UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
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(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED APRIL 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934
COMMISSION FILE NUMBER 001-13490
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MITCHAM INDUSTRIES, INC.
(Name of small business issuer as specified in its charter)
TEXAS 76-0210849
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
44000 HIGHWAY 75 SOUTH
HUNTSVILLE, TEXAS 77340
(Address of principal executive offices)
(409) 291-2277
(Issuer's telephone number)
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Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding for each of the issuer's classes
of common equity, as of the latest practicable date: 9,510,658 shares of
Common Stock, $.01 par value, were outstanding as of June 10, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
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1
MITCHAM INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets................................... 3
Consolidated Statements of Income............................. 4
Consolidated Statements of Cash Flow.......................... 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis or Plan of
Operation..................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 10
Item 6. Exhibits and Reports on Form 8-K................................. 11
Signatures...................................................... 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MITCHAM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 30, January 31,
ASSETS 1998 1998
(Unaudited) (Audited)
----------- -----------
CURRENT ASSETS:
Cash $1,704 $7,498
Marketable securities, at market 19,855 25,009
Accounts receivable, net 19,169 14,070
Installment trade receivables 331 444
Inventory 1,074 942
Prepaid expenses and other current assets 196 248
Income tax receivable 227 211
Deferred income taxes 321 -
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Total current assets 42,877 48,422
Seismic equipment lease pool, net 37,749 42,236
Property and equipment, net 870 898
Other assets - 6
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Total assets $81,496 $91,562
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 1,364 8,400
Deferred income taxes payable - 45
Deferred revenue 1,321 1,055
Income taxes payable - -
Accrued liabilities and other current liabilities 251 5,532
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Total current liabilities 2,936 15,032
DEFERRED INCOME TAXES 2,700 2,294
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Total liabilities 5,636 17,326
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 20,000,000 shares authorized
9,454,824 and 9,425,759 shares, respectively, issued and
outstanding 95 94
Additional paid-in capital 61,314 61,275
Retained earnings 14,451 12,770
Cumulative translation adjustment - 97
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Total stockholders' equity 75,860 74,236
Total liabilities and stockholders' equity $81,496 $91,562
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See accompanying notes
3
MITCHAM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
Three Months
ended April 30,
--------------------------
1998 1997
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REVENUES:
Short-term leasing $5,890 $4,043
Lease/purchase activities:
Leasing revenues 1,200 363
Sales of equipment 7,336 765
Sales of seismic equipment 1,026 365
Sales commissions 1 -
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Total revenues 15,453 5,536
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COSTS AND EXPENSES:
Seismic equipment subleases 271 42
Cost of Sales:
Sales of seismic equipment under lease/purchase
Agreements 7,343 598
Other sales of seismic equipment 570 339
Repairs, net 155 -
General and administrative 1,309 586
Provision for doubtful accounts 608 289
Depreciation 2,712 1,219
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Total costs and expenses 12,968 3,073
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OPERATING INCOME 2,485 2,463
OTHER INCOME (EXPENSE):
Interest, net 63 155
Other, net 38 2
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Total other income (expenses) 101 157
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INCOME BEFORE INCOME TAXES 2,586 2,620
PROVISION FOR INCOME TAXES 906 897
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NET INCOME $ 1,680 $ 1,723
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Earnings per common and share
Basic $ .18 $ .28
Diluted $ .17 $ .28
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Shares used in computing earnings per common share
Basic 9,437,000 6,060,000
Diluted 9,757,000 6,239,000
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See accompanying notes.
4
MITCHAM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months
ended April 30,
--------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,680 $1,723
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation 2,712 961
Provision for doubtful accounts, net of charge offs 441 200
Deferred income taxes 361 268
Trade accounts receivable (5,427) (2,043)
Accounts payable and other current liabilities (7,888) (1,170)
Other, net (360) 51
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Net cash provided by (used in) operating activities (8,529) (10)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of seismic equipment held for lease (4,415) (1,693)
Purchases of property and equipment (88) (161)
Disposal of lease pool equipment 7,043 778
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Net cash used in investing activities 2,540 (1,076)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on short-term borrowings - (1,937)
Payments on long-term debt and capitalized lease obligations - (2,626)
Proceeds from issuance of common stock, net of offering expenses - 18,108
Proceeds from issuance of common stock upon exercise of
Warrants and options 40 -
Proceeds from sale of marketable securities 155 -
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Net cash provided by financing activities 195 13,545
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NET INCREASE IN CASH (5,794) 12,459
CASH, BEGINNING OF PERIOD 7,498 301
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CASH, END OF PERIOD $ 1,704 $12,760
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ - $ 17
Taxes $ 801 -
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Equipment purchases in accounts payable $ 757 $ 429
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See accompanying notes.
