IMPORTANT

 

Your vote is important. Whether or not you plan to attend the special meeting, please complete, sign and date the enclosed proxy and return it promptly in the enclosed postage-paid envelope. You may also cast your vote by telephone or over the Internet by following the instructions on your proxy card. If you vote by telephone or over the Internet, you do not need to submit your proxy card. Remember, your vote is important, so please act today!

IMPORTANT

 

Your vote is important. Whether or not you plan to attend the special meeting, please complete, sign and date the enclosed proxy and return it promptly in the enclosed postage-paid envelope. You may also cast your vote by telephone or over the Internet by following the instructions on your proxy card. If you vote by telephone or over the Internet, you do not need to submit your proxy card. Please do not send any stock certificates at this time. Remember, your vote is important, so please act today!

 

This summary highlights selected information from this document and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the terms of the merger, you should read carefully this entire document, including the annexes to this document, and the other available information referred to under “Where You Can Find More Information” beginning on page 153. We encourage you to read the merger agreement, the legal document governing the merger, which is attached as Annex A-1, and the amendment to the merger agreement, which is attached as Annex A-2 to, and incorporated by reference into, this joint proxy statement/prospectus. We have included page references in the discussion below to direct you to more complete descriptions of the topics presented in this summary.

 

Dawson Geophysical Company

508 West Wall, Suite 800

Midland, Texas 79701

(432) 684-3000

 

Dawson Geophysical Company, a Texas corporation, is the leading provider of U.S. onshore seismic data acquisition services as measured by the number of active data acquisition crews. Founded in 1952, Dawson acquires and processes 2-D, 3-D and multi-component seismic data solely for its clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries.

 

Dawson’s common stock is listed on NASDAQ under the symbol “DWSN.”

 

TGC Industries, Inc.

101 East Park Blvd., Suite 955

Plano, Texas 75074

(972) 881-1099

 

TGC Industries, Inc., a Texas corporation, and its wholly owned subsidiary, Eagle Canada, Inc., a Delaware corporation, are primarily engaged in the geophysical service business of conducting 3-D surveys for clients in the oil and gas business.

 

TGC’s common stock is listed on NASDAQ under the symbol “TGE.”

 

6446 Acquisition Corp.

508 West Wall, Suite 800

Midland, Texas 79701

(432) 684-3000

 

6446 Acquisition Corp., a Texas corporation and direct, wholly owned subsidiary of Dawson, was formed solely for the purpose of consummating the merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

Subject to the terms and conditions of the merger agreement and in accordance with Texas law, Merger Sub will be merged with and into TGC, with TGC surviving as a direct, wholly owned subsidiary of Dawson. Upon completion of the merger, TGC’s common stock will no longer be publicly traded.

 

A copy of the merger agreement is attached as Annex A-1 and the amendment to the merger agreement attached as Annex A-2 to, and incorporated by reference into, this joint proxy statement/prospectus. You should read the merger agreement carefully because it is the legal document that governs the merger.

Merger Consideration (Page 89)

 

Under the merger agreement, TGC shareholders will receive 0.188 shares of Dawson common stock for every one share of TGC common stock they own, provided that the 10-day average VWAP of Dawson common stock as of October 25, 2011 (which is the date that is two business days prior to the date of the special meetings) is equal to or greater than $32.54 but less than or equal to $52.54.

 

In the event that the 10-day average VWAP of Dawson common stock as of October 25, 2011 is outside of that range, the parties, at their respective option, will be entitled to terminate the transaction following two business days of good faith negotiations to determine a modified, mutually acceptable exchange ratio.

 

If the exchange ratio is modified, Dawson and TGC will each disclose the adjustment on a current report on Form 8-K and in a press release and will recirculate this joint proxy statement/prospectus or a supplement thereto and resolicit proxies.

 

Dawson will not issue any fractional shares of its common stock in connection with the proposed merger. For each fractional share that would otherwise be issued, Dawson will pay cash (without interest) in an amount equal to the product of the fractional share and the closing price for shares of Dawson common stock on NASDAQ on the business day immediately prior to the closing date of the merger.

 

The Number of Shares of Dawson Common Stock to Be Issued in the Merger Is Fixed, and Therefore the Value of the Merger Consideration Will Fluctuate with the Market Price of Dawson Common Stock (Page 90)

 

The number of shares of Dawson common stock to be issued in the merger for each share of TGC common stock is fixed (except in the event of any stock split, reverse stock split, stock dividend, combination, reclassification, recapitalization or other similar transaction or event with respect to Dawson common stock or TGC common stock) and will not be adjusted for changes in the market price of either Dawson common stock or TGC common stock unless the 10-day average VWAP of Dawson common stock as of October 25, 2011 is less than $32.54 or greater than $52.54. Accordingly, any change in the price of Dawson common stock prior to the merger will affect the market value of the merger consideration that TGC shareholders will receive as a result of the merger. Any fluctuation in the price of TGC common stock will have no effect on the exchange ratio or the value of the merger consideration.

 

The 10-day average VWAP of Dawson common stock as of March 18, 2011, the last full trading day prior to announcement of the transaction, was $44.16. The 10-day average VWAP of Dawson common stock as of September 23, 2011, the last practicable full trading day prior to the date of this joint proxy statement/prospectus, was $28.54. Only the 10-day average VWAP of Dawson common stock as of October 25, 2011 will be used to determine whether the 10-day average VWAP is within the trading range designated in the merger agreement. You should obtain current stock price quotations for Dawson common stock and TGC common stock before voting. Dawson common stock and TGC common stock are listed on NASDAQ under the symbols “DWSN” and “TGE,” respectively.

