================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2003 Commission File No. 0-10144
DAWSON GEOPHYSICAL COMPANY
Incorporated in the State of Texas 75-0970548
(I.R.S. Employer
Identification No.)
508 West Wall, Suite 800, Midland, Texas 79701
(Principal Executive office)
Telephone Number: 432-684-3000
-------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of each Exchange on which Registered
- -------------------------------- -----------------------------------------
Common Stock, $.33 1/3 par value The NASDAQ Stock Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 12 preceding months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock of the Registrant based upon
the mean between the closing high and low price of the Common Stock as of
November 28, 2003 (as reported by NASDAQ), held by non-affiliates was
approximately $39,801,491 (See Item 12). On that date, there were 5,487,794
shares of Dawson Geophysical Company Common Stock, $.33 1/3 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 4, 10, 11 and 12 of Parts I and III
hereof is incorporated by reference to the Registrant's definitive proxy
statement filed or to be filed with the Commission no later than 120 days after
the end of the fiscal year covered by this Form 10-K.
================================================================================
DAWSON GEOPHYSICAL COMPANY
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 5
Item 3. Legal Proceedings................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............... 5
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 6
Item 6. Selected Financial Data........................................... 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 7
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk....................................................... 10
Item 8. Financial Statements and Supplementary Data....................... 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.............................. 10
Item 9A. Controls and Procedures........................................... 10
Part III
Item 10. Directors and Executive Officers of the Registrant................ 10
Item 11. Executive Compensation............................................ 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................................. 10
Item 13. Certain Relationships and Related Transactions.................... 11
Item 14. Principal Accounting Fees and Services............................ 11
Part IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................... 11
Exhibit Index..................................................... 12
Signatures........................................................ 13
Index to Financial Statements..................................... F1
i
DAWSON GEOPHYSICAL COMPANY
2003 ANNUAL REPORT ON FORM 10-K
Part I.
ITEM 1. BUSINESS
GENERAL
Founded in 1952, Dawson Geophysical Company acquires and processes 2-D, 3-D
and multi-component seismic data used in the exploration for, and development
and field management of oil and natural gas reserves. The Company's operations
consist of six 3-D seismic data acquisition crews and a seismic data processing
center. In addition, the Company supports its data acquisition crews with
offices in Houston, Denver and Oklahoma City. As a result of an increase in
industry-wide demand for 3-D seismic surveys and the Company's competitive
position, the Company has experienced increased market share for its 3-D seismic
services. During fiscal 2003, substantially all of the Company's revenues were
derived from 3-D seismic operations. Since 1999, the Company has steadily
increased its acquisition and processing of multi-component seismic data.
The Company's land-based data acquisition crews operate throughout the
lower 48 states. Data processing is performed by Company geophysicists at the
Company's computer center located in Midland, Texas. The Company also provides
data processing services through its Houston office. The Company acquires and
processes data for its clients, ranging from major oil and gas companies to
independent oil and gas operators, who retain exclusive rights to the
information obtained.
The Company believes that it maintains a competitive advantage in the
industry by (i) acquiring equipment to expand capacity in response to client
demand, (ii) updating its equipment base to take advantage of advances in
geophysical technology, (iii) maintaining skilled and experienced personnel for
its data acquisition and processing operations, (iv) focusing its operations on
the domestic onshore seismic industry, and (v) providing integrated in-house
operations necessary to complete all phases of 3-D seismic data acquisition and
processing, including project design, permitting and surveying.
GEOPHYSICAL SERVICES
GENERAL. Technological advances in equipment and computers have allowed the
seismic industry to economically acquire and process immense volumes of seismic
data which produce more precise images of the earth's subsurface. The industry
refers to this process of data acquisition, processing and subsequent
interpretation of the processed data as the 3-D seismic method. Geophysicists
use computer workstations to interpret 3-D data volumes, identify subsurface
anomalies and generate a geologic model of subsurface features.
3-D seismic data are used in the exploration for new reserves and enable
oil and gas companies to better delineate existing fields and to augment their
reservoir management techniques. Benefits of incorporating 3-D seismic
technology into exploration and development programs include reducing drilling
risk, decreasing oil and gas finding costs and increasing the efficiencies of
reservoir location, delineation and management. In order to meet the
requirements necessary to fully recognize the benefits of 3-D seismic data,
there is an ever-increasing demand for improved data quality with greater
subsurface resolution. The Company is prepared to meet such demands with the
implementation of improved techniques and evolving technology. One such
technique is the integration of energy source distribution and an increase in
the number of recording channels with high-end data processing routines through
proper survey design. Company geophysicists perform these design tasks.
The Company is positioned to offer four-dimensional seismic surveys, which
add the element of time to 3-D surveys. By surveying the same site at successive
times, geophysicists compare data volumes and may be able to determine the
progress of enhanced recovery programs in existing petroleum reservoirs, and
thereby aid in extracting remaining reserves. Such projects could, over time,
benefit reservoir management, thereby providing future opportunities for the
Company.
The Company continues to investigate the use of even more sophisticated
technologies. The Company is involved in several projects that involve the use
of three-component (3-C) and converted wave (C-wave) seismic data. Both 3-C and
C-wave seismic data utilize shear wave information in some form. The Company's
equipment includes energy sources and geophones capable of generating and/or
recording shear waves. The Company has designed and recorded two 3-D/3-C (9-C)
surveys in the lower 48 states as well as several 3-D/C-wave surveys.
DATA ACQUISITION. The seismic survey begins at the time a client requests
the Company to formulate a proposal to acquire seismic data on its behalf. The
Company's geophysicists then assist the client in designing the specifications
of the proposed 3-D survey. If the client accepts the Company's proposal, a
Company permit agent then obtains access from the landowner to the site where
the survey is to be conducted.
Utilizing electronic surveying equipment, the Company's survey personnel
precisely locate the energy source and receiver positions from which the seismic
data are collected. The Company utilizes the satellite global positioning
system, known as GPS, to properly locate the seismic survey grid.
1
The Company owns equipment for seven land-based crews gathering 3-D seismic
data. The Company primarily uses vibrator energy sources, each of which weighs
50,000 to 62,000 pounds, but on occasion detonates dynamite charges placed in
drill holes below the earth's surface to generate seismic energy. The Company
has 53 vibrator energy source units and a capacity of 26,400 recording channels,
any of which are configured to meet the demands of specific survey designs. Each
crew consists of approximately 50 technicians, 25 associated vehicles with
off-road capabilities, 50,000 to 100,000 geophones, a seismic recording system,
energy sources, electronic cables and a variety of other equipment. The Company
operates six I/O System Two recording systems, two with RSR radio capability,
and four MRX cable recording systems.
Since 1994, the Company has grown from four seismic data acquisition crews
with an aggregate recording capacity of 4,532 channels and 22 vibrator energy
source units. Demand for more recording channels continues to increase from
client companies as the industry strives for improved data quality. The
Company's current average of 4,400 channels per crew is above the industry
average. The comparatively large number of recording channels gives the Company
a competitive edge with the versatility and productivity to improve data quality
at a lower cost per unit of data to the client.
DATA PROCESSING. The Company currently operates a computer center located
in Midland, Texas and provides data processing services through the Houston
office. Such processing primarily involves the enhancement of the data by
improving reflected signal resolution, removing ambient noise and establishing
proper spatial relationships of geological features. The data are then arranged
in such a manner that computer graphic technology may be employed for
examination and interpretation of the data by the user.
The processing center operates 24 hours daily utilizing high-speed
computers. The Company continues to improve data processing efficiency and
accuracy with the addition of improved processing software and highspeed
computer technology. The Company purchases, develops or leases, under
non-exclusive licensing arrangements, seismic data processing software.
The Company's computer center processes seismic data collected by its
crews, as well as by other geophysical contractors. In addition, the Company
reprocesses previously recorded seismic data using current technology to enhance
the data quality. The Company's processing contracts may be awarded jointly
with, or independently from, data acquisition services.
INTEGRATED SERVICES. The Company maintains integrated in-house operations
necessary to the development and completion of 3-D seismic surveys. Experienced
Company personnel conduct and supervise the 3-D seismic survey design,
permitting, surveying and data acquisition and processing functions for each
seismic program. In-house support operations include facilities for automotive
repair, automotive paint, electronics repair, electrical engineering and
software development, thereby enabling better quality control and improved
efficiency. The Company's clients generally undertake to provide their own
interpretation of the seismic data provided by the Company, although from time
to time the Company's geophysicists may assist its clients in this process.
EQUIPMENT ACQUISITION
The Company believes it is essential to monitor and evaluate advances in
geophysical technology and to commit capital funds to purchase equipment it
deems most promising. Purchasing new assets and continually upgrading capital
assets involves a continuing commitment to capital spending. For fiscal years
2001 through 2003, The Company made capital expenditures of $8,950,000 and has
an approved budget of $2,500,000 for fiscal 2004.
CLIENTS
The Company's services are marketed by supervisory and executive personnel
who contact clients to determine geophysical needs and respond to client
inquiries regarding the availability of crews or processing schedules. These
contacts are based principally upon professional relationships developed over a
number of years.
The Company's clients range from major oil companies to small independent
oil and gas operators. The services provided by the Company vary according to
the size and needs of the client. The Company presently believes that the loss
of any one of its clients would not have a material impact on its business.
CONTRACTS
The Company's seismic services are conducted under master contracts with
clients. Contracts are either "turnkey" contracts that provide for a fixed fee
to be paid to the Company for each unit of data acquired, or "term" contracts
that provide for a fixed hourly, daily or monthly fee during the term of the
project. Turnkey contracts generally provide more profit potential for the
Company, but involve more risks because of the potential downtime for weather
and other types of delays. The majority of the Company's contracts with its
clients are turnkey. A supplemental agreement setting forth the terms of a
specific project, which may be cancelled by either party, is entered into for
every project.
The results of the Company's services belong to the contracting party. To
avoid conflicts of interest, the Company does not acquire any data for its own
account. All of the client's information is maintained in strictest confidence.
2
COMPETITION AND MARKETS
The acquisition and processing of 3-D seismic data for the oil and gas
industry is a highly competitive business in the United States. Contracts for
such services generally are awarded on the basis of price quotations, crew
experience and availability of crews to perform in a timely manner, although
factors other than price, such as technological expertise and reputation, are
sometimes determinative. The Company's competitors include companies with
financial resources that are significantly greater than those of the Company as
well as companies of comparable and smaller size.
Historically, the demand for geophysical services has been directly related
to the level of spending by oil and gas companies for exploration, production,
development and field management activities that depend in part on the level of
oil and gas prices. Because geophysical services are among the first operations
involved in the exploration for oil and gas, the level of such services, in the
past, has declined prior to a decline in oil and gas exploration activities. In
recent years, however, the improved subsurface resolution obtainable from 3-D
seismic data has enhanced the exploration for new reserves and enabled oil and
gas companies to utilize 3-D surveys to better delineate existing fields and to
augment their reservoir management techniques. See "Industry Conditions".
EMPLOYEES
The Company employs approximately 448 persons, of which 393 are engaged in
providing energy sources and acquiring data, 9 are engaged in data processing, 8
are administrative personnel, 30 are engaged in equipment maintenance and 8 are
executive officers. Of the employees listed above, 10 are geophysicists. The
Company's employees are not represented by a labor union. The Company believes
it has good relations with its employees.
OPERATING HAZARDS AND INSURANCE
The Company's activities are often conducted in remote areas under extreme
weather and other dangerous conditions. These operations are subject to risks of
injury to personnel and equipment. The Company's crews are mobile, and the
equipment and personnel are subject to vehicular accidents. The Company uses
diesel fuel which is classified by the U.S. Department of Transportation as a
hazardous material.
The Company carries insurance in amounts which it considers adequate on the
principal items of its equipment. The Company does not carry insurance against
certain risks, including business interruption resulting from equipment losses
or weather delays. The Company obtains insurance against certain property and
personal casualty risks when such insurance is available and when management
considers it advisable to do so. Such coverage is not always available however,
and when available, is subject to unilateral cancellation by the insuring
companies on very short notice. The Company insures seismic data for amounts
considered acceptable by management. Accordingly, damage to such data should not
have a material adverse effect upon the Company.
INDUSTRY CONDITIONS
Demand for the Company's services depends upon the level of spending by oil
and gas companies for exploration, production, development and field management
activities, which activities depend in part on oil and gas prices. Beginning in
1998, a sharp decline in oil and gas prices led to a worldwide reduction in oil
and gas activities. This decline resulted in a significant reduction in the
overall demand for seismic services. Since reaching a recent high in 1998, the
number of land-based seismic crews operating worldwide and the number of
companies providing seismic services declined dramatically. Although demand for
3-D seismic data acquisition services has increased since the low of 1999, it
has not yet returned to the levels experienced prior to 1998. Overcapacity in
the industry continues to suppress pricing. Decreases in oil and gas activities
have adversely affected the demand for the Company's services and the Company's
results of operations. In addition, a decrease in oil and gas expenditures in
the United States could result from such factors as unfavorable tax and other
legislation or uncertainty concerning national energy policy. Any significant
decline in oil and gas prices could cause the Company to alter its capital
spending plans.
WEATHER
The Company's seismic data acquisition operations could be adversely
affected by inclement weather conditions. Delays associated with weather
conditions could negatively affect the Company's results of operations.
PERMITS
The Company's seismic data acquisition operations could be adversely
affected by the inability of the Company to obtain right of way usage from land
or mineral owners. Delays associated with permitting could negatively affect the
Company's results of operations.
3
OPERATING RISKS
The Company's activities are subject to general risks inherent in
land-based seismic data acquisition activities. To date, the Company has not
suffered any material losses of equipment, but there can be no assurance that it
will not experience such losses in the future. Because of the high fixed costs
associated with the Company's 3-D equipment, any significant downtime or low
productivity caused by reduced demand, weather interruptions, equipment
failures, permit delays or other causes could adversely affect its results of
operations.
LIQUIDITY AND WORKING CAPITAL REQUIREMENTS
The Company's sources of working capital are limited. The Company has
funded its working capital requirements with cash generated from operations,
cash reserves and borrowings from commercial banks. The Company's working
capital requirements increased significantly during the last ten years,
primarily due to the development of its 3-D land seismic data acquisition
infrastructure. If the Company were to expand its operations at a rate exceeding
operating cash flow, or if the current demand, or if pricing of geophysical
services were to decrease substantially, additional financing could be required.
There is no assurance that additional financing could or would occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
RELIANCE ON KEY SUPPLIER
The Company's primary supplier for seismic data acquisition systems is
Input/Output, Inc. Although the Company believes it will be able to obtain data
acquisition systems and/or replacement parts from Input/Output, Inc. or another
source for such systems or parts in the future, should it be unable to do so,
the Company's anticipated revenues could be reduced and the amount of cash
needed for capital expenditures could be increased. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Capital Expenditures" and "Business - Equipment
Acquisition".
DEPENDENCE ON KEY PERSONNEL
The Company's success may be dependent upon, among other things, the
services of certain key personnel. The loss of services of any one or more of
the executive officers of the Company could have a material adverse effect on or
result in a disruption of normal business operations.
COMPETITION
The acquisition and processing of 3-D geophysical data for the oil and gas
industry is a highly competitive business in the United States. The Company's
competitors include companies with financial resources that are significantly
greater than those of the Company as well as companies of comparable and smaller
size.
TECHNICAL OBSOLESCENCE
Seismic data acquisition and data processing technology have progressed
rapidly over the past several years, and the Company expects this progression to
continue. The Company's strategy is to regularly upgrade its data acquisition
and processing equipment to maintain its competitive position. However, due to
the rapid advances in technology and the related costs associated with such
technological advances, no assurance can be given that the Company will be able
to fulfill its strategy, thus possibly affecting the Company's ability to
compete.
GOVERNMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state and
local laws and regulations, including laws and regulations relating to the
protection of the environment and archeological sites. The Company is required
to expend financial and managerial resources to comply with such laws and
related permit requirements in its operations, and anticipates that it will
continue to be required to do so in the future. Although such expenditures
historically have not been material to the Company, the fact that such laws or
regulations change frequently make 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 that have the effect of reducing or curtailing
exploration and production activities by energy companies could also adversely
affect the Company's operations by reducing the demand for its services.
NO DIVIDENDS
The Company has not paid cash dividends on its Common Stock since becoming
a public company and has no plans to do so in the foreseeable future.
4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Report, including without limitation statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
regarding technological advancements and the Company's financial position,
business strategy and plans and objectives of management of the Company for
future operations, are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act). When used in this Form 10-K, words such as
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to dependence upon energy industry spending,
weather problems, inability to obtain land use permits, the volatility of oil
and gas prices, and the availability of capital resources. Such statements
reflect the current views of the Company with respect to future events and are
subject to these and other risks, uncertainties and assumptions relating to the
operations, results of operations, growth strategies and liquidity of the
Company. All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by this paragraph. The Company assumes no obligation to update any such
forward-looking statements.
ITEM 2. PROPERTIES
The principal facilities of the Registrant are summarized in the table
below.
Fee or Building Area
Location Leased Purpose Square Feet
-------- ------ ------- -----------
Midland, TX Leased Executive offices and 18,400
data processing
Midland, TX Fee Field office 53,000
Equipment fabrication
Maintenance and repairs
The Company leases office space for operations in Houston, Denver and
Oklahoma City.
The Company's operations are limited to one industry segment and the United
States.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Registrant is a party to various legal proceedings
arising in the ordinary course of business. Although the Registrant cannot
predict the outcomes of any such legal proceedings, the Registrant's management
believes that the resolution of pending legal actions will not have a material
adverse effect on the Registrant's financial condition, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter has been submitted during the fourth quarter of the 2003 fiscal
year to a vote of security holders, through the solicitation of proxies or
otherwise. However, please refer to the Registrant's Proxy Statement dated
November 28, 2003, filed or to be filed with the Commission no later than 120
days after the end of the fiscal year covered by this Form 10-K, notifying as to
the election of Directors, approval of the proposed Dawson Geophysical Company
2004 Incentive Stock Plan and selection of KPMG LLP as independent certified
public accountants of the Company (requiring an affirmative vote of a majority
of shares present or represented by proxy), at the Annual Meeting to be held on
January 27, 2004.
5
Part II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock Information
The Company's common stock trades on the Nasdaq Stock Market(R) under the
symbol DWSN.
The table below represents the high and low sales prices for the period
shown.
Quarter Ended High Low
--------------------------------------------------
December 31, 2001 $8.950 $6.890
March 31, 2002 $8.300 $7.160
June 30, 2002 $8.200 $7.010
September 30, 2002 $7.371 $4.800
December 31, 2002 $7.180 $4.950
March 31, 2003 $7.230 $5.200
June 30, 2003 $8.530 $6.340
September 30, 2003 $8.400 $6.560
As of November 28, 2003, the Company had 244 common stockholders of record
as reported by the Company's transfer agent.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Dawson Geophysical Company's financial statements and related
notes included in "Item 8. Financial Statements and Supplementary Data".
Years Ended September 30
(in thousands, except per share amounts) 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Operating revenues $ 51,592 $ 36,078 $ 37,878 $ 18,469 $ 24,198
Net loss $ (899) $ (2,292) $ (4,978) $(11,135) $ (6,430)
Net loss per common share $ (.16) $ (.42) $ (.91) $ (2.05) $ (1.19)
Weighted average equivalent common
shares outstanding 5,485 5,463 5,443 5,425 5,398
Total assets $ 42,792 $ 44,291 $ 45,381 $ 49,781 $ 61,418
Long term debt-less current maturities $ -- $ -- $ -- $ -- $ --
Stockholders' equity $ 40,662 $ 41,586 $ 43,582 $ 48,468 $ 59,468
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements. In addition, in reviewing the Company's financial
statements it should be noted that the Company's revenues fluctuate in response
to activity levels in the oil and gas exploration and production sector and
additionally fluctuations in the Company's results of operations may occur due
to commodity prices, weather, land use permitting and other factors.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this
report, including without limitation, statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this report, words such as
"anticipate", "believe", "estimate", "expect", "intend", and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to
dependence upon energy industry spending, weather problems, inability to obtain
land use permits, the volatility of oil and gas prices, and the availability of
capital resources. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph. The Company
assumes no obligation to update any such forward-looking statements.
OVERVIEW
During fiscal 2003, the Company acted on opportunities for growth and
technical depth. The Company expanded operations in its Houston and Denver
offices and added an office in Oklahoma City. The technical expertise of
additional staff in each office has coincided with increased demand for
high-resolution 3-D seismic surveys and other leading edge products such as
ExxonMobil-licensed High Fidelity Vibratory Seismic (HFVS) and 9-component 3-D
employing both compression and shear wave energy sources. The Company has been
able to satisfy client demand for increased channel count by responding to
opportunities to acquire equipment from the open market at reduced prices. In
addition, the Company has performed services in thirteen states during fiscal
2003-representing a return to some areas that the Company has not been in for
more than a decade.
Adverse weather conditions significantly impacted the Company's revenue for
the quarter ended June 30, 2003. Even though demand for the Company's services
is related to crude oil and natural gas prices, production results are enhanced
by favorable weather and timely permits for rights-of-way.
FISCAL YEAR ENDED SEPTEMBER 30, 2003 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 2002
The Company's operating revenues increased 43% from $36,078,000 to
$51,592,000 in fiscal year 2003. The Company began fiscal 2003 with five crews
and increased to six operating crews in November. During the months of May, June
and July, the Company's production potential was severely impaired by rain and
the Company operated five crews during this time. During fiscal 2003, the
Company sustained slight price improvements for its services in addition to the
stability of pricing improvements gained in fiscal 2002.
Operating expenses increased 39% in fiscal 2003 as compared to fiscal 2002
due to the start up expenses associated with activating a crew, the Company's
expanded operations geographically within the contiguous United States, an
increased demand for shot-hole energy sources which require an expensive
drilling component, and an increase in the use of helicopters to achieve
efficient operations. Certain reimbursed out-of-pocket expenses relating to
drilling, surveying and the use of helicopters are reported in revenue and
expense.
General and administrative expenses were 4.7% of revenues in fiscal 2003 as
compared to 5.6% in fiscal 2002. The Company made a $60,000 provision for bad
debts in fiscal 2003 as a conservative measure in response to working for new
clients in new areas. However, relatively favorable prices for crude oil and
natural gas have correlated to collectibility of accounts receivable.
Depreciation for fiscal 2003 totaled $4,404,000, an increase of 4% from
fiscal 2002. The increase is the effect of the increase in capital expenditures
during fiscal 2003 and 2002. The increase reflects depreciation attributable to
the recording equipment purchased in 2003 and in 2002 that had become available
on the used market.
Total operating costs for fiscal 2003 totaled $52,976,000, an increase of
34.3% from fiscal 2002 primarily due to the factors described above. The
increase in revenues of 43% as compared to the increase of operating expenses of
39% in fiscal year 2003 as compared to fiscal 2002 reflects the high proportion
of relatively fixed total operating expenses, including personnel costs of
active crews, inherent in the Company's business.
The Company recorded a deferred tax expense due to an increase in the
income tax valuation allowance, and the tax expense is related to the tax effect
of the unrealized loss on investments recorded in other comprehensive income.
7
FISCAL YEAR ENDED SEPTEMBER 30, 2002 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 2001
The Company's operating revenues decreased 4.7% from $37,878,000 to
$36,078,000 in fiscal year 2002 as compared to fiscal 2001. The Company began
fiscal 2002 with five crews operating and operated four or five crews throughout
most of the year depending on weather conditions and the ability to obtain
permits for rights-of-way. There was a brief period when three crews were
operating due to these conditions. During fiscal 2002, the Company sustained
slight price improvements for its services despite idle capacity in the
industry.
Operating expenses in fiscal 2002 remained relatively flat as compared to
fiscal 2001 as the Company maintained staffing for five crews throughout the
year.
General and administrative expenses for fiscal 2002 totaled $2,006,000, an
increase of $187,000 from fiscal 2001. Insurance premiums, salary
reclassification as compared to fiscal 2001, and additional promotional expense
in celebration of the Company's 50th anniversary primarily account for this
increase. The Company did not make a provision for bad debts in fiscal 2002 as
relatively favorable prices for crude oil and natural gas have correlated to
collectibility of accounts receivable.
Depreciation for fiscal 2002 totaled $4,233,000, a decrease of 52% from
fiscal 2001. The Company revised the estimated lives of two classes of seismic
equipment in October 2001. The effect of the change is a reduction in
depreciation expense and net loss of approximately $3,283,000. The decrease in
depreciation expense includes a modest effect resulting from a suspension of
capital expansion beginning in fiscal 1999 due to industry conditions.
