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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(MARK ONE)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-22863
EAGLE GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0522659
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 77027
50 BRIAR HOLLOW LANE (Zip Code)
6TH FLOOR WEST
HOUSTON, TEXAS
(Address of Principal Executive offices)
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Registrant's telephone number, including area code: (713) 881-2800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 14 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 Regulations 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 12, 1998 was approximately $120,968,250. For these
purposes, the term "affiliate" is defined 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 $14.25 and there were a total of 8,489,000 shares of Common
Stock outstanding.
Documents Incorporated by Reference:
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DOCUMENT PART
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Definitive Proxy Statement for
1998 Annual Stockholders Meeting III
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EAGLE GEOPHYSICAL, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II
Item 5. Market for the Common Stock and Related Stockholder
Matters................................................... 6
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 14
Item 8. Financial Statements and Supplementary Data................. 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 14
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 15
Item 11. Executive Compensation...................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 15
Item 13. Certain Relationships and Related Transactions.............. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 15
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PART I
ITEM 1. BUSINESS
GENERAL
Eagle Geophysical, Inc. ("Eagle" or the "Company") is a highly focused
international oilfield service company engaged in the acquisition of seismic
information, with a specialization in the acquisition of high definition
three-dimensional ("3D") seismic data in logistically difficult wetland
environments and in congested offshore areas. Seismic data is used by oil and
gas companies in the exploration for new oil and gas reserves and the
development of existing reserves.
BACKGROUND
The Company was formed in December, 1996 from the onshore seismic data
acquisition business of Seitel Geophysical Inc., a wholly-owned subsidiary of
Seitel, Inc. ("Seitel"). In May, 1997, the Company acquired a 19% ownership
interest in Energy Research International ("ERI") through the contribution of
stock from Seitel. ERI is a provider of offshore seismic data acquisition
services through its subsidiary Horizon Exploration Ltd. The Company remained a
wholly-owned subsidiary of Seitel until August 11, 1997 when the Company
completed an initial public offering of 6,524,000 shares of common stock at $17
per share (including 1,880,000 shares sold by Seitel and 180,000 shares sold by
the former owners of ERI) resulting in net proceeds to the Company of $69.1
million after deducting offering related expenses, (the "Offering"). Also on
August 11, 1997, the Company completed the acquisition of the remaining 81% of
ERI in exchange for 600,000 shares of common stock (the "ERI Acquisition").
RECENT DEVELOPMENTS
The Company has entered into a letter of intent to acquire the common stock
of Seismic Drilling & Services, Inc. ("SDS") for approximately $5 million
consisting of approximately $3.5 million in cash and 98,360 shares of the
Company's common stock. SDS is a privately held provider of seismic shot-hole
drilling and related front-end services for the seismic data acquisition
industry. The Company expects to complete this transaction late in the first
quarter or early in the second quarter of 1998.
At the end of March 1998, the Company added a fourth onshore seismic crew
to its operation at a cost of approximately $8.6 million.
The Company has recently completed the upgrade of its chartered offshore
seismic data acquisition vessel, the Labrador Horizon, at a cost of
approximately $20.0 million. This vessel has been in dry-dock for approximately
three months and will be deployed to the North Sea.
In March 1998, the Company replaced one of its chartered offshore seismic
vessels, the Abshire Tide, with a different vessel, the Celtic Horizon.
OPERATIONS
The Company derives its revenues primarily through seismic data acquisition
services to customers in one industry segment, the oil and gas industry. The
Company's seismic data acquisition services are performed through its two
operations -- the onshore operation and the offshore operation.
ONSHORE SEISMIC OPERATIONS. The Company currently operates four onshore
acquisition crews, each utilizing a 2,350 channel 24-bit Opseis 3D seismic data
acquisition system. These systems use radio signals to transmit seismic data
from the field recording boxes to the central recording system and are therefore
more efficient in swamps and marshes and in areas with numerous man-made
obstacles than systems that use cables to transmit data. The primary components
of the Company's data acquisition systems are waterproof and are designed to be
used in a wet environment.
Prior to acquiring onshore seismic data in the field, the specifications of
a survey must be designed to optimize the imaging of the targeted geologic
strata, permits must be obtained from the mineral owners of the
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survey area and permits to enter onto the land must be obtained from surface
owners and lessees whose property will be traversed in the acquisition
operations. The specifications of the seismic surveys are generally designed by
the Company's customers with varying degrees of input from the Company. A
typical 3D survey conducted by the Company in the U.S. Gulf Coast region will
require permits from hundreds or even thousands of mineral and land owners.
Although some customers obtain these permits themselves, many contract with the
Company, as part of the acquisition project, to obtain these permits. The
Company has developed proprietary computer software to track which permits have
been obtained and the conditions imposed by the various permits. Once permitted,
surveys frequently require modification to take into account surface
obstructions, such as water wells and oil and natural gas wells, highways, towns
and areas where permits cannot be obtained. The Company combines its experience
in conducting onshore surveys in areas with many obstructions with its knowledge
of the capabilities of its radio telemetry systems to modify surveys after
permitting to optimize the quality of the data obtained within the physical
limitations imposed.
OFFSHORE SEISMIC OPERATIONS. The Company acquires offshore seismic data
using seismic crews employed by the Company and operating chartered or leased
vessels that have been modified and outfitted with a full complement of data
acquisition, recording, navigation and communications equipment owned or leased
by the Company. The Company currently operates four seismic vessels, two of
which operate in tandem as a single seismic crew. Company crews direct the
positioning of the vessels using sophisticated navigation equipment, deploy and
retrieve seismic streamers and energy sources and operate all of the systems
relating to seismic activities. Company crews are not responsible for the
vessels or for vessel crews, who are employees of the vessel owner or a contract
operator. Each vessel has an equipment complement consisting of recording
instrumentation, digital recording streamers, location systems, multiple
navigation systems, and, except for the recording vessel Celtic Horizon, a
seismic energy source and control system. The Company generally operates its
offshore seismic data vessels on a 24-hours-a-day, seven-days-a-week basis. Each
of the Company's vessels is taken out of service for approximately two to four
weeks each year, generally at different off-season times of the year, for
routine maintenance and service.
The following table sets forth certain information as of March 15, 1998
concerning the seismic vessels operated by the Company. As of such date, all of
these vessels were operating or mobilizing to committed projects, except for the
Labrador Horizon, which was undergoing sea trials after its recent upgrade and
is expected to mobilize to a committed project by the end of the first quarter.
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LAST TOTAL DATA
SIGNIFICANT LENGTH BEAM STREAMER ACQUISITION CHARTER/LEASE CURRENT
VESSEL NAME UPGRADE (FEET) (FEET) CAPABILITY SYSTEM EXPIRATION LOCATION
----------- ----------- ------ ------ ---------- ----------- ------------- --------
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Labrador Horizon..... 1998 263 55 6 Input/Output 2001(1) U.K.
1,024 Channel
24 Bit
Discoverer(2)........ 1996 236 52 3 Syntron 1999 Gulf of
1,920 Channel Mexico
16 Bit
Celtic Horizon(2).... 1998 214 41 3 Syntron 2001(3) Gulf of
1,920 Channel Mexico
16 Bit
Pacific Horizon...... 1996 251 41 2 Input/Output 2000(4) Argentina
1,024 Channel
24 Bit
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(1) The Labrador Horizon is currently leased under a capital lease from Royal
Bank of Scotland ("RBS") through Simon Horizon Ltd. expiring in 2001. The
vessel has recently completed an upgrade to six streamers, the cost of
which upgrade is intended to be financed through a capital lease with
British Linen Bank for a period of five years ending in 2003. As a result
of the capital lease with British Linen Bank, the lease with RBS and Simon
Horizon Ltd. will be terminated.
(2) The Discoverer and Celtic Horizon work in tandem as a single seismic crew.
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(3) This vessel is recently chartered and replaces the Company's previous
undershoot vessel, the Abshire Tide.
(4) This charter can be terminated by the Company on one month's notice.
The Company believes that maintaining a combination of short-term vessel
charters with longer-term capital leases and other arrangements provides
flexibility to manage the risks associated with the fixed costs of charters.
This approach allows the Company to adjust the size of its fleet according to
market demand while also providing stability in the Company's vessel fleet. The
Company generally believes that chartering vessels maintains financial
flexibility and reduces to some extent the Company's exposure to technological
change and obsolescence of the vessels. All of the vessels in the Company's
fleet are operated under charter agreements or leases expiring from 1999 to
2001, with provisions for extensions for varying periods.
The Company recently upgraded the seismic data acquisition capabilities of
the Labrador Horizon to increase its streamer capability from three to six
streamers and upgraded its data acquisition system from a 16 bit to a 24 bit
resolution system. This upgrade will significantly increase the seismic data
acquisition capabilities of the Labrador Horizon, which will enable the Company
to further increase efficiency in difficult operational and technically
demanding areas. This vessel was taken out of service in December 1997 for a
period of approximately three months to accomplish these modifications.
GEOGRAPHIC OPERATIONS
ONSHORE. During 1996, onshore 3D seismic data acquisition contract revenues
were $47.3 million, or 52% of the Company's pro forma combined revenues. In
1997, onshore 3D seismic data acquisition contract revenues were $60.7 million,
or 56% of the Company's pro forma combined revenues. The revenues in both 1996
and 1997 were generated from surveys conducted in the U.S. Gulf Coast region.
The Company expects in the near term to continue to focus its onshore surveys in
this region, although the Company intends to seek opportunities for contract
revenues in other areas, primarily Latin America, where oil and gas exploration
and production activities exist.
OFFSHORE. During 1996, offshore seismic data acquisition contract revenues
were $43.6 million, or 48% of the Company's pro forma combined revenues. These
revenues were generated primarily from surveys conducted in the North Sea and
the U.S. Gulf of Mexico. In 1997, offshore seismic data acquisition contract
revenues were $47.5 million, or 44% of the Company's pro forma combined
revenues. These revenues were generated primarily from surveys conducted in the
North Sea, the Falkland Islands and the U.S. Gulf of Mexico. The Company expects
in the near term to continue to focus its offshore surveys in the North Sea and
the U.S. Gulf of Mexico, although the Company may take advantage of
opportunities for contract revenues in other areas of the world where offshore
oil and gas exploration and production activities exist.
CAPITAL EXPENDITURES
The Company has numerous competitors for both its onshore and offshore
seismic data acquisition business, and substantial financial and other resources
are required to maintain the state-of-the-art technology necessary to permit
effective competition in bidding for contracts. Seismic data acquisition
technology has progressed rapidly over recent years, and the Company expects
this trend to continue. Sophisticated seismic data acquisition equipment and
related crew training are very costly. For example, the cost of equipping a crew
with a state-of-the-art system, such as the 2,350 channel Opseis system which
the Company currently operates onshore (including ancillary equipment), ranges
from approximately $7.0 to $9.0 million. Similarly, the cost of equipping a
modern seismic data acquisition vessel with between four and eight streamers
would range from approximately $20.0 to $30.0 million excluding vessel charter
costs. The Company's strategy is to update its onshore and offshore data
acquisition systems to maintain its competitive position. This may require large
capital expenditures in addition to the Company's planned capital expenditures.
There can be no assurance that the Company will have or otherwise be able to
obtain the capital necessary to upgrade its equipment or to acquire any
additional required equipment.
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The Company has recently upgraded the data acquisition capabilities of the
seismic acquisition vessel Labrador Horizon at an estimated capital cost of
approximately $20.0 million. This upgrade has significantly expanded the seismic
data acquisition capabilities of this vessel by increasing its streamer capacity
from three to six streamers and upgrading its recording equipment from a 16 bit
system to a 24 bit system. The Company has acquired two vessels that it intends
to sell and leaseback from charter operators for charter terms of 7 to 10 years.
The costs to outfit and equip the two vessels will be approximately $10.0
million for the Austral Horizon utilizing four streamers and approximately $30.0
million for the Atlantic Horizon utilizing eight streamers. As the Company
expands its onshore operations internationally, it is likely that the Company
will need to acquire additional onshore acquisition systems at an estimated
capital cost of approximately $7.0 to $9.0 million per crew. The Company
anticipates that the funds for such expenditures will come from operations and
additional bank financing, however, there can be no assurance that funds from
operations will be sufficient, or that additional bank financing will be
available on terms acceptable to the Company. The Company may revise its plans
in response to future changes in the oil and gas industry in general and in the
demand for its services in particular, its results of operations, its other
capital requirements and other factors.
KEY SUPPLIERS
The Company acquires its Opseis onshore seismic data acquisition systems
from Georex, Inc., a subsidiary of Compagnie Generale de Geophysique, S.A. and
Sercel, Inc. The Company acquires its offshore seismic data acquisition systems
primarily from Input/Output, Inc. and Syntron, Inc., a subsidiary of Geoscience,
Inc. Although these companies are not the only suppliers of seismic data
acquisition systems, they are the Company's primary suppliers, and the Company
is dependent on these suppliers with respect to additions and repairs to its
current systems.
SALES AND MARKETING
The Company's services traditionally have been marketed by the Company's
principal executive officers. Subsequent to the Offering, the Company has
maintained this marketing approach in order to preserve long-term relationships
established by the Company's executive officers. As the Company's geographical
and technical capabilities expand, the Company intends to continue to implement
its marketing efforts from its principal offices in Houston, Texas and
Sevenoaks, England.
BACKLOG
The Company's backlog represents commitments for seismic data acquisition
services from both its onshore and offshore seismic data acquisition businesses.
All backlog consists of commitments believed to be firm. However, backlog
estimates are based on a number of assumptions and estimates, including
assumptions as to exchange rates between the U.S. dollar and the British pound
and other currencies and estimates of the percentage of completion of contracts
in progress. Contracts for services are occasionally varied or modified by
mutual consent and in certain instances may be canceled by the customers on
short notice without penalty. Consequently, the Company's backlog as of any
particular date may not be indicative of the Company's actual operating results
for any succeeding fiscal period.
As of March 15, 1998, the Company estimates that its total backlog was
approximately $77.5 million. Backlog for its onshore crews was $49.9 million in
future gross revenues from existing customer commitments, and backlog for its
offshore seismic acquisition crews was approximately $27.6 million in future
gross revenues from existing customer commitments. Of these backlog amounts,
approximately $45.0 million of the onshore backlog and none of the offshore
backlog is attributable to work to be performed for Seitel and its subsidiaries.
COMPETITION
The acquisition of onshore and offshore seismic data for oil and gas
companies is highly competitive worldwide. Competition for available seismic
surveys is based on a number of competitive factors, including crew
availability, price, performance, dependability, and technology.
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As a result of changing technology and capital requirements, the seismic
industry, both for onshore and offshore seismic data acquisition services, has
consolidated substantially since the early 1980's, thereby reducing the number
of competitors in the industry. Although dozens of companies perform onshore
seismic data acquisition services, only a few companies compete actively to
perform complex 3D surveys in the difficult wetland regions along the U.S. Gulf
Coast. The Company's primary competitors in the wetland onshore seismic data
acquisition business in the U.S. Gulf Coast region are Acadian Geophysical
Services, Inc., Boone Geophysical, Inc., (a subsidiary of Venture Seismic,
Inc.), Geco-Prakla (a subsidiary of Schlumberger Limited), Signature Geophysical
Services, Inc., Universal Seismic Associates Inc., Veritas DGC, Inc. and Western
Geophysical, Inc., (a subsidiary of Western Atlas International). The Company's
primary competitors in the offshore seismic data acquisition business are
Compagnie Generale de Geophysique, S.A., Geco-Prakla, Petroleum Geo-Services
A.S.A., Veritas DGC, Inc. and Western Geophysical, Inc., (a subsidiary of
Western Atlas International).
ENVIRONMENTAL MATTERS/REGULATION
The Company's operations are subject to a variety of laws and regulations,
including laws and regulations relating to the protection of the environment.
Such laws and regulations govern various aspects of operations, including the
handling of explosives and the discharge of explosives into the environment, the
entry onto and restoration of wetlands, the removal and cleanup of materials
that may harm the environment or otherwise relating to the protection of the
environment (both onshore and offshore) and the access to private and public
lands to perform seismic surveys. The Company is required to invest financial
and managerial resources to comply with such laws and related permit
requirements in its operations and anticipates that it will continue to do so in
the future. Although such expenditures historically have not been material to
the Company, the fact that such laws or regulations are changed frequently makes
it impossible for the Company to predict the cost or impact of such laws and
regulations on its future operations.
The adoption of laws and regulations that have the effect of limiting
exploration or production activities by oil and gas companies could adversely
affect the Company's operations by reducing the demand for its services. Certain
import and export regulations may also limit the Company's ability to operate in
certain areas.
In addition, the Company's offshore operations are influenced by licensing
activities and lease sales of governmental authorities. The timing and extent of
licensing and leasing of areas for exploration and production influences the
level of seismic data acquisition activity within a particular country.
CUSTOMERS
ONSHORE. The Company's major customers for its onshore operations include
primarily independent oil and gas companies and seismic data marketing
companies. For the year ended December 31, 1997, Seitel and its subsidiaries
accounted for approximately 57% of the Company's consolidated gross revenues
from its onshore operations. For the year ended December 31, 1996, Seitel and
its subsidiaries accounted for 57% and Fina Oil and Chemical Company accounted
for 20% of the Company's consolidated gross revenues from its onshore
operations. For the year ended December 31, 1995, Seitel and its subsidiaries
accounted for 53% and Broughton Associates J.V. accounted for 22% of the
Company's consolidated gross revenues from its onshore operations.
OFFSHORE. The Company's major customers for its offshore operations include
primarily multi-national oil and gas companies, foreign national oil and gas
companies, and seismic data marketing companies. For the year ended December 31,
1997, Seitel and its subsidiaries accounted for 50% and Shell Exploration
accounted for 11% of the Company's consolidated pro-forma revenues from its
offshore operations. For the year ended December 31, 1996, Seitel and its
subsidiaries accounted for 46% and Clyde Petroleum Exploratie BV accounted for
26% of the Company's consolidated pro-forma revenues from its offshore
operations. For the year ended December 31, 1995, Seitel and its subsidiaries
accounted for 8% and Amerada Hess Ltd. and British Gas Exploration and
Production Ltd. accounted for 37% and 26%, respectively, of the Company's
consolidated pro-forma revenues from its offshore operations.
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SEASONALITY
The onshore and offshore seismic data acquisition operations of the Company
are subject to seasonal fluctuation, with the greatest volume of data
acquisition occurring during the summer and fall. This is due primarily to
adverse weather conditions, which are more prevalent in the winter and spring.
EMPLOYEES
At December 31, 1997, the Company employed approximately 390 full-time
personnel. The Company has not experienced any material work stoppages related
to union activities and considers the relations with its employees to be good.
The Company has employment contracts with five of its senior corporate
executives.
ITEM 2. PROPERTIES
The Company occupies six leased facilities that are principally used for
general administrative functions, maintenance, storage and warehouse space. Two
of these facilities are located in Texas, one in Louisiana and three in England.
These properties range in size from approximately 1,000 to approximately 14,000
square feet, the terms of the leases range from month-to-month to leases that
expire in 2012 and the leases provide for annual rentals ranging from
approximately $12,000 to approximately $264,000. The Company's annual lease
expense under these leases totals approximately $448,000. The Company subleases
one of these properties, which serves as the Company's executive offices, from
Seitel under a sublease that will expire in August 2000 and which provides for
annual rental of approximately $85,000, which amount is included in the $448,000
total annual lease expense referred to above.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from any such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's common shares have been traded on the NASDAQ Stock Market
under the symbol "EGEO" since the Company's initial public offering in August,
1997. The following table sets forth the high and low sales prices of the
Company's common stock for the periods indicated as reported by NASDAQ/NM.
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HIGH LOW
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1997
Third Quarter (from public offering date to September 30,
1997)..................................................... $21 $17
Fourth Quarter.............................................. 22 3/4 11 1/4
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On March 12, 1998, the closing price as quoted by NASDAQ/NM was $14.25 per
share. As of March 12, 1998, there were 8,489,000 common shares outstanding held
by approximately 22 record holders.
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DIVIDEND POLICY
In connection with the Offering, the Company paid a dividend of $6.7
million to Seitel to eliminate intercompany profits that had accrued prior to
the Offering.
The Company does not currently intend to declare or pay dividends on its
Common Stock and expects to retain funds generated by operations for the
development and growth of the Company's business. The Company's future dividend
policy will be determined by the Company's Board of Directors on the basis of
various factors, including among other things, the Company's financial
condition, cash flows from operations, the level of its capital expenditures,
its future business prospects, the requirements of Delaware law and any
restrictions imposed by the Company's credit facilities. The Company's current
working capital line of credit contains certain financial covenants which may
limit the Company's ability to pay dividends.
USE OF PROCEEDS
On August 5, 1997, the Securities and Exchange Commission declared the
Company's registration statement on Form S-1, File No. 333-28303, effective.
Item 2 of Part II of the Company's 10-Q for the quarter ended September 30, 1997
set forth information regarding the Company's proceeds from the offering
pursuant to such registration statement and the Company's use of such proceeds.
The following information has changed since such disclosure.
Total expenses incurred to date are approximately $9.3 million, consisting
of $7.8 million of underwriting discounts and commissions, and an estimated $1.5
million of accounting, legal and other expenses. After deducting the Company's
underwriting commissions and other expenses, the net proceeds to the Company
were approximately $69.1 million.
As of March 15, 1998, the Company has utilized all of the $69.1 million net
proceeds from the Offering. The Company used a portion of the proceeds to repay
$40.1 million of indebtedness and trade accounts payable, of which $7.8 million
was repaid to Seitel (Seitel owns 17.9% of the common stock of the Company). An
additional $4.4 million was deposited with the Royal Bank of Scotland as further
security for a capital lease of the Labrador Horizon. Approximately $20.0
million was utilized to upgrade the Labrador Horizon, $2.5 million for the
upgrade from 1,850 channels to 2,350 channels for the Company's three onshore
seismic crews and approximately $2.1 million was utilized to purchase equipment
for the Company's fourth onshore seismic data acquisition crew.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected unaudited pro forma financial data
for the Company. The unaudited pro forma results of operations for the years
ended December 31, 1997 and 1996 give effect to the Offering, the application of
the net proceeds thereof to retire certain debt and capital leases, and the ERI
Acquisition as if such transactions had occurred on January 1, 1996. Results of
operations for periods prior to August, 1997 are pro forma and may not be
indicative of the actual results that would have been achieved had the Company
been a public company during the periods presented. The following selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in Item 8 herein:
<TABLE>
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FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
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PRO FORMA PRO FORMA
COMBINED AS COMBINED AS
ADJUSTED(1)(2) ADJUSTED(1)(2)
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(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
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Statement of Operations Data:
Revenues.............................................. $108,128 $90,915
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Expenses:
Operating expenses(3).............................. 76,723 71,690
Depreciation and amortization...................... 12,890 9,427
Selling, general and administrative expenses....... 8,793 6,432
Interest and other expense, net.................... 250 651
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Total expenses................................ 98,656 88,200
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Income before provision for income taxes................ 9,472 2,715
Provision for income taxes.............................. 2,680 1,914
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Net income (4).......................................... $ 6,792 $ 801
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Basic & Diluted Earnings per share(4)................... $ 0.80 $ .09
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Weighted average shares outstanding..................... 8,489 8,489
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EBITDA(5)............................................... $ 22,612 $12,793
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(1) Reflects proforma adjustments for the ERI Acquisition, adjustments to
reflect the completion of the Offering and the application of the net
proceeds to retire certain debt and capital leases, and the sale of 25,000
shares of common stock, at the initial public offering price, to Jay N.
Silverman, President of the Company, for a note.
(2) Reflects the combination of the proforma adjustments and the historical
financial statements.
(3) As used herein, operating expenses exclude depreciation and amortization.
(4) Excludes the effect of a $600,000 extraordinary gain for early
extinguishment of debt on ERI's historical 1996 financial statements.
(5) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principles, management
believes that securities analysts use EBITDA as a measure to evaluate
oilfield service companies. The Company believes that EBITDA may provide
additional information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working capital,
although such future cash outlays are not included in the determination of
EBITDA. The amount and trends in EBITDA should not be considered as
alternatives to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a better measure of the
Company's profitability or liquidity. Because EBITDA excludes some, but not
all, items that affect net income and its computation may vary among
company's, the EBITDA calculation presented above may not be comparable to
similarly titled measures of other companies.
8
<PAGE> 11
The following selected financial information set forth below has been
derived from the audited consolidated financial statements and the unaudited
consolidated financial statements of the Company and reflects the historical
results of the Company and the historical results of ERI following the ERI
Acquisition on August 11, 1997. Such consolidated financial statements for the
years ended December 31, 1994, 1995, 1996 and 1997 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
included elsewhere herein. Arthur Andersen's 1997 report indicates that ERI's
1997 financial statements were audited by other auditors, whose opinion was
furnished to Arthur Andersen. Arthur Andersen's 1997 opinion, insofar as it
relates to ERI, is based solely on the report of the other auditors. This
information should be read in conjunction with the consolidated financial
statements of the Company, the notes related thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
in this Report.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997(1)
----------- ------- ------- ------- --------
(UNAUDITED)HOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
EAGLE GEOPHYSICAL, INC.
Statement of Operations Data:
Revenues................................ $5,650 $25,721 $29,275 $48,136 $ 79,061
------ ------- ------- ------- --------
Expenses:
Operating expenses(2)................ 3,596 20,070 20,986 34,917 56,470
Depreciation and amortization........ 409 1,817 2,471 3,409 8,584
Selling, general and
administrative..................... 108 1,673 2,874 2,680 6,408
Interest and other expense, net...... 147 384 408 531 205
------ ------- ------- ------- --------
Total expenses.................. 4,260 23,944 26,739 41,537 71,667
------ ------- ------- ------- --------
Income before provision for income
taxes................................... 1,390 1,777 2,536 6,599 7,394
Provision for income taxes................ 509 651 933 2,420 2,994
------ ------- ------- ------- --------
Net income................................ $ 881 $ 1,126 $ 1,603 $ 4,179 $ 4,400
====== ======= ======= ======= ========
Basic earnings per share.................. $ .26 $ .33 $ .47 $ 1.23 $ 0.81
====== ======= ======= ======= ========
Weighted average shares outstanding
(basic)................................. 3,400 3,400 3,400 3,400 5,418
====== ======= ======= ======= ========
Diluted earnings per share................ $ .26 $ .33 $ .47 $ 1.23 $ 0.81
====== ======= ======= ======= ========
Weighted average shares outstanding
(diluted)............................... 3,400 3,400 3,400 3,400 5,436
====== ======= ======= ======= ========
Consolidated Balance Sheet Data:
Cash and cash equivalents............... $ 25 $ 29 $ 58 $ -- $ 19,482
Total assets............................ 7,063 14,413 17,960 26,721 124,305
Total debt and capital lease
obligations.......................... 3,989 8,034 5,932 10,902 10,760
Stockholders' equity.................... 881 2,007 3,610 7,789 83,996
</TABLE>
- ---------------
(1) Includes results of ERI from August 11, 1997, the date of the ERI
Acquisition, to December 31, 1997.
(2) As used herein, operating expenses exclude depreciation and amortization.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's revenues are generated from the sale of onshore and offshore
seismic data acquisition services. The Company focuses its onshore operations in
logistically difficult wetland environments along the U.S. Gulf Coast, and
focuses its offshore operations through Energy Research International (ERI) in
congested areas in the North Sea and the U.S. Gulf of Mexico.
ONSHORE OPERATIONS. With respect to its onshore operations, the Company's
prices, and therefore its revenues, vary depending on demand for the Company's
services, the number of acquisition crews of the Company, the acquisition
capacity of each crew, the utilization rates of the Company's crews and the
9
<PAGE> 12
complexity and difficulty of the projects undertaken by each crew. The Company
increased the channel capabilities of its two existing Opseis crews during 1996
and added a third Opseis crew in January 1997. At the end of the third quarter
of 1997, the Company upgraded the channel capacity of each of its three crews to
2,350 channels from 1,850 channels. Thus, the Company has increased the number
of crews operated and the acquisition capacities of its crews for the periods
presented in the financial statements, which has contributed substantially to
the increased revenues from period to period.
Revenues for less complex, easier to perform seismic acquisition projects
tend to be lower than revenues for more complex, difficult to perform projects,
even when the projects take the same amount of time for a crew to perform. The
mix of more or less complex projects results in variations from period to period
for revenues attributable to each crew. The projects performed by the Company's
three onshore crews operating in 1997 were weighted more heavily towards complex
projects than in 1996, further contributing to the increases in revenues in 1997
as compared to 1996.
OFFSHORE OPERATIONS. Similar to the Company's onshore operations, prices
and revenues with respect to the offshore operations performed by ERI vary
depending on demand for the number of vessels operated by the Company, the
acquisition capacity of each vessel, utilization rates and the complexity and
difficulty of the projects undertaken by each vessel. The Company operated four
vessels in 1997 and during the third and fourth quarter of 1996, with only three
vessels being operated during the first and second quarter of 1996. The Company
also increased the streamer capacity of its vessels in mid-1996, so that the
vessels operated in 1997 had greater data acquisition capabilities than in the
first half of 1996. Thus, the Company has increased the number of vessels
operated and the acquisition capacities of its vessels for the periods presented
in the financial statements, which has contributed substantially to the
increased revenues from period to period.
Because the Company derives a portion of its offshore revenues from sales
internationally, the Company is subject to risks relating to fluctuations in
currency exchange rates. The Company's costs and revenues from offshore
operations have historically been evenly divided between the U.S. dollar and the
British pound. The Company's financial statements are prepared using the U.S.
dollar as the functional currency, and, therefore, fluctuations in the exchange
rate between the U.S. dollar and the British pound affect the Company's costs
and revenues. Historically, fluctuations in exchange rates have not had a
material impact on the Company's results of operations, and the Company does not
currently engage in any currency hedging activities. As the Company expands its
operations into new geographic markets, such as Latin America, Africa and
Southeast Asia, which may involve more extensive currency risks, the Company
intends to protect itself against foreign currency fluctuations. The Company
generally intends to match foreign currency revenues and expenses in order to
balance its net position of receivables and payables denominated in foreign
currencies and by endeavoring to require its customers to pay for services in
U.S. dollars and, to a lesser extent, by purchasing foreign exchange contracts
and other foreign exchange instruments and implementing other procedures to
counteract currency fluctuations.
PRO FORMA RESULTS OF OPERATIONS
The following discussion of the results of operations is divided into a
discussion of the Company's onshore operations, which were conducted by the
Company, and the Company's offshore operations, which were conducted by ERI
prior to the consummation of the Offering. These discussions are presented based
on the unaudited pro forma revenues and expenses of the separate companies
including periods prior to the ERI Acquisition, which occurred contemporaneously
with the Offering in August, 1997. The revenues of the Company include
intercompany profits from work performed for Seitel and its subsidiaries prior
to the Offering.
Onshore Operations -- Year Ended December 31, 1997 Compared to 1996
Revenue increased 28% from $47.3 million in 1996 to $60.7 million in 1997,
primarily due to the addition of a third Opseis crew in January 1997.
Additionally, the surveys performed by the Company's crews in the 1997 period
were in more difficult logistical and environmental areas, providing higher
contract prices per crew, than the surveys performed in the 1996 period.
10
<PAGE> 13
Operating costs (excluding depreciation) increased 25% from $34.9 million
in 1996 to $43.6 million in 1997, primarily due to the addition of the third
crew in the 1997 period. Operating margin (revenues less operating costs as a
percentage of revenues) increased from 26.2% in 1996 to 28.0% in 1997 as a
result of these changes in revenues and operating costs.
Depreciation and amortization increased 77% from $3.4 million in 1996 to
$6.0 million in 1997, resulting from operating three crews in the 1997 period
versus two in the 1996 period and from depreciation of marine seismic equipment
purchased by Eagle in July 1996 and leased to a subsidiary of ERI.
Selling, general and administrative expenses increased 58% from $3.8
million in 1996 to $6.0 million in 1997, primarily due to the addition of
administrative staff to support expanded operations and additional corporate
staff and related expenses incurred subsequent to the Offering.
Net interest expense decreased from $0.5 million in the 1996 period to $0.3
million in the 1997 period due to interest savings related to the retirement of
certain debt and capital leases and interest income earned on proceeds from the
Offering
Offshore Operations -- Year Ended December 31, 1997 Compared to December 31,
1996
Revenue increased 9% from $43.6 million in 1996 to $47.5 million in 1997,
primarily due to improved vessel utilization. Two vessels experienced downtime
in the third quarter of 1996 due to upgrades and repairs.
Operating expenses (excluding depreciation) decreased 11% from $36.8
million in 1996 to $33.1 million in 1997 primarily due to improved efficiency.
Operating margins increased from 15.6% in 1996 to 30.3% in 1997 as a result of
these changes in revenues and operating costs.
Depreciation and amortization increased 15% from $6.0 million in 1996 to
$6.9 million in 1997, resulting from the purchase of additional capital
equipment in mid 1996 with corresponding depreciation beginning in 1997 as well
as additional vessel upgrades in 1997 subsequent to the Offering.
Selling, general and administrative expenses increased 8% from $2.6 million
in 1996 to $2.8 million due to higher legal and administrative costs.
Net interest and other expense decreased from $0.15 million in 1996 to $-0-
in 1997 due to interest income earned on higher cash balances during 1997 and
favorable foreign currency movements.
HISTORICAL RESULTS OF OPERATIONS
The following is a discussion of the historical results of operations of
the Company, including the results of ERI following the ERI Acquisition. The
revenues of the Company include intercompany profits from work performed for
Seitel prior to the Offering.
Year Ended December 31, 1997 Compared to December 31, 1996
Revenues increased 64% from $48.1 million in 1996 to $79.1 million in 1997
due to the addition of a third onshore seismic crew in January, 1997, and the
acquisition of ERI in August, 1997.
Operating expenses increased 62% from $34.9 million in 1996 to $56.5
million in 1997 also due to the addition of the third onshore seismic crew in
January, 1997 and the acquisition of ERI in August 1997. Operating margins
improved from 27.5% in 1996 to 28.6% in 1997.
Depreciation and amortization increased 152% from $3.4 million in 1996 to
$8.5 million in 1997 due primarily to the addition of the third onshore seismic
crew in January, 1997, and depreciation and goodwill amortization associated
with the ERI acquisition.
Selling, general and administrative expenses increased 139% from $2.7
million in 1996 to $6.4 million in 1997 due to the addition of staff to support
the Company's expanded operations, expenses related to corporate staff and
related expenses added subsequent to the Offering, and general and
administrative expenses of ERI incurred subsequent to the ERI acquisition.
11
<PAGE> 14
Interest and other expense decreased from $0.5 million in 1996 to $0.2
million in 1997 due to interest savings related to the retirement of the
Company's debt and capital leases and interest income earned on the net proceeds
from the Offering.
Year Ended December 31, 1996 Compared to December 31, 1995
Revenues increased 64% from $29.3 million for 1995 to $48.1 million for
1996. This increase in revenue was primarily due to increased production from
the two crews operating in 1996 and higher prices due to these crews performing
a greater proportion of higher definition seismic data acquisition services than
in 1995 and performing seismic data acquisition services in logistically and
environmentally more difficult areas than in 1995. The Company increased the
channel capacity of both crews during 1996 by approximately 20% over their 1995
channel capacity. This enabled each crew to acquire more seismic data, resulting
in higher revenues.
Operating costs (excluding depreciation and amortization) increased 66%
from $21.0 million for 1995 to $34.9 million for 1996, reflecting the higher
costs associated with performing services in logistically and environmentally
difficult areas. These higher costs were primarily attributable to additional
subcontract service and labor costs. Operating margin percentages changed only
slightly from 28.3% for 1995 to 27.5% for 1996.
Depreciation and amortization increased 38% from $2.5 million in 1995 to
$3.4 million in 1996, primarily as a result of depreciation related to
additional equipment costs from the increased channel capacity of both crews and
additional capital purchases for both crews during 1996. Selling, general and
administrative expenses decreased slightly, from $2.9 million in 1995 to $2.7
million in 1996, primarily due to cost saving measures implemented in 1996. Net
interest expense increased from $0.4 million in 1995 to $0.5 million in 1996,
reflecting additional financing costs for equipment purchases made during 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offering, the Company was a wholly-owned subsidiary of Seitel.
In the past, Seitel guaranteed certain indebtedness of the Company and made
loans to the Company. All of such debt owed to Seitel was repaid with a portion
of the net proceeds of the Offering. The Company's borrowing costs may increase
in the future as a result of having to obtain financing based on its own
creditworthiness. Therefore, the historical liquidity and capital resources of
the Company may not be indicative of the Company's future liquidity and capital
resources.
Prior to the Offering, revenues for services provided by the Company to
Seitel were based on prices charged to unaffiliated third parties for similar
work. These revenues included a profit. Prior to the consummation of the
Offering, the Company declared and paid a dividend to Seitel to eliminate these
intercompany profits. The amount of such dividend was $6.7 million.
The Company's working capital as of December 31, 1997 was $18.5 million.
The indebtedness of the Company as of such date consisted of capital lease
obligations, totaling approximately $10.8 million.
The Company has repaid $35.7 million of existing indebtedness with a
portion of the net proceeds of the Offering, which has significantly decreased
the Company's interest expense and has eliminated the Company's obligation to
make payments on the principal of such debt in the future. This will allow the
Company to apply the cash generated from operations towards its capital
requirements rather than to service such debt.
The Company has commenced expanding its existing data acquisition
capabilities through the expansion of the streamer towing capacity of its vessel
the Labrador Horizon. The upgrades to this vessel were initiated late in the
fourth quarter of 1997 and carried over into the first quarter of 1998. The
capital cost of these upgrades is approximately $20.0 million. The Company
currently operates the Labrador Horizon under a capital lease with Simon-Horizon
Limited ("Simon"), which in turn leases the vessel from the Royal Bank of
Scotland ("RBS") under a capital lease. Pursuant to the arrangement between the
Company and Simon, the Company is required to use its best endeavors to obtain
the release of Simon from all obligations in connection with the lease of this
vessel. The Company intends to enter into a capital lease with British Linen
Bank,
12
<PAGE> 15
described below, which will allow the Company to terminate the current lease
arrangement with Simon and RBS and provide funding for the $20.0 million upgrade
to the Labrador Horizon.
In January 1998, the Company obtained a commitment, subject to negotiation
of final documentation, from British Linen Bank for the financing of the
Labrador Horizon upgrade. As part of this financing, British Linen Bank will
purchase the vessel from RBS, fund the approximately $20.0 million upgrades to
the vessel, and enter into a capital lease of the vessel to the Company for a
five-year term commencing upon completion of the upgrades, for a total
commitment of approximately $31.3 million. The facility will bear interest at a
rate of LIBOR plus 1.375% and requires the Company to post a security deposit of
approximately $5 million with scheduled amounts to be refunded based upon a
predetermined formula. Additionally, the Company will have the option to acquire
the vessel at the end of the term of the capital lease for a price of 0.1% of
the total facility commitment. The Company anticipates that this financing will
be consummated late in the first quarter or early in the second quarter.
In 1998, the Company intends to charter and equip two additional offshore
seismic vessels, at a capital cost of approximately $40.0 million. The Company
acquired two vessels, the Austral Horizon and the Atlantic Horizon, during the
fourth quarter of 1997 for purchase prices of approximately $1.6 million and
$3.6 million, respectively. These acquisitions were funded with cash flows from
operations. The Company intends to sell and leaseback the vessels from charter
operators during the second quarter of 1998 for charter terms of 7 to 10 years.
The costs to outfit and equip the two vessels will be approximately $10.0
million for the Austral Horizon and approximately $30.0 million for the Atlantic
Horizon. The Company intends to fund these capital costs with a combination of
cash from operations and additional debt financing. The Company currently has
$7.3 million of capital commitments outstanding related to these projects.
In September 1997, the Company ordered a fourth Opseis seismic data
acquisition system at an estimated total cost of approximately $5.9 million as
part of the Company's addition of a fourth crew at a total cost of $8.6 million.
In March 1998, the Company obtained a term loan commitment, subject to
documentation, with Fleet Capital Corporation for the financing of this Opseis
system at a fixed rate equal to the average three year treasury rate at the time
of closing plus 1.75%. Monthly payments of approximately $118,000 will be made
under the loan with the Opseis system pledged as security for the loan. The
Company anticipates that operation of this fourth system will begin at the end
of the first quarter of 1998.
Additionally in August 1997, the Company purchased a total of 1,500 seismic
recording channels for its three crews at a cost of approximately $3.5 million.
The Company funded this purchase with cash flows from operations and proceeds
from the Offering.
On October 21, 1997, the Company entered into an agreement with Bank One,
Texas, N.A. with respect to a $20.0 million revolving credit facility secured by
the Company's accounts receivable. The amount the Company may borrow under the
revolving credit facility is limited to a borrowing base that is equal to 90% of
eligible U.S. and U.K. investment grade accounts receivable, 100% of receivables
secured by acceptable letters of credit and 80% of non-graded U.S. or foreign
receivables and other eligible receivables approved by the bank. Interest only
is payable monthly or at the end of LIBOR interest periods, and the credit
facility is payable in full in three years. Mandatory prepayments are required
if borrowings exceed the borrowing base. Interest accrues under the credit
facility at the bank's base rate or at LIBOR plus a spread of 1.375% if the
Company's debt to net worth ratio is less than 1 to 1, and 1.625% if such ratio
is equal to or greater than 1 to 1. As of December 31, 1997, $18.5 million was
available for borrowing under the facility and no amounts were outstanding.
The Company has entered into a letter of intent to acquire the common stock
of Seismic Drilling Services, Inc., a privately-held company providing seismic
shot-hole drilling and front-end services, for a price of approximately $5
million consisting of approximately $3.5 million in cash and 98,360 shares of
the Company's common stock. The Company expects to complete this transaction
late in the first quarter or early in the second quarter of 1998. The Company
plans to finance the cash portion of the acquisition with a combination of cash
flows from operations and borrowings from the Company's revolving credit
facility.
13
<PAGE> 16
The Company believes that its planned capital expenditures and operating
requirements through the end of 1998 will be funded from the Bank One Revolving
Credit facility, the British Linen Bank capital lease, the Fleet Capital term
loan, additional equipment financing, and the Company's cash flow from
operations. The Company anticipates that its cash flow from operations will be
sufficient to fund its operating requirements for the foreseeable future, and
that any additional capital expenditures will be funded from the Company's cash
flow from operations and additional debt financing. If the Company is not able
to obtain additional financing, it will be unable to make such capital
expenditures and the Company's financial position and results of operations may
be materially and adversely affected as a result.
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 level of exploration activity is dependent on the
commodity price levels of oil and natural gas. 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, 1997.
YEAR 2000
The Company is currently in the process of evaluating its computer software
programs and operating systems to ensure such programs and systems will be able
to process transactions in the year 2000. However, the Company does not expect
that costs incurred to modify its programs and systems will have a material
adverse effect on its financial condition or results of operations.
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 acquisition services, and 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
14
<PAGE> 17
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 1998 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) Document filed as part of this Report
(1) Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of December 31, 1996 and F-2
1997......................................................
Consolidated Statements of Operations for the years ended F-3
December 31, 1995, 1996, and 1997.........................
Consolidated Statements of Stockholders' Equity for the F-4
years ended December 31, 1995, 1996, and 1997.............
Consolidated Statements of Cash Flows for the years ended F-5
December 31, 1995, 1996, and 1997.........................
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
(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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation, as amended (incorporated by
reference to the Company's Registration Statement, as
amended, on Form S-1, No. 333-28303, as filed with the
Securities and Exchange Commission on June 2, 1997 (the
"Registration Statement"))
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2 -- Amended and Restated Bylaws (incorporated by reference to
the Registration Statement)
4.1 -- Specimen Certificate for Registrant's common stock, par
value $0.01 (incorporated by reference to the
Registration Statement)
10.1.1 -- Loan and Security Agreement dated July 9, 1996, between
Seitel Geophysical, Inc., as Debtor, and Nationsbanc
Leasing Corporation of North Carolina, as Secured Party
(incorporated by reference to the Registration Statement)
10.1.2 -- Assumption and Consent dated December 31, 1996, among
Seitel Geophysical, Inc., Eagle Geophysical, Inc.,
Nationsbanc Leasing Corporation of North Carolina and
Seitel, Inc. (incorporated by reference to the
Registration Statement)
10.2 -- Loan and Security Agreement dated February 6, 1997,
between Eagle Geophysical, Inc., as Debtor, and
Nationsbanc Leasing Corporation of North Carolina, as
Secured Party (incorporated by reference to the
Registration Statement)
10.3 -- Conditional Sales Agreement dated February 19, 1997,
between Input/Output, Inc. and Horizon Exploration
Limited ("HEL") (incorporated by reference to the
Registration Statement)
10.4.1 -- Installment Note ($306,180) by HEL in favor of Teledyne
Brown Engineering Marine Products (incorporated by
reference to the Registration Statement)
10.4.2 -- Promissory Note ($330,000) by HEL in favor of Teledyne
Industries, Inc. (incorporated by reference to the
Registration Statement)
10.5.1 -- Loan and Security Agreement dated February 22, 1996,
between Seitel Geophysical, Inc. and MetLife Capital
Corporation (incorporated by reference to the
Registration Statement)
10.5.2 -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.6.1 -- Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. and MetLife Capital,
Limited Partnership, as amended (incorporated by
reference to the Registration Statement)
10.6.2 -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.7.1 -- Master Lease Agreement dated February 16, 1994 between
McCullagh Leasing (a unit of GE Capital Fleet Services)
and Seitel Geophysical, Inc., as amended (incorporated by
reference to the Registration Statement)
10.7.2 -- Partial Assignment dated April 8, 1997 among Seitel
Geophysical, Inc., Eagle Geophysical, Inc. and GE Capital
Fleet Services (incorporated by reference to the
Registration Statement)
10.8 -- Term Credit and Security Agreement dated July 15, 1993,
between Seitel Geophysical, Inc. and Compass Bank (f/k/a
Central Bank of the South), as amended (incorporated by
reference to the Registration Statement)
10.9.1 -- Bareboat Charter by Way of Subdemise dated July 15, 1994,
between Simon-Horizon Limited ("Simon") and HEL
(incorporated by reference to the Registration Statement)
10.9.2 -- Management Agreement dated December 19, 1990 between
Simon and Ervik Marine Services A/S ("Ervik")
(incorporated by reference to the Registration Statement)
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9.3 -- Side Letter Agreement dated December 19, 1990, between
Simon and Ervik (incorporated by reference to the
Registration Statement)
10.9.4 -- Assignment Agreement Relating to a Ship Management
Agreement dated December 19, 1990 (as amended) dated July
15, 1990, between Simon and HEL (incorporated by
reference to the Registration Statement)
10.9.5 -- Deed of Assignment of Insurances dated July 15, 1994,
between HEL and Simon (incorporated by reference to the
Registration Statement)
10.9.6 -- Deed of Continuing Inter-Company Cross Guarantee and
Indemnity dated July 15, 1994, by Horizon Seismic Inc.,
Exploration Holdings Limited and HEL in favor of Simon,
Simon Petroleum Technology Limited and Simon Engineering
Plc (incorporated by reference to the Registration
Statement)
10.9.7 -- Sublease Contract Number 1 dated July 15, 1994, between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.9.8 -- Sublease Contract Number 2 dated July 15, 1994, between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.9.9 -- Agreement dated July 15, 1994, among Simon, Simon
Petroleum Technology Limited, Simon Engineering Plc and
HEL (incorporated by reference to the Registration
Statement)
10.9.10 -- Charterparty by Way of Sub-Demise dated December 20,
1996, between Royal Bank of Scotland and Simon
(incorporated by reference to the Registration Statement)
10.9.11 -- Addendum to Charterparty dated March 31, 1992, between
Royal Bank of Scotland and Simon (incorporated by
reference to the Registration Statement)
10.9.12 -- Quadripartite Agreement dated August 18, 1994, among
Simon, Royal Bank of Scotland (Industrial Leasing)
Limited, HEL and Simon Engineering plc (incorporated by
reference to the Registration Statement)
10.9.13 -- Master Leasing Agreement dated July 15, 1994 between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.10 -- Contribution and Assumption Agreement dated December 31,
1996, between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.11.1 -- Agreement to Extend the Charterparty of "Pacific Horizon"
dated July 11, 1994, by and between J. Marr Limited and
HEL (incorporated by reference to the Registration
Statement)
10.11.2 -- Deed of Novation m.v. "Pacific Horizon" dated July 11,
1994, by and among Simon, J. Marr Limited and HEL
(incorporated by reference to the Registration Statement)
10.11.3 -- Pacific Horizon Charter dated February 4, 1981, between
J. Marr and Son, Limited and HEL (incorporated by
reference to the Registration Statement)
10.12 -- Employment Agreement between Exploration Holdings Limited
("EHL") and Gerald Harrison, as amended (incorporated by
reference to the Registration Statement)
10.13 -- Employment Agreement between EHL and George Purdie, as
amended (incorporated by reference to the Registration
Statement)
10.14 -- Employment Agreement between EHL and Neil A.M. Campbell,
as amended (incorporated by reference to the Registration
Statement)
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15* -- Form of Employment Agreement Amendment between EHL and
each of Messrs. Harrison, Purdie and Campbell dated
August 11, 1997
10.16* -- Employment Agreement between Eagle Geophysical, Inc. and
Jay Silverman dated August 11, 1997
10.17 -- Employment Agreement between Eagle Geophysical, Inc. and
Richard McNairy (incorporated by reference to the
Registration Statement)
10.18 -- Commercial Lease dated March 10, 1994, between Ron Chase
dba Chase Properties and Eagle Geophysical, Inc./Seitel
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.19 -- Modification and Ratification of Lease dated April 24,
1996, between Ron Chase dba Chase Properties and Eagle
Geophysical, Inc./Seitel Geophysical, Inc. (incorporated
by reference to the Registration Statement)
10.20 -- Lease dated May 28, 1996, between Partnership of
Perkins-Guidry-Beazley-Ostteen and Seitel Geophysical,
Inc. (incorporated by reference to the Registration
Statement)
10.21* -- Sublease between Seitel, Inc. and its subsidiaries and
Eagle Geophysical, Inc. dated August 11, 1997
10.22* -- Master Separation Agreement between Seitel, Inc. and
Eagle Geophysical, Inc. dated August 11, 1997
10.23* -- Registration Rights Agreement between EHI Holdings, Inc.
and Eagle Geophysical, Inc. dated August 11, 1997
10.24* -- Tax Indemnity Agreement between Seitel, Inc. and Eagle
Geophysical, Inc. dated August 11, 1997
10.25* -- Administrative Services Agreement between Seitel, Inc.
and Eagle Geophysical, Inc. dated August 11, 1997
10.26 -- Amended and Restated Promissory Note ($2,000,000) dated
July 3, 1996 by Energy Research International ("ERI") in
favor of Seitel, Inc. (incorporated by reference to the
Registration Statement)
10.27 -- Promissory Note ($2,679,040) dated November 15, 1996 by
ERI in favor of Seitel, Inc. (incorporated by reference
to the Registration Statement)
10.28* -- Bonus Agreement between Eagle Geophysical, Inc. and Paul
A. Frame dated August 11, 1997
10.29 -- Outside Directors Deferred Compensation Plan
(incorporated by reference to the Registration Statement)
10.30 -- Independent Directors Stock Option Plan (incorporated by
reference to the Registration Statement)
10.31 -- Stock Option Plan (incorporated by reference to the
Registration Statement)
10.32.1 -- Promissory Note payable by Jay Silverman to Eagle
Geophysical, Inc. dated July 23, 1997 (incorporated by
reference to the Registration Statement)
10.32.2 -- Subscription Agreement between Eagle Geophysical, Inc.
and Jay N. Silverman dated July 23, 1997 (incorporated by
reference to the Registration Statement)
10.32.3 -- Security Agreement -- Pledge between Eagle Geophysical,
Inc. and Jay N. Silverman dated July 23, 1997
(incorporated by reference to the Registration Statement)
10.33.1 -- The Bank of N.T. Butterfield Term Loan Facility dated
February 27, 1995 (incorporated by reference to the
Registration Statement)
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.33.2 -- The Bank of N.T. Butterfield & Son Limited Facility
Letter dated August 23, 1994 (incorporated by reference
to the Registration Statement)
10.33.3 -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 1 dated February 3, 1995 (incorporated by
reference to the Registration Statement)
10.33.4 -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 2 dated February 19, 1996 (incorporated by
reference to the Registration Statement)
10.33.5 -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 10, 1996 (incorporated by reference to the
Registration Statement)
10.33.6 -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 19, 1997 (incorporated by reference to the
Registration Statement)
10.34.1 -- Abshire Tide Blanket Time Charter dated February 9, 1996,
between Tidewater Marine, Inc. and Horizon Seismic Inc.
(incorporated by reference to the Registration Statement)
10.34.2 -- Letter Agreement dated February 12, 1996 relating to
Abshire Tide Blanket Time Charter (incorporated by
reference to the Registration Statement)
10.34.3 -- Tidewater Marine letter to Horizon Seismic, Inc. dated
September 19, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide (incorporated by reference to the
Registration Statement)
10.34.4 -- Tidewater Marine letter to Horizon Seismic, Inc. dated
March 25, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide (incorporated by reference to the
Registration Statement)
10.35.1 -- Supplemental Security Agreement No. One dated February
22, 1996 between Seitel Geophysical, Inc. and MetLife
Capital Corporation (incorporated by reference to the
Registration Statement)
10.35.2 -- Term Promissory Note ($433,000) dated March 14, 1996, by
Seitel Geophysical, Inc. in favor of MetLife Capital
Corporation (incorporated by reference to the
Registration Statement)
10.36 -- Service Agreement for MV Discoverer dated April 12, 1994,
between Horizon Seismic, Inc. and Shanghai Bureau of
Marine Geological Survey, as amended (incorporated by
reference to the Registration Statement)
10.37 -- Underlease dated April 21, 1997, between Payless
Properties Limited and HEL (incorporated by reference to
the Registration Statement)
10.38 -- Lease Agreement between Pincay Oaks, Inc. and HEL
(incorporated by reference to the Registration Statement)
10.39 -- Lease dated February 1, 1997, between Tuscan Property
Developments Limited and HEL (incorporated by reference
to the Registration Statement)
10.40 -- Set-off and Charge dated August 30, 1994, between HEL and
The Bank of N.T. Butterfield & Son Limited (incorporated
by reference to the Registration Statement)
10.41 -- Deed relating to 6 Pembroke Road Sevenoaks Kent dated
August 25, 1993, between Marley Waterproofing Limited and
HEL (incorporated by reference to the Registration
Statement)
10.42 -- Debenture dated August 12, 1994, between HEL and The Bank
of N.T. Butterfield & Son Limited (incorporated by
reference to the Registration Statement)
10.43 -- Chattel Mortgage between HEL and The Bank of N.T.
Butterfield & Son Limited (incorporated by reference to
the Registration Statement)
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.44 -- Stock Purchase Agreement dated June 2, 1997, among Gerald
Harrison, George Purdie, Neil Campbell, David Burns,
Oliveira Limited, Dormera Limited, Balmedie Limited,
Larlane Limited and Eagle Geophysical, Inc. (incorporated
by reference to the Registration Statement)
10.45 -- Operating Lease of Marine Seismic Equipment dated as of
July 1, 1996, between Seismic Geophysical, Inc. and HEL
(incorporated by reference to the Registration Statement)
10.46 -- Assignment between HEL and The Bank of NT Butterfield &
Sons Limited (incorporated by reference to the
Registration Statement)
10.47 -- Letter of Hypothecation and Pledge dated August 30, 1994,
between Seismic Exploration Ltd. and The Bank of N.T.
Butterfield & Son Limited (incorporated by reference to
the Registration Statement)
10.48 -- Lease Agreement dated January 7, 1997, between DigiCOURSE
INC. and HEL (incorporated by reference to the
Registration Statement)
10.49 -- Lease Agreement dated March 27, 1997, between DigiCOURSE
INC. and HEL (incorporated by reference to the
Registration Statement)
10.50 -- Initial Definitive Trust Deed -- Horizon Pension Plan
(incorporated by reference to the Registration Statement)
10.51 -- Operating Lease dated February 3, 1997, between Eagle
Geophysical, Inc. and HEL (incorporated by reference to
the Registration Statement)
10.52 -- Contribution Agreement dated as of May 30, 1997, between
Seitel, Inc. and Eagle Geophysical, Inc. (incorporated by
reference to the Registration Statement)
10.53 -- Assignment of Life Insurance dated December 9, 1993
insuring G.M. Harrison (incorporated by reference to the
Registration Statement)
10.54 -- Lease dated December 12, 1995, between Newington Bricks
Limited and HEL (incorporated by reference to the
Registration Statement)
10.55 -- Lease dated August 25, 1993, between Marley Waterproofing
Limited and HEL (incorporated by reference to the
Registration Statement)
10.56 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and Seitel Data, Ltd.
(incorporated by reference to the Registration Statement)
10.57 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and DDD Energy, Ltd.
(incorporated by reference to the Registration Statement)
10.58* -- Employee Benefits Allocation Agreement between Seitel,
Inc. and Eagle Geophysical, Inc. dated August 11, 1997
10.59* -- Revolving Credit Agreement dated October 21, 1997 between
Bank One, Texas, N.A. ("Bank") and Eagle Geophysical,
Inc. ("Eagle"), Eagle Geophysical Onshore, Inc.
("Onshore"), Eagle Geophysical Offshore, Inc.
("Offshore"), Eagle Geophysical de Mexico, Inc. ("de
Mexico"), and Eagle Geophysical GOM, Inc. ("GOM," and
collectively with Eagle, Onshore, Offshore and de Mexico,
"Borrowers")
10.60* -- Promissory Note in the original principal amount of
$20,000,000 dated October 21, 1997 payable to the order
of Bank, made by Borrowers
10.61* -- Form of Security Agreement dated October 21, 1997 between
Bank and each of Eagle Onshore, Offshore, de Mexico and
GOM.
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.62* -- Revolving Credit Agreement between Bank and HEL
10.63* -- Promissory Note in the original principal amount of
$20,000,000 dated October 21, 1997 payable to the order
of Bank, made by HEL
10.64* -- Charge on Receivables dated October 21, 1997 between Bank
and HEL
10.65* -- Guaranty dated October 21, 1997 by Eagle Geophysical,
Inc. to Bank
23* -- Report of KPMG, Independent Public Accountants, for the
financial statements of ERI for the period from August
11, 1997 to December 31, 1997
27* -- Financial data schedule
</TABLE>
- ---------------
* Filed herewith
21
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle Geophysical, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Eagle
Geophysical, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Energy Research International, which
statements reflect total assets and total revenues of 41 percent and 22 percent
in 1997, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Eagle Geophysical, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 6, 1998
F-1
<PAGE> 25
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
ASSETS ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $-0-
and $4,502 at December 31, 1996 and 1997, respectively.... $ -- $ 19,482
Receivables:
Trade, billed, net of allowance for doubtful accounts of
$-0- and $132 at December 31, 1996 and 1997,
respectively........................................... 12,913 11,291
Costs and estimated earnings in excess of billings on
uncompleted contract................................... 441 2,576
Other..................................................... 233 546
Due from affiliate.......................................... -- 12,500
Inventory................................................... -- 1,705
Prepaid expenses and other assets........................... 860 2,273
Deferred income taxes....................................... -- 515
------- --------
Total current assets.............................. 14,447 50,888
PROPERTY AND EQUIPMENT, AT COST:
Geophysical equipment..................................... 20,200 69,418
Furniture, fixtures and other............................. 108 652
------- --------
20,308 70,070
Less: Accumulated depreciation......................... (8,103) (14,873)
------- --------
Net property and equipment........................ 12,205 55,197
GOODWILL, net of accumulated amortization of $-0- and $477
at December 31, 1996 and 1997, respectively............... -- 17,990
DEFERRED INCOME TAXES....................................... -- 104
OTHER LONG-TERM ASSETS...................................... 69 126
------- --------
TOTAL ASSETS...................................... $26,721 $124,305
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 2,556 $ --
Current portion of capital lease obligations.............. 1,033 2,816
Accounts payable.......................................... 4,623 15,671
Accrued liabilities....................................... 652 7,849
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 78 6,029
------- --------
Total current liabilities......................... 8,942 32,365
LONG-TERM DEBT.............................................. 6,039 --
CAPITAL LEASE OBLIGATIONS................................... 1,274 7,944
DUE TO AFFILIATE............................................ 1,965 --
DEFERRED INCOME TAXES....................................... 712 --
------- --------
TOTAL LIABILITIES................................. 18,932 40,309
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding........................................ -- --
Common stock, par value $.01 per share; 25,000,000 shares
authorized; 3,400,000 shares issued and outstanding at
December 31, 1996 and 8,489,000 at December 31, 1997... 34 85
Additional paid-in capital................................ 7,755 82,622
Retained earnings......................................... -- 1,714
Note receivable from Stockholder.......................... -- (425)
------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 7,789 83,996
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $26,721 $124,305
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 26
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES(1)................................................. $29,275 $48,136 $79,061
EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)(1)........................... 20,986 34,917 56,470
Depreciation and amortization............................. 2,471 3,409 8,584
Selling, general and administrative expenses.............. 2,874 2,680 6,408
Interest expense.......................................... 450 699 1,586
Interest income........................................... (42) (168) (1,263)
Other, net................................................ -- -- (118)
------- ------- -------
26,739 41,537 71,667
------- ------- -------
Income before provision for income taxes.................. 2,536 6,599 7,394
Provision for income taxes................................ 933 2,420 2,994
------- ------- -------
NET INCOME.................................................. $ 1,603 $ 4,179 $ 4,400
======= ======= =======
Basic earnings per share.................................. $ 0.47 $ 1.23 $ 0.81
======= ======= =======
Weighted average number of common shares (basic).......... 3,400 3,400 5,418
======= ======= =======
Diluted earnings per share................................ $ 0.47 $ 1.23 $ 0.81
======= ======= =======
Weighted average number of common shares (diluted)........ 3,400 3,400 5,436
======= ======= =======
</TABLE>
- ---------------
(1) Includes revenue from affiliates of $15,391, $27,217 and $42,265 for the
periods ended December 31, 1995, 1996 and 1997, respectively, and operating
expenses related to such affiliate revenue of $10,845, $20,078 and $34,514
for the periods ended December 31, 1995, 1996 and 1997, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 27
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN RETAINED FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDER EQUITY
------ ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... 3,400 $34 $ 1,973 $ -- $ -- $ 2,007
Net income....................... -- -- 1,603 -- -- 1,603
----- --- ------- ------- ----- -------
Balance, December 31, 1995......... 3,400 34 3,576 -- -- 3,610
Net income....................... -- -- 4,179 -- -- 4,179
----- --- ------- ------- ----- -------
Balance, December 31, 1996......... 3,400 34 7,755 -- -- 7,789
Contribution of 19% interest in
Energy Research International
by Seitel, Inc................ -- -- 914 -- -- 914
Net income from January 1, 1997
to August 11, 1997............ -- -- -- 2,686 -- 2,686
Dividend declared to Seitel,
Inc........................... -- -- (3,965) (2,686) -- (6,651)
Issuance of common stock, net.... 4,464 45 69,084 -- -- 69,129
Acquisition of remaining 81% of
Energy Research
International................. 600 6 8,409 -- -- 8,415
Issuance of common stock to an
officer for a note............ 25 -- 425 -- (425) --
Net income from August 12, 1997
to December 31, 1997.......... -- -- -- 1,714 -- 1,714
----- --- ------- ------- ----- -------
Balance, December 31, 1997......... 8,489 $85 $82,622 $ 1,714 $(425) $83,996
===== === ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 28
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,603 $ 4,179 $ 4,400
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,471 3,409 8,584
Income contributed to former parent, Seitel, Inc.......... -- -- (6,651)
Bad debt expense.......................................... -- -- 582
Gain on sale of property and equipment.................... -- -- (19)
Deferred income tax provision............................. 152 58 219
Increase in receivables................................... (5,241) (3,726) (2,280)
Increase in other assets.................................. (49) (833) (1,257)
Increase in accounts payable and other liabilities........ 1,697 1,553 9,311
------- ------- --------
Total adjustments................................. (970) 461 8,489
------- ------- --------
Net cash provided by operating activities......... 633 4,640 12,889
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (289) (7,928) (32,375)
Cash acquired from the purchase of Energy Research
International.......................................... -- -- 145
Cash received on sale of property and equipment........... -- -- 24
------- ------- --------
Net cash used in investing activities............. (289) (7,928) (32,206)
------- ------- --------
Cash flows from financing activities:
Borrowings under term loans............................... -- 7,694 7,564
Principal payments on term loans.......................... (812) (1,518) (27,886)
Principal payments on capital leases...................... (1,299) (1,247) (7,005)
Receipts (payments) to affiliate.......................... 1,796 (1,699) (3,003)
Issuance of common stock, net............................. -- -- 69,129
------- ------- --------
Net cash provided by (used in) financing
activities...................................... (315) 3,230 38,799
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 29 (58) 19,482
Cash and cash equivalents at beginning of period............ 29 58 --
------- ------- --------
Cash and cash equivalents at end of period.................. $ 58 $ -- $ 19,482
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 408 $ 637 $ 1,472
======= ======= ========
Income taxes........................................... $ -- $ -- $ 1,950
======= ======= ========
Non-cash investing activities:
Capital lease obligations................................. $ 10 $ 41 $ 374
======= ======= ========
Contribution of 19% interest in Energy Research
International by Seitel, Inc........................... $ -- $ -- $ 914
======= ======= ========
Issuance of common stock to an officer for a note......... $ -- $ -- $ 425
======= ======= ========
Purchase of remaining 81% interest in Energy Research
International for common stock......................... $ -- $ -- $ 8,415
======= ======= ========
Dividend declared to Seitel, Inc.......................... $ -- $ -- $ 6,651
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 29
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BUSINESS, FORMATION OF THE COMPANY AND ACQUISITIONS
BUSINESS
Eagle Geophysical, Inc. (the "Company") is an international oilfield
service company engaged in seismic data acquisition services, with a
specialization in the acquisition of high-resolution, three dimensional seismic
data in logistically difficult wetland environments and in congested offshore
areas primarily in the U.S. Gulf Coast region. Since its inception and through
August 11, 1997, the Company was a wholly-owned subsidiary of Seitel, Inc.
("Seitel"), which has subsidiaries that have been significant purchasers of the
Company's services -- See Note J.
FORMATION OF THE COMPANY AND ACQUISITIONS
The Company was formed from the onshore seismic data acquisition business
of Seitel Geophysical, Inc., a wholly-owned subsidiary of Seitel that began
operations in December, 1992. Eagle Geophysical, Inc., indirectly a wholly-owned
subsidiary of Seitel and Eagle Geophysical Onshore, Inc. were both formed on
December 18, 1996. Effective December 31, 1996, substantially all of the net
assets of Seitel Geophysical, Inc. were contributed to Eagle Geophysical
Onshore, Inc.
In May 1997, Seitel contributed to the Company all of the shares that it
owned of Energy Research International ("ERI"), representing a 19% ownership
interest. ERI is a holding company that wholly owns two marine seismic
companies. This contribution was recorded at Seitel's basis in such investment
and resulted in a $914,000 increase in the Company's additional paid-in capital
account.
On August 11, 1997 and September 5, 1997, the Company completed the
offering and sale of a total of 6,524,000 shares of common stock to the public
at a price of $17 per share (including 1,880,000 shares sold by the Company's
former parent, Seitel and 180,000 shares sold by the former owners of ERI)
resulting in net proceeds to the Company of $69.1 million after deducting
offering-related expenses (the "Offering"). After the Offering, Seitel owns
1,520,000 shares or 17.9% of the Company's common stock.
On August 11, 1997, the Company acquired the remaining 81% of ERI in
exchange for 600,000 shares of common stock valued at the initial offering of
$17 per share (the "ERI Acquisition"). The ERI Acquisition was accounted for by
the Company as a purchase transaction in which the Company recorded its cost in
the assets acquired less liabilities assumed, with the difference between the
cost and the sum of the fair values of tangible assets less liabilities assumed
recorded as goodwill. The Company is currently evaluating the value of assets
acquired and liabilities assumed in order to determine the final purchase price
allocation related to the ERI Acquisition.
The following table presents the unaudited pro forma effects of the
Offering, the application of the net proceeds thereof, and the ERI Acquisition,
as if such transactions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- -------
(UNAUDITED)
(IN THOUSANDS
EXCEPT
PER SHARE
INFORMATION)
<S> <C> <C>
Pro Forma Revenues.......................................... $108,128 $90,915
Pro Forma Income Before Taxes............................... 9,472 2,715
Pro Forma Net Income........................................ 5,636 801
Pro Forma Weighted Average Number of Common Shares
Outstanding............................................... 8,489 8,489
Pro Forma Basic and Diluted Earnings Per Common Share....... $ .66 $ .09
======== =======
</TABLE>
F-6
<PAGE> 30
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results of operations reflect the application of United
Kingdom statutory tax rates to earnings from ERI resulting from non-deductible
goodwill. Had such rates not been applied, pro forma earnings would have been
$.80 and $.09 for the years ended December 31, 1997 and 1996 respectively.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of these consolidated financial
statements in accordance with generally accepted accounting principles requires
the use of certain estimates by management in determining the Company's assets,
liabilities, contingencies, revenues and expenses. One important estimate
relates to the percentage of revenue recognized based on the stage of completion
of seismic acquisition projects. Actual results could differ from estimates.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Eagle Geophysical, Inc., indirectly a wholly-owned
subsidiary of Seitel until August 11, 1997, and the accounts of its wholly-owned
subsidiaries, Eagle Geophysical Onshore, Inc. and ERI. The Company's reported
assets, liabilities, revenues and expenses include the predecessor operations of
Seitel Geophysical, Inc. for all periods presented. The financial reporting
basis of the contributed net assets was carried forward to the Company's
accounts, and the net equity of Seitel Geophysical, Inc. for periods prior to
December 31, 1996, is reflected in the Company's additional paid-in capital
account. The accompanying consolidated financial statements include the results
of operations of ERI for the period after the ERI Acquisition (August 11, 1997).
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include short-term
investments with original maturities of three months or less.
INVENTORY: Inventory which consists primarily of spare parts for equipment
is stated at the lower of cost or market value on a first-in, first-out basis.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost and
include assets under capital leases. Maintenance and repairs are charged to
expense as incurred and expenditures for major improvements are capitalized.
Gains and losses from retirement or replacement of property and equipment are
included in operations.
Depreciation of property and equipment and assets under capital leases is
provided over the estimated useful lives of the assets, which range from three
to five years or the term of the lease, using the straight-line method.
INTANGIBLE ASSETS: Goodwill which resulted from the ERI Acquisition is
amortized on a straight-line basis over a period of 15 years. Organization
costs, which are classified as other long-term assets, are amortized on a
straight-line basis over a period of three years. The Company evaluates
intangible assets periodically in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" to determine whether they are properly
reflected in the financial statements based upon future undiscounted operating
cash flows. If an impairment is determined to exist, then the asset is written
down to fair market value.
INCOME TAXES: The Company and all of its subsidiaries file a consolidated
federal income tax return. ERI and its subsidiaries file a consolidated income
tax return in the United Kingdom. The Company does not provide deferred taxes
(benefit) on the undistributed earnings (loss) of its foreign subsidiaries which
amounted to $192,000 for the year ended December 31, 1997, as such earnings are
intended to be permanently invested in those operations.
REVENUE AND COST RECOGNITION: Revenue from the acquisition of seismic data
is recognized on the percentage-of-completion method based on the work effort
completed compared with the total work effort estimated for the contract.
