-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4NzCEY+Clzx5favN+3fZ2VNBoCm5DNFSe9bwOLH+YcIjNEP2o1MmmunSORcoBqf jggOUKfX+0C6d8TizIND4A== 0000750813-00-000001.txt : 20000331 0000750813-00-000001.hdr.sgml : 20000331 ACCESSION NUMBER: 0000750813-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEITEL INC CENTRAL INDEX KEY: 0000750813 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760025431 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10165 FILM NUMBER: 585510 BUSINESS ADDRESS: STREET 1: 50 BRIAR HOLLOW LN STREET 2: WEST BLDG 7TH FLR CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138818900 MAIL ADDRESS: STREET 1: 50 BRIAR HOLLOW LANE WEST STREET 2: 7TH FLOOR CITY: HOUSTON STATE: TX ZIP: 77027 FORMER COMPANY: FORMER CONFORMED NAME: SEISMIC ENTERPRISES INC DATE OF NAME CHANGE: 19870814 10-K 1 FORM 10-K FOR 1999 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - ------- X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR - ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 Commission File Number 0-14488 ------- SEITEL, INC. (Exact name of registrant as specified in charter) Delaware 76-0025431 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 50 Briar Hollow Lane West Building, 7th Floor Houston, Texas 77027 -------------- ----- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (713) 881-8900 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock, par value $0.01 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), 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 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 voting stock held by non-affiliates of the registrant at March 27, 2000 was approximately $177,941,709. For these purposes, the term "affiliate" is deemed to mean officers and directors of the registrant. On such date, the closing price of the Common Stock on the New York Stock Exchange was $8.125 and there were a total of 23,640,613 shares of Common Stock outstanding. Documents Incorporated by Reference: Document Part --------------------------------- --------- Definitive Proxy Statement for III 2000 Annual Stockholders Meeting ITEM 1. BUSINESS -------- General Seitel, Inc. (the "Company") is a leading provider of seismic data and related geophysical services and expertise to the petroleum industry. The Company licenses its proprietary seismic data to oil and gas companies and participates in petroleum exploration and development projects. See Note P to the Company's Consolidated Financial Statements for financial information relating to industry segments. Seismic Operations Since its inception in 1982, the Company has developed a proprietary library of seismic data by contracting with crew companies to acquire data and by buying existing data libraries from other companies. The Company's seismic data library is primarily owned and marketed by Seitel Data, Ltd., a partnership wholly-owned by the Company through subsidiaries, and Olympic Seismic, Ltd., a wholly-owned Canadian subsidiary. The data library, which consists of both two-dimensional ("2D") and three-dimensional ("3D") data, is marketed to major and independent oil and gas companies under license agreements. Seismic surveys and the analysis of seismic data for the identification and definition of underground geological structures are principal techniques used in oil and gas exploration and development to determine the existence and location of subsurface hydrocarbons. At December 31, 1999, the Company owned approximately 1,150,000 linear miles of 2D and approximately 16,300 square miles of 3D seismic data which it maintained in its library and the Company marketed an additional 270,000 linear miles of 2D data owned by others. The Company's seismic data library constitutes the largest seismic database marketed publicly in North America based solely on management's knowledge and beliefs regarding the industry. The Company's U.S. seismic surveys extend to virtually every major domestic exploration and development region, with the majority of the seismic surveys covering onshore and offshore the U.S. Gulf Coast. In addition, the Company's international seismic surveys are concentrated in Western Canada and the Continental Shelf offshore the United Kingdom and Ireland. The Company's marketing team of 20 seismic sales specialists markets data from its library and from newly initiated seismic surveys. The Company's marketing philosophy is that seismic data, like most other products, must be sold aggressively as opposed to waiting passively for customer purchases. The marketing team monitors energy industry exploration and development activities through close interaction with oil and gas companies on a daily basis to maximize seismic sales opportunities. The Company has a 14 member staff of geoscientists dedicated to its seismic operations, who have in excess of 270 years of collective geophysical experience. Together, the marketing team and geoscientists help clients evaluate their respective seismic requirements, design seismic data programs to meet market demand, and supervise the reprocessing of data in the Company's library to enhance future resales. Three-dimensional seismic data provides a graphic geophysical depiction of the earth's subsurface from two horizontal dimensions and one vertical dimension, rendering a more detailed picture than 2D data, which presents a cross-sectional view from one vertical and one horizontal dimension. The more comprehensive geophysical information provided by 3D surveys significantly enhances an interpreter's ability to evaluate the probability of the existence and location of oil and gas deposits. The proper use of 3D surveys can significantly increase drilling success rates and, correspondingly, significantly lower exploration and development finding costs. However, the cost to create 3D seismic data is significantly more than the cost to create 2D seismic data, particularly for onshore data. As a result, 2D data remains economically more efficient for preliminary, broad-scale exploration evaluation and to determine the location for 3D surveys. Also, the best way to design a 3D survey is from 2D data grids of the respective area. The 3D surveys can then be used for more site-specific analysis to maximize actual drilling potential. The Company creates new seismic data for its library through multi-client surveys. Prior to undertaking a seismic survey, the Company pre-licenses the data to several oil and gas companies. The license fee commitments from these customers cover the majority of the costs of the survey. The Company's investment in the survey is limited to the excess of the cost of the survey over the customer license fee commitments. The customers share in the expense of a survey, which reduces their cost of the survey while the Company reduces its initial capital investment in the survey. In a multi-client survey, the Company retains ownership of the newly created data, which is added to its data library. The Company then markets licenses to use the data to other customers. Seismic data cannot be transferred by a licensee to another party; each individual user must purchase a license. The Company contracts with seismic acquisition crew companies to conduct both onshore and offshore seismic surveys. The Company has developed fully-integrated 3D technology and operations, which extend from its expansive 2D seismic library from which to best design the parameters for 3D surveys, its large and growing 3D data library, a processing center and proprietary computer technology coupled with extensive geophysical application expertise to effectively interpret 3D data. Oil and Gas Exploration and Production Operations In addition to licensing its seismic data to customers, the Company also utilizes its seismic expertise to participate directly in oil and gas projects. The Company participates in these projects as a working interest owner, sharing costs and revenues of oil and gas exploration and production projects with other oil and gas companies. The Company's strategy is to combine its 3D and 2D seismic expertise and related geophysical expertise with the geological, engineering and drilling expertise and land positions of oil and gas companies in exploration and development programs. The Company believes that this combination will result in higher drilling success rates, thereby allowing the Company to participate in oil and gas exploration and development on a relatively low cost and low risk basis, and to build an asset base of oil and gas reserves which complement its seismic data library. Since its formation in 1993, the Company's wholly-owned exploration and production subsidiary, DDD Energy, Inc. ("DDD Energy"), has entered into and maintained cost and revenue-sharing relationships with more than 100 oil and gas companies and, in doing so, has received the benefit of these oil and gas companies' land, geological, engineering and drilling staffs. DDD Energy has conducted over 2,000 square miles of advanced 3D surveys, located primarily in the Gulf Coast areas of onshore Texas, Louisiana, Alabama and Mississippi, as well as California and Arkansas. DDD Energy's working interest in these projects ranges from approximately 10% to 90%, with an average working interest of approximately 31%. More than 160 square miles of 3D surveys are scheduled to be conducted in 2000 by DDD Energy and its partners. The majority of the well locations pinpointed by the surveys that have already been completed and interpreted should be drilled during the next three years. DDD Energy exclusively utilizes the Company's processing and interpretation technology and operations to provide optimum quality control and confidentiality for the exploration and production programs in which DDD Energy participates. From March 1993 through December 31, 1999, DDD Energy has participated in the drilling of 300 wells, 205 of which were commercially productive for a 68% success rate. In November 1999, the Company's 19% owned subsidiary, Vision Energy, Inc. ("Vision Energy"), filed a registration statement with the Securities and Exchange Commission ("SEC") to accomplish the spin-off of DDD Energy through an initial public offering. In the proposed offering, Vision Energy would acquire all of the stock of DDD Energy from the Company in exchange for the issuance of shares of Vision Energy stock to the Company, and the Company would sell most of these Vision Energy shares in the public offering for cash. Completion of the offering is expected to occur during the second or third quarter of 2000; however, its completion is dependent upon market conditions and other factors. The Company continues to explore opportunities to maximize the value of DDD Energy. Customers The Company markets its seismic data to major and independent oil and gas companies. The Company generally sells its oil and gas to numerous customers through the operators of its oil and gas properties. No one customer accounted for as much as 10% of the Company's revenues during the years 1999, 1998 or 1997. As a result, the Company does not believe that the loss of any customer would have a material adverse impact on its seismic or oil and gas business. Competition The creation and resale of seismic data are highly competitive in North America. There are a number of independent oil-service companies that create and market data, and numerous oil and gas companies create seismic data and maintain their own seismic data banks. However, as a result of the energy industry's collapse in 1985 and major industry consolidation in the 1990's, significant seismic competitors to the Company have been reduced from approximately 15 companies in 1985 to less than 10 today. The Company's largest competitors, most of whom are engaged in acquiring seismic data as well as a data library, are Baker Hughes, Petroleum Geo-Services, Schlumberger, TGS Nopec, Veritas DGC and Compagnie Generale de Geophysique. In addition, the Company has positioned itself to take advantage of the increased outsourcing trend by exploration and production companies for their seismic data services. The Company believes it can compete favorably because of the expansiveness of its data library base, the expertise of its marketing staff and the technical proficiency and exploration experience of its geoscientists. These resources enable the Company to provide high-quality service and to create and market high-grade data. In the oil and gas exploration and production business, there are numerous oil and gas companies competing for the acquisition of mineral properties. The Company believes it can participate effectively in the exploration for and development of natural gas and crude oil reserves because of its fully-integrated seismic resources and geophysical expertise combined with the geological and engineering experience and land positions of the Company's oil and gas company partners. Seasonality and Timing Factors The Company's results of operations can fluctuate from quarter to quarter. The fluctuations are caused by a number of factors. With respect to the Company's seismic licensing revenue, the Company's results are influenced by oil and gas industry capital expenditure budgets and spending patterns. These budgets are not necessarily spent in either equal or progressive increments during the year, with spending patterns affected by individual oil and gas company requirements as well as industry-wide conditions. As a result, the Company's seismic data revenue does not necessarily flow evenly or progressively on a sequential quarterly basis during the year. In addition, certain weather-related events may delay the creation of seismic data for the Company's library during any given quarter. Although the majority of the Company's seismic resales are under $500,000 per sale, occasionally a single data resale from the Company's library can be as large as $5 million or more. Such large resales can materially impact the Company's results during the quarter in which they occur, creating an impression of a trend of increasing revenue that may not be achieved in subsequent periods. With respect to revenue from the Company's oil and gas operations, bringing a small number of high-production wells on line in a given quarter can materially impact the results of that quarter since many of the wells in which the Company participates experience high initial flow rates for the first 60 to 90 days of production and then taper off to a lower, steady rate for the remainder of their lives. If several of these wells are brought on line in a quarter, the results for that quarter will appear unusually strong, and then later, when production decreases to its long-term, steady rate, the Company's results may not be able to sustain the trend of increased performance indicated by the strong results of the previous quarter. The Company's oil and gas exploration and production operations also can be impacted by certain weather-related events as well as by mechanical and equipment problems or shortages and other factors, which may delay the hookup of successfully completed wells and delay the resultant production revenue. Also, due to the high percentage of gas reserves in the Company's portfolio and the seasonal variations in gas prices, the Company's results from its oil and gas operations also are subject to significant fluctuations due to variations in commodity prices. In addition, some producing wells may be required to go off line periodically for pipeline and other maintenance. The Company does not believe that these fluctuations in quarterly results are indicative of the Company's long-term prospects and financial performance. See Note Q to the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. Employees As of December 31, 1999, the Company and its subsidiaries had 120 full-time employees and two employees who devote part of their time to the Company who are also officers of other corporations. None of the Company's employees are covered by collective bargaining agreements. Of these employees, 82 are related to the seismic operations and 20 are related to the oil and gas operations. The balance provides accounting and administrative support for all operations. The Company has employment contracts with five of its senior corporate executives. Risk Factors Any investment in our securities involves risk. Investors should carefully consider, in addition to the other information contained in this report, the risks described below before making any investment decision. OUR BUSINESS COULD BE ADVERSELY AFFECTED BY LOW EXPLORATION, DEVELOPMENT AND PRODUCTION SPENDING BY OIL AND GAS COMPANIES AND BY LOW OIL AND GAS PRICES. Our seismic business depends upon exploration, development and production spending by oil and gas companies. Although overall conditions in the oil and gas industry have improved recently as a result of strong oil prices, the level of capital expenditures by oil and gas companies has not been as quick to recover. This could affect our seismic data operations. Any decreases in oil and gas prices could result in decreased exploration, development and production spending by oil and gas companies, which could affect our seismic data business. Although oil and gas prices have increased recently, any future decline could result in decreased revenues from our oil and gas exploration and production business. WE INVEST SIGNIFICANT AMOUNTS OF MONEY IN ACQUIRING AND PROCESSING SEISMIC DATA FOR OUR DATA LIBRARY WITH ONLY PARTIAL UNDERWRITING OF THE COSTS BY CUSTOMERS. We invest significant amounts of money in acquiring and processing new seismic data to add to our data library. Although we generally obtain customer commitments covering in excess of 60% of the costs of acquiring and processing this data, we assume the risk that we will not be able to fully recover our portion of the costs through future licensing of the data. The amounts of these future data licensing fees are uncertain and depend on a variety of factors, including the market prices of oil and gas, customer demand for seismic data in our library, availability of similar data from competitors and governmental regulations affecting oil and gas exploration. Many of these factors are beyond our control. In addition, the timing of these sales can vary greatly from period to period. Technological or regulatory changes or other developments could adversely affect the value of the data. BECAUSE OUR BUSINESS IS CONCENTRATED IN THE U.S. GULF COAST AND CANADA, IT COULD BE ADVERSELY AFFECTED BY DEVELOPMENTS IN THE OIL AND GAS BUSINESS THAT AFFECT THESE AREAS. Most of the seismic data in our seismic data library covers areas along the U.S. Gulf Coast, offshore in the U.S. Gulf of Mexico or in Canada. Also, most of our existing interests in oil and gas properties are located along the coast of the U.S. Gulf of Mexico. Because of this geographic concentration, our results of operations could be adversely affected by events relating primarily to one these regions even if conditions in the oil and gas industry worldwide were favorable. Some examples of possible events that would adversely affect the U.S. Gulf Coast region would be changes in governmental regulations adversely affecting offshore drilling in the U.S. Gulf of Mexico, shortages of drilling or other necessary equipment in this region, or increases in gas transportation costs from this region to the Northeastern U.S., where much of the gas produced in this region is consumed. THE AMOUNTS WE AMORTIZE FROM OUR DATA LIBRARY EACH PERIOD MAY FLUCTUATE, AND THESE FLUCTUATIONS CAN AFFECT OUR REPORTED RESULTS OF OPERATIONS. We amortize the cost of our multi-client data library based in part on our estimates of future sales of data. These estimates are imprecise and may vary from period to period depending upon market developments and our expectations. Substantial changes in amortization rates can have a significant effect on our reported results of operations. DRILLING HAZARDS AND DRY HOLES COULD AFFECT OUR OIL AND GAS ACTIVITIES. We may not discover commercial quantities of oil and gas when we participate in drilling wells. Our oil and gas operations could be adversely affected by the occurrence of drilling hazards. These include: o cratering; o explosions; o uncontrollable flows of oil, gas or well fluids; o fires; o pollution; and o other environmental risks. Some of these hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, environmental damage and suspension of operations. We do not act as operator in our oil and gas drilling business and depend on our partners to minimize these operating risks. WE HAVE RECORDED WRITE-DOWNS BECAUSE OF LOW OIL AND GAS PRICES AND MAY BE REQUIRED TO DO SO AGAIN IN THE FUTURE. FUTURE WRITE-DOWNS WOULD RESULT IN A CHARGE TO OUR EARNINGS AND POSSIBLE LOSSES. Under SEC oil and gas accounting rules, we may have to write-down our assets if oil and gas prices decline significantly or if we have significant downward adjustments to our oil and gas reserves. We recorded a $9.6 million pre-tax, $6.2 million after tax, non-cash write-down of the carrying value of our proved oil and gas properties as of December 31, 1997 due to low oil and gas prices. If oil and gas prices fall significantly, or if we have significant downward reserve adjustments in the future, it is possible that additional write-downs will occur again. These write-downs would result in a charge to our earnings and possible losses, but would not impact cash flows from operating activities. OUR DEBT AGREEMENTS MAY LIMIT OUR FLEXIBILITY IN RESPONDING TO CHANGING MARKET CONDITIONS OR IN PURSUING BUSINESS OPPORTUNITIES. Our debt agreements contain restrictions and requirements relating to, among other things: o additional borrowing; o maintaining financial ratios; o granting liens on our assets; o selling assets; o paying dividends; and o merging. These restrictions and requirements may limit our flexibility in responding to market conditions or in pursuing business opportunities that we believe would have a positive effect on our business. EXTENSIVE GOVERNMENTAL REGULATION OF OUR BUSINESS AFFECTS OUR DAILY OPERATIONS. Our seismic data customers are subject to extensive governmental regulation. In addition, our oil and gas exploration and production operations are subject to regulations. These regulations, among other things: o govern environmental quality and pollution control; and o limit rates of production. New laws or regulations or changes to existing laws or regulations affecting the oil and gas industry could reduce customer demand for our seismic data or increase the operating costs of our oil and gas business. LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. We depend on a relatively small group of management and technical personnel. The loss of one or more of these individuals could have a material adverse effect on our business. Other The Company is not dependent on any particular raw materials, patents, trademarks or copyrights for its business operations. The following organization chart gives an overview of the structure of the Company:
--------------------------- +----| Seitel Delaware, Inc. | 1% | | 100% |----+ ---------------------------- | --------------------------- | |Seitel Data, Ltd. | | |----| | | --------------------------- 99%| ---------------------------- |----| Seitel Data Corp. |----+ | | 100% |----+ ---------------------------- | --------------------------- | |Seitel Offshore Corp. | | |----|100% | | --------------------------- | ---------------------------- |----| DDD Energy, Inc. | | | | 100% | | ---------------------------- - ------------------ | --------------------------- | |Seitel International, Inc.| ++++++++++++++++++ | |----|100% | + + | --------------------------- | ---------------------------- + SEITEL, INC. +----+----| Matrix Geophysical, Inc.| | + + | | 100% | | ---------------------------- ++++++++++++++++++ | --------------------------- | |Datatel, Inc. | - ------------------ | +----|100% | | --------------------------- ---------------------------- |----| Seitel Canada Holdings, | | | Inc. | ---------------------------- | | 100% |----+----|Olympic Seismic Ltd. | | --------------------------- | |100% | | | ---------------------------- | --------------------------- | ---------------------------- |----| Seitel Management, Inc. | | |818312 Alberta Ltd. | | | 100% | +----|100% | | --------------------------- ---------------------------- | | --------------------------- ---------------------------- |----| Seitel Geophysical, Inc.|----+----|African Geophysical, Inc. | | | 100% * | | |100% * | | --------------------------- | ---------------------------- | | | --------------------------- | ---------------------------- |----| Alternative Communica- | +----|EHI Holdings, Inc. | | | tions Enterprises, Inc. | |100% * | | | 100% | ---------------------------- | | * | | --------------------------- | | --------------------------- |----| Exsol, Inc. | | | 100% | | | * | | --------------------------- | | --------------------------- |----| Geo-Bank, Inc. | | | 100% | | | * | | --------------------------- | | --------------------------- ---------------------------- |----| Seitel Gas & Energy |---------|Seitel Natural Gas, Inc. | | | Corp. | |100% * | | | 100% * | ---------------------------- | --------------------------- | | --------------------------- +----| Seitel Power Corp. | | | 100% | | | * | | --------------------------- | | --------------------------- +----| Vision Energy, Inc. | | 19% | | * | --------------------------- * Dormant
ITEM 2. PROPERTIES ---------- The Company, through its wholly-owned subsidiary DDD Energy, participates in oil and gas exploration and development efforts. For estimates of the Company's net proved and proved developed oil and gas reserves as of December 31, 1999, see Note S to the Company's Consolidated Financial Statements. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth in Note S to the Company's Consolidated Financial statements represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and liquids, including crude oil, condensate and natural gas liquids, that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the amount and quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers normally vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they were based. In general, the volume of production from oil and gas properties owned by the Company declines as reserves are depleted. Except to the extent that the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities, or both, the proved reserves of the Company will decline as reserves are produced. Volumes generated from future activities of the Company are therefore highly dependent upon the level of success in finding or acquiring additional reserves and the costs incurred in so doing. The following table sets forth the number of productive oil and gas wells (including producing wells and wells capable of production) in which the Company owned an interest as of December 31, 1999. Gross oil and gas wells include 10 with multiple completions. All of the wells are operated by the Company's oil and gas company partners. A "gross" well is a well in which the Company owns a working interest. "Net" wells refer to the sum of the fractional working interests owned by the Company in gross wells. Gross Wells Net Wells ----------- --------- Oil 54 12.74 Gas 124 34.28 The following table sets forth the number of net wells drilled in the last three fiscal years in which the Company participated.
Exploratory Development -------------------------------- -------------------------------- Productive Dry Total Productive Dry Total 1999 Texas 1.14 .28 1.42 1.09 - 1.09 Louisiana .52 - .52 - - - California .30 - .30 - - - 1998 Texas .57 1.68 2.25 1.10 - 1.10 Mississippi 1.00 1.00 2.00 - - - Louisiana 1.50 1.75 3.25 .66 .33 .99 California .15 .15 .30 - - - Arkansas - .13 .13 - - - Michigan - .25 .25 - - - 1997 Texas 5.29 4.05 9.34 1.88 .52 2.40 Mississippi 2.64 2.00 4.64 1.24 - 1.24 Louisiana 2.35 1.05 3.40 1.05 - 1.05
As of December 31, 1999, the Company was participating in the drilling of 1 gross and .25 net wells. The following table sets forth certain information regarding the Company's developed and undeveloped lease acreage as of December 31, 1999. The table does not include additional acreage, which the Company may earn upon completion of pending 3D seismic data projects. "Gross" acres refer to the number of acres in which the Company owns a working interest. "Net" acres refer to the sum of the fractional working interests owned by the Company in gross acres. Developed Acres Undeveloped Acres ---------------------------- ----------------------------- Gross Net Gross Net ------------- ------------ ------------- ------------- California 240 36 130,650 39,353 Texas 23,186 10,405 86,730 23,597 Louisiana 6,864 1,446 67,300 20,411 Mississippi 4,100 1,321 28,376 11,350 Michigan 260 130 3,300 1,100 Alabama 160 5 1,516 270 ------------- ------------ ------------- ------------- Total 34,810 13,343 317,872 96,081 ============= ============ ============= ============= The following table describes for each of the last three fiscal years, crude oil (including condensate and natural gas liquids) and natural gas production for the Company, average production costs and average sales prices. All such production comes from the U.S. Gulf Coast region. The Company has not filed any different estimates of its December 31, 1999 reserves with any federal agencies.