Total operating costs for fiscal 2002 totaled $39,444,000, a decrease of
9.6% from fiscal 2001 primarily due to the decrease in depreciation expense and
the other factors described above. The decrease in revenues as compared to the
slight increase of operating expenses, which excludes depreciation, for fiscal
2002 reflects the high proportion of relatively fixed total operating expenses,
including personnel costs of active crews, inherent in the Company's business.
The Company recorded an income tax benefit in the current year of
approximately $471,000. Due to income tax law changes in 2002, the Company filed
for a refund of alternative minimum tax paid in prior years of approximately
$400,000 which was recorded in receivables at September 30, 2002. The remaining
benefit was due to a decrease in the income tax valuation allowance and is
related to the tax effect of the unrealized gain on investments recorded in
other comprehensive income.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. Net cash provided by operating activities of $1,244,000 for the
fiscal year ended September 30, 2003 primarily reflects the net loss offset by
depreciation and changes in working capital components.
Net cash provided by investing activities in fiscal 2003 represents
management of short-term investments and use of proceeds for capital
expenditures and working capital.
There were no financing activities impacting cash flows for any of the
fiscal years presented.
CAPITAL EXPENDITURES. The Company continually strives to supply market
demand with technologically advanced 3-D data acquisition recording systems and
leading edge data processing capabilities. Capital expenditures for fiscal 2003
primarily consisted of data acquisition channels that became available as a
result of idle capacity in our industry. The Company maintains equipment in and
out of service in anticipation of increased future demand of the Company's
services. In addition, the Company continues the three-component seismic
approach. The Company believes that it is in position to respond to demand for
this technological advancement of the seismic industry.
CAPITAL RESOURCES. The Company believes that its capital resources,
including its short-term investments and cash flow from operations are adequate
to meet its current operational needs and finance capital needs as determined by
market demand and technological developments. The Company is currently not
subject to any financing arrangements; however, it believes that financing
through traditional sources is available.
CRITICAL ACCOUNTING POLICIES
The following accounting policies require management assumptions and
estimates which could result in materially different amounts to be reported if
conditions or underlying circumstances were to change.
REVENUE RECOGNITION. The Company recognizes revenues when services are
performed. The Company also receives reimbursements for certain out-of-pocket
expenses under the terms of its master contracts. Amounts billed to clients are
recorded in revenue at the gross amount including out-of-pocket expenses which
will be reimbursed by the client.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. Management prepares its allowance for
doubtful accounts receivable based on its past experience of historical
write-offs and review of past due accounts. The inherent volatility of the
energy industry's business cycle can cause swift and unpredictable changes in
the financial stability of the Company's customers.
8
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for
impairment when triggering events occur suggesting deterioration in the asset's
recoverability or fair value. Recognition of an impairment is required if future
expected net cash flows are insufficient to recover the carrying value of the
amounts. Management's forecast of future cash flow used to perform impairment
analysis includes estimates of future revenues and future gross margins. If the
Company is unable to achieve these cash flows, management's estimates would be
revised potentially resulting in an impairment charge in the period of revision.
DEPRECIABLE LIVES OF PROPERTY, PLANT AND EQUIPMENT. Property, Plant and
Equipment is capitalized at historical cost and depreciated over the useful life
of the asset. Management's estimation of this useful life is based on
circumstances that exist in the seismic industry and information available at
the time of the purchase of the asset. As circumstances change and new
information becomes available these estimates could change.
STOCK-BASED COMPENSATION. In accordance with the Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, no compensation
is recorded for stock options or other stock-based awards that are granted to
employees or non-employee directors with an exercise price equal to or above the
common stock price on the grant date.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Statement 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. There has been no impact to its financial
statements as the Company does not anticipate exiting or disposing of any of its
activities.
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure, amends SFAS No. 123, Accounting for Stock-Based Compensation". SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. The
statement also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The statement is required to be adopted for
fiscal years ending after December 15, 2002.
The Company currently accounts for stock-based compensation in accordance
with APB Opinion No. 25 which allows the Company to recognize compensation
expense only to the extent that the fair market value is greater than the option
price.
On April 22, 2003 the FASB announced its decision to require all companies
to expense the value of employee stock options. Companies will be required to
measure the cost according to the fair value of the options. The new guidelines
have not been released but are expected to be finalized and to become effective
in 2004. When final rules are announced, the Company will assess the impact to
its financial statements.
FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45
requires that a liability be recorded in the guarantor's balance sheet upon
issuance of certain guarantees. Initial recognition and measurement of the
liability will be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN No. 45 also requires disclosures about
guarantees in financial statements for interim or annual periods ending after
December 15, 2002. The adoption of FIN No. 45 has had no impact on the Company's
financial statements.
FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51". FIN No. 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without financial support from other parties.
The adoption of FIN No. 46 has had no impact on the Company's financial
statements.
In May 2003, the FASB issued Statement No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classified and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of FAS 150 has
had no impact on the Company's financial statements.
9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary sources of market risk include fluctuations in commodity prices
which effect demand for and pricing of the Company's services and interest rate
fluctuations. At September 30, 2003 the Company had no indebtedness. The
Company's short-term investments were fixed-rate and the Company does not
necessarily intend to hold them to maturity, and therefore, the short-term
investments expose the Company to the risk of earnings or cash flow loss due to
changes in market interest rates. As of September 30, 2003, the carrying value
of the investments approximate fair value. The Company has not entered into any
hedge arrangements, commodity swap agreements, commodity futures, options or
other derivative financial instruments. The Company does not currently conduct
business internationally so it is generally not subject to foreign currency
exchange rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages F-1 through F-13
hereof and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
ITEM 9a. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing date of this report on Form
10-K, the Company, under the supervision, and with the participation, of its
management, including its principal executive officer and principal financial
officer, performed an evaluation of the design and operation of the Company's
disclosure controls and procedures (as defined in Securities and Exchange Act
Rule 13a-14 (c)). Based on that evaluation, the Company's principal executive
officer and principal financial officer concluded that such disclosure controls
and procedures are effective to ensure that material information relating to the
Company is accumulated and communicated to the Company's management and made
known to the principal executive officer and principal financial officer,
particularly during the period for which this report was being prepared.
No significant changes were made in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date the controls were evaluated as discussed above.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to Directors and
Executive Officers is hereby incorporated by reference to the Registrant's Proxy
Statement dated November 28, 2003 (page 2), filed or to be filed by the
Registrant with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities and Exchange Act of 1934 within 120 days after the end of
the fiscal year covered by this Form 10-K. The Registrant's Code of Ethics as
defined in Item 406 of SEC Regulation S-K is expected to be adopted by the Board
of Directors at their next meeting to be held January 27, 2004.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the Registrant's Proxy Statement (page 4) referred to above in Item
10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 with respect to security ownership
of certain beneficial owners is hereby incorporated by reference to the
Registrant's Proxy Statement (page 7, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT") referred to above in Item 10.
On July 13, 1999, the Board of Directors of the Company authorized and
declared a dividend to the holders of record on July 23, 1999 of one Right (a
"Right") for each outstanding share of the Company's common stock. When
exercisable, each Right will entitle the holder to purchase one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares") at an exercise price of $50.00
per Right. The rights are not currently exercisable and will become exercisable
only if a person or group acquires beneficial ownership of 20% or more of the
Company's outstanding common stock or announces a tender offer or exchange
offer, the consummating of which would result in attaining the triggering
percentage. The Rights are subject to redemption by the Company for $.01 per
Right at any time prior to the tenth day after the first public announcement of
a triggering acquisition.
10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accountant fees and services appears in
the proxy statement under the heading "Report of Audit Committee" and is
incorporated herein by reference.
Part IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
See Index to Financial Statements on Page F-1.
(a) Exhibits
The exhibits and financial statement schedules filed as a part of this
report are listed below according to the number assigned to it in the exhibit
table of Item 601 of Regulation S-K:
(3) Restated Articles of Incorporation and Bylaws.
(4) Instruments defining the rights of security holders, including
indentures.
(9) Voting Trust Agreement -- None; consequently, omitted.
(10) Material Contracts.
(11) Statement re: computation of per share earnings -- Not Applicable.
(12) Statement re: Computation of ratios -- Not Applicable.
(18) Letter re: change in accounting principles -- Not Applicable.
(19) Previously unfiled documents -- No documents have been executed or in
effect during the reporting period which should have been filed;
consequently, this exhibit has been omitted.
(22) Subsidiaries of the Registrant -- There are no subsidiaries of the
Registrant; consequently, this exhibit has been omitted.
(23) Published report regarding matters submitted to vote of security
holders -- None; consequently, omitted.
(24) Consent of experts and counsel -- Not applicable.
(25) Power of Attorney -- There are no signatures contained within this
report pursuant to a power of attorney; consequently, this exhibit has
been omitted.
(b) Reports on Form 8-K -- None.
(28) Additional Exhibits -- None.
(29) Information from reports furnished to state insurance regulatory
authorities -- None.
(31.1) Certification of Chief Executive Officer pursuant to Section 302.
(31.2) Certification of Chief Financial Officer pursuant to Section 302.
(32.1) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(32.2) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
11
EXHIBIT INDEX
Number Exhibit Page
- --------------------------------------------------------------------------------
(1) *
(2) *
(3) Articles of Incorporation and Bylaws E-2
(4) Instruments defining the rights of security
holders, including indentures--Shareholder Rights Plan E-3
(5) *
(6) *
(7) *
(8) *
(9) Voting Trust Agreement Omit
(10) Material Contracts E-4
(11) Statement re: computation of per share earnings Omit
(12) Statement re: computation of ratios Omit
(13) 2003 Annual Report to Stockholders-Cover Page to
Form 10-K Annual Report E-1
(14) *
(15) *
(16) *
(17) *
(18) Letter re: change in accounting principles Omit
(19) Previously unfiled documents Omit
(20) *
(21) *
(22) Subsidiaries of the Registrant Omit
(23) Published report regarding matters submitted
to vote of security holders Omit
(24) Consent of experts Omit
(25) Power of Attorney Omit
(26) *
(27) *
(28) Additional Exhibits Omit
(29) Information from reports furnished to state
insurance regulatory authorities Omit
(31.1) Certification of Chief Executive Officer pursuant
to Section 302.
(31.2) Certification of Chief Financial Officer pursuant
to Section 302.
(32.1) Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(32.2) Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* This exhibit is not required to be filed in accordance with Item 601 of
Regulation S-K.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Midland, and the State of Texas, on the 28th day of November, 2003.
DAWSON GEOPHYSICAL COMPANY
By: /s/ L. Decker Dawson
----------------------------------------
L. Decker Dawson, Chairman of the Board
Of Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/ L. Decker Dawson Chairman of the Board 11-28-03
---------------------------- of Directors and Chief Executive
L. Decker Dawson Officer
/s/ Stephen C. Jumper President, Chief Operating 11-28-03
---------------------------- Officer and Director
Stephen C. Jumper
/s/ Howell W. Pardue Executive Vice President 11-28-03
---------------------------- and Director
Howell W. Pardue
/s/ C. Ray Tobias Executive Vice President 11-28-03
---------------------------- and Director
C. Ray Tobias
/s/ Paul H. Brown Director 11-28-03
----------------------------
Paul H. Brown
/s/ Calvin J. Clements Director 11-28-03
----------------------------
Calvin J. Clements
/s/ Matthew P. Murphy Director 11-28-03
----------------------------
Matthew P. Murphy
/s/ Tim C. Thompson Director 11-28-03
----------------------------
Tim C. Thompson
/s/ Christina W. Hagan Senior Vice President, 11-28-03
---------------------------- Secretary and
Christina W. Hagan Chief Financial Officer
13
INDEX TO FINANCIAL STATEMENTS
Financial Statements of Dawson Geophysical Company Page
- --------------------------------------------------------------------------------
Independent Auditors' Report F-2
Balance Sheets as of September 30, 2003 and 2002 F-3
Statements of Operations for the years ended
September 30, 2003, 2002 and 2001 F-4
Statements of Changes in Stockholders' Equity for the years
ended September 30, 2003, 2002 and 2001 F-5
Statements of Cash Flows for the years ended
September 30, 2003, 2002 and 2001 F-6
Notes to Financial Statements F-7
- --------------------------------------------------------------------------------
All schedules are omitted, as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited the accompanying balance sheets of Dawson Geophysical
Company as of September 30, 2003 and 2002, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dawson Geophysical Company
as of September 30, 2003 and 2002, and the results of its operations and its
cash flows for each of the years in the three-year period ended September 30,
2003, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Midland, Texas
November 3, 2003
F-2
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
September 30,
---------------------------------
2003 2002
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,389,000 $ 1,309,000
Short-term investments 8,623,000 15,716,000
Accounts receivable, net of allowance
for doubtful accounts of $127,000 in
2003 and $71,000 in 2002 9,713,000 7,613,000
Income taxes receivable - 400,000
Prepaid expenses 287,000 220,000
------------ ------------
Total current assets 22,012,000 25,258,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 81,585,000 75,649,000
Less accumulated depreciation (60,805,000) (56,616,000)
------------ ------------
Net property, plant and equipment 20,780,000 19,033,000
------------ ------------
$ 42,792,000 $ 44,291,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,237,000 $ 2,066,000
Accrued liabilities:
Payroll costs and other taxes 478,000 342,000
Other 415,000 297,000
------------ ------------
Total current liabilities 2,130,000 2,705,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $1.00 per share;
5,000,000 shares authorized, none outstanding -- --
Common stock - par value $.33 1/3 per share;
10,000,000 shares authorized, 5,487,794
and 5,467,294 shares issued and outstanding
in 2003 and 2002, respectively 1,829,000 1,822,000
Additional paid-in capital 38,931,000 38,863,000
Other comprehensive income, net of tax 37,000 137,000
Retained earnings (deficit) (135,000) 764,000
------------ ------------
Total stockholders' equity 40,662,000 41,586,000
------------ ------------
$ 42,792,000 $ 44,291,000
============ ============
See accompanying notes to the financial statements.
F-3
DAWSON GEOPHYSICAL COMAPNY
STATEMENTS OF OPERATIONS
Years Ended September 30,
------------------------------------------------------
2003 2002 2001
------------ ------------ ------------
Operating revenues $ 51,592,000 $ 36,078,000 $ 37,878,000
Operating costs:
Operating expenses 46,151,000 33,205,000 33,033,000
General and administrative 2,421,000 2,006,000 1,819,000
Depreciation 4,404,000 4,233,000 8,802,000
------------ ------------ ------------
52,976,000 39,444,000 43,654,000
------------ ------------ ------------
Loss from operations (1,384,000) (3,366,000) (5,776,000)
Other income:
Interest income 328,000 507,000 754,000
Other 209,000 96,000 44,000
------------ ------------ ------------
Loss before income tax (847,000) (2,763,000) (4,978,000)
Income tax benefit (expense):
Current -- 400,000 --
Deferred (52,000) 71,000 --
------------ ------------ ------------
(52,000) 471,000 --
------------ ------------ ------------
Net loss $ (899,000) $ (2,292,000) $ (4,978,000)
============ ============ ============
Net loss per common share $ (.16) $ (.42) $ (.91)
============ ============ ============
Net loss per common share-assuming dilution $ (.16) $ (.42) $ (.91)
============ ============ ============
Weighted average equivalent common shares outstanding 5,484,593 5,462,936 5,442,627
============ ============ ============
Weighted average equivalent common
shares outstanding-assuming dilution 5,484,593 5,462,936 5,442,627
============ ============ ============
See accompanying notes to the financial statements.
F-4
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ACCUMULATED
---------------------------- ADDITIONAL OTHER RETAINED
NUMBER PAID-IN COMPREHENSIVE EARNINGS
OF SHARES AMOUNT CAPITAL INCOME (DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
SEPTEMBER 30, 2000 5,428,794 $ 1,810,000 $ 38,624,000 $ 8,034,000 $ 48,468,000
Net loss (4,978,000) (4,978,000)
Issuance of common
stock as compensation 17,000 5,000 87,000 92,000
------------ ------------ ------------ ------------ ------------
BALANCE,
SEPTEMBER 30, 2001 5,445,794 1,815,000 38,711,000 3,056,000 43,582,000
Net loss (2,292,000) (2,292,000) (2,292,000)
------------
Other comprehensive income net of tax:
Unrealized gain on securities:
Unrealized holding gains
arising during period 208,000
Income tax benefit (71,000)
------------
Other comprehensive income 137,000 137,000
------------
Comprehensive income 41,427,000
------------
Issuance of common
stock as compensation 21,500 7,000 152,000 159,000
------------ ------------ ------------ ------------ ------------
BALANCE,
SEPTEMBER 30, 2002 5,467,294 1,822,000 38,863,000 764,000 41,586,000
Net loss (899,000) (899,000) (899,000)
------------
Other comprehensive income net of tax:
Unrealized loss on securities:
Unrealized holding losses
arising during period (145,000)
Less: Reclassification
adjustment for gain included
in net income (7,000)
------------
(152,000)
Income tax expense 52,000
------------
Other comprehensive income (100,000) (100,000)
------------
Comprehensive income 40,587,000
------------
Issuance of common
stock as compensation 20,500 7,000 68,000 75,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
SEPTEMBER 30, 2003 5,487,794 $ 1,829,000 $ 38,931,000 $ 37,000 $ (135,000) $ 40,662,000
============ ============ ============ ============ ============ ============
See accompanying notes to the financial statements.
F-5
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
Years Ended September 30,
------------------------------------------------------
2003 2002 2001
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (899,000) $ (2,292,000) $ (4,978,000)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 4,404,000 4,233,000 8,802,000
Non-cash compensation 75,000 159,000 92,000
Deferred income tax expense (benefit) 52,000 (71,000) --
Other (46,000) 58,000 38,000
Change in current assets and liabilities:
Decrease (increase) in accounts receivable (2,100,000) 1,082,000 (2,128,000)
Decrease (increase) in prepaid expenses (67,000) (47,000) 27,000
Decrease (increase) in income taxes receivable 400,000 (400,000) 2,165,000
Increase (decrease) in accounts payable (829,000) 885,000 143,000
Increase in accrued liabilities 254,000 21,000 343,000
------------ ------------ ------------
Net cash provided by operating activities 1,244,000 3,628,000 4,504,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets 27,000 10,000 49,000
Capital expenditures (6,153,000) (2,047,000) (750,000)
Proceeds from sale of short-term investments 5,964,000 -- --
Proceeds from maturity of short-term investments 4,000,000 10,598,000 5,500,000
Acquisition of short-term investments (3,002,000) (15,218,000) (5,474,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 836,000 (675,000)
Net increase (decrease) in cash and cash equivalents 2,080,000 (3,029,000) 3,829,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,309,000 4,338,000 509,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,389,000 $ 1,309,000 $ 4,338,000
============ ============ ============
NON CASH INVESTING ACTIVITIES:
UNREALIZED GAIN (LOSS) ON INVESTMENTS $ (145,000) $ 208,000 $ --
============ ============ ============
See accompanying notes to the financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Dawson Geophysical Company (the "Company"), which was incorporated in Texas
in 1952, has been listed and traded on the NASDAQ National Market System ("NMS")
under the symbol "DWSN" since 1981.
The Company acquires and processes 3-D seismic data for major and
intermediate-sized oil and gas companies and independent oil operators who
retain exclusive rights to the information obtained. The Company's land-based
acquisition crews operate throughout the lower 48 states, and data processing is
performed by geophysicists in Midland and Houston, Texas.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers demand
deposits, certificates of deposit and all highly liquid debt instruments
purchased with an initial maturity of three months or less to be cash
equivalents.
SHORT-TERM INVESTMENTS
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115). In accordance with
Statement 115, the Company has classified its investment portfolio consisting of
U.S. Treasury Securities as "available-for-sale" and records the net unrealized
holding gains and losses as accumulated comprehensive income in stockholders'
equity. The cost of short-term investments sold is based on the specific
identification method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivable,
other current assets, accounts payable and other current liabilities approximate
their fair values based on their short-term nature. The fair value of
investments are based on quoted market prices.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable and short-term
investments. The Company's sales are to clients whose activities relate to oil
and gas exploration and production. However, accounts receivable are well
diversified among many clients, and a significant portion of the receivables are
from major oil companies, which management believes minimizes potential credit
risk. The Company generally extends unsecured credit to these clients;
therefore, collection of receivables may be affected by the economy surrounding
the oil and gas industry. The Company closely monitors extensions of credit and
initiated an allowance for doubtful accounts in fiscal 1999 as a result of the
downturn in oil prices which occurred during the year and negatively impacted
the Company's clients. The Company invests primarily in short-term U.S. Treasury
Securities which are a low risk investment.
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment is capitalized at historical cost and
depreciated over the useful life of the asset. Management's estimation of this
useful life is based on circumstances that exist in the seismic industry and
information available at the time of the purchase of the asset. As circumstances
change and new information becomes available these estimates could change.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in
the results of operations for the period.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when triggering events occur
suggesting a deterioration in the asset's recoverability or fair value.
Recognition of an impairment is required if future expected net cash flows are
insufficient to recover the carrying value of the amounts. Management's forecast
of future cash flow used to perform impairment analysis includes estimates of
future revenues and future gross margins. If the Company is unable to achieve
these cash flows, management's estimates would be revised, potentially resulting
in an impairment charge in the period of revision. No provision was recorded in
the Statement of Operations for the years ended September 30, 2003, 2002 and
2001.
REVENUE RECOGNITION
Contracts for service are provided for under cancelable contracts. The
Company recognizes revenues when services are performed. In the case of a
cancelled contract, revenue is recognized and the customer is billed for
services performed up to the date of cancellation. The Company also receives
reimbursements for certain out-of-pocket expenses under the terms of its master
contracts. Amounts billed to clients are recorded in revenue at the gross amount
including out-of-pocket expenses which will be reimbursed by the client.
F-7
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management prepares its allowance for doubtful accounts receivable based on
its past experience of historical write-offs and review of past due accounts.
The inherent volatility of the energy industry's business cycle can cause swift
and unpredictable changes in the financial stability of the Company's clients.
INCOME TAXES
The Company accounts for state and federal income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Under the asset and liability method of Statement 109,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
In accordance with the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), no compensation is
recorded for stock options or other stock-based awards that are granted to
employees or non-employee directors with an exercise price equal to or above the
common stock price on the grant date.
The Company accounts for stock-based compensation utilizing the intrinsic
value method prescribed by "APB 25" and related interpretations. The following
pro forma information, as required by Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
presents net income and earnings per share information as if the stock options
or other stock-based awards issued since September 30, 1997 were accounted for
using the fair value method. The fair value of stock options issued for each
year was estimated at the date of grant using the Black-Scholes option pricing
model.
The SFAS 123 pro forma information for the fiscal years ended September 30,
2003, 2002 and 2001 is as follows:
September 30,
------------------------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Net loss, as reported $ (899,000) $ (2,292,000) $ (4,978,000)
Add: Stock-based employee compensation expense
included in net loss, net of tax 75,000 159,000 92,000
Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123),
net of tax (434,000) (516,000) (402,000)
-------------- -------------- --------------
Net loss, pro forma $ (1,258,000) $ (2,649,000) $ (5,288,000)
-------------- -------------- --------------
Basic:
Net loss per common share, as reported $ (0.16) $ (0.42) $ (0.91)
============== ============== ==============
Net loss per common share, pro forma $ (0.23) $ (0.48) $ (0.97)
============== ============== ==============
Diluted;
Net loss per common share, as reported $ (0.16) $ (0.42) $ (0.91)
============== ============== ==============
Net loss per common share, pro forma $ (0.23) $ (0.48) $ (0.97)
============== ============== ==============
2. SHORT-TERM INVESTMENTS
Investment in securities consists primarily of U.S. Treasury Securities. At
September 30, 2003, the Company reported an unrealized loss on short-term
investments of $145,000, which was $93,000 net of the tax effect of $52,000. The
$93,000 net unrealized loss is included in "Other comprehensive income, net of
tax"of $37,000.
Short-term investments held at September 30, 2003 consisting of U.S.
Treasury Securities have contractual maturities from December, 2003 through
September, 2004.
F-8
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, together with annual depreciation rates,
consist of the following:
September 30,
---------------------------------
2003 2002 Rates
------------ ------------ -----------------
Land, building and improvements $ 1,334,000 $ 1,303,000 3 to 12.5 percent
Machinery and equipment 79,213,000 73,583,000 7 to 20 percent
Equipment in process (a) 1,038,000 763,000 --
------------ ------------
$ 81,585,000 $ 75,649,000
============ ============
(a) Equipment in process has not been placed into service and accordingly has not been subject to depreciation.
Effective October 1, 2001, the Company revised the estimated lives of
certain assets based on the technology of certain seismic data recording
equipment consisting of the central electronic components and of energy source
units. Management believes that the central electronics components contained in
the field recording units of the Company's six crews remain state of the art.
