<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-22863
EAGLE GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0522659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2603 AUGUSTA 77057
SUITE 1400 (Zip Code)
HOUSTON, TEXAS
(Address of Principal
Executive offices)
</TABLE>
Registrant's telephone number, including area code: (713) 243-6100
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 [ ]
The number of shares outstanding of the issuer's common stock, as of May
14, 1999: 8,788,310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EAGLE GEOPHYSICAL, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- Financial Information............................. 3
Item 1. Financial Statements.............................. 3
Consolidated Balance Sheets -- December 31, 1998 and
March 31, 1999 (unaudited)............................ 3
Consolidated Statements of Operations for the three
month periods ended March 31, 1998 and 1999
(unaudited)........................................... 4
Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1998 and 1999
(unaudited)........................................... 5
Consolidated Statement of Stockholders' Equity......... 6
Notes to Unaudited Condensed Consolidated Financial
Statements............................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 20
PART II -- Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 21
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,331 $ 6,738
Restricted Cash........................................... 5,000 5,000
Receivables:
Trade, billed........................................... 4,029 8,105
Cost and estimated earnings in excess of billings on
uncompleted contracts.................................. 7,075 368
Other................................................... 1,076 1,552
Due from affiliate........................................ 25,756 26,900
Inventory................................................. 2,230 2,646
Prepaid expenses and other assets......................... 3,370 3,143
-------- --------
Total current assets............................... 58,867 54,452
PROPERTY AND EQUIPMENT, AT COST:
Vessels and geophysical equipment......................... 148,489 165,120
Construction in Progress.................................. 56,782 57,083
Furniture, fixtures and other............................. 1,528 1,682
-------- --------
206,799 223,885
Less: Accumulated depreciation.............................. (31,561) (37,907)
-------- --------
Net property and equipment......................... 175,238 185,978
MULTI-CLIENT DATA LIBRARY................................... 15,910 18,624
GOODWILL, NET............................................... 19,176 18,825
OTHER LONG-TERM ASSETS...................................... 4,004 4,041
-------- --------
TOTAL ASSETS....................................... $273,195 $281,920
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 1,830 $ 15,437
Current portion of capital lease obligations.............. 6,063 6,167
Accounts payable.......................................... 17,073 25,226
Accrued liabilities....................................... 24,459 13,987
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 3,367 6,398
-------- --------
Total current liabilities.......................... 52,792 67,215
LONG-TERM DEBT.............................................. 105,385 104,918
CAPITAL LEASE OBLIGATIONS................................... 22,343 20,757
DEFERRED INCOME TAXES AND OTHER OBLIGATIONS................. 2,875 2,655
-------- --------
TOTAL LIABILITIES.................................. 183,395 195,545
-------- --------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding......................................... -- --
Common stock, par value $.01 per share; authorized
25,000,000 shares; 8,788,310 shares issued and
outstanding at December 31, 1998 and March 31, 1999
(unaudited)............................................. 88 88
Additional paid-in capital................................ 84,412 84,412
Retained earnings......................................... 5,725 2,300
Note receivable from Stockholder.......................... (425) (425)
-------- --------
TOTAL STOCKHOLDERS' EQUITY......................... 89,800 86,375
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $273,195 $281,920
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH
PERIODS ENDED
MARCH 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
REVENUES(1)................................................. $23,880 $28,135
EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)(1)........................... 17,439 20,808
Depreciation and amortization............................. 2,888 6,697
Selling, general and administrative expenses.............. 2,496 2,466
Interest expense.......................................... 188 2,274
Interest income........................................... (221) (78)
Other, net................................................ 46 (7)
------- -------
22,836 32,160
------- -------
Income (loss) before provision for income taxes............. 1,044 (4,025)
Provision (benefit) for income taxes........................ 423 (600)
------- -------
NET INCOME (LOSS)........................................... $ 621 $(3,425)
======= =======
Basic earnings (loss) per share............................. $ .07 $ (.39)
======= =======
Weighted average number of common shares (basic)............ 8,498 8,788
======= =======
Diluted earnings (loss) per share........................... $ .07 $ (.39)
======= =======
Weighted average number of common shares (diluted).......... 8,499 8,788
======= =======
</TABLE>
- ---------------
(1) Includes revenue from affiliates of $14,309 and $18,120 for the unaudited
three month periods ended March 31, 1998 and 1999, respectively, and
operating expenses related to such affiliate revenue of $12,204 and $15,181
for the unaudited three month periods ended March 31, 1998 and 1999,
respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
ENDED MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 621 $ (3,425)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,888 6,697
Deferred income tax provision (benefit)................ 85 (120)
Bad debt expense....................................... 150 --
Increase in receivables................................ (821) (5,220)
Decrease in other assets............................... 623 6,005
Increase in accounts payable and other liabilities..... 8,761 611
-------- --------
Total adjustments................................. 11,686 7,973
-------- --------
Net cash provided by operating activities......... 12,307 4,548
-------- --------
Cash flows from investing activities:
Purchase of equipment and vessel upgrades................. (21,578) (17,086)
Cash paid for multi-client data library................... (4,194) (2,713)
Cash paid for shot-hole drilling company, net of cash
acquired............................................... (3,470) --
Cash deposited in connection with a capital lease......... (498) --
-------- --------
Net cash used in investing activities............. (29,740) (19,799)
-------- --------
Cash flows from financing activities:
Borrowings under credit facility.......................... 7,000 18,099
Repayments under credit facility.......................... -- (4,500)
Principal payments on term loans.......................... -- (459)
Principal payments on capital leases...................... (908) (1,482)
-------- --------
Net cash provided by financing activities......... 6,092 11,658
-------- --------
Net decrease in cash and cash equivalents................... (11,341) (3,593)
Cash and cash equivalents at beginning of period............ 14,980 10,331
-------- --------
Cash and cash equivalents at end of period.................. $ 3,639 $ 6,738
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net............................................. $ 194 $ 4,820
======== ========
Income taxes.............................................. $ 129 $ --
======== ========
Noncash investing & financing activities:
Purchase of shot-hole drilling company for 98,360 shares
of common stock........................................ $ 1,125 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENT 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, 1998....... 8,788 $88 $84,412 $ 5,725 $(425) $89,800
Unaudited:
Net Loss.................... -- -- -- (3,425) -- (3,425)
----- --- ------- ------- ----- -------
Balance, March 31, 1999.......... 8,788 $88 $84,412 $ 2,300 $(425) $86,375
===== === ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. BASIS OF PRESENTATION AND SIGNIFICANT ACTIVITIES
The accompanying unaudited interim condensed consolidated financial
statements of Eagle Geophysical, Inc. (the "Company") for the three months ended
March 31, 1998 and 1999 have been prepared without an audit pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, all adjustments, which consist of normal recurring adjustments,
necessary to present fairly the financial position, results of operations, and
cash flows for all periods presented have been made. Operating results for the
interim period are not necessarily indicative of the results that can be
achieved for a full year. It is suggested that these interim condensed financial
statements be read in conjunction with the audited financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K.
In May 1999, the Company initiated discussions with a vessel owner for the
decommissioning and release of the charter for the seismic vessel Discoverer.
The vessel is currently working on a contract which the Company expects to be
completed in June 1999.
In April 1999, in an effort to reduce costs and improve utilization of
existing owned vessels, the Company decommissioned the Celtic Horizon.
Negotiations are underway with the charter operator to terminate the current
lease commitment.
In April 1999, the Company obtained a commitment from a financial
institution, subject to negotiation and execution of final documentation, for
the financing of the seismic recording system and streamers for the vessel
Atlantic Horizon. The financing will be an equipment term loan of approximately
$12.0 million payable over a term of seven years at an interest rate of
approximately 9.2% with monthly payments of principal and interest due of
approximately $150,000, with all remaining principal and interest due at the end
of the term. The loan will be secured by the recording system, streamers, and
the vessel Atlantic Horizon.
2. EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per share of common stock has been computed on the
basis of the weighted average number of common shares outstanding during the
period and, where dilutive, the effect of common stock contingently issuable,
which arises primarily from the exercise of stock options, in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS"), No. 128
"Earnings Per Share". The weighted average shares of common stock outstanding
for the calculation of basic earnings per share was 8,498,000 and 8,788,000 for
the three month periods ending March 31, 1998 and 1999 respectively. The
weighted average shares of common stock outstanding for the calculation of
diluted earnings per share was 8,499,000 for the three months ended March 31,
1998. Diluted earnings per share for the three months ended March 31, 1999 is
equal to basic earnings per share due to the antidilutive effect of stock
options for the period.
7
<PAGE> 8
EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT
The Company had the following debt outstanding as of December 31, 1998 and
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Borrowings pursuant to a revolving credit facility with
Wells Fargo Business Credit, Inc......................... $ -- $ 13,599
Fleet Capital Term Loan.................................... 5,286 5,031
Other Term Loans........................................... 1,929 1,725
10 3/4% Senior Notes Due 2008.............................. 100,000 100,000
-------- --------
107,215 120,355
Less amounts due within one year........................... (1,830) (15,437)
-------- --------
Total long-term debt....................................... $105,385 $104,918
======== ========
</TABLE>
On March 26, 1999, the Company executed an agreement with Wells Fargo
Business Credit, Inc. (formerly Norwest Business Credit, Inc.), for a $20.0
million revolving credit facility secured by the Company's accounts receivable,
inventory, and certain equipment (the "Wells Fargo Credit Facility"). The amount
the Company may borrow is limited to a borrowing base that is equal to 85% of
eligible U.S. accounts receivable. Interest accrues under the facility at the
bank's base rate plus .375% or at LIBOR plus .275%. Interest only is payable
monthly or at the end of applicable LIBOR interest periods. If all borrowings
under the facility are not repaid annually, then an additional fee of .5% of the
average borrowings outstanding is payable. On March 26, 1999, the Company
borrowed $14.0 million from Wells Fargo and repaid $14.0 million of borrowings
under a revolving credit facility with Bank One Texas, N.A. and terminated the
agreement related to the Bank One credit facility. The Wells Fargo Credit
Facility matures on March 26, 2002, at which time all amounts borrowed under
this facility are due and payable. However, because the Wells Fargo Credit
Facility requires that all collections of the Company's accounts receivable be
paid to a lockbox controlled by Wells Fargo, all borrowings under this facility
are classified as current liabilities for accounting purposes. As of March 31,
1999 and May 10, 1999, the Company had borrowings outstanding of $13.6 million
and $13.9 million, respectively, and had $6.4 million and $6.1 million,
respectively, of borrowing availability remaining under the Wells Fargo Credit
Facility.
The Wells Fargo Credit Facility includes financial covenants effective
beginning March 26, 1999, which will require a level of operating performance to
be achieved by the Company. Management believes the Company can comply with the
financial covenants during 1999, however, no assurance of compliance can be
provided.
In connection with the acquisition of NRG Services, Inc. in November 1998,
the Company assumed approximately $2.0 million of term loans payable. The notes
have monthly payments ranging from approximately $5,300 to $26,000, interest
rates ranging from 5.75% to 9.7%, and maturities ranging from April 2000 to
August 2002.
In July 1998, the Company completed an offering of $100 million of 10 3/4%
Senior Notes due 2008 resulting in net proceeds to the Company of approximately
$96.4 million after deducting offering-related expenses (the "Offering"). The
Company used the proceeds to fund upgrades on two seismic vessels, the Austral
Horizon and the Atlantic Horizon.
In April 1998, the Company obtained a term loan with Fleet Capital
Corporation for the financing of an Opseis system for approximately $5.9
million. The loan is for a period of five years and bears interest at a fixed
8
<PAGE> 9
EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
rate of 7.36%. Monthly payments of approximately $117,000 are payable under the
loan with the Opseis system pledged as security for the loan.
4. COMMITMENTS AND CONTINGENCIES
The Company is involved in or threatened with various legal proceedings
from time to time arising in the normal 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 operations or financial position.
The Company generally provides services to a relatively small number of
customers, so that individual customers account for significant portions of the
Company's accounts receivable at any given time. Credit losses incurred on
receivables have historically been immaterial to the Company. The Company
currently has one receivable from a customer of $2,384,000 that is approximately
twenty-four months old. Management currently believes that this receivable is
collectible, although in light of the age of this receivable, the Company
previously provided a valuation reserve of $1,884,000 and has classified the net
receivable as a long-term asset as of December 31, 1998 and March 31, 1999.
5. RELATED PARTY TRANSACTIONS
Prior to the Company's initial public offering in August 1997, the Company
was a wholly-owned subsidiary of Seitel, Inc. Seitel currently owns
approximately 17.3% of the outstanding common stock of the Company. Seitel has
declared a dividend of the shares it owns of the Company to Seitel shareholders.
Upon payment of this dividend, Seitel will no longer have an ownership interest
in the Company.
The Company enters into various types of 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 unaudited three month periods ended March 31, 1998 and 1999,
the Company recognized revenue of $14,309,000 and $18,120,000, respectively, for
seismic data acquisition services performed for Seitel's subsidiaries.
6. OPERATING SEGMENT DISCLOSURES
The following is a summary of business segment information prepared in
accordance with the requirements of SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information" for the three months ended March 31, 1998
and 1999. Management of the Company reviews the financial information primarily
by its two seismic operating segments, onshore seismic data acquisition and
offshore seismic data acquisition.
<TABLE>
<CAPTION>
ONSHORE OFFSHORE CORPORATE
OPERATIONS OPERATIONS OFFICE TOTAL
MARCH 31, 1998 ---------- ---------- --------- -------
<S> <C> <C> <C> <C>
Operating Revenues.................................... 17,835 6,045 -- 23,880
Operating Income...................................... 4,114 1,087 (1,256) 3,945
Identifiable Assets................................... 46,566 90,700 6,661 143,927
MARCH 31, 1999
Operating Revenues.................................... 16,072 12,063 -- 28,135
Operating Income...................................... 5,173 349 (661) 4,861
Identifiable Assets................................... 57,785 211,235 12,900 281,920
</TABLE>
9
<PAGE> 10
EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On July 20, 1998, the Company completed the offering of its $100 million
10 3/4% Senior Notes due 2008 to pay for upgrades on two seismic vessels, the
Austral Horizon and Atlantic Horizon. In connection with the Offering, certain
of the Company's wholly-owned subsidiaries (the "Guarantor Subsidiaries") agreed
to fully and unconditionally guarantee the Company's obligations under the
Senior Notes. Certain other subsidiaries (the "Non-Guarantor Subsidiaries") are
not required to guarantee the Senior Notes. There are no restrictions on the
Company's ability to obtain dividends or other distribution of funds from the
Guarantor Subsidiaries, except those imposed by applicable law.
The following tables present the condensed consolidating balance sheets of
Eagle Geophysical, Inc. as a parent company, its Guarantor Subsidiaries and its
Non-Guarantor Subsidiaries as of December 31, 1998 and March 31, 1999
(unaudited) and the related condensed consolidating statements of operations and
cash flows for the three months ended March 31, 1998 and 1999 (unaudited). The
Company has not presented separate financial statements and other disclosure
concerning each of the Guarantor Subsidiaries because management has determined
that such information is not material to investors.
10
<PAGE> 11
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
EAGLE EAGLE
GEOPHYSICAL, GEOPHYSICAL,
INC. NON- RECLASSIFICATIONS INC.
PARENT GUARANTOR GUARANTOR AND AND
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------------- ------------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 352 $ 7,597 $ 3,547 $ (1,165) $ 10,331
Restricted cash...................... -- -- 5,000 -- 5,000
Receivables, net..................... -- 35,462 2,474 -- 37,936
Inventory............................ -- -- 2,230 -- 2,230
Prepaid expenses and other assets.... 50 1,354 1,966 -- 3,370
--------- -------- ------- -------- --------
Total Current Assets......... 402 44,413 15,217 (1,165) 58,867
Property and equipment, net.......... -- 129,041 46,197 -- 175,238
Goodwill, net........................ -- 2,359 16,817 -- 19,176
Other assets, net.................... 3,477 14,465 1,972 -- 19,914
Intercompany investments and
advances.......................... 19,152 -- -- (19,152) --
--------- -------- ------- -------- --------
Total Assets................. $ 23,031 $190,278 $80,203 $(20,317) $273,195
========= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt and capital
lease obligations.................... $ -- $ 1,830 $ 6,063 $ -- $ 7,893
Accounts payable....................... -- 13,193 5,045 (1,165) 17,073
Intercompany payables, net............. (157,828) 149,091 25,418 (16,681) --
Accrued liabilities.................... 632 4,895 18,932 -- 24,459
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ -- 3,367 -- -- 3,367
--------- -------- ------- -------- --------
Total Current Liabilities.... (157,196) 172,376 55,458 (17,846) 52,792
Long-term debt......................... 100,000 5,385 -- -- 105,385
Capital leases obligations............. -- -- 22,343 -- 22,343
Deferred income taxes and other
obligations.......................... 1,353 1,522 -- -- 2,875
--------- -------- ------- -------- --------
Total Liabilities............ (55,843) 179,283 77,801 (17,846) 183,395
--------- -------- ------- -------- --------
Stockholders' Equity................... 78,874 10,995 2,402 (2,471) 89,800
--------- -------- ------- -------- --------
Total Liabilities and
Stockholders' Equity....... $ 23,031 $190,278 $80,203 $(20,317) $273,195
========= ======== ======= ======== ========
</TABLE>
11
<PAGE> 12
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
EAGLE RECLASSIFICATIONS EAGLE
GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------- ------------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 1,528 $ 3,978 $ 1,232 $ -- $ 6,738
Restricted cash....................... -- -- 5,000 -- 5,000
Receivables, net...................... -- 33,000 3,557 -- 36,557
Inventory............................. -- -- 2,646 -- 2,646
Prepaid expenses and other assets..... 690 663 2,158 -- 3,511
--------- -------- ------- -------- --------
Total Current Assets.......... 2,218 37,641 14,593 -- 54,452
Property and equipment, net........... -- 128,248 57,730 -- 185,978
Goodwill, net......................... -- 2,373 16,452 -- 18,825
Other assets, net..................... 3,517 19,148 -- -- 22,665
Intercompany investments and
advances........................... 19,152 -- -- (19,152) --
--------- -------- ------- -------- --------
Total Assets.................. $ 24,887 $187,410 $88,775 $(19,152) $281,920
========= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt and capital
lease obligations..................... $ 13,599 $ 1,838 $ 6,167 $ -- $ 21,604
Accounts payable........................ -- 9,626 15,600 -- 25,226
Intercompany payables, net.............. (169,564) 150,228 36,017 (16,681) --
Accrued liabilities..................... 1,670 2,264 10,053 -- 13,987
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. -- 6,398 -- -- 6,398
--------- -------- ------- -------- --------
Total Current Liabilities..... (154,295) 170,354 67,837 (16,681) 67,215
Long-Term Debt.......................... 100,000 4,918 -- -- 104,918
Capital leases obligations.............. -- -- 20,757 -- 20,757
Deferred income taxes and other
obligations........................... 1,330 1,325 -- -- 2,655
--------- -------- ------- -------- --------
Total Liabilities............. (52,965) 176,597 88,594 (16,681) 195,545
--------- -------- ------- -------- --------
Stockholders' Equity.................... 77,852 10,813 181 (2,471) 86,375
--------- -------- ------- -------- --------
Total Liabilities and
Stockholders' Equity........ $ 24,887 $187,410 $88,775 $(19,152) $281,920
========= ======== ======= ======== ========
</TABLE>
12
<PAGE> 13
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EAGLE RECLASSIFICATIONS EAGLE
GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------- ------------ ------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
1998
REVENUES.............................. $ -- $19,150 $ 5,177 $(447) $23,880
EXPENSES
Operations Expenses (exclusive of
Depreciation and amortization
shown below)..................... -- 14,262 3,624 (447) 17,439
Depreciation and amortization....... 9 1,909 970 -- 2,888
Selling, general and administrative
expenses......................... 1,256 425 815 -- 2,496
Interest and other expense, net..... (60) (19) 92 -- 13
------- ------- ------- ----- -------
1,205 16,577 5,501 (447) 22,836
------- ------- ------- ----- -------
Income (loss) before provision for
income taxes........................ (1,205) 2,573 (324) -- 1,044
Provision (benefit) for income
taxes............................... (452) 880 (5) -- 423
------- ------- ------- ----- -------
NET INCOME (LOSS)..................... $ (753) $ 1,693 $ (319) $ -- $ 621
======= ======= ======= ===== =======
1999
REVENUES.............................. $ -- $24,367 $ 4,216 $(448) $28,135
EXPENSES
Operations Expenses (exclusive of
Depreciation and amortization
shown below)..................... -- 18,739 2,517 (448) 20,808
Depreciation and amortization....... -- 4,083 2,614 -- 6,697
Selling, general and administrative
expenses......................... -- 1,424 1,042 -- 2,466
Interest and other expense, net..... 1,635 155 399 -- 2,189
------- ------- ------- ----- -------
1,635 24,401 6,572 (448) 32,160
------- ------- ------- ----- -------
Income (loss) before provision for
income taxes........................ (1,635) (34) (2,356) -- (4,025)
Provision (benefit) for income
taxes............................... (613) 148 (135) -- (600)
------- ------- ------- ----- -------
NET INCOME (LOSS)..................... $(1,022) $ (182) $(2,221) $ -- $(3,425)
======= ======= ======= ===== =======
</TABLE>
13
<PAGE> 14
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EAGLE RECLASSIFICATIONS EAGLE
GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------- ------------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (753) $ 1,693 $ (319) $ -- $ 621
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities.............. (1,335) 9,862 5,542 (2,383) 11,686
------- ------- -------- ------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. (2,088) 11,555 5,223 (2,383) 12,307
------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and upgrades of property and
equipment......................... (81) (1,417) (20,080) -- (21,578)
Cash paid for multi-client data
library........................... -- (4,194) -- -- (4,194)
Cash paid for shot-hole drilling
company, net of cash acquired..... -- (3,470) -- -- (3,470)
Cash deposited in connection with a
capital lease..................... -- -- (498) -- (498)
------- ------- -------- ------- --------
NET CASH USED IN INVESTING
ACTIVITIES........................... (81) (9,081) (20,578) -- (29,740)
------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility..... 7,000 -- -- -- 7,000
Principal payments on capital
leases............................ -- -- (728) -- (728)
Proceeds (payments) on intercompany
advances.......................... (7,348) (4,144) 11,492 -- --
Other, net........................... (180) -- -- -- (180)
------- ------- -------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................. (528) (4,144) 10,764 -- 6,092
------- ------- -------- ------- --------
Net decrease in cash and cash
equivalents....................... (2,697) (1,670) (4,591) (2,383) (11,341)
Cash and cash equivalents, beginning
of period......................... 8,450 1,670 4,860 -- 14,980
------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 5,753 $ -- $ 269 $(2,383) $ 3,639
======= ======= ======== ======= ========
</TABLE>
14
<PAGE> 15
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EAGLE RECLASSIFICATIONS EAGLE
GEOPHYSICAL, INC. GUARANTOR NON-GUARANTOR AND GEOPHYSICAL, INC.
