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| IO > SEC Filings for IO > Form 8-K on 27-Oct-2009 | All Recent SEC Filings |
27-Oct-2009
Entry into a Material Definitive Agreement
A Sixth Amendment to Amended and Restated Credit Agreement dated effective
as of October 23, 2009 (the "Sixth Amendment"), which, among other things,
(i) increases the aggregate revolving commitment amount under the Company's
existing senior secured credit facility (the "Credit Facility") from
$100.0 million to $140.0 million (ii) permits Bank of China, New York Branch
(the "New Lender"), to join the Credit Facility as a lender, and
(iii) modifies, or provides limited waivers of, certain of the financial and
other covenants contained in the Credit Facility;
Two promissory notes (the "Convertible Notes") issued to the New Lender under the Credit Facility as amended by the Sixth Amendment, evidencing the "Bridge Loan" (as that term is described below) and convertible into shares of the Company's common stock, $0.01 par value per share (the "Common Stock");
A Warrant Issuance Agreement with BGP, under which the Company agreed to grant to BGP a warrant (the "Warrant") to purchase shares of the Company's Common Stock that may be exercised in lieu of conversion of the Convertible Notes as described below; and
A Registration Rights Agreement, whereby the Company granted BGP certain rights to resell shares of Common Stock acquired by it pursuant to the Convertible Notes or the Warrant.
BGP is a leading global geophysical services contracting company. BGP is a
subsidiary of China National Petroleum Corporation ("CNPC") and has been a
customer of the Company's products and services for many years. For the
Company's fiscal years ended December 31, 2008 and 2007, BGP and CNPC
collectively accounted for approximately 5.1% and 5.6% of the Company's
consolidated net sales, respectively.
The Sixth Amendment provides for bridge loan financing under the Credit
Facility from the New Lender to the Company of up to $40.0 million in revolving
credit indebtedness (the "Bridge Loan"). The Company drew down the full
$40.0 million available under the Bridge Loan and issued the Warrant on
October 27, 2009. The outstanding principal amount of the indebtedness under the
Bridge Loan will be convertible into shares of Common Stock, subject to certain
conditions described below. The proceeds from the Bridge Financing will be used
by the Company for its working capital purposes.
Term Sheet
The Term Sheet contemplates the completion of the following transactions at a
subsequent closing:
The formation of a joint venture between the Company and BGP involving the
Company's land-based seismic data acquisition equipment business (the "JV");
The issuance and sale by the Company to BGP or one of its affiliates (which, together with any subsequent permitted transferees, are sometimes collectively referred to in this Form 8-K as the "Holder") of a number of shares of Common Stock at a purchase price of $2.80 per share (the "Equity Investment") so that, when added to the total number of shares of Common Stock that may have been previously issued pursuant to conversion of the Bridge Loan and/or exercise of the Warrant, the Holder would own an amount of Common Stock equal to 19.99% of the issued and outstanding shares of Common Stock. Including the effect of the Equity Investment, BGP would own approximately 16.66% of the shares of outstanding Common Stock;
The establishment of a new revolving line of credit in the amount of $100.0 million between the Company as borrower and one or more lender(s) procured by BGP, which may include the New Lender (the "New Credit Facility"), in order to replace the current Credit Facility; and
The refinancing of the Company's term loan indebtedness outstanding under the Credit Facility (the "Term Loan Refinancing"). As of September 30, 2009, the amount of such term loan debt outstanding was approximately $106.3 million.
The formation of the JV, the Equity Investment, the establishment of the New
Credit Facility and the Term Loan Refinancing are referred to collectively
herein as the "Transactions."
The Transactions and the related definitive transaction documents to be
completed reflecting the provisions set forth in the Term Sheet (and such other
terms as both parties may subsequently agree to) are conditioned upon, among
other things, the completion of regulatory reviews and receipt of applicable
approvals in the United States and the People's Republic of China, the
simultaneous consummation of each of the Transactions and the satisfactory
completion of confirmatory business, accounting, financial, legal, regulatory
and tax due diligence. Prior to closing, the Company and BGP will file a joint
voluntary notice of the transaction for review by the Committee on Foreign
Investment in the United States (CFIUS), a government inter-agency committee
chaired by the Secretary of the Treasury.