The Company believes that advancements in the foreseeable future will consist of
upgrades that may require replacements of modules of the central electronics.
The Company does not believe that the current systems will become obsolete at
the end of the original estimate and has revised the estimated life of these
assets.
The Company believes that the current fleet of energy source units will
provide service beyond the life originally estimated due to actual performance
of units in the past and to the redesign of the unit. Accordingly, the estimated
life of this class of asset has been revised.
The change of estimate was made as of October 1, 2001. The effect on
depreciation and the net loss for the fiscal years ended September 30, 2003 and
2002 is:
Year Ended September 30,
-----------------------------------------------------------------------
2003 2002
------------------------------- -------------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- -----------
Depreciation $ 4,404,000 $ 6,672,000 $ 4,233,000 $ 7,516,000
=========== =========== =========== ===========
Net loss $ (889,000) $(3,157,000) $(2,292,000) $(5,575,000)
=========== =========== =========== ===========
Net loss per share $ (.16) $ (.58) $ (.42) $ (1.02)
=========== =========== =========== ===========
4. STOCK OPTIONS
The Company adopted the 2000 Incentive Stock Plan during fiscal 1999, which
provides options to purchase 500,000 shares of authorized but unissued common
stock of the Company. The option price is the market value of the Company's
common stock at date of grant. Options are exercisable 25% annually from the
date of the grant and the options expire five years from date of grant. The 2000
Plan provides that 50,000 of the 500,000 shares of authorized but unissued
common stock may be awarded to officers, directors and employees of the Company
for the purpose of additional compensation.
The transactions under the Plans are summarized as follows:
Weighted Number of
Average Optioned
Price Shares
-------- --------
Balance as of September 30, 2001 $ 8.86 251,000
Granted $ 7.41 98,000
Cancelled or expired $ 21.19 (30,000)
-------- --------
Balance as of September 30, 2002 $ 7.25 319,000
Granted $ 5.21 105,000
Cancelled or expired $ 7.02 (17,000)
-------- --------
Balance as of September 30, 2003 $ 6.72 407,000
======== ========
Options for 204,750, 130,750 and 103,000 shares were exercisable with
weighted average exercise prices of $6.94, $6.79 and $10.78 as of September 30,
2003, 2002 and 2001, respectively.
Outstanding options at September 30, 2003 expire between February, 2004 and
November, 2007 and have exercise prices ranging from $5.21 to $8.65.
F-9
Options for 105,000 shares were granted in fiscal year 2003. The expected
life of the options granted is five years. The weighted average fair value of
options granted during 2003 is $3.48. The fair value of each option grant is
estimated on the date of grant, using the Black-Scholes options-pricing model.
The model assumed expected volatility of .5% and risk-free interest rate of
3.14% for grants in 2003. As the Company has not declared dividends since it
became a public entity, no dividend yield was used. Actual value realized, if
any, is dependent on the future performance of the Company's common stock and
overall stock market conditions. There is no assurance the value realized by an
optionee will be at or near the value estimated by the Black-Scholes model.
5. EMPLOYEE BENEFIT PLANS
The Company had an employee stock purchase plan to invest in the Company's
common stock for the benefit of eligible employees. Participants were entitled
to contribute a percentage, not to exceed 5%, of their bi-weekly salary to the
plan. On a bi-weekly basis, the Company matched the participants' contributions
and directed the purchase of shares of the Company's common stock. There were no
vesting requirements for the participants. The Company contributed $56,116 and
$223,360 to the plan during 2002 and 2001, respectively. The Company
discontinued the Plan effective January 1, 2002.
Effective January 1, 2002, the Company initiated a 401(k) plan as part of
its employee benefits package in order to retain quality personnel. During 2003
and 2002, the Company elected to match 100% of employee contributions up to a
maximum of 5% of the participant's gross salary. The Company's matching
contributions for fiscal 2003 and 2002 were approximately $373,000 and $259,000,
respectively.
6. INCOME TAXES
The Company recorded an income tax expense in the current year of
approximately $52,000. The expense is due to an increase in the income tax
valuation allowance and is related to the tax effect of the unrealized loss on
investments recorded in other comprehensive income.
Income tax expense (benefit) attributable to income before extraordinary
item consists of:
Year Ended September 30,
-----------------------------------------
2003 2002 2001
---------- ---------- ----------
Current: U.S. Federal $ -- $ (400,000) $ --
Deferred: U. S. Federal 52,000 (71,000) --
---------- ---------- ----------
Total $ 52,000 $ (471,000) $ --
========== ========== ==========
Income tax expense varies from the amount computed by multiplying income
before taxes by the statutory income tax rate. The reason for these differences
and the related tax effects are as follows:
Year Ended September 30,
-----------------------------------------
2003 2002 2001
---------- ---------- ----------
Expense computed at statutory rates $ (287,000) $ (939,000) $(1,690,000)
Effect of:
Change in valuation allowance 297,000 428,000 1,659,000
Other 42,000 40,000 31,000
---------- ---------- ----------
Income tax expense (benefit) $ 52,000 $ (471,000) $ --
========== ========== ==========
F-10
September 30,
---------------------------------
2003 2002
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 6,687,000 $ 5,997,000
Alternative minimum tax credit carryforwards 413,000 413,000
Receivables 45,000 24,000
Other 116,000 109,000
------------ ------------
Total deferred tax assets 7,261,000 6,543,000
Less valuation allowance (4,232,000) (3,935,000)
------------ ------------
Total gross deferred tax assets 3,029,000 2,608,000
Deferred tax liabilities:
Other property and equipment (2,938,000) (2,533,000)
Investments (21,000) (71,000)
Other (70,000) (4,000)
------------ ------------
Total gross deferred tax liabilities (3,029,000) (2,608,000)
------------ ------------
Net deferred tax asset (liability) $ -- $ --
============ ============
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Based on expectations
for the future, management has determined that taxable income of the Company
will likely not be sufficient to fully utilize available carryforwards prior to
their ultimate expiration. As such, the Company has recorded a valuation
allowance of $4,232,000 to reflect the realizability of its net deferred tax
assets. The amount of the valuation allowance could be reduced if estimates of
future taxable income during the carryforward period are increased.
As of September 30, 2003, the Company had a net operating loss carryforward
for U.S. federal income tax purposes of approximately $19,090,000, which is
available to offset future regular taxable income, if any. Net operating loss
carryforward will begin to expire in 2022. The Company has alternative minimum
tax credit carryforwards totaling $413,000 to offset regular income tax, which
have no scheduled expiration date.
7. NET LOSS PER COMMON SHARE
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities
The following table sets forth the computation of basic and diluted net
income per common share:
2003 2002 2001
------------ ------------ ------------
Numerator:
Net loss and numerator for basic and diluted
net loss per common share-income
available to common stockholders $ (899,000) $ (2,292,000) $ (4,978,000)
============ ============ ============
Denominator:
Denominator for basic net loss per common
share-weighted average common shares 5,484,593 5,462,936 5,442,627
Effect of dilutive securities-employee stock options -- -- --
------------ ------------ ------------
Denominator for diluted net loss per common
share-adjusted weighted average common shares
and assumed conversions 5,484,593 5,462,936 5,442,627
============ ============ ============
Net loss per common share $ (.16) $ (.42) $ (.91)
============ ============ ============
Net loss per common share-assuming dilution $ (.16) $ (.42) $ (.91)
============ ============ ============
Employee stock options to purchase shares of common stock were outstanding
during fiscal year 2003 but were not included in the computation of diluted net
loss per share because either (i) the employee stock options' exercise price was
greater than the average market price of the common stock of the Company, or
(ii) the Company had a net loss from continuing operations and, therefore, the
effect would be antidilutive.
F-11
8. MAJOR CUSTOMERS
The Company operates in only one business segment, contract seismic data
acquisition and processing services. During 2003 and 2002, sales to only one
client, which was not the same client in each year, exceeded 10% of operating
revenue. During 2001, sales to no client exceeded 10% of operating revenue.
9. CONTINGENCIES
The Company is party to various legal actions arising in the ordinary
course of its business, none of which management believes will result in a
material adverse effect on the Company's financial position or results of
operation, as the Company believes it is adequately insured.
On February 18, 1998 the Company entered into a five year, non-cancellable
operating lease for office space. On June 30, 2003, the lease was amended to
extend the term of the lease for five years beginning July 1, 2003 and ending
June 30, 2008. Future minimum lease commitments under the lease at September 30
of each year are $142,716 through 2007, and $107,037 in fiscal year 2008.
10. RIGHTS AGREEMENT
On July 13, 1999, the Board of Directors of the Company authorized and
declared a dividend to the holders of record on July 23, 1999 of one Right (a
"Right") for each outstanding share of the Company's common stock. When
exercisable, each Right will entitle the holder to purchase one one-hundredth of
a share of a Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares") at an exercise price of $50.00
per Right. The rights are not currently exercisable and will become exercisable
only if a person or group acquires beneficial ownership of 20% or more of the
Company's outstanding common stock or announces a tender offer or exchange
offer, the consummating of which would result in attaining the triggering
percentage. The Rights are subject to redemption by the Company for $.01 per
Right at any time prior to the tenth day after the first public announcement of
a triggering acquisition.
If the Company is acquired in a merger or other business combination
transaction after a person has acquired beneficial ownership of 20% or more of
the Company's common stock, each Right will entitle its holder to purchase, at
the Right's then current exercise price, a number of the acquired Company's
shares of common stock having a market value of two times such price. In
addition, if a person or group acquires beneficial ownership of 20% or more of
the Company's common stock, each Right will entitle its holder (other than the
acquiring person or group) to purchase, at the Right's then current exercise
price, a number of the Company's shares of common stock having a market value of
two times the exercise price.
Subsequent to the acquisition by a person or group of beneficial ownership
of 20% or more of the Company's common stock and prior to the acquisition of
beneficial ownership of 50% or more of the Company's common stock, the Board of
Directors of the Company may exchange the Rights (other than Rights owned by
such acquiring person or group, which will have become null and void and
nontransferable), in whole or in part, at an exchange ratio of one share of the
Company's common stock (or one one-hundredth of a Preferred Share) per Right.
The Rights dividend distribution was made on July 23, 1999, payable to
shareholders of record at the close of business on that date. The Rights will
expire on July 23, 2009.
11. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Statement 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. There has been no impact on the Company's
financial statements.
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure, amends SFAS No. 123, Accounting for Stock-Based Compensation". SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. The
statement also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The statement is required to be adopted for
fiscal years ending after December 15, 2002.
The Company currently accounts for stock-based compensation in accordance
with APB Opinion No. 25 which allows the Company to recognize compensation
expense only to the extent that the fair market value is greater than the option
price.
On April 22, 2003 the FASB announced its decision to require all companies
to expense the value of employee stock options. Companies will be required to
measure the cost according to the fair value of the options. The new guidelines
have not been released but are expected to be finalized and to become effective
in 2004. When final rules are announced, the Company will assess the impact to
its financial statements.
F-12
FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45
requires that a liability be recorded in the guarantor's balance sheet upon
issuance of certain guarantees. Initial recognition and measurement of the
liability will be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN No. 45 also requires disclosures about
guarantees in financial statements for interim or annual periods ending after
December 15, 2002. The adoption of FIN No. 45 has had no impact on the Company's
financial statements.
FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51". FIN No. 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without financial support from other parties.
The adoption of FIN No. 46 has had no impact on the Company's financial
statements.
In May 2003, the FASB issued Statement No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classified and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of FAS 150 has
had no impact on the Company's financial statements.
12. Quarterly Financial Data (Unaudited)
Quarter Ended
------------------------------------------------------------------
December 31 March 31 June 30 September 30
------------------------------------------------------------------
Fiscal 2003:
Operating revenues $ 11,410,000 $ 14,196,000 $ 11,291,000 $ 14,695,000
Income (loss) from operations $ (1,007,000) $ 579,000 $ (1,483,000) $ 527,000
Net income (loss) $ (893,000) $ 844,000 $ (1,407,000) $ 557,000
Net income (loss) per common
share $ (.16) $ .15 $ ( .26) $ .10
Net income (loss) per common
share assuming dilution $ (.16) $ .15 $ (.26) $ .10
Fiscal 2002:
Operating revenues $ 8,220,000 $ 8,962,000 $ 9,096,000 $ 9,800,000
Loss from operations $ (1,403,000) $ (257,000) $ (550,000) $ (1,156,000)
Net loss $ (1,173,000) $ (134,000) $ (428,000) $ (557,000)
Net loss per common share $ (.22) $ (.02) $ (.08) $ (.10)
Net loss per common share
assuming dilution $ (.22) $ (.02) $ (.08) $ (.10)
F-13
THIS PAGE INTENTIONALLY LEFT BLANK
F-14
EXHIBIT 3
---------
DAWSON GEOPHYSICAL COMPANY
BYLAWS
ARTICLE I
OFFICES
Section 1. The principal office of the Corporation shall be in the
City of Midland, County of Midland, State of Texas, and the resident agent in
charge thereof is L. Decker Dawson.
Section 2. The Corporation may also have offices at such other
places both within and without the State of Texas as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at the offices of the Corporation in Midland, Texas,
unless otherwise provided by resolution by the Board of Directors. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Texas, as shall be stated in the Notice of Meeting or in a
duly executed waiver of notice thereof.
Section 2. An Annual Meeting of Stockholders shall be held on the
fourth Tuesday of January at 10:00 a.m. in each year if not a legal holiday, and
if a legal holiday, then on the next secular day following, at which time they
shall elect a Board of Directors and transact such other business as may be
properly brought before the meeting.
Effective 1-23-01
Section 3. Written notice of the Annual Meeting shall be served upon
or mailed to each stockholder entitled to vote thereat at such address as
appears on the books of the Corporation, at least ten days prior to the meeting.
Section 4. At least ten days before every election of Directors, a
complete list of the stockholders entitled to vote at said election, arranged in
alphabetical order with the residence of each and the number of voting shares
held by each, shall be prepared by the Secretary. Such list shall be open at the
principal office of the Corporation for said ten days to the examination of any
stockholder, and shall be produced and kept at the time and place of election
during the whole time thereof, and subject to the inspection of any stockholder
who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, and unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the President or Secretary at the request in
writing of stockholders owning twenty-five percent (25%) or more in amount of
the entire capital stock of the Corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting.
Section 6. Written notice of a special meeting of stockholders,
stating the time and place and object thereof, shall be served upon or mailed to
each stockholder entitled to vote thereat at such address as appears on the
books of the Corporation, at least ten (10) days before such meeting.
Section 7. Business transacted at all special meetings shall be
confined to the objects stated in the call.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise
Effective 1-23-01
provided by statute, by the Certificate of Incorporation or by these Bylaws. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation or of these Bylaws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
Section 10. At any meeting of the stockholders, every stockholder
having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder and bearing
a date not more than eleven months prior to said meeting, unless said instrument
provides for a longer period. Each stockholder shall have one vote for each
share of stock having voting power, registered in the stockholder's name on the
books of the Corporation. Each outstanding share having voting power shall be
entitled to one vote for each Director to be elected. Except where the transfer
books of the Corporation shall have closed or a date shall have been fixed as a
record date for the determination of its stockholders entitled to vote, no share
of stock shall be voted on at any election for Directors
Effective 1-23-01
which shall have been transferred on the books of the Corporation within twenty
days next preceding such election of Directors.
Section 11. Meetings of the Stockholders shall be presided over by
the Chairman of the Board of Directors, if one shall be elected, or in the
absence of a Chairman of the Board of Directors, by the Vice Chairman, if one
shall be elected, the Chief Executive Officer, the President or by any Vice
President, or, in the absence of any such officers, by a chairman to be chosen
by a majority of the Stockholders entitled to vote at the meeting who are
present in person or by proxy. The Secretary, or, in the Secretary's absence,
any Assistant Secretary or any person appointed by the individual presiding over
the meeting, shall act as secretary at meetings of the Stockholders.
Section 12. Whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the Certificate of Incorporation or of
these Bylaws, the meeting and vote of stockholders may be dispensed with, if all
the stockholders who would have been entitled to vote upon the action if such
meeting were held shall consent in writing to such corporate action being taken.
Section 13. Nomination of Directors. Subject to the rights of
holders of any class or series of stock having a preference over common stock of
the Corporation as to dividends or upon liquidation and to elect Directors under
specified circumstances, nominations of persons for election to the Board of
Directors may be made only (a) by the Board of Directors or a committee
appointed by the Board of Directors or (b) by any shareholder who is a
shareholder of record at the time of giving the shareholders' notice provided
for in this Section 13, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 13. A shareholder
wishing to nominate one or more individuals to stand for election in
Effective 1-23-01
the election of members of the Board of Directors at any annual or special
meeting must provide written notice thereof to the Board of Directors not less
than 80 days in advance of such meeting; provided, however, that in the event
that the date of the meeting was not publicly announced by the Corporation by a
mailing to shareholders, a press release or a filing with the Securities and
Exchange Commission pursuant to Section 13(a) or 14(a) of the Securities and
Exchange Act of 1934 more than 90 days prior to the meeting, such notice, to be
timely, must be delivered to the Board of Directors not later than the close of
business on the tenth day following the day on which the date of the meeting was
publicly announced. A shareholder's notice shall set forth (i) the name and
address, as they appear on the Corporation's books, of the shareholder making
the nomination or nominations; (ii) such information regarding the nominee(s)
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee(s) been nominated or intended to be nominated by the
Board of Directors; (iii) a representation of the shareholder as to the class
and number of shares of stock of the Corporation that are beneficially owned by
such shareholder, and the shareholder's intent to appear in person or by proxy
at the meeting to propose such nomination; and (iv) the written consent of the
nominee(s) to serve as a member of the Board of Directors if so elected. No
shareholder nomination shall be effective unless made in accordance with the
procedures set forth in this Section 13. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a shareholder
nomination was not made in accordance with the provisions of these bylaws, and
if the Chairman should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 14. Proposals of Shareholders. At any meeting of
shareholders, there shall be conducted only such business as shall have been
brought before the meeting (a) by or at the
Effective 1-23-01
direction of the Board of Directors or (b) by any shareholder of the Corporation
who is a shareholder of record at the time of giving of the shareholders' notice
provided for in this Section 14, who shall be entitled to vote at such meeting
and who complies with the notice procedure set forth in this Section 14. For
business to be properly brought before a meeting of shareholders by a
shareholder, the shareholder shall have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 80 days in advance of such meeting; provided, however,
that in the event that the date of the meeting was not publicly announced by the
Corporation by a mailing to shareholders, a press release or a filing with the
Securities and Exchange Commission pursuant to Section 13(a) or 14(a) of the
Securities and Exchange Act of 1934 more than 90 days prior to the meeting, such
notice, to be timely, must be delivered to the Board of Directors not later than
the close of business on the tenth day following the day on which the date of
the meeting was first so publicly announced. A shareholder's notice shall set
forth as to each matter proposed to be brought before the meeting: (1) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and, in the event that such
business includes a proposal regarding the amendment of either the Articles of
Incorporation of the Corporation or these Bylaws, the language of the proposed
amendment; (2) the name and address, as they appear on the Corporation's books,
of the shareholder proposing such business; (3) a representation of the
shareholder as to the class and number of shares of capital stock of the
Corporation that are beneficially owned by such shareholder, and the
shareholder's intent to appear in person or by proxy at the meeting to propose
such business; and (4) any material interest of such shareholder in such
proposal or business. Notwithstanding anything in these bylaws to the contrary,
no
Effective 1-23-01
business shall be conducted at a shareholders meeting unless brought before the
meeting in accordance with the procedure set forth in this Section 14. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of these Bylaws, and if the Chairman should so
determine, the Chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. The number of Directors which shall constitute the whole
Board shall not be less than five nor more than fifteen. Within the limits above
specified, the number of Directors shall be determined by resolution of the
Board of Directors or by the stockholders at the Annual Meeting. The Directors
shall be elected at the Annual Meeting of the Stockholders, except as provided
in Section 2 of this Article, and each Director elected shall hold office until
his successor shall be elected and shall qualify. Directors need not be
stockholders.
Section 2. If any vacancies occur in the Board of Directors caused
by death, resignation, retirement, disqualification, or removal from office of
any Directors or otherwise, or any new directorship is created by an increase in
the authorized number of Directors, a majority of the Directors then in office
though less than a quorum may choose a successor or successors, or fill the
newly created directorship and the Directors so chosen shall hold office until
the next annual election of Directors and until their successors shall be duly
elected and qualified, unless sooner displaced.
Effective 1-23-01
Section 3. The property and business of the Corporation shall be
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD
Section 4. The Directors of the Corporation may hold their meetings,
both regular and special, either within or without the State of Texas.
Section 5. The first meeting of each newly elected Board shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the Annual Meeting and no notice of such meeting shall be necessary to the newly
elected Directors in order to legally constitute the meeting provided a quorum
shall be present, or they may meet at such place and time as shall be fixed by
the consent in writing of all the Directors.
Section 6. Regular meetings of the Board may be held without notice
at such time and place as shall, from time to time, be determined by the Board.
Section 7. Special meetings of the Board may be called by the
President on five days' notice to each Director, either personally or by mail or
by telegram; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two Directors.
Section 8. At all meetings of the Board the presence of a majority
of the Directors shall be necessary and sufficient to constitute a quorum for
the transaction of business and the act of a majority of the Directors present
at any meetings at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation or by these Bylaws. If a quorum shall not be
present at any meeting
Effective 1-23-01
of Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Unless otherwise restricted by law, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if prior to such action all members of the Board of Directors
or of such committee, as the case may be, consent thereto in writing and writing
or writings are filed with the minutes of proceedings of the Board of Directors
or the committee. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee thereof may participate in a meeting of such Board of Directors or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
and participation in a meeting in such manner shall constitute presence in
person at such meeting.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors, by resolution passed by a
majority of the whole Board, may designate one or more committees, each
committee to consist of two or more of the Directors of the Corporation, which,
to the extent provided in said resolution, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may have power to authorize the seal of the Corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 11. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required.
Effective 1-23-01
COMPENSATION OF DIRECTORS
Section 12. Directors, as such, shall not receive any stated salary
for their services, but, by resolution of the Board, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided that nothing herein contained shall be construed
to preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any Director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be thus mailed.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated thereon, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Effective 1-23-01
Section 1. The officers of the Corporation shall be chosen by the
Directors and shall be a President, a Vice President, a Secretary and a
Treasurer. The Board of Directors may also choose (i) a Chairman of the Board ,
who must be a member of the Board of Directors; (ii) if a Chairman of the Board
is chosen, the Board of Directors may also choose a Vice Chairman, who must be a
member of the Board of Directors; (iii) a Chief Executive Officer, who need not
be a member of the Board of Directors; and (iv) additional Vice Presidents, and
one or more Assistant Secretaries and Assistant Treasurers. Two or more offices
may be held by the same person, except that the offices of President and
Secretary shall not be held by the same person.
Section 2. So far as is practicable, all elected officers shall be
elected by the Board of Directors at the annual meeting of the Board of
Directors in each year, and except as otherwise provided in this Article V,
shall hold office until the next such meeting of the Board of Directors in the
subsequent year and until their respective successors are elected and qualified
or until their earlier death, resignation or removal. All appointed officers
shall hold office at the pleasure of the Board of Directors. If any vacancy
shall occur in any office, the Board of Directors may elect or appoint a
successor to fill such vacancy for the remainder of the term.
Section 3. The Board may appoint such other offices and agents as it
shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
Section 4. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors
Effective 1-23-01
may be removed at any time by the affirmative vote of a majority of the whole
Board of Directors. If the office of any officer becomes vacant for any reason,
the vacancy shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if one shall be elected, shall
preside at all meetings of the Stockholders and Board of Directors and shall be
ex officio a member of all standing committees of the Corporation. In addition,
the Chairman of the Board shall perform whatever duties and shall exercise all
powers that are given by the Board of Directors. Unless otherwise designated by
the Board of Directors, the Chairman of the Board, if one shall be elected,
shall also be the Chief Executive Officer of the Corporation. In the absence of
the Chairman, such of the Chairman's duties shall be performed and authority
exercised by either the Vice Chairman, if one shall be elected, or the Chief
Executive Officer, if one shall be elected, as may be designated by the Chairman
with the right reserved to the Board of Directors to designate or supersede any
designation so made.
THE PRESIDENT
Section 7. The President shall, in the absence of the Chairman of
the Board and the Vice Chairman, if one shall be appointed, preside at meetings
of the Stockholders and Board of Directors, shall implement the general
directives, plans and policies formulated by the Board of Directors; and shall
further have the duties, responsibilities and authorities as may be assigned by
the Board of Directors. The President may sign, with any other proper officer,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts and other documents which the Board of Directors has authorized to be
executed, except where required by law to be otherwise signed and executed and
except where the signing and execution thereof shall be
Effective 1-23-01
expressly delegated by the Board of Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the President, the duties
of the President shall be performed and the President's authority may be
exercised by a Vice President of the Corporation as may have been designated by
the President with the right reserved to the Board of Directors to designate or
supercede any designation so made.