PARENT COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------------- ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ (1,022) $ (182) $ (2,221) $ -- $ (3,425)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities............. 335 1,844 4,629 1,165 7,973
-------- ------- -------- ------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................ (687) 1,662 2,408 1,165 4,548
-------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and upgrades of property
and equipment.................... -- (3,246) (13,840) -- (17,086)
Cash paid for multi-client data
library.......................... -- (2,713) -- -- (2,713)
-------- ------- -------- ------- --------
NET CASH USED IN INVESTING
ACTIVITIES.......................... -- (5,959) (13,840) -- (19,799)
-------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility.... 18,099 -- -- -- 18,099
Repayments under credit facility.... (4,500) -- -- -- (4,500)
Principal payments on term loans.... -- (459) -- -- (459)
Principal payments on capital
leases........................... -- -- (1,482) -- (1,482)
Proceeds (payments) on intercompany
advances......................... (11,736) 1,137 10,599 -- --
-------- ------- -------- ------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.......................... 1,863 678 9,117 -- 11,658
-------- ------- -------- ------- --------
Net increase (decrease) in cash and
cash equivalents................. 1,176 (3,619) (2,315) 1,165 (3,593)
Cash and cash equivalents, beginning
of period........................ 352 7,597 3,547 (1,165) 10,331
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 1,528 $ 3,978 $ 1,232 $ -- $ 6,738
======== ======= ======== ======= ========
</TABLE>
15
<PAGE> 16
ITEM 2 -- 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 and, commencing in March 1998, the sale of
seismic shot-hole drilling and front-end services. The Company focuses its
onshore operations and front end services in logistically difficult wetland
environments along the U.S. Gulf Coast and commencing in the second quarter of
1999, in Argentina. The Company focuses its offshore operations in congested
areas in the U.S. Gulf of Mexico, the Atlantic Coast of South America, and the
North Sea. Onshore operations including front-end services accounted for
approximately 75% and 57% of the Company's consolidated revenues for the three
months ended March 31, 1998 and 1999, respectively, with offshore operations
accounting for the remaining 25% and 43% of consolidated revenues for the three
months ended March 31, 1998 and 1999, respectively.
The Company generally provides its onshore seismic data acquisition
services under fixed fee contracts with its customers. The Company provides its
offshore seismic data acquisition services under either distance-or time-based
contracts (or a combination of both methods) or turnkey contracts that provide
for a fixed fee. The Company generally does not retain rights to the data
acquired. However, the Company anticipates that an increasing percentage of its
future offshore data acquisition projects will be multi-client surveys.
In a multi-client survey, the Company retains an interest in the acquired
data. Conducting multi-client surveys normally has little effect on operating
margins in the short term because the Company will capitalize most of the costs
relating to the acquisition of the multi-client data that are not offset by
pre-funding. However, since revenues from multi-client projects only include
pre-funding amounts during the acquisition of the data, and these pre-funding
amounts are normally less than revenues for proprietary data acquisition
projects, total revenues and net income tend to be less during multi-client
acquisition projects than during proprietary acquisition projects. If the
Company is able to make sales of the multi-client data after full amortization
of the acquisition cost of the data (up to four years), the additional sales
will result in revenues with little or no cost, increasing net income.
Conversely, if the sales of the multi-client data are less than originally
projected by management, the asset value of the data will be adjusted to equal
the estimated net realizable value of the data (total estimated future sales
less selling expenses), resulting in decreased net income.
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 Canada and Latin America, which
may involve more extensive currency risks, the Company intends to protect itself
against foreign currency fluctuations by generally attempting to match foreign
currency revenues and expenses in order to balance its net position of
receivables and payables denominated in foreign currencies, 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 to counteract currency fluctuations. The Company did not have any
open derivative contracts related to foreign currency at March 31, 1999.
The Company generally provides services to a relatively small group of key
customers that account for a significant percentage of the accounts receivable
of the Company at any given time. The Company's key customers vary over time,
but have historically included Seitel and its subsidiaries. The Company extends
credit to various companies in the oil and gas industry, including its key
customers, 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
the economic or other conditions of the Company's key clients and may
accordingly impact the Company's overall credit risk. As of March 31, 1999, the
Company had one receivable from a customer of approximately $2.4 million that is
approximately 24 months old. In light of the age of this receivable, the
16
<PAGE> 17
Company previously provided a valuation reserve for this receivable of $1.9
million and has classified this receivable as a long-term asset. Historical
credit losses incurred on receivables by the Company have been immaterial.
RESULTS OF OPERATIONS
The current state of the oil and gas services industry in which the Company
operates has been adversely impacted by sustained declines in oil and natural
gas commodity prices which first appeared in the second quarter of 1998 and have
continued through the first quarter of 1999, when commodity prices began to show
signs of a recovery. These price declines have adversely impacted the cash flows
of major and independent oil and gas companies and seismic data library
companies, which comprise the Company's customer base. The Company's customers
have reacted to this environment by reducing capital spending on oil and gas
exploration projects and purchases of seismic data. The Company was first
impacted by these industry factors in the fourth quarter of 1998 when several
projects experienced delays as customers chose to delay commencement of
previously committed projects. The Company continued to be affected by these
industry factors in the first quarter of 1999 with fewer new projects commencing
and with delays on existing projects. Prices in all segments remain under
pressure as the impact of improving commodity prices has not yet significantly
increased seismic spending in the oil and gas industry. The comparatively high
margins experienced by the Company in the first quarter of 1999 were primarily
related to 1998 backlog before the full impact of depressed commodity prices was
reflected in customer demand and pricing. Current contracts reflect reduced
profitability and breakeven economics. The Company believes that the adverse
economic climate in the oilfield service industry will continue through most of
1999, which is likely to result in significantly lower margins for both of the
Company's business segments through the remainder of the year.
The following discussion of the results of operations is divided into a
discussion of the Company's onshore operations, which includes front-end
services, and the Company's offshore operations. The following table summarizes
the results of operations by operating entity:
<TABLE>
<CAPTION>
1998 1999
--------------------------------- ---------------------------------
ONSHORE OFFSHORE ONSHORE OFFSHORE
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $17,835 $6,045 $23,880 $16,072 $12,063 $28,135
Operating Expenses...... 13,334 4,105 17,439 10,154 10,654 20,808
Gross Margin............ 4,501 1,940 6,441 5,918 1,409 7,327
Gross Margin %.......... 25.3% 32.8% 26.9% 36.6% 11.0% 26.0%
</TABLE>
ONSHORE OPERATIONS
Quarter Ended March 31, 1998 Compared to March 31, 1999
Revenues decreased 10% from $17.8 million in the first quarter of 1998 to
$16.1 million in the first quarter of 1999, primarily due to fewer projects in
progress during the 1999 quarter as compared to the 1998 quarter. The decrease
was partially offset by the Company's onshore operation in Canada which was
acquired in November 1998.
Operating costs (excluding depreciation) decreased 23% from $13.3 million
in the first quarter of 1998 to $10.2 million in the first quarter of 1999,
primarily due to fewer projects in progress during the 1999 quarter as compared
to the 1998 quarter. The Company reacted to the decline in activity by reducing
operating personnel and project-related expenditures and fully utilizing the
drilling services of its front end services company. In addition, the Company
completed four multi-client projects in Canada during the quarter which allow
for capitalization of multi-client project costs. These factors favorably
impacted the operating margin percentage which improved from 25.3% for the first
quarter of 1998 compared to an operating margin of 36.6% for the 1999 quarter.
Depreciation and amortization increased 37% from $1.9 million in the first
quarter of 1998 to $2.6 million in the first quarter of 1999. This increase
resulted from operating four domestic crews, the front-end services
17
<PAGE> 18
business for the entire quarter, and two crews in Canada in the 1999 quarter
versus only three domestic crews and the front-end service business for one
month for the 1998 quarter.
Selling, general and administrative expenses decreased 13% from $1.6
million in the first quarter of 1998 to $1.4 million in the first quarter of
1999, due to savings in corporate overhead partially offset by higher marketing
costs incurred for onshore domestic and international projects.
Net interest and other expense increased from $(79,000) in the 1998 period
to $248,000 in the 1999 period primarily due to borrowings from the Company's
working capital credit facilities and interest paid on the Fleet Bank Term Loan,
which commenced in the second quarter of 1998.
OFFSHORE OPERATIONS
Quarter Ended March 31, 1998 Compared to March 31, 1999
Revenue increased 98% from $6.1 million in the first quarter of 1998 to
$12.1 million in the first quarter of 1999, primarily due to increases in vessel
capacity. The Company's vessel the Labrador Horizon was working on multi-client
projects in the Gulf of Mexico for the entire 1999 quarter compared to no
utilization in the 1998 quarter due to a major upgrade. The Austral Horizon,
which began service in the fourth quarter of 1998, worked for the entire quarter
in the Gulf of Mexico. The vessels Discoverer and Celtic Horizon performed
contract work in the Gulf of Mexico for the 1999 quarter as compared to
multi-client work in the Gulf of Mexico for the 1998 quarter. The Pacific
Horizon was fully utilized during both the 1999 and 1998 periods working off the
coast of Argentina. Revenue for the first quarter of 1999 also includes
approximately $1.5 million earned in connection with a vessel charter hire
contract and related services to a third party. The increase in revenue due to
the increase in vessel capacity was partially offset by weather-related downtime
for all the vessels operating in the Gulf of Mexico and a bi-annual maintenance
inspection for the Pacific Horizon.
Operating expenses (excluding depreciation) increased 161% from $4.1
million in the first quarter of 1998 to $10.7 million in the first quarter of
1999 due to the increase in the number of vessels operating during the 1999
quarter. Downtime, decreases in rates available for contract work, and start-up
costs for the Atlantic Horizon contributed to a lower operating margin which
decreased from 32.8% for the 1998 quarter compared to 11.0% for the 1999
quarter.
Depreciation and amortization increased significantly from $1.0 million in
the first quarter of 1998 to $4.1 million in the first quarter of 1999,
resulting from the upgraded Labrador Horizon, depreciation for the Austral
Horizon which began service in the fourth quarter of 1998, and additional
equipment purchased for the Celtic Horizon in the 1998 quarter.
Selling, general and administrative expenses increased from $0.8 million in
the first quarter of 1998 to $1.1 million in the first quarter of 1999 due to
increases in personnel required for the expansion of the Company's vessel fleet
and higher marketing costs.
Net interest and other expense increased significantly from $91,000 in the
first quarter of 1998 to $1.9 million in the first quarter of 1999 primarily due
to interest on the Labrador Horizon's capital lease and interest on the $100
million 10 3/4% Senior Notes. The Company capitalized interest of approximately
$1.2 million in the 1999 quarter compared to $(0) for the 1998 quarter.
LIQUIDITY
The current industry environment and debt incurred during the expansion of
the Company in 1998 have contributed to a decline in the Company's working
capital position. The Company had a net working capital deficit of $12.7 million
as of March 31, 1999. The indebtedness of the Company as of such date consisted
of the $13.6 million of short-term borrowings under the Wells Fargo Credit
Facility, the $100 million of 10 3/4% Senior Notes due 2008, borrowings under
the Fleet Capital Term Loan, a capital lease obligation with British Linen Bank,
and other term loans. This indebtedness totaled approximately $147.3 million as
of March 31, 1999.
18
<PAGE> 19
The Company has begun taking steps to reduce costs and provide financing
during this difficult period. Additionally, the Company is evaluating potential
additional debt and equity transactions aimed at increasing liquidity. However,
there can be no assurance that additional financing to increase the Company's
liquidity can be obtained.
In May 1999, the Company initiated discussions with a vessel owner for the
decommissioning and release of the charter for the seismic vessel
Discoverer. The vessel is currently working on a contract which the Company
expects to be completed in June 1999.
In April 1999, in an effort to reduce costs and improve utilization of
existing owned vessels, the Company decommissioned the Celtic Horizon.
Negotiations are underway with the charter operator to terminate the Company's
current lease commitments.
In April 1999, the Company obtained a commitment from a financial
institution, subject to negotiation and execution of final documentation, for
the financing of the seismic recording system and streamers for the vessel
Atlantic Horizon (the "Atlantic Horizon Term Loan"). The financing will be an
equipment term loan of approximately $12.0 million payable over a term of seven
years at an interest rate of approximately 9.2% with monthly payments of
principal and interest due of approximately $150,000. All remaining principal
and interest is due at the end of the term. The loan will be secured by the
recording system, streamers, and the vessel Atlantic Horizon.
On March 26, 1999, the Company executed an agreement with Wells Fargo
Business Credit, Inc. (formerly Norwest Business Credit, Inc.) for a $20.0
million revolving credit facility secured by the Company's accounts receivable,
inventory, and certain equipment (the "Wells Fargo Credit Facility"). The amount
the Company may borrow is limited to a borrowing base that is equal to 85% of
eligible U.S. accounts receivable. Interest accrues under the facility at the
bank's base rate plus .375% or at LIBOR plus .275%. Interest only is payable
monthly or at the end of applicable LIBOR interest periods. If all borrowings
under the facility are not repaid annually, then an additional fee of .5% of the
average borrowings outstanding is payable. On March 26, 1999, the Company
borrowed $14.0 million from Wells Fargo and repaid $14.0 million of borrowings
under a revolving credit facility with Bank One Texas, N.A. and terminated the
agreement related to the Bank One credit facility. The Wells Fargo Credit
Facility matures on March 26, 2002. However, borrowings under the facility are
classified as a current liability for accounting purposes due to the required
collection of all the Company's domestic accounts receivable in a lockbox
controlled by Wells Fargo. As of March 31, 1999 and May 10, 1999, the Company
had borrowings outstanding of $13.6 million and $13.9 million, respectively, and
had $6.4 million and $6.1 million, respectively, of borrowing availability
remaining under the Wells Fargo Credit Facility.
The Company anticipates that an increasing percentage of its future
offshore data projects will be multi-client projects. The Company will be
required to fund the portion of the acquisition costs for multi-client data that
is not covered by pre-acquisition licensing commitments. These funding
requirements will vary depending on the cost of the data acquisition project,
the amount of pre-acquisition licensing commitments, and the amount of any costs
funded by any third parties who participate in the projects. The Company will
evaluate each multi-client project in light of the capital commitments of the
project and the Company's other capital commitments as compared to the Company's
liquidity and capital resources.
The Company believes that its cash flow from operations, borrowings under
the Wells Fargo Credit Facility, borrowings under the Atlantic Horizon Term
Loan, and other vendor financing will be sufficient to fund its planned capital
expenditures and operating requirements through the end of 1999. Any capital
expenditures in excess of the Company's planned amounts will likely require
additional debt or equity financing. If the Company is not able to obtain such
additional financing, it may be unable to incur capital expenditures in excess
of its planned capital expenditures. If additional working capital were to
become necessary as a result of further deterioration in demand for or pricing
of the Company's services, and if additional financing was not available, the
Company's operating results and financial condition would be adversely affected.
19
<PAGE> 20
YEAR 2000
The Company is currently in the process of evaluating its computer hardware
and software systems to ensure such programs and systems will be able to process
transactions in the year 2000 ("Y2K"). The Company is also currently identifying
other equipment which contains embedded electronics that may render the
equipment inoperable in the year 2000 and is evaluating the plans of its
material suppliers and vendors to become Y2K compliant. The Company anticipates
it will have hardware and software critical to its operation Y2K compliant
before the end of 1999. The Company is currently evaluating the time table upon
which all other hardware, software, and equipment can be made Y2K compliant and
will target a date when the evaluation is complete.
Although it is not possible to accurately estimate the costs of this
information analysis, at this time the Company expects that such costs will not
be material to the Company's financial position or the results of operations.
There can be no assurance, however, that the Company, its suppliers and vendors
or their respective software vendors will complete all modifications to all
material information technology systems in a timely manner, or as to the costs
associated with the Company becoming Y2K compliant, or the costs of the failure
of any of the Company's vendors failing to become Y2K compliant.
The Company's risks due to failure of computer hardware and software not
being Y2K compliant include the risk that the Company's seismic recording
systems will not operate properly or as efficiently, thus causing an unexpected
decline in revenue. The Company also risks not being able to record and process
transactions properly in its accounting system. Such risks could lead to a
material business interruption and could have a material adverse impact on the
Company's results of operations, although the amount can not be estimated. The
Company will continue to consider the likelihood of a material business
interruption due to the Year 2000 problem, and if necessary, implement an
appropriate contingency plan.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in
interest rates and foreign currency exchange rates. Refer to the Company's Form
10-K for the year ended December 31, 1998 for a detailed discussion of these
risks. Changes in the Company's market risk exposures since December 31, 1998
are discussed below.
Prior to March 26, 1999, the Company had a $20 million revolving credit
facility with Bank One, Texas, N.A. that provided for a variable interest rate.
Interest on this facility accrued at the bank's base rate plus a margin
depending on the Company's debt to net worth ratio. As of December 31, 1998, no
borrowings were outstanding under this facility. As of March 26, 1999, the
Company entered into a new revolving credit facility with Wells Fargo Business
Credit, Inc. (formerly Norwest Business Credit, Inc.) and terminated its credit
facility with Bank One. Interest accrues under the Wells Fargo facility at the
bank's base rate plus .375% or at LIBOR plus .275%. As of May 10, 1999
approximately $13.9 million was borrowed under this facility. The carrying value
and fair value of this debt are the same. Changes in interest rates under the
Bank One facility prior to March 26, 1999 and under the Wells Fargo credit
facility after March 26, 1999 would effect the Company's results of operations
and cash flow requirements for interest expense.
20
<PAGE> 21
PART II -- OTHER INFORMATION
ITEMS 1-5 -- NOT APPLICABLE
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a) 10.1 -- Credit and Security Agreement by and among Eagle
Geophysical, Inc., Eagle Geophysical Onshore, Inc., Eagle
Geophysical Royalty, Inc., Eagle Geophysical de Mexico,
Inc., Eagle Geophysical Front End Services, Inc., Eagle
Geophysical Management, Inc., Eagle Geophysical GOM,
Inc., Eagle Geophysical Front End Services, LTD, Eagle
Geophysical de Columbia, Inc., Eagle Geophysical de Peru,
Inc., Austral Horizon, Inc., Atlantic Horizon, Inc.,
Eagle Geophysical de Bolivia, Inc., Eagle Geophysical de
Argentina, Inc., and Eagle Geophysical de Ecuador, Inc.
and Norwest Business Credit, Inc. dated as of March 26,
1999 (the "Credit Agreement").
10.2 -- Revolving Note under the Credit Agreement dated March 26,
1999
10.3 -- Severance Agreement among the Company, Exploration
Holdings, Ltd. and Gerald M. Harrison dated April 16,
1999.
27.1 -- Financial Data Schedule
(b) Not applicable.
</TABLE>
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE GEOPHYSICAL, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAY N. SILVERMAN President May 14, 1999
- -----------------------------------------------------
Jay N. Silverman
/s/ RICHARD W. MCNAIRY Chief Financial Officer May 14, 1999
- -----------------------------------------------------
Richard W.McNairy
/s/ DAVID H. SAINDON Chief Accounting Officer May 14, 1999
- -----------------------------------------------------
David H. Saindon
</TABLE>
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.1 -- Credit and Security Agreement by and among Eagle
Geophysical, Inc., Eagle Geophysical Onshore, Inc., Eagle
Geophysical Royalty, Inc., Eagle Geophysical de Mexico,
Inc., Eagle Geophysical Front End Services, Inc., Eagle
Geophysical Management, Inc., Eagle Geophysical GOM,
Inc., Eagle Geophysical Front End Services, LTD, Eagle
Geophysical de Columbia, Inc., Eagle Geophysical de Peru,
Inc., Austral Horizon, Inc., Atlantic Horizon, Inc.,
Eagle Geophysical de Bolivia, Inc., Eagle Geophysical de
Argentina, Inc., and Eagle Geophysical de Ecuador, Inc.
and Norwest Business Credit, Inc. dated as of March 26,
1999 (the "Credit Agreement").
10.2 -- Revolving Note under the Credit Agreement dated March 26,
1999
10.3 -- Severance Agreement among the Company, Exploration
Holdings, Ltd. and Gerald M. Harrison dated April 16,
1999.
27.1 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
================================================================================
CREDIT AND SECURITY AGREEMENT
BY AND AMONG
EAGLE GEOPHYSICAL, INC.
EAGLE GEOPHYSICAL ONSHORE, INC,
EAGLE GEOPHYSICAL OFFSHORE, INC.,
EAGLE GEOPHYSICAL ROYALTY, INC. (F/K/A EAGLE
GEOPHYSICAL LEASING, INC.),
EAGLE GEOPHYSICAL DE MEXICO, INC.,
EAGLE FRONT END SERVICES, INC.,
EAGLE GEOPHYSICAL MANAGEMENT, INC.,
EAGLE GEOPHYSICAL GOM, INC.,
EAGLE FRONT END SERVICES, LTD.,
EAGLE GEOPHYSICAL DE COLOMBIA, INC.
EAGLE GEOPHYSICAL DE PERU, INC.,
AUSTRAL HORIZON, INC.,
ATLANTIC HORIZON, INC.
EAGLE GEOPHYSICAL DE BOLIVIA, INC.
EAGLE GEOPHYSICAL DE ARGENTINA, INC.
