Share for the years ended July 31, 1993, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Annual Report on Form 10-K for the year ended July 31, 1995) 11-B -- Computation of Income Per Common and Common Equivalent Share for the three-month period ended October 31, 1994 and 1995. (Exhibit 11 to Digicon Inc.'s Quarterly Report on Form 10-Q for the period ended October 31, 1995) **23-A -- Consent of Deloitte & Touche LLP. *23-B -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5 opinion) 24 -- Power of Attorney. (included on the signature page hereto)
- --------------- * Previously filed. ** Filed herewith. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT (1) 3,700,000 Shares Common stock ($.01 Par Value) UNDERWRITING AGREEMENT , 1996 2 UNDERWRITING AGREEMENT , 1996 DILLON, READ & CO. INC. RAYMOND JAMES & ASSOCIATES, INC. RODMAN & RENSHAW, INC. as Managing Underwriters 535 Madison Avenue New York, New York 10022 Dear Sirs: Digicon Inc. (the "Company") proposes to issue and sell and the persons named in Schedule B annexed hereto (the "Selling Stockholders") propose to sell to the underwriters named in Schedule A annexed hereto (the "Underwriters") an aggregate of 3,700,000 shares (the "Firm Shares") of Common Stock, $.01 par value (the "Common Stock"), of the Company, of which 3,500,000 shares are to be issued and sold by the Company and an aggregate of 200,000 shares are to be sold by the Selling Stockholders in the respective amounts set forth under the caption "Firm Shares" in Schedule B annexed hereto. In addition, solely for the purpose of covering over-allotments, the Company proposes to grant to the Underwriters the option to purchase from the Company up to an additional 555,000 shares of Common Stock (the "Additional Shares"). The Firm Shares and the Additional Shares are hereinafter collectively sometimes referred to as the "Shares." The Shares are described in the Prospectus which is referred to below. The Company has filed, in accordance with the provisions of the Securities Act of 1993, as amended, and the rules and regulations thereunder (collectively called the "Act"), with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-2, including a prospectus, relating to the Shares, which incorporates by reference documents which the Company has filed or will file in accordance with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively called the "Exchange Act"). The Company has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses and the documents incorporated by reference therein (each thereof, including the documents incorporated therein by reference, being herein called a Preliminary Prospectus) relating to the Shares. Except where the context otherwise requires, the registration statement, as amended when it becomes effective, including all documents filed as a part thereof or incorporated by reference therein, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430(A) under the Act, is herein called the Registration Statement, and the prospectus, including all documents incorporated 3 therein by reference, in the form filed by the Company with the Commission pursuant to Rule 424(b) under the Act or, if no such filing is required, the form of final prospectus included in the Registration Statement at the time it became effective, is herein called the Prospectus. The Company, the Selling Stockholders and the Underwriters agree as follows: 1. Sale and Purchase. Upon the basis of the warranties and representations and the other terms and conditions herein set forth, the Company and each of the Selling Stockholders, severally and not jointly, agree to sell to the respective Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Company and each Selling Stockholder the respective number of Firm Shares (subject to such adjustment as you may determine to avoid fractional shares) which bears the same proportion to the number of Firm Shares to be sold by the Company or by such Selling Stockholders, as the case may be, as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule A annexed hereto bears to the total number of Firm Shares to be sold by the Company and the Selling Stockholders, in each case at a purchase price of $_____ per Share. You shall release the Firm Shares for public sale promptly after this Agreement becomes effective. You may from time to time increase or decrease the public offering price after the initial public offering to such extent as you may determine. In addition, the Company hereby grants to the several Underwriters the option to purchase, and upon the basis of the warranties and representations and the other terms and conditions herein set forth, the Underwriters shall have the right to purchase, severally and not jointly, from the Company, ratably in accordance with the number of Firm Shares to be purchased by each of them (subject to such adjustment as you shall determine to avoid fractional shares), all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Company and the Selling Stockholders listed on Schedule B hereto for the Firm Shares. This option may be exercised at any time (but not more than once) on or before the forty-fifth day following the date hereof, by written notice to the Company and the Selling Stockholders listed on Schedule B hereto. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date and time being herein referred to as the additional time of purchase); provided, however, that the additional time of purchase shall not be earlier than the time of purchase (as defined below) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the eighth business day after the date on which the option shall have been exercised. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment as you may determine to eliminate fractional shares). -2- 4 Pursuant to powers of attorney, which shall be satisfactory to counsel for the Underwriters, granted by each Selling Stockholder, ______________ and ________________ will act as representatives of the Selling Stockholders. The foregoing representatives (the "Representatives of the Selling Stockholders") are authorized, on behalf of each Selling Stockholder, to execute any documents necessary or desirable in connection with the sale of the Shares to be sold hereunder by each Selling Stockholder, to make delivery of the certificates of such Shares, to receive the proceeds of the sale of such Shares, to give receipts for such proceeds, to pay therefrom the expenses to be borne by each Selling Stockholder in connection with the sale and public offering of the Shares, to distribute the balance of such proceeds to each Selling Stockholder in proportion to the number of Shares sold by each Selling Stockholder, to receive notices on behalf of each Selling Stockholder and to take such other action as may be necessary or desirable in connection with the transactions contemplated by this Agreement. 