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EXHIBIT (C)(1)
[. . . ]
DIRECTOR COMPENSATION
Each member of the Board who is not an employee of the Company
receives: (i) an annual retainer of $10,000; (ii) $750 per meeting of the Board
of Directors or any committee thereof at which such director is present in
person; and (iii) reimbursement of all ordinary and necessary expenses incurred
in attending a meeting of the Board of Directors or committee thereof. Directors
who are full-time employees of the Company do not receive any compensation for
serving as directors. Any newly elected or appointed non-employee director
automatically received a nonqualified option under the 1995 Plan to purchase
10,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock on the date of grant. Such option vests in cumulative
installments of one-third on each of the first, second and third anniversaries
of the date of grant and expires on the tenth anniversary of the date of such
grant.
On February 9, 1996, non-employee directors (Messrs. Andrews, Bahna,
Brandrup, Emil and O'Brien) were awarded nonqualified stock options to purchase
10,000 shares of Common Stock pursuant to the 1995 Plan. The exercise price of
these options was equal to the price to the public in the Company's initial
public offering of $7.50 per share. Upon joining the Board in April 1996, Mr.
Tavella was granted an option under the 1995 Plan to purchase 10,000 shares of
Common Stock at an exercise price of $12.3125 per share. On September 30, 1996,
each of such non-employee directors was granted an additional option to purchase
6,667 shares of Common Stock at $8.50 per share, the closing price of the Common
Stock on the date of grant. Such options vested in full on February 6, 1997 and
expire in September 2006. See Proposal 2.
[. . . ]
EMPLOYMENT AGREEMENTS; NON-COMPETITION AGREEMENTS
Each of Messrs. Friedman, Davis, Ferran, Widynowski, Koons and Kemp has
entered into an employment agreement with the Company that expires on December
31, 1998, except for the agreement with Mr. Koons, which expires on September
30, 1999, and for the agreement with Mr. Ferran, which expires on December 31,
2000. The employment agreements provide for base annual salaries as follows: Mr.
Friedman: $125,000 plus an annual office allowance of $75,000, a portion of
which is being applied to payments under the Company's New York City lease; Mr.
Davis: $155,000; Mr. Ferran: $140,000; Mr. Widynowski: $140,000; Mr. Koons:
$125,000; Mr. Kemp: $75,000. Certain of the Company's executive officers are
entitled to an automobile allowance, and, in addition, each executive officer is
eligible pursuant to his employment agreement for a bonus to be determined in
the discretion of the Board of Directors or a committee thereof. No bonuses were
paid in respect of 1996.
Each of the employment agreements with Messrs. Friedman, Ferran and
Koons contains a covenant not to compete during the employee's employment with
the Company or its subsidiaries and for one year thereafter unless the Company
terminates the employee's
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employment without cause. Each of the agreements with Messrs. Davis and
Widynowski contains a similar covenant not to compete but provides that upon
termination of the agreement, other than by the Company for cause (as defined in
the agreement) or by the employee without good reason (as defined in the
agreement), the employee's covenant not to compete will lapse unless the Company
pays the employee 80% of the employee's base salary in the year following such
termination. Mr. Davis' agreement also provides that upon termination under
certain circumstances he will receive a payment for certain relocation expenses
and the continuation of certain benefits for a one-year period. Mr. Kemp
receives a monthly payment of $4,167 for 36 months, ending in January 1999, in
consideration of the covenant not to compete contained in his employment
agreement. In connection with the acquisition by the Company of Geoevaluaciones,
Mr. Ferran and the other former stockholders of Geoevaluaciones entered into
non-competition agreements under which Mr. Ferran and such former stockholders
were entitled to certain additional consideration (see "Certain Relationships
and Related Transactions").
Until September 30, 1996, Mr. John D. White, Jr. served as the
Company's Executive Vice President and Chief Financial Officer under an
employment agreement that was to expire on December 31, 1998 and provided for a
base salary of $150,000. Upon his resignation as an officer of the Company, Mr.
White and the Company entered into an agreement terminating this employment
agreement (see "Certain Relationships and Related Transactions").
Option Grants
Shown below is information regarding grants of stock options Plan
during 1996 to the Company's executive officers, including the Named Executive
Officers. The following table also shows the hypothetical value of the options
granted at the end of the option terms (ten years) if the price of the Company
Common Stock were to appreciate annually by 5% and 10%, respectively. These
assumed rates of growth are required by the Securities and Exchange Commission
for illustrative purposes only and are not intended to forecast possible future
stock prices.