Revenue received in advance of being earned is deferred until earned. For
contracts
F-7
<PAGE> 31
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for under the percentage of completion method, the Company's contracts
provide that the customer accepts work completed throughout the duration of the
project and owes the Company, based on the pricing provisions and job completion
to date, measured in terms of time incurred or other performance milestones.
Operating expenses include all direct material and labor costs and indirect
costs related to the acquisition of seismic data such as supplies, tools and
repairs. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and income and are recognized in the period in which the revisions are
determined.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenue recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenue recognized.
FOREIGN CURRENCY TRANSLATION: The Company's functional currency is the U.S.
Dollar. Accordingly, foreign entities translate monetary assets and liabilities
at period end exchange rates, while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year except for depreciation and amortization which
are translated at historical rates. Gains and losses resulting from the
translation of foreign financial statements and from foreign currency
transactions are included in other income and expense. The Company recorded no
foreign currency translation gains or losses in 1995 and 1996 and approximately
$117,000 in net gains for the year ending December 31, 1997.
EARNINGS PER SHARE: Earnings per share is based on the weighted average
number of outstanding shares of common stock during the respective years, and
where dilutive, the effect of common stock contingently issuable, which arises
from the exercise of stock options. In February 1997, the Financial Accounting
Standards board issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," effective for interim and annual periods after
December 15, 1997. This statement replaces primary earnings per share with a
newly defined basic earnings per share and modifies the computation of dilutive
earnings per share. The Company adopted this statement effective for the fiscal
year ended December 31, 1997. The adoption of this statement had no effect on
the Company's earnings per share for the three years ended December 31, 1997.
The weighted average number of common shares outstanding for calculation of
basic earnings per share was 3,400,000, 3,400,000 and 5,418,000 for the years
ended December 31, 1995, 1996 and 1997 respectively. The weighted average number
of common shares outstanding for calculation of diluted earnings per share was
3,400,000, 3,400,000 and 5,436,000 for the years ended December 31, 1995, 1996
and 1997 respectively.
STOCK-BASED COMPENSATION: The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Reference is made to Note G, "Stockholders' Equity," for a summary
of the pro forma effect of SFAS No. 123, "Accounting for Stock Based
Compensation" on the Company's results of operations for 1997.
FAIR VALUE OF 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 cash equivalents, receivables and
accounts payable approximate their fair value as of December 31, 1996 and 1997,
because of the short-term maturity of these instruments. Based upon the rates
available to the Company, the fair value of the Company's debt and capital
leases approximated the carrying value as of December 31, 1996 and was
$10,186,000 compared to a carrying value of $10,760,000 as of December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This
statements requires the reporting of comprehensive income which includes net
income plus all other non owner changes in equity during the period. This
F-8
<PAGE> 32
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement is required to be adopted for fiscal years beginning after December
15, 1997. The Company intends to adopt this statement during its fiscal year
ending December 31, 1998. The Company does not believe the adoption of this
statement will have a material effect on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. The Company does not
believe the adoption of this statement will have a material effect on its
consolidated financial statements.
NOTE C -- INCOME TAXES
The provision for income taxes for each of the three years ended December
31, 1997, consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Current
-- Federal........................................... $695 $2,105 $2,603
-- State............................................. 86 257 443
-- Foreign........................................... -- -- (271)
---- ------ ------
781 2,362 2,775
---- ------ ------
Deferred
-- Federal........................................... 137 51 (227)
-- State............................................. 15 7 (33)
-- Foreign........................................... -- -- 479
---- ------ ------
152 58 219
---- ------ ------
Tax Provision
-- Federal........................................... 832 2,156 2,376
-- State............................................. 101 264 410
-- Foreign........................................... -- -- 208
---- ------ ------
$933 $2,420 $2,994
==== ====== ======
</TABLE>
The difference between U.S. Federal income taxes computed at the statutory
rate (34%) and the Company's income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Statutory Federal income tax........................... $862 $2,244 $2,514
State income tax, less Federal benefit................. 67 174 272
Foreign income tax..................................... -- -- 208
Other, net............................................. 4 2 --
---- ------ ------
Income tax expense..................................... $933 $2,420 $2,994
==== ====== ======
</TABLE>
F-9
<PAGE> 33
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax asset and liability reflected
in the Company's consolidated balance sheets at December 31, 1996 and 1997 were
as follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS
(LIABILITIES)
AT DECEMBER 31,
--------------------
1996 1997
------- -------
<S> <C> <C>
Net operating loss carry forward............................ $ -- $ 2,263
Deferred items related to state tax provision............... 26 --
Accrued expense and other assets............................ 371 1,008
------- -------
Total deferred tax assets................................... 397 3,271
Less: valuation allowance................................... -- (291)
------- -------
Deferred tax assets, net of valuation allowance........... 397 2,980
------- -------
Depreciation and amortization............................... (1,109) (2,361)
------- -------
Total deferred tax liabilities............................ (1,109) (2,361)
------- -------
Net deferred tax asset (liability).......................... $ (712) $ 619
======= =======
</TABLE>
Included in the deferred federal tax provisions are the following: excess
of tax depreciation expense over book depreciation expense and expenses accrued
for financial statement purposes which are not yet deductible for tax purposes.
In connection with the ERI Acquisition, the Company acquired approximately $6.0
million of net operating loss carry forwards (currently with no expiration date)
and $1.3 million of other items not currently deductible for tax purposes in the
United Kingdom related to ERI's United Kingdom subsidiary, Horizon Exploration
Ltd. resulting in a deferred tax asset of approximately $2.6 million. Such
deferred tax asset was recorded by the Company in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes," with only the portion of such
tax assets that are in management's opinion, more likely than not, expected to
be realized considering ERI's results subsequent to the ERI Acquisition.
Accordingly, a $291,000 valuation allowance was provided on such deferred
assets.
NOTE D -- COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of the Company's estimated costs and earnings on
uncompleted contacts at December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
------ --------
<S> <C> <C>
Costs incurred and estimated earnings on uncompleted
contracts................................................. $2,354 $ 19,748
Billings on uncompleted contracts........................... (1,991) (23,201)
------ --------
$ 363 $ (3,453)
====== ========
Included in accompanying balance sheets under the following
captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $ 441 $ 2,576
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (78) (6,029)
------ --------
$ 363 $ (3,453)
====== ========
</TABLE>
F-10
<PAGE> 34
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG TERM DEBT
The following is a summary of the Company's long-term debt at December 31,
1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- ----
<S> <C> <C>
Term loans.................................................. $ 8,595 $ --
Less: Current maturities.................................... (2,556) --
------- ----
Long-term debt.............................................. $ 6,039 $ --
======= ====
</TABLE>
TERM LOANS: On July 15, 1993, the Company obtained a $4,300,000, five-year
term loan bearing interest at the rate of 7.61% for the purchase of a telemetry
seismic data acquisition system and auxiliary equipment. The debt was secured by
such equipment. Monthly principal and interest payments total approximately
$86,000. This term loan was guaranteed by Seitel. On August 12, 1997, the
Company repaid the remaining balance of the loan of approximately $917,000,
including accrued interest to date, with proceeds from the Offering.
On March 14, 1996, the Company obtained a $433,000, three-year term loan
bearing interest at the rate of 7.52% for the purchase of geophysical equipment.
The debt was secured by such equipment. Monthly principal and interest payments
totaled approximately $13,000. This term loan was guaranteed by Seitel. On
August 14, 1997, the Company repaid the remaining balance of the loan of
approximately $257,000, including accrued interest to date, with proceeds from
the Offering.
On July 9, 1996, the Company obtained two term loans aggregating $7,264,000
for the purchase of land and marine seismic equipment which secured the debt.
The first loan was a $5,902,000, five year term loan bearing interest at the
rate of 8%. The second loan was a $1,362,000 three year term loan bearing
interest at a rate of 8.06%. Monthly principal and interest payments on both
term loans totaled approximately $163,000. In March 1997, the Company obtained
two additional loans from the same lender of $558,000 and $7,006,000,
respectively, for the purchase of additional seismic equipment. The notes bear
interest at 7.73% and 7.98%, respectively, and mature in three and five years
respectively. These term loans were guaranteed by Seitel. On August 12, 1997,
the Company repaid the remaining balance of these loans of $13.3 million,
including interest and prepayment penalties, with proceeds from the Offering.
On August 14, 1997, the Company repaid approximately $7.5 million of
borrowings and accrued interest to date with respect to the ERI Acquisition with
proceeds from the Offering.
On October 21, 1997, the Company entered into an agreement with Bank One,
Texas N.A. with respect to a $20,000,000 revolving credit facility secured by
the Company's accounts receivable. The amount the Company may borrow under the
facility is limited to a borrowing base that is equal to 90% of the eligible
U.S. and U.K. investment grade accounts receivable, as defined, 100% of
receivables secured by acceptable letters of credit, and 80% of eligible
noninvestment grade domestic and other foreign receivables. Interest only will
be payable monthly or at the end of LIBOR interest periods, and the credit
facility is payable in full in three years. Mandatory prepayments are required
if borrowings exceed the borrowing base. Interest accrues under the credit
facility at the bank's base rate or LIBOR plus a spread of 1.375% if the
Company's debt to net worth ratio is less than 1 to 1, and 1.625% if such ratio
is equal to or greater than 1 to 1. As of December 31, 1997, the Company has
approximately $18.5 million available under this facility and no borrowings were
currently outstanding.
F-11
<PAGE> 35
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LEASE OBLIGATIONS
Property and equipment in the accompanying consolidated balance sheets
includes the following assets held under capital leases (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Geophysical equipment....................................... $ 5,339 $15,311
Accumulated amortization.................................... (2,649) (6,704)
------- -------
Assets under capital lease, net............................. $ 2,690 $ 8,607
======= =======
</TABLE>
The Company is allocated a portion of the office lease expense incurred by
Seitel under its operating lease for the corporate office based on the actual
cost of such office space pro-rated to the square footage utilized by the
Company. Additionally, the Company directly leases office space and charters
vessels and geophysical equipment under certain non-cancelable operating leases.
Rental expense for 1995, 1996 and 1997 was approximately $98,000, $142,000 and
$4,293,000, respectively, related to these leases.
Future minimum lease payments for the five years subsequent to December 31,
1997 and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998........................................................ $ 3,278 $ 4,655
1999........................................................ 3,474 2,409
2000........................................................ 3,681 2,301
2001........................................................ 1,261 433
2002........................................................ -- 426
Thereafter.................................................. -- 4,220
------- -------
Total minimum lease payments................................ 11,694 $14,444
=======
Less amount representing interest........................... (934)
-------
Present value of net minimum lease payments................. $10,760
=======
</TABLE>
The capital lease obligation outstanding as of December 31, 1997 has an
annual interest rate of approximately 4.95%.
NOTE G -- STOCKHOLDERS' EQUITY
COMMON STOCK: In May 1997, the Company amended its Certificate of
Incorporation to authorize the issuance of 25,000,000 shares of common stock and
changed the par value to $.01 per share. At the same time, the Company approved
a 3,400-for-one stock split. All share and per share information included in the
accompanying consolidated financial statements has been adjusted to give
retroactive effect to the split.
On July 23, 1997, the Company issued 25,000 shares of common stock to the
president of the Company for a note valued at $425,000 which represented the
fair value of the Company's common stock at that date. The note bears interest
at 6% and is for a term of eight years. Interest is payable quarterly until
September 2000 when equal payments of principal plus interest will be payable
monthly until July 2005. The note is secured by a pledge of the 25,000 shares of
common stock in favor of the Company.
PREFERRED STOCK: In May 1997, the Company amended its Certificate of
Incorporation to authorize the issuance of 5,000,000 shares of preferred stock,
the terms and conditions to be determined by the Board of Directors in creating
any particular series.
F-12
<PAGE> 36
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEITEL CONTRIBUTION: In May 1997, Seitel contributed to the Company all of
the shares that it owned of Energy Research International, which represented a
19% ownership interest. Energy Research International is a holding company that
wholly-owns two marine seismic companies. This contribution was recorded at
Seitel's basis in such investment and resulted in a $914,000 increase in the
Company's additional paid-in capital.
SECURITIES OFFERING, ERI ACQUISITION: On August 11, 1997 and September 5,
1997, the Company completed the offering and sale of a total of 6,524,000 shares
of common stock to the public at a price of $17 per share (including 1,880,000
shares sold by the Company's former parent, Seitel, Inc. and 180,000 shares sold
by the former owners of ERI) resulting in net proceeds of $69.1 million to the
Company after deducting offering-related expenses. Also on August 11, 1997, the
Company acquired the remaining 81% of Energy Research International in exchange
for 600,000 shares of common stock.
STOCK OPTION PLANS: In May 1997, the Company adopted a stock option plan
whereby 1,100,000 shares of common stock were reserved for issuance pursuant to
such plan. Under the stock option plan, the Company may grant both incentive
stock options intended to qualify under Section 422 of the Internal Revenue Code
and options that are not qualified as incentive stock options. Options are
granted at or above the market price of the Company's stock on the date of
grant. As of December 31, 1997, 763,250 options have been issued under the plan.
In May 1997, the Company adopted an independent directors stock option plan
and 100,000 shares were reserved for issuance pursuant to such plan. Under this
plan, options are automatically granted to independent directors upon their
election and reelection as directors of the Company. Such options are granted at
the fair market value of the Company's stock on the date of grant. As of
December 31, 1997, 30,000 options have been issued under the plan.
The following summarizes information with regard to the stock option plans
for the year ended December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
1997
------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning of year............................ -- --
Granted................................................... 793 $16.81
Exercised................................................. -- --
Forfeited................................................. -- --
Outstanding at end of year.................................. 793 $16.81
=== ======
Options exercisable at end of year.......................... -- --
=== ======
</TABLE>
The following table summarizes information for the options outstanding at
December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
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 12/31/97 LIFE IN YEARS PRICE AT 12/31/97 PRICE
- ------------------------ ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13.25 - $15.50................. 53 10.0 $13.28 -- --
$17.00 - $18.50................. 740 9.6 17.07 -- --
--- ------ --- ---
$13.25 - $18.50................. 793 $16.81 -- --
=== ====== === ===
</TABLE>
F-13
<PAGE> 37
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. APB Opinion 25 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 costs 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):
<TABLE>
<CAPTION>
1997
------
<S> <C> <C>
Net income.................................................. As reported $4,400
Pro forma 3,635
Basic earnings per share.................................... As reported $ 0.81
Pro forma 0.67
Diluted earnings per share.................................. As reported $ 0.81
Pro forma 0.67
</TABLE>
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
1997: risk-free interest rates ranging from 5.7% to 6.5%; dividend yield of 0%;
stock price volatility ranging from 40.7% to 41.2%; and an expected option life
of ten years. The weighted-average fair value of options granted during 1997 was
$10.68 per option, for options granted at fair market value.
NOTE H -- COMMITMENTS AND CONTINGENCIES
ACQUISITION AND FINANCING COMMITMENTS: In September, 1997, the Company
entered into an agreement for the purchase of a telemetry seismic data
acquisition system at a cost of approximately $5.9 million. A deposit of
approximately $586,000 has been made with the remaining amount to be paid upon
delivery of the system which is expected in March, 1998.
In December 1997, the Company commenced upgrades on one of its vessels, the
Labrador Horizon, for an estimated upgrade cost of approximately $20 million. In
March 1998, the Company completed the upgrade.
In December 1997, the Company entered into a letter of intent for the
purchase of Seismic Drilling Services, Inc., a privately-held company providing
seismic shot-hole drilling and front-end services, for a price of approximately
$5 million consisting of approximately $3.5 million cash and 98,360 shares of
the Company's common stock. This acquisition is expected to be accounted for
under the purchase method of accounting. The Company expects to complete this
transaction late in the first quarter or early in the second quarter of 1998.
In January 1998, the Company obtained a commitment, subject to
documentation, with British Linen Bank for the financing of the Labrador Horizon
upgrades and the purchase of the vessel for a total commitment of approximately
$31.3 million. The facility will bear interest at a rate of LIBOR plus 1.375%
and will require the Company to enter into a lease purchase agreement with
British Linen Bank for a period of five years commencing upon completion of the
upgrades. The facility will require a security deposit of approximately $5
million with scheduled amounts to be refunded based upon a predetermined
formula. Additionally, the Company will have the option to acquire the vessel at
the end of the lease purchase agreement for a price of .1% of the total facility
commitment.
In March 1998, the Company obtained a term loan commitment, subject to
documentation, with Fleet Capital Corporation for the financing of an Opseis
system for approximately $5.9 million. The loan will be for
F-14
<PAGE> 38
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a period of five years and will bear interest at a fixed rate equal to the
average three year treasury rate at the time of closing plus 1.75%. Monthly
payments of approximately $118,000 will be made under the loan with the Opseis
system pledged as security for the loan.
EMPLOYMENT AGREEMENTS: In connection with the completion of the Offering in
August 1997, the Company entered into employment agreements with five of its
executive officers.
LITIGATION: The Company is involved in or threatened with various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
such proceedings will have a material adverse effect on its consolidated results
of operations or financial position.
NOTE I -- EMPLOYEE BENEFIT PLANS
In July 1997, the Company adopted the Eagle Geophysical, Inc. 401k
Retirement Plan (the "Plan") which is a defined contribution plan for all
eligible employees in the United States. The Company matches employee
contributions up to specified limits and may contribute a portion of the net
profits of the Company in accordance with the Plan. For the year ended December
31, 1997, the Company incurred expense of approximately $32,000 for its matching
contributions to the Plan.
The Company provides for the retirement of its United Kingdom employees
through The Horizon Pension Plan (the "Pension Plan"). The Pension Plan provides
defined retirement benefits as defined in the Trust Deed and is managed by the
Trustees. The following table sets forth the Pension Plan and the funded status
as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................. $4,098 $5,168
Accumulated benefit obligation............................ 4,098 5,168
Projected benefit obligation.............................. 4,939 6,230
Plan assets at fair value................................... 5,969 7,271
------ ------
Plan assets in excess of projected benefit obligation....... 1,030 1,041
Unrecognized net transition asset........................... (700) (597)
Unrecognized net loss....................................... 79 159
------ ------
Prepaid pension cost........................................ $ 409 $ 603
====== ======
</TABLE>
Plan assets are invested in a unitized mixed managed fund. At December 31,
1997 approximately 82% of the fund was invested in UK and international equities
and the balance was invested in fixed interest securities or held as cash
deposits.
Net pension cost for 1995, 1996 and 1997 included the following components
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Service cost.............................................. $ 338 $ 379 $ 406
Interest cost............................................. 249 330 403
Actual return on plan assets.............................. (489) (627) (1,102)
Net amortization and deferral............................. 83 118 512
----- ----- -------
Net pension cost.......................................... $ 181 $ 200 $ 219
===== ===== =======
</TABLE>
F-15
<PAGE> 39
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The major assumptions used in computing the net pension cost were:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 9.0% 9.0% 8.5%
Expected long term rate of return on plan assets............ 9.5% 9.5% 9.0%
Rate of increase in compensation levels..................... 6.5% 6.5% 6.5%
</TABLE>
NOTE J -- RELATED PARTY TRANSACTIONS
The Company enters into various transactions with Seitel and its
subsidiaries. The Company performs seismic data acquisition services for
Seitel's seismic data library subsidiary and its exploration and production
subsidiary. For the years ended December 31, 1995, 1996 and 1997, the Company
recognized revenue of $15,391,000, $27,217,000 and $42,265,000, respectively,
for seismic data acquisition services performed for Seitel's subsidiaries. Prior
to August 11, 1997 such revenues from affiliates were based on prices charged to
unaffiliated third parties for similar work. Gross margin recognized on work for
affiliates was limited in each reporting period to the total margin percentage
earned on work for unaffiliated parties. Subsequent to August 11, 1997, revenues
from affiliates were based on agreed upon contractual amounts and terms similar
to contracts with other third party customers.
Prior to the Offering, the Company reimbursed Seitel for direct and
indirect costs of certain Seitel employees who provided services to the Company
and for other costs, primarily general and administrative expenses, related to
the Company's operations. Seitel allocated indirect costs to the Company using a
formula based on the ratio of the Company's levels of revenue, number of
personnel or other factors, as applicable, to the total consolidated Seitel
levels for such factors. Management of the Company believes that the use of such
formula resulted in a reasonable allocation of indirect costs. During the period
from January 1, 1997 to August 11, 1997, the Company recorded general and
administrative costs allocated from Seitel of $818,000. Prior to August 11,
1997, Seitel funded the Company's direct operating costs through intercompany
advances and was reimbursed for such advances with available cash. Amounts
payable to or receivable from Seitel and its subsidiaries bore interest at the
same rates which Seitel was charged or received. During the period from January
1, 1997 to August 11, 1997, the Company recorded net interest income of $404,000
related to the amounts payable to or receivable from Seitel and its
subsidiaries.
On July 22, 1997 the Company declared a dividend to Seitel for its
receivable for work performed by the Company for Seitel and its subsidiaries
prior to the Offering. On August 11, 1997, the Company settled this receivable
through a non-cash dividend which amounted to approximately $6,651,000.
Prior to the Offering, the Company leased certain marine seismic equipment
to Horizon Exploration Limited, a marine seismic company wholly-owned by ERI,
under a five-year operating rental agreement expiring June 30, 2001. For the
years ended December 31, 1995, 1996, and 1997, the Company recognized revenues
of $-0-, $828,000 and $1,783,000, respectively, related to this lease.
Subsequent to the Offering and the ERI acquisition, $694,000 of such rental
income and expense has been eliminated in the Company's consolidated results of
operations.
The Company and Seitel have entered into a number of agreements for the
purpose of defining their continuing relationship. Conflicts of interest may
arise in the future between Seitel and the Company in connection with these
agreements and other areas of their ongoing relationship. The following is a
summary of certain prospective arrangements between the Company and Seitel.
MASTER SEPARATION AGREEMENT: The Master Separation Agreement provided for
the Company and Seitel to enter into a Sublease, a Registration Rights
Agreement, a Tax Indemnity Agreement and an Administrative Services Agreement.
In addition, the Master Separation Agreement required the Company to repay
indebtedness owed by the Company and its subsidiaries to Seitel and indebtedness
owed by the Company and
F-16
<PAGE> 40
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its subsidiaries to third parties guaranteed by Seitel contemporaneously with
the consummation of the Offering. Under the Master Separation Agreement, Seitel
and its subsidiaries and the Company and its subsidiaries have indemnified each
other with respect to liabilities arising in connection with the operations of
their respective businesses prior to and after the date of consummation of the
Offering including liabilities under the Securities Act with respect to the
Offering. The Master Separation Agreement also provides for continued access by
the Company to historical financial and operational information relating to the
Company and its subsidiaries maintained by Seitel.
SUBLEASE: The Sublease between the Company and Seitel provides for the
Company to lease its principal corporate offices, comprising approximately 7,600
square feet, from Seitel for a term of three years at an annual rent of
approximately $85,000. The Sublease also provides for the Company to utilize
certain shared office equipment, such as phone systems and central computer
systems, for an additional charge.
REGISTRATION RIGHTS AGREEMENT: Pursuant to the Registration Rights
Agreement, the Company has agreed to register the offer and sale by Seitel on a
delayed and continuous basis from time to time of the shares of common stock
owned by Seitel after the Offering at the expense of the Company.
TAX INDEMNITY AGREEMENT: Prior to the Offering, the Company was a member of
the Seitel affiliated group and filed its tax returns on a consolidated basis
with such group. After the Offering, the Company is no longer a member of the
Seitel affiliated group. The Company and Seitel have entered into a Tax
Indemnity Agreement to define their respective rights and obligations relating
to federal, state and other taxes for periods before and after the Offering.
Pursuant to the Tax Indemnity Agreement, the Company is required to pay Seitel
(to the extent not already paid) its share of federal income taxes prior to the
date of consummation of the Offering, and is responsible for federal income
taxes from its operations on and after the date of the Offering. Any subsequent
refunds, additional taxes or penalties or other adjustments relating to the
Company's federal income taxes for periods prior to the date of consummation of
the Offering shall be for the benefit of or be borne by Seitel. Similar
provisions apply under the Tax Indemnity Agreement to other taxes, such as state
and local income taxes.
ADMINISTRATIVE SERVICES AGREEMENT: Seitel and the Company entered into an
Administrative Services Agreement pursuant to which Seitel provides the Company
with administrative services, primarily accounting services, at or up to the
same levels as provided prior to the Offering. Seitel provided these services
for a 90-day transition period after the Offering to allow the Company adequate
time to build an internal administrative staff. The Company paid Seitel
approximately $5,500 for these services at Seitel's actual cost of providing
these services for the year ended December 31, 1997.
NOTE K -- MAJOR CUSTOMERS
During each of the years ended December 31, 1995, 1996 and 1997, certain
customers accounted for 10% or more of the Company's consolidated revenue as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Affiliated companies, wholly-owned subsidiaries of Seitel:
Seitel Data, Ltd......................................... 14% 28% 46%
DDD Energy Inc........................................... 39% 29% 8%
Unaffiliated companies, one each year...................... 22% 20% --
</TABLE>
The Company extends credit to various companies in the oil and gas industry
for the acquisition of 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
F-17
<PAGE> 41
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nature of the companies to which they extend credit. Historical credit losses as
a percentage of total revenues have been immaterial.
NOTE L -- FOREIGN OPERATIONS
Prior to the Offering, the Company's principal operations were in the
United States. With the completion of the ERI Acquisition, the Company's
principal operations are in both Europe and the United States. Financial
information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Operating revenues:
United States................................ $29,275 $48,136 $ 70,185
Europe and other areas....................... -- -- 8,876
------- ------- --------
Total operating revenues.................. $29,275 $48,136 $ 79,061
======= ======= ========
Operating Income:
United States................................ $ 5,415 $10,539 $ 15,998
Europe and other areas....................... -- -- 2,255
------- ------- --------
Total operating income.................... 5,415 10,539 18,253
Depreciation and amortization............. 2,471 3,409 8,584
General corporate expense................. -- -- 2,070
Net interest and other expense............ 408 531 205
------- ------- --------
Income before provision for income
taxes................................... $ 2,536 $ 6,599 $ 7,394
======= ======= ========
Identifiable Assets:
United States................................ $17,960 $26,721 $ 47,568
Europe and other areas....................... -- -- 66,668
------- ------- --------
Total Identifiable assets................. 17,960 26,721 114,236
Corporate assets.......................... -- -- 10,069
------- ------- --------
Total assets.............................. $17,960 $26,721 $124,305
======= ======= ========
</TABLE>
F-18
<PAGE> 42
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------- -----------
<S> <C> <C> <C> <C>
1996
Revenues................................. $ 5,974 $11,777 $12,138 $18,247
Operating costs and expenses............. 4,697 9,412 9,660 13,828
(excluding depreciation and
amortization)
Depreciation and amortization............ 657 640 1,018 1,094
Interest and other....................... 136 158 167 70
Income before income taxes............... 484 1,567 1,293 3,255
Net income applicable to common shares... 306 993 819 2,061
Net income per common
share -- basic(1)...................... $ .09 $ .29 $ .24 $ .61
Net income per common
share -- diluted(1).................... $ .09 $ .29 $ .24 $ .61
1997
Revenues................................. $12,981 $15,785 $25,216 $25,079
Operating costs and expenses............. 9,736 12,608 20,451 20,083
(excluding depreciation and
amortization)
Depreciation and amortization............ 1,302 1,470 2,613 3,199
Interest and other....................... 158 (124) 646 (475)
Income before income taxes............... 1,785 1,831 1,506 2,272
Net income applicable to common shares... 1,130 1,160 913 1,197
Net income per common
share -- basic(1)...................... $ .33 $ .34 $ .14 $ .14
Net income per common
share -- diluted(1).................... $ .33 $ .34 $ .14 $ .14
</TABLE>
- ---------------
(1) The sum of 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.
F-19
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation, as amended (incorporated by
reference to the Company's Registration Statement, as
amended, on Form S-1, No. 333-28303, as filed with the
Securities and Exchange Commission on June 2, 1997 (the
"Registration Statement"))
3.2 -- Amended and Restated Bylaws (incorporated by reference to
the Registration Statement)
4.1 -- Specimen Certificate for Registrant's common stock, par
value $0.01 (incorporated by reference to the
Registration Statement)
10.1.1 -- Loan and Security Agreement dated July 9, 1996, between
Seitel Geophysical, Inc., as Debtor, and Nationsbanc
Leasing Corporation of North Carolina, as Secured Party
(incorporated by reference to the Registration Statement)
10.1.2 -- Assumption and Consent dated December 31, 1996, among
Seitel Geophysical, Inc., Eagle Geophysical, Inc.,
Nationsbanc Leasing Corporation of North Carolina and
Seitel, Inc. (incorporated by reference to the
Registration Statement)
10.2 -- Loan and Security Agreement dated February 6, 1997,
between Eagle Geophysical, Inc., as Debtor, and
Nationsbanc Leasing Corporation of North Carolina, as
Secured Party (incorporated by reference to the
Registration Statement)
10.3 -- Conditional Sales Agreement dated February 19, 1997,
between Input/Output, Inc. and Horizon Exploration
Limited ("HEL") (incorporated by reference to the
Registration Statement)
10.4.1 -- Installment Note ($306,180) by HEL in favor of Teledyne
Brown Engineering Marine Products (incorporated by
reference to the Registration Statement)
10.4.2 -- Promissory Note ($330,000) by HEL in favor of Teledyne
Industries, Inc. (incorporated by reference to the
Registration Statement)
10.5.1 -- Loan and Security Agreement dated February 22, 1996,
between Seitel Geophysical, Inc. and MetLife Capital
Corporation (incorporated by reference to the
Registration Statement)
10.5.2 -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.6.1 -- Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. and MetLife Capital,
Limited Partnership, as amended (incorporated by
reference to the Registration Statement)
10.6.2 -- Assignment and Assumption Agreement dated December 31,
1996 between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.7.1 -- Master Lease Agreement dated February 16, 1994 between
McCullagh Leasing (a unit of GE Capital Fleet Services)
and Seitel Geophysical, Inc., as amended (incorporated by
reference to the Registration Statement)
10.7.2 -- Partial Assignment dated April 8, 1997 among Seitel
Geophysical, Inc., Eagle Geophysical, Inc. and GE Capital
Fleet Services (incorporated by reference to the
Registration Statement)
10.8 -- Term Credit and Security Agreement dated July 15, 1993,
between Seitel Geophysical, Inc. and Compass Bank (f/k/a
Central Bank of the South), as amended (incorporated by
reference to the Registration Statement)
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9.1 -- Bareboat Charter by Way of Subdemise dated July 15, 1994,
between Simon-Horizon Limited ("Simon") and HEL
(incorporated by reference to the Registration Statement)
10.9.2 -- Management Agreement dated December 19, 1990 between
Simon and Ervik Marine Services A/S ("Ervik")
(incorporated by reference to the Registration Statement)
10.9.3 -- Side Letter Agreement dated December 19, 1990, between
Simon and Ervik (incorporated by reference to the
Registration Statement)
10.9.4 -- Assignment Agreement Relating to a Ship Management
Agreement dated December 19, 1990 (as amended) dated July
15, 1990, between Simon and HEL (incorporated by
reference to the Registration Statement)
10.9.5 -- Deed of Assignment of Insurances dated July 15, 1994,
between HEL and Simon (incorporated by reference to the
Registration Statement)
10.9.6 -- Deed of Continuing Inter-Company Cross Guarantee and
Indemnity dated July 15, 1994, by Horizon Seismic Inc.,
Exploration Holdings Limited and HEL in favor of Simon,
Simon Petroleum Technology Limited and Simon Engineering
Plc (incorporated by reference to the Registration
Statement)
10.9.7 -- Sublease Contract Number 1 dated July 15, 1994, between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.9.8 -- Sublease Contract Number 2 dated July 15, 1994, between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.9.9 -- Agreement dated July 15, 1994, among Simon, Simon
Petroleum Technology Limited, Simon Engineering Plc and
HEL (incorporated by reference to the Registration
Statement)
10.9.10 -- Charterparty by Way of Sub-Demise dated December 20,
1996, between Royal Bank of Scotland and Simon
(incorporated by reference to the Registration Statement)
10.9.11 -- Addendum to Charterparty dated March 31, 1992, between
Royal Bank of Scotland and Simon (incorporated by
reference to the Registration Statement)
10.9.12 -- Quadripartite Agreement dated August 18, 1994, among
Simon, Royal Bank of Scotland (Industrial Leasing)
Limited, HEL and Simon Engineering plc (incorporated by
reference to the Registration Statement)
10.9.13 -- Master Leasing Agreement dated July 15, 1994 between
Simon and HEL (incorporated by reference to the
Registration Statement)
10.10 -- Contribution and Assumption Agreement dated December 31,
1996, between Seitel Geophysical, Inc. and Eagle
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.11.1 -- Agreement to Extend the Charterparty of "Pacific Horizon"
dated July 11, 1994, by and between J. Marr Limited and
HEL (incorporated by reference to the Registration
Statement)
10.11.2 -- Deed of Novation m.v. "Pacific Horizon" dated July 11,
1994, by and among Simon, J. Marr Limited and HEL
(incorporated by reference to the Registration Statement)
10.11.3 -- Pacific Horizon Charter dated February 4, 1981, between
J. Marr and Son, Limited and HEL (incorporated by
reference to the Registration Statement)
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Employment Agreement between Exploration Holdings Limited
("EHL") and Gerald Harrison, as amended (incorporated by
reference to the Registration Statement)
10.13 -- Employment Agreement between EHL and George Purdie, as
amended (incorporated by reference to the Registration
Statement)
10.14 -- Employment Agreement between EHL and Neil A.M. Campbell,
as amended (incorporated by reference to the Registration
Statement)
10.15* -- Form of Employment Agreement Amendment between EHL and
each of Messrs. Harrison, Purdie and Campbell dated
August 11, 1997
10.16* -- Employment Agreement between Eagle Geophysical, Inc. and
Jay Silverman dated August 11, 1997
10.17 -- Employment Agreement between Eagle Geophysical, Inc. and
Richard McNairy (incorporated by reference to the
Registration Statement)
10.18 -- Commercial Lease dated March 10, 1994, between Ron Chase
dba Chase Properties and Eagle Geophysical, Inc./Seitel
Geophysical, Inc. (incorporated by reference to the
Registration Statement)
10.19 -- Modification and Ratification of Lease dated April 24,
1996, between Ron Chase dba Chase Properties and Eagle
Geophysical, Inc./Seitel Geophysical, Inc. (incorporated
by reference to the Registration Statement)
10.20 -- Lease dated May 28, 1996, between Partnership of
Perkins-Guidry-Beazley-Ostteen and Seitel Geophysical,
Inc. (incorporated by reference to the Registration
Statement)
10.21* -- Sublease between Seitel, Inc. and its subsidiaries and
Eagle Geophysical, Inc. dated August 11, 1997
10.22* -- Master Separation Agreement between Seitel, Inc. and
Eagle Geophysical, Inc. dated August 11, 1997
10.23* -- Registration Rights Agreement between EHI Holdings, Inc.
and Eagle Geophysical, Inc. dated August 11, 1997
10.24* -- Tax Indemnity Agreement between Seitel, Inc. and Eagle
Geophysical, Inc. dated August 11, 1997
10.25* -- Administrative Services Agreement between Seitel, Inc.
and Eagle Geophysical, Inc. dated August 11, 1997
10.26 -- Amended and Restated Promissory Note ($2,000,000) dated
July 3, 1996 by Energy Research International ("ERI") in
favor of Seitel, Inc. (incorporated by reference to the
Registration Statement)
10.27 -- Promissory Note ($2,679,040) dated November 15, 1996 by
ERI in favor of Seitel, Inc. (incorporated by reference
to the Registration Statement)
10.28* -- Bonus Agreement between Eagle Geophysical, Inc. and Paul
A. Frame dated August 11, 1997
10.29 -- Outside Directors Deferred Compensation Plan
(incorporated by reference to the Registration Statement)
10.30 -- Independent Directors Stock Option Plan (incorporated by
reference to the Registration Statement)
10.31 -- Stock Option Plan (incorporated by reference to the
Registration Statement)
10.32.1 -- Promissory Note payable by Jay Silverman to Eagle
Geophysical, Inc. dated July 23, 1997 (incorporated by
reference to the Registration Statement)
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.32.2 -- Subscription Agreement between Eagle Geophysical, Inc.
and Jay N. Silverman dated July 23, 1997 (incorporated by
reference to the Registration Statement)
10.32.3 -- Security Agreement -- Pledge between Eagle Geophysical,
Inc. and Jay N. Silverman dated July 23, 1997
(incorporated by reference to the Registration Statement)
10.33.1 -- The Bank of N.T. Butterfield Term Loan Facility dated
February 27, 1995 (incorporated by reference to the
Registration Statement)
10.33.2 -- The Bank of N.T. Butterfield & Son Limited Facility
Letter dated August 23, 1994 (incorporated by reference
to the Registration Statement)
10.33.3 -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 1 dated February 3, 1995 (incorporated by
reference to the Registration Statement)
10.33.4 -- The Bank of N.T. Butterfield & Son Limited Amendment
Letter No. 2 dated February 19, 1996 (incorporated by
reference to the Registration Statement)
10.33.5 -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 10, 1996 (incorporated by reference to the
Registration Statement)
10.33.6 -- The Bank of N.T. Butterfield & Son Limited Letter dated
May 19, 1997 (incorporated by reference to the
Registration Statement)
10.34.1 -- Abshire Tide Blanket Time Charter dated February 9, 1996,
between Tidewater Marine, Inc. and Horizon Seismic Inc.
(incorporated by reference to the Registration Statement)
10.34.2 -- Letter Agreement dated February 12, 1996 relating to
Abshire Tide Blanket Time Charter (incorporated by
reference to the Registration Statement)
10.34.3 -- Tidewater Marine letter to Horizon Seismic, Inc. dated
September 19, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide (incorporated by reference to the
Registration Statement)
10.34.4 -- Tidewater Marine letter to Horizon Seismic, Inc. dated
March 25, 1996 regarding the letter agreement dated
February 12, 1996 governing the Time Charter of the MV
Abshire Tide (incorporated by reference to the
Registration Statement)
10.35.1 -- Supplemental Security Agreement No. One dated February
22, 1996 between Seitel Geophysical, Inc. and MetLife
Capital Corporation (incorporated by reference to the
Registration Statement)
10.35.2 -- Term Promissory Note ($433,000) dated March 14, 1996, by
Seitel Geophysical, Inc. in favor of MetLife Capital
Corporation (incorporated by reference to the
Registration Statement)
10.36 -- Service Agreement for MV Discoverer dated April 12, 1994,
between Horizon Seismic, Inc. and Shanghai Bureau of
Marine Geological Survey, as amended (incorporated by
reference to the Registration Statement)
10.37 -- Underlease dated April 21, 1997, between Payless
Properties Limited and HEL (incorporated by reference to
the Registration Statement)
10.38 -- Lease Agreement between Pincay Oaks, Inc. and HEL
(incorporated by reference to the Registration Statement)
10.39 -- Lease dated February 1, 1997, between Tuscan Property
Developments Limited and HEL (incorporated by reference
to the Registration Statement)
10.40 -- Set-off and Charge dated August 30, 1994, between HEL and
The Bank of N.T. Butterfield & Son Limited (incorporated
by reference to the Registration Statement)
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.41 -- Deed relating to 6 Pembroke Road Sevenoaks Kent dated
August 25, 1993, between Marley Waterproofing Limited and
HEL (incorporated by reference to the Registration
Statement)
10.42 -- Debenture dated August 12, 1994, between HEL and The Bank
of N.T. Butterfield & Son Limited (incorporated by
reference to the Registration Statement)
10.43 -- Chattel Mortgage between HEL and The Bank of N.T.
Butterfield & Son Limited (incorporated by reference to
the Registration Statement)
10.44 -- Stock Purchase Agreement dated June 2, 1997, among Gerald
Harrison, George Purdie, Neil Campbell, David Burns,
Oliveira Limited, Dormera Limited, Balmedie Limited,
Larlane Limited and Eagle Geophysical, Inc. (incorporated
by reference to the Registration Statement)
10.45 -- Operating Lease of Marine Seismic Equipment dated as of
July 1, 1996, between Seismic Geophysical, Inc. and HEL
(incorporated by reference to the Registration Statement)
10.46 -- Assignment between HEL and The Bank of NT Butterfield &
Sons Limited (incorporated by reference to the
Registration Statement)
10.47 -- Letter of Hypothecation and Pledge dated August 30, 1994,
between Seismic Exploration Ltd. and The Bank of N.T.
Butterfield & Son Limited (incorporated by reference to
the Registration Statement)
10.48 -- Lease Agreement dated January 7, 1997, between DigiCOURSE
INC. and HEL (incorporated by reference to the
Registration Statement)
10.49 -- Lease Agreement dated March 27, 1997, between DigiCOURSE
INC. and HEL (incorporated by reference to the
Registration Statement)
10.50 -- Initial Definitive Trust Deed -- Horizon Pension Plan
(incorporated by reference to the Registration Statement)
10.51 -- Operating Lease dated February 3, 1997, between Eagle
Geophysical, Inc. and HEL (incorporated by reference to
the Registration Statement)
10.52 -- Contribution Agreement dated as of May 30, 1997, between
Seitel, Inc. and Eagle Geophysical, Inc. (incorporated by
reference to the Registration Statement)
10.53 -- Assignment of Life Insurance dated December 9, 1993
insuring G.M. Harrison (incorporated by reference to the
Registration Statement)
10.54 -- Lease dated December 12, 1995, between Newington Bricks
Limited and HEL (incorporated by reference to the
Registration Statement)
10.55 -- Lease dated August 25, 1993, between Marley Waterproofing
Limited and HEL (incorporated by reference to the
Registration Statement)
10.56 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and Seitel Data, Ltd.
(incorporated by reference to the Registration Statement)
10.57 -- Master Agreement for Geophysical Services by and between
Eagle Geophysical Onshore, Inc. and DDD Energy, Ltd.
(incorporated by reference to the Registration Statement)
10.58* -- Employee Benefits Allocation Agreement between Seitel,
Inc. and Eagle Geophysical, Inc. dated August 11, 1997
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.59* -- Revolving Credit Agreement dated October 21, 1997 between
Bank One, Texas, N.A. ("Bank") and Eagle Geophysical,
Inc. ("Eagle"), Eagle Geophysical Onshore, Inc.
("Onshore"), Eagle Geophysical Offshore, Inc.
("Offshore"), Eagle Geophysical de Mexico, Inc. ("de
Mexico"), and Eagle Geophysical GOM, Inc. ("GOM," and
collectively with Eagle, Onshore, Offshore and de Mexico,
"Borrowers")
10.60* -- Promissory Note in the original principal amount of
$20,000,000 dated October 21, 1997 payable to the order
of Bank, made by Borrowers
10.61* -- Form of Security Agreement dated October 21, 1997 between
Bank and each of Eagle, Onshore, Offshore deMexico GOM
10.62* -- Revolving Credit Agreement between Bank and HEL
10.63* -- Promissory Note in the original principal amount of
$20,000,000 dated October 21, 1997 payable to the order
of Bank, made by HEL
10.64* -- Charge on Receivables dated October 21, 1997 between Bank
and HEL
10.65* -- Guaranty dated October 21, 1997 by Eagle Geophysical,
Inc. to Bank
23* -- Report of KPMG Independent Public Accountants, for the
financial statements of ERI for the period from August
11, 1997 to December 31, 1997
27* -- Financial data schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 49
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, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON THE 26TH OF MARCH, 1998.
EAGLE GEOPHYSICAL, INC.
By: /s/ JAY N. SILVERMAN
-----------------------------------
Jay N. Silverman
President
By: /s/ RICHARD W. MCNAIRY
-----------------------------------
Richard W. McNairy
Chief Financial Officer
By: /s/ DAVID H. SAINDON
-----------------------------------
David H. Saindon
Chief Accounting Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ WILLIAM L. LURIE Chairman of the Board of March 26, 1998
- ----------------------------------------------------- Directors
(William L. Lurie)
/s/ JAY N. SILVERMAN President and Chief Executive March 26, 1998
- ----------------------------------------------------- Officer,
(Jay N. Silverman)
/s/ GERALD M. HARRISON Executive Vice President, March 26, 1998
- ----------------------------------------------------- Director
(Gerald M. Harrison)
/s/ GEORGE PURDIE Senior Vice President-Offshore March 26, 1998
- ----------------------------------------------------- Operations, Director
(George Purdie)
/s/ PAUL A. FRAME Director March 26, 1998
- -----------------------------------------------------
(Paul A. Frame)
/s/ PAUL G. SOMERVILLE Director March 26, 1998
- -----------------------------------------------------
(Paul G. Somerville)
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT AMENDMENT EXHIBIT 10.15
This Employment Agreement Amendment ("Amendment") is entered into this 11th
day of August, 1997, by and between Exploration Holdings Limited (the "Company")
and ___________ ("Executive").
Recitals
WHEREAS, the Company and Executive have previously entered into a Service
Agreement for Senior Directors relating to the employment of Executive by the
Company, which has been amended by an Employment Agreement Amendment dated July
3, 1996 (as so amended, the "Agreement");
WHEREAS, Executive and the Company have agreed to enter into this Amendment
and hereby amend certain terms of the Agreement as set forth herein;
Agreement
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, the parties hereby agree as follows:
1. Executive and the Company hereby agree that the warrants to purchase up
to 5,555 ordinary shares of US$0.001 of Energy Research International, a Cayman
Islands corporation and the parent corporation of the Company, at a price of
US$300.03 per ordinary share, granted to the Executive on July 3, 1996 pursuant
to the Agreement are hereby cancelled.
2. Executive is hereby granted stock options to purchase up to 75,000
shares of Common Stock, $0.01 par value per share, of Eagle Geophysical, Inc., a
Delaware corporation and the ultimate parent corporation of the Company
("Eagle"), pursuant to Eagle's stock option plan at a price per share equal to
the initial public offering price of such stock pursuant to Eagle's initial
public offering being consummated on or about the date hereof. Such stock
options shall vest in cumulative installments of one-third of the total shares
subject thereto on each of the first, second and third anniversaries of the date
hereof and will expire ten years from the date of grant or such earlier date as
may be specified pursuant to Eagle's stock option plan. In addition, any such
options that are not vested as of any date on which the Company terminates the
Executive's employment not in accordance with this Agreement shall become fully
vested on the date of such termination.
3. The annual review date set forth in paragraph 7 of the Terms and
Conditions of Employment, Particulars, is hereby amended to be each subsequent
anniversary of the date hereof.
4. Subsection 1.4.2 of the Agreement is hereby amended to read in its
entirety as follows:
"1.4.2 the relocation shall be within England or the United States
of America; provided, however, any such relocation to the
United States shall be only
<PAGE> 2
with the consent of Executive, which consent may not be
unreasonably withheld by the Executive."
5. Subsection 5.2 of the Agreement is hereby amended to read in its
entirety as follows:
"5.2 Any change in salary will be made at the Company's absolute
discretion; provided, however in no event may the salary be
reduced below the Salary reflected as item 6 of the Terms &
Conditions of Employment attached as a part of the Agreement."
6. The Company Executive Incentive Scheme contemplated in paragraph 13.1 of
the Agreement is hereby amended for the calendar year ending December 31, 1997
to provide that the Executive shall be entitled to receive an amount equal to
50% of his base salary for such year under the Scheme if and only if the
Operating Profit Margin (as defined in Paragraph 13.2 of the Agreement) of the
Marine Business (as defined in Paragraph 13.2 of the Agreement) for such year
equals or exceeds 24% of revenues from the Marine Business.
7. Section 13 of the Agreement is hereby amended by adding a new paragraph
13.2 thereto as follows:
13.2 Additional Incentive Bonus
13.2.1 Additional Incentive Bonus. The Executive shall receive
additional incentive bonuses, if earned,with respect to the
fiscal years ending during the Term pursuant to Subsection
13.2.3 and/or 13.2.4 (each an "Additional Incentive Bonus");
provided, however, that no Additional Incentive Bonus for a
fiscal year shall be payable if the Net After-Tax Profits (as
hereinafter defined) for such fiscal year do not exceed Base
Profits (as hereinafter defined).
13.2.2 Definitions.
"Base Profits" shall mean 5% of gross revenues from the Marine
Business.
"Chief Financial Officer" means the chief financial officer of
Eagle Geophysical.
"Eagle Geophysical" means Eagle Geophysical, Inc., a Delaware
corporation and the indirect parent corporation of the Company.
"Marine Business" means the marine seismic data acquisition
business of the Company and its wholly owned subsidiaries
and of any other company that is a direct or indirect wholly
owned subsidiary of Eagle Geophysical.
2
<PAGE> 3
"Net After-Tax Profits" shall, for the purposes hereof, mean
the amount of net profits of the Marine Business calculated
by the Chief Financial Officer applying U.S. GAAP and such
other accounting principles and assumptions as may be
reasonable and taking into account expenses attributable to
allocable overhead (based on revenues) from all other
companies controlled by or under common control with the
Company engaged in the Marine Business and of such
companies' parent corporation(s), and subtracting therefrom
all income tax liabilities attributable to the Marine
Business.
"Operating Profit Margin" means the amount of revenue less
cost of sales of the Marine Business calculated by the Chief
Financial Officer applying U.S. GAAP and such other
accounting principles and assumptions as may be reasonable.
13.2.3 Applicable Percentage Bonus. If Net After-Tax Profits for a
fiscal year exceed Base Profits for such fiscal year, the
Executive shall receive an Additional Incentive Bonus (in
addition to any Additional Incentive Bonus pursuant to
Subsection 13.2.4) equal to the Applicable Percentage set
forth in the table below multiplied by the difference
between actual Net After-Tax Profits and Base Profits.
Net After-Tax Profits
(percent of gross revenues) Applicable Percentage
------------------------------ ---------------------
greater than 5%, but less than 2.0%
or equal to 6%
greater than 6%, but less than 2.5%
or equal to 7%
greater than 7% 3.0%
13.2.4 Significant Increase in Revenues Bonus. If Net After-Tax
Profits for a fiscal year after 1997 exceed Base Profits for
such fiscal year, and if gross revenues of the Marine
Business for such fiscal year increase by an amount of 20%
or more as compared to the gross revenues of the Marine
Business for the previous fiscal year, the Executive shall
receive an Additional Incentive Bonus equal to 3% multiplied
by the excess, if any, of the Net After-Tax Profits for such
fiscal year over the greater of (i) the Net After-Tax
Profits for the prior fiscal year or (ii) Base Profits for
the prior fiscal year.
13.2.5 Payment of Additional Incentive Bonus. The Chief Financial
Officer shall calculate the Net After-Tax Profits, and any
Additional Incentive Bonus payable to the Executive in
connection therewith, shall certify such calculations and
shall deliver such calculations to the Executive as soon as
reasonably practicable after the end of each fiscal year,
but in any event
3
<PAGE> 4
within seventy-five (75) days following the end of such
fiscal year. Any Additional Incentive Bonus payable
hereunder shall be paid by the Company to the Executive
within seven (7) days of delivery of such calculations by
the Chief Financial Officer and in any event within
eighty-two (82) days following the end of the applicable
fiscal year.
8. Section 28 of the Agreement is hereby amended to read in its
entirety as follows:
"28. DISPUTES
28.1 Arbitration. Any dispute, difference or question ("Dispute") between
Executive and the Company ("Disputing Parties"), arising with respect
to the Agreement or Executive's employment under the Agreement that is
not resolved promptly by the Disputing Parties shall be resolved by
binding arbitration as follows. In the event the Parties are unable to
resolve the Dispute within 14 days following written notice from one
Disputing Party to the other setting forth the basis of the Dispute,
then either Disputing Party may request that the Dispute be settled by
binding arbitration by an arbitrator mutually acceptable to the
Disputing Parties in an arbitration proceeding conducted in Houston,
Texas in accordance with the rules existing at the date hereof of the
American Arbitration Association. If the Disputing Parties hereto
cannot agree on an arbitrator within ten (10) business days of the
initiation of the arbitration proceeding, an arbitrator shall be
selected for the Disputing Parties by the American Arbitration
Association. The Disputing Parties shall use their reasonable best
efforts to have the arbitration proceeding concluded and a judgment
rendered by the arbitrator within forty (40) business days of the
initiation of the arbitration proceeding. The decision of such
arbitrator shall be final, and judgment upon the award rendered by the
arbitration may be entered in any court having jurisdiction thereof,
and the costs (including, without limitation, reasonable fees and
expenses of counsel and experts for the Disputing Parties) of such
arbitration (including the costs to enforce or preserve the rights
awarded in the arbitration) shall be borne by the Disputing Party whom
the decision of the arbitrator is against. If the decision of the
arbitrator is not clearly against one of the Disputing Parties or the
decisions of the arbitrator is against more than one Disputing Party
on one or more issues, the costs of such arbitration shall be borne
equally by the Disputing Parties.
28.2 Consent to Jurisdiction; Venue. The parties hereto agree that all
actions relating to the enforcement of this Section or any award
rendered hereunder, and over which the United States federal courts
have subject matter jurisdiction, shall be litigated, if at all,
exclusively in the United States District Court for the Southern
District of Texas, Houston Division, and, if necessary, the
corresponding appellate courts. The parties further agree that all
actions relating to the enforcement of this Section or any award
rendered hereunder, and over which the United States federal courts do
not have subject matter jurisdiction, shall be litigated, if at all,
exclusively in the Courts of the State of Texas, in Harris County,
and, if necessary, the corresponding appellate courts. Each party
hereto hereby submits itself to the personal jurisdiction of, and
4
<PAGE> 5
consents to venue in, any such court, and hereby waives any claim it
may otherwise have that such court lacks personal jurisdiction over
it, or that such court is an inconvenient forum, with respect to any
such matter or proceeding. Each party hereto further agrees to
voluntarily appear and to enter a general appearance in any such
proceeding which is brought in any such court. Executive hereby
appoints Carolyn Campbell and/or Griggs & Harrison, P.C. of Houston,
Texas as its agent for service of process in any such matter or
proceeding."
28.3 Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the United Kingdom, without regard to
the conflicts of laws provisions thereunder.
9. Except as specifically amended hereby, the terms and provisions
of the Agreement shall continue in full force and effect.
SIGNED as a Deed )
by the Company )
acting by its )
-------------
SIGNED as a Deed )
by the Executive )
5
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of August
11, 1997, by and between EAGLE GEOPHYSICAL, INC., a Delaware corporation (the
"Company"), and JAY N. SILVERMAN (the "Executive").
The Company desires to employ the Executive and the Executive desires to
accept employment with the Company, on the terms and conditions of this
Agreement.
Accordingly, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment by the Company and Duties. The Company hereby agrees
to employ the Executive for a term commencing on the effective date (the "IPO
Date") of the initial public offering of the Company's common stock (the
"IPO"), and expiring at the end of the day three (3) years from the IPO Date
(such date, or later date to which this Agreement is extended in accordance
with the terms hereof, the "Termination Date"), unless earlier terminated as
provided in Section 4 or unless extended as provided herein (the "Term"). The
Term shall be automatically extended commencing on the Termination Date and on
each Termination Date thereafter (each such date being a "Renewal Date"), so as
to terminate one (1) year from such Renewal Date, unless and until at least
ninety (90) days prior to a Renewal Date either party hereto gives written
notice to the other that the Term should not be further extended after the next
Renewal Date, in which event the Termination Date shall be the Renewal Date
following such notice. Notwithstanding the foregoing or anything herein to the
contrary, this Agreement shall terminate and the parties shall have no further
rights or obligations with respect hereto if the IPO is not effective on or
before December 31, 1997. During the Term, the Executive shall serve in the
capacity of President of the Company, and shall also serve in those offices and
directorships of subsidiary corporations or entities of the Company to which he
may from time to time be appointed or elected. During the Term, the Executive
shall devote all reasonable efforts and all of his business time and services
to the Company, subject to the direction of the Board of Directors of the
Company (the "Board"). The Executive shall not engage in any other business
activities except for passive investments in corporations or partnerships not
engaged in the Company Business (as hereinafter defined) pursuant to Section 3
hereof.
1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.
2. Compensation and Other Benefits.
2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than two hundred sixty thousand dollars ($260,000)
per year (the "Annual Salary"),
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<PAGE> 2
subject to increase at the sole discretion of the Board; provided, however,
that the Annual Salary shall be increased effective as of January 1 of each
year during the Term at a minimum by a percentage equal to the percentage
increase in the Consumer Price Index (Urban - Houston Metropolitan Area) for
the previous calendar year. The Annual Salary shall be payable in accordance
with the payroll policies of the Company as from time to time in effect, but in
no event less frequently than once each month, less such deductions as shall be
required to be withheld by applicable law and regulations.
2.2 Incentive Bonuses.
2.2.1 Base Incentive Bonus. The Executive shall receive an
incentive bonus, if earned, with respect to each fiscal quarter ending during
the Term (the "Base Incentive Bonus"), equal to twenty-five percent (25%) of
the Annual Salary in effect during such quarter; provided, however, that the
Base Incentive Bonus for a fiscal quarter shall only be payable if the Gross
Margin (as hereinafter defined) for such fiscal quarter equals or exceeds 17%.
2.2.2 Additional Incentive Bonus. The Executive shall receive
an additional incentive bonus, if earned, with respect to the fiscal years
ending during the Term (the "Additional Incentive Bonus"); provided, however,
that an Additional Incentive Bonus for a fiscal year shall only be payable if
the Company earns Pre-Tax Profits (as hereinafter defined) for such fiscal
year. The Base Incentive Bonus and Additional Incentive Bonus are hereinafter
collectively referred to as the "Incentive Bonuses."
2.2.3 Definitions.
"Chief Financial Officer" means the chief financial
officer of the Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Gross Margin" means the amount of revenues less all
expenses except for depreciation, amortization, interest, taxes and overhead of
the Onshore Business calculated by the Chief Financial Officer applying such
accounting principles and assumptions as may be reasonable.
"Pre-Tax Profits" means the amount of pre-tax profits of
the Company calculated by the Chief Financial Officer applying generally
accepted accounting principles and such other accounting principles and
assumptions as may be reasonable.
"Onshore Business" means the onshore seismic data
acquisition business conducted by the Company and any company or other entity
that is a direct or indirect wholly owned subsidiary of the Company (including
any profits allocated to the Company or any such subsidiary through its
participation in or ownership of an interest in a partnership, venture,
corporation or other entity).
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<PAGE> 3
2.2.4 Calculation of Additional Incentive Bonus. If the Company
earns Pre-Tax Profits for a fiscal year, the Executive shall receive an
Additional Incentive Bonus equal to the Applicable Percentage set forth in the
table below of the Pre-Tax Profits.
<TABLE>
<CAPTION>
Pre-Tax Profits
(percent of gross revenues) Applicable Percentage
- --------------------------- ---------------------
<S> <C>
greater than 0%, but less than 10% 4%
equal to or greater than 10% 5%
</TABLE>
2.2.5 Payment of Incentive Bonuses. The Chief Financial Officer
shall calculate the Gross Margin and Pre-Tax Profits, if any, and any Base
Incentive Bonus and Additional Incentive Bonus payable to the Executive in
connection therewith, shall certify such calculations and shall deliver such
calculations to the Executive and the Chairman of the Compensation Committee of
the Company (for his review and approval) as soon as reasonably practicable
after the end of each fiscal quarter, in the case of the Base Incentive Bonus,
and the end of each fiscal year, in the case of the Base Incentive Bonus and
Additional Incentive Bonus, but in any event within seventy-five (75) days
following the end of the applicable fiscal period. Any Base Incentive Bonus
and Additional Incentive Bonus payable hereunder shall be paid by the Company
to the Executive within fifteen (15) days of delivery of such calculations by
the Chief Financial Officer and in any event within ninety (90) days following
the end of the applicable fiscal period.
2.2.6 Proration of Bonuses.
2.2.6.1 For purposes of determining the Base Incentive
Bonus payable to Executive hereunder attributable to the Company's fiscal
quarter ending September 30, 1997, the amount of such bonus will equal twenty-
five percent (25%) of the Annual Salary in effect during such quarter
multiplied by a fraction, the numerator of which is the number of days during
the period beginning on the IPO Date and ending on the last day of such quarter
(such period being referred to herein as the "Calculation Period") and the
denominator of which is the total number of days in such quarter; provided,
however, that the Base Incentive Bonus for the fiscal quarter ending September
30, 1997 shall only be payable if the Gross Margin during the Calculation
Period equals or exceeds 17%.
2.2.6.2 Executive shall be entitled to a payment of a
Base Incentive Bonus for the fiscal quarter of the Company during which the
Termination Date occurs (the "Termination Quarter"), calculated in accordance
with this subsection 2.2.6.2. For purposes of determining the Base Incentive
Bonus payable to Executive hereunder attributable to the Termination Quarter,
the amount of such bonus will equal twenty-five percent (25%) of the Annual
Salary in effect at the beginning of the Termination Quarter multiplied by a
fraction, the numerator of which is the number of days during the period
beginning on the first day of the Termination Quarter and ending on the
Termination Date and the denominator of which is the number of days in the
Termination Quarter; provided, however, that the Base Incentive Bonus for the
Termination
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<PAGE> 4
Quarter shall only be payable if the Gross Margin during the Termination
Quarter equals or exceeds 17%.
2.2.6.3 For purposes of determining the Additional
Incentive Bonus payable to Executive hereunder attributable to the Company's
fiscal year ending December 31, 1997, the amount of Pre-Tax Profits and gross
revenues used for the calculation pursuant to subsection 2.2.4 above will be
only those Pre-Tax Profits and gross revenues attained by the Company during
the period beginning on the IPO Date and ending on December 31, 1997.
2.2.6.4 Executive shall be entitled to a payment of an
Additional Incentive Bonus for any fiscal year of the Company during which the
Termination Date occurs (the "Termination Year"), calculated in accordance with
this subsection 2.2.6.4. For purposes of determining the Additional Incentive
Bonus payable to Executive hereunder attributable to the Termination Year, the
amount of the Additional Incentive Bonus will be equal to the amount otherwise
determined pursuant to subsection 2.2.4 for the Termination Year multiplied by
a fraction, the numerator of which is the number of days from the beginning of
the Termination Year to the Termination Date and the denominator of which is
365.
2.3 Grant of Option. The Company agrees to grant the Executive,
pursuant to the terms of the Company's Option Plan (the "Option Plan") created
in connection with the IPO, options to acquire one hundred fifty thousand
(150,000) shares of the Company's common stock (the "Options"), at an exercise
price equal to the offering price of the common stock of the Company sold
pursuant to the IPO (the "IPO Price"). The options shall vest over a period of
three years, with Options to acquire 50,000 shares vesting on each of the first
three anniversaries of the IPO Date, subject to the terms of the Option Plan.
The Company agrees to use all reasonable efforts, consistent with the
foregoing, to ensure that the maximum number of Options permitted by applicable
law meet all requirements for treatment as Incentive Stock Options under the
Code, and that the grant of the Options meets the requirements of Rule 16b-3,
promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended.
2.4 Vacation Policy. The Executive shall be entitled to a paid
vacation of four weeks during each year of the Term.
2.5 Participation in Employee Benefit Plans. The Company agrees to
permit the Executive during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, similar benefit plan or other so called "fringe
benefits" of the Company (collectively, "Benefits") which may be available to
other executives of the Company on terms no less favorable to the Executive
than the terms offered to such other executives. The Company agrees to use its
best efforts to obtain immediate coverage for the Executive upon the
commencement of the Term under its existing or newly adopted medical expense
and hospitalization plan for employees without premium surcharge and without
exclusions for disclosed preexisting conditions. The Company shall obtain a
ten year level term life insurance policy insuring the life of the Executive in
the amount of one million dollars, with beneficiaries designated pursuant to
the Executive's instructions. The Company also shall provide
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<PAGE> 5
disability insurance for the Executive, which shall provide for payments based
on 60% of the total compensation paid to the Executive for the prior fiscal
year upon his disability. For purposes of the foregoing sentence, the total
compensation of the Executive shall be no less than the Annual Salary and no
more than one million dollars. The Executive shall cooperate with the Company
in applying for such coverage, including submitting to a physical exam and
providing all relevant health and personal data.
2.6 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of ve employees prior
to making such payments or reimbursements.
2.7 Company Car and Cellular Telephone. The Company shall pay the
Executive a car allowance of nine hundred and no/100 Dollars ($900.00) per
month, which the Executive may apply, in his discretion, to the cost associated
with purchasing or leasing and insuring an automobile of the Executive's
choice. The Executive may use the automobile for personal as well as business
purposes. The Company shall also furnish the Executive with a cellular
telephone of his choice and the Company shall pay all charges in connection
with the use thereof, other than charges for calls not related to the
Executive's duties hereunder.
2.8 Company Loan to the Executive.
2.8.1 Loan and Purchase of Shares. The Executive shall purchase
twenty-five thousand (25,000) shares of the Company's common stock (the
"Executive Shares") at the IPO Price (as estimated by the Company) prior to the
IPO. The Company shall loan (the "Loan") to the Executive an amount equal to
the total purchase price of such shares (25,000 multiplied by the estimated IPO
Price) (the "Loan Amount"). After the IPO, the purchase price of the Executive
Shares shall be adjusted to the actual IPO Price, and the Loan Amount shall be
adjusted to reflect such IPO Price. The Loan Amount shall accrue interest at
the rate of 6% per annum, which interest shall be payable quarterly by the
Executive to the Company as such interest accrues. The principal of the Loan
shall be payable in sixty (60) equal monthly payments beginning on the third
anniversary of the date of the Loan. All amounts payable in connection with
the Loan shall be payable by the Executive to the Company on or before the
fifth day of the month in which such payment is due. In any event, all
outstanding principal and interest payable pursuant to the Loan shall be
payable by the Executive to the Company on or before the eighth anniversary of
the date of the Loan. The Company shall have a contractual right of set-off of
any amounts payable by the Company to the Executive for any and all liabilities
or obligations of the Executive to the Company.
2.8.2 Pledge and Acceleration. The Loan shall be secured by a
pledge of the Executive Shares, and the Executive shall deliver to the Company
an executed Security Agreement - Pledge (in a form reasonably satisfactory to
the Company and the Executive), an executed Stock Power and the Executive
Shares contemporaneously with the Loan and the acquisition of the Executive
Shares. The Loan shall be fully recourse against the Executive;
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<PAGE> 6
provided, however, that if the Executive is terminated by the Company without
Cause (as hereinafter defined), including constructive termination without
Cause pursuant to Section 4.6 hereof, the Loan shall become recourse only to
the Executive Shares, and upon any default by the Executive in repayment of the
Loan, any proceeds from the sale of the Executive Shares in excess of the
amounts owed by the Executive to the Company shall be paid by the Company to
the Executive, pursuant to the terms of the Security Agreement - Pledge.
Notwithstanding the payment terms set forth in Section 2.8.1 hereof, all unpaid
principal and accrued and unpaid interest under the Loan shall become
immediately due and payable upon the occurrence of (i) the termination of the
Executive's employment hereunder with Cause pursuant to Section 4.2 hereof, or
(ii) the termination of this Agreement by the Executive pursuant to Section 4.4
hereof.
2.9 Section 162(m) Compensation Deferral. Notwithstanding anything
herein to the contrary, if the total compensation payable to the Executive by
the Company during any year would cause the Company to lose the federal income
tax deduction for any portion of such compensation under Section 162(m) of the
Code: (a) the amount of compensation payable by the Company to the Executive
during such year shall be reduced to the maximum amount for which the Company
may receive a current deduction under Section 162(m) of the Code, and (b) the
excess of such compensation shall be deferred and paid by the Company to the
Executive (without interest) at such time (whether during the Term or after the
expiration of the Term) as the Company may pay such deferred compensation to
the Executive and receive a corresponding federal income tax deduction under
Section 162(m) of the Code.
2.10 Excess Parachute Savings Clause. Notwithstanding anything
herein to the contrary, if any portion of the amount payable to the Executive
by the Company under this Section 2 or any other provision of this Agreement,
or any other amount payable to the Executive pursuant to any other agreement
with or plan of the Company that would constitute a "parachute payment" (in the
aggregate, the "Total Payments"), would constitute an "excess parachute
payment," then the payments to be made to the Executive under this Agreement
shall be reduced, without any further action by the Company or the Executive,
such that the value of the Total Payments that Executive is entitled to receive
shall be One Dollar ($1.00) less than the maximum amount which the Executive
may receive without becoming subject to the tax imposed by Section 4999 of the
Code, or which the Company may pay without loss or deduction under Section
280G(a) of the Code. For purposes of this Agreement, the terms "excess
parachute payment" and "parachute payment" shall have the meanings assigned to
them in Section 280G of the Code, and such "parachute payments" shall be valued
as provided therein.
2.11 Increase of Executive's Responsibilities. If, by virtue of
merger, consolidation or acquisition, (i) there is a substantial increase in
the assets or revenues of the Company and a corresponding substantial increase
in the responsibilities of the Executive or (ii) there is a direct and material
adverse effect on the bonuses otherwise payable to Executive pursuant to this
agreement, the Company agrees to evaluate whether an adjustment to the
compensation payable to the Executive pursuant to this Agreement is appropriate
to properly compensate the Executive.
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<PAGE> 7
3. Non-Competition, Confidentiality and Company Property.
3.1 Covenants Against Competition. The Executive acknowledges that
(i) the Company is currently engaged in the business of owning, managing and
operating seismic data acquisition equipment and hiring and managing crews to
operate such equipment, which equipment and crews are contracted or hired for
the purpose of performing geological surveys and acquiring seismic data onshore
and offshore (the "Company Business"); (ii) his work for the Company will give
him access to trade secrets of and confidential information concerning the
Company; and (iii) the agreements and covenants contained in this Agreement are
essential to protect the business and goodwill of the Company. Accordingly,
the Executive covenants and agrees as follows:
3.1.1 Non-Compete. As an independent covenant, and in order to
enforce the provision of Sections 3.1.2 through 3.1.6 hereof and the other
provisions of this Agreement, the Executive agrees that he shall not during the
Restricted Period (as hereinafter defined) within a two hundred (200) mile
radius of any office maintained by the Company within one year prior to the end
of the Term, including, without limitation, the office address specified from
time to time pursuant to Section 7.2 hereof and any field offices, directly or
indirectly (except in the Executive's capacity as an officer of the Company),
(i) engage or participate in the Company Business; (ii) enter the employ of, or
render any other services to, any person engaged in the Company Business except
as permitted hereunder; or (iii) become interested in any such person in any
capacity, including, without limitation, as an individual, partner,
shareholder, lender, officer, director, principal, agent or trustee except as
permitted hereunder; provided, however, that the Executive may own, directly or
indirectly, solely as an investment, securities of any person traded on any
national securities exchange or listed on the National Association of
Securities Dealers Automated Quotation System if the Executive is not a
controlling person of, or a member ofve does not, directly or indirectly, own
5% or more of any class of equity securities, or securities convertible into or
exercisable or exchangeable for 5% or more of any class of equity securities,
of such person. As used herein, and in Sections 3.1.2 and 3.1.6 the
"Restricted Period" shall mean a period commencing on the date hereof and
terminating upon the first to occur of (a) the date on which the Company
terminates or is deemed to terminate the Executive's employment without Cause
(as hereinafter defined), (b) the date the Executive terminates or is deemed to
terminate his employment pursuant to Section 4.6 hereof or (c) the date of
termination of this Agreement; provided, however, that if the Company shall
have terminated the Executive's employment for Cause and such Cause in fact
exists or if the Executive shall have terminated his employment with the
Company in breach of the terms of this Agreement, the Restricted Period shall
end one (1) year following the termination of the Executive's employment
hereunder.