2. Payment and Delivery. Payment of the purchase price for the Firm Shares shall be made to the Company and each of the Selling Stockholders by certified or official bank check, in New York Clearing House funds, at the office of Dillon, Read & Co. Inc. in New York City, against delivery of the certificates for the Firm Shares to you for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York City time, on , 1996 (unless another time shall be agreed to by you, the Company and the Representatives of the Selling Stockholders or unless postponed in accordance with the provisions of Section 10 hereof). The time at which such payment and delivery are actually made is hereinafter sometimes called the "time of purchase." Certificates for the Firm Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify on the second business day preceding the time of purchase. For the purpose of expediting the checking of the certificates for the Firm Shares by you, the Company and the Selling Stockholders agree to make such certificates available to you for such purpose at least one full business day preceding the time of purchase. Payment of the purchase price for the Additional Shares shall be made at the additional time of purchase in the same manner and at the same office as the payment for the Firm Shares. Certificates for the Additional Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify on the second business day preceding the additional time of purchase. For the purpose of expediting the checking of the certificates for the Additional Shares by you, the Company agrees to make such certificates available to you for such purpose at least one full business day preceding the additional time of purchase. 3. Representations and Warranties of the Company. The Company represents and warrants to each of the Underwriters that: (a) when the Registration Statement becomes effective, the Registration Statement and the Prospectus will fully comply in all material respects with the provisions of the Act, -3- 5 and the Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no warranty or representation with respect to any statement contained in the Registration Statement or the Prospectus in reliance upon and in conformity with information concerning the Underwriters and furnished in writing by or on behalf of any Underwriter through you to the Company expressly for use in the Registration Statement or the Prospectus; the documents incorporated by reference in the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act, and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (b) as of the date of this Agreement, the Company has authorized capital stock as set forth under the heading entitled "Actual" in the section of the Registration Statement and the Prospectus entitled "Capitalization" and, as of the time of purchase and the additional time of purchase, as the case may be, the Company shall have authorized capital stock as set forth under the heading entitled "As Adjusted" in the section of the Registration Statement and the Prospectus entitled "Capitalization"; all of the issued and outstanding shares of capital stock including Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, to execute and deliver this Agreement and to issue and sell the Shares as herein contemplated; -4- 6 (c) the Company and each of its subsidiaries (the "Subsidiaries") are duly qualified or licensed by and are in good standing in each jurisdiction in which they conduct their respective businesses and in which the failure, individually or in the aggregate, to be so licensed or qualified could have a material adverse effect on the operations, business or condition of the Company and its Subsidiaries, taken as a whole; and the Company and each of its Subsidiaries are in compliance in all material respects with the laws, orders, rules, regulations and directives issued or administered by such jurisdictions; (d) neither the Company nor any of its Subsidiaries is in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under), its respective charter or by-laws or in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them is bound, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not conflict with, or result in any breach of or constitute a default under (nor constitute any event which with notice, lapse of time, or both would constitute a breach of, or default under), any provisions of the charter or by-laws, of the Company or any of its Subsidiaries or under any provision of any license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; (e) this Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights -5- 7 generally and to general principles of equity (whether applied in a proceeding in law or equity); (f) the capital stock of the Company, including the Shares, conforms in all material respects to the description thereof contained in the Registration Statement and Prospectus and the certificates for the Shares are in due and proper form and the holders of the Shares will not be subject to personal liability by reason of being such holders; (g) no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Shares as contemplated hereby other than registration of the Shares under the Act and any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters; (h) except pursuant to registration rights that have been exercised in the manner set forth in the Prospectus or pursuant to the registration statement on Form S-3 dated __________, 1995 and except for registration rights that have been unconditionally waived or otherwise terminated, no person has the right, contractual or otherwise, to cause the Company to issue to it, or register pursuant to the Act, any shares of capital stock of the Company upon the issue and sale of the Shares to the Underwriters hereunder, nor does any person have preemptive rights, rights of first refusal or other rights to purchase any of the Shares; (i) Deloitte & Touche LLP, whose reports on the consolidated financial statements of the Company and its Subsidiaries are filed with the Commission as part of the Registration Statement and Prospectus, are independent public accountants as required by the Act and the applicable