Under the Term Sheet, the parties have agreed to use their best efforts to
work diligently and in good faith to cause the closing of the Transactions to
occur as soon as practicable following the execution of the definitive
transaction documents, and on or before the later to occur of the following
dates: (i) December 31, 2009 or (ii) 10 business days following the date on
which all necessary regulatory approvals (including receiving clearance from
CFIUS to complete the Transactions) have been obtained, but in any event, no
later than March 31, 2010. The parties' obligations under the Term Sheet may be
terminated (i) by written agreement of the parties, (ii) by either party in the
event that such party's conditions have not been satisfied on or before March
31, 2010 (subject to a 15-day cure period) or (iii) by either party in the event
that certain mutual conditions have not been satisfied on or before March 31,
2010. In addition, the Company and BGP have each agreed to pay the other a
break-up fee of $5.0 million if either party determines to terminate its
obligations under the Term Sheet because the other party has failed to satisfy
certain conditions (including conditions precedent to closing that (a) the other
party has not experienced a material adverse event or condition that has
resulted in a material adverse effect on its business, prospects and results of
operations change, (b) the other party has not breached any of its
representations and warranties contained in the Term Sheet and such
representations and warranties continue to be true and correct and (c) with
respect to BGP's obligations under the Term Sheet, the Company has not suffered
any material default or acceleration of any of its liabilities).
The Term Sheet provides that the JV will initially be a new subsidiary of one
of the parties, to be agreed upon after further review by the parties. It is
expected that the Company and BGP will enter into a purchase agreement pursuant
to which (i) BGP will acquire a 51% equity interest in the JV for an aggregate
purchase price of $108.5 million cash to be paid to the Company and the
contribution by BGP to the JV of certain assets and certain related liabilities
of BGP that relate to the JV Business (as defined below), and (ii) the Company
will acquire a 49% interest in the JV in exchange for its contribution of
certain assets and certain related liabilities that relate to the JV Business.
The assets of each party to be transferred to the JV will include seismic
recording systems, inventory, certain intellectual property rights and contract
rights, all as may be necessary to own and operate the JV Business.
The scope of the "JV Business" is defined in the Term Sheet as being the
business of designing, development, engineering, manufacturing, research and
development, distribution, sales and marketing and field support of land-based
equipment used in seismic data acquisition for the energy and petroleum
industry. Expressly excluded from the scope of the JV Business will be (x) the
analog sensor businesses of the Company and BGP and (y) the businesses of
certain companies in which BGP or the Company is currently a mnority owner (the
"Excluded Businesses"). In addition to the Excluded Businesses, all other
Company non-land based businesses - including the Company's Marine Imaging
Systems, Concept Systems, Data Management Solutions, GXT Imaging Solutions,
Integrated Seismic Solutions (ISS) and BasinSPAN seismic data libraries - will
remain owned and operated by the Company and will not comprise a part of the JV.
The Term Sheet provides that the board of directors of the JV will consist of
four members appointed by BGP and three members appointed by the Company. It
also provides that certain significant actions to be taken by the JV will first
require the approval of shareholders or interest holders holding at least 70% of
the voting power of the JV, including actions such as amendments to the JV's
organizational documents, liquidating, dissolving or winding up the JV, sales of
all or substantially all of the JV's assets, changes in the size and function of
the JV's board of directors or analogous governing body and mergers, share
exchanges, amalgamations, consolidations and similar corporate changes under
law.
The Term Sheet contemplates that during the term of the JV, each of the
Company, BGP and their respective subsidiaries (other than the JV) will not
compete directly in the businesses that are within the scope of the JV Business.
Each party's equity interests in the JV will be subject to certain restrictions
on transfer, including a prohibition on transfers during the first five years of
the JV and a right of first refusal in favor of the non-transferring party after
such five-year period, subject to exceptions. The Term
Sheet provides that BGP may transfer its equity interest in the JV if required
by applicable law or to a permitted transferee that agrees to be bound by all
applicable documents.
The issuances by the Company of (i) the convertible debt under the Bridge
Loan, (ii) the Warrant and (iii) the shares of Common Stock to be issued in
connection with the Equity Investment, the conversion of the Bridge Loan and/or
the exercise of the Warrant, will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), in reliance on an available exemption
or exemptions from registration thereunder.