3.1.2 Customers. As an independent covenant, the Executive also
agrees to refrain during the Restricted Period, without written permission from
the Company, from diverting, taking, soliciting and/or accepting on his own
behalf or on the behalf of another person, firm, or company, the business of
any past or present customer of the Company, its divisions, subsidiaries and/or
other affiliated entities, or any identified prospective or potential customer
of the Company, its divisions, subsidiaries and/or affiliated entities, whose
identity became known to the Executive through his employment by the Company.
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<PAGE> 8
3.1.3 Confidential Information.
3.1.3.1 The Executive acknowledges that the Company has a
legitimate and continuing proprietary interest in the protection of its
confidential information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. The Company agrees to provide the Executive access
to confidential information in conjunction with the Executive's duties,
including, without limitation, information of a technical and business nature
regarding the Company's past, current or anticipated business that may
encompass financial information, financial figures, trade secrets, customer
lists, details of client or consultant contracts, pricing policies, operational
methods, marketing plans or strategies, product development techniques or
plans, business acquisition plans, Company employee information, organizational
charts, new personnel acquisition plans, technical processes, designs and
design projects, inventions and research projects, ideas, discoveries,
inventions, improvements, trade secrets, design specifications, writings and
other works of authorship. In exchange, as an independent covenant, the
Executive agrees not to make any unauthorized use, publication, or disclosure,
during or subsequent to his employment by the Company, of any Intellectual
Property of a confidential or trade secret nature, generated or acquired by him
during the course of his employment, except to the extent that the disclosure
of Intellectual Property Information is necessary to fulfill his
responsibilities as an employee of the Company. The Executive understands that
confidential matters and trade secrets include information not generally known
by or available to the public about or belonging to the Company, its divisions,
subsidiaries, and related affiliates, or belonging to other companies to whom
the Company, its divisions, subsidiaries, and related affiliates, may have an
obligation to maintain information ine may only be obtained through the
Company's written consent.
3.1.3.2 The Executive further agrees not to disclose to
the Company, or induce any personnel of the Company to use, any confidential
information, trade secret, or confidential material belonging to others.
3.1.3.3 The Executive agrees that the covenants set forth
in Sections 3.1.3.1 and 3.1.3.2 are independent covenants and indefinite
obligations binding upon the Executive both during and after the termination of
the Executive's relationship with the Company.
3.1.4 Property of the Company. All memoranda, notes, lists,
records, engineering drawings, technical specifications and related documents
and other documents or papers (and all copies thereof) relating to the Company,
including such items stored in computer memories, microfiche or by any other
means, made or compiled by or on behalf of the Executive after the date hereof,
or made available to the Executive after the date hereof relating to the
Company, its affiliates or any entity which may hereafter become an affiliate
thereof, shall be the property of the Company, and shall be delivered to the
Company promptly upon the termination of the Executive's employment with the
Company or at any other time upon request; provided, however, that the
Executive's address books, diaries, chronological correspondence files and
rolodex files shall be deemed to be property of the Executive.
-8-
<PAGE> 9
3.1.5 Original Material. The Executive agrees that any
inventions, discoveries, improvements, ideas, concepts or original works of
authorship relating directly to the Company Business, including without
limitation information of a technical or business nature such as ideas,
discoveries, designs, inventions, improvements, trade secrets, know-how,
manufacturing processes, product formulae, design specifications, writings and
other works of authorship, computer programs, financial figures, marketing
plans, customer lists and data, business plans or methods and the like, which
relate in any manner to the actual or anticipated business or the actual or
anticipated areas of research and development of the Company and its divisions,
subsidiaries, affiliates, or related entities, whether or not protectable by
patent or copyright, that have been originated, developed or reduced to
practice by the Executive alone or jointly with others during the Executive's
employment with the Company shall be the property of and belong exclusively to
the Company. The Executive shall promptly and fully disclose to the Company
the origination or development by the Executive of any such material and shall
provide the Company with any information that it may reasonably request about
such material. Either during the subsequent to the Executive's employment,
upon the request and at the expense of the Company or its nominee, and for no
remuneration in addition to that due the Executive pursuant to his employment
by the Company, but at no expense to him, the Executive agrees to execute,
acknowledge, and deliver to the Company or its attorneys any and all
instruments which, in the judgment of the Company or its attorneys, may be
necessary or desirable to secure or maintain for the benefit of the Company
adequate patent, copyright, and other property rights in the United States and
foreign countries with respect to any such inventions, improvements, ideas,
concepts, or original works of authorship embraced within this Agreement.
3.1.6 Employees of the Company and its Affiliates. As an
independent covenant, the Executive agrees to refrain during the restricted
Period from inducing or attempting to influence any employee of the Company,
its divisions, subsidiaries and/or affiliated entities to terminate his
employment.
3.1.7ees that these covenants are made to protect the legitimate business
interests of the Company, including interests in the Company's property
described in and pursuant to Section 3.1.4 and Section 3.1.5, and not to
restrict his mobility or to prevent him from utilizing his general technical
skills. The Executive understands as a part of these covenants that the
Company intends to exercise whatever legal recourse against him for any breach
of this Agreement and, in particular, for any breach of these covenants.
3.2 Rights and Remedies Upon Breach. If the Executive breaches, any
of the provisions contained in Section 3.1 of this Agreement (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity:
3.2.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any
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<PAGE> 10
breach of the Restrictive Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy to the
Company.
3.2.2 Accounting. The right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive as
the result of any action constituting a breach of the Restrictive Covenants.
3.3 Severability of Covenants. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect without regard to the invalid portions.
3.4 Court Review. If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographical scope of, or scope of activities restrained by, such provision,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
3.5 Enforceability in Jurisdictions. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of such
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scopof any other jurisdiction within the geographical scope of such Restrictive
Covenants, as to breaches of such Restrictive Covenants in such other
respective jurisdictions, such Restrictive Covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
4. Termination.
4.1 Termination Upon Death. If the Executive dies during the Term,
this Agreement shall terminate; provided, however, that in any such event, the
Company shall pay to the Executive's estate any portion of the Annual Salary
and any fully-earned Incentive Bonuses that shall have been earned by the
Executive prior to the termination but not yet paid, any Benefits that have
vested in the Executive at the time of such termination as a result of his
participation in any of the Company's benefit plans shall be paid to the
Executive, or to his estate or designated beneficiary, in accordance with the
provisions of such plan; and the Company shall reimburse the Executive, or his
estate, for any expenses with respect to which the Executive is entitled to
reimbursement pursuant to Section 2.6 of this Agreement, and the Executive's
right to indemnification, payment or reimbursement pursuant to Section 6 of
this Agreement shall not be affected by such termination and shall continue in
full force and effect, both with respect to proceedings that are threatened,
pending
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<PAGE> 11
or completed at the date of such termination and with respect to proceedings
that are threatened, pending or completed after that date.
4.2 Termination With Cause. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this Agreement
and discharge the Executive with Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited solely to the payment of
unpaid Annual Salary accrued, together with earned but unpaid Incentive
Bonuses, if any, and Benefits vested up to the effective date specified in the
Company's notice of termination. As used in this Agreement, the term "Cause"
shall mean and include (i) chronic alcoholism or controlled substance abuse as
determined by a doctor mutually acceptable to the Company and the Executive,
(ii) an act of proven fraud or dishonesty on the part of the Executive with
respect to the Company or its subsidiaries; (iii) knowing and material failure
by the Executive to comply with materiao the business of the Company or its
subsidiaries; (iv) the Executive's material and continuing failure to perform
(as opposed to unsatisfactory performance) his duties hereunder or a material
breach by the Executive of this Agreement except, in each case, where such
failure or breach is caused by the illness or other similar incapacity or
disability of the Executive; or (v) conviction of a crime involving moral
turpitude or a felony. Prior to the effectiveness of termination for Cause
under subclause (i), (ii), (iii) or (iv) above, the Executive shall be given 30
days' prior notice from the Board specifically identifying the reasons which
are alleged to constitute Cause for any termination hereunder and an
opportunity to be heard by the Board in the event the Executive disputes such
allegations.
4.3 Termination Without Cause. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective on or after the date of service of such notice as
specified therein, to terminate the Executive's employment under this Agreement
and discharge the Executive without Cause. If the Executive is terminated
during the Term without Cause (including any termination which is deemed to be
a constructive termination without Cause under Section 4.6 hereof), the
Company's obligation to the Executive shall be limited solely to (i) loss of
the Company's recourse against the Executive for amounts owed in connection
with the Loan (pursuant to Section 2.8 hereof), (ii) vesting of all stock
options granted to the Executive by the Company, and (iii) the payment, at the
times and upon the terms provided for herein, of (a) two times the average of
the total compensation paid by the Company to the Executive for the three
previous years (or, if this Agreement has been in effect for less than three
years at the time of such termination, the total compensation earned by the
Executive during such period divided by the number of) and (b) any unpaid
Incentive Bonuses and Benefits awarded or accrued up to the date of
termination. In the event of a termination by the Company without Cause within
180 days after a Change of Control (as hereinafter defined), including a
constructive termination without Cause pursuant to Section 4.6, the amounts due
to the Executive pursuant to this Section 4.3 shall be due and payable in one
lump-sum payment within 60 days after such termination. In all other cases,
any amounts due to the Executive pursuant to this Section 4.3 shall be due and
payable in twenty-four (24) equal monthly payments beginning thirty (30) days
after the date of termination.
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<PAGE> 12
4.4 Termination by the Executive. Any termination of this Agreement
by the Executive during the Term, except such termination as is deemed to be a
constructive termination without Cause by the Company under Section 4.6 of this
Agreement, shall be deemed to be a breach of the terms of this Agreement for
the purposes of Section 3.1.1 hereof and shall entitle the Company to
discontinue payment of all Annual Salary, Incentive Bonuses and Benefits not
earned and payable prior to the date of such termination.
4.5 Termination upon Disability. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to perform
his services hereunder for (i) a period of four consecutive months, or (ii) for
shorter periods aggregating six months during any twelve-month period, the
Company may at any time after the last day of the four consecutive months of
disability or the day on which the shorter periods of disability equal an
aggregate of six months, by written notice to the Executive, terminate the
Executive's employment hereunder and discontinue payments of the Annual Salary,
Incentive Bonuses and Benefits accruing from and after the date of such
termination. The Executive shall be entitled to the full compensation payable
to him hereunder for periods of disability shorter than the periods specified
in clauses (i) and (ii) of the previous sentence.
4.6 Constructive Termination Without Cause. Notwithstanding any other
provision of this Agreement, the Executive's employment under this Agreement
may be terminated during the Term by the Executive, which shall be deemed to be
constructive termination by the Company without Cause, if one of the following
events shall occur without the consent of the Executive: (i) a failure to elect
or reelect or to appoint or reappoint the Executive to the office of President
of the Company or other material change by the Company of the Executive's
functions, duties or responsibilities which change would reduce the ranking or
level, dignity, responsibility, importance or scope of the Executive's position
with the Company from the position and attributes thereof described in Section
1 above; (ii) the assignment or reassignment by the Company of the Executive to
a location not within 35 miles of the Company's current location; (iii) the
liquidation, Company, or transfer of all or substantially all of its assets,
other than a transaction in which a successor corporation with a net worth
substantially the same as or greater than that of the Company assumes this
Agreement and all obligations and undertakings of the Company hereunder; (iv) a
reduction in the Executive's fixed salary or change by the Company without the
consent of the Executive in the method of determining the Executive's annual
bonus that results in a reduction of such annual bonus; (v) the failure of the
Company to continue to provide the Executive with office space, related
facilities and secretarial assistance that are commensurate with the
Executive's responsibilities to and position with the Company; (vi) the
notification by the Company of the Company's intention not to observe or
perform one or more of the obligations of the Company under this Agreement;
(vii) the failure by the Company to indemnify, pay or reimburse the Executive
at the time and under the circumstances required by Section 6 of this
Agreement; or (viii) the occurrence of any other material breach of this
Agreement by the Company or any of its subsidiaries. Any such termination
shall be made by written notice
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<PAGE> 13
to each member of the Board, specifying the event relied upon for such
termination and given within 60 days after such event. Any constructive
termination shall be effective 60 days after the date the Chairman of the Board
has been given such written notice setting forth the grounds for such
termination with specificity; provided, however, that the Executive shall not
be entitled to terminate this Agreement in respect of any of the grounds set
forth above if within 60 days after such notice the action constituting such
ground for termination has been cured and is no longer continuing. A
constructive termination by the Company without Cause shall terminate the
Restrictive Period hereunder.
4.7 Change of Control. For the purposes hereof, a "Change of Control
of the Company" shall be deemed to have occurred if after the IPO Date (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act,
directly or indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company's then outstanding securities
without the prior approval of at least a majority of the members of the Board
in office immediately prior to such person attaining such percentage interest;
(ii) there occurs a proxy contest or a consent solicitation, or the Company is
a party to a merger, consolidation, sale of assets, plan of liquidation or
other reorganization not approved by at least a majority of the members of the
Board in office, as a consequence of which members of the Board in office
immediately prior to such transaction or event constitute less than a majority
of the Board thereafter; or (iii) during any period of two consecutive years,
other than as a result of an event described in clause (ii) of this Section
4.7, individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board.
5. Insurance. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or one or more of
its affiliates as the designated beneficiary (which it may change from time to
time), policies for life, health, accident, disability or other insurance upon
the Executive in any amount or amounts that it may deem necessary or
appropriate to protect its interest. The Executive agreto medical examinations
and by filling out, executing and delivering such applications and other
instruments in writing as may reasonably be required by an insurance company or
companies to which any application or applications for insurance may be made by
or for the Company.
6. Indemnification.
6.1 The Company shall, to the maximum extent not prohibited by law,
indemnify the Executive if he is made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Company to procure a judgment in its favor (collectively, a
"Proceeding"), by reason of the fact that the Executive is or was a director or
officer of the Company, or is or was serving in any capacity at the request of
the Company for any other
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<PAGE> 14
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against judgments, fines, penalties, excise taxes, amounts paid in
settlement and costs, charges and expenses (including attorneys' fees and
disbursements) paid or incurred in connection with any such Proceeding.
6.2 The Company shall, from time to time, reimburse or advance to the
Executive the funds necessary for payment of expenses, including attorneys'
fees and disbursements, incurred in connection with any Proceeding in advance
of the final disposition of such Proceeding; provided, however, that, if
required by the Texas Business Corporation Act, such expenses incurred by or on
behalf of the Executive may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Company of an undertaking, by or on behalf
of the Executive, to repay any such amount so advanced if it shall ultimately
be determined by final judicial decision from which there is no further right
of appeal that the Executive is not entitled to be indemnified for such
expenses.
6.3 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 6 shall not be
deemed exclusive of any other rights which the Executive may now or hereafter
have under any law, by law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
6.4 The right to indemnification and reimbursemenontinue as to the
Executive after he has ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Executive.
6.5 The Company shall purchase and maintain director and officer
liability insurance on such terms and providing such coverage as the Board
determines is appropriate, and the Executive shall be covered by such insurance
on the same basis as the other directors and executive officers of the Company.
6.6 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 6 shall be
enforceable by the Executive in any court of competent jurisdiction. The
burden of proving that such indemnification or reimbursement or advancement of
expenses is not appropriate shall be on the Company. Neither the failure of
the Company (including its board of directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that such indemnification or reimbursement or advancement of
expenses is proper in the circumstances nor an actual determination by the
Company (including its board of directors, independent legal counsel, or its
stockholders) that the Executive is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that the Executive is not so entitled. The
Executive shall also be indemnified for any expenses incurred in connection
with successfully establishing his right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
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<PAGE> 15
6.7 If the Executive serves (i) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held by the Company, or (ii) any employee benefit plan of the Company or any
corporation referred to in clause (i), in any capacity, then he shall be deemed
to be doing so at the request of the Company.
6.8 The right to indemnification or reimbursement or advancement of
expenses shall be interpreted on the basis of the applicable law in effect at
the time of the occurrence of the event or events giving rise to the applicable
Proceeding.
7. Other Provisions.
7.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not
include any stockholder or director of the Company, as such.
(ii) "person" means any individual, corporation, partnership,
firm, joint Company, association, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other
entity.
(iii) "subsidiary" means any corporation 50% or more of the voting
securities of which are owned directly or indirectly by the Company.
7.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission
or, if mailed, on the date of actual receipt thereof, as follows:
(i) if to the Company, to:
Eagle Geophysical, Inc.
50 Briar Hollow Lane
West Building, 6th Floor
Houston, Texas 77027
Attention: Chairman, Board of Directors
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<PAGE> 16
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attention: N. L. Stevens III
(ii) if to the Executive, to:
Jay N. Silverman
50 Briar Hollow Lane
West Building, 6th Floor
Houston, Texas 02777
Any party may change its address for notice hereunder by notice to the other
party hereto.
7.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto.
7.4 Waivers and Amendments. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof Nor shall any waiver on the part of any party of any such right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof) where the employment of the Executive shall
be deemed, in part, to be performed and enforcement of this Agreement or any
action taken or held with respect to this Agreement shall be taken in the
courts of appropriate jurisdiction in Houston, Texas.
7.6 Assignment. This Agreement, and any rights and obligations
hereunder, may not be assigned by the Executive and may be assigned by the
Company (subject to Section 4.6 (iii) hereof) only to a successor by merger or
purchasers of substantially all of the assets of the Company.
7.7 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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<PAGE> 17
7.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
7.9 No Presumption Against Interest. This Agreement has been
negotiated, drafted, edited and reviewed by the respective parties, and
therefore, no provision arising directly or indirectly herefrom shall be
construed against any party as being drafted by said party.
7.10 Validity Contest. The Company shall promptly pay any and all
legal fees and expenses incurred by the Executive from time to time as a direct
result of the Company's contesting the due execution, authorization, validity
or enforceability of this Agreement.
7.11 Dispute Resolution. If any dispute arises out of or relates to
this Agreement, or the breach thereof, Executive and the Company agree to
promptly negotiate in good faith to resolve such dispute. If the dispute
cannot be settled by the parties through negotiation, Executive and the Company
agree to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association before
resorting to arbitration, litigation or any other dispute resolution procedure.
If the parties are unable to settle the dispute by mediation as provided in the
preceding sentence, any claim, controversy or dispute arising out of or
relating to this Agreement, or the breach thereof, shall be settled by binding
arbitration before a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted in Houston, Harris County, Texas, or such other
location to which the parties mutually agree. The decision of the
arbitrator(s) shall be final and binding and judgment upon the award rendered
may be entered in any court having jurisdiction thereof. The costs of
mediation and arbarties.
7.12 Binding Agreement. This Agreement shall inure to the benefit of
and be binding upon the Company and its respective successors and assigns and
the Executive and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EXECUTIVE
/s/ Jay N. Silverman
------------------------------------------
Jay N. Silverman
COMPANY
EAGLE GEOPHYSICAL, INC.
By: /s/ Richard W. McNairy
---------------------------------------
Richard W. McNairy, Vice President -
Chief Financial Officer
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<PAGE> 1
Exhibit 10.21
SUBLEASE AGREEMENT
by and between
Seitel, Inc. and its subsidiaries
(collectively, "Sublessor")
and
Eagle Geophysical, Inc.
("Subtenant")
and
50 B.H., Inc.
("First Landlord")
dated as of the 11th day of August, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Sublease of Subleased Premises...................................................................... 2
Section 1.1 Subleased Premises........................................................................ 2
Section 1.2 Habendum Clause........................................................................... 2
ARTICLE II. Term............................................................................................... 2
ARTICLE III. Rent.............................................................................................. 2
ARTICLE IV. Additional Expenses; Services; Parking............................................................. 3
Section 4.1 Additional Expenses....................................................................... 3
Section 4.2 Services.................................................................................. 3
Section 4.3 Parking................................................................................... 4
ARTICLE V. Use of Premises; Construction of Improvements....................................................... 4
Section 5.1 Use of Subleased Premises and Common Areas................................................ 4
Section 5.2 Construction of Improvements.............................................................. 4
ARTICLE VI. Assumption Agreement and Covenants................................................................. 4
Section 6.1 Assumption of Assumed Provisions.......................................................... 4
Section 6.2 Indemnity................................................................................. 5
Section 6.3 Superior Matters.......................................................................... 5
Section 6.4 Evidence of Performance of Assumed Provisions............................................. 5
Section 6.5 No Preferential Rights.................................................................... 5
ARTICLE VII. Limitation of Liability and Indemnity............................................................. 5
Section 7.1 Indemnity and Release..................................................................... 5
Section 7.2 Release from Acts and Omissions of First Landlord and Third Parties....................... 6
Section 7.3 Insurance................................................................................. 6
Section 7.4 Casualty or Condemnation.................................................................. 7
Section 7.5 Asbestos.................................................................................. 7
ARTICLE VIII. Condition of Subleased Premises.................................................................. 7
ARTICLE IX. No Subleasing by Subtenant......................................................................... 7
ARTICLE X. Furniture and Fixtures.............................................................................. 8
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI. Events of Default and Remedies..................................................................... 8
Section 11.1 Events of Default........................................................................ 8
Section 11.2 Remedies................................................................................. 9
Section 11.3 No Surrender............................................................................. 9
Section 11.4 Liability of Subtenant Upon Termination.................................................. 9
Section 11.5 Liability of Subtenant Upon Repossession................................................. 10
Section 11.6 Additional Obligations of Subtenant Upon Default......................................... 10
Section 11.7 No Obligation to Relet................................................................... 10
Section 11.8 Sublessor's Right to Remedy Defaults..................................................... 10
Section 11.9 Tenant's Remedies........................................................................ 10
ARTICLE XII. Miscellaneous Provisions.......................................................................... 11
Section 12.1 Texas Law to Apply....................................................................... 11
Section 12.2 Parties Bound............................................................................ 11
Section 12.3 Legal Construction....................................................................... 11
Section 12.4 Prior Agreements Superseded.............................................................. 11
Section 12.5 Attorneys' Fees.......................................................................... 11
Section 12.6 Nonwaiver................................................................................ 11
Section 12.7 Brokers.................................................................................. 12
Section 12.8 Notices.................................................................................. 12
Section 12.9 Surrender of Subleased Premises.......................................................... 12
Section 12.10 No Partnership.......................................................................... 13
Section 12.11 No Filing of Lease or Memorandum........................................................ 13
Section 12.11 Signage................................................................................. 13
ARTICLE XIII. Security Deposit................................................................................. 13
ARTICLE XIV. Joinder by First Landlord......................................................................... 14
</TABLE>
EXHIBITS
Exhibit "A" - Floor Plan of 50 Briar Hollow Lane, 6th Floor West
Exhibit "B" - Parking Space Allocation
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<PAGE> 4
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is made as of the 11th day of
August, 1997, among Seitel, Inc., a Delaware corporation ("Seitel"), Seitel Gas
& Energy, Inc., a Delaware corporation and wholly owned subsidiary of Seitel
("SG&E"), and Seitel Management, Inc., a Delaware corporation and wholly owned
subsidiary of Seitel ("Seitel Management," and collectively with Seitel and
SG&E, "Sublessor"), Eagle Geophysical, Inc., a Delaware corporation
("Subtenant"), and 50 B.H., Inc. ("First Landlord").
Recitals
A. By Lease Agreement dated February 27, 1992 by and between Seitel and
First Landlord, First Landlord leased to Sublessor certain space in 50 Briar
Hollow, West Building (the "Building"), an office building located at 50 Briar
Hollow Lane, Houston, Harris County, Texas.
B. Said Lease Agreement has been amended from time to time including,
without limitation, by that certain First Amendment to Lease Agreement dated
effective July 12, 1993, that certain Second Amendment to Lease Agreement dated
effective February 2, 1994, that certain Third Amendment to Lease Agreement
dated effective April 24, 1995, and an agreement terminating such lease as of
August 31, 1997, each by and between First Landlord and Seitel (collectively,
the "Amendments"). Said Lease Agreement, as amended from time to time including
by the Amendments, and as it may be further amended from time to time, is herein
referred to as the "Seitel Leases."
C. By Lease Agreement dated April 24, 1995, and an agreement
terminating such lease as of August 31, 1997, by and between SG&E and First
Landlord, First Landlord leased to SG&E certain space in the Building (as so
amended, the "SG&E Leases").
D. By Lease Agreement dated July 9, 1997, by and between Seitel
Management and First Landlord, First Landlord leased to Seitel Management,
effective September 1, 1997, the space in the Building previously leased by
Seitel and SG&E under the Seitel Leases and the SG&E Leases (the "Seitel
Management Lease").
E. The Seitel Leases, the SG&E Leases, and the Seitel Management Lease
are herein called the "First Leases." The portion of the Building leased to
Sublessor under the First Leases is herein called the "Leased Premises."
F. Sublessor, Subtenant and First Landlord desire that Sublessor
sublease to Subtenant approximately 7,581 rentable square feet of space on the
6th floor of the Building ("Subleased Premises"), the Subleased Premises being
depicted on the Floor Plan of the 6th floor of the Building attached hereto as
Exhibit "A."
<PAGE> 5
Agreement
In consideration of the Recitals, the covenants set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Sublessor, Subtenant and First Landlord hereby agree as
follows:
ARTICLE I.
Sublease of Subleased Premises
Section 1.1 Subleased Premises. Sublessor, in consideration of the
rents, covenants, agreements and conditions herein set forth which Subtenant
hereby agrees shall be paid, kept and performed, does hereby sublease unto
Subtenant, and Subtenant does hereby rent and sublease from Sublessor, the
Subleased Premises, containing approximately 7,581 square feet of net rentable
area, subject to all encumbrances and other matters affecting the Subleased
Premises.
Section 1.2 Habendum Clause. TO HAVE AND TO HOLD the Subleased
Premises, together with all and singular the rights and privileges appurtenant
thereunto attaching or in anywise belonging, exclusively unto Subtenant and its
successors and assigns (to the extent permitted herein), for the term set forth
in Article II hereof, subject to termination as herein provided and all
encumbrances and other matters affecting the Subleased Premises and subject to
and upon the covenants, agreements, terms, provisions and limitations herein set
forth.
ARTICLE II.
Term
The term of this Sublease shall commence on the date of the Closing of
Subtenant's initial public offering of its common stock. The date upon which the
term of this Sublease commences shall be herein called the "Commencement Date."
This Sublease shall terminate, unless sooner terminated pursuant to the
provisions hereof, on the earlier of (i) August 31, 2000, (ii) termination of
any of the First Leases (unless such termination was caused by a default by
Subtenant under this Sublease or any of the Assumed Provisions, as hereinafter
defined), or (iii) termination of Sublessor's right to possession of the Leased
Premises under the First Leases (unless such termination was caused by a default
by Subtenant under this Sublease or any of the Assumed Provisions).
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ARTICLE III.
Rent
The rent for the Subleased Premises shall be payable in advance on the
Commencement Date and on the first day of each month thereafter throughout the
term of this Sublease. Each monthly installment shall be in the amount of
Seitel's total monthly rental payments under the First Leases multiplied by a
fraction, the numerator of which is the square footage within the Subleased
Premises and the denominator of which is the total square footage of the Leased
Premises under the First Leases. Such rent shall include any and all adjustments
and escalation payments Seitel is obligated to pay under the First Leases. All
unpaid rent under the Sublease shall be due upon termination of this Sublease.
The rent payable hereunder shall be payable to Seitel, without notice or demand
and without deduction, abatement or setoff, in lawful money of the United
States, at the address of Seitel set forth in the notice provision of this
Sublease. If the Commencement Date or the last date of the term of this Sublease
should be on any day other than the first or last date of a calendar month,
respectively, then the rent for such month shall be made on a pro rata basis for
the part of such month included within the term of this Sublease. All past due
installments of rent shall bear interest at the highest non-usurious rate
permitted by law from the date due until paid and, at Sublessor's option, shall
be subject to a late charge in the amount of five percent (5%) of the amount
past due if the same is more than five (5) days past due.
ARTICLE IV.
Additional Expenses; Services; Parking
Section 4.1 Additional Expenses. In addition to paying rent as set
forth in Article III, Subtenant shall pay its pro rata share of any additional
costs and expenses incurred by Seitel under the First Leases or otherwise
relating to the Leased Premises as a whole, and shall pay all of any additional
costs and expenses (such as overtime a/c or heat) incurred by Seitel with
respect to the Subleased Premises. Any such sums shall be due within five days
of the date of an invoice therefor submitted by the Sublessor to Subtenant.
Section 4.2 Services.
(a) Phone System. Subtenant currently utilizes Sublessor's telephone
system and related equipment. During the Term, Subtenant shall continue to use
such phone system and related equipment and shall pay Sublessor therefor a
monthly fee of $1,100 payable with each rent payment hereunder. Such equipment
shall remain the property of Sublessor, and shall be returned to Sublessor upon
termination of this Sublease. In the event Subtenant requires additional phone
equipment during the Term, such equipment shall be acquired directly by
Subtenant at Subtenant's cost, which additional equipment shall be the property
of Subtenant. Subtenant shall pay, within five (5) days of invoice, all long
distance charges incurred by Subtenant billed to Sublessor, and Subtenant's pro
rata share, based on the number of phone extensions allocated to Sublessor, of
local phone charges billed to Sublessor.
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<PAGE> 7
(b) Computer Network. Subtenant currently utilizes Sublessor's local
area network and related file servers and network computers. During the Term,
Subtenant may continue to use such network and related equipment for a monthly
fee of $225 plus $25 per user payable with each rent payment hereunder.
Subtenant may at any time during the term, upon sixty (60) days advance written
notice, terminate its use of Sublessor's computer network and related equipment,
and upon such termination such usage fee shall cease. Sublessor shall not be
obligated to provide such access to its computer network and related equipment
if Subtenant's usage thereof increases above levels of usage prior to the
effective date of this Sublease and such increase is determined by Sublessor, in
its sole discretion, to interfere with Sublessor's use of such network and
related equipment. Sublessor may terminate such access upon thirty (30) days
advance written notice in such event. Subtenant may also utilize the services,
on an as available basis, of Sublessor's Network Administrator for a fee of $60
per hour, billed in minimum amounts of one hour and in half hour increments
thereafter. Subtenant will pay such fees within five (5) days of invoice
therefor.
Section 4.3 Parking. Subtenant shall be entitled to the use of six (6)
reserved parking spaces, as designated on Exhibit "B" hereto. Subtenant shall
not be required to pay any additional fees for the use of such parking spaces.
ARTICLE V.
Use of Premises; Construction of Improvements
Section 5.1 Use of Subleased Premises and Common Areas. The Subleased
Premises shall be used by Subtenant solely for office space and for no other
purposes. Subtenant will not suffer or permit the use of the Subleased Premises,
or any part thereof, in any manner that would violate any provision of the First
Leases. Subtenant agrees that its use of any common areas in or about the
Building will not interfere with Sublessor's use thereof, and that Subtenant
will not do or permit to be done any act which would prohibit or hinder
Sublessor's use thereof.
Section 5.2 Construction of Improvements. Subtenant shall make no
alterations, installations, additions or improvements in or to the Subleased
Premises without the prior written consent of Sublessor and, if required under
the First Leases, First Landlord. Any such alterations, installations, additions
or improvements shall be made at Subtenant's sole cost and expense, must be made
in compliance with the terms of the First Leases, and may only be made by
persons authorized pursuant to the terms of the First Leases. The removal of
such alterations, installations, additions or improvements upon termination of
this Sublease shall be governed by the provisions of Article X of this Sublease.
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ARTICLE VI.
Assumption Agreement and Covenants
Section 6.1 Assumption of Assumed Provisions. The Subtenant hereby
assumes and agrees with Sublessor and First Landlord to fully and timely comply
with, observe, perform and discharge, all of the provisions of the First Leases
respecting the Subleased Premises which are to be observed or performed during
the term hereof by the Sublessor as tenant under the First Leases, except the
provisions of the First Leases concerning payment of rent. All of the provisions
of the First Leases respecting the Subleased Premises which are to be observed,
performed or discharged during the term hereof by Subtenant as provided in the
immediately preceding sentence are herein collectively called the "Assumed
Provisions." None of the rights, titles or interests of Sublessor under the
First Leases are assigned to Subtenant.
Section 6.2 Indemnity. All of the Assumed Provisions are incorporated
into this Sublease as fully as if completely rewritten herein. The Subtenant
agrees to be bound to the Sublessor and First Landlord by all of the Assumed
Provisions, in so far as they relate to the Subleased Premises, to assume toward
Sublessor and First Landlord and perform all of the obligations and
responsibilities under the Assumed Provisions and to indemnify and hold harmless
Sublessor and First Landlord from and against any liability, cost, expense,
damage or claim (including attorneys' fees and court costs) relating to any
obligation, duty or responsibility assumed by Subtenant hereunder, including
without limitation, any liability, cost, expense, damage or claim incurred by
Sublessor as tenant under the First Leases relating to any obligation, duty or
responsibility assumed by Subtenant hereunder.
Section 6.3 Superior Matters. This Sublease, and all of Subtenant's
rights and estates hereunder, are and shall always be subject and subordinate to
the First Leases and all encumbrances and other matters affecting the Building
and the land on which the Building is situated. Subtenant acknowledges that it
has received a copy of the First Leases as they currently exist, has had an
opportunity to review the same, and is familiar with the Assumed Provisions and
rental payments it is undertaking pursuant to this Sublease.
Section 6.4 Evidence of Performance of Assumed Provisions. At any time
that Subtenant is obligated to deliver to First Landlord any payment, evidence
of performance of any of the Assumed Provisions or any other receipt, notice or
other matter, Subtenant shall deliver evidence of any such payment or true and
correct copies thereof to Seitel on or prior to the date any such item is to be
delivered to First Landlord.
Section 6.5 No Preferential Rights. Subtenant acknowledges that
Sublessor is a major tenant of the Building and that the First Leases contain a
number of provisions which grant to Sublessor, as such major tenant,
concessions, privileges, credits, allowances or other preferential rights, which
are intended to be for the benefit of Sublessor only, and which are not intended
to be passed on to Subtenant. Consequently, notwithstanding anything contained
in this Sublease to the contrary, Subtenant agrees that it shall not have any of
the rights granted to Sublessor under the First Leases including, without
limitation, lease concessions, moving credits or allowances, preferential rights
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<PAGE> 9
to lease additional space in the Building, rights to expand to additional space
in the Building, rights to renew all or any portion of the First Leases, rights
to receive any allowance for tenant finish or renovation set out in the First
Leases, or any other right not directly applicable to the Subleased Premises.
ARTICLE VII.
Limitation of Liability and Indemnity
Section 7.1 Indemnity and Release.
(a) Except for injury to any person, or damage to the property of any
person, proximately caused by the gross negligence or willful misconduct of
Sublessor or agents or employees of Sublessor, Subtenant shall indemnify and
save Sublessor and its agents and employees harmless from and against all claims
(including attorneys' fees and court costs) arising from any act or omission of
Subtenant or Subtenant's agents, employees or contractors, or arising from any
injury to any person or damage to the property of any person occurring during
the term of this Sublease in or about the Leased Premises or the Subleased
Premises. Subtenant agrees to use and occupy the Subleased Premises at its own
risk and hereby releases Sublessor, and agents or employees of Sublessor from
all claims for any damage or injury to the full extent permitted by law, unless
such damage or injury is proximately caused by the gross negligence or willful
misconduct of Sublessor or the agents or employees of Sublessor.
(b) Except for injury to any person, or damage to the property of any
person, proximately caused by the gross negligence or willful misconduct of
First Landlord or agents or employees of First Landlord, Subtenant shall
indemnify and save First Landlord and its agents and employees harmless from and
against all claims (including attorneys' fees and courts costs) arising from any
act or omission of Subtenant or Subtenant's agents, employees or contractors, or
arising from any injury to any person or damage to the property of any person
occurring during the term of this Sublease in or about the Leased Premises or
the Subleased Premises. Subtenant agrees to use and occupy the Subleased
Premises at its own risk and hereby releases First Landlord, and agents or
employees of First Landlord from all claims for any damage or injury to the full
extent permitted by law, unless such damage or injury is proximately caused by
the gross negligence or willful misconduct of First Landlord or the agents or
employees of First Landlord.
Section 7.2 Release from Acts and Omissions of First Landlord and Third
Parties. Subtenant agrees that under no circumstances shall Sublessor be liable
to Subtenant, nor shall the obligations of Subtenant hereunder be impaired or
the performance thereof excused, because of any failure or delay on the part of
the First Landlord in furnishing the services and repairs which the First
Landlord is obligated to furnish or make pursuant to the terms of the First
Leases. Subtenant further agrees that neither Sublessor nor First Landlord shall
be responsible or liable to Subtenant or its employees, agents, customers or
invitees for bodily injury (fatal or nonfatal) or property damage occasioned by
the acts or omissions of any other tenant of the Building or such tenant's
employees, agents, contractors, customers or invitees.
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<PAGE> 10
Section 7.3 Insurance. Subtenant shall secure and maintain in force
comprehensive general liability insurance, including contractual liability
specifically applying to the provisions of this Sublease and completed
operations liability with limits of not less than $5,000,000.00 with respect to
bodily injury or death to any number of persons in any one accident or
occurrence and with respect to property damage in any one accident or
occurrence. All insurance maintained in accordance with the provisions of this
Section 7.3 shall be issued by companies reasonably satisfactory to Sublessor,
and carried in the names of First Landlord, Sublessor and Subtenant, as their
respective interests may appear. All liability insurance policies shall name
Sublessor and First Landlord as additional named insureds and shall include
contractual liability endorsements. Subtenant shall furnish Sublessor with
duplicate originals or copies certified as being true and correct of all
insurance policies required under this Section 7.3, and shall furnish and
maintain with Sublessor, at all times, a certificate of the insurance carrier
certifying that such insurance shall not be canceled without at least fifteen
(15) days advance written notice to Sublessor. If Subtenant fails to maintain
such insurance, Sublessor, at its election but without obligation to do so, may
procure such insurance as may be necessary to comply with these requirements,
and Subtenant agrees to repay the cost of same to Sublessor on demand, with
interest thereon at the maximum rate permitted by law from the date of
expenditure until paid. The obligations of Subtenant under this Article VII and
the other provisions of this Sublease shall be in addition to, and not in lieu
of, the obligations of Subtenant under the Assumed Provisions.
Section 7.4 Casualty or Condemnation. If the Subleased Premises are
damaged by fire or other casualty or are condemned or taken in any manner for a
public use, and this Sublease and the First Leases are not terminated as a
result of such occurrence, it shall be solely the obligation of First Landlord
pursuant to the terms of the First Leases, and not of Sublessor, to repair,
restore or rebuild the Subleased Premises, and Subtenant shall not be entitled
to any award for any such condemnation.
Section 7.5 Asbestos. Subtenant acknowledges that it is aware that some
fireproofing and other materials used in the Building may contain asbestos.
Notwithstanding any provisions in this Sublease to the contrary, no repairs,
alteration, renovation, construction or decoration which requires the moving of
ceiling tiles and/or the disturbance of any spray-on fireproofing material or
structural members of the Building may be made by Subtenant without the express
prior written consent of First Landlord. Subtenant hereby releases Sublessor and
First Landlord from any and all liability, cost, expense or claim which may be
suffered by or asserted against Sublessor or First Landlord in connection with
the presence of any asbestos or asbestos-containing materials situated in or
around the Subleased Premises or elsewhere in the Building.
ARTICLE VIII.
Condition of Subleased Premises
Subtenant shall accept possession of the Subleased Premises, and the
fixtures and appurtenances therein, on the Commencement Date in its then present
condition. Accordingly, Sublessor shall have no obligation whatsoever to make or
construct any improvements within the
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<PAGE> 11
Subleased Premises. Subtenant shall maintain the Subleased Premises, and the
fixtures and appurtenances therein, in good order, repair and condition at all
times.
ARTICLE IX.
No Subleasing by Subtenant
Subtenant shall not voluntarily or involuntarily assign, sublease or
otherwise transfer, mortgage, encumber or hypothecate all or any portion of its
interest under this Sublease or the Subleased Premises, or allow any other
person to occupy all or any part of the Subleased Premises, without the prior
written consent of Sublessor and First Landlord. If Sublessor and First Landlord
consent to any such action by Subtenant, Subtenant shall pay Sublessor all sums
collected in connection with such action in excess of the sums payable by
Subtenant under this Sublease within ten (10) days following receipt thereof by
Subtenant. No assignment, subletting, mortgaging, encumbering, hypothecation or
other action or transfer by Subtenant shall relieve or release Subtenant from
any of its obligations under this Sublease or any of the Assumed Provisions.
ARTICLE X.
Furniture and Fixtures
Subtenant may from time to time, and shall at the termination of this
Sublease, remove its trade fixtures, office supplies and movable office
furniture and equipment not attached to the Building provided: (1) Subtenant is
not in default of any obligation or covenant under this Sublease at the time of
such removal; and (2) Subtenant promptly repairs all damage caused by such
removal. All other property at the Subleased Premises and any alteration,
installation, addition or improvement in or to the Subleased Premises (including
wall-to-wall carpeting, paneling or other wall covering) and any other article
attached or affixed to the floor, walls or ceiling of the Subleased Premises
shall remain the property of Sublessor and shall remain upon and be surrendered
with the Subleased Premises as part thereof at the termination of this Sublease
(or at the termination of Subtenant's right to possession of the Subleased
Premises), Subtenant hereby waiving all rights to any payment or compensation
therefor.
ARTICLE XI.
Events of Default and Remedies
Section 11.1 Events of Default. Each of the following acts or omissions
of Subtenant or occurrences shall constitute an "Event of Default":
(i) Failure or refusal by Subtenant to timely pay rent or
any other sum when due hereunder;
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<PAGE> 12
(ii) Failure to perform or observe any other covenant or
condition of this Sublease by Subtenant to be performed or observed;
(iii) Abandonment or vacating of the Subleased Premises or
any significant portion thereof;
(iv) The filing or execution or occurrence of any of the
following; provided, however, in the case of any such filing or
execution or occurrence which is involuntary with respect to Subtenant,
such filing or execution or occurrence is not vacated within thirty
(30) days after the occurrence thereof: a petition in bankruptcy or
other insolvency proceeding by or against Subtenant; or petition or
answer seeking relief under any provision of the United States
Bankruptcy Code, or an assignment for the benefit of creditors or
composition, or a petition or other proceeding by or against the
Subtenant for the appointment of a trustee, receiver or liquidator of
Subtenant or any property of Subtenant or a proceeding by any
government authority for the dissolution or liquidation of Subtenant;
or
(v) The termination or any occurrence giving rise to a
right of termination of any of the First Leases or termination of
Sublessor's right to possession or any occurrence giving rise to a
right of termination of possession of the Leased Premises under the
First Leases caused (in whole or in part) by the default of Subtenant
under this Sublease or any of the Assumed Provisions.
Section 11.2 Remedies. This Sublease and the term and estate hereby
granted and the demise hereby made are subject to the limitation that if and
whenever any Event of Default shall occur, and so long as such Event of Default
remains uncured, Sublessor may, at its option, in addition to all other rights
and remedies given hereunder or by law or equity, do either of the following:
(i) Terminate this Sublease, in which event Subtenant
shall immediately surrender possession of the Subleased Premises to
Sublessor; or
(ii) Enter upon and take possession of the Subleased
Premises and remove Subtenant and all other occupants therefrom, with
or without having terminated the Sublease.
Section 11.3 No Surrender. Exercise by Sublessor of any one or more
remedies hereunder granted or otherwise available shall not be deemed to be an
acceptance or surrender of the Subleased Premises by Subtenant, whether by
agreement or by operation of law, it being understood that such surrender can be
effected only by the written agreement of Sublessor and Subtenant.
Section 11.4 Liability of Subtenant Upon Termination.
(a) If Sublessor elects to terminate this Sublease by reason of an
Event of Default, then, notwithstanding such termination, Subtenant shall be
liable for and shall pay to Sublessor the sum
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of all rent and other indebtedness accrued to the date of such termination,
plus, as damages, an amount equal to the then present value of the rent reserved
hereunder for the remaining portion of the term of this Sublease (had such term
not been terminated by Sublessor prior to the date of expiration stated in
Article II), less the then present value of the fair rental value of the
Subleased Premises for such period. All present values shall be based on a three
percent (3%) per annum discount rate.
(b) If Sublessor elects to terminate this Sublease by reason of an
Event of Default, in lieu of exercising the rights of Sublessor under the
preceding subparagraph, Sublessor may instead hold Subtenant liable for all rent
and other indebtedness accrued to the date of such termination, plus such rent
and other indebtedness as would otherwise have been required to be paid by
Subtenant to Sublessor during the period following termination of the term of
this Sublease measured from the date of such termination by Sublessor until the
date of expiration stated in Article II (had Sublessor not elected to terminate
this Sublease on account of such Event of Default) diminished by any "Net Sums"
(as hereinafter defined) thereafter received by Sublessor through reletting the
Subleased Premises during said period. Actions to collect amounts due by
Subtenant provided for in this Section may be brought from time to time by
Sublessor during the aforesaid period, on one or more occasions, without the
necessity of Sublessor's waiting until expiration of such period; and in no
event shall Subtenant be entitled to any excess of rent (or rent plus other
sums) obtained by reletting over and above the rent provided for in this
Sublease. As used herein, the term "Net Sums" refers to all rent, if any,
received by Sublessor through reletting the Subleased Premises following
termination of this Sublease or termination of Subtenant's right to possession
of the Subleased Premises, reduced by any expenses incurred by Sublessor as
provided in Section 11.6.
Section 11.5 Liability of Subtenant Upon Repossession. If Sublessor
elects to repossess the Subleased Premises without terminating this Sublease,
then Subtenant shall be liable for and shall pay to Sublessor all rent and other
indebtedness accrued to the date of such repossession, plus rent required to be
paid by Subtenant to Sublessor during the remainder of the term of this Sublease
(had such term not been terminated by Sublessor prior to the date of expiration
stated in Article II), diminished by any Net Sums thereafter received by
Sublessor through reletting the Subleased Premises during said period. In no
event shall Subtenant be entitled to any excess of any rent obtained by
reletting over and above the rent herein reserved. Actions to collect amounts
due by Subtenant as provided in this Section 11.5 may be brought from time to
time, on one or more occasions, without the necessity of Sublessor's waiting
until the expiration of the term of this Sublease.
Section 11.6 Additional Obligations of Subtenant Upon Default. In case
of an Event of Default, Subtenant shall also be liable for and shall pay to
Sublessor, in addition to any sum provided to be paid above, (a) broker's fees
incurred by Sublessor in connection with reletting the whole or any part of the
Subleased Premises; (b) the cost of removing and storing Subtenant's or other
occupants' property; (c) the cost of repairing the Subleased Premises into the
condition called for by the terms of this Sublease; and (d) all expenses
incurred by Sublessor in enforcing Sublessor's remedies, including reasonable
attorneys' fees. Past due rent and other past due payments shall bear interest
from maturity at the highest non-usurious interest rate permitted by law until
paid.
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Section 11.7 No Obligation to Relet. In the event of termination of
this Sublease or repossession of the Subleased Premises for an Event of Default,
Sublessor shall not have any obligation to relet or attempt to relet the
Subleased Premises, or any portion thereof, or to collect rental after
reletting; but Sublessor shall have the option to relet or attempt to relet. In
the event of reletting, Sublessor may relet the whole or any portion of the
Subleased Premises for any period, to any tenant, and for any use and purpose.
Section 11.8 Sublessor's Right to Remedy Defaults. If Subtenant should
fail to make any payment or cure any default hereunder within the time herein
permitted, Sublessor, without being under any obligation to do so and without
thereby waiving such default, may make such payment and/or remedy such other
default for the account of Subtenant (and enter the Subleased Premises for such
purpose), and thereupon Subtenant shall be obligated to, and hereby agrees to,
pay Sublessor, upon demand, all costs, expenses and disbursements (including
reasonable attorneys' fees) incurred by Sublessor in taking such remedial action
together with interest on all such sums at the highest non-usurious rate
permitted by law from the date of such demand until payment.
Section 11.9 Tenant's Remedies. In the event of any default by
Sublessor, Subtenant's exclusive remedies shall be an action for damages and/or
for declaratory or injunctive relief (Subtenant hereby waiving the benefit of
any laws granting it a prejudgment lien upon the property of Sublessor and/or
upon rent due Sublessor), but prior to any such action Subtenant will give
Sublessor written notice specifying such default with particularity, and
Sublessor shall thereupon have thirty (30) days (plus such additional reasonable
period as may be required in the exercise by Sublessor of due diligence) in
which to cure any such default. Unless and until Sublessor fails to so cure any
default after such notice, Subtenant shall not have any remedy or cause of
action by reason thereof. All obligations of Sublessor hereunder will be
construed as covenants, not conditions; and all such obligations will be binding
upon Sublessor only during the period of its possession of the Subleased
Premises and not thereafter.
ARTICLE XII.
Miscellaneous Provisions
Section 12.1 Texas Law to Apply. THIS SUBLEASE SHALL BE CONSTRUED UNDER
AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND ALL OBLIGATIONS OF
THE PARTIES CREATED HEREUNDER ARE PERFORMABLE IN HARRIS COUNTY, TEXAS.
Section 12.2 Parties Bound. Subject to the provisions of Article IX,
this Sublease shall be binding on and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, legal representatives,
successors and assigns.
Section 12.3 Legal Construction. In case any one or more of the
provisions contained in this Sublease shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such
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invalidity, illegality or unenforceability shall not affect any other provision
hereof and this Sublease shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
Section 12.4 Prior Agreements Superseded. This Sublease constitutes the
sole and only agreement of the parties hereto with respect to the Subleased
Premises and supersedes any prior understandings or written or oral agreements
between the parties respecting the within subject matter.
Section 12.5 Attorneys' Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Sublease, the prevailing party shall be entitled to
recover reasonable attorneys' fees from the other party, which fees may be set
by the court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fees shall be in addition to any other
relief which may be awarded.
Section 12.6 Nonwaiver. Neither acceptance of rent by Sublessor nor
failure by Sublessor to complain of any action, non-action or default of
Subtenant shall constitute a waiver of any of Sublessor's rights hereunder.
Waiver by Sublessor of any right for any default of Subtenant shall not
constitute a waiver of any right for either a subsequent default of the same
obligation or any other default. Receipt by Sublessor of Subtenant's keys to the
Subleased Premises shall not constitute an acceptance of surrender of the
Subleased Premises. Failure by Subtenant to complain of any action, non-action
or default by Sublessor shall not constitute a waiver of any of Subtenant's
rights hereunder. Waiver by Subtenant of any right for any default of Sublessor
shall not constitute a waiver of any right for either a subsequent default of
the same obligation or any other default.
Section 12.7 Brokers. Each party hereto acknowledges that no broker has
been employed with respect to this Sublease. Sublessor hereby agrees to defend,
indemnify and hold harmless Subtenant, and Subtenant hereby agrees to defend,
indemnify and hold harmless Sublessor, from and against any claim by third
parties for brokerage, commission, finder's or other fees relative to this
Sublease or the subleasing of the Subleased Premises to Subtenant, and any court
costs, attorneys' fees or other costs or expenses arising therefrom, which are
alleged to be due by authorization of the indemnifying party.
Section 12.8 Notices. Any notice provided or permitted to be given
under this Sublease must be in writing and may be served (i) by depositing same
in the United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested; (ii) by
delivering the same in person to such party; or (iii) by prepaid telegram or
telex. Notice shall be effective upon receipt. For purposes of notice, the
addresses of the parties shall be as follows:
If to Sublessor, to: Seitel Management, Inc.
50 Briar Hollow Lane, 7th Floor West
Houston, Texas 77027
Attention: Debra D. Valice
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If to Subtenant, to: Eagle Geophysical, Inc.
50 Briar Hollow Lane, 6th Floor West
Houston, Texas 77027
Attention: Richard W. McNairy
Either party may change its address for notice by giving written notice thereof
to the other party in accordance with the foregoing provisions of this Section
12.8.
Section 12.9 Surrender of Subleased Premises. Upon termination or
expiration of this Sublease for any reason whatsoever, Subtenant shall peaceably
quit, deliver up and surrender the Subleased Premises to Sublessor (i) free of
all claims and encumbrances and (ii) in good order, repair and condition and in
the same condition as the Subleased Premises will be on the Commencement Date,
ordinary wear and tear excepted. Upon such termination or expiration, Sublessor
may, without further notice, enter upon, re-enter, possess and repossess itself
of the Subleased Premises by force, summary proceedings, ejectment or otherwise,
and may dispossess or remove Subtenant from the Subleased Premises. If Subtenant
does not surrender possession of the Subleased Premises at the end of the term
of this Sublease, such action shall not extend such term, Subtenant shall be a
tenant at sufferance, and during such time of occupancy Subtenant shall pay to
Sublessor, as damages, an amount equal to twice the amount of rent that was
payable immediately prior to the end of such term, as well as all actual damages
suffered by Sublessor as a result of such holding over. Sublessor shall not be
deemed to have accepted a surrender of the Subleased Premises by Subtenant, or
to extend such term, other than by execution of a written agreement specifically
so stating.
Section 12.10 No Partnership. This Sublease shall create a
landlord-tenant relationship only between Sublessor and Subtenant. In no event
shall this Sublease create or be deemed to create a partnership, joint venture
or any other type of relationship.
Section 12.11 No Filing of Lease or Memorandum. Neither this Sublease
nor any memorandum hereof shall be filed for record without the written consent
of Sublessor, First Landlord and Subtenant.
Section 12.11 Signage. Sublessor will install, at Subtenant's request
and at Subtenant's sole cost, a sign designating the name of Subtenant which
meets all requirements and specifications of the First Landlord and all of the
rules and regulations governing the Building and which otherwise meets the
approval of Sublessor, within view of leaving the elevator on the floor of the
Building on which the Subleased Premises are located, and on the entry door of
the Subleased Premises.
ARTICLE XIII.
Security Deposit
Within five (5) days after the Commencement Date, Subtenant shall
deposit with Sublessor as a security deposit an amount equal to one month's
rent. Subtenant shall not be entitled to any interest on such deposit. Sublessor
may, but shall not be obligated to, apply such deposit, without
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<PAGE> 17
notice to Subtenant and in Sublessor's sole discretion, towards the satisfaction
of any of Subtenant's obligations hereunder if Subtenant does not timely satisfy
such obligations. Subtenant shall promptly upon request of Sublessor replenish
the amount of such deposit upon any application thereof by Sublessor. Sublessor
shall return any unapplied amount of such deposit within 30 days of termination
of this Sublease.
ARTICLE XIV.
Joinder by First Landlord
First Landlord, by execution hereof, hereby gives its express written
permission to Sublessor 's subletting the Subleased Premises to Subtenant on the
terms and conditions set forth in this Sublease and waives and releases any
right or option it may have to cancel and terminate the First Leases as to the
Subleased Premises arising out of the subleasing of the Subleased Premises to
Subtenant contemplated by this Sublease. First Landlord acknowledges that this
Sublease, and its execution by the parties hereto, complies with the provisions
of each of the First Leases. In the event of any conflict between the provisions
of this Sublease and the provisions of any of the First Leases, the provisions
of this Sublease shall control.
WITNESS THE EXECUTION HEREOF on the 11th day of August, 1997, but
effective as of the Commencement Date.
SEITEL, INC.
By: /s/ Debra D. Valice
----------------------------------------
Debra D. Valice, Senior Vice President
SEITEL GAS & ENERGY, INC.
By: /s/ Debra D. Valice
----------------------------------------
Debra D. Valice, Vice President
SEITEL MANAGEMENT, INC.
By: /s/ Debra D. Valice
----------------------------------------
Debra D. Valice, Vice President
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EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
----------------------------------------
Jay N. Silverman, President
50 B.H., INC.
By: /s/ George Papadogiannis, as Agent
----------------------------------------
Name: George Papadogiannis, as Agent
Title: CFO
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<PAGE> 1
MASTER SEPARATION AGREEMENT Exhibit 10.22
THIS MASTER SEPARATION AGREEMENT (this "Separation Agreement") is
entered into as of August 11, 1997, by and between SEITEL, INC., a Delaware
corporation ("Seitel"), and EAGLE GEOPHYSICAL, INC., a Delaware corporation
("Eagle").
RECITALS
A. Seitel, a public company whose common shares are traded on the
New York Stock Exchange, owns indirectly 100% of the common stock of Eagle.
B. The Board of Directors of Seitel (the "Seitel Board") has
determined, subject to its further consideration and the satisfaction of certain
conditions, to separate the ownership of a majority of its equity ownership of
Eagle and its subsidiaries from Seitel and the Seitel Group (as hereinafter
defined), by means of an initial public offering by Eagle and Seitel of
5,880,000 shares of Eagle common stock (the "IPO") pursuant to a Registration
Statement (the "IPO Registration Statement") filed by Eagle with the SEC on June
2, 1997, as amended.
C. Subsequent to the execution of this Separation Agreement but
prior to or contemporaneously with the IPO, Eagle, which currently owns 19% of
the common stock of Energy Research International, a Cayman Islands corporation
("ERI"), will acquire the remaining 81% of the common stock of ERI (at which
time ERI shall become a wholly-owned subsidiary of Eagle), in exchange for the
current holders of such 81% of the common stock of ERI receiving 600,000 newly
issued shares of common stock in Eagle.
D. The parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions determined by Seitel
and Eagle to be appropriate to effect the IPO and to set forth other agreements
and undertakings by and between Seitel and Eagle that will govern certain other
matters following the IPO.
ARTICLE I
DEFINITIONS
1.01 General. As used in this Separation Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
Administrative Services Agreement means the separate Administrative
Services Agreement, of even date herewith, between Seitel and Eagle.
Affiliate means an Eagle Affiliate or a Seitel Affiliate, as the case
may be.
<PAGE> 2
Business Day means any day other than a Saturday, a Sunday or a day on
which banking institutions located in the State of Texas are authorized or
obligated by law or executive order to close.
Closing Date means the date on which the shares of Eagle Common Stock
offered in the IPO are paid for by and delivered to the underwriters of the IPO.
Code means the Internal Revenue Code of 1986, as amended.
Confidential Information means as to the Seitel Group, information
concerning a member of the Eagle Group which was obtained by a member of the
Seitel Group prior to the Closing Date or furnished to it by a member of the
Eagle Group pursuant to this Separation Agreement or the Operative Agreements
and as to the Eagle Group, information concerning a member of the Seitel Group
which was obtained by a member of the Eagle Group prior to the Closing Date or
furnished to it by a member of the Seitel Group pursuant to this Separation
Agreement or the Operative Agreements.
Control means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
Eagle means Eagle Geophysical, Inc., a Delaware corporation.
Eagle Affiliate means a Person that directly, or indirectly through one
or more intermediaries, Controls or is Controlled by Eagle, provided, however,
that for purposes of this Separation Agreement none of the following Persons
shall be considered Eagle Affiliates: (i) Seitel or any Seitel Affiliate, and
(ii) any corporation less than 51% of whose voting stock is directly or
indirectly owned by Eagle, any partnership less than 51% of whose interests in
profits and losses is directly or indirectly owned by Eagle, and any corporation
(regardless of the percentage of its ownership) where the ownership by Eagle and
its Subsidiaries was made as a venture capital or a portfolio (as opposed to
operational) investment or where the equity ownership resulted from a default on
a loan to such corporation.
Eagle Business means the onshore seismic data acquisition business
conducted by Seitel Geophysical, Inc., a wholly owned subsidiary of Seitel prior
to December 31, 1996, the onshore seismic data acquisition business conducted by
Eagle from January 1, 1997 and the offshore seismic data acquisition business
conducted by Horizon Seismic, Inc. and Horizon Exploration, Ltd. and any
affiliates thereof before and after the Closing Date.
Eagle Common Stock means the common stock, par value $.01 per share, of
Eagle.
Eagle Group means collectively, Eagle and the Eagle Affiliates, or any
one or more of such companies.
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Effective Date means the date on which the IPO Registration Statement
is declared effective by the SEC.
Employee Benefits Allocation Agreement means the separate Employee
Benefits Allocation Agreement, of even date herewith, between Seitel and Eagle.
ERI shall have the meaning given in the recitals to this Separation
Agreement.
Exchange Act means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
Group means the Seitel Group or the Eagle Group.
Indemnifiable Losses means all losses, Liabilities, damages, claims,
demands, judgments or settlements of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated, including,
without limitation, all reasonable costs and expenses (including, without
limitation, attorneys' fees, and defense and accounting costs) as such costs are
incurred relating thereto, suffered by an Indemnitee.
Indemnifying Party means a Person who or which is obligated under this
Separation Agreement to provide indemnification.
Indemnitee means a Person who or which is entitled to indemnification
under this Separation Agreement.
Indemnity Payment means an amount that an Indemnifying Party is
required to pay to an Indemnitee pursuant to Article III.
Insurance Proceeds means those monies received by an insured from an
insurance carrier or paid by an insurance carrier on behalf of the insured, in
either case, to the extent mutually agreed upon by Eagle and Seitel, net of any
applicable premium adjustment.
IPO shall have the meaning given in the recitals to this Separation
Agreement.
IPO Registration Statement shall have the meaning given in the recitals
to this Separation Agreement.
Liabilities means all debts, liabilities and obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, and whether or not the
same would properly be reflected on a balance sheet, including all costs and
expenses relating thereto.
Master Agreement means the Master Agreement for Geophysical Services
and applicable Job Supplements thereto entered into from time to time between
Eagle and any member of the Seitel Group
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pursuant to which Eagle agrees to conduct geophysical surveys for the benefit of
such member of the Seitel Group.
Nasdaq National Market means the Nasdaq Stock Market's National Market.
Offering Documents means collectively, (A) the IPO Registration
Statement, (B) any Prospectus subject to completion or any Prospectus filed with
the SEC under Rule 424 of the Securities Act used, in each case, in connection
with the offering of the Eagle Common Stock under the IPO Registration
Statement, (C) any other filing made with the SEC by a member of the Eagle Group
or (D) any amendment or supplement to any of the documents described in clauses
(A) through (C) above.
Operative Agreements means collectively the Administrative Services
Agreement, the Employee Benefits Allocation Agreement, the Registration Rights
Agreement, the Sublease, the Tax Indemnity Agreement and any other agreements
between a member of the Seitel Group and a member of the Eagle Group relating to
the separation of the Groups.
Person means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
Prospectus means the prospectus forming a part of the IPO Registration
Statement.
Representative means with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants and
attorneys.
SEC means the Securities and Exchange Commission.
Seitel Affiliate means a Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by Seitel; provided,
however, that for purposes of this Separation Agreement none of the following
Persons shall be considered Seitel Affiliates: (i) Eagle, and any Eagle
Affiliate, and (ii) any corporation less than 51% of whose voting stock is
directly or indirectly owned by Seitel, (iii) any partnership less than 51% of
whose interests in profits and losses is directly; or indirectly owned by
Seitel, and (iv) any corporation (regardless of the percentage of its ownership)
where the ownership by Seitel and its Subsidiaries was made as a venture,
capital or a portfolio (as opposed to operational) investment or where the
equity ownership resulted from a default on a loan to such corporation.
Seitel Board shall have the meaning given in the recitals to this
Separation Agreement.
Seitel Business means any businesses conducted by any member of the
Seitel Group in the past, at the date hereof or in the future.
Seitel Group means collectively, Seitel and the Seitel Affiliates, or
any one or more of such companies.
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Securities Act means the Securities Act of 1933, as amended, together
with the rules - and regulations promulgated thereunder.
Sublease means the separate Sublease Agreement, of even date herewith,
between Seitel and Eagle.
Subsidiary means with respect to any specified Person, any corporation
or other legal entity of which such Person or any of its subsidiaries Controls
or owns, directly or indirectly, more than 50% of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body; provided, however, that for purposes of this
Separation Agreement, Eagle and the Eagle Subsidiaries shall not be deemed to be
Subsidiaries of Seitel or any of the Seitel Subsidiaries.
Tax means as defined in the Tax Indemnity Agreement.
Tax Indemnity Agreement means the separate Tax Indemnity Agreement,
between Seitel and Eagle.
Third-party Claim means any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
asserted by a Person who is not a member of the Seitel Group or the Eagle Group.
1.02 References to Time. All references in this Separation Agreement
to times of the day shall be to local time in Houston, Texas.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO AND IN CONNECTION WITH THE IPO
2.01 Declaration of Dividend. Prior to the Effective Date, Eagle
shall declare a dividend to be paid at the close of business on the business day
immediately preceding the Closing Date (the Dividend Payment Date). The dividend
will be a dividend of all receivables of Eagle as of the Dividend Payment Date
from all members of the Seitel Group for profits of Eagle attributable to work
performed by Eagle for such members of the Seitel Group to and including the
Dividend Payment Date, less taxes and allocable overhead attributable to such
intercompany work. Such receivables shall include amounts attributable to
contracts then being performed, based on percent completion. Eagle shall set the
record date for determining shareholders entitled to payment of such dividend to
be a date (1) not less than ten nor more than 60 days prior to the Dividend
Payment Date, and (2) as of which the only stockholder of record shall be EHI
Holdings, Inc.
2.02 The Eagle Board. Except as Eagle and Seitel may otherwise agree,
as of the Effective Date, the current members of Eagle's board of directors will
be: (i) William L. Lurie, Chairman; (ii) Paul A. Frame; (iii) Jay N. Silverman;
(iv) Gerald M. Harrison and (v) George Purdie. Seitel and Eagle shall take all
appropriate actions to cause such individuals to be elected to such positions.
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2.03 IPO.
(a) Eagle, after consultation with Seitel, shall file such
amendments to the IPO Registration Statement as may be necessary in order to
cause the same to become and remain effective.
(b) Seitel and Eagle shall consult with each other regarding
the timing, pricing and other material matters with respect to the IPO.
(c) Eagle shall prepare, and Eagle shall file and seek to make
effective, an application for listing of the Eagle Common Stock on the Nasdaq
National Market, subject to official notice of issuance.
(d) Seitel shall cooperate in the preparation of the
Prospectus and the IPO Registration Statement and in Eagle's performance of its
other obligations under this Section 2.03.
(e) Eagle shall pay its own direct expenses relating to the
IPO (including the fees of its advisors and counsel), all of the fees and
reimbursable expenses of the underwriters relating to the IPO (except for the
underwriters' discount on shares of Eagle sold by Seitel as a selling
stockholder under the IPO Registration Statement), as well as all of the costs
of producing, printing, mailing and otherwise distributing the Prospectus.
2.04 Financial Matters.
(a) Repayment of Intercompany Advances. Within five (5)
business days after the Closing Date, Eagle shall repay Seitel all amounts
advanced by Seitel on behalf of Eagle prior to the Closing Date with respect to
third-party work, plus accrued interest on the outstanding balance thereof at an
interest rate equal to Seitel's cost of funds.
(b) Repayment of Other Debt Owed to Seitel. Within five (5)
business days after the Closing Date, Eagle shall repay Seitel all other amounts
owed by any member of the Eagle Group to any member of the Seitel Group,
including all outstanding principal and accrued interest under the Amended and
Restated Promissory Note made by ERI payable to Seitel in the original principal
amount of $2,000,000 dated July 3, 1996 and all outstanding principal and
accrued interest under the Promissory Note made by ERI payable to Seitel in the
original principal amount of $2,679,040 dated November 15, 1996.
(c) Repayment of Third Party Debt Guaranteed by Seitel. Within
five (5) business days after the Closing Date, Eagle shall repay all amounts
owed by any member of the Eagle Group to any third party that is guaranteed by
any member of the Seitel Group or with respect to which any member of the Seitel
Group has any liability, including the approximately $13.4 million owed to
NationsBanc Leasing of North Carolina, the approximately $1.1 million owed to
Compass Bank, the approximately $264,000 owed to MetLife Capital Corporation,
the approximately $1.7 million owed to MetLife Capital, Limited Partnership, and
the approximately $268,000 owed to GE Capital Fleet Services, all as set forth
in the IPO Registration Statement. In
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lieu of repaying any such debt, Eagle may, within five (5) business days after
the Closing Date, obtain written confirmation from the lender of such debt of
such lender's intent to release all obligated members of the Seitel Group from
any and all liabilities with respect to such debt, so long as Eagle either
obtains such release within 30 days after the Closing Date or repays such debt
within such 30 day period.
(d) Other Obligations. Prior to the Closing Date, Seitel shall
advise Eagle as to all other outstanding guarantees, letter of credit
obligations, performance or surety bonds, comfort letters and other similar
obligations of any member of the Seitel Group relating to the Eagle Business.
Eagle shall, within 30 days after the Closing Date, obtain the release of all
members of the Seitel Group from all such obligations or liabilities, unless
otherwise agreed in writing by Eagle and Seitel.
2.05 Execution and Delivery of Operative Agreements. Contemporaneously
with the execution and delivery of this Separation Agreement, Eagle and the
appropriate member(s) of the Seitel Group shall execute and deliver each of the
Operative Agreements.
ARTICLE III
SURVIVAL, ASSUMPTION AND INDEMNIFICATION
3.01 Survival of Agreements. All covenants and agreements of the
parties, hereto contained in this Separation Agreement shall survive the Closing
Date.
3.02 Assumption and Indemnification.
(a) Subject to Section 3.02(c), from and after the Closing
Date, Seitel shall assume, and shall indemnify, defend and hold harmless each
member of the Eagle Group, each of their Representatives and each of the heirs,
executors, successors and assigns of any of the foregoing from and against:
(i) all Liabilities of the Seitel Group under this
Separation Agreement or any of the Operative Agreements;
(ii) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to, directly
or indirectly, the Seitel Business, any individual employed by
any member of the Seitel Group on the Closing Date or the Seitel
Group's Representatives, whether relating to or arising out of
occurrences prior to, on or after the Closing Date;
(iii) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to any untrue
statement or alleged untrue statement of a material fact
contained in any Offering Document or the omission or alleged
omission to state in any of the Offering Documents a material
fact required to be stated therein or necessary to make the
statements therein not misleading, but only insofar as any such
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insofar as any such statement or omission was made with respect
to (A) a matter of historical fact relating to a member of the
Seitel Group or (B) a matter of historical fact relating to a
member of the Eagle Group (other than ERI, its subsidiaries,
shareholders, officers, directors, employees, assets or
business) relating to periods prior to the Closing Date or (C)
the present or future intentions of Seitel or any member of the
Seitel Group, which information is or was furnished by Seitel or
its Representatives specifically for use in connection with the
preparation of the Offering Documents; and
(iv) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to any untrue
statement or alleged untrue statement of a material fact
contained in any Exchange Act report by Seitel or the omission
or alleged omission to state in any such report a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided that Seitel will not
be liable in any such case to the extent that any such
Indemnifiable Losses arise out of or are based upon any such
untrue statement or alleged untrue statement or omission or
alleged omission made in any such report in reliance upon and in
conformity with information furnished to Seitel by or on behalf
of Eagle or its Representatives specifically for use in
connection with the preparation of the report.