published rules and regulations thereunder; (j) each of the Company and its Subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from -6- 8 other persons, in order to conduct its respective business; neither the Company nor any of its Subsidiaries is in violation of, or in default under, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any of its Subsidiaries the effect of which could have a material adverse effect on the Company and its Subsidiaries taken as a whole; (k) all legal or governmental proceedings, contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement have been so described or filed as required; (l) there are no actions, suits or proceedings pending or threatened against the Company or any of its Subsidiaries or any of their respective properties, at law or in equity, or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency which could result in a judgment, decree or order having a material adverse effect on the business, condition, prospects or property of the Company and its Subsidiaries taken as a whole; (m) the audited financial statements included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of operations and changes in financial position of the Company and its Subsidiaries for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved; (n) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as may be otherwise stated in the Registration Statement or Prospectus, there has not been (A) any material and unfavorable change, financial or otherwise, in the business, properties, prospects, regulatory environment, results of operations or condition (financial or otherwise), present or prospective, of the Company and its -7- 9 Subsidiaries taken as a whole, (B) any transaction, which is material to the Company and its Subsidiaries taken as a whole, contemplated or entered into by the Company or any of its Subsidiaries or (C) any obligation, contingent or otherwise, directly or indirectly incurred by the Company or any of its Subsidiaries which is material to the Company and its Subsidiaries taken as a whole; (o) the Company has obtained the agreement of each of the Selling Stockholders and of each of its directors and officers not to offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to purchase Common Stock for a period of 120 days after the date of the Prospectus; and (p) none of the assets, liabilities, revenues or expenses of the Company's Subsidiaries other than the Significant Subsidiaries (as hereinafter defined), when each such financial statement item is considered separately but aggregated for all such non-Significant Subsidiaries, is material to the assets, liabilities, revenues or expenses, respectively, of the Company and its Subsidiaries, taken as a whole. 4. Representations and Warranties of the Selling Stockholders. Each Selling Stockholder, severally and not jointly, represents and warrants to each Underwriter that: (a) such Selling Stockholder now is and at the time of delivery of such Shares (whether the time of purchase or additional time of purchase, as the case may be) will be, the lawful owner of the number of Shares to be sold by such Selling Stockholder pursuant to this Agreement and has and, at the time of delivery thereof, will have valid and marketable title to such Shares, and upon delivery of and payment for such Shares (whether at the time of purchase or the additional time of purchase, as the case may be), the Underwriters will acquire valid and marketable title to such Shares free and clear of any claim, lien, encumbrance, security interest, community property right, restriction on transfer or other defect in title; (b) such Selling Stockholder has and at the time of delivery of such Shares will have, full legal right, power and capacity, and any approval required by law (other than those -8- 10 imposed by the Act and the securities or blue sky laws of certain jurisdictions), to sell, assign, transfer and deliver such Shares in the manner provided in this Agreement; (c) this Agreement and the Custody Agreement among ______________, as custodian, and the Selling Stockholders (the "Custody Agreement") have been duly executed and delivered by such Selling Stockholder and each is a legal, valid and binding agreement of such Selling Stockholder enforceable in accordance with its terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity); (d) when the Registration Statement becomes effective and at all times subsequent thereto through the latest of the time of purchase, additional time of purchase or the termination of the offering of the Shares, the Registration Statement and Prospectus, and any supplements or amendments thereto as relate to such Selling Stockholder (to the extent based upon information supplied in writing to the Company or any Underwriter) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (e) such Selling Stockholder has duly and irrevocably authorized the Representatives of the Selling Stockholders, on behalf of such Selling Stockholder, to execute and deliver this Agreement and any other document necessary or desirable in connection with the transactions contemplated thereby and to deliver the Shares to be sold by such Selling Stockholder and receive payment therefor pursuant hereto. 5. Certain Covenants of the Company. The Company hereby agrees: (a) to furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states as you may designate and to maintain such qualifications in effect so long as required for the distribution of the Shares, provided that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process -9- 11 under the laws of any such state (except services of process with respect to the offering and sale of the Shares); and to promptly advise you of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (b) to make available to you in New York City, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time to furnish to the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the Registration Statement) as the Underwriters may request for the purposes contemplated by the Act; (c) to advise you promptly and (if requested by you) to confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective and (ii) if Rule 430A under the Act is used, when the Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act (which the Company agrees to file in a timely manner under such Rules); (d) to advise you promptly, confirming such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for, or the entry of a stop order suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting or removal of such order as soon as possible; to advise you promptly of any proposal to amend or supplement the Registration Statement or Prospectus including by filing any documents that would be incorporated therein by reference and to file no such amendment or supplement to which you shall object in writing; -10- 12 (e) to furnish to you and, upon request, to each of the other Underwriters for a period of five years from the date of this Agreement (i) copies of any reports or other communications which the Company shall send to its stockholders or shall from time to time published or publicly disseminate, (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the Commission, and (iii) such other information as you may reasonably request regarding the Company or its Subsidiaries; (f) to advise the Underwriters promptly of the happening of any event known to the Company within the time during which a prospectus relating to the Shares is required to be delivered under the Act which, in the judgment of the Company, would require the making of any change in the Prospectus then being used, or in the information incorporated therein by reference, so that the Prospectus would not include an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and, during such time, to prepare and furnish, at the Company's expense, to the Underwriters promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change and to furnish you a copy of such proposed amendment or supplement before filing any such amendment or supplement with the Commission; (g) to make generally available to its security holders, and to deliver to you, an earnings statement of the Company (which will satisfy the provisions of Section 11(a) of the Act) covering a period of twelve months beginning after the effective date of the Registration Statement but no later than September 30, 1997, as soon as is reasonably practicable after the termination of such twelve-month period; (h) to furnish to you four signed copies of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto and documents incorporated by reference therein) and sufficient conformed copies of the foregoing (other than exhibits) for distribution of a copy to each of the other Underwriters; -11- 13 (i) to furnish to you as early as practicable prior to the time of purchase and the additional time of purchase, as the case may be, but not later than two business days prior thereto, a copy of the latest available unaudited interim consolidated financial statements, if any, of the Company and its Subsidiaries which have been read by the Company's independent certified public accountants, as stated in their letter to be furnished pursuant to Section 8(c) of this Agreement; (j) to apply the net proceeds from the sale of the Shares in the manner set forth under the caption "Use of Proceeds" in the Prospectus; (k) to furnish to you, before filing with the Commission subsequent to the effective date of the Registration Statement and during the period referred to in paragraph (f) above, a copy of any document proposed to be filed pursuant to Sections 13, 14, or 15(d) of the Exchange Act; (l) not to offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to purchase Common Stock or permit the registration under the Act of any shares of Common Stock, except for the registration of the Shares and the sales to the Underwriters pursuant to this Agreement and except for issuances of Common Stock upon the exercise of outstanding options and warrants, for a period of 120 days after the date hereof, without the prior written consent of the Managing Underwriters; and (m) to use its best efforts to cause the Common Stock to be listed on the American Stock Exchange. 6. Certain Covenants of the Company and the Selling Stockholders. The Company and each of the Selling Stockholders agree with each Underwriter as follows: (a) the Company will pay all expenses, fees and taxes (other than any transfer taxes and fees and disbursements of counsel for the Underwriters except as set forth under -12- 14 Section 7 hereof or (iii) or (iv) below) in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the issuance, sale and delivery of the Shares by the Company and the Selling Stockholders, (iii) the word processing and/or printing of this Agreement, any Agreement Among Underwriters, any dealer agreements, any Statements of Information, the Custody Agreement and the Powers of Attorney and the reproduction and/or printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including the legal fees and filing fees and other disbursements of counsel to the Underwriters) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) any listing of the Shares on any securities exchange or qualification of the Shares for quotation on the Nasdaq Stock Market and any registration thereof under the Exchange Act, (vi) the filing for review of the public offering of the Shares by the National Association of Securities Dealers, Inc. (the "NASD"), and (vii) the performance of the Company's and the Selling Stockholders' other obligations hereunder; provided, however, that, notwithstanding the foregoing, in addition to their proporationate share of any underwriting discounts and commissions, the Selling Stockholders shall bear all legal fees and disbursements of their counsel; and (b) the Company and the Selling Stockholders will not issue, sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to purchase Common Stock or, in the case of the Company, permit the registration under the Act of any shares of Common Stock, except for the registration of the Shares and the sales to the Underwriters pursuant to this Agreement and except for issuances of Common Stock upon the exercise of outstanding options or -13- 15 warrants for a period of 120 days after the date of the Prospectus, without the prior written consent of the Managing Underwriters. 7. Reimbursement of Underwriters' Expenses. If the Shares are not delivered for any reason other than the termination of this Agreement pursuant to the first two paragraphs of Section 10 hereof or the default by one or more of the Underwriters in its or their respective obligations hereunder, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel. 