VICE PRESIDENTS
Section 8. The Vice Presidents in the order of their seniority
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties as the
Board of Directors shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The Secretary shall attend all sessions of the Board and
all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision the Secretary shall
be. The Secretary shall keep in safe custody the seal of the Corporation and,
when authorized by the Board, affix the same to any instrument requiring it and,
when so fixed, it shall be attested by the Secretary's signature or by the
signature of the Treasurer or an Assistant Secretary.
Section 10. The Assistant Secretaries in order of their seniority
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other duties as the
Board of Directors shall prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Effective 1-23-01
Section 11. The Treasurer shall have the custody of corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 12. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and Directors, at the regular
meetings of the Board, or whenever they may require it, an account of all the
Treasurer's transactions as Treasurer and of the financial condition of the
Corporation.
Section 13. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
for the faithful performance of the duties of the Treasurer's office and for the
restoration to the Corporation, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the Treasurer's possession or under the
Treasurer's control, belonging to the Corporation.
Section 14. The Assistant Treasurers in order of their seniority
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as the
Board of Directors shall prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. The certificates of stock of the Corporation shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name
Effective 1-23-01
and number of shares and shall be signed by the President or Vice President and
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. The designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations, or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificates
which the Corporation shall issue to represent such class or series of stock. If
any stock certificate is signed by (1) a transfer agent or an assistant transfer
agent, or (2) a transfer clerk acting on behalf of the Corporation and a
Registrar, the signature of any such office may be facsimile.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate or stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors, in its discretion and
as a condition precedent to the issuance thereof, may require the owner of such
lost or destroyed certificate or certificates, or the owner's legal
representatives, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
TRANSFER OF STOCK
Section 3. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new
Effective 1-23-01
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 4. The Board of Directors may close the stock transfer books
of the Corporation for a period of not less than ten days nor more than sixty
days preceding the date of any meeting of stockholders or the date for payment
of any dividend or the date for the allotment of rights or the date when any
change or conversion or exchange of capital stock shall go into effect or for a
period of not less than ten days nor more than sixty days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not less than ten days nor more than sixty days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any
change, conversion or exchange of capital stock, or to give such consent, and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
REGISTERED STOCKHOLDERS
Effective 1-23-01
Section 5. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof, and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Texas.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each Annual
Meeting and when called for by vote of the stockholders at any special meeting
of the stockholders, a full and clear statement of the business and conditions
of the Corporation.
CHECKS
Effective 1-23-01
Section 4. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall begin on the
first day of October of each year and end on the last day of September of each
year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the Corporation and the words "Corporate Seal" so as to make an impression
similar to that on the margin hereof. Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular
meeting of the stockholders or at any special meeting of the stockholders at
which a quorum is present or represented, provided notice of the proposed
alteration or repeal be contained in the notice of such special meeting, by the
affirmative vote of a majority of the stock entitled to vote at such meeting and
present or represented thereat, or by the affirmative vote of a majority of the
Board of Directors at any regular meeting of the Board or at any special meeting
of the Board if notice of the board proposed alteration or repeal be contained
in the notice of such special meeting; provided, however, that no change of the
time or place of the meeting for the election of Directors shall be made within
sixty days next before the day on which such meeting is to be held, and that in
case of any change of such time or place, notice thereof shall be given to each
Effective 1-23-01
stockholder in person or by letter mailed to the stockholder's last known post
office address at least twenty days before the meeting is held.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
To the extent permitted by Texas Business Corporation Act Article
2.02-1, the Corporation shall indemnify any present or former Director, officer,
employee or agent of the Corporation against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with a proceeding in which the person was,
is, or is threatened to be made a named defendant or respondent because the
person is or was a Director, officer, employee or agent of the Corporation.
Effective 1-23-01
EXHIBIT 4
- - ------------------------------------------------------------------------------
DAWSON GEOPHYSICAL COMPANY
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
RIGHTS AGREEMENT
Dated as of July 13, 1999
- - ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions.............................................................................1
Section 2. Appointment of Rights Agent.....................................................................4
Section 3. Issue of Rights and Right Certificates..........................................................4
Section 4. Form of Right Certificates......................................................................6
Section 5. Execution, Countersignature and Registration....................................................7
Section 6. Transfer, Split-up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates....................................................7
Section 7. Exercise of Rights; Expiration Date of Rights...................................................8
Section 8. Cancellation and Destruction of Right Certificates.............................................10
Section 9. Reservation and Availability of Capital Stock..................................................10
Section 10. Preferred Shares Record Date...................................................................11
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.............................12
Section 12. Certificate of Adjustment......................................................................18
Section 13. Consolidation, Merger, or Sale or Transfer of Assets or Earning Power..........................18
Section 14. Fractional Rights and Fractional Shares........................................................19
Section 15. Rights of Action...............................................................................20
Section 16. Agreement of Right Holders.....................................................................21
Section 17. Right Certificate Holder Not Deemed a Stockholder..............................................21
Section 18. Concerning the Rights Agent....................................................................22
Section 19. Merger or Consolidation or Change of Name of Rights Agent......................................22
Section 20. Duties of Rights Agent.........................................................................22
i
Section 21. Change of Rights Agent.........................................................................25
Section 22. Issuance of New Right Certificates and Additional Rights.......................................26
Section 23. Redemption.....................................................................................26
Section 24. Exchange.......................................................................................27
Section 25. Notice of Certain Events.......................................................................28
Section 26. Notices........................................................................................29
Section 27. Supplements and Amendments.....................................................................29
Section 28. Successors.....................................................................................30
Section 29. Benefits of this Agreement.....................................................................30
Section 30. Severability...................................................................................30
Section 31. GOVERNING LAW..................................................................................30
Section 32. Counterparts...................................................................................31
Section 33. Descriptive Headings...........................................................................31
ii
AGREEMENT
This AGREEMENT, dated as of July 13, 1999 (the "Agreement"), between
DAWSON GEOPHYSICAL COMPANY, a Texas corporation (the "Company"), and CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., a New Jersey limited liability company, as Rights
Agent (the "Rights Agent"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one Right for each share of Common Stock, par value
$.331/3 per share, of the Company (the "Common Stock") outstanding at the close
of business on July 23, 1999 (the "Record Date"), and has authorized the
issuance of one Right (as such number may hereafter be adjusted pursuant to the
provisions of this Agreement) with respect to each share of Common Stock that
shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date; provided,
however, that Rights may be issued with respect to shares of Common Stock that
shall become outstanding after the Distribution Date and prior to the earlier of
the Redemption Date and the Final Expiration Date in accordance with the
provisions of Section 22 of this Agreement. Each Right shall initially represent
the right to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company (the
"Preferred Shares"), having the powers, rights and preferences set forth in the
Statement of Resolution attached to this Agreement as Exhibit A;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated, whether their use precedes or
follows the definition thereof in this Agreement:
"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20 percent or more of the Common Shares of the Company then outstanding, but
shall not include the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any entity
holding Common Shares of the Company for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person
as the result of an acquisition of Common Shares of the Company by the Company
which, by reducing the number of such shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20 percent
or more of the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 20 percent or more of the
Common Shares of the Company then outstanding by reason of share purchases by
the Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional Common Shares of the Company, then such
Person shall be deemed to be an Acquiring Person. Notwithstanding the foregoing,
if the Board of Directors of the Company, within ten (10) days after the first
date on which the Company shall become aware that any Person, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of shares of
Common Stock of the Company such that such person (but for this sentence) would
be an Acquiring Person, determines in good faith that such Person has
inadvertently exceeded
1
the thresholds set forth in this definition of Acquiring Person, and such Person
divests as promptly as practicable a sufficient number of Common Shares of the
Company so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this definition, then such Person shall
not be deemed to be an Acquiring Person for any purposes of this Agreement.
"Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
"Affiliate" and "Associate," when used with reference to any Person,
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to "beneficially own," and shall be deemed to have "Beneficial Ownership" of,
any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso in clause
(ii)(B) of this definition) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
2
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in The City of Dallas in the State of Texas or
in the city in which the office of the Rights Agent is located are authorized or
obligated by law or executive order to close.
"Close of business" on any given date shall mean 5:00 P.M., Dallas,
Texas time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., Dallas, Texas time, on the next succeeding Business
Day.
"Common Shares" when used with reference to the Company shall mean the
shares of Common Stock of the Company. "Common Shares" when used with reference
to any Person other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if such other
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
"Common share equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Common Stock" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Distribution Date" shall have the meaning set forth in Section 3(b)
hereof.
"Equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date in question, unless otherwise specifically provided.
"Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
"Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
"Flip-In Event" shall have the meaning set forth in Section 11(a)(ii)
hereof.
"Flip-In Trigger Date" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Flip-Over Event" shall have the meaning set forth in Section 13(a)
hereof.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Shares" shall have the meaning set forth in the introductory
paragraph of this Agreement. Any reference in this Agreement to Preferred Shares
shall be deemed to include any authorized fraction of a Preferred Share, unless
the context otherwise requires.
"Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
3
"Purchase Price" with respect to each Right shall mean $50.00, as such
amount may from time to time be adjusted as provided herein, and shall be
payable in lawful money of the United States of America. All references herein
to the Purchase Price shall mean the Purchase Price as in effect at the time in
question.
"Record Date" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
"Redemption Price" shall have the meaning set forth in Section 23
hereof.
"Right Certificate" shall mean a certificate evidencing a Right in
substantially the form attached to this Agreement as Exhibit B.
"Rights" shall mean the rights to purchase Preferred Shares (or other
securities) as provided in this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date in question, unless otherwise specifically provided.
"Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
"Statement of Resolution" shall mean the Statement of Resolution
Establishing a Series of Shares of the Company setting forth the powers,
preferences, rights, qualifications, limitations and restrictions of Series A
Junior Participating Preferred Stock of the Company, a copy of the form of which
is attached to this Agreement as Exhibit A.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable. The Rights Agent shall have no duty to supervise, and in
no event shall be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Rights and Right Certificates.
4
(a) One Right shall be associated with each Common Share outstanding on
the Record Date, each additional Common Share that shall become outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date, and each additional Common Share
with which Rights are issued after the Distribution Date and prior to the
earlier of the Redemption Date and the Final Expiration Date as provided in
Section 22 hereof; provided, however, that, if the number of outstanding Rights
are combined into a smaller number of outstanding Rights pursuant to Section 11
hereof, the appropriate fractional Right determined pursuant to such Section
shall thereafter be associated with each such Common Share.
(b) Until the earlier of (i) the tenth day after the Shares Acquisition
Date and (ii) the tenth Business Day (or such later date as may be determined by
action of the Board of Directors of the Company prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares of the Company for or pursuant to the terms of any such plan) of,
or of the first public announcement of the intention of any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity holding Common Shares
of the Company for or pursuant to the terms of any such plan) to commence, a
tender or exchange offer the consummation of which would result in any Person
becoming the Beneficial Owner of Common Shares aggregating 20 percent or more of
the then outstanding Common Shares (including any such date which is after the
date of this Agreement and prior to the issuance of the Rights; the earlier of
such dates being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of Section 3(c) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the Rights, including the right to receive
Right Certificates, will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign, and the Company
will send or cause to be sent (and the Rights Agent will, if requested and
provided with all necessary information, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate evidencing one whole Right for each
Common Share (or for the number of Common Shares with which one whole Right is
then associated if the number of Rights per Common Share held by such record
holder has been adjusted in accordance with the provision in Section 3(a)
hereof) so held. If the number of Rights associated with each Common Share has
been adjusted in accordance with the proviso in Section 3(a) hereof, at the time
of distribution of the Right Certificates, the Company may make any necessary
and appropriate rounding adjustments so that Right Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Right in accordance with Section 14 hereof. As of and after the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(c) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form attached to this Agreement as Exhibit C (the "Summary of
Rights"), by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to any certificate for
Common
5
Shares outstanding as of the Record Date, until the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date, the Rights will be
evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date, the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
(d) Certificates issued for Common Shares after the Record Date, but
prior to the earliest of the Distribution Date, the Redemption Date and the
Final Expiration Date, shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT DATED AS OF JULY 13,
1999, AS IT MAY BE AMENDED FROM TIME TO TIME (THE "RIGHTS AGREEMENT"),
BETWEEN DAWSON GEOPHYSICAL COMPANY AND CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., AS RIGHTS AGENT, THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF DAWSON GEOPHYSICAL COMPANY UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL
BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
BY THIS CERTIFICATE. DAWSON GEOPHYSICAL COMPANY WILL MAIL TO THE HOLDER
OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES, AS
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR ITS AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.
With respect to such certificates containing the foregoing legend, until the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date, the Rights associated with the Common Shares represented by such
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby. In the event that
the Company purchases or acquires any Common Shares after the Record Date but
prior to the Distribution Date, any Rights associated with such Common Shares
shall be deemed canceled and retired so that the Company shall not be entitled
to exercise any Rights associated with the Common Shares which are no longer
outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
form of election to purchase and form of assignment to be printed on the reverse
side thereof) shall be in substantially the form attached to this Agreement as
Exhibit B and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate, which do not affect the duties or responsibilities of the Rights
Agent and as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any securities exchange
on which the Rights may from time to time be listed or of any automated
quotations system of a national securities association on which the Rights may
from time to time be registered or quoted, or to conform to usage. Subject to
the provisions of Section 22 hereof, the Right
6
Certificates, whenever issued, on their face shall entitle the holders thereof
to purchase such number of one one-hundredths of a Preferred Share as shall be
set forth therein for the Purchase Price per one one-hundredth of a Preferred
Share, subject to adjustment from time to time as herein provided.
Section 5. Execution, Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President, its Chief Executive Officer, or any
of its Vice Presidents, or its Treasurer, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Right Certificates shall be
countersigned manually or by facsimile signature by the Rights Agent and shall
not be valid or obligatory for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such an officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such an officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such person was not such an officer.
(b) Following the Distribution Date and receipt by the Rights Agent of
all necessary information, the Rights Agent will keep or cause to be kept, at
its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates, the certificate number of each of
the Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split-up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Sections 7(e) and 14 hereof, at any
time after the close of business on the Distribution Date, and at or prior to
the close of business on the earlier of the Redemption Date and the Final
Expiration Date, any Right Certificate or Right Certificates (except for Right
Certificates representing Rights that have become null and void and
nontransferable pursuant to Section 7(e) hereof or that have been exchanged
pursuant to Section 24 hereof or as otherwise provided herein) may be
transferred, split-up, combined or exchanged for another Right Certificate or
Right Certificates representing, in the aggregate, the same number of Rights as
the Right Certificate or Right Certificates surrendered then represented. Any
registered holder desiring to transfer, split-up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split-up, combined or exchanged at the principal
office or offices of the Rights Agent designated for such purpose; provided,
however, that neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any Right Certificate
surrendered for transfer until the registered holder shall have completed and
signed the certification
7
of status contained in the form of assignment on the reverse side of such Right
Certificate and shall have provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Sections 7(e) and 14 hereof, countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Right Certificates. The Rights Agent shall
have no duty or obligation under this Section unless and until it is satisfied
that all such taxes and/or charges have been paid.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make a new Right
Certificate of like tenor and deliver such new Right Certificate to the Rights
Agent for delivery to the registered holder in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Expiration Date of Rights.
(a) Subject to Section 7(e) hereof and except as otherwise provided
herein (including Section 24 hereof), each Right shall entitle the registered
holder thereof, upon exercise thereof as provided herein, to purchase for the
Purchase Price, at any time after the Distribution Date and at or prior to the
earliest of (i) the close of business on July 23, 2009 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 23
hereof (the "Redemption Date") and (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof, one one-hundredth of a Preferred
Share, subject to adjustment from time to time as provided in Section 11 or 13
hereof.
(b) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office or offices of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one one-hundredth of a Preferred Share as to which the Rights are
exercised, at or prior to the earliest of (i) the Final Expiration Date, (ii)
the Redemption Date and (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Preferred Shares (or other securities) to
be purchased and an amount equal to any applicable tax or charge required to be
paid by the holder of such Right Certificate in accordance with Section 9
hereof, in lawful money of the United States of America, in cash or by certified
check, cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon (i) either (A) promptly requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is a transfer agent for such shares) certificates for the number of Preferred
Shares to be purchased, and
8
the Company hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Company shall have elected to deposit the Preferred
Shares with a depositary agent under a depositary arrangement, promptly
requisition from the depositary agent depositary receipts representing the
number of one one-hundredths of a Preferred Share to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent), and the Company will
direct the depositary agent to comply with all such requests, (ii) when
appropriate, promptly requisition from the Company the amount of cash to be paid
in lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, any
Rights that are at any time beneficially owned by an Acquiring Person or any
Affiliate or Associate of an Acquiring Person shall be null and void and
nontransferable, and any holder of any such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder of any Right Certificate upon the occurrence of
any purported exercise unless such registered holder shall have (i) completed
and signed the certification of status contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to
exceed 90 calendar days after the Distribution Date, the exercisability of the
Rights in order to prepare and file a Registration Statement under the
Securities Act, on appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights and permit such Registration Statement
to become effective; provided, however, that no such suspension shall remain
effective after, and the Rights shall without any further action by the Company
or any other Person become exercisable immediately upon, the effectiveness of
such Registration Statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the Blue Sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, and any
9
Right Certificate representing Rights that have become null and void and
nontransferable pursuant to Section 7(e) hereof surrendered or presented for any
purpose shall, if surrendered or presented to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered or presented to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any Right Certificate purchased or acquired by the
Company. The Rights Agent shall deliver all canceled Right Certificates to the
Company, or shall, at the written request of the Company, destroy such canceled
Right Certificates, and in either such case shall deliver a certificate of
destruction thereof or a certificate of cancellation thereof, as may be
appropriate, to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preferred Shares, free
from preemptive rights or any right of first refusal, a number of Preferred
Shares sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7 hereof.
(b) In the event that there shall not be sufficient Preferred Shares
authorized but unissued to permit the exercise or exchange of Rights in
accordance with Section 11 or 24 hereof, as the case may be, the Company
covenants and agrees that it will take all such action as may be necessary to
authorize additional Preferred Shares for issuance upon the exercise or exchange
of Rights pursuant to Section 11 or 24 hereof, as the case may be; provided,
however, that if the Company is unable to cause the authorization of additional
Preferred Shares, then the Company shall, or in lieu of seeking any such
authorization, the Company may, to the extent necessary and permitted by
applicable law and any agreements or instruments in effect prior to the
Distribution Date to which it is a party, (i) upon surrender of a Right, pay
cash equal to the Purchase Price in lieu of issuing Preferred Shares and
requiring payment therefor, (ii) upon due exercise of a Right and payment of the
Purchase Price for each Preferred Share as to which such Right is exercised,
issue equity securities having a value equal to the value of the Preferred
Shares which otherwise would have been issuable pursuant to Section 11 or 24
hereof, which value shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company, or (iii) upon
due exercise of a Right and payment of the Purchase Price for each Preferred
Share as to which such Right is exercised, distribute a combination of Preferred
Shares, cash and/or other equity and/or debt securities having an aggregate
value equal to the value of the Preferred Shares which otherwise would have been
issuable pursuant to Section 11 or 24 hereof, which value shall be determined by
a nationally recognized investment banking firm selected by the Board of
Directors of the Company. To the extent that any legal or contractual
restrictions (pursuant to agreements or instruments in effect prior to the
Distribution Date to which it is a party) prevent the Company from paying the
full amount payable in accordance with the foregoing sentence, the Company shall
pay to holders of the Rights as to which such payments are being made all
amounts which are not then restricted on a pro rata basis as such payments
become permissible under such legal or contractual restrictions until such
payments have been paid in full.
(c) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares delivered upon exercise
or exchange of Rights shall, at the time of
10
delivery of the certificates for such Preferred Shares (subject to payment of
the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable.
(d) So long as the Preferred Shares issuable upon the exercise or
exchange of Rights may be listed on any national securities exchange or
automated quotations system of a registered national securities association on
which the Preferred Shares may from time to time be listed, traded or quoted,
the Company covenants and agrees that it will use reasonable efforts to cause,
from and after such time as the Rights become exercisable or exchangeable, all
Preferred Shares reserved for such issuance to be listed on such exchange or
approved for quotation in such quotation system, upon official notice of
issuance upon such exercise.
(e) The Company further covenants and agrees, subject to the provisions
of this Agreement, that it will pay when due and payable any and all taxes and
charges which may be payable in respect of the issuance or delivery of Right
Certificates or of any Preferred Shares or Common Shares or other securities
upon the exercise or exchange of the Rights. The Company shall not, however, be
required to pay any tax or charge which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or in respect
of the issuance or delivery of certificates for Preferred Shares or Common
Shares or other securities, as the case may be, in a name other than that of,
the registered holder of the Right Certificate evidencing Rights surrendered for
exercise or exchange or to issue or deliver any certificates for Preferred
Shares or Common Shares or other securities, as the case may be, upon the
exercise or exchange of any Rights until such tax or charge shall have been paid
(any such tax or charge being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the Company's
satisfaction that no such tax or charge is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares or Common Shares or other securities is issued
upon the exercise or exchange of Rights shall for all purposes be deemed to have
become the holder of record of the Preferred Shares or Common Shares or other
securities, as the case may be, represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of any Purchase Price (and any applicable taxes
or charges) was made; provided, however, that, if the date of such surrender and
payment is a date upon which the transfer books of the Company for the Preferred
Shares or Common Shares or other securities, as the case may be, are closed,
such Person shall be deemed to have become the record holder of such Preferred
Shares or Common Shares or other securities, as the case may be, on, and such
certificate shall be dated, the next succeeding Business Day on which the
transfer books of the Company for the Preferred Shares or Common Shares or other
securities, as the case may be, are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
11
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares into a smaller
number of Preferred Shares or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the transfer books of
the Company for the Preferred Shares were open, he would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one
Right. If an event occurs that would require an adjustment under both
this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section
11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement and the last
sentence of Section 23(a) of this Agreement, in the event any Person
becomes an Acquiring Person (a "Flip-In Event"), each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then
current Purchase Price multiplied times the number of one
one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu
of Preferred Shares, such number of Common Shares of the Company (such
number of Common Shares being referred to herein as the "Adjustment
Shares") as shall equal the result obtained by (x) multiplying the then
current Purchase Price times the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable and dividing that
product by (y) 50 percent of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event. In the event that
any Person shall become an Acquiring Person and the Rights shall then
be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the
Rights.
(iii) In the event that there shall not be sufficient
Common Shares authorized but unissued to permit the exercise in full of
the Rights in accordance with Section 11(a)(ii) hereof, the Company
shall, to the extent permitted by applicable law and regulation: (A)
determine the excess of (1) the value of the Adjustment Shares issuable
upon the exercise of a Right (the "Current Value") over (2) the
Purchase Price (such excess to be referred to hereinafter as the
"Spread"), and (B) with respect to each Right, make adequate provision
to substitute for the Adjustment Shares, upon payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
other equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock which the Board of
Directors of the Company has
12
deemed to have the same value as the Common Shares (such shares of
preferred stock being referred to herein as "common share
equivalents")), (4) debt securities of the Company, (5) other assets or
(6) any combination of the foregoing, having an aggregate value equal
to the Current Value as determined by the Board of Directors of the
Company; provided, however, that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within
30 days following the first occurrence of a Flip-In Event (the "Flip-In
Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of
the Purchase Price, Common Shares (to the extent available) and then,
if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. If the Board of Directors of the Company
determines in good faith that it is likely that sufficient additional
Common Shares could be authorized for issuance upon exercise in full of
the Rights, the 30-day period set forth above may be extended to the
extent necessary, but not to more than 120 days after the Flip-In
Trigger Date, in order that the Company may seek stockholder approval
for the authorization of such additional shares (such period, as it may
be extended, the "Substitution Period"). To the extent the Company
determines that some action need be taken pursuant to the first and/or
second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares and/or
to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of
any such suspension, the Company shall deliver a notice to the Rights
Agent and issue a public announcement stating that the exercisability
of the Rights has been temporarily suspended, as well as a notice to
the Rights Agent and a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d) hereof) of
the Common Shares on the Flip-In Trigger Date, and the value of any
common share equivalent shall be deemed to have the same value as the
Common Shares on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d) hereof)
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date times a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event
13
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in
consideration part or all of which may be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of
a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date times a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the
"current per share market price" of any security (a "Security" for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the
30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to but not including such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the "current
per share market price" of a Security on any date shall be deemed to be
the average of the daily closing prices per share of such Security for
the 10 consecutive Trading Days immediately following such date;
provided, however, that in the event that the current per share market
price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or
securities convertible into shares of such Security (other than the
Rights), or (B) any subdivision, combination or reclassification of
such Security, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, shall not have occurred prior to the commencement of
the requisite 30 Trading Day or 10 Trading Day period, as set forth
above, then, and in each such case, the "current per
14
share market price" shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Security is listed
or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such
other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a
market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national
securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i)
hereof. If the Preferred Shares are not publicly traded, the "current
per share market price" of the Preferred Shares shall be conclusively
deemed to be the current per share market price of the Common Shares,
as determined pursuant to Section 11(d)(i) hereof (appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied times 100. If
neither the Common Shares nor the Preferred Shares are publicly held or
so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes.