(b) Subject to Section 3.02(c), from and after the Closing Date,
Eagle shall assume, and shall indemnify, defend and hold harmless each member of
the Seitel Group, each of their Representatives and each of the heirs,
executors, successors and assigns of any of the foregoing from and against:
(i) all Liabilities of the Eagle Group under this
Separation Agreement or any of the Operative Agreements;
(ii) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to, directly
or indirectly, the Eagle Business, any individual employed by
any member of the Eagle Group on the Closing Date or the Eagle
Group's Representatives, whether relating to or arising out of
occurrences prior to, on or after the Closing Date;
(iii) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to any untrue
statement or alleged untrue statement of a material fact
contained in any Offering Document or the omission or alleged
omission to state in any of the Offering Documents a material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided that Eagle will not
be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or
alleged omission made with respect to (A) a matter of historical
fact relating to a member of the Seitel Group or (B) a matter of
historical fact relating to a member of the Eagle Group (other
than ERI, its subsidiaries, shareholders, officers, directors,
employees, assets or business) relating
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to periods prior to the Closing Date or (C) the present or
future intentions of Seitel or any member of the Seitel Group,
which information is or was furnished by Seitel or its
Representatives specifically for use in connection with the
preparation of the Offering Documents; and
(iv) all Indemnifiable Losses of any such member or
Representative relating to, arising out of or due to any untrue
statement or alleged untrue statement of a material fact
contained in any Exchange Act report by Seitel or the omission
or alleged omission to state in any such report a material fact
required to be stated therein or necessary to make the
statements therein not misleading, but only insofar as any such
statement or omission was made in reliance upon and in
conformity with information furnished to Seitel by or on behalf
of Eagle or its Representatives specifically for use in
connection with the preparation of the report.
(c) This Section 3.02 shall not be applicable to any Indemnifiable
Losses or Liabilities related to matters that are specifically governed by the
indemnification provisions of any Operative Document (which matters shall be
governed by the specific indemnification provisions of the applicable Operative
Document) or to any Indemnifiable Losses or Liabilities related to Eagle
Business performed for the Seitel Group after the date hereof which is otherwise
governed by any Master Agreement. In the event any person is an employee or
Representative of both the Eagle Group and the Seitel Group, then for purposes
of Sections 3.2(a)(ii) and 3.2(b)(ii), the Group for whom such person is acting
when the action or omission or other event giving rise to the Indemnifiable Loss
occurs shall be the Indemnifying Party.
(d) If an Indemnitee realizes a Tax benefit or detriment by reason
of having incurred an Indemnifiable Loss for which such Indemnitee receives an
Indemnity Payment from an Indemnifying Party or by reason of receiving an
Indemnity Payment, then such Indemnitee shall pay to such Indemnifying Party an
amount equal to the Tax benefit, or such Indemnifying Party shall pay to such
Indemnitee an additional amount equal to the Tax detriment (taking into account
any Tax detriment resulting from the receipt of such additional amounts), as the
case may be. If, in the opinion of counsel to an Indemnifying Party reasonably
satisfactory in form and substance to the affected Indemnitee, there is a
substantial likelihood that the Indemnitee will be entitled to a Tax benefit by
reason of an Indemnifiable Loss, the Indemnifying Party promptly shall notify
the Indemnitee and the Indemnitee promptly shall take any steps (including the
filing of such returns, amended returns or claims for refunds consistent with
the claiming of such Tax benefit) that, in the reasonable judgment of the
Indemnifying Party, are necessary and appropriate to obtain any such Tax
benefit. If, in the opinion of counsel to an Indemnitee reasonably satisfactory
in form and substance to the affected Indemnifying Party, there is a substantial
likelihood that the Indemnitee will be subjected to a Tax detriment by reason of
an Indemnification Payment, the Indemnitee promptly shall notify the
Indemnifying Party and the Indemnitee promptly shall take any steps (including
the filing of such returns or amended returns or the payment of Tax
underpayments consistent with the settlement of any Liability for Taxes arising
from such Tax detriment) that, in the reasonable judgment of the Indemnitee, are
necessary and appropriate to settle any Liabilities for Taxes arising from such
Tax detriment. If, following a payment by an Indemnitee or an Indemnifying Party
pursuant to this Section 3.02(d) in respect of a Tax benefit or detriment, there
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is an adjustment to the amount of such Tax benefit or detriment, then each of
Seitel and Eagle shall make appropriate payments to the other, including the
payment of interest thereon at the federal statutory rate then in effect, to
reflect such adjustment.
(e) The amount which an Indemnifying Party is required to
pay to any Indemnitee pursuant to this Section 3.02 shall be reduced (including
retroactively) by any Insurance Proceeds and other amounts actually recovered by
such Indemnitee in reduction of the related Indemnifiable Loss, it being
understood and agreed that each of Seitel and Eagle shall use its best efforts
to collect any such proceeds or other amounts to which it or any of its
Subsidiaries is entitled, without regard to whether it is the Indemnifying Party
hereunder. If an Indemnitee receives an Indemnity Payment in respect of an
Indemnifiable Loss and subsequently receives Insurance Proceeds or other amounts
in respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party an amount equal to the difference between (i) the sum of the
amount of such Indemnity Payment and the amount of such Insurance Proceeds or
other amounts actually received and (ii) the amount of such Indemnifiable Loss,
adjusted (at such time as appropriate adjustment can be determined) in each case
to reflect any premium adjustment attributable to such claim.
3.03 Procedure for Indemnification.
(a) If any Indemnitee receives notice of the assertion of
any Third-party Claim with respect to which an Indemnifying Party is obligated
under this Separation Agreement to provide indemnification, such Indemnitee
shall give such Indemnifying Party notice thereof promptly after becoming aware
of such Third-party Claim; provided, however, that the failure of any Indemnitee
to give notice as provided in this Section 3.03 shall not relieve any
Indemnifying Party of its obligations under this Article III, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice. Such notice shall describe such Third-party Claim in reasonable
detail.
(b) An Indemnifying Party, at such Indemnifying Party's own
expense and through counsel chosen by such Indemnifying Party (which counsel
shall be reasonably satisfactory to the Indemnitee), may elect to defend any
Third-party Claim. If an Indemnifying Party elects to defend a Third-party
Claim, then, within ten Business Days after receiving notice of such Third-party
Claim (or sooner, if the nature of such Third-party Claim so requires), such
Indemnifying Party shall notify the Indemnitee of its intent to do so, and such
Indemnitee shall cooperate in the defense of such Third-party Claim. After
notice from an Indemnifying Party to an Indemnitee of its election to assume the
defense of a Third-party Claim, such Indemnifying Party shall not be liable to
such Indemnitee under this Article III for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof;
provided, however, that such Indemnitee shall have the right to employ one law
firm as counsel to represent such Indemnitee (which firm shall be reasonably
acceptable to the Indemnifying Party) if, in such Indemnitee's reasonable
judgment, either a conflict of interest between such Indemnitee and such
Indemnifying Party exists in respect of such claim or there may be defenses
available to such Indemnitee which are different from or in addition to those
available to such Indemnifying Party, and in that event (i) the reasonable fees
and expenses of such separate counsel shall be paid by such Indemnifying Party
(it being understood, however, that the Indemnifying Party shall not be liable
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<PAGE> 11
for the expenses of more than one separate counsel with respect to any
Third-party Claim (even if against multiple Indemnitees)) and (ii) each of such
Indemnifying Party and such Indemnitee shall have the right to conduct its own
defense in respect of such claim. If an Indemnifying Party elects not to defend
against a Third-party Claim, or fails to notify an Indemnitee of its election as
provided in this Section 3.03 within the period of ten Business Days described
above, such Indemnitee may defend, compromise and settle such Third-party Claim;
provided, however, that no such Indemnitee may compromise or settle any such
Third-party Claim without the prior written consent of the Indemnifying Party,
which consent shall not be withheld unreasonably. Notwithstanding the foregoing,
the Indemnifying Party shall not, without the prior written consent of the
Indemnitee, (i) settle or compromise any Third-party Claim or consent to the
entry of any judgment which does not include as an unconditional term thereof
the delivery by the claimant or plaintiff to the Indemnitee of a written release
from all Liability in respect of such Third-party Claim or (ii) settle or
compromise any Third-party Claim in any manner that may adversely affect the
Indemnitee.
3.04 Remedies Cumulative. The remedies provided in this Article III
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any other remedies against any Indemnifying
Party.
3.05 Effect on Underwriting Documents. Notwithstanding anything t
the contrary that may be contained in the underwriting agreements relating to
the IPO or this Separation Agreement: (i) the provisions of Section 3.02(a) and
(b) shall govern and control the indemnification arrangements, and any claims or
losses arising hereunder, between the Seitel Group on the one hand and the Eagle
Group on the other with respect to liabilities arising under the IPO
Registration Statement; and (ii) the provisions of such underwriting agreements
shall govern and control the indemnification arrangements, and any claims or
losses arising thereunder, between the Eagle Group and the Seitel Group on the
one hand and the underwriters under the IPO Registration Statement on the other.
ARTICLE IV
CERTAIN ADDITIONAL COVENANTS
4.01 Continuing Contractual Agreements. Except as may be otherwise
provided in this Separation Agreement, to the extent that any member of either
Group is now providing or selling, or in the future may provide or sell, to any
member of the other Group any services, benefits or products pursuant to any
written or oral agreement or understanding whatsoever, such agreement or
understanding shall not be deemed altered, amended or terminated as a result of
this Separation Agreement or the consummation of the transactions contemplated
hereby; and without limiting the generality of the foregoing, such agreements
and understandings, already in existence, shall remain in full force and effect
without modification or amendment of any kind by virtue of this Separation
Agreement.
4.02 Solicitation of Employees. For a period of one (1) year from
the date of this Separation Agreement, no member of either Group shall knowingly
solicit for proposed employment
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any Person who at the time is known by such member to be currently an employee
of the other Group, without the consent of the President of that employee's
employer.
4.03 Software. Any computer software shall remain the property of
the Group that purchased, licensed or developed it, subject to the further
provisions of this Section 4.03. To the extent either Group has used or enhanced
such software, such Group shall have the right to continue to use such software
in its business operations. If any software purchased or licensed from a third
party has been used or is in the future usable by either Group, the parties
shall work together in good faith to obtain any required consent of the licenser
to permit use of such software by any Group that wishes to use it, and the cost
of obtaining such consent shall be allocated between the Groups in proportion to
the benefit to each Group from the use of such software, taking into account
both past use and expected future use. If such consent cannot be promptly and
reasonably obtained, any Group may continue to use such software provided such
Group furnishes the other Group (i) the written opinion of experienced outside
legal counsel to the effect that such continued use does not constitute a clear
violation of the terms of the license agreement and (ii) an indemnification in
form reasonably satisfactory to the other Group for any Liabilities caused by
such use. If either or both Groups wish to add a new module or other enhancement
to any software being used by both Groups, the parties will, in good faith,
agree to an allocation of the cost thereof in proportion to the expected use of
such module or enhancement, provided that enhancements made by a Group on
internally developed software shall be the property of the Group that paid for
the major portion of development costs. Except as provided in the preceding
sentences, neither Group shall be obligated to pay anything to the other Group
for the use of any software. If the parties cannot reach agreement after a
reasonable time and effort on the allocation of costs as provided herein, the
parties shall promptly submit the issue to an experienced, independent, mutually
acceptable software consultant, whose determination of such allocation shall be
final and binding on both parties; the fees and expenses of such consultant
shall be borne equally by the parties. The parties shall work together in good
faith to develop an inventory of software that may be affected by Section 4.03
as promptly as practicable; provided that it is understood that this Section
4.03 shall not apply to any software that is purchased, licensed or originally
developed after the Closing Date. The terms of this Section 4.03 are intended to
allocate costs between the parties hereto, and nothing contained in this Section
4.03 shall be construed to modify any of the terms of the agreements between a
software licensor and the Eagle Group or the Seitel Group.
4.04 Further Assurances. In addition to the actions specifically
provided for elsewhere in this Separation Agreement and in the Tax Indemnity
Agreement, each of the parties hereto shall use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Separation Agreement. Without limiting the foregoing, each party hereto
shall cooperate with the other parties, and execute and deliver, or use its best
efforts to cause to be executed and delivered, all instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to
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time, consistent with the terms of this Separation Agreement, in order to
effectuate the provisions and purposes of this Separation Agreement.
4.05 Publicity. Seitel shall take all necessary action to ensure
that the members of the Seitel Group, and Eagle shall take all necessary action
to ensure that the members of the Eagle Group, shall take all reasonably
diligent action to discontinue the use of any existing printed material
implicitly or explicitly showing any parent-subsidiary relationship between
Seitel and Eagle or any members of their respective Groups as promptly after the
Closing Date as practicable and in any event no later than six months after the
Closing Date, except as otherwise provided in any Operative Agreement. After the
Closing Date, neither party hereto shall permit any member of its respective
Group to otherwise represent to third parties that it has a parent-subsidiary
relationship with the other Group.
ARTICLE V
ACCESS TO INFORMATION
5.01 Provision of Corporate Records. Prior to or as promptly as
practicable after the Closing Date, Seitel shall use reasonable efforts to
accommodate Eagle with respect to the delivery to Eagle of all corporate books
and records of the Eagle Group and copies of all corporate books and records of
the Seitel Group directly relating to the Eagle Assets, the Eagle Business or
the Liabilities of the Eagle Group, including in each case copies of all active
agreements, active litigation files and government filings. From and after the
Closing Date, all books, records and copies so delivered shall be the property
of Eagle.
5.02 Access to Information. From and after the Closing Date, each of
Seitel and Eagle shall afford to the other, and shall cause the members of their
respective Groups to so afford, reasonable access and duplicating rights during
normal business hours to all information within such party's possession relating
to such other party's businesses, Assets or Liabilities, insofar as such access
is reasonably required by such other party. Without limiting the foregoing,
information may be requested under this Section 5.02 for audit, accounting,
claims, litigation and Tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations, as Eagle may reasonably request and which
are directly related to the Eagle Business.
5.03 Production of Witnesses. After the Closing Date, each of Seitel
and Eagle shall use reasonable efforts, and shall cause the members of their
respective Groups to use reasonable efforts, to make available to the other,
upon written request, its directors, officers, employees and agents as witnesses
to the extent that any such Person may reasonably be required (giving
consideration to business demands of such Persons) in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved.
5.04 Reimbursement. Each Group providing information or witnesses
under Sections 5.01, 5.02 or 5.03 to the other Group shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payment
for all out-of-pocket costs and expenses (including
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<PAGE> 14
reasonable attorneys and accountants fees and expenses) as may be reasonably
incurred in providing such information or witnesses.
5.05 Retention of Records. Except as otherwise required by law or
agreed in writing, or as otherwise provided in the Tax Indemnity Agreement, each
of Seitel and Eagle shall use reasonable efforts to accommodate the other with
respect to retention and provision of copies of any significant information in
such party's possession or under its control relating to the business, assets or
Liabilities of the other party.
5.06 Confidentiality. From and after the Closing Date, each of Seitel
and Eagle shall hold, and shall cause its Affiliates and Representatives to
hold, the Confidential Information in strict confidence and shall not release or
disclose such Confidential Information to any other Person, except its
Representatives, who shall be bound by the provisions of this Section 5.06;
provided, however, that Seitel and Eagle and their Affiliates may disclose such
Confidential Information to the extent that (a) disclosure is required by
judicial or administrative process or, in the opinion of such party's counsel,
by other requirements of law or any regulatory body, or (b) such party can show
that such Confidential Information is or was (i) available to such party from a
third party and the recipient party was not aware that such third party was
obligated to not disclose such Confidential Information, (ii) available to such
party on a nonconfidential basis prior to its disclosure by the other party,
(iii) in the public domain other than by the breach of this Agreement or (iv)
lawfully acquired on a nonconfidential basis or independently developed by, or
on behalf of, such party. If either party to this Agreement or its Affiliate or
Representative becomes legally required to disclose any Confidential Information
subject to this Section, such party will promptly notify the other party and use
reasonable efforts to cooperate with the other party so that it may seek a
protective order or other appropriate remedy and/or waive compliance with this
Section. In the event that such protective order or other remedy is not
obtained, or that the other party waives compliance with this Section, such
party or its Affiliate or Representative will furnish only that portion of the
Confidential Information which it is advised by counsel is legally required and
will exercise its reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded such Confidential Information.
ARTICLE VI
MISCELLANEOUS
6.01 Termination. Notwithstanding any other provision hereof, this
Separation Agreement may be terminated if the IPO is abandoned, which decision
can be made at any time by and in the sole discretion of the Board of Directors
of Seitel without the approval of Eagle.
6.02 Complete Agreement. This Separation Agreement, the Exhibits and
Schedules hereto and the agreements (including the Operative Agreements) and
other documents referred to herein and therein shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.
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<PAGE> 15
6.03 Authority. Each of the parties hereto represents to the other
that (i) it has the power and authority to execute, deliver and perform this
Separation Agreement, (ii) the execution, delivery and performance of this
Separation Agreement by it has been duly authorized by all necessary corporate
action, (iii) it has duly and validly executed the Agreement, (iv) this
Separation Agreement is a valid and binding obligation, enforceable against it
in accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and general equity principles.
6.04 Expenses. Except as otherwise provided in this Separation
Agreement and the Operative Agreements, all costs and expenses of any party
hereto in connection with the preparation, execution, delivery and
implementation of this Separation Agreement and in connection with the
consummation of the transactions contemplated by this Separation Agreement shall
be paid by the party for whose benefit such costs and expenses are incurred,
with any costs and expenses that cannot be allocated on the foregoing basis to
be divided equally between the parties hereto.
6.05 Governing Law. This Separation Agreement shall be governed by
and construed in accordance with the laws of the State of Texas (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
6.06 Notices. All notices, requests, claims, demands and other
communications hereunder (collectively, "Notices") shall be in writing and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, telegram, telex, telecopy or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Seitel:
Seitel, Inc.
50 Briar Hollow Lane
West Building, 7th Floor
Houston, Texas 77027
Attention: Paul A. Frame, President
If to Eagle:
Eagle Geophysical, Inc.
50 Briar Hollow Lane
West Building, 6th Floor
Houston, Texas 77027
Attention: Jay N. Silverman, President
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 6.06.
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6.07 Amendment and Modification. This Separation Agreement may be
amended or modified in any material respect only by a written agreement signed
by both of the parties hereto.
6.08 Successors and Assigns; No Third-Party Beneficiaries. This
Separation Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto, their successors and permitted
assigns, and the members of their respective Groups, but neither this Separation
Agreement nor any of the rights, interests and obligations hereunder shall be
assigned by either party hereto without the prior written consent of the other
party (which consent shall not be unreasonably withheld). Except for the
provisions of Sections 3.02 and 3.03 relating to Indemnities, which are also for
the benefit of the Indemnitees, this Separation Agreement is solely for the
benefit of the parties hereto and their Subsidiaries and Affiliates and is not
intended to confer upon any other Persons any rights or remedies hereunder.
6.09 Counterparts. This Separation Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.10 No Waiver. No failure by either party to take any action or
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right, unless expressly waived in writing by the party against whom the
existence of such waiver is asserted.
6.11 Interpretation. The Article and Section headings contained in
this Separation Agreement are solely for the purpose of reference, are not part
of the agreement of the parties hereto and shall not in any way affect the
meaning or interpretation of this Separation Agreement.
6.12 Legal Enforceability. Any provision of this Separation
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach of
the provisions of this Separation Agreement and agrees that the obligations of
the parties hereunder shall be specifically enforceable.
SEITEL, INC.
By: /s/ Debra D. Valice
--------------------------------------
Debra D. Valice, Senior Vice President
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
--------------------------------------
Jay N. Silverman, President
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<PAGE> 1
Exhibit 10.23
EAGLE GEOPHYSICAL, INC.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is dated as of August 11, 1997
(this "Agreement"), by and among EAGLE GEOPHYSICAL, INC., a Delaware
corporation (the "Company"), and EHI HOLDINGS, INC. a Delaware corporation (the
"Stockholder").
W I T N E S S E T H:
WHEREAS, the Company has undertaken the completion of an initial
public offering (the "IPO") of 4,000,000 newly-issued shares of its common
stock, $0.01 par value per share (the "Common Stock"), as well as shares of the
Common Stock held by certain selling stockholders;
WHEREAS, Stockholder currently owns 3,400,000 shares of the Common
Stock;
WHEREAS, as part of the IPO, Stockholder will sell 1,880,000 shares of
the Common Stock as a selling stockholder ("Stockholder's Distribution");
WHEREAS, in connection with the IPO, the underwriters have
overallotment options with respect to a maximum of 882,000 shares of the Common
Stock (the "Overallotment Options");
WHEREAS, up to 100,000 shares of the Common Stock that may be
purchased by the underwriters upon exercise of the Overallotment Options
("Stockholder's Share of the Overallotment") may be purchased from the
Stockholder, which shall be in addition to the Stockholder's Distribution;
WHEREAS, the Company has agreed to provide to the Stockholder the
limited registration rights set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms have the meanings specified as follows:
(a) The term "Commission" means the Securities and
Exchange Commission.
(b) The term "Common Stock" has the meaning specified in
the preamble to this Agreement.
(c) The term "Company" has the meaning specified in the
preamble to this Agreement.
<PAGE> 2
(d) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
(e) The term "Overallotment Options" has the meaning
specified in the preamble to this Agreement.
(f) The term "Person" means an individual, partnership,
corporation, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
(g) The terms "register," "registered" and "registration"
refer to a registration of securities effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act (as defined below), and the declaration or ordering of effectiveness of
such registration statement or document.
(h) The term "Registrable Securities" means (i) the
1,520,000 shares of Common Stock held by the Stockholder after the
Stockholder's Distribution, less Stockholder's Share of the Overallotment to
the extent actually exercised by the underwriters, and (ii) any other shares of
Common Stock issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, such shares of Common Stock; provided,
however, that any such shares of Common Stock shall cease to be Registrable
Securities when such shares have been effectively registered under the
Securities Act and disposed of in accordance with a registration statement or
such shares are sold pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act.
(i) The term "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations of the Commission issued under
such Act, as they each may, from time to time, be in effect.
(j) The term "Stockholder" means the person defined as
such in the preamble to this Agreement to whom registration rights are hereby
granted, and any transferee to whom the rights granted under this Agreement are
assigned in accordance with Section 13 hereof.
(k) The term "Stockholder's Distribution" has the meaning
specified in the preamble to this Agreement.
(l) The term "Stockholder's Share of the Overallotment"
has the meaning specified in the preamble to this Agreement.
2. Securities Subject to this Agreement. The securities entitled
to the benefits of this Agreement are the Registrable Securities.
Notwithstanding any provision contained herein, Stockholder hereby agrees that,
prior to the date two (2) years after the date of this Agreement, it will not
sell under any registration statement filed by the Company pursuant hereto more
than fifty percent (50%) of the Registrable Securities held by Stockholder
immediately following the
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<PAGE> 3
completion of the IPO or, if applicable, any exercise of the Overallotment
Options by the underwriters.
3. Shelf Registration. The Company shall file a "shelf"
registration statement covering the Registrable Securities on any appropriate
form pursuant to Rule 415 (or any similar rule that may be adopted by the
Commission) under the Securities Act no later than 370 days after the date of
this Agreement. The Company agrees to use its best efforts to cause such shelf
registration statement to become effective as promptly as practicable after the
filing thereof and to keep it continuously effective thereafter for a period of
two years from the effective date of such registration statement.
Notwithstanding anything herein to the contrary, the period during which the
Company is obligated to maintain the effectiveness of a registration statement
hereunder will terminate when all the Registrable Securities covered by the
shelf registration statement have been sold.
4. Piggyback Registration.
(a) If, at any time before the expiration of three years
after the date of this Agreement, the Company proposes to file a registration
statement relating to any of its equity securities under the Securities Act
other than (i) a registration statement on Form S-4 or Form S-8 or successor
forms thereto or a registration on any other form which does not include
substantially the same information as would be required to be included in a
registration statement covering the Registrable Securities; or (ii) a
registration statement filed in connection with an exchange offer or an
offering of securities solely to the Company's existing stockholders or its
employees, the Company will give written notice no less than 30 days prior to
such filing to the Stockholder offering the opportunity to register on such
registration statement such number of Registrable Securities as Stockholder may
request (such notice to specify, among other things, the proposed offering
price, the kind and number of securities proposed to be registered and the
distribution arrangements, including identification of the managing
underwriter(s)). The Company will use all reasonable efforts to include in
such registration all Registrable Securities with respect to which the Company
has received written request for inclusion within 15 days after the Company's
notice has been so given.
(b) If any registration statement is an underwritten
public offering, the right of the Stockholder to registration pursuant to this
Section 4 shall be conditioned upon such Stockholder's participation in such
reasonable underwriting arrangements as the Company shall make regarding the
offering, and the inclusion of Registrable Securities in the underwriting shall
be limited to the extent provided herein. The Stockholder shall (together with
the Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 4(b), if the managing
underwriter concludes in its reasonable judgment that the number of shares to
be registered for selling stockholders (including the Stockholder) would
materially adversely effect such offering, the number of shares of the Common
Stock to be registered, together with the number of shares of Common Stock or
other securities held by other stockholders proposed to be registered in such
offering, shall be reduced on a pro rata basis based on the number of shares of
the Common Stock proposed to be
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<PAGE> 4
sold by the Stockholder as compared to the number of shares proposed to be sold
by all stockholders. If the Stockholder disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the managing underwriter, delivered not less than ten days before
the effective date. The Registrable Securities excluded by the managing
underwriter or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to
120 days after the effective date of the registration statement relating
thereto, or such other shorter period of time as the underwriters may require.
5. Registration Procedures. In connection with the Company's
shelf registration obligations pursuant to Section 3 and piggyback registration
obligations pursuant to Section 4 hereof, the Company shall as expeditiously as
reasonably practicable:
(a) Prepare and file with the Commission a registration
statement on an appropriate form under the Securities Act and use its best
efforts to cause such registration statement to become effective; provided,
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the Stockholder and the
underwriters, if any, as soon as practicable, copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Stockholder and the underwriters, and the Company will not file any
registration statement or amendment thereto, or any prospectus or any
supplement thereto, to which Stockholder or the underwriters shall reasonably
object in light of the requirements of the Securities Act and any other
applicable laws and regulations.
(b) Prepare and file with the Commission such amendments
and post-effective amendments to a registration statement as may be necessary
to keep such registration statement effective for the applicable period; cause
the related prospectus to be filed pursuant to Rule 424(b) under the Securities
Act; cause such prospectus to be supplemented by any required prospectus
supplement and, as so supplemented, to be filed pursuant to Rule 424(b) under
the Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during the applicable period in accordance with the intended methods
of disposition set forth in such registration statement or supplement to such
prospectus.
(c) Notify the Stockholder and the managing underwriters,
if any, promptly, and (if requested by any such Person) confirm such advice in
writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceeding for that purpose,
(iv) if at any time the representations and warranties of the Company
contemplated by Section 5(m) cease to be true and correct, (v) of the receipt
by the Company of any notification with respect to the suspension or
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (vi) of the happening of
any event which requires the making of any changes in a registration statement
or related prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
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<PAGE> 5
stated therein or necessary to make the statements therein not misleading, and
(vii) of the Company's reasonable determination that a post-effective amendment
to a registration statement would be appropriate or that there exist
circumstances not yet disclosed to the public which make further sales under
such registration statement inadvisable pending such disclosures and
post-effective amendment.
(d) Exercise its best efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction, at the earliest possible moment.
(e) If requested by Stockholder or the managing
underwriters in connection with an underwritten offering, promptly incorporate
in a prospectus supplement or post-effective amendment such information as
Stockholder or the managing underwriters agree should be included therein
relating to such sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of shares of
Registrable Securities being sold to such underwriters and the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement if
requested by Stockholder or any underwriter of such Registrable Securities.
(f) Furnish to the Stockholder and each managing
underwriter, if any, without charge, at least one signed copy of the
registration statement, any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference).
(g) Deliver without charge to the Stockholder and the
underwriters, if any, as many copies of the prospectus or prospectuses
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by the Stockholder and
the underwriters, if any, in connection with the offer and sale of the
Registrable Securities covered by such prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable
Securities, register or qualify or cooperate with the Stockholder, the
underwriters, if any, and respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as the Stockholder
or an underwriter reasonably requests in writing; keep each such registration
or qualification effective during the period such registration statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable registration statement; provided, however,
that the Company will not be required in connection therewith or as a condition
thereto to qualify generally to do business or subject itself to general
service of process in any such jurisdiction where it is not then so subject.
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<PAGE> 6
(i) Cooperate with the Stockholder and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters.
(j) Use its best efforts to cause the Registrable
Securities to be listed on each national securities exchange on which similar
securities issued by the Company are then listed.
(k) Use its best efforts to cause the Registrable
Securities covered by the applicable registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary, if any, to consummate the disposition of such Registrable
Securities.
(l) Upon the occurrence of any event contemplated by
Section 5(c)(ii) - (vii) above, prepare a supplement or post-effective
amendment to the applicable registration statement or related prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchaser of the Registrable Securities
being sold thereunder, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading.
(m) Enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the Registrable Securities to be covered by such registration
are to be offered in an underwritten offering: (i) make such representations
and warranties to the Stockholder with respect to the registration statement,
prospectus and documents incorporated by reference, if any, in form, substance
and scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) obtain opinions of
counsel to the Company and updates thereof with respect to the registration
statement and the prospectus in the form, scope and substance which are
customarily delivered in underwritten offerings; (iii) in the case of an
underwritten offering, enter into an underwriting agreement in form, scope and
substance as is customary in underwritten offerings and obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions in form,
scope and substance shall be reasonably satisfactory to the managing
underwriters and not reasonably objected to by Stockholder) addressed to the
Stockholder and the underwriters, if any, covering the matters customarily
covered in opinions delivered in underwritten offerings and such other matters
as may be reasonably requested by Stockholder and such underwriters; (iv)
obtain "cold comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to the Stockholder and the
underwriters, if any, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters by accountants in
connection with underwritten offerings; (v) if any underwriting agreement is
entered into, set forth in full in such underwriting agreement the
indemnification provisions and procedures customarily included in underwriting
agreements in underwritten offerings; and (vi) deliver such documents and
certificates as may be
6
<PAGE> 7
requested by the managing underwriters, if any, and Stockholder to evidence
compliance with clause (k) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
(n) Make available for inspection by a representative of
the Stockholder, any underwriter participating in any disposition pursuant to
such registration, and any attorney or accountant retained by the Stockholder
or such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with
such registration; provided that any records, information or documents that are
designated by the Company in writing as confidential shall be kept confidential
by such Persons unless disclosure of such records, information or documents is
required by applicable law or court or administrative order.
(o) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder.
6. Contents of Registration Statement. In connection with any
registration of Registrable Securities, the Company may require Stockholder to
furnish to the Company such information regarding itself and the distribution
of such securities as the Company may from time to time reasonably request in
writing. If the Company, in the exercise of its reasonable judgment, objects to
any information relating to the Company requested by the Stockholder or the
underwriters, if any, to be included in any registration statement or
prospectus or any amendments or supplements thereto, the Company shall not be
obligated to include such objectionable information, and the Stockholder may
withdraw the Registrable Securities from such registration, in which event the
shelf registration statement or an amendment thereto shall be filed as soon as
agreement with respect to any proposed change shall be reached among the
Company, the Stockholder and the managing underwriter, if any.
7. Stand-off Agreement. Stockholder agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 5(c)(ii)-(vii) hereof, Stockholder will forthwith discontinue
disposition of Registrable Securities covered by such registration statement or
prospectus until the Stockholder's receipt of copies of the supplemented or
amended prospectus contemplated by Section 5(l) hereof, or until it is advised
in writing by the Company that the use of the applicable prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in such prospectus, and, if so directed by
the Company, Stockholder will deliver to the Company all copies, other than
permanent file copies then in Stockholder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time period
regarding maintaining the effectiveness of such registration statement set
forth in Section 3 shall be extended by the number of days during the time
period from and including the date of the giving of such notice pursuant to
Section 5(c) hereof to and including the date when
7
<PAGE> 8
the Stockholder shall have (i) received the copies of the supplemented or
amended prospectus contemplated by Section 5(l) hereof, or (ii) been advised in
writing by the Company that use of the prospectus may be resumed.
8. Hold-back Agreement. In the event that (i) the Company
pursues an underwritten public offering on its own behalf of its Common Stock
during the period during which the Company is obligated to use its best efforts
to obtain and maintain the effectiveness of the registration statement set
forth in Section 3 (the "Effective Period"), and (ii) the managing underwriter
or underwriters of such offering determine, in their discretion, that the total
amount of Common Stock included in the distribution pursuant to the shelf
registration contemplated hereby would materially adversely affect the success
of such public offering by the Company, then Stockholder agrees not to sell any
Registrable Securities under the shelf registration statement described in
Section 3 without the prior written consent of the Company and such
underwriters, during the 14-day period prior to, and during the 120-day period
beginning on, the effective date of such registration statement (to the extent
timely notified in writing by the Company or the managing underwriters);
provided, however, that, in the event of any such offering, (1) Stockholder
shall be provided the opportunity to sell pursuant to the terms of Section 4 of
this Agreement, if it so desires, not less than twenty-five percent (25%) of
the number of Registrable Securities held by the Stockholder immediately
following the completion of the IPO or, if applicable, any exercise of the
Overallotment Options by the underwriters, and (2) the Effective Period shall
be extended by the number of days during the time period from and including the
date 14 days prior to the effective date of such registration statement and
ending 120 days after the effective date of such registration statement.
Notwithstanding the foregoing, Stockholder shall be subject to the hold-back
restrictions of this Section 8 not more than once during the Effective Period.
9. Expenses of Registration. All expenses incurred in connection
with a registration, filing or qualification pursuant to Sections 3 or 4 hereof
(other than fees and expenses of counsel for the Stockholder), including,
without limitation, registration, filing and qualification fees, printers' and
accounting fees, and the fees and disbursements of counsel for the Company,
shall be borne and paid by the Company; provided, however, that the Stockholder
shall bear and pay all underwriting discounts and selling commissions
attributable to sales of Registrable Securities.
10. Underwritten Registrations. If any of the Registrable
Securities covered by any registration under Section 3 are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering may be selected by the
Stockholder; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
11. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless Stockholder, the officers and directors of
Stockholder, each underwriter of Registrable Securities and each other Person,
if any, who controls Stockholder or such underwriter within the
8
<PAGE> 9
meaning of Section 16 of the Securities Act, against any losses, claims,
damages, liabilities or expenses, joint or several, to which any such Person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act pursuant hereto, or any post-effective amendment thereof, or any omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the registration
statement and not corrected in the final prospectus, or contained in the final
prospectus (as amended or supplemented, if the Company shall have filed with
the Commission any amendment thereof or supplement thereto), or any omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse any
such Person for any legal or other expenses reasonably incurred by such Person
in connection with investigating or defending any such loss, claim, damage,
liability or expense; provided, however, that the indemnity agreement contained
in this Section 11(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or expense if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld); and provided further that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon (x) any such untrue statement or omission or
alleged untrue statement or omission which has been made in said registration
statement, preliminary prospectus, prospectus or amendment or supplement or
omitted therefrom in reliance upon and in conformity with information furnished
in writing to the Company by the Stockholder or such underwriter specifically
for use in the preparation thereof, (y) the fact that Stockholder sold
Registrable Securities to a Person to whom there was not sent or given, at or
before written confirmation of such sale, a copy of the prospectus (excluding
documents incorporated by reference), or of the prospectus as then amended or
supplemented (excluding documents incorporated by reference) if the Company has
previously furnished copies thereof to Stockholder in compliance with the
Agreement and the loss, claim, damage, liability or expense of Stockholder
results from an untrue statement of material fact contained in such preliminary
prospectus which was corrected in the prospectus (or the prospectus as amended
or supplemented); and (z) any violation by the Stockholder of its obligations
under Section 7 hereof.
(b) To the extent permitted by law, Stockholder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each underwriter and each Person who controls any underwriter within the
meaning of Section 15 of the Securities Act, against any losses, claims,
damages, liabilities or expenses, joint or several, to which the Company or any
such Person may become subject under the Securities Act or otherwise, and will
reimburse the Company or any such Person for any legal or other expenses
reasonably incurred by the Company or such Person in connection with
investigating or defending any such loss, claim, damage, liability or expense,
but only insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon (x) any untrue
statement or omission or alleged untrue statement or omission of a material
fact referred to in clause
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<PAGE> 10
(i) or (ii) of Section 11(a) hereof, in each case to the extent (and only to
the extent) that such untrue statement or omission or alleged untrue statement
or omission was made in reliance upon and in conformity with information
furnished in writing by or on behalf of Stockholder specifically for use in
connection with such registration; (y) with respect to any preliminary
prospectus, the fact that the Stockholder sold Registrable Securities to a
person to whom there was not sent or given, at or before written confirmation
of such sale, a copy of the prospectus (excluding the documents incorporated by
reference) or of the prospectus as then amended or supplemented (excluding
documents incorporated by reference) if the Company has previously furnished
copies thereof to Stockholder in compliance with this Agreement and the loss,
claim, damage, liability or expense of the Company or such Person result from
an untrue statement or omission of a material fact contained in such
preliminary prospectus which was corrected in the prospectus (or the prospectus
as amended or supplemented); and (z) with respect to any sales made during any
period in which the Company had notified the Stockholder pursuant to Section 7
hereof to suspend sales; provided, however, that the indemnity agreement
contained in this Section 11(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or expense if such settlement is
effected without the consent of Stockholder, which consent shall not be
unreasonably withheld; and provided further that the obligations of Stockholder
under this Section 11(b) shall be limited to an amount equal to the proceeds
from the sale by Stockholder of Registrable Securities included in a
registration statement under this Agreement.
(c) Promptly after receipt by an indemnified party under
this Section 11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying pay under this Section 11, notify
the indemnifying party in writing of the commencement thereof; provided,
however, that the failure to so notify the indemnifying party shall not relieve
the indemnifying party from any liability hereunder except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
The indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding.
(d) If the indemnification provided for in this Section
11 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party and the indemnified parties, the relative fault of the
indemnifying party and indemnified parties in connection with the actions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any
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<PAGE> 11
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 11(c)
hereof, any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this
Section 11(d) were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in this paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
12. Reports Under Exchange Act. With a view to making available
to the Stockholder the benefits of Rule 144 under the Securities Act and any
other rule or regulation of the Commission that may at any time permit the
Stockholder to sell securities of the Company to the public without
registration, the Company agrees, for so long as Stockholder holds the
Registrable Securities, to:
(a) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act, and the rules and regulations adopted by the Commission
thereunder; and
(b) furnish to the Stockholder forthwith upon request (i)
a written statement by the Company as to whether it has complied with the
reporting requirements of Rule 144, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents filed by
the Company pursuant to the Exchange Act, and (iii) such other information as
may be reasonably requested in availing the Stockholder of any rule or
regulation of the Commission which permits the sale of any securities without
registration.
13. Assignment of Registration Rights. The right to cause the
Company to register Registrable Securities pursuant to this Agreement may not
be transferred or assigned, in whole or in part, by Stockholder without the
prior written consent of the Company.
14. Miscellaneous.
(a) Successors and Assigns: No Third Party Benefit.
This Agreement shall be binding upon and inure to the benefit of the parties
and their respective permitted successors and assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto and their respective permitted successors and assigns any
rights or remedies under or by reason of this Agreement, except as expressly
provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the substantive laws of the
State of Texas, without giving effect to the principles of conflicts of law
thereof.
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<PAGE> 12
(c) Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all, the parties hereto.
(d) Titles and Subtitles. The titles and subtitles used
in this Agreement are inserted for convenience only and are not to be
considered in construing or interpreting this Agreement.
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing and shall be
delivered by (i) personal delivery, (ii) expedited delivery service, (iii)
certified or registered mail, postage prepaid, or (iv) confirmed facsimile
transmission. Any such notice shall be deemed given upon its receipt at the
following address (or such other address as may be specified by such party upon
written notice to the others in accordance with this Section 14(f)):
If to the Company: Eagle Geophysical, Inc.
50 Briar Hollow Lane West, 6th Floor
Houston, Texas 77027
Attention: Jay N. Silverman, President
Telephone: (713) 881-2893
Telefax: (713) 627-1020
If to Stockholder: EHI Holdings, Inc.
50 Briar Hollow Lane West, 7th Floor
Houston, Texas 77027
Attention: Paul A. Frame, President
Telephone: (713) 881-8900
Telefax: (713) 627-2045
(f) Amendments and Waivers. The terms and provisions of
this Agreement may not be modified or amended, or any of the provisions hereof
waived, temporarily or permanently, except pursuant to a writing executed by
the Company and the Stockholder. A waiver by any party of a breach of any term
or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
(g) Severability. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance shall be held invalid or unenforceable,
the remaining portion of such provision, as it applies to other Persons or
circumstances and the remaining provisions, shall not be affected or impaired
thereby.
(h) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the
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<PAGE> 13
agreement and understanding of the parties hereto in respect of the subject
matter herein contained. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
---------------------------------
Jay N. Silverman, President
EHI HOLDINGS, INC.
By: /s/ Debra D. Valice
---------------------------------
Debra D. Valice, Vice President
13
<PAGE> 1
Exhibit 10.24
TAX INDEMNIFICATION AGREEMENT
BETWEEN
SEITEL, INC.
AND
EAGLE GEOPHYSICAL, INC.
DATED: August 11, 1997
<PAGE> 2
TAX INDEMNIFICATION AGREEMENT
This Tax Indemnification Agreement (the "Agreement"), dated as of this
11th day of August, 1997, by and between Seitel, Inc. ("Seitel"), a Delaware
corporation, and Eagle Geophysical, Inc. ("Eagle"), a Delaware corporation, is
entered into in connection with a Master Separation Agreement (the "Separation
Agreement") dated as of the 11th day of August, 1997, by and between Seitel and
Eagle.
WHEREAS, Seitel and Eagle have entered into the Separation Agreement
pursuant to which the ownership of Eagle and the Eagle Businesses will be
separated from Seitel and the Seitel Businesses by means of an initial public
offering by Eagle of its common stock (the "IPO") pursuant to a Registration
Statement (the "IPO Registration Statement") filed by Eagle with the SEC;
WHEREAS, after the Effective Date it is anticipated that the Seitel
Group will own less than 20% Post-Closing of the issued and outstanding shares
of Eagle and thereafter neither Eagle nor any of the Eagle Post-Closing
Affiliates will file Tax Returns as a member of the Seitel Group; and
WHEREAS, Seitel and Eagle desire to set forth their agreement on the
proper allocation among Seitel and Eagle and their subsidiaries of their
respective liabilities for Taxes.
NOW, THEREFORE, in consideration of their mutual promises, Seitel and
Eagle agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and the plural forms of the terms defined):
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable period in question.
"Consolidated Group" means the group of corporations that immediately
prior to the Effective Date are members of the affiliated group of corporations
(within the meaning of Section 1504 of the Code) of which Seitel is the common
parent.
"Eagle Pre-Closing Affiliate" means any corporation, partnership or
other entity directly or indirectly controlled by Eagle on or before the
Effective Date.
"Eagle Post-Closing Affiliate" means any corporation, partnership or
other entity directly or indirectly controlled by Eagle after the Effective
Date.
<PAGE> 3
"Eagle Businesses" means the present and future subsidiaries,
divisions and business of any member of Eagle and the Eagle Post-Closing
Affiliates.
"Effective Date" means the date upon which the IPO Registration
Statement is declared effective.
"Final Determination" shall mean the final resolution of liability for
any Tax for a taxable period, including any related interest or penalties, (i)
by Internal Revenue Service Form 870 or 870-AD (or any successor forms
thereto), on the date of acceptance by or on behalf of the Internal Revenue
Service ("IRS"), or by a comparable form under the laws of other jurisdictions;
except that a Form 870 or 870-AD or comparable form that reserves (whether by
its terms or by operation of law) the right of the taxpayer to file a claim for
refund and/or the right of the Taxing Authority to assert a further deficiency
shall not constitute a Final Determination; (ii) by a decision, judgment,
decree, or other order by a court of competent jurisdiction, which has become
final and unappealable; (iii) by a closing agreement or accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable agreements
under the laws of other jurisdictions; (iv) by any allowance of a refund or
credit in respect of an overpayment of Tax, but only after the expiration of
all periods during which such refund may be recovered (including by way of
offset) by the Tax imposing jurisdiction; or (v) by any other final
disposition, including by reason of the expiration of the applicable statute of
limitations.
"Pre-Closing Straddle Period" is defined in Section 2.04.
"Representative" means with respect to any person or entity, any of
such person's or entity's directors, officers, employees, agents, consultants,
advisors, accountants, attorneys, and representatives.
"Seitel Affiliate" means any corporation, partnership or other entity
directly or indirectly controlled by Seitel, other than Eagle or any Eagle
Affiliate.
"Seitel Businesses" means the present and future subsidiaries,
divisions and business of any member of the Seitel Group, other than the
present and future subsidiaries, divisions and business of Eagle or any Eagle
Post-Closing Affiliates. Seitel Businesses shall include all former
subsidiaries, divisions and businesses, other than the Eagle Businesses.
"Seitel Group" means the group of corporations that immediately after
the Effective Date are members of the affiliated group of corporations of which
Seitel is the common parent (within the meaning of section 1504 of the Code).
"Straddle Period" is defined in Section 2.04.
"Tax" or "Taxes" means (A) all forms of taxation, whenever created or
imposed, and whenever imposed by a national, municipal, governmental, state,
federal or other body, whether domestic or foreign (a "Taxing Authority"), and
without limiting the generality of the foregoing,
2
<PAGE> 4
shall include net income, alternative or add-on minimum tax, gross income,
sales, use, ad valorem, gross receipts, value added, franchise, profits,
license, transfer, recording, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profit, custom duty,
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any related interest, penalties, or other additions
to tax, or additional amounts imposed by any such Taxing Authority, (B)
liability for the payment of any amounts of the type described in (A) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any period, including any liability arising pursuant to Treas. Reg.
Section 1.1502-6, or as a result of being a party to any agreement or
arrangement whereby liability for payment of such amounts was determined or
taken into account with reference to the liability of another party, and (C)
liability for the payment of any amounts of the type described in (A) as a
result of any express or implied obligation to indemnify any other person.
"Taxing Authority" is defined under the term "Taxes".
"Tax Return" means any return, filing, questionnaire or other document
required to be filed, including requests for extensions of time, filings made
with estimated Tax payments, claims for refund and amended returns that may be
filed, for any taxable period with any Taxing Authority in connection with any
Tax (whether or not a payment is required to be made with respect to such
filing).
"Tax Schedule" is defined in Section 2.04.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.01. Income Included. All Tax Returns required to be filed by
or on behalf of any member of the Consolidated Group relating to taxable
periods ending before or including the Effective Date and filed after the date
of this Agreement shall include the income attributable to such taxable periods
(including, for Federal income Tax purposes, any deferred income triggered into
income by Treas. Reg. Section 1.1502.13 and Treas. Reg. Section 1.1502-14 and
any excess loss accounts taken into income under Treas. Reg. Section 1.1502.19)
of Eagle and the Eagle Pre-Closing Affiliates in the Consolidated Group's
consolidated Federal income Tax Returns (or under any similar rules applicable
to any state, local or other Tax Returns filed on a consolidated basis) for all
periods through the Effective Date. The income of Eagle and such Eagle
Pre-Closing Affiliates will be apportioned to the period up to and including
the Effective date and the period after the Effective Date by closing the books
of Eagle and such Eagle Pre-Closing Affiliates as of the end of the Effective
Date.
Section 2.02. Pre-Effective Date Tax Returns. Except as otherwise
provided in Section 2.04, Seitel shall timely prepare and file, or cause to be
timely prepared and filed, all Tax Returns required to be filed by or on behalf
of any member of the Consolidated Group relating to taxable periods ending
before or including the Effective Date. Eagle shall provide Seitel any
Tax-related information reasonably requested by Seitel relating to any taxable
periods ending on or before the Effective Date.
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<PAGE> 5
Section 2.03. Post-Effective Date Tax Returns. Eagle shall prepare and
file, or cause to be prepared and filed, all Tax Returns for Eagle and any
Eagle Post-Closing Affiliate for taxable periods beginning after the Effective
Date. Seitel shall prepare and file, or cause to be prepared and filed, all
Tax Returns for the Seitel Group for taxable periods beginning after the
Effective Date.
Section 2.04. Straddle Period Returns.
(a) Eagle shall prepare and file on a timely
basis any Tax Returns (but not including any Federal income Tax Return) of
Eagle and any Eagle Pre-Closing Affiliate for any taxable period beginning
before and ending after the Effective Date (a "Straddle Period").
(b) All other Tax Returns for a Straddle
Period required to be filed by any member of the Consolidated Group other than
Eagle or any Eagle Pre-Closing Affiliate shall be prepared and filed by Seitel.
ARTICLE III
PAYMENT OF TAXES
Section 3.01. Taxable Periods Prior to the Effective Date. All Taxes
of the Consolidated Group for all taxable periods ending before or including
the Effective Date shall be allocated among the members of the Consolidated
Group on the basis of the percentage of the total Tax which the Tax of each
member, if computed on a separate return basis without giving effect to
intercompany income, would bear to the total amount of the Taxes for all
members of the Consolidated Group computed on a separate return basis, in
accordance with Section 1552(a)(2) of the Code and the Regulations thereunder.
Section 3.02. Tax Deficiencies and Refunds. If as a result of any
audit, amendment or other change in a Tax Return as filed by the Consolidated
Group or any member thereof with respect to any taxable period ending before or
including the Effective Date, there is an additional amount of Taxes due and
payable, or a refund of Taxes previously paid (whether by payment, credit,
offset against other Taxes due or otherwise), any such deficiency shall be paid
by, and any such refund shall be payable to, Seitel.
Section 3.03. Foreign Tax Returns and Taxes. Notwithstanding any
provision of this Agreement to the contrary, Seitel and Eagle shall be
responsible for the filing of the Tax Returns for Seitel and the Seitel
Affiliates and for Eagle and the Eagle Post-Closing Affiliates, respectively,
for jurisdictions outside the United States that are due with respect to all
taxable periods, and shall be responsible for the payment of all Taxes due or
payable in connection with each of their respective Tax Returns.
Section 3.04. Liability for Taxes with Respect to Post-Effective Date
Taxable Periods. The Seitel Group shall pay all Taxes of the Seitel Group and
shall be entitled to receive and retain all refunds of Taxes of the Seitel
Group with respect to taxable periods beginning after the Effective
4
<PAGE> 6
Date which are attributable to the Seitel Businesses. Eagle shall pay all
taxes of Eagle and any Eagle Post-Closing Affiliate and shall be entitled to
receive and retain all refunds of taxes of Eagle and any Eagle Post-Closing
Affiliate for all periods beginning after the Effective Date which are
attributable to the Eagle Businesses.
Section 3.05. Straddle Period Payments. Seitel shall be
responsible for (and shall pay) any Taxes shown to be due thereon to the extent
attributable to the portion of such taxable period ending on and including the
Effective Date, and Eagle shall be responsible for the balance of such Taxes
due on a Tax Return described in Section 2.04(a). Any Taxes for a Straddle
Period with respect to Eagle or any Eagle Pre-Closing Affiliate shall be
apportioned based on the actual operations of Eagle and any Eagle Pre-Closing
Affiliate during the portion of such period ending on the Effective Date (the
"Pre-Closing Straddle Period") and the portion of such period beginning on the
date following the Effective Date. For purposes of Section 2.04(a), each
portion of such period shall be deemed to be a taxable period. With respect to
any Taxes for the Straddle Period described in Section 2.04(a), Eagle shall
deliver to Seitel copies of any such Tax Returns prior to the filing thereof in
the event that Seitel is responsible for the payment of any Taxes shown to be
due thereon and Eagle shall present Seitel with a schedule detailing the
computation of the portion, if any, of the Pre-Closing Straddle Period Tax for
which Seitel is responsible (the "Tax Schedule"). Within ten (10) business
days after Eagle presents Seitel with the Tax Schedule, Seitel shall pay the
amount of such Pre-Closing Straddle Period Tax. In the event Seitel disputes
Eagle's computation of the Pre-Closing Straddle Period Tax, Seitel shall be
relieved of its obligation to pay, in the first instance, any such disputed
amount. If upon such resolution it is determined that any of such disputed
amount is payable by Seitel and such amount has not been paid by Seitel, then
Seitel shall promptly pay to Eagle such amount.
Section 3.06. Carrybacks. Eagle shall not be entitled to any refund of
any Tax obtained by the Consolidated Group (or any member of the Consolidated
Group), including any refund obtained as a result of the carryback of losses or
credits of Eagle or any Eagle Post-Closing Affiliate from any taxable period
beginning after the Effective Date to any taxable period ending before or
including the Effective Date. The application of any such carrybacks by Eagle
and/or any other current or former member of the Consolidated Group shall be in
accordance with the Code and the Treasury Regulations promulgated thereunder.
Notwithstanding this Section 3.05, Eagle and any Eagle Post-Closing Affiliate
shall have the right, in its sole discretion, to make any election, including
the election under Section 172(b)(3) of the Code, which would eliminate or
limit the carryback of any loss or credit to any taxable period ending before
or including the Effective Date.
Section 3.07. Retention of Carryovers. Seitel may elect to retain
the net operating loss carryovers and capital loss carryovers of Eagle and the
Eagle Pre-Closing Affiliates under Treas. Reg. Section 1.1502-20(g). At
Seitel's request, Eagle and the Eagle Pre-Closing Affiliates will join with
Seitel in filing any necessary elections under Treas. Reg. Section
1.1502-20(g).
Section 3.08. Post-Closing Elections. At Seitel's request, Eagle and
the Eagle Pre-Closing Affiliates shall make and/or join with Seitel in making
any Tax elections reasonably requested by Seitel after the Effective Date, if
the making of such election does not have a material adverse impact on Eagle or
any Eagle Pre-Closing Affiliate for any post-Effective Date Tax period.
5
<PAGE> 7
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01. Cooperation. Eagle shall cooperate (and shall cause any
Eagle Post-Closing Affiliate to cooperate) fully at such time and to the extent
reasonably requested by Seitel in connection with the preparation and filing of
any Tax Return or the conduct of any audit, dispute, proceeding, suit or action
concerning any issues or any other matter contemplated hereunder relating to
any taxable period ending before or including the Effective Date. Such
cooperation shall include, without limitation, (i) the retention and provision
on demand of copies of books, records, documentation or other information
relating to any such Tax Return until the later of (x) the expiration of the
applicable statute of limitation (giving effect to any extension, waiver, or
mitigation thereof) and (y) in the event any claim has been made under this
Agreement for which such information is relevant, until a Final Determination
with respect to such claim; (ii) the execution of any document that may be
necessary or reasonably helpful in connection with the filing of any such Tax
Return, or in connection with any audit, proceeding, suit or action addressed
in the preceding sentence; and (iii) the use of the parties' reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually
convenient basis to facilitate such cooperation.
Section 4.02. Contest Provisions. Seitel shall have full
responsibility and discretion in the handling of any Tax controversy,
including, without limitation, an audit, a protest to the Appeals Division of
the IRS, and litigation in Tax Court or any other court of competent
jurisdiction involving a Tax Return of the Consolidated Group or the Seitel
Group.
ARTICLE V
MISCELLANEOUS
Section 5.01. Tax Indemnification.
(a) Seitel shall indemnify and hold harmless Eagle and each Eagle
Pre-Closing Affiliate from and against any liability, cost or expense,
including, without limitation, any fine, penalty, interest, charge or
accountant's fee, for any Tax required under this Agreement to be paid by
Seitel or any member of the Consolidated Group other than Eagle or an Eagle
Pre-Closing Affiliate.
(b) Eagle shall indemnify and hold harmless Seitel and each member of
the Seitel Group from and against any liability, cost or expense, including
without limitation, any fine, penalty, interest, charge or accountant's fee,
for any Tax required under this Agreement to be paid by Eagle or any Eagle
Post-Closing Affiliate.
Section 5.02. Breach. Seitel shall indemnify and hold harmless Eagle
and each Eagle Pre-
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Closing Affiliate and Eagle shall indemnify and hold harmless each member of
the Seitel Group from and against any payment required to be made under this
Agreement as a result of the breach by a member of the Seitel Group or by Eagle
or an Eagle Pre-Closing Affiliate, as the case may be, of any obligation under
this Agreement.
Section 5.03. Resolution of Certain Disputes.
(a) Disagreements between Seitel and Eagle with respect to amounts
that either claims is owed by the other (or by an Affiliate of the other) under
this Agreement, or other matters under this Agreement that are not resolved by
mutual agreement, shall be resolved by arbitration pursuant to this Section
5.03.
(b) Selection of the Arbitrator. Any arbitrator selected pursuant to
this Section 5.03(b) shall have at least ten years of experience in the field
of corporate taxation, shall be an attorney licensed to practice law in any
state of the United States or a certified public accountant licensed to
practice in any state of the United States and shall not be or have been
employed by or affiliated with either party. The parties shall first attempt to
agree on a mutually satisfactory arbitrator. If the parties are unable to agree
on a mutually satisfactory arbitrator within 30 days after either party
notifies the other in writing of a disagreement requiring arbitration pursuant
to this Section 5.03 (15 days in the case of a disagreement with respect to
Section 4.01 or Section 4.02), each party shall select an arbitrator. The two
arbitrators thus selected shall agree on and select a third arbitrator. If the
two arbitrators cannot agree on such third arbitrator within 30 days (15 days
in the case of a disagreement with respect to Section 4.01 or Section 4.02),
the parties shall each select a different arbitrator and renew the foregoing
procedure. If the position of an arbitrator is vacated, the person or persons
who originally selected the arbitrator to fill such position shall select a new
arbitrator to fill the position, unless the parties agree to continue the
arbitration with the remaining arbitrators. When used hereinafter, the term
"arbitrator" shall refer to the three arbitrators so selected when appropriate
and a decision of a majority of such arbitrators shall constitute a decision by
the arbitrator in the appropriate context.
(c) Arbitration Procedures.
(1) The arbitration shall be conducted under the auspices of the
American Arbitration Association.
(2) Each party within 30 days after engagement of the arbitrator (15
days in the case of a disagreement with respect to Section 4.01 or Section
4.02) shall submit to the arbitrator a written statement of the party's
position (including where relevant the total net amount it asserts is owed by
it or is due to it) regarding the total amount in dispute.
(3) The arbitrator shall base his decision on the following standards.
In the case of a factual dispute between the parties, the arbitrator shall make
a determination of the correct facts. In the case of a dispute regarding a
legal issue, including the proper application of the Tax laws or the proper
interpretation of this Agreement, the arbitrator shall make a determination in
accordance with his best legal judgment. Upon making determinations with
respect to all factual and legal issues in
7
<PAGE> 9
dispute, the arbitrator shall determine the amount due by one party to the
other or such other matter with respect to the matter subject to the
arbitration. Where relevant, as to each matter in dispute, the arbitrator shall
find in favor of the party whose statement submitted pursuant to paragraph (2)
above proposed the amount closest to the amount so determined.
(4) The arbitrator shall render a written decision stating only the
result of such decision as soon as practicable. The arbitrator shall also
orally explain the bases of such decision to both parties as soon as
practicable. If and only if both parties request, the arbitrator shall state
the bases of such decision in writing. Where relevant, as to each matter in
dispute, the arbitrator's decision shall be in an amount equal to one of the
total amounts asserted by one of the parties in the written statements
submitted pursuant to paragraph (2) above. The arbitrator shall not, and is not
authorized to, render a decision in any other amount.
(5) The arbitrator's decision shall be final and binding on the
parties. No appeal to any court is contemplated by this Agreement and each
party, to the maximum extent permissible by law, waives and relinquishes all
rights and entitlements to appeal such decision.
(6) The arbitrator shall determine a fair allocation of the costs
of the arbitration proceeding (including each party's legal fees) as between
the parties.
Section 5.04. Notices. Any notice, demand, claim or other
communication under this Agreement shall be in writing and shall be deemed
given upon delivery if delivered personally, upon mailing if sent by certified
mail, return receipt requested, postage prepaid, or upon completion of
transmission if sent by telecopy or facsimile, to the parties at the following
address:
Seitel at:
Seitel, Inc.
50 Briar Hollow Lane West
7th Floor
Houston, Texas 77027
Facsimile: 713/627-1020
Telephone: 713/881-2875
Attn: Chief Financial Officer
Eagle at:
Eagle Geophysical, Inc.
50 Briar Hollow Lane West
6th Floor
Houston, Texas 77027
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<PAGE> 10
Facsimile: 713/627-1114
Telephone: 713/881-8998
Attn: Chief Financial Officer
Section 5.05. Complete Agreement. This Agreement and the applicable
provisions of the Separation Agreement constitute the entire agreement of the
parties concerning the subject matter hereof, and supersedes all other
agreements, whether or not written, in respect of any Tax between or among any
member or members of the Seitel Group, on the one hand, and Eagle and any Eagle
Pre-Closing Affiliate, on the other hand. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. In the event
and to the extent that there shall be a conflict between the provisions of this
Agreement and the Separation Agreement, the provisions of this Agreement shall
control.
Section 5.06. Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of Texas.
Section 5.07. Successors and Assigns. A party's rights and obligations
under this Agreement may not be assigned without the prior written consent of
the other party. All of the provisions of this Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
Section 5.08. No Third-Party Beneficiaries. This Agreement is solely
for the benefit of the parties to this Agreement and their respective
subsidiaries and should not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without this Agreement.
Section 5.09. Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions. Any prohibition
or unenforceability of any provision of this Agreement in any jurisdiction
shall not invalidate or render unenforceable the provision in any other
jurisdiction.
Section 5.10. Expenses. Unless otherwise expressly provided in this
Agreement or in the Separation Agreement, each party shall bear any and all
expenses that arise from their respective obligations under this Agreement. In
the event either party to this Agreement brings an action or proceeding for the
breach or enforcement of this Agreement, the prevailing party in such action or
proceeding, whether or not such action or proceeding proceeds to final
judgment, shall be entitled to recover as an element of its costs, and not as
damages, such reasonable attorneys' fees as may be awarded in the action or
proceeding in addition to whatever other relief to which the prevailing party
may be entitled.
Section 5.11. Confidentiality. Each party shall hold and cause its
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion
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<PAGE> 11
of its counsel, by other requirements of law, all information (other than any
such information relating solely to the business or affairs of such party)
concerning the other parties hereto furnished it by such other party or its
Representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (a) previously known by the party to
which it was furnished, (b) in the public domain through no fault of such
party, or (c) later lawfully acquired from other sources by the party to which
it was furnished), and each party shall not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors who shall be advised of
the provisions of this Section. Each party shall be deemed to have satisfied
its obligation to hold confidential information concerning or supplied by the
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signature thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SEITEL, INC.
By: /s/ Debra D. Valice
-----------------------------------
Debra D. Valice, Senior Vice
President
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
----------------------------------
Jay N. Silverman, President
10
<PAGE> 1
Exhibit 10.25
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement ("Agreement") is entered into
as of August 11, 1997 by and between Seitel, Inc., a Delaware corporation
("Seitel"), and Eagle Geophysical, Inc., a Delaware corporation ("Eagle").
RECITALS
Prior to execution of this Agreement, Eagle was a wholly-owned
subsidiary of Seitel. Eagle has undertaken a series of transactions, including
the issuance of new shares in consideration for the acquisition of Energy
Research International and the issuance of new shares for cash in an initial
public offering (the "IPO"), consummated on the date hereof, and Seitel has
sold in such IPO a portion of the shares of Eagle that it owned, as a result of
which Eagle is no longer a wholly-owned subsidiary of Seitel.
During the period when Eagle was a wholly-owned subsidiary of Seitel,
Eagle relied on Seitel for the provision of certain administrative services
relating to Eagle's onshore seismic data acquisition business, which
administrative services Eagle intends in the future to provide for itself.
However, in order to provide for an orderly transition from Seitel providing
such administrative services to Eagle providing such services, and to allow
Eagle a reasonable time in which to assemble its own staff to provide such
services, Seitel has agreed to make available to Eagle for a transition period
of up to 90 days those administrative services formerly provided to Eagle with
respect to Eagle's onshore seismic data acquisition business, all pursuant to
the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, the parties hereby agree as follows:
Section 1. Defined Terms. The following terms will have the
following meanings when used in this Agreement:
"Accountant" means the certified public accounting firm most recently
retained by Seitel to audit its financial statements.
"Associate" means with respect to Seitel, any shareholder, director,
officer or employee of Seitel or any attorney, accountant, representative or
agent retained by Seitel.
"Expenses" means any reasonable and necessary out-of-pocket expenses
incurred in connection with the provision of the Services, including any taxes
or other governmental
<PAGE> 2
impositions attributable to the provision of the Services (other than income or
other similar taxes assessed on the Fees), but not including any general or
administrative overhead expense of Seitel.
"Fees" means the fees payable to Seitel pursuant to Section 3 hereof.
"Force Majeure Event" means (a) a fire, flood, explosion, riot,
rebellion, revolution, labor trouble (whether or not due to the fault of such
Party), requirements or acts of any government authority or agency or
subdivision thereof, loss of source of supplies or other inability to obtain
materials or suppliers, or (b) any other cause, whether similar or dissimilar
to the foregoing, beyond the reasonable control of the Parties hereto.
"Loss" means any and all claims, liabilities, obligations, losses,
deficiencies and damages or judgments of any kind or nature whatsoever arising
from, asserted against, or associated with the furnishing or failure to furnish
the Services, regardless of by whom asserted and regardless of whether or not
any such loss is known or unknown, fixed or contingent or asserted or
unasserted.
"Eagle Account" means a bank account established in the name of Eagle.
"Party" means either of Seitel or Eagle.
"Services" means the services described in the schedule attached as
Exhibit A to this Agreement or any other service provided by Seitel to Eagle at
the request of Eagle; provided that Seitel shall not be obligated to provide
any services to Eagle other than those set forth on Exhibit A.
Section 2. Services. Seitel will provide the Services described on
Exhibit A to Eagle. Such services will only be provided with respect to
Eagle's onshore seismic data acquisition business. Seitel may, in its sole
discretion, provide other Services to Eagle upon request by Eagle. The
Services will be of the type and at the level provided by Seitel to Eagle
before the IPO.
Section 3. Fees and Expenses. (a) Eagle will pay Seitel Fees for the
Services provided by Seitel to Eagle hereunder equal to Seitel's cost of
providing such Services, as reasonably determined by Seitel. Such Fees will
include an allocation of Seitel's general and administrative overhead expense
relating to such Services. Seitel may, but shall not be obligated to,
determine such cost using the same methods employed by Seitel to allocate costs
to Eagle for such Services prior to the IPO.
(b) Eagle will reimburse Seitel for Expenses incurred by Seitel in
connection with the provision of the Services. Seitel will not have any
obligation to advance funds on behalf of Eagle.
(c) Seitel will invoice Eagle for the Fees and the Expenses at
intervals determined by Seitel from time to time. All invoices will be due and
payable within five calendar days after the date of the invoice, and may be
paid by Seitel on behalf of Eagle pursuant to the authority granted in Section
7 hereof.
<PAGE> 3
(d) Eagle may dispute any Fee or Expense by notifying Seitel of
the dispute within 30 calendar days of the receipt of the related invoice. If
either Party determines that the dispute cannot be resolved by the Parties, the
dispute will be submitted to the Accountant. The Accountant will make such
investigation of the Fees and Expenses as it deems necessary and will finally
determine the amount of the Fees and Expenses. The fees and expenses of the
Accountant will be paid by Eagle unless the finally determined Fees and
Expenses are less than 90% of the disputed amount.
Section 4. Information and Records.
(a) Eagle will make available to Seitel on a timely basis all
information which is reasonably necessary for Seitel to provide the Services.
(b) Seitel will maintain records with respect to the Services
which are substantially similar to those maintained with respect to similar
Services provided for its own account, and will provide those records to Eagle
upon termination of this Agreement.
Section 5. Liability. (a) Seitel makes no express or implied warranty
with respect to the Services.
(b) Seitel will be liable to Eagle for any Loss suffered by Eagle
as a result of acts or omissions of Seitel or its Associates in connection with
the Services provided only if and to the extent that (i) the acts or omissions
constitute gross negligence or willful misconduct or (ii) the acts or omissions
would be covered by Seitel's insurance coverage under crime, fidelity or
fiduciary insurance (if any). In any event, except to the extent covered by
Seitel's crime, fidelity or fiduciary insurance, (i) any claim for damages from
Seitel in connection with a Service provided will be limited to the amount of
fees charged with respect to the Service, and (ii) Seitel will not be liable to
Eagle for any incidental or consequential damages, lost profits or
opportunities, or exemplary or punitive damages.
Section 6. Indemnity. Except as provided in Section 5(b), Eagle will
indemnify Seitel and its Associates and hold Seitel and its Associates harmless
from any and all Losses arising from, asserted against or associated with the
provision of Services by Seitel to Eagle.
Section 7. Authority. (a) In providing the Services, Seitel may take
such actions, make such decisions and exercise such judgment on behalf of Eagle
as Seitel has taken, made or exercised in providing the same or similar
services on behalf of Eagle prior to the IPO.
(b) Prior to taking action on behalf of Eagle, Seitel will use
reasonable efforts to consult with appropriate officers or employees of Eagle
(i) in those circumstances under which Seitel would have consulted officers or
employees of Eagle prior to the IPO, and (ii) in any other circumstances
required under such reasonable rules and procedures as Eagle may adopt, from
time to time, after prior consultation with Seitel.
<PAGE> 4
Section 8. Force Majeure. Seitel will not be liable to Eagle for any
failure to comply with this Agreement caused, directly or indirectly, by a
Force Majeure Event.
Section 9. Term. (a) This Agreement, and Seitel's obligation to
provide Services hereunder, shall expire 90 days after the date hereof.
(b) Eagle may terminate this agreement prior to expiration on 5
days prior written notice to Seitel.
(c) Eagle's and Seitel's obligations pursuant to Sections 3, 5 and
6 of this Agreement will survive expiration and termination of the Agreement.
Section 10. Notices. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by a
Party pursuant to this Agreement will be in writing and will be (i) personally
delivered, (ii) mailed by first class, registered or certified mail, return
receipt requested, postage prepaid, (iii) sent by an internationally recognized
express delivery service or (iv) transmitted by facsimile, address as follows:
(a) if to Eagle:
Eagle Geophysical, Inc.
50 Briar Hollow Lane, 6th Floor West
Houston, Texas 77027
Attn: Jay N. Silverman
Facsimile Number (713) 881-2801
(b) if to Seitel:
Seitel, Inc.
50 Briar Hollow Lane, 7th Floor West
Houston, Texas 77027
Attn: Debra D. Valice
Facsimile Number (713) 881-2806
Each Party may designate by notice in writing a new address or
facsimile number to which any notice may be given, served or sent. Each notice
will be deemed sufficiently given, served, sent or received when it is
delivered to the addressee, with an affidavit of personal delivery, the return
receipt, the delivery receipt or when delivery is refused by the addressee.
Each notice or other communication sent by facsimile will be deemed
sufficiently given only if a copy of the notice or communication is immediately
sent by one of the methods specified in (i), (ii) or (iii) above.
Section 11. Miscellaneous. (a) This Agreement sets forth the entire
agreement of the Parties with respect to the Services and supersedes all
previous agreements, understandings or negotiations with respect to the
Services.
<PAGE> 5
(b) The rights and obligations set forth in this Agreement may be
amended, modified or supplemented only by a writing signed by each Party.
(c) A Party may waive a right under this Agreement only by a
written waiver signed by the Party. No failure to exercise or delay in
exercising a right under this Agreement will constitute a waiver of that right.
(d) If any provision of this Agreement is found invalid, illegal
or unenforceable, the provision will be ineffective only to the extent of the
invalidity, illegality or unenforceability, and the other provisions of this
Agreement will remain in full force and effect.
(e) A party may not assign its rights, and a Party may not
delegate its obligations, under this Agreement unless it first obtains the
written consent of all other Parties, provided, however, that Seitel may assign
its rights and delegate its obligations to any wholly-owned subsidiary of
Seitel without Eagle's consent. Any Party, in its discretion, may withhold
consent to any such assignment or delegation.
(f) Except as permitted under Subsection (e), this Agreement will
not inure to the benefit of any Person other than the Parties.