Net Production Average Sales Price --------------------- Average ------------------------- Year Ended Oil Gas Production Oil Gas December 31, (Mbbls) (Mmcf) Cost per Mcfe (Bbls) (Mcf) ------------ ------- ------ ------------- ------ ----- 1999 346 5,693 $.61 $16.35 $2.28 1998 386 6,216 .55 11.78 2.27 1997 420 6,926 .55 16.83 2.63
The amounts in 1997 include 56,000 barrels and 1,795 million cubic feet delivered under the terms of a volumetric production payment agreement effective July 1, 1996 at an average price of $14.04 per barrel and $1.84 per mcf. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in ordinary, routine claims and lawsuits incidental to its business. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters should not be material to the Company's financial position or results of operations. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange. The following table sets forth the high and low sales prices for the Common Stock for 1999 and 1998 as reported by the New York Stock Exchange.
1999 1998 ------------------------------- ------------------------------- High Low High Low ------------- ------------- ------------- ------------- First Quarter $ 15.25 $ 9.31 $ 17.25 $ 13.19 Second Quarter 18.13 12.38 19.31 14.69 Third Quarter 16.50 9.56 17.25 8.69 Fourth Quarter 10.19 5.50 16.00 9.56
On March 27, 2000, the closing price for the Common Stock was $8.125. To the best of the Company's knowledge, there are approximately 1,006 record holders of the Company's Common Stock as of March 27, 2000. Dividend Policy The Company did not pay cash dividends during 1998 or 1999, and it intends to retain future earnings in order to provide funds for use in the operation and expansion of its business. Because the payment of dividends is dependent upon earnings, capital requirements, financial conditions, any required consents of lenders and other factors, there is no assurance that dividends, whether in the form of stock or cash, will be paid in the future. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) The following table summarizes certain historical consolidated financial data of the Company and is qualified in its entirety by the more detailed consolidated financial statements and notes thereto included in Item 8 hereof.
Year Ended December 31, ----------------------------------------------------------------------------------- Statement of Operations Data: 1999 1998 1997 1996 1995 ----------- ----------- ----------- ------------ ----------- Revenue $ 128,707 $ 144,857 $ 127,556 $ 106,002 $ 74,439 Expenses and costs: Depreciation, depletion and amortization 59,624 69,890 49,679 39,249 26,872 Impairment of oil and gas properties - - 9,560 - - Cost of sales 5,016 4,874 17,953 19,402 13,071 Selling, general and administrative 28,587 26,599 23,043 19,165 15,393 ----------- ----------- ----------- ------------ ----------- 93,227 101,363 100,235 77,816 55,336 ----------- ----------- ----------- ------------ ----------- Income from operations 35,480 43,494 27,321 28,186 19,103 Interest expense, net (11,077) (5,540) (3,554) (2,900) (3,078) Equity in earnings (loss) of affiliate (91) 222 146 (186) - Impairment due to dividend distribution of affiliate stock (7,794) - - - - Gain on sale of subsidiary stock - - 18,449 - - Increase (decrease) in under- lying equity of affiliate - (193) 10,750 - - Extinguishment of volumetric production payment - - (4,133) - - ----------- ----------- ----------- ------------ ----------- Income from continuing operations before provision for income taxes 16,518 37,983 48,979 25,100 16,025 Provision for income taxes 7,138 13,623 17,422 8,863 5,898 ------------ ----------- ----------- ------------ ----------- Income from continuing operations 9,380 24,360 31,557 16,237 10,127 Loss from discontinued operations, net of tax - - - (988) (1,196) Loss on disposal of discontinued operations, net of tax - - - - (252) ------------ ----------- ----------- ------------ ----------- Net income $ 9,380 $ 24,360 $ 31,557 $ 15,249 $ 8,679 ============ =========== =========== ============ ===========
Year Ended December 31, ------------------------------------------------------------------------------------ Statement of Operations Data: 1999 1998 1997 1996 1995 ------------ ----------- ----------- ------------ ----------- Earnings per share: (1) Basic: Income from continuing operations $ .39 $ 1.07 $ 1.48 $ .83 $ .55 Discontinued operations - - - (.05 ) (.08 ) ------------ ----------- ----------- ------------ ----------- Net income $ .39 $ 1.07 $ 1.48 $ .78 $ .47 ============ =========== =========== ============ =========== Diluted: Income from continuing operations $ .39 $ 1.05 $ 1.43 $ .79 $ .49 Discontinued operations - - - (.05 ) (.07 ) ------------ ----------- ----------- ------------ ----------- Net income $ .39 $ 1.05 $ 1.43 $ .74 $ .42 ============ =========== =========== ============ =========== Weighted average shares: (1) - Basic 23,863 22,720 21,380 19,646 18,408 - Diluted 24,063 23,124 22,050 20,660 20,976 As of December 31, ------------------------------------------------------------------------------------ Balance Sheet Data: 1999 1998 1997 1996 1995 ------------ ----------- ----------- ------------ ----------- Data bank, net $ 329,885 $ 262,950 $ 180,936 $ 126,998 $ 105,369 Oil and gas properties, net 150,167 148,977 112,915 86,572 42,424 Total assets 555,919 495,767 365,682 294,679 209,567 Total debt 225,223 150,690 90,566 86,488 61,283 Stockholders' equity 243,024 237,587 207,273 155,641 120,378 Stockholders' equity per common share outstanding at December 31 $ 10.30 $ 10.05 $ 9.26 $ 7.51 $ 6.38 Common shares outstanding at December 31 (1) (2) 23,605 23,629 22,373 20,724 18,873 (1) All number of shares and per share amounts has been restated to give effect to the two-for-one stock split effected in the form of a 100% stock dividend in December 1997. (2) Net of treasury shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following table sets forth selected financial information (in thousands) for the periods indicated, and should be read in conjunction with the discussion of Results of Operations below.
1999 1998 1997 ------------- ------------- ------------- Seismic: Revenue $ 109,671 $ 125,863 $ 85,560 Amortization 49,375 57,117 35,163 Cost of sales 296 191 394 Oil and Gas: Revenue 19,036 18,994 25,680 Depletion 9,093 11,872 12,666 Impairment of oil and gas properties - - 9,560 Cost of sales 4,720 4,683 5,168 Geophysical Services: Revenue - - 16,316 Depreciation - - 983 Cost of sales - - 12,391 Other depreciation 1,156 901 867 Selling, general and administrative 28,587 26,599 23,043 Net interest expense 11,077 5,540 3,554 Equity in earnings (loss) of affiliate (91) 222 146 ------------- ------------- ------------- Income before provision for income taxes and special items (1) 24,312 38,176 23,913 Provision for income taxes 9,866 13,692 8,498 ------------- ------------- ------------- Income before special items (1) $ 14,446 $ 24,484 $ 15,415 ============= ============= ============= Net income $ 9,380 $ 24,360 $ 31,557 ============= ============= ============= - ---------------------------------- (1) Special items for the year ended December 31, 1999, include a pre-tax loss of $7,794,000 related to an impairment due to the dividend distribution of affiliate stock. Special items for the year ended December 31, 1998 include a pre-tax loss of $193,000 related to the decrease in the underlying equity of an affiliate. Special items for the year ended December 31, 1997 include a pre-tax gain of $29,199,000 related to the spin-off of the Company's seismic acquisition crew subsidiary and a pre-tax loss of $4,133,000 related to the extinguishment of the Company's volumetric production payment.
Results of Operations Seismic Most oil and gas companies consider seismic data an essential tool to generate and delineate drilling prospects for the oil and gas industry. Oil and gas companies are increasingly using seismic data in oil and gas exploration and development efforts to increase the probability of drilling success. By properly utilizing seismic data, oil and gas companies can significantly increase drilling success rates and reduce the occurrence of dry holes. By participating in multi-client surveys, oil and gas companies can share the cost of expensive surveys that they could not otherwise afford. Further, seismic can increase recoveries of reserves from existing, mature oil fields by optimizing the drilling location of development wells and by revealing additional, or "step-out," locations that would not otherwise be apparent. The Company generates seismic revenue by licensing data from our existing data library and creating new data for customers. Revenue from the marketing of seismic data was $109,671,000, $125,863,000 and $85,560,000 during 1999, 1998 and 1997, respectively. In May 1999, the Company made a management decision to focus its marketing team on licensing of existing data ("library sales") that would generate cash flow. Library sales in 1999 increased to the record level of $63,058,000, an increase of 36% over the previous record year of $46,359,000 in 1998. The Company's decision to reduce data creation in 1999 caused total seismic revenue to be lower than 1998 levels, but also reduced capital expenditures, producing solid financial results under difficult industry conditions. In 1998, the increase in seismic revenue from 1997 levels was primarily attributable to increased efforts and investment in the creation of new seismic data. In February 1999, the Company acquired substantially all of the seismic assets of Amoco Canada, making Seitel, Inc. the largest seismic data library company in North America. As witnessed by the strength of the Company's library sales in 1999, demand for its seismic data continues to be strong despite the uncertainty surrounding oil and gas prices. Furthermore, demand for its 2D data continues to be strong, with 1999 sales levels increasing over 1998 levels. The first three months of 2000 have produced higher than expected commodity prices which is expected to generate strong cash flow for the oil and gas industry and lead to rising levels of capital expenditures. This scenario should lead to improving demand for Seitel, Inc. products and services, including our library data and new data creation. Data bank amortization amounted to $49,375,000, $57,117,000 and $35,163,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The amount of seismic data amortization fluctuates based on the level of seismic marketing revenue. As a percentage of revenue from licensing seismic data, data bank amortization was 46%, 46% and 42% for 1999, 1998 and 1997, respectively. These changes between years are primarily due to the mix of sales of 2D and 3D data amortized at varying percentages based on each data program's current and expected future revenue. For a discussion of the Company's accounting policy related to seismic data amortization refer to Note A of the Company's Consolidated Financial Statements. The Company's (and its industry's) seismic revenue trends are evaluated and results are used in estimating future revenue expected to be received on its seismic data. When economic conditions indicate, the Company may reduce its estimates of future revenue, causing the amortization rate to rise and liquidity and operating results to decline. If the Company perceives an impairment in value due to reduced, or a lack of, estimated future revenue, a write-down of the asset is recognized. In periods of upturn, the opposite may occur, except, however, the prior write-downs are not reversed. Management believes that the economic outlook for the Company's seismic business is stable and the possibility for significant improvement exists. Oil and Gas Net volume and price information for the Company's oil and gas production for the years ended December 31, 1999, 1998 and 1997 is summarized in the following table (amounts include deliveries made under the terms of a volumetric production payment agreement effective from July 1, 1996 to June 30, 1997):
Year Ended December 31, ----------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Natural gas volumes (mmcf) 5,693 6,216 6,926 Average natural gas price ($/mcf) $ 2.28 $ 2.27 $ 2.63 Crude oil/condensate volumes (mbbl) 346 386 420 Average crude oil/condensate price ($/bbl) $ 16.35 $ 11.78 $ 16.83
Oil and gas revenue was $19,036,000, $18,994,000 and $25,680,000 during 1999, 1998 and 1997, respectively. The increase in oil and gas revenue from 1998 to 1999 was primarily attributable to higher average oil prices received by the Company offset by lower oil and gas production. The decline in oil and gas production between 1998 and 1999 was primarily due to normal production declines experienced on several of the Company's older wells. Additionally, in July 1999, the Company sold its interest in 11 oil and gas wells, five of which were producing. The decrease in oil and gas revenue from 1997 to 1998 was primarily due to lower realized commodity prices along with lower natural gas production. The production decline from several of the Company's shallow short-lived producing properties had not yet been offset by production from new wells. Several wells with high initial flow rates experienced production declines earlier and greater than was expected. Additionally, some development wells were not drilled in the time frame anticipated by the Company as a result of some of its partners delaying plans to drill these wells due to lower commodity prices, reallocation of budget funds and consolidations within the industry. Depletion of oil and gas properties, excluding the impairment in 1997 discussed below, was $9,093,000, $11,872,000 and $12,666,000 for the years ended December 31, 1999, 1998 and 1997, respectively, which amounted to $1.17, $1.39 and $1.34, respectively, per mcfe of gas produced during such periods. The rate per mcfe varies with the estimate of proved oil and gas reserves of the Company at each quarter end, as well as evaluated property costs. At December 31, 1997, the Company recorded a non-cash impairment of oil and gas properties totaling $9,560,000 ($6,160,000, net of taxes) based on its December 31, 1997, estimated proved reserves valued at March 18, 1998 market prices. The impairment was primarily due to substantially lower commodity prices. Oil and gas production costs amounted to $.61, $.55, and $.55 per mcfe of gas produced during 1999, 1998 and 1997, respectively. The increase in the rate from 1998 to 1999 is primarily attributable to an increase in compression costs for the Company's East Texas Smackover properties. Geophysical Services The Company completed an initial public offering of Eagle Geophysical, Inc. ("Eagle"), its former seismic acquisition crew subsidiary, in August 1997. Consequently, the Company had no operations from geophysical services in 1998 or 1999. Corporate and Other The Company's selling, general and administrative expenses were $28,587,000 in 1999, $26,599,000 in 1998 and $23,043,000 in 1997. The increase from 1998 to 1999 was primarily due to legal and other non-recurring expenses incurred during 1999 and an increase in costs resulting from the Company's expansion in Canada. These increases were partially offset by a reduction of variable expenses, including commissions on revenue and compensation tied to pre-tax profits. The increase from 1997 to 1998 was primarily a result of variable expenses, including commissions on revenue and compensation tied to pre-tax profits, related to the increased volume of business. As a percentage of total revenue, these expenses were 22% in 1999 and 18% in 1998 and 1997. The Company's interest expense was $11,791,000 in 1999, $5,963,000 in 1998 and $4,609,000 in 1997. The increase between 1998 and 1999 was primarily due to the addition of $138 million of senior notes on February 12, 1999 at an average interest rate of 7.3% partially offset by lower interest expense on the Company's revolving line of credit due to lower amounts being borrowed throughout 1999. The increase from 1997 to 1998 was primarily due to increased borrowings made under the Company's revolving line of credit during 1998. Interest income was $714,000 in 1999, $423,000 in 1998 and $1,055,000 in 1997. The increase from 1998 to 1999 was primarily attributable to interest income received on the notes receivable from officers and employees entered into in October 1998. The decrease between 1997 to 1998 was primarily due to the fluctuations in cash balances available for investment. On August 11, 1997, Eagle completed an initial public offering in which the Company sold 1,880,000 of its 3,400,000 shares of Eagle common stock as a selling stockholder. The Company received net proceeds of $29,723,000 from its participation in the offering, resulting in a pre-tax gain, net of costs, of $18,449,000 from its sale of Eagle stock in 1997. Additionally, the Company recorded a pre-tax gain, net of costs, of $10,750,000 in 1997, representing an increase in the Company's underlying equity of Eagle as a result of Eagle's issuance of stock in connection with the offering. In 1998, Eagle issued stock in connection with two acquisitions, which caused the Company to record a pre-tax loss of $193,000. The Company's equity in earnings (loss) of Eagle was $146,000 for the period from August 11, 1997 to December 31, 1997, $222,000 for the year ended December 31, 1998 and $(91,000) for the year ended December 31, 1999. On April 22, 1999, the Board of Directors of Seitel, Inc. declared to its common stockholders a dividend consisting of the remaining 1,520,000 shares of the common stock of Eagle owned by the Company. The fair market value of the common stock of Eagle held by the Company on the date the dividend was declared was lower than the carrying value of the stock on the Company's balance sheet; therefore, a non-cash, non-recurring, pre-tax impairment, net of bonus effect, of $7,794,000 was recorded for the year ended December 31, 1999. The Company entered into an agreement, which was effective July 1, 1997, to extinguish its volumetric production payment. The cost to acquire the production payment liability exceeded its book value. As a result of this transaction, the Company recorded a pre-tax loss of $4,133,000 in 1997. The Company's effective income tax rate on income before provision for income taxes and special items was 40.6%, 35.9% and 35.5% for the years ended December 31, 1999, 1998 and 1997, respectively. The increase in the effective income tax rate from 1998 to 1999 was primarily a result of Canadian operations, which are taxed at a higher rate than the U.S. rate, representing a larger percentage of pre-tax profits than in prior years. Liquidity and Capital Resources The Company's cash flow from operations was $74,494,000, $97,493,000 and $76,161,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease from 1998 to 1999 was primarily attributable to (i) a decrease in cash received from customers due to the decrease in revenue in 1999, (ii) an increase in payments to suppliers in 1999 and (iii) an increase in interest expense paid due to the issuance of $138 million senior notes in 1999. The increase from 1997 to 1998 was primarily due to (i) an increase in cash received from customers due to higher revenue in 1998 and (ii) a decrease in cash paid to suppliers and employees due to lower cost of sales incurred in 1998 resulting from the 1997 spin-off of the Company's crew subsidiary and increased payable balances at December 31, 1998. The Company has a $75 million unsecured revolving line of credit facility that matures on March 16, 2001. The facility bears interest at a rate determined by the ratio of the Company's debt to cash flow from operations. Pursuant to the interest rate pricing structure, funds can currently be borrowed at LIBOR plus 1 1/2%, the bank's prevailing prime rate, or the sum of the Federal Funds effective rate for such day plus 1/2%. Certain restrictions exist that limit the amount of borrowing that the Company can make under this facility. The balance outstanding on the revolving line of credit at March 27, 2000 was $37 million bearing an average interest rate of 6.89%. On November 9, 1999, the Company's wholly-owned subsidiary, Olympic Seismic Ltd. ("Olympic"), entered into revolving credit facilities which allow it to borrow up to $5 million (Canadian dollars) by way of prime based loans, bankers' acceptances, or letters of credit. Prime based loans and bankers' acceptances bear interest at the rate of the bank's prime rate plus 0.35% per annum and 0.50% per annum, respectively. Letter of credit fees are based on scheduled rates in effect at the time of issuance. The facility is secured by Olympic's assets, but is not guaranteed by Seitel, Inc. or any of its other subsidiaries. Borrowings under the facility are limited to 75% of trade receivables less than 90 days old. The facility is subject to repayment upon demand and is available from time to time at the Bank's sole discretion. Olympic did not have any amounts outstanding under this line of credit at December 31, 1999, or at March 27, 2000. Olympic is not a party to any of the debt held by Seitel, Inc. On February 12, 1999, the Company completed a private placement of three series of unsecured Senior Notes totaling $138 million. The Series D Notes total $20 million, bear interest at a fixed rate of 7.03% and mature on February 15, 2004, with no principal payments due until maturity. The Series E Notes total $75 million, bear interest at a fixed rate of 7.28% and mature on February 15, 2009, with annual principal payments of $12.5 million beginning February 15, 2004. The Series F Notes total $43 million, bear interest at a fixed rate of 7.43% and mature on February 15, 2009, with no principal payments due until maturity. Interest on all series of the notes is payable semi-annually on February 15 and August 15. The Company used a majority of the proceeds to repay amounts outstanding under its revolving lines of credit and the remainder for capital expenditures. On December 28, 1995, the Company completed a private placement of three series of unsecured Senior Notes totaling $75 million. The Company contemporaneously issued its Series A Notes and Series B Notes, which total $52.5 million and bear interest at a fixed rate of 7.17%. On April 9, 1996, the Company issued its Series C Notes, which total $22.5 million and bear interest at a fixed rate of 7.48%. The Series A Notes mature on December 30, 2001, and require annual principal payments of $8.3 million which began on December 30, 1999. The Series B and Series C Notes mature on December 30, 2002, and require combined annual principal payments of $10 million which began on December 30, 1998. Interest on all series of the notes is payable semi-annually on June 30 and December 30. As of March 27, 2000, the balance outstanding on the Series A, B, and C Notes was $46,667,000. The Company may offer from time to time in one or more series (i) unsecured debt securities, which may be senior or subordinated, (ii) preferred stock and (iii) common stock, or any combination of the foregoing, up to an aggregate of $41,041,600 pursuant to an effective "shelf" registration statement filed with the SEC. In addition, under another effective "shelf" registration statement filed with the SEC, the Company may offer up to an aggregate of $200,000,000 of the following securities, in any combination, from time to time in one or more series: (i) unsecured debt securities, which may be senior or unsubordinated; (ii) preferred stock; (iii) common stock, and (iv) trust preferred securities. From January 1, 1999, through March 27, 2000, the Company received $5,317,000 from the exercise of common stock purchase warrants and options. In connection with these exercises, the Company will also receive approximately $620,000 in tax savings. On July 26, 1999, the Company's wholly-owned subsidiary, DDD Energy, sold its 18.75% working interest in 11 oil and gas wells, one salt water disposal well and approximately 16,000 acres of leasehold and options to lease for net proceeds of approximately $11.7 million. In November 1999, the Company's 19% owned subsidiary, Vision Energy, filed a registration statement with the SEC to accomplish the spin-off of DDD Energy through an initial public offering. In the proposed offering, Vision Energy would acquire all of the stock of DDD Energy from the Company in exchange for the issuance of shares of Vision Energy stock to the Company, and the Company would sell most of these Vision Energy shares in the public offering for cash. Completion of the offering is expected to occur during the second or third quarter of 2000; however, its completion is dependent upon market conditions and other factors. As of December 31, 1999, the Company had incurred costs relating to this offering totaling $757,000 which are included in prepaid expenses in the Company's balance sheet as of December 31, 1999. The Company continues to explore opportunities to maximize the value of DDD Energy. The Company intends to use the cash proceeds from this spin-off of DDD Energy to reduce debt and provide funds for seismic data bank capital expenditures. During November and December 1999, the Company repurchased 504,700 shares of its common stock in the open market at a cost of $3,302,000, pursuant to a stock repurchase program authorized by the Board of Directors in 1997. The Board has authorized expenditures of up to $25 million towards the repurchase of its common stock. As of March 27, 2000, the Company has repurchased 679,700 shares of its common stock at a cost of $6,275,000 under this plan. During 1999, gross seismic data bank additions and capitalized oil and gas exploration and development costs amounted to $116,343,000 and $21,939,000 respectively. These capital expenditures, as well as taxes, interest expenses, cost of sales and general and administrative expenses, were funded by operations, proceeds from the sale of oil and gas properties, proceeds from the exercise of common stock purchase warrants and options, borrowings under the Company's revolving line of credit and proceeds from the issuance of senior notes. Currently, the Company anticipates capital expenditures to total approximately $70 million for seismic data bank additions during fiscal 2000 and approximately $11 million for oil and gas exploration and development efforts during the first half of 2000. If the proposed spin-off of DDD Energy has not been completed by the end of the second quarter, oil and gas exploration and development capital expenditures are expected to be $9 million for the second half of 2000. The Company believes its current cash balances, revenues from operating sources and proceeds from the exercise of common stock purchase warrants and options, combined with its available revolving line of credit, should be sufficient to fund the currently anticipated 2000 capital expenditures, along with expenditures for operating and general and administrative expenses. If these sources are not sufficient to cover the Company's anticipated expenditures or if the Company were to increase its planned capital expenditures for 2000, the Company could arrange for additional debt or equity financing during 2000; however, there can be no assurance that the Company would be able to accomplish any such debt or equity financing on satisfactory terms. If such debt or equity financing is not available on satisfactory terms, the Company could reduce its current capital budget or any proposed increases to its capital budget, and fund expenditures with cash flow generated from operating sources. Upon consummation of the proposed spin-off of DDD Energy, proceeds from such offering would be used to reduce debt and provide funds for additional seismic data bank capital expenditures. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, is required to be adopted on January 1, 2001, although earlier adoption is permitted. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. The Company has not yet quantified the impact of adopting SFAS No. 133. However, management does not believe that the adoption of SFAS No. 133 will have a material impact on the Company's financial position or results of operations. Year 2000 The Company did not experience any significant operational difficulties or incur any significant expenses in connection with the Year 2000 issue. The Company will continue to monitor all critical systems for any incidents of delayed complications or disruptions and problems encountered through third parties with whom the Company deals so that they may be timely addressed. Impact of Inflation and Changing Prices The general availability of seismic equipment and crews and the level of exploration activity in the oil and gas industry directly affect the cost of creating seismic data. The pricing of the Company's products and services is primarily a function of these factors. For these reasons, the Company does not believe inflationary trends have had any significant impact on its financial operating results during the three years ended December 31, 1999. Information Regarding Forward Looking Statements This Annual Report on Form 10-K includes 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. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements herein include, but are not limited to, changes in the exploration budgets of the Company's seismic data and related services customers, actual customer demand for the Company's seismic data and related services, the extent of the Company's success in acquiring oil and gas properties and in discovering, developing and producing reserves, the timing and extent of changes in commodity prices for natural gas, crude oil and condensate and natural gas liquids and conditions in the capital markets and equity markets during the periods covered by the forward looking statements. See Item 1 - Business-Risk Factors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, including adverse changes in commodity prices, interest rates and foreign currency exchange rates as discussed below. Commodity Price Risk The Company produces and sells natural gas, crude oil, condensate and natural gas liquids. The Company currently sells most of its oil and gas production under price sensitive or market contracts. As a result, the Company's financial results can be significantly affected as oil and gas prices fluctuate. The Company has a price risk management program that utilizes derivative financial instruments, principally natural gas swaps, to reduce the price risks associated with fluctuations in natural gas prices. However, these contracts also limit the benefits the Company would realize if prices increase. These financial instruments are designated as hedges and accounted for on the accrual basis, recognizing gains and losses in oil and gas production revenues when the associated production occurs. These contracts usually are placed with major derivative dealers that the Company believes are minimal credit risks. The Company defers and recognizes in income the net gains and losses on natural gas swaps designated as hedges of anticipated transactions, including accrued gains or losses upon maturity or termination of the contract, when the associated hedged gas is produced. During 1998, the Company recognized net hedging gains of $653,000. As of December 31, 1998, the Company did not have any open commodity price hedges. During 1999, the Company entered into natural gas swaps in order to hedge a portion of anticipated natural gas production. During 1999, the Company recognized net hedging losses of $308,000. As of December 31, 1999, the Company had open commodity price hedges totaling 2,285,000 MMBtu at an average price of 2.51 per MMBtu. The estimated fair value of these open commodity price hedges as of December 31, 1999 was $(377,000). The Company continually reviews and may alter its hedged positions. The Company's strategy is to seek arrangements with guaranteed minimum prices and flexibility to participate in improving commodity prices. As of December 31, 1999, the Company had the following hedges in place: Volume Per Month Hedge Price Month (MMBtu) ($/MMBtu) - ------------------------------------- --------------- --------------- January 2000 310,000 $2.51 February 2000 290,000 2.51 March 2000 310,000 2.51 April 2000 300,000 2.51 May 2000 310,000 2.51 June 2000 300,000 2.51 July 2000 310,000 2.51 August 2000 155,000 2.57 --------------- Total volume hedged 2,285,000 =============== Interest Rate Risk The Company may enter into various financial instruments, such as interest rate swaps, to manage the impact of changes in interest rates. Currently, the Company has no open interest rate swap or interest rate lock agreements. Therefore, the Company's exposure to changes in interest rates primarily results from its short-term and long-term debt with both fixed and floating interest rates. The following table presents principal or notional amounts (stated in thousands) and related average interest rates by year of maturity for the Company's debt obligations and their indicated fair market value at December 31, 1999:
THERE- FAIR 2000 2001 2002 2003 2004 AFTER TOTAL VALUE -------- -------- -------- -------- -------- -------- -------- --------- Liabilities - Long-Term Debt: Variable Rate $ - $ 40,500 $ - $ - $ - $ - $ 40,500 $ 40,500 Average Interest Rate - 7.22% - - - - 7.22% - Fixed Rate $ 18,378 $ 18,333 $ 10,000 $ - $ 32,500 $ 105,500 $ 184,711 $ 182,656 Average Interest Rate 7.25% 7.25% 7.31% - 7.13% 7.34% 7.28% -
The following table presents principal or notional amounts (stated in thousands) and related average interest rates by year of maturity for the Company's debt obligations and their indicated fair market value at December 31, 1998:
FAIR 1999 2000 2001 2002 TOTAL VALUE --------- --------- --------- -------- --------- -------- Liabilities - Long-Term Debt: Variable Rate $ 19,000 $ - $ 66,500 $ - $ 85,500 $ 85,500 Average Interest Rate 6.41% - 6.33% - 6.35% - Fixed Rate $ 18,461 $ 18,378 $ 18,333 $ 10,000 $ 65,172 $ 65,149 Average Interest Rate 7.25% 7.25% 7.25% 7.31% 7.26% -
Foreign Currency Exchange Rate Risk The Company conducts business in the Canadian dollar and pounds sterling and is therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions. Exposure from market rate fluctuations related to activities in Canada, where the Company's functional currency is the Canadian dollar, and in the Cayman Islands, where the Company's functional currency is pounds sterling, is not material at this time. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and financial statement schedules required by this Item are set forth at the pages indicated in ITEM 14(a) (1) and (2) below. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Company's definitive proxy statement relating to the 2000 annual meeting of its stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K (hereinafter the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report Page (1) Financial Statements: Report of Independent Public Accountants F-1 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997 F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-8 (2) All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes to the financial statements. (3) Exhibits: 3.1 Certificate of Incorporation of the Company filed May 7, 1982 and Amendment to Certificate of Incorporation filed April 25, 1984 (1) 3.2 Amendment to Certificate of Incorporation filed August 4, 1987 (3) 3.3 Amendment to Certificate of Incorporation filed January 18, 1989 (4) 3.4 Amendment to Certificate of Incorporation filed July 13, 1989 (5) 3.5 Amendment to Certificate of Incorporation filed August 3, 1993 (11) 3.6 Amendment to Certificate of Incorporation filed November 21, 1997 (22) 3.7 By-Laws of the Company (1) 3.8 Corporate Resolution reflecting an Amendment to the By-Laws of the Company adopted January 6, 1989 (3) 3.9 Corporate Resolution reflecting an Amendment to the By-Laws of the Company adopted May 19, 1986 (5) 4.1 Specimen of Common Stock Certificate (1) 4.2 Form of Warrant Certificate granted to certain employees and one Director of the Company in December 1990 and expiring in December 2000 (8) 4.3 Form of Promissory Note for Employee Stock Purchase dated July 21, 1992 (10) 4.4 Form of Subscription Agreement for Employee Stock Purchase dated July 21, 1992 (10) 4.5 Form of Pledge for Employee Stock Purchase dated July 21, 1992 (10) 4.6 Form of Warrant Certificate granted under the 1994 Warrant Plans (14) 4.7 Form of Warrant Certificate granted under the 1995 Warrant Reload Plan (16) 4.8 Form of Executive Warrant Certificate granted to certain employees of the Company in November 1997 and expiring in November 2002 (22) 4.9 Form of Bonus Warrant Certificate granted to an employee of the Company in November 1997 and expiring in November 2002 (22) 4.10 Form of Departure Warrant granted to certain employees of the Company in August 1997 (24) 4.11 Form of Employment Warrant granted to an employee of the Company in April 1998 and expiring in April 2008 (24) 4.12 Form of Employment Warrant granted to an employee of the Company in April 1998 and expiring in April 2008 (24) 4.13 Amended and Restated 1998 Employee Stock Purchase Plan (27) 10.1 Incentive Stock Option Plan of the Company (1) 10.2 Non-Qualified Stock Option Plan of the Company (1) 10.3 1993 Incentive Stock Option Plan of the Company (11) 10.4 Amendment No. 1 to the Seitel, Inc. 1993 Incentive Stock Option Plan (15) 10.5 Statement of Amendments effective November 29, 1995, to the Seitel, Inc. 1993 Incentive Stock Option Plan (18) 10.6 Statement of Amendments effective April 22, 1996, to the Seitel, Inc. 1993 Incentive Stock Option Plan (18) 10.7 Amendment to the Seitel, Inc. 1993 Incentive Stock Option Plan effective December 31, 1996 (20) 10.8 Amendment to Limit Options Granted to a Single Participant under the Seitel, Inc. 1993 Incentive Stock Option Plan (22) 10.9 Amendment to Increase Number of Shares Available for Granting Options under the Seitel, Inc. 1993 Incentive Stock Option Plan (22) 10.10 Non-Employee Directors' Stock Option Plan of the Company (13) 10.11 Amendment to the Seitel, Inc. Non-Employee Directors' Stock Option Plan effective December 31, 1996 (20) 10.12 Seitel, Inc. Non-Employee Directors' Deferred Compensation Plan (18) 10.13 Non-Employee Directors' Retirement Plan (27) 10.14 Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan (19) 10.15 Amendment to the Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan effective December 31, 1996 (20) 10.16 Memorandum of Understanding between the Company and Triangle Geophysical Company dated as of June 7, 1984 (1) 10.17 Lease Agreement by and between the Company and Commonwealth Computer Advisors, Inc. (2) 10.18 The Company's 401(k) Plan adopted January 1, 1998 (22) 10.19 Executive Services Agreement dated April 3, 1990 between the Company and Helm Resources, Inc. (7) 10.20 Employment Agreement effective as of January 1, 1991 between the Company and Paul A. Frame, Jr. (9) 10.21 Amendment to Employment Agreement dated effective as of January 1, 1998 between the Company and Paul A. Frame, Jr. (22) 10.22 Employment Agreement effective as of January 1, 1991 between the Company and Horace A. Calvert (9) 10.23 Amendment to Employment Agreement dated effective as of January 1, 1998 between the Company and Horace A. Calvert (22) 10.24 Employment Agreement effective as of January 1, 1991 between the Company and Herbert M. Pearlman (9) 10.25 Amendment to Employment Agreement dated effective as of January 1, 1998 between the Company and Herbert M. Pearlman (22) 10.26 Employment Agreement effective as of January 1, 1991 between the Company and David S. Lawi (9) 10.27 Amendment to Employment Agreement dated effective as of January 1, 1998 between the Company and David S. Lawi (22) 10.28 Employment Agreement effective as of January 1, 1993 between the Company and Debra D. Valice (12) 10.29 Amendment to Employment Agreement dated effective as of January 1, 1998 between the Company and Debra D. Valice (22) 10.30 Amendment to Employment Agreement dated effective as of June 10, 1998 between the Company and Debra D. Valice (23) 10.31 Joint Venture Agreement dated April 5, 1990 by and between Seitel Offshore Corp., a wholly-owned subsidiary of the Company, and Digicon Data Inc., a wholly-owned subsidiary of Digicon Geophysical Corp. (6) 10.32 Revolving Credit Agreement dated as of July 22, 1996, among Seitel, Inc. and The First National Bank of Chicago (18) 10.33 First Amendment to Seitel, Inc. Revolving Credit Agreement dated as of August 30, 1996 among the Company and The First National Bank of Chicago (19) 10.34 Second Amendment to Revolving Credit Agreement dated as of July 22, 1996, among Seitel, Inc. and The First National Bank of Chicago (21) 10.35 Ratable Note in the amount of $20,000,000 among Seitel, Inc. and Bank One, Texas, N.A. dated as of May 1, 1997 (21) 10.36 Ratable Note in the amount of $30,000,000 among Seitel, Inc. and The First National Bank of Chicago dated as of May 1, 1997 (21) 10.37 Third Amendment to Revolving Credit Agreement dated as of March 16, 1998 among Seitel, Inc. and The First National Bank of Chicago (22) 10.38 Ratable Note in the amount of $40,000,000 among Seitel, Inc. and The First National Bank of Chicago dated March 16, 1998 (22) 10.39 Ratable Note in the amount of $35,000,000 among Seitel, Inc. and Bank One, Texas, N.A. dated as of March 16, 1998 (22) 10.40 Amendment No. 4, dated as of August 10, 1999, among Seitel, Inc., a Delaware Corporation; the Lenders executing this Agreement and the First National Bank of Chicago, as Agent for the Lenders (27) 10.41 Incentive Compensation Agreement (10) 10.42 Terms Agreement dated July 28, 1994, between the Company and Bear, Stearns & Co., Inc. (13) 10.43 Note Purchase Agreement dated as of December 28, 1995, between the Company and the Series A Purchasers, the Series B Purchasers and the Series C Purchasers (17) 10.44 First Amendment to Note Purchase Agreement dated as of February 12, 1999 between the Company and Senior Noteholders as of December 28, 1995 (26) 10.45 Second Amendment, dated as of July 14, 1999, to the Separate Note Purchase Agreements, dated as of December 28, 1995, among Seitel, Inc. and the Noteholders (27) 10.46 Third Amendment, dated as of November 22, 1999, to the Separate Note Purchase Agreements, dated as of December 28, 1995, among Seitel, Inc. and the Noteholders* 10.47 Revolving Credit Agreement dated as of December 11, 1998, between the Company and Suntrust Bank, Atlanta (25) 10.48 Note Purchase Agreement dated as of February 12, 1999, between the Company and the Series D Purchasers, the Series E Purchasers and the Series F Purchasers (25) 10.49 First Amendment, dated as of July 14, 1999, to the Separate Note Purchase Agreements, dated as of February 12, 1999, among Seitel, Inc. and the Noteholders (27) 10.50 Second Amendment, dated as of November 22, 1999, to the Separate Note Purchase Agreements, dated as of February 12, 1999, among Seitel, Inc. and the Noteholders * 10.51 Revolving Credit Agreement, dated as of November 9, 1999, between Olympic Seismic Ltd. and Royal Bank of Canada * 10.52 Amendment, dated as of March 2, 2000, to the Revolving Credit Agreement, dated as of November 9, 1999, between Olympic Seismic Ltd. and Royal Bank of Canada * 21.1 Subsidiaries of the Registrant * 23.1 Consent of Arthur Andersen LLP * 23.2 Consent of Garb Grubbs Harris & Associates, Inc.* (b) Reports on Form 8-K filed during the quarter ended December 31, 1999: NONE ------------------ * Filed herewith (1) Incorporated by reference to the Company's Registration Statement, as amended, on Form S-1, No. 2-92572 as filed with the Securities and Exchange Commission on August 3, 1984. (2) Incorporated by reference to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-2, File No. 33-32838, as filed with the Securities and Exchange Commission on October 10, 1991. (3) Incorporated by reference to the Company's Registration Statement, as amended, on Form S-2, No. 33-21300 as filed with the Securities and Exchange Commission on April 18, 1988. (4) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. (6) Incorporated by reference to the Company's Form 8 amending the Company's Annual Report on Form 10-K for the year ended December 31, 1989. (7) Incorporated by reference to the Company's Registration Statement, as amended, on Form S-2, No. 33-34217 as filed with the Commission on April 6, 1990. (8) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. (9) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1991. (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (11) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1993. (12) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1993. (13) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1994. (14) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 33-89934 as filed with the Securities and Exchange Commission on March 2, 1995. (15) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1995. (16) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 333-01271 as filed with the Securities and Exchange Commission on February 28, 1996. (17) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (18) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1996. (19) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1996. (20) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (21) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 1997. (22) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (23) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1998. (24) Incorporated by reference to the Company's Registration Statement on Form S-8, No. 333-64557 as filed with the Securities and Exchange Commission on September 29, 1999. (25) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (26) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 1999. (27) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. SEITEL, INC. By: /s/ Paul A. Frame --------------------------------------- Paul A. Frame President Date: March 29, 2000 Pursuant to the requirements of the Securities Act of 1934, this Report on Form 10-K has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ Herbert M. Pearlman Chairman of the Board of Directors March 29, 2000 - ------------------------- Herbert M. Pearlman /s/ Paul A. Frame President and Chief Executive March 29, 2000 - ------------------------- Officer, Director Paul A. Frame /s/ Horace A. Calvert Executive Vice President and March 29, 2000 - ------------------------- Chief Operating Officer, Horace A. Calvert Director /s/ Debra D. Valice Executive Vice President-Finance, March 29, 2000 - ------------------------- Chief Financial Officer, Debra D. Valice Secretary and Treasurer, Director /s/ David S. Lawi Director March 29, 2000 - ------------------------- David S. Lawi /s/ Walter M. Craig, Jr. Director March 29, 2000 - ------------------------- Walter M. Craig, Jr. /s/ William Lerner Director March 29, 2000 - ------------------------- William Lerner /s/ John Stieglitz Director March 29, 2000 - ------------------------- John Stieglitz /s/ Fred S. Zeidman Director March 29, 2000 - ------------------------- Fred S. Zeidman /s/ Marcia H. Kendrick Chief Accounting Officer March 29, 2000 - ------------------------- Marcia H. Kendrick REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Seitel, Inc.: We have audited the accompanying consolidated balance sheets of Seitel, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Seitel, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas February 25, 2000 F-1 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, ----------------------------- 1999 1998 --------- --------- ASSETS Cash and equivalents $ 5,188 $ 3,161 Receivables Trade, less allowance for doubtful accounts of $1,183 and $936 at December 31, 1999 and 1998, respectively 62,240 59,244 Notes and other 436 581 Data bank 629,380 513,037 Less: Accumulated amortization (299,495) (250,087) --------- --------- Net data bank 329,885 262,950 Property and equipment, at cost: Oil and gas properties, full-cost method of accounting, including $54,426 and $53,458 not being amortized at December 31, 1999 and 1998, respectively 204,858 194,576 Furniture, fixtures and other 7,343 6,237 --------- --------- 212,201 200,813 Less: Accumulated depreciation, depletion and amortization (59,614) (49,542) --------- --------- Net property and equipment 152,587 151,271 Investment in marketable securities 993 - Investment in affiliate - 15,544 Prepaid expenses, deferred charges and other assets 4,590 3,016 --------- --------- TOTAL ASSETS $ 555,919 $ 495,767 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-2 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- continued (In thousands, except share and per share amounts)