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Individual Grants
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Market Price
% of Total of Underlying
Number of Options Securities on
Securities Granted to the Date of Potential Realizable Value of
Underlying Employees Exercise Grant if Assumed Annual Rates of Stock
Options in Fiscal Price higher than Expiration Price Appreciation for Option
Name Granted Year (1) ($/Sh) Exercise Price Date Term (2)
- ---- ------- -------- ------ -------------- ---- --------
5% 10%
-- ---
Luis H. Ferran......... 250,000 28.0% $7.50 - 2/9/06 $3,054,375.00 $4,863,750.00
Richard D. Davis....... 50,000(3) 5.6 7.50 - 2/9/06 610,875.00 972,750.00
75,000(4) 8.4 12.3125 4/26/06 1,504,279.69 2,395,396.88
Joel Friedman.......... 75,000(4) 8.4 12.3125 - 4/26/06 1,504,279.69 2,395,396.88
Wayne P. Widynowski.... 45,000(3) 5.0 7.50 - 2/9/06 549,787.50 875,475.00
75,000(4) 8.4 12.3125 4/26/06 1,504,279.69 2,395,396.88
Ronald L. Koons........ 30,000(5) 3.4 8.25 - 9/30/06 403,177.50 642,015.00
- -------------
(1) The Company granted options to purchase an aggregate of 893,352 shares
of Common Stock to its employees in 1996, of which options to purchase
an aggregate of 628,350 shares of Common Stock were granted under the
1995 Plan.
(2) Represents the product of (i) the difference between (A) the per-share
fair market price at the time of the grant compounded annually at the
assumed rate of appreciation over the term of the option, and (B) the
per-share exercise price of the option, and (ii) the number of shares
underlying the grant at the fiscal year-end.
(3) The option became exercisable in three equal cumulative annual
installments commencing on February 9, 1997.
(4) On April 26, 1996 the Compensation Committee granted nonqualified
options to each of Messrs. Friedman, Davis and Widynowski to purchase
75,000 shares of Common Stock. These options, which were not granted
under the 1995 Plan, have an exercise price of $12.3125 per share, were
granted on the same terms and conditions as are provided for in the
1995 Plan, vest in cumulative installments of 18,750 shares on each of
the first four anniversaries of the date of grant and expire ten years
after the date of grant.
(5) The option becomes exercisable in three equal cumulative annual
installments commencing on September 30, 1997.
Aggregate Option Exercises and Year-End Option Values. Shown below is
information relating to the exercise of stock options during 1996 for
the Company's executive officers, including the Named Executive
Officers, and the year-end value of unexercised options.
Value of Unexercised
Number of Securities in-the-Money Options
Underlying Unexercised at Fiscal Year-End (1)
Shares Acquired Value Realized Options at Fiscal Year-End (Exercisable/
Name on Exercise (1) (Exercisable/Unexercisable) Unexercisable)
- ---- ----------- --- --------------------------- -------------
Joel Friedman.................. 0 0 0/75,000 $0/0
Richard D. Davis............... 0 0 0/125,000 0/75,000
Luis H. Ferran................. 0 0 0/250,000 0/375,000
Wayne P. Widynowski............ 0 0 0/120,000 0/67,500
Ronald L. Koons................ 0 0 0/30,000 0/22,500
G.C.L. Kemp.................... 0 0 0/0 0/0
-----------------
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(1) Market value of underlying securities of $9.00 per share based on the
average of the high and low trading price of the Company's Common Stock
on December 31, 1996, minus the aggregate exercise price.
In addition, during 1996 the Compensation Committee and, after
September 1996 the Stock Option Committee, granted pursuant to the 1995 Plan
options to purchase an aggregate of 179,350 shares of Common Stock to other key
employees of the Company at prices ranging from $7.375 to $12.3125 per share.
Each of these options vests in cumulative installments of one-fourth of the
number of shares subject thereto on each of the first four anniversaries of the
grant date and expires in 2006.
The Compensation Committee of the Board of Directors made no
determination with respect to the 1996 cash compensation of any of the Company's
executive officers, all of whose cash compensation was paid pursuant to
employment agreements approved by the entire Board of Directors. Options granted
to executive officers prior to the Company's initial public offering were
granted by the entire Board of Directors pursuant to the 1995 Plan. Options
granted to executive officers after the Company's initial public offering were
granted by the Compensation Committee of the Board of Directors under the 1995
Plan or pursuant to authority granted to the Committee by the entire Board of
Directors.