 

In the event that the 10-day average VWAP of Dawson common stock as of October 25, 2011 is less than $32.54 or greater than $52.54, the parties, at their respective option, will be entitled to terminate the transaction following two business days of good faith negotiations to determine a modified, mutually acceptable exchange ratio.

 

If the exchange ratio is modified, Dawson and TGC will each disclose the adjustment on a current report on Form 8-K and in a press release and will recirculate this joint proxy statement/prospectus or a supplement thereto and resolicit proxies.

 

Treatment of TGC Stock Options and Restricted Stock (Page 100)

 

As a result of the merger, each outstanding stock option for TGC common stock granted by TGC pursuant to a benefit plan will become fully vested prior to the effective time of the merger. Stock options for TGC common stock will, if not exercised prior to the effective time of the merger, be converted into stock

options for Dawson common stock on terms substantially identical to those in effect immediately prior to the effective time of the merger, with the number of shares of Dawson common stock issuable and the exercise price being adjusted by the exchange ratio.

 

Immediately prior to the effective time of the merger, each outstanding award of restricted stock granted by TGC pursuant to an employee benefit plan will become fully vested and each holder of such formerly restricted shares will have the right to participate in the merger as a holder of TGC common stock.

 

Dawson’s Reasons for the Merger (Page 63)

 

In evaluating the merger, the Dawson board of directors consulted with Dawson’s management, as well as Dawson’s legal and financial advisors and, in reaching its decision to approve the merger agreement and the transactions contemplated thereby and to recommend that Dawson shareholders approve the issuance of shares of Dawson common stock pursuant to the merger agreement, reviewed a significant amount of information and considered a number of factors, including those listed in “The Merger — Dawson’s Reasons for the Merger and Recommendation of Dawson’s Board of Directors” beginning on page 63.

 

TGC’s Reasons for the Merger (Page 68)

 

In the course of reaching its decision to approve the merger agreement and related transactions and to recommend that TGC shareholders approve the merger agreement, the TGC board of directors consulted with members of TGC’s management and TGC’s legal and financial advisors, reviewed a significant amount of information and considered a number of factors, including those listed in “The Merger — TGC’s Reasons for the Merger and Recommendation of TGC’s Board of Directors” beginning on page 68.

 

Dawson’s board of directors has adopted a resolution approving the merger agreement and has determined that the merger agreement is advisable and in the best interests of Dawson and its shareholders and recommends that Dawson shareholders vote “FOR” approval of the issuance of Dawson common stock to TGC shareholders pursuant to the merger agreement and “FOR” approval of any adjournment of the special meeting, if necessary or appropriate to solicit additional proxies. See “The Merger — Background of the Merger” beginning on page 54.

 

TGC’s board of directors has adopted a resolution approving the merger agreement and has determined that the merger agreement is advisable and in the best interests of TGC and its shareholders and recommends that TGC shareholders vote “FOR” approval of the merger agreement, “FOR” approval of the non-binding advisory resolution on certain compensation to be paid by TGC to TGC’s named executive officers upon consummation of the merger and “FOR” approval of any adjournment of the special meeting, if necessary or appropriate to solicit additional proxies. See “The Merger — Background of the Merger” beginning on page 54.

 

As described under the headings “TGC Proposal 2 — Non-Binding, Advisory Vote on Approval of Certain Compensation to be Paid by TGC to TGC’s Named Executive Officers” and “The Merger — Conflicts of Interests” beginning on pages 49 and page 92, of this joint proxy statement/prospectus, TGC’s directors and executive officers will receive financial benefits that are different from, or in addition to, those of TGC’s shareholders.

 

In deciding to approve the merger agreement and recommend the issuance of shares of Dawson common stock pursuant to the merger agreement, Dawson considered an opinion from its financial advisor, Raymond James & Associates, Inc., or Raymond James. Raymond James rendered its opinion to Dawson’s board of directors that, as of March 20, 2011, based upon and subject to the qualifications, limitations and assumptions

stated in its opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Dawson.

 

The full text of the written opinion of Raymond James, dated March 20, 2011, is attached as Annex B to this joint proxy statement/prospectus. Raymond James provided its opinion for the information and assistance of Dawson’s board of directors in connection with its consideration of the merger. The Raymond James opinion is not a recommendation as to how any holder of Dawson common stock should vote with respect to the approval of the issuance of shares of Dawson common stock pursuant to the merger agreement or any other matter.

 

Pursuant to a letter agreement dated February 15, 2011, Dawson engaged Raymond James to render an opinion to the Dawson board of directors as to the fairness, from a financial point of view, of the consideration to be paid by Dawson in connection with the proposed merger. As compensation for its services in connection with the proposed merger, Dawson paid Raymond James $350,000 upon the delivery of Raymond James’s fairness opinion and will pay Raymond James an additional $900,000 if the merger is consummated. In addition, Dawson has agreed to reimburse Raymond James for up to $50,000 of its reasonable out-of-pocket expenses, including attorneys’ fees and disbursements, and to indemnify Raymond James and related persons against various liabilities.

 

In deciding to recommend approval of the merger agreement, TGC considered an opinion from its financial advisor, Southwest Securities, Inc., or Southwest Securities. Southwest Securities rendered its opinion to TGC’s board of directors that, as of March 20, 2011, based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the exchange ratio to be received by TGC shareholders was fair, from a financial point of view, to such shareholders.