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders on the date hereof and at the time of purchase (and the several obligations of the Underwriters at the additional time of purchase are subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders on the date hereof and at the time of purchase (unless previously waived) and at the additional time of purchase, as the case may be), the performance by the Company and the Selling Stockholders of their obligations hereunder and to the following conditions: (a) The Company shall furnish to you at the time of purchase and at the additional time of purchase, as the case may be, an opinion of Porter & Hedges, L.L.P., counsel for the Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form satisfactory to Vinson & Elkins L.L.P., counsel for the Underwriters, stating that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus, to execute and deliver this Agreement and to issue, sell and deliver the Shares as herein contemplated; (ii) each of the Company's significant subsidiaries named in Schedule C ("Significant Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its respective jurisdiction of incorporation with full -14- 16 corporate power and authority to own its respective properties and to conduct its respective business; (iii) the Company and its Significant Subsidiaries are duly qualified or licensed by each jurisdiction in which they conduct their respective businesses and in which the failure, individually or in the aggregate, to be so licensed or qualified could have a material adverse effect on the operations, business or condition of the Company and its Significant Subsidiaries taken as a whole, and the Company and its Significant Subsidiaries are duly qualified, and are in good standing, in each jurisdiction in which they own or lease real property or maintain an office and in which such qualification is necessary; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) the Shares, when issued and delivered to and paid for by the Underwriters, will be duly and validly authorized and issued and will be fully paid and non- assessable; (vi) the Company has authorized capital stock as set forth in the Registration Statement and the Prospectus; the outstanding shares of capital stock of the Company have been duly and validly authorized and issued, and are fully paid, nonassessable and free of statutory and contractual preemptive rights; the Shares when issued will be free of statutory and contractual preemptive rights; the certificates for the Shares are in due and proper form and the holders of the Shares will not be subject to personal liability by reason of being such holders; (vii) the capital stock of the Company, including the Shares, conforms in all material respects to the description thereof contained in the Registration Statement and Prospectus; (viii) the Registration Statement and the Prospectus (except as to the financial statements and schedules -15- 17 and other financial and statistical data contained or incorporated by reference therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act; (ix) the Registration Statement has become effective under the Act and, to the best of such counsel's knowledge, no stop order proceedings with respect thereto are pending or threatened under the Act; (x) no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Shares as contemplated hereby other than registration of the Shares under the Act (except such counsel need express no opinion as to any necessary qualification under the state securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters); (xi) the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not conflict with, or result in any breach of, or constitute a default under (nor constitute any event which with notice, lapse of time, or both, would constitute a breach of or default under), any provisions of the charter or by-laws of the Company or any of its Subsidiaries or under any provision of any license, indenture, mortgage, deed of trust, bank loan, credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; (xii) to the best of such counsel's knowledge, neither the Company nor any of its Subsidiaries is in -16- 18 breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under), any license, indenture, mortgage, deed of trust, bank loan or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected or under any law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries; (xiii) to the best of such counsel's knowledge, there are no contracts, licenses, agreements, leases or documents of a character which are required to be filed as exhibits to the Registration Statement or to be summarized or described in the Prospectus which have not been so filed, summarized or described; (xiv) to the best of such counsel's knowledge, there are no actions, suits or proceedings pending or threatened against the Company or any of its Subsidiaries or any of their respective properties, at law or in equity or before or by any commission, board, body, authority or agency which are required to be described in the Prospectus but are not so described; (xv) the documents incorporated by reference in the Registration Statement and Prospectus, when they were filed (or, if an amendment with respect to any such document was filed when such amendment was filed), complied as to form in all material respects with the Exchange Act (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein as to which such counsel need express no opinion); and (xvi) such counsel have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the contents of the -17- 19 Registration Statement and Prospectus were discussed and, although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus (except as and to the extent stated in subparagraphs (vi) and (vii) above), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company) nothing has come to the attention of such counsel that causes them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any supplement thereto at the date of such Prospectus or such supplement, and at all times up to and including the time of purchase or additional time of purchase, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (b) The Selling Stockholders shall furnish to you at the time of purchase and at the additional time of purchase, as the case may be, an opinion of Porter & Hedges, L.L.P., counsel for the Selling Stockholders, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, with reproduced copies for each of the other Underwriters, and in form and substance satisfactory to Vinson & Elkins L.L.P., counsel for the Underwriters, stating that: (i) this Agreement and the Custody Agreement have been duly executed and delivered by or on behalf of each of the Selling Stockholders; -18- 20 (ii) each Selling Stockholder has full legal