[. . . ]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in March 1995 and conducted no operations
until February 1996, when it consummated its initial public offering (the
"Initial Public Offering") and acquired Northern, Geoevaluaciones, Kemp, Paragon
(the "Operating Subsidiaries") and PIASA. Simultaneously with the consummation
of the Initial Public Offering, the Company acquired in separate transactions,
in exchange for cash, notes and shares of Common Stock, the Operating
Subsidiaries and PIASA, as described below. Of the approximately $28.7 million
of net proceeds to the Company from the Initial Public Offering, (i)
approximately $13.8 million was used to pay the cash portion of the purchase
price to certain former stockholders of the Operating Subsidiaries and PIASA;
and (ii) approximately $5.9 million was used to repay indebtedness of the
Operating Subsidiaries, including approximately $1.9 million of indebtedness
that was guaranteed by or was owed to certain former stockholders of the
Operating Subsidiaries. In addition, the former stockholders of the Operating
Subsidiaries and PIASA received an aggregate of 1,599,319 shares of Common Stock
having a market value, based on the price to the public in the Initial Public
Offering of $7.50 per share, of approximately $12.0 million in the aggregate.
Under a stock purchase agreement (the "Geoevaluaciones Stock Purchase
Agreement"), the Company purchased from Mr. Ferran, his wife, his father-in-law
and his mother-in-law (collectively, the "Former Geoevaluaciones Stockholders")
all of the issued and outstanding shares of capital stock of Geoevaluaciones. In
connection with this acquisition, the Company entered into a separate
non-competition agreement with each of the Former Geoevaluaciones Stockholders
(collectively, the "Geoevaluaciones Non-Competition Agreement"). The
Geoevaluaciones Stock Purchase Agreement and the Geoevaluaciones Non-Competition
Agreement were entered into on the basis of arm's-length negotiations among the
Former Geoevaluaciones Stockholders and, on behalf of the Company, Messrs.
Friedman and White. Neither the Company nor the Former Geoevaluaciones
Stockholders obtained an appraisal of Geoevaluaciones or such non-competition
covenants in connection with this transaction; at September 30, 1995, the net
book value of Geoevaluaciones was approximately $2.1 million. Pursuant to the
Geoevaluaciones Stock Purchase Agreement, the Company paid to the Former
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Geoevaluaciones Stockholders: (i) $2.45 million in cash at closing; and (ii)
$1.0 million by delivery at closing of four promissory notes, payable in
installments at six, 12, 18 and 24 months after the closing in the following
aggregate amounts (which amounts include interest at 8% per annum): $290,000,
$280,000, $270,000 and $260,000, respectively. Pursuant to the Geoevaluaciones
Non-Competition Agreement, the Company paid to the Former Geoevaluaciones
Stockholders: (i) 100,000 shares of Common Stock that was issued at closing to
trusts with Mexican banks for the benefit of the Former Geoevaluaciones
Stockholders, and is to be released February 9, 1998; and (ii) $1.9 million,
reduced by the amount of any liabilities Geoevaluaciones had not disclosed to
the Company and by any amount paid by Geoevaluaciones to settle or otherwise in
connection with Geoevaluaciones' dispute with a supplier, such portion of the
consideration consisting of (a) $1.0 million in cash that was deposited at the
closing in a bank account, and which, subject to any such reduction, may be
disbursed only upon the approval of (1) either Mr. Ferran or another Former
Geoevaluaciones Stockholder, and (2) either Mr. Friedman or Mr. White; and (b)
117,647 shares of Common Stock that were delivered at closing to trusts with
Mexican banks for the benefit of the Former Geoevaluaciones Stockholders, and
which may not be released until June 30, 1997 and then only upon the approval of
a designated representative of the Former Geoevaluaciones Stockholders and Mr.