 

The full text of the written opinion of Southwest Securities, dated March 20, 2011, is attached as Annex C to this joint proxy statement/prospectus. Southwest Securities provided its opinion for the information and assistance of TGC’s board of directors in connection with its consideration of the merger. The Southwest Securities opinion is not a recommendation as to how any holder of TGC common stock should vote with respect to the approval of the merger agreement or any other matter.

 

Pursuant to a letter agreement dated February 17, 2011, TGC engaged Southwest Securities to render an opinion to the TGC board of directors as to the fairness, from a financial point of view, of the consideration to be received by the TGC common shareholders in connection with the proposed merger. As compensation for its services in connection with the proposed merger, TGC paid Southwest Securities $100,000 upon execution of the letter agreement and an additional $225,000 upon the delivery of Southwest Securities’ fairness opinion. If the merger is completed, TGC has agreed to pay Southwest Securities an additional $25,000. Under certain circumstances associated with the transaction, TGC has agreed to pay Southwest Securities additional fees for financial advisory services. In addition, TGC has agreed to reimburse Southwest Securities for its reasonable out-of-pocket expenses, including attorneys’ fees and disbursements, and to indemnify Southwest Securities and related persons against various liabilities.

 

We anticipate that upon completion of the merger, Dawson will have approximately 11.7 million shares of common stock outstanding, with current Dawson shareholders owning approximately 68% of the combined company and current TGC shareholders owning approximately 32%.

 

Under the merger agreement, Dawson has agreed to take all necessary actions to cause, as of the effective time of the merger, the Dawson board of directors to include as Dawson directors Wayne A. Whitener and Allen T. McInnes, each of whom is currently a director of TGC. We expect that the current directors of Dawson will continue to serve as directors of Dawson after the merger. Accordingly, in order to accommodate

the two additional directors, at the effective time of the merger, the Dawson board of directors will increase in size to 10 directors.

 

The current officers of Dawson will continue to serve as the officers of Dawson after the merger is complete. In addition, Mr. Whitener, TGC’s current President and Chief Executive Officer, will continue to serve as President of TGC, which after the transaction will be a wholly owned subsidiary of Dawson.

 

Dawson will hold its special meeting of shareholders at the offices of Baker Botts L.L.P. at 2001 Ross Avenue, Suite 1100, Dallas, Texas at 8:00 a.m., central time, on Thursday, October 27, 2011 for the following purposes:

 

 

TGC will hold its special meeting of shareholders at the offices of Haynes and Boone at 2323 Victory Avenue, Suite 700, Dallas, Texas at 8:00 a.m., central time, on Thursday, October 27, 2011 for the following purposes:

 

 

You may vote at the special meeting of Dawson shareholders if you owned shares of Dawson common stock at the close of business on August 29, 2011, the record date for the Dawson special meeting.

 

You may vote at the special meeting of TGC shareholders if you owned shares of TGC common stock at the close of business on August 29, 2011, the record date for the TGC special meeting.

 

Dawson.  Approval by Dawson shareholders of either the issuance of shares of Dawson common stock pursuant to the merger agreement, for which a quorum is required, or any adjournment of the Dawson special meeting, if necessary or appropriate to solicit additional proxies, requires the affirmative vote of a majority of the shares of Dawson common stock present in person or represented by proxy and entitled to vote at the Dawson special meeting. Each share of Dawson common stock outstanding as of the record date is entitled to one vote at the Dawson special meeting.

 

If a Dawson shareholder abstains when voting, that action will be the equivalent of a vote “AGAINST” all of the matters to be voted upon at the Dawson special meeting. Assuming a quorum is present at the Dawson special meeting, a broker non-vote will have no effect on the proposal to issue shares of Dawson common stock pursuant to the merger agreement. Whether or not a quorum is present at the Dawson special meeting, a broker non-vote will have no effect on the adjournment proposal.

 

An abstention occurs when a shareholder votes to abstain on one or more of the proposals and returns a proxy card or is present in person at the special meeting. Broker non-votes occur when a bank, broker or other

nominee returns a proxy but does not have authority to vote on a particular proposal in its discretion and the beneficial owner of the shares has not provided voting instructions.

 

TGC.  Approval by TGC shareholders of the merger agreement requires the affirmative vote of at least 80% of the outstanding shares of TGC common stock. Approval by TGC shareholders of (1) the non-binding advisory resolution on certain compensation to be paid by TGC to TGC’s named executive officers upon consummation of the merger and (2) any adjournment of the TGC special meeting, if necessary or appropriate to solicit additional proxies, requires the affirmative vote of a majority of shares of TGC common stock present in person or represented by proxy and entitled to vote at the TGC special meeting. Each share of TGC common stock outstanding as of the record date is entitled to one vote at the TGC special meeting.

 

If a TGC shareholder abstains when voting, that action will be the equivalent of a vote “AGAINST” all of the matters to be voted upon at the TGC special meeting. Assuming a quorum is present at the TGC special meeting, a broker non-vote will be the equivalent of a vote “AGAINST” approval of the merger agreement, but will have no effect on the proposal to approve the non-binding advisory resolution on certain compensation to be paid by TGC to TGC’s named executive officers upon consummation of the merger. Whether or not a quorum is present at the TGC special meeting, a broker non-vote will have no effect on the adjournment proposal.