AND EAGLE GEOPHYSICAL DE ECUADOR, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: MARCH 26, 1999
[NORWEST LOGO]
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ARTICLE I Definitions 1
Section 1.1 Definitions.......................................................................................1
Section 1.2 Cross References.................................................................................14
ARTICLE II Amount and Terms of the Credit Facility 14
Section 2.1 Revolving Advances...............................................................................14
Section 2.2 Foreign Accounts.................................................................................15
Section 2.3 Letters of Credit................................................................................15
Section 2.4 Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement................................................................................................15
Section 2.5 Special Account..................................................................................16
Section 2.6 Obligations Absolute.............................................................................16
Section 2.7 Procedures for Borrowing.........................................................................17
Section 2.8 Converting Floating Rate Advances to Eurodollar Advances; Procedures.............................18
Section 2.9 Procedures at End of a Interest Period...........................................................18
Section 2.10 Setting and Notice of Rates.....................................................................19
Section 2.11 Funding Losses..................................................................................19
Section 2.12 Right of Lender to Fund through Other Offices...................................................19
Section 2.13 Discretion of Lender as to Manner of Funding....................................................19
Section 2.14 Interest; Default Interest; Participations; Usury...............................................20
Section 2.15 Fees............................................................................................21
Section 2.16 Computation of Interest and Fees; When Interest Due and Payable.................................22
Section 2.17 Increased Costs on Eurodollar Advances; Capital Adequacy; Increased Costs
and Reduced Return...........................................................................................22
Section 2.18 Funding Exceptions..............................................................................25
Section 2.19 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the
Credit Facility by the Borrowers.............................................................................26
Section 2.20 Termination, Line Reduction and Prepayment Fees; Waiver of Termination,
Prepayment and Line Reduction Fees...........................................................................26
Section 2.21 Mandatory Prepayment............................................................................26
Section 2.22 Payment.........................................................................................27
Section 2.23 Payment on Non-Banking Days.....................................................................27
Section 2.24 Use of Proceeds.................................................................................27
Section 2.25 Liability Records...............................................................................27
ARTICLE III Security Interest; Occupancy; Setoff 27
Section 3.1 Grant of Security Interest.......................................................................27
Section 3.2 Notification of Account Debtors and Other Obligors...............................................27
Section 3.3 Assignment of Insurance..........................................................................28
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Section 3.4 Occupancy........................................................................................28
Section 3.5 License..........................................................................................29
Section 3.6 Financing Statement..............................................................................29
Section 3.7 Setoff...........................................................................................29
Section 3.8 Accommodation Party Defenses Waived..............................................................29
ARTICLE IV Conditions of Lending 30
Section 4.1 Conditions Precedent to the Initial Revolving Advance and the Initial Letter of
Credit.......................................................................................................30
Section 4.3 Condition Precedent to Revolving Advances over $5 million........................................32
Section 4.4 Conditions Precedent to All Advances and Letters of Credit.......................................32
ARTICLE V Representations and Warranties 32
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Tax Identification Number...............................................................32
Section 5.2 Capitalization...................................................................................33
Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements..................................33
Section 5.4 Legal Agreements.................................................................................33
Section 5.5 Subsidiaries.....................................................................................34
Section 5.6 Financial Condition; No Adverse Change...........................................................34
Section 5.7 Litigation.......................................................................................34
Section 5.8 Regulation U.....................................................................................34
Section 5.9 Taxes............................................................................................34
Section 5.10 Titles and Liens................................................................................34
Section 5.11 Intellectual Property Rights....................................................................34
Section 5.12 Plans...........................................................................................35
Section 5.13 Default.........................................................................................35
Section 5.14 Environmental Matters...........................................................................35
Section 5.15 Submissions to Lender...........................................................................36
Section 5.16 Financing Statements............................................................................37
Section 5.17 Rights to Payment...............................................................................37
Section 5.18 Financial Solvency..............................................................................37
ARTICLE VI Borrowers' Affirmative Covenants 38
Section 6.1 Reporting Requirements...........................................................................38
Section 6.2 Books and Records; Inspection and Examination....................................................41
Section 6.3 Account Verification.............................................................................41
Section 6.4 Compliance with Laws.............................................................................41
Section 6.5 Payment of Taxes and Other Claims................................................................42
Section 6.6 Maintenance of Properties........................................................................42
Section 6.7 Ownership of Ships...............................................................................42
Section 6.8 Insurance........................................................................................42
Section 6.9 Preservation of Existence........................................................................43
Section 6.10 Delivery of Instruments, etc....................................................................43
Section 6.11 Collateral Account..............................................................................43
Section 6.12 Ship Mortgages..................................................................................44
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Section 6.13 Performance by the Lender.......................................................................44
Section 6.14 Minimum Consolidated EBITDA Coverage Ratio......................................................45
Section 6.15 Minimum Consolidated Modified Tangible Net Worth................................................45
Section 6.16 Minimum Consolidated Current Ratio..............................................................45
ARTICLE VII Negative Covenants 45
Section 7.1 Liens............................................................................................45
Section 7.2 Indebtedness.....................................................................................47
Section 7.3 Guaranties.......................................................................................47
Section 7.4 Investments and Subsidiaries.....................................................................47
Section 7.5 Dividends........................................................................................48
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations....................................48
Section 7.7 Intellectual Property............................................................................48
Section 7.8 Consolidation and Merger; Asset Acquisitions.....................................................48
Section 7.9 Sale and Leaseback...............................................................................49
Section 7.10 Restrictions on Nature of Business..............................................................49
Section 7.11 Capital Expenditures............................................................................49
Section 7.12 Accounting......................................................................................49
Section 7.13 Discounts, etc..................................................................................49
Section 7.14 Defined Benefit Pension Plans...................................................................49
Section 7.15 Other Defaults..................................................................................49
Section 7.16 Place of Business; Name.........................................................................49
Section 7.17 Organizational Documents........................................................................50
Section 7.18 Salaries........................................................................................50
Section 7.19 Change of Control...............................................................................50
Section 7.20 Transactions with Affiliates....................................................................50
ARTICLE VIII Events of Default, Rights and Remedies 50
Section 8.1 Events of Default................................................................................50
Section 8.2 Rights and Remedies..............................................................................53
Section 8.3 Certain Notices..................................................................................53
ARTICLE IX Miscellaneous 54
Section 9.1 No Waiver; Cumulative Remedies...................................................................54
Section 9.2 Amendments, Etc..................................................................................54
Section 9.3 Addresses for Notices, Etc.......................................................................54
Section 9.4 Further Documents................................................................................55
Section 9.5 Collateral.......................................................................................55
Section 9.6 Costs and Expenses...............................................................................55
Section 9.7 Indemnity........................................................................................55
Section 9.8 Participants.....................................................................................56
Section 9.9 Execution in Counterparts........................................................................56
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information..........................57
Section 9.11 Severability of Provisions......................................................................57
Section 9.12 Headings........................................................................................57
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial........................................57
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CREDIT AND SECURITY AGREEMENT
Dated as of March 26, 1999
Eagle Geophysical, Inc., a Delaware corporation (the "Parent
Borrower"), Eagle Geophysical Onshore, Inc, a Delaware corporation, Eagle
Geophysical Offshore, Inc., a Delaware corporation, Eagle Geophysical Royalty,
Inc. (f/k/a Eagle Geophysical Leasing, Inc.), a Delaware corporation, Eagle
Geophysical de Mexico, Inc., a Delaware corporation, Eagle Front End Services,
Inc., a Delaware corporation, Eagle Geophysical Management, Inc., a Delaware
corporation, Eagle Geophysical GOM, Inc., a Delaware corporation, Eagle Front
End Services, Ltd., a Texas limited partnership, Eagle Geophysical de Colombia,
Inc., a Delaware corporation, Eagle Geophysical de Peru, Inc., a Delaware
corporation, Austral Horizon, Inc., a Delaware corporation, Atlantic Horizon,
Inc., a Delaware corporation, Eagle Geophysical de Bolivia, Inc., a Delaware
corporation, Eagle Geophysical de Argentina, Inc., a Delaware corporation and
Eagle Geophysical de Ecuador, Inc., a Delaware corporation (collectively, with
the Parent Borrower, the "Borrowers" and each a "Borrower") and Norwest Business
Credit, Inc., a Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means, as to any Person, all of that Person's
accounts, as such term is defined in the UCC, including without
limitation the aggregate unpaid obligations of customers and other
account debtors to that Person arising out of the sale or lease of
goods or rendition of services by that Person on an open account or
deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" means, with respect to any specified person, any
other person directly or indirectly controlling or controlled by or
under direct or indirect common
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control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person,
means the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of
merger or consolidation) (collectively, a "transfer") by the Parent
Borrower or a Restricted Subsidiary, directly or indirectly, in one or
a series of related transactions, to any person other than the Parent
Borrower or a Restricted Subsidiary of (a) any Capital Stock of any
Restricted Subsidiary, (b) all or substantially all of the properties
and assets of the Parent Borrower and its Restricted Subsidiaries
representing a division or line of business or (c) any other properties
or assets of the Parent Borrower or any Restricted Subsidiary, other
than in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" does not include any transfer of
properties or assets (i) that is governed by the provisions of Section
801 of the Indenture, (ii) between or among the Parent Borrower and its
Restricted Subsidiaries pursuant to transactions that do not violate
any other provision of the Indenture or this Agreement, (iii) to an
Unrestricted Subsidiary, if permitted under Section 1011 of the
Indenture, (iv) representing obsolete or permanently retired equipment
and facilities (v) the gross proceeds of which (exclusive of
indemnities) do not exceed $500,000 for any particular item or
$1,000,000 in the aggregate for any fiscal year or (vi) that is a lease
of a towed-streamer seismic data acquisition vessel owned by the Parent
Borrower or any Restricted Subsidiary, provided that (A) such lease
shall not provide for the acquisition of such vessel by the lessee
during or at the end of the term thereof for an amount that is less
than the fair market value thereof at the time the right to acquire
such property is granted, (B) the term of such lease shall not exceed
twelve months, (C) such lease shall provide that upon an Event of
Default under this Indenture such lease would automatically terminate,
(D) not more than the greater of (I) one such vessel or (II) one-third
of all of such vessels may be subject to such a lease at any one time
and (E) the Parent Borrower or a Restricted Subsidiary shall retain
legal title to such vessel at all times during the term of such lease.
"Availability" means the difference of (i) the Borrowing Base
and (ii) the sum of (A) the outstanding principal balance of the
Revolving Note and (B) the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in San
Antonio, Texas or Minneapolis, Minnesota and, if such day relates to a
Eurodollar Advance, a day on which dealings are carried on in the
London interbank Eurodollar market.
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"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 85% of Eligible Domestic Accounts; and
(ii) 80% of Eligible Foreign Accounts.
"Capital Expenditures" means, as to any Person, any
expenditure of money for the lease, purchase or other acquisition of
any capital asset, or for the lease of any other asset whether payable
currently or in the future.
"Capital Stock" of any Person means any and all shares,
interests, partnership interests, participations, rights in or other
equivalents (however designated) of such person's equity interest
(however designated).
"Capitalized Lease Obligation" means, with respect to any
Person, an obligation incurred or assumed under or in connection with
any capital lease of real or personal property that, in accordance with
GAAP, has been recorded as a capitalized lease.
"Change of Control" means the occurrence of any of the
following events:
(a) Any Person or "group" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person will be deemed to
have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of more than a majority of the voting power of all
classes of Voting Stock of the Parent Borrower.
(b) During any consecutive two-year period,
individuals who at the beginning of such period constituted
the board of directors of the Parent Borrower (together with
any new directors whose election to such board of directors,
or whose nomination for election by the stockholders of the
Parent Borrower, was approved by a vote of 66-2/3% of the
directors then still in office who were either directors at
the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors of the
Parent Borrower then in office.
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(c) The Parent Borrower is liquidated or dissolved or
adopts a plan of liquidation or dissolution.
"Clean Up Period" has the meaning given in Section 2.15(c).
"Collateral" means all of the Borrowers' Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Collateral Account and any items in any Lockbox;
together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing;
(iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any tangible goods;
(v) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods; and (vi) all sums on
deposit in the Special Account.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrowers, Wells Fargo
and the Lender.
"Commitment" means the Lender's commitment to make Advances
and to cause the Issuer to issue Letters of Credit to or for the
Borrowers' account pursuant to Article II.
"Company" means any Borrower, any Guarantor or any Subsidiary
of any Borrower or any Guarantor, and "Companies" means the Borrowers,
the Guarantors and each Subsidiary of a Borrower or a Guarantor.
"Consolidated Adjusted Net Income" means, for any period, the
net income (or net loss) of the Parent Borrower and its Restricted
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, adjusted to the extent included in calculating
such net income or loss by excluding (a) any net after-tax
extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the portion
of net income (or loss) of any Person (other than the Parent Borrower
or a Restricted Subsidiary), including Unrestricted Subsidiaries, in
which the Parent Borrower or any Restricted Subsidiary has an ownership
interest, except to the extent of the amount of dividends or other
distributions actually paid to the Parent Borrower or any Restricted
Subsidiary in cash during such period, and (d) the net income (or loss)
of any Person combined with the Parent Borrower or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period
prior to the date of combination.
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"Consolidated Current Ratio" means as of any date the ratio of
the Parent Borrower's consolidated current assets to its consolidated
current liabilities on such date.
"Consolidated EBITDA" means, for any period, the sum of,
without duplication, Consolidated Adjusted Net Income for such period,
plus (or, in the case of clause (d) below, plus or minus) the following
items to the extent included in computing Consolidated Adjusted Net
Income for such period (a) Consolidated Fixed Charges for such period,
plus (b) the provision for federal, state, local and foreign income
taxes of the Parent Borrower and its Restricted Subsidiaries for such
period, plus (c) the aggregate depreciation and amortization expense of
the Parent Borrower and its Restricted Subsidiaries for such period,
plus (d) any other non-cash charges for such period, and minus non-cash
credits for such period, other than non-cash charges or credits
resulting from changes in prepaid assets or accrued liabilities in the
ordinary course of business; provided that fixed charges, income tax
expense, depreciation and amortization expense and non-cash charges and
credits of a Restricted Subsidiary shall be included in Consolidated
EBITDA only to the extent (and in the same proportion) that the net
income of such Subsidiary was included in calculating Consolidated
Adjusted Net Income for such period.
"Consolidated EBITDA Coverage Ratio" means, as of any date,
the ratio of Consolidated EBITDA for the twelve (12) month period
ending on such date to Consolidated Fixed Charges for the twelve (12)
month period ending on such date.
"Consolidated Fixed Charges" means, for any period, without
duplication, the sum of (a) the amount that, in conformity with GAAP,
would be set forth opposite the caption "interest expense" (or any like
caption) on a consolidated statement of operations of the Parent
Borrower and its Restricted Subsidiaries for such period, including,
without limitation, (i) amortization of debt discount, (ii) the net
cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv)
amortization of debt issuance costs and (v) the interest component of
Capitalized Lease Obligations, plus (b) cash dividends paid on
Preferred Stock and Disqualified Stock by the Parent Borrower and any
Restricted Subsidiary (to any Person other than the Parent Borrower and
its Restricted Subsidiaries), plus (c) all interest on any Debt of any
Person guaranteed by the Parent Borrower or any of its Restricted
Subsidiaries; provided, however, that Consolidated Fixed Charges shall
not include (i) any gain or loss from extinguishment of debt, including
the write-off of debt issuance costs and (ii) the fixed charges of a
Restricted Subsidiary to the extent (and in the same proportion) that
the net income of such Subsidiary was excluded in calculating
Consolidated Adjusted Net Income pursuant to clause (e) of the
definition thereof for such period.
"Consolidated Modified Tangible Net Worth" means, at any time,
the consolidated Tangible Net Worth of the Parent Borrower, less
twenty-five percent (25%) of the value of Multiclient Surveys shown on
the Parent Borrower's balance sheet.
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"Consolidated Net Income" means, for a stated period, the
Parent Borrower's consolidated after-tax net income from continuing
operations as determined in accordance with GAAP.
"Credit Facility" means the credit facility being made
available to the Borrowers by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as of the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Parent Borrower
in writing that such Default or Event of Default has been cured or
waived.
"Default Rate" means an annual rate equal to two (2%) over the
Floating Rate, which rate shall change when and as the Floating Rate
changes.
"Disqualified Stock" means any class or series of Capital
Stock that, either by its terms, or by the terms of any security into
which it is convertible or exchangeable or by contract or otherwise (i)
is, or upon the happening of an event or passage of time would be,
required to be redeemed prior to one year after the final Stated
Maturity of the Securities (as defined in the Indenture), (ii) is
redeemable at the option of the holder thereof at any time prior to one
year after such final Stated Maturity or (iii) at the option of the
holder thereof, is convertible into or exchangeable for debt securities
at any time prior to one year after such final Stated Maturity;
provided that any Capital Stock that would not constitute Disqualified
Stock but for provisions therein giving holders thereof the right to
cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring
prior to the Stated Maturity of the Securities shall not constitute
Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in
Sections 1012 and 1013 of the Indenture and such Capital Stock
specifically provides that the issuer shall not repurchase or redeem
any such stock pursuant to such provision prior to the Company's
repurchase of such Securities as are required to be repurchased
pursuant to Sections 1012 and 1013 of the Indenture.
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts owed to a
Borrower, net of any credits, except the following shall not in any
event be deemed Eligible Accounts:
(i) that portion of Accounts unpaid 60 days or more
after the due date or unpaid 90 days or more after the
original invoice date;
(ii) that portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) that portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by a Borrower to the customer;
(iv) that portion of Accounts for which the
applicable Borrower has not yet sent an invoice to the
customer;
(v) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrowers have provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of a Borrower, provided,
however, that Accounts owed by any member of the Seitel Group
shall not be excluded under this clause (vii) so long as
Seitel has not revoked the Seitel No Offset Agreement.
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any Lien in favor of a Person other than the Lender;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 25% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above; and
(xii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Domestic Accounts" means all Eligible Accounts owed
by account
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debtors located in the United States.
"Eligible Foreign Accounts" means all Eligible Accounts owed
by account debtors located outside of the United States and acceptable
to the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.14.
"Equipment" means, as to any Person, all of that Person's
equipment, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
equipment, office and recordkeeping equipment, parts, tools, supplies,
and including specifically (without limitation) the goods described in
any equipment schedule or list herewith or hereafter furnished to the
Lender by that Person.
"Eurodollar Advance" means any Advance which bears interest at
a rate determined by reference to a Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to an Interest
Period, the rate per annum equal to the rate (rounded up to the nearest
one-eighth of one percent (1/8%)) determined by the Lender in
accordance with Section 2.10 to be a rate at which US Dollar deposits
are offered to major banks in the London interbank eurodollar market
for funds to be made available on the first day of such US Interest
Period and maturing at the end of such US Interest Period.
"Eurodollar Rate" means, with respect to an Interest Period,
the rate obtained by adding (a) the applicable Margin to (b) the rate
obtained by dividing (i) the applicable Eurodollar Base Rate by (ii) a
percentage equal to one (1.00) minus the applicable percentage
(expressed as a decimal) prescribed by the Board of Governors of the
Federal Reserve System (or any successor thereto) for determining the
maximum reserve requirements applicable to eurodollar fundings
(currently referred to as "Eurocurrency Liabilities" in Regulation D)
or any other maximum reserve requirements applicable to a member bank
of the Federal Reserve System with respect to Eurodollar Advances.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus the Margin, which annual rate shall change when and as
the Base Rate changes.
"Foreign Guarantor" means Horizon Exploration, Ltd., an
English corporation, Exploration Holdings, Ltd., an English
corporation, and Energy Research International, a Cayman Islands
corporation.
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"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.6.
"General Intangibles" means, as to any Person, all of that
Person's general intangibles, as such term is defined in the UCC,
whether now owned or hereafter acquired, including (without limitation)
all present and future patents, patent applications, copyrights,
service marks, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, royalties, fees, payments from Multi-Client Surveys, the
right to use that Person's name, and the goodwill of that Person's
business.
"Guarantor Collateral" means any collateral in which a
Guarantor has granted the Lender a security interest.
"Guarantor Documents" means for each Guarantor as applicable,
its Guaranty, Guarantor Security Agreement and any other document
issued in connection therewith or the Loan Documents.
"Guarantor Security Agreement" means a Security Agreement,
satisfactory to the Lender in its sole discretion, executed by a
Guarantor and delivered to the Lender.
"Guarantors" means the Domestic Guarantors, the Foreign
Guarantors and any other Person now or hereafter guaranteeing payment
of any of the Obligations.
"Hazardous Substance" has the meaning given in Section 5.14.
"Hedging Obligations" means the obligations of any Person
under (i) interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates or the value of foreign currencies.
"Indenture" means that certain Indenture dated as of July 20,
1998 by and among the Parent Borrower, certain Subsidiaries and Chase
Bank of Texas, National Association.
"Interest Period" means, relative to any Eurodollar Advance,
the period beginning on (and including) the date on which such
Eurodollar Advance is made, or continued as, or converted into, a
Eurodollar Advance pursuant to Sections 2.7, 2.8 or 2.9 and shall end
on (but exclude) the day which numerically corresponds to such date one
(1), two (2), three (3) or six (6) months thereafter (or, if such month
has no numerically corresponding day, on the last Eurodollar Business
Day of such month), as the Parent Borrower may select in the relevant
notice pursuant to Sections 2.7, 2.8, or 2.9; provided, however, that:
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(a) no more than three (3) different Interest Periods
may be outstanding at any one time;
(b) if an Interest Period would otherwise end on a
day which is not a Banking Day, such Interest Period shall end
on the next following Banking Day (unless such next following
Banking Day is the first Banking Day of a month, in which case
such Interest Period shall end on the next preceding Banking
Day);
(c) no Interest Period may end later than the
Maturity Date; and
(d) in no event shall the Parent Borrower select
Interest Periods with respect to Eurodollar Advances which
would require payment of funding losses under Section 2.11.
"Inventory" means, as to any Person, all of that Person's
inventory, as such term is defined in the UCC, whether now owned or
hereafter acquired, whether consisting of whole goods, spare parts or
components, supplies or materials, whether acquired, held or furnished
for sale, for lease or under service contracts or for manufacture or
processing, and wherever located.