5
MITCHAM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Mitcham Industries, Inc.
("the Company") have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with the generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed
financial statements should be read in conjunction with the
financial statements and the notes thereto included in the
Company's latest Annual Report to Shareholders and the Annual
Report on Form 10-KSB for the year ended January 31, 1998. In the
opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position as of April 30, 1998, and the results of operations and
cash flows for the three months ended April 30, 1998 and 1997 have
been included.
2. On April 23, 1998, a class action lawsuit was filed against the
Company and its chief executive officer and chief financial officer
in the U.S. District Court for the Southern District of Texas,
Houston Division. The complaint, styled STANLEY MOSKOWITZ V.
MITCHAM INDUSTRIES, INC., BILLY F. MITCHAM, JR. AND ROBERTO RIOS,
alleges violations of Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Sections 11 and 12(a)(2) of the Securities
Act of 1933. The complaint seeks class action status on behalf of
those who purchased the Company's common stock from June 4, 1997
through March 26, 1998 and damages in an unspecified amount plus
costs and attorney's fees. The complaint alleges materially false
and misleading misrepresentations and omissions in public filings
and announcements concerning the Company's business and its
allowance for doubtful accounts. The Company believes that the
plaintiffs' allegations are without merit and that there are
meritorious defenses to the allegations, and intends to defend the
action vigorously.
3. Effective May 29, 1998, the Company, agreed in principle to the
terms of a new Preferred Supplier Agreement with Input/Output,
Inc. ("I/O"). The definitive agreement is expected to be signed no
later than June 30, 1998, and will replace the parties' Exclusive
Lease Referral Agreement.
The terms provide that the Company will purchase a minimum of
between $90 and $100 million of I/O products over a five year term.
In addition I/O will refer rental inquiries from customers
worldwide to the Company during the term of the agreement.
In a related transaction, I/O sold to the Company, for $15 million
a substantial portion of its subsidiary's equipment lease pool,
some of which is subject to existing short-term lease agreements.
The Company has until June 30, 1998 to purchase the remaining
portion of I/O's subsidiary's equipment lease pool, including the
assignment of existing short-term lease agreements. I/O has agreed
in principle not to lease products covered by the Preferred
Supplier Agreement except in limited circumstances.
4. The foregoing interim results are not necessarily indicative of the
results of the operations for the full fiscal year ending January
31, 1999.
6
FORWARD-LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-QSB
(including statements contained in Part I, Item 2. "Management's Discussion and
Analysis or Plan of Operation" and in Part II, Item 1. "Legal Proceedings"), as
well as other written and oral statements made or incorporated by reference from
time to time by the Company and its representatives in other reports, filings
with the Securities and Exchange Commission, press releases, conferences, or
otherwise, may be deemed to be forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. This information includes,
without limitation, statements concerning the Company's future financial
position and results of operations; planned capital expenditures; business
strategy and other plans for future operations; the future mix of revenues and
business; contingent liabilities; Year 2000 issues; and future demand and
industry conditions. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. When used in
this report, the words "anticipate," "believe," "estimate," "expect," "may," and
similar expressions, as they relate to the Company and its management, identify
forward-looking statements. The actual results of future events described in
such forward-looking statements could differ materially from those results which
might be anticipated, forecast or estimated by the Company in such
forward-looking statements due to risks and uncertainties such as volatility of
the oil and gas industry and demand for services; dependence upon additional
lease contracts; customer concentration and credit losses; industry consolation;
the risk of technical obsolescence of the Company's seismic lease fleet;
vulnerability to weather conditions and seasonality of results; dependence upon
key suppliers, and other factors (as further described in the Company's Annual
Report on Form 10-KSB) and other risks and uncertainties set forth from time to
time in the Company's other public reports and public statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company leases and sells seismic equipment primarily to seismic data
acquisition companies and oil and gas companies conducting land and transition
zone seismic surveys worldwide. The Company provides short-term leasing of
seismic equipment to meet a customer's requirements and offers maintenance and
support during the lease term. All leases at April 30, 1998 were for a term of
one year or less. Seismic equipment held for lease is carried at cost, net of
accumulated depreciation.