 

An abstention occurs when a shareholder votes to abstain on one or more of the proposals and returns a proxy card or is present in person at the special meeting. Broker non-votes occur when a bank, broker or other nominee returns a proxy but does not have authority to vote on a particular proposal in its discretion and the beneficial owner of the shares has not provided voting instructions.

 

Dawson:  As of August 29, 2011, the record date for the Dawson special meeting, there were 7,910,885 shares of Dawson common stock outstanding.

 

At the close of business on the record date for the Dawson special meeting, directors and executive officers of Dawson beneficially owned and were entitled to vote 303,301 shares of Dawson common stock, collectively representing approximately 3.8% of the shares of Dawson common stock outstanding on that date. Pursuant to and subject to the terms of the Dawson shareholder voting agreement, certain of those executive officers and directors, who collectively owned approximately 3.5% of the shares of Dawson common stock outstanding on the record date of the Dawson special meeting, have agreed, among other things, to vote their shares of Dawson common stock in favor of approval of the issuance of shares of Dawson common stock in connection with the proposed merger at the Dawson special meeting. For additional information on the Dawson shareholder voting agreement, see “The Dawson Shareholder Voting Agreement” beginning on page 121.

 

TGC:  As of August 29, 2011, the record date for the TGC special meeting, there were 19,250,882 shares of TGC common stock outstanding.

 

At the close of business on the record date for the TGC special meeting, directors and executive officers of TGC beneficially owned and were entitled to vote 5,519,641 shares of TGC common stock, collectively representing approximately 28.7% of the shares of TGC common stock outstanding on that date. Pursuant to and subject to the terms of the TGC shareholder voting agreements, those executive officers and directors and their affiliates have agreed, among other things, to vote their shares of TGC common stock in favor of approval of the merger agreement at the TGC special meeting. For additional information on the TGC shareholder voting agreements, see “The TGC Shareholder Voting Agreement” beginning on page 119.

 

The merger will be completed only if the conditions to the merger are satisfied or waived (if legally permissible), including the following:

 

 

If any of the conditions set forth above fail to occur and such conditions are not waived, the merger will not be consummated and the merger agreement will terminate. Either party may waive any of their respective conditions if the law allows such party to do so, and this could include a waiver by TGC of its condition that it shall have received, as of the closing date, a reconfirmation from its financial advisor that the exchange ratio is fair, from a financial point of view, to TGC shareholders. Accordingly, even if TGC’s financial advisor failed to provide the reconfirmation opinion, or determined that the exchange ratio was no longer fair, from a financial point of view, to TGC shareholders, TGC could nonetheless waive the condition and the consummation of the merger would occur with no consequences to the condition having not been satisfied. However, TGC does not anticipate waiving the condition relating to the reconfirmation opinion. If either party were to waive a condition, the consummation of the merger would occur without the condition having been met. Neither Dawson nor TGC can give any assurance regarding when or if all of the conditions to the merger will be either satisfied or waived or that the merger will occur as intended.

 

The proposal relating to the approval of certain compensation to be paid by TGC to TGC’s named executive officers upon consummation of the merger is a non-binding advisory resolution and is not a condition to the merger. Accordingly, even if TGC shareholders do not approve such compensation, if all closing conditions to the merger are satisfied, Dawson and TGC will be obligated to close the merger, and TGC named executive officers will be paid such compensation.

 

The merger is subject to compliance with the HSR Act. On March 23, 2011, Dawson and TGC made their respective filings under the HSR Act with the Antitrust Division of the United States Department of Justice, which is referred to as the Antitrust Division in this joint proxy statement/prospectus, and the United States Federal Trade Commission, which is referred to as the FTC in this joint proxy statement/prospectus. On September 2, 2011, the Antitrust Division informed Dawson that it has closed its investigation without taking any action. On the same date, early termination of the waiting period under the HSR Act was granted in connection with the proposed merger.

 

Dawson and TGC can mutually agree to terminate the merger agreement at any time. Either Dawson or TGC can unilaterally terminate the merger agreement in various circumstances, including the following:

 

 

TGC is required to pay Dawson a termination fee of $2.35 million in the event the merger agreement is terminated if:

 

 

 

 

TGC is also required to pay Dawson a termination fee of $3.125 million in the event the merger agreement is terminated because TGC does not receive the reconfirmation opinion and all other mutual conditions to closing have been satisfied, including the required approval of TGC’s shareholders.

 

Except as described above, TGC is not required to pay Dawson a termination fee in the event TGC shareholders do not approve the merger agreement.

 

Dawson is required to pay TGC a termination fee of $2.35 million in the event the merger agreement is terminated if:

 

 

 

 

Except as described above, Dawson is not required to pay TGC a termination fee in the event Dawson shareholders do not approve the issuance of shares of Dawson common stock pursuant to the merger agreement.

 

Furthermore, either Dawson or TGC will have to pay to the other party out-of-pocket expenses, including all fees and expenses payable to all legal, accounting, financial, public relations and other professional advisors arising out of, in connection with, or related to the merger, up to a maximum of $1.5 million in the aggregate, if the merger agreement is terminated under certain circumstances.

 

TGC’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of holders of TGC common stock. These interests include certain TGC directors and executive officers being entitled to receive certain benefits in connection with the proposed merger. Some of these benefits include the following:

 

 

 

Dawson’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation that Dawson shareholders vote in favor of approval of the issuance of shares of Dawson common stock pursuant to the merger agreement. See “The Merger — Dawson’s Reasons for the Merger and Recommendation of Dawson’s Board of Directors” beginning on page 63.