"Investment Property" means, as to any Person, all of that
Person's investment property, as such term is defined in the UCC,
whether now owned or hereafter acquired, including but not limited to
all securities, security entitlements, securities accounts, commodity
contracts, commodity accounts, stocks, bonds, mutual fund shares, money
market shares and U.S. Government securities.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.3.
"Lien" means, as to any Person (i) any mortgage, deed of
trust, pledge, lien, security interest, adverse claim, title retention
agreement, assignment, transfer or other charge or encumbrance of any
nature under the laws of any jurisdiction intended to grant or reserve
an interest in property to secure an obligation, including without
limitation any bid, payment or performance bond and (ii) covenants,
restrictions, rights, easements and irregularities in that Person's
title to any asset.
"Loan Documents" means this Agreement, the Note and the
Security Documents.
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"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrowers, Wells Fargo and the Lender, of even date herewith.
"Margin" means, with respect to computation of the Eurodollar
Rate, the Floating Rate and the unused line fee described in Section
2.15(b), the applicable increment (expressed in basis points) set forth
and described in the table below:
<TABLE>
<CAPTION>
Floating Eurodollar unused line
Rate Rate fee
--------- ---------- -----------
<S> <C> <C>
37.5 275 50
</TABLE>
provided, however, that if the Parent Borrower's Consolidated Net
Income for any of fiscal 1999, 2000 or 2001 is greater than or equal to
$2,000,000, such increments (expressed in basis points) shall be:
<TABLE>
<CAPTION>
Floating Eurodollar unused line
Rate Rate fee
--------- ---------- -----------
<S> <C> <C>
0 225 38
</TABLE>
"Maturity Date" means March 26, 2002.
"Maximum Line" means $20,000,000 unless said amount is reduced
pursuant to Section 2.19, in which event it means such reduced amount.
"Multi-Client Survey" means a seismic survey whereby the
Parent Borrower or a Restricted Subsidiary acquires certain seismic
data in which it directly or indirectly retains ownership rights,
revenue interests or similar interests in the future economic benefits
thereof and which data is to be licensed to customers on a
non-transferable, non-exclusive basis.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt,
liability and obligation of every type and description which any
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of a Borrower, and
whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, the Obligation of Reimbursement and all indebtedness
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of each Borrower arising under this Agreement, the Note, any L/C
Application completed by a Borrower, or any other loan or credit
agreement or guaranty between a Borrower and the Lender, whether now in
effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.4(a).
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for any Borrower's employees and covered by Title IV of ERISA.
"Pledge Agreement" means the Collateral Pledge Agreement of
even date herewith by the Parent Borrower in favor of the Lender, as
the same may hereafter be amended, supplemented or restated from time
to time.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated) of such Person's preferred or preference stock, whether now
outstanding or issued after the date hereof, and including, without
limitation, all classes and series of preferred or preference stock of
such Person.
"Premises" means all premises where any Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit F attached
hereto.
"Receivables" means, as to any Person, each and every right of
that Person to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by that Person or by some other person who subsequently
transfers such person's interest to that Person, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all Liens) which that Person may at any time have
by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all
present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
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Eagle Geophysical Credit Agreement
<PAGE> 17
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrowers' revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from
time to time.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Pledge Agreement and any
other document delivered by a Borrower to the Lender from time to time
to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Seitel" means Seitel, Inc., a Delaware corporation.
"Seitel Group" means Seitel and its Affiliates.
"Seitel No Offset Agreement" means that certain letter
agreement by Seitel in favor of the Lender dated as of March 26, 1999.
"Senior Notes" means the Parent Borrower's 10 3/4% Senior
Notes (Series B) due 2008, and any debt instruments replacing or
refinancing such notes.
"Ships" means the seismic data acquisition vessels currently
named "Austral Horizon" and "Atlantic Horizon".
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.5.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by a Borrower, by a Borrower and one
or more other Subsidiaries, or by one or more other Subsidiaries.
"Tangible Net Worth" means, for any Person, the difference
between (i) the tangible assets of that Person, which, in accordance
with GAAP are tangible assets, after deducting adequate reserves in
each case where, in accordance with GAAP, a
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Eagle Geophysical Credit Agreement
<PAGE> 18
reserve is proper and (ii) all Debt of that Person; provided, however,
that notwithstanding the foregoing in no event shall there be included
as such tangible assets patents, trademarks, trade names, copyrights,
licenses, goodwill, receivables from Affiliates, directors, officers or
employees, prepaid expenses, deposits, deferred charges or treasury
stock or any securities or Debt of that Person or any other securities
unless the same are readily marketable in the United States of America
or entitled to be used as a credit against federal income tax
liabilities, and any other assets designated from time to time by the
Lender, in its sole discretion.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrowers terminate the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations after an
Event of Default pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
"Unrestricted Subsidiary" means (a) any Subsidiary that is
designated by the Board of Directors of the Parent Borrower as an
Unrestricted Subsidiary in accordance with Section 1018 of the
Indenture and (b) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of any Person (irrespective of
whether or not, at the time, stock of any other class or classes has,
or might have, voting power by reason of the happening of any
contingency).
"Wells Fargo" means Wells Fargo Bank, N.A.
Section 1.2 Cross References. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections
and subsections of this Agreement unless otherwise explicitly
specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Revolving Advances. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances to the
Borrowers from time to time from the date all of the conditions set forth in
Section 4.1 are satisfied (the "Funding Date") to the Termination Date (the
"Revolving Advances"). The Lender shall have no obligation to make a Revolving
Advance to the extent the amount of such Revolving Advance exceeds Availability.
The Borrowers' obligation to pay the Revolving Advances shall be evidenced by
the Revolving Note and shall be secured by the Collateral as provided in Article
III and
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Eagle Geophysical Credit Agreement
<PAGE> 19
the Security Documents. Within the limits set forth in this Section 2.1, the
Borrowers may borrow, prepay pursuant to Section 2.19 and reborrow.
Section 2.2 Foreign Accounts. The Borrowers may request that
the Lender include in the Borrowing Base certain Accounts owed to the Borrowers
by Account debtors located outside the United States. The Lender agrees to
review any such request and provided the Lender's senior management approves
such request, such Accounts satisfy certain underwriting criteria and an
appropriate amendment to this Agreement is executed and delivered, a portion of
such accounts will be added to the Borrowing Base.
Section 2.3 Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to cause an Issuer to issue, from the
Funding Date to the Termination Date, one or more irrevocable standby
or documentary letters of credit (each, a "Letter of Credit") for the
Borrowers' account. The Lender shall have no obligation to cause an
Issuer to issue any Letter of Credit if the face amount of the Letter
of Credit to be issued would exceed the lesser of:
(i) $5,000,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all
outstanding and unpaid Revolving Advances and (B) the L/C
Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into by the applicable Borrower and the Lender
for the benefit of the Issuer, completed in a manner satisfactory to
the Lender and the Issuer. The terms and conditions set forth in each
such L/C Application shall supplement the terms and conditions hereof,
but if the terms of any such L/C Application and the terms of this
Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit
under this Section 2.3 shall be deemed to be a representation by the
Borrowers that the conditions set forth in Section 4.4 have been
satisfied as of the date of the request.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrowers acknowledge that the Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrowers shall pay to
the Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrowers shall pay the Lender on the day a draft is
honored under
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Eagle Geophysical Credit Agreement
<PAGE> 20
any Letter of Credit a sum equal to all amounts drawn under such Letter
of Credit plus any and all reasonable charges and expenses that the
Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges
and expenses as set forth below (the Borrowers' obligation to pay all
such amounts is herein referred to as the "Obligation of
Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Lender shall make a Revolving Advance in the amount of the
Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving
Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrowers are unable, because a Default Period then exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrowers shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate. Notwithstanding the
Borrowers' inability to obtain a Revolving Advance for any reason, the
Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation
of Reimbursement and all accrued but unpaid interest thereon.
(d) The Borrowers' obligation to pay any Revolving Advance
made under this Section 2.4, shall be evidenced by the Revolving Note
and shall bear interest as provided in Section 2.14.
Section 2.5 Special Account. If the Credit Facility is
terminated for any reason whatsoever while any Letter of Credit is outstanding,
the Borrowers shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the L/C Amount. The Special
Account shall be an interest bearing account maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Obligations in the Lender's sole discretion,
and shall not be subject to withdrawal by the Borrowers so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrowers at such time as the Lender is required
to release its security interest in the Special Account under applicable law.
Section 2.6 Obligations Absolute. The Borrowers' obligations
arising under Section 2.4 shall be absolute, unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of Section 2.4, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
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Eagle Geophysical Credit Agreement
<PAGE> 21
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which any Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate
which does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.7 Procedures for Borrowing.
(a) Each Advance that the Lender makes shall be funded as
either a Floating Rate Advance or a Eurodollar Advance, as the Parent
Borrower shall specify in the related notice of borrowing or notice of
conversion pursuant to this Section 2.7 or Section 2.8, provided that
during Default Periods, no Eurodollar Advances shall be made. Floating
Rate Advances and Eurodollar Advances may be outstanding at the same
time. It is understood, however, that in the case of a Eurodollar
Advance, the principal amount of the Advance shall be in an amount
equal to $500,000 or a higher integral multiple of $100,000.
(b) The Parent Borrower shall request each Advance not later
than 11:00 a.m., San Antonio, Texas time, on a Banking Day which, in
the case of a Floating Rate Advance, is the Advance date, or, in the
case of a Eurodollar Advance, is at least three (3) Banking Days before
the date the Advance is to be made. Each such request shall be
effective upon receipt by the Lender, shall be in writing or by
telephone or telecopy transmission, to be confirmed in writing by the
Parent Borrower if so requested by the Lender (in the form of Exhibit
B), shall be by (i) an officer of the Parent Borrower; or (ii) a person
designated as the Parent Borrower's agent by an officer of the Parent
Borrower in a writing delivered to the Lender; or (iii) a person whom
the Lender reasonably believes to be an officer of the Parent Borrower
or such a designated agent, and shall specify whether the Advance is to
bear interest initially at a Floating Rate or a Eurodollar Rate, and in
the case of an Advance that is to bear interest initially at a
Eurodollar Rate, shall specify the Interest Period to be applicable
thereto.
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Eagle Geophysical Credit Agreement
<PAGE> 22
(c) The Borrowers shall repay all Advances even if the Lender
does not receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an
Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrowers that the conditions set forth in
Section 4.4 have been satisfied as of the time of the request.
Section 2.8 Converting Floating Rate Advances to Eurodollar
Advances; Procedures. So long as no Default Period exists, the Parent Borrower
may convert all or any part of any outstanding Floating Rate Advance into a
Eurodollar Advance by giving notice to the Lender of such conversion not later
than 11:00 a.m., San Antonio, Texas time, on a Banking Day which is at least
three (3) Banking Days before the date of the requested conversion. Each such
notice shall be effective upon receipt by the Lender, shall be in writing or by
telephone or telecopy transmission, to be confirmed in writing by the Parent
Borrower if so requested by the Lender (in the form of Exhibit C), shall specify
the date and amount of such conversion, the total amount of the Advance to be so
converted and the Interest Period therefor. Each conversion of an Advance shall
be on a Banking Day, and the aggregate amount of each such conversion of a
Floating Rate Advance to a Eurodollar Advance shall be in an amount equal to
$500,000 or a higher integral multiple of $100,000.
Section 2.9 Procedures at End of a Interest Period. Unless the
Parent Borrower requests a new Eurodollar Advance in accordance with the
procedures set forth below, or prepays the principal of an outstanding
Eurodollar Advance at the expiration of a Interest Period, the Lender shall
automatically and without request of the Borrowers convert each Eurodollar
Advance to a Floating Rate Advance on the last day of the relevant Interest
Period. So long as no Default Period shall exist, the Parent Borrower may cause
all or any part of any outstanding Eurodollar Advance to continue to bear
interest at a Eurodollar Rate after the end of the then applicable Interest
Period by notifying the Lender not later than 10:30 a.m., San Antonio, Texas
time, on a Banking Day which is at least three (3) Banking Days prior to the
first day of the new Interest Period. Each such notice shall be in writing or by
telephone or telecopy transmission, to be confirmed in writing by the Parent
Borrower if so requested by the Lender (in the form of Exhibit D), shall be
effective when received by the Lender, and shall specify the first day of the
applicable Interest Period, the amount of the expiring Eurodollar Advance to be
continued and the Interest Period therefor. Each new Interest Period shall begin
on a Banking Day and the amount of each Advance bearing a new Eurodollar Rate
shall be in an amount equal to $500,000 or a higher integral multiple of
$100,000.
Section 2.10 Setting and Notice of Rates. The applicable
Eurodollar Rate for each Interest Period shall be determined by the Lender
between the opening of business and 12:00 Noon, San Antonio Texas time, on the
second Banking Day before the beginning of such Interest Period, whereupon
notice thereof (which may be by telephone) shall be given by the Lender to the
Parent Borrower. Each such determination of the applicable Eurodollar Rate shall
be conclusive and binding upon the parties hereto, in the absence of
demonstrable error. The Lender, upon written request of the Parent Borrower,
shall deliver to the Parent Borrower a statement showing the computations used
by the Lender in determining the applicable Eurodollar Rate.
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Eagle Geophysical Credit Agreement
<PAGE> 23
Section 2.11 Funding Losses. The Borrowers shall, upon demand
by the Lender (which demand shall be accompanied by a statement setting forth
the basis for the calculations of the amount being claimed), indemnify the
Lender against any loss or expense which the Lender may have sustained or
incurred (including, without limitation, any net loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund or maintain Eurodollar Advances) or which the Lender may be
deemed to have sustained or incurred, as reasonably determined by the Lender,
(a) as a consequence of any failure by the Borrowers to make any payment when
due of any amount due hereunder in connection with any Eurodollar Advances, (b)
due to any failure of the Borrowers to borrow or convert any Eurodollar Advances
on a date specified therefor in a notice thereof or (c) due to any payment or
prepayment of any Eurodollar Advance on a date other than the last day of the
applicable Interest Period for such Eurodollar Advance. For this purpose, all
notices under Sections 2.7, 2.8, or 2.9 shall be deemed to be irrevocable.
Section 2.12 Right of Lender to Fund through Other Offices.
The Lender may fulfill its agreements hereunder with respect to any Eurodollar
Advance by causing a foreign branch or affiliate of the Lender to make such
Eurodollar Advance; provided, that in such event the obligation of the Borrowers
to repay such Eurodollar Advance shall nevertheless be to the Lender and such
Eurodollar Advance shall be deemed held by the Lender for the account of such
branch or affiliate.
Section 2.13 Discretion of Lender as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Lender
shall be entitled to fund and maintain all or any part of its Eurodollar
Advances in any manner it deems fit, provided, however, that for the purposes of
this Agreement (specifically including, without limitation, Section 2.11) all
determinations hereunder shall be made as if the Lender had actually funded and
maintained each Eurodollar Advance during each Interest Period for such
Eurodollar Advance through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
appropriate Eurodollar Rate for such Interest Period.
Section 2.14 Interest; Default Interest; Participations;
Usury.
(a) FLOATING RATE ADVANCES. Except as set forth in Sections
2.14(c) and 2.14(e), the outstanding principal balance of Floating Rate
Advances shall bear interest at the Floating Rate.
(b) EURODOLLAR RATE ADVANCES. Except as set forth in Sections
2.14(c) and 2.14(e), the outstanding principal balance of Eurodollar
Rate Advances shall bear interest at the Eurodollar Rate.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the
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Eagle Geophysical Credit Agreement
<PAGE> 24
Default Rate, effective for any periods during that Default Period
designated by the Lender from time to time.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances or the Obligation of Reimbursement, the
Borrowers shall, nevertheless, pay the full amount of all interest
calculated under this Section 2.14, along with all other fees, charges
and other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower
rate than the Floating Rate, or otherwise elects to accept less than
its prorata share of such fees, charges and other amounts due under
this Agreement.
(e) USURY. In no event shall any interest rate provided for in
this Agreement or the Note exceed the maximum rate permitted by the
then applicable law. It is the intention of the parties hereto to
strictly comply with applicable usury laws; accordingly, it is agreed
that, notwithstanding any provision to the contrary in this Agreement,
in the Notes, or in the other Loan Documents, in no event shall this
Agreement, the Note, or the other Loan Documents be construed to
charge, contract for or require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law.
If any such excess interest is contracted for, charged or received
under this Agreement, the Note or the other Loan Documents, or in the
event that all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for,
charged or received on the principal balance shall exceed the maximum
amount of interest permitted by applicable law, then in such event (i)
the provisions of this Section 2.14(e) shall govern and control, (ii)
neither the Borrowers nor any other person or entity now or hereafter
liable for the payment thereof shall 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 applicable law, (iii) any such excess which
may have been collected shall be either applied as a credit against the
then unpaid principal balance or refunded to the Borrowers, at the
option of the Lender, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
applicable law 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 Agreement, the Note and the other Loan
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 law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full
stated term of the indebtedness evidenced hereby, all from the
Borrowers or otherwise by the Lender in connection with such
indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Lender to
receive a greater simple interest per annum rate than is presently
allowed, the Borrowers agree that, on the effective date of such
amendment or preemption as the case may be, the lawful maximum
hereunder shall be increased to the maximum simple interest per annum
rate allowed by the higher of the amended state law or the law of the
United States of America.
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Section 2.15 Fees.
(a) ORIGINATION FEE. The Borrowers shall pay the Lender a
fully earned and non-refundable origination fee of $50,000, due and
payable upon the execution of this Agreement. The Lender acknowledges
receipt of $50,000 toward payment of this fee and the fees, costs and
expenses described in Sections 2.15(f) and 9.6.
(b) UNUSED LINE FEE. For the purposes of this Section 2.15(b),
"Unused Amount" means the Maximum Line reduced by (1) outstanding
Revolving Advances and (2) the L/C Amount. The Borrowers shall pay to
the Lender an unused line fee equal to the Margin on the average daily
Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day
of the month and on the Termination Date.
(c) FAILED CLEAN UP FEE. If during any Clean Up Period, the
sum of the outstanding principal balance of the Note and the L/C Amount
is greater than zero, the Borrowers shall pay the Lender a fee equal to
one half of one percent (0.5%) of the sum of the average outstanding
principal balance of the Note and the L/C Amount during the calendar
year in which such Clean Up Period occurs, which fee shall be due and
payable on the earlier of January 1st of the following year or the
Termination Date. "Clean Up Period" means any period of thirty
consecutive days in each calendar year.
(d) LETTER OF CREDIT FEES. The Borrowers shall pay the Lender
a fee with respect to each Letter of Credit, if any, accruing on a
daily basis and computed at the annual rate of two and one half percent
(2.5%) of the aggregate amount that may then be drawn on all issued and
outstanding Letters of Credit assuming compliance with all conditions
for drawing thereunder (the "Aggregate Face Amount"), from and
including the date of issuance of such Letter of Credit until such date
as such Letter of Credit shall terminate by its terms or be returned to
the Lender, due and payable monthly in arrears on the first day of each
month and on the Termination Date; provided, however that during
Default Periods, in the Lender's sole discretion and without waiving
any of its other rights and remedies, such fee shall increase to four
and one half percent (4.5%) of the Aggregate Face Amount. The foregoing
fee shall be in addition to any and all fees, commissions and charges
of any Issuer of a Letter of Credit with respect to or in connection
with such Letter of Credit.
(e) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrowers shall
pay the Lender, on written demand, the administrative fees charged by
the Issuer in connection with the honoring of drafts under any Letter
of Credit, amendments thereto, transfers thereof and all other activity
with respect to the Letters of Credit at the then-current rates
published by the Issuer for such services rendered on behalf of
customers of the Issuer generally.
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(f) AUDIT FEES. The Borrowers shall pay the Lender, on demand,
audit fees in connection with any audits or inspections conducted by
the Lender of any Collateral or the Borrowers' operations or business
at the rates established from time to time by the Lender as its audit
fees (which fees are $600 per day per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
Section 2.16 Computation of Interest and Fees; When Interest
Due and Payable. Fees hereunder and interest accruing on the outstanding
principal balance of the Advances and the Obligation of Reimbursement
outstanding from time to time shall be computed on the basis of actual number of
days elapsed in a year of 360 days. Interest on Floating Rate Advances shall be
payable in arrears on the first day of each month and on the Termination Date.
Accrued interest on each Eurodollar Advance shall be due and payable on the last
day of the Interest Period relating to such Eurodollar Advance; provided,
however, that if any Interest Period is longer than three (3) months, interest
shall be due and payable monthly in arrears on the last day of the third month
occurring after commencement of such Interest Period, on the last day of each
three month period thereafter (if any) and on the last day of such Interest
Period.
Section 2.17 Increased Costs on Eurodollar Advances; Capital
Adequacy; Increased Costs and Reduced Return.
(a) INCREASED COSTS ON EURODOLLAR ADVANCES. If Regulation D of
the Board of Governors of the Federal Reserve System or after the date
of this Agreement the adoption of any applicable law, rule or
regulation, or any change in any existing law, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall:
(i) subject the Lender to or cause the withdrawal or
termination of any exemption previously granted to the Lender
with respect to, any tax, duty or other charge with respect to
Eurodollar Advances or its obligation to make Eurodollar
Advances, or shall change the basis of taxation of payments to
the Lender of the principal of or interest under this
Agreement in respect of its Eurodollar Advances or its
obligation to make Eurodollar Advances (except for changes in
the rate of tax on the overall net income of the Lender
imposed by the jurisdictions in which the Lender's principal
executive office is located); or
(ii) impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System, but
excluding any reserve included in the determination of
interest rates pursuant to Section 2.10), special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Lender; or
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(iii) impose on the Lender any other condition
affecting its making, maintaining or Advance of Eurodollar
Advances or its obligation to make Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to the
Lender of making or maintaining any Eurodollar Advance, or to reduce
the amount of any sum received or receivable by the Lender under this
Agreement or under the Note with respect to a Eurodollar Advance, then
the Lender will notify the Parent Borrower of such increased cost and
within fifteen (15) days after demand by the Lender (which demand shall
be accompanied by a statement setting forth the basis of such demand)
the Borrowers shall pay to the Lender such additional amount or amounts
as will compensate the Lender for such increased cost or such
reduction. The Lender will promptly notify the Parent Borrower of any
event of which it has knowledge, occurring after the date hereof, which
will entitle the Lender to compensation pursuant to this Section 2.17.