(e) Except as hereinafter provided, no adjustment in the Purchase
Price shall be required unless such adjustment would require an increase or
decrease of at least one percent in the Purchase Price; provided, however, that
any adjustments which by reason of this Section 11(e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-millionth of a Preferred Share or one
ten-thousandth of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment and (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly
15
equivalent as practicable to the provisions with respect to the Preferred Shares
contained in Section 11(a) through (c) hereof, inclusive, and the provisions of
Sections 7, 9, 10 and 13 hereof with respect to the Preferred Shares shall apply
on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a Preferred Share (calculated to the nearest one one-millionth
of a Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment times (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made with prompt notice thereof to the
Rights Agent. This record date may be the date on which the Purchase Price is
adjusted or any day thereafter, but, if the Right Certificates have been issued,
shall be at least 10 days later than the date of the public announcement. If
Right Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14 hereof,
the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be distributed
to such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates
16
theretofore and thereafter issued may continue to express the Purchase Price and
the number of one one-hundredths of a Preferred Share which were expressed in
the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer with prompt thereof to the
Rights Agent until the occurrence of such event the issuing to the holder of any
Right exercised after such record date of the Preferred Shares and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the Preferred Shares and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares or securities upon the occurrence of the
event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of any Preferred Shares at less than the current market
price, (iii) issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares, (iv)
dividends on Preferred Shares payable in Preferred Shares, or (v) issuance of
rights, options or warrants referred to hereinabove in Section 11(b), hereafter
made by the Company to holders of its Preferred Shares, shall not be taxable to
such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares or (ii) effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event times a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
17
Section 12. Certificate of Adjustment. Whenever an adjustment is made
as provided in Section 11 or 13 hereof, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts and
computations accounting for such adjustment, (b) promptly file with the Rights
Agent and with each transfer agent for the Common Shares or the Preferred Shares
a copy of such certificate and mail a brief summary thereof to each holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares) in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall have no duty with respect to and shall not be deemed to have knowledge of
any such adjustments unless and until it shall have received such certificate.
Section 13. Consolidation, Merger, or Sale or Transfer of Assets or
Earning Power.
(a) In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (i) the Company shall consolidate with, or merge
with and into, any other Person, (ii) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
capital stock or other securities of any other Person (or the Company) or cash
or any other property, or (iii) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in one or
more transactions, assets or earning power aggregating 50 percent or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person other than the Company or one or more of its wholly-owned
Subsidiaries (any such event described in clauses (i), (ii) or (iii) being
referred to herein as a "Flip-Over Event"), then, and in each such case, proper
provision shall be made so that (A) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price multiplied times the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of validly authorized and issued, fully paid,
nonassessable and freely tradable Common Shares of the Principal Party (as such
term is hereinafter defined), free and clear of liens, encumbrances or other
adverse claims, as shall equal the result obtained by (1) multiplying the then
current Purchase Price times the number of one one-hundredths of a Preferred
Share for which a Right is exercisable immediately prior to the first occurrence
of a Flip-Over Event (or, if a Flip-In Event has occurred prior to the first
occurrence of a Flip-Over Event, multiplying the number of such one
one-hundredths of a share for which a Right was exercisable immediately prior to
the first occurrence of a Flip-In Event times the Purchase Price in effect
immediately prior to such first occurrence), and dividing that product (which,
following the first occurrence of a Flip-Over Event, shall be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement) by (2)
50 percent of the then current per share market price of the Common Shares of
such Principal Party (determined pursuant to Section 11(d) hereof) on the date
of consummation of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Flip-Over Event; (D) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to
18
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights; and (E) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Flip- Over Event.
The Company shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(i) or (ii) of the first sentence of Section 13(a) hereof, the Person
that is the issuer of any securities into which Common Shares of the
Company are converted in such transaction, or if there is more than one
issuer, the issuer of Common Shares with the greatest aggregate market
value, and if no securities are so issued, the Person that is the other
party to such transaction, or if there is more than one such Person,
the Person having Common Shares with the greatest aggregate market
value; and
(ii) in the case of any transaction described in clause
(iii) of the first sentence of Section 13(a) hereof, the Person that is
the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Shares of
such Person are not at such time and have not been continuously over
the preceding twelve-month period registered under Section 12 of the
Exchange Act, and such Person is a direct or indirect Subsidiary of any
Person the Common Shares of which are and have been so registered,
"Principal Party" shall refer to such other Person; and (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Shares of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons
is the issuer of the Common Shares having the greatest aggregate market
value.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company may, but shall not be required to, issue fractions
of Rights or distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, the Company may pay to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price for any day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock
19
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the principal
national securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one one-hundredth of a Preferred Share or any integral
multiple thereof), pay to the registered holders of Right Certificates at the
time such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of a whole Preferred Share, if any are
outstanding and publicly traded (or the Formula Number (as such term is defined
in Section 2 of the Statement of Resolutions) then in effect times the current
market value of a whole Common Share if the Preferred Shares are not outstanding
and publicly traded). For purposes of this Section 14(b), the current market
value of a Preferred Share (or Common Share) shall be the closing price of a
Preferred Share (or Common Share) (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise. If, as a result of an adjustment made pursuant to Section 11
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any securities other than Preferred Shares, the provisions of this
Section 14(b) shall apply, as nearly as reasonably may be, on like terms to such
other securities.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right except as provided in this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under this
Agreement, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations hereunder,
20
and injunctive relief against actual or threatened violations of the obligations
of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e) hereof, only on the registry books of the
Rights Agent if surrendered at the principal office of the Rights Agent, duly
endorsed or accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligations; provided, however, the Company must use
reasonable efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as reasonably practicable.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote or receive
dividends or be deemed, for any purpose, the holder of the Preferred Shares or
any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any other matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
25 hereof), or to receive dividends or other distributions or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions hereof.
21
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration, preparation, delivery,
amendment and execution of this Agreement and the exercise and performance of
its duties hereunder.
(b) The Rights Agent shall be authorized and protected and shall incur
no liability for, or in respect of any action taken, suffered or omitted by it
in connection with, its administration of this Agreement in reliance upon any
Right Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
shareholder services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, that such Person would be eligible for appointment as
a successor Rights Agent under the provisions of Section 21 hereof. In case, at
the time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
the duties and obligations expressly imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates (or, prior to the Distribution Date, of the Common Shares),
by their acceptance thereof, shall be bound:
22
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the advice or opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken, suffered or omitted by it in good faith and in accordance with
such advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including without limitation, the identity of any Acquiring Person and the
determination of the current per share market price) be proved or established by
the Company prior to taking, suffering or omitting any action hereunder, such
fact or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Rights Agent; and such certificate shall be
full authorization and protection to the Rights Agent and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct
as determined by a court of competent jurisdiction.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any liability or responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be liable or responsible for any breach by the Company of
any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be liable or responsible for any change in the
exercisability of the Rights (including the Rights becoming null and void and
nontransferable pursuant to Section 7(e) hereof) or any adjustment in the terms
of the Rights (including the manner, method or amount thereof) provided for in
Section 3, 11, 13, 23 or 24 hereof, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after actual notice that
such change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares or Common Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares or
Common Shares will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
23
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken, suffered or omitted by it in good
faith in accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions. Any application by the Rights Agent
for written instructions from the Company may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken, suffered or omitted
by the Rights Agent under this Agreement and the date on and/or after which such
action shall be taken or suffered or such omission shall be effective. The
Rights Agent shall not be liable for any action taken or suffered by, or
omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any officer of the Company
actually receives such application unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instructions in response to such application specifying the action to be
taken, suffered or omitted.
(h) The Rights Agent and any stockholder, director, affiliate, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing in this Agreement shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
Person.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct absent gross negligence, bad faith or willful misconduct
(as determined by a court of competent jurisdiction) in the selection and
continued employment thereof.
(j) The Company agrees to indemnify the Rights Agent for, and to hold
the Rights Agent harmless against any loss, liability, damage, judgment, fine,
penalty, claim, demand, settlement, cost or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
any action taken, suffered or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including without limitation
the costs and expenses of defending against any claim of liability arising
therefrom, directly or indirectly. The Company shall be entitled to participate
at its own expense in the defense of any action, proceeding, suit or claim
brought against the Rights Agent, and, if the Company so elects, the Company
shall assume the defense of any such action, proceeding, suit or claim. In the
event that the Company assumes such defense, the Company shall not thereafter be
liable for the fees and expenses of any additional counsel retained by the
Rights Agent unless there exists a conflict of interest between the Company and
the Rights Agent which could impair such joint representation and so long as the
Company shall retain counsel satisfactory to the Rights Agent, in the exercise
of its reasonable judgment, to defend such action, proceeding, suit or claim.
The Rights Agent agrees not to settle any litigation in connection with any
action, proceeding, suit or claim with respect to which it may seek
indemnification from the Company
24
without the prior written consent of the Company so long as such consent is not
unreasonably withheld. The indemnity provided herein shall survive the
termination of this Agreement and the termination and the expiration of the
Rights. The costs and expenses incurred in enforcing this right of
indemnification shall be paid by the Company. Anything contrary notwithstanding,
in no event shall the Rights Agent be liable for special, punitive, indirect,
consequential or incidental loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage. Any liability of the Rights Agent under this
Rights Agreement will be limited to the amount of fees paid by the Company to
the Rights Agent.
(k) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
(l) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse side
thereof, as the case may be, has not been completed to certify the holder is not
an Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent
shall not take any further action with respect to such requested exercise or
transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates (or, prior to the Distribution Date, of
the Common Shares) by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares or Preferred Shares by registered or certified mail,
and to the holders of the Right Certificates (or, prior to the Distribution
Date, of the Common Shares) by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) (who
shall, with such notice, submit his Right Certificate or, prior to the
Distribution Date, the certificate representing his Common Shares, for
inspection by the Company), then the registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Shares) or the Rights Agent
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a Person organized and doing business under the laws of
the United States or of the State of New York or of any other state of the
United States, in good standing, which is authorized to do business under such
laws and is subject to supervision or examination by federal or state authority
and which has at the time of its appointment as Rights Agent a combined capital
and surplus of at least $50 million. After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
but the predecessor Rights Agent shall deliver and transfer to the successor
Rights
25
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holder of the Right Certificates (or, prior to the Distribution
Date, of the Common Shares). Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates and Additional Rights.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors of
the Company to reflect any adjustment or change made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Shares following the Distribution Date and prior to the earlier
of the Redemption Date and the Final Expiration Date, the Company (i) shall,
with respect to Common Shares so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities, notes or debentures issued by the Company,
and (ii) may, in any other case, if deemed necessary or appropriate by the Board
of Directors of the Company, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that no such Right Certificate shall be issued if, and to the extent
that, the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued, and no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) A majority of the Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business on the
tenth day following the Shares Acquisition Date (or, if the Shares Acquisition
Date shall have occurred prior to the Record Date, the close of business on the
tenth day following the Record Date) and (ii) the Final Expiration Date, redeem
all but not less than all the then outstanding Rights at a redemption price of
$.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). The redemption
of the Rights by the Board of Directors of the Company may be made effective at
such time, on such basis and with such conditions as the Board of Directors of
the Company in its sole discretion may establish. Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not be exercisable
pursuant to Section 11(a)(ii) prior to the expiration of the Company's right of
redemption hereunder.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. Within 10 Business Days
after the action of the Board of Directors of the Company ordering the
redemption of the Rights, the Company
26
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Each such notice of redemption will state the method by which
payment of the Redemption Price will be made. The notice, if mailed in the
manner herein provided, shall be conclusively presumed to have been duly given,
whether or not the holder of Rights receives such notice. In any case, failure
to give such notice by mail, or any defect in the notice, to any particular
holder of Rights shall not affect the sufficiency of notice to other holders of
Rights. Neither the Company nor any of its Affiliates or Associates may redeem,
acquire or purchase for value any Rights at any time in any manner other than
that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, mandatorily exchange all or
part of the then outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors of the Company shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
such Subsidiary, or any entity holding Common Shares of the Company for or
pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50 percent or more of
the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24, and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied times the Exchange Ratio.
The Company shall promptly give public notice of any such exchange with prompt
notice thereof to the Rights Agent; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Company promptly shall mail a notice of any such exchange to all the holders
of such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become null and void
and nontransferable pursuant to the provisions of Section 7(e) hereof) held by
each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or equivalent preferred shares) for
Common Shares exchangeable for Rights, at the
27
initial rate of one one-hundredth of a Preferred Share (or equivalent preferred
share) for each Common Share, as appropriately adjusted to reflect adjustments
in the voting rights of the Preferred Shares pursuant to the terms thereof, so
that the fraction of a Preferred Share delivered in lieu of each Common Share
shall have the same voting rights as one Common Share.
(d) In the event that the number of Common Shares or Preferred Shares
which are authorized but unissued are not sufficient to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company may, at
its option, take all such action as may be necessary to authorize additional
Common Shares or Preferred Shares.
(e) The Company may, but shall not be required to, issue fractions of
Common Shares upon exchange of Rights pursuant to this Section 24 or distribute
certificates which evidence fractional Common Shares. In lieu of such fractional
Common Shares, the Company may pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share for the Trading Day immediately prior to the date
of exchange pursuant to this Section 24. For purposes of this paragraph (e), the
current market value of a whole Common Share shall be the closing price of a
Common Share (as determined pursuant to the second sentence of Section 11(d)(i)
hereof).
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend payable
in capital stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of capital stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50 percent or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to
effect the liquidation, dissolution or winding up of the Company, or (vi) to
declare or pay any dividend on the Common Shares payable in Common Shares or to
effect a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) and the
Rights Agent, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
28
(b) In case a Flip-In Event shall occur, then the Company shall as soon
as practicable thereafter give to each holder of a Right Certificate (or, prior
to the Distribution Date, of Common Shares) and the Rights Agent, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which notice
shall describe such event and the consequences of such event to holders of
Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Dawson Geophysical Company
508 West Wall, Ste 800
Midland, TX 79701-5010
Attention: L. Decker Dawson, President
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
2323 Bryan Street, Suite 2300
Dallas, TX 75201
Attention: David M. Cary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. At any time prior to the
Distribution Date and subject to the last sentence of this Section 27, the
Company may by action of its Board of Directors, and the Rights Agent shall if
the Company so directs, supplement or amend any provision of this Agreement
(including, without limitation, the date upon which the Distribution Date shall
occur, the time during which the Rights may be redeemed pursuant to Section 23
or any provision of the Statement of Resolutions) in any manner without the
approval of any holder of the Rights. From and after the Distribution Date and
subject to applicable law, the Company may by action of its Board of Directors,
and the Rights Agent shall if the Company so directs, from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order (i) to cure any ambiguity or to correct or supplement any
provision contained in this Agreement which may be defective or inconsistent
with any other provision of this Agreement or (ii) to make any other provisions
in regard to matters or questions arising hereunder which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of the Rights or Right Certificates (other than an Acquiring Person or
any Affiliate or Associate of an Acquiring Person). Any supplement or amendment
adopted during any period after any Person has become an Acquiring
29
Person but prior to the Distribution Date shall be null and void unless such
supplement or amendment could have been adopted under the preceding sentence
from and after the Distribution Date. Without limiting the foregoing, the
Company may at any time prior to the Distribution Date amend this Agreement to
lower the thresholds set forth in the definition of Acquiring Person in Section
1 hereof and in Section 3(b) hereof to not less than the greater of (i) the sum
of 0.001 percent and the largest percentage of the outstanding Common Shares
then known by the Company to be beneficially owned by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any entity holding Common Shares of the
Company for or pursuant to the terms of any such plan) and (ii) 10 percent. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment;
provided, however, that the Rights Agent may, but shall not be obligated to,
enter into any such supplement or amendment which affects its own rights,
duties, obligations, liabilities or immunities under this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of the Common Shares of the
Company. In addition, notwithstanding anything to the contrary contained in this
Agreement, no supplement or amendment to this Agreement shall be made which (i)
reduces the Redemption Price (except as required hereunder by appropriate
adjustment to reflect any stock split, stock dividend or similar transaction
occurring after the date of this Agreement) or (ii) provides for an earlier
Final Expiration Date.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, of the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. GOVERNING LAW. THIS AGREEMENT AND EACH RIGHT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER LAWS OF THE STATE
OF TEXAS AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED
ENTIRELY WITHIN SUCH STATE; PROVIDED, HOWEVER, THAT ALL PROVISIONS REGARDING THE
RIGHTS, DUTIES AND OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
30
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
DAWSON GEOPHYSICAL COMPANY
Attest:
By: /s/ CHRISTINA W. HAGAN By: /s/ L. DECKER DAUSON
---------------------------------- ---------------------------
Name: Christina W. Hagan Name: L. Decker Dauson
---------------------------- ---------------------------
Title: Chief Financial Officer Title: President
---------------------------- ---------------------------
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., as Rights Agent
Attest:
By: /s/ BARBARA J. ROBBINS By: /s/ DAVID M. CARY
---------------------------------- ---------------------------
Name: Barbara J. Robbins Name: David M. Cary
---------------------------- ---------------------------
Title: Vice President Title: Assistant Vice President
---------------------------- ---------------------------
32
EXHIBIT A
STATEMENT OF RESOLUTION
ESTABLISHING A SERIES OF SHARES
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
DAWSON GEOPHYSICAL COMPANY
To the Secretary of State
of the State of Texas
Pursuant to Article 2.13 of the Texas Business Corporation Act
("TBCA"), and pursuant to Article Four of its Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), the undersigned,
Dawson Geophysical Company, a corporation organized and existing under the TBCA
(the "Corporation"), hereby submits the following statement for the purpose of
establishing and designating a series of shares and fixing and determining the
relative rights and preferences thereof:
1. The name of the corporation is Dawson Geophysical Company.
2. The following resolution establishing and designating a series
of shares and fixing and determining the relative rights and
preferences thereof was duly adopted by the Board of Directors
of the Corporation as of July 13, 1999:
RESOLVED, that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the provisions of
the Articles of Incorporation, a series of Preferred Stock, par value
$1.00 per share, of the Corporation is hereby established and created,
and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof, are as follows:
A-1
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock"). The number of shares initially constituting the Series A
Preferred Stock shall be 100,000; provided, however, that if more than a total
of 100,000 shares of Series A Preferred Stock shall be issuable upon the
exercise of Rights (the "Rights") issued pursuant to the Rights Agreement dated
as of July 13, 1999 between the Corporation and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent (the "Rights Agreement"), the Board of
Directors of the Corporation shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded providing for
the total number of shares of Series A Preferred Stock authorized to be issued
to be increased (to the extent that the Articles of Incorporation then permits)
to the largest number of whole shares (rounded up to the nearest whole share)
issuable upon exercise of such Rights.
Section 2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of shares
of any other series of Preferred Stock or other class of stock of the
Corporation ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation legally available therefor, (i) quarterly
dividends payable in cash on the last day of each fiscal quarter in each year,
or such other dates as the Board of Directors of the Corporation shall approve
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or a fraction of a share of Series A Preferred Stock, in the
amount of $.01 per whole share (rounded to the nearest cent) less the amount of
all cash dividends declared on the Series A Preferred Stock pursuant to the
following clause (ii) since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock
(the total of which shall not, in any event, be less than zero) and (ii)
dividends payable in cash on the payment date for each cash dividend declared on
the Common Stock in an amount per whole share (rounded to the nearest cent)
equal to the Formula Number (as hereinafter defined) then in effect multiplied
times the cash dividends then to be paid on each share of Common Stock. In
addition, if the Corporation shall pay any dividend or make any distribution on
the Common Stock payable in assets, securities or other forms of noncash
consideration (other than dividends or distributions solely in shares of Common
Stock), then, in each such case, the Corporation shall simultaneously pay or
make on each outstanding whole share of Series A Preferred Stock a dividend or
distribution in like kind equal to the Formula Number then in effect multiplied
times such dividend or distribution on each share of the Common Stock. As used
herein, the "Formula Number" shall be 100; provided, however, that, if at any
time after July 23, 1999, the Corporation shall (x) declare or pay any dividend
on the Common Stock payable in shares of Common Stock or make any distribution
on the Common Stock in shares of Common Stock, (y) subdivide (by a stock split
or otherwise) the outstanding shares of Common Stock into a larger number of
shares of Common Stock or (z) combine (by a reverse stock split or otherwise)
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each
A-2
such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of Common Stock that
are outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that are outstanding immediately prior to such
event (and rounding the result to the nearest whole number); and provided
further, that, if at any time after July 23, 1999, the Corporation shall issue
any shares of its stock in a merger, reclassification, or change of the
outstanding shares of Common Stock, then in each such event the Formula Number
shall be appropriately adjusted to reflect such merger, reclassification or
change so that each share of Series A Preferred Stock continues to be the
economic equivalent of a Formula Number of shares of Common Stock prior to such
merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) of this Section
immediately prior to or at the same time it declares a dividend or distribution
on the Common Stock (other than a dividend or distribution solely in shares of
Common Stock); provided, however, that, in the event no dividend or distribution
(other than a dividend or distribution solely in shares of Common Stock) shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $.01 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend Payment
Date next preceding the date of original issue of such shares of Series A
Preferred Stock; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend and
on or prior to the next succeeding Quarterly Dividend Payment Date shall begin
to accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on shares of Series A Preferred Stock
which are originally issued prior to the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend on the first Quarterly Dividend Payment Date shall be calculated as if
cumulative from and after the last day of the fiscal quarter next preceding the
date of original issuance of such shares. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared on
the Series A Preferred Stock shall have been declared.
A-3
(e) The holders of the shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect, for each share of
Series A Preferred Stock held of record on each matter on which holders of the
Common Stock or shareholders generally are entitled to vote, multiplied times
the maximum number of votes per share which any holder of the Common Stock or
shareholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors of
the Corporation and on all other matters submitted to a vote of shareholders of
the Corporation.
(c) If, at the time of any annual meeting of shareholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of shareholders (and at any subsequent annual meeting of shareholders),
unless all dividends in arrears have been paid or declared and set apart for
payment prior thereto, to vote for the election of two directors of the
Corporation, the holders of any Series A Preferred Stock being entitled to cast
a number of votes per share of Series A Preferred Stock equal to the Formula
Number. Until the default in payments of all dividends which permitted the
election of said directors shall cease to exist, any director who shall have
been so elected pursuant to the next preceding sentence may be removed at any
time, either with or without cause, only by the affirmative vote of the holders
of the shares of Series A Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Preferred Stock shall
be divested of the foregoing special voting rights, subject to revesting in the
event of each and every subsequent like default in payments of dividends. Upon
the termination of the foregoing special voting rights, the terms of office of
all persons who have been elected directors pursuant to said special voting
rights shall forthwith terminate, and the number of directors constituting the
Board of Directors shall be reduced by two. The voting rights granted by this
Section 3(c) shall be in addition to any other voting rights granted to the
holders of the Series A Preferred Stock in this Section 3.
A-4
(d) Except as provided in this Section 3, in Section 11 or by
applicable law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
authorizing or taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled upon
A-5
the acquisition thereof in accordance with the TBCA. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock,
without designation as to series, and may thereafter be issued as part of a new
series of Preferred Stock subject to the conditions and restrictions on issuance
set forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock of the Corporation or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon the
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, no distribution shall be made (i) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an amount equal to the greater of (x) $1.00
per whole share and (y) an aggregate amount per share equal to the Formula
Number then in effect multiplied times the aggregate amount to be distributed
per share to holders of Common Stock, or (ii) to the holders of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, or any combination thereof, then in any
such case the then outstanding shares of Series A Preferred Stock shall at the
same time be similarly exchanged for or changed into an amount per share equal
to the Formula Number then in effect multiplied times the aggregate amount of
stock, securities, cash or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is exchanged or changed.
In the event both this Section 7 and Section 2 appear to apply to a transaction,
this Section 7 shall control.