right and power, and has obtained any authorization or approval required by law (other than those imposed by the Act and the securities or blue sky laws of certain jurisdictions), to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder in the manner provided in this Agreement; (iii) delivery of certificates for the Shares by each Selling Stockholder pursuant hereto will pass valid and marketable title thereto to the Underwriters, free and clear of any claim, lien, encumbrance, security interest, community property right, restriction on transfer or other defect in title; (iv) each of the Representatives of the Selling Stockholders has been duly authorized by each Selling Stockholder to execute and deliver on behalf of such Selling Stockholder this Agreement and any other document necessary or desirable in connection with the transactions contemplated hereby and to deliver the Shares to be sold by such Selling Stockholder; and (v) to the best of such counsel's knowledge, the statements in the Prospectus under the caption "Selling Stockholder" insofar as such statements constitute a summary of the matters referred to therein present fairly the information called for with respect to such matters. (c) You shall have received from Deloitte & Touche LLP, letters dated, respectively, the date of this Agreement and the time of purchase and additional time of purchase, as the case may be, and addressed to the Underwriters (with reproduced copies for each of the Underwriters) in the forms heretofore approved by the Managing Underwriters. (d) You shall have received at the time of purchase and at the additional time of purchase, as the case may be, the favorable opinion of Vinson & Elkins L.L.P., counsel for the -19- 21 Underwriters, dated the time of purchase or the additional time of purchase, as the case may be, as to the matters referred to in subparagraphs (iv), (v), (vii), (viii) and (ix) of paragraph (a) of this Section 8. In addition, such counsel shall state that such counsel have participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the contents of the Registration Statement and Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as to matters referred to under subparagraph (vii) of paragraph (a) of this Section 8), on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to the attention of such counsel which lead them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date or any supplement thereto as of its date contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no comment with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (e) No amendment or supplement to the Registration Statement or Prospectus, including documents deemed to be incorporated by reference therein, shall be filed prior to the time the Registration Statement becomes effective to which you object in writing. (f) The Registration Statement shall become effective, or if Rule 430A under the Act is used, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act, at or before 5:00 P.M., New York City time, on the date of this Agreement, unless a later time (but not later than 5:00 P.M., New York City time, on the second full business day after the date of this Agreement) shall be agreed to by the Company, the Representatives of the Selling Stockholders and you in writing or by telephone, confirmed in writing; provided, however, that the Company, the Representatives of the Selling Stockholders and you and any -20- 22 group of Underwriters, including you, who have agreed hereunder to purchase in the aggregate at least 50% of the Firm Shares may from time to time agree on a later date. (g) Prior to the time of purchase or the additional time of purchase, as the case may be, (i) no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the Act or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement and all amendments thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) the Prospectus and all amendments or supplements thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. (h) Between the time of execution of this Agreement and the time of purchase or the additional time of purchase, as the case may be, (i) no material and unfavorable change, financial or otherwise (other than as referred to in the Registration Statement and Prospectus), in the business, condition or prospects of the Company and its Subsidiaries taken as a whole shall occur or become known and (ii) no transaction which is material and unfavorable to the Company shall have been entered into by the Company or any of its Subsidiaries. (i) The Company will, at the time of purchase or additional time of purchase, as the case may be, deliver to you a certificate of two of its executive officers to the effect that the representations and warranties of the Company as set forth in this Agreement and the conditions set forth in paragraph (g) and paragraph (h) have been met and that they are true and correct as of each such date. (j) You shall have received signed letters, dated the date of this Agreement, from each of the Selling Stockholders and each of the directors and officers of the Company to the effect that such persons shall not offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or -21- 23 indirectly, any shares of Common Stock of the Company or securities convertible into or exchangeable for Common Stock or warrants or other rights to purchase Common Stock for a period of 120 days after the date of the Prospectus without the prior written consent of the Managing Underwriters. (k) The Company and the Selling Stockholders shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement and the Prospectus as of the time of purchase and the additional time of purchase, as the case may be, as you may reasonably request. (l) The Company and the Selling Stockholders shall perform such of their respective obligations under this Agreement as are to be performed by the terms hereof at or before the time of purchase and at or before the additional time of purchase, as the case may be. (m) The Shares shall have been approved for listing on the Exchange, subject only to notice of issuance at or prior to the time of purchase. (n) The Selling Stockholders will at the time of purchase and the additional time of purchase, as the case may be deliver to you a certificate of the Representatives of the Selling Stockholders to the effect that the representations and the warranties of the Selling Stockholders as set forth in this Agreement are true and correct as of each such date. 9. Effective Date of