Under the Term Sheet, the Company agreed to provide BGP with certain
registration rights and to file with the Securities and Exchange Commission (the
"SEC") a registration statement under the Securities Act with respect to resales
of the shares of Common Stock to be acquired by BGP in connection with the
transactions described herein. The Registration Rights Agreement dated October
23, 2009 entered into by the Company and BGP evidences these rights and grants
to BGP a number of demand registration rights, shelf registration rights and
piggyback rights with respect to registered resales of the shares of Common
Stock to be acquired by it from the Company in connection with exercises of the
Warrant and conversion of the Convertible Notes. It also contains customary
provisions regarding rights of indemnification between the parties with respect
to certain applicable securities law liabilities.
The Term Sheet contains a number of additional provisions to be incorporated
into the definitive JV transaction documents between the parties, including
provisions regarding future capital contributions, allocations of profits and
losses, distributions from the JV, approval of budgets and strategic plans,
executive management, related-party transactions, deadlock and dispute
resolution procedures, withdrawals, winding up and dissolution and termination
of the JV.
Under the Term Sheet, following the completion of the Transactions, for so
long as the Holder owns as least 10% of the outstanding shares of Common Stock,
the Holder will have the right to nominate one director to serve on the Board of
Directors of the Company. In the definitive transaction documents, the Company
will agree that it will use its best efforts to cause BGP's designee to be
appointed to the Board of Directors of the Company immediately following
completion of the Transactions, and to use its best efforts to ensure that a
designee of BGP or the Holder, as the case may be, is represented on the Board
of Directors of the Company. The Term Sheet additionally provides that at any
time following completion of the Transactions, whenever the Company issues any
shares of Common Stock or other securities convertible into, exercisable or
exchangeable for Common Stock, the Holder will have the right to subscribe for
the number of such shares or other securities as may be necessary to retain the
Holder's proportionate ownership of Common Stock that existed before such
issuance, subject to usual and customary exceptions such as issuances of
securities as equity compensation to the Company's directors, employees and
consultants.
The Company and BGP also agreed in the Term Sheet to establish at the closing
of the Transactions the New Credit Facility, which, together with the Term Loan
Refinancing, will replace the revolving credit and term loan indebtedness under
the Credit Facility in their entirety. BGP agreed in the Term Sheet to procure
commercial lender(s) on terms reasonably satisfactory to the Company and BGP in
order to establish a new revolving line of credit and the Term Loan Refinancing
under the New Credit Facility. It is expected that the Company will use a
portion of the proceeds from the Transactions to retire (i) the outstanding
indebtedness under its existing revolving line of credit ($98.0 million
outstanding at September 30, 2009) and (ii) $35.0 million in subordinated
indebtedness incurred in connection with the Company's acquisition of ARAM in
September 2008. The Term Loan Refinancing will replace the current term loan
indebtedness under the Credit Facility.
The Company anticipates that it will account for the JV under the equity
method of accounting under U.S. generally accepted accounting principles.
Sixth Amendment to Credit Agreement.
The Company's Credit Facility is governed by the terms of that certain
Amended and Restated Credit Agreement dated July 3, 2008, as it has been
subsequently amended (the "Credit Agreement"). Prior to the execution and
delivery of the Sixth Amendment, the Credit Agreement had provided for a
$100.0 million revolving credit facility and a $125.0 million original principal
amount term loan (under which approximately $106.3 million in term loan
indebtedness was outstanding as of September 30, 2009).
On October 23, 2009, the Company entered into the Sixth Amendment, which,
among other things, (i) increases the aggregate revolving credit commitment
amount under the Credit Facility from $100.0 million to $140.0 million pursuant
to a commitment increase provision, (ii) permits the New Lender to join the
Credit Facility as a lender and make revolving credit advances to the Company
and one of its foreign subsidiaries in the aggregate amount of up
to$40.0 million under such commitment increase provision and (iii) modifies or
provides for limited waivers of certain of the financial and other covenants
contained in the Credit Facility that are to be effective until the sooner of
(x) the closing of the Transactions or (y) if the Transactions do not close by
March 31, 2010 or the Term Sheet is terminated for any reason prior to closing,
60 days after receipt of notice of termination of such waivers from the
Administrative Agent under the Credit Facility.
Other provisions modifying the terms of the Credit Agreement pursuant to the
Sixth Amendment:
permit the principal amount of the Bridge Loan to be convertible into shares
of Common Stock; and
waive certain other covenants to the extent necessary to permit the issuance of the Warrant.