December 31, ----------------------------- 1999 1998 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 35,497 $ 58,956 Accrued liabilities 11,302 6,882 Employee compensation payable 2,986 5,717 Income taxes payable 373 1,056 Debt Senior Notes 184,667 65,000 Line of credit 40,500 85,500 Term loans 33 172 Obligations under capital leases 23 18 Contingent payables 274 274 Deferred income taxes 32,778 28,039 Deferred revenue 4,462 6,566 --------- --------- Total Liabilities 312,895 258,180 --------- --------- CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY Preferred stock, par value $.01 per share; authorized 5,000,000 shares; none issued - - Common stock, par value $.01 per share; authorized 50,000,000 shares; issued and outstanding 24,285,795 and 23,804,508 at December 31, 1999 and 1998, respectively 243 238 Additional paid-in capital 147,549 141,826 Retained earnings 110,117 107,102 Treasury stock, 680,518 and 175,818 shares at cost at December 31,1999 and 1998, respectively (6,279) (2,977) Notes receivable from officers and employees (6,915) (8,651) Accumulated other comprehensive income (loss) (1,691) 49 --------- --------- TOTAL STOCKHOLDERS' EQUITY 243,024 237,587 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 555,919 $ 495,767 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-3 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended December 31, ------------------------------------------------- 1999 1998 1997 --------- --------- --------- REVENUE $ 128,707 $ 144,857 $ 127,556 EXPENSES Depreciation, depletion and amortization 59,624 69,890 49,679 Impairment of oil and gas properties - - 9,560 Cost of sales 5,016 4,874 17,953 Selling, general and administrative expenses 28,587 26,599 23,043 --------- --------- --------- 93,227 101,363 100,235 --------- --------- --------- INCOME FROM OPERATIONS 35,480 43,494 27,321 Interest expense (11,791) (5,963) (4,609) Interest income 714 423 1,055 Equity in earnings (loss) of affiliate (91) 222 146 Impairment due to dividend distribution of affiliate stock (7,794) - - Gain on sale of subsidiary stock - - 18,449 Increase (decrease) in underlying equity of affiliate - (193) 10,750 Extinguishment of volumetric production payment - - (4,133) --------- --------- --------- Income before provision for income taxes 16,518 37,983 48,979 Provision for income taxes 7,138 13,623 17,422 --------- --------- --------- NET INCOME $ 9,380 $ 24,360 $ 31,557 ========= ========= ========= Earnings per share: Basic $ .39 $ 1.07 $ 1.48 Diluted $ .39 $ 1.05 $ 1.43 Weighted average number of common and common equivalent shares: Basic 23,863 22,720 21,380 ========= ========= ========= Diluted 24,063 23,124 22,050 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts)
Notes Receivable Accumulated Compre- Common Stock Additional Treasury Stock from Other hensive ------------------ Paid-In Retained ----------------- Officers & Comprehensive Income Shares Amount Capital Earnings Shares Amount Employees Income -------- --------- ------ -------- ------- -------- ------ -------- ---------- Balance, December 31, 1996 10,362,102 $ 104 $105,544 $ 51,185 (409)$ (4) $ (1,205) $ 17 Net proceeds from issuance of common stock 912,472 8 17,318 - - - - - Two-for-one stock split 11,273,834 113 (113) - (409) - - - Tax reduction from exercise of stock options - - 5,657 - - - - - Treasury stock purchased - - - - (175,000) (2,973) - - Payments received on notes receivable from officers and employees - - - - - - 96 - Net income $ 31,557 - - - 31,557 - - - - Foreign currency translation adjustments (31) - - - - - - - (31) -------- Comprehensive income $ 31,526 ======== ---------- ------ -------- ------- -------- ------ -------- ---------- Balance, December 31, 1997 22,548,408 225 128,406 82,742 (175,818) (2,977) (1,109) (14) Net proceeds from issuance of common stock 106,067 1 983 - - - - - Tax reduction from exercise of stock options - - 344 - - - - - Sale of common stock to officers and employees 794,300 8 8,183 - - - (8,191) - Acquisition of oil and gas properties 355,733 4 3,910 - - - - - Payments received on notes receivable from officers and employees - - - - - - 649 - Net income $ 24,360 - - - 24,360 - - - - Foreign currency translation adjustments 63 - - - - - - - 63 -------- Comprehensive income $ 24,423 ======== ---------- ------ -------- ------- -------- ------ -------- ---------- Balance, December 31, 1998 23,804,508 238 141,826 107,102 (175,818) (2,977) (8,651) 49 Net proceeds from issuance of common stock 481,287 5 5,126 - - - - - Tax reduction from exercise of stock options - - 597 - - - - - Treasury stock purchased - - - - (504,700) (3,302) - - Payments received on notes receivable from officers and employees - - - - - - 1,736 - Distribution of Eagle Geophysical, Inc. shares - - - (6,365) - - - - Net income $ 9,380 - - - 9,380 - - - - Foreign currency translation adjustments (695) - - - - - - - (695) Unrealized loss on marketable securities net of income tax benefit of $526 (1,045) - - - - - - - (1,045) -------- Comprehensive income $ 7,640 ======== ---------- ------ -------- ------- -------- ------ -------- ---------- Balance, December 31, 1999 24,285,795 $ 243 $147,549 $110,117 (680,518)$ (6,279) $ (6,915) $ (1,691) ========== ======= ======== ======= ======== ====== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------------------ 1999 1998 1997 ---------- --------- ---------- Cash flows from operating activities: Cash received from customers $ 117,085 $ 128,747 $ 123,795 Cash paid to suppliers and employees (32,534) (22,549) (41,652) Interest paid (8,926) (5,792) (4,584) Interest received 623 398 955 Income taxes paid (1,754) (3,311) (2,353) ---------- --------- ---------- Net cash provided by operating activities 74,494 97,493 76,161 ---------- --------- ---------- Cash flows from investing activities: Cash invested in seismic data (128,194) (119,267) (76,616) Cash invested in oil and gas properties (27,857) (40,929) (55,480) Cash paid to acquire property and equipment (1,073) (839) (8,772) Net proceeds from sale of oil and gas properties 11,657 - - Cash from disposal of property and equipment - 17 28 Proceeds from sale of stock of subsidiary - - 29,723 Costs related to sale of stock of subsidiary - - (5,435) Cash received from affiliate for advances - - 2,094 Collections on loans made - - 5,415 Investment in marketable securities (3,043) - - Deferred offering costs (80) - - ---------- --------- ---------- Net cash used in investing activities (148,590) (161,018) (109,043) ---------- --------- ---------- Cash flows from financing activities: Borrowings under line of credit agreement 91,314 108,812 63,500 Principal payments under line of credit agreement (136,314) (38,312) (48,500) Borrowings under term loans - - 7,925 Principal payments on term loans (139) (305) (2,301) Principal payments under capital lease obligations (28) (71) (828) Proceeds from issuance of senior notes 138,000 - - Principal payments under senior notes (18,333) (10,000) - Proceeds from issuance of common stock 5,167 1,063 17,361 Costs of debt and equity transactions (1,571) (79) (35) Repurchase of common stock (3,302) - (2,735) Payments on notes receivable from officers and employees 1,736 649 96 ---------- --------- ---------- Net cash provided by financing activities 76,530 61,757 34,483 ---------- --------- ---------- Effect of exchange rate changes (407) 48 (60) ---------- --------- ---------- Net increase (decrease) in cash and equivalents 2,027 (1,720) 1,541 Cash and equivalents at beginning of period 3,161 4,881 3,340 ---------- --------- ---------- Cash and equivalents at end of period $ 5,188 $ 3,161 $ 4,881 ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 SEITEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--continued (In thousands)
Year Ended December 31, --------------------------------------------- 1999 1998 1997 ----------- ---------- ---------- Reconciliation of net income to net cash provided by operating activities: Net income $ 9,380 $ 24,360 $ 31,557 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of subsidiary stock - - (18,449) Decrease (increase) in underlying equity of affiliate - 193 (10,750) Extinguishment of volumetric production payment - - 4,133 Impairment due to dividend distribution of affiliate stock 7,794 - - Equity in loss (earnings) of affiliate 91 (222) (146) Depreciation, depletion and amortization 59,624 69,890 62,293 Deferred income tax provision 5,501 9,989 8,257 Non-cash sales (6,522) (1,140) - Gain on sale of property and equipment - (32) (16) Amortization of deferred revenue - - (4,079) Increase in receivables, net (2,851) (14,706) (3,544) Decrease (increase) in other assets 402 (314) (849) Discount on note receivable - - (198) Increase in accounts payable and other liabilities 1,075 9,475 7,952 ----------- ---------- ---------- Total adjustments 65,114 73,133 44,604 ----------- ---------- ---------- Net cash provided by operating activities $ 74,494 $ 97,493 $ 76,161 =========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-7 SEITEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: Seitel, Inc. (the "Company") is a leading diversified energy company providing seismic data and related geophysical services to the oil and gas industry and directly participating in exploration, development and ownership of natural gas and crude oil reserves. The majority of the Company's seismic surveys cover onshore and offshore the U.S. Gulf Coast region. The Company's oil and gas exploration, development and production activities are on properties located primarily in the onshore Gulf Coast areas of Texas, Louisiana, Alabama and Mississippi, as well as California and Arkansas. In the course of its operations, the Company is subject to certain risk factors, including, but not limited to, the following: competition, industry conditions, volatility of oil and gas prices, operating risks, dependence of key personnel, geographic concentration of operations and compliance with governmental regulations. Use of Estimates: The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from estimates. Data bank amortization is determined using estimates of ultimate revenues from licensing of the seismic data. Refer to the data bank discussion below for additional information on data bank amortization. Depreciation, depletion and amortization of oil and gas properties and the impairment of oil and gas properties are determined using estimates of proved oil and gas reserves and the present value of estimated cash flows therefrom. There are numerous uncertainties in estimating the quantity of proved reserves and in projecting the future rates of production and timing of development expenditures. Refer to Note S, "Supplemental Oil and Gas Information" for additional information regarding the process of estimating proved oil and gas reserve quantities and related values. Basis of Presentation: The accompanying consolidated financial statements include the accounts of Seitel, Inc., the accounts of its wholly-owned subsidiaries and the Company's pro rata share of its investments in joint ventures. Investments in less than majority owned companies over which the Company has the ability to exercise significant influence are accounted for using the equity method. All material intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the amounts in the prior years' financial statements to conform to the current year's presentation. The Company presents its consolidated balance sheets on an unclassified basis. Because the portion of seismic data acquisition costs to be amortized during the next year cannot be classified as a current asset, and classification of all of these costs as noncurrent would be misleading to the reader because it would not indicate the level of assets expected to be converted into cash in the next year, the Company believes that the use of an unclassified balance sheet results in improved financial reporting. Data Bank: Costs incurred in the creation of proprietary seismic data, including the direct and incremental costs of Company personnel engaged in project management and design, are capitalized. Substantially all (greater than 88%) of the costs incurred to develop the Company's data bank have been for programs created by the Company. The Company uses the income forecast method to amortize the costs of seismic data programs it creates. Under the income forecast method, seismic data costs are amortized in the proportion that revenue for a period relates to management's estimate of ultimate revenues. Management estimates that 90% of the costs incurred in the creation of seismic data is amortized within five years of such data becoming available for resale for two-dimensional seismic data and within seven years of such data becoming available for resale for three-dimensional seismic data. If anticipated sales fall below expectations, amortization is accelerated. The Company also purchases existing seismic data programs from other companies. The costs of purchased seismic data programs are generally amortized on a straight-line basis over ten years; however, the costs of a significant purchase (greater than 5% of the net book value of the data bank), are amortized using the greater of the income forecast method or ten-year straight-line method. As of December 31, 1999, almost all (97%) of the net costs of the Company's data bank are expected to be fully amortized within 10 years from when such data becomes available for resale. On a periodic basis, the carrying value of seismic data is compared to F-8 its estimated future revenue and, if appropriate, is reduced to its estimated net realizable value. Net data bank at December 31, 1999 and 1998 was comprised of the following (in thousands):
December 31, ------------------------------ 1999 1998 ------------ ------------ 2D data created by the Company $ 11,475 $ 14,269 3D data created by the Company 279,577 230,163 Data purchased by the Company 38,833 18,518 ------------ ------------ Net data bank $ 329,885 $ 262,950 ============ ============
Oil and Gas Properties: The Company accounts for its oil and gas exploration and production activities using the full-cost method of accounting. Under this method, all costs associated with acquisition, exploration and development of oil and gas reserves are capitalized, including salaries, benefits and other internal costs, directly attributable to these activities. Costs associated with production and general corporate activities are expensed in the period incurred. For the years ended December 31, 1999, 1998 and 1997, exploration and development related overhead costs of $1,938,000, $1,795,000 and $1,431,000, respectively, have been capitalized to oil and gas properties. Interest costs related to unproved properties and certain properties under development are also capitalized to oil and gas properties. For the years ended December 31, 1999, 1998 and 1997, interest costs of $3,101,000, $2,486,000 and $2,105,000, respectively, have been capitalized to oil and gas properties. No gains or losses are recognized upon the sale of oil and gas properties unless a significant portion of the Company's proved oil and gas reserves are sold (generally greater than 25 percent). Instead, proceeds from the sale of oil and gas properties are accounted for as a reduction of capitalized costs. In July 1999, the Company sold its 18.75% working interest in 11 oil and gas wells, one salt water disposal well and approximately 16,000 acres of leasehold and options to lease for approximately $11.7 million, net of costs. Depreciation, depletion and amortization ("DD&A") expense is calculated quarterly using the units-of-production method based upon production and estimates of proved reserves. Estimated future development costs and site restoration, dismantlement and abandonment costs, net of salvage values, are included in the amortization base. Capitalized costs associated with the acquisition and evaluation of unproved properties and certain properties under development are not included in the amortization base until the properties associated with these costs are evaluated. Capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, are limited to the present value, discounted at 10 percent, of future net cash flows from estimated proved oil and gas reserves, based on current economic and operating conditions, plus the lower of cost or fair value of unproved properties, adjusted for the effects of related income taxes. If capitalized costs exceed this limit, the excess is charged to impairment of oil and gas properties. Based on the Company's December 31, 1997 estimated proved reserves valued at March 18, 1998 market prices, the Company recorded a non-cash impairment of oil and gas properties of $9,560,000 ($6,160,000 net of taxes) in 1997. At March 31, 1999, the Company's capitalized costs of oil and gas properties exceeded the limitation thereon based on quarter-end oil and gas prices; however, an impairment was not recorded at that time because price increases in April 1999 indicated that capitalized costs were not impaired. Given the volatility of oil and gas prices, it is reasonably possible that the Company's estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline significantly in the future, even if only for a short period of time, it is possible that additional impairments of oil and gas properties could occur. Substantially all of the Company's exploration and development activities are conducted jointly with others and, accordingly, the Company's oil and gas property balance reflects only its proportionate interest in such activities. Other Property and Equipment: Depreciation of other property and equipment is calculated using the straight-line method over the estimated useful lives of the assets of three to five years. Marketable Equity Securities: The Company accounts for its marketable equity securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company's marketable securities are categorized as available-for-sale and are carried at fair value, with unrealized holding F-9 gains and losses, net of taxes, reflected in accumulated other comprehensive income (loss) included in stockholders' equity until realized. For the purpose of computing realized gains and losses, cost is identified on a specific identification basis. At December 31, 1999, unrealized losses on marketable securities were $1,571,000. The deferred tax benefit on this loss was $526,000 at December 31, 1999, resulting in a net charge of $1,045,000 to other comprehensive income. Debt Issue Costs: Debt issue costs related to the Company's Senior Notes and line of credit are included in prepaid expenses, deferred charges and other assets in the consolidated balance sheet. Such costs are amortized over the scheduled maturities of the debt. As of December 31, 1999 and 1998, unamortized debt issue costs were $1,762,000 and $532,000, respectively. Income Taxes: The Company and all of its U.S. subsidiaries file a consolidated federal income tax return. The Company does not provide U.S. taxes on the undistributed earnings of its foreign subsidiaries whose earnings are intended to be permanently reinvested in foreign operations. At December 31, 1999, accumulated net earnings of non-U.S. subsidiaries for which no U.S. federal taxes have been provided were $6,609,000. Income Recognition: Revenue from seismic data licensing agreements is recognized when each seismic data program is available for use by the licensees, and is presented net of revenue shared with other entities. Revenue from the acquisition of seismic data for non-affiliated parties is recognized on the percentage-of-completion method based on the work effort completed compared with the total work effort estimated for the contract. These contracts generally provide that the customer accepts work completed throughout the performance period and owes the Company, based on pricing provisions, amounts for job completion, measured in terms of performance progress. Revenue received in advance of being earned is deferred until earned. In certain cases, the Company grants seismic licenses to third parties for data to be used in their operations (not for resale) in exchange for exclusive ownership of seismic data from the third party. The Company recognizes revenue for the licenses granted and records a data library asset for the seismic data acquired. These transactions are accounted for as non-monetary exchanges and are valued at the fair market value of such licenses based on values realized in cash transactions with other parties for similar seismic data. Cost of Sales: Cost of sales consists of expenses associated with oil and gas production, seismic resale support services and the acquisition of seismic data for non-affiliated parties (until August 11, 1997). The cost of acquiring seismic data for non-affiliated parties includes all direct material and labor costs and indirect costs related to the acquisition such as supplies, tools, repairs and depreciation. Foreign Currency Translation: For subsidiaries whose functional currency is deemed to be other than the U.S. dollar, asset and liability accounts are translated at period-end exchange rates and revenue and expenses are translated at the current exchange rates as of the dates on which they are recognized. Resulting translation adjustments are included in accumulated other comprehensive income (loss) in stockholders' equity. Any gains or losses realized on transactions or monetary assets or liabilities in currencies other than the functional currency are included in net income in the current period. Transaction gains (losses) totaling $455,000, $108,000 and $(87,000) for the years ended December 31, 1999, 1998 and 1997, respectively, are included in selling general and administrative expenses in the consolidated statements of operations. Use of Derivatives: The Company has a price risk management program that utilizes derivative financial instruments, principally natural gas swaps, to reduce the price risks associated with fluctuations in natural gas prices. Such contracts usually are placed with major derivative dealers that the Company believes are minimal credit risks. The Company accounts for its derivative financial instruments using the hedge (or deferral) method of accounting. Under this method, realized gains and losses from the Company's price risk management activities are recognized in oil and gas production revenues when the associated production occurs and the resulting cash flows are reported as cash flows from operating activities. Gains and losses on derivative financial instruments that are closed before the hedged production occurs are deferred until the production month originally hedged. F-10 In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, is required to be adopted on January 1, 2001, although earlier adoption is permitted. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. The Company has not yet quantified the impact of adopting SFAS No. 133. However, management does not believe that the adoption of SFAS No. 133 will have a material impact on the Company's financial position or results of operations. Earnings per Share: In accordance with SFAS No. 128, "Earnings Per Share," basic earnings per share is computed based on the weighted average shares of common stock outstanding during the periods. Diluted earnings per share is computed based on the weighted average shares of common stock plus the assumed issuance of common stock for all potentially dilutive securities. Earnings per share computations to reconcile basic and diluted net income for the years 1999, 1998 and 1997 consist of the following (in thousands except per share amounts):
Year Ended December 31, -------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Net income $ 9,380 $ 24,360 $ 31,557 ========== ========== ========== Basic weighted average shares 23,863 22,720 21,380 Effect of dilutive securities: (1) Options and warrants 200 404 670 ---------- ---------- ---------- Diluted weighted average shares 24,063 23,124 22,050 ========== ========== ========== Per share net income: Basic $ .39 $ 1.07 $ 1.48 Diluted $ .39 $ 1.05 $ 1.43 - ------------------- (1) A weighted average year-to-date number of options and warrants to purchase 5,517,000, 187,000 and 1,007,000 shares of common stock were outstanding during 1999, 1998 and 1997, respectively, but were not included in the computation of diluted per share net income because their exercise prices were greater than the average market price of the common shares.