If the Parent Borrower receives notice from the Lender of any event
which will entitle the Lender to compensation pursuant to this Section
2.17, the Borrowers may prepay any then outstanding Eurodollar Advances
or notify the Lender that any pending request for a Eurodollar Advance
shall be deemed to be a request for a Floating Rate Advance, in each
case subject to the provisions of Section 2.11.
(b) CAPITAL ADEQUACY. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change,
such Related Lender may require the Borrowers to pay it the amount
necessary to restore its Return to what it would have been had there
been no Rule Change. For purposes of this Section 2.17(b):
(i) "Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request
regarding capital adequacy, or the interpretation or
administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender.
Such rules include rules requiring financial institutions to
maintain total capital in amounts based upon percentages of
outstanding loans, binding loan commitments and letters of
credit.
(ii) "Eurodollar Rule" means Regulation D of the
Board of Governors of the Federal Reserve System, any
applicable law, rule or regulation, with respect to (A) taxes,
duties or other charges, exemptions with respect to Eurodollar
Advances or the Lender's obligation to make Eurodollar
Advances, and (B) reserves imposed by the Board of Governors
of the Federal Reserve System (but excluding any reserve
included in the determination of interest rates pursuant to
Section 2.10), special deposits or similar requirements
against assets of, deposits with or for the account of, or
credit extended by, any Related Lender, and any other
condition affecting the
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Lender's making, maintaining or funding of Eurodollar Advances
or its obligation to make Eurodollar Advances.
(iii) "L/C Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding letters
of credit, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or
comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules
imposing taxes, duties or other similar charges, or mandating
reserves, special deposits or similar requirements against
assets of, deposits with or for the account of, or credit
extended by any Related Lender, on letters of credit.
(iv) "Related Lender" includes (but is not limited
to) the Lender, the Issuer, any parent corporation of the
Lender or the Issuer and any assignee of any interest of the
Lender hereunder and any participant in the loans made
hereunder.
(v) "Return", for any period, means the return as
determined by a Related Lender on the Advances and Letters of
Credit based upon its total capital requirements and a
reasonable attribution formula that takes account of the
Capital Adequacy Rules, Eurodollar Rules, and L/C Rules then
in effect, costs of issuing or maintaining any Eurodollar
Advance or Letter of Credit and amounts received or receivable
under this Agreement or the Note with respect to any
Eurodollar Advance or Letter of Credit. Return may be
calculated for each calendar quarter and for the shorter
period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
(vi) "Rule Change" means any change in any Capital
Adequacy Rule, Eurodollar Rule, or L/C Rule occurring after
the date of this Agreement, but the term does not include any
changes in applicable requirements that at the Closing Date
are scheduled to take place under the existing Capital
Adequacy Rules, Eurodollar Rules, or L/C Rules or any
increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due
to a regulatory authority's assessment of the financial
condition of such Related Lender.
The Lender will promptly notify the Parent Borrower of any event of
which it has knowledge, occurring after the date hereof, which will
entitle the Lender to compensation pursuant to this Section 2.17.
Certificates of any Related Lender sent to the Parent Borrower from
time to time claiming compensation under this Section 2.17, stating the
reason therefor and setting forth in reasonable detail the calculation
of the additional amount or amounts to be paid to the Related Lender
hereunder to restore its Return shall be conclusive absent manifest
error. In determining such amounts, the Related Lender may use any
reasonable averaging and attribution methods.
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Section 2.18 Funding Exceptions.
(a) BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR.
If with respect to any Interest Period:
(i) the Lender determines that deposits in U.S.
dollars (in the applicable amounts) are not being offered in
the London interbank eurodollar market for such Interest
Period; or
(ii) the Lender otherwise determines that by reason
of circumstances affecting the London interbank eurodollar
market adequate and reasonable means do not exist for
ascertaining the applicable Eurodollar Rate; or
(iii) the Lender determines that the funding of
Eurodollar Rate Advances has become impracticable as a result
of an event occurring after the date of this Agreement which
in the opinion of the Lender materially affects such
Eurodollar Rate Advances;
then the Lender shall promptly notify the Parent Borrower and (A) upon
the occurrence of any event described in the foregoing clause (i) the
Borrowers shall enter into good faith negotiations with the Lender in
order to determine an alternate method to determine the Eurodollar Rate
for the Lender, and during the pendency of such negotiations with the
Lender, the Lender shall have no obligation to make any new Eurodollar
Rate Advances, and (B) upon the occurrence of any event described in
the foregoing clauses (ii) or (iii), for so long as such circumstances
shall continue, the Lender shall have no obligation to make any new
Eurodollar Rate Advances.
(b) ILLEGALITY. If any change in (including the adoption of
any new) applicable laws or regulations, or any change in the
interpretation of applicable laws or regulations by any governmental
authority, central bank, comparable agency or any other regulatory body
charged with the interpretation, implementation or administration
thereof, or compliance by the Lender with any request or directive
(whether or not having the force of law) of any such authority, central
bank, comparable agency or other regulatory body, should make it or, in
the good faith judgment of the Lender, shall raise a substantial
question as to whether it is unlawful for the Lender to maintain or
fund Eurodollar Rate Advances, then (i) the Lender shall promptly
notify the Parent Borrower, (ii) the obligation of the Lender to
maintain or convert into Eurodollar Rate Advances shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness, and (iii) for the duration of such unlawfulness, any
notice by the Parent Borrower requesting the Lender to convert into
Eurodollar Rate Advances shall be construed as a request to continue
making Floating Rate Advances.
Section 2.19 Voluntary Prepayment; Reduction of the Maximum
Line; Termination of the Credit Facility by the Borrowers. Except as otherwise
provided herein, the Borrowers may prepay the Revolving Advances in whole at any
time or from time to time in part. The Borrowers may terminate the Credit
Facility or reduce the Maximum Line at any
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<PAGE> 30
time if they (i) give the Lender at least 30 days' prior written notice and (ii)
pay the Lender the prepayment, termination or line reduction fees in accordance
with Section 2.20. Any reduction in the Maximum Line must be in an amount not
less than $5,000,000 or an integral multiple thereof. If the Borrowers reduce
the Maximum Line to zero, all Obligations shall be immediately due and payable.
Upon termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrowers are entitled by law.
Section 2.20 Termination, Line Reduction and Prepayment Fees;
Waiver of Termination, Prepayment and Line Reduction Fees.
(a) TERMINATION AND LINE REDUCTION FEES. If the Lender after
an Event of Default, or the Borrowers at any time, terminate the Credit
Facility as of a date other than the Maturity Date, or if the Borrowers
reduce the Maximum Line, the Borrowers shall pay the Lender a fee in an
amount equal to a percentage of the Maximum Line (or the reduction, as
the case may be) as follows: (i) three percent (3.0%) if the
termination or reduction occurs on or before the first anniversary of
the Funding Date; (ii) two percent (2.0%) if the termination or
reduction occurs after the first anniversary of the Funding Date but on
or before the second anniversary of the Funding Date; and (iii) one
percent (1.0%) if the termination or reduction occurs after the second
anniversary of the Funding Date but before the Maturity Date.
(b) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The
Borrowers will not be required to pay the termination or line reduction
fees otherwise due under this Section 2.20 if such termination or line
reduction is made from the proceeds of a refinancing by Norwest Bank
Texas or Wells Fargo Bank.
Section 2.21 Mandatory Prepayment. Without notice or demand,
if the sum of the outstanding principal balance of the Revolving Advances plus
the L/C Amount shall at any time exceed the Borrowing Base, the Borrowers shall
(i) first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.21 or
under Section 2.19 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.22 Payment. All payments to the Lender shall be made
in immediately available funds and shall be applied to the Obligations one
Banking Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrowers hereby authorize the Lender, in its discretion at any time or from
time to time without the Borrowers' request and even if the conditions set forth
in Section 4.4 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.
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Section 2.23 Payment on Non-Banking Days. Whenever any payment
to be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest
on the Advances or the fees hereunder, as the case may be.
Section 2.24 Use of Proceeds. The Borrowers shall use the
proceeds of Advances, and each Letter of Credit, if any, in accordance with
Schedule 2.24.
Section 2.25 Liability Records. The Lender may maintain from
time to time, at its discretion, liability records as to the Obligations. All
entries made on any such record shall be presumed correct until the Borrowers
establish the contrary. Upon the Lender's demand, the Borrowers will admit and
certify in writing the exact principal balance of the Obligations that the
Borrowers then assert to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrowers
unless the Parent Borrower gives the Lender specific written notice of exception
within 30 days after receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 Grant of Security Interest. The Borrowers hereby
pledge, assign and grant to the Lender a security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time during a Default Period notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrowers will join in giving such notice if
the Lender so requests. At any time after the Borrowers or the Lender give such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the applicable Borrower's name, (a) demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any such
account debtor or other obligor; and (b) as the applicable Borrower's agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of such Borrower's mail to any address designated by the Lender,
otherwise intercept such Borrower's mail, and receive, open and dispose of such
Borrower's mail, applying all Collateral as permitted under this Agreement and
holding all other mail for such Borrower's account or forwarding such mail to
such Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrowers hereby assign
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned
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premiums) due or to become due under, and all other rights of each Borrower with
respect to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records or
valuable papers pertaining thereto, and the Borrowers hereby direct the issuer
of any such policy to pay all such monies directly to the Lender. At any time,
whether or not a Default Period then exists, the Lender may (but need not), in
the Lender's name or in the applicable Borrower's name, execute and deliver
proof of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrowers hereby irrevocably grant to the Lender the
right to take exclusive possession of the Premises at any time during a
Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrowers shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrowers will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. Each Borrower hereby grants to the Lender
a non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents owned by it for
the purpose of selling, leasing or otherwise disposing of any or all Collateral
during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by a
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby by that
Borrower. For this purpose, Schedule 3.6 sets forth the name of each Borrower,
as debtor and the name of the Lender as secured party.
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Section 3.7 Setoff. The Borrowers agree that the Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to any Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to any Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to such Borrower the amount of such participating interest.
Section 3.8 Accommodation Party Defenses Waived. The parties
intend that each Borrower shall be fully liable, jointly and severally, for all
Obligations. Nonetheless, in case a court finds that any Borrower is not such a
primary obligor with respect to all or any part of the Obligations, the
Borrowers expressly waive the benefit of any and all defenses and discharges
available to a guarantor, surety, endorser or accommodation party dependent on
an obligor's character as such. Without limiting the generality of the
foregoing, the liability of the Borrowers hereunder shall not be affected or
impaired in any way by any of the following acts or things (which the Lender is
hereby expressly authorized to do, omit or suffer from time to time without
notice to or consent of anyone): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any Obligations; (ii) any
extension or renewal of any Obligations (whether or not for longer than the
original period) or any modification of the interest rate, maturity or other
terms of any Obligations; (iii) any waiver or indulgence granted to any
Borrower, and any delay or lack of diligence in the enforcement of the
Obligations; (iv) any full or partial release of, compromise or settlement with,
or agreement not to sue, any Borrower, Guarantor or other person liable on any
Obligations; (v) any release, surrender, cancellation or other discharge of any
Obligations or the acceptance of any instrument in renewal or substitution for
any instrument evidencing any Obligations; (vi) any failure to obtain collateral
security (including rights of setoff) for any Obligations, or to see to the
proper or sufficient creation and perfection thereof, or to establish the
priority thereof, or to preserve, protect, insure, care for, exercise or enforce
any collateral security for any Obligations; (vii) any modification, alteration,
substitution, exchange, surrender, cancellation, termination, release or other
change, impairment, limitation, loss or discharge of any Collateral, Guarantor
Collateral or other collateral security for the Obligations; (viii) any
assignment, sale, pledge or other transfer of any of Obligations; or (ix) any
manner, order or method of application of any payments or credits on any
Obligations.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Initial Revolving
Advance and the Initial Letter of Credit. The Lender's obligation to make the
initial Revolving Advance or to cause to be issued the initial Letter of Credit
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
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(a) This Agreement, properly executed by the Borrowers.
(b) The Note, properly executed by the Borrowers.
(c) A true and correct copy of any and all leases pursuant to
which any Borrower is leasing any portion of the Premises, together
with a landlord's disclaimer and consent with respect to each such
lease.
(d) The Collateral Pledge Agreement, properly executed by the
Parent Borrower together with certificates representing all of the
Parent Borrower's shares in each of its Subsidiaries and stock powers
with respect to such certificates.
(e) The Collateral Account Agreement, properly executed by the
Borrowers and Wells Fargo.
(f) The Lockbox Agreement, properly executed by the Borrowers
and Wells Fargo.
(g) Current searches of appropriate filing offices showing
that (i) no state or federal tax Liens have been filed and remain in
effect against any Borrower or any Guarantor, (ii) no financing
statements have been filed and remain in effect against any Borrower or
any Guarantor except those financing statements relating to Permitted
Liens or to Liens held by Persons who have agreed in writing that upon
receipt of proceeds of the Advances, they will deliver UCC releases
and/or terminations satisfactory to the Lender, and (iii) the Lender
has duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable of
being perfected by filing.
(h) A certificate of each Borrower's secretary or assistant
secretary certifying that attached to such certificate are true correct
and complete copies of (i) the resolutions of that Borrower's directors
and if required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) that Borrower's articles of
incorporation and bylaws, and (iii) the names, titles and signatures of
that Borrower's officers or agents authorized to execute and deliver
the Loan Documents and other instruments, agreements and certificates,
including Advance requests, on that Borrower's behalf.
(i) Current certificates issued by the Secretary of State of
Delaware and Texas, certifying that each Borrower is in compliance with
all applicable organizational requirements of the States of Delaware or
Texas, as the case may be.
(j) Evidence that each Borrower and each Guarantor is duly
licensed or qualified to transact business in all jurisdictions where
the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification
necessary.
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(k) An opinion of counsel to the Borrowers, addressed to the
Lender.
(l) Payment of the fees and commissions due through the date
of the initial Advance or Letter of Credit under Section 2.15 and
expenses incurred by the Lender through such date and required to be
paid by the Borrowers under Section 9.6, including all legal expenses
incurred through the date of this Agreement.
(m) After making the initial Revolving Advance, and (i)
retiring all Debt owed to Bank One, (ii) satisfying all trade payables
of each Borrower over 60 days past due, (iii) paying all overdrafts of
each Borrower, and (iv) satisfying all conditions set forth in this
Section 4.1, Availability shall be not less than $10,000,000.
(n) The Lender shall have reviewed and approved such contracts
of the Companies as it may require.
(o) The Seitel No Offset Agreement, properly executed by
Seitel.
(p) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to Advances and Letters of
Credit after 30 Days. The Lender's obligation to make each Advance or to cause
the Issuer to issue any Letter of Credit after the 30th day after the Funding
Date shall be subject to the further conditions precedent that on or before such
date the Lender shall have received all of the following, each in form and
substance satisfactory to the Lender:
(a) The Guarantor Documents, properly executed by each
Guarantor.
(b) A certificate of each Guarantor's secretary or assistant
secretary certifying that attached to such certificate are true,
correct and complete copies of (i) appropriate resolutions of that
Guarantor's directors and if required, shareholders, authorizing the
execution, delivery and performance of that the Guarantor Documents to
which it is a party, (ii) that Guarantor's articles of incorporation
and bylaws, and (iii) the names, titles and signatures of each
Guarantor's officers or agents authorized to execute and deliver the
Guarantor Documents on that Guarantor's behalf.
(c) An opinion of counsel to each Guarantor, addressed to the
Lender.
Section 4.3 Condition Precedent to Revolving Advances over $5
million. The Lender's obligation to make any Revolving Advance in an amount
greater than $5,000,000 shall be subject to the further condition precedent that
on or immediately before such date, the chief financial officer of the Parent
Borrower shall deliver a certificate to the Lender to the effect that as of the
date of such certificate no Default Period exists and that to the best knowledge
of such officer, no Default or Event of Default will exist immediately after the
Borrowers receive the proceeds of such Advance.
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Section 4.4 Conditions Precedent to All Advances and Letters
of Credit. The Lender's obligation to make each Advance or to cause the Issuer
to issue any Letter of Credit shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or issuance of Letter
of Credit as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier
date; and
(b) no event has occurred and is continuing, or would result
from such Advance or the issuance of such Letter of Credit, as the case
may be, which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Lender as
follows:
Section 5.1 Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number.
(a) Each Company is a corporation or limited partnership, duly
organized, validly existing and in good standing under the laws of the
State of its organization and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(b) No dissolution or termination of any Company has occurred,
and no notice of dissolution or articles of termination have been filed
with respect to any Company.
(c) Each Company has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties
and to execute and deliver, and to perform all of its obligations
under, the Loan Documents.
(d) During their existence, the Companies have done business
solely under the names set forth in Schedule 5.1 hereto.
(e) For each Borrower, (i) its chief executive office and
principal place of business is located at the address set forth in
Schedule 5.1; (ii) all of its records relating to its business and the
Collateral are kept at that location; (iii) all of its Inventory and
Equipment is located at that location or at one of the other locations
set forth in Schedule 5.1; (iv) its tax identification number is
correctly set forth in Schedule 3.6.
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Section 5.2 Capitalization. Schedule 5.2 constitutes a correct
and complete list of all shareholder interests of each Company other than the
Parent Borrower and rights to acquire such shareholder interests, including the
amount and record holder thereof and an organizational chart showing the
ownership structure of all Subsidiaries of the Parent Borrower.
Section 5.3 Authorization of Borrowing; No Conflict as to Law
or Agreements. The execution, delivery and performance by each Company of the
Loan Documents and Guarantor Documents to which it is a party, and the
borrowings from time to time hereunder by the Borrowers, have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of any Company's shareholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
any Company or of any Company's articles of incorporation and bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
any Company is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
(other than the Security Interest and the Liens granted under the Security
Documents and the Guarantor Documents) upon or with respect to any of the
properties now owned or hereafter acquired by any Company.
Section 5.4 Legal Agreements. This Agreement constitutes and,
upon due execution by the Companies, the other Loan Documents and Guarantor
Documents will constitute, the legal, valid and binding obligations of the
Companies, enforceable against the applicable Companies in accordance with their
respective terms.
Section 5.5 Subsidiaries. Except as set forth in Schedule 5.5,
no Borrower has any Subsidiaries.
Section 5.6 Financial Condition; No Adverse Change. The Parent
Borrower has heretofore furnished to the Lender its audited financial statements
dated as of December 31, 1997, and its unaudited interim financial statements
dated as of November 30, 1998, and those statements fairly present the
consolidated financial condition of the Parent Borrower and its Subsidiaries as
of the dates thereof and the results of their operations and cash flows for the
periods then ended and were prepared in accordance with generally accepted
accounting principles. Since the date of the most recent financial statements,
there has been no material adverse change in any Borrower's or any Subsidiary's
business, properties or condition (financial or otherwise).
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Section 5.7 Litigation. There are no actions, suits or
proceedings pending or, to any Borrower's knowledge, threatened against or
affecting any Company or any of its Affiliates or the properties of any Company
or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to that Company or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of that Company or any of its Affiliates.
Section 5.8 Regulation U. No Company is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.9 Taxes. The Companies and their Affiliates have
paid or caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by each of them. The Companies and their
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Companies or any Affiliate, as the case may be,
are required to be filed, and the Companies and their Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.10 Titles and Liens. Each Company has good and
absolute title to all Collateral, Guarantor Collateral and other collateral
described in the collateral reports provided to the Lender and all other
properties and assets reflected in the latest financial statements referred to
in Section 5.6 and all proceeds thereof, free and clear of all Liens except for
Permitted Liens. No financing statement or similar instrument naming any Company
as debtor is on file in any office except to perfect only Permitted Liens.
Section 5.11 Intellectual Property Rights. Each Company (a)
owns or has the exclusive right to use, free and clear of all material Liens,
claims and restrictions, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted; (b) owns or has the unrestricted right
to use all trade secrets, including know-how, inventions, designs, processes,
computer programs and technical data necessary to the development, operation and
sale of all products and services sold or proposed to be sold by it, free and
clear of any rights, Liens or claims of others; and (c) is not using any
confidential information or trade secrets of others. No Company is obligated or
under any liability whatsoever to make any payments of a material nature by way
of royalties, fees or otherwise to any owner of, licensor of, or other claimant
to, any patent, trademark, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise, is, or has received notice with respect to, infringing upon or
otherwise acting adversely to any known right or claimed right of any person
under or with respect to any patents, trademarks, service marks, trade names,
copyrights, licenses or rights with respect to the foregoing.
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Section 5.12 Plans. Except as disclosed to the Lender in
writing prior to the date hereof, no Company maintains or has maintained any
Plan. No Company has received any notice or has any knowledge to the effect that
it is not in full compliance with any of the requirements of ERISA. No
Reportable Event or other fact or circumstance which may have an adverse effect
on the Plan's tax qualified status exists in connection with any Plan. No
Company has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.13 Default. Each Company is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on that Company's financial
condition, properties or operations.
Section 5.14 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any governmental
statute, regulation, law or ordinance of any jurisdiction
domestic or foreign dealing with the protection of human
health and the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrowers' best knowledge, there are not present in
the Ships or in, on or under the Premises, any Hazardous Substances in
such form or quantity as to create any material liability or obligation
for any Borrower or the Lender under common law of any jurisdiction or
under any Environmental Law (other than Hazardous Substances in the
Borrowers' possession in compliance with all applicable laws and
pursuant to all required permits), and no Hazardous Substances have
ever been stored, spilled, leaked, discharged, emitted or released in
or from the Ships or the Premises, or buried under the Premises, in
such a way as to create any such liability.
(c) To the Borrowers' best knowledge, no Company has disposed
of Hazardous Substances in such a manner as to create any material
liability under any Environmental Law.