(g) This Agreement will be governed by and construed and enforced
in accordance with the internal laws of the State of Texas.
(h) This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed on their behalf as of the date first above written.
SEITEL, INC.
By: /s/ Debra D. Valice
--------------------------------------
Debra D. Valice, Senior Vice President
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
--------------------------------------
Jay N. Silverman, President
<PAGE> 1
BONUS AGREEMENT Exhibit 10.28
THIS BONUS AGREEMENT (this "Agreement"), is entered into as of August
11, 1997 (the "Effective Date"), by and between EAGLE GEOPHYSICAL, INC., a
Delaware corporation (the "Company"), and PAUL A. FRAME ("Frame").
WHEREAS, Frame is a director of the Company; and
WHEREAS, in addition to his duties as a director, the Company desires
for Frame to provide services to the Company relating to marketing of the
Company's services and expansion of the Company's business, and Frame desires
to provide such services pursuant to the terms hereof;
NOW, THEREFORE, for and in consideration of the mutual agreements herein, the
parties agree as follows:
1. Duties. Frame agrees to provide services to the Company, in
addition to his services as a director, relating to marketing the Company's
services and expansion of the Company's business for a term commencing on the
Effective Date, and expiring December 31, 1999 (the "Term"). Frame shall be
primarily responsible for expansion of the Company's domestic and international
business and in that connection will initiate, develop and propose to the
Company Board of Directors strategies for expansion of the Company's onshore
and offshore domestic and international businesses. During the Term, Frame
shall devote all reasonable efforts and 20% of his professional time and
services to the Company, subject to the direction of the Board of Directors of
the Company (the "Board"). The Company acknowledges that Frame is the
President and Chief Executive Officer of Seitel, Inc., and as such will devote
the balance of his professional time and services to Seitel, Inc.
2. Compensation. As compensation for the services provided by
Frame to the Company hereunder, the Company shall pay Frame an annual Revenue
Increase Bonus and an annual Profit Bonus as set forth in this Section 2. The
Revenue Increase Bonus and the Profit Bonus are hereinafter collectively
referred as the "Bonuses."
2.1 Revenue Increase Bonus.
2.1.1 Grant of Revenue Increase Bonus. Frame shall
receive a revenue increase bonus, if earned, with respect to the fiscal years
ending during the Term (the "Revenue Increase Bonus"), calculated in accordance
with this Section 2.1.
2.1.2 Calculation of Bonus. If the Company's gross
revenues for any year during the term exceed the Company's gross revenues for
the previous year, the Company shall pay Frame a Revenue Increase Bonus equal
to 1.0% of the difference between the gross revenues for such year and the
gross revenues for the previous year. For purposes of calculation of the
Revenue Increase Bonus only, gross revenues for a particular year will not
include revenues attributable to mergers or acquisitions in the year of such
merger or acquisition, unless such year is the final year of the Term. In
addition, gross revenues for the Company for the year ended December 31, 1996
shall be deemed to be $90,915,000.
<PAGE> 2
2.2 Profit Bonus.
2.2.1 Grant of Profit Bonus. Frame shall receive a
profit bonus, if earned, with respect to the fiscal years ending during the
Term (the "Profit Bonus"), calculated in accordance with this Section 2.2;
provided, however, that no Profit Bonus will be payable for any fiscal year if
the Net After-Tax Profits (as hereinafter defined) for such fiscal year are
less than or equal to $800,000.
2.2.2 Net After-Tax Profits. "Net After-Tax
Profits" means the amount of net profits of the Company calculated by the chief
financial officer of the Company applying generally accepted accounting
principles and such other accounting principles and assumptions as may be
reasonable, and subtracting therefrom all income tax liabilities of the
Company.
2.2.3 Calculation of Bonus. If the Company's Net
After-Tax Profits for any year during the term exceed $800,000, the Company
shall pay Frame a Profit Bonus equal to 4.0% of the difference between the Net
After- Tax Profits for such year and $800,000.
2.3 Proration of Bonuses. For purposes of determining
the Bonuses payable to Frame hereunder attributable to the Company's fiscal
year ending December 31, 1997 the gross revenues of the Company for the year
ending December 31, 1996 shall be reduced to an amount equal to $90,915,000
multiplied by a fraction the numerator of which is the number of days from the
Effective Date to and including December 31, 1997 and the denominator of which
is 365 (the "Proration Formula") and for purposes of calculating the Profit
Bonus, $800,000 shall be reduced to an amount equal to $800,000 multiplied by
the Proration Formula.
For purposes of calculating the Bonuses payable to Frame in 1998 and
thereafter the gross revenues of the Company for the year ended December 31,
1997 shall be annualized.
2.4 Payment of Bonuses. The chief financial officer of
the Company shall calculate the gross revenues, Net After-Tax Profits, and any
Bonuses payable to Frame in connection therewith, shall certify such
calculations and shall deliver such calculations to Frame and the Chairman of
the Company Compensation Committee (for his review and approval) as soon as
reasonably practicable after the end of each fiscal year during the Term, but
in any event within seventy-five (75) days following the end of such fiscal
year. Any Bonuses payable hereunder shall be paid by the Company to Frame
within fifteen (15) days of delivery of such calculations by the chief
financial officer and in any event within ninety (90) days following the end of
the applicable fiscal year.
2.4 Section 162(m) Compensation Deferral.
Notwithstanding anything herein to the contrary, if the total compensation
payable to Frame by the Company during any year would cause the Company to lose
the federal income tax deduction for any portion of such compensation under
Section 162(m) of the Internal Revenue Code if 1986, as amended (the "Code"):
(a) the amount of compensation payable by the Company to Frame during such year
shall be reduced to the maximum amount for which the Company may receive a
current deduction under Section 162(m) of the Code, and (b) the excess of such
compensation shall be deferred and paid by the Company to Frame (without
interest) at such time (whether during the Term or after the expiration of the
Term)
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<PAGE> 3
as the Company may pay such deferred compensation to Frame and receive a
corresponding federal income tax deduction under Section 162(m) of the Code.
3. Grant of Option. The Company agrees to grant Frame, pursuant
to the terms of the Company's Option Plan created in connection with the
initial public offering (the "IPO") of the Company's common stock, options to
acquire one hundred thousand (100,000) shares of Eagle's common stock, at an
exercise price equal to the IPO issue price, effective at the time of
completion of the IPO. Such stock options shall vest on the fifth anniversary
of the date of grant, subject to (i) performance by Frame of his duties under
this agreement and (ii) earlier vesting in cumulative installments of one-third
of the total shares subject thereto when the Company's gross revenues reach
$150,000,000, $175,000,000, and $200,000,000, respectively, if the Company's
Net After-Tax Profits are at least 4% of gross revenues for the fiscal year in
which such revenue target is attained. Such options will expire ten years from
the date of grant.
4. Confidentiality and Company Property.
4.1 Confidential Information.
4.1.1 Frame acknowledges that the Company has a
legitimate and continuing proprietary interest in the protection of its
confidential information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. The Company agrees to provide Frame access to
confidential information in conjunction with Frame's duties, including, without
limitation, information of a technical and business nature regarding the
Company's past, current or anticipated business that may encompass financial
information, financial figures, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans,
business acquisition plans, Company employee information, organizational
charts, new personnel acquisition plans, technical processes, designs and
design projects, inventions and research projects, ideas, discoveries,
inventions, improvements, trade secrets, design specifications, writings and
other works of authorship (collectively, "Intellectual Property"). In
exchange, as an independent covenant, Frame agrees not to make any unauthorized
use, publication, or disclosure, during or subsequent to the term of this
Agreement, of any Intellectual Property of a confidential or trade secret
nature, generated or acquired by him during the course of this Agreement,
except to the extent that the disclosure of Intellectual Property is necessary
to fulfill his responsibilities hereunder or as a director of the Company.
Frame understands that confidential matters and trade secrets include
information not generally known by or available to the public about or
belonging to the Company, its divisions, subsidiaries, and related affiliates,
or belonging to other companies to whom the Company, its divisions,
subsidiaries, and related affiliates may have an obligation to maintain
information in confidence, and that authorization for public disclosure may
only be obtained through the Company's written consent.
4.1.2 Frame further agrees not to disclose to the
Company, or induce any personnel of the Company to use, any confidential
information, trade secret, or confidential material belonging to others.
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4.1.3 Frame agrees that the covenants set forth in
Sections 4.1.1 and 4.1.2 are independent covenants and indefinite obligations
binding upon Frame both during and after the termination of Frame's
relationship with the Company.
4.2 Property of the Company. All memoranda, notes,
lists, records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof) relating to
the Company, including such items stored in computer memories, microfiche or by
any other means, made or compiled by or on behalf of Frame after the date
hereof, or made available to Frame after the date hereof relating to the
Company, its affiliates or any entity which may hereafter become an affiliate
thereof, shall be the property of the Company, and shall be delivered to the
Company promptly upon the termination of this Agreement or at any other time
upon request; provided, however, that Frame's address books, diaries,
chronological correspondence files and rolodex files shall be deemed to be
property of Frame.
4.3 Rights and Remedies Upon Breach. If Frame breaches,
or threatens to commit a breach of, any of the provisions contained in Section
4.1 of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
4.3.1 Specific Performance. The right and remedy
to have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
4.3.2 Accounting. The right and remedy to require
Frame to account for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits derived or received by Frame as
the result of any action constituting a breach of the Restrictive Covenants.
5. Other Provisions.
5.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "affiliate" with respect to the Company means any
other person controlled by or under common control with the Company
but shall not include any stockholder or director of the Company, as
such.
(ii) "person" means any individual, corporation,
partnership, firm, joint Company, association, joint-stock company,
trust, unincorporated organization, governmental or regulatory body or
other entity.
(iii) "subsidiary" means any corporation 50% or more
of the voting securities of which are owned directly or indirectly by
the Company.
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<PAGE> 5
5.2 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, on the date of actual receipt thereof, as follows:
(i) if to the Company, to:
Eagle Geophysical, Inc.
50 Briar Hollow Lane
West Building, 6th Floor
Houston, Texas 77027
Attention: President
(ii) if to Frame, to:
Paul A. Frame
50 Briar Hollow Lane
West Building, 7th Floor
Houston, Texas 77027
Any party may change its address for notice hereunder by notice to the other
party hereto.
5.3 Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
5.4 Waivers and Amendments. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any
party of any such right, power or privilege hereunder, nor any single or
partial exercise of any right, power or privilege hereunder, preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
5.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas (without giving
effect to the choice of law provisions thereof) where the employment of Frame
shall be deemed, in part, to be performed and enforcement of this Agreement or
any action taken or held with respect to this Agreement shall be taken in the
courts of appropriate jurisdiction in Houston, Texas.
5.6 Assignment. This Agreement, and any rights and
obligations hereunder, may not be assigned by Frame and may be assigned by the
Company only to a successor by merger or purchasers of substantially all of the
assets of the Company.
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<PAGE> 6
5.7 Counterparts. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
5.8 Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
5.9 Dispute Resolution. If any dispute arises out of or
relates to this Agreement, or the breach thereof, Frame and the Company agree
to promptly negotiate in good faith to resolve such dispute. If the dispute
cannot be settled by the parties through negotiation, Frame and the Company
agree to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association before
resorting to arbitration, litigation or any other dispute resolution procedure.
If the parties are unable to settle the dispute by mediation as provided in the
preceding sentence, any claim, controversy or dispute arising out of or
relating to this Agreement, or the breach thereof, shall be settled by binding
arbitration before a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted in Houston, Harris County, Texas, or such other
location to which the parties mutually agree. The decision of the
arbitrator(s) shall be final and binding and judgment upon the award rendered
may be entered in any court having jurisdiction thereof. The costs of
mediation and arbitration may be awarded to either party by the mediator or the
arbitrators and absent such award shall be borne equally by the parties.
5.10 Binding Agreement. This Agreement shall inure to the
benefit of and bit binding upon the Company and its respective successors and
assigns and Frame and his legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
---------------------------------------
Jay N. Silverman, President
/s/ Paul A. Frame
--------------------------------------
PAUL A. FRAME
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<PAGE> 1
Exhibit 10.58
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
This EMPLOYEE BENEFITS ALLOCATION AGREEMENT, dated August 11, 1997, is
between Seitel Inc. ("Seitel"), a Delaware corporation, and Eagle Geophysical,
Inc. ("Eagle"), a Delaware corporation.
WHEREAS, Seitel, a public company whose common shares are traded on
the New York Stock Exchange, owns indirectly 100% of the common stock of Eagle.
WHEREAS, the Board of Directors of Seitel has determined, subject to
its further consideration and the satisfaction of certain conditions, to
separate the ownership of a majority of its equity ownership of Eagle and its
subsidiaries from Seitel by means of an initial public offering by Eagle and
Seitel of 5,880,000 shares of Eagle common stock (the "IPO") pursuant to a
Registration Statement filed by Eagle with the SEC on June 2, 1997, as amended.
WHEREAS, the parties hereto have determined that it is necessary and
desirable to make certain agreements regarding employee benefit plans and
related matters in connection with the IPO.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; HEADINGS
SECTION 1 - DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings, unless a different meaning clearly is
required by the context:
(a) Administrative Services Agreement. The transition management
Administrative Services Agreement, dated August 11, 1997, between Seitel and
Eagle entered into pursuant to the terms of the Master Separation Agreement.
(b) Action or Claim. Any "Third-party Claim" as defined in the
Master Separation Agreement, together with any assessment of, or claim for,
taxes or a statutory penalty. For purposes hereof, the term "Action" or
"Claim" always is deemed to include, but is not limited to, a Qualification or
ERISA Claim.
(c) Closing Date. The Closing Date as defined in the Master
Separation Agreement.
(d) COBRA. Continuation health coverage maintained under Section
4980B of the Code and Sections 601 to 607 of ERISA, and any successor
provisions thereto.
(e) Code. The Internal Revenue Code of 1986, as amended, and any
predecessor or successor thereto.
(f) Employee or Active Employee. An individual maintained on an
entity's payroll system (including, but not limited to, an individual on
approved leave of absence and an individual in receipt
<PAGE> 2
of or entitled to worker's compensation or employer-provided long term
disability benefits) and, to the extent required by the context, such an
individual's dependents and beneficiaries.
(g) ERISA. The Employee Retirement Income Security Act of 1974, as
amended from time to time.
(h) Filing. The requirement to timely file a form related to an
employee benefit plan, including but not limited to Internal Revenue Service
("IRS") Form 5500; to timely distribute a notice related to an employee benefit
plan, including, but not limited to, a COBRA notice or a summary plan
description; and to timely pay a fee or premium.
(i) IPO. The initial public offering described in the recitals to
this Agreement.
(j) Master Separation Agreement. The Master Separation Agreement of
even date herewith between Seitel and Eagle.
(k) Policy Claim. A routine claim for benefits under a medical,
dental, disability or group life insurance program.
(l) Qualification or ERISA Claim. Any Action or Claim arising from,
or related to, the failure of a benefit plan that is intended to be
tax-qualified under the provisions of Section 401(a), et seq., of the Code to
satisfy the requirements for qualification, in form or in operation; any Action
or Claim arising from, or related to, the failure of an employee benefit plan
to comply with applicable requirements of ERISA (including, for this purpose,
Section 4975 of the Code); and any Action or Claim arising from, or related to,
the failure to make a Filing.
SECTION 2 - HEADINGS. The headings in this Agreement are for
convenience of reference only and are not to be construed as a part of the
Agreement.
ARTICLE II
DEFINED CONTRIBUTION 401(K) PLAN
SECTION 1 - IDENTIFICATION OF EXISTING PLAN. The Seitel, Inc. 401(k)
Plan is maintained in the United States for employees and former employees of
Seitel and its related participating employers.
SECTION 2 - VESTING; FUNDING. Effective as of the close of business
on the Closing Date, each individual who is an active employee of Eagle and who
is a participant in the Seitel, Inc. 401(k) Plan shall be vested in the benefit
accrued by him as of the Closing Date to the maximum extent allowed for based
on his compensation and service through such date. On such date as determined
by Seitel, but prior to the asset transfer described in Section 3 of this
Article II, Seitel shall contribute, or cause to be contributed, to the Seitel,
Inc. 401(k) Plan any contributions required to be made under such plan on
behalf of participants who are employees of Eagle.
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SECTION 3 - ESTABLISHMENT OF NEW 401(K) PLAN AND ASSET TRANSFER. On
or before July 1, 1997, Eagle shall adopt a defined contribution plan. Such
plan (the "Eagle Geophysical, Inc. 401(k) Plan") shall be effective as of July
1, 1997. At such administratively feasible date following the Closing Date as
is determined by Seitel, there shall be a transfer from the Seitel, Inc. 401(k)
Plan to the Eagle Geophysical, Inc. 401(k) Plan of the account balances of
individuals who were participants in the Seitel, Inc. 401(k) Plan and who are
eligible to become participants in the Eagle Geophysical, Inc. 401(k) Plan.
Such transfers may be made in cash or in kind or in a combination of both, in
Seitel's sole discretion. Prior to such transfer, Seitel shall continue to
administer the Seitel, Inc. 401(k) Plan in the interests of such participants
as well as all other participants in the Seitel, Inc. 401(k) Plan. It shall be
provided that no further 401(k) employee and matching contributions shall be
made to the Seitel, Inc. 401(k) Plan after the final June 30, 1997 payroll
deposit is made by or on behalf of a participant who is or is scheduled to
become an active employee of Eagle as of the close of business on the Closing
Date and provided, further, that no loans may be obtained on or after June 30,
1997 from the Seitel, Inc. 401(k) Plan by such participants.
SECTION 4 - ALLOCATION OF RESPONSIBILITIES. Eagle shall be solely
responsible for all Filings for, and the defense of any Claim with respect to,
the plan adopted by it pursuant to Article II and Seitel shall be solely
responsible for all Filings for, and the defense of any Qualification or ERISA
Claim with respect to, the Seitel, Inc. 401(k) Plan.
ARTICLE III
MEDICAL, DENTAL, DISABILITY AND GROUP LIFE INSURANCE BENEFITS
Eagle shall establish as soon as administratively feasible after the
Closing Date, and in any event on or before December 31, 1997, medical, dental,
disability and group life insurance (which includes life and accidental death
and dismemberment benefits) programs for the benefit of Eagle's active
employees that provide coverage to such employees that is substantially similar
to the coverage provided for such active employees immediately prior thereto,
including coverage without any pre-existing condition limitation for
individuals currently insured under Seitel's insurance and annual out-of-pocket
expenses that had been satisfied or paid by such employees under similar
programs maintained by Seitel prior to the Closing Date. Eagle shall be solely
responsible for all Filings and Policy Claims for the programs established by
it pursuant to this Article III, and Seitel shall be solely responsible for all
Filings and, to the extent consistent with the terms of the programs sponsored
by Seitel, Policy Claims and the defense (including the settlement or payment)
of all medical, dental, disability and group life insurance Claims made by a
covered participant or his or her beneficiary relating to events that occurred
prior to the close of business on the Closing Date under an insurance program
sponsored by Seitel. Eagle shall be solely responsible for all Filings and
Policy Claims made by a covered participant who is an Eagle employee or his or
her beneficiary relating to events that occur after the close of business on
the Closing Date under an insurance program sponsored by Seitel but prior to
the establishment of Eagle's programs pursuant to this Article III (provided,
however, that Seitel shall use its reasonable efforts to administer such
Claims), and Eagle shall pay to Seitel the proportionate share of premiums
under such programs relating to periods after the Closing Date and prior to the
establishment of Eagle's programs for such Eagle employees and related
beneficiaries. Eagle shall cooperate with Seitel in any manner reasonably
requested by Seitel or its employees or agents to enable Seitel to complete
such Filings and handle
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<PAGE> 4
such Policy Claims. In addition, Eagle shall reimburse Seitel for any costs or
expenses incurred by Seitel in connection with such programs that properly are
allocable to Eagle (which shall specifically exclude any increased premiums
incurred by Seitel as a result of the demographic shift in the insured
population as a result of Eagle employees being removed from such programs).
ARTICLE IV
SEVERANCE PAY; VACATION PAY
SECTION 1 - SEVERANCE PAY. Although the parties are of the belief
that the IPO does not necessarily give rise to the payment of severance pay (or
salary continuation, unemployment compensation or similar pay), in the event
that on or after the close of business on the Closing Date, a Claim for any
such pay is made by an employee of Eagle, the defense of such Claim, as well as
any payment or settlement of such Claim, shall be solely the responsibility of
Eagle.
SECTION 2 - VACATION PAY. Effective as of the close of business on
the Closing Date, Eagle shall continue in effect any vacation pay plans
maintained for the benefit of their employees immediately prior thereto. In
the event that on or after the close of business on the Closing Date, a Claim
for vacation pay is made by an employee of Eagle, the defense of such Claim, as
well as any payment or settlement of such Claim, shall be solely the
responsibility of Eagle.
ARTICLE V
CAFETERIA PLAN
Eagle shall adopt cafeteria plan documents in a form furnished to
Eagle with respect to the Eagle employees who, prior to the Closing Date, were
eligible and/or participating in the Seitel, Inc. Cafeteria Plan that provided
for the pre-tax payment of medical and dental insurance premiums. The plan set
forth in such document ("Eagle Geophysical, Inc. Cafeteria Plan") shall become
effective as soon as administratively feasible after the Closing Date and in no
event later than December 31, 1997.
ARTICLE VI
EMPLOYMENT; EMPLOYMENT RELATED MATTERS; OTHER BENEFITS
SECTION 1 - EMPLOYMENT. Effective as of the close of business on the
Closing Date, Eagle shall continue to employ all individuals who were employees
of Eagle as a wholly-owned subsidiary of Seitel immediately prior thereto,
together with any Seitel employees who are transferring to Eagle at the request
of Eagle unless any such individual declines employment with Eagle. Nothing
herein shall be construed to be a guarantee of employment, and Eagle may
terminate an individual's employment or adjust such individual's compensation
at any time and for any reason.
SECTION 2 - EMPLOYMENT RELATED MATTERS. Eagle shall be solely
responsible for the defense of any Claim made by, on behalf of, or with respect
to, (i) any employee thereof, (ii) any former employee of Eagle, or (iii) any
individual described in Section 1 hereof, including the settlement or payment
of such a Claim, that arises out of, or relates to, such individual's
employment with (or failure to be employed by) Eagle or an employee benefit
matter that is not covered elsewhere by the
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<PAGE> 5
terms of this Agreement. Such Claims include, but are not limited to,
employment discrimination, harassment, wrongful discharge and COBRA Claims.
SECTION 3 - OTHER BENEFITS. Except as otherwise expressly provided in
this Agreement, Eagle shall be solely responsible for the provision of all
employee benefits to its employees and former employees and for any Filings and
the defense of any Claim, including any settlement or payment or such Claim,
related to any such benefit provided by it or the failure to provide or
maintain any particular benefit.
ARTICLE VII
CERTAIN BENEFITS ADMINISTRATION MATTERS
SECTION 1 - PURPOSE; RELATIONSHIP TO ADMINISTRATIVE SERVICES
AGREEMENT. The Administrative Services Agreement provides that Seitel shall
consult with Eagle with respect to employee benefits and certain related
matters. The purpose of this Article VII is to bind the parties to share in
certain employee benefits responsibilities that are necessary or appropriate in
view of other agreements reached herein and the fact that, for a portion of
1997, the parties are members of a controlled group of corporations, within the
meaning of Section 414(b) of the Code. To the extent inconsistent, the
provisions hereof override the provisions of the Administrative Services
Agreement.
SECTION 2 - FORM 5310 FILINGS. Unless expressly instructed in writing
otherwise by Eagle, Seitel shall make the IRS Form 5310 filings with the IRS
necessary to effectuate the transfers contemplated by Article II.
SECTION 3 - APPLICATION FOR DETERMINATION. Eagle shall file the
application for determination with the IRS with respect to the newly adopted
Code Section 401(k) plan described in Article II.
SECTION 4 - DISCRIMINATION TESTING; DISTRIBUTIONS. Eagle shall supply
to Seitel within sixty (60) days of a request from Seitel all information
reasonably requested by Seitel to undertake discrimination testing under
Sections 401(a)(4), 401(k), 401(m), and 410(b) of the Code (or other applicable
sections of the Code) for the portion of 1997 during which the parties were
members of a controlled group of corporations within the meaning of Section
414(b) of the Code. Seitel shall share the discrimination test findings with
Eagle, to the extent relevant to Eagle. At such times as are determined by
Seitel, Eagle shall make distributions from their employee benefit plan to
their employees or take other corrective actions determined by Seitel upon
notice from Seitel to Eagle that such distributions or other actions are
necessary to satisfy any discrimination test for the portion of 1997 during
which the parties were members of a controlled group of corporations. Nothing
herein shall be construed to require Seitel to undertake discrimination testing
on Eagle's behalf nor shall any of Seitel's findings or any notice provided
pursuant to the immediately preceding sentence create any responsibility or
liability on the part of Seitel.
SECTION 5 - COOPERATION WITH RESPECT TO PLAN ADMINISTRATION. Seitel
and Eagle shall cooperate with each other, and shall provide, or cause to be
provided, to each other information
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<PAGE> 6
reasonably requested within sixty (60) days of the request, in order to
efficiently administer and account properly for the employee benefit plans
maintained by them and the undertakings contemplated herein, including for
example, but not limited to, information necessary to effectuate the provisions
of Article II, Section 3 hereof.
SECTION 6 - OTHER MATTERS. Except as otherwise provided in this
Agreement, unless requested by Eagle and agreed to by Seitel, or unless
initiated by Seitel and agreed to by Eagle, Seitel shall not be responsible for
employee benefits matters including, but not limited to, Filings, on behalf of
Eagle's employees, former employees, or their beneficiaries.
SECTION 7 - EXTENT OF SEITEL'S RESPONSIBILITY. The employee benefit
services provided to Eagle by Seitel pursuant to this Article VII and the
Administrative Services Agreement are ministerial and are for the sake of
administrative conveniences only. In providing such services, Seitel shall not
be responsible for the accuracy, completeness or timeliness of any advice or
service or any return, report, filing or other document that it provides,
prepares or assists in preparing except to the extent that any inaccuracy,
incompleteness or untimeliness arises solely from Seitel's gross negligence or
willful misconduct. The parties expressly acknowledge that with respect to any
employee benefit plan or arrangement established, maintained, or assumed by
Eagle, neither Seitel nor any of its directors, officers, employees, agents and
affiliates (and the heirs, executors, successors and assigns of any of the
foregoing) is or shall be a fiduciary. In accordance with the indemnification
provisions of Article VIII, Eagle shall indemnify, defend and hold harmless
Seitel and its directors, officers, employees, agents and affiliates (and the
heirs, executors, successors and assigns of any of the foregoing) from and
against any matter arising out of, or due to, an allegation or determination
that Seitel or any other person specified herein is a fiduciary or has
fiduciary responsibility with respect to any such employee benefit plan or
arrangement.
SECTION 8 - COMMON PROJECTS. The parties acknowledge that certain
employee benefit arrangements and responsibilities including, but not limited
to, discrimination testing, may involve a commonality of interests and,
accordingly, of projects and necessary services. To the extent that such
common projects are performed by Seitel and Seitel cannot ascertain the precise
amount of time spent in providing services to a particular party, its fees and
expenses (the amount of which shall be determined under the Administrative
Services Agreement) shall be apportioned on an equitable basis between Seitel
and Eagle. In general, the total fees and expenses for any such common project
shall be divided evenly between Seitel and Eagle unless Seitel determines and
Eagle agrees that, due to such factors as the amount and complexity of the data
involved, a different apportionment is more equitable.
SECTION 9 - OUTSIDE CONSULTANTS. The parties acknowledge that the
employee benefit arrangements made by them pursuant to this Agreement
including, but not limited to, this Article VII, may require the services of
outside consultants including, for example, attorneys and accountants. The
parties shall attempt to negotiate separate fee arrangements with outside
consulting, legal and accounting firms, even though some firms' services may
relate to projects common to both parties. However if, notwithstanding the
foregoing, Seitel receives an invoice from such a firm that clearly relates to
such a common project, Seitel, with Eagle's consent and assistance, shall
apportion on an equitable basis the firm's fees and expenses between the
affected parties and
6
<PAGE> 7
bill each affected party accordingly. In general, the total fees and expenses
reflected on the invoice shall be divided evenly between Seitel and Eagle
unless Seitel determines that, due to such factors as the amount and complexity
of the data involved, a different apportionment is more equitable.
SECTION 10 - EXECUTIVE COMPENSATION. All executive compensation
arrangements have been addressed outside of this Agreement. All matters
relating to executive compensation will be handled in this manner.
ARTICLE VIII
INDEMNIFICATION
SECTION 1 - IN GENERAL. The party hereto to whom certain
responsibilities and liabilities have been allocated hereunder (the
"Indemnifying Party") shall indemnify, defend and hold harmless the other party
(the "Indemnitee"), including the Indemnitee's respective directors, officers,
employees, agents and affiliates (and the heirs, executors, successors and
assigns of any of the foregoing) from and against any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions) arising out of or
due to the failure or alleged failure of the Indemnifying Party to pay, perform
or otherwise discharge in due course any of its responsibilities or
liabilities.
SECTION 2 - INDEMNIFICATION OF FIDUCIARIES. Seitel (directly or
through one or more subsidiaries) shall indemnify, defend and hold harmless
each individual who is both an employee of Seitel or Eagle and a trustee or
other fiduciary of an employee benefit plan (and his heirs, executors,
successors and assigns) from and against any and all losses, liabilities,
claims, damages, obligations, payments, costs and expenses, matured or
unmatured, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions) directly arising
out of, or directly related to, the plan transfer contemplated by Article II
hereof.
SECTION 3 - LIMITATIONS ON, AND PROCEDURES FOR, INDEMNIFICATION. The
limitations on, and procedures for, indemnification set forth in the Master
Separation Agreement are incorporated herein by reference.
ARTICLE IX
MISCELLANEOUS
SECTION 1 - COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, and the
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect
7
<PAGE> 8
to the subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter. Notwithstanding
any other provisions in this Agreement or the Master Separation Agreement to
the contrary, in the event and to the extent that there shall be a conflict
between the provisions of the Master Separation Agreement and this Agreement,
the provisions of this Agreement shall control.
SECTION 2 - EXPENSES. Except as otherwise set forth in this
Agreement, each party hereto shall pay its respective costs and expenses in
connection with the preparation, execution, delivery and implementation of this
Agreement and with the consummation of the transactions contemplated by this
Agreement.
SECTION 3 - GOVERNING LAW. Subject to applicable federal law, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas, without regard to the principles of conflicts of laws thereof.
SECTION 4 - NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
TO SEITEL: 50 Briar Hollow Lane
7th Floor West
Houston, TX 77027
TO EAGLE: 50 Briar Hollow Lane
6th Floor West
Houston, Texas 77027
SECTION 5 - AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties hereto.
SECTION 6 - SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
SECTION 7 - TERMINATION. This Agreement may be terminated in the
event that the Master Separation Agreement is terminated and the IPO abandoned
prior to the Closing Date. In the event of such termination, no party shall
have any liability of any kind to the other party.
SECTION 8 - NO THIRD PARTY BENEFICIARIES. Except as provided in
Section 2 of Article VIII ("Indemnification of Fiduciaries"), this Agreement is
solely for the benefit of the parties hereto and their respective subsidiaries
and shall not be deemed to confer upon third parties including, but not limited
to, employees any remedy, claim, liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
8
<PAGE> 9
SECTION 9 - LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 10 - SATISFACTION OF CERTAIN CLAIMS. Notwithstanding any
other provision of this Agreement, in the event that a Claim relating to any
employee benefit plan or arrangement described in this agreement is
successfully made by a person who is not a party hereto (or a subsidiary or
affiliate thereof) and Seitel or, with respect to any plan or arrangement
maintained by Eagle, Eagle determines that such Claim may be satisfied from
assets of such plan or arrangement, the Claim, at Seitel's or, if applicable,
Eagle's discretion, may be satisfied from such assets.
SECTION 11 - FURTHER ASSURANCES. The parties hereto agree to execute
such documents and assurances as are necessary or appropriate to give effect to
the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties, acting through their duly authorized
officers, have caused this Agreement to be duly executed as of the day and year
first above written.
SEITEL, INC.
By: /s/ Paul A. Frame
---------------------------------------
Paul A. Frame, President
EAGLE GEOPHYSICAL, INC.
By: /s/ Jay N. Silverman
---------------------------------------
Jay N. Silverman, President
9
<PAGE> 1
EXHIBIT 10.59
REVOLVING CREDIT AGREEMENT
$20,000,000.00
SECURED REVOLVING LINE OF CREDIT
FROM
BANK ONE, TEXAS, N.A.
TO
EAGLE GEOPHYSICAL, INC.
EAGLE GEOPHYSICAL ONSHORE, INC.
EAGLE GEOPHYSICAL OFFSHORE, INC.
EAGLE GEOPHYSICAL DE MEXICO, INC.
and
EAGLE GEOPHYSICAL GOM, INC. (FORMERLY KNOWN AS
EAGLE GEOPHYSICAL OFFSHORE, INC.)
October 21, 1997
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.01 The Revolving Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.02 Advances and Payments of Principal Under the Note . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.03 Prepayment and Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.04 Interest Rate and Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.05 Increased Cost of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.06 Substitute Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.07 Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.08 Advances to Satisfy Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.09 Mandatory Prepayment of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.10 Borrowing Base Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.12 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.01 Receipt of Note, Agreement, and Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . 19
3.02 Completion of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.03 Receipt of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.04 Receipt of Certified Copy of Corporate Proceedings and Certificates of Incumbency . . . . . . . . . 19
3.05 Receipt of Certificates of Authority and Certificates of Good Standing . . . . . . . . . . . . . . . 19
3.06 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.07 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.08 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.09 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.10 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11 Request for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.12 Accuracy of Representations and Warranties and No Event of Default . . . . . . . . . . . . . . . . . 20
3.13 Legal Matters Satisfactory to Counsel to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.15 Security Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.16 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.17 Foreign Affiliate Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.18 Documents Required in connection with the addition of certain Borrowing Base Receivables . . . . . . 21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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4.04 Scope and Accuracy of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.05 Liabilities, Litigation and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.06 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.07 Authorizations and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.08 Compliance with Laws, Rules, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . 22
4.09 Proper Filing of Tax Returns and Payment of Taxes Due . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11 Investment Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 Public Utility Holding Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Material Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.18 Material Misstatements and Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Maintenance and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . 26
5.04 Annual Audited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.05 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.06 Monthly Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.07 Statement of Material Adverse Change in Condition . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.08 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.09 Compliance with Laws and Payment of Assessments and Charges . . . . . . . . . . . . . . . . . . . . 26
5.10 Maintenance of Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.12 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.14 Maintenance of Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.15 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.16 Inspection of Tangible Assets/Right of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.17 Payment of Note and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.18 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.19 Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.20 Tangible Net Worth Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.21 Cash Flow to Debt Service Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.22 Maximum Funded Senior Debt and Capital Leases to Capitalization . . . . . . . . . . . . . . . . . . 29
5.23 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.24 Hazardous Substances Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.25 Changes in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.26 Payment of Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.27 Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.28 Notices Regarding Account Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.29 Notice of Change of Principal Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.30 Payment of Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.01 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.02 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.03 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.04 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.05 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.06 Changes in Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.07 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.02 Rights Upon Unmatured Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.03 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.01 Security Interests in Deposits and Right of Offset or Banker's Lien . . . . . . . . . . . . . . . . 34
8.02 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . 34
8.03 Notices and Other Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.08 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.12 Amendments or Modifications of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.17 Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.18 Non-Application of Chapter 15 of Texas Credit Code . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.19 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.20 Disclosure and Use of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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EXHIBITS
- --------
<S> <C> <C>
EXHIBIT A Note
EXHIBIT B Compliance Certificate
EXHIBIT C Security Instruments
EXHIBIT D Form of Request for Advance
EXHIBIT E Form of Monthly Borrowing Base Certificate
EXHIBIT F Matters to be covered by the opinion of counsel to Borrower
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
4.05 Litigation
4.14 Subsidiaries
4.15 Existing Indebtedness
4.16 Material Commitments
4.17 Certificates of Insurance
6.07 Agreements with Seitel, Inc.
</TABLE>
v
<PAGE> 7
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, is entered into as of the
21st day of October 1997, by and among EAGLE GEOPHYSICAL, INC., a Delaware
corporation (herein sometimes referred to as the "Parent Borrower"), EAGLE
GEOPHYSICAL ONSHORE, INC., a Delaware corporation, EAGLE GEOPHYSICAL OFFSHORE,
INC., a Delaware corporation, EAGLE GEOPHYSICAL DE MEXICO, INC., a Delaware
corporation, and EAGLE GEOPHYSICAL GOM, INC., a Texas corporation (formerly
known as Eagle Geophysical Offshore, Inc.) (collectively, together with the
Parent Borrower, referred to as the "Borrower"), and BANK ONE, TEXAS, N.A., a
national banking association (the "Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to institute a revolving line of
credit with Bank for purposes of satisfying Borrower's working capital needs
and for general corporate purposes;
WHEREAS, Bank is willing to institute such a revolving line of
credit for Borrower in accordance with the terms and provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and the mutual benefits to be derived herefrom,
Bank and Borrower agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Accounts," "Account Debtor," "Chattel Paper," "Contracts,"
"Documents," "Equipment," "Fixtures," "General Intangibles," "Goods,"
"Instruments," and "Inventory" shall have the same respective meanings as are
given to those terms in the Uniform Commercial Code as presently adopted and in
effect in the State of Texas.
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Revolving Credit Agreement, as the same
may be amended or supplemented from time to time.
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<PAGE> 8
"Applicable Spread" means 1.375% when the ratio of the
consolidated Indebtedness of the Parent Borrower and its Subsidiaries to the
Tangible Net Worth as of the last day of the most recently ended fiscal quarter
of Borrower is less than 1.0:1.0, and 1.625% when such ratio is equal to or
greater than 1.0:1.0.
"Approved Eligible Receivables" means Eligible Receivables
that are neither U.S. Eligible Receivables, U.K. Eligible Receivables, Foreign
or Non-graded Domestic Eligible Receivables, nor Secured Eligible Receivables,
but which have nevertheless been approved in writing by Bank, in its sole
discretion.
"Bank" has the meaning set forth in the preamble hereof.
"Base Rate" means, at any time, the rate of interest per
annum then most recently established and published by the Bank as its Base
Rate, which is eight and one-half percent (8.50%) as of the date of this
Agreement.
"Base Rate Loan" means any Loan for which interest thereon is
to be computed at the Floating Rate in accordance with this Agreement.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrowing Base" means, at any time, the amount of the
Borrowing Base Receivables accurately computed on the Monthly Borrowing Base
Certificate most recently delivered to, and accepted by, the Bank in accordance
with Section 2.10 and other relevant provisions of this Agreement.
"Borrowing Base Receivables" means the sum of: (a) 90% of U.S.
Eligible Receivables, (b) 90% of U.K. Eligible Receivables, (c) 80% of Foreign
or Non-graded Domestic Eligible Receivables, (d) 100% of Secured Eligible
Receivables, and (e) 80% of Approved Eligible Receivables; provided that no
Account shall be included in more than one of the categories listed in this
definition.
"Business Day" shall mean: (a) for all purposes, a day other
than a Saturday, Sunday or legal holiday for commercial banks under the laws of
the State of Texas or the laws of the United States of America, and (b) in
addition, for purposes of any LIBOR Loan, a day that satisfies the requirements
of clause (a) and is a day on which commercial banks in London, England are
open for domestic or international business.
"Cash Flow" shall be defined for any fiscal quarter of
Borrower as the sum of net income plus depreciation and other non-cash charges
less non-cash income of the Parent Borrower and its Subsidiaries on a
consolidated basis, during such quarter.
"Closing" means the date on which this Agreement is executed
and delivered by Bank and Borrower.
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<PAGE> 9
"Combined Revolving Commitment" shall have the meaning set
forth in Section 2.12.
"Commitment Fee Percentage" means .375% when the ratio of the
consolidated Indebtedness of the Parent Borrower and its Subsidiaries to the
Tangible Net Worth as of the last day of the most recently ended fiscal quarter
of Borrower is less than 1.0:1.0, and .50% when such ratio is equal to or
greater than 1.0:1.0.
"Compliance Certificate" means the certificate of the
president or vice president of the Parent Borrower required to be submitted to
Bank from time to time pursuant to this Agreement, which certificate shall be
in the form attached hereto as Exhibit "B."
"Current Assets" and "Current Liabilities" means at any time,
all assets or liabilities, respectively, that should in accordance with GAAP,
be classified as current assets or current liabilities, respectively, on a
consolidated balance sheet of the Parent Borrower and its Subsidiaries.
"Debt Service" shall be defined for any fiscal quarter of
Borrower as the sum of (i) principal amounts required to be paid by the Parent
Borrower and its Subsidiaries during such quarter on Indebtedness other than in
connection with this Loan, plus (ii) lease payments required to be paid by the
Parent Borrower and its Subsidiaries during such quarter in connection with
capital leases, plus (iii) the outstanding principal balance due at the
beginning of such quarter on the Loans hereunder, divided by sixteen.
"Eligible Receivable" means, at any time, an Account that
conforms and continues to conform to the following conditions:
(A) The Account arose from a bona fide outright sale of Goods or
services by the Borrower, and such Goods have been shipped to the
appropriate account debtors or their designees (or the sale has
otherwise been consummated), or the services have been performed for
the appropriate account debtors;
(B) The Account is based upon an enforceable order or contract,
written or oral, for Goods shipped or held or for services performed,
and the same were shipped, held, or performed in accordance with such
order or contract;
(C) The title of the Borrower to the Account and, except as to the
account debtor, to any Goods is absolute and is not subject to any
prior assignment, claim, lien, or security interest, except Permitted
Liens;
(D) The amount shown on the books of the Borrower and on any
invoice or statement delivered to the Bank is owing to the Borrower,
less any partial payment that has been made thereon by anyone;
3
<PAGE> 10
(E) The Account shall be eligible only to the extent that it is
not subject to any claim of reduction, counterclaim, set-off,
recoupment, or any claim for credits, allowances, or adjustments made
by the account debtor because of returned, inferior, or damaged Goods
or unsatisfactory services, or for any other reason; provided,
however, that the existence of any such claim shall not cause an
Account to be ineligible if, and to the extent that, Borrower
substantiates to the reasonable satisfaction of Bank that such
asserted claim, or any part thereof, is invalid;
(F) The account debtor has not returned or refused to retain, or
otherwise notified the Borrower of any dispute concerning, or claimed
nonconformity of, any of the Goods or services from the sale of which
the Account arose;
(G) The Account is due and payable not more than thirty (30) days
from the date of the invoice therefor;
(H) The Account is not more than ninety (90) days past the date of
the invoice therefor; provided that an Account that has arisen by
virtue of Borrower's delivery of Goods or performance of services to a
location outside of the United States of America or that is owed by an
Account Debtor whose principal place of business is outside the United
States of America shall not be more than one hundred-twenty (120) days
past the date of the invoice therefor.
(I) The Account does not arise out of a contract with, or order
from, an account debtor that, by its terms, forbids or makes void or
unenforceable the assignment by the Borrower to the Bank of the
Account arising with respect thereto;
(J) The Borrower has not received any note, trade acceptance,
draft, or other Instrument with respect to, or in payment of, the
Account, nor any Chattel Paper with respect to the Goods giving rise
to the Account, unless, if any such Instrument or Chattel Paper has
been received, the Borrower promptly notifies the Bank and, at the
latter's request, endorses or assigns and delivers the same to the
Bank;
(K) The Borrower has not received any notice of the death of the
account debtor or a partner thereof; nor of the dissolution,
termination of existence, insolvency, business failure, appointment of
a receiver for any part of the property of, assignment for the benefit
of creditors by, or the filing of a petition bankruptcy or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against, the account debtor;
(L) The Account Debtor is not a Subsidiary or other Affiliate of
the Borrower, provided, however, that for purposes of this paragraph
(L) only, Seitel, Inc., a Delaware corporation, and its subsidiaries
shall not be deemed Affiliates of Borrower;
(M) Not more than 20% in value of the Account Debtor's aggregate
Accounts owed to Borrower fail to satisfy clause (H) of this
definition; and
4
<PAGE> 11
(N) The Bank has not deemed such account ineligible (i) because of
a reasonable uncertainty about the creditworthiness of the account
debtor; (ii) because the Bank is not satisfied, in its reasonable
discretion, that the Security Instruments duly executed by Borrower
have created a valid, perfected, enforceable security interest in
favor of Bank under the laws of a jurisdiction outside the United
States where the goods or services to which such Account relates were
delivered or performed, respectively, or under a jurisdiction outside
the United States in which the Account Debtor maintains its principal
place of business; or (iii) because the Bank otherwise reasonably
considers the collateral value thereof to the Bank to be impaired or
its ability to realize such value to be insecure.
"Environmental Laws" means (a) the following federal laws as
they may be cited, referenced and amended from time to time: the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered Species
Act, the Resource Conservation and Recovery Act, the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Superfund
Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)
any and all environmental statutes of any state in which property of Borrower
is situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d) any other federal, state or local statute or
any requirement, rule, regulation, code, ordinance or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling or release of
Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in
Section 7.01 of this Agreement.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Base Rate in effect from time to
time.
"Foreign Affiliate Loan Agreement" means that certain loan
agreement entered into as of the 17th day of October 1997, by and between
HORIZON EXPLORATION LIMITED, an English business entity, and Bank.
5
<PAGE> 12
"Foreign Affiliate Loans" means, cumulatively, the aggregate
sum of all money advanced by Bank to Horizon Exploration Limited pursuant to
the Foreign Affiliate Loan Agreement.
"Foreign Affiliate Revolving Commitment" means the Revolving
Commitment defined in the Foreign Affiliate Loan Agreement, as in effect from
time to time.
"Foreign or Non-graded Domestic Eligible Receivables" include:
(a) Eligible Receivables due from Investment Grade Account Debtors that are
neither U.S. Eligible Receivables nor U.K. Eligible Receivables, and (b)
Eligible Receivables due from an Account Debtor that is not an Investment Grade
Account Debtor, when the principal place of business of such Account Debtor and
the location to which the goods were delivered or at which the services were
performed are all located within the United States of America.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of the date in
question. Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"Guaranty" shall have the meaning set forth in Section 3.06.
"Hazardous Substances" means flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances or related
materials, petroleum and petroleum products and associated oil or natural gas
exploration, production and development wastes or any substances defined as
"hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances" under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, or any other Environmental Laws now or hereafter enacted or
promulgated by any regulatory authority or governmental body.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed (provided that if the
indicated Person is not liable for payment of such indebtedness, the amount
thereof shall be deemed not to exceed the book value of the encumbered
property), and (c) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed
6
<PAGE> 13
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Initial Public Offering" shall have the meaning set forth in
Section 3.02.
"Interest Rate(s)" means the Floating Rate or the LIBOR Rate,
as applicable.
"Interest Period" means as to any LIBOR Loan the period
commencing on and including the date of such Loan (or on the effective date of
the election pursuant to Section 2.04(B) by which such Loan became a LIBOR
Loan) and ending on and including the day preceding the same day (or if there
is no such same day, the day preceding the last day) in the 1st, 2nd, 3rd, or
6th calendar month thereafter, as selected by the Borrower in accordance with
Section 2.04(B), and thereafter such period commencing on and including the day
immediately following the last day of the then ending Interest Period for such
Loan and ending on and including the day preceding the day corresponding to the
first day of such Interest Period (or if there is no such corresponding day,
the day preceding the last day), in the 1st, 2nd, 3rd, or 6th calendar month
thereafter, as so selected by the Borrower; provided, however, that if any such
Interest Period would otherwise end on a day prior to a day that is not a
Business Day it shall be extended so as to end on the day prior to the next
succeeding Business Day unless the same would fall in a different calendar
month, in which case such Interest Period shall end on the day preceding the
first Business Day preceding such next succeeding Business Day.
"Investment" in any Person means any stock, bond, note or
other evidence of Indebtedness or any other security (other than current trade
and customer accounts) of, or loan to, such Person.
"Investment Grade Account Debtor" means an Account Debtor with
a corporate credit rating equal to or better than any one of the following
minimum ratings: (a) BBB-, by Standard & Poors, (b) BBB-, by Duff & Phelps, or
(c) Baa3, by Moody's Investors Service.
"LIBOR" means, in respect to any Interest Period, the rate per
annum determined by the Bank to be the quotient of (a) the rate quoted, on an
immediately available funds basis, to the Bank, at approximately 10:00 a.m.
local time in Houston, Texas on the date one (1) Business Day prior to the
first day of such Interest Period, for the offering by leading banks in the
London interbank market of Dollars for deposit with the Bank for a period
comparable to such Interest Period and in an amount comparable to the amount of
the Loan determined by the Bank to be outstanding during such Interest Period
and as to which the LIBOR Rate is to be determined, divided by (b) 1.0, minus
the Reserve Percentage expressed as a decimal, for such Interest Period.
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<PAGE> 14
"LIBOR Loan" means any Loan from time to time for which
interest thereon is to be computed on the basis of the LIBOR Rate.
"LIBOR Rate" means a rate per annum equal to the sum of LIBOR
for the Interest Period for which interest is to be determined at the LIBOR
Rate, plus the Applicable Spread.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant
to this Agreement and "Loans" means, cumulatively, the aggregate sum of all
money advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any,
by which the outstanding balance on the Loans evidenced by the Note plus the
aggregate of the face amount of all outstanding Letters of Credit exceeds the
Revolving Commitment then in effect.
"Maturity Date" means October 21, 2000.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
"Monthly Borrowing Base Certificate" means a certificate of
the President or Chief Financial Officer of the Parent Borrower attesting to
Borrower's calculation of the Borrowing Base as of the last day of the month
preceding the month in which such certificate is executed and delivered to the
Bank pursuant to Section 2.10, in the form attached hereto as Exhibit "E."
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $20,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "A," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced
8
<PAGE> 15
by the Note, whether direct, indirect, related, unrelated, fixed, contingent,
specified, unspecified, joint, several, or joint and several, and all interest
and fees accruing thereon and all attorneys' fees and other expenses incurred
in the enforcement or collection thereof.
"Parent Borrower" has the meaning set forth in the preamble
hereof.
"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet
due and payable;
(B) Claims or liens for taxes, assessments, or similar
charges, that are due and remain unpaid, if the validity or
amount thereof is being contested in good faith by appropriate
and lawful proceedings, so long as levy and execution thereon
have been stayed and continue to be stayed, and in Bank's sole
judgment they do not, in the aggregate, materially detract
from the value of the property of Borrower or any Subsidiary,
or materially impair the use thereof in the operation of its
business;
(C) Liens against Equipment or Fixtures to secure the
price payable by Borrower for the purchase of, or improvements
or accessions to, such Equipment or Fixtures, respectively;
and
(D) Liens in favor of Bank.
"Person" means an individual, company, corporation,
partnership, limited partnership, joint venture, trust, association,
unincorporated organization or a government or any agency or political
subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Request for Advance" means the written request by the Parent
Borrower for an advance by Bank pursuant to this Agreement, which Request for
Advance shall be in a form, and shall include the information and accompanying
supporting documentation, as prescribed in Exhibit "D" attached hereto.
"Required Number" means: in the case of notices hereunder (i)
relative to borrowings, prepayments, elections of the LIBOR Rate, selections of
Interest Periods for, or other transactions in respect of, LIBOR Loans: two
(2) Business Days; or (ii) relative to all transactions
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<PAGE> 16
in respect of Base Rate Loans: one (1) Business Day; it being understood,
however, that in the case of notices involving transactions in respect of more
than one type of Loan (such as a change in type of Loan in accordance with
Section 2.04(B)), "Required Number" means that number of days, as indicated
above in respect of the Loans involved, which would constitute the longest
applicable period of time.
"Reserve Percentage" means for any Interest Period, the
average (for such Interest Period) maximum rate at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be
maintained during such Interest Period under Regulation D of the Federal
Reserve Board by member banks of the Federal Reserve System as it applies to
the Bank against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Percentage shall
reflect any other reserves required to be maintained by member banks by reason
of any regulatory change against (i) any category of liabilities that includes
deposits by reference to which the interest rate for LIBOR Loans is to be
determined as provided in this Agreement or (ii) any category of extensions of
credit or other assets that include LIBOR Loans. As of the date of this
Agreement the Reserve Percentage is zero.
"Revolving Commitment" means the obligation of Bank, subject
to the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the lesser of: (a) the Borrowing
Base then in effect, or (b) the positive difference between (i) $20,000,000.00,
minus (ii) the outstanding principal balance, from time to time, of all Foreign
Affiliate Loans.
"Secured Eligible Receivables" means Eligible Receivables that
are secured by letters of credit that have been approved in writing by Bank, in
its sole discretion.
"Security Instruments" means the security instruments
described on Exhibit "C," in form and substance satisfactory to Bank, to be
executed by Borrower pursuant to Section 3.14, and any and all other
instruments or documents hereafter executed in connection with or as security
for the payment of the Note.
"Senior Debt" means all Indebtedness of the Parent Borrower
and its Subsidiaries, on a consolidated basis, including the Indebtedness of
Borrower to Bank arising hereunder, excluding any Indebtedness that has been
subordinated to Borrower's Indebtedness to Bank on terms and conditions
acceptable to Bank, in its sole discretion.
"Subsidiary" means (a) any corporation in which Borrower,
directly or indirectly through its Subsidiaries, owns more than fifty percent
(50%) of the stock of any class or classes having by the terms thereof the
ordinary voting power to elect a majority of the directors of such corporation;
and (b) any partnership, association, joint venture, or other entity in which
Borrower, directly or indirectly through its Subsidiaries, has more than a
fifty percent (50%) equity interest at the time.
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<PAGE> 17
"Tangible Net Worth" means the total assets of the Parent
Borrower and its Subsidiaries on a consolidated basis, exclusive of (a) those
assets classified as intangible, including, without limitation, goodwill,
patents, trademarks, trade names, copyrights, franchises and deferred charges,
(b) treasury stock and minority interests in any Person, (c) cash set apart and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of capital stock, (d) to the extent not already
deducted from total assets, allowances for depreciation, depletion,
obsolescence and/or amortization of properties, uncollectible accounts, and
contingent but probable liabilities as to which an amount can be established,
(e) deferred taxes and (f) all assets arising from advances to officers, former
officers or sales representatives of the Parent Borrower and its Subsidiaries
on a consolidated basis made outside of the ordinary course of business; less
total liabilities of the Parent Borrower and its Subsidiaries on a consolidated
basis; all of the above being determined in accordance with GAAP.
"U.K. Eligible Receivables" means Eligible Receivables due
from an Investment Grade Account Debtor, when the principal place of business
of the Account Debtor and location to which the goods were delivered or at
which the services were performed are all located within the United Kingdom
(including the territorial waters thereof).
"Unmatured Event of Default" means any event or occurrence
which solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
"U.S. Eligible Receivables" means Eligible Receivables due
from an Investment Grade Account Debtor, when the principal place of business
of such Account Debtor and location to which the goods were delivered or at
which the services were performed are all located within the United States of
America (including the territorial waters thereof).
Undefined financial accounting terms used in this Agreement
shall be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Revolving Line. Upon the terms and conditions
(including, without limitation, the right of Bank to terminate the Revolving
Commitment hereunder upon an Event of Default or an Unmatured Event of Default)
and relying on the representations and warranties contained in this Agreement,
Bank agrees, for a period from and after the date hereof through the last
Business Day prior to the Maturity Date, to make advances for the account of
Borrower from time to time following receipt of a Request for Advance;
provided, however, that the aggregate principal amount of all Loans at any one
time outstanding shall not exceed the Revolving Commitment. Each Borrower,
other than the Parent Borrower, hereby appoints the Parent Borrower as its
agent and attorney-in-fact for the submission of all Requests for Advance
hereunder, which authorization shall be deemed a power coupled with an interest
and shall be irrevocable until all Indebtedness evidenced by the Note has been
fully and finally paid, all Obligations of Borrower have been fully performed
and discharged, and Bank is no longer obligated under this Agreement to make
any advances under the Revolving Commitment. Each
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<PAGE> 18
party defined herein as Borrower shall be jointly and severally liable for the
repayment of all Loans and the performance of all Obligations of Borrower.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
outstanding principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note.
Each time an advance is made against or payment is made on the Note, Bank is
hereby irrevocably authorized by Borrower to make appropriate entries of such
in its records in accordance with the usual and customary practices of
accounting for advances and payments on notes; provided, however, the failure
of Bank to do so shall not relieve Borrower of its correct liability hereunder
or under the Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Prepayment and Conversion. Upon the Required Number
of days notice to the Bank, the Borrower may: (a) without the payment of
penalty or premium, prepay the principal of the Loans, or (b) voluntarily
convert the applicable Interest Rate of any Loan prior to the termination of
the applicable Interest Period in whole or in part, from time to time; any
partial payment or conversion to be made in the sum of not less than $500,000
or any $100,000 increment in addition thereto; provided that with respect to
any such prepayment or conversion of any Loan upon which interest is being
calculated at the LIBOR Rate the Borrower shall reimburse the Bank on demand
for any costs, including administrative costs, incurred by the Bank as a result
of such prepayment or conversion and any loss incurred or to be incurred by the
Bank in the redeployment of the funds released by any such prepayment. Such
loss shall be the difference, as reasonably determined by Bank, between (i)
Bank's gross return hereunder with respect to that portion of the Loans which
is prepaid, based on the applicable Interest Rate for such portion of the Loans
and (ii) any lesser amount realized by Bank in deploying the funds received in
repayment, or otherwise realized from that portion of the Loans so prepaid,
during the period from the date of the prepayment until the end of the Interest
Period for that portion of the Loans prepaid; provided that Bank shall use its
best efforts to redeploy such funds in a commercially reasonable manner.
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2.04 Interest Rate and Payments of Interest.
(A) Interest on Base Rate Loans shall be calculated on
the basis of a year of 365 or 366 days, as appropriate.
Interest on LIBOR Loans shall be calculated on the basis of a
360-day year, counting the actual number of days elapsed.
Interest on the outstanding principal balance of the Loans
shall accrue for each day at either the Floating Rate for such
day or the LIBOR Rate for the Interest Period which includes
such day, all as elected and specified (including
specification as to length of Interest Period, as permitted by
the definition of that term, with respect to any election of
the LIBOR Rate) by the Borrower in accordance with Section
2.04(B); provided that:
(i) In the absence of an election by the Borrower
of the LIBOR Rate, or, having made such election but
upon the Required Number of days prior to the end of
the then current Interest Period the Borrower fails
or is not entitled under the terms of this Agreement
to elect to continue such Interest Rate and specify
the applicable Interest Period therefor, then upon
the expiration of such then current Interest Period,
interest on the Loans shall accrue for each day at
the Floating Rate for such day, until the Borrower,
pursuant to Section 2.04(B), elects a different
Interest Rate and specifies the Interest Period for
the Loans.
(ii) Interest accruing on any LIBOR Loan during any
Interest Period shall be payable on the last
Business Day of such then current Interest Period;
provided, however, that with respect to LIBOR Loans
for which the Interest Period selected by the
Borrower pursuant to Section 2.04(B) is greater than
three (3) months, interest shall be payable
quarterly on the last Business Day of such quarterly
period with the first such quarterly period
commencing on the first day of the applicable
Interest Period with any remaining unpaid interest
being due and payable on the last day of such
Interest Period; provided further that all accrued
interest on any LIBOR Loan converted or prepaid
pursuant to Section 2.03 shall be paid immediately
upon such prepayment or conversion.
(B) By at least the Required Number of days prior to the
advance of any Loan hereunder, the Parent Borrower shall
select the initial Interest Rate to be charged on such Loan,
and from time to time thereafter the Parent Borrower may
elect, on at least the Required Number of days' irrevocable
prior written (or telephoned, promptly confirmed by written)
notice to the Bank, to change the Interest Rate on any Loan to
any other Interest Rate (including, when applicable, the
selection of the Interest Period); provided that; (i) the
Borrower shall not select an Interest Period that extends
beyond the Termination Date; (ii) except as otherwise provided
in Section 2.03 no such change from the LIBOR Rate to another
Interest Rate shall become effective on a day other than the
day, which must be a Business Day, next
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following the last day of the Interest Period last effective
for such LIBOR Loan; (iii) any elections made by Borrower
pursuant to this Section 2.04(B) shall be in the amount of
$100,000, plus any additional increment of $100,000; (iv)
notwithstanding anything herein to the contrary, Borrower may
not make any election under this Section 2.04(B) that would
result in Loans outstanding at more than three (3) different
LIBOR Rates without the written agreement of the Bank to do
so; and (v) the first day of each Interest Period as to a
LIBOR Loan shall be a Business Day.
(C) Interest on Base Rate Loans shall be paid monthly in
arrears on the first Business Day of each calendar month
commencing with any month during which interest begins to
accrue at the Floating Rate, as elected by Borrower pursuant
to Section 2.04(B), and on the date the principal of such
Loans shall be due (at stated maturity, on acceleration, or
otherwise).
(D) Interest on past-due principal shall accrue at the
greater of the applicable Floating Rate plus three percent
(3.00%) or LIBOR plus five percent (5.00%) until such
principal is paid in full, and shall be payable upon demand by
the Bank.
(E) The Bank shall notify the Borrower of the current
Base Rate and of the current LIBOR Rate from time to time upon
request by Borrower.
(F) It is the intention of the parties hereto to conform
strictly to applicable usury laws as in effect from time to
time. Accordingly, if any transactions contemplated hereby
would be usurious under applicable Law (including the laws of
the United States of America, or of any other jurisdiction
whose laws may be mandatorily applicable), then, in that
event, notwithstanding anything to the contrary in this
Agreement, or any other agreement entered into in connection
with this Agreement, it is agreed the aggregate of all
consideration that constitutes interest under applicable law
that is contracted for, charged, or received under this
Agreement, or under any of the other aforesaid agreements or
otherwise in connection with this Agreement shall under no
circumstances exceed the Maximum Rate, and any excess shall be
credited to Borrower by Bank (or, if such consideration shall
have been paid in full, such excess refunded to Borrower by
Bank). All sums paid, or agreed to be paid, to the Bank for
use, forbearance, and detention of the indebtedness of the
Borrower by the Bank shall, to the extent permitted by
applicable laws, be amortized, pro rated, allocated, and
spread throughout the full term of such indebtedness until
such indebtedness is paid in full so that the actual rate of
interest is uniform, but does not exceed the Maximum Rate,
throughout the full term thereof. If at any time the
applicable Interest Rate, which shall be deemed for purposes
of this Section 2.04(F), only, to include any other fees,
charges, or other forms of consideration which constitute
interest under applicable law that is contracted for, charged,
or received under this Agreement or any other agreement
entered into in connection with this Agreement, exceeds the
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<PAGE> 21
Maximum Rate, the rate of interest to accrue pursuant to this
Agreement shall be limited, notwithstanding anything to the
contrary in this Agreement, to the Maximum Rate, but any
subsequent reductions in the Interest Rate otherwise provided
for herein shall not reduce the interest to accrue pursuant to
this Agreement below the Maximum Rate until the total amount
of interest accrued pursuant to this Agreement equals the
amount of interest that would have accrued if a varying rate
per annum equal to the otherwise applicable Interest Rate had
at all times been in effect. If the total amount of interest
paid or accrued pursuant to this Agreement under the foregoing
provisions is less than the total amount of interest that
would have accrued if a varying rate per annum equal to the
otherwise applicable Interest Rate had at all times been in
effect, then the Borrower agrees to pay upon final maturity of
the Loans an amount equal to the difference between (a) the
lesser of (i) the amount of interest that would have accrued
if the Maximum Rate had at all times been in effect or (ii)
the amount of interest that would have accrued if a varying
rate per annum equal to the otherwise applicable Interest Rate
had at all times been in effect, and (b) the amount of
interest accrued in accordance with the other provisions of
this Agreement.
2.05 Increased Cost of Loans.
(A) Notwithstanding any other provisions herein, if as a
result of any regulatory change
(i) the basis of taxation of payments to Bank of
the principal of, or interest on, any LIBOR Loan or
any other amounts due under this Agreement in
respect of any such LIBOR Loan (except for taxes
imposed on the overall net income or receipts of
Bank, and franchise or other taxes imposed generally
on Bank), by the jurisdiction (or any political
subdivision therein) in which Bank has its principal
office is changed;
(ii) any reserve, special deposit, or similar
requirement (including without limitation any
reserve requirement under regulations of the Board
of Governors of the Federal Reserve System) against
assets of, deposits with, or for the account of, or
credit extended by Bank, is imposed, increased,
modified, or deemed applicable; or
(iii) any other condition affecting this Agreement
or any LIBOR Loan is imposed on Bank or (in the case
of LIBOR Loans) the London interbank market;
and the result of any of the foregoing is to increase the
actual direct cost to Bank of making or maintaining any such
LIBOR Loan or to reduce the amount of any sum received by Bank
hereunder in respect thereof (and such increase or reduction
shall not have been compensated by a corresponding increase in
the interest rate
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applicable to the respective Loans), by an amount deemed by
Bank to be material (such increases in cost and reductions in
amounts receivable being herein called "Increased Costs"),
then the Borrower shall pay to Bank, within thirty (30) days
after its demand, such additional amount or amounts as will
compensate Bank for those Increased Costs. The Bank will not
demand to be compensated by Borrower for such Increased Costs
unless the Bank generally makes such demands to its other
LIBOR Loan customers who are similarly situated. A
certificate of Bank setting forth the basis for the
determination of such amount necessary to compensate the Bank
as aforesaid, accompanied by documentation showing reasonable
support for such increased costs or reduced sums received by
Bank, shall be delivered to the Borrower and shall be
conclusive, save for manifest error, as to such determination
and such amount.
(B) Notwithstanding the foregoing provisions of this
Section 2.05, in the event that by reason of any regulatory
change the Bank either (i) incurs Increased Costs based on, or
measured by, the excess above a specified level of the amount
of a category of deposits or other liabilities of Bank that
includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank
that includes LIBOR Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities
or assets that it may hold, then, if Bank so elects by notice
to the Borrower, the obligation of Bank to make or convert
Loans of any other type into LIBOR Loans hereunder shall be
suspended until the earlier of the date such regulatory change
ceases to be in effect or the date the Borrower and Bank agree
upon an alternative method of determining the interest rate
payable by the Borrower on LIBOR Loans, and all LIBOR Loans of
Bank then outstanding shall either be repaid or be converted
into a Base Rate Loan (if not otherwise prohibited under the
terms of this Agreement) at the Borrower's option.
(C) Bank agrees that upon the occurrence of any
regulatory change giving rise to the operation of the first
paragraph of this Section 2.05, it will, if requested by the
Borrower and to the extent permitted by law or by the relevant
government authority, for a period of thirty (30) days
endeavor in good faith to avoid or minimize the increase in
cost or reduction in amount receivable resulting from such
regulatory change; provided, however, that such change can be
made in such a manner that Bank, in its sole determination,
suffers no economic, legal, regulatory, or other disadvantage.
Any expense incurred by Bank in so doing shall be paid by the
Borrower on delivery to the Borrower of a certificate as to
the amount of such expense, which certificate shall be
conclusive in the absence of manifest error. Nothing in this
paragraph shall affect or postpone the obligations of the
Borrower set forth in any other paragraph of this Section
2.05.
2.06 Substitute Rate. Anything herein to the contrary
notwithstanding, if within two (2) Business Days prior to the first day of any
Interest Period for a LIBOR Loan the Bank is
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not, for any reason whatsoever, quoted rates for the offering of Dollars for
deposit with it in the London interbank market for a period and amount relevant
to the computation of the rate of interest on LIBOR Loans for such Interest
Period, the Bank shall give the Borrower prompt notice thereof and, if Borrower
elects to obtain a Loan for the amount previously requested as a LIBOR Loan,
then on what would otherwise have been the first day of such Interest Period
such Loans shall be made as Base Rate Loans (if not otherwise prohibited under
the terms of this Agreement), in accordance with the election procedures set
forth in Section 2.04(B); provided, however, that prior to the effective date
of such election, interest shall be calculated at the Floating Rate.
2.07 Change of Law. Notwithstanding any other provision
herein, in the event that any change in any applicable law, rule or regulation
or in the interpretation or administration thereof shall make it unlawful for
the Bank to (i) honor any commitment it may have hereunder to make any LIBOR
Loan, then such commitment shall terminate, or (ii) maintain any LIBOR Loan,
then all LIBOR Loans of the Bank then outstanding shall be repaid or, if
Borrower so elects, converted to Base Rate Loans (if not otherwise prohibited
under the terms of this Agreement) in accordance with the election procedures
set forth in Section 2.04(B); provided, however, that prior to the effective
date of such election, interest shall be calculated at the Floating Rate. Any
remaining commitment of Bank hereunder to make LIBOR Loans (but not other
Loans) shall terminate forthwith. Upon the occurrence of any such change, the
Bank shall promptly notify the Borrower thereof, and shall furnish to the
Borrower in writing evidence thereof certified by the Bank.
Any repayment or conversion of any LIBOR Loan which is
required under this Section 2.07 or under 2.05(B) shall be effected by payment
thereof, together with accrued interest thereon, on demand, and concurrently
there shall occur the borrowing of the corresponding Base Rate Loan as provided
herein.
If any repayment to Bank of any LIBOR Loan (including
conversions thereof) is made under this Section 2.07 on a day other than a day
otherwise scheduled for a payment of principal of or interest on such Loan, the
Borrower shall pay to Bank upon its request such amount or amounts as will
compensate it for the amount by which the rate of interest on such Loan
immediately prior to such repayment exceeds the stated rate of interest on
relending or reinvesting the funds received in connection with such prepayment,
in each case for the period from the date of such prepayment to the Business
Day next succeeding the last day of such then current Interest Period, all as
determined by Bank in its good faith discretion.
2.08 Advances to Satisfy Obligations of Borrower. Bank
may, but shall not be obligated to, make advances hereunder and apply same to
the satisfaction of any condition, warranty, representation or covenant of
Borrower contained in this Agreement and/or the Guaranty and the funds so
advanced and applied shall be part of the Loan proceeds advanced under this
Agreement and evidenced by the Note. Bank shall endeavor to give written
notice to Borrower at least five (5) Business Days prior to making any such
advance pursuant to this Section, provided that Bank shall not be obligated to
give any such notice if, in good faith, it has determined that a delay in
making any such advance would have a material adverse effect on the
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<PAGE> 24
business, operations or financial condition of Borrower or on the collateral
value to Bank of any material portion of the Borrowing Base Receivables.
2.09 Mandatory Prepayment of the Notes. In the event
that Bank or Borrower determine that a Loan Excess exists, Borrower shall
immediately, but in no event later than fifteen (15) days following the earlier
of either: (a) Borrower becoming aware that a Loan Excess exists, or (b) notice
from Bank of any such determination, (i) prepay the principal of the Note in an
aggregate amount at least equal to such Loan Excess or (ii) add to the
Borrowing Base additional Borrowing Base Receivables pursuant to Section 2.10
sufficient to increase the Borrowing Base to an amount equal the unpaid
principal amount of the Note.