Stock-Based Compensation: The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Reference is made to Note H, "Stock Options and Warrants," for a summary of the pro forma effect of SFAS No. 123, "Accounting for Stock-Based Compensation" on the Company's results of operations in 1999, 1998 and 1997. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. The estimated fair value amounts have been determined by the Company using available market data and valuation methodologies. The book values of cash and equivalents, receivables and accounts payable approximate their fair value as of December 31, 1999 and 1998, because of the short-term maturity of these instruments. Based upon the rates available to the Company, the fair value of the Senior Notes and the term loans approximates $182,656,000 and $65,149,000 as of December 31, 1999 and 1998, respectively. The book value of the Company's revolving line of credit approximates fair value due to the variable interest rates under the line. F-11 Impairment of Long-Lived Assets: In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be realizable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value. There were no such impairments recorded under SFAS No. 121 in 1999, 1998 or 1997. Accounting For Sales of Stock By Subsidiary Companies: The Company recognizes gains or losses on sales of stock by its subsidiary companies when such sales are not made as part of a larger plan of corporate reorganization. Such gains or losses are based upon the difference between the book value of the Company's investment in the subsidiary immediately after the sale and the historical book value of the Company's investment immediately prior to the sale. Comprehensive Income: In accordance with SFAS No. 130, "Reporting Comprehensive Income," the Company has reported comprehensive income in the consolidated statements of stockholders' equity for the three years ended December 31, 1999. Accumulated other comprehensive income for the Company consists of foreign currency translation adjustments and unrealized gains (losses) on marketable securities. Cumulative translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Allowance for Doubtful Accounts: Activity in the Company's allowance for doubtful accounts receivable consists of the following (in thousands):
December 31, ----------------------------------- 1999 1998 ------------ ------------ Balance at beginning of period $ 936 $ 561 Additions to costs and expenses 365 400 Deductions for uncollectible receivables written off and recoveries (118) (25) ------------ ------------ Balance at end of period $ 1,183 $ 936 ============ ============
NOTE B--INCOME TAXES The provision for income taxes for each of the three years ended December 31, 1999, are comprised of the following (in thousands):
1999 1998 1997 --------- ---------- --------- Current - Federal $ 1,456 $ 3,018 $ 8,709 - State 156 165 314 - Foreign 25 451 142 --------- ---------- --------- 1,637 3,634 9,165 --------- ---------- --------- Deferred - Federal 1,678 9,463 8,256 - State - - 1 - Foreign 3,823 526 - --------- ---------- --------- 5,501 9,989 8,257 --------- ---------- --------- Tax provision - Federal 3,134 12,481 16,965 - State 156 165 315 - Foreign 3,848 977 142 --------- ---------- --------- $ 7,138 $ 13,623 $ 17,422 ========= ========== =========
F-12 The differences between the U.S. Federal income taxes computed at the statutory rate (35%) and the Company's income taxes for financial reporting purposes are as follows (in thousands):
1999 1998 1997 -------- ------- -------- Statutory Federal income tax $ 5,781 $ 13,294 $ 17,143 State income tax, less Federal benefit 101 107 206 Tax difference on foreign earnings 913 211 - Other, net 343 11 73 -------- ------- -------- Income tax expense $ 7,138 $ 13,623 $ 17,422 ======== ======= ========
The components of the net deferred income tax liability reflected in the Company's consolidated balance sheets at December 31, 1999 and 1998 were as follows (in thousands):
Deferred Tax Assets (Liabilities) at December 31, ----------------------------------- 1999 1998 ---------- ---------- Alternative minimum tax credit carryforward $ 1,136 $ 4,324 Partnership earnings 1,243 945 Canadian tax credits 1,358 - Investment tax credits 44 44 Other 2,742 1,407 ---------- ---------- Total deferred tax assets 6,523 6,720 Less: Valuation allowance (44) (44) ---------- ---------- Deferred tax assets, net of valuation allowance 6,479 6,676 ---------- ---------- Depreciation, depletion and amortization (34,256) (30,615) Deferred revenue (3,168) - Financial gain on sale of subsidiary stock - (2,934) Other (1,833) (1,166) ---------- ---------- Total deferred tax liabilities (39,257) (34,715) ---------- ---------- Net deferred tax liability $ (32,778) $ (28,039) ========== ==========
As of December 31, 1999, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $1,136,000 which can be used to offset regular Federal income taxes payable in future years. The AMT credit has an indefinite carryforward period. In connection with the exercise of non-qualified stock options and common stock purchase warrants by employees during 1999, 1998 and 1997, the Company received $597,000, $344,000 and $5,657,000, respectively, in Federal income tax savings which has been reflected as a credit to additional paid-in capital. F-13 NOTE C--DEBT The following is a summary of the Company's debt at December 31, 1999 and 1998 (in thousands):
December 31, --------------------------- 1999 1998 ---------- ---------- Senior notes, Series A, 7.17%, maturing in equal amounts of $8,333 through 2001 $ 16,667 $ 25,000 Senior notes, Series B, 7.17%, maturing in equal amounts of $5,500 through 2002 16,500 22,000 Senior notes, Series C, 7.48%, maturing in equal amounts of $4,500 through 2002 13,500 18,000 Senior notes, Series D, 7.03%, maturing in 2004 20,000 - Senior notes, Series E, 7.28%, maturing in equal amounts of $12,500 beginning 2004 through 2009 75,000 - Senior notes, Series F, 7.43%, maturing in 2009 43,000 - Parent revolving credit agreement, maturing in 2001 (average 7.22% at December 31, 1999) 40,500 66,500 Parent revolving credit agreement, cancelled in 1999 - 19,000 Subsidiary revolving credit agreement - - Term loans, 7.9%, maturing in varying amounts through 2000 33 172 ---------- ---------- $ 225,200 $ 150,672 ========== ==========
Senior Notes: The Company has issued six series of unsecured Senior Notes totaling $213 million through private placement. Interest on the Series A, B and C Senior Notes is payable semi-annually on June 30 and December 30 and interest on the Series D, E and F Senior Notes is payable semi-annually on February 15 and August 15. Accrued interest of $3,735,000 is included in accrued liabilities at December 31, 1999. At December 31, 1998, the Company did not have any accrued interest on the Senior Notes. Lines of Credit: The Company has a $75 million unsecured revolving line of credit facility that matures on March 16, 2001. The facility bears interest at a rate determined by the ratio of the Company's debt to cash flow from operations. Pursuant to the interest rate pricing structure, funds can currently be borrowed at LIBOR plus 1 1/2%, the bank's prevailing prime rate, or the sum of the Federal Funds effective rate for such day plus 1/2%. Certain restrictions exist that limit the amount of borrowings that the Company can make under the credit facility. In February 1999, the Company paid all amounts outstanding under a $25 million line of credit and cancelled the line of credit. On November 9, 1999, the Company's wholly-owned subsidiary, Olympic Seismic Ltd. ("Olympic"), entered into revolving credit facilities which allow it to borrow up to $5 million (Canadian dollars) by way of prime based loans, bankers' acceptances or letters of credit. Prime based loans and bankers' acceptances bear interest at the rate of the bank's prime rate plus 0.35% per annum and 0.50% per annum, respectively. Letter of credit fees are based on scheduled rates in effect at the time of issuance. The facility is secured by Olympic's assets, but is not guaranteed by Seitel, Inc. or any of its other subsidiaries. Borrowings under the facility are limited to 75% of trade receivables less than 90 days old. The facility is subject to repayment upon demand and is available from time to time at the Bank's sole discretion. Olympic did not have any amounts outstanding under this line of credit at December 31, 1999. The financial covenant restrictions for the Senior Notes and line of credit include, among others, interest coverage, maintenance of minimum net worth and limitations on liens, total debt, debt issuance and disposition of assets. The Company was in compliance with the financial convenants at December 31, 1999. Aggregate maturities of the Company's debt over the next five years and thereafter are as follows: $18,367,000 in 2000; $58,833,000 in 2001; $10,000,000 in 2002, $0 in 2003, $32,500,000 in 2004 and $105,500,000 thereafter. F-14 NOTE D--LEASE OBLIGATIONS Assets recorded under capital leases obligations of $30,000 and $17,000 at December 31, 1999 and 1998, respectively, are included in property and equipment. The Company leases office space under operating leases. Rental expense for 1999, 1998 and 1997 was approximately $1,112,000, $757,000 and $606,000, respectively. Future minimum lease payments for the five years subsequent to December 31, 1999 and in the aggregate are as follows (in thousands):
Capital Operating Leases Leases ----------- ----------- 2000 $ 24 $ 900 2001 - 697 2002 - 423 2003 - 153 2004 153 ----------- ----------- Total minimum lease payments 24 $ 2,326 =========== Less amount representing interest (1) ----------- Present value of net minimum lease payments $ 23 ===========
NOTE E--VOLUMETRIC PRODUCTION PAYMENT In June 1996, the Company sold a volumetric production payment for $19 million to certain limited partnerships. Under the terms of the production payment agreements, the Company conveyed a mineral property interest of approximately 7.6 billion cubic feet of certain natural gas and approximately 363,000 barrels of other hydrocarbons to the purchasers. The Company retained responsibility for its working interest share of the cost of operations. The Company accounted for the proceeds received in the transaction as deferred revenue which was amortized into revenue and income as natural gas and other hydrocarbons were produced and delivered. The Company entered into an agreement to extinguish the remaining portion of its volumetric production payment which was effective July 1, 1997. The cost to acquire the production payment liability exceeded its book value. As a result of this transaction, the Company recorded a pre-tax loss of $4,133,000 in the accompanying consolidated statement of operations for the year ended December 31, 1997. NOTE F--CONTINGENCIES AND COMMITMENTS At both December 31, 1999 and 1998, $274,000 of charges for seismic surveys which are payable to joint venture partners only from the collection of sales proceeds from those seismic surveys are included in contingent payables. The Company has employment agreements with certain of its key employees and other incentive compensation arrangements that commit it to commissions based on revenue, bonuses based on pre-tax profits, and other amounts based on seismic data program and oil and gas project profitability. Part III of the Company's Form 10-K contains a more complete discussion of these contractual obligations. The Company guarantees borrowings up to $750,000 made by its president under a line of credit. The Company is only obligated to make payment in the event of default by its president. The Company has a contractual right of offset against any salary, bonus, commission or other amounts due from the Company to its president for any amounts paid by the Company pursuant to this guaranty. At December 31, 1999, $700,000 was outstanding on this line of credit, which represented the maximum amount outstanding on this line of credit for the year. The Company did not make any payments under this guaranty during 1999. The Company is involved from time to time in or threatened with litigation and is subject to governmental and regulatory controls arising in the ordinary course of business. It is the opinion of the Company's management that all claims and litigation involving the Company are not likely to have a material adverse effect on its financial position or results of operations. F-15 The Company, as an owner of oil and gas properties, is subject to various federal, state and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. The Company maintains insurance coverage, which it believes is customary in the industry, although it is not fully insured against all environmental risks. The Company is not aware of any environmental claims existing as of December 31, 1999, which would have a material impact on its financial position or results of operations. NOTE G--FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK The Company has a price risk management program that utilizes derivative financial instruments, principally natural gas swaps, to reduce the price risk associated with fluctuations in natural gas prices. Such contracts usually are placed with major derivative dealers that the Company believes are minimal credit risks. The derivative financial instruments call for the Company to receive or make payments based upon the differential between a fixed and a variable commodity price as specified in the contract. As a result of these activities, the Company recognized net hedging gains (losses) of $(308,000), $653,000 and $474,000 for the years ended December 31, 1999, 1998 and 1997, respectively. As of December 31, 1999, the Company had open natural gas swaps through July 2000 covering 10,000 MMBtu per day at a fixed price of $2.51 per MMBtu and for August 2000 covering 5,000 MMBtu per day at a fixed price of $2.57 per MMBtu. The estimated fair value of open commodity price hedges as of December 31, 1999 and December 31, 1997 was $(377,000) and $183,000, respectively. As of December 31, 1998, the Company did not have any open commodity price hedges. NOTE H--STOCK OPTIONS AND WARRANTS The Company presently maintains four stock option plans under which the Company's officers, directors and employees may be granted options or warrants to purchase the Company's common stock. The exercise price, term and other conditions applicable to each option or warrant granted under the Company's plans are generally determined by the Compensation Committee at the time of grant and may vary with each option or warrant granted. All options and warrants issued under the Company's plans are issued at or above the market price of the Company's common stock as of the date of issuance, have a term of no more than ten years and vest under varying schedules in accordance with the terms of the respective option or warrant agreements. The following summarizes information with regard to the stock option and warrant plans for the years ended December 31, 1999, 1998 and 1997 (shares in thousands):
1999 1998 1997 ------------------------ ------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- ---------- -------- ---------- -------- ---------- Outstanding at beginning of year 6,768 $ 12.99 5,659 $ 16.33 4,758 $ 11.50 Granted 878 12.98 5,015 13.75 3,444 20.18 Exercised (481) 10.75 (102) 9.74 (1,809) 9.26 Cancelled (312) 11.87 (3,804) 19.00 (734) 20.53 -------- -------- -------- Outstanding at end of year 6,853 13.01 6,768 12.99 5,659 16.33 ======== ======== ======== Options exercisable at end of year 5,626 5,363 4,147 ======== ======== ======== Available for grant at end of year 1,636 1,170 1,256 ======== ======== ========
F-16 The following table summarizes information for the options and warrants outstanding at December 31, 1999 (shares in thousands):
Options Outstanding Options Exercisable -------------------------------------------- --------------------------- Number of Weighted Weighted Number of Weighted Options Average Average Options Average Outstanding Contractual Exercise Exercisable Exercise Range of Exercise Prices at 12/31/99 Life in Price at 12/31/99 Price Years - ----------------------------- ----------- ------------- ---------- ----------- ---------- $ 2.65 - $ 11.82 1,776 3.25 $ 9.73 1,480 $ 10.00 $ 12.31 - $ 12.50 680 5.85 12.41 680 12.41 $ 12.87 - $ 13.73 3,663 3.46 13.72 2,810 13.71 $ 14.34 - $ 24.60 684 4.26 17.45 606 17.77 $ 24.93 - $ 24.93 50 6.73 24.93 50 24.93 ----------- ----------- $ 2.65 - $ 24.93 6,853 13.01 5,626 13.11 =========== ===========
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. APB Opinion No. 25 generally does not require compensation costs to be recorded on options which have exercise prices at least equal to the market price of the stock on the date of grant. Accordingly, no compensation cost has been recognized for the Company's stock-based plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the optional accounting method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
1999 1998 1997 ---------- ---------- ---------- Net income As reported $ 9,380 $ 24,360 $ 31,557 Pro forma $ 5,331 $ 15,159 $ 17,039 Basic earnings per share As reported $ .39 $ 1.07 $ 1.48 Pro forma $ .22 $ .67 $ .80 Diluted earnings per share As reported $ .39 $ 1.05 $ 1.43 Pro forma $ .22 $ .66 $ .78
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 1999, 1998 and 1997, respectively: (1) risk-free interest rates ranging from 5.56% to 6.73%, 4.44% to 5.03% and 5.79% to 6.79%; (2) dividend yield of 0%, 0% and 0%; (3) stock price volatility ranging from 47.84% to 482.90%, 44.34% to 57.10% and 37.23% to 45.77%, and (4) expected option lives ranging from .67 to 10 years, .42 to 10 years and 1.67 to 10 years. The weighted-average fair value of options granted during 1999, 1998 and 1997 was $12.57, $11.94 and $9.98 per option, respectively, for options granted at fair market value and $7.13, $13.75 and $10.15 per option for options granted above fair market value in 1999, 1998 and 1997, respectively. The pro forma amounts shown above may not be representative of future results because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995. NOTE I--NON-EMPLOYEE DIRECTORS' PLANS The Company has a Non-Employee Directors' Deferred Compensation Plan which permits each non-employee director to elect to receive annual director fees in the form of stock options and to defer receipt of any director fees in a deferred cash account or as deferred shares. As of December 31, 1999, 60,000 shares have been reserved for issuance under this plan and directors have accumulated 7,067 deferred shares in their accounts of which 656 shares have been distributed and 6,411 will be distributed in future years. In 1999, the Company's Board of Directors adopted the Non-Employee Directors' Retirement Plan which provides that each non-employee director with 10 or more years continuous service is eligible to receive a retirement benefit based on a formula defined in the plan. In 1999, the Company expensed $18,000 related to this plan. F-17 NOTE J--COMMON STOCK On November 20, 1997, the shareholders of the Company approved an increase in the Company's authorized common stock to 50,000,000 shares to facilitate a two-for-one stock split, effected in the form of a 100% stock dividend, which was approved by the Board of Directors on October 7, 1997. The two-for-one stock split was paid in the form of a stock dividend to shareholders of record as of December 3, 1997. All numbers of shares and per share amounts in the accompanying consolidated financial statements and footnotes have been restated to give effect to the two-for-one stock split except where noted. In December 1997, the Company's Board of Directors approved the expenditure of up to $25 million to repurchase the Company's common stock. As of December 31, 1999, the Company has repurchased 679,700 shares of common stock at a cost of $6,275,000 under this plan. The Company may offer from time to time in one or more series (i) unsecured debt securities, which may be senior or subordinated, (ii) preferred stock and (iii) common stock or any combination of the foregoing, up to an aggregate of $41,041,600 pursuant to an effective "shelf" registration statement filed with the Securities and Exchange Commission ("SEC"). In addition, under another effective "shelf" registration statement filed with the SEC, the Company may offer up to an aggregate of $200,000,000 of the following securities, in any combination, from time to time in one or more series: (1) unsecured debt securities, which may be senior or subordinated; (2) preferred stock; (3) common stock, and (4) trust preferred securities. On July 21, 1992, the Company granted ten-year loans at an interest rate of 4% to most of its employees for the purchase of 800,000 shares of the Company's common stock at the then market price of $2.69 per share. Payment of 5% of the original principal balance plus accrued interest are due annually August 1, with a balloon payment of the remaining principal and interest due August 1, 2002. On October 2, 1998, the Company granted five-year loans at an interest rate of 4% to most of its employees for the purchase of 794,300 shares of the Company's common stock at the then market price of $10.31 per share. Payment of 60% of the loan amount plus accrued interest is being made in equal monthly, quarterly or annual payments, as applicable, and a balloon payment of the remaining 40% is due on October 2, 2003. The Company recorded related compensation expense due to the below market interest rate on these loans of $114,000, $54,000 and $43,000 for the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, the Company received $1,736,000, $649,000 and $96,000, respectively, as principal payments on these notes. The stock certificates are held by the Company as collateral until payment is received. NOTE K--PREFERRED STOCK The Company is authorized by its Amended Certificate of Incorporation to issue 5,000,000 shares of preferred stock, the terms and conditions to be determined by the Board of Directors in creating any particular series. As of December 31, 1999, no preferred stock had been issued. NOTE L--INVESTMENT IN EAGLE GEOPHYSICAL, INC. On August 11, 1997, the Company's wholly-owned seismic data acquisition crew subsidiary, Eagle Geophysical, Inc. ("Eagle"), completed an initial public offering ("Offering") in which the Company sold 1,880,000 of its 3,400,000 shares of Eagle common stock as a selling stockholder. The Company received net proceeds of $29,723,000 from its participation in the Offering, resulting in a pre-tax gain, net of costs of $18,449,000 on the sale of Eagle common stock in 1997. Additionally, the Company recorded a pre-tax gain, net of costs, of $10,750,000 in 1997 representing an increase in the Company's underlying equity of Eagle as a result of Eagle's issuance of stock in connection with the Offering. In 1998, Eagle issued stock in connection with two acquisitions which caused the Company to record a pre-tax loss of $193,000 for the year ended December 31, 1998. On April 22, 1999, the Board of Directors of Seitel, Inc. declared to its common stockholders a dividend consisting of the remaining 1,520,000 shares of the common stock of Eagle owned by the Company. The dividend was declared at the rate of approximately 0.064 shares of Eagle common stock for each share of Seitel, Inc. common stock owned as of the close of business on the record date of May 18, 1999. The fair market value of the common stock of Eagle held by the Company on the date this dividend was declared was lower than the carrying value of the stock on the Company's balance sheet; therefore, a non-cash, non-recurring, pre-tax impairment, net of bonus effect, of $7,794,000 was recorded for the year ended December 31, 1999. F-18 NOTE M--RELATED PARTY TRANSACTIONS The Company periodically uses the seismic data acquisition services of Eagle. The Company incurred charges of $27,385,000, $79,900,000 and $22,200,000 for these services for the four months ended April 30, 1999, for the year ended December 31, 1998 and from the period August 11, 1997 through December 31, 1997, respectively. The Company owed Helm Resources, Inc. and its subsidiaries ("Helm"), a company that has three executive officers who are directors of the Company, $2,000 as of December 31, 1999 and 1998 for sales of seismic data they jointly own and for general and administrative expenses paid by Helm on behalf of the Company. The Company incurred charges of $115,000, $99,000 and $76,000, for these general and administrative expenses during 1999, 1998 and 1997, respectively. Management believes that these expenses, which were specifically related to the Company's business, represented costs which would have been incurred in similar amounts by the Company if such services that were performed by Helm were performed by an unaffiliated entity. Certain employees and directors of the Company contributed cash to partnerships in 1994 through 1997 which invested in the exploration and development of oil and gas properties on a working interest basis along with DDD Energy, Inc. ("DDD Energy"). Each partnership's working interest amounted to 2.5% of the total investment made by such partnership and DDD Energy for the partnership formed in 1997, 3% for the partnership formed in 1996 and 5% for the partnerships formed in 1995 and 1994. On October 1, 1998, DDD Energy purchased the oil and gas interests owned by each of the partnerships in exchange for 355,733 shares of the Company's common stock, payment of $824,000 and assumption of each partnership's liabilities totaling $1,555,000. NOTE N--MAJOR CUSTOMERS No customers accounted for 10% or more of revenues during the years 1999, 1998 or 1997. The Company extends credit to various companies in the oil and gas industry for the purchase of their seismic data, which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other conditions and may accordingly impact the Company's overall credit risk. However, management believes that the risk is mitigated by the number, size, reputation and diversified nature of the companies to which they extend credit. Historical credit losses incurred on receivables by the Company have been immaterial. NOTE O--STATEMENT OF CASH FLOW INFORMATION For purposes of the statement of cash flows, the Company considers all highly liquid investments or debt instruments with original maturity of three months or less to be cash equivalents. Operating cash flows reported in the consolidated statements of cash flows do not reflect effects of changes in inventory levels because the Company reports no inventories and classifies cash expenditures for its seismic data library as an investing, rather than an operating, activity. Significant non-cash investing and financing activities are as follows: 1. During 1999, the Company declared to its common stockholders a dividend consisting of the remaining 1,520,000 shares of common stock of Eagle owned by the Company with a fair market value of $6,365,000. 2. During 1999 and 1997, capital lease obligations totaling $33,000 and $374,000, respectively, were incurred when the Company entered into leases for property and equipment. 3. During 1998, the Company issued 355,733 shares of its common stock valued at $3,914,000 to acquire interests in certain oil and gas properties and assumed liabilities totaling $1,555,000. 4. During 1998, the Company issued 794,300 shares of its common stock to its officers and employees in exchange for notes receivable of $8,191,000. F-19 NOTE P--INDUSTRY SEGMENTS The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" in 1998. SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. The Company operates in two reportable segments - seismic and exploration and production. In 1997, the Company had an additional reporting segment - geophysical services. The long-term financial performance of each of the reportable segments is affected by similar economic conditions. The accounting policies of the segments are the same as those described in Footnote A to these consolidated financial statements. Intersegment sales are accounted for at prices comparable to those received from unaffiliated customers. The Company evaluates performance of each reportable segment based on operating income (loss) before selling, general and administrative expenses, interest income and expense, income taxes, non-recurring items and accounting changes. Financial information by reportable segment for the three years ended December 31, 1999, was as follows (in thousands):
Exploration and Geophysical Total Seismic Production Services Segments ------------- ------------- ------------- ------------- 1999 Revenue from external purchasers $ 109,671 $ 19,036 $ - $ 128,707 Depreciation, depletion and amortization 49,375 9,093 - 58,468 Cost of sales 296 4,720 - 5,016 Segment operating income 60,000 5,223 - 65,223 Assets 391,849 157,925 - 549,774 Capital expenditures (a) 116,525 22,318 - 138,843 1998 Revenue from external purchasers $ 125,863 $ 18,994 $ - $ 144,857 Depreciation, depletion and amortization 57,117 11,872 - 68,989 Cost of sales 191 4,683 - 4,874 Segment operating income 68,555 2,439 - 70,994 Assets 317,292 156,623 - 473,915 Capital expenditures (a) 139,167 48,173 - 187,340 1997 Revenue from external purchasers $ 85,560 $ 25,680 $ 16,316 $ 127,556 Intersegment revenue - - 18,456 18,456 Depreciation, depletion and amortization 35,163 12,666 983 48,812 Impairment of oil and gas properties - 9,560 - 9,560 Cost of sales 394 5,168 26,855 32,417 Segment operating income (loss) 50,003 (1,714) 6,934 55,223 Assets 219,288 122,930 - 342,218 Capital expenditures (a) 89,472 64,418 8,478 162,368 (a) Includes other ancillary equipment.
F-20 The following geographic information for the three years ended December 31, 1999 pertains to the Company's seismic segment (in thousands):
Other United Foreign States Canada Countries Total ----------- ----------- ----------- ----------- 1999 Revenue from external customers $ 83,532 $ 26,139 $ - $ 109,671 Assets 347,672 42,654 1,523 391,849 1998 Revenue from external customers $ 117,623 $ 7,370 $ 870 $ 125,863 Assets 301,704 13,797 1,791 317,292 1997 Revenue from external customers $ 82,228 $ 2,748 $ 584 $ 85,560 Assets 215,273 1,986 2,029 219,288
All exploration and production activities are conducted in the United States. The following table reconciles segment information to consolidated totals: (in thousands)
December 31, ---------------------------------------------------------- 1999 1998 1997 ----------- ----------- ------------ Revenue: Revenue from external purchasers $ 128,707 $ 144,857 $ 127,556 Intersegment revenue - - 18,456 Intercompany eliminations - - (18,456) ----------- ----------- ------------ Total consolidated revenue $ 128,707 $ 144,857 $ 127,556 =========== =========== ============ Depreciation, depletion and amortization: Total reportable segment depreciation, depletion and amortization $ 58,468 $ 68,989 $ 48,812 Corporate and other 1,156 901 867 ----------- ----------- ------------ Total consolidated depreciation, depletion and amortization $ 59,624 $ 69,890 $ 49,679 =========== =========== ============ Cost of Sales: Total reportable segment cost of sales $ 5,016 $ 4,874 $ 32,417 Intercompany eliminations - - (14,464) ----------- ----------- ------------ Total consolidated cost of sales $ 5,016 $ 4,874 $ 17,953 =========== =========== ============ Income from continuing operations before income taxes: Total reportable segment operating income $ 65,223 $ 70,994 $ 55,223 Selling general and administrative expense (28,587) (26,599) (23,043) Interest expense, net (11,077) (5,540) (3,554) Equity in earnings (loss) of affiliate (91) 222 146 Impairment due to dividend distribution of affiliate stock (7,794) - - Gain on sale of subsidiary stock - - 18,449 Increase (decrease) in underlying equity of affiliate - (193) 10,750 Extinguishment of volumetric production payment - - (4,133) Eliminations and other (1,156) (901) (4,859) ----------- ----------- ------------ Income from continuing operations before income taxes $ 16,518 $ 37,983 $ 48,979 =========== =========== ============ Assets: Total reportable segment assets $ 549,774 $ 473,915 $ 342,218 Corporate and other 6,145 21,852 23,464 ----------- ----------- ------------ Total consolidated assets $ 555,919 $ 495,767 $ 365,682 =========== =========== ============
F-21 NOTE Q--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1999 and 1998.
Quarter Ended ------------------------------------------------------------- (In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 ---------- ---------- ----------- ----------- 1999 Revenue $ 37,881 $ 34,127 $ 24,617 $ 32,082 Gross profit(1) 19,130 18,181 11,641 16,271 Provision for income taxes 848 2,879 850 2,561 Net income 750 4,875 824 2,931 Earnings per share: (2) Basic .03 .20 .03 .12 Diluted .03 .20 .03 .12 1998 Revenue $ 30,927 $ 36,976 $ 38,332 $ 38,622 Gross profit(1) 14,851 18,123 17,825 20,195 Provision for income taxes 2,873 3,741 3,693 3,316 Net income 4,865 6,369 6,288 6,838 Earnings per share: (2) Basic .22 .28 .28 .29 Diluted .21 .28 .28 .29 (1) Gross profit represents revenue less data bank amortization, depletion of oil and gas properties and cost of sales. (2) The sum of the individual quarterly earnings per share may not agree with the year to date earnings per share as each period's computation is based on the weighted average number of common shares outstanding during the period.