 

TGC’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation that TGC shareholders vote in favor of approval of the merger agreement. See “The Merger — TGC’s Reasons for the Merger and Recommendation of TGC’s Board of Directors” beginning on page 68.

 

Dawson and TGC have agreed not to, and to cause their respective subsidiaries, directors, officers, employees or agents or any investment banker, financial advisor, attorney, accountant or other advisor or representative not to, solicit, initiate, approve, endorse, recommend, or encourage, or take any other action designed to, or which would reasonably be expected to, facilitate, any inquiry or the making or announcement of any proposal or offer that constitutes, or that would reasonably be expected to lead to, an “acquisition proposal” (as defined in “The Merger Agreement — Covenants and Agreements — No Solicitation”).

 

Prior to obtaining the required approval from their respective shareholders, Dawson and TGC are permitted to: (1) furnish information and access in response to a written request for information or access to any person making an acquisition proposal which was not solicited, initiated, knowingly encouraged, or knowingly facilitated by Dawson or TGC, as applicable, and (2) participate in discussions and negotiate with such person concerning any such unsolicited acquisition proposal if the following conditions are met:

 

 

Also, Dawson’s and TGC’s respective boards of directors may not change, or fail to reaffirm when requested by the other party, their recommendation to shareholders or terminate the merger agreement and enter into an agreement in respect of another acquisition proposal unless (1) such change in or failure to reaffirm its recommendation is made prior to obtaining the required approval from their respective shareholders and (2) the following conditions are met: (A) an acquisition proposal has been made and not withdrawn, (B) Dawson’s or TGC’s board of directors, as the case may be, determines in good faith, after receipt of advice from outside counsel and a financial advisor of nationally recognized reputation, that such acquisition

proposal constitutes a superior proposal, (C) Dawson’s or TGC’s board of directors, as the case may be, determines in good faith, after receipt of advice from outside counsel, that the failure to take such action would be reasonably likely to result in a breach of fiduciary duties to the shareholders of Dawson or TGC, as applicable, and (D) in the case of terminating the merger agreement to enter into an acquisition proposal, Dawson or TGC, as applicable, has paid the other party a termination fee equal to $2.35 million and up to $1.5 million of the other party’s out-of-pocket expenses. In addition, no party’s board of directors may change, or fail to reaffirm, its recommendation or terminate the merger agreement and enter into an agreement in respect of another acquisition proposal:

 

 

However, the other party will not have an exclusive right to match any superior proposal if the no-shop party’s board of directors determines in good faith, after receipt of advice from a financial advisor of nationally recognized reputation, that a superior proposal, if consummated, would result in such no-shop party’s shareholders receiving consideration valued at 115% or more of the consideration to be received by such no-shop party’s shareholders pursuant to the transactions contemplated by the merger agreement, as such consideration may have then been modified by the other party in response to such acquisition proposal.

 

In deciding how to vote your Dawson or TGC shares, you should read carefully this entire joint proxy statement/prospectus, including the documents incorporated by reference herein and the Annexes hereto, and especially consider the factors discussed in the section titled “Risk Factors.” These risks include possible difficulties in Dawson’s ability to integrate effectively the businesses of Dawson and TGC, two companies that have previously operated independently.

 

Dawson and TGC each expect the merger to be a tax-free reorganization pursuant to Section 368(a) of the Code to the extent TGC shareholders receive Dawson common stock pursuant to the merger.

 

It is a condition to the closing of the merger that counsel for Dawson and TGC deliver opinions to the effect that the merger will qualify as such a reorganization. While the condition is waivable, neither Dawson nor TGC intends to waive this closing condition. If either party were to waive the condition, and the resulting change in tax consequences to TGC shareholders would be material, Dawson and TGC have undertaken to recirculate this joint proxy statement/prospectus or a supplement thereto and resolicit proxies.

 

Please review carefully the information under the caption “Material U.S. Federal Income Tax Consequences of the Merger” for a description of the material U.S. federal income tax consequences of the merger. The tax consequences to you will depend on your own situation. You are urged to consult your tax advisor for a full understanding of the tax consequences of the merger to you.

 

The merger will be accounted for as an acquisition of TGC by Dawson using the “acquisition” method of accounting.

 

It is a condition to the merger that the shares of common stock to be issued by Dawson pursuant to the merger agreement be authorized for listing on NASDAQ subject to official notice of issuance. The shares of common stock to be issued by Dawson pursuant to the merger agreement will trade under the symbol “DWSN” and will be fully interchangeable with the Dawson common stock currently trading under that symbol.

 

Shares of TGC common stock are currently traded on NASDAQ under the symbol “TGE.” If the merger is completed, TGC common stock will no longer be listed on NASDAQ and will be deregistered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and TGC will no longer file periodic reports with the SEC.

 

Neither Dawson nor TGC shareholders are entitled to any appraisal or dissenters’ rights in connection with the proposed merger.

 

Dawson and TGC are both Texas corporations. Upon completion of the merger, the holders of TGC common stock will become holders of Dawson common stock and their rights will continue to be governed by the Texas Business Organizations Code, but will also be governed by Dawson’s second restated articles of incorporation and second amended and restated bylaws, as amended. TGC shareholders should consider that Dawson’s second restated articles of incorporation and second amended and restated bylaws, as amended, differ in some material respects from TGC’s restated articles of incorporation and amended and restated bylaws.