2.10 Borrowing Base Determination. Parent Borrower shall
deliver to Bank on or before the earlier of: (a) October 31, 1997, or (b) the
date on which the Parent Borrower delivers to Bank the first Request for
Advance submitted pursuant to Section 2.01 hereof; and within thirty (30) days
after the last day of each month from the date of this Agreement through the
Maturity Date, a Monthly Borrowing Base Certificate evidencing Borrower's
calculation of the Borrowing Base and the aging of all Accounts included in the
Borrowing Base Receivables. The Borrowing Base calculated pursuant to each
such Monthly Borrowing Base Certificate shall become effective at 10:00 am on
the fifth Business Day after it is delivered to the Bank, unless prior to such
time Bank notifies Borrower that it disagrees with the calculation of the
Borrowing Base as set forth therein. If Bank notifies Borrower within such
five Business Day Period that it disagrees with the calculation of the
Borrowing Base as set forth in the Monthly Borrowing Base Certificate, it shall
concurrently notify Borrower of the Borrowing Base that Bank is willing to
recognize, which shall be the Borrowing Base until such time as the Bank and
Borrower agree on a recalculated Borrowing Base or Bank notifies Borrower of a
subsequent adjustment in the amount of the Borrowing Base that Bank is willing
to recognize.
2.12 Commitment Fee. As consideration for the commitment
of Bank to make Loans to Borrower through the Maturity Date pursuant to this
Agreement, Borrower agrees to pay to Bank within three (3) Business Days of
receipt of Bank's statement as to quarterly periods ending March 31, June 30,
September 30 and December 31 of each year (except the first period shall be for
a period of time from the Closing to September 30, 1997) during the period
commencing on the date of this Agreement to and including the Maturity Date and
at the Maturity Date, a fee equal to the Commitment Fee Percentage per annum
(computed on the basis of 365 or 366 days, as the case may be) multiplied by an
amount equal to the daily average excess, if any, of: (a) the sum of the
Revolving Commitment hereunder plus the Foreign Affiliate Revolving Commitment
(collectively the "Combined Revolving Commitment"), over (b) the sum of the
aggregate principal amount outstanding on the Note plus the Foreign Affiliate
Loans throughout the period from the date of this Agreement or previous
calculation date provided above, whichever is later, to the relevant
calculation date or the Maturity Date, as the case may be.
2.13 Facility Fee. As consideration for the commitment
of Bank to make Loans to Borrower pursuant to this Agreement, Borrower shall
pay to Bank at Closing a fee ("Facility Fee") equal to .375% of $20,000,000.00;
and thereafter, if the Combined Revolving Commitment
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<PAGE> 25
is ever increased to exceed $20,000,000.00, Borrower shall contemporaneously
pay to Bank a fee equal to .375% of the amount by which the increased Combined
Revolving Commitment exceeds the highest Combined Revolving Commitment amount
previously in effect.
ARTICLE III. CONDITIONS
The obligation of Bank to make advances of the Loans referred
to in Article II of this Agreement is subject to the prior or contemporaneous
satisfaction of the following conditions precedent stated in this Article III.
3.01 Receipt of Note, Agreement, and Certificate of
Compliance. Bank shall have received the Note, multiple counterparts of this
Agreement, as requested by Bank, and the Certificate of Compliance, all duly
executed by an authorized officer of Borrower.
3.02 Completion of Initial Public Offering. Bank shall
have received evidence satisfactory to Bank, in its sole discretion, that the
Parent Borrower has closed the initial public offering described in the Form
S-1 Registration Statement initially filed June 2, 1997 (the "Initial Public
Offering"), including the Parent Borrower having been capitalized with at least
Sixty Million Dollars ($60,000,000.00) in equity and having acquired all issued
and outstanding shares of Energy Research International, a Cayman Islands
corporation.
3.03 Receipt of Organizational Documents. Bank shall
have received from Borrower its Articles of Incorporation and its bylaws,
certified as being true and correct by the secretary or an assistant secretary
of Borrower.
3.04 Receipt of Certified Copy of Corporate Proceedings
and Certificates of Incumbency. Bank shall have received from Borrower copies
of all resolutions of its board of directors authorizing the transactions set
forth in this Agreement, and the execution of this Agreement, the Note, and the
Security Instruments, such copy or copies to be certified by the secretary or
an assistant secretary as being true and correct and in full force and effect
as of the date hereof. In addition, Bank shall have received from Borrower a
certificate of incumbency signed by the secretary or an assistant secretary of
Borrower setting forth (a) the names of the officers executing this Agreement,
the Note, and those of the Security Instruments to which it is a party, (b) the
office(s) to which such Persons have been elected and in which they presently
serve and (c) an original specimen signature of each such person.
3.05 Receipt of Certificates of Authority and
Certificates of Good Standing. Bank shall have received certificates, as of
the most recent dates practicable, of the Secretary of State of the
jurisdiction in which Borrower is incorporated attesting to Borrower's
existence, and of each state (or of a comparable governmental authority in any
applicable foreign jurisdiction) in which Borrower is qualified to do business
as a foreign corporation attesting to such qualification, and from the
department of revenue or taxation of each of the foregoing states or
governmental authorities, as to the good standing of Borrower.
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<PAGE> 26
3.06 Guaranty. Bank shall have received a guaranty
agreement (the "Guaranty"), in form and substance acceptable to Bank in its
discretion, duly executed by the Parent Borrower, pursuant to the which the
Parent Borrower guarantees the payment and performance of all obligations and
Indebtedness of Horizon Exploration Limited to Bank arising under or in
connection with the Foreign Affiliate Loan Agreement.
3.07 UCC Search. The results of a Uniform Commercial
Code/security interest search showing all financing statements and other
documents or instruments on file against Borrower in the Offices of the
Secretaries of State of the States of Texas and Delaware, such searches to be
as of a date no more than ten (10) days prior to the date of the Closing.
3.08 Opinion of Counsel. Bank shall have received an
opinion of counsel to Borrower in the form attached hereto as Exhibit "F".
3.09 Fees. Bank shall have contemporaneously received
the fees required by Section 2.13.
3.10 Financial Statements. Bank shall have received the
Financial Statements of Borrower as of June 30, 1997, showing financial
information consistent with that previously provided to Bank.
3.11 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.12 Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in Article IV
of this Agreement shall be true and correct in all material respects on the
date of the making of such Loans or advances with the same effect as though
such representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances.
3.13 Legal Matters Satisfactory to Counsel to Bank. All
legal matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to counsel for Bank.
3.14 No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower.
3.15 Security Instruments. As security for the payment
of the Note and the performance of the Obligations of Borrower under this
Agreement, Bank shall have received the Security Instruments, duly executed by
Borrower, that are necessary or appropriate, in the opinion of Bank, to perfect
Bank's security interests in the Borrowing Base Receivables identified in the
Monthly Borrowing Base Certificate delivered pursuant to Section 3.01.
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<PAGE> 27
3.16 Legal Fees. All legal fees and disbursements owed
to Bank's special counsel who provided representation to the Bank in connection
with this Agreement or any amendment hereto shall have been paid.
3.17 Foreign Affiliate Loan Agreement. Bank and Horizon
Exploration Limited shall have contemporaneously entered into the Foreign
Affiliate Loan Agreement.
3.18 Documents Required in connection with the addition
of certain Borrowing Base Receivables. In conjunction with the addition of
Borrowing Base Receivables that either: (a) are payable by any Account Debtor
whose principal place of business is in a jurisdiction in which Bank has not
previously perfected its security interests in Borrower's Accounts, or (b)
arise out of the delivery of goods to or performance of services in a
jurisdiction in which Bank has not previously perfected its security interests
in Borrower's Accounts; Borrower shall have duly delivered to Bank such
Security Instruments as are necessary or appropriate, in the opinion of Bank,
to perfect Bank's security interests in such additional Borrowing Base
Receivables.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the
Loan hereunder, Borrower represents and warrants to Bank (which representations
and warranties will survive the delivery of the Note) that:
4.01 Existence and Good Standing. Borrower and each of
its Subsidiaries is a corporation, duly organized, legally existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in all jurisdictions
wherein the property owned or the business transacted by it makes such
qualification necessary, other than those jurisdictions wherein the failure to
so qualify does not have a material adverse effect on Borrower.
4.02 Due Authorization. The execution and delivery by
Borrower of this Agreement and the borrowings hereunder; the execution and
delivery by Borrower of the Note and the Security Instruments; and the
repayment by Borrower of Indebtedness evidenced by the Note and interest and
fees provided in the Note and this Agreement (a) are within the corporate power
of Borrower; (b) have been duly authorized by all necessary corporate action;
and (c) do not and will not (i) require the consent of any regulatory
authority, governmental body, or any other Person, (ii) violate any provision
of law, the certificate of incorporation, the articles of incorporation, or the
bylaws of Borrower, (iii) cause a default to occur under the terms and
provisions of any indenture, instrument or other agreement to which Borrower is
a party or by which its property may be presently bound or encumbered, or (iv)
result in or require the creation or imposition of any mortgage, lien, pledge,
security interest, charge or other encumbrance in, upon or of any of the
properties or assets of Borrower under any such indenture, instrument or other
agreement, other than under any of the Security Instruments.
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4.03 Valid and Binding Obligations. This Agreement, the
Note, and the Security Instruments are the legal, valid and binding obligations
of and enforceable against Borrower in accordance with their respective terms
(subject to any applicable bankruptcy, insolvency or other laws of general
application affecting creditors' rights and judicial decisions interpreting any
of the foregoing).
4.04 Scope and Accuracy of Financial Statements. All
Financial Statements submitted and to be submitted to Bank hereunder are and
will be complete and correct in all material respects; are and will be prepared
in accordance with GAAP and practices consistently applied; and do and will
fairly reflect the financial condition and the results of the operations of
Borrower and its Subsidiaries in all material respects as of the dates and for
the period stated therein (subject only to normal year-end audit adjustments
with respect to such unaudited interim statements); and no material adverse
change has since occurred in the condition, financial or otherwise, of Borrower
or its Subsidiaries (taken as a whole).
4.05 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor any of its
Subsidiaries has any liabilities, direct or contingent, which may materially
and adversely affect its business or assets. Except as described on Schedule
4.05, there is no litigation or other action of any nature pending before any
court, governmental instrumentality, regulatory authority or arbitral body or,
to the knowledge of Borrower, threatened against or affecting Borrower, or any
of its Subsidiaries, which might reasonably be expected to result in any
material, adverse change in the business or assets of Borrower or its
Subsidiaries (taken as a whole). No unusual or unduly burdensome restriction,
restraint or hazard exists by contract, law, governmental regulation or
otherwise relative to the business or material properties of Borrower or any of
its Subsidiaries which might reasonably be expected to result in any material,
adverse change in the business or assets of Borrower or its Subsidiaries (taken
as a whole) other than such as relate generally to Persons engaged in the
business activities conducted by Borrower or any applicable Subsidiary.
4.06 Margin Stock. None of the proceeds of the Loans
will be used for the purpose of buying or carrying margin stock.
4.07 Authorizations and Consents. No authorization,
consent, approval, exemption, franchise, permit or license of, or filing with,
any governmental or public authority or any third party is required to
authorize, or is otherwise required in connection with the valid execution and
delivery by Borrower of this Agreement, the Note, and the Security Instruments
or any instrument contemplated hereby, the repayment by Borrower of advances
against the Note and interest and fees provided in the Note and this Agreement,
or the performance by Borrower of its obligations under any of the foregoing.
4.08 Compliance with Laws, Rules, Regulations and Orders.
To the best of the knowledge and belief of Borrower, neither the business nor
any of the activities of Borrower or any of its Subsidiaries, as presently
conducted, violates any law or any rule, regulation or directive of any
applicable judicial, administrative or other governmental instrumentality
(including, but not
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by way of limitation, any law or any rule, regulation or directive of any
judicial, administrative or other governmental instrumentality relating to
zoning, to any Environmental Law, or to the stabilization of wages or prices
the result of which violation would have a material adverse effect on Borrower
or its Subsidiaries (taken as a whole), and Borrower and each of its
Subsidiaries possess all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its respective business in
all material respects as now conducted, and all such licenses, approvals,
registrations, permits and other authorizations are in full force and effect;
and Borrower has no reason to believe that it will be unable to obtain the
renewal of any such licenses, approvals, registrations, permits and other
authorizations.
4.09 Proper Filing of Tax Returns and Payment of Taxes
Due. Borrower and each of its Subsidiaries have duly and properly filed all
United States Income Tax returns and all other tax returns which are required
to be filed, and has paid all taxes due pursuant to said returns or pursuant to
any assessment received, except such taxes, if any, as are being contested in
good faith and as to which adequate provisions and disclosures have been made;
and the respective charges and reserves on the books of Borrower and each of
its Subsidiaries with respect to any taxes or other governmental charges are
adequate.
4.10 ERISA. Borrower is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event
nor a Prohibited Transaction has occurred and is continuing with respect to any
plan; no notice of intent to terminate a plan has been filed, nor has any plan
been terminated; no circumstances exist which constitute grounds under Section
4042 of ERISA entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administrate a plan, nor has the PBGC instituted any such
proceedings; neither Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multi-employer
plan; Borrower and each ERISA Affiliate have met their minimum funding
requirements under ERISA with respect to all of their plans and the present
value of all vested benefits under each plan exceeds the fair market value of
all plan assets allocable to such benefits, as determined on the most recent
valuation date of the plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of Borrower
or any ERISA Affiliate to the PBGC or the plan under Title IV of ERISA; and
neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC
under ERISA.
4.11 Investment Company Act Compliance. Borrower is not,
nor is it directly or indirectly controlled by or acting on behalf of any
person or entity which is, an investment company or an "affiliated person" of
an investment company within the meaning of the Investment Company Act of 1940.
4.12 Public Utility Holding Company Act Compliance.
Borrower is not a "holding company", or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
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4.13 Environmental Laws. To the best of the knowledge
and belief of Borrower:
(a) no property of Borrower or any of its Subsidiaries
is currently on, or has ever been on, any federal or state list of
superfund sites as listed on the Environmental Protection Agency
National Priority List or any comparable state registries or list in
any state of the United States (collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been
generated, transported, and or disposed of, by Borrower or any of its
Subsidiaries at any Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill, release,
disposal or discharge of any Hazardous Substance into or upon (i) the
air, (ii) soils or any improvements located thereon, (iii) surface
water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of
Borrower or any of its Subsidiaries; and
(d) no complaint, order, directive, claim, citation,
notice of environmental report, notice of investigation or other
notice by any regulatory authority or governmental body or any other
Person with respect to (i) air emissions, (ii) spills, releases or
discharges to soils or any improvements located thereon, surface
water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing any property of Borrower or any
of its Subsidiaries, (iii) solid or liquid waste disposal, (iv) the
use, generation, storage, transportation or disposal of any Hazardous
Substance, or (v) other environmental, health or safety matters
affecting any property of Borrower or any of its Subsidiaries, any
improvements located thereon, or the business thereon conducted, has
been received by Borrower or any of its Subsidiaries, nor has Borrower
been given oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or (ii) otherwise materially affect Borrower's use or operation of its
property or Borrower's ability to repay the Indebtedness evidenced by the Note.
4.14 Subsidiaries. Borrower has no Subsidiaries other
than those listed on Schedule 4.14 hereto, and the jurisdiction of
incorporation and principal place of business of each of Borrower's
Subsidiaries is set forth on Schedule 4.14.
4.15 Existing Indebtedness. All Indebtedness of the
Borrower and any Subsidiary existing as of the Closing, other than accounts
payable incurred in the ordinary course of business that are not more than 30
days overdue, is described in Schedule 4.15; and neither the Borrower nor any
Subsidiary is in default with respect to any of such Indebtedness, except as
described on Schedule 4.15.
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4.16 Material Commitments. Except as described in
Schedule 4.16 hereto, (A) neither the Borrower nor any Subsidiary has any
material leases, contracts or commitments of any kind (including, without
limitation, employment agreements; collective bargaining agreements; powers of
attorney; distribution arrangements; patent license agreements; contracts for
future purchase or delivery of goods or rendering of services; bonuses, pension
and retirement plans; or accrued vacation pay, insurance and welfare
agreements) requiring aggregate expenditure by the Borrower in excess of
$500,000 per year; (B) to the best of the Borrower's knowledge, all parties to
all such material leases, contracts, and other commitments to which the
Borrower or any Subsidiary is a party have materially complied with the
provisions of such leases, contracts, and other commitments; and (C) to the
best of the Borrower's knowledge, no party is in material default under any
thereof and no event has occurred that but for the giving of notice or the
passage of time, or both, would constitute a material default.
4.17 Insurance. The Borrower maintains insurance with
respect to the properties and business of the Borrower providing coverage for
such liabilities, casualties, risks and contingencies and in such amounts as it
believes is customary in the industry. As of the date hereof, the insurance
coverage reflected on the Certificate(s) of Insurance attached hereto as
Schedule 4.17 is in full force and effect, and, except as disclosed on Schedule
4.17, all premiums due thereon have been paid.
4.18 Material Misstatements and Omissions. No express
representation or warranty by or with respect to the Borrower or any Subsidiary
contained herein or in any certificate or other document required by this
Agreement and furnished by the Borrower or any Subsidiary contains any untrue
statement of a material fact or omits to state a material fact necessary to
make such representation or warranty not misleading in light of the
circumstances under which it was made.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower covenants, so long as any Indebtedness of Borrower to
Bank remains unpaid under this Agreement or Bank remains obligated to make
advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the
Loan to finance Borrower's working capital needs and for other general
corporate purposes, and furnish Bank such evidence as it may reasonably require
with respect to such use.
5.02 Maintenance and Access to Records. Keep adequate
records in accordance with good accounting practices, of all of Borrower's
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at Bank's reasonable
request, make all financial records and records relating to the Borrowing Base
Receivables, available for Bank's inspection and permit Bank to make and take
away copies thereof.
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5.03 Quarterly Unaudited Financial Statements of
Borrower. Deliver to Bank, on or before the sixtieth (60th) day after the end
of each of the first three calendar quarters of each fiscal year, unaudited
consolidated and consolidating Financial Statements of Borrower and its
Subsidiaries as at the end of such period and from the beginning of such fiscal
year to the end of the respective period, as applicable, which Financial
Statements shall be certified by the president or chief financial officer of
Borrower as being true and correct, subject to changes resulting from year-end
audit adjustments.
5.04 Annual Audited Financial Statements of Borrower.
Deliver to Bank, on or before the one hundred and twentieth (120th) day after
the close of each fiscal year of Borrower: (a) the annual audited consolidated
Financial Statements of Borrower and its Subsidiaries, and (b) unaudited
consolidating Financial Statements of Borrower and its Subsidiaries, certified
by the president or chief financial officer of Borrower as being true and
correct.
5.05 Compliance Certificate. Deliver to Bank a
Compliance Certificate: (a) at the time of Borrower's execution of this
Agreement, and (b) at the time of delivery of each of the Financial Statements
pursuant to Sections 5.03 and 5.04 above.
5.06 Monthly Borrowing Base Certificate. Deliver to Bank
within thirty (30) days after the end of each month a Monthly Borrowing Base
Certificate effective as of the last day of such prior month, in accordance
with Section 2.10.
5.07 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the Borrower having knowledge of
any material adverse change in the condition, financial or otherwise, of
Borrower or its Subsidiaries (or any event or circumstance that would result in
any such material adverse change in condition including, but not limited to,
litigation and changes in business), a statement of the president or vice
president of Borrower, setting forth the change in condition or event or
circumstance likely to result in any such change and the steps being taken by
Borrower or the applicable Subsidiary with respect to such change in condition
or event or circumstance.
5.08 Additional Information. Furnish to Bank all
information, if any, filed with the SEC by the Borrower and all information
routinely provided by the Borrower to its shareholders, generally. Furnish to
the Bank, promptly upon the Bank's reasonable request, such additional
financial or other information concerning the assets, liabilities, operations,
and transactions of the Borrower, including, without limitation, information
concerning title to any of the Borrowing Base Receivables.
5.09 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, and other obligations
which, if unpaid, might become a lien against its property, except any of the
foregoing being contested in good faith and as to which satisfactory accruals
have been provided, unless
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failure to comply or pay would not have a material adverse effect on the assets
of Borrower or the value of any Borrowing Base Receivables.
5.10 Maintenance of Existence and Good Standing.
Maintain Borrower's and its Subsidiaries' corporate existence and good standing
in the jurisdiction of its incorporation, and in all jurisdictions wherein the
property now owned or hereafter acquired or business now or hereafter conducted
necessitates same, other than those jurisdictions wherein the failure to so
qualify will not have a material adverse effect on Borrower, or on any of
Borrower's Subsidiaries considered on a consolidated basis with Borrower.
5.11 Further Assurances. Promptly cure any defects in
the execution and delivery of this Agreement, the Note, the Security
Instruments, or any other instrument referred to herein or executed in
connection with the Note, and upon notice, immediately execute and deliver to
Bank, all such other and further instruments as may be reasonably required or
desired by Bank from time to time in compliance with the covenants and
agreements made in this Agreement.
5.12 Initial Expenses of Bank. Pay all fees and expenses
of Hutcheson & Grundy, L.L.P., special legal counsel for Bank, incurred in
connection with the negotiation and preparation of this Agreement, the Note,
the Security Instruments, or any other instrument referred to herein or
executed in connection with the Note, the satisfaction of the conditions
precedent set forth in Article III of this Agreement and the consummation of
the transactions contemplated in this Agreement.
5.13 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, or any other instrument referred to herein
or executed in connection with the Note, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to Borrower by
Bank and which amounts will include, but not be limited to, (a) all court
costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
States Code, and (h) fees and expenses incurred in connection with any action
pursuant to Sections 1129 Title 11 of the United States Code, incurred by Bank
in connection with the collection of any sums due under this Agreement,
together with interest at the Floating Rate per annum, calculated on a basis of
a year of three hundred sixty-five (365) or three hundred sixty-six (366) days,
on each such amount from the date of notification to Borrower that the same was
expended, advanced or incurred by Bank until the date it is repaid to Bank,
with the obligations under this Section 5.13, surviving the non-assumption of
this Agreement in a case commenced under Title 11 of the United States Code or
other similar law of the United States, the State of Texas or any other
jurisdiction
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and being binding upon Borrower or a trustee, receiver or liquidator of any
such party appointed in any such case.
5.14 Maintenance of Tangible Property. Maintain all of
Borrower's and its Subsidiaries' tangible property that is material to the
conduct of Borrower's or any of its Subsidiaries' businesses in good repair and
condition and make all necessary replacements thereof and operate such property
in a good and workmanlike manner in accordance with standard industry
practices.
5.15 Maintenance of Insurance. Continue to maintain, or
cause to be maintained, insurance with respect to the properties and business
of Borrower and its Subsidiaries against such liabilities, casualties, risks
and contingencies and in such amounts as is customary in the industry, in an
amount and form, and underwritten by an insurer or insurers, as are reasonably
acceptable to Bank, and furnish to Bank, at the execution of this Agreement and
annually thereafter, certificates evidencing such insurance.
5.16 Inspection of Tangible Assets/Right of Audit.
Permit (or cause to be permitted) any authorized representative of Bank, to
visit and inspect (at the risk of Bank and/or such representative) any tangible
asset of Borrower and its Subsidiaries, and/or to audit the books and records
of Borrower or any of its Subsidiaries, during normal business hours. Bank
shall give Borrower five (5) Business Days prior written notice of any such
inspection or audit, and no such inspection or audit shall occur more often
than once per calendar quarter; provided, however, that if Bank has a good
faith belief that a condition exists that constitutes an Event Default or an
Unmatured Event of Default, which may reasonably be expected to have a material
adverse effect on the business, operations, or financial condition of Borrower,
or on the collateral value of any material portion of the Borrowing Base
Receivables, the Bank shall be entitled to conduct any such visit and
inspection, and/or any such audit, notwithstanding that a prior visit and
inspection, or audit, respectively, was conducted in the same calendar quarter,
and without the necessity of giving five (5) Business Days prior written
notice.
5.17 Payment of Note and Performance of Obligations. Pay
the Note according to the reading, tenor and effect thereof, and do and perform
every act and discharge all of the obligations provided to be performed and
discharged hereunder.
5.18 ERISA Reports. Promptly after the filing or
receiving thereof, copies of all reports, including annual reports, and notices
which Borrower or any of its Subsidiaries files with or receives from the PBGC
or the U.S. Department of Labor under ERISA; and promptly after Borrower knows
or has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any plan or that the PBGC, Borrower, or any of
Borrower's Subsidiaries has instituted or will institute proceedings under
Title IV of ERISA to terminate any plan, Borrower will deliver to Bank a
certificate of the chief financial officer of Borrower setting forth details as
to such Reportable Event or Prohibited Transaction or plan termination and the
action Borrower or its applicable Subsidiary proposes to take with respect
thereto.
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5.19 Minimum Current Ratio. Maintain a ratio of Current
Assets to Current Liabilities, excluding current maturities of long-term debt,
of not less than 1.15 to 1.0.
5.20 Tangible Net Worth Requirement. Maintain a total
Tangible Net Worth of not less than the greater of: (a) $45,000,000.00, or (b)
ninety-five percent (95%) of the equity raised by Borrower as the result of the
Initial Public Offering; increasing by seventy percent (70%) of net income
(excluding losses) of the Parent Borrower and its Subsidiaries on a
consolidated basis subsequent to September 30, 1997.
5.21 Cash Flow to Debt Service Ratio. Maintain a ratio
of Cash Flow to Debt Service for each fiscal quarter of not less than 1.25 to
1.0.
5.22 Maximum Funded Senior Debt and Capital Leases to
Capitalization. Maintain a ratio of not greater than .40 to 1.00 between: (a)
the sum of the outstanding balance at any time, and from time to time, of
Senior Debt plus the remaining obligatory payments on all capital leases of the
Parent Borrower and its Subsidiaries on a consolidated basis, and (b) the sum
of the outstanding balance at any time, and from time to time, of Senior Debt,
plus the remaining obligatory payments under capital leases of the Parent
Borrower and its Subsidiaries on a consolidated basis, plus the Tangible Net
Worth.
5.23 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in the vicinity of, related to or
affected by any property of Borrower or its Subsidiaries, or (b) required for
the performance or conduct of its operations, including, without limitation,
all permits, licenses, registrations, approvals and authorizations, and, in
this regard, comply fully and in a timely manner with, and cause all employees,
crew members, agents, contractors, subcontractors and future lessees (pursuant
to appropriate lease provisions) of Borrower and its Subsidiaries while such
Persons are acting within the scope of their relationship with Borrower or its
Subsidiaries, to so comply with, all requirements of law, including, without
limitation, Environmental Laws, and other requirements with respect to the
property of Borrower and its Subsidiaries and the operation thereof necessary
or appropriate to enable Borrower to fulfill its obligations under all
requirements of law, including, without limitation, Environmental Laws,
applicable to the use, generation, handling, storage, treatment, transport and
disposal of any Hazardous Substances now or hereafter located or present on or
under any such property.
5.24 Hazardous Substances Indemnification. Indemnify and
hold Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from the property of Borrower or its Subsidiaries,
whether prior to or during the term hereof, or (b) any activity carried on or
undertaken on or off such property, whether prior to or during the term
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hereof, and whether by Borrower or its Subsidiaries or any predecessor in title
or any employees, agents, contractors or subcontractors of Borrower or its
Subsidiaries or any predecessor in title, or any third Persons at any time
occupying or present on such property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation or
disposal of any Hazardous Substances at any time located or present on or under
such property; with the foregoing indemnity further applying to any residual
contamination on or under the property of Borrower or its Subsidiaries, or any
property of any other Person, or affecting any natural resources, and to any
contamination of any property or natural resources arising in connection with
the generation, use, handling, storage, transportation or disposal of any
Hazardous Substances, irrespective of whether any of such activities were or
will be undertaken in accordance with applicable requirements of law,
including, without limitation, Environmental Laws, and surviving satisfaction
of all Indebtedness of Borrower to Bank and the termination of this Agreement,
provided, further, that the claims and other actions of any kind against Bank
which give rise to such indemnity are not barred by the applicable statute of
limitations at the time such claims or actions are instituted and such
indemnity shall not extend to any act or omission by Bank or any Affiliate of
Bank or any of Bank's employees or agents with respect to the relevant property
subsequent to Bank becoming the owner of, taking possession of to the exclusion
of Borrower or assuming operations of any property previously owned by Borrower
and with respect to which property such claim, loss, damage, liability, fine,
penalty, charge, proceeding, order, judgment, action or requirement arises
subsequent to the acquisition of title thereto, taking possession thereof or
assumption of operations thereon by Bank or any Affiliate of Bank or any of
Bank's employees or agents. Notwithstanding anything herein to the contrary,
the provisions of this Section 5.24 shall survive any termination of this
Agreement and shall survive the payment and performance in full of all
Obligations owed by Borrower to Bank.
5.25 Changes in Management. Notify Bank of any change in
the senior management of Borrower, as such management exists as of the date
hereof.
5.26 Payment of Taxes, Etc. Borrower and its
Subsidiaries will each pay or cause to be paid when due, all taxes,
assessments, and charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay, except where contested in good faith
by appropriate proceedings with adequate reserves therefor having been set
aside on its books, provided, however, that Borrower and its Subsidiaries shall
each pay or cause to be paid all such taxes, assessments, charges, or levies
forthwith whenever foreclosure on any lien that may have attached (or security
therefor) appears imminent.
5.27 Notice of Litigation. Borrower and its Subsidiaries
will each give notice to the Bank within ten (10) Business Days of the
occurrence of: (A) any litigation or proceeding in which it is a party if an
adverse decision therein might reasonably be expected to require it to pay more
than $250,000.00 or deliver (or lose title to) assets the value of which
exceeds such sum (whether or not the claim is considered to be covered by
insurance); and (B) the institution of any other suit or proceeding involving
Borrower that would reasonably be expected to materially and adversely affect
its operations, financial condition, property, or business prospects.
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5.28 Notices Regarding Account Debtors. Upon the receipt
by Borrower of any notice of the death of an Account Debtor or a partner
thereof, or of the dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of, assignment
for the benefit of creditors by, or the filing of a petition in bankruptcy or
the commencement of any proceeding under any bankruptcy or insolvency laws by
or against, an Account Debtor, Borrower will immediately give the Bank written
advice thereof.
5.29 Notice of Change of Principal Offices. Borrower
will notify the Bank at least ten (10) Business Days in advance of any change
in the location of the principal office of Borrower or any of its Subsidiaries.
5.30 Payment of Accounts Payable. Pay its accounts
payable not later than thirty (30) days after their due date, except such as
are being contested in good faith and as to which adequate provision or accrual
has been made, provided that up to an aggregate amount of $500,000 of accounts
payable not being so contested may be overdue by more than such number of days.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any
part of the principal or interest on the Note shall remain unpaid or Bank
remains obligated to make advances hereunder, Borrower and its Subsidiaries
will not:
6.01 Mortgages or Pledges of Assets. Create, incur,
assume or permit to exist, any mortgage, pledge, security interest, lien or
encumbrance on any of its properties or assets (now owned or hereafter
acquired), except that the foregoing restrictions shall not apply to any
matters that would constitute or result in Permitted Encumbrances.
6.02 Nature of Business. Permit any material change to
be made in the character of its business as conducted as of the date hereof, or
permit any Subsidiary to permit any material change to be made in the character
of such Subsidiary's business as conducted as of the date hereof.
6.03 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.04 Cancellation of Insurance. Allow any insurance
policy required to be carried hereunder to be terminated or lapse or expire
without provision for adequate renewal thereof.
6.05 Margin Stock. Neither the Borrower nor any
Subsidiary will directly or indirectly apply any part of the proceeds of the
Loans to the purchasing or carrying of any "margin
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stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, or any regulations, interpretations or rulings
thereunder.
6.06 Changes in Business Structure. Consolidate or merge
with, or purchase (for cash or securities) all or substantially all of the
assets or all or any part of the capital stock of any corporation, firm,
association or enterprise, or allow any such entity to be merged into Borrower
or any of its Subsidiaries, nor shall Borrower or any of its Subsidiaries
dissolve or liquidate.
6.07 Transactions with Affiliates. Enter into any
transaction between or among Borrower and/or any Subsidiaries with any
Affiliate on terms that are less favorable than could be obtained in an
arms-length transaction with a Person that is not an Affiliate, provided,
however, than Borrower may perform its obligations under the existing
agreements with Seitel, Inc. listed on Schedule 6.07 hereto.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the
following events shall be considered an Event of Default as that term is used
herein:
(a) Default shall be made by Borrower in the payment of
any installment of principal on the Note,
(b) Default shall be made by Borrower in the payment of
any installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) Business Days after notice being given by Bank,
(c) Default shall be made by Borrower in the due
observance or performance of any affirmative covenant required in this
Agreement, the Note, or any Security Instrument, and such default
shall remain unremedied for in excess of thirty (30) days after the
earlier of: (i) such default becoming known to Borrower, or (ii)
notice being given by Bank.
(d) Default shall be made by Borrower in the due
observance or performance of any negative covenant required in this
Agreement, the Note, or any Security Instruments.
(e) Any representation or warranty herein made by
Borrower proves to have been untrue in any material respect, or any
representation, statement (including Financial Statements),
certificate or data furnished or made by Borrower to Bank in
connection herewith proves to have been untrue in any material respect
as of the date the facts therein set forth were stated or certified;
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(f) Default shall be made by Borrower (as principal or
guarantor or other surety) in payment or performance of any bond,
debenture, note or other evidence of Indebtedness for borrowed money,
or any other credit agreement, loan agreement, indenture, promissory
note or similar agreement or instrument executed in connection with
any of the foregoing in excess of $1,000,000.00 in the aggregate; and
such default shall remain unremedied for in excess of the period of
grace, if any, with respect thereto, with the effect of accelerating
the maturity of any such Indebtedness;
(g) Borrower applies for or consents to the appointment
of a receiver, trustee or liquidator of it or all or a substantial
part of its assets, or (ii) files a voluntary petition commencing a
case under Title 11 of the United States Code, seeking liquidation,
reorganization or rearrangement or taking advantage of any bankruptcy,
insolvency, debtor's relief or other similar law of the United States,
the State of Texas or any other jurisdiction, or (iii) makes a general
assignment for the benefit of creditors, or (iv) is unable, or admits
in writing its inability to pay its debts generally as they become
due, or (v) files an answer admitting the material allegations of a
petition filed against it in any case commenced under Title 11 of the
United States Code or any reorganization, insolvency, conservatorship
or similar proceeding under any bankruptcy, insolvency, debtor's
relief or other similar law of the United States, the State of Texas
or any other jurisdiction;
(h) An order, judgment or decree shall be entered
against Borrower by any court of competent jurisdiction or by any
other duly authorized authority, on the petition of a creditor or
otherwise, granting relief under Title 11 of the United States Code or
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction,
approving a petition seeking reorganization or an arrangement of its
debts or appointing a receiver, trustee, conservator, custodian or
liquidator of it or all or any substantial part of its assets, and the
failure to have such order, judgment or decree dismissed within ten
(10) days of its entry;
(i) Borrower has concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them; or has made or suffered
a transfer of any of its property which are or would be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or has
made any transfer of its property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid;
or has suffered or permitted, while insolvent, any creditor to obtain
a lien upon any of its property through legal proceedings or distraint
which is not vacated within thirty (30) days from the date thereof;
(j) An "Event of Default" as defined in the Foreign
Affiliate Loan Agreement has occurred and is continuing.
7.02 Rights Upon Unmatured Event of Default. At any time
that there exists an Unmatured Event of Default, any obligation of the Bank
hereunder to make advances to or for the benefit of the Borrower shall be
suspended unless and until the Bank shall reinstate the same
33
<PAGE> 40
in writing, the Unmatured Event of Default shall have been waived by the Bank
or the relevant Unmatured Event of Default shall have been remedied prior to
ripening into an Event of Default.
7.03 Rights Upon Default. Upon the happening of an Event
of Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere herein, all of which are hereby expressly waived by
Borrower.
Upon the happening and continuation of any Event of Default,
all obligations (if any) of Bank hereunder shall immediately cease and
terminate unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset
or Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank
and/or grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and
Covenants. All representations and warranties of Borrower and all covenants
and agreements herein made shall survive the execution and delivery of the Note
and this Agreement and shall remain in force and effect so long as any debt is
outstanding under the Note, or any renewal or extension of this Agreement or
the Note, or Bank remains obligated to make advances hereunder.
8.03 Notices and Other Communications. Notices, requests
and communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
34
<PAGE> 41
(a) If to Bank:
BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention: Energy Lending
Fax: (713) 751-3544
(b) Notices and/or reports sent to Bank pursuant to Sections
5.03, 5.04, and 5.05 shall also be sent to:
BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention: Monitoring Unit
Telephone: (713) 751-4627
Fax: (713) 751-6239
(c) If to Borrower:
EAGLE GEOPHYSICAL, INC.
50 Briar Hollow Lane, 6th Floor West
Houston, Texas 77027
Attention: Richard W. McNairy
Fax: (713) 881-2801
Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements
herein contained by or on behalf of Borrower shall be binding upon Borrower and
its successors and assigns and inure to the benefit of Bank and its successors
and assigns.
8.05 Renewals and Extensions. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension, amendment, modification or rearrangement of any part of
the Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part
of Bank, its officers or employees, nor any failure or delay by Bank with
respect to exercising any of its rights, powers or privileges under this
Agreement, the Note, the Security Instruments or any other instrument referred
to herein or executed in connection with the Note shall operate as a waiver
thereof. The rights and remedies of Bank under this Agreement, the Note, the
Security Instruments or any other instrument referred to herein or executed in
connection with the Note shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other
35
<PAGE> 42
right or remedy. In the event that Borrower is unable to satisfy any covenant,
warranty or condition herein, no advance of loan proceeds by Bank shall have
the effect of precluding Bank from thereafter declaring any such continuing
inability to be an Event of Default as hereinabove provided.
8.07 INDEMNIFICATION. BORROWER HEREBY RELEASES AND
AGREES TO INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES, DIRECTORS,
AGENTS AND ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS, FROM AND
AGAINST ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR UNKNOWN,
ACCRUED AND UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE RESULTED
FROM NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO BANK
PARTIES' OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR HEREAFTER
BE ASSERTED AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING OUT OF
ANY INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO
OR ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
8.08 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.09 Incorporation of Exhibits. The Exhibits and
Schedules attached to this Agreement are incorporated herein for all purposes
and shall be considered a part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any
one or more of the provisions contained in this Agreement, the Note, the
Security Instruments or in any other instrument referred to herein or executed
in connection with the Note shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank and Borrower and no
other Person shall have standing to require satisfaction of such provisions in
accordance with their terms or be entitled to assume that Bank will refuse to
make advances in the absence of strict compliance with any or all thereof and
any or all of such provisions may be freely waived in whole or in part by Bank
at any time if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
36
<PAGE> 43
8.13 Agreement Construed as an Entirety. This Agreement,
for convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE SECURITY INSTRUMENTS, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Note,
the Security Instruments or any other instrument referred to herein or executed
in connection with the Note, the provisions of this Agreement shall control.
8.17 Time, Place and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in immediately
available funds; shall be deemed received by Bank on the next Business Day
following receipt if such receipt is after 3:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of Bank.
8.18 Non-Application of Chapter 15 of Texas Credit Code.
The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to this Agreement or any of the other Security Instruments or
to the transactions contemplated hereby.
8.19 Counterpart Execution. This Agreement may be
executed as one instrument signed by all parties or in separate counterparts
hereof, each of which counterparts shall be considered an original and all of
which shall be deemed to be one instrument, and any signed counterpart shall be
deemed delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
37
<PAGE> 44
8.20 Disclosure and Use of Confidential Information.
Bank agrees to keep confidential all information disclosed to it by Borrower in
connection with this Agreement or the Loans or otherwise made available to Bank
pursuant to the terms hereof, with the exception of information that is either
publicly available or obtained by Bank from third parties not known by the Bank
to be subject to any confidentiality agreement with Borrower (collectively,
excluding such exceptions, the "Confidential Information") and Bank shall not,
without Borrower's prior written consent, disclose to any third party, firm,
corporation or entity (other than regulatory agencies having jurisdiction over
Bank) such Confidential Information, except: (a) as required by law and (b) to
third-party consultants of Bank, including, but not limited to, attorneys and
accountants, on a "need to know" basis in connection with the negotiation,
execution, or administration of this Agreement or any of the Loan Documents, or
the enforcement of any Borrower's Obligations or any of Bank's rights
thereunder, provided that such third-party consultants' possession and/or use
of such Confidential Information shall be subject to the provisions of this
Section. Bank shall use such Confidential Information only for the purposes of
its evaluation, administration, and enforcement of the Agreement, the Loan
Documents, and the Loans.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
EAGLE GEOPHYSICAL, INC.
By: /s/ RICHARD W. MCNAIRY
-------------------------------------
Richard W. McNairy
Vice President and Chief
Financial Officer
EAGLE GEOPHYSICAL ONSHORE, INC.
By: /s/ RICHARD W. MCNAIRY
-------------------------------------
Richard W. McNairy
Vice President
EAGLE GEOPHYSICAL OFFSHORE, INC.
By: /s/ RICHARD W. MCNAIRY
-------------------------------------
Richard W. McNairy
Vice President
38
<PAGE> 45
EAGLE GEOPHYSICAL DE MEXICO, INC.
By: /s/ RICHARD W. MCNAIRY
-------------------------------------
Richard W. McNairy
Vice President
EAGLE GEOPHYSICAL GOM, INC. (f/k/a
EAGLE GEOPHYSICAL OFFSHORE, INC.)
By: /s/ RICHARD W. MCNAIRY
-------------------------------------
Richard W. McNairy
Vice President
BANK:
BANK ONE, TEXAS, N.A.
By: /s/ LINDA MASERA
-------------------------------------
Linda Masera
Vice President
39
<PAGE> 1
REVOLVING NOTE Exhibit 10.60
$20,000,000.00 Houston, Texas October 21, 1997
On the dates hereinafter prescribed, for value received, EAGLE
GEOPHYSICAL, INC., a Delaware corporation, EAGLE GEOPHYSICAL ONSHORE, INC., a
Delaware corporation, EAGLE GEOPHYSICAL OFFSHORE, INC., a Delaware corporation,
EAGLE GEOPHYSICAL DE MEXICO, INC., a Delaware corporation, and EAGLE
GEOPHYSICAL GOM, INC., a Texas corporation (formerly known as Eagle Geophysical
Offshore, Inc.) (collectively the "Borrower"), having an address at 50 Briar
Hollow Lane, 6th Floor West, Houston, Texas 77027, promises to pay to the
order of BANK ONE, TEXAS, N.A. (herein called "Bank"), at its principal offices
at 910 Travis, Houston, Harris County, Texas 77002, (i) the principal amount of
TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) or the principal amount
advanced pursuant to the terms of the Loan Agreement (defined herein) as of the
date of maturity hereof, whether by acceleration or otherwise, whichever may be
the lesser, and (ii) interest on the principal balance from time to time
advanced and remaining unpaid from the date of the advance until maturity at a
rate of interest equal to lesser of (a) the "Interest Rate" (as defined in the
Loan Agreement), or (b) the Maximum Rate (as hereinafter defined). Any
increase or decrease in interest rate resulting from a change in the Maximum
Rate shall be effective immediately when such change becomes effective, without
notice to Borrower, unless Applicable Law (as defined below) requires that such
increase or decrease not be effective until a later time, in which event such
increase or decrease shall be effective at the earliest time permitted under
the provisions of such law.
Notwithstanding the foregoing, if during any period the Interest Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times
thereafter the rate of interest in effect on this Note shall be the Maximum
Rate until the total amount of interest accrued on this Note equals the total
amount of interest which would have accrued hereon if the Floating Rate had at
all times been in effect.
All payments on this Note shall be applied first to accrued interest
and the balance, if any, to principal.
This Note is a revolving credit note and it is contemplated that by
reason of prepayments hereon there may be times when no indebtedness is owing
hereunder; but notwithstanding such occurrence, this Note shall remain valid
and in full force and effect as to each principal advance made hereunder
subsequent to each such occurrence. Each principal advance and each payment
hereof made pursuant to this Note shall be reflected by Bank's records and the
aggregate unpaid amounts reflected by such records shall constitute rebuttably
presumptive evidence of the principal and unpaid, accrued interest remaining
outstanding on this Note.
<PAGE> 2
"Maximum Rate" means the Maximum Rate of non-usurious interest
permitted from day to day by applicable law, including as to Article 5069-1.04,
Vernon's Texas Revised Civil Statutes Annotated (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated weekly rate ceiling."
"Applicable Law" means that law in effect from time to time and
applicable to this Note which lawfully permits the charging and collection of
the highest permissible lawful, non-usurious rate of interest on this Note,
including laws of the State of Texas and laws of the United States of America.
It is intended that Article 1.04, Title 79, Revised Civil Statutes of Texas,
1927, as amended (Article 5069-1.04, as amended, Vernon's Texas Civil Statutes)
shall be included in the laws of the State of Texas in determining Applicable
Law; and for the purpose of applying said Article 1.04 to this Note, the
interest ceiling applicable to this Note under said Article 1.04 shall be the
indicated weekly rate ceiling from time to time in effect. Borrower and Bank
hereby agree that Chapter 15 of Subtitle 3, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to this Note or the loan transaction
evidenced by, and referenced in, the Loan Agreement (hereinafter defined) in
any manner, including without limitation, to any account or arrangement
evidenced or created by, or provided for in, this Note.
"Business Day" shall mean any day on which banks are open for general
banking business in the State of Texas, other than a Saturday, a Sunday, a
legal holiday or any other day on which banks in the State of Texas are
required or authorized by law or executive order to close.
The principal sum of this Note, after giving credit for unadvanced
principal, if any, remaining at final maturity, shall be due and payable on or
before the Maturity Date, as prescribed in the Loan Agreement defined below;
interest to accrue upon the principal sum from time to time owing and unpaid
hereunder shall be due and payable in monthly installments, as it accrues, with
the first such monthly installment of interest hereon being due and payable on
the first day of November 1997, and with such subsequent installments of
interest being due and payable on the first day of each succeeding month
thereafter; provided, however, the final installment of interest hereunder
shall be due and payable not later than the maturity of the principal sum
hereof, howsoever such maturity may be brought about.
When the first (1st) day of a calendar month falls upon a Saturday,
Sunday or legal holiday, the payment of interest and principal, if any, due
upon such date shall be due and payable upon the next succeeding Business Day.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this
Note. Bank and Borrower specifically intend and agree to limit contractually
the interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other
instruments pertaining to or securing this Note shall ever be construed to
create a contract to pay interest at a rate in excess
<PAGE> 3
of the Maximum Rate, and neither Borrower nor any other party liable herefor
shall ever be liable for interest in excess of that determined at the Maximum
Rate, and the provisions of this paragraph shall control over all provisions of
this Note or of any other instruments pertaining to or securing this Note. If
any amount of interest taken or received by Bank shall be in excess of the
maximum amount of interest which, under Applicable Law, could lawfully have
been collected on this Note, then the excess shall be deemed to have been the
result of a mathematical error by the parties hereto and shall be refunded
promptly to Borrower. All amounts paid or agreed to be paid in connection with
the indebtedness evidenced by this Note which would under Applicable Law be
deemed "Interest" shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated and spread throughout the full term of this
Note.
This Note is secured by all security agreements, collateral
assignments, mortgages and lien instruments executed by Borrower (or by any
other party) in favor of Bank, including those executed simultaneously
herewith, those executed heretofore and those hereafter executed, and including
specifically and without limitation the "Security Instruments" described and
defined in the Revolving Credit Agreement of even date between Borrower and
Bank (the "Credit Agreement").
This Revolving Note is the Note issued pursuant to the Credit
Agreement. Reference is hereby made to the Credit Agreement for a statement of
the rights and obligations of the holder of this Note and the duties and
obligations of Borrower in relation thereto; but neither this reference to the
Credit Agreement nor any provisions thereof shall affect or impair the absolute
and unconditional obligation of Borrower to pay any outstanding and unpaid
principal of and interest on this Note when due, in accordance with the terms
of the Credit Agreement. Each advance and each payment made pursuant to this
Note shall be reflected by notations made by Bank on its records and the
aggregate unpaid amounts reflected by the notations on the records of Bank
shall be deemed rebuttably presumptive evidence of the principal amount owing
under this Note.
In the event of default in the payment when due of any of the
principal of or any interest on this Note, or in the event of default under the
terms of the Credit Agreement or any of the Security Instruments, or if any
event occurs or condition exists which authorizes the acceleration of the
maturity of this Note under any agreement made by Borrower, Bank (or other
holder of this Note) may, at its option, without presentment or demand or any
notice to Borrower or any other person liable herefor, declare the unpaid
principal balance of and accrued interest on this Note to be immediately due
and payable.
If this Note is collected by suit or through the Probate or Bankruptcy
Court, or any judicial proceeding, or if this Note is not paid at maturity,
however such maturity may be brought about, and is placed in the hands of an
attorney for collection, then Borrower agrees to pay reasonable attorneys'
fees, not to exceed 10% of the full amount of principal and interest owing
hereon at the time this Note is placed in the hands of an attorney.
<PAGE> 4
Borrower and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity, notice of acceleration of
maturity, and all other notices, filing of suit and diligence in collecting
this Note or enforcing any of the security herefor, and agree to any
substitution, exchange or release of any such security or the release of any
party primarily or secondarily liable hereon and further agrees that it will
not be necessary for Bank, in order to enforce payment of this Note by them, to
first institute suit or exhaust its remedies against any Borrower or others
liable herefor, or to enforce its rights against any security herefor, and
consent to any one or more extensions or postponements of time of payment of
this Note on any terms or any other indulgences with respect hereto, without
notice thereof to any of them. Bank may transfer this Note, and the rights and
privileges of Bank under this Note shall inure to the benefit of Bank's
representatives, successors or assigns.
Executed this 21st day of October, 1997.
EAGLE GEOPHYSICAL, INC.
By: /s/ RICHARD W. MCNAIRY
------------------------------
Richard W. McNairy
Vice President
EAGLE GEOPHYSICAL ONSHORE, INC.
By: /s/ RICHARD W. MCNAIRY
------------------------------
Richard W. McNairy
Vice President
EAGLE GEOPHYSICAL OFFSHORE, INC.
By: /s/ RICHARD W. MCNAIRY
------------------------------
Richard W. McNairy
Vice President
<PAGE> 5
EAGLE GEOPHYSICAL DE MEXICO, INC.
By: /s/ RICHARD W. MCNAIRY
--------------------------------
Richard W. McNairy
Vice President
EAGLE GEOPHYSICAL GOM, INC. (F/K/A
EAGLE GEOPHYSICAL OFFSHORE, INC.)
By: /s/ RICHARD W. MCNAIRY
--------------------------------
Richard W. McNairy
Vice President
<PAGE> 1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 21st day of
October, 1997, by [COMPANY NAME], a Delaware corporation (hereinafter
called "Debtor", whether one or more), in favor of BANK ONE, TEXAS, NATIONAL
ASSOCIATION ("Bank"). Debtor hereby agrees with Bank as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings indicated below:
(a) The term "Borrower" shall mean Debtor.
(b) The term "Code" shall mean the Uniform Commercial
Code as in effect in the State of Texas on the date of this Agreement
or as it may hereafter be amended from time to time.
(c) The term "Collateral" shall mean all of the property
set forth below:
All present and future accounts (including any right to
payment for goods sold or services rendered arising out of the
sale or delivery of personal property or work done or labor
performed by Debtor), now or hereafter owned, held, or
acquired by Debtor, together with any and all books of
account, customer lists and other records relating in any way
to the foregoing (including, without limitation, computer
software, whether on tape, disk, card, strip, cartridge or any
other form), and in any case where an account arises from the
sale of goods, the interest of Debtor in such goods.
The term Collateral, as used herein, shall also include all
PROCEEDS of all of the foregoing and any property, securities,
guaranties or monies of Debtor which may at any time come into the
possession of Secured Party (as hereinafter defined).
(d) The term "Indebtedness" shall mean: (i) all
indebtedness, obligations and liabilities of Borrower to Secured Party
of any kind or character, now existing or hereafter arising, whether
direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, and regardless of
whether such indebtedness, obligations and liabilities may, prior to
their acquisition by Secured Party, be or have been payable to or in
favor of a third party and subsequently acquired by Secured Party (it
being contemplated that Secured Party may make such acquisitions from
third parties), including without limitation all indebtedness,
obligations and liabilities of Borrower to Secured Party now existing
or hereafter arising by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, purchase, overdraft,
discount, indemnity agreement or otherwise, (ii) all accrued but
unpaid interest on any of the indebtedness described in (i) above,
(iii) all obligations of Borrower to Secured Party under any documents
evidencing, securing, governing and/or pertaining to all or any part
of
1
<PAGE> 2
the indebtedness described in (i) and (ii) above, (iv) all costs and
expenses incurred by Secured Party in connection with the collection
and administration of all or any part of the indebtedness and
obligations described in (i), (ii) and (iii) above or the protection
or preservation of, or realization upon, the collateral securing all
or any part of such indebtedness and obligations, including without
limitation all reasonable attorneys' fees, and (v) all renewals,
extensions, modifications and rearrangements of the indebtedness and
obligations described in (i), (ii), (iii) and (iv) above.
(e) The term "Loan Agreement" shall mean that certain
Revolving Credit Agreement dated October 21, 1997, by and among
Secured Party, Debtor, and others.
(f) The term "Loan Documents" shall mean all instruments
and documents evidencing, securing, governing, guaranteeing and/or
pertaining to the Indebtedness.
(g) The term "Secured Party" shall mean Bank, its
successors and assigns, including without limitation, any party to
whom Bank, or its successors or assigns, may assign its rights and
interests under this Agreement.
All words and phrases used herein which are expressly defined in Section 1.201
or Chapter 9 of the Code shall have the meaning provided for therein. Other
words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Debtor,
for value received, hereby grants to Secured Party a continuing security
interest in the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants the following to Secured Party:
(a) Loan Agreement. All of the representations and
warranties of Debtor as set forth in the Loan Agreement are
incorporated herein by reference and are ratified, adopted and
confirmed by Debtor.
(b) Security Interest. Debtor has and will have at all
times full right, power and authority to grant a security interest in
the Collateral to Secured Party in the manner provided herein, free
and clear of any lien, security interest or other charge or
encumbrance. This Agreement creates a legal, valid and binding
security interest in favor of Secured Party in the Collateral securing
the Indebtedness. Possession by Secured Party of all certificates,
instruments and cash constituting Collateral from time to time and/or
the filing of the financing statements delivered prior hereto and/or
concurrently herewith by Debtor to Secured Party will perfect and
establish the first priority of Secured Party's security interest
hereunder in the Collateral.
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<PAGE> 3
(c) Location. Debtor's residence or chief executive
office, as the case may be, and the office where the records
concerning the Collateral are kept is located at its address set forth
on the signature page hereof.
(d) Solvency of Debtor. As of the date hereof, and after
giving effect to this Agreement and the completion of all other
transactions contemplated by Debtor at the time of the execution of
this Agreement, (i) Debtor is and will be solvent, (ii) the fair
saleable value of Debtor's assets exceeds and will continue to exceed
Debtor's liabilities (both fixed and contingent), (iii) Debtor is
paying and will continue to be able to pay its debts as they mature,
and (iv) Debtor has and will have sufficient capital to carry on
Debtor's businesses and all businesses in which Debtor is about to
engage.
(e) Accounts. Each account represents the valid and
legally binding indebtedness of a bona fide account debtor arising
from the sale or lease by Debtor of goods or the rendition by Debtor
of services and is not subject to contra accounts, setoffs, defenses
or counterclaims by or available to account debtors obligated on the
accounts except as disclosed by Debtor to Secured Party from time to
time in writing. The amount shown as to each account on Debtor's
books is the true and undisputed amount owing and unpaid thereon,
subject only to discounts, allowances, rebates, credits and
adjustments to which the account debtor has a right and which have
been disclosed to Secured Party in writing.
4. AFFIRMATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 4 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) Loan Agreement. All of the affirmative covenants of
Debtor as set forth in the Loan Agreement are incorporated herein by
reference and are hereby ratified, adopted and confirmed by Debtor.
(b) Further Assurances. Debtor will from time to time at
its expense promptly execute and deliver all further instruments and
documents and take all further action necessary or appropriate or that
Secured Party may reasonably request in order (i) to perfect and
protect the security interest created or purported to be created
hereby and the first priority of such security interest, (ii) to
enable Secured Party to exercise and enforce its rights and remedies
hereunder in respect of the Collateral, and (iii) to otherwise effect
the purposes of this Agreement, including without limitation: (A)
executing and filing such financing or continuation statements, or
amendments thereto; and (B) furnishing to Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral,
all in reasonable detail satisfactory to Bank.
(c) Accounts. Debtor will, except as otherwise provided
in Subsection 6(e), collect, at Debtor's own expense, all amounts due
or to become due under each of the accounts. In connection with such
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<PAGE> 4
collections, Debtor may and, at Secured Party's direction following an
Event of Default or Unmatured Event of Default, will take such action
not otherwise forbidden by Subsection 5(c) as Debtor or Secured Party
may deem necessary or advisable to enforce collection or performance
of each of the accounts. Debtor will also duly perform and cause to
be performed all of its obligations with respect to the goods or
services, the sale or lease or rendition of which gave rise or will
give rise to each account. Debtor also covenants and agrees to take
any action and/or execute any documents that Secured Party may request
in order to comply with the Federal Assignment of Claims Act, as
amended.
5. NEGATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 5 at all times during the period of time this
Agreement is effective, unless Secured Party shall otherwise consent in
writing.
(a) Loan Agreement. All of the negative covenants of
Debtor as set forth in the Loan Agreement are incorporated herein by
reference and are hereby ratified, adopted and confirmed by Debtor.
(b) Impairment of Security Interest. Debtor will not
take or fail to take any action which would in any manner impair the
value or enforceability of Secured Party's security interest in the
Collateral.
(c) Compromise of Collateral. Debtor will not adjust,
settle, compromise, amend or modify the Collateral, except an
adjustment, settlement, compromise, amendment or modification in good
faith and in the ordinary course of business; provided, however, this
exception shall automatically terminate upon the occurrence of an
Event of Default or an Unmatured Event of Default. Debtor shall
provide to Secured Party such information concerning (i) any
adjustment, settlement, compromise, amendment or modification of the
Collateral, and (ii) any claim asserted by any account debtor for
credit, allowance, adjustment, dispute, setoff or counterclaim, as
Secured Party may request from time to time.
(d) Financing Statement Filings. Debtor recognizes that
financing statements pertaining to the Collateral have been or may be
filed where Debtor has its records concerning the Collateral or has
its residence or chief executive office, as the case may be. Without
limitation of any other covenant herein, Debtor will not cause or
permit any change in the location of (i) any records concerning the
Collateral, or (ii) Debtor's residence or chief executive office, as
the case may be, to a jurisdiction other than as represented in
Subsection 3(c) unless Debtor shall have notified Secured Party in
writing of such change at least ten (10) Business Days (as defined in
the Loan Agreement) prior to the effective date of such change, and
shall have first taken all action required by Secured Party for the
purpose of further perfecting or protecting the security interest in
favor of Secured Party in the Collateral. In any written notice
furnished pursuant to this Subsection, Debtor will expressly state
that the notice is required by the Loan Agreement and contains facts
that may require additional filings of financing statements or other
notices for the purpose of continuing perfection of Secured Party's
security interest in the Collateral.
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<PAGE> 5
6. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section 6 at all times during the period of time this
Agreement is effective.
(a) Additional Financing Statements Filings. Debtor
hereby authorizes Secured Party to file, without the signature of
Debtor, one or more financing or continuation statements, and
amendments thereto, relating to the Collateral. Debtor further agrees
that a carbon, photographic or other reproduction of this Security
Agreement or any financing statement describing any Collateral is
sufficient as a financing statement and may be filed in any
jurisdiction Secured Party may deem appropriate.
(b) Power of Attorney. Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, such power of
attorney being coupled with an interest, with full authority in the
place and stead of Debtor and in the name of Debtor or otherwise, from
time to time in Secured Party's discretion, to take any action and to
execute any instrument which Secured Party may deem necessary or
appropriate to accomplish the purposes of this Agreement, including
without limitation: (i) to demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of the Collateral; (ii) to receive,
endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clause (i) above; and (iii) to file
any claims or take any action or institute any proceedings which
Secured Party may deem necessary or appropriate for the collection
and/or preservation of the Collateral or otherwise to enforce the
rights of Secured Party with respect to the Collateral.
(c) Performance by Secured Party. If Debtor fails to
perform any agreement or obligation provided herein, Secured Party may
itself perform, or cause performance of, such agreement or obligation,
and the expenses of Secured Party incurred in connection therewith
shall be a part of the Indebtedness, secured by the Collateral and
payable by Debtor on demand.
(d) Debtor's Receipt of Proceeds. Following an Event of
Default, all amounts and proceeds (including instruments and writings)
received by Debtor in respect of such accounts shall be received in
trust for the benefit of Secured Party hereunder and, upon request of
Secured Party, shall be segregated from other property of Debtor and
shall be forthwith delivered to Secured Party in the same form as so
received (with any necessary endorsement) and applied to the
Indebtedness in such manner as Secured Party deems appropriate in its
sole discretion.
(e) Notification of Account Debtors. Secured Party may
at its discretion from time to time notify any or all obligors under
any accounts (i) of Secured Party's security interest in such accounts
and direct such obligors to make payment of all amounts due or to
become due to Debtor thereunder directly to Secured Party, and (ii) to
verify the accounts with such obligors. Secured Party shall have the
right, at the expense of Debtor, to enforce collection of any such
accounts and to adjust, settle
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<PAGE> 6
or compromise the amount or payment thereof, in the same manner and to
the same extent as Debtor.
7. EVENTS OF DEFAULT. Each of the following constitutes an
"Event of Default" under this Agreement:
(a) Default Under Loan Agreement. The occurrence of an
Event of Default under the Loan Agreement; or
(b) Execution on Collateral. The Collateral or any
portion thereof is taken on execution or other process of law in any
action against Debtor; or
(c) Liquidation and Related Events. The liquidation,
dissolution, merger or consolidation of Borrower.
8. REMEDIES AND RELATED RIGHTS. If an Event of Default shall
have occurred, and without limiting any other rights and remedies provided
herein, under any of the other Loan Documents or otherwise available to Secured
Party, Secured Party may exercise one or more of the rights and remedies
provided in this Section.
(a) Remedies. Secured Party may from time to time at its
discretion, without limitation and without notice except as expressly
provided in the Loan Agreement:
(i) exercise in respect of the
Collateral all the rights and remedies of a secured party
under the Code (whether or not the Code applies to the
affected Collateral);
(ii) require Debtor to, and Debtor hereby
agrees that it will at its expense and upon request of Secured
Party, assemble the records of the Collateral as directed by
Secured Party and make them available for inspection to
Secured Party at a place to be designated by Secured Party
which is reasonably convenient to both parties;
(iii) reduce its claim to judgment or
foreclose or otherwise enforce, in whole or in part, the
security interest granted hereunder by any available judicial
procedure;
(iv) sell or otherwise dispose of the
Collateral by public or private proceedings and by way of one
or more contracts (it being agreed that the sale or other
disposition of any part of the Collateral shall not exhaust
Secured Party's power of sale, but sales or other dispositions
may be made from time to time until all of the Collateral has
been sold or disposed of or until the Indebtedness has been
paid and performed in full);
(v) buy the Collateral, or any portion
thereof, at any public sale;
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(vi) apply for the appointment of a
receiver for the Collateral, and Debtor hereby consents to any
such appointment; and
(vii) at its option, retain the Collateral
in satisfaction of the Indebtedness whenever the circumstances
are such that Secured Party is entitled to do so under the
Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the state
governing any such notice, of the sale or other disposition of the
Collateral, reasonable notice shall be deemed given when such notice
is deposited in a depository receptacle under the care and custody of
the United States Postal Service, postage prepaid, at Debtor's address
set forth on the signature page hereof, five (5) days prior to the
date of any public sale, or after which a private sale, of any of such
Collateral is to be held. Secured Party shall not be obligated to
make any sale of Collateral regardless of notice of sale having been
given. Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(b) Application of Proceeds. If any Event of Default
shall have occurred, Secured Party may at its discretion apply or use
any cash held by Secured Party as Collateral, and any cash proceeds
received by Secured Party in respect of any sale or other disposition
of, collection from, or other realization upon, all or any part of the
Collateral as follows in such order and manner as Secured Party may
elect:
(i) to the repayment or reimbursement of
the reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred
by Secured Party in connection with (A) the administration of
the Loan Documents, (B) the custody, preservation, use or
operation of, or the sale of, collection from, or other
realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction
of any liens and other encumbrances upon the Collateral;
(iii) to the satisfaction of the
Indebtedness;
(iv) by holding such cash and proceeds as
Collateral;
(v) to the payment of any other amounts
required by applicable law (including without limitation,
Section 9.504(a)(3) of the Code or any other applicable
statutory provision); and
(vi) by delivery to Debtor or any other
party lawfully entitled to receive such cash or proceeds
whether by direction of a court of competent jurisdiction or
otherwise.
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<PAGE> 8
(c) Deficiency. In the event that the proceeds of any
sale of, collection from, or other realization upon, all or any part
of the Collateral by Secured Party are insufficient to pay all amounts
to which Secured Party is legally entitled, Borrower shall be liable
for the deficiency, together with interest thereon as provided in the
Loan Documents.
(d) Non-Judicial Remedies. In granting to Secured Party
the power to enforce its rights hereunder without prior judicial
process or judicial hearing, Debtor expressly waives, renounces and
knowingly relinquishes any legal right which might otherwise require
Secured Party to enforce its rights by judicial process. Debtor
recognizes and concedes that non-judicial remedies are consistent with
the usage of trade, are responsive to commercial necessity and are the
result of a bargain at arm's length. Nothing herein is intended to
prevent Secured Party or Debtor from resorting to judicial process at
either party's option.
(e) Other Recourse. Debtor waives any right to require
Secured Party to proceed against any third party, exhaust any
Collateral or other security for the Indebtedness, or to have any
third party joined with Debtor in any suit arising out of the
Indebtedness or any of the Loan Documents, or pursue any other remedy
available to Secured Party. Debtor further waives any and all notice
of acceptance of this Agreement and of the creation, modification,
rearrangement, renewal or extension of the Indebtedness. Debtor
further waives any defense arising by reason of any disability or
other defense of any third party or by reason of the cessation from
any cause whatsoever of the liability of any third party. Until all
of the Indebtedness shall have been paid in full, Debtor shall have no
right of subrogation and Debtor waives the right to enforce any remedy
which Secured Party has or may hereafter have against any third party,
and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Indebtedness to (i) take or hold any
other property of any type from any third party as security for the
Indebtedness, and exchange, enforce, waive and release any or all of
such other property, (ii) apply such other property and direct the
order or manner of sale thereof as Secured Party may in its discretion
determine, (iii) renew, extend, accelerate, modify, compromise, settle
or release any of the Indebtedness or other security for the
Indebtedness, (iv) waive, enforce or modify any of the provisions of
any of the Loan Documents executed by any third party, and (v) release
or substitute any third party.
9. INDEMNITY. Debtor hereby indemnifies and agrees to hold
harmless Secured Party, and its officers, directors, employees, agents and
representatives (each an "Indemnified Person") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person (whether or not caused by any Indemnified
Person's sole,
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<PAGE> 9
concurrent or contributory negligence) arising in connection with the Loan
Documents, the Indebtedness or the Collateral (including without limitation,
the enforcement of the Loan Documents and the defense of any Indemnified
Person's actions and/or inactions in connection with the Loan Documents),
except to the limited extent the Claims against an Indemnified Person are
proximately caused by such Indemnified Person's gross negligence or willful
misconduct. If Debtor or any third party ever alleges such gross negligence or
willful misconduct by any Indemnified Person, the indemnification provided for
in this Section shall nonetheless be paid upon demand, subject to later
adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct. The indemnification provided for in
this Section shall survive the termination of this Agreement and shall extend
and continue to benefit each individual or entity who is or has at any time
been an Indemnified Person hereunder.
10. MISCELLANEOUS.
(a) Entire Agreement. This Agreement and the other Loan
Documents contain the entire agreement of Secured Party and Debtor
with respect to the Collateral. If the parties hereto are parties to
any prior agreement, either written or oral, relating to the
Collateral, the terms of this Agreement shall amend and supersede the
terms of such prior agreements as to transactions on or after the
effective date of this Agreement, but all security agreements,
financing statements, guaranties, other contracts and notices for the
benefit of Secured Party shall continue in full force and effect to
secure the Indebtedness unless Secured Party specifically releases its
rights thereunder by separate release.
(b) Amendment. No modification, consent or amendment of
any provision of this Agreement or any of the other Loan Documents
shall be valid or effective unless the same is in writing and signed
by the party against whom it is sought to be enforced.
(c) Actions by Secured Party. The lien, security
interest and other security rights of Secured Party hereunder shall
not be impaired by (i) any renewal, extension, increase or
modification with respect to the Indebtedness, (ii) any surrender,
compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant with respect to the Collateral, or (iii)
any release or indulgence granted to any endorser, guarantor or surety
of the Indebtedness. The taking of additional security by Secured
Party shall not release or impair the lien, security interest or other
security rights of Secured Party hereunder or affect the obligations
of Debtor hereunder.
(d) Waiver by Secured Party. Secured Party may waive
any Event of Default without waiving any other prior or subsequent
Event of Default. Secured Party may remedy any default without
waiving the Event of Default remedied. Neither the failure by Secured
Party to exercise, nor the delay by Secured Party in exercising, any
right or remedy upon any Event of Default shall be construed as a
waiver of such Event of Default or as a waiver of the right to
exercise any such right or remedy at a later date. No single or
partial exercise by Secured Party of any right or remedy
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<PAGE> 10
hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right or remedy hereunder may
be exercised at any time. No waiver of any provision hereof or
consent to any departure by Debtor therefrom shall be effective unless
the same shall be in writing and signed by Secured Party and then such
waiver or consent shall be effective only in the specific instances,
for the purpose for which given and to the extent therein specified.
No notice to or demand on Debtor in any case shall of itself entitle
Debtor to any other or further notice or demand in similar or other
circumstances.
(e) Costs and Expenses. Debtor will upon demand pay to
Secured Party the amount of any and all costs and expenses (including
without limitation, attorneys' fees and expenses), which Secured Party
may incur in connection with (i) the transactions which give rise to
the Loan Documents, (ii) the preparation of this Agreement and the
perfection and preservation of the security interests granted under
the Loan Documents, (iii) the administration of the Loan Documents,
(iv) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, (v) the
exercise or enforcement of any of the rights of Secured Party under
the Loan Documents, or (vi) the failure by Debtor to perform or
observe any of the provisions hereof.
(F) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
APPLICABLE FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE
EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST
GRANTED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
(g) Venue. This Agreement has been entered into in the
county in Texas where Bank's address for notice purposes is located,
and it shall be performable for all purposes in such county. Courts
within the State of Texas shall have jurisdiction over any and all
disputes arising under or pertaining to this Agreement and venue for
any such disputes shall be in the county or judicial district where
this Agreement has been executed and delivered.
(h) Severability. If any provision of this Agreement is
held by a court of competent jurisdiction to be illegal, invalid or
unenforceable under present or future laws, such provision shall be
fully severable, shall not impair or invalidate the remainder of this
Agreement and the effect thereof shall be confined to the provision
held to be illegal, invalid or unenforceable.
(i) No Obligation. Nothing contained herein shall be
construed as an obligation on the part of Secured Party to extend or
continue to extend credit to Borrower.
(j) Notices. All notices, requests, demands or other
communications required or permitted to be given hereunder shall be
given, and shall be deemed effective, as provided in the Loan
Agreement.