NOTE R--PROPOSED SALE OF OIL AND GAS SUBSIDIARY In November 1999, the Company's 19% owned subsidiary, Vision Energy, Inc. ("Vision Energy"), filed a registration statement with the SEC to accomplish the spin-off of DDD Energy, a wholly-owned subsidiary, through an initial public offering. In the proposed offering, Vision Energy would acquire all of the stock of DDD Energy from the Company in exchange for the issuance of shares of Vision Energy stock to the Company, and the Company would sell most of these Vision Energy shares in the public offering for cash. Completion of the offering is expected to occur during the second or third quarter of 2000; however, its completion is dependent upon market conditions and other factors. The Company continues to explore opportunities to maximize the value of DDD Energy. In the event the sale is not completed, DDD Energy will continue to be a wholly-owned subsidiary of the Company. The Company does not anticipate a loss will be incurred on this transaction. As of December 31, 1999, the Company had incurred costs totaling $757,000 in connection with the proposed initial public offering. The costs have been included in prepaid expenses, deferred charges and other assets in the consolidated balance sheet as of December 31, 1999. If the offering is completed, the costs will be deducted from the proceeds received from the offering. If the offering is not completed, the costs will be charged to expense in the period a decision is made to terminate the offering. NOTE S--SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) The following information concerning the Company's oil and gas operations is presented in accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities." F-22 Oil and Gas Reserves: Proved oil and gas reserves represent estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods being utilized at the time the estimates were made. The following table sets forth estimates of proved reserves and proved developed reserves of natural gas and crude oil (including condensate and natural gas liquids) attributable to the Company's interest in oil and gas properties. The reserve estimates presented herein were prepared by the independent petroleum engineering firms of Garb Grubbs Harris & Associates, Inc. (formerly Forrest A. Garb & Associates, Inc.) at December 31, 1999 and 1998, and Miller and Lents, Ltd. and Garb Grubbs Harris & Associates, Inc. at December 31, 1997 in accordance with guidelines established by the SEC. It should be noted that these reserve quantities are estimates and may be subject to substantial upward or downward revisions. The estimates are based on the most current and reliable information available; however, additional information obtained through future production and experience and additional development of existing reservoirs may significantly alter previous estimates of proved reserves.
Oil Gas (Mbbl) (MMcf) ------------ ------------ Proved reserves at December 31, 1996 2,294 23,761 Revisions of previous estimates (500) (3,863) Repurchase of volumetric production payment 98 3,736 Extensions and discoveries 1,110 28,491 Production (364) (5,131) ------------ ------------ Proved reserves at December 31, 1997 2,638 46,994 Revisions of previous estimates 2,374 12,698 Purchases of reserves in place 284 2,898 Extensions and discoveries 2,428 17,685 Production (386) (6,216) ------------ ------------ Proved reserves at December 31, 1998 7,338 74,059 Revisions of previous estimates (1,494) (6,978) Purchases of reserves in place 118 6,600 Sales of reserves in place (1,307) (11,336) Extensions and discoveries 152 5,405 Production (346) (5,693) ------------ ------------ Proved reserves at December 31, 1999 4,461 62,057 ============ ============ Proved developed reserves - December 31, 1996 902 11,563 ============ ============ December 31, 1997 1,744 18,483 ============ ============ December 31, 1998 5,265 37,844 ============ ============ December 31, 1999 2,355 19,608 ============ ============
In addition to the production indicated above, in 1997 the Company delivered 56,000 barrels and 1,795 million cubic feet under the terms of a volumetric production payment agreement. The proved reserves disclosed above exclude proved sulfur reserves of 260,000 long tons, 420,000 long tons and 174,000 long tons at December 31, 1999, 1998 and 1997, respectively. F-23 Capitalized Costs of Oil and Gas Properties: As of December 31, 1999 and 1998, the Company's capitalized costs of oil and gas properties were as follows (in thousands):
December 31, ------------------------- 1999 1998 ---------- --------- Unproved properties $ 54,426 $ 53,458 Proved properties 150,432 141,118 ---------- --------- Total capitalized costs 204,858 194,576 Less: Accumulated depreciation, depletion and amortization (54,692) (45,599) ---------- --------- Net capitalized costs $ 150,166 $ 148,977 ========== =========
Of the total costs excluded from the amortization calculation as of December 31, 1999, $15,951,000 was incurred during 1999, $22,243,000 was incurred during 1998, $5,761,000 was incurred during 1997, $6,702,000 was incurred during 1996, $1,932,000 was incurred during 1995 and $1,837,000 was incurred during 1994. The Company cannot accurately predict when these costs will be included in the amortization base, but it is expected that these costs will be evaluated in the next three to five years. Costs Incurred in Oil and Gas Activities: The following table sets forth the Company's costs incurred for oil and gas activities for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ----------- ----------- --------- Acquisition of properties: Evaluated $ - $ 4,701 $ 13,813 Unevaluated 8,303 15,207 10,857 Exploration costs 12,789 22,708 26,961 Development costs 847 5,318 12,318 ----------- ----------- --------- Total costs incurred $ 21,939 $ 47,934 $ 63,949 =========== =========== =========
Results of Operations for Oil and Gas Producing Activities: The following table sets forth the results of operations for oil and gas producing activities for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ----------- ----------- -------- Revenue $ 18,637 $ 18,663 $ 25,282 Production costs (4,706) (4,673) (5,155) Depreciation, depletion and amortization (9,093) (11,872) (12,666) Impairment of oil and gas properties - - (9,560) ----------- ----------- -------- Income (loss) before income taxes 4,838 2,118 (2,099) Income tax benefit (expense) (1,693) (741) 735 ----------- ----------- -------- Results of operations $ 3,145 $ 1,377 $ (1,364) =========== =========== ========
In addition to the revenues and production costs disclosed above, the Company had revenues from sulfur sales and related production costs of $399,000 and $14,000, respectively, for the year ended December 31, 1999, $331,000 and $10,000, respectively, for the year ended December 31, 1998 and $398,000 and $13,000, respectively, for the year ended December 31, 1997. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves: The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves as prescribed by SFAS No. 69. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Future prices actually received may differ from the estimates in the standardized measure. F-24 Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to the Company's proved oil and gas reserves and the tax basis of proved oil and gas properties, adjusted for tax credits and allowances. The resulting annual net cash flows were then discounted to present value amounts by applying a 10 percent annual discount factor. Although the information presented is based on the Company's best estimates of the required data, the methods and assumptions used in preparing the data were those prescribed by the FASB. Although not market sensitive, they were specified in order to achieve uniformity in assumptions and to provide for the use of reasonably objective data. It is important to note here that this information is neither fair market value nor the present value of future cash flows and it does not reflect changes in oil and gas prices experienced since the respective year-end. It is primarily a tool designed by the FASB to allow for a reasonable comparison of oil and gas reserves and changes therein through the use of a standardized method. Accordingly, the Company cautions that this data should not be used for other than its intended purpose. Management does not rely upon the following information in making investment and operating decisions. The Company, along with its partners, bases such decisions upon a wide range of factors, including estimates of probable as well as proved reserves, and varying price and cost assumptions considered more representative of a range of possible economic conditions that may occur in the future.
December 31, ------------------------------------------ 1999 1998 1997 ---------- ----------- --------- (in thousands) Cash inflows $ 247,158 $ 248,608 $ 162,762 Production costs (56,308) (43,065) (21,417) Development costs (37,099) (17,131) (21,659) Income taxes (36,554) (47,541) (27,453) ---------- ---------- --------- Future net cash flows 117,197 140,871 92,233 10 percent annual discount (45,133) (59,328) (27,636) ---------- ---------- --------- Standardized measure of discounted future net cash flows (1) (2) $ 72,064 $ 81,543 $ 64,597 ========== ========== ========= (1) Estimated future net cash flows before income tax expense, discounted at 10 percent per annum, totaled approximately $94,796,000, $107,649,000 and $83,282,000 as of December 31, 1999, 1998 and 1997, respectively. (2) The above table excludes future net cash flows before income taxes of $5,029,000, $9,167,000 and $3,187,000, and discounted future net cash flows before income taxes of $2,854,000, $4,310,000 and $2,350,000, as of December 31, 1999, 1998 and 1997, respectively, related to proved sulfur reserves.
F-25 The following are the principal sources of changes in the standardized measure of discounted future net cash flows for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 --------- ---------- ---------- Standardized measure, beginning of year $ 81,543 $ 64,597 $ 52,090 Extensions and discoveries, net of related costs 13,001 34,102 45,193 Sales of oil and gas produced, net of production costs (13,931) (13,990) (16,035) Net changes in prices and production costs 26,992 (25,385) (28,384) Change in future development costs (9,608) 3,626 (2,650) Development costs incurred during the period that reduced future development costs 227 4,330 7,802 Revision of previous quantity estimates (19,232) 31,358 (8,927) Repurchase of volumetric production payment - - 8,319 Purchases of reserves in place 6,222 4,609 - Sales of reserves in place (23,402) - - Accretion of discount 10,765 8,328 7,276 Net change in income taxes 3,375 (7,422) 1,988 Change in production rates and other (3,888) (22,610) (2,075) --------- ---------- ---------- Standardized measure, end of year $ 72,064 $ 81,543 $ 64,597 ========= ========== ==========
F-26 EXHIBIT INDEX - ------- ----------------------------------------------------------- ------ Exhibit Title Page Number - ------- ----------------------------------------------------------- ------ 10.46 Third Amendment, dated as of November 22, 1999, to the 53 Separate Note Purchase Agreements, dated as of December 28, 1995, among Seitel, Inc. and the Noteholders 10.50 Second Amendment, dated as of November 22, 1999, to the 58 Separate Note Purchase Agreements, dated as of February 12, 1999, among Seitel, Inc. and the Noteholders 10.51 Revolving Credit Agreement, dated as of November 9, 1999, 63 between Olympic Seismic Ltd. and Royal Bank of Canada 10.52 Amemdment, dated as of March 2, 2000, to the Revolving 87 Credit Agreement, dated as of November 9, 1999, between Olympic Seismic Ltd. and Royal Bank of Canada 21.1 Subsidiaries of the Registrant 89 23.1 Consent of Arthur Andersen LLP 91 23.2 Consent of Garb Grubbs Harris & Associates, Inc. 93 EX-10.46 2 THIRD AMENDMENT TO 12/28/95 NOTE AGREEMENT EXHIBIT 10.46 THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT THIS THIRD AMENDMENT, dated as of November 22, 1999 (the "Amendment"), to the separate Note Purchase Agreements, dated as of December 28, 1995, is among Seitel, Inc. (the "Company") and each of the institutions which is a signatory to this Amendment (collectively, the "Noteholders"). RECITALS: A. The Company and each of the Noteholders have heretofore entered into separate Note Purchase Agreements dated as of December 28, 1995 (collectively, as amended and in effect immediately prior to the effectiveness of this Amendment, the "Existing Note Purchase Agreement"), pursuant to which the Company issued: (a) $25,000,000 aggregate principal amount of its 7.17% Series A Senior Notes due December 30, 2001 (the "Series A Notes"), (b) $27,500,000 aggregate principal amount of its 7.17% Series B Senior Notes due December 30, 2002 (the "Series B Notes"), and (c) $22,500,000 of its 7.48% Series C Senior Notes due December 30, 2002 (the "Series C Notes", and together with the Series A Notes and the Series B Notes, the "Notes"). B. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Existing Note Purchase Agreement unless herein defined or the context shall otherwise require. C. The Company and the Noteholders now desire to amend the Existing Note Purchase Agreement in the respects, but only in the respects, hereinafter set forth. D. All requirements of law have been fully complied with and all other acts and things necessary to make this Amendment a legal, valid and binding instrument according to its terms for the purposes herein expressed have been done or performed. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Noteholders do hereby agree as follows: SECTION 1. AMENDMENTS. 1.1 Amendment to Section 10.6(b)(i). Section 10.6(b)(i) of the Existing Note Purchase Agreement is hereby amended and restated in its entirety as follows: "(i) Notwithstanding the provisions of Section 10.6(a), the determination of whether a Transfer involves a Substantial Portion of the property of the Company and the Restricted Subsidiaries, as provided in Section 10.6(a)(iii)(A), shall be made without taking into account the same proportion of the book value attributable to the property subject to such Transfer as shall be equal to the proportion of the Net Asset Sale Proceeds Amount (the "Designated Portion") to be applied to either (x) a prepayment of the Notes pursuant to Section 8.2 of this Agreement and a prepayment of the New Notes pursuant to Section 8.2 of the New Note Purchase Agreement, pro rata based on the then outstanding principal amount of and required Make-Whole Amount (with respect to the New Notes, as defined in the New Note Purchase Agreement) due with respect to the prepayment of each series of the Notes and the New Notes (a "Prepayment Transfer") or (y) the acquisition of assets similar to the assets which were the subject of such Transfer (a "Reinvested Transfer") within one hundred eighty (180) days of the consummation of such Transfer, as specified in an Officer's Certificate delivered to each holder prior to, or contemporaneously with, the consummation of such Transfer." 1.2 Amendment to Schedule B. Schedule B to the Existing Note Purchase Agreement is hereby amended to add, in the proper alphabetical order, the following defined terms: "New Notes -- means the Company's 7.03% Series D Senior Notes due February 15, 2004 in the original aggregate principal amount of $20,000,000, 7.28% Series E Senior Notes due February 15, 2009 in the original aggregate principal amount of $75,000,000, and 7.43% Series F Senior Notes due February 15, 2009 in the original aggregate principal amount of $43,000,000 issued pursuant to the New Note Purchase Agreement." "New Note Purchase Agreement -- means each of the separate Note Purchase Agreements between the Company and the purchasers of the New Notes, dated February 12, 1999, as amended from time to time." SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To induce the Noteholders to execute and deliver this Amendment (which representations shall survive such execution and delivery), the Company represents and warrants to the Noteholders that: (a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware; (b) this Amendment has been duly authorized, executed and delivered by the Company and this Amendment constitutes a legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the Existing Note Purchase Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (d) the execution, delivery and performance by the Company of this Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this paragraph (d); and (e) as of the date hereof and after giving effect to this Amendment, no Default or Event of Default has occurred which is continuing. SECTION 3. MISCELLANEOUS. 3.1 This Amendment shall be construed in connection with and as part of the Existing Note Purchase Agreement, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Existing Note Purchase Agreement and the Notes are hereby ratified and shall be and remain in full force and effect. 3.2 This Amendment constitutes a contract between the Company and the Noteholders for the uses and purposes hereinabove set forth, and may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. 3.3 Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all the promises and agreements contained in this Amendment by or on behalf of the Company and the Noteholders shall bind and inure to the benefit of the respective successors and assigns of such parties, whether so expressed or not. 3.4 This Amendment constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. 3.5 This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York. 3.6 This Amendment shall become effective at such time as it has been executed by the Company and the Required Holders. [The remainder of this page is intentionally left blank. Next page is signature page.] IN WITNESS WHEREOF, the parties hereto have caused the execution of this Amendment by duly authorized officers of each as of the date hereof. SEITEL, INC. By /s/ Debra D. Valice ------------------------------------ Debra D. Valice, Executive Vice President - Finance Accepted and Agreed to: [NOTEHOLDER] By ------------------------------- Name: Title: EX-10.50 3 SECOND AMENDMENT TO 11/22/99 NOTE AGREEMENT EXHIBIT 10.50 SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT THIS SECOND AMENDMENT, dated as of November 22, 1999 (the "Amendment"), to the separate Note Purchase Agreements, dated as of February 12, 1999, is among Seitel, Inc. (the "Company") and each of the institutions which is a signatory to this Amendment (collectively, the "Noteholders"). RECITALS: A. The Company and each of the Noteholders have heretofore entered into separate Note Purchase Agreements dated as of February 12, 1999 (collectively, as amended and in effect immediately prior to the effectiveness of this Amendment, the "Existing Note Purchase Agreement"), pursuant to which the Company issued: (a) $20,000,000 aggregate principal amount of its 7.03% Series D Senior Notes due February 15, 2004 (the "Series D Notes"), (b) $75,000,000 aggregate principal amount of its 7.28% Series E Senior Notes due February 15, 2009 (the "Series E Notes"), and (c) $43,000,000 of its 7.43% Series F Senior Notes due February 15, 2009 (the "Series F Notes", and together with the Series D Notes and the Series E Notes, the "Notes"). B. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Existing Note Purchase Agreement unless herein defined or the context shall otherwise require. C. The Company and the Noteholders now desire to amend the Existing Note Purchase Agreement in the respects, but only in the respects, hereinafter set forth. D. All requirements of law have been fully complied with and all other acts and things necessary to make this Amendment a legal, valid and binding instrument according to its terms for the purposes herein expressed have been done or performed. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Noteholders do hereby agree as follows: SECTION 1. AMENDMENTS. 1.1 Amendment to Section 10.6(b)(i). Section 10.6(b)(i) of the Existing Note Purchase Agreement is hereby amended and restated in its entirety as follows: "(i) Notwithstanding the provisions of Section 10.6(a), the determination of whether a Transfer involves a Substantial Portion of the property of the Company and the Restricted Subsidiaries, as provided in Section 10.6(a)(iii)(A), shall be made without taking into account the same proportion of the book value attributable to the property subject to such Transfer as shall be equal to the proportion of the Net Asset Sale Proceeds Amount (the "Designated Portion") to be applied to either (x) a prepayment of the Notes pursuant to Section 8.2 of this Agreement and a prepayment of the Old Notes pursuant to Section 8.2 of the Old Note Purchase Agreement, pro rata based on the then outstanding principal amount of and required Make-Whole Amount (with respect to the Old Notes, as defined in the Old Note Purchase Agreement) due with respect to the prepayment of each series of the Notes and the Old Notes (a "Prepayment Transfer") or (y) the acquisition of assets similar to the assets which were the subject of such Transfer (a "Reinvested Transfer") within one hundred eighty (180) days of the consummation of such Transfer, as specified in an Officer's Certificate delivered to each holder prior to, or contemporaneously with, the consummation of such Transfer." 1.2 Amendment to Schedule B. Schedule B to the Existing Note Purchase Agreement is hereby amended to add, in the proper alphabetical order, the following defined terms: "Old Notes -- means the Company's 7.17% Series A Senior Notes due December 30, 2001 in the original aggregate principal amount of $25,000,000, 7.17% Series B Senior Notes due December 30, 2002 in the original aggregate principal amount of $27,500,000 and 7.48% Series C Senior Notes due December 30, 2002 in the original aggregate principal amount of $22,500,000 issued pursuant to the Old Note Purchase Agreement." "Old Note Purchase Agreement -- means each of the separate Note Purchase Agreements between the Company and the purchasers of the Old Notes, dated December 28, 1995, as amended from time to time." SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To induce the Noteholders to execute and deliver this Amendment (which representations shall survive such execution and delivery), the Company represents and warrants to the Noteholders that: (a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware; (b) this Amendment has been duly authorized, executed and delivered by the Company and this Amendment constitutes a legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the Existing Note Purchase Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (d) the execution, delivery and performance by the Company of this Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this paragraph (d); and (e) as of the date hereof and after giving effect to this Amendment, no Default or Event of Default has occurred which is continuing. SECTION 3. MISCELLANEOUS. 3.1 This Amendment shall be construed in connection with and as part of the Existing Note Purchase Agreement, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Existing Note Purchase Agreement and the Notes are hereby ratified and shall be and remain in full force and effect. 3.2 This Amendment constitutes a contract between the Company and the Noteholders for the uses and purposes hereinabove set forth, and may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. 3.3 Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all the promises and agreements contained in this Amendment by or on behalf of the Company and the Noteholders shall bind and inure to the benefit of the respective successors and assigns of such parties, whether so expressed or not. 3.4 This Amendment constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. 3.5 This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York. 3.6 This Amendment shall become effective at such time as it has been executed by the Company and the Required Holders. [The remainder of this page is intentionally left blank. Next page is signature page.] IN WITNESS WHEREOF, the parties hereto have caused the execution of this Amendment by duly authorized officers of each as of the date hereof. SEITEL, INC. By /s/ Paul A. Frame ------------------------------------- Paul A. Frame, President and Chief Executive Officer Accepted and Agreed to: [NOTEHOLDER] By ------------------------------- Name: Title: EX-10.51 4 NOTE AGREEMENT BETWEEN OLYMPIC & ROYAL BANK EXHIBIT 10.51 November 9, 1999 Olympic Seismic Ltd. 3750, 205 - 5th Ave. S.W. Calgary, Alta. T2P 2V7 Attention: Suzanne Bowden Dear Sirs: Re: Credit Facilities Further to our discussions, we are pleased to confirm the availability of the credit facilities described in this letter (the "Credit Facility"), subject to the following terms and conditions. Should you find the following terms and conditions of the Credit Facility to be acceptable, please acknowledge by signing and retuning the duplicate copy of this letter by November 30, 1999. The Credit Facility described below is in addition to the undernoted facilities which are governed by separate agreements: $100,000 Corporate Visa BORROWER: OLYMPIC SEISMIC LTD. (the "Borrower') - --------- LENDER: Royal Bank of Canada (the "Bank") through its branch of account - ------- (Branch of Account") at 339 - 8th Ave. S.W., Calgary, Alberta. AMOUNT: *$5,000,000 is available by way of: - ------- (a) Prime Based Loans; (b) Bankers' Acceptances; and/or (c) Letters of Credit. *5,000,000 is available between October 1st and May 30th annually. *2,000,000 is available between June 1st and Sept. 30th annually. Olympic Seismic Ltd. Page 2 Confirmation of Credit Facilities Letter November 9, 1999 PURPOSE: Operating purposes. - -------- MARGIN REQUIREMENTS:Total amounts outstanding under this credit facility plus the - ------------ amount of all claims having priority to the Bank shall not at any time exceed 75 % of good trade accounts receivable acceptable to the Bank excluding inter-company accounts, holdbacks receivable and the entire outstanding balance of accounts where any portion exceeds 90 days. INTEREST RATES: Prime Based Loans: Prime + .35% per annum - -------- All Segments The Borrower shall pay the Bank interest on all Prime Based Loans in the currency in which such loans are denominated. The Borrower shall pay such interest monthly in arrears at the applicable rates per annum set out above calculated on a daily basis on the outstanding amount of such loans and based on the actual number of days elapsed in the period for which such interest is payable. Such interest shall be payable on the last day of each month or on such other day in each month as may be specified by the Bank from time to time. ACCEPTANCE FEES: RBPAF +. 