For the years ended January 31, 1997 and 1998, revenues from foreign
customers totaled $6.8 million and $17.1 million, respectively. While most of
the Company's transactions with foreign customers are denominated in United
States dollars, some of the Company's transactions with Canadian customers are
denominated in Canadian dollars. The Company has not been subject to material
gains or losses resulting from currency fluctuations and has not engaged in
currency hedging activities.
SEASONALITY
Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to the
Company's lease revenues from customers operating in Canada, where a significant
percentage of the seismic survey activity occurs in the winter months, from
October through March. During the months in which the weather is warmer, certain
areas are not accessible to trucks, earth vibrators and other heavy equipment
because of the unstable terrain. This seasonal leasing
7
activity by the Company's Canadian customers has historically resulted in
increased lease revenues in the Company's first and fourth fiscal quarters.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED APRIL 30, 1998 AND 1997
Revenues for the three month period ended April 30, 1998 of $15.5 million
represented an increase of $9.9 million, or 179%, over the same prior year
period revenues of $5.5 million. Short-term leasing services generated revenues
of $5.9 million for the three month period ended April 30, 1998, an increase of
$1.8 million, or 46%, as compared to $4.0 million for the same prior year
period. This increase reflected additions to the equipment lease pool to meet
lease demand. Seismic equipment sales for the three month period ended April 30,
1998 were $1.0 million, an increase of $661,000 or 181%, as compared to $365,000
for the same prior year period. The increase in sales was due primarily to
customer purchases of lease pool equipment at the end of the lease contract that
were not entered into originally as a lease/purchase contract. The Company's
customers in several instances preferred to enter into a lease of seismic
equipment with an option to purchase at the end of the lease term. Lease
services from lease/purchase contracts generated revenues of $1.2 million for
the three month period ended April 30, 1998, an increase of $837,000 or 231%, as
compared to $363,000 for the same prior year period, and sales from
lease/purchase equipment generated revenues of $7.3 million, an increase of $6.6
million or 859%, as compared to $765,000 for the same prior year period. The
increase in lease/purchase revenues was due primarily to an increase in
customer's demand for lease/purchase option contracts.
The Company's leasing revenues from both short-term leasing services and
lease/purchase contracts increased by $2.7 million. The Company's sublease costs
increased by $229,000, or 545%, and depreciation, which related primarily to
equipment available for lease, increased by $1.5 million, or 122%, due to the
increase in the equipment lease pool, resulting in an increase in net short-term
leasing revenues of $962,000.
There were no margins on sales of equipment under lease/purchase agreements
for the three month period ended April 30, 1998 and 22% for the prior year
period. Gross margins decreased significantly due primarily to one transaction
involving leased equipment that had only recently been purchased and added to
the Company's equipment lease pool.
Gross margins on seismic equipment sales were 44% and 7% for the three
month period ended April 30, 1998 and 1997, respectively. Gross margins
increased in the fiscal 1998 period because the Company had a few high margin
transactions during the quarter.
General and administrative expenses increased $723,000, or 123%, for the
three month period ended April 30, 1998 as compared to the same prior year
period and were 8% and 11% of total revenues, respectively. Although general and
administrative expenses increased due in part to increased personnel costs and
costs associated with the office in Canada, general and administrative expenses
decreased as a percentage of total revenues.
The Company's provision for doubtful accounts expense increased from
$289,000 in the same prior year period to $608,000 for the three month period
ended April 30, 1998. The increase was a result of increased business which
resulted in an increase in net accounts receivable of 36%. The provision for
8
doubtful accounts expense was 4% of total revenues in for the three month period
ended April 30, 1998 and 5% of total revenues in the same prior year period. As
of April 30, 1998, the Company's allowance for doubtful accounts was
approximately $1.5 million.
Net income for the three month period ended April 30, 1998 was $1.7
million, which decreased slightly by $43,000, as compared to the same prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998, the Company had net working capital of approximately
$39.9 million and $15.0 million of availability under its bank credit
facilities. Net cash provided by operating activities for the three month period
ended April 30, 1998 decreased by $8.5 million, as compared to the same prior
year period, primarily as a result of an increase in trade accounts receivable
and a decrease in accounts payable. At April 30, 1998, the Company had trade
accounts receivable of $5.7 million that were more than 90 days past due, with
four customers owing an aggregate of $3.4 million of such amount. As of April
30, 1998, the Company's allowance for doubtful accounts was approximately $1.5
million, which management believes is sufficient to cover any losses in its
trade accounts receivable, including any losses in its international customers'
trade accounts.
