7. COMMITMENTS AND CONTINGENCIES

On December 22, 2014, Legacy Dawson received a letter dated December 18, 2014 from legal counsel for a purported shareholder demanding that the members of Legacy Dawson’s Board of Directors at the time the action was initiated (the “Legacy Dawson Board”) take appropriate legal action against the members of the Legacy Dawson Board (the “December Demand Letter”). The December Demand Letter alleged conflicts of interest on the part of certain of Legacy Dawson officers and directors in connection with the Merger, disclosure deficiencies by Legacy Dawson with respect to the Merger and the negotiations leading to the merger agreement and breaches of fiduciary duties by such persons in connection with such matters. The December Demand Letter also demanded that Legacy Dawson make various corrective disclosures concerning the Merger.

In addition, on January 7, 2015, Andrew Speese, through his attorney, filed a purported shareholder class action and derivative action relating to the Merger on behalf of himself and Legacy Dawson’s other shareholders in the United States District Court for the Western District of Texas (Midland/Odessa Division), against Legacy Dawson, the Legacy Dawson Board, Legacy TGC and Merger Sub (the “Speese Lawsuit”). In connection with the filing of the Speese Lawsuit, on January 8, 2015, Legacy Dawson received a letter dated January 7, 2015 from legal counsel for Andrew Speese demanding that the Legacy Dawson Board take legal action to remedy alleged breaches of fiduciary duties in connection with the strategic business combination and to recover damages caused by such alleged breaches (the “Speese Demand Letter”). On March 16, 2015, Andrew Speese, through his attorney, dismissed the Speese Lawsuit without prejudice; however, counsel for Andrew Speese has not formally withdrawn the Speese Demand Letter.

The Legacy Dawson Board formed a Special Litigation Committee (“SLC”), such committee was authorized to retain independent legal counsel, to investigate and make a final determination with respect to the claims in the demand letters and, prior to its dismissal, the Speese Lawsuit described above. On July 23, 2015, the SLC completed its review, determined that the evidence did not support the claims and rejected the demands. On November 3, 2015 the Board of Directors approved a resolution from the SLC for the SLC to be dissolved effective October 31, 2015.

On May 25, 2015, flash flooding occurred in certain regions in Texas in which several of the Company’s data acquisition crews were operating. The flood waters destroyed approximately $593,000 net book value of the Company’s equipment. The Company believes its insurance coverage is adequate to cover losses related to the flooding.

Further, from time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. Although the Company cannot predict the outcomes of any such legal proceedings, management believes that the resolution of pending legal actions will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity, as the Company believes it is adequately indemnified and insured.

The Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has in the past experienced, and may in the future experience, disputes that could affect its revenues and results of operations in any period.

The Company has non-cancelable operating leases for office space in Midland, Houston, Plano, Denison, Denver, Oklahoma City and Calgary, Alberta.

The following table summarizes payments due in specific periods related to the Company’s contractual obligations with initial terms exceeding one year as of September 30, 2015.

	Payments Due by Period (in 000’s)
	Total		Within 1 Year		2-3 Years		4-5 Years		After 5 Years
Operating lease obligations (office space)	$	10,986	$	1,550	$	2,476	$	1,766	$	5,194

Some of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the initial lease term. For these leases, the Company recognizes the related expense on a straight-line basis and records deferred rent as the difference between the amount charged to expense and the rent paid. Rental expense under the Company’s operating leases with initial terms exceeding one year was $448,000 and $242,000 for the three months ended September 30, 2015 and 2014, respectively, and $1,253,000 and $725,000 for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, the Company had unused letters of credit totaling approximately $233,000. The Company’s letters of credit principally back obligations associated with Legacy Dawson’s self-insured retention on workers’ compensation claims outstanding prior to October 1, 2011. The Company is no longer self-insured for workers’ compensation claims after October 1, 2011.