50% per annum - ---------- All Segments The Borrower shall pay to the Bank acceptance fees in Canadian Dollars in advance at the rate set forth above at the time of issue of each Bankers' Acceptance. Acceptance fees shall be calculated on the face amount of the Bankers' Acceptance issued and based upon the number of days in the term of the Bankers' Acceptance issued. COMMITMENT FEE: A non-refundable commitment fee of $12,750 shall be paid on the - ---------- acceptance of this Agreement. LETTER OF CREDIT FEES: Scheduled Rates - ----------- Letter of Credit fees are payable to the Bank at the scheduled rates of the Bank from time to time in effect on the date of issue in the currency in which the Letter of Credit is issued. The Letter of Credit fee shall be based upon the amount of the Letter of Credit issued and calculated on the number of days that the Letter of Credit is to be outstanding. Olympic Seismic Ltd. Page 3 Confirmation of Credit Facilities Letter November 9, 1999 REVOLVING FUNDS ARRANGEMENT: A loan administration fee of $125 is payable monthly in arrears - ----------- on the first business day of each month for the automatic revolvement of loans on behalf of the Borrower. STANDBY FEES:The Borrower shall pay to the Bank a standby fee of.125 % per - ------------ annum payable monthly in arrears on the 3rd day of each month calculated on a daily basis on the unutilized portion of this credit facility for the period commencing on Dec. 1, 1999 with the first payment to be made January 3rd, 2000. All or any portion of the maximum amount available under this credit facility may be permanently cancelled by the Borrower without penalty provided the Borrower prepays such amounts as may be necessary to ensure amounts outstanding under this credit facility are not in excess of the maximum amount available under this credit facility after giving effect to such cancellation. NOTICE REQUIREMENTS:The Borrower agrees that the Bank may from time to time establish - ------------ reasonable notice requirements for obtaining advances and making repayments hereunder. REPAYMENT: All amounts outstanding under this Credit Facility including the - --------- face amount of all Bankers' Acceptances are payable on demand and the following repayment provisions are in addition to and not in substitution for the Bank's right to make such demand. This is a revolving operating credit facility. The Borrower authorizes the Bank to advance and repay Prime Based Loans in minimum amounts of $5,000 in order to cover overdrafts and utilize deposits in account #100-116-1 (Tr.00009) or in such operating deposit accounts of the Borrower as may be specified by the Borrower to the Bank from time to time. SPECIAL PROVISIONS: The Special Provisions contained in Schedule "A" attached hereto - ---------- form part of this Agreement. EVIDENCE OF INDEBTEDNESS:The Bank shall maintain on the records of the Branch of Account, - ------------ accounts evidencing the Borrower's liability to the Bank in respect of amounts outstanding by the Borrower to the Bank under this Agreement. The Bank shall record the amounts outstanding under this Agreement, all payments made from time to time in respect thereof and all other amounts becoming due to the Bank under this Agreement which remain unpaid when due. The Bank's accounts constitute, in the absence of manifest error, prima facie evidence of ------------ the indebtedness of the Borrower to the Bank pursuant to this Olympic Seismic Ltd. Page 4 Confirmation of Credit Facilities Letter November 9, 1999 Agreement. The Borrower authorizes and directs the Bank to automatically debit, by mechanical, electronic or manual means, the bank accounts of the Borrower for all amounts payable under this Agreement, including but not limited to the repayment of principal and the payment of interest, fees and all charges for the keeping of such bank account. PREPAYMENTS: Subject to any provisions to the contrary which are contained in - ----------- this Agreement or any other agreement entered into by the Borrower with respect to amounts outstanding hereunder, amounts outstanding may be prepaid at any time without penalty. COVENANTS: Without affecting or limiting the right of the Bank at any time - --------- to demand payment or cancel any undrawn portion of any demand loan hereunder, the Borrower covenants and agrees with the Bank to: (1) it will pay duly and punctually all amounts due hereunder; (2) it will deliver to the Bank such financial and other information as the Bank may reasonably request from time to time, including but not limited to the following: (a) audited annual financial statements of the Borrower within 120 days after each fiscal year end; (b) quarterly company prepared Financial Statements within 30 days of each quarter end; (c) monthly aged list of accounts receivables supported by a Compliance Certificate within 25 days of each month end; (d) monthly aged list of accounts payable within 25 days of each month end; (e) any information that the Bank may require relating to the state of Year 2000 readiness of the Borrower. For the purpose of the foregoing, ?Year 2000 readiness? means that all software embedded microchips, and other processing capabilities utilized by, and material to the business operations or financial condition of, the Borrower are able to interpret and manipulate data on and involving all calendar dates correctly and without causing any abnormal ending scenario, including in relation to dates in and after the year 2000; and (f) Annual Business Plan with 120 days after each fiscal year end. (3) it will promptly pay when due all business, income and other taxes properly levied on its operations and property and remit all statutory employee deductions when due; (4) it will not and will not allow or permit its subsidiaries to sell, transfer or otherwise dispose of a substantial portion of its assets without the prior written consent of the Bank; Olympic Seismic Ltd. Page 5 Confirmation of Credit Facilities Letter November 9, 1999 (5) it will, as of the end of each fiscal quarter, maintain a ratio of debt to equity of not more than .50 to 1. For purposes of the foregoing, debt means all liabilities less the amount due to affiliates and equity means sum of share capital, paid capital, retained earnings and amounts due to affiliates minus the investment in marketable securities, all as determined in accordance with generally accepted accounting principles; and (10) it will maintain a current ratio of 1:1. All covenants contained herein shall remain in force for the benefit of the Bank at all times before, on and after the making of advances hereunder and/or the taking of security pursuant hereto. ENVIRONMENTAL PROVISIONS: The Borrower confirms that it has disclosed to the Bank all - ---------- environmental matters which could have a material effect on the financial condition or operations of the Borrower and its subsidiaries. The Borrower will keep the Bank fully informed of all such matters and will comply (and will ensure its subsidiaries comply) in all material respects with applicable environmental laws and any environmental permits which may govern its operations. The Bank shall have the right to make good faith inquiries with governmental agencies regarding environmental matters affecting the Borrower and its subsidiaries and, upon reasonable notice to the Borrower, the Bank (and its consultants) shall have the right to enter the premises of the Borrower and its subsidiaries to carry out such environmental reviews as the Bank in its sole discretion deems advisable. PERFORMANCE OF COVENANTS:If the Borrower fails to perform any covenant hereunder, the Bank - ------------ may, in its sole discretion, perform any such covenant and expend such money as may be necessary for purposes thereof. Any such expenditure so made by the Bank shall be repaid by the Borrower on demand and shall bear interest at the rate and in the manner set forth hereunder for overdue amounts from the date the Bank makes such expenditure until and including the date the Bank is repaid. COLLATERAL- SECURITY: The Borrower agrees to provide to the Bank, in form and substance - -------- satisfactory to the Bank, the following documentation which the Borrower hereby acknowledges will be held by the Bank in connection with this Credit Facility: - General Security Agreement Floating Charge on Land. Olympic Seismic Ltd. Page 6 Confirmation of Credit Facilities Letter November 9, 1999 CONDITIONS PRECEDENT: The obligation of the Bank to make available any advances under - --------- the Credit Facility is conditional upon the receipt in form and substance satisfactory to the Bank of: (a) a duly executed copy of this Agreement; (b) duly executed copies of Security; and (c) satisfactory scoring of Y2K questionnaire. The obligation of the Bank to make available the Credit Facility is subject to the Bank being satisfied, at the time of advance, that a material adverse change in the financial condition or operation of the Borrower has not occurred, that the Borrower is not in default hereunder, and that no stay of proceedings against the Borrower or their property is then in effect. RESERVE INDEMNITY: The Borrower shall reimburse the Bank that amount which - --------- compensates the Bank for any additional cost or reduction in income caused by an imposition, implementation or increase of reserves, capital adequacy or similar requirement against assets or liabilities held by the Bank, deposits in or for the account of the Bank, loans made by the Bank, bankers' acceptances accepted by the Bank, letters of credit issued by the Bank, commitments by the Bank to fund loans or any acquisition by the Bank of funds for loans made by the Bank. GENERAL INDEMNITY: The Borrower shall indemnify the Bank from and against all - --------- losses, damages, expenses and liabilities which the Bank may sustain or incur as a consequence of any default by the Borrower under any provision of this Agreement or as a consequence of any environmental matter, whether existent now or in the future, which affects the property of the Borrower or its subsidiaries. OTHER CONDITIONS: The Credit Facility is made available at the sole discretion of - ---------- the Bank and the Bank may cancel any unutilized portion of the Credit Facility at any time and from time to time without notice. PAYMENTS: References herein to "$" means Canadian Dollars. All payments - -------- hereunder are payable for value on the date on which they are due. RENEWAL: The Credit Facility is available from time to time at the Bank's - ------- sole discretion and is subject to review by the Bank at any time. Olympic Seismic Ltd. Page 7 Confirmation of Credit Facilities Letter November 9, 1999 EXPENSES: All legal costs, fees and expenses incurred in connection with - -------- the preparation, negotiation, documentation and operation of the Credit Facility, including the enforcement of the Bank's fights under each document delivered in connection with the Credit Facility will be for the account of the Borrower. We very much appreciate the opportunity to establish our relationship with your company. Yours truly, ROYAL BANK OF CANADA SCHEDULE "A" TO A LETTER AGREEMENT DATED NOVEMBER 9, 1999 BETWEEN ROYAL BANK OF CANADA AND OLYMPIC SEISMIC LTD. SPECIAL PROVISIONS PROVISIONS APPLICABLE TO BANKERS' ACCEPTANCES The term "Bankers' Acceptances" means bankers acceptances denominated in Canadian Dollars which are issued by the Borrower and accepted by the Bank. The term "RBPAF" means the annual rate announced from time to time by the Bank as its reference rate then in effect for determining fees on bankers' acceptances accepted by the Bank in Canada. Bankers' Acceptances shall have a term of at least thirty (30) days and not more than one hundred and eighty (180) days excluding days of grace. Two business days prior written notice for the issue, the reissue and the method of repayment on maturity of a Bankers' Acceptance shall be given by the Borrower to the Bank and must be received by the Bank by no later than 10:00 a.m. on the stipulated notice date. If the Borrower fails to give notification to the Bank of the method of repayment of a Bankers' Acceptance in accordance with the notice requirements set out above, then the Borrower shall be deemed to have converted the Bankers' Acceptance into a Prime Based Loan on the maturity date of the applicable Bankers' Acceptance. PROVISIONS APPLICABLE TO PRIME BASED LOANS The term "Prime Based Loans" means Prime rate based loans in Canadian Dollars made by the Bank to the Borrower. The term "Prime" means the annual rate of interest announced from time to time by the Bank as being its reference rate then in effect for determining interest rates on Canadian Dollar commercial loans in Canada. PROVISIONS APPLICABLE TO LETTERS OF CREDIT The term "Letters of Credit" means letters of credit issued by the Bank at the request of the Borrower. Letters of Credit shall not be issued for a period longer than one year without the prior consent of the Bank. Prior to utilizing the Credit Facility by obtaining a Letter of Credit, the Borrower shall deliver to the Bank a written Letter of Credit application in form and substance satisfactory to the Bank. Each such application shall be executed by the authorized signing officers of the Borrower and delivered to the Bank at least one business day prior to the date on which the Letter of Credit is to be issued. GENERAL SECURITY AGREEMENT - FLOATING CHARGE ON LAND 1. SECURITY INTEREST (a) For value received, the undersigned ("Debtor") hereby grants to ROYAL BANK OF CANADA ("RBC") a security interest, mortgage and charge (hereinafter collectively referred to as the "Security Interest') as hereinafter provided: (i) a security interest in the undertaking of Debtor and all of Debtor's present and after acquired personal property including, without limitation, all Goods (including all parts, accessories, attachments, special tools, additions and accessions thereto), Chattel Paper, Documents of title (whether negotiable or not), Instruments, Intangibles, Money and Securities now owned or hereafter owned or acquired by or on behalf of Debtor (including such as may be returned to or repossessed by Debtor) and including, without limitation, all of the following now owned or hereafter owned or acquired by or on behalf of Debtor: (A) all Inventory of whatever kind and wherever situate; (B) all equipment (other than Inventory) of whatever kind and wherever situate, including, without limitation, all machinery, tools, apparatus, plant, furniture, fixtures and vehicles of whatsoever nature or kind; (C) all Accounts and book debts and generally all debts, dues, claims, choses in action and demands of every nature and kind howsoever arising or secured and whether arising in connection with an interest in real or personal property or otherwise, including letters of credit and advices of credit, which are now due, owing or accruing or growing due to or owned by or which may hereafter become due, owing or accruing or growing due to or owned by Debtor ("Debts"); (D) all deeds, documents, writings, papers, books of account and other books relating to or being records of Debts, Chattel Paper or Documents of title or by which such are or may hereafter be secured, evidenced, acknowledged or made payable; (E) all contractual rights and insurance claims; and (F) all patents, industrial designs, trade-marks, trade secrets and know-how including without limitation environmental technology and biotechnology, confidential information, trade-names, goodwill, copyrights, personality rights, plant breeders' rights, integrated circuit topographies, software and all other forms of intellectual and industrial property, and any registrations and applications for registration of any of the foregoing (collectively "Intellectual Property"); (ii) a mortgage and charge as and by way of a floating charge, in all of Debtor's present and after acquired interest in property, assets and undertaking not secured in (i) above, including all real, immoveable and leasehold property and all easements, rights-of-way, privileges, benefits, licences, improvements and rights whether connected therewith or appurtenant thereto or separately owned or held, including without limitation, all structures, plant and other fixtures now owned or hereafter owned or acquired by or on behalf of Debtor (hereinafter collectively referred to as "Real Property"); and (iii)a security interest in all property described in Schedule "C" or any replacement or additional Schedule "C" now or hereafter annexed hereto; Page 2 of 15 and a Security Interest in all proceeds and renewals thereof, accretions thereto and substitutions therefor, all of the foregoing being hereinafter collectively referred to as the "Collateral". (b) The Security Interest granted hereby shall not extend or apply to and Collateral shall not include the last day of the term of any lease or agreement therefor but upon the enforcement of the Security Interest Debtor shall stand possessed of such last day in trust to assign the same to any person acquiring such term. (c) The terms "Goods", "Chattel Paper", "Document of Ttle", "Instrument", "Intangible", "Security", "proceeds", "Inventory", "equipment", "accession", "Money", "Account", "financing statement" and "financing change statement" whenever used herein shall be interpreted pursuant to their respective meanings when used in the Personal Property Security Act of the province where the herein mentioned branch of RBC is located, which Act, including amendments thereto and anyAct substituted therefor and amendments thereto is herein referred to as the "P.P.S.A.". Provided always that the term "Goods" when used herein shall not include "consumer goods" of Debtor as that term is defined in the P.P.S.A. and the term "Inventory" when used herein shall include livestock and the young thereof after conception and crops that become such during the term of this Security Agreement. Any reference herein to "Collateral" shall, unless the context otherwise requires, be deemed a reference to "Collateral or any part thereof". 2. INDEBTEDNESS SECURED The Security Interest granted hereby secures payment and performance of any and all obligations, indebtedness and liability of Debtor to RBC (including interest thereon) present or future, direct or indirect, absolute or contingent, matured or not, extended or renewed, wheresoever and howsoever incurred and any ultimate unpaid balance thereof and whether the same is from time to time reduced and thereafter increased or entirely extinguished and thereafter incurred again and whether Debtor be bound alone or with another or others and whether as principal or surety (hereinafter collectively called the "lndebtedness"). If the Security Interest in the Coliateral is not sufficient, in the event of default, to satisfy all Indebtedness of Debtor, Debtor acknowledges and agrees that Debtor shall continue to be liable for any Indebtedness remaining outstanding and RBC shall be entitled to pursue full payment thereof. 3. REPRESENTATIONSAND WARRANTIES OF DEBTOR Debtor represents and warrants and so long as this Security Agreement remains in effect shall be deemed to continuously represent and warrant that: (a) the Collateral is genuine and owned by Debtor free of all security interests, mortgages, liens, claims, charges, licences, leases, infringements by third parties, encumbrances or other adverse ciaims or interests (hereinafter collectively called "Encumbrances"), save for the Security Interest and those Encumbrances shown on Schedule "A" or hereafter approved in writing by RBC, prior to their creation or assumption; (b) all Intellectual Property applications and registrations are valid and in good standing and Debtor is the owner of the appications and registrations; (c) each Debt, Chattel Paper and Instrument constituting Collateral is enforceable in accordance with its terms against the party obligated to pay the same (the "Account Debtor"), and the amount represented by Debtor to RBC from time to time as owing by each Account Debtor or by all Account Debtors will be the correct amount actually and unconditionally owing by such Account Debtor or Account Debtors, except for normal cash discounts where applicable, and no Account Debtor will have any defence, set off, claim or counterclaim against Debtor which can be asserted against RBC, whether in any proceeding to enforce Collateral or otherwise; Page 3 of 15 (d) the locations specified in Schedule "B" as to business operations and records are accurate and complete and with respect to Real Property and Goods (including Inventory) constituting Collateral, the locations specified in Schedule "B" are accurate and complete save for Goods in transit to such locations and Inventory on lease or consignment; and all buildings, fixtures or Goods about to become fixtures and all crops and all oil, gas or other minerals to be extracted and all timber to be cut which forms part of the Collateral will be situate at one of such locations; (e) Debtor has disclosed to RBC all environmental and other matters which could have a material effect on the financial condition or operations of Debtor; and (f) the execution, delivery and performance of the obligations under this Security Agreement and the creation of any security interest in or assignment hereunder of Debtor's rights in the Collateral to RBC will not result in a breach of any agreement to which Debtor is a party. 4. COVENANTS OFTHE DEBTOR So long as this Security Agreement remains in effect Debtor covenants and agrees: (a) to defend the Collateral against the claims and demands of all other parties claiming the same or an interest therein; to diligently initiate and prosecute legal action against all infringers of Debtor~s rights in Intellectual Property; to take all reasonable action to keep the Collateral free from all Encumbrances, except for the Security Interest, licences which are cumpulsory under federal or provincial legislation and those shown in Schedule "A" or hereafter approved in writing by RBC, prior to their creation or assumption; and not to sell, exchange, transfer, assign, lease, license or otherwise dispose of Collateral or any interest therein without the prior written consent of RBC; provided always that, until default, Debtor may, in the ordinary course of Debtor's business, sell or lease Inventory and, subject to Clause 7 hereof, use Money available to Debtor; (b) to notify RBC promptly of: (i) any change in the information contained herein or in the Schedules hereto relating to Debtor, Debtor's business or Collateral; (ii) the details of any significant acquisition of Collateral; (iii) the details of any claims or litigation affecting Debtor or Collateral; (iv) any loss or damage to Collateral; (v) any default by any Account Debtor in payment or other performance of its obligations with respect to Collateral; and (vi) the return to or repossession by Debtor of Collateral; (c) to keep Collateral in good order, condition and repair and not to use Collateral in violation of the provisions of this Security Agreement or any other agreement relating to Collateral or any policy insuring Collateral or any applicable statute, law, by-law, rule, regulation or ordinance; to keep all agreements, registrations and applications relating to Intellectual Property and intellectual property used by Debtor in its business in good standing and to renew all agreements and registrations as may be necessary or desirable to protect Intellectual Property, unless otherwise agreed in writing by RBC; to apply to register all existing and future copyrights, trade-marks, patents, integrated circuit topographies and industrial designs whenever it is commercially reasonable to do so; (d) to do, execute, acknowledge and deliver such financing statements, financing change statements and further assignments, transfers, caveats, mortgages, notices, documents, acts, matters and things (including further schedules hereto) as may be reasonably requested by RBC of or with respect to Collateral in order to give effect to these presents and to pay all costs for searches and filings in connection therewith; Page 4 of 15 (e) to pay all taxes, rates, levies, assessments and other charges of every nature which may be lawfully levied, assessed or imposed against or in respect of Debtor or Collateral as and when the same become due and payable; (f) to insure Collateral for such periods, in such amounts, on such terms and against loss or damage by fire and such other risks as RBC shall reasonably direct with loss payable to RBC and Debtor, as insureds, as their respective interests may appear, and to pay all premiums therefor; (g) to prevent Collateral, save Inventory sold or leased as permitted hereby, from being or becoming an accession to other property not covered by this Security Agreement; (h) to carry on and conduct the business of Debtor in accordance with all applicable laws, in a proper and efficient manner and so as to protect and preserve Collateral and to keep, in accordance with generally accepted accounting principles, consistently applied, proper books of account for Debtor's business as weil as accurate and complete records concerning Collateral, and mark any and all such records and Collateral at RBC's request so as to indicate the Security Interest; and (i) to deliver to RBC from time to time promptly upon request: (i) any Documents of Title, Instruments, Securities, Chattel Paper and duplicate certificates of title to Real Property constituting, representing or relating to Collateral; (ii) all books of account and all records, ledgers, reports, correspondence, schedules, documents, statements, lists and other writings relating to Collateral for the purpose of inspecting, auditing or copying the same; (iii) all financial statements prepared by or for Debtor regarding Debtor's business; (iv) all policies and certificates of insurance relating to Collateral; and (v) such information concerning Collateral, Debtor and Debtor's business and affairs as RBC may reasonably request. 5. USE AN D VERIFICATION OF COLLATERAL Subject to compliance with Debtor's covenants contained herein and Clause 7 hereof, Debtor may, until default, possess, operate, collect, use and enjoy and deal with Collateral in the ordinary course of Debtor's business in any manner not inconsistent with the provisions hereof; provided always that RBC shall have the right at any time and from time to time to verify compliance by Debtor with Debtor's obligations under this Security Agreement (including through inquiries with governmental agencies) and the existence and state of the Collateral in any manner RBC may consider appropriate and Debtor agrees to furnish all assistance and information and to perform all such acts as RBC may reasonably request in connection therewith and for such purpose to grant to RBC or its agents access to all places where Collateral may be located and to all premises occupied by Debtor. 