Agreement; Termination: This Agreement shall become effective (i) if Rule 430A under the Act is not used, when you shall have received notification of the effectiveness of the Registration Statement, or (ii) if Rule 430A under the Act is used, when the parties hereto have executed and delivered this Agreement. The obligations of the several Underwriters hereunder shall be subject to termination in the absolute discretion of you or any group of Underwriters (which may include you) which has agreed to purchase in the aggregate at least 50% of the Firm Shares, if, at any time prior to the time of purchase or, with respect to the purchase of any Additional Shares, the additional time of purchase, as the case may be, trading in securities on the New York Stock Exchange or American Stock Exchange shall have been suspended or minimum prices shall have been established on the New York Stock Exchange or American Stock Exchange, or if a banking moratorium shall have -22- 24 been declared either by the United States or New York State authorities, or if the United States shall have declared war in accordance with its constitutional processes or there shall have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on the financial markets of the United States as, in your judgment or in the judgment of such group of Underwriters, to make it impracticable to market the Shares. If you or any group of Underwriters elects to terminate this agreement as provided in this Section 9, the Company, the Representatives of the Selling Stockholders and each other Underwriter shall be notified promptly by letter or telegram. If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement or if such sale is not carried out because the Company or the Selling Stockholders, as the case may be, shall be unable to comply with any of the terms of this Agreement, the Company or the Selling Stockholders, as the case may be, shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 6(a), 7 and 11 hereof), and the Underwriters shall be under no obligation or liability to the Company and the Selling Stockholders under this Agreement (except to the extent provided in Section 11 hereof) or to one another hereunder. 10. Increase in Underwriters' Commitments: If any Underwriter shall default in its obligation to take up and pay for the Firm Shares to be purchased by it hereunder and if the number of Firm Shares which all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total number of Firm Shares, the non-defaulting Underwriters shall take up and pay for (in addition to the aggregate principal amount of Firm Shares they are obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be purchased by all such defaulting Underwriters, as hereinafter provided. Such Shares shall be taken up and paid for by such non- defaulting Underwriter or Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate number of Firm Shares set opposite the names of such non-defaulting Underwriters in Schedule A. Without relieving any defaulting Underwriter from its obligations hereunder, the Company and the Selling Stockholders agree with the non-defaulting Underwriters that they will not sell any Firm Shares hereunder unless all of the Firm Shares are purchased by the Underwriters (or by substituted Underwriters selected by you with the approval of the Company or selected by the Company with your approval). If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or you shall have the right to postpone the time of purchase for a period not exceeding -23- 25 five business days in order that any necessary changes in the Registration Statement and Prospectus and other documents may be effected. The term Underwriter as used in this agreement shall refer to and include any Underwriter substituted under this Section 10 with like effect as if such substituted Underwriter had originally been named in Schedule A. 11. Indemnity by the Company, the Selling Stockholders and the Underwriters. (a) The Company and the Selling Stockholders jointly and severally agree to indemnify, defend and hold harmless each Underwriter and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any loss, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such controlling person may incur under the Act, the Exchange Act or otherwise insofar as such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post- effective amendment thereof by the Company) or in a Prospectus (the term "Prospectus" for the purpose of this Section 11 being deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus as amended or supplemented by the Company), or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein not misleading, except insofar as any such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by any Underwriter through you to the Company expressly for use with reference to such Underwriter in such Registration Statement or such Prospectus or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in either such Registration Statement or Prospectus or necessary to make such information not misleading; provided, further, that no Selling Stockholder shall be responsible, either pursuant to this indemnity or as a result of any breach of this Agreement, -24- 26 for losses, expenses, liability or claims arising out of or based upon such untrue statement or omission or allegation thereof based upon information furnished by any party other than such Selling Stockholder and, in any event, no Selling Stockholder shall be responsible, either pursuant to this indemnity or as a result of any breach of this Agreement, for losses, expenses, liability or claims for an amount in excess of the proceeds to be received by such Selling Stockholder (before deducting expenses) from the sale of Shares hereunder. If any action is brought against an Underwriter or controlling person in respect of which indemnity may be sought against the Company or any Selling Stockholder pursuant to the foregoing paragraph, such Underwriter shall promptly notify the Company and the Representatives of the Selling Stockholders in writing of the institution of such action and the Company or such Selling Stockholder, as the case may be, shall assume the defense of such action, including the employment of counsel and payment of expenses. Such Underwriter or such controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or of such controlling person unless the employment of such counsel shall have been authorized in writing by the Company or such Selling Stockholder in connection with the defense of such action