 

The following tables set forth Dawson’s selected historical financial information that has been derived from Dawson’s audited financial statements as of September 30, 2010, 2009, 2008, 2007 and 2006 and for the years then ended and from the unaudited financial statements as of June 30, 2011 and 2010 and for the nine months then ended. This disclosure does not include the effects of the merger. You should read this financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto in Dawson’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 and in Dawson’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 153.

 

The results of operations for the historical periods included in the following table are not necessarily indicative of the results to be expected for future periods.

 

Statement of Operations Data

 

Balance Sheet Data (at period end)

 

 

Statement of Cash Flows Data

 

 

Dawson Developments for Quarter Ended June 30, 2011

 

On August 9, 2011, Dawson filed with the SEC its Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. The following is a summary of Dawson’s unaudited results for the quarter and the nine months ended June 30, 2011 and 2010. This summary is not intended to be a comprehensive statement of Dawson’s unaudited financial results for these periods. Full financial results are included in Dawson’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

 

 

Dawson’s operating revenues for the first nine months of fiscal 2011 increased 70% to $249,023,000 from $146,093,000 for the first nine months of fiscal 2010. For the three months ended June 30, 2011, operating revenues totaled $98,033,000 as compared to $61,178,000 for the same period of fiscal 2010, a 60% increase. The revenue increase for the fiscal 2011 periods is primarily the result of increasing the active crew count to fourteen working crews, including the two formerly provisional crews added during the second fiscal quarter, increasing channel count per crew and significantly higher third-party charges, which constituted one-half of the growth in revenues during these periods. The third-party charges are related to the use of helicopter support services, specialized survey technologies and dynamite energy sources. The increased level of the third-party charges is driven by Dawson’s continued operations in areas with limited access such as the Appalachian Basin, Oklahoma, East Texas and Arkansas. Dawson is reimbursed for these charges by its clients.

 

Dawson’s operating expenses for the nine months ended June 30, 2011 totaled $225,324,000 as compared to $133,245,000 for the same period of fiscal 2010, an increase of 69%. Operating expenses for the three months ended June 30, 2011 increased 58% to $85,431,000 as compared to $54,098,000 for the same period of fiscal 2010. The increase for the nine months ended June 30, 2011 compared to the nine months ended June 30, 2010 was primarily due to the addition of field personnel and other expenses associated with operating fourteen data acquisition crews during fiscal 2011, significantly higher third-party expenses, along with an overall increase in operating activity during the period. As discussed above, reimbursed expenses have a similar impact on operating costs.

 

Earnings per share for the third quarter of fiscal 2011 were $0.04 compared to a loss per share of $0.13 for the third quarter of fiscal 2010. EBITDA for the third quarter of fiscal 2011 was $8,821,000 compared to $5,591,000 in the same quarter of fiscal 2010, an increase of 58 percent. Net loss for the period decreased to $6,190,000 in 2011 from $7,941,000 in 2010. Loss per share for the first nine months of fiscal 2011 was $0.79 compared to a loss per share of $1.02 for the first nine months of fiscal 2010. EBITDA for the fiscal 2011 nine month period increased to $14,939,000 compared to $7,868,000 in the same period of fiscal 2010, an increase of 90 percent.

 

Dawson’s fiscal third quarter and nine month results also included approximately $1,465,000 and $2,421,000, or $0.19 per share and $0.31 per share, respectively, of expenses related to the merger, and $884,000 and $2,579,000, respectively, of depreciation charges related to Dawson’s continued investment in new recording equipment and energy source units.

 

During the third fiscal quarter, Dawson purchased the 14,850 single-channel OYO GSR units it had initially leased in its second fiscal quarter by exercising the purchase option under the lease agreement. The conversion of the equipment lease to a purchase resulted in an increase of approximately $0.02 per share per month of depreciation charges and a decrease of approximately $0.06 per share per month of lease expense for each month of the quarter (as compared to March 2011, the month in which the equipment was initially

leased). The purchase of the equipment was financed through a new term loan facility in the amount of $16,427,000. Dawson still retains its $20,000,000 revolving facility, and at the date of this joint proxy statement/prospectus, no amounts were drawn under the revolving facility.

 

Dawson’s order book has grown to its highest level since late fiscal 2008 with added projects in the Eagle Ford, Bakken, Niobrara and Avalon liquids and oil-rich shales. Drilling activity remains relatively high in the Marcellus, Barnett and Haynesville natural gas shales while demand is increasing in many conventional oil basins. Pricing and contract terms are showing continued improvements as activity levels in the lower 48 states continue to increase. Dawson continues to operate on several projects contracted in early 2010 with less favorable contract terms, and believes it will complete work on these projects during calendar 2011. Demand for Dawson’s services remains strong. Although Dawson’s clients may cancel their service contracts on short notice, Dawson’s order book currently reflects commitments sufficient to maintain full operation of fourteen crews through the end of calendar 2011.

 

During the third fiscal quarter, Dawson’s Board of Directors approved a $5,000,000 increase to its capital budget and approved the purchase of the previously leased OYO GSR equipment, bringing the total amount of Dawson’s fiscal 2011 capital budget to $61,918,000. As of the date of this joint proxy statement/prospectus, Dawson has spent $56,264,000 of the capital budget primarily to purchase 2,000-station OYO GSR four-channel recording system along with three-component geophones, 24,850 single-channel OYO GSR recording boxes, additional conventional geophones, cables for existing systems, vehicles to improve our fleet and ten INOVA vibrator energy source units. Dawson will use the remaining balance of its fiscal 2011 capital budget for maintenance capital purposes.