Any conversion of the principal amount of the outstanding indebtedness under
the Bridge Loan into shares of Common Stock pursuant to the terms of the
Convertible Notes will be subject to the same conditions regarding certain
governmental approvals described below as the conditions on exercise pursuant to
the Warrant and the Warrant Issuance Agreement. See " - Certain Provisions
Regarding Exercise of the Warrant and Conversion of the Bridge Loan" below.
The Convertible Notes provide that at the initial conversion price of $2.80
per share (the "Strike Price"), the full $40.0 million principal amount under
the Bridge Loan to be initially outstanding would be convertible into 14,285,714
shares of Common Stock. The Convertible Notes provide that the Strike Price and
the number of shares into which the notes may be converted are subject to
adjustment on terms and conditions similar to those contained in the Warrant.
Warrant Issuance Agreement and Warrant.
The Warrant will be exercisable, in whole or in part, at any time and from
time to time, subject to the conditions described below. The Warrant will
initially entitle the holder thereof to purchase a number of shares of Common
Stock equal to $40.0 million divided by the Strike Price of $2.80 per share,
subject to adjustment as described below. Any subsequent conversions of the
Bridge Loan and exercises of the Warrant will reduce the dollar amount under the
Warrant into which the exercise price may be divided to determine the number of
shares that may be acquired upon exercise. The Strike Price will be subject to
adjustment upon the occurrence of a "Triggering Event." A "Triggering Event"
will occur in the event that the Transactions cannot be completed by March 31,
2010 (the "Outside Date"), solely as a result of the occurrence of a statement,
order or other indication from any relevant governmental regulatory agency that
(a) the Transactions would not be approved, would be opposed, objected to or
sanctioned or (b) the Transactions or BGP's business and operations would be
required to be altered (or upon the earlier abandonment of the Transactions due
to any such statement, indication or order). In such event, the Strike Price per
share will be adjusted (but not to an amount that exceeds $2.80 per share) to a
price per share (the "Adjusted Strike Price") that is equal to 75% of the lowest
trading price of the Common Stock over a ten-consecutive-trading-day period,
beginning on and inclusive of the first trading day following the public
announcement of any failure to complete the Transactions (or the abandonment
thereof), which failure or abandonment was the result of such Triggering Event.
The Strike Price of the Warrant is also subject to certain customary
anti-dilution adjustments.
The Warrant provides for certain cashless exercise rights that are
exercisable by the holder of the Warrant in the event that certain governmental
approvals from the People's Republic of China permitting the exercise of the
Warrant for cash are not obtained.
At the initial exercise price (Strike Price) of $2.80 per share, the Warrant
would initially be fully exercisable for 14,285,714 shares of Common Stock.
Following the time that certain governmental approvals are obtained, the
Warrant will be exercisable until its expiration, which is specified to be the
earlier of (x) December 31, 2010 or (y) the full conversion of the Convertible
Notes into shares of Common Stock. As a result of any adjustments to the
exercise price and the conversion price that may be required under the terms of
the Warrant and/or the Convertible Notes which would result in the aggregate
number of shares issued and issuable under the Warrant and/or the Convertible
Notes to exceed 19.99% of the total outstanding shares of Common Stock (i.e.,
23,789,536 shares), then any issuance of any number of shares in excess of that
amount would be conditioned upon the prior approval of the Company's
stockholders (which the Company has agreed in such event to use its best efforts
to obtain).
The Warrant will be freely transferable by BGP, except that it may not be
transferred to any competitors of the Company.
Certain Provisions Regarding Exercise of the Warrant and Conversion of the
Bridge Loan.
Exercise of the Warrant and conversion of the Bridge Loan will be contingent
upon the conclusion of a review of the Transactions by CFIUS, whether favorable
or unfavorable (and in any event by no later than the Outside Date). If BGP has
not obtained CFIUS approval for the holding of the full amount of Common Stock
to which it would be entitled under the terms of the Warrant or the Bridge Loan,
BGP will agree to only hold such amount of Common Stock as may be permitted by
CFIUS as a passive investment under applicable CFIUS regulations, and will
transfer the Warrant (in whole or in part) or enter into other appropriate
arrangements that would permit BGP to hold such Common Stock.