Friedman. Mr. Ferran entered into an employment agreement with the Company and
serves as Executive Vice President -- Latin American Operations, President of
Geoevaluaciones and a director of the Company. In addition, Mr. Ferran may
receive, pursuant to the Geoevaluaciones Non-Competition Agreement, as described
above, up to a maximum of 57,394 of the shares of Common Stock payable to the
Former Geoevaluaciones Stockholders. Of the amounts paid by the Company to the
Former Geoevaluaciones Stockholders, Mr. Ferran received, as described above,
$645,167 in cash, a note in the principal amount of $263,333, with interest of
8% per annum thereon payable over two years, and will receive up to $263,334 in
cash that may not be released until June 30, 1997 (see "-- Employment
Agreements; Non-Competition Agreements" and "Security Ownership of Certain
Beneficial Owners and Management").
Under a stock purchase agreement, the Company purchased from Messrs.
Andrews, Ferran and five other stockholders of PIASA all of the issued and
outstanding shares of capital stock of PIASA for approximately $300,000,
consisting of $60,000 in cash and approximately 28,235 shares of Common Stock.
The stock purchase agreement with the former stockholders of PIASA was entered
into on the basis of arm's-length negotiations among Mr. Andrews, the President
and Chairman of the Board of PIASA, and Mr. Ferran, a director and Secretary of
PIASA, on behalf of the former stockholders of PIASA, and Messrs. Friedman and
White, on behalf of the Company. Neither the Company nor PIASA obtained an
appraisal of PIASA in connection with this transaction; at September 30, 1995,
the net book value of PIASA was approximately $288,000. Mr. Ferran received
9,176 shares of Common Stock and $19,500 in connection with the sale of PIASA,
and Mr. Andrews received 10,588 shares of Common Stock and $22,500 in connection
with the sale of PIASA.
Under an asset purchase agreement between Northern's predecessor ("Old
Northern") and the Company, the Company purchased substantially all of Old
Northern's assets related to its land-based seismic data acquisition business.
Neither the Company nor Old Northern obtained an appraisal of the assets of Old
Northern to be acquired by the Company in connection with this transaction; at
September 30, 1995, the net book value of such assets was approximately $2.0
million. Such asset purchase agreement was the result of arm's-length
negotiations among representatives of the Company and representatives of Old
Northern. The
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aggregate consideration paid by the Company was $10.9 million in cash. Wayne P.
Widynowski, the Vice President of Marketing of Old Northern, entered into an
employment agreement with the Company and serves as Executive Vice President and
Chief Operating Officer of the Company and as President of Northern (see "--
Employment Agreements; Non-Competition Agreements," and "Security Ownership of
Certain Beneficial Owners and Management").
Under a merger agreement among Paragon, the Company and a subsidiary of
the Company, Paragon merged with the subsidiary with Paragon being the surviving
entity (the "Paragon Merger"). Mr. Friedman, two other individuals and members
of their respective immediate families (the "Former Paragon Stockholders" ) each
owned one-third of the issued and outstanding capital stock of Paragon. In
August 1994, Paragon purchased all of the net assets of Paragon Geophysical,
Inc., an Ohio corporation, for $1.1 million in cash and, in addition, assumed
long-term liabilities of $1.9 million. To finance the purchase, Paragon borrowed
$1.1 million from a commercial bank that was guaranteed by the Former Paragon
Stockholders and the Former Paragon Stockholders contributed approximately
$150,000 in cash. The Former Paragon Stockholders received approximately
1,314,261 shares of Common Stock in connection with the Paragon Merger. In
addition, the Company assumed an aggregate of $4.8 million of Paragon's debt, of
which $1.7 million had been personally guaranteed by Mr. Friedman and certain
other Former Paragon Stockholders. All of this debt was repaid upon consummation
of the Initial Public Offering with a portion of the net proceeds therefrom. The
terms of the Paragon Merger were not determined through arm's-length
negotiations and may have been significantly greater than would have resulted
from arm's-length negotiations. The Company did not obtain an appraisal of
Paragon in connection with the Paragon Merger; at September 30, 1995, the net
book value of Paragon was negative by approximately $496,000. Mr. Friedman, who,
prior to the Paragon Merger, was the President and Chief Executive Officer of
the Company and Chairman of the Board and Chief Executive Officer of Paragon,
together with members of his family, owns a total of 438,159 shares of Common
Stock as a result of the Paragon Merger. Mr. White, who, prior to the Paragon
Merger, was acting Chief Financial Officer of Paragon, served as Executive Vice
President, Chief Financial Officer, Secretary, Treasurer and a director of the
Company until September 30, 1996. In connection with the Paragon Merger, Messrs.
Friedman and White entered into employment agreements. Mr. White entered into a
termination agreement with the Company following his resignation in September
1996, as described below.