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(k) Binding Effect and Assignment. This Agreement (i)
creates a continuing security interest in the Collateral, (ii) shall
be binding on Debtor and the heirs, executors, administrators,
personal representatives, successors and assigns of Debtor, and (iii)
shall inure to the benefit of Secured Party and its successors and
assigns. Without limiting the generality of the foregoing, Secured
Party may pledge, assign or otherwise transfer the Indebtedness and
its rights under this Agreement and any of the other Loan Documents to
any other party. Debtor's rights and obligations hereunder may not be
assigned or otherwise transferred without the prior written consent of
Secured Party.
(l) Termination. It is contemplated by the parties
hereto that from time to time there may be no outstanding
Indebtedness, but notwithstanding such occurrences, this Agreement
shall remain valid and shall be in full force and effect as to
subsequent outstanding Indebtedness. Upon (i) the satisfaction in
full of the Indebtedness, (ii) the termination or expiration of any
commitment of Secured Party to extend credit to Borrower, (iii)
written request for the termination hereof delivered by Debtor to
Secured Party, and (iv) written release or termination delivered by
Secured Party to Debtor, this Agreement and the security interests
created hereby shall terminate. Upon termination of this Agreement
and Debtor's written request, Secured Party will, at Debtor's sole
cost and expense, return to Debtor such of the Collateral as shall not
have been sold or otherwise disposed of or applied pursuant to the
terms hereof and execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence such termination.
(m) Cumulative Rights. All rights and remedies of
Secured Party hereunder are cumulative of each other and of every
other right or remedy which Secured Party may otherwise have at law or
in equity or under any of the other Loan Documents, and the exercise
of one or more of such rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise of any other rights or
remedies.
(n) Gender and Number. Within this Agreement, words of
any gender shall be held and construed to include the other gender,
and words in the singular number shall be held and construed to
include the plural and words in the plural number shall be held and
construed to include the singular, unless in each instance the context
requires otherwise.
(o) Descriptive Headings. The headings in this Agreement
are for convenience only and shall in no way enlarge, limit or define
the scope or meaning of the various and several provisions hereof.
EXECUTED as of the date first written above.
Debtor's Address: DEBTOR:
50 Briar Hollow Lane, 6th Floor West [COMPANY NAME]
Houston, Texas 77027
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By: /s/ RICHARD W. MCNAIRY
-------------------------------
Richard W. McNairy Vice
President
Secured Party's Address:
910 Travis BANK ONE, TEXAS, N. A.
Houston, Texas 77002
Attention: Energy Lending By: /s/ LINDA MASERA
---------------------------
Linda Masera
Vice President
12
<PAGE> 1
EXHIBIT 10.62
REVOLVING CREDIT AGREEMENT
$20,000,000.00
SECURED REVOLVING LINE OF CREDIT
FROM
BANK ONE, TEXAS, N.A.
TO
HORIZON EXPLORATION LIMITED
October 21, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.01 The Revolving Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.02 Advances and Payments of Principal Under the Note . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.03 Prepayment and Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.04 Interest Rate and Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.05 Increased Cost of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.06 Substitute Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.07 Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.08 Advances to Satisfy Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.09 Mandatory Prepayment of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.10 Borrowing Base Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.01 Receipt of Note, Agreement, and Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . 18
3.02 Completion of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.03 Receipt of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.04 Receipt of Certified Copy of Corporate Proceedings and Certificates of Incumbency . . . . . . . . . 19
3.05 Receipt of Certificates of Incorporation and Existence . . . . . . . . . . . . . . . . . . . . . . . 19
3.06 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.07 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.08 Company Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.09 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.10 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11 Request for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.12 Accuracy of Representations and Warranties and No Event of Default . . . . . . . . . . . . . . . . . 20
3.13 Legal Matters Satisfactory to Counsel to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.15 Security Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.16 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.17 Domestic Affiliate Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.18 Documents Required in connection with the addition of certain Borrowing Base Receivables . . . . . . 21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.01 Corporate Organization, Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . 21
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.04 Scope and Accuracy of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.05 Liabilities, Litigation and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.06 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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4.07 Authorizations and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.08 Compliance with Laws, Rules, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . 22
4.09 Proper Filing of Tax Returns and Payment of Taxes Due . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11 Investment Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 Public Utility Holding Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Material Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.18 Material Misstatements and Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Maintenance and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . 25
5.04 Annual Audited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.05 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.06 Monthly Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.07 Statement of Material Adverse Change in Condition . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.08 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.09 Compliance with Laws and Payment of Assessments and Charges . . . . . . . . . . . . . . . . . . . . 26
5.10 Maintenance of Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.12 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.14 Maintenance of Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.15 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.16 Inspection of Tangible Assets/Right of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.17 Payment of Note and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.18 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.19 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.20 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.21 Hazardous Substances Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.22 Changes in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.23 Payment of Taxes, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.24 Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.25 Notices Regarding Account Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.26 Notice of Change of Principal Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.27 Payment of Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.28 Security Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.01 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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6.02 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.03 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.04 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.05 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.06 Changes in Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.07 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.02 Rights Upon Unmatured Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.03 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.01 Security Interests in Deposits and Right of Offset or Banker's Lien . . . . . . . . . . . . . . . . 34
8.02 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . 34
8.03 Notices and Other Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.08 GOVERNING LAW AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.12 Amendments or Modifications of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.17 Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.18 Non-Application of Chapter 15 of Texas Credit Code . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.19 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.20 Disclosure and Use of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
EXHIBITS
EXHIBIT A Note
EXHIBIT B Compliance Certificate
EXHIBIT C Security Instruments
EXHIBIT D Form of Request for Advance
EXHIBIT E Form of Monthly Borrowing Base Certificate
EXHIBIT F Matters to be covered by the opinion of counsel to Borrower
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SCHEDULES
4.05 Litigation
4.14 Subsidiaries
4.15 Existing Indebtedness
4.16 Material Commitments
4.17 Certificates of Insurance
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<PAGE> 6
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, is entered into as of the
21st day of October 1997, by and between HORIZON EXPLORATION LIMITED, an
English company with Registered Number 2804983, having its Registered Office at
Napier House, 14-16 Mount Ephraim Road, Tunbridge Wells, Kent TN1 1EE
("Borrower"), and BANK ONE, TEXAS, N.A., a national banking association (the
"Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to institute a revolving line of
credit with Bank for purposes of satisfying Borrower's working capital needs
and for general corporate purposes;
WHEREAS, Bank is willing to institute such a revolving line of
credit for Borrower in accordance with the terms and provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and the mutual benefits to be derived herefrom,
Bank and Borrower agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Accounts," "Account Debtor," "Chattel Paper," "Contracts,"
"Documents," "Equipment," "Fixtures," "General Intangibles," "Goods,"
"Instruments," and "Inventory" shall have the same respective meanings as are
given to those terms in the Uniform Commercial Code as presently adopted and in
effect in the State of Texas.
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Revolving Credit Agreement, as the same
may be amended or supplemented from time to time.
"Applicable Spread" means 1.375% when the ratio of the
Indebtedness of the Ultimate Parent and its Subsidiaries on a consolidated
basis to the Tangible Net Worth as of the last day of the most recently ended
fiscal quarter of Borrower is less than 1.0:1.0, and 1.625% when such ratio is
equal to or greater than 1.0:1.0.
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"Approved Eligible Receivables" means Eligible Receivables
that are neither U.S. Eligible Receivables, U.K. Eligible Receivables, Foreign
or Non-graded Domestic Eligible Receivables, nor Secured Eligible Receivables,
but which have nevertheless been approved in writing by Bank, in its sole
discretion.
"Bank" has the meaning set forth in the preamble hereof.
"Base Rate" means, at any time, the rate of interest per
annum then most recently established and published by the Bank as its Base
Rate, which is eight and one-half percent (8.50%) as of the date of this
Agreement.
"Base Rate Loan" means any Loan for which interest thereon is
to be computed at the Floating Rate in accordance with this Agreement.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrower's Agent" means Richard W. McNairy, or such other
individual acceptable to Bank as may, from time to time, be the duly appointed,
qualified and acting agent and attorney-in-fact and agent for service of
process of Borrower, in accordance with Section 3.06.
"Borrowing Base" means, at any time, the amount of the
Borrowing Base Receivables accurately computed on the Monthly Borrowing Base
Certificate most recently delivered to, and accepted by, the Bank in accordance
with Section 2.10 and other relevant provisions of this Agreement.
"Borrowing Base Receivables" means the sum of: (a) 90% of U.S.
Eligible Receivables, (b) 90% of U.K. Eligible Receivables, (c) 80% of Foreign
or Non graded Domestic Eligible Receivables, (d) 100% of Secured Eligible
Receivables, and (e) 80% of Approved Eligible Receivables; provided that no
Account shall be included in more than one of the categories listed in this
definition.
"Business Day" shall mean: (a) for all purposes, a day other
than a Saturday, Sunday or legal holiday for commercial banks under the laws of
the State of Texas or the laws of the United States of America, and (b) in
addition, for purposes of any LIBOR Loan, a day that satisfies the requirements
of clause (a) and is a day on which commercial banks in London, England are
open for domestic or international business.
"Cash Flow" shall be defined for any fiscal quarter of the
Ultimate Parent as the sum of net income plus depreciation and other non-cash
charges less non-cash income of the Ultimate Parent and its Subsidiaries on a
consolidated basis during such quarter.
"Closing" means the date on which this Agreement is executed
and delivered by Bank and Borrower.
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<PAGE> 8
"Compliance Certificate" means the certificate of Borrower's
Agent required to be submitted to Bank from time to time pursuant to this
Agreement, which certificate shall be in the form attached hereto as Exhibit
"B."
"Current Assets" and "Current Liabilities" means at any time,
all assets or liabilities, respectively, that should in accordance with GAAP,
be classified as current assets or current liabilities, respectively, on a
consolidated balance sheet of the Ultimate Parent and its Subsidiaries.
"Debt Service" shall be defined for any fiscal quarter of the
Ultimate Parent as the sum of (i) principal amounts required to be paid by the
Ultimate Parent and its Subsidiaries during such quarter on Indebtedness other
than in connection with this Loan, plus (ii) lease payments required to be paid
by the Ultimate Parent and its Subsidiaries during such quarter in connection
with capital leases, plus (iii) the outstanding principal balance due at the
beginning of such quarter on the Loans hereunder, divided by sixteen.
"Domestic Affiliate Loan Agreement" means that certain
Revolving Credit Agreement dated October 12, 1997, by and among EAGLE
GEOPHYSICAL, INC., a Delaware corporation, EAGLE GEOPHYSICAL ONSHORE, INC., a
Delaware corporation, EAGLE GEOPHYSICAL OFFSHORE, INC., a Delaware corporation,
EAGLE GEOPHYSICAL DE MEXICO, INC., a Delaware corporation, EAGLE GEOPHYSICAL
GOM, INC., a Texas corporation, and Bank.
"Domestic Affiliate Loans" means, cumulatively, the aggregate
sum of all money advanced by Bank to the borrowers that are parties to the
Domestic Affiliate Loan Agreement.
"Eligible Receivable" means, at any time, an Account that
conforms and continues to conform to the following conditions:
(A) The Account arose from a bona fide outright sale of Goods or
services by the Borrower, and such Goods have been shipped to the
appropriate account debtors or their designees (or the sale has
otherwise been consummated), or the services have been performed for
the appropriate account debtors;
(B) The Account is based upon an enforceable order or contract,
written or oral, for Goods shipped or held or for services performed,
and the same were shipped, held, or performed in accordance with such
order or contract;
(C) The title of the Borrower to the Account and, except as to the
account debtor, to any Goods is absolute and is not subject to any
prior assignment, claim, lien, or security interest, except Permitted
Liens;
3
<PAGE> 9
(D) The amount shown on the books of the Borrower and on any
invoice or statement delivered to the Bank is owing to the Borrower,
less any partial payment that has been made thereon by anyone;
(E) The Account shall be eligible only to the extent that it is
not subject to any claim of reduction, counterclaim, set-off,
recoupment, or any claim for credits, allowances, or adjustments made
by the account debtor because of returned, inferior, or damaged Goods
or unsatisfactory services, or for any other reason; provided,
however, that the existence of any such claim shall not cause an
Account to be ineligible if, and to the extent that, Borrower
substantiates to the reasonable satisfaction of Bank that such
asserted claim, or any part thereof, is invalid;
(F) The account debtor has not returned or refused to retain, or
otherwise notified the Borrower of any dispute concerning, or claimed
nonconformity of, any of the Goods or services from the sale of which
the Account arose;
(G) The Account is due and payable not more than thirty (30) days
from the date of the invoice therefor;
(H) The Account is not more than ninety (90) days past the date of
the invoice therefor; provided that an Account that has arisen by
virtue of Borrower's delivery of Goods or performance of services to a
location outside of the United States of America or that is owed by an
Account Debtor whose principal place of business is outside the United
States of America shall not be more than one hundred-twenty (120) days
past the date of the invoice therefor.
(I) The Account does not arise out of a contract with, or order
from, an account debtor that, by its terms, forbids or makes void or
unenforceable the assignment by the Borrower to the Bank of the
Account arising with respect thereto;
(J) The Borrower has not received any note, trade acceptance,
draft, or other Instrument with respect to, or in payment of, the
Account, nor any Chattel Paper with respect to the Goods giving rise
to the Account, unless, if any such Instrument or Chattel Paper has
been received, the Borrower promptly notifies the Bank and, at the
latter's request, endorses or assigns and delivers the same to the
Bank;
(K) The Borrower has not received any notice of the death of the
account debtor or a partner thereof; nor of the dissolution,
termination of existence, insolvency, business failure, appointment of
a receiver for any part of the property of, assignment for the benefit
of creditors by, or the filing of a petition bankruptcy or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against, the account debtor;
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<PAGE> 10
(L) The Account Debtor is not a Subsidiary or other Affiliate of
the Borrower, provided, however, that for purposes of this paragraph
(L) only, Seitel, Inc., a Delaware corporation, and its subsidiaries
shall not be deemed Affiliates of Borrower;
(M) Not more than 20% in value of the Account Debtor's aggregate
Accounts owed to Borrower fail to satisfy clause (H) of this
definition; and
(N) The Bank has not deemed such account ineligible (i) because of
a reasonable uncertainty about the creditworthiness of the account
debtor; (ii) because the Bank is not satisfied, in its reasonable
discretion, that the Security Instruments duly executed by Borrower
have created a valid, perfected, enforceable security interest in
favor of Bank under the laws of a jurisdiction outside the United
States where the goods or services to which such Account relates were
delivered or performed, respectively, or under a jurisdiction outside
the United States in which the Account Debtor maintains its principal
place of business; or (iii) because the Bank otherwise reasonably
considers the collateral value thereof to the Bank to be impaired or
its ability to realize such value to be insecure.
"Environmental Laws" means (a) the following United States
federal laws as they may be cited, referenced and amended from time to time:
the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
Occupational Safety and Health Act, the Hazardous Materials Transportation Act,
the Superfund Amendments and Reauthorization Act, and the Toxic Substances
Control Act; (b) any and all environmental statutes of any state in which
property of Borrower is situated or in which Borrower has transacted its
business, as they may be cited, referenced and amended from time to time; (c)
any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; (d) any other federal, state or local statute or any
requirement, rule, regulation, code, ordinance or order adopted pursuant
thereto, and (e) any environmental statute, rule, regulation, code, ordinance
or order of any country or countries, other than the United States of America,
in which property of Borrower is situated or in which Borrower has transacted
its business, as they may be cited, referenced, and amended from time to time
including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling or release of
Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in
Section 7.01 of this Agreement.
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<PAGE> 11
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Base Rate in effect from time to
time.
"Foreign or Non-graded Domestic Eligible Receivables" include:
(a) Eligible Receivables due from Investment Grade Account Debtors that are
neither U.S. Eligible Receivables nor U.K. Eligible Receivables, and (b)
Eligible Receivables due from an Account Debtor that is not an Investment Grade
Account Debtor, when the principal place of business of such Account Debtor and
the location to which the goods were delivered or at which the services were
performed are all located within the United States of America.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of the date in
question. Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"Hazardous Substances" means flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances or related
materials, petroleum and petroleum products and associated oil or natural gas
exploration, production and development wastes or any substances that would be
defined as "hazardous substances", "hazardous materials", "hazardous wastes" or
"toxic substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and Reauthorization
Act, as amended, the Hazardous Materials Transportation Act, as amended, the
Resource Conservation and Recovery Act, as amended, the Toxic Substances
Control Act, as amended, or any other Environmental Laws now or hereafter
enacted or promulgated by any regulatory authority or governmental body,
including, without limitation, any statute, rule, regulation, code or ordinance
of any country or countries in which property of Borrower is situated or in
which Borrower has transacted its business, as they may be cited, referenced,
and amended from time to time.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been
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<PAGE> 12
assumed (provided that if the indicated Person is not liable for payment of
such indebtedness, the amount thereof shall be deemed not to exceed the book
value of the encumbered property), and (c) all indebtedness of others which
such Person has directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), discounted with
recourse, agreed (contingently or otherwise) to purchase or repurchase or
otherwise acquire, or in respect of which such Person has agreed to supply or
advance funds (whether by way of loan, purchase of securities or capital
contribution, through a commitment to pay for property or services regardless
of the nondelivery of such property or the nonfurnishing of such services or
otherwise), or in respect of which such Person has otherwise become directly or
indirectly liable, contingently or otherwise, whether now existing or hereafter
arising.
"Initial Public Offering" shall have the meaning set forth in
Section 3.02.
"Interest Rate(s)" means the Floating Rate or the LIBOR Rate,
as applicable.
"Interest Period" means as to any LIBOR Loan the period
commencing on and including the date of such Loan (or on the effective date of
the election pursuant to Section 2.04(B) by which such Loan became a LIBOR
Loan) and ending on and including the day preceding the same day (or if there
is no such same day, the day preceding the last day) in the 1st, 2nd, 3rd, or
6th calendar month thereafter, as selected by the Borrower in accordance with
Section 2.04(B), and thereafter such period commencing on and including the day
immediately following the last day of the then ending Interest Period for such
Loan and ending on and including the day preceding the day corresponding to the
first day of such Interest Period (or if there is no such corresponding day,
the day preceding the last day), in the 1st, 2nd, 3rd, or 6th calendar month
thereafter, as so selected by the Borrower; provided, however, that if any such
Interest Period would otherwise end on a day prior to a day that is not a
Business Day it shall be extended so as to end on the day prior to the next
succeeding Business Day unless the same would fall in a different calendar
month, in which case such Interest Period shall end on the day preceding the
first Business Day preceding such next succeeding Business Day.
"Investment" in any Person means any stock, bond, note or
other evidence of Indebtedness or any other security (other than current trade
and customer accounts) of, or loan to, such Person.
"Investment Grade Account Debtor" means an Account Debtor with
a corporate credit rating equal to or better than any one of the following
minimum ratings: (a) BBB-, by Standard & Poors, (b) BBB-, by Duff & Phelps, or
(c) Baa3, by Moody's Investors Service.
"LIBOR" means, in respect to any Interest Period, the rate per
annum determined by the Bank to be the quotient of (a) the rate quoted, on an
immediately available funds basis, to the Bank, at approximately 10:00 a.m.
local time in Houston, Texas on the date one (1) Business Day prior to the
first day of such Interest Period, for the offering by leading banks in the
London interbank market of Dollars for deposit with the Bank for a period
comparable to such Interest Period and in an amount comparable to the amount of
the Loan determined by the Bank to be
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<PAGE> 13
outstanding during such Interest Period and as to which the LIBOR Rate is to be
determined, divided by (b) 1.0, minus the Reserve Percentage expressed as a
decimal, for such Interest Period.
"LIBOR Loan" means any Loan from time to time for which
interest thereon is to be computed on the basis of the LIBOR Rate.
"LIBOR Rate" means a rate per annum equal to the sum of LIBOR
for the Interest Period for which interest is to be determined at the LIBOR
Rate, plus the Applicable Spread.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant
to this Agreement and "Loans" means, cumulatively, the aggregate sum of all
money advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any,
by which the outstanding balance on the Loans evidenced by the Note, plus the
aggregate of the face amount of all outstanding Letters of Credit exceeds the
Revolving Commitment then in effect.
"Maturity Date" means October 21, 2000.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
"Monthly Borrowing Base Certificate" means a certificate of
Borrower's Agent attesting to Borrower's calculation of the Borrowing Base as
of the last day of the month preceding the month in which such certificate is
executed and delivered to the Bank pursuant to Section 2.10, in the form
attached hereto as Exhibit "E."
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $20,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "A," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
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<PAGE> 14
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced by the Note, whether direct,
indirect, related, unrelated, fixed, contingent, specified, unspecified, joint,
several, or joint and several, and all interest and fees accruing thereon and
all attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet
due and payable;
(B) Claims or liens for taxes, assessments, or similar
charges, that are due and remain unpaid, if the validity or
amount thereof is being contested in good faith by appropriate
and lawful proceedings, so long as levy and execution thereon
have been stayed and continue to be stayed, and in Bank's sole
judgment they do not, in the aggregate, materially detract
from the value of the property of Borrower or any Subsidiary,
or materially impair the use thereof in the operation of its
business;
(C) Liens against Equipment or Fixtures to secure the
price payable by Borrower for the purchase of, or improvements
or accessions to, such Equipment or Fixtures, respectively;
and
(D) Liens in favor of Bank.
"Person" means an individual, company, corporation,
partnership, limited partnership, joint venture, trust, association,
unincorporated organization or a government or any agency or political
subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Power of Attorney" means the power of attorney duly executed
by Borrower pursuant to Section 3.06 of this Agreement.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Request for Advance" means the written request by the
Borrower for an advance by Bank pursuant to this Agreement, which Request for
Advance shall be in a form, and shall include the information and accompanying
supporting documentation, as prescribed in Exhibit "D" attached hereto.
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<PAGE> 15
"Required Number" means: in the case of notices hereunder (i)
relative to borrowings, prepayments, elections of the LIBOR Rate, selections of
Interest Periods for, or other transactions in respect of, LIBOR Loans: two
(2) Business Days; or (ii) relative to all transactions in respect of Base Rate
Loans: one (1) Business Day; it being understood, however, that in the case of
notices involving transactions in respect of more than one type of Loan (such
as a change in type of Loan in accordance with Section 2.04(B)), "Required
Number" means that number of days, as indicated above in respect of the Loans
involved, which would constitute the longest applicable period of time.
"Reserve Percentage" means for any Interest Period, the
average (for such Interest Period) maximum rate at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be
maintained during such Interest Period under Regulation D of the Federal
Reserve Board by member banks of the Federal Reserve System as it applies to
the Bank against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Percentage shall
reflect any other reserves required to be maintained by member banks by reason
of any regulatory change against (i) any category of liabilities that includes
deposits by reference to which the interest rate for LIBOR Loans is to be
determined as provided in this Agreement or (ii) any category of extensions of
credit or other assets that include LIBOR Loans. As of the date of this
Agreement the Reserve Percentage is zero.
"Revolving Commitment" means the obligation of Bank, subject
to the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the lesser of: (a) the Borrowing
Base then in effect, or (b) the positive difference between (i) $20,000,000.00,
minus (ii) the outstanding principal balance, from time to time, of all
Domestic Affiliate Loans.
"Secured Eligible Receivables" means Eligible Receivables that
are secured by letters of credit that have been approved in writing by Bank, in
its sole discretion.
"Security Account" shall have the meaning set forth in the
Charge on Receivables of even date herewith executed by or on behalf of
Borrower.
"Security Instruments" means the security instruments
described on Exhibit "C," in form and substance satisfactory to Bank, to be
executed by Borrower pursuant to Section 3.14, and any and all other
instruments or documents hereafter executed in connection with or as security
for the payment of the Note.
"Senior Debt" means all Indebtedness of the Ultimate Parent
and its Subsidiaries, on a consolidated basis, including the Indebtedness of
Borrower to Bank arising hereunder, excluding any Indebtedness that has been
subordinated to Borrower's Indebtedness to Bank on terms and conditions
acceptable to Bank, in its sole discretion.
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"Subsidiary" means (a) any corporation in which Borrower,
directly or indirectly through its Subsidiaries, owns more than fifty percent
(50%) of the stock of any class or classes having by the terms thereof the
ordinary voting power to elect a majority of the directors of such corporation;
and (b) any partnership, association, joint venture, or other entity in which
Borrower, directly or indirectly through its Subsidiaries, has more than a
fifty percent (50%) equity interest at the time.
"Tangible Net Worth" means the total assets of the Ultimate
Parent and its Subsidiaries on a consolidated bases exclusive of (a) those
assets classified as intangible, including, without limitation, goodwill,
patents, trademarks, trade names, copyrights, franchises and deferred charges,
(b) treasury stock and minority interests in any Person, (c) cash set apart and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of capital stock, (d) to the extent not already
deducted from total assets, allowances for depreciation, depletion,
obsolescence and/or amortization of properties, uncollectible accounts, and
contingent but probable liabilities as to which an amount can be established,
(e) deferred taxes and (f) all assets arising from advances to officers, former
officers or sales representatives of the Ultimate Parent and its Subsidiaries
on a consolidated basis made outside of the ordinary course of business; less
total liabilities of the Ultimate Parent and its Subsidiaries on a consolidated
basis; all of the above being determined in accordance with GAAP.
"U.K. Eligible Receivables" means Eligible Receivables due
from an Investment Grade Account Debtor, when the principal place of business
of the Account Debtor and location to which the goods were delivered or at
which the services were performed are all located within the United Kingdom
(including the territorial waters thereof).
"Ultimate Parent" means Eagle Geophysical, Inc., a Delaware
corporation.
"Unmatured Event of Default" means any event or occurrence
which solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
"U.S. Eligible Receivables" means Eligible Receivables due
from an Investment Grade Account Debtor, when the principal place of business
of such Account Debtor and location to which the goods were delivered or at
which the services were performed are all located within the United States of
America (including the territorial waters thereof).
Undefined financial accounting terms used in this Agreement
shall be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Revolving Line. Upon the terms and conditions
(including, without limitation, the right of Bank to terminate the Revolving
Commitment hereunder upon an Event of Default or an Unmatured Event of Default)
and relying on the representations and warranties contained in this Agreement,
Bank agrees, for a period from and after the date hereof through the
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<PAGE> 17
last Business Day prior to the Maturity Date, to make advances for the account
of Borrower from time to time following receipt of a Request for Advance;
provided, however, that the aggregate principal amount of all Loans, at any one
time outstanding shall not exceed the Revolving Commitment. Borrower hereby
appoints Borrower's Agent as its agent and attorney-in-fact for the submission
of all Requests for Advance hereunder, which authorization shall be deemed a
power coupled with an interest and shall be irrevocable until all Indebtedness
evidenced by the Note has been fully and finally paid, all Obligations of
Borrower have been fully performed and discharged, and Bank is no longer
obligated under this Agreement to make any advances under the Revolving
Commitment.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
outstanding principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note.
Each time an advance is made against or payment is made on the Note, Bank is
hereby irrevocably authorized by Borrower to make appropriate entries of such
in its records in accordance with the usual and customary practices of
accounting for advances and payments on notes; provided, however, the failure
of Bank to do so shall not relieve Borrower of its correct liability hereunder
or under the Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Prepayment and Conversion. Upon the Required Number
of days notice to the Bank, the Borrower may: (a) without the payment of
penalty or premium, prepay the principal of the Loans, or (b) voluntarily
convert the applicable Interest Rate of any Loan prior to the termination of
the applicable Interest Period in whole or in part, from time to time; any
partial payment or conversion to be made in the sum of not less than $500,000
or any $100,000 increment in addition thereto; provided that with respect to
any such prepayment or conversion of any Loan upon which interest is being
calculated at the LIBOR Rate the Borrower shall reimburse the Bank on demand
for any costs, including administrative costs, incurred by the Bank as a result
of such prepayment or conversion and any loss incurred or to be incurred by the
Bank in the redeployment of the funds released by any such prepayment. Such
loss shall be the difference, as reasonably determined by Bank, between (i)
Bank's gross return hereunder with respect to that portion of the Loans which
is prepaid, based on the applicable Interest Rate for such
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<PAGE> 18
portion of the Loans and (ii) any lesser amount realized by Bank in deploying
the funds received in repayment, or otherwise realized from that portion of the
Loans so prepaid, during the period from the date of the prepayment until the
end of the Interest Period for that portion of the Loans prepaid; provided that
Bank shall use its best efforts to redeploy such funds in a commercially
reasonable manner.
2.04 Interest Rate and Payments of Interest.
(A) Interest on Base Rate Loans shall be calculated on
the basis of a year of 365 or 366 days, as appropriate.
Interest on LIBOR Loans shall be calculated on the basis of a
360-day year, counting the actual number of days elapsed.
Interest on the outstanding principal balance of the Loans
shall accrue for each day at either the Floating Rate for such
day or the LIBOR Rate for the Interest Period which includes
such day, all as elected and specified (including
specification as to length of Interest Period, as permitted by
the definition of that term, with respect to any election of
the LIBOR Rate) by the Borrower in accordance with Section
2.04(B); provided that:
(i) In the absence of an election by the Borrower
of the LIBOR Rate, or, having made such election but
upon the Required Number of days prior to the end of
the then current Interest Period the Borrower fails
or is not entitled under the terms of this Agreement
to elect to continue such Interest Rate and specify
the applicable Interest Period therefor, then upon
the expiration of such then current Interest Period,
interest on the Loans shall accrue for each day at
the Floating Rate for such day, until the Borrower,
pursuant to Section 2.04(B), elects a different
Interest Rate and specifies the Interest Period for
the Loans.
(ii) Interest accruing on any LIBOR Loan during any
Interest Period shall be payable on the last
Business Day of such then current Interest Period;
provided, however, that with respect to LIBOR Loans
for which the Interest Period selected by the
Borrower pursuant to Section 2.04(B) is greater than
three (3) months, interest shall be payable
quarterly on the last Business Day of such quarterly
period with the first such quarterly period
commencing on the first day of the applicable
Interest Period with any remaining unpaid interest
being due and payable on the last day of such
Interest Period; provided further that all accrued
interest on any LIBOR Loan converted or prepaid
pursuant to Section 2.03 shall be paid immediately
upon such prepayment or conversion.
(B) By at least the Required Number of days prior to the
advance of any Loan hereunder, the Borrower shall select the
initial Interest Rate to be charged on such Loan, and from
time to time thereafter the Borrower may elect, on at least
the Required Number of days' irrevocable prior written (or
telephoned, promptly
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<PAGE> 19
confirmed by written) notice to the Bank, to change the
Interest Rate on any Loan to any other Interest Rate
(including, when applicable, the selection of the Interest
Period); provided that; (i) the Borrower shall not select an
Interest Period that extends beyond the Termination Date; (ii)
except as otherwise provided in Section 2.03 no such change
from the LIBOR Rate to another Interest Rate shall become
effective on a day other than the day, which must be a
Business Day, next following the last day of the Interest
Period last effective for such LIBOR Loan; (iii) any elections
made by Borrower pursuant to this Section 2.04(B) shall be in
the amount of $100,000, plus any additional increment of
$100,000; (iv) notwithstanding anything herein to the
contrary, Borrower may not make any election under this
Section 2.04(B) that would result in Loans outstanding at more
than three (3) different LIBOR Rates without the written
agreement of the Bank to do so; and (v) the first day of each
Interest Period as to a LIBOR Loan shall be a Business Day.
(C) Interest on Base Rate Loans shall be paid monthly in
arrears on the first Business Day of each calendar month
commencing with any month during which interest begins to
accrue at the Floating Rate, as elected by Borrower pursuant
to Section 2.04(B), and on the date the principal of such
Loans shall be due (at stated maturity, on acceleration, or
otherwise).
(D) Interest on past-due principal shall accrue at the
greater of the applicable Floating Rate plus three percent
(3.00%) or LIBOR plus five percent (5.00%) until such
principal is paid in full, and shall be payable upon demand by
the Bank.
(E) The Bank shall notify the Borrower of the current
Base Rate and of the current LIBOR Rate from time to time upon
request by Borrower.
(F) It is the intention of the parties hereto to conform
strictly to applicable usury laws as in effect from time to
time. Accordingly, if any transactions contemplated hereby
would be usurious under applicable Law (including the laws of
the United States of America, or of any other jurisdiction
whose laws may be mandatorily applicable), then, in that
event, notwithstanding anything to the contrary in this
Agreement, or any other agreement entered into in connection
with this Agreement, it is agreed the aggregate of all
consideration that constitutes interest under applicable law
that is contracted for, charged, or received under this
Agreement, or under any of the other aforesaid agreements or
otherwise in connection with this Agreement shall under no
circumstances exceed the Maximum Rate, and any excess shall be
credited to Borrower by Bank (or, if such consideration shall
have been paid in full, such excess refunded to Borrower by
Bank). All sums paid, or agreed to be paid, to the Bank for
use, forbearance, and detention of the indebtedness of the
Borrower by the Bank shall, to the extent permitted by
applicable laws, be amortized, pro rated, allocated, and
spread throughout the full term of such indebtedness until
such indebtedness is paid in full
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<PAGE> 20
so that the actual rate of interest is uniform, but does not
exceed the Maximum Rate, throughout the full term thereof. If
at any time the applicable Interest Rate, which shall be
deemed for purposes of this Section 2.04(F), only, to include
any other fees, charges, or other forms of consideration which
constitute interest under applicable law that is contracted
for, charged, or received under this Agreement or any other
agreement entered into in connection with this Agreement,
exceeds the Maximum Rate, the rate of interest to accrue
pursuant to this Agreement shall be limited, notwithstanding
anything to the contrary in this Agreement, to the Maximum
Rate, but any subsequent reductions in the Interest Rate
otherwise provided for herein shall not reduce the interest to
accrue pursuant to this Agreement below the Maximum Rate until
the total amount of interest accrued pursuant to this
Agreement equals the amount of interest that would have
accrued if a varying rate per annum equal to the otherwise
applicable Interest Rate had at all times been in effect. If
the total amount of interest paid or accrued pursuant to this
Agreement under the foregoing provisions is less than the
total amount of interest that would have accrued if a varying
rate per annum equal to the otherwise applicable Interest Rate
had at all times been in effect, then the Borrower agrees to
pay upon final maturity of the Loans an amount equal to the
difference between (a) the lesser of (i) the amount of
interest that would have accrued if the Maximum Rate had at
all times been in effect or (ii) the amount of interest that
would have accrued if a varying rate per annum equal to the
otherwise applicable Interest Rate had at all times been in
effect, and (b) the amount of interest accrued in accordance
with the other provisions of this Agreement.
2.05 Increased Cost of Loans.
(A) Notwithstanding any other provisions herein, if as a
result of any regulatory change
(i) the basis of taxation of payments to Bank of
the principal of, or interest on, any LIBOR Loan or
any other amounts due under this Agreement in
respect of any such LIBOR Loan (except for taxes
imposed on the overall net income or receipts of
Bank, and franchise or other taxes imposed generally
on Bank), by the jurisdiction (or any political
subdivision therein) in which Bank has its principal
office is changed;
(ii) any reserve, special deposit, or similar
requirement (including without limitation any
reserve requirement under regulations of the Board
of Governors of the Federal Reserve System) against
assets of, deposits with, or for the account of, or
credit extended by Bank, is imposed, increased,
modified, or deemed applicable; or
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<PAGE> 21
(iii) any other condition affecting this Agreement
or any LIBOR Loan is imposed on Bank or (in the case
of LIBOR Loans) the London interbank market;
and the result of any of the foregoing is to increase the
actual direct cost to Bank of making or maintaining any such
LIBOR Loan or to reduce the amount of any sum received by Bank
hereunder in respect thereof (and such increase or reduction
shall not have been compensated by a corresponding increase in
the interest rate applicable to the respective Loans), by an
amount deemed by Bank to be material (such increases in cost
and reductions in amounts receivable being herein called
"Increased Costs"), then the Borrower shall pay to Bank,
within thirty (30) days after its demand, such additional
amount or amounts as will compensate Bank for those Increased
Costs. The Bank will not demand to be compensated by Borrower
for such Increased Costs unless the Bank generally makes such
demands to its other LIBOR Loan customers who are similarly
situated. A certificate of Bank setting forth the basis for
the determination of such amount necessary to compensate the
Bank as aforesaid, accompanied by documentation showing
reasonable support for such increased costs or reduced sums
received by Bank, shall be delivered to the Borrower and shall
be conclusive, save for manifest error, as to such
determination and such amount.
(B) Notwithstanding the foregoing provisions of this
Section 2.05, in the event that by reason of any regulatory
change the Bank either (i) incurs Increased Costs based on, or
measured by, the excess above a specified level of the amount
of a category of deposits or other liabilities of Bank that
includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank
that includes LIBOR Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities
or assets that it may hold, then, if Bank so elects by notice
to the Borrower, the obligation of Bank to make or convert
Loans of any other type into LIBOR Loans hereunder shall be
suspended until the earlier of the date such regulatory change
ceases to be in effect or the date the Borrower and Bank agree
upon an alternative method of determining the interest rate
payable by the Borrower on LIBOR Loans, and all LIBOR Loans of
Bank then outstanding shall either be repaid or be converted
into a Base Rate Loan (if not otherwise prohibited under the
terms of this Agreement) at the Borrower's option.
(C) Bank agrees that upon the occurrence of any
regulatory change giving rise to the operation of the first
paragraph of this Section 2.05, it will, if requested by the
Borrower and to the extent permitted by law or by the relevant
government authority, for a period of thirty (30) days
endeavor in good faith to avoid or minimize the increase in
cost or reduction in amount receivable resulting from such
regulatory change; provided, however, that such change can be
made in such a manner that Bank, in its sole determination,
suffers no economic, legal, regulatory,
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<PAGE> 22
or other disadvantage. Any expense incurred by Bank in so
doing shall be paid by the Borrower on delivery to the
Borrower of a certificate as to the amount of such expense,
which certificate shall be conclusive in the absence of
manifest error. Nothing in this paragraph shall affect or
postpone the obligations of the Borrower set forth in any
other paragraph of this Section 2.05.
2.06 Substitute Rate. Anything herein to the contrary
notwithstanding, if within two (2) Business Days prior to the first day of any
Interest Period for a LIBOR Loan the Bank is not, for any reason whatsoever,
quoted rates for the offering of Dollars for deposit with it in the London
interbank market for a period and amount relevant to the computation of the
rate of interest on LIBOR Loans for such Interest Period, the Bank shall give
the Borrower prompt notice thereof and, if Borrower elects to obtain a Loan for
the amount previously requested as a LIBOR Loan, then on what would otherwise
have been the first day of such Interest Period such Loans shall be made as
Base Rate Loans (if not otherwise prohibited under the terms of this
Agreement), in accordance with the election procedures set forth in Section
2.04(B); provided, however, that prior to the effective date of such election,
interest shall be calculated at the Floating Rate.
2.07 Change of Law. Notwithstanding any other provision
herein, in the event that any change in any applicable law, rule or regulation
or in the interpretation or administration thereof shall make it unlawful for
the Bank to (i) honor any commitment it may have hereunder to make any LIBOR
Loan, then such commitment shall terminate, or (ii) maintain any LIBOR Loan,
then all LIBOR Loans of the Bank then outstanding shall be repaid or, if
Borrower so elects, converted to Base Rate Loans (if not otherwise prohibited
under the terms of this Agreement) in accordance with the election procedures
set forth in Section 2.04(B); provided, however, that prior to the effective
date of such election, interest shall be calculated at the Floating Rate. Any
remaining commitment of Bank hereunder to make LIBOR Loans (but not other
Loans) shall terminate forthwith. Upon the occurrence of any such change, the
Bank shall promptly notify the Borrower thereof, and shall furnish to the
Borrower in writing evidence thereof certified by the Bank.
Any repayment or conversion of any LIBOR Loan which is
required under this Section 2.07 or under 2.05(B) shall be effected by payment
thereof, together with accrued interest thereon, on demand, and concurrently
there shall occur the borrowing of the corresponding Base Rate Loan as provided
herein.
If any repayment to Bank of any LIBOR Loan (including
conversions thereof) is made under this Section 2.07 on a day other than a day
otherwise scheduled for a payment of principal of or interest on such Loan, the
Borrower shall pay to Bank upon its request such amount or amounts as will
compensate it for the amount by which the rate of interest on such Loan
immediately prior to such repayment exceeds the stated rate of interest on
relending or reinvesting the funds received in connection with such prepayment,
in each case for the period from the date of such prepayment to the Business
Day next succeeding the last day of such then current Interest Period, all as
determined by Bank in its good faith discretion.
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2.08 Advances to Satisfy Obligations of Borrower. Bank
may, but shall not be obligated to, make advances hereunder and apply same to
the satisfaction of any condition, warranty, representation or covenant of
Borrower contained in this Agreement and the funds so advanced and applied
shall be part of the Loan proceeds advanced under this Agreement and evidenced
by the Note. Bank shall endeavor to give written notice to Borrower at least
five (5) Business Days prior to making any such advance pursuant to this
Section, provided that Bank shall not be obligated to give any such notice if,
in good faith, it has determined that a delay in making any such advance would
have a material adverse effect on the business, operations or financial
condition of Borrower or on the collateral value to Bank of any material
portion of the Borrowing Base Receivables.
2.09 Mandatory Prepayment of the Notes. In the event
that Bank or Borrower determine that a Loan Excess exists, Borrower shall
immediately, but in no event later than fifteen (15) days following the earlier
of either: (a) Borrower becoming aware that a Loan Excess exists, or (b) notice
from Bank of any such determination, (i) prepay the principal of the Note in an
aggregate amount at least equal to such Loan Excess or (ii) add to the
Borrowing Base additional Borrowing Base Receivables pursuant to Section 2.10
sufficient to increase the Borrowing Base to an amount equal the unpaid
principal amount of the Note.
2.10 Borrowing Base Determination. Borrower shall deliver
to Bank on or before the earlier of: (a) October 31, 1997, or (b) the date on
which the Borrower delivers to Bank the first Request for Advance submitted
pursuant to Section 2.01 hereof; and within thirty (30) days after the last day
of each month from the date of this Agreement through the Maturity Date, a
Monthly Borrowing Base Certificate evidencing Borrower's calculation of the
Borrowing Base and the aging of all Accounts included in the Borrowing Base
Receivables. The Borrowing Base calculated pursuant to each such Monthly
Borrowing Base Certificate shall become effective at 10:00 am on the fifth
Business Day after it is delivered to the Bank, unless prior to such time Bank
notifies Borrower that it disagrees with the calculation of the Borrowing Base
as set forth therein. If Bank notifies Borrower within such five Business Day
Period that it disagrees with the calculation of the Borrowing Base as set
forth in the Monthly Borrowing Base Certificate, it shall concurrently notify
Borrower of the Borrowing Base that Bank is willing to recognize, which shall
be the Borrowing Base until such time as the Bank and Borrower agree on a
recalculated Borrowing Base or Bank notifies Borrower of a subsequent
adjustment in the amount of the Borrowing Base that Bank is willing to
recognize.
ARTICLE III. CONDITIONS
The obligation of Bank to make advances of the Loans referred
to in Article II of this Agreement is subject to the prior or contemporaneous
satisfaction of the following conditions precedent stated in this Article III.
3.01 Receipt of Note, Agreement, and Certificate of
Compliance. Bank shall have received the Note, multiple counterparts of this
Agreement, as requested by Bank, and the Certificate of Compliance, all duly
executed by an authorized officer of Borrower.
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3.02 Completion of Initial Public Offering. Bank shall
have received evidence satisfactory to Bank, in its sole discretion, that the
Ultimate Parent has closed the initial public offering described in the Form
S-1 Registration Statement initially filed June 2, 1997 (the "Initial Public
Offering"), including the Ultimate Parent having been capitalized with at least
Sixty Million Dollars ($60,000,000.00) in equity and having acquired all issued
and outstanding shares of Energy Research International, a Cayman Islands
corporation.
3.03 Receipt of Organizational Documents. Bank shall
have received from Borrower its Memorandum and Articles of Association and its
Certificate of Incorporation, certified as being true and correct by the
secretary or an assistant secretary of Borrower.
3.04 Receipt of Certified Copy of Corporate Proceedings
and Certificates of Incumbency. Bank shall have received from Borrower copies
of all resolutions of its board of directors, authorizing the transactions set
forth in this Agreement, and the execution of this Agreement, the Note, and the
Security Instruments, and the Power of Attorney, such copy or copies to be
certified by the secretary or an assistant secretary of Borrower as being true
and correct and in full force and effect as of the date hereof. In addition,
Bank shall have received from Borrower a certificate of incumbency signed by a
director or the secretary or an assistant secretary of Borrower setting forth
(a) the names of the officers executing this Agreement, the Note, and those of
the Security Instruments to which it is a party, (b) the office(s) to which
such Persons have been elected and in which they presently serve and (c) an
original specimen signature of each such person.
3.05 Receipt of Certificates of Incorporation and
Existence. Bank shall have received certificates, as of the most recent dates
practicable, issued by the Registrar of Companies of England and Wales,
attesting to Borrower's (a) existence; (b) that Borrower has been in continuous
and unbroken existence since the date of its incorporation; (c) that no action
is currently being taken by the Registrar of Companies for striking Borrower
off the register and dissolving it as defunct; and (3) that as far as the
Registrar is aware: (i) Borrower is not in liquidation or subject to an
administration order, and (ii) no receiver or manager of Borrower's property
has been appointed. In addition, Bank shall have received certificates, as of
the most recent dates practicable from any jurisdiction in which Borrower is
qualified to do business as a foreign company attesting to such qualification,
and, if applicable, from the department of revenue or taxation of each of the
foregoing governmental authorities, as to the good standing of Borrower;
3.06 Power of Attorney. Bank shall have received an
instrument in form and substance satisfactory to Bank, in its discretion, duly
executed on behalf of Borrower, pursuant to which Borrower appoints Richard W.
McNairy as its duly authorized agent and attorney-in-fact for the conduct of
all business, the giving and receiving of all notices, and the execution of all
instruments required or permitted to be done pursuant to this Agreement, and as
its agent for acceptance of service of legal all process, summons and
citations, such instrument to provide that the powers granted therein shall be
irrevocable until 5:00 p.m. local time in Houston, Harris County, Texas, on the
first Business Day after Bank has received an instrument signed by not less
than two of the duly appointed, qualified and acting directors of Borrower
revoking such power,
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together with contemporaneous appointment of a successor Borrower's Agent
reasonably satisfactory to Bank on the same terms as are set forth in the power
of attorney initially delivered pursuant to this Section.
3.07 Guaranty. Bank shall have received a guaranty
agreement, in form and substance acceptable to Bank in its discretion, duly
executed by the Ultimate Parent, pursuant to which the Ultimate Parent
guarantees the payment and performance of all Indebtedness and Obligations of
Borrower to Bank.
3.08 Company Search. Bank shall have received the
results of a company search at the Companies' Registry, Cardiff, showing all
charges, financing statements and other documents or instruments on file
against Borrower, such searches to be as of a date no more than ten (10) days
prior to the date of the Closing.
3.09 Opinion of Counsel. Bank shall have received an
opinion of counsel to Borrower in the form attached hereto as Exhibit "F."
3.10 Financial Statements. Bank shall have received the
Financial Statements of the Ultimate Parent as of June 30, 1997, showing
financial information regarding Borrower consistent with that previously
provided to Bank.
3.11 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.12 Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in Article IV
of this Agreement shall be true and correct in all material respects on the
date of the making of such Loans or advances with the same effect as though
such representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances.
3.13 Legal Matters Satisfactory to Counsel to Bank. All
legal matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to counsel for Bank.
3.14 No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower.
3.15 Security Instruments. As security for the payment
of the Note and the performance of the Obligations of Borrower under this
Agreement, Bank shall have received the Security Instruments, duly executed by
Borrower, that are necessary or appropriate, in the opinion of Bank, to perfect
Bank's security interests in the Borrowing Base Receivables identified in the
Monthly Borrowing Base Certificate delivered pursuant to Section 3.01.
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3.16 Legal Fees. All legal fees and disbursements owed
to Bank's special counsel who provided representation to the Bank in connection
with this Agreement or any amendment hereto shall have been paid.
3.17 Domestic Affiliate Loan Agreement. Bank shall have
contemporaneously entered into the Domestic Affiliate Loan Agreement with the
Ultimate Parent and the other borrowers designated therein.
3.18 Documents Required in connection with the addition
of certain Borrowing Base Receivables. In conjunction with the addition of
Borrowing Base Receivables that either: (a) are payable by any Account Debtor
whose principal place of business is in a jurisdiction in which Bank has not
previously perfected its security interests in Borrower's Accounts, or (b)
arise out of the delivery of goods to or performance of services in a
jurisdiction in which Bank has not previously perfected its security interests
in Borrower's Accounts; Borrower shall have duly delivered to Bank such
Security Instruments as are necessary or appropriate, in the opinion of Bank,
to perfect Bank's security interests in such additional Borrowing Base
Receivables.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the
Loan hereunder, Borrower represents and warrants to Bank (which representations
and warranties will survive the delivery of the Note) that:
4.01 Corporate Organization, Existence and Good Standing.
Borrower and each of its Subsidiaries is a corporation, duly organized and
legally existing under the laws of England and is duly qualified and in good
standing as a foreign business entity in all jurisdictions wherein the property
owned or the business transacted by it makes such qualification necessary,
other than those jurisdictions wherein the failure to so qualify does not have
a material adverse effect on Borrower.
4.02 Due Authorization. The execution and delivery by
Borrower of this Agreement and the borrowings hereunder; the execution and
delivery by Borrower of the Note, the Security Instruments and the Power of
Attorney; and the repayment by Borrower of Indebtedness evidenced by the Note
and interest and fees provided in the Note and this Agreement (a) are within
the power of Borrower; (b) have been duly authorized by all necessary action;
and (c) do not and will not (i) require the consent of any regulatory
authority, governmental body, or any other Person, (ii) violate any provision
of law or the organizational documents of Borrower, (iii) cause a default to
occur under the terms and provisions of any indenture, instrument or other
agreement to which Borrower is a party or by which its property may be
presently bound or encumbered, or (iv) result in or require the creation or
imposition of any mortgage, lien, pledge, security interest, charge or other
encumbrance in, upon or of any of the properties or assets of Borrower under
any such indenture, instrument or other agreement, other than under any of the
Security Instruments.
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4.03 Valid and Binding Obligations. This Agreement, the
Note, the Security Instruments and the Power of Attorney are the legal, valid
and binding obligations of and enforceable against Borrower in accordance with
their respective terms (subject to any applicable bankruptcy, insolvency or
other laws of general application affecting creditors' rights and judicial
decisions interpreting any of the foregoing).
4.04 Scope and Accuracy of Financial Statements. All
Financial Statements submitted and to be submitted to Bank hereunder are and
will be complete and correct in all material respects; are and will be prepared
in accordance with GAAP and practices consistently applied; and do and will
fairly reflect the financial condition and the results of the operations of
Borrower and its Subsidiaries in all material respects as of the dates and for
the period stated therein (subject only to normal year-end audit adjustments
with respect to such unaudited interim statements); and no material adverse
change has since occurred in the condition, financial or otherwise, of Borrower
or its Subsidiaries (taken as a whole).
4.05 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor any of its
Subsidiaries has any liabilities, direct or contingent, which may materially
and adversely affect its business or assets. Except as described on Schedule
4.05, there is no litigation or other action of any nature pending before any
court, governmental instrumentality, regulatory authority or arbitral body or,
to the knowledge of Borrower, threatened against or affecting Borrower, or any
of its Subsidiaries, which might reasonably be expected to result in any
material, adverse change in the business or assets of Borrower or its
Subsidiaries (taken as a whole). No unusual or unduly burdensome restriction,
restraint or hazard exists by contract, law, governmental regulation or
otherwise relative to the business or material properties of Borrower or any of
its Subsidiaries which might reasonably be expected to result in any material,
adverse change in the business or assets of Borrower or its Subsidiaries (taken
as a whole) other than such as relate generally to Persons engaged in the
business activities conducted by Borrower or any applicable Subsidiary.
4.06 Margin Stock. None of the proceeds of the Loans
will be used for the purpose of buying or carrying margin stock.
4.07 Authorizations and Consents. No authorization,
consent, approval, exemption, franchise, permit or license of, or filing with,
any governmental or public authority or any third party is required to
authorize, or is otherwise required in connection with the valid execution and
delivery by Borrower of this Agreement, the Note, the Security Instruments and
the Power of Attorney or any instrument contemplated hereby, the repayment by
Borrower of advances against the Note and interest and fees provided in the
Note and this Agreement, or the performance by Borrower of its obligations
under any of the foregoing.
4.08 Compliance with Laws, Rules, Regulations and Orders.
To the best of the knowledge and belief of Borrower, neither the business nor
any of the activities of Borrower or any of its Subsidiaries, as presently
conducted, violates any law or any rule, regulation or directive of any
applicable judicial, administrative or other governmental instrumentality
(including, but not
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by way of limitation, any law or any rule, regulation or directive of any
judicial, administrative or other governmental instrumentality relating to
zoning, to any Environmental Law, or to the stabilization of wages or prices
the result of which violation would have a material adverse effect on Borrower
or its Subsidiaries (taken as a whole), and Borrower and each of its
Subsidiaries possess all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its respective business in
all material respects as now conducted, and all such licenses, approvals,
registrations, permits and other authorizations are in full force and effect;
and Borrower has no reason to believe that it will be unable to obtain the
renewal of any such licenses, approvals, registrations, permits and other
authorizations.
4.09 Proper Filing of Tax Returns and Payment of Taxes
Due. Borrower and each of its Subsidiaries have duly and properly filed all
United States Income Tax returns, if applicable, and all other tax returns
which are required to be filed, including, without limitation, those required
to be filed in England, and has paid all taxes due pursuant to said returns or
pursuant to any assessment received, except such taxes, if any, as are being
contested in good faith and as to which adequate provisions and disclosures
have been made; and the respective charges and reserves on the books of
Borrower and each of its Subsidiaries with respect to any taxes or other
governmental charges are adequate.
4.10 ERISA and Foreign Employee Retirement Provisions.
Borrower is in compliance in all material respects with (i) all applicable
provisions of ERISA; and (ii) all comparable employee retirement provisions, if
any, in England. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any plan; no notice of intent to
terminate a plan has been filed, nor has any plan been terminated; no
circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate a plan, nor has the PBGC instituted any such proceedings;
neither Borrower nor any ERISA Affiliate has completely or partially withdrawn
under Sections 4201 or 4204 of ERISA from a Multi-employer plan; Borrower and
each ERISA Affiliate have met their minimum funding requirements under ERISA
with respect to all of their plans and the present value of all vested benefits
under each plan exceeds the fair market value of all plan assets allocable to
such benefits, as determined on the most recent valuation date of the plan and
in accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of Borrower or any ERISA Affiliate to the
PBGC or the plan under Title IV of ERISA; and neither Borrower nor any ERISA
Affiliate has incurred any liability to the PBGC under ERISA.
4.11 Investment Company Act Compliance. Borrower is not,
nor is it directly or indirectly controlled by or acting on behalf of any
person or entity which is, an investment company or an "affiliated person" of
an investment company within the meaning of the Investment Company Act of 1940.
4.12 Public Utility Holding Company Act Compliance.
Borrower is not a "holding company", or an "affiliate" of a "holding company"
or of a "subsidiary company" of a
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"holding company", within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
4.13 Environmental Laws. To the best of the knowledge
and belief of Borrower:
(a) no property of Borrower or any of its Subsidiaries
is currently on, or has ever been on, any federal or state list of
superfund sites as listed on the Environmental Protection Agency
National Priority List or any comparable state registries or list in
any state of the United States (collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been
generated, transported, and or disposed of, by Borrower or any of its
Subsidiaries at any Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill, release,
disposal or discharge of any Hazardous Substance into or upon (i) the
air, (ii) soils or any improvements located thereon, (iii) surface
water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of
Borrower or any of its Subsidiaries; and
(d) no complaint, order, directive, claim, citation,
notice of environmental report, notice of investigation or other
notice by any regulatory authority or governmental body or any other
Person with respect to (i) air emissions, (ii) spills, releases or
discharges to soils or any improvements located thereon, surface
water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing any property of Borrower or any
of its Subsidiaries, (iii) solid or liquid waste disposal, (iv) the
use, generation, storage, transportation or disposal of any Hazardous
Substance, or (v) other environmental, health or safety matters
affecting any property of Borrower or any of its Subsidiaries, any
improvements located thereon, or the business thereon conducted, has
been received by Borrower or any of its Subsidiaries, nor has Borrower
been given oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or (ii) otherwise materially affect Borrower's use or operation of its
property or Borrower's ability to repay the Indebtedness evidenced by the Note.
4.14 Subsidiaries. Borrower has no Subsidiaries other
than those listed on Schedule 4.14 hereto, and the jurisdiction of
incorporation and principal place of business of each of Borrower's
Subsidiaries is set forth on Schedule 4.14.
4.15 Existing Indebtedness. All Indebtedness of the
Borrower and any Subsidiary existing as of the Closing, other than accounts
payable incurred in the ordinary course
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of business that are not more than 30 days overdue, is described in Schedule
4.15; and neither the Borrower nor any Subsidiary is in default with respect to
any of Indebtedness, except as described on Schedule 4.15.
4.16 Material Commitments. Except as described in
Schedule 4.16 hereto, (A) neither the Borrower nor any Subsidiary has any
material leases, contracts or commitments of any kind (including, without
limitation, employment agreements; collective bargaining agreements; powers of
attorney; distribution arrangements; patent license agreements; contracts for
future purchase or delivery of goods or rendering of services; bonuses, pension
and retirement plans; or accrued vacation pay, insurance and welfare
agreements) requiring aggregate expenditure by the Borrower in excess of
$500,000 per year; (B) to the best of the Borrower's knowledge, all parties to
all such material leases, contracts, and other commitments to which the
Borrower or any Subsidiary is a party have materially complied with the
provisions of such leases, contracts, and other commitments; and (C) to the
best of the Borrower's knowledge, no party is in material default under any
thereof and no event has occurred that but for the giving of notice or the
passage of time, or both, would constitute a material default.
4.17 Insurance. The Borrower maintains insurance with
respect to the properties and business of the Borrower providing coverage for
such liabilities, casualties, risks and contingencies and in such amounts as it
believes is customary in the industry. As of the date hereof, the insurance
coverage reflected on the Certificate(s) of Insurance attached hereto as
Schedule 4.17 is in full force and effect, and, except as disclosed on Schedule
4.17, all premiums due thereon have been paid.
4.18 Material Misstatements and Omissions. No express
representation or warranty by or with respect to the Borrower or any Subsidiary
contained herein or in any certificate or other document required by this
Agreement and furnished by the Borrower or any Subsidiary contains any untrue
statement of a material fact or omits to state a material fact necessary to
make such representation or warranty not misleading in light of the
circumstances under which it was made.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower covenants, so long as any Indebtedness of Borrower to
Bank remains unpaid under this Agreement or Bank remains obligated to make
advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the
Loan to finance Borrower's working capital needs and for other general
corporate purposes, and furnish Bank such evidence as it may reasonably require
with respect to such use.
5.02 Maintenance and Access to Records. Keep adequate
records in accordance with good accounting practices, of all of Borrower's
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at Bank's reasonable
request, make all financial records and records relating to the Borrowing Base
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Receivables, available for Bank's inspection and permit Bank to make and take
away copies thereof.
5.03 Quarterly Unaudited Financial Statements of
Borrower. (a) Cause the Ultimate Parent to deliver to Bank, on or before the
sixtieth (60th) day after the end of each of the first three calendar quarters
of each fiscal year, unaudited consolidated and consolidating Financial
Statements of the Ultimate Parent and its Subsidiaries as at the end of such
period and from the beginning of such fiscal year to the end of the respective
period, as applicable, which Financial Statements shall be certified by the
president or chief financial officer of the Ultimate Parent as being true and
correct, subject to changes resulting from year-end audit adjustments; and (b)
deliver to Bank, on or before the sixtieth (60th) day after the end of each
calendar quarter of each fiscal year, unaudited internal consolidating
Financial Statements of the Borrower and its Subsidiaries as at the end of such
period and from the beginning of such fiscal year to the end of the respective
period, as applicable, which Financial Statements shall be certified by the
president or chief financial officer of Borrower as being true and correct,
subject to changes resulting from year-end audit adjustments.
5.04 Annual Audited Financial Statements of Borrower.
Cause the Ultimate Parent to deliver to Bank, on or before the one hundred and
twentieth (120th) day after the close of each fiscal year of the Ultimate
Parent: (a) the annual audited consolidated Financial Statements of the
Ultimate Parent and its Subsidiaries, and (b) unaudited consolidating Financial
Statements of the Ultimate Parent and its Subsidiaries, certified by the
president or chief financial officer of the Ultimate Parent as being true and
correct.
5.05 Compliance Certificate. Deliver to Bank a
Compliance Certificate: (a) at the time of Borrower's execution of this
Agreement, and (b) at the time of delivery of each of the Financial Statements
pursuant to Sections 5.03 and 5.04 above.
5.06 Monthly Borrowing Base Certificate. Deliver to Bank
within thirty (30) days after the end of each month a Monthly Borrowing Base
Certificate effective as of the last day of such prior month, in accordance
with Section 2.10.
5.07 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the Borrower having knowledge of
any material adverse change in the condition, financial or otherwise, of
Borrower or its Subsidiaries (or any event or circumstance that would result in
any such material adverse change in condition including, but not limited to,
litigation and changes in business), a statement of the president or vice
president of Borrower, setting forth the change in condition or event or
circumstance likely to result in any such change and the steps being taken by
Borrower or the applicable Subsidiary with respect to such change in condition
or event or circumstance.
5.08 Additional Information. Furnish to Bank all
information, if any, filed with any governmental agencies or authorities in
England, and all information routinely provided by the Borrower to its
shareholders, generally. Furnish to the Bank, promptly upon the Bank's
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reasonable request, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower,
including, without limitation, information concerning title to any of the
Borrowing Base Receivables.
5.09 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, and other obligations
which, if unpaid, might become a lien against its property, except any of the
foregoing being contested in good faith and as to which satisfactory accruals
have been provided and unless failure to comply or pay would not have a
material adverse effect on the assets of Borrower or the value of any Borrowing
Base Receivables.
5.10 Maintenance of Existence and Good Standing.
Maintain Borrower's and its Subsidiaries' business entity existence and good
standing in the jurisdiction of its formation, and in all jurisdictions wherein
the property now owned or hereafter acquired or business now or hereafter
conducted necessitates same, other than those jurisdictions wherein the failure
to so qualify will not have a material adverse effect on Borrower, or on any of
Borrower's Subsidiaries considered on a consolidated basis with Borrower.
5.11 Further Assurances. Promptly cure any defects in
the execution and delivery of this Agreement, the Note, the Security
Instruments, or any other instrument referred to herein or executed in
connection with the Note, and upon notice, immediately execute and deliver to
Bank, all such other and further instruments as may be reasonably required or
desired by Bank from time to time in compliance with the covenants and
agreements made in this Agreement.
5.12 Initial Expenses of Bank. Pay all fees and expenses
of Hutcheson & Grundy, L.L.P., special legal counsel for Bank, incurred in
connection with the negotiation and preparation of this Agreement, the Note,
the Security Instruments, or any other instrument referred to herein or
executed in connection with the Note, the satisfaction of the conditions
precedent set forth in Article III of this Agreement and the consummation of
the transactions contemplated in this Agreement.
5.13 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, or any other instrument referred to herein
or executed in connection with the Note, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to Borrower by
Bank and which amounts will include, but not be limited to, (a) all court
costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
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States Code, and (h) fees and expenses incurred in connection with any action
pursuant to Sections 1129 Title 11 of the United States Code, incurred by Bank
in connection with the collection of any sums due under this Agreement,
together with interest at the Floating Rate per annum, calculated on a basis of
a year of three hundred sixty-five (365) or three hundred sixty-six (366) days,
on each such amount from the date of notification to Borrower that the same was
expended, advanced or incurred by Bank until the date it is repaid to Bank,
with the obligations under this Section 5.13, surviving the non-assumption of
this Agreement in a case commenced under Title 11 of the United States Code or
other similar law of the United States, the State of Texas or any other
jurisdiction and being binding upon Borrower or a trustee, receiver or
liquidator of any such party appointed in any such case.
5.14 Maintenance of Tangible Property. Maintain all of
Borrower's and its Subsidiaries' tangible property that is material to the
conduct of Borrower's or any of its Subsidiaries' businesses in good repair and
condition and make all necessary replacements thereof and operate such property
in a good and workmanlike manner in accordance with standard industry
practices.
5.15 Maintenance of Insurance. Continue to maintain, or
cause to be maintained, insurance with respect to the properties and business
of Borrower and its Subsidiaries against such liabilities, casualties, risks
and contingencies and in such amounts as is customary in the industry, in an
amount and form, and underwritten by an insurer or insurers, as are reasonably
acceptable to Bank, and furnish to Bank, at the execution of this Agreement and
annually thereafter, certificates evidencing such insurance.
5.16 Inspection of Tangible Assets/Right of Audit.
Permit (or cause to be permitted) any authorized representative of Bank, to
visit and inspect (at the risk of Bank and/or such representative) any tangible
asset of Borrower and its Subsidiaries, and/or to audit the books and records
of Borrower or any of its Subsidiaries, during normal business hours. Bank
shall give Borrower five (5) Business Days prior written notice of any such
inspection or audit, and no such inspection or audit shall occur more often
than once per calendar quarter; provided, however, that if Bank has a good
faith belief that the condition exists that constitutes an Event of Default or
an Unmatured Event of Default, which may reasonably be expected to have a
material adverse effect on the business, operations, or financial condition of
Borrower, or on the collateral value of any material portion of the Borrowing
Base Receivables, the Bank shall be entitled to conduct any such visit and
inspection, and/or any such audit, notwithstanding that a prior visit and
inspection, or audit, respectively, was conducted in the same calendar quarter,
and without the necessity of giving five (5) Business Days prior written
notice.
5.17 Payment of Note and Performance of Obligations. Pay
the Note according to the reading, tenor and effect thereof, and do and perform
every act and discharge all of the obligations provided to be performed and
discharged hereunder.
5.18 ERISA Reports. Promptly after the filing or
receiving thereof, copies of all reports, including annual reports, and notices
which Borrower or any of its Subsidiaries files
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with or receives from the PBGC or the U.S. Department of Labor under ERISA; and
promptly after Borrower knows or has reason to know that any Reportable Event
or Prohibited Transaction has occurred with respect to any plan or that the
PBGC, Borrower, or any of Borrower's Subsidiaries has instituted or will
institute proceedings under Title IV of ERISA to terminate any plan, Borrower
will deliver to Bank a certificate of the chief financial officer of Borrower
setting forth details as to such Reportable Event or Prohibited Transaction or
plan termination and the action Borrower or its applicable Subsidiary proposes
to take with respect thereto.
5.19 Financial Covenants. Maintain, in conjunction with
the Ultimate Parent and its Subsidiaries, compliance with the financial
covenants set forth in Sections 5.19 through 5.22 of the Domestic Affiliate
Loan Agreement, including continued compliance with all of such covenants,
which are hereby incorporated herein by reference, in the event of the
termination of the Domestic Affiliate Loan Agreement prior to the full and
final payment and performance of all Indebtedness and Obligations,
respectively, of Borrower to Bank hereunder and the termination of this
Agreement.
5.20 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in the vicinity of, related to or
affected by any property of Borrower or its Subsidiaries, or (b) required for
the performance or conduct of its operations, including, without limitation,
all permits, licenses, registrations, approvals and authorizations, and, in
this regard, comply fully and in a timely manner with, and cause all employees,
crew members, agents, contractors, subcontractors and future lessees (pursuant
to appropriate lease provisions) of Borrower and its Subsidiaries while such
Persons are acting within the scope of their relationship with Borrower or its
Subsidiaries, to so comply with, all requirements of law, including, without
limitation, Environmental Laws, and other requirements with respect to the
property of Borrower and its Subsidiaries and the operation thereof necessary
or appropriate to enable Borrower to fulfill its obligations under all
requirements of law, including, without limitation, Environmental Laws,
applicable to the use, generation, handling, storage, treatment, transport and
disposal of any Hazardous Substances now or hereafter located or present on or
under any such property.
5.21 Hazardous Substances Indemnification. Indemnify and
hold Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from the property of Borrower or its Subsidiaries,
whether prior to or during the term hereof, or (b) any activity carried on or
undertaken on or off such property, whether prior to or during the term hereof,
and whether by Borrower or its Subsidiaries or any predecessor in title or any
employees, agents, contractors or subcontractors of Borrower or its
Subsidiaries or any predecessor in title, or any third Persons at any time
occupying or present on such property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation or
disposal of any
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Hazardous Substances at any time located or present on or under such property;
with the foregoing indemnity further applying to any residual contamination on
or under the property of Borrower or its Subsidiaries, or any property of any
other Person, or affecting any natural resources, and to any contamination of
any property or natural resources arising in connection with the generation,
use, handling, storage, transportation or disposal of any Hazardous Substances,
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable requirements of law, including, without limitation,
Environmental Laws, and surviving satisfaction of all Indebtedness of Borrower
to Bank and the termination of this Agreement, provided, further, that the
claims and other actions of any kind against Bank which give rise to such
indemnity are not barred by the applicable statute of limitations at the time
such claims or actions are instituted and such indemnity shall not extend to
any act or omission by Bank or any Affiliate of Bank or any of Bank's employees
or agents with respect to the relevant property subsequent to Bank becoming the
owner of, taking possession of to the exclusion of Borrower or assuming
operations of any property previously owned by Borrower and with respect to
which property such claim, loss, damage, liability, fine, penalty, charge,
proceeding, order, judgment, action or requirement arises subsequent to the
acquisition of title thereto, taking possession thereof or assumption of
operations thereon by Bank or any Affiliate of Bank or any of Bank's employees
or agents. Notwithstanding anything herein to the contrary, the provisions of
this Section 5.24 shall survive any termination of this Agreement and shall
survive the payment and performance in full of all Obligations owed by Borrower
to Bank.
5.22 Changes in Management. Notify Bank of any change in
the senior management of Borrower, as such management exists as of the date
hereof.
5.23 Payment of Taxes, Etc. Borrower and its
Subsidiaries will each pay or cause to be paid when due, all taxes,
assessments, and charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay, except where contested in good faith
by appropriate proceedings with adequate reserves therefor having been set
aside on its books, provided, however, that Borrower and its Subsidiaries shall
each pay or cause to be paid all such taxes, assessments, charges, or levies
forthwith whenever foreclosure on any lien that may have attached (or security
therefor) appears imminent.
5.24 Notice of Litigation. Borrower and its Subsidiaries
will each give notice to the Bank within ten (10) Business Days of the
occurrence of: (A) any litigation or proceeding in which it is a party if an
adverse decision therein might reasonably be expected to require it to pay more
than $250,000.00 or deliver (or lose title to) assets the value of which
exceeds such sum (whether or not the claim is considered to be covered by
insurance); and (B) the institution of any other suit or proceeding involving
Borrower that would reasonably be expected to materially and adversely affect
its operations, financial condition, property, or business prospects.
5.25 Notices Regarding Account Debtors. Upon the receipt
by Borrower of any notice of the death of an Account Debtor or a partner
thereof, or of the dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the property of, assignment
for the benefit of creditors by, or the filing of a petition in bankruptcy or
the
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commencement of any proceeding under any bankruptcy or insolvency laws by or
against, an Account Debtor, Borrower will immediately give the Bank written
advice thereof.
5.26 Notice of Change of Principal Offices. Borrower
will notify the Bank at least ten (10) Business Days in advance of any change
in the location of the principal office of Borrower or any of its Subsidiaries.