or the Company or such Selling Stockholder shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Company or such Selling Stockholder (in which case the Company or such Selling Stockholder shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Company or such Selling Stockholder, as the case may be, and paid as incurred (it being understood, however, that the Company or such Selling Stockholder shall not be liable for the expenses of more than one separate counsel in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, the Company or such Selling Stockholder shall not be liable for any settlement of any such claim or action effected without its written consent. (b) Each Underwriter severally agrees to indemnify, defend and hold harmless the Company, its directors and officers, each Selling Stockholder and any person who controls the Company or any Selling Stockholder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any loss, expense, liability or claim (including the reasonable cost of investigation) which, -25- 27 jointly or severally, the Company, any Selling Stockholder or any such person may incur under the Act or otherwise, insofar as such loss, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use with reference to such Underwriter in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated either in such Registration Statement or Prospectus or necessary to make such information not misleading. If any action is brought against the Company, any Selling Stockholder or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Company, such Selling Stockholder or such person shall promptly notify such Underwriter in writing of the institution of such action and such Underwriter shall assume the defense of such action, including the employment of counsel and payment of expenses. The Company, such Selling Stockholder or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company, such Selling Stockholder or such person unless the employment of such counsel shall have been authorized in writing by such Underwriter in connection with the defense of such action or such Underwriter shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to such Underwriter (in which case such Underwriter shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that such Underwriter shall not be liable for the expenses of more than one separate counsel in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, no Underwriter shall be liable for any settlement of any such claim or action effected without the written consent of such Underwriter. (c) If the indemnification provided for in this Section 11 is unavailable to an indemnified party under subsections (a) and (b) of this Section 11 in respect of any losses, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified -26- 28 party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company, by the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, expenses, liabilities and claims referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. (d) The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. -27- 29 Notwithstanding the provisions of this Section 11, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue statements or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriter's obligations to contribute pursuant to this Section 11 are several in proportion to their respective underwriting commitments and not joint. (e) The indemnity and contribution agreements contained in this Section 11 and the covenants, warranties and representations of the Company and the Selling Stockholders contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, or any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of the Company, its directors and officers, any Selling Stockholder or any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the issuance and delivery of the Shares. The Company, each Selling Stockholder and each Underwriter agree promptly to notify the others of the commencement of any litigation or proceeding against it and, in the case of the Company, against any of the Company's officers and directors in connection with the issuance and sale of the Shares, or in connection with the Registration Statement or Prospectus. 12. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022, Attention: Syndicate Department, if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 3701 Kirby Drive, Houston, Texas 77098, Attention: ______________ and, if to any of the Selling -28- 30 Stockholders, shall be sufficient in all respects if delivered or sent to the Representatives of the Selling Stockholders at ______________, Attention: ______________. 13. Construction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement. 14. Parties at Interest. The Agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company, the Selling Stockholders and the controlling persons, directors and officers referred to in Section 11 hereof, and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement. 15. Counterparts. This agreement may be signed by the parties in counterparts which together shall constitute one and the same agreement among the parties. If the foregoing correctly sets forth the understanding among the Company, the Selling Stockholders and the Underwriters, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement among the Company, the Selling Stockholders and the Underwriters, severally. Very truly yours, DIGICON INC. By ________________________________ Title: THE SELLING STOCKHOLDERS NAMED IN SCHEDULE B ATTACHED HERETO By _________________________________ Attorney-in-Fact -29- 31 Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A. DILLON, READ & CO. INC. RAYMOND JAMES & ASSOCIATES, INC. RODMAN & RENSHAW, INC. By: DILLON, READ & CO. INC. By: --------------------------------- Title: -30- 32 SCHEDULE A Number of Underwriter Firm Shares - ----------- ----------- DILLON, READ & CO. INC. RAYMOND JAMES & ASSOCIATES, INC. RODMAN & RENSHAW, INC. __________ Total __________ 33 SCHEDULE B Number of Selling Stockholders Firm Shares - -------------------- ----------- __________ ____________ Total __________ ____________ 34 SCHEDULE C SIGNIFICANT SUBSIDIARIES EX-23.A 3 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23-A INDEPENDENT AUDITORS' CONSENT We consent to the use in Amendment No. 1 to this Registration Statement No. 333-01037 of Digicon Inc. on Form S-2 of our report dated October 12, 1995, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Houston, Texas March 5, 1996 -----END PRIVACY-ENHANCED MESSAGE-----