Section 8. No Redemption; No Sinking Fund.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the Corporation; provided, however, that the Corporation may
purchase or otherwise acquire outstanding shares of Series A Preferred Stock in
the open market or by offer to any holder or holders of shares of Series A
Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
Section 9. Ranking. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, junior to all other
series of Preferred Stock of the Corporation, unless the Board of Directors
shall specifically determine otherwise in fixing the powers, preferences and
relative,
A-6
participating, optional and other special rights of the shares of any such other
series and the qualifications, limitations and restrictions thereof.
Section 10. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one-hundredth of a share
or any integral multiple of such fraction which shall entitle the holder, in
proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Stock. In lieu of fractional shares, the
Corporation, prior to the first issuance of a share or a fraction of a share of
Series A Preferred Stock, may elect (i) to make a cash payment as provided in
the Rights Agreement for fractions of a share other than one one-hundredth of a
share or any integral multiple thereof or (ii) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Stock
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation; provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Stock.
Section 11. Amendment. None of the powers, preferences or relative,
participating, optional or other special rights of the Series A Preferred Stock
as provided herein or in the Articles of Incorporation shall be amended in any
manner that would alter or change the powers, preferences, rights or privileges
of the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3 percent of the
outstanding shares of Series A Preferred Stock, voting as a separate class.
IN WITNESS WHEREOF, the Corporation has caused this Statement of
Resolution to be duly executed in its corporate name on this ___ day of July,
1999.
DAWSON GEOPHYSICAL COMPANY
By
--------------------------------------
L. Decker Dawson, President
A-7
EXHIBIT B
[Form of Right Certificate]
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER JULY 23, 2009, OR EARLIER IF REDEEMED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED
BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.
Right Certificate
DAWSON GEOPHYSICAL COMPANY
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement, dated
as of July __, 1999 (the "Rights Agreement"), between Dawson Geophysical
Company, a Texas corporation (the "Company"), and ChaseMellon Shareholder
Services, L.L.C., a New Jersey limited liability company as Rights Agent (the
"Rights Agent"), unless the Rights evidenced hereby have been previously
redeemed by the Company, to purchase from the Company at any time after the
Distribution Date (as defined in the Rights Agreement) and prior to 5:00 P.M.,
Dallas, Texas time, on July 23, 2009 (the "Final Expiration Date"), at the
office or agency of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredth of a fully paid, nonassessable
share of Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares"), at a purchase price per one
one-hundredth of a share equal to $_____ (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed.
The Purchase Price and the number and kind of shares that may be
purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth above, are the Purchase Price and the number and kind of shares that
may be purchased as of , 19 . As provided in the Rights Agreement, the Purchase
Price and the number and kind of shares that may be purchased upon the exercise
of each Right evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.
This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
reference to the Rights Agreement is hereby made for a full
B-1
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file at the
above-mentioned office and agency of the Rights Agent and are also available
from the Company upon request.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Associate or Affiliate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number and kind of shares as
the Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Right Certificate or Right Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Right Certificate may be redeemed by the Company at its option at a
redemption price (in cash or shares of Common Stock or other securities of the
Company deemed by the Board of Directors of the Company to be at least
equivalent in value) of $.01 per Right (which amount may be subject to
adjustment as provided in the Rights Agreement) at any time prior to the earlier
of (i) the close of business on the tenth day following the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such and (ii) the Final Expiration Date.
The Company may, but shall not be required to, issue fractions of a
Preferred Share (other than one one-hundredth of a Preferred Share or any
integral multiple thereof) or distribute certificates which evidence fractions
of a Preferred Share upon the exercise of any Right or Rights evidenced hereby.
In lieu of issuing fractional shares, the Company may elect to make a cash
payment as provided in the Rights Agreement for fractions of a share other than
one one-hundredth of a share or any integral multiple thereof or to issue
certificates or utilize a depository arrangement as provided in the terms of the
Rights Agreement and the Preferred Shares.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed, for any purpose, the holder of the Preferred
Shares or any other securities of the Company which may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company, including, without limitation, any right to
vote for the election of directors or upon any other matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right
B-2
Certificate shall have been exercised as provided in accordance with the
provisions of the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of:
[CORPORATE SEAL]
ATTEST: DAWSON GEOPHYSICAL COMPANY
By
- - ------------------------------------ -----------------------------------
Name: L. Decker Dawson, President
Title:
Countersigned:
CHASEMELLON SHAREHOLDERS SERVICES, L.L.C., as Rights Agent
By
----------------------------------
Authorized Signature
B-3
[On Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________________________________ hereby sells,
assigns and transfers unto______________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _________________________________
Attorney-in-Fact, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated:
----------------------
-----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities Transfer
Association recognized signature program.
CERTIFICATION OF STATUS
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned or
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
-----------------------------------------
Signature
Dated:
-----------------------
B-4
[On Reverse Side of Right Certificate -- continued]
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if such
holder desires to exercise the Rights represented by
the Right Certificate.)
To: DAWSON GEOPHYSICAL COMPANY
The undersigned hereby irrevocably elects to exercise
_____________________________ Rights represented by this Right Certificate to
purchase the Preferred Shares (or other shares) issuable upon the exercise of
such Rights and requests that certificates for such shares be issued in the name
of:
Please insert social security
or other identifying number_____________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number_____________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated:
---------------------------
---------------------------------------
Signature
B-5
[On Reverse Side of Right Certificate -- continued]
Signature Guaranteed:
Signatures must be guaranteed by a participant in a Securities Transfer
Association recognized signature program.
CERTIFICATION OF STATUS
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being exercised by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ]did [ ] did not acquire the Rights evidenced by this Right Certificate from
any person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
---------------------------------------
Signature
Dated:
-----------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the Certification of Status set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement) and such Assignment or Election to Purchase will not be honored.
B-6
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On July 13, 1999, the Board of Directors of Dawson Geophysical Company
(the "Company") authorized and declared a dividend of one Right (a "Right") for
each outstanding share of Common Stock, par value $.331/3 per share ("Common
Stock"), of the Company (the "Common Shares"). The dividend is payable on July
23, 1999 (the "Record Date") to the holders of record of the Common Shares at
the close of business on that date. In addition, the Company has authorized the
issuance of one Right with respect to each share of Common Stock that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined). When exercisable each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company (the
"Preferred Shares"), at a price of $50.00 per one one-hundredth of a Preferred
Share (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent (the "Rights Agent").
Until the earlier to occur of (i) ten (10) days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20 percent or more of
the outstanding Common Shares and (ii) ten business days (or such later date as
may be determined by action of the Board of Directors of the Company prior to
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person) following the commencement of, or first public announcement of
an intention to commence, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of
affiliated or associated persons of 20 percent or more of the outstanding Common
Shares (the earlier of such dates being herein referred to as the "Distribution
Date"), the Rights will be evidenced, with respect to any of the Common Share
certificates outstanding as of the Record Date, by such Common Share certificate
with a copy of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date, upon transfer or new issuance of Common Shares, will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding on or
after the Record Date, even without such notation or a copy of this Summary of
Rights being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
C-1
The Rights are not exercisable until the Distribution Date. The Rights
will expire on July 23, 2009 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
subject to redemption by the Company. Each Preferred Share will be entitled to a
minimum preferential quarterly dividend payment of $.01 per share but will be
entitled to an aggregate dividend of 100 multiplied times the dividend declared
per Common Share. In the event of liquidation, the holder of the Preferred
Shares will be entitled to a minimum preferential liquidation payment of $1.00
per share but will be entitled to an aggregate payment of 100 multiplied times
the payment made per Common Share. Each Preferred Share will have 100 votes,
voting together with the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 100 multiplied times the amount
received per Common Share. These rights are protected by customary antidilution
provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring Person
(which will thereafter be null and void and nontransferable), will thereafter
have the right to receive upon exercise that number of Common Shares of the
Company having a market value of two times the exercise price of the Right. In
the event that the Company is acquired in a merger or other business combination
transaction or 50 percent or more of its consolidated assets or earning power
are sold after a person or group of affiliated or associated persons has become
an Acquiring Person, proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise
C-2
price of the Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Right.
At any time after any person or group of affiliated or associated
persons becomes an Acquiring Person and prior to the acquisition by such person
or group of 50 percent or more of the outstanding Common Shares, the Board of
Directors of the Company may exchange the Rights (other than Rights owned by
such person or group which will have become null and void and nontransferable),
in whole or in part, at an exchange ratio of one Common Share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. The Company may, but shall not be required to,
issue fractions of a Preferred Share (other than one one-hundredth of a
Preferred Share or any integral multiple thereof, which may, at the election of
the Company, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Shares on the last trading day prior to the date of exercise.
At any time prior to the close of business on the tenth day following a
public announcement that an Acquiring Person has become such an Acquiring
Person, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. The time at which the Rights are redeemed by the Company is herein
referred to as the "Redemption Date." Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights will be to receive the Redemption Price.
At any time prior to the Distribution Date and subject to the last
sentence of this paragraph, the terms of the Rights may be amended by the Board
of Directors of the Company without the consent of the holders of the Rights,
including without limitation an amendment to lower certain thresholds described
above to not less than the greater of (i) the sum of 0.001 percent and the
largest percentage of the outstanding Common Shares then known by the Company to
be beneficially owned by any person or group of affiliated or associated persons
and (ii) ten percent. From and after the Distribution Date and subject to
applicable law, the terms of the Rights may be amended by the Board of Directors
of the Company without the consent of the holders of the Rights to, among other
things, make any other provisions in regard to matters under the Rights
Agreement that the Company may deem necessary or desirable and that shall not
adversely affect the interests of the holders of the Rights (other than an
Acquiring Person or an affiliate or associate of an Acquiring Person). The terms
of the Rights may not be amended to (i) reduce the Redemption Price (except as
required by antidilution provisions) or (ii) provide for an earlier Final
Expiration Date.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
C-3
The Preferred Shares shall rank, with respect to the payment of
dividends and as to distributions of assets upon liquidation, dissolution or
winding up of the Company, junior to all other series of preferred stock of the
Company, unless the Board of Directors of the Company shall specifically
determine otherwise in fixing the powers, preferences and relative,
participating, optional and other special rights of the shares of any such other
series and the qualifications, limitations and restrictions thereof.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
July , 1999. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
C-4
EXHIBIT 10
----------
MASTER GEOPHYSICAL
DATA ACQUISITION AGREEMENT
Between
-----------------------
("Company")
And
DAWSON GEOPHYSICAL COMPANY
("Contractor")
Dated: ______________
TABLE OF CONTENTS
CLAUSE PAGE NO.
------ --------
1. NATURE OF WORK..........................................3
2. SUPPLEMENTAL AGREEMENT..................................3
3. PERSONNEL, EQUIPMENT AND SUPPLIES.......................4
4. CONDUCT OF OPERATIONS...................................4
5. PERMITS.................................................6
6. REPORTS.................................................6
7. CONFIDENTIALITY.........................................7
8. INDEMNITY...............................................8
9. INSURANCE...............................................9
10. COMPLIANCE WITH LAW/HSE................................10
11. COMPANY REPRESENTATIVE.................................11
12. TAXES..................................................11
13. COMPENSATION/CONTRACTOR'S RIGHTS.......................11
14. INTELLECTUAL PROPERTY..................................12
15. INDEPENDENT CONTRACTOR.................................13
16. ASSIGNMENT AND SUBCONTRACTS............................13
17. FORCE MAJEURE..........................................13
18. AUDIT..................................................13
19. TERM AND RENEWAL.......................................14
20. NOTICES................................................14
21. APPLICABLE LAWS/DISPUTES...............................14
22. WAIVER.................................................15
23. DEFAULT................................................15
24. SURVIVAL OF TERMS......................................16
25. INUREMENT..............................................16
26. ENTIRE AGREEMENT/MODIFICATION..........................16
27. COUNTERPARTS...........................................16
Page 2
MASTER GEOPHYSICAL
DATA ACQUISITION AGREEMENT
This MASTER GEOPHYSICAL DATA ACQUISITION AGREEMENT (the "MASTER
AGREEMENT" or "AGREEMENT") is entered into this -- day of ___, 2003; between
_____, having an office located in __, __ (hereinafter called "COMPANY") and
Dawson Geophysical Company, a Texas corporation having offices in Midland, Texas
(hereinafter called "CONTRACTOR"). Company and Contractor may each be referred
to herein as "PARTY" or collectively as "PARTIES".
For and in consideration of the mutual covenants and promises of the
Parties herein set forth, the Parties do hereby agree as follows:
1. NATURE OF WORK
1.1 Contractor shall conduct, for the benefit of Company, field geophysical data
acquisition surveys (the "SURVEYS" or the "WORK") and related services in search
of subsurface geological formations and structures favorable to the accumulation
of oil, gas and mineral deposits underlying those land areas designated, from
time to time, by Company and accepted by Contractor, all in accordance with the
terms and conditions of this Agreement, and the applicable Supplemental
Agreement. Contractor shall also provide data processing and/or interpretation
services of and for the field data (the "Data") so acquired.
1.2 Such Survey(s) shall be conducted by one or more geophysical crews, as may
be agreed upon by Contractor and Company, in such a manner and subject to the
terms and conditions as set forth herein and in the applicable Supplemental
Agreement. The data processing shall be done in Contractor's data processing
center in Midland, Texas.
1.3 Nothing herein shall require Company to contract with Contractor or
Contractor to accept assignments from Company to conduct Survey(s), except as
may be agreed upon, from time to time, in an appropriate Supplemental Agreement.
2. SUPPLEMENTAL AGREEMENTS
2.1 (General) Whenever Company requests, and Contractor agrees, to conduct a
Survey on behalf of Company, Contractor and Company shall enter into separate
Supplemental Agreements for each separate Survey so undertaken, which
Supplemental Agreements shall be consecutively numbered for identification and
shall provide the following:
(a) The area(s) (state, county/parish, etc.) where the Survey(s)
will be conducted (the "AREA OF OPERATIONS").
(b) The approximate commencement date, if applicable, of the
Survey(s) (the "COMMENCEMENT DATE").
(c) The approximate period of time or number of miles (or square
miles), if applicable, that will be required to complete the
Survey(s).
(d) The type of Survey(s) to be conducted. The equipment,
instruments, personnel and other items (the "CREW") which will
be required for the Survey(s).
(e) The parameters and other technical aspects of the Survey(s)
and/or the processing of the Data acquired thereby.
(f) The compensation to be paid Contractor for conducting the
Survey(s) (the "COMPENSATION").
(g) Any other matters of a business, operational or technical
nature as may be agreed by the Parties.
2.2 (Crew Availability) It is recognized that difficulties in scheduling the
activities of Contractor's geophysical crews may result in overlap or conflicts
which prevent Contractor from providing geophysical Crews to conduct a
particular Survey designated by Company at the time desired. Contractor shall
make every reasonable
Page 3
effort to avoid such overlaps or conflicts in furnishing Company a geophysical
Crew for any designated Survey. In the event of any such conflict, however,
Contractor shall notify Company promptly after such Survey has been requested by
Company that Contractor will be unable to conduct the Survey pursuant to
Company's time schedule. There shall then be, if feasible, at the election of
Company, an agreed alternate date between Company and Contractor that shall be a
firm date for commencement of the Survey by Contractor. If no such alternate
date can be agreed upon, then Contractor shall thereafter have no obligations
hereunder in connection with not conducting said Survey.
2.3 (Incorporation by Reference) Each Supplemental Agreement shall be
incorporated herein by reference, and all terms and provisions of this Agreement
shall apply to each Supplemental Agreement unless, in any particular
Supplemental Agreement, any of the terms and conditions hereof are eliminated or
modified for purposes of that Supplemental Agreement by specific reference to
those terms and conditions hereof to be eliminated or modified. Any Supplemental
Agreement incorporated herein and subject, thereby, to the terms and conditions
hereof shall hereinafter be referred to as "SUPPLEMENTAL AGREEMENT" or
"SUPPLEMENT." This Master Agreement and any applicable Supplemental Agreements
may collectively be referred to as "this Agreement."
2.4 (Conflicting Terms) In the event of a conflict between any of the terms and
conditions of this Master Agreement and those of any Supplemental Agreement, the
appropriate terms of this Agreement shall govern and control, unless
specifically provided to the contrary in any Supplemental Agreement, as provided
above, or where a provision herein states that it is subject to or otherwise
anticipates contrary terms of a Supplement. The fact that additional terms or
provisions appear in one or the other document shall not, in and of itself,
create a conflict.
3. PERSONNEL, EQUIPMENT AND SUPPLIES
3.1 (General) The Contractor shall furnish, place in service and maintain, at
its sole cost and expense, for the performance of Survey(s) hereunder, the Crew
more particularly described in Supplemental Agreements annexed hereto.
3.2 (Additional/Different Personnel or Equipment) Changing operating conditions
may require the Crew personnel and equipment set forth in said Supplemental
Agreements to be increased, reduced or changed or the Area of Operations or the
parameters of the Survey changed. Accordingly, Contractor shall, when authorized
by Company, furnish such auxiliary or additional personnel, equipment, supplies
and services or make such other changes as may be required in connection
therewith all as more particularly set forth and described in the Supplemental
Agreements or amendments thereto, which shall clearly set forth the additional
compensation, if any, to be paid to the Contractor as a result of such changes.
4. CONDUCT OF OPERATIONS
4.1 (Conduct of Operations by Contractor) In conducting operations hereunder,
Contractor shall use its best efforts to conduct all operations hereunder in
accordance with the terms and specifications of this Agreement (and those of the
applicable Supplemental Agreement) and in conformance with generally accepted
practices of the geophysical data acquisition industry. In particular,
Contractor agrees that, in conducting operations under the terms hereof it will:
(a) Enter upon no lands in respect of which all necessary Land
Entry Permits shall not have been first obtained, as provided
in Clause 5 below.
(b) Equip its Crew with instruments and equipment as specified in
the Supplemental Agreement and maintain such equipment in good
operating condition and provide its Crew with qualified and
experienced personnel.
(c) Perform all Survey(s) hereunder in an orderly, efficient and
workmanlike manner in compliance with the terms of this
Agreement and each Supplemental Agreement and all applicable
laws, ordinances, rules and regulations for the time being in
force in every state and locality wherein the Survey(s)
hereunder is to be performed.
(d) Comply fully with the provisions of all worker's compensation
legislation, ordinances, rules and regulations in force in
every state wherein the Survey(s) is (are) to be performed.
Page 4
(e) Initiate all energy source units at a safe distance from water
wells, buildings and other structures owned by third parties
for the purpose of avoiding, as far as reasonably possible and
consistent with prudent geophysical operations, damage to such
wells, buildings and other structures.
(f) Attempt to minimize disturbance to the surface of the land and
all crops and other vegetation thereon. Liability for any
subsequent requirements for erosional or pollution repair or
prevention which has not been caused by the negligence or
other fault of Contractor shall rest solely with Company under
Clause 8.2 below, which liability shall survive the
termination of this Agreement.
4.2 (Company's Obligations) Company agrees with Contractor that it will:
(a) Not require Contractor to do any matter, act or thing in the
performance of the Survey(s) hereunder that is contrary to or
in violation of any law, ordinance, rule or regulation
governing the subject matter of this Agreement.
(b) In the event Company is responsible, under the terms of any
Supplemental Agreement, for obtaining Land Entry Permits
(Clause 5 below) and/or the surveying, shot-hole drilling or
other components of a Survey (whether such services will be
provided by Company or other contractors of Company), cause
such services to be provided in a timely and competent manner
and shall be responsible, to the extent provided herein and in
the Supplemental Agreement, and indemnify, save and hold
Contractor harmless for all costs, losses and liabilities
related thereto.
(c) Designate, sufficiently in advance to permit orderly planning
of the Survey by Contractor, each area to be surveyed and
shall furnish Contractor with all land and base maps,
subsurface well data and all other information that may be
necessary or helpful to the conduct of the Survey(s), all of
which shall be considered the property of Company to be held
by Contractor confidential as provided in Clause 7 below.
4.3 (Work Time) Normal hours and days of work, time off and holidays to be
observed shall be as provided in the applicable Supplemental Agreements hereto
or as otherwise agreed by the Parties.
4.4 (Progress of the Work) Contractor shall keep Company fully informed on a
timely basis of the progress of operations and results obtained during the
course of the Work hereunder and shall consult with Company's Representative(s)
concerning planning of the Work and the seismic data collected. Progress reports
shall be furnished by Contractor as provided in Clause 6 below.
4.5 (No Liens)
4.5.1 Contractor shall not allow any mechanic's or materialmen's
liens or encumbrances to become attached to any property of Company resulting
from the Work performed by Contractor hereunder; provided, however, that
Contractor itself may file mechanic's, materialman's or other liens as may be
appropriate to secure payment by the Company to Contractor under this Agreement.
Likewise, Contractor shall be solely responsible for, and shall promptly pay,
when due, all obligations for labor and material supplied by third parties for
Work to be performed hereunder and shall indemnify and save Company harmless
from and against any and all claims, liens, security interests or other
encumbrances on or against Company property on account of labor performed or
materials furnished to Contractor by its subcontractors, suppliers and vendors
for such Work; provided, however, that Contractor shall not be required to make
payment of any such claim where a bona fide dispute with regard thereto exists
between Contractor and its vendors or suppliers. Contractor shall provide
Company with recordable Releases for all such claims and liens so satisfied.
4.5.2 Company may, if it so elects, pay or discharge any such lien
or encumbrance and may thereupon deduct the amount or amount so paid by Company
from any sums been due or which thereafter shall become due to Contractor under
the terms hereof; provided, however, that prior to discharging any such lien or
encumbrance, Company will consult with Contractor in order to determine whether
or not there is a bona fide dispute between Contractor and its supplier or
subcontractor concerning the claim underlying the lien or encumbrance. If such a
bona fide dispute does exist, Company shall delay discharging the affected lien
or encumbrance until the matter is resolved.
Page 5
4.6 (Title to Data) Except as provided elsewhere in this Agreement or in any
Supplemental Agreement, title to all Data shall pass to Company when acquired by
Contractor and subject to payment by the Company to Contractor of all of
Contractor's obligations hereunder, and Contractor shall deliver all Data to
Company retaining no copies thereof; provided, however, that Contractor shall
deliver to Company all records, maps, reports or other information which has
been produced by the work performed hereunder upon termination of this
Agreement, if so required in writing by the Company.
4.7 (Waiver of Mineral Interest) Unless otherwise specifically provided for in
this Agreement or any Supplemental Agreement hereto, Contractor, for itself and
its subcontractors and the officers, directors and employees thereof, hereby
waives any right, title or interest it may have in, and to any discovery of,
hydrocarbon or other mineral deposits which may be made by reason for the Work
performed under the terms of this Agreement.
5. PERMITS
5.1. (General) Unless Company assumes the permitting responsibility under Clause
5.3 below, Contractor shall, at Company's request and expense, obtain such
permits, licenses and clearances (the "LAND ENTRY PERMITS"). Company's cost
shall include entry fees and damage payments as well as payments to governmental
agents, their per diem, if any, needed to secure such Land Entry Permits.
Contractor will use its reasonable efforts to secure written Land Entry Permits
from the person or persons representing themselves to be owners or lessees of
the areas involved. Contractor will not enter upon lands where Land Entry
Permits have not been obtained by it (or represented by Company as having been
obtained by it) unless otherwise directed, in writing with full indemnification
in favor of Contractor, at Company's sole risk, by Company to do so.
5.2 (Permit Fees) In the event it becomes necessary to pay for permission to
enter upon any area connected with the Survey, Contractor will notify Company of
such area involved and the fees required in order to obtain the Land Entry
Permits and will proceed with the consent of Company's Representative. Company
will reimburse Contractor the cost of all such Permits unless otherwise provided
in the applicable Supplemental Agreement.
5.3 (Permits Obtained by Company) In the event Company assumes the
responsibility for obtaining or supervising the obtaining of all or some Land
Entry Permits from land owners, mineral owners, appropriate governmental
agencies, lessees, tenants, and all other persons having permissible interests
in the land or its subsurface minerals, in the Area of Operations, as may be
required in connection with all such Survey(s) to be performed by Contractor
under this Agreement, either by utilizing Company personnel or those of third
party contractors (whether individuals, corporate or otherwise), Company shall
have the obligations set forth in Clause 8.6 below and Contractor shall not be
responsible for any delays in its operations caused by (i) the inability of
Company to acquire any Permit on a timely basis or (ii) onerous provisions
contained in such Permits which impede or adversely affect the operations of
Contractor hereunder. Contractor shall be compensated during any such delays at
the standby rate set forth in the applicable Supplement. If Company acquires
Land Entry Permits, it will provide copies thereof to Contractor sufficiently in
advance of operations in order for Contractor to properly plan its operations.