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(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises, the Ships
or any Company, alleging material liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or
other authorization issued pursuant thereto. To the Borrowers' best
knowledge, no such matter is threatened or impending.
(e) To the Borrowers' best knowledge, each Company's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
appropriate Company's possession and are in full force and effect. No
permit required under any Environmental Law is scheduled to expire
within 3 months and there is no threat that any such permit will be
withdrawn, terminated, limited or materially changed.
(f) To the Borrowers' best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Parent Borrower has and will keep at its headquarters
in Houston, Texas, copies of all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating
in any way to the Premises, the Ships or any Company's businesses, and
shall make such documents available to the Lender upon request.
Section 5.15 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Companies in
connection with the Borrowers' request for the Credit Facilities is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.16 Financing Statements. Each Borrower and Domestic
Guarantor has provided to the Lender signed financing statements, which are
sufficient when filed to perfect the Security Interest and the other security
interests created by the Security Documents and the Guarantor Documents to the
extent such security interests are capable of being perfected by filing. When
such financing statements are filed in the offices noted therein, the Lender
will have a valid and perfected security interest in all Collateral and all
other collateral described in the Security Documents which is capable of being
perfected by filing financing statements. None of the Collateral, Guarantor
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate in the United States, unless a sufficient
fixture filing is in effect with respect thereto.
Section 5.17 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral, Guarantor Collateral or other collateral covered by the
Security Documents is (or, in the case of all
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future Collateral, Guarantor Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in any Company's records pertaining thereto as being
obligated to pay such obligation.
Section 5.18 Financial Solvency. Both before and after giving
effect to the transactions contemplated in the Loan Documents, no Company:
(a) was or will be insolvent, as that term is used and defined
in Section 101(32) of the United States Bankruptcy Code and Section 2
of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of
that Company are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents, Guarantor Documents or other documents to
which it is a party or by taking any action with respect thereto,
intends to, nor believes that it will, incur debts beyond its ability
to pay them as they mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents, Guarantor Documents or other documents to
which it is a party or by taking any action with respect thereto,
intends to hinder, delay or defraud either its present or future
creditors; and
(e) at this time contemplates filing a petition in bankruptcy
or for an arrangement or reorganization or similar proceeding under any
law any jurisdiction, nor, to the best knowledge of the Borrowers, is
the subject of any actual, pending or threatened bankruptcy, insolvency
or similar proceedings under any law of any jurisdiction.
ARTICLE VI
BORROWERS' AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrowers will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrowers will
deliver, or cause to be delivered, to the Lender each of the following, which
shall be in form and detail acceptable to the Lender:
(a) ANNUAL AUDITED FINANCIAL STATEMENTS. The Parent Borrower
will deliver to the Lender as soon as they are available, and in any
event within 90 days
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after the end of each fiscal year of the Parent Borrower, the Parent
Borrower's audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Parent
Borrower and acceptable to the Lender, which annual financial
statements shall include the Parent Borrower's balance sheet as at the
end of such fiscal year and the related statements of income, retained
earnings and cash flows for the fiscal year then ended, prepared on a
consolidating and consolidated basis to include all Subsidiaries of the
Parent Borrower, all in reasonable detail and prepared in accordance
with GAAP, together with (i) copies of all management letters prepared
by such accountants; and (ii) a certificate of the Parent Borrower's
chief financial officer stating (A) that such financial statements have
been prepared in accordance with GAAP and fairly represent the Parent
Borrower's financial position and the results of its operations, (B)
whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto, and (C) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or
not the Parent Borrower is in compliance with the requirements set
forth in Sections 6.14, 6.15, 6.16 and 7.11.
(b) MONTHLY UNAUDITED FINANCIAL STATEMENTS. The Parent
Borrower will deliver to the Lender as soon as they are available and
in any event within 30 days after the end of each month, the Parent
Borrower's unaudited/internal balance sheet and statements of income
and retained earnings as at the end of and for such month and for the
fiscal year-to-date period then ended, prepared, if the Lender so
requests, on a consolidating and consolidated basis to include all
Subsidiaries of the Parent Borrower, in reasonable detail and stating
in comparative form the figures for the corresponding date and periods
in the previous fiscal year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Parent Borrower's chief financial officer, substantially in the
form of Exhibit E hereto stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and fairly represent the Parent Borrower's financial
position and the results of its operations, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii)
all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Parent Borrower is in compliance
with the requirements set forth in Sections 6.14, 6.15, 6.16 and 7.11.
(c) MONTHLY REPORTS. The Parent Borrower will deliver to the
Lender as soon as they are available and in any event within 15 days
after the end of each month, agings of the Borrowers' accounts
receivable and accounts payable, an accounts receivable reconciliation
and a calculation of the Borrowers' Accounts and Eligible Accounts, as
at the end of such month or shorter time period.
(d) MONTHLY-WEEKLY REPORTS. The Parent Borrower will deliver
to the Lender as soon as available and in any event within 15 days
after the end of each
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month, or, if the outstanding principal balance of the Note is greater
than $-0- and Availability is less than $10,000,000, within two (2)
Business Days after the end of each week, any and all receivables
schedules, collection reports, cash receipt and deposit records, copies
of invoices to account debtors, shipment documents and delivery
receipts for goods sold concerning the Companies as the Lender may
require.
(e) ANNUAL PROJECTIONS. At least 30 days before the beginning
of each fiscal year of the Parent Borrower, the Parent Borrower will
deliver to the Lender the projected balance sheets and income
statements for the Companies for each month of such year, each in
reasonable detail, representing the Parent Borrower's good faith
projections and certified by the Parent Borrower's chief financial
officer as being the most accurate projections available and identical
to the projections used by the Companies for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its discretion require.
(f) LITIGATION. Immediately after the commencement thereof,
the Parent Borrower will give notice in writing to the Lender of all
litigation and of all proceedings before any governmental or regulatory
agency affecting any Borrower of the type described in Section 5.14 or
which seek a monetary recovery against a Borrower in excess of
$250,000.
(g) DEFAULTS. As promptly as practicable (but in any event not
later than five business days) after an officer of any Company obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or Guarantor Document or any event which
constitutes a Default or Event of Default hereunder, the Parent
Borrower will give to the Lender notice of such occurrence, together
with a detailed statement by a responsible officer of the applicable
Company of the steps being taken by that Company to cure the effect of
such breach, default or event.
(h) REPORTABLE EVENTS. As soon as possible and in any event
within 30 days after any Company knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, the Parent
Borrower will deliver to the Lender a statement of the Parent
Borrower's chief financial officer setting forth details as to such
Reportable Event and the action which the Borrowers propose to take
with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation.
(i) PLAN CONTRIBUTIONS. As soon as possible, and in any event
within 10 days after any Company fails to make any quarterly
contribution required with respect to any Plan under Section 412(m) of
the Internal Revenue Code of 1986, as amended, the Parent Borrower will
deliver to the Lender the statement of the Parent Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrowers propose to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation.
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(j) DISPUTES. Promptly upon knowledge thereof, the Parent
Borrower will deliver to the Lender notice of (i) any disputes or
claims by any Company's customers exceeding $250,000 individually or
$500,000 in the aggregate during any fiscal year; (ii) credit memos for
amounts exceeding $50,000 or such lesser amount as will provide the
Lender with ten percent (10%) of all credit memos generated on a
monthly or yearly basis; (iii) any goods returned to or recovered by
any Company;
(k) CHANGE IN SENIOR MANAGEMENT. Promptly upon knowledge
thereof, the Parent Borrower will deliver to the Lender notice of any
change in the persons constituting the Parent Borrower's senior
officers and directors.
(l) COLLATERAL. Promptly upon knowledge thereof, the Parent
Borrower will deliver to the Lender notice of any loss of or material
damage to any Collateral or other collateral covered by the Security
Documents or the Guarantor Documents or of any substantial adverse
change in any Collateral or such other collateral or the prospect of
payment thereof.
(m) REPORTS TO OWNERS. Promptly upon their distribution, the
Parent Borrower will deliver to the Lender copies of all financial
statements, reports and proxy statements which the Parent Borrower
shall have sent to its stockholders.
(n) SEC REPORTS. Promptly after the sending or filing thereof,
the Parent Borrower will deliver to the Lender copies of all regular
and periodic reports which any Company shall file with the Securities
and Exchange Commission or any national securities exchange.
(o) TAX RETURN. As soon as possible, and in any event by not
later than April 30th of each year, copies of the Parent Borrower's
United States tax return and all schedules thereto.
(p) VIOLATION OF LAW. Promptly upon knowledge thereof, the
Parent Borrower will deliver to the Lender notice of any Company's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect that Company's business or its
financial condition.
(q) OTHER INFORMATION. From time to time, with reasonable
promptness, the Parent Borrower will deliver to the Lender such other
material, reports, records or information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The
Borrowers will, and will cause each other Company to, keep accurate books of
record and account for itself pertaining to the Collateral and Guarantor
Collateral and pertaining to that Company's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will, and will cause each other Company to, permit any officer,
employee, attorney or accountant for the Lender to audit, review, make extracts
from or copy
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any and all corporate and financial books and records of any Company at all
times during ordinary business hours, to send and discuss with account debtors
and other obligors requests for verification of amounts owed to any Company, and
to discuss each Company's affairs with any of its directors, officers, employees
or agents. Each Borrower will, and will cause each other Company to, permit the
Lender, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral, Guarantor Collateral, other collateral covered by the
Security Documents or any other property of any Company at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time
and from time to time send or require the Borrowers to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) Each Borrower will, and will cause each other Company to
(i) comply with the requirements of applicable laws and regulations,
the non-compliance with which would materially and adversely affect its
business or its financial condition and (ii) use and keep the
Collateral and Guarantor Collateral, and require that others use and
keep the Collateral and Guarantor Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or
ordinance.
(b) Without limiting the foregoing undertakings, each Borrower
specifically agrees that it will, and will cause each other Company to,
comply with all applicable Environmental Laws and obtain and comply
with all permits, licenses and similar approvals required by any
Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create
any liability or obligation under the common law of any jurisdiction or
any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. Each Borrower
will, and will cause each other Company to, pay or discharge, when due, (a) all
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, upon any properties belonging to it (including, without
limitation, the Collateral or Guarantor Collateral, as applicable) or upon or
against the creation, perfection or continuance of the Security Interest or any
security interest granted by the Guarantor Documents, prior to the date on which
penalties attach thereto, (b) all federal, state and local taxes required to be
withheld by it, and (c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon any properties of any Company;
provided, that no Company shall not be required to pay any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which proper reserves have been
made.
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Section 6.6 Maintenance of Properties.
(a) Each Borrower will, and will cause each other Company to,
keep and maintain the Collateral, Guarantor Collateral and the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent any
Company from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in that Company's judgment,
desirable in the conduct of its business and not disadvantageous in any
material respect to the Lender as holder of the Obligations.
(b) Each Borrower will, and will cause each other Company to,
defend the Collateral and Guarantor Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral
or Guarantor Collateral or any interest therein.
(c) Each Borrower will, and will cause each other Company to,
keep all Collateral, Guarantor Collateral and other collateral covered
by the Security Documents and Guarantor Documents free and clear of all
Liens except Permitted Liens.
Section 6.7 Ownership of Ships. One of the Borrowers or the
Guarantors shall at all times own the Ships. As of the date hereof, the "Austral
Horizon" is owned by Austral Horizon, Inc. and the "Atlantic Horizon" is owned
by Atlantic Horizon, Inc.
Section 6.8 Insurance. Each Borrower will, and will cause each
other Company to, obtain and at all times maintain insurance with insurers
believed by it to be responsible and reputable, in such amounts and against such
risks as may from time to time be required by the Lender, but in all events in
such amounts and against such risks as is usually carried by companies engaged
in similar business and owning similar properties in the same general areas in
which the Companies operate. Without limiting the generality of the foregoing,
each Borrower will, and will cause each other Company to, at all times keep all
tangible Collateral and Guarantor Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral or
Guarantor Collateral consisting of motor vehicles) and such other risks and in
such amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit acceptable
to the Lender. All policies of liability insurance required hereunder shall name
the Lender as an additional insured.
Section 6.9 Preservation of Existence. Each Borrower will, and
will cause each other Company to, preserve and maintain its existence and all of
its rights, privileges and franchises necessary or desirable in the normal
conduct of its business, and shall, and shall cause each other Company to,
conduct its business in an orderly, efficient and regular manner.
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Section 6.10 Delivery of Instruments, etc. Upon request by the
Lender, the Borrowers will, and will cause the other Companies to, promptly
deliver to the Lender in pledge all instruments, documents and chattel papers
constituting Collateral or Guarantor Collateral, duly endorsed or assigned by
the applicable Company.
Section 6.11 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, any Borrower receives any payments on
Receivables, that Borrower shall deposit such payments into the
Collateral Account. Until so deposited, each Borrower shall hold all
such payments in trust for and as the property of the Lender and shall
not commingle such payments with any of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by any Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing one Banking Day, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrowers will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrowers' commercial account or other account. Each
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by that Borrower.
Section 6.12 Ship Mortgages. Upon request by the Lender at any
time during a Default Period, the Parent Borrower shall cause each Company then
owning an interest in one or more of the Ships to grant the Lender a first
priority Lien in the "[Austral][Atlantic] Horizon".
Section 6.13 Performance by the Lender. If any Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Parent Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5, 6.8
and 6.11, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the applicable Borrower (or, at
the Lender's option, in the
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Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
the Borrowers shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by the Lender in connection with or as a result of
the performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred at
the Default Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrowers, each Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as that Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of that Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by that Borrower under this Section 6.13.
Section 6.14 Minimum Consolidated EBITDA Coverage Ratio. The
Parent Borrower will maintain its Consolidated EBITDA Coverage Ratio, determined
as of the end of each month at not less than the amount set forth below opposite
such month:
<TABLE>
<CAPTION>
Minimum Consolidated
Month Ending EBITDA Coverage Ratio
---------------------------------- -----------------------------------
<S> <C>
March 31, 1999 1.50 to 1.00
April 30, 1999 1.50 to 1.00
May 31, 1999 1.50 to 1.00
June 30, 1999 1.45 to 1.00
July 31, 1999 1.45 to 1.00
August 31, 1999 1.45 to 1.00
September 30, 1999 1.30 to 1.00
October 31, 1999 1.30 to 1.00
November 30, 1999 1.30 to 1.00
December 31, 1999 and 1.50 to 1.00
thereafter
</TABLE>
Section 6.15 Minimum Consolidated Modified Tangible Net Worth.
The Parent Borrower will maintain its Consolidated Modified Tangible Net Worth,
determined as of the end of each month, at not less than $57,500,000, increased
each year on the date the Lender receives the Parent Borrower's annual financial
statements, by the amount of positive Consolidated Net Income for the prior
fiscal year.
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Section 6.16 Minimum Consolidated Current Ratio. The Parent
Borrower will maintain its Consolidated Current Ratio, determined as of the end
of each month at not less than the ratio set forth below:
<TABLE>
<CAPTION>
Minimum Consolidated
Fiscal Quarter Ending Current Ratio
------------------------------------ ----------------------
<S> <C>
March 31, 1999 0.95 to 1.00
June 30, 1999 0.95 to 1.00
September 30, 1999 1.00 to 1.00
December 31, 1999 and 1.10 to 1.00
thereafter
</TABLE>
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrowers agree that, without the
Lender's prior written consent:
Section 7.1 Liens. The Borrowers will not, and will not permit
any other Company to, create, incur or suffer to exist any Lien upon or of any
of its assets, now owned or hereafter acquired, to secure any indebtedness;
excluding, however, from the operation of the foregoing, the following
(collectively, "Permitted Liens"):
(a) in the case of any of a Company's property which is not
Collateral, Guarantor Collateral or other collateral described in the
Security Documents, covenants, restrictions, rights, easements and
minor irregularities in title which do not materially interfere with
that Company's business or operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents and Guarantor Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of a Company not exceeding the
lesser of cost or fair market value thereof, not exceeding $500,000 for
any one purchase or $5,000,000 in the aggregate during any fiscal year
and so long as no Default Period is then in existence and none would
exist immediately after such acquisition.
(e) Liens representing the interest or title of lessors under
Capitalized Lease Obligations.
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(f) Liens securing Hedging Obligations permitted to be
incurred pursuant to Section 7.2(d).
(g) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance bonds and other obligations of
a like nature incurred in the ordinary course of business (other than
contracts for the payment of money).
(h) Easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with
the business of the Parent Borrower or any Restricted Subsidiary
incurred in the ordinary course of business.
(i) Statutory Liens or landlords', maritime, carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith
by appropriate proceedings.
(j) Liens incidental to the conduct by the Parent Borrower or
its Restricted Subsidiaries of Multi-Client Surveys (including without
limitation, licenses, participation rights, rebate or revenue sharing
obligations, joint ownership, or similar encumbrances), provided that
such Liens have not arisen in connection with the incurrence of Debt.
(k) Any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing Subsections (a) through
(j); provided that any such extension, renewal or replacement is no
more restrictive in any material respect than the Lien so extended,
renewed or replaced and does not extend to any additional property or
assets.
Section 7.2 Indebtedness. The Borrowers will not, and will not
permit any other Company to, incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
for borrowed money or letters of credit issued on any Borrower's behalf, or any
other indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of a Company in existence on the date hereof
and indebtedness that a Company intends to incur within the next three
(3) months, as described in Schedule 7.2 hereto;
(c) indebtedness relating to Permitted Liens; and
(d) Debt of the Parent Borrower or any Restricted Subsidiary
in respect of Hedging Obligations incurred in the ordinary course of
business.
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Section 7.3 Guaranties. No Borrower will, and will not permit
any Other Company to, assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
(a) the endorsement of negotiable instruments by a Company for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrowers will not, and will not permit any other
Company to, purchase or hold beneficially any stock or other securities
or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever
in, any other Person, including specifically but without limitation any
partnership or joint venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) investments in Subsidiaries existing on the date
hereof;
(iii) travel advances or loans to a Company's
officers and employees not exceeding at any one time an
aggregate of $50,000; and
(iv) advances in the form of progress payments,
prepaid rent not exceeding three (3) months or security
deposits.
(b) The Borrowers will not, and will not permit any other
Company to, create or permit to exist any Subsidiary, other than the
Subsidiaries in existence on the date hereof and listed in Schedule
5.5.
Section 7.5 Dividends. The Parent Borrower will not declare or
pay any dividends (other than dividends payable solely in stock of the Parent
Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
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Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. No Borrower will, or will permit any other Company to, sell, lease,
assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii)
all or a substantial part of its assets, or (iii) any Collateral or Guarantor
Collateral or any interest therein (whether in one transaction or in a series of
transactions) to any other Person other than the sale of Inventory in the
ordinary course of business, and no Borrower will, or will permit any other
Company to, liquidate, dissolve or suspend business operations. The Borrowers
will not, and will not permit any other Company to, in any manner transfer any
property without prior or present receipt of full and adequate consideration;
provided, however, that the Borrowers may sell for nominal consideration or
abandon all equipment installed on the ship "Discoverer".
Section 7.7 Intellectual Property. No Borrower will, or will
permit any other Company to, sell, assign or grant licenses to use, any of its
applications for patents, patents, copyrights, trademarks, trade secrets, trade
names or other intellectual property to any other Person without prior or
present receipt of full and adequate consideration.
Section 7.8 Consolidation and Merger; Asset Acquisitions. The
Parent Borrower will not consolidate with or merge into any Person, or permit
any other Person to merge into it, or acquire (in a transaction analogous in
purpose or effect to a consolidation or merger) all or substantially all the
assets of any other Person.
Section 7.9 Sale and Leaseback. No Borrower will, or will
permit any other Company to, enter into any arrangement, directly or indirectly,
with any other Person whereby such Company shall sell or transfer any real or
personal property, whether now owned or hereafter acquired, and then or
thereafter rent or lease as lessee such property or any part thereof or any
other property which such Company intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
Section 7.10 Restrictions on Nature of Business. No Borrower
will, or will permit any other Company to, engage in any line of business
materially different from that presently engaged in by that Company and no
Borrower will, or will permit any other Company to, purchase, lease or otherwise
acquire assets not related to its business.
Section 7.11 Capital Expenditures. The Companies will not
incur or contract to incur Capital Expenditures of more than $37,000,000 in the
aggregate during the fiscal year ending December 31, 1999.
Section 7.12 Accounting. The Borrowers will not, and will not
permit any other Company to, adopt any material change in accounting principles
other than as required by GAAP. No Borrower will, or will permit any other
Company to, adopt, permit or consent to any change in its fiscal year.
Section 7.13 Discounts, etc. No Borrower will, or permit any
other Company to, after notice from the Lender, grant any discount, credit or
allowance to any customer or accept any return of goods sold, or at any time
(whether before or after notice from the Lender) modify, amend, subordinate,
cancel or terminate the obligation of any account debtor or other obligor of a
Company.
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Section 7.14 Defined Benefit Pension Plans. No Borrower will,
or will permit any Company to, adopt, create, assume or become a party to any
defined benefit pension plan, unless disclosed to the Lender pursuant to Section
5.12.
Section 7.15 Other Defaults. No Borrower will, or will permit
any other Company to, permit any breach, default or event of default to occur
under any note, loan agreement, indenture, lease, mortgage, contract for deed,
security agreement or other contractual obligation binding upon it.
Section 7.16 Place of Business; Name. Without giving the
Lender 30 days prior written notice, no Borrower will, or will permit any other
Company to, (a) transfer its chief executive office or principal place of
business, or move, relocate, close or sell any business location; (b) permit any
tangible Collateral or Guarantor Collateral or any records pertaining to the
Collateral or Guarantor Collateral to be located in any state or area in which,
in the event of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to perfect the
Security Interest and the Liens granted under the Security Documents and the
Guarantor Documents; and (c) no Borrower will, or will permit any other Company
to, change its name.
Section 7.17 Organizational Documents. Without giving the
Lender 30 days prior written notice, no Borrower will, or will permit any other
Company to, amend its articles of incorporation, bylaws, partnership agreement,
limited liability company organizational documents or similar documents in any
manner which would affect the existence, priority or perfection of the Lender's
Liens in each Company's assets or the Lender's ability to enforce its rights and
remedies under this Agreement.
