ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

6 Months Ended

Jun. 30, 2011

ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

NOTE G — ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On March 21, 2011, we disclosed that on March 20, 2011, the Company and Dawson Geophysical Company, a Texas corporation, and 6446 Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of Dawson, entered into an Agreement and Plan of Merger pursuant to which 6446 Acquisition will merge with and into the Company, with the Company continuing after the merger as the surviving entity and a wholly-owned subsidiary of Dawson.

Under the terms of the merger agreement, so long as two business days prior to the earlier of (1) a meeting of the Company’s shareholders or (2) a special meeting of Dawson’s shareholders, the Average Price (as described below) of Dawson’s common stock is equal to or greater than $32.54 but less than or equal to $52.54, at the effective time of the merger, each issued and outstanding common share of the Company (other than common shares owned by the Company, any wholly-owned subsidiary of the Company, Dawson, or 6446 Acquisition) will be automatically converted into the right to receive 0.188 shares of Dawson common stock.  If the Average Price is not within the parameters outlined above, the Company and Dawson will seek, in good faith to negotiate a new exchange ratio that is acceptable to both parties, but subject to each party’s right to terminate the merger agreement if the Company and Dawson are not able to agree on a new exchange ratio within two business days after the second business day prior to the earlier of (1) a meeting of the Company’s shareholders or (2) a special meeting of Dawson’s shareholders.  The “Average Price” means the average of the volume weighted average of the trading price of Dawson common stock for the 10 consecutive trading days ending on the trading day that is two business days prior to the  earlier of (1) a meeting of the Company’s shareholders or (2) a special meeting of Dawson’s shareholders.

The respective boards of directors of the Company, Dawson, and 6446 Acquisition have approved the merger agreement.  The board of directors of the Company has recommended that the Company’s shareholders approve the merger agreement, subject to Section 7.3 of the merger agreement.  The board of directors of Dawson has recommended that Dawson’s shareholders approve the issuance of shares of Dawson common stock to the shareholders of the Company in accordance with the merger agreement.

It is expected that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes, so that, in general, none of the shareholders of the Company, Dawson or 6446 Acquisition will recognize any gain or loss in the transaction, except that the Company’s shareholders will generally recognize gain or loss with respect to cash received in lieu of fractional shares of Dawson common stock.

In connection with the merger agreement, common shares beneficially owned by the named executive officers and directors of the Company representing, in the aggregate, approximately 28.73% of the outstanding common shares on March 20, 2011 are subject to voting agreements with Dawson.  Under the shareholder voting agreements, those officers and directors and other persons directing the voting of such common shares have agreed, among other things: (1) to vote their common shares in favor of adoption of the merger agreement at the meeting of the Company shareholders to be held to vote on the merger agreement; and (2) not to sell, transfer, or gift any of their common shares prior to the consummation of the merger, except under limited circumstances, including the Company’s board of directors making an adverse recommendation as described in the merger agreement.