6. REPORTS
6.1 (Required Reports) During the course of the Survey(s), Contractor shall
furnish Company with such periodic production and progress reports as provided
in the applicable Supplemental Agreement or, if not so provided, as Company
shall reasonably require, including (subject to Clause 7.2 below) such reports
as may be required by the various agencies of the federal, state and local
authorities where the Survey is being performed.
6.2 (Completion Report) As soon as possible upon completion of each
Survey, Contractor shall furnish Company with reports and data as follows:
(a) A final report consisting of a written description of the
Survey(s) performed and the results thereof accompanied by
maps on a base supplied by Company of all data considered
necessary by Company.
(b) All field data sheets, computation sheets, seismograph
records, weathering data, and engineering data as may have
been generated in the performance of the Survey(s), which
reports and materials shall be permanent property of Company
but accessible to Contractor for technical examination any
time prior to the expiration of this Agreement.
Page 6
(c) Any other reports or data as may be provided for in the
applicable Supplemental Agreement.
Contractor shall not be required to include in reports prepared for,
or information or data supplied to Company hereunder, any data or information
proprietary to Contractor, including, but not limited to, that pertaining to its
instruments, equipment, methods or expertise.
6.3 (Use of Reports) The results stated and the conclusions drawn from all
reports furnished by Contractor to Company hereunder shall represent the best
opinion, efforts and judgment of the Contractor; however, Contractor cannot and
does not warrant or guarantee the accuracy or correctness thereof. Any action
which Company (or those associated with Company) may take as a result of or
based on such reports and the Data to which it refers shall be its own
responsibility and Contractor shall not be liable or responsible for any loss,
cost, damages or expenses whatsoever, including incidental or consequential
damages, incurred or sustained by Company resulting therefrom for which Company
hereby releases Contractor; provided that all such reports, data and
information, as well as the basic data upon which they are based, are acquired,
compiled and prepared, as the case may be, in accordance with the terms of this
Agreement.
6.4 (Access to Data) Company shall at all times have complete access to all
geophysical records and such other data of Contractor relating to the Work and
all such data and records shall, at the conclusion of the Work, belong
exclusively to Company, but shall be retained by the Contractor pending
instructions to be issued by Company with regard to the deposition thereof,
subject to the terms and conditions of clauses 5 above and 13.6 below.
7. CONFIDENTIALITY
7.1 (Confidentiality of Data) Contractor shall use its best efforts to safeguard
(i) geophysical Data acquired from the Work performed hereunder, (ii)
information relating to the location of the Surveys and the type of Work
performed and (iii) information supplied by Company to Contractor which is not
otherwise proprietary to Contractor. Contractor shall not divulge to anyone,
other than Company, its designated agents or employees, any such Data or
information unless previously authorized by Company in writing. Contractor shall
further use its best efforts to cause its employees, agents and subcontractors
to comply with this obligation of secrecy. Reciprocally, Company shall observe
the above secrecy obligation, insofar as it has access to and knowledge of the
equipment, instruments, programs, procedures, and the design and operation
thereof, which are proprietary to Contractor.
7.2 (Confidentiality Exceptions) The obligations of confidentiality and limited
use contained in this Agreement shall not apply to information subject to this
Agreement which:
7.2.1 At the time of disclosure to the receiving Party, was in the
public domain as evidenced by written publications;
7.2.2 After disclosure to the receiving Party, became part of the
public domain by written publication through no fault of the receiving Party;
7.2.3 At the time of disclosure to the receiving Party, was already
in the possession of the receiving Party as evidenced by written records, and
was not acquired directly or indirectly from the disclosing Party;
7.2.4 After disclosure to the receiving Party, the receiving Party
acquired the information from a third party having the right to convey the same,
provided the receiving Party is not obligated to hold such information in
confidence by such third party;
7.2.5 Is furnished to a third party by the disclosing Party without
any restriction on the third party's rights to disclose such information; or
Page 7
7.2.6 Is authorized in writing by the disclosing Party to be
released from the confidentiality and limited use obligations herein.
7.2.7 Is covered by Clause 7.3 below.
7.3 (Government Reporting) It is understood that it is the responsibility of
Company and Contractor to comply with applicable laws, regulations, rules, court
or government agency order or stock exchange regulation or rule regarding the
making of reports and disclosures to appropriate governmental agencies of Data
and information relating to the Work and Contractor shall promptly refer to
Company for appropriate action, including the seeking, at its sole cost, such
protective action as it deems appropriate, any inquiry or request received by it
from any governmental agency respecting Data and information obtained under the
terms thereof, and if Company shall instruct Contractor not to comply with to
any such inquiry or request, Company shall defend and indemnify Contractor
against any loss, damage, fine or penalty or other sanction received, incurred
or suffered by Contractor in consequence of complying with such instruction.
8. INDEMNITY
8.1 (General) In order to allocate the respective responsibilities of Company
and Contractor for liabilities arising out of personal injury or property damage
related to the Work, it is agreed as between Company and Contractor that certain
responsibilities and liabilities for personal injuries and property damage
arising out of the performance of this Agreement should be allocated between
them in order to avoid protracted litigation between Company and Contractor,
along with the associated legal expenses and so that insurance or self-insurance
may be arranged by each Party as necessary to protect them against these
exposures to loss. The following sets out the specifics of the agreements
between Company and Contractor as to the allocation of such responsibilities and
liabilities.
8.2 (Contractors Responsibility) Contractor will protect, defend, indemnify and
hold Company, its officers and directors, harmless from and against any and all
claims, loss, expense, or damages (including costs of defense associated
therewith) arising from any cause whatsoever, out of the Work to be performed
under this Agreement, provided that the claim arises from Contractor's or its
sub-contractors negligence and Contractor shall defend Company at Contractor's
sole expense in any litigation involving the same.
8.3 (Company's Responsibility) Company will protect, defend, indemnify and hold
Contractor, its officers and directors, harmless from and against any and all
claims, loss, expense, or damages (including costs of defense associated
therewith) arising from any cause whatsoever, out of the Work to be performed
under this Agreement, provided that Contractor has fully discharged Contractor's
obligations under this Agreement and Company shall defend Contractor at
Company's sole expense in any litigation involving the same, excepting only
claims made by employees of Contractor, for which Contractor shall indemnify and
hold Company harmless in the manner provided above.
8.4 (Routine Land Damage) Notwithstanding the foregoing to the contrary, Company
shall be solely responsible for and shall protect, indemnify, defend and save
Contractor and its subcontractors harmless from and against any and all claims,
liabilities, demands, causes of action, judgments and settlements (including
associated costs and reasonable attorneys' fees) arising out of claimed damages
to the land on which Contractor has performed Work, as well as the crops, trees,
grass and other flora and fauna thereon, water and irrigation wells, houses and
other structures thereon (collectively the "Land Damages") where such claimed
Land Damages result from the non-negligent operations of Contractor or its
subcontractors in the performance of the Work subject to this Agreement and the
applicable Supplement. The foregoing obligations of defense and indemnity of
Company shall not, however, be applicable in the event and to the extent any
such claimed Land Damages result from the negligent operations of Contractor or
its subcontractors or which are otherwise not in accordance with the terms of
this Agreement or the applicable Supplement.
8.5 (Liability Insurance) The indemnity obligation of the respective Parties, as
set forth in Clauses 8.2, 8.3 and 8.4 above, shall be supported by liability
insurance provided by each Party in the amount of the lesser of (i) $1,000,000
or (ii) the minimum amount required by applicable law.
Page 8
8.6 (Permit Liability) Company shall protect, defend, indemnify and save
Contractor harmless from and against any claim by the owner or lessee of land
and/or of a mineral interest in land on which Work is performed hereunder, which
claim is based upon any theory that (i) the operations of Contractor hereunder
have depreciated the value of the minerals underlying such land, (ii) mineral
trespass, (iii) the wrongful taking, conversion or deprivation of subsurface
and/or mineral information or (iv) any similar theory of recovery (collectively
"TRESPASS CLAIMS"). However, the foregoing indemnification of Company shall not
apply and Company shall not be responsible for any Trespass Claims in any case
and to the extent where Contractor negligently fails to observe conditions or
restrictions contained in any such Permits, provided that same have been
provided by Company to Contractor sufficiently in advance of operations across
the lands covered thereby.
8.7 (Tape Responsibility) Contractor shall be responsible for the safekeeping of
field tapes while such tapes are in the custody of Contractor until such time as
Contractor delivers said tapes to a representative of Company or places them in
the possession of a carrier designated by Company (or if Company does not so
designate a carrier, any reputable carrier selected by Contractor) for delivery
to Company or a third party designated by Company. In the event of loss of or
damage to any tapes for which Contractor is responsible, as provided herein,
Contractor's sole and only responsibility to Company shall be, at the option of
Company, either (i) reacquire the Data affected by such loss or damage or to
(ii) refund (or grant credit) to Company for all Compensation paid (or payable)
to Contractor with respect to such Data so affected. Notwithstanding the
foregoing, Contractor's obligations herein shall be fully satisfied in the event
Contractor or Company has duplicate, undamaged copies of the affected Data and,
if Contractor has such duplicate tape, it promptly provides same to Company
subject to clause 4 above.
8.8 (Wages/Benefits) Contractor shall be solely liable for the payment of (i)
all wages and salaries earned by and payable to its employees as well as for
withholding and/or payment of all Social Security taxes, retirement pensions,
benefits and annuities, now, or hereafter imposed by the government of the
U.S.A. or by any state or other political subdivision thereof and (ii) for
benefits which are now or hereafter offered by Contractor to its employees.
Contractor shall indemnify and save Company, its officers and directors,
harmless from any claims, demands or liability for such wages, salaries or
benefits, as well as for any withholding or Social Security taxes, contributions
or other benefits related thereto.
8.9 (Handling of Claims)
8.9.1 (General) In the event either Party hereto learns of any
claim, liability, demand or cause of action relating to this Agreement or the
performance of it, said Party shall give notice thereof as promptly as possible
to the other Party. If indemnification is required by any of the terms of this
Agreement, the responsible Party shall defend the other and pay all settlements,
judgments, costs, including reasonable attorneys fees, and other expenses,
whether related or unrelated, similar or dissimilar to the foregoing, incident
thereto. Each Party, if requested, agrees to cooperate with the other in any
such defense, and the responsible Party shall reimburse the other for all
reasonable expenses incurred in connection therewith.
8.9.2 (Control of Defense) The Party hereto providing indemnity to
the other Party shall have the right to control the defense of any such claim or
lawsuit with attorneys selected by such Party or its insurers. However, the
other Party shall have the right, at its sole expense, to participate in the
defense of such claim or lawsuit with legal counsel of its own selection.
8.10 (Company's Co-Venturers) In the event Company is in association with, is
operator for or has some other contractual relationship with other companies,
individuals or others in connection with the Work to be performed hereunder, the
above indemnifications extended by Contractor to Company shall also extend to
those parties, and their officers, directors and employees, to which Company is
contractually related.
8.11 (Consequential Damages) Neither Party hereto shall, notwithstanding the
foregoing, be liable to the other Party for any special, incidental,
consequential or punitive damages arising, in any event, from the conduct of the
Parties under the terms hereof, including without limitation, loss of revenue or
profits. Furthermore each Party hereby forever releases and indemnifies the
other from and against any and all claims, liabilities, damages and expenses
arising therefrom.
Page 9
9. INSURANCE
9.1 (General)
The Contractor shall, at its sole cost, maintain, so long as this
Agreement remains in force, and cause its subcontractors to maintain, with one
or more reputable insurance companies, the following insurance:
9.1.1 Worker's compensation and/or employer's liability insurance in
compliance with the laws of all states in which Survey(s) is/are to be performed
or where Contractor's personnel are hired covering all employees engaged by
Contractor (or its subcontractors) in such Survey(s).
9.1.2 Automobile public liability insurance covering all vehicles
performing Survey(s) hereunder, with limits of One Million Dollars ($1,000,000)
for one or more persons injured or killed, or property damage incurred per
occurrence, combined single limit.
9.1.3 Comprehensive public liability insurance covering all
operations hereunder with limits of One Million Dollars ($1,000,000) for one or
more persons injured or killed in any one accident, and with property damage
limits of One Million Dollars ($1,000,000) per occurrence, combined single
limit.
9.1.4 If aircraft are used in the operations hereunder, Aviation
Liability Insurance covering all airplanes and helicopters, whether non-owned,
chartered, or hired and furnished by Contractor (or its subcontractors) and used
in the operations hereunder in an amount of not less than One Million Dollars
($1,000,000) per occurrence combined single limit.
9.1.5 If waterborne vessels are used in operations hereunder, hull
and machinery insurance shall be maintained in an amount at least equal to the
market value of each vessel owned by Contractor and used in operations
hereunder. In the event the vessel is time-chartered by Contractor, then
Contractor shall require the owner of the vessel to procure such insurance.
9.2 (Insurance Certificates) Before any Survey(s) are commenced by Contractor
hereunder, Contractor shall furnish to Company certificates attesting the above
insurance coverages to be in force and providing that Company will be given at
least ten (10) days written notice prior to cancellation, termination or
significant modification thereof.
9.3 (Miscellaneous) It is understood and agreed that Contractor's insurance
coverage as detailed in the foregoing sections shall afford Company protection
and coverage with respect to those matters covered by specific indemnity
agreements extended by Contractor elsewhere provided herein and, except for
workers compensation insurance, Company shall be named an additional insured
Party under said policies but only to the extent of the liabilities assumed by
Contractor under the terms hereof. All insurance policies required by this
Agreement to be maintained by Contractor shall be endorsed whereby Contractor's
insurers shall waive their rights of subrogation against Company, entities
affiliated with Company and their respective insurers to the extent of the
liabilities assumed herein by Contractor. Any and all deductibles or retentions
applicable to Contractor's insurance coverages shall be assumed by Contractor at
its sole expense. Unless prohibited or limited by applicable law, insurance
provided by the Parties in support of their respective indemnity obligations set
forth in Clause 8 above shall in no way serve to limit each such Party's
indemnity obligations.
9.4 (Subcontractors) Contractor shall require, to the extent possible, that each
of its subcontractors, if any, performing Work hereunder maintain such insurance
coverages as are required of Contractor.
10. COMPLIANCE WITH LAWS/HES
10.1 (Laws) Contractor shall comply with all applicable laws, rules and
regulations, both federal, state and local, applicable to any Survey performed
by Contractor hereunder, and shall also comply with, observe and abide by the
Health, Environment and Safety standards of any applicable governmental agency.
10.2 (Health, Environment and Safety) Contractor will perform the Survey(s)
applying the most current edition of either the IAGC Land Geophysical Operations
Safety Manual or the IAGC Marine Geophysical Operations Safety
Page 10
Manual, as applicable, as a minimum set of standards supplemented by both
Contractor and Company HES rules and work procedures. The more stringent of
Company's or Contractor's policy and standards shall apply. Company reserves the
right to intervene and consult with Contractor in development of solutions for
hazards identified in execution of the Work. Contractor will equally apply HES
standards to, and enforce compliance with all such standards, by all
subcontractors of any tier, and the agents, employees or other personnel under
their control and will replace at Contractor's expense those who fail to comply.
10.3 (Accidents) Contractor shall report all accidents to Company. In the event
there is an accident involving damage to the property or injury to the personnel
of Contractor, Company or any third party, any environmental damage or any
incidents involving media attention, which arise out of, result from, or is in
any way connected with Contractor's Work under this Agreement, all Contractor
reports shall contain factual information only and will not contain opinion,
speculation or supposition as to fault, liability or prevention. Company
reserves the right to participate in the investigation of any incident or
accident resulting from the Work conducted pursuant to this Agreement.
11. COMPANY REPRESENTATIVE
Company shall designate in writing a representative of Company
(whether an employee of Company or a third party) to whom Contractor's Party
Chief or other representative may deliver reports and other confidential
information developed from Survey(s) and from whom Contractor will receive
instructions related thereto (the "COMPANY REPRESENTATIVE" or "REPRESENTATIVE").
Such Representative shall have the right to be present during the conduct of the
Survey(s). Contractor agrees to accept instructions in connection with the
operations hereunder within the scope of this Agreement and the applicable
Supplement from such Company Representative. All such instructions given by the
Company Representative to Contractor which relate to the Work shall be binding
on Company which will not be entitled to thereafter disavow same.
12. TAXES
12.1 (Equipment) Contractor will be solely responsible for all taxes, duties,
rates and assessments that may be levied in respect of any vehicles, equipment,
instruments or supplies furnished by Contractor in the performance of any Survey
performed hereunder.
12.2 (Payroll) Contractor will be solely responsible for all payroll taxes,
unemployment insurance assessments, federal and/or pension contributions and all
other payroll deductions required to be made according to law in respect of the
personnel of Contractor engaged in the performance of any of the Survey
hereunder.
12.3 (Income) Contractor shall be solely responsible for any and all taxes
assessed against it by the government of the U.S.A. or any state thereof having
jurisdiction, which taxes are assessed against Contractor as a result of
compensation earned by Contractor hereunder and Contractor shall protect,
indemnify, defend and save Company harmless from and against any such tax
assessments, as well as those described in Clauses 12.1 and 12.2 above.
12.4 (Sales/Use) Notwithstanding the foregoing, Contractor shall in no event be
liable for sales, value added, use, gross receipts and similar taxes and charges
assessed by any applicable government agency, as a result of any Survey
conducted by Contractor under the terms of this Agreement, even though those
taxes are generally measured by revenue or income of the Contractor, as such
incidental taxes are not usually considered as "income" or "profits" taxes as
those terms are generally understood in the geophysical industry. All such
sales, value added, use and similar taxes and charges shall be for the account
of Company and, if paid by Contractor, shall be reimbursed by Company under
applicable provisions hereof.
13. COMPENSATION/CONTRACTOR'S RIGHTS
13.1 (Fees) The Company agrees to pay Contractor and Contractor agrees to accept
payment for the Work to be performed hereunder at the applicable rates set forth
in Supplemental Agreements.
13.2 (Payment) Subject to contrary provision of any Supplement, the Contractor
shall, on or before the 15th day of each month, render to Company an itemized
invoice showing the amount due for services rendered, reimbursable costs and
charges incurred by Contractor on behalf of Company hereunder during the
preceding calendar month, such
Page 11
invoice to be accompanied in each case by supporting vouchers and receipts.
Except to the extent they are contested in good faith by Company, the Company
shall, within thirty (30) days following receipt of such invoice, remit payment
of the undisputed portion of same in full in United States funds by check, bank
draft or money order (or bank/wire transfer) payable to Contractor at its
offices (or bank account) set forth in Clause 20 or in the applicable
Supplemental Agreement.
13.3 (Late Payment) If Company fails to pay any properly submitted and supported
invoice, or portions thereof, of Contractor within the said thirty (30) day
period, the unpaid amount thereof shall (unless otherwise subject to bona fide
dispute), at the option of Contractor, bear interest until paid at a rate equal
to the prime rate as published in the Wall Street Journal plus two percent or
such lesser maximum rate allowed by applicable law, per month until paid.
13.4 (Disputed Invoices) In the event Company has a bona fide question
concerning a Contractor invoice or a portion thereof, Company shall give notice
thereof to Contractor specifying the reasons therefor within ten (10) days after
receipt of such invoice and thereafter the late payment charges provided above
shall not apply to such invoice or portion thereof in question or dispute. The
Parties shall meet in an effort to answer such questions and to resolve such
disputes as promptly as possible.
13.5 (Effect of Payment) Payment of any Contractor invoice by Company shall not
prejudice the right of Company to protest or dispute the correctness of any
invoice or any portion thereof before the expiration of the audit period (Clause
18 below) following the end of the calendar month during which such statement
was submitted. The passage of the audit period (Clause 18 below) without protest
shall conclusively establish its correctness.
13.6 (Right to Withhold Data) Contractor shall have the option, exercisable at
any time, to (i) retain possession of raw data tapes containing the geophysical
data (the "Data") acquired under the terms of this Master Agreement or any
Supplemental Agreement hereto and, (ii) regardless of any other provision of
this Master Agreement to the contrary, not be required to deliver said Data to
Company until such time as all fees and other charges owed by Company to
Contractor under the terms hereof (other than those which are subject to a bona
fide question or dispute) are paid in full.
14. INTELLECTUAL PROPERTY
14.1 (Indemnity) The Contractor shall, at its sole cost and expense, protect,
defend, indemnify and save harmless Company from and against any and all claims,
demands and liabilities made against or incurred by Contractor and/or Company
for the alleged infringement or misappropriation by Contractor of any United
States Letters Patent or patent rights held or licensed by Contractor or others
which arise out of the operations of Contractor under the terms hereof provided
that (i) in the event such claim is received by or demand made upon Company,
Company notifies Contractor in writing of the receipt of the claim or demand or
the filing of such proceeding within ten (10) days after the receipt of notice
of such claim, demand or service of process thereof, and (ii) Contractor is
given complete control of the defense of such proceedings, including the right
to defend, settle and make adjustments in instruments, equipment, methods,
software or processes utilized by Contractor to perform the Work for the purpose
of avoiding any such alleged infringement or misappropriation, provided that
such adjustments do not materially and adversely affect the quality of the Data
acquired pursuant hereto.
14.2 (Infringement Relief) If Contractor is prevented from performing any of its
obligations hereunder by injunction or other legal proceedings based upon any
claims for alleged infringement or misappropriation of any United States Letters
Patent or patent rights, or if on account of claims of alleged patent
infringement or misappropriation, Contractor shall discontinue its use of or
change instruments, equipment, methods, software or processes contemplated in
this Agreement, Contractor shall, in every such event, be relieved from
performance of its obligations hereunder insofar as such nonperformance is the
result of such alleged patent infringement or misappropriation or any injunction
or other legal proceeding. The Company shall be relieved of its obligation or
make payment hereunder in respect of any Survey(s) to the extent Contractor is
unable to perform same by reason of the alleged patent infringement or
misappropriation claim.
14.3 (Rights to Intellectual Property) The Parties expressly agree that all
software programs, documents, materials and other work created, developed or
performed by Contractor in the course of performance of this Agreement,
including, but not limited to, data, drawings, reports, designs and working
papers shall be and is the exclusive property
Page 12
of Contractor which shall have all rights, title and interest therein including,
but not limited to, patents, copyrights, trade secrets and any other proprietary
rights. CONTRACTOR HEREBY GRANTS TO COMPANY A PERPETUAL, NON-EXCLUSIVE,
NON-TRANSFERABLE ROYALTY-FREE LICENSE AND RIGHT TO USE ONLY FOR THE PURPOSES OF
THIS AGREEMENT ANY SOFTWARE PROGRAMS, DOCUMENTS, MATERIALS OR OTHER WORK
DELIVERED TO COMPANY BY CONTRACTOR.
15. INDEPENDENT CONTRACTOR
Nothing contained in this Agreement shall be construed so as to
constitute Contractor as a general agent or employee of Company, and the
exclusive management, direction and control of the employees of Contractor and
its subcontractors and the Survey(s) to be conducted under the provisions hereof
shall, subject to the right of general supervision of Company's Representative,
always reside in Contractor, Company being interested only in the results
obtained. Company's right to supervise shall include the right to request, for
good cause shown, the removal and replacement (at Contractor's sole cost) of any
of the personnel of Contractor or its subcontractors. Company shall also have
the right of prior approval before the transfer of any of Contractor's key
personnel assigned to the Work.
16. ASSIGNMENT AND SUBCONTRACTS
16.1 (Subcontracts) The Contractor may subcontract to any reputable
subcontractor or subcontractors such portions of the Survey(s) to be performed
hereunder as is customary and usual in the performance of same, but Company
shall in no way be held liable for payment of any monies due to any such
subcontractors. The Contractor shall, notwithstanding the subcontracting of any
Survey(s) to be performed hereunder, remain liable and responsible to Company
for the proper performance of every portion of the Survey(s) subcontracted to
others.
16.2 (Assignments) Subject to Clause 16.1 above, neither Party shall assign this
Agreement in whole or in part without prior written consent of the other Party
except to a company which is affiliated to the assigning Party or where such
assignment is the result of an operation of law. An "affiliate" of a Party is
defined as any company or other entity which is, either currently or resulting
from any future merger, acquisition or reorganization of the affected Party, (i)
owned as to at least a 51% equity interest by the affected Party, (ii) owns the
affected Party as to at least a 51% equity interest or (iii) is under common
ownership (as to at least a 51% interest) with the affected Party. As for
Company, "affiliate" shall also include those third party entities which are
contractually related to Company in the exploration or development in Area of
Operations. The affected Party shall promptly notify the other Party of any such
permitted assignment.