Section 7.18 Salaries. No Borrower will, or will permit any
other Company to, pay excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation.
Section 7.19 Change of Control. The Parent Borrower will not
permit a Change of Control to occur.
Section 7.20 Transactions with Affiliates. No Borrower will,
or will permit any other Company to, enter into any transaction with another
Company or 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 or a
Company.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:
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(a) Default for more than five (5) Banking Days in the payment
of the Obligations when they become due and payable;
(b) Failure to pay for more than five (5) Banking Days any
amount specified in Section 2.4 relating to the Borrowers' Obligation
of Reimbursement, or failure to pay immediately when due or upon
termination of the Credit Facility any amounts required to be paid for
deposit in the Special Account under Section 2.5;
(c) Default for more than five (5) Banking Days in the payment
of any fees, commissions, costs or expenses required to be paid by the
Borrowers under this Agreement;
(d) Default in the performance of any covenant set forth in
Section 6.1 for more than 10 (ten) Banking Days.
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrowers contained in this Agreement (other than a
covenant or agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with);
(f) The senior management (including without limitation, the
president, the executive vice president, any vice president and the
chief financial officer) of the Parent Borrower shall change;
(g) Any Borrower or any Guarantor shall be or become
insolvent, or admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or any
Borrower or any Guarantor shall apply for or consent to the appointment
of any receiver, trustee, or similar officer for it or for all or any
substantial part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of such
Borrower or such Guarantor, as the case may be; or any Borrower or any
Guarantor shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against any Borrower or any such Guarantor; or any judgment, writ,
warrant of attachment or execution or similar process shall be issued
or levied against a substantial part of the property of any Borrower or
any Guarantor;
(h) A petition shall be filed by a Borrower or any Guarantor
under the United States Bankruptcy Code naming a Borrower or such
Guarantor as debtor;
(i) A petition shall be filed against a Borrower or any
Guarantor under the United States Bankruptcy Code naming a Borrower or
a Guarantor as debtor and (A) the applicable Borrower or Guarantor
shall fail to oppose such petition for more than five (5) days or (B)
an order for relief shall be entered or (C) 60 days shall elapse from
the date such petition is filed;
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(j) Any representation or warranty made by a Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or
by a Borrower (or any of its officers) or any Guarantor in any
agreement, certificate, instrument or financial
statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement or any such guaranty
shall prove to have been incorrect in any material respect when deemed
to be effective;
(k) The rendering against any Borrower of a final judgment,
decree or order for the payment of money in excess of $250,000 for any
single occurrence or $500,000 in the aggregate, and the continuance of
such judgment, decree or order unsatisfied and in effect for any period
of 30 consecutive days without a stay of execution;
(l) A default under any bond, debenture, note or other
evidence of indebtedness exceeding $100,000 of any Borrower owed to any
Person other than the Lender (including without limitation the Senior
Notes), or under any indenture or other instrument under which any such
evidence of indebtedness has been issued or by which it is governed, or
under any lease, and the expiration of the applicable period of grace,
if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(m) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Parent Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or any Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or any Borrower shall
have failed to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a Lien on
any Borrower's assets in favor of the Plan;
(n) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrowers hereunder or under any note;
(o) Any Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
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(p) Any Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(q) Default in the payment of any amount owed by any Borrower
to the Lender other than any indebtedness arising hereunder;
(r) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(s) Any event or circumstance with respect to any Borrower
shall occur such that the Lender shall believe in good faith that the
prospect of payment of all or any part of the Obligations or the
performance by any Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of any
Borrower shall occur; or
(t) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 Rights and Remedies. During any Default Period,
the Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Parent Borrower, declare
the Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Parent Borrower, declare
the Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind,
all of which the Borrowers hereby expressly waive;
(c) the Lender may, without notice to the Parent Borrower and
without further action, apply any and all money owing by the Lender to
the Borrowers to the payment of the Obligations;
(d) the Lender may make demand upon the Borrowers and,
forthwith upon such demand, the Borrowers will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Section 2.21 an amount equal to the aggregate maximum amount
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all conditions for drawing thereunder;
(e) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof,
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proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrowers hereby expressly
waive) and the right to sell, lease or otherwise dispose of any or all
of the Collateral, and, in connection therewith, the Borrowers will on
demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to
both parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (g) or (h) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrowers of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by any Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on any Borrower
in any case shall entitle any Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
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telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to any Borrower:
Eagle Geophysical, Inc.
2603 Augusta, 14th Floor
Houston Texas 77057
Telecopier: 713-243-6281
Attention: Richard W. McNairy
If to the Lender:
Norwest Business Credit, Inc.
6100 Bandera Road, Suite SL 100
San Antonio, Texas 78238
Telecopier: 210-856-8989
Attention: Alan Neis
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrowers will, and will
cause each other Company to, from time to time execute and deliver or endorse
any and all instruments, documents, conveyances, assignments, security
agreements, financing statements and other agreements and writings that the
Lender may reasonably request in order to secure, protect, perfect or enforce
the Security Interest or the Lender's rights under the Loan Documents and
Guarantor Documents (but any failure to request or assure that a Company
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents, Guarantor
Documents and the Security Interest, regardless of whether any such item was or
was not executed, delivered or endorsed in a similar context or on a prior
occasion).
Section 9.5 Collateral. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrowers are entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve,
-54-
Eagle Geophysical Credit Agreement
<PAGE> 59
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights any Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application.
Section 9.6 Costs and Expenses. The Borrowers shall pay on
demand all costs and expenses, including (without limitation) reasonable
attorneys' fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents, any Letters of Credit, and any other document or
agreement related hereto or thereto, and the transactions contemplated hereby,
including without limitation all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses
pursuant to Section 9.6, the Borrowers shall indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or
the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.14 proves to be incorrect in any
respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) in connection
with the foregoing and any other investigative, administrative
or judicial proceedings, whether or not such Indemnitee shall
be designated a party thereto, which may be imposed on,
incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrowers, or counsel designated by the Borrowers and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrowers' sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify,
-55-
Eagle Geophysical Credit Agreement
<PAGE> 60
defend and hold harmless may be held to be unenforceable because it violates any
law or public policy, the Borrowers shall nevertheless make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrowers' obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrowers' other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns. The Lender will not sell any participation interest in the Obligations
to any competitor of the Borrowers or to any financial institution not organized
under the laws of one of the States or the United States of America.
Section 9.9 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrowers and the Lender and their respective successors and
assigns, except that the Borrowers shall not have the right to assign their
rights thereunder or any interest therein without the Lender's prior written
consent. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding the
Borrowers and their Affiliates with the Lender's participants, accountants,
lawyers and other advisors, the Lender, Wells Fargo & Company, and all direct
and indirect subsidiaries of Wells Fargo & Company, may exchange any and all
information they may have in their possession regarding the Borrowers and their
Affiliates, and the Borrowers waive any right of confidentiality they may have
with respect to such exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial. THE PARTIES AGREE THAT THE LAW OF THE STATE OF MINNESOTA (OTHER THAN
CONFLICT OF LAWS RULES OF THE STATE OF MINNESOTA) SHALL BE APPLICABLE TO AND
GOVERN ALL ASPECTS OF THIS TRANSACTION
-56-
Eagle Geophysical Credit Agreement
<PAGE> 61
AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE PARTIES AGREE THAT
ALL DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, ALL MATTERS PERTAINING TO THE VALIDITY
OR ENFORCEABILITY OF SUCH DOCUMENTS AND AGREEMENTS AS WELL AS ALL MATTERS
PERTAINING TO THE INTERPRETATION OR CONSTRUCTION OF SUCH DOCUMENTS AND
AGREEMENTS, SHALL BE DETERMINED UNDER AND GOVERNED BY THE LAWS (OTHER THAN
CONFLICT OF LAWS RULES) OF THE STATE OF MINNESOTA. FURTHER, THE PARTIES AGREE
THAT THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS AND THE SUBJECT MATTER
OF SUCH TRANSACTIONS BEAR A REASONABLE RELATION TO THE STATE OF MINNESOTA. THE
PARTIES HERETO HEREBY (I) CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN THE STATE OF MINNESOTA IN CONNECTION WITH ANY
CONTROVERSY RELATED TO THIS AGREEMENT; (II) WAIVE ANY ARGUMENT THAT VENUE IN ANY
SUCH FORUM IS NOT CONVENIENT, (III) AGREE THAT ANY LITIGATION INITIATED BY THE
LENDER OR ANY BORROWER IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE VENUED IN EITHER THE DISTRICT COURT OF HENNEPIN COUNTY,
MINNESOTA, OR THE UNITED STATES DISTRICT COURT, DISTRICT OF MINNESOTA, FOURTH
DIVISION; AND (IV) AGREE THAT A FINAL JUDGMENT IN ANY SUCH SUIT, ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE PARTIES WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
-57-
Eagle Geophysical Credit Agreement
<PAGE> 62
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
NORWEST BUSINESS CREDIT, INC. EAGLE GEOPHYSICAL, INC., EAGLE
GEOPHYSICAL ONSHORE, INC., EAGLE
GEOPHYSICAL OFFSHORE, INC.,
EAGLE GEOPHYSICAL ROYALTY, INC.
By /s/ Alan Neis (F/K/A EAGLE GEOPHYSICAL
-------------------------------------- LEASING, INC.), EAGLE GEOPHYSICAL
Alan Neis DE MEXICO, INC., EAGLE FRONT END
Its Vice President SERVICES, INC., EAGLE GEOPHYSICAL
MANAGEMENT, INC., EAGLE
GEOPHYSICAL GOM, INC., EAGLE
GEOPHYSICAL DE COLOMBIA, INC.,
EAGLE GEOPHYSICAL DE PERU, INC.,
AUSTRAL HORIZON, INC., ATLANTIC
HORIZON, INC., EAGLE GEOPHYSICAL
DE BOLIVIA, INC., EAGLE
GEOPHYSICAL DE ARGENTINA, INC.
AND EAGLE GEOPHYSICAL DE
ECUADOR, INC.
By /s/ Richard W. McNairy
------------------------------
Richard W. McNairy
Its Vice President
EAGLE FRONT END SERVICES, LTD.
By EAGLE GEOPHYSICAL
MANAGEMENT, INC.
Its General Partner
By /s/ Richard W. McNairy
----------------------------------
Richard W. McNairy
Its Vice President
-58-
Eagle Geophysical Credit Agreement
<PAGE> 63
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion
Exhibit D Form Of Notice to Continue Eurodollar Rate
Advance
Exhibit E Form of Compliance Certificate
Exhibit F Premises
Schedule 2.24 Sources and Uses of Funds
Schedule 3.6 Financing Statement Information
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.2 Capital Stock
Schedule 5.5 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE> 64
EXHIBIT A TO CREDIT AND SECURITY AGREEMENT
REVOLVING NOTE
$20,000,000 San Antonio, Texas
March 26, 1999
For value received, the undersigned, EAGLE GEOPHYSICAL, INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Twenty Million Dollars and
No Cents ($20,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrowers under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement") by
and between the Lender and the Borrowers. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or more
other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.
The Borrowers hereby agree to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
<PAGE> 65
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
EAGLE FRONT END SERVICES, LTD. EAGLE GEOPHYSICAL, INC., EAGLE
GEOPHYSICAL ONSHORE, INC., EAGLE
By EAGLE GEOPHYSICAL GEOPHYSICAL OFFSHORE, INC.,
MANAGEMENT, INC. EAGLE GEOPHYSICAL ROYALTY, INC.
Its General Partner (F/K/A EAGLE GEOPHYSICAL
LEASING, INC.), EAGLE GEOPHYSICAL
By DE MEXICO, INC., EAGLE FRONT END
------------------------------ SERVICES, INC., EAGLE GEOPHYSICAL
Richard W. McNairy MANAGEMENT, INC., EAGLE
Its Vice President GEOPHYSICAL GOM, INC., EAGLE
GEOPHYSICAL DE COLOMBIA, INC.,
EAGLE GEOPHYSICAL DE PERU, INC.,
AUSTRAL HORIZON, INC., ATLANTIC
HORIZON, INC., EAGLE GEOPHYSICAL
DE BOLIVIA, INC., EAGLE
GEOPHYSICAL DE ARGENTINA, INC.
AND EAGLE GEOPHYSICAL DE
ECUADOR, INC.
By
------------------------------
Richard W. McNairy
Its Vice President
Eagle Geophysical - Revolving Promissory Note
- -2-
<PAGE> 66
EXHIBIT B TO CREDIT AND SECURITY AGREEMENT
NOTICE OF BORROWING
_____________, _______
TO: Norwest Business Credit, Inc.
6100 Bandera Road, Suite SL 100
San Antonio, Texas 78238
Telecopier: 210-856-8989
Attention: Mr. Alan Neis
We refer to that certain Credit and Security Agreement dated
as of March 26, 1999 (as amended or modified to date, the "Credit and Security
Agreement") by and among Eagle Geophysical, Inc., Eagle Geophysical Onshore,
Inc, Eagle Geophysical Offshore, Inc., Eagle Geophysical Royalty, Inc. (f/k/a
Eagle Geophysical Leasing, Inc.), Eagle Geophysical de Mexico, Inc., Eagle Front
End Services, Inc., Eagle Geophysical Management, Inc., Eagle Geophysical GOM,
Inc., Eagle Front End Services, Ltd., Eagle Geophysical de Colombia, Inc., Eagle
Geophysical de Peru, Inc., Austral Horizon, Inc., Atlantic Horizon, Inc., Eagle
Geophysical de Bolivia, Inc., Eagle Geophysical de Argentina, Inc. and Eagle
Geophysical de Ecuador, Inc. and Norwest Business Credit, Inc. Capitalized terms
used herein but not otherwise defined shall have the same meanings assigned to
them in the Credit and Security Agreement.
Pursuant to Section 2.7 of the Credit and Security Agreement,
we hereby request or confirm our request for an Advance on the date, of the
type(s) and in the amount(s) specified below.
<TABLE>
<CAPTION>
Interest Period
(Eurodollar
Borrowing Request Type of Advance Date of Borrowing Advances Only)
- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
$
</TABLE>
EAGLE GEOPHYSICAL, INC.
By
------------------------------
- --------------------------------------------------------------------------------
Its
---------------------------
<PAGE> 67
EXHIBIT C TO CREDIT AND SECURITY AGREEMENT
NOTICE OF CONVERSION TO EURODOLLAR RATE ADVANCES
_____________, _______
TO: Norwest Business Credit, Inc.
6100 Bandera Road, Suite SL 100
San Antonio, Texas 78238
Telecopier: 210-856-8989
Attention: Mr. Alan Neis
We refer to that certain Credit and Security Agreement dated
as of March 26, 1999 (as amended or modified to date, the "Credit and Security
Agreement") by and among Eagle Geophysical, Inc., a Delaware corporation, Eagle
Geophysical Onshore, Inc, Eagle Geophysical Offshore, Inc., Eagle Geophysical
Royalty, Inc. (f/k/a Eagle Geophysical Leasing, Inc.), Eagle Geophysical de
Mexico, Inc., Eagle Front End Services, Inc., Eagle Geophysical Management,
Inc., Eagle Geophysical GOM, Inc., Eagle Front End Services, Ltd., Eagle
Geophysical de Colombia, Inc., Eagle Geophysical de Peru, Inc., Austral Horizon,
Inc., Atlantic Horizon, Inc., Eagle Geophysical de Bolivia, Inc., Eagle
Geophysical de Argentina, Inc. and Eagle Geophysical de Ecuador, Inc. and
Norwest Business Credit, Inc. Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit and Security
Agreement.
Pursuant to Section 2.8 of the Credit and Security Agreement,
we hereby request or confirm our request that Floating Rate Advances in the
aggregate amounts specified below be converted on the date(s) and for the
Interest Period(s) specified below.
<TABLE>
<CAPTION>
Amount of Floating Rate
Advances To Be Converted Date of Conversion Interest Period
- ---------------------------------- ----------------------- --------------------
<S> <C> <C>
$
</TABLE>
EAGLE GEOPHYSICAL, INC.
By
--------------------------------
Its
-----------------------------
-1-
Term Note
<PAGE> 68
EXHIBIT D TO CREDIT AND SECURITY AGREEMENT
NOTICE TO CONTINUE EURODOLLAR FUNDING
_____________, _______
TO: Norwest Business Credit, Inc.
6100 Bandera Road, Suite SL 100
San Antonio, Texas 78238
Telecopier: 210-856-8989
Attention: Mr. Alan Neis
We refer to that certain Credit and Security Agreement dated
as of March 26, 1999 (as amended or modified to date, the "Credit and Security
Agreement") by and among Eagle Geophysical, Inc., a Delaware corporation, Eagle
Geophysical Onshore, Inc, Eagle Geophysical Offshore, Inc., Eagle Geophysical
Royalty, Inc. (f/k/a Eagle Geophysical Leasing, Inc.), Eagle Geophysical de
Mexico, Inc., Eagle Front End Services, Inc., Eagle Geophysical Management,
Inc., Eagle Geophysical GOM, Inc., Eagle Front End Services, Ltd., Eagle
Geophysical de Colombia, Inc., Eagle Geophysical de Peru, Inc., Austral Horizon,
Inc., Atlantic Horizon, Inc., Eagle Geophysical de Bolivia, Inc., Eagle
Geophysical de Argentina, Inc. and Eagle Geophysical de Ecuador, Inc. and
Norwest Business Credit, Inc. Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit and Security
Agreement.
Pursuant to Section 2.9 of the Credit and Security Agreement,
we hereby request or confirm our request that Eurodollar Rate Advances in the
aggregate amount(s) specified below be renewed on the date(s) and for the
Interest Period(s) specified below.
<TABLE>
<CAPTION>
Amount of Eurodollar Rate Date of
Advances to be Renewed Expiring Interest Period New Interest Period
- ------------------------------------ ----------------------------- ------------------------
<S> <C> <C>
$
</TABLE>
EAGLE GEOPHYSICAL, INC.
By
---------------------------------
- -------------------------------------------------------------------------------
Its
------------------------------
2
<PAGE> 69
EXHIBIT E TO CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: Alan Neis
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: Eagle Geophysical, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as
of March 26, 1999 (the "Credit Agreement"), attached are the financial
statements of Eagle Geophysical, Inc. (the "Parent Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Parent Borrower's financial condition and the results of its operations as
of the date thereof.
Events of Default. (Check one):
[ ] The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the
Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit
Agreement and attached hereto is a statement of the
facts with respect to thereto. The Borrower
acknowledges that pursuant to Section 2.14(c) the
Lender may impose the Default Rate at any time during
the resulting Default Period.
<PAGE> 70
Financial Covenants. I further hereby certify as follows:
1. Minimum Consolidated EBITDA Coverage Ratio. Pursuant to
Section 6.14 of the Credit Agreement, as of the Reporting Date, the
Parent Borrower's Consolidated EBITDA Coverage Ratio was _____ to 1.00
which [ ] satisfies [ ] does not satisfy the requirement that such
ratio be no less than _____ to 1.00 on the Reporting Date as set forth
below:
<TABLE>
<CAPTION>
Minimum Consolidated
Month Ending EBITDA Coverage Ratio
--------------------------------- --------------------------
<S> <C>
March 31, 1999 1.50 to 1.00
April 30, 1999 1.50 to 1.00
May 31, 1999 1.50 to 1.00
June 30, 1999 1.45 to 1.00
July 31, 1999 1.45 to 1.00
August 31, 1999 1.45 to 1.00
September 30, 1999 1.30 to 1.00
October 31, 1999 1.30 to 1.00
November 30, 1999 1.30 to 1.00
December 31, 1999 and 1.50 to 1.00
thereafter
</TABLE>
2. Minimum Consolidated Modified Tangible Net Worth. Pursuant
to Section 6.15 of the Credit Agreement, as of the Reporting Date, the
Parent Borrower's Consolidated Modified Tangible Net Worth was
$____________, which [ ] satisfies [ ] does not satisfy the requirement
that such amount be not less than $57,500,000 plus the amount of
positive net income for each fiscal year ending after December 31,
1998.
3. Minimum Consolidated Current Ratio. Pursuant to Section
6.14 of the Credit Agreement, as of the Reporting Date, the Parent
Borrower's Consolidated Current Ratio was _____ to 1.00 which [ ]
satisfies [ ] does not satisfy the requirement that such ratio be no
less than __________ to 1.0 on the Reporting Date as set forth below:
<TABLE>
<CAPTION>
Minimum Consolidated
Fiscal Quarter Ending Current Ratio
------------------------------- ---------------------------
<S> <C>
March 31, 1999 0.95 to 1.00
June 30, 1999 0.95 to 1.00
September 30, 1999 1.00 to 1.00
December 31, 1999 and 1.10 to 1.00
thereafter
</TABLE>
Compliance Certificate -2-
<PAGE> 71
4. Capital Expenditures. Pursuant to Section 7.11 of the
Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrowers have expended or contracted to expend during the
_____________ year ended ______________, 199___, for Capital
Expenditures, $__________________ in the aggregate and at most
$______________ in any one transaction, which [ ] satisfies [ ] does
not satisfy the requirement that such expenditures not exceed
$__________ in the aggregate and $___________ for any one transaction
during such year.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
EAGLE GEOPHYSICAL, INC.
By
---------------------------------
Its
------------------------------
Compliance Certificate -3-
<PAGE> 72
EXHIBIT F TO CREDIT AND SECURITY AGREEMENT
Premises
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
[To be completed by Borrowers]
<PAGE> 1
EXHIBIT 10.2
REVOLVING NOTE
$20,000,000 San Antonio, Texas
March 26, 1999
For value received, the undersigned, EAGLE GEOPHYSICAL, INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Twenty Million Dollars and
No Cents ($20,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrowers under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement") by
and between the Lender and the Borrowers. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or more
other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.
The Borrowers hereby agree to pay all costs of collection,
including attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
<PAGE> 2
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
EAGLE FRONT END SERVICES, LTD.
By EAGLE GEOPHYSICAL MANAGEMENT, INC.