Contemporaneously with the closing of the Transactions, all of the
then-outstanding principal amounts under the Convertible Notes will be
automatically converted into shares of Common Stock unless, at the option of the
Holder of the Warrant, the Holder elects to exercise the Warrant in whole or in
part, in lieu of the full conversion of such remaining principal amounts under
the Convertible Notes.
Upon conversion of the full outstanding principal amount under the Bridge
Loan into shares of Common Stock, the Warrant will be cancelled. Upon the
exercise in full of the Warrant, all conversion rights under the Bridge Loan
will terminate. On any partial conversion of the Convertible Notes, the Warrant
will be exercisable into a number of shares of Common Stock to be determined by
dividing the remaining outstanding principal amount under the Bridge Loan by the
Strike Price or the Adjusted Strike Price, as the case may be.
Assuming that no adjustments to the exercise or conversion prices of (or the
number of Shares to be issued under) the Warrant or the Convertible Notes are
necessitated prior to closing the Transactions, the Term Sheet provides that at
the closing of the Transactions, BGP would purchase directly from the Company
under the Equity Investment a number of shares of Common Stock at a purchase
price of $2.80 per share such that, when added to the total number of shares of
Common Stock that may have been previously issued pursuant to conversion of the
Convertible Notes and/or exercise of the Warrant, the Holder would own 19.99% of
the issued and outstanding shares of Common Stock. If any required adjustments
to the Warrant and the Convertible Notes result in the number of shares that
could be acquired on conversion and/or exercise would exceed that amount, no
issuance of any such excess amount would be made unless and until stockholder
approval for such issuance was obtained, and in such event, the Equity
Investment would not occur. It is expected that any shares of Common Stock to be
issued under the Equity Investment would be issued to BGP in a transaction
exempt from the registration requirements under the Securities Act pursuant to
Section 4(2) of such Act, and other applicable exemptions.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The text set forth in Item 1.01 of this Current Report on Form 8-K regarding
the Bridge Loan is incorporated into this item by such reference.
The New Lender extended the Bridge Loan to the Company pursuant to the terms
and conditions of the Credit Facility, as amended by the Sixth Amendment. The
Bridge Loan is currently scheduled to mature on the maturity date of the
revolving credit indebtedness under the Credit Facility, which is July 3, 2013.
Interest accruing on the Bridge Loan will be paid in accordance with the terms
of the Credit Agreement, as amended by the Sixth Amendment, except that upon any
conversion of the Convertible Notes, interest accrued on the principal amount so
converted would be thereupon payable by the Company to the holder of the notes.
The Credit Agreement contains customary provisions regarding defaults and events
of default under the Credit Facility.
Item 3.02. Unregistered Sales of Equity Securities.
The text set forth in Item 1.01 and 2.03 of this Current Report on Form 8-K
regarding the issuance by the Company of the Warrant and the Convertible Notes
is incorporated into this item by such reference.
The issuance of the Warrant, the Convertible Notes and the underlying shares
of Common Stock that may be acquired upon exercise or conversion thereof have
not been registered under the Securities Act in reliance upon an exemption or
exemptions from the registration requirements provided for under such Act and
rules and regulations thereunder, including under Section 4(2) of the Securities
Act.
Item 3.03. Material Modification to Rights of Security Holders.
The text set forth in (i) Item 1.01 of this Current Report on Form 8-K
regarding the Transactions and the limited waivers of certain financial
covenants contained in the Credit Facility and (ii) Item 2.03 of this Current
Report on Form 8-K regarding the Bridge Loan, is incorporated into this item by
reference.
Item 7.01. Regulation FD Disclosure.
On October 23, 2009, the Company issued a news release announcing its
entering into of the Term Sheet with BGP, the execution and delivery of certain
of the Bridge Loan documents and the execution and delivery of the Warrant
Issuance Agreement. A copy of the press release is attached as Exhibit 99.1.
The information contained in this Item 7.01 and Exhibit 99.1 of this report
(i) is not to be considered "filed" under the Securities Exchange Act of 1934,
as amended, and (ii) shall not be incorporated by reference into any previous or
future filings made by or to be made by the Company with the Securities and
Exchange Commission under the Securities Act or the Exchange Act.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Shell company transactions.
Not applicable.
(d) Exhibits.
99.1 Press Release dated October 23, 2009.
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