16.3 (Right to Pledge - Optional) Contractor reserves the right to pledge its
receivables to be received under the terms hereof to the financial institution
which provides working capital financing to the Contractor. In the event
Contractor so assigns its receivables, such financial institution shall have no
recourse against Company with regard thereto and Contractor shall defend and
indemnify Company for any loss resulting therefrom.
17. FORCE MAJEURE
Neither Contractor nor Company shall be responsible for failure to
perform the terms of this Agreement or any Supplemental Agreement (other than
the payment of money) when performance is hindered or prevented by strikes,
lockouts, or other labor difficulty, war or acts of war, riots or civil unrest,
fire, storm, flood, earthquake, terrorism, vandalism, interference by any
government authority, inclement weather that adversely affects Data recording
operations or any other cause beyond the reasonable control of the affected
Party, whether or not similar to the matters herein enumerated ("Force
Majeure"). Compensation shall be payable to Contractor for work stoppages or
delays due to Force Majeure at the applicable standby rate or such other rate,
if any, as may be set forth in the applicable Supplemental Agreement or as
mutually agreed upon in writing by Company and Contractor for up to thirty (30)
days; and if stoppage for such cause persists after said thirty (30) day period
(i) compensation shall be at a rate agreed upon by Company and Contractor if
Company requests Contractor to continue to stand by to resume operations; or
(ii) Company or Contractor may forthwith terminate this Agreement or the
affected Supplemental Agreement.
18. AUDIT
18.1 (Audit Right) Contractor shall maintain full and complete records
concerning invoices which are based on Contractor's costs or other reimbursable
billing basis in such manner and detail as to permit reasonable verification of
all
Page 13
such charges made to Company. Company shall have the right, at its sole cost, to
audit such records at any reasonable time upon written request to Contractor for
a period of one (1) year from the date such costs were incurred. Items of
Compensation stated in terms of fixed percentages or fixed lump sums shall not
be subject to audit under this clause. Any audit so conducted by Company
hereunder shall be directed solely to Contractor's records related only to Work
performed hereunder for Company and Company payments and reimbursements related
thereto and shall not encompass Contractor's operations on behalf of any other
client. Contractor shall provide reasonable assistance and shall cooperate with
Company in order to facilitate the timely performance of any audits provided for
above. No such audit shall pertain to any intellectual/property or trade secrets
of Contractor or records or periods of time which have previously been audited
by Company.
18.2 (Audit Results) Upon completion of any audit, Company shall pay Contractor
any compensation due hereunder as shown by the audit. Any amount by which the
total payments made by Company to Contractor exceeds the amount due Contractor
as shown by the audit shall be promptly refunded to Company.
19. TERM AND RENEWAL
This Master Agreement is effective from the day and year above
written and will remain in effect until either Party terminates it by giving the
other thirty (30) day's advance written or electronically dispatched notice.
However, if a Supplemental Agreement is in effect when such notice is given,
termination of the Master Agreement shall not be effective until the date of
termination of such Supplemental Agreement. This Agreement may be renewed from
time to time on such terms and subject to such conditions as the Parties may in
writing agree upon.
20. NOTICES
20.1 All notices permitted or required to be given under the terms of this
Agreement shall be in writing and shall be deemed effective upon receipt if sent
by air mail, registered or certified and return receipt requested, post prepaid,
and addressed to the respective parties hereto at their respective addresses
shown below:
Contractor Company
---------- -------
Dawson Geophysical Company
Attention: Mr. Attn: Mr.
508 W. Wall Street, Suite 800
Midland, Texas 79701
or at such other address as shall be designated in accordance with this Notice
provision. Notices given by telex, telecopier, telefax, e-mail or other
electronic means, or by commercial courier/messenger service, shall also be
effective upon receipt.
20.2 Either Party may change its address for notice purposes at any time upon
giving written notice specifying such new address and the effective date of such
address change to the other Party, as provided above.
21. APPLICABLE LAWS/DISPUTES
21.1. (Applicable Law) This Master Agreement and all Supplemental Agreements
hereto shall be interpreted and construed in accordance with the laws, both
statutory and common law, of the State of Texas, excluding only those
choice-of-law provisions which would require the law of some other jurisdiction
to be applicable.
21.2 (Disputes) In the event, during the term of this Master Agreement or any
Supplemental Agreement, a dispute or controversy should arise between the
Parties as to the requirements and/or interpretation hereof or Contractor's
performance hereunder, both Parties agree to meet and negotiate in the utmost
good faith in an attempt to satisfactorily resolve the issue(s), which is the
subject of such dispute or controversy.
21.3 (Governing Rules) As between the Parties, any claims, disputes and
controversies arising under or in connection with this Master Agreement or any
Supplemental Agreement which cannot be resolved by mutual
Page 14
agreement shall, upon written notice by one Party to the other, be submitted to
arbitration in accordance with and subject to the Rules of Conciliation and
Arbitration of the American Arbitration Association.
21.4 (Forum of Proceedings) All arbitration hearings held pursuant to this
Clause shall be conducted in Midland, Texas or such other location agreed upon
by both Parties. The decision of the arbitration shall be (i) final and binding
upon the Parties, (ii) not appealable to any court and (iii) enforceable in any
court having jurisdiction over the Party to be charged.
21.5 (Proceedings) Any dispute, controversy or claim arising out of or relating
to this Master Agreement, including without limitation, a dispute related to
breach, interpretation, termination or invalidity of this Master Agreement
between Company and Contractor shall be finally and exclusively settled by
binding arbitration conducted in accordance with the Rules of the American
Arbitration Association ("AAA") in effect as of the date of this Master
Agreement. The award of the arbitrators shall be final, binding on the Parties
and not subject to appeal. The arbitral tribunal shall not award special,
indirect, consequential, exemplary or punitive damages. The arbitral tribunal
may grant interim or injunctive relief or demand specific performance.
21.6 The arbitration tribunal shall be composed of three (3) arbitrators. Each
Party shall appoint one (1) arbitrator. If, within thirty (30) days after
receipt of the claimant's notification of the appointment of an arbitrator, the
respondent has not notified the claimant in writing of the name of the
arbitrator it appoints, the claimant may request the AAA to appoint the second
arbitrator. The arbitrators thus appointed shall choose the third arbitrator who
will act as the presiding arbitrator of the tribunal. If within thirty (30) days
after the appointment of the second arbitrator, the two arbitrators have not
agreed upon the choice of the presiding arbitrator, then either Party may
request the AAA to appoint the presiding arbitrator in the same way as a sole
arbitrator would be appointed under Article 6.3 of the UNCITRAL Rules.
21.7 The arbitration proceedings, including the making of the award shall take
place in Midland, Texas. The arbitration shall be administered by the AAA. The
provisions of this Clause 21 shall continue in force notwithstanding the
expiration or prior termination of this Master Agreement. The award shall be
final and binding on the Parties and may be entered in any court having
jurisdiction and application may be made in such court for a judicial acceptance
of the award or an order of enforcement, as the case may be.
22. WAIVER
The rights herein given to either Party hereto may be exercised from
time to time, singularly or in combination, and the waiver of one or more of
such rights shall not be deemed to be a waiver of such rights in the future or
of any one or more of the other rights which the exercising Party may have. No
waiver of any breach of a term, provision or condition of this Master Agreement
or any Supplement by one Party shall be deemed to have been made by the other
Party, unless which waiver is expressed in writing and signed by an authorized
representative of such Party, and the failure of either Party to insist upon the
strict performance of any term, provision or condition of this Agreement or any
Supplemental Agreement, or to exercise any option herein given, shall not be
construed as a waiver or relinquishment in the future of the same or any other
term, provision, condition or option.
23. DEFAULT
In the event either Party hereto should, at any time during the term
hereof, commit an act of bankruptcy or assign, voluntarily or involuntarily, its
assets for the benefit of its creditors or should proceedings be commenced
against or by either Party under any bankruptcy, insolvency or similar statute
or should either Party fail to comply with any material term or provision hereof
(any such action or condition being hereinafter referred to as "Default") the
other Party may terminate this Master Agreement, or the appropriate Supplemental
Agreement, at its option exercisable at any time after thirty (30) days have
elapsed after giving notice to the defaulting Party of such Default and the
defaulting Party has failed, during such period, to cure such Default or to
commence such cure to the reasonable satisfaction of the other Party.
24. SURVIVAL OF TERMS
Page 15
The termination of this Agreement, or any Supplemental Agreement
concluded in connection with this Agreement, shall not release the Parties from
obligations which, expressly or by their nature, survive the termination hereof
beyond such termination. In particular, and as examples and not by way of
limitation, each Party shall remain, notwithstanding the termination hereof or
of any Supplemental Agreement, bound to their respective obligations arising
under Clauses 5, 7, 8, 10, 12, 13, 17, 18 and 21 above.
25. INUREMENT
Subject to Clause 16 above, this Master Agreement shall inure to the
benefit of and be binding upon the Parties hereto and their respective
successors and assigns.
26. ENTIRE AGREEMENT/MODIFICATION
This Master Agreement together with each Supplemental Agreement, as
written, embodies the entire contract between the Parties hereto with respect to
the subject matter hereof and supersedes and replaces any previous agreement,
oral or written, made and entered into between the Parties hereto respecting the
Survey(s) to be performed hereunder. No modification of this Master Agreement or
any Supplemental Agreement shall be valid unless in writing, referencing this
Master Agreement or the applicable Supplemental Agreement and signed by an
authorized representative of both Parties.
27. COUNTERPARTS
This Master Agreement and any Supplemental Agreement may be executed
in two (2) or more counterpart copies, each of which shall be deemed an original
and together they shall constitute one and the same instrument. Faxed or
telecopied signature pages shall be deemed an original provided that originally
signed signature pages are exchanged timely.
IN WITNESS WHEREOF, the Parties hereto have executed this Master
Agreement as of the day and year first above written.
COMPANY: DAWSON GEOPHYSICAL COMPANY:
- -------- --------------------------
BY: BY:
--------------------------- ---------------------------
TITLE: TITLE: Executive Vice President
------------------------
DATE: DATE: , 2003
---------------------------
Page 16
SUPPLEMENTAL AGREEMENT No. __
To
Master Geophysical Data Acquisition Agreement
Dated: ___ (contract date)
between ____ ("COMPANY") and
Dawson Geophysical Company ("CONTRACTOR")
--------
I. DESCRIPTION OF SURVEY
---------------------
All geophysical operations conducted by Contractor will be performed
in accordance with the terms and conditions of this Supplemental
Agreement (the "SUPPLEMENT") and the Master Geophysical Data
Acquisition Agreement referenced above (the "MASTER AGREEMENT").
Contractor shall render Services described herein, and Company will
compensate Contractor at rates specified herein. This Survey will
consist of the acquisition of approximately _ linear miles/ square
miles of 2-D/3-D seismic data across lands located in the __ Area, _
County, _ as directed by Company (the "PROJECT").
II. DATA ACQUISITION PARAMETERS
---------------------------
Crossline patch cable/source line layout -foot geophone line spacing
-foot geophone groups intervals -foot source line spacing -foot
source point intervals
sweeps per vibrator source point -second sweep length -second
record length
Start with - lines of - groups; roll into - lines of - groups
110 ft. x 110 ft. bin size
III. COMPENSATION
------------
Company shall pay to Contractor, as consideration for performing the
Project, the compensation set forth below, as well as the costs for
which Contractor shall be reimbursed by Company as provided in
Section IV below:
Turnkey rate for acquisition, per square mile of
surface coverage.................................. $___________
Turnkey rate for processing, per square mile of
surface coverage.................................. $___________
Stand-by and experimental rate, per hour............ $___________
Note: Source points that are skipped and cannot be made up at
another location will be computed in the mileage
compensation. Additional source points, if any, above
the totals reflected in Section II above, will be
charged for on a prorated basis.
INVOICING TERMS
For providing the Services contemplated herein, Contractor shall,
not withstanding anything to the contrary in Clause 13 of the Master
Agreement, invoice Company, for both compensation (Section III) and
reimbursables (Section IV) as follows:
Said invoices shall be payable by Company as provided in Clause 13
of the Master Agreement.
IV. REIMBURSABLES
-------------
In addition to the compensation set forth in Section III above,
Company shall reimburse Contractor for the following:
A. Company approved permit fees and all permit related costs
including fees paid to landowners, leaseholders, and federal, state
and local authorities by
Contractor...................................................AT COST
B. If requested by Company, cost of Permit Agent/s and Vehicle/s
used in securing permits for lines or portions thereof (also
applicable if any lines permitted are subsequently abandoned, at
Company's request, without completing seismic recording operations)
(Per Agent/Per
Day).........................................................$______
C. Notwithstanding anything to the contrary contained in the Clause
8 of the Master Agreement, damages or claims for damages to land as
well as to crops and other flora, livestock, fences, buildings,
water wells and other structures in or on the land, where such
damages have resulted from prudently conducted operations and are
not attributable to negligence or other fault on the part of
Contractor or its employees..................................AT COST
D. Subject to the approval of Company, the cost of any specialized
equipment that may be required to gain access to areas which, due to
the nature of the terrain or permit requirements (for example, non
studded balloon tires), are inaccessible to normal crew equipment,
the trucking and use of such equipment for such activities as line
clearance and/or dozing (including any snow plowing/removal)
equipment....................................................AT COST
E. Cost of non-standard source and receiver line surveying
requirements (including GPS systems for vibrators)...........AT COST
F. (Optional) As a result of the potential shortage of
subcontractors for this Project, although Contractor will endeavor
to use those subcontractors that have offered the most attractive
pricing and availability utilized in determining pricing for this
Project, if subcontractors used on this Project require compensation
that exceed that used in determining pricing of this Project, then
Company will be responsible for those excess costs...........AT COST
G. Damage to Contractor's equipment caused by livestock or
wildlife.....................................................AT COST
H. Any special services to satisfy ecological, environmental and
governmental agents..........................................AT COST
I. Shipping of data from crew to Company.....................AT COST
J. Any additional equipment and/or services requested by
Company......................................................AT COST
K. Any applicable sales, use or value added taxes, duties, levies or
fees on Contractor's Services................................AT COST
L. Rental of required safety equipment (such as H2S detectors,
pipeline detectors, etc.), and/or services requested by
Company......................................................AT COST
M. Additional source and receiver line surveying and/or
re-surveying.................................................AT COST
V. ITEMS TO BE FURNISHED BY COMPANY
--------------------------------
PROGRAM MAPS
Company shall furnish Contractor with maps of suitable scale to
permit advance logistical planning, program assignment and survey
tract identification and construction of shot point location maps.
VI. BASIC CREW PERSONNEL
--------------------
One party manager with 4x4 pickup truck
One assistant party manager with 4x4 pickup truck
One permit agent with 4x4 pickup truck
One observer with 4x4 pickup truck
One assistant observer
Twenty-one or more recording helpers with one personnel carrier
Necessary conventional and/or GPS survey crews
One surveyor
One assistant surveyor
Six vibrator operators and one mechanic
VII. BASIC CREW EQUIPMENT
--------------------
Surveying--Trimble 4000SSI GPS receivers for static and kinematic
control with Wild TC-1000 total station electronic
system with a Toshiba lap top computer for data
reduction to SEG P-3 or SEG P-1 and output to a floppy
disc
Recording--I/O System Two recording system
- channels
millisecond sample rate
geophones per group
Energy Source--- Mertz Model 24 (50,000 pounds peak force) or -
Mertz Model 26 (62,000 pounds peak force) operating at
all times
Pelton Model 5 Advance II sweep control electronics with
non-linear sweep capabilities
VIII. CONFLICTS
---------
Any conflict between the terms of this Supplement and the Master
Agreement shall be controlled by the terms of the Master Agreement
unless any terms of the Master Agreement are specifically altered by
the terms hereof.
IX. TERMINATION
-----------
This Supplement will terminate upon the completion of the Project or
as provided for in the Master Agreement.
X. ADDITIONAL PROVISIONS
---------------------
None
This Supplemental Agreement No. ___ is executed by the Parties as of the date
shown above.
COMPANY DAWSON GEOPHYSICAL COMPANY
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
-------------------------- --------------------------
[LOGO]
DAWSON
Dawson Geophysical Company
OVER 50 YEARS OF GEOPHYSICAL EXCELLENCE
ANNUAL REPORT 2003
Founded in 1952, Dawson Geophysical Company acquires and processes 2-D, 3-D and
multi-component seismic data used in analyzing subsurface geologic conditions
for the potential of oil and natural gas accumulation. Dawson's clients - major
and intermediate-sized oil and gas companies and independent oil operators -
retain exclusive rights to the information obtained.
The Company operates highly mobile, land-based acquisition crews throughout the
lower 48 states. The Company has earned a 50-year reputation for
state-of-the-art equipment, technology and safety, as well as for having crews
that are among the most experienced and competent in the industry. Data
processing is performed by geophysicists in Midland and Houston, Texas.
FINANCIAL HIGHLIGHTS
REVENUES GROSS MARGIN
-------- ------------
$24,198 $18,469 $37,878 $36,078 $51,592 $ 2,236 $(3,239) $ 4,845 $ 2,873 $ 5,441
- ----------------------------------------------- -----------------------------------------------
1999 2000 2001 2002 2003 1999 2000 2001 2002 2003
(amounts in thousands) (amounts in thousands)
NET LOSS CAPITAL EXPENDITURES
-------- --------------------
$(6,430) $(11,135) $(4,978) $(2,292) $(899) $ 164 $ 3,861 $ 750 $ 2,047 $ 6,152
- ---------------------------------------------------- ----------------------------------------------
1999 2000 2001 2002 2003 1999 2000 2001 2002 2003
(amounts in thousands) (amounts in thousands)
CHANNEL COUNT
-------------
17,500 20,000 21,000 22,720 26,400
- ------------------------------------------
1999 2000 2001 2002 2003
(amounts in thousands)
LETTER TO SHAREHOLDERS
Dear Shareholder:
Your Company made significant progress on all fronts during fiscal year 2003
ending September 30. Revenues for the year of $51,592,000 exceed those of fiscal
year 2002, $36,078,000, by 43 percent. The net loss for the year of $899,000
reflects improvement over the 2002 loss of $2,292,000. Profitability remains
elusive due to generally depressed conditions within the geophysical industry
world wide during the past five years. Pricing in this environment has improved
considerably due to your Company's leading position in the U.S. market; however,
prices do not yet cover the unavoidable effects of weather and difficulties
encountered in obtaining rights-of-way.
The Company exhibited profitability in the second and fourth quarters of 2003.
The fourth quarter 2003 earnings of $557,000 compared to an identical net loss
of $557,000 in the same quarter of 2002. Net profit of $844,000 in the second
quarter of 2003 compares to a second quarter loss of $134,000 in 2002. The
Company's order book provided capacity operations for most of fiscal 2003,
remaining so going well into fiscal 2004. Management is working hard to obtain
more realistic weather protection and redoubling efforts to mitigate permit
related delays in order to reach improved and consistent profitability.
During 2003 the Company acted on opportunities for growth and technical depth.
The Company expanded operations in its Houston and Denver offices and added an
office in Oklahoma City. The technical expertise of additional staff in each
office coincides with increased demand for high resolution 3-D seismic surveys
and leading edge products such as the
ExxonMobil-licensed High Fidelity Vibratory Seismic (HFVS) method and
9-component 3-D surveys employing both compression and shear wave energy
sources. The Company has satisfied client demand for increased channel count by
acquiring equipment on the open market at reduced prices. In the 2000-2003 time
period the Company has invested $12,811,000 in these kinds of capital expansions
and improvements.
Dawson Geophysical Company is engaged in an essential technology designed to
help discover needed reserves of crude oil and natural gas, also essential
commodities in an expanding, demanding world. Your Company is dedicated to do
whatever is necessary to remain on the leading edge of this effort.
With best wishes for a joyous holiday season to you and yours from all of us, we
are sincerely yours.
[PHOTOS OF L. DECKER DAWSON AND STEPHEN C. JUMPER]
/s/ L. Decker Dawson /s/ Stephen C. Jumper
L. Decker Dawson Stephen C. Jumper
Chairman of the Board President
November 28, 2003
[LOGO]
DAWSON
Dawson Geophysical Company
THE TOTAL PACKAGE.
Dawson is one of the most experienced and respected names in the geophysical
industry. From survey design, to permitting, surveying, date acquisition and
data processing, the Company delivers our unique total package of seismic data
services to clients on shore throughout the lower 48 states. The commitment
of the Company and each of our employees is to continue our 50-year dedication
to delivering greater value and more reliable data for our clients' geophysical
data.
[VARIOUS PHOTOS]
INVESTOR INFORMATION
CORPORATE OFFICES DIRECTORS OFFICERS
508 West Wall, Suite 800 Paul H. Brown L. Decker Dawson
Midland, Texas 79701-5010 Sugar Land, Texas Chief Executive Officer
Phone: 432-684-3000 Management Consultant
Fax: 432-684-3030 Stephen C. Jumper
Email: info@dawson3d.com Calvin J. Clements President
http://www.dawson3d.com Lubbock, Texas & Chief Operating Officer
Retired Vice President
of the Company Howell W. Pardue
Executive Vice President
ANNUAL MEETING
The Annual Meeting of Shareholders will be L. Decker Dawson
held January 27, 2004, at 10:00 a.m. at Midland, Texas C. Ray Tobias
The Petroleum Club of Midland, Chairman of the Board of Executive Vice President
501 West Wall, Midland, Texas 79701 Directors and Chief Executive
Officer of the Company Christina W. Hagan
Senior Vice President, Secretary
& Chief Financial Officer
REGISTRAR AND TRANSFER AGENT Gary M. Hoover, Ph.D.
Mellon Investor Services LLC Bartlesville, Oklahoma
Dallas, Texas Retired Geophysicist Frank D. Brown
Vice President
Stephen C. Jumper
STOCK EXCHANGE LISTING Midland, Texas K.S. Forsdick
Nasdaq National Market System President and Chief Operating Vice President
Symbol: DWSN Officer of the Company
Edward L. Huff
Matthew P. Murphy Vice President
INDEPENDENT PUBLIC ACCOUNTANTS Midland, Texas
KPMG LLP Retired Banking Executive
Midland, Texas
Howell W. Pardue
Midland, Texas
Executive Vice President
of the Company
Tim C. Thompson
Midland, Texas
Management Consultant
C. Ray Tobias
Midland, Texas
Executive Vice President
of the Company
We are pleased to offer you the opportunity to receive future quarterly and
annual reports electronically over the internet. In utilizing this service, you
are not only improving the efficiency of your access to information, you will
also help reduce printing and postage costs for your Company.
Forms 10-Q and 10-K reports will be available on the internet at
www.sec.gov each quarter and additional information will be available at
www.dawson3d.com.
- --------------------------------------------------------------------------------
[LOGO]
DAWSON
Dawson Geophysical Company
Midland, Texas 432-684-3000 o 800-D-DAWSON
Houston, Texas 713-917-6772
Denver, Colorado 303-409-7787
Oklahoma City, Oklahoma 405-848-7512
www.dawson3d.com
508 West Wall, Suite 800
Midland, Texas 79701-5010
EXHIBIT 31.1
------------
CERTIFICATION
I, L. Decker Dawson, certify that:
1. I have reviewed this periodic report on Form 10-K of Dawson Geophysical
Company;
2. Based on my knowledge, this periodic report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this periodic report;
3. Based on my knowledge, the financial statements, and other financial
information included in this periodic report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
periodic report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this periodic report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this periodic report (the "Evaluation Date"); and
c) presented in this periodic report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
periodic report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 28, 2003 Signature: /s/ L. Decker Dawson
---------------------------------
L. Decker Dawson
Chairman of the Board and
Chief Executive Officer
EXHIBIT 31.2
------------
CERTIFICATION
I, Christina W. Hagan, certify that:
1. I have reviewed this periodic report on Form 10-K of Dawson Geophysical
Company;
2. Based on my knowledge, this periodic report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this periodic report;
3. Based on my knowledge, the financial statements, and other financial
information included in this periodic report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
periodic report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this periodic report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this periodic report (the "Evaluation Date"); and
c) presented in this periodic report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
periodic report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 28, 2003 Signature: /s/ Christina W. Hagan
---------------------------------
Christina W. Hagan
Senior Vice President, Secretary
and Chief Financial Officer
EXHIBIT 32.1
------------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the periodic report of Dawson Geophysical Company (the
"Company") Form 10-K for the period ending September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, L.
Decker Dawson, Chairman and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: November 28, 2003 /s/ L. Decker Dawson
-----------------------------------------
Chairman and Chief Executive Officer
EXHIBIT 32.2
------------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the periodic report of Dawson Geophysical Company (the
"Company") Form 10-K for the period ending September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Christina W. Hagan, Senior Vice President, Secretary and Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: November 28, 2003 /s/ Christina W. Hagan
-----------------------------------------
Senior Vice President, Secretary and
Chief Financial Officer