6. SECURITIES If Collateral at any time includes Securities, Debtor authorizes RBC to transfer the same or any part thereof into its own name or that of its nominee(s) so that RBC or its nominee(s) may appear of record as the sole owner thereof; provided that, until default, RBC shall deliver promptly to Debtor all notices or other communications received by it or its nominee(s) as such registered owner and, upon demand and receipt of payment of any necessary expenses thereof, shall issue to Debtor or its order a proxy to vote and take all action with respect to such Securities. After default, Debtor waives all rights to receive any notices or communications received by RBC or its nominee(s) as such registered owner and agrees that no proxy issued by RBC to Debtor or its order as aforesaid shall thereafter be effective. Page 5 of 15 7. COLLECTION OF DEBTS Before or after default under this Security Agreement, RBC may notify all or any Account Debtors of the Security Interest and may also direct such Account Debtors to make all payments on Collateral to RBC. Debtor acknowledges that any payments on or other proceeds of Collateral received by Debtor from Account Debtors, whether before or after notification of this Security Interest to Account Debtors and whether before or after default under this Security Agreement shall be received and held by Debtor in trust for RBC and shall be turned over to RBC upon request. 8. INCOME FROM AND INTEREST ON COLLATERAL (a) Until default, Debtor reserves the right to receive any Money constituting income from or interest on Collateral and if RBC receives any such Money prior to default, RBC shall either credit the same against the Indebtedness or pay the same promptly to Debtor. (b) After default, Debtor will not request or receive any Money constituting income from or interest on Collateral and if Debtor receives any such Money without any request by it, Debtor will pay the same promptly to RBC. 9. INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS (a) Whether or not default has occurred, Debtor authorizes RBC: (i) to receive any increase in or profits on Collateral (other than Money) and to hold the same as part of Collateral. Money so received shall be treated as income for the purposes of Clause 8 hereof and dealt with accordingly; and (ii) to receive any payment or distribution upon redemption or retirement or upon dissolution and liquidation of the issuer of Collaterai; to surrender such Collateral in exchange therefor; and to hold any such payment or distribution as part of Collateral. (b) If Debtor receives any such increase or profits (other than Money) or payments or distributions, Debtor will deliver the same promptly to RBC to be held by RBC as herein provided. 10. DISPOSITION OF MONEY Subject to any applicable requirements of the P.P.S.A. or other applicable law, all Money collected or received by RBC pursuant to or in exercise of any right it possesses with respect to Collateral shall be applied on account of Indebtedness in such manner as RBC deems best or, at the option of RBC, may be held unappropriated in a collateral account or released to Debtor, all without prejudice to the liability of Debtor or the rights of RBC hereunder, and any surplus shall be accounted for as required by law. 11. EVENTS OF DEFAULT The happening of any of the following events or conditions shall constitute default hereunder which is herein referred to as "default": (a) the nonpayment when due, whether by acceleration or otherwise, of any principal or interest forming part of Indebtedness or the failure of Debtor to observe or perform any obligation, covenant, term, provision or condition contained in this Security Agreement or any other agreement between Debtor and RBC; (b) the death of or a declaration of incompetency by a court of competent jurisdiction with respect to Debtor, if an individual; (c) the bankruptcy or insolvency of Debtor; the filing against Debtor of a petition in bankruptcy; the making of an authorized assignment for the benefit of creditors by Debtor; the appointment of a receiver or trustee for Debtor or for any assets of Debtor or the institution by or against Debtor of any other type of insolvency proceeding under the Bankruptcy and Insolvency Act or otherwise; Page 6 of 15 (d) the institution by or against Debtor of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against or winding up of affairs of Debtor; (e) if any Encumbrance affecting Collateral becomes enforceable against Collateral; (f) if Debtor ceases or threatens to cease to carry on business or makes or agrees to make a sale of a substantial portion of Debtor's assets or commits or threatens to commit an act of bankruptcy; (g) if any execution, sequestration, extent or other process of any court becomes enforceable against Debtor or if a distress or analogous process is levied upon the assets of Debtor or any part thereof; and (h) if any certificate, statement, representation, warranty or audit report heretofore or hereafter furnished by or on behalf of Debtor pursuant to or in connection with this Security Agreement or otherwise (including, without limitation, the representations and warranties contained herein) or as an inducement to RBC to extend any credit to or to enter into this or any other agreement with Debtor, proves to have been false in any material respect at the time as of which the facts therein set forth were stated or certified, or proves to have omitted any substantial contingent or unliquidated liability or claim against Debtor; or if upon the date of execution of this Security Agreement, there shall have been any material adverse change in any of the facts disclosed by any such certificate, representation, statement, warranty or audit report, which change shall not have been disclosed to RBC at or prior to the time of such execution. 11A. REALPROPERTY (a) For all purposes, including without limitation any application to register a crystailized floating charge under the Land Title Act (British Columbia) against any Real Property, the floating charge created by this Security Agreement shall be crystallized and become a fixed charge upon the earliest of: (i) any one of the events described in Section 11 hereof; (ii) a declaration by RBC pursuant to Section 12 hereof; or (iii) RBC taking any action pursuant to Section 13 hereof to appoint a Receiver or to enforce its Security Interest or realize upon all or any part of the Collateral. (b) In accordance with the Property Law Act (British Columbia), the doctrine of consolidation applies to this SecurityAgreement. 12. ACCELERATION RBC, in its sole discretion, may declare all or any part of Indebtedness which is not by its terms payable on demand to be immediately due and payable, without demand or notice of any kind, in the event of default, or, if RBC considers itself insecure or that the Collateral is in jeopardy. The provisions of this clause are not intended in any way to affect any rights of RBC with respect to any Indebtedness which may now or hereafter be payable on demand. 13. REMEDIES (a) Upon default, RBC may appoint or reappoint by instrument in writing, any person or persons, whether an officer or officers or an employee or employees of RBC or not, to be a receiver or receivers (hereinafter called a "Receiver", which term when used herein shall include a receiver and manager) of Collateral (including any interest, income or profits therefrom) and may remove any Receiver so appointed and appoint another in its stead. Any such Receiver shall, so far as concerns responsibility for its acts, be deemed the agent of Debtor and not RBC, and RBC shall not be in any way responsible for any misconduct, negligence or non-feasance on the part of any such Receiver, its servants, agents or employees. Subject to the provisions of the instrument appointing it, any such Receiver shall have power to take possession of Collateral, to preserve Collateral or its value, to carry on or concur in Page 7 of 15 carrying on all or any part of the business of Debtor and to sell, lease, license or otherwise dispose of or concur in selling, leasing, licensing or otherwise disposing of Collateral. To facilitate the foregoing powers, any such Receiver may, to the exclusion of all others, including Debtor, enter upon, use and occupy all premises owned or occupied by Debtor constituting Collateral or wherein Collateral may be situate, maintain Collateral upon such premises, borrow money on a secured or unsecured basis and use Collateral directly in carrying on Debtor's business or as security for loans or advances to enable the Receiver to carry on Debtor's business or otherwise, as such Receiver shall, in its discretion, determine. Except as may be otherwise directed by RBC, all Money received from time to time by such Receiver in carrying out its appointment shall be received in trust for and paid over to RBC. Every such Receiver may, in the discretion of RBC, be vested with all or any of the rights and powers of RBC. (b) Upon default, RBC may, either directly or through its agents or nominees, exercise any or all of the powers and rights given to a Receiver by virtue of the foregoing sub-clause (a). (c) RBC may take possession of, collect, demand, sue on, enforce, recover and receive Collateral and give valid and binding receipts and discharges thereof and in respect thereof and, upon default, RBC may sell, lease, license or otherwise dispose of Collateral in such manner, at such time or times and place or places, for such consideration and upon such terms and conditions as to RBC may seem reasonable. (d) In addition to those rights granted herein and in any other agreement now or hereafter in effect between Debtor and RBC and in addition to any other rights RBC may have at law or in equity, RBC shall have, both before and after default, all rights and remedies of a secured party under the P.P.S.A. provided always, that RBC shall not be liable or accountable for any failure to exercise its remedies, take possession of, collect, enforce, realize, sell, lease, license or otherwise dispose of Collateral or to institute any proceedings for such purposes. Furthermore, RBC shall have no obligation to take any steps to preserve rights against prior parties to any Instrument or Chattel Paper or prior encumbrancers on any Real Property whether Collateral or proceeds and whether or not in RBC's possession and shall not be liable or accountable for failure to do so. (e) Debtor acknowledges that RBC or any Receiver appointed by it may take possession of Collateral wherever it may be located and by any method permitted by law and Debtor agrees upon request from RBC or any such Receiver to assemble and deliver possession of Collateral at such place or places as directed. (f) Debtor agrees to be liable for and to pay all costs, charges and expenses incurred by RBC or any Receiver or agent appointed by it, whether directly or for services rendered (including solicitors costs on a solicitor and his own client basis and auditors costs and other legal expenses and Receiver and agent remuneration), in operating Debtor's accounts, preparing or enforcing this Security Agreement, inspecting and determining the state of the Collateral, taking and maintaining custody of, preserving, repairing, processing, preparing for disposition and disposing of Collateral and in enforcing or collecting Indebtedness and all such costs, charges and expenses, together with any amounts owing as a result of any borrowing by RBC or any Receiver appointed by it, as permitted hereby, shall be a first charge on the proceeds of realization, collection or disposition of Collateral and shall be secured hereby. (g) RBC will give Debtor such notice, if any, of the date, time and place of any public sale or of the date after which any private disposition of Collateral is to be made as may be required by the P.P.S.A. or other applicable law. Page 8 of 15 (h) Upon default and receiving written demand from RBC, Debtor shall take such further action as may be necessary to evidence and effect an assignment or licensing of Intellectual Property to whomoever RBC directs, including to RBC. Debtor apponts any officer or director or branch manager of RBC upon default to be its attorney in accordance with applicable legislation with full power of substitution and to do on Debtor's behalf anything that is required to assign, license or transfer, and to record any assignment, licence or transfer of the Collateral. This power of attorney, which is coupled with an iterest, is irrevocable until the release or discharge of the Security Interest. 14. MISCELLANEOUS (a) Debtor hereby authorizes RBC to file such financing statements, financing change statements, caveats, mortgages, forms, security notices and other documents and do such acts, matters and things (including completing and adding schedules hereto identifying Collateral or any permitted Encumbrances affecting Collateral or identifying the locations at which Debtor's business is carried on and Collateral and records relating thereto are situate) as RBC may deem appropriate to perfect on an ongoing basis and continue the Security Interest, to protect and preserve Collateral and to realize upon the Security Interest and Debtor hereby irrevocably constitutes and appoints the Manager or Acting Manager from time to time of the herein mentioned branch of RBC the true and lawful attorney of Debtor, with full power of substitution, to do any of the foregoing in the name of Debtor whenever and wherever it may be deemed necessary or expedient. (b) Without limiting any other right of RBC, whenever Indebtedness is immediately due and payable or RBC has the right to declare indebtedness to be immediately due and payable (whether or not it has so declared), RBC may, in its sole discretion, set off against Indebtedness any and all amounts then owed to Debtor by RBC in any capacity, whether or not due, and RBC shall be deemed to have exercised such right to set off immediately at the time of making its decision to do so even though any charge therefor is made or entered on RBC's records subsequent thereto. (c) Upon Debtor's failure to perform any of its duties hereunder, RBC may, but shall not be obligated to, perform any or all of such duties, and Debtor shall pay to RBC, forthwith upon written demand therefor, an amount equal to the expense incurred by RBC in so doing plus interest thereon from the date such expense is incurred until it is paid at the rate of 15% per annum. (d) RBC may grant extensions of time and other indulgences, take and give up security, accept compositions, compound, compromise, settle, grant releases and discharges and otherwise deal with Debtor, debtors of Debtor, sureties and others and with Collateral and other security as RBC may see fit without prejudice to the liability of Debtor or RBC's right to hoid and realize the Security Interest. Furthermore, RBC may demand, collect and sue on Collateral in either Debtor's or RBC's name, at RBC's option, and may endorse Debtor's name on any and all cheques, commercial paper, and any other Instruments pertaining to or constituting Collateral. (e) No delay or omission by RBC in exercising any right or remedy hereunder or with respect to any Indebtedness shall operate as a waiver thereof or of any other right or remedy, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Furthermore, RBC may remedy any default by Debtor hereunder or with respect to any Indebtedness in any reasonable manner without waiving the default remedied and without waiving any other prior or subsequent default by Debtor. All rights and remedies of RBC granted or recognized herein are cumulative and may be exercised at any time and from time to time independently or in combination. (f) Debtor waives protest of any Instrument constituting Collateral at any time held by RBC on which Debtor is in any way liabie and, subject to Clause 13 (g) hereof, notice of any other action taken by RBC. Page 9 of 15 (g) This Security Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. In any action brought by an assignee of this Security Agreement and the Security Interest or any part thereof to enforce any rights hereunder, Debtor shall not assert against the assignee any claim or defence which Debtor now has or hereafter may have against RBC. If more than one Debtor executes this Security Agreement the obligations of such Debtors hereunder shall be joint and several and, unless the context otherwise requires, a reference to "Debtor" herein shall be deemed to be a reference to each of the undersigned. (h) Save for any schedules which may be added hereto pursuant to the provisions hereof, no modification, variation or amendment of any provision of this Security Agreement shall be made except by a written agreement, executed by the parties hereto and no waiver of any provision hereof shall be effective unless in writing. (i) Subject to the requirements of Clauses 13 (g) and 14 0) hereof, whenever either party hereto is required or entitled to notify or direct the other or to make a demand or request upon the other, such notice, direction, demand or request shall be in writing and shall be sufficiently given, in the case of RBC, if delivered to it or sent by prepaid registered mail addressed to it at its address herein set forth or as changed pursuant hereto and, in the case of Debtor, if deiivered to it or if sent by prepaid registered mail addressed to it at its last address known to RBC. Either party may notify the other pursuant hereto of any change in such party's principal address to be used for the purposes hereof. (j) This Security Agreement and the security afforded hereby is in addition to and not in substitution for any other security now or hereafter held by RBC and is intended to be a continuing Security Agreement and shall remain in full force and effect until the Manager or Acting Manager from time to time of the herein mentioned branch of RBC shall actually receive written notice of its discontinuance; and, notwithstanding such notice, shall remain in full force and effect thereafter until all Indebtedness contracted for or created before the receipt of such notice by RBC, and any extensions or renewals thereof (whether made before or after receipt of such notice) together with interest accruing thereon after such notice, shall be paid in full. (k) The headings used in this Security Agreement are for convenience only and are not to be considered a part of this Security Agreement and do not in any way limit or amplify the terms and provisions of this Security Agreement. (1) When the context so requires, the singular number shall be read as if the plural were expressed and the provisions hereof shall be read with all grammatical changes necessary dependent upon the person referred to being a male, female, firm or corporation. (m) In the event any provisions of this Security Agreement, as amended from time to time, shall be deemed invalid or void, in whole or in part, by any Court of competent jurisdiction, the remaining terms and provisions of this Security Agreement shall remain in full force and effect. (n) Nothing herein contained shall in any way obligate RBC to grant, continue, renew, extend time for payment of or accept anything which constitutes or would constitute Indebtedness. (o) The Security Interest created hereby is intended to attach when this Security Agreement is signed by Debtor and delivered to RBC. (p) Debtor acknowledges and agrees that in the event it amalgamates with any other company or companies it is the intention of the parties hereto that the term "Debtor" when used herein shall apply to each of the amalgamating companies and to the amalgamated company, such that the Security Interest granted hereby: Page 10 of 15 (i) shall extend to "Collateral" (as that term is herein defined) owned by each of the amalgamating companies and the amalgamated company at the time of amalgamation and to any "Collateral" thereafter owned or acquired by the amalgamated company; and (ii) shall secure the "Indebtedness" (as that term is herein defined) of each of the amalgamating companies and the amalgamated company to RBC at the time of amalgamation and any "lndebtedness" of the amalgamated company to RBC thereafter arising. The Security Interest shall attach to "Collateral" owned by each company amalgamating with Debtor, and by the amalgamated company, at the time of amalgamation, and shall attach to any "Collateral" thereafter owned or acquired by the amalgamated company when such becomes owned or is acquired. (q) In the event that Debtor is a body corporate, it is hereby agreed that The Limitation of Civil Rights Act of the Province of Saskatchewan, or any provision thereof, shall have no application to this Security Agreement or any agreement or instrument renewing or extending or collateral to this Security Agreement. In the event that Debtor is an agricultural corporation within the meaning of The Saskatchewan Farm Security Act, Debtor agrees with RBC that ail of Part IV (other than Section 46) of that Act shall not apply to Debtor. (r) This Security Agreement and the transactions evidenced hereby shall be governed by and construed in accordance with the laws of the province where the herein mentioned branch of RBC is located including, where applicable, the P.P.S.A. and the Land Title Act. 15. COPY OF AGREEMENT AND FINANCING STATEMENT (a) Debtor hereby acknowledges receipt of a copy of this Security Agreement. (b) Debtor waives Debtor's right to receive a copy of any financing statement or financing change statement registered by RBC or any verification statement pertaining to a registration by RBC. Page 11 of 15 16. RBC BRANCH ADDRESS: 12th floor, 335- 8 Ave SW, Calgary, Alberta 17. NAME AND ADDRESS OF DEBTOR Debtor represents and warrants that the following information is accurate: INDIVIDUAL DEBTOR BUSINESS DEBTOR NAME OF BUSINESS DEBTOR OLYMPIC SEISMIC LTD. ADDRESS OF BUSINESS DEBTOR 3750, 205 - 5TH Avenue S.W. Calgary, Alberta T2P 2V7 Page 12 of 15 IN WITNESS WHEREOF Debtor has executed this Security Agreement on the date specified below. WITNESS / OFFICER SIGNATURE* (as to all signatures) Name: Address: Professional Capacity: * Officer certification required in B.C. only * OFFICER CERTIFICATION Your signature constitutes a representation that you are a solicitor, notary public or other person authorized by the Evidence Act, R.S.B.C. 1979. c. 116, to take affidavits for use in British Columbia and certifies the matters set out in Part 5 of the Land Title Act as they pertain to the execution of this instrument. Page 13 of 15 SCHEDULE "A" (ENCUMBRANCES AFFECTING COLLATERAL) Page 14 of 15 SCHEDULE "B" 1. Locations of Debtor's Business Operations 3750, 205 - 5 Ave SW Calgary Alberta 2. Locations of Records relating to Collateral (if different from 1. above) As above 3. Locations of Collateral (if different from 1. above) As above Page 15 of 15 SCHEDULE "C" (DESCRIPTION OF PROPERTY) N/A - END OF DOCUMENT EX-10.52 5 AMENDMENT TO AGREEMENT BETWEEN OLYMPIC/ROYAL BANK EXHIBIT 10.52 Royal Bank of Canada Oil & Gas Banking Centre 1100, 335 - 8th Avenue S.W. Calgary, Alberta T2P 1C9 Fax: (403)292-3436 March 2, 2000 Olympic Seismic Ltd. 3750, 205 - 5 Ave. SW Calgary, AB T2P 2V7 Attention: Suzanne Bowden, Controller Dear Sirs: Re: Credit Facilities We hereby confirm that the following sections of the credit facilities letter agreement dated November 9,1999 is hereby amended by deleting the existing provisions of such sections in its entirety and substituting the following provisions: Amount: The authorized facility in the amount of $5,000,000 is available ------ on a margined basis year round. Margin Requirements: Total advances under Segment 1) plus preferred claims, should not - ------------ exceed 75% of good accounts receivable excluding inter-company accounts, holdbacks and the entire outstanding balance of accounts where any portion exceeds 90 days. The first $2,000,000 is available - on an unmargined basis. The letter agreement is hereby amended by the foregoing amendment and the credit facilities available to the company will be governed by the provisions of the letter agreement as amended by the provisions of this letter. If you are in agreement with the foregoing, kindly execute and return the enclosed copy of this letter by no later than March 10, 2000. Yours truly, We acknowledge and accept the terms and conditions of this agreement this 2 day of March , 2000. ------ ------- OLYMPIC SEISMIC LTD. Per: /s/ S. Bowden Title: Controller D.A. Majeski Manager, Energy Service & Supply EX-21.1 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SEITEL, INC. LIST OF SUBSIDIARIES OF THE REGISTRANT ** African Geophysical, Inc. (incorporated in Cayman Islands) ** Alternative Communication Enterprises, Inc. (incorporated in Texas) Datatel, Inc. (incorporated in Delaware) DDD Energy, Inc. (incorporated in Delaware) ** EHI Holdings, Inc. (incorporated in Delaware) ** Exsol, Inc. (incorporated in Delaware) ** GEO-BANK, INC. (incorporated in Texas) Matrix Geophysical, Inc. (incorporated in Delaware) * Olympic Seismic Ltd. (incorporated in Alberta, Canada) Seitel Canada Holdings, Inc. (incorporated in Delaware) Seitel Data Corp. (incorporated in Delaware) Seitel Delaware, Inc. (incorporated in Delaware) ** Seitel Gas & Energy Corp. (incorporated in Delaware) ** Seitel Geophysical Inc. (incorporated in Delaware) Seitel International, Inc. (incorporated in Cayman Islands) Seitel Management, Inc. (incorporated in Delaware) ** Seitel Natural Gas, Inc. (incorporated in Delaware) Seitel Offshore Corp. (incorporated in Delaware) ** Seitel Power Corp. (incorporated in Delaware) * 818312 Alberta Ltd. (incorporated in Delaware) * Incorporated in 1999 ** Dormant EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K, into the Seitel, Inc. previously filed Form S-3 Registration Statements File Nos. 33-71968, 33-78554, 33-80574, 33-89890, 333-71545, 333-85671, and Form S-8 Registration Statements File Nos. 33-36914, 33-78560, 33-89934, 333-01271, 333-12549, 333-63383, and 333-64557. ARTHUR ANDERSEN LLP Houston, Texas March 29, 2000 EX-23.2 8 CONSENT OF GARB GRUBBS HARRIS & ASSOCIATES, INC. EXHIBIT 23.2 GARB GRUBBS HARRIS & ASSOCIATES, INC. (Formerly Forrest A. Garb & Associates, Inc.) INTERNATIONAL PETROLEUM CONSULTANTS 5310 HARVEST HILL ROAD, SUITE 160 DALLAS, TEXAS 75230-5805 TEL: 972.788.1110 FAX: 972.991.3160 email: forgarb@forgarb.com CONSENT OF INDEPENDENT PETROLEUM ENGINEERS ------------------------------------------ Garb Grubbs Harris & Associates, Inc., petroleum consultants, hereby consent to the incorporation by reference in any registration statement or other document filed with the Securities and Exchange Commission by Seitel, Inc., our reserve report dated December 31, 1999, and to all references to our firm included therein. Garb Grubbs Harris & Associates, Inc. By: /s/ Ronald L. Grubbs ----------------------------------- Name: Ronald L. Grubbs ----------------------------------- Title: Chief Executive Officer ----------------------------------- Dallas, Texas March 29, 2000 EX-27 9 ART. 5 FDS FOR YEAR ENDED DECEMBER 31, 1999
5 12-MOS DEC-31-1999 DEC-31-1999 5,188 0 63,859 1,183 0 0 212,201 59,614 555,919 0 225,223 0 0 243 242,781 555,919 128,707 128,707 5,016 5,016 0 0 11,791 16,518 7,138 9,380 0 0 0 9,380 .39 .39 The Company does not present a classified balance sheet; therefore, current assets and current liabilities are not reflected in the Company's financial statements. PP&E does not include seismic data bank assets with a cost of $629,380,000 and related accumulated amortization of $299,495,000.
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