5.27 Payment of Accounts Payable. Pay its accounts
payable not later than thirty (30) days after their due date, except such as
are being contested in good faith and as to which adequate provision or accrual
has been made, provided that up to an aggregate amount of $500,000 of accounts
payable not being so contested may be overdue by more than such number of days.
5.28 Security Account. Provide timely written
instructions to each Account Debtor that is the obligor, from time to time, of
any of Borrower's Eligible Accounts, directing such Account Debtor to send
payment of such Eligible Accounts to the credit of Borrower into the Security
Account, and promptly deposit into the Security Account all payments of
Eligible Accounts received by Borrower that were not sent directly to the
Security Account by an Account Debtor.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any
part of the principal or interest on the Note shall remain unpaid or Bank
remains obligated to make advances hereunder, Borrower and its Subsidiaries
will not:
6.01 Mortgages or Pledges of Assets. Create, incur,
assume or permit to exist, any mortgage, pledge, security interest, lien or
encumbrance on any of its properties or assets (now owned or hereafter
acquired), except that the foregoing restrictions shall not apply to any
matters that would constitute or result in Permitted Encumbrances.
6.02 Nature of Business. Permit any material change to
be made in the character of its business as conducted as of the date hereof, or
permit any Subsidiary to permit any material change to be made in the character
of such Subsidiary's business as conducted as of the date hereof.
6.03 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.04 Cancellation of Insurance. Allow any insurance
policy required to be carried hereunder to be terminated or lapse or expire
without provision for adequate renewal thereof.
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6.05 Margin Stock. Neither the Borrower nor any
Subsidiary will directly or indirectly apply any part of the proceeds of the
Loans to the purchasing or carrying of any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or any
regulations, interpretations or rulings thereunder.
6.06 Changes in Business Structure. Consolidate or merge
with, or purchase (for cash or securities) all or substantially all of the
assets or all or any part of the capital stock of any corporation, firm,
association or enterprise, or allow any such entity to be merged into Borrower
or any of its Subsidiaries, nor shall Borrower or any of its Subsidiaries
dissolve or liquidate.
6.07 Transactions with Affiliates. Enter into any
transaction between or among Borrower and/or any Subsidiaries with any
Affiliate on terms that are less favorable than could be obtained in an
arms-length transaction with a Person that is not an Affiliate.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the
following events shall be considered an Event of Default as that term is used
herein:
(a) Default shall be made by Borrower in the payment of
any installment of principal on the Note,
(b) Default shall be made by Borrower in the payment of
any installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) Business Days after notice being given by Bank,
(c) Default shall be made by Borrower in the due
observance or performance of any affirmative covenant required in this
Agreement, the Note, or any Security Instrument, and such default
shall remain unremedied for in excess of thirty (30) days after the
earlier of: (i) such default becoming known to Borrower, or (ii)
notice being given by Bank.
(d) Default shall be made by Borrower in the due
observance or performance of any negative covenant required in this
Agreement, the Note, or any Security Instruments.
(e) Any representation or warranty herein made by
Borrower proves to have been untrue in any material respect, or any
representation, statement (including Financial Statements),
certificate or data furnished or made by Borrower to Bank in
connection herewith proves to have been untrue in any material respect
as of the date the facts therein set forth were stated or certified;
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(f) Default shall be made by Borrower (as principal or
guarantor or other surety) in payment or performance of any bond,
debenture, note or other evidence of Indebtedness for borrowed money,
or any other credit agreement, loan agreement, indenture, promissory
note or similar agreement or instrument executed in connection with
any of the foregoing in excess of $1,000,000.00 in the aggregate; and
such default shall remain unremedied for in excess of the period of
grace, if any, with respect thereto, with the effect of accelerating
the maturity of any such Indebtedness;
(g) Borrower applies for or consents to the appointment
of a receiver, trustee or liquidator of it or all or a substantial
part of its assets, or (ii) files a voluntary petition commencing a
case under Title 11 of the United States Code, seeking liquidation,
reorganization or rearrangement or taking advantage of any bankruptcy,
insolvency, debtor's relief or other similar law of the United States,
the State of Texas, England or any other jurisdiction, or (iii) makes
a general assignment for the benefit of creditors, or (iv) is unable,
or admits in writing its inability to pay its debts generally as they
become due, or (v) files an answer admitting the material allegations
of a petition filed against it in any case commenced under Title 11 of
the United States Code or any reorganization, insolvency,
conservatorship or similar proceeding under any bankruptcy,
insolvency, debtor's relief or other similar law of the United States,
the State of Texas, England or any other jurisdiction;
(h) An order, judgment or decree shall be entered
against Borrower by any court of competent jurisdiction or by any
other duly authorized authority, on the petition of a creditor or
otherwise, granting relief under Title 11 of the United States Code or
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas, England or any other
jurisdiction, approving a petition seeking reorganization or an
arrangement of its debts or appointing a receiver, trustee,
conservator, custodian or liquidator of it or all or any substantial
part of its assets, and the failure to have such order, judgment or
decree dismissed within ten (10) days of its entry;
(i) Borrower has concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them; or has made or suffered
a transfer of any of its property which are or would be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or has
made any transfer of its property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid;
or has suffered or permitted, while insolvent, any creditor to obtain
a lien upon any of its property through legal proceedings or distraint
which is not vacated within thirty (30) days from the date thereof.
(j) An "Event of Default" as defined in the Domestic
Affiliate Loan Agreement has occurred and is continuing.
7.02 Rights Upon Unmatured Event of Default. At any time
that there exists an Unmatured Event of Default, any obligation of the Bank
hereunder to make advances to or for the benefit of the Borrower shall be
suspended unless and until the Bank shall reinstate the same
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in writing, the Unmatured Event of Default shall have been waived by the Bank
or the relevant Unmatured Event of Default shall have been remedied prior to
ripening into an Event of Default.
7.03 Rights Upon Default. Upon the happening of an Event
of Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere herein, all of which are hereby expressly waived by
Borrower.
Upon the happening and continuation of any Event of Default,
all obligations (if any) of Bank hereunder shall immediately cease and
terminate unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset
or Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank
and/or grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and
Covenants. All representations and warranties of Borrower and all covenants
and agreements herein made shall survive the execution and delivery of the Note
and this Agreement and shall remain in force and effect so long as any debt is
outstanding under the Note, or any renewal or extension of this Agreement or
the Note, or Bank remains obligated to make advances hereunder.
8.03 Notices and Other Communications. Notices, requests
and communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
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(a) If to Bank:
BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention: Energy Lending
Fax: (713) 751-3544
(b) Notices and/or reports sent to Bank pursuant to Sections
5.03, 5.04, and 5.05 shall also be sent to:
BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention: Monitoring Unit
Telephone: (713) 751-4627
Fax: (713) 751-6239
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(c) If to Borrower:
RICHARD W. MCNAIRY
Agent for Horizon Exploration Limited
c/o Eagle Geophysical, Inc.
50 Briar Hollow Lane, 6th Floor West
Houston, Texas 77027
Fax: (713) 881-2801
Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements
herein contained by or on behalf of Borrower shall be binding upon Borrower and
its successors and assigns and inure to the benefit of Bank and its successors
and assigns.
8.05 Renewals and Extensions. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension, amendment, modification or rearrangement of any part of
the Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part
of Bank, its officers or employees, nor any failure or delay by Bank with
respect to exercising any of its rights, powers or privileges under this
Agreement, the Note, the Security Instruments or any other instrument referred
to herein or executed in connection with the Note shall operate as a waiver
thereof. The rights and remedies of Bank under this Agreement, the Note, the
Security Instruments or any other instrument referred to herein or executed in
connection with the Note shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy. In the event that Borrower is unable to satisfy any
covenant, warranty or condition herein, no advance of loan proceeds by Bank
shall have the effect of precluding Bank from thereafter declaring any such
continuing inability to be an Event of Default as hereinabove provided.
8.07 INDEMNIFICATION. BORROWER HEREBY RELEASES AND
AGREES TO INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES, DIRECTORS,
AGENTS AND ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS, FROM AND
AGAINST ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR UNKNOWN,
ACCRUED AND UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE RESULTED
FROM NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO BANK
PARTIES' OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR HEREAFTER
BE ASSERTED AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING OUT OF
ANY INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO
OR ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
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8.08 GOVERNING LAW AND VENUE. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
TEXAS, UNITED STATES OF AMERICA, WITHOUT GIVING EFFECT TO PRINCIPALS OF
CONFLICT OF LAWS (EXCEPT THAT THE GRANT AND PERFECTION OF BANK'S LIEN AND
SECURITY INTEREST RIGHTS IN AND FORECLOSURE ON COLLATERAL SECURING THE
OBLIGATIONS AND INDEBTEDNESS OF BORROWER WILL BE GOVERNED BY THE LAW OF THE
JURISDICTION PROVIDED FOR IN ANY RELEVANT SECURITY INSTRUMENT APPLICABLE TO
SUCH COLLATERAL). THE PARTIES AGREE THAT THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS SHALL NOT IN ANY WAY APPLY TO, OR
GOVERN, THIS AGREEMENT. THE PARTIES AGREE TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE CITY OF HOUSTON,
HARRIS COUNTY, TEXAS, IN CONNECTION WITH ANY ACTION OR OTHER PROCEEDING
RELATING TO THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY MATTER
CONTEMPLATED BY OR RELATING TO ANY SUCH AGREEMENT (EXCEPT AS EXPRESSLY PROVIDED
OTHERWISE IN ANY SECURITY INSTRUMENT). BORROWER IRREVOCABLY WAIVES AND AGREES
NOT TO MAKE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE JURISDICTION OF ANY SUCH COURT OR THE LAYING OF
VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND TO ANY
CLAIM THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE
BINDING UPON THE PARTIES AND MAY BE ENFORCED IN SUCH COURTS OR IN THE COURTS OF
ANY COUNTRY OR STATE TO THE JURISDICTION OF WHICH THE PARTY AGAINST WHOM SUCH
JUDGMENT IS RENDERED OR ANY OF ITS ASSETS IS SUBJECT. BORROWER AGREES THAT
SERVICE OF PROCESS IN CONNECTION WITH SUCH ACTION OR PROCEEDING MAY BE SERVED
ON IT BY SERVING BORROWER'S AGENT, WHO IS HEREBY APPOINTED AS BORROWER'S
DESIGNATED AGENT FOR SERVICE OF PROCESS, IN ANY MANNER (OTHER THAN BY
TELECOPIER) SET FORTH IN SECTION 8.03.
8.09 Incorporation of Exhibits. The Exhibits and
Schedules attached to this Agreement are incorporated herein for all purposes
and shall be considered a part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any
one or more of the provisions contained in this Agreement, the Note, the
Security Instruments or in any other instrument referred to herein or executed
in connection with the Note shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
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8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank and Borrower and no
other Person shall have standing to require satisfaction of such provisions in
accordance with their terms or be entitled to assume that Bank will refuse to
make advances in the absence of strict compliance with any or all thereof and
any or all of such provisions may be freely waived in whole or in part by Bank
at any time if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
8.13 Agreement Construed as an Entirety. This Agreement,
for convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE SECURITY INSTRUMENTS, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Note,
the Security Instruments or any other instrument referred to herein or executed
in connection with the Note, the provisions of this Agreement shall control.
8.17 Time, Place and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in immediately
available funds; shall be deemed received by Bank on the next Business Day
following receipt if such receipt is after 3:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of Bank.
38
<PAGE> 44
8.18 Non-Application of Chapter 15 of Texas Credit Code.
The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to this Agreement or any of the other Security Instruments or
to the transactions contemplated hereby.
8.19 Counterpart Execution. This Agreement may be
executed as one instrument signed by all parties or in separate counterparts
hereof, each of which counterparts shall be considered an original and all of
which shall be deemed to be one instrument, and any signed counterpart shall be
deemed delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
8.20 Disclosure and Use of Confidential Information.
Bank agrees to keep confidential all information disclosed to it by Borrower in
connection with this Agreement or the Loans or otherwise made available to Bank
pursuant to the terms hereof, with the exception of information that is either
publicly available or obtained by Bank from third parties not known by the Bank
to be subject to any confidentiality agreement with Borrower (collectively,
excluding such exceptions, the "Confidential Information") and Bank shall not,
without Borrower's prior written consent, disclose to any third party, firm,
corporation or entity (other than regulatory agencies having jurisdiction over
Bank) such Confidential Information, except: (a) as required by law and (b) to
third-party consultants of Bank, including, but not limited to, attorneys and
accountants, on a "need to know" basis in connection with the negotiation,
execution, or administration of this Agreement or any of the Loan Documents, or
the enforcement of any Borrower's Obligations or any of Bank's rights
thereunder, provided that such third-party consultants' possession and/or use
of such Confidential Information shall be subject to the provisions of this
Section. Bank shall use such Confidential Information only for the purposes of
its evaluation, administration, and enforcement of the Agreement, the Loan
Documents, and the Loans.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
HORIZON EXPLORATION LIMITED
By: /s/ Richard W. McNairy
-------------------------------
Richard W. McNairy
Agent and Attorney-in-Fact
39
<PAGE> 45
BANK:
BANK ONE, TEXAS, N.A.
By: /s/ Linda Masera
------------------------------
Linda Masera
Vice President
40
<PAGE> 1
REVOLVING NOTE Exhibit 10.63
$20,000,000.00 Houston, Texas October 21, 1997
On the dates hereinafter prescribed, for value received, HORIZON
EXPLORATION LIMITED, an English company (the "Borrower"), having a Registered
Office at Napier House, 14-16 Mount Ephraim Road, Tunbridge Wells, Kent TN1
1EE, promises to pay to the order of BANK ONE, TEXAS, N.A. (herein called
"Bank"), at its principal offices at 910 Travis, Houston, Harris County, Texas
77002, (i) the principal amount of TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) or the principal amount advanced pursuant to the terms of the
Loan Agreement (defined herein) as of the date of maturity hereof, whether by
acceleration or otherwise, whichever may be the lesser, and (ii) interest on
the principal balance from time to time advanced and remaining unpaid from the
date of the advance until maturity at a rate of interest equal to lesser of (a)
the "Interest Rate" (as defined in the Loan Agreement), or (b) the Maximum Rate
(as hereinafter defined). Any increase or decrease in interest rate resulting
from a change in the Maximum Rate shall be effective immediately when such
change becomes effective, without notice to Borrower, unless Applicable Law (as
defined below) requires that such increase or decrease not be effective until a
later time, in which event such increase or decrease shall be effective at the
earliest time permitted under the provisions of such law.
Notwithstanding the foregoing, if during any period the Interest Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times
thereafter the rate of interest in effect on this Note shall be the Maximum
Rate until the total amount of interest accrued on this Note equals the total
amount of interest which would have accrued hereon if the Floating Rate had at
all times been in effect.
All payments on this Note shall be applied first to accrued interest
and the balance, if any, to principal.
This Note is a revolving credit note and it is contemplated that by
reason of prepayments hereon there may be times when no indebtedness is owing
hereunder; but notwithstanding such occurrence, this Note shall remain valid
and in full force and effect as to each principal advance made hereunder
subsequent to each such occurrence. Each principal advance and each payment
hereof made pursuant to this Note shall be reflected by Bank's records and the
aggregate unpaid amounts reflected by such records shall constitute rebuttably
presumptive evidence of the principal and unpaid, accrued interest remaining
outstanding on this Note.
"Maximum Rate" means the Maximum Rate of non-usurious interest
permitted from day to day by applicable law, including as to Article 5069-1.04,
Vernon's Texas Revised Civil Statutes Annotated (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated weekly rate ceiling."
"Applicable Law" means that law in effect from time to time and
applicable to this Note which lawfully permits the charging and collection of
the highest permissible lawful, non-usurious rate of interest on this Note,
including laws of the State of Texas and laws of the United States of
<PAGE> 2
America. It is intended that Article 1.04, Title 79, Revised Civil Statutes of
Texas, 1927, as amended (Article 5069-1.04, as amended, Vernon's Texas Civil
Statutes) shall be included in the laws of the State of Texas in determining
Applicable Law; and for the purpose of applying said Article 1.04 to this Note,
the interest ceiling applicable to this Note under said Article 1.04 shall be
the indicated weekly rate ceiling from time to time in effect. Borrower and
Bank hereby agree that Chapter 15 of Subtitle 3, Title 79, Revised Civil
Statutes of Texas, 1925, as amended, shall not apply to this Note or the loan
transaction evidenced by, and referenced in, the Loan Agreement (hereinafter
defined) in any manner, including without limitation, to any account or
arrangement evidenced or created by, or provided for in, this Note.
"Business Day" shall mean any day on which banks are open for general
banking business in the State of Texas, other than a Saturday, a Sunday, a
legal holiday or any other day on which banks in the State of Texas are
required or authorized by law or executive order to close.
The principal sum of this Note, after giving credit for unadvanced
principal, if any, remaining at final maturity, shall be due and payable on or
before the Maturity Date, as prescribed in the Loan Agreement defined below;
interest to accrue upon the principal sum from time to time owing and unpaid
hereunder shall be due and payable in monthly installments, as it accrues, with
the first such monthly installment of interest hereon being due and payable on
the first day of November 1997, and with such subsequent installments of
interest being due and payable on the first day of each succeeding month
thereafter; provided, however, the final installment of interest hereunder
shall be due and payable not later than the maturity of the principal sum
hereof, howsoever such maturity may be brought about.
When the first (1st) day of a calendar month falls upon a Saturday,
Sunday or legal holiday, the payment of interest and principal, if any, due
upon such date shall be due and payable upon the next succeeding Business Day.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this
Note. Bank and Borrower specifically intend and agree to limit contractually
the interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other
instruments pertaining to or securing this Note shall ever be construed to
create a contract to pay interest at a rate in excess of the Maximum Rate, and
neither Borrower nor any other party liable herefor shall ever be liable for
interest in excess of that determined at the Maximum Rate, and the provisions
of this paragraph shall control over all provisions of this Note or of any
other instruments pertaining to or securing this Note. If any amount of
interest taken or received by Bank shall be in excess of the maximum amount of
interest which, under Applicable Law, could lawfully have been collected on
this Note, then the excess shall be deemed to have been the result of a
mathematical error by the parties hereto and shall be refunded promptly to
Borrower. All amounts paid or agreed to be paid in connection with the
indebtedness evidenced by this Note which would under Applicable Law be
<PAGE> 3
deemed "Interest" shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated and spread throughout the full term of this
Note.
This Note is secured by all security agreements, collateral
assignments, mortgages and lien instruments executed by Borrower (or by any
other party) in favor of Bank, including those executed simultaneously
herewith, those executed heretofore and those hereafter executed, and including
specifically and without limitation the "Security Instruments" described and
defined in the Revolving Credit Agreement of even date between Borrower and
Bank (the "Credit Agreement").
This Revolving Note is the Note issued pursuant to the Credit
Agreement. Reference is hereby made to the Credit Agreement for a statement of
the rights and obligations of the holder of this Note and the duties and
obligations of Borrower in relation thereto; but neither this reference to the
Credit Agreement nor any provisions thereof shall affect or impair the absolute
and unconditional obligation of Borrower to pay any outstanding and unpaid
principal of and interest on this Note when due, in accordance with the terms
of the Credit Agreement. Each advance and each payment made pursuant to this
Note shall be reflected by notations made by Bank on its records and the
aggregate unpaid amounts reflected by the notations on the records of Bank
shall be deemed rebuttably presumptive evidence of the principal amount owing
under this Note.
In the event of default in the payment when due of any of the
principal of or any interest on this Note, or in the event of default under the
terms of the Credit Agreement or any of the Security Instruments, or if any
event occurs or condition exists which authorizes the acceleration of the
maturity of this Note under any agreement made by Borrower, Bank (or other
holder of this Note) may, at its option, without presentment or demand or any
notice to Borrower or any other person liable herefor, declare the unpaid
principal balance of and accrued interest on this Note to be immediately due
and payable.
If this Note is collected by suit or through the Probate or Bankruptcy
Court, or any judicial proceeding, or if this Note is not paid at maturity,
however such maturity may be brought about, and is placed in the hands of an
attorney for collection, then Borrower agrees to pay reasonable attorneys'
fees, not to exceed 10% of the full amount of principal and interest owing
hereon at the time this Note is placed in the hands of an attorney.
Borrower and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity, notice of acceleration of
maturity, and all other notices, filing of suit and diligence in collecting
this Note or enforcing any of the security herefor, and agree to any
substitution, exchange or release of any such security or the release of any
party primarily or secondarily liable hereon and further agrees that it will
not be necessary for Bank, in order to enforce payment of this Note by them, to
first institute suit or exhaust its remedies against any Borrower or others
liable herefor, or to enforce its rights against any security herefor, and
consent to any one or more extensions or postponements of time of payment of
this Note on any terms or
<PAGE> 4
any other indulgences with respect hereto, without notice thereof to any of
them. Bank may transfer this Note, and the rights and privileges of Bank under
this Note shall inure to the benefit of Bank's representatives, successors or
assigns.
Executed this 21st day of October 1997.
HORIZON EXPLORATION LIMITED
By: /s/ RICHARD W. MCNAIRY
-------------------------------
Richard w. McNairy
Agent and Attorney-in-Fact
<PAGE> 1
CHARGE ON RECEIVABLES
DATED OCTOBER 21, 1997
BETWEEN
HORIZON EXPLORATION LIMITED
-AND-
BANK ONE, TEXAS, N.A.
ALLEN & OVERY
LONDON
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C> <C>
1. Interpretation ............................................... 1
2. Fixed Security ............................................... 3
3. Floating Charge .............................................. 4
4. Representations and Warranties ............................... 5
5. General Undertakings ......................................... 5
6. Security Account ............................................. 7
7. When Security Becomes Enforceable ............................ 7
8. Enforcement Of Security ...................................... 8
9. Receiver ..................................................... 9
10. Powers Of Receiver ........................................... 10
11. Application Of Proceeds ...................................... 12
12. Expenses And Indemnity ....................................... 13
13. Delegation ................................................... 13
14. Further Assurances ........................................... 13
15. Power Of Attorney 14
16. Miscellaneous ................................................ 14
17. Changes To The Parties ....................................... 15
18. Severability ................................................. 15
19. Counterparts ................................................. 15
20. Notices ...................................................... 15
21. Waivers, Remedies Cumulative ................................. 16
22. Release ...................................................... 16
23. Governing Law ................................................ 16
Signatories........................................................ 16
Schedules
Notice of Assignment............................................... 17
</TABLE>
<PAGE> 3
This Charge on Receivables (this "Deed") is dated October 21, 1997 between:
(1) HORIZON EXPLORATION LIMITED, Registered number 2804983 (the "Borrower");
and
(2) BANK ONE, TEXAS, N.A., a national banking association (the "Bank").
BACKGROUND:
(A) The Bank has agreed to make or may make available certain credit facilities
(the "Facilities") on and subject to the terms of the Credit Agreement:
(B) It is a condition to the Bank making Facilities available that the Borrower
enter into this Charge On Receivables; and
(C) It is intended that this document takes effect as a deed notwithstanding
the fact that a party may only execute this document under hand.
IT IS AGREED as follows:
I. INTERPRETATION
1.1 Definitions
In this Deed;
"Act"
means the Law of Property Act 1925.
"Charged Assets"
means
(a) all of the Borrower's book and other debts and all other moneys of
whatever nature due, owing or payable to the Borrower (and including,
without limitation, the benefit of all rights, securities and guarantees
enjoyed or held by it in relation to any of the above) and including in
each case (without limitation) all claims, and all moneys which may at any
time be or become paid or payable to the Borrower, under or in respect of
any of the above (including the proceeds of any claims, awards or judgment
and any returns of premium)(the "Receivables"); and
-i-
<PAGE> 4
(b) all of the Borrower's right, title and interest in and to the Security
Account, all monies now or in the future standing to the credit of the
Security Account and the Borrower's right to the repayment of the balances
and interest in the Security Account.
"Credit Agreement"
means the Credit Agreement dated 21st October, 1997 between the Borrower
and the Bank.
"Default Rate"
means the rate specified in Clause 2.04(D) of the Credit Agreement.
"Receiver"
means a receiver and manager or (if the Bank so specifies in the relevant
appointment) a receiver, in either case, appointed under this Deed.
"Secured Liabilities"
means all present and future obligations and liabilities of whatever nature
of the Borrower to the Bank, whether actual or contingent and whether owned
jointly or severally or in any other capacity whatsoever (including,
without limitation, under or in connection with the Credit Agreement).
"Security Account"
means the account(s) referred to in Clause 6 (Security Account).
"Security Interest"
means any mortgage, pledge, lien, charge, assignment, hypothecation or
security interest or any other agreement or arrangement (such as a blocked
account or "flawed asset" arrangement) having a commercial effect analogous
to the conferring of security.
"Security Period"
means the period beginning on the date of this Deed and ending on the date
on which the Bank is satisfied (acting reasonably) that all the Secured
Liabilities have been unconditionally and irrevocably paid and discharged
in full and that there is no material risk that any further Secured
Liabilities can arise under or in respect of the Credit Agreement.
-2-
<PAGE> 5
"Subsidiary"
means
(a) a subsidiary within the meaning of Section 735 of The Companies Act
1985 as amended by Section 144 of The Companies Act 1989; and
(b) unless the context otherwise requires, a subsidiary undertaking within
the meaning of Section 21 of The Companies Act 1989.
1.2 Construction
(a) Capitalised terms defined in the Credit Agreement have, unless
expressly defined in this Deed, the same meaning in this Deed.
(b) The provisions of Article VIII (Miscellaneous) of the Credit Agreement
shall apply to this Deed as though they were set out in full in this
Deed except that references to the Credit Agreement are to be
construed as references to this Deed.
(c) If the Bank considers that in respect of any amount paid by the
Borrower to the Bank under the Credit Agreement there is a material
risk of such payment being avoided or otherwise set aside on the
liquidation or administration of the Borrower or otherwise, then that
amount shall not be considered to have been irrevocably paid for the
purposes of this Deed.
(d) A reference in this Deed to any assets includes, unless the context
otherwise requires, present and future assets.
2. FIXED SECURITY
2.1 Assignment
(a) The Borrower, with full title guarantee, assigns all of the Charged
Assets absolutely in favour of the Bank.
(b) Except (in the cases only of paragraphs (i) and (ii) below) whilst an
Event of Default or Unmatured Event of Default is subsisting or after
the Bank has taken any steps to enforce any of the security conferred
by the Deed:
(i) the Bank shall permit the Borrower to exercise its rights under
or in relation to the Charged Assets provided that the exercise
of these rights in the manner proposed would not result in the
occurrence of an Event of Default or an Unmatured Event of
Default:
-3-
<PAGE> 6
(ii) any amount payable to the Borrower under or in respect of any
Charged Assets shall be paid to the Security Account in
accordance with the Credit Agreement; and
(iii) any payments received by the Bank under or in respect of any
Charged Assets by virtue of this Deed shall be paid by the Bank
into the Security Account in accordance with the Credit
Agreement.
(c) At the end of the Security Period the Borrower shall be entitled to
redeem the Charged Assets.
2.2 Creation of fixed security
The Borrower, with full title guarantee and as security for the payment of
all of the Secured Liabilities, charges in favour of the Bank by way of
first fixed charge, all of the Charged Assets to the extent (if any) not
effectively assigned under Clause 2.1 (Assignment).
2.3 Miscellaneous
Without prejudice to Clause 2.2 (Creation of fixed security), if, pursuant
to Clause 6.3 (Withdrawals), the Borrower is entitled to withdraw the
proceeds of any book and other debts standing to the credit of a Security
Account and, as a result, those proceeds are in any way released from the
fixed charge pursuant to Clause 2.2 (Creation of fixed security) and stand
subject to the fixed charge pursuant to Clause 2.2 (Creation of fixed
security) or the floating charge created pursuant to Clause 3.1 (Creation
of floating charge), the release will in no way derogate from the
subsistence and continuance of the fixed charge on all other outstanding
book and other debts of the Borrower and the proceeds of those debts.
3. FLOATING CHARGE
3.1 Creation of floating charge
The Borrower, with full title guarantee and as security for the payment of
all of the Secured Liabilities, charges in favour of the Bank by way of a
first floating charge all of the Charged Assets to the extent (if any) not
effectively assigned or charged by Clause 2 (Fixed security).
3.2 Conversion
The Bank may by notice to the Borrower convert the floating charge created
by this Deed into a fixed charge as regards all or any of the Charged
Assets specified in the notice if:
-4-
<PAGE> 7
(a) an Event of Default or Unmatured Event of Default is subsisting; or
(b) the Bank in good faith considers those assets to be in danger of
being seized or sold under any form of distress, attachment,
execution or other legal process or to be otherwise in jeopardy.
4. REPRESENTATIONS AND WARRANTIES
4.1 Representations and warranties
The Borrower makes the representations and warranties set out in this
Clause 4 (Representations and warranties) to the Bank.
4.2 Security
Subject to due registration (to the extent required) under Section 395 of
the Companies Act 1985, this Deed confers those Security Interests it
purports to confer over all of the assets referred to in this Deed and
those Security Interests:
(a) are not subject to any prior or pari passu Security Interests; and
(b) are not liable to avoidance on liquidation or bankruptcy, composition
or any other similar insolvency proceedings.
4.3 Times for making representations and warranties
The representations and warranties set out in this Clause 4
(Representations and warranties) are made on the date of this Deed and are
deemed to be repeated by the Borrower on such date during the Security
Period on which any of the representations and warranties set out in
Article IV of the Credit Agreement are repeated with reference to the facts
and circumstances then existing.
5. GENERAL UNDERTAKINGS
5.1 Duration
The undertakings in this Clause 5 (General undertakings) shall remain in
force throughout the Security Period.
5.2 Negative pledge
(a) The Borrower shall not create or permit to subsist any Security
Interest on any of the Charged Assets.
-5-
<PAGE> 8
(b) If the Borrower creates or permits to subsist any Security Interest on
any of the Charged Assets contrary to paragraph (a) above, to the
extent possible under applicable law, all the obligations of the
Borrower under the Credit Agreement shall automatically and
immediately be secured upon the same assets, ranking at least pari
passu with the other obligations secured on those assets.
5.3 Disposals
The Borrower shall not sell, transfer, grant, or lease or otherwise dispose
of (whether by a single transaction or a number of related transactions and
whether at the same time or over a period of time) all or any part of its
interest in any Charged Asset.
5.4 Book debts and receipts
The Borrower shall:
(a) get in and realise the Borrower's:
(i) securities to the extent held by way of temporary investment; and
(ii) book and other debts and other moneys,
in the ordinary course of its business and hold the proceeds of the
getting in and realisation (until payment into the Security Account in
accordance with Clause 6) upon trust for the Bank; and
(b) save to the extent that the Bank otherwise agrees, pay the proceeds of
the getting in and realisation into the Security Account in accordance
with Clause 6.
5.5 Notice of assignment
With respect to the Security Account and the Receivables, the Borrower
shall immediately, if and when so requested from time to time by the Bank,
give a notice substantially in the form of Schedule 1 or Schedule 2 to this
Deed (as applicable) (or in such other form as may be required by the
Company) to:
(a) in relation to the Security Account, the Account Bank (and any other
Account Bank appointed from time to time under Clause 6.2); and
(b) in relation to the Receivables, each party from whom the Receivables,
or any of them, are, or will become, due, owing or payable to the
Borrower from time to time, and the Borrower shall use its reasonable
endeavours to procure that each such party shall duly sign and return
a form of acknowledgment of each such notice.
-6-
<PAGE> 9
6. SECURITY ACCOUNT
6.1 Accounts
The Security Account must be maintained at a branch of National Westminster
Bank plc ("Account Bank") approved by the Bank. The account numbers for the
initial Security Accounts are: Sterling Account No. 13624008; and U.S.
Dollar Account No. 01/03668568.
6.2 Change of Account Bank
(a) The Account Bank may be changed to another bank or financial
institution reasonably acceptable to the Bank upon advance written
notice to Bank at least ten (10) Business Days prior to the effective
date of such change, which notice shall specify the effective date of
the change and full particulars regarding the new Account Bank and new
Security Account.
(b) In the event of a change of Account Bank, the amount (if any) standing
to the credit of the Security Account maintained with the old Account
Bank shall be transferred to the corresponding Security Account
maintained with the new Account Bank forthwith upon the appointment
taking effect. The Borrower shall take any action which the Bank may
reasonably require to facilitate a change of Account Bank and any
transfer of credit balances (including the execution of bank mandate
forms).
6.3 Withdrawals
(a) Except with the prior consent of the Bank, which consent is evidenced
by Clause 2.1 (b) (i) unless and until an Event of Default or an
Unmatured Event of Default shall have occurred, the Borrower shall not
withdraw any moneys standing to the credit of the Security Account.
(b) The Bank (or a Receiver) may (subject to the payment of any claims
having priority to this security) withdraw amounts standing to the
credit of the Security Account to meet an amount due and payable under
the Credit Agreement when it is due and payable.
7. WHEN SECURITY BECOMES ENFORCEABLE
(a) The security constituted by this Deed shall become immediately
enforceable upon the Bank giving the Borrower, at any time whilst an
Event of Default is subsisting, a notice to the effect that such
security is enforceable. The power of sale and other powers conferred
by Section 101 of the Act, as varied or amended by this Deed, shall be
immediately exercisable upon and at any time after the giving of such
a notice. After the security constituted by this Deed has become
enforceable, the Bank may in its absolute discretion enforce all or
any part of the security in any manner it sees fit.
-7-
<PAGE> 10
(b) Notwithstanding (but without limiting or affecting) paragraph (a)
above, the Bank will not begin to enforce the security constituted by
this Deed except at a time when an Event of Default is subsisting. For
the avoidance of doubt, the Bank may (without breaching this
undertaking) enforce all or any part of that security in accordance
with paragraph (a) above after it has begun to enforce any of that
security, regardless of whether an Event of Default is still
subsisting.
8. ENFORCEMENT OF SECURITY
8.1 General
For the purposes of all powers implied by statute, the Secured Liabilities
are deemed to have become due and payable on the date of this Deed and
Section 103 of the Act (respecting the power of sale) and Section 93 of the
Act (restricting the rights of consolidation) do not apply to the security
constituted by this Deed. The statutory powers of leasing conferred on the
Bank are extended so as to authorise the Bank to lease, make agreements for
leases, accept surrenders of leases and grant options as the Bank may think
fit and without the need to comply with any provision of section 99 or 100
of the Act.
8.2 Contingencies
If the Bank enforces the security constituted by this Deed at a time when
no amounts are due under the Credit Agreement but at a time when amounts
may or will become so due, the Bank (or the Receiver) may pay the proceeds
of any recoveries effected by it into the Security Account.
8.3 No liability as mortgagee in possession
Neither the Bank nor any Receiver will be liable, by reason of entering
into possession of a Charged Asset, to account as mortgagee in possession
or for any loss on realisation or for any default or omission for which a
mortgagee in possession might be liable.
8.4 Agent of the Borrower
Each Receiver is deemed to be the agent of the Borrower for all purposes
and accordingly is deemed to be in the same position as a Receiver duly
appointed by a mortgagee under due Act. The Borrower alone shall be
responsible for his contracts, engagements, act, omissions, defaults and
losses and for liabilities incurred by him and that Bank shall incur any
liability (either to the Borrower or to any other person) by reason of the
Bank making his appointment as a Receiver or for any other reason.
-8-
<PAGE> 11
8.5 Privileges
Each Receiver and the Bank is entitled to all the rights, powers,
privileges and immunities conferred by the Act on mortgagees and receivers
when such receivers have been duly appointed under the Act, except that
Section 103 of the Act does not apply.
8.6 Protection of third parties
No person (including a purchaser) dealing with the Bank or a Receiver or
its or his agents will be concerned to enquire:
(a) whether the Secured Liabilities have become payable; or
(b) whether any power which the Bank or the Receiver is purporting to
exercise has become exercisable; or
(c) whether any money remains due under the Credit Agreement or any other
Secured Liabilities are outstanding; or
(d) how any money paid to the Bank or to the Receiver is to be applied.
8.7 Redemption of prior mortgages
At any time after the security constituted by this Deed has become
enforceable, the Bank may:
(a) redeem any prior Security Interest against any Charged Asset; and/or
(b) procure the transfer of that Security Interest to itself; and/or
(c) settle and pass the accounts of the prior mortgagee, chargee or
encumbrancer (and any accounts so settled and passed shall be
conclusive and binding on the Borrower).
All principal moneys, interest, costs, charges and expenses of and
incidental to any such redemption and/or transfer shall be paid by the
Borrower to the Bank on demand.
9. RECEIVER
9.1 Appointment of Receiver
At any time after the security constituted by this Deed becomes enforceable
or, if the Borrower so requests the Bank in writing, at any time, the Bank
may without further notice appoint under seal or in writing under its hand
any one or more qualified persons to be a Receiver of all or any part of
the Charged Assets in like manner in every respect as if the Bank had
become entitled under the
-9-
<PAGE> 12
Act to exercise the power of sale conferred under the Act. In this Deed
"qualified person" means a person who, under the Insolvency Act 1986, is
qualified to act as a receiver of the property of any company with respect
to which he is appointed or an administrative receiver of any such company.
9.2 Removal
The Bank may by writing under its hand (subject to any requirement for an
order of the court in the case of an administrative receiver) remove any
Receiver appointed by it and may, whenever it deems it expedient, appoint a
new Receiver in the place of any Receiver whose appointment may for any
reason have terminated.
9.3 Remuneration
The Bank may fix the remuneration of any Receiver appointed by it.
9.4 Relationship with Bank
To the fullest extent permitted by law, any right, power or discretion
conferred by this Deed (either expressly or impliedly) upon a Receiver of
the Charged Assets may after the security created by this Deed becomes
enforceable be exercised by the Bank in relation to any Charged Asset
without first appointing a Receiver or notwithstanding the appointment of a
Receiver.
10. POWERS OF RECEIVER
10.1 General
(a) Each Receiver has, and is entitled to exercise, all of the rights,
powers and discretions set out below in this Clause 10 (Powers of
Receiver) in addition to those conferred by the Act on any receiver
appointed under the Act.
(b) If there is more than one Receiver holding office at the same time,
each Receiver may (unless the document appointing him states
otherwise) exercise all of the powers conferred on a Receiver under
this Deed individually and to the exclusion of any other Receivers.
(c) A Receiver who is an administrative receiver of the Borrower has all
the rights, powers and discretions of an administrative receiver under
the Insolvency Act 1986.
10.2 Possession
A Receiver may take immediate possession of, get in and collect any Charged
Assets.
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<PAGE> 13
10.3 Carry on business
A Receiver may carry on the business of the Borrower as he thinks fit.
10.4 Protection of assets
A Receiver may do any act which the Borrower might do in the ordinary
conduct of its business as well for the protection and/or improvement of
the Charged Assets as he may think fit.
10.5 Borrow money
A Receiver may raise and borrow money either unsecured or on the security
of any Charged Asset either in priority to the security constituted by this
Deed or otherwise and generally on any terms and for whatever purpose which
he thinks fit. No person lending that money is concerned to enquire as to
the propriety or purpose of the exercise of that power or to check the
application of any money so raised or borrowed.
10.6 Sale of assets
A Receiver may sell, exchange, convert into money and realise any Charged
Asset by public auction or private contract and generally in any manner and
on any terms which he thinks proper. The consideration for any such
transaction may consist of cash, debentures or other obligations, shares,
stock or other valuable consideration may be payable in a lump sum or by
installments spread over such period as he thinks fit.
10.7 Compromise
A Receiver may settle, adjust, refer to arbitration, compromise and arrange
any claims, accounts, disputes, questions and demands with or by any person
who is or claims to be a creditor of the Borrower or relating in any way to
any Charged Asset.
10.8 Legal actions
A Receiver may bring, prosecute, enforce, defend and abandon all actions,
suits and proceedings in relation to any Charged Asset which may seem to
him to be expedient.
10.9 Receipts
A Receiver may give valid receipts for all moneys and execute all
assurances and things which may be proper or desirable for realising any
Charged Asset.
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<PAGE> 14
10.10 Subsidiaries
A Receiver may form a Subsidiary of the Borrower and transfer to that
Subsidiary any Charged Asset.
10.11 Delegation
A Receiver may delegate his powers in accordance with Clause 13
(Delegation).
10.12 Other powers
A Receiver may:
(a) do all other acts and things which he may consider desirable or
necessary for realising any Charged Asset or incidental or conducive
to any of the rights, powers or discretions conferred on a Receiver
under or by virtue of this Deed; and
(b) exercise in relation to any Charged Asset all the powers, authorities
and things which he would be capable of exercising if he were the
owner with full title guarantee of the same,
and may use the name of the Borrower for any of the above purposes.
11. APPLICATION OF PROCEEDS
Any moneys received by the Bank or any Receiver after this Deed has become
enforceable shall, subject to the payment of any claims having priority to
this security and to the Bank's and/or Receivers rights under Clause 6.3
or Clause 10 be applied in the following orders of priority (but without
prejudice to the right of the Bank to recover any shortfall from the
Borrower):
(a) in satisfaction of or provision for all costs and expenses incurred by
any Receiver and of all remuneration due to the Receiver under this
Deed;
(b) in or towards payment of the Secured Liabilities arising under or in
respect of the Credit Agreement (or such part of them as in then due
and payable) in accordance with Clause 2.02 and all other applicable
provisions, of the Credit Agreement.
(c) or in towards payment of the other Secured Liabilities (or such part
of them as is then due and payable or where no amount is then due and
payable but at a time when amounts may or will become due, such
proceeds will be paid to the Security Account); and
(d) in payment of the surplus (if any) to the Borrower or other person
entitled to it.
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<PAGE> 15
12. EXPENSES AND INDEMNITY
12.1 Undertaking to pay
All costs, charges and expenses properly incurred and all payments made by
the Bank, any Receiver or other person appointed under this Deed in the
lawful exercise of the powers conferred by this Deed (whether or not
occasioned by any act, neglect or default of the Borrower) shall carry
interest (before as well as after judgement) at the Default Rate from the
due date for payment until the date it is unconditionally and irrevocably
paid and discharged in full. The amount of all such costs, charges,
expenses and payments and all interest thereon and all remuneration payable
under this Deed shall be payable by the Borrower on demand. All such costs,
charges, expenses and payments shall be paid and charged as between the
Bank and the Borrower on the basis of a full indemnity and not on the basis
of party or any other kind of taxation.
12.2 Indemnity
The Bank and every Receiver, attorney, manager, agent or other person
appointed by the Bank under this Deed shall be entitled to be indemnified
out of the Charged Assets in respect of all liabilities and expenses
properly incurred by them in the execution or purported execution of any of
the powers, authorities or discretions vested in them by this Deed and
against all actions, proceedings, costs, claims and demands in respect of
any matter or those done or omitted in any way relating to the Charged
Assets and the Bank and any Receiver may retain and pay all sums in respect
of the same out of any moneys received under the powers conferred by this
Deed. Notwithstanding the foregoing, neither the Bank nor the Receiver and
no person appointed by the Bank as aforesaid shall be entitled to be
indemnified in respect of any part of the foregoing which results from that
party's negligence or wilful misconduct.
13. DELEGATION
The Bank and any Receiver may delegate by power of attorney or in any other
manner to any properly qualified person any right, power or discretion
exercisable by them under this Deed in relation to the Charged Assets or
any part thereof. Any such delegation may be made upon the terms (including
power to sub-delegate) and subject to any regulations which the Bank or
such Receiver (as the case may be) may think fit. Neither the Bank nor any
Receiver will be in any way liable or responsible to the Borrower for any
loss or liability arising from any act, default, omission or misconduct on
the part of any such delegate or sub-delegate except to the extent
attributable to its wilful misconduct.
14. FURTHER ASSURANCES
The Borrower shall, at its own expense, take whatever action the Bank or a
Receiver may require for:
(a) perfecting or protecting the security intended to be created by this
Deed over any Charged Asset (including, without limitation, for
converting any fixed charge into a legal or equitable assignment);
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<PAGE> 16
(b) facilitating (if and when the security constituted by this Deed become
enforceable) the realisation of any Charged Asset or the exercise of
any right, power or discretion exercisable, by the Bank or any
Receiver or any of its or their delegates or sub-delegates in respect
of any Charged Asset,
including the execution of any transfer, conveyance, assignment or
assurance or any property whether to the Bank or to its nominees, and the
giving of any notice, order or direction and the making of any registration
which in any such case the Bank may reasonably think expedient.
15. POWER OF ATTORNEY
The Borrower, by way of security, irrevocably and severally appoints the
Bank, each Receiver and any of their delegates or sub-delegates to be its
attorney to take any action which the Borrower is required to do but fails
to do under this Deed, including under Clause 14 (Further Assurances). The
Borrower ratifies and confirms whatever any attorney does or purports to do
pursuant to its appointment under this Clause.
16. MISCELLANEOUS
16.1 Covenant to pay
The Borrower shall pay or discharge the Secured Liabilities in the manner
provided for in the Credit Agreement (or otherwise in accordance with their
terms).
16.2 Continuing Security
The security constituted by this Deed is continuing and will extend to the
ultimate balance of all the Secured Liabilities, regardless of any
intermediate payment or discharge in whole or in part.
16.3 Additional security
The security constituted by this Deed is in addition to and is not in any
way prejudiced by any other security now or subsequently held by the Bank
for any Secured Liability.
16.4 Tacking
The Bank shall perform its obligations under the Credit Agreement
(including any obligation to make available further advances).
16.5 New accounts
If the bank receives, or is deemed to be affected by, notice, whether
actual or constructive, of any subsequent charge or other interest
affecting any Charged Asset and/or the processes of sale of any Charged
Asset, the Bank may open a new account with the
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<PAGE> 17
Borrower. If the Bank does not open a new account, it shall nevertheless be
treated as if it had done so at the time when it received or was deemed to
have received notice. As from that time all payments made to the Bank will
be credited or be treated as having been credited to the new account and
will not operate to reduce any amount for which this Deed is security.
17. CHANGES TO THE PARTIES
17.1 Transfers by the Borrower
The Borrower may not assign, transfer, novate or dispose of any of, or any
interest in, its rights and/or obligations under this Deed.
17.2 Transfers by the Bank
The Bank may assign any or all of its rights, interests and obligations
under and in respect of this Deed to any person.
18. SEVERABILITY
If a provision of this Deed is or becomes illegal, invalid or unenforceable
in any jurisdiction, that shall not affect:
(a) the validity or enforceability in that jurisdiction of any other
provisions of this Deed; or
(b) the validity or enforceability in other jurisdictions of that or any
other provisions of this Deed.
19. COUNTERPARTS
This Deed may be executed in any number of counterparts, and this has the
same effect as if the signatures on the counterparts were on a single copy
of this Deed.
20. NOTICES
Clause 8.03 of the Credit Agreement applies to this Deed as if set out in
full in this Deed.
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<PAGE> 18
21. WAIVERS, REMEDIES CUMULATIVE
The rights of each party under this Deed:
(a) are cumulative and not exclusive of its rights under the general law;
and
(b) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver of
that right.
22. RELEASE
The Bank shall, at the request and cost of the Borrower upon the expiry of
the Security Period and without recourse or warranty (save in respect of
any fraud or wilful misconduct by the Bank), take whatever action is
necessary to release the Charged Assets from the security constituted by
this Deed and reassign to the Borrower all of the Bank's right, title and
interest in or to such of the Charged Assets as are then vested in the
Bank.
23. GOVERNING LAW
This Deed is governed by English law.
This Deed has been entered into as a deed on the date stated at the beginning of
the Deed.
SIGNATORIES
EXECUTED as a deed by
HORIZON EXPLORATION LIMITED acting by
/s/ RICHARD W. MCNAIRY
- -------------------------------------
Richard W. McNairy
Attorney-in-Fact
BANK ONE, TEXAS, N.A. acting by
/s/ LINDA MASERA
- -------------------------------------
Linda Masera
Vice President
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<PAGE> 19
SCHEDULE 1
NOTICE OF ASSIGNMENT AND CHARGE OF RECEIVABLES
[DATE]
To: [Party to Assigned Document]
Address:
BANK ONE, TEXAS, N.A. (the "Bank") and HORIZON EXPLORATION LIMITED (the
"Borrower" HEREBY GIVE NOTICE that by an assignment or charge contained in a
charge on receivables dated October 21, 1997, made between the Borrower and the
Bank, the Borrower assigned or charged to the Bank all its present and future
rights, title and interest in, to all of its Book and other debts and all monies
of whatever nature due, owing or payable to it (including, without limitation,
the benefit of all rights, securities and guarantees enjoyed or held by it in
relation to any of the above including (without limitation) all claims and
moneys which at any time may be or become paid or payable to the Borrower under
or in respect of the Agreement and the proceeds of any claims, awards or
judgments and any returns of premium.
All moneys payable by you to the Borrower shall be paid to the Borrower's
[Specify Bank Account] opened with [Specify Account Bank] (Sort Code [ ],
Reference [ ]) unless and until you receive notice from the Bank to the
contrary, in which event you should make all future payments as directed by the
Bank. This authority and instruction is irrevocable without the prior written
consent of the Bank.
Neither the Bank nor any receiver nor any delegate appointed by the Bank or any
such receiver shall be at any time under any obligation or liability to you in
any respect.
Please acknowledge receipt of this letter and confirm that you will pay all sums
due under the Agreement as directed in this letter and comply with the other
provisions of this letter by signing the acknowledgement attached to this Notice
of Assignment and returning the duplicate copy to the Bank at 910 Travis, 6th
Floor, Houston, Texas 77002, United States of America.
This letter is governed by English law.
- -------------------------------------- -----------------------------------
For and on behalf of For and on behalf of
BANK ONE, TEXAS, N.A. HORIZON EXPLORATION LIMITED
[On duplicate]
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<PAGE> 20
We acknowledge receipt of a Notice of Assignment and Charge of which this is a
copy and agree that we will pay all sums hereafter to become due to the Borrower
as directed in the Notice of Assignment and Charge and will comply with the
other terms of that Notice. We also confirm that we have not received any other
notice relating to the Agreement.
- --------------------------------------
For and on behalf of
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<PAGE> 21
SCHEDULE 2
NOTICE OF ASSIGNMENT AND CHARGE OF SECURITY ACCOUNTS
[On the letterhead of the Borrower]
[DATE]
To: [Account Bank]
Address: [
]
This letter constitutes notice to you that, by the Charge on Receivables dated
[21st October, 1997] between BANK ONE, TEXAS, N.A. (the "Bank") and us (the
"Charge on Receivables") (a copy of which is attached), we have assigned and
charged (by way of a first fixed charge to the Bank) all of our right, title,
benefit and interest in and to the [describe Security Account] (the "Security
Account") including, without limitation, all monies now or in the future
standing to the credit of the Security Account and our right to repayment of the
balances and interest on the Security Account.
We irrevocably instruct and authorise you to:
(a) (i) disclose to the Bank on request to you by the Bank any
information relating to the Security Account maintained by you;
and
(ii) comply with the terms of any written notice or instructions
relating to the Charge on Receivables or monies standing to the
credit of the Security Account maintained with you and the debts
represented by them or received by you from the Bank,
without any reference to or further authority from us and without any
enquiry by you as to the justification for the disclosure or, as the
case may be, validity of the notice or instructions;
(b) hold all sums from time to time standing to the credit of the Security
Account maintained with you to the order of the Bank; and
(c) pay or release all or any party of the monies standing to the credit of the
Security Account maintained with you in accordance with the written
instructions of the Bank.
In addition to the above, please confirm to the Bank by sending the
acknowledgment of this notice (referred to below) that you will waive all rights
of combination, consolidation, merger or set-off
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<PAGE> 22
that you may have over all sums deposited with you in the Security Account and
credited to the Security Account.
Prior to your receipt of any written notice from the Bank that an Event of
Default or an Unmatured Event of Default has occurred under the Charge on
Receivables (a "Default Notice"), we shall be permitted at any time to withdraw
any amount from the Security Account, but following your receipt of a Default
Notice from the Bank, we shall no longer be permitted to withdraw any amount
from the Security Account maintained with you without the prior written consent
of the Bank.
The instructions in this letter may not be revoked or amended without the prior
written consent of the Bank.
This letter is governed by English law.
Please confirm your agreement to the above by sending the attached
acknowledgment to the Bank with a copy to ourselves.
Yours faithfully,
- ----------------------------------
(Authorised Signatory)
For and on behalf of
HORIZON EXPLORATION LIMITED
[On duplicate]
We acknowledge receipt of a Notice of Assignment and Charge of which this is a
copy and agree that we will comply with the terms of that Notice. We also
confirm that:
(i) we have not received any other notice relating to the Security Account; and
(ii) we waive all rights of combination, consolidation, merger or set-off that
we may have over all sums deposited in the Security Account and credited to
the Security Account.
- ----------------------------------
For and on behalf of
[Account Bank]
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<PAGE> 1
EXHIBIT 10.65
GUARANTY
THIS GUARANTY ("Guaranty"), is made and entered into as of
October 21, 1997 by EAGLE GEOPHYSICAL, INC., a Delaware corporation, acting
herein by and through its duly appointed and acting Vice President and Chief
Financial Officer (the "Guarantor"), and BANK ONE, TEXAS, N.A., a national
banking association (the "Bank").
W I T N E S S E T H:
WHEREAS, on or after the date hereof, Bank has advanced or
will advance certain funds to HORIZON EXPLORATION LIMITED, an English company
("Borrower") pursuant to that certain Revolving Credit Agreement of even date
herewith providing for loans to Borrower of up to $20,000,000.00, as may be
amended from time to time (the "Loan Agreement"), specifically including the
indebtedness evidenced by that certain promissory note of even date, executed by
Borrower and payable to BANK, in the face amount of $20,000,000.00 and all other
notes given in substitution therefor or in modification, increase, renewal or
extension thereof in whole or in part (collectively, the "Revolving Loan");
WHEREAS, as a condition to Bank's entry into said Loan
Agreement and its advance of funds to Borrower thereunder, Guarantor has agreed
to enter into this Guaranty; and
WHEREAS, Guarantor will directly and indirectly benefit from
the Revolving Loan, as defined in the Loan Agreement and evidenced and governed
thereby.
NOW, THEREFORE, for and in consideration of the premises and
the extension of credit by Bank to Borrower pursuant to the Loan Agreement, and
for TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and to induce Bank
to execute the Loan Agreement, Bank and Guarantor hereby agree as follows:
1. Guarantor unconditionally guarantees the prompt payment to
Bank of the following (the "Guaranteed Indebtedness"):
Any and all indebtedness, obligations and liabilities of Borrower to
Bank now existing or hereafter incurred in connection with or incident
to the Revolving Loan, under or arising out of or in connection with
any documents executed in connection with any indebtedness of Borrower
to Bank in connection with the Revolving Loan or any promissory note or
notes executed by Borrower at any time in connection with the Revolving
Loan, whether for principal, interest, penalty interest, fees,
<PAGE> 2
expenses or otherwise, including, without limitation, all sums,
principal, accrued interest and other amounts owing with respect to
the following described promissory note executed by Borrower payable
to the order of Bank, together with any and all modifications,
increases, renewals or extensions thereof, whether with or without
notice to Guarantor, specifically including the following described
note:
Original Final
Date Amount Maturity Date
October 21, 1997 $20,000,000.00 October 21, 2000
2. If the Guaranteed Indebtedness is not paid by Guarantor
when due, as required herein, and this Guaranty is placed in the hands of an
attorney for collection, or if this Guaranty is enforced by suit or through the
Bankruptcy Court or through any judicial proceedings, Guarantor shall pay to
Bank an amount equal to its reasonable attorneys' fees and collection costs
incurred by Bank in the collection of the Guaranteed Indebtedness.
3. This is an absolute, complete and continuing Guaranty, and
no notice of the Guaranteed Indebtedness or any extension of credit already or
hereafter contracted by or extended to Borrower need be given to Guarantor, nor
shall anything herein contained be a limitation upon the amount of credit which
may be extended to Borrower, the numbers of transactions with Borrower,
repayments by Borrower to Bank, or the allocation by Bank of repayment by
Borrower, it being the understanding of the Guarantor that Guarantor's liability
shall continue hereunder so long as any of the Guaranteed Indebtedness remains
unpaid. Borrower and Bank may rearrange, increase, decrease, extend and/or renew
the Guaranteed Indebtedness without notice to Guarantor and in such event
Guarantor will remain fully bound hereunder on the Guaranteed Indebtedness. The
obligations of Guarantor hereunder shall not be released, impaired or diminished
by any amendment, modification or alteration of the Loan Agreement or the Note.
Guarantor expressly waives all notices of any kind, presentment for payment,
demand for payment, protest, notice of protest, notice of intent to accelerate,
notice of acceleration, dishonor, diligence, notice of any amendment of the Loan
Agreement, notice of any adverse change in the financial condition of Borrower,
notice of any adjustment, indulgence, forbearance or compromise that might be
granted or given by Bank to Borrower, and also notice of acceptance of this
Guaranty, acceptance on the part of Bank being conclusively presumed by its
request for this Guaranty and delivery of the same to it. The liability and
obligations of Guarantor hereunder shall not be affected or impaired by any
action or inaction by Bank in regard to any matter waived or notice of which is
waived by Guarantor in this paragraph or in any other paragraph of this
Guaranty.
4. Guarantor authorizes Bank, without notice or demand and
without affecting Guarantor's liability hereunder, (a) to take and hold security
for the payment of this Guaranty and/or the Guaranteed Indebtedness, and to
exchange, enforce, waive and/or release any such security; (b) to apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine; (c) to obtain a guaranty of the Guaranteed
Indebtedness from any one
-2-
<PAGE> 3
or more other persons, corporations or entities whomsoever and to enforce,
waive, rearrange, modify, limit or release at any time or times such other
persons, corporations or entities from their obligations under such guaranties;
(d) to waive or delay the exercise of any of its rights or remedies against the
Borrower or any other person or entity; (e) to renew, extend, or modify the
terms of any of the Guaranteed Indebtedness or any instrument or agreement
evidencing the same; and (f) to fully or partially release at any time any
Guarantor which executes this Guaranty whether with or without consideration.
5. Guarantor waives any right to require Bank to (a) proceed
against, or make any effort at the collection of the Guaranteed Indebtedness
from Borrower or any other guarantor or party liable for the Guaranteed
Indebtedness; (b) proceed against or exhaust any collateral held by Bank; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor further waives any
and all rights and remedies which Guarantor may have or be able to assert by
reason of the provisions of Chapter 34 of the Texas Business and Commerce Code.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of Borrower or any other
guarantor of the Guaranteed Indebtedness, and Guarantor shall remain liable
under this Guaranty regardless of whether Borrower or any other guarantor be
found not liable on the Guaranteed Indebtedness for any reason including,
without limitation, insanity, minority, disability, bankruptcy, insolvency,
death or corporate dissolution, even though rendering the Guaranteed
Indebtedness void or unenforceable or uncollectible as against Borrower or any
other guarantor. This Guaranty shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of the Guaranteed
Indebtedness is rescinded or must otherwise be returned by Bank upon the
insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though
such payment had not been made and will, thereupon, guarantee payment of such
amount as to which refund or restitution has been made, together with interest
accruing thereon subsequent to the date of refund or restitution at the
applicable rate under the Loan Agreement and collection costs and fees
(including, without limitation, attorneys' fees) applicable thereto, subject to
the limitations set forth in Sections 1 and 10 hereof.
6. The liability and obligations of Guarantor hereunder shall
not be affected or impaired by (a) the failure of Bank or any other party to
exercise diligence or reasonable care in the preservation, protection or other
handling or treatment of all or any part of the collateral securing payment of
all or any part of the Guaranteed Indebtedness, (b) the failure of any security
interest or lien intended to be granted or created to secure the Guaranteed
Indebtedness to be properly perfected or created or the unenforceability of any
security interest or lien for any other reason, or (c) the subordination of any
such security interest or lien to any other security interest or lien.
7. Bank may pursue any remedy without altering the obligations
of Guarantor hereunder and without liability to Guarantor, even though Bank's
pursuit of such remedy may result in Guarantor's loss of rights of subrogation
or to proceed against others for reimbursement or contribution or any other
right. In no event shall any payment by Guarantor entitle it, by subrogation or
otherwise, to any rights against Borrower or any right to participate in any
security
-3-
<PAGE> 4
now or hereafter held by Bank prior to payment in full of all of the
Guaranteed Indebtedness and, in any event, not until 367 days after the making
of any payment and/or the granting of any security interest by Borrower or any
other guarantor to Bank in connection with the Guaranteed Indebtedness.
8. Should the status of Borrower change in any way, including,
without limitation, as a result of any dissolution of Borrower, any sale, lease
or transfer of any or all of the assets of Borrower, any changes in the
shareholders of Borrower, or any reorganization of Borrower, this Guaranty shall
continue, and shall cover the Guaranteed Indebtedness under the new status.
9. The liability of Guarantor for the payment of the
Guaranteed Indebtedness shall be primary and not secondary.
10. Guarantor is familiar with and has independently reviewed
the books and records regarding the financial condition of Borrower and is
familiar with the value of any and all collateral intended to be granted as
security for the payment of the Guaranteed Indebtedness; Guarantor is not,
however, relying on such financial condition or such collateral as an inducement
to enter into this Guaranty. As of the date hereof, and after giving effect to
this Guaranty and the contingent obligations evidenced hereby, Guarantor is, and
will be, solvent, and has and will have assets and property which, valued
fairly, exceed such Guarantor's obligations, debts and liabilities (such excess
being herein called the "Net Worth" of the Guarantor), and has and will have
assets and property sufficient to satisfy, repay and discharge the same. The
liability of Guarantor hereunder is limited to (a) the lowest amount that would
render this Guaranty void against creditors or creditors' representatives under
any fraudulent conveyance or similar law or under Sections 544 or 548 of the
Bankruptcy Code of 1978, as revised, minus (b) $1.00.
11. If Borrower shall at any time or times be or become
obligated to Bank for payment of any indebtedness other than the Guaranteed
Indebtedness, Bank (without in anywise impairing its rights hereunder or
diminishing Guarantor's liability) shall be at liberty at any time or times to
apply to such other indebtedness any amounts paid to or received by or coming
into the hands of Bank from or attributable to Borrower or any other person or
party liable for any of such other indebtedness or from or attributable to or
representing proceeds of any property or security held by Bank securing payment
of such other indebtedness or any credits, deposits or offsets due Borrower or
other party liable on any of such other indebtedness (whether or not the
Guaranteed Indebtedness or such other indebtedness are then due), it being
intended to give Bank the right to apply all payments, credits and offsets and
amounts becoming available for application on or credit against the indebtedness
of Borrower to Bank (now or hereafter existing) first toward payment and
satisfaction of the Borrower's indebtedness not hereby guaranteed, before making
application thereof on or against the Guaranteed Indebtedness.
12. Guarantor represents and warrants that this Guaranty
accurately and completely embodies the entire agreement between Guarantor and
Bank with respect to the respective rights,
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<PAGE> 5
obligations and liabilities of Guarantor and Bank hereunder, and supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof. Guarantor acknowledges that Guarantor is not relying on any
representations (oral or otherwise) of Bank, or any other party, other than as
expressly described in this Guaranty.
13. This Guaranty was reviewed by Guarantor, and Guarantor
acknowledges and agrees that Guarantor (a) understands fully all of the terms of
this Guaranty and the consequences and implications of Guarantor's execution of
this Guaranty, and (b) has been afforded an opportunity to have this Guaranty
reviewed by, and to discuss the terms, consequences and implications of this
Guaranty with an attorney or other such persons as Guarantor may have desired.
14. This Guaranty is and shall be in every particular available to
the successors and assigns of Bank and is and shall always be fully binding
upon the heirs, executors, administrators, successors or assigns of Guarantor.
This Guaranty is intended for and shall inure to the benefit of Bank and each
and every other person who shall from time to time be or become the owner or
holder of any of the Guaranteed Indebtedness, and each and every reference
herein to "Bank" shall also include and refer to each and every successor or
assignee of Bank at any time holding or owning any part of or interest in any
part of the Guaranteed Indebtedness. This Guaranty shall be transferable and
negotiable, with the same force and effect and to the same extent that the
Guaranteed Indebtedness is transferable, it being understood and stipulated that
upon the assignment or transfer by Bank of any of the Guaranteed Indebtedness
the legal or beneficial owner of the Guaranteed Indebtedness (or part thereof or
interest therein thus transferred or assigned by Bank) shall also, unless
provided otherwise by Bank in its assignment, have and may exercise all of the
rights granted to Bank under this Guaranty to the extent of the part of or
interest in the Guaranteed Indebtedness thus assigned or transferred to such
person or entity. Guarantor expressly waives notice of transfer or assignment of
the Guaranteed Indebtedness, or any part thereof, or of the rights of Bank
hereunder.
15. All amounts becoming payable by Guarantor to Bank under this
Guaranty shall be payable at Bank's offices in the City of Houston, Harris
County, Texas.
16. Any notice hereunder to Guarantor shall be in writing, duly
stamped and addressed to Guarantor at the address shown below Guarantor's
signature hereto, or at such other address as Guarantor may by written notice,
received by Bank, have designated as Guarantor's address for such purpose. Any
notice provided for herein shall become effective upon the earlier of (a) the
first business day of Bank following the deposit in a regularly maintained
receptacle for the United States, or (b) the day of its receipt by Guarantor;
but actual notice, however given or received, shall always be effective. The
preceding sentence shall not be construed in anywise to affect or impair any
waiver of notice or demand herein provided or to require giving of notice or
demand to or upon Guarantor in any situation or for any reason.
17. It is the intention of the parties hereto to comply strictly
with all applicable usury laws; accordingly, it is agreed that notwithstanding
any provisions to the contrary in this
-5-
<PAGE> 6
Guaranty, or in any documents securing payment hereof or otherwise relating
hereto, in no event shall this Guaranty or such documents require the payment or
permit the collection of an aggregate amount of interest in excess of the
maximum amount permitted by such laws, including the laws of the State of Texas
and the laws of the United States of America. If any such excess of interest is
contracted for, charged or received under this Guaranty or under the terms of
any documents securing payment hereof or otherwise relating hereto, or if under
any circumstances, the amount of interest (including all amounts payable
hereunder which are not denominated as interest but which constitute interest
under the applicable laws) contracted for, charged or received under this
Guaranty shall exceed the maximum amount of interest permitted by the applicable
usury laws, then in any such event (a) the provisions of this paragraph shall
govern and control, (b) Guarantor shall not be obligated to pay the amount of
such interest to the extent that it is in excess of the maximum amount of
interest permitted by the applicable usury laws, (c) any such excess interest
which may have been collected shall be either applied as a credit against the
then unpaid Guaranteed Indebtedness or, if the Guaranteed Indebtedness shall
have been paid in full, refunded to Guarantor, and (d) the effective rate of
interest shall be automatically reduced to the maximum lawful contract rate
allowed under the applicable usury laws as now or hereafter construed by the
courts having jurisdiction thereof. It is further agreed that without limitation
of the foregoing, all calculations of the rate of interest contracted for,
charged or received under this Guaranty or under such other documents which are
made for the purpose of determining whether such rate exceeds the maximum lawful
contract rate, shall be made, to the extent permitted by applicable usury laws,
by amortizing, prorating, allocating and spreading in equal parts during the
full period during which this Guaranty is to be in effect, all interest at any
time contracted for, charged or received from Guarantor or otherwise by the
holder or holders hereof in connection with this Guaranty.
18. In case any of the provisions of this Guaranty shall for any
reason be held to be invalid, illegal, or unenforceable, such invalidity,
illegality, or unenforceability shall not affect any other provisions hereof,
and this Guaranty shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
19. In all instances herein, the singular shall be construed to
include the plural and the masculine to include the feminine.
20. This Guaranty may be executed in multiple counterparts each of
which shall constitute an original, but all of which when taken together shall
constitute one and the same Guaranty.
21. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. All
actions or proceedings with respect to the Guaranteed Indebtedness or this
Guaranty may be instituted in the Courts of the State of Texas located in Harris
County, Texas, or the United States District Court for the Southern District of
Texas, and by execution and delivery of this Guaranty, Guarantor irrevocably and
unconditionally submits to the jurisdiction (both subject matter and personal)
of each such Court, and irrevocably and unconditionally waives
-6-
<PAGE> 7
(a) any objection Guarantor may now or hereafter have to the laying of venue in
any such Courts, (b) any claim that any action or proceeding brought in any of
such Courts has been brought in an inconvenient forum, and (c) any right to
bring any action or proceeding with respect to the Guaranteed Indebtedness or
this Guaranty in any forum other than the courts of the State of Texas located
in Harris County, Texas, or the United States District Court for the Southern
District of Texas.
22. Guarantor represents and warrants to Bank that the undersigned
is duly authorized and empowered to execute this Guaranty for and on behalf of
Guarantor and that this Guaranty is a valid, binding and enforceable obligation
of Guarantor and does not violate any provisions of its articles or certificate
of incorporation or its bylaws or any agreement creating and establishing
Guarantor as a legal entity and setting forth Guarantor's purposes or powers, as
applicable, or any law, rule, regulation, contract or agreement enforceable
against Guarantor.
EXECUTED this 21st day of October, 1997.
GUARANTOR:
EAGLE GEOPHYSICAL, INC.,
a Delaware corporation
By: /s/ RICHARD W. MCNAIRY
------------------------
Richard W. McNairy
Vice President and Chief Financial Officer
Address: Eagle Geophysical, Inc.
50 Briar Hollow Lane,
6th Floor West
Houston, Texas 77002
-7-
<PAGE> 1
EXHIBIT 23
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle Geophysical Inc.
ENERGY RESEARCH INTERNATIONAL AND EAGLE GEOPHYSICAL OFFSHORE INC.
We have audited the consolidated balance sheet of Energy Research International
and consolidated subsidiaries and of Eagle Geophysical Offshore Inc and the
related consolidated statements of operations for the period August 11, 1997 to
December 31, 1997 and for the year ended December 31, 1997, not presented
separately herein. These consolidated financial statements are the
responsibility of the companies' management. Our responsibility is to express an
opinion on the consolidated financial statements for the purposes of
consolidation by Eagle Geophysical Inc, based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 audit provides a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared in
conformity with the accounting instructions of Eagle Geophysical Inc, the
companies' parent, for use in preparing its consolidated financial statements.
These instructions do not require a consolidated statement of stockholders'
equity, a consolidated statement of cash flows or footnote disclosure.
In our opinion the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Energy Research
International and consolidated subsidiaries and Eagle Geophysical Offshore Inc
as of December 31, 1997, and the results of their operations for the period
August 11, 1997 to December 31, 1997, in conformity with the accounting
instructions of Eagle Geophysical Inc and with generally accepted accounting
principles in the United States of America.
This report is intended solely for the information and use of the boards of
directors of Eagle Geophysical Inc, Energy Research International and Eagle
Geophysical Offshore Inc and should not be used for any other purpose, without
our prior consent.
/s/ KPMG
KPMG 26 FEBRUARY 1998
Chartered Accountants
Registered Auditors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 8.,
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,482
<SECURITIES> 0
<RECEIVABLES> 27,045
<ALLOWANCES> (132)
<INVENTORY> 1,705
<CURRENT-ASSETS> 50,888
<PP&E> 70,070
<DEPRECIATION> (14,873)
<TOTAL-ASSETS> 124,305
<CURRENT-LIABILITIES> 32,365
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 83,911
<TOTAL-LIABILITY-AND-EQUITY> 124,305
<SALES> 79,061
<TOTAL-REVENUES> 79,061
<CGS> 56,470
<TOTAL-COSTS> 71,462
<OTHER-EXPENSES> (118)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> 7,394
<INCOME-TAX> 2,994
<INCOME-CONTINUING> 4,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,400
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