Under a stock purchase agreement among G.C.L. Kemp and his wife (the
"Former Kemp Stockholders") and the Company (the "Kemp Stock Purchase
Agreement"), the Company purchased all of the issued and outstanding shares of
capital stock of Kemp. The Kemp Stock Purchase Agreement was entered into on the
basis of arm's-length negotiations among G.C.L. Kemp, on behalf of the Former
Kemp Stockholders, and Messrs. Friedman and White, on behalf of the Company, and
the consideration payable to the Former Kemp Stockholders thereunder represents
the value the Former Kemp Stockholders deemed appropriate for their business.
Neither the Company nor the Former Kemp Stockholders obtained an appraisal of
Kemp in connection with this transaction; at September 30, 1995 the net book
value of Kemp was $422,000. The aggregate consideration paid by the Company to
the Former Kemp Stockholders, as modified by amendments in June 1996, was
approximately $919,000, consisting of $625,000 in cash and $294,000 paid by
delivery of 39,176 shares of Common Stock. In addition, the Company assumed and
repaid approximately $152,000 in debt owed by Kemp, of which $135,000 was
guaranteed by Mr. Kemp. In addition, the Company assumed $50,000 of debt
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owed by Kemp to Mr. Kemp, of which $25,000 was forgiven by Mr. Kemp in June
1996. Mr. Kemp entered into an employment agreement pursuant to which he serves
as a Vice President of the Company.
Mr. Andrews is the sole stockholder of The Andrews Group International,
Inc. ("Andrews Group") which, through its Mexican affiliate, A.G.I. Mexicana,
S.A. de C.V. ("A.G.I. Mexicana") (collectively, the "Andrews Companies"), acts
as the exclusive representative for several companies in Mexico, including
Input/Output, Inc. and Landmark Graphics Corporation. Geoevaluaciones and PIASA
purchase goods and services from A.G.I. Mexicana and during 1996 such purchases
totalled approximately $635,000. In addition, as of December 31, 1996 PIASA owed
A.G.I. Mexicana $65,000 for goods and services purchased prior to the Initial
Public Offering. The Company also leased approximately 1,000 channels of 3-D
seismic data acquisition equipment and geophones from Andrews Group under two
separate six-month lease agreements with automatic monthly renewals that
provided for deposits of approximately $293,000 and $77,000, respectively, and
for monthly payments of approximately $110,000 and $29,000, respectively. The
leases provided the Company with options to purchase the equipment for
approximately $2,445,000 and $642,000, respectively, subject to offsets of 80%
of the rental payments during the six months ended March 1, 1997 and a 10%
discount if the options were exercised during such period. The Company used a
portion of the proceeds of its December 1996 public offering to exercise such
options and purchase the equipment for $2,942,000. The Company anticipates that
it will continue to purchase goods and services from the Andrews Companies. The
Company believes that the past transactions with the Andrews Companies have
been, and that any future transactions with the Andrews Companies will be, on
terms no less favorable to the Company than could be obtained from an
unaffiliated third party.
The Company agreed to pay to a consulting company owned by Mr. White
$250,000 for financial advisory and other consulting services in connection with
the structuring, negotiation and consummation of the acquisitions of the
Operating Subsidiaries and PIASA, of which $125,000 was paid upon the
consummation the Initial Public Offering and $125,000 was paid on January 3,
1997. In connection with Mr. White's resignation as an executive officer of the
Company and the termination of his employment agreement on October 1, 1996, the
Company agreed to pay Mr. White $200,000 in January 1997 plus $5,000 per month
through December 31, 1998, the expiration date of the employment agreement, to
provide him with office space in the Company's New York City facility through
December 31, 1997, provided he does not serve as an officer of a competitor of
the Company during that period, and to provide him with certain insurance
benefits through December 31, 1998. In exchange therefor, Mr. White rendered
financial and advisory services to the Company in connection with its December
1996 public offering and the acquisition of J.R.S. Exploration Company, Limited.
The Company leases space in New York City at an annual base rental of
$165,000 to provide offices for Messrs. Friedman and White. Mr. Friedman has
agreed to reimburse the Company for any amounts under the lease that are payable
with respect to space that is not utilized by him and Mr. White and which have
not been paid by sub-lessees.
For information concerning legal fees paid to Kramer Levin, to which
firm Mr. Emil is of counsel, see "Information Concerning Directors and
Nominees".