 

The financial information set forth in this “Dawson Recent Developments” section regarding EBITDA (defined as earnings before interest, income taxes, depreciation and amortization expense) may be considered a non-GAAP financial measure. Dawson provided this information because Dawson believes it could be useful in evaluating Dawson’s operating performance. EBITDA should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and EBITDA as used by Dawson may not be comparable to similarly titled amounts used by other companies. The below table reconciles Dawson’s EBITDA for the three- and nine-months ended June 30, 2011 and 2010 to Dawson’s net income (loss) during the same period.

 

Reconciliation of EBITDA to Net Income (Loss)

 

 

The following tables set forth TGC’s selected historical consolidated financial information that has been derived from TGC’s audited consolidated financial statements as of December 31, 2010, 2009, 2008, 2007 and 2006 and for the years then ended and from the unaudited consolidated financial statements as of June 30, 2011 and 2010 and for the six months then ended. This disclosure does not include the effects of the merger. You should read this financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and condensed consolidated financial statements and notes thereto in TGC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and in TGC’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 153.

 

The results of operations for the historical periods included in the following table are not necessarily indicative of the results to be expected for future periods.

 

Statement of Operations Data

 

 

 

 

Balance Sheet Data (at period end)

 

 

Statement of Cash Flows Data

 

 

TGC Developments for Quarter Ended June 30, 2011

 

On August 9, 2011, TGC filed with the SEC its Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. The following is a summary of TGC’s unaudited results for the quarter and the six months ended June 30, 2011 and 2010. This summary is not intended to be a comprehensive statement of TGC’s unaudited financial results for these periods. Full financial results are included in TGC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

 

TGC’s revenues were $30.2 million for the quarter ended June 30, 2011, compared to $22.5 million for the quarter ended June 30, 2010. In response to growing customer demand, TGC added an eighth seismic crew in the U.S. during the second quarter of 2011, compared to operating six seismic crews in the U.S. during the second quarter of 2010. In Canada, as a result of the spring thaw, the number of working crews wound down

to zero during the quarter ended June 30, 2011. However, as a result of new business awarded in Canada, two crews were returned to operation towards the end of the quarter.

 

Cost of services as a percentage of revenues declined to 72.6% for the quarter ended June 30, 2011 as compared to 81.6% in the quarter ended June 30, 2010. Selling, general and administrative expenses were $2.3 million for the quarter ended June 30, 2011 compared to $1.7 million in the quarter ended June 30, 2010. As a percentage of revenues, selling, general and administrative expenses for the quarter ended June 30, 2011 fell to 7.5% from 7.8% in the quarter ended June 30, 2010. The $2.3 million of selling, general and administrative expenses for the quarter ended June 30, 2011 included merger related costs of approximately $528,000, or $0.03 per share.

 

Net income in the quarter ended June 30, 2011, which includes transaction related costs related to the merger of $528,000, grew to $0.6 million, or $0.03 per diluted share, from a net loss of $1.2 million, or ($0.06) per share, in the quarter ended June 30, 2010. In the quarter ended June 30, 2011, TGC recorded income tax expense of $0.4 million, an effective tax rate of 42.6%, compared to an income tax benefit of $0.4 million in the quarter ended June 30, 2010, an effective tax benefit rate of 24.5%. EBITDA (a non-GAAP number) increased 150% to $6.0 million for the quarter ended June 30, 2011 compared to $2.4 million in the quarter ended June 30, 2010. EBITDA margin in the quarter ended June 30, 2011 increased by 915 basis points to 19.8% from 10.7% in the same period of 2010.

 

TGC’s revenues for the six months ended June 30, 2011 grew 52% to $80.5 million from $52.8 million for the six months ended June 30, 2010. Cost of services as a percentage of revenues decreased to 69.9% in the six months ended June 30, 2011 from 79.4% in the six months ended June 30, 2010. Selling, general and administrative expenses were $4.8 million, or 5.9% of revenues, in the six months ended June 30, 2011 compared to $3.4 million, or 6.5% of revenues, in the six months ended June 30, 2010. The $4.8 million of selling, general and administrative expenses for the six months ended June 30, 2011 included merger related costs of approximately $1,112,000, or $0.06 per share.

 

Net income for the six months ended June 30, 2011 was $6.4 million, or $0.33 per diluted share, compared to net loss of $0.7 million, or ($0.03) per share, for the six months ended June 30, 2010. Results for the six months ended June 30, 2011 include $1.1 million of transaction costs related to the merger. EBITDA for the six months ended June 30, 2011 increased 162% to $19.5 million, or 24.2% of revenues, compared to $7.4 million, or 14.1% of revenues, in same period of 2010.

 

TGC’s backlog was $56 million at June 30, 2011. In July 2011, TGC purchased another 5,000 channel geospace seismic recorder wireless recording program. At June 30, 2011, TGC has approximately $22 million in cash.