Its General Partner
By /s/ Richard W. McNairy
---------------------------------
Richard W. McNairy
Its Vice President
EAGLE GEOPHYSICAL, INC., EAGLE GEOPHYSICAL
ONSHORE, INC., EAGLE GEOPHYSICAL OFFSHORE, INC.,
EAGLE GEOPHYSICAL ROYALTY, INC. (F/K/A EAGLE
GEOPHYSICAL LEASING, INC.), EAGLE GEOPHYSICAL
DE MEXICO, INC., EAGLE FRONT END SERVICES, INC.,
EAGLE GEOPHYSICAL MANAGEMENT, INC., EAGLE
GEOPHYSICAL GOM, INC., EAGLE GEOPHYSICAL DE
COLOMBIA, INC., EAGLE GEOPHYSICAL DE PERU, INC.,
AUSTRAL HORIZON, INC., ATLANTIC HORIZON, INC.,
EAGLE GEOPHYSICAL DE BOLIVIA, INC., EAGLE
GEOPHYSICAL DE ARGENTINA, INC. AND EAGLE
GEOPHYSICAL DE ECUADOR, INC.
By /s/ Richard W. McNairy
---------------------------------
Richard W. McNairy
Its Vice President
<PAGE> 1
EXHIBIT 10.3
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement"), dated as of April 16,
1999, is among Gerald Martin Harrison of Kent, England, an individual
(hereinafter sometimes referred to as "Harrison"), and Eagle Geophysical, Inc.,
a Delaware corporation (hereinafter sometimes referred to as the "Company") and
Exploration Holdings Limited, a company organized under the laws of the United
Kingdom (hereinafter sometimes referred to as "EHL"):
WHEREAS, Harrison entered into an Employment Agreement with EHL which
was amended on July 3, 1996, August 11, 1997 and April 1, 1998 (hereinafter
referred to collectively as the "Employment Agreement");
WHEREAS, all capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to such terms in the Employment
Agreement;
WHEREAS, the Company indirectly owns all of the issued and outstanding
shares of EHL;
WHEREAS, in addition to his duties and obligations under the Employment
Agreement, Harrison has served as a member of the Board of Directors and
Executive Vice President of the Company since prior to its initial public
offering of Company stock in August 1997; and
WHEREAS, the parties hereto desire that the employment of Harrison
under the Employment Agreement be terminated and that Harrison confirm his
resignation as an officer and director of the Company and its subsidiaries,
including EHL, on the terms set forth herein.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
agreements and covenants set forth in this Agreement, hereby agree as follows:
1. TERMINATION OF EMPLOYMENT AGREEMENT. Harrison and EHL hereby
terminate the Employment Agreement as of the date hereof and this Agreement
supercedes in all respects the terms of the Employment Agreement. Except as
otherwise provided herein, all provisions of the Employment Agreement, including
those which by their terms survive the termination of the Employment Agreement,
are hereby terminated in all respects. From and after the date hereof, Harrison
shall cease to be an employee, officer and director of the Company and any
affiliate and subsidiary of the Company including but not limited to EHL,
Horizon Exploration Limited, a company organized under the law of the United
Kingdom and Energy Research International, a company organized under the laws of
the Cayman Islands (hereinafter sometimes referred to collectively as the
"Company and its Subsidiaries").
2. SEVERANCE PAYMENTS. EHL shall pay Harrison a lump sum of
(pound)100,000 on or before May 24, 1999 (the "Severance Payment"), less any
applicable withholding taxes, by EHL check to be mailed to him at the address
set forth herein. In consideration of the agreement of EHL to make the Severance
Payment, Harrison hereby agrees to the termination of the Employment Agreement
as provided herein.
<PAGE> 2
3. STOCK OPTIONS. Prior to April 30, 1999, the agreement between
Harrison and the Company with respect to the stock options to purchase 75,000
shares of common stock of Company previously granted to Harrison shall be
amended as follows:
(a) the options to purchase 25,000 shares which vested on
August 11, 1998 shall continue to be exercisable despite the
termination of Harrison's employment, subject to Harrison complying
with the terms of this Agreement;
(b) the options to purchase 25,000 shares that were to vest on
August 11, 1999, subject to Harrison's continued employment, will vest
on such date despite the termination of Harrison's employment, subject
to Harrison complying with the terms of this Agreement; and
(c) the remaining options to purchase 25,000 shares that were
to vest on August 11, 2000 shall not vest, and shall therefore be
canceled.
Such options will be exercisable at any time within the period from and after
their vesting and on or before 5:00 p.m., Houston time, on December 31, 2000.
4. FULL COMPENSATION. Harrison acknowledges that as of the date of this
Agreement, he has received, in full, all amounts of compensation,
reimbursements, vacations, holidays, leaves of absence, allowances, and other
monies, payments, properties and benefits of any kind or nature to which he is
or might have been entitled to receive from EHL by virtue of his employment with
EHL (hereby waiving any accrued vacation not previously taken), and that the
only amount remaining to be paid to Harrison with respect to his employment by
EHL, is as set forth in Section 2 hereof.
5. RELEASE OF CLAIMS.
(a) In consideration of the agreements of EHL and the Company
as stated in this Agreement, Harrison hereby agrees to execute this
Agreement and knowingly and voluntarily releases and waives any and all
of his rights and claims, if any, on behalf of himself, his heirs,
executors, administrators, successors and assigns and further agrees
not to institute any action against EHL and the Company or any
director, officer, employee, affiliate, or agent of EHL and the
Company, existing or arising or which may exist or arise under (i) any
offer of employment letter, oral understandings, employee manual or
handbook, written employment agreement or contractual arrangement; (ii)
the Employee Retirement Income Security Act of 1974, as amended, 28
U.S.C. Sections 1001-1461 (1982); (iii) any federal, state or local
employment opportunity laws, ordinances, orders or regulations,
including but not limited to Title VII of the Civil Rights Act of 1964,
42 U.S.C. Section 2000e et seq., as amended, the Texas Commission on
Human Rights Act, Chapter 21 Tex. Lab. Code; (iv) any claims for
slander, libel, or defamation; (v) any rights, claims, or causes of
action for costs, damages, compensatory damages, liquidated damages,
exemplary damages, punitive damages, injunctive relief, front pay, back
pay, reinstatement, attorneys' fees, unpaid wages, unpaid vacation,
bonuses, salary, or expenses, severance pay, bonuses, salary, or
expenses, including the Texas Pay Day Act; as well as (vi) any claims
of wrongful discharge or
2
<PAGE> 3
constructive discharge; (vii) any claims in tort or contract for
separation from employment; (viii) any claims for breach of contract
relating to his employment by EHL and the Company (other than a breach
of the terms of this Agreement) under any state laws or decisions; (ix)
any claims or causes of action for assault, assault and battery; (x)
any claims for infliction of emotional distress, including mental pain
and suffering, whether statutory or tortious, for him, his heirs,
executors, legal administrators, successors or assigns, during or by
reason of his employment or termination thereof with EHL; and (xi) any
and all similar provisions which are applicable under the laws of the
United Kingdom; provided, however, that Harrison does not release any
claim he may have against EHL or the Company for any actual damages
(other than damages for emotional distress, including mental pain and
suffering) arising from a breach by EHL or the Company of any provision
of this Agreement.
(b) The Company, on behalf of itself and its subsidiaries,
affiliates, officers, directors, shareholders, agents, representatives,
successors and assigns, hereby releases and waives any and all of its
and their rights and claims, if any, and further agrees not to
institute any action against Harrison or his heirs, executors,
administrators, successors and assigns, for any breach of the terms of
the Employment Agreement (other than this Agreement).
6. PERSONAL PROPERTY. Except as the parties may otherwise agree,
Harrison shall, prior to April 30, 1999, remove all of his personal effects and
personal belongings from the premises of the Company's offices located in the
United Kingdom, United States of America or elsewhere (hereinafter referred to
collectively as the "Company Offices"). Harrison shall promptly effect a change
of his mailing address from the Company Offices to another mailing address for
purposes of all personal correspondence and deliveries. Harrison agrees and
consents that all business correspondence and deliveries addressed to him in
care of or at the Company Offices and relating to the business of the Company
and its Subsidiaries may be opened by the Company or, if forwarded to Harrison,
shall be promptly returned by Harrison to the Company. Harrison agrees that he
will not remove any written correspondence, memos, reports, manuals, policies,
decisions, data, computer programs and information, or any similar materials
which were prepared either by him or by others that relate to the business of
the Company, and any such material currently in Harrison's possession will be
returned immediately to the Company.
7. RESIGNATION AS OFFICER AND DIRECTOR. Harrison hereby confirms his
resignation as an officer and director of the Company and its Subsidiaries
effective as of April 16, 1999.
8. CONTINUED RELATIONS.
(a) Harrison agrees not to serve as an expert witness in any
lawsuit or legal proceeding against the Company, its assigns,
successors, agents, trustees, directors, officers, general partners,
limited partners, subsidiaries, affiliates, or employees and shall not
take any action which the Company might reasonably consider destructive
or damaging in any way to the goodwill and best interests of the
Company, its employees, officers, directors, agents, general partners,
limited partner, subsidiaries or affiliates, except in either case in
connection with legal proceedings in which Harrison or his successors
or assigns are adverse to the
3
<PAGE> 4
Company, its assigns, successors, agents, trustees, directors,
officers, general partners, limited partners, subsidiaries, affiliates,
or employees.
(b) Harrison and the Company shall not take any actions which
shall be destructive or damaging in any way to the goodwill or best
interests of the other.
9. PRIOR RIGHTS AND OBLIGATIONS. Except as otherwise provided herein,
this Agreement extinguishes all pre-existing rights which Harrison has or may
have, relating to his employment with the Company and its Subsidiaries.
10. PROPRIETARY AND CONFIDENTIAL INFORMATION. Harrison agrees and
acknowledges that the Company and its Subsidiaries developed, and own
"Proprietary and Confidential Information" which constitutes valuable and unique
property including, without limitation, concepts, ideas, plans, strategies,
analyses, surveys, and proprietary information which relates to the past,
present or anticipated business of the Company and its Subsidiaries. Except as
may be required by law, Harrison agrees that he will not at any time disclose to
others, permit to be disclosed, use, permit to be used, copy, or permit to be
copied, any such Proprietary and Confidential Information (whether or not
developed by him) without the Company's prior written consent. Except as may be
required by law, Harrison further agrees to maintain in confidence any
Proprietary and Confidential Information of the Company and its Subsidiaries
received by him. Proprietary and Confidential Information shall not include (i)
information which becomes generally known through no fault of Harrison, (ii)
information required to be disclosed by any court or governmental authority,
(iii) information received by Harrison in good faith from a third party who
Harrison reasonably believed, after due inquiry, did not acquire such
information on a confidential basis, either directly or indirectly, from the
Company or any of its affiliates, and (iv) information that Harrison can
demonstrate was within his legitimate possession prior to the commencement of
any relationship between Harrison and the Company and its Subsidiaries and their
predecessors.
11. AGREEMENT NOT TO COMPETE. Harrison acknowledges that (i) the
Company and its Subsidiaries are 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 onshore and
offshore (the "Company Business"); (ii) his employment with the Company has
given him, access to trade secrets of and confidential information concerning
the Company and its Subsidiaries; and (iii) the agreements and covenants
contained in this Section 11 are essential to protect the business and goodwill
of the Company and its Subsidiaries.
(a) In consideration for EHL's agreement to make the Severance
Payment to Harrison, as well as the Company's other agreements herein,
Harrison agrees that he shall not during the Restricted Period (as
hereinafter defined) within a one hundred (100) mile radius of the
Company Offices, including, without limitation, the locations of any
field offices, directly or indirectly (i) engage or participate in the
Company Business; or (ii) enter the employ of, or render any other
services to, any person engaged in the Company Business except as
permitted hereunder. In addition, during the Restricted Period (as
hereinafter defined) Harrison agrees that he shall not become
interested in any person engaged in the Company Business in any
capacity, including, without limitation, as an individual, partner,
4
<PAGE> 5
shareholder, lender, officer, director, principal, agent or trustee
except as permitted hereunder; provided, however, that Harrison 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 Harrison is not a controlling person of, or a member of a group
which controls, such person and Harrison 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,
the "Restricted Period" shall mean the period commencing on the date
hereof and terminating on May 24, 1999.
(b) As an independent covenant, Harrison 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 or
becomes known to Harrison through his employment by the Company.
(c) As an independent covenant, Harrison agrees to refrain for
a period of twelve months after the date of this Agreement from
inducing or attempting to influence any employee of the Company, its
divisions, subsidiaries and/or affiliated entities to terminate his
employment with the Company, its divisions, subsidiaries and/or
affiliated entities.
12. COOPERATION. Harrison shall cooperate with the Company to the
extent reasonably required in all matters relating to the transfer of his
pending work on behalf of the Company and its Subsidiaries and the orderly
transfer of any such pending work as designated by the Company. Harrison shall
take such further action and execute documents as may be reasonably necessary or
appropriate in order to carry out the provisions and purposes of this Section.
Harrison shall not be obligated to incur any costs or expenses in connection
with the cooperation required hereby.
13. NON-ADMISSION OF LIABILITY.
(a) The payment of the consideration by the Company and EHL
above is not to be taken or understood as an admission of liability by
the Company or any person or entity released herein.
(b) Nothing in this Agreement shall be taken or understood as
an admission of liability by Harrison of any wrongdoing.
14. INDEMNIFICATION.
(a) As a part of the consideration for the payment of the
above sum, Harrison for himself, his heirs, executors, administrators
and assigns, releases and agrees to indemnify and hold harmless the
Company and all persons released above from and against all claims,
including attorneys' fees and costs of defending any such claims, and
causes of action of any
5
<PAGE> 6
nature, without limitation, which may be asserted by any person, firm,
or entity claiming by, through, or under him for any relief claimed to
be due him and released by this Agreement.
(b) The Company, on behalf of itself and its subsidiaries,
affiliates, officers, directors, shareholders, agents,
representatives, successors and assigns, releases and agrees to
indemnify and hold harmless Harrison and his heirs, executors,
administrators and assigns from and against all claims, including
attorneys' fees and costs of defending any such claims, and causes of
action of any nature, without limitation, which may be asserted by any
person, firm, or entity claiming by, through, or under it for any
relief claimed to be due it and released by this Agreement.
15. EXPLANATION TO THIRD PARTIES; CONFIDENTIALITY OF AGREEMENT. The
parties hereto agree that they shall describe, as necessary in the conduct of
their business, the termination of the relationship between Harrison and the
Company and its Subsidiaries. The parties agree that, hereafter, any facts,
events, or incidents occurring during Harrison's employment and the terms,
amounts, or other incidents related to this Agreement and any documents, papers,
and writing related to it, as well as the fact of settlement, shall remain
confidential and shall not be disclosed by them to any third parties, except to
professional advisors, accountants, legal counsel, or as is necessary to carry
out any obligations under this Agreement or to enforce its rights under this
Agreement, and as may be required by any federal or state agency or court. In
the event of any disclosure to any authorized person, the parties shall instruct
such individuals of the provisions of this Section. In the event of necessary
disclosure by Harrison to such agency or court (except tax filings), Harrison
shall promptly notify the Company of such necessity, prior to any disclosure.
16. WAIVER OF REEMPLOYMENT. Harrison further agrees that he will not
apply for employment or reemployment with the Company.
17. UNDERSTANDING OF WAIVER. Harrison agrees that prior to the
execution of the Agreement, he has had a reasonable period of time within which
to consider this Agreement; and he understands the terms and conditions of this
Agreement and agrees to abide by this document and knowingly and voluntarily
executes it without hidden reservations.
18. NON-ASSIGNMENT. Harrison affirms that he has not assigned, pledged,
sold, transferred, or otherwise conveyed any right, claim, or interest that he
has or may have in any matters released herein.
19. TAX RELATED INDEMNIFICATION. In the event any federal, state, or
local taxing authority challenges any tax treatment of any payments described in
this Agreement, Harrison shall give notice to the Company as soon as is
practicable, and provide the Company with a copy of any written indication from
any local, state, or federal agency that the tax consequences of this Agreement
are being challenged. Further, in the event Harrison fails to make adequate
provision for federal income taxes with respect to any amounts due to him
hereunder by the payment of estimated quarterly federal income tax payments,
Harrison shall indemnify and hold harmless the Company for any taxes, penalties
and interest that may be assessed against the Company attributable to amounts
received by Harrison required under law. Notwithstanding anything to the
contrary
6
<PAGE> 7
contained in this Section, however, neither the Company nor Harrison shall be
obligated to defend the tax audit of the other by the Internal Revenue Service
or any other taxing authority.
20. WAIVER. The failure at any time of either party to this Agreement
to require performance by the other party of any provision of this Agreement
shall in no way affect the right to require full performance at any time
thereafter, nor shall the waiver by either party of a breach of or default under
any provision of this Agreement be taken or held to be or operate as a waiver of
any succeeding breach or default, whether similar to or different from the
breach or default waived, or as a waiver of the provision itself. No provision
of this Agreement, or breach of or default under any provision of this
Agreement, may be waived except in a writing signed by the party charged with
such waiver.
21. NOTICE. Any and all notices and other communications required or
permitted to be given under this Agreement shall be given in writing and shall
be sent by (i) United States mail, postage prepaid, registered or certified
mail, return receipt requested, or (ii) personal delivery, or (iii) expedited
delivery service with proof of delivery, or (iv) prepaid telegram or fax
(provided that such telegram or fax is confirmed by expedited delivery service
or by mail in the manner previously described), addressed as follows:
When being sent to EHL:
Exploration Holdings Limited
1 Suffolk Way
SevenOaks
Kent TN13 1YL
England
Facsimile: 011-44-1732-742-746
When being sent to the Company:
Eagle Geophysical, Inc.
2603 Augusta, Suite 1400
Houston, Texas 77057
Facsimile (713) 243-6294
When being sent to Harrison:
Gerald Harrison
Gorsey Down Farm
Ricketts Hill Road
Tatsfield, Kent TN 16 2NB
Facsimile: 011-44-1959-571-928
Change of any such address shall be valid if and when notice of such
change is given to the other party in accordance with this Agreement. Any such
notice or other communication shall be deemed to have been given (i) at the time
of personal delivery in the case of delivery service, (ii) as of the date of
first attempted delivery at the address and in the manner provided herein in the
case of mail, or (iii) upon receipt in the case of telegram or fax.
22. MERGER. This Agreement supersedes, replaces and merges all previous
agreements and discussions relating to the same or similar subject matters
between Harrison and the Company and, along with the Stock Options and the Stock
Option Plan, constitutes the entire agreement between the parties with respect
to be the subject matter of this Agreement. This
7
<PAGE> 8
Agreement may not be changed or terminated orally, and no change, termination or
waiver of this Agreement or of any of the provisions herein contained shall be
binding unless made in writing and signed by all parties.
23. NO DEROGATORY COMMENTS. Harrison and the Company shall refrain from
making public or private comments relating to each other which are derogatory or
which may tend to injure Harrison or the Company or the employees, officers,
directors, agents or affiliates, of the Company in its or their business, public
or private affairs, except in connection with legal proceedings in which
Harrison or his successors or assigns are adverse to the Company, its assigns,
successors, agents, trustees, directors, officers, general partners, limited
partners, subsidiaries, affiliates, or employees.
24. EXPENSES. Each of the parties hereto shall pay the fees and
expenses incurred by it in connection with the negotiation, preparation,
execution and performance of this Agreement, including, without limitation,
attorneys' fees.
25. APPLICABLE LAW. This Agreement shall be governed by and interpreted
and construed in accordance with the laws of the State of Texas.
26. RESOLUTION OF CLAIMS AND DISPUTES. Any claim, controversy or
dispute between the parties arising under, out of or relating to this Agreement,
or the breach thereof, shall be determined by a civil action in the District
Court of Harris County, Texas, or other court of competent jurisdiction located
in Harris County, Texas.
27. BINDING AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon the Company and EHL and their successors and assigns and
Harrison, his heirs, executors, administrators, personal representatives,
successors and assigns. Each of the agreements, covenants, representations,
warranties, consents, acknowledgments, receipts, releases, and waivers by the
parties contained in this Agreement constitutes a material inducement for the
parties to enter into and to perform this Agreement, and both parties would not
enter into this Agreement but for all of such inducements by the other.
28. CAPTIONS AND HEADINGS. The captions, headings and titles to the
Sections of this Agreement are not a part of this Agreement and shall have no
effect upon the construction or interpretation of any part of this Agreement.
29. EXECUTION OF THIS AGREEMENT; ORIGINAL COUNTERPARTS. The Company,
EHL and Harrison shall execute and deliver three (3) original counterparts of
this Agreement simultaneously with the execution and delivery of this Agreement.
Each party may
8
<PAGE> 9
retain one (1) such executed original counterparts. Each such executed
counterpart of this Agreement shall be deemed an original document, and all such
executed counterparts shall together constitute only one (1) and a single
agreement between the parties.
IN WITNESS HEREOF, the parties hereto have executed this Agreement in
multiple counterparts, effective as of the date above written.
/s/ Gerald M. Harrison
----------------------------------
GERALD M. HARRISON
EAGLE GEOPHYSICAL, INC.
BY:/s/ Jay N. Silverman
-------------------------------
Jay N. Silverman, President
EXPLORATION HOLDINGS LIMITED
BY:/s/ George Purdie
-------------------------------
George Purdie, Director
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1.,
FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,738
<SECURITIES> 0
<RECEIVABLES> 36,925
<ALLOWANCES> 0
<INVENTORY> 2,646
<CURRENT-ASSETS> 54,452
<PP&E> 223,885
<DEPRECIATION> (37,907)
<TOTAL-ASSETS> 281,920
<CURRENT-LIABILITIES> 67,215
<BONDS> 104,918
0
0
<COMMON> 88
<OTHER-SE> 86,287
<TOTAL-LIABILITY-AND-EQUITY> 281,920
<SALES> 28,135
<TOTAL-REVENUES> 28,135
<CGS> 20,808
<TOTAL-COSTS> 29,971
<OTHER-EXPENSES> (7)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,196
<INCOME-PRETAX> (4,025)
<INCOME-TAX> (600)
<INCOME-CONTINUING> (3,425)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,425)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (39.0)
</TABLE>