 

The financial information set forth in this “TGC Recent Developments” section regarding EBITDA (defined as earnings before interest, income taxes, depreciation and amortization expense) is a non-GAAP financial measure. TGC believes that an understanding of TGC’s performance is enhanced by disclosing EBITDA as a reasonable basis for comparison of TGC’s on going results of operations. EBITDA should not be considered a substitute for GAAP-basis measures and results. TGC’s calculation of EBITDA may not be comparable to EBITDA for other companies. The table below reconciles TGC’s EBITDA for the three and six months ended June 30, 2011 and 2010 to TGC’s net income (loss) during the same periods.

 

TGC Industries, Inc.
Reconciliation of EBITDA to Net Income

 

 

The following selected unaudited pro forma combined financial and other information is based on the historical financial and other information of Dawson and the historical consolidated financial and other information of TGC incorporated by reference into this joint proxy statement/prospectus and has been prepared to reflect the proposed merger of Merger Sub with and into TGC. The data in the selected unaudited pro forma condensed combined consolidated balance sheet as of June 30, 2011 assumes the proposed merger of Merger Sub with and into TGC was completed on that date. The data in the selected unaudited pro forma condensed combined consolidated statement of operations for the year ended September 30, 2010 and for the nine months ended June 30, 2011 assumes the proposed merger was completed on October 1, 2009, the first day of Dawson’s 2010 fiscal year.

 

The selected unaudited pro forma condensed combined consolidated financial and other information should be read in conjunction with the unaudited pro forma condensed combined consolidated financial information, including the notes thereto, beginning on page 136, the historical financial statements and related notes thereto of Dawson and TGC, which are incorporated by reference from their respective Annual Reports on Form 10-K for the fiscal years ended September 30, 2010 and December 31, 2010, respectively, as well as Dawson’s and TGC’s respective Quarterly Reports on Form 10-Q for the period ended June 30, 2011, and other information included in or incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 153.

 

The selected unaudited pro forma condensed combined consolidated financial and other information has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations of Dawson had (1) the proposed merger of Merger Sub with and into TGC occurred on June 30, 2011 and/or (2) the proposed merger of Merger Sub with and into TGC occurred on October 1, 2009.

 

The historical financial information has been adjusted in the selected unaudited pro forma condensed combined consolidated financial information to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. All pro forma financial information uses Dawson’s period-end dates and no adjustments were made to TGC’s information for its different period-end dates.

 

The pro forma adjustments reflecting the completion of the proposed merger of Merger Sub with and into TGC have been, and the proposed merger will be, accounted for under the acquisition method of accounting under U.S. Generally Accepted Accounting Principles, or GAAP, whereby the total purchase price is allocated to the assets acquired and liabilities assumed based on their respective fair values determined on the acquisition date. The purchase price will be determined on the basis of the fair value of common shares of Dawson on the date the transaction is consummated plus the fair value of any other consideration transferred. The estimated purchase price for this selected unaudited pro forma condensed combined consolidated financial information was based on the exchange ratio of 0.188 and the number of TGC shares outstanding and the closing price of Dawson common stock as of September 7, 2011. The estimated purchase price does not include an estimate of cash payable in lieu of fractional shares which is required pursuant to the terms of the merger agreement, as information is not readily available to estimate such amount. Dawson anticipates that the amount of any such cash payment will be immaterial. At this time, Dawson has not performed detailed valuation analyses to determine the fair values of TGC’s assets and liabilities, and accordingly, the selected unaudited pro forma condensed combined consolidated financial information includes a preliminary allocation of the purchase price based on assumptions and estimates which, while considered reasonable under the circumstances, are subject to changes and such changes may be material. Additionally, Dawson has not yet performed the necessary analysis to identify all of the adjustments that may be required to conform TGC’s accounting policies to Dawson’s or to identify other items that could significantly impact the purchase price allocation or the assumptions and adjustments made in preparation of this selected unaudited pro forma condensed combined consolidated financial information. Upon completion of detailed valuation analyses, there may be additional increases or decreases to the recorded book values of TGC’s assets and liabilities, including, but not limited to, property, plant and equipment and intangible assets that will give rise to future amounts of depreciation and amortization expenses or credits that are not reflected in the information contained in this

selected unaudited pro forma condensed combined consolidated financial information. In addition, the estimated purchase price itself is preliminary and will be adjusted based upon the price per share of Dawson common stock on the date the merger is completed, the number of shares of TGC common stock outstanding on the same date, and, should the 10-day average VWAP of Dawson common stock be less than $32.54 or greater than $52.54, any adjustment to the exchange ratio that may be negotiated as provided in the merger agreement. Accordingly, once the necessary procedures have been performed, the final purchase price has been determined and the purchase price allocation has been completed, actual results may differ materially from the information presented in this selected unaudited pro forma condensed combined consolidated financial information.

 

Additionally, Dawson expects to incur costs associated with integrating the operations of Dawson and TGC. The selected unaudited pro forma condensed combined consolidated financial and other information does not reflect the cost of any integration activities or benefits from the merger that may be derived from any integration activities, both of which may have a material effect on the results of operations in periods following the completion of the merger. In addition, the selected unaudited pro forma condensed combined consolidated financial and other information does not include one-time costs directly attributable to the transaction, employee retention costs or professional fees incurred by Dawson or TGC pursuant to provisions contained in the merger agreement, as those costs are not considered part of the purchase price.

 

 

 

Other Information

 

 

 

 

Dawson’s common stock is listed on NASDAQ under the symbol “DWSN.” The following table sets forth the high and low trading prices per share of Dawson common stock on NASDAQ for the periods shown. You are urged to obtain current market quotations before making any decision with respect to the merger.