Although the Company has not received payment on the pre-bankruptcy
petition claims from Grant Geophysical, the Company expects to collect
one-half of pre-bankruptcy petition claims, which total approximately
$755,000. The Company's Chief Financial Officer serves on the creditors'
committee. The Company is currently leasing seismic equipment to Grant.
Prior to December 8, 1997, the Company had a $5.0 million line of credit
with Bank One, Texas, N.A. ("Bank One"). As of December 8, 1997, the Company
replaced the previous line of credit with a working capital revolving line of
credit of up to $15 million from Bank One (the "New Revolver"). Interest on
advances under the New Revolver are payable monthly at a variable rate which is
based upon either, at the Company's option, LIBOR or Bank One's base lending
rate. The LIBOR rate, if elected, will range between LIBOR plus 1.75% and LIBOR
plus 2.75% depending upon the debt service coverage ratio the Company maintains.
Similarly, the Bank One base lending rate, if elected, will range between the
base rate minus 0.25% and the base rate plus 0.25%, again depending upon the
Company's debt service coverage ratio. Additionally, the Company will owe Bank
One each fiscal quarter a fee equal of 0.25% of the average daily unused portion
of the New Revolver calculated for the previous quarter. Advances will be
limited to the total of 80% of eligible accounts receivable and 50% of all
eligible lease pool equipment. The New Revolver contains restrictions, among
others, on the ability of the Company to incur indebtedness and pay dividends
and requires the Company to meet certain financial covenants, including a
minimum tangible net worth, a debt service coverage ratio, aging of accounts
receivable and net income. The New Revolver will expire on December 8, 1999, at
which time the unpaid principal amount of the New Revolver will be due and
payable in full. As of April 30, 1998, the Company had not drawn any amounts
under the New Revolver.
Capital expenditures in the first quarter of fiscal 1999 totaled $5.2
million. As of April 30, 1998, the Company had satisfied all minimum purchase
requirements of equipment under both its Exclusive Lease Referral Agreement with
Input/Output, Inc. ("I/O") and its Exclusive Equipment Lease Agreement with
Sercel. Effective May 29, 1998, the Company entered into an Equipment Purchase
Agreement with I/O, pursuant to which the Company purchased a substantial
portion of the equipment lease pool of I/O's wholly-owned subsidiary for
$15 million, some of which equipment is subject to existing short-term lease
agreements. The Company has until June 30, 1998, to
9
purchase the remaining portion of I/O's subsidiary's equipment lease pool,
including the assignment of existing short-term lease agreements, at a price
to be agreed upon.
In a related transaction, the Company and I/O agreed in principle to terms
of a new Preferred Supplier Agreement. The definitive agreement is expected to
be signed by June 30, 1998, and will replace the parties' Exclusive Lease
Referral Agreement. The terms provide that the Company will purchase a minimum
of between $90 to $100 million of I/O equipment (after applicable discounts and
credits) over a five-year term. In addition, I/O will refer to the Company
equipment lease inquiries from its customers worldwide during the term of the
Agreement. The new agreement covers all equipment and products currently
manufactured and sold by I/O, and, in consideration for the Company's minimum
purchase commitments, I/O has agreed that it will not offer more favorable
pricing for any other company in the seismic equipment leasing business.
Likewise, the Company has agreed that it will not offer for resale to third
parties I/O equipment manufactured less than three years from the date of offer,
unless such equipment is offered pursuant to the Company's lease/purchase
agreements.
In the first year of the Preferred Supplier Agreement, the Company is
required to purchase a minimum of $30 million of equipment (which includes the
$15 million purchase of I/O's subsidiary's lease pool equipment), before
applicable discounts and credits. The Company has budgeted capital expenditures
of approximately $40 million for fiscal 1999, which includes the above
minimum purchase requirements. Management believes that the net proceeds of the
December 1997 offering, ($11.4 million remaining) cash provided by operations
and funds available from its commercial lender will be sufficient to fund its
operations and budgeted capital expenditures for fiscal 1999.
YEAR 2000. The Company has begun to address possible remedial efforts in
connection with computer software that could be affected by the Year 2000
problem. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations. The Company has been informed by the suppliers of substantially
all of the Company's software that all of those suppliers' software that is used
by the Company is Year 2000 compliant. The software from these suppliers is used
in major areas of the Company's operations such as for financial, sales,
warehousing and administrative purposes. The Company has no internally generated
software. After reasonable investigation, the Company has not yet identified any
Year 2000 problem but will continue to monitor the issue. However, there can be
no assurances that Year 2000 problem will not occur with respect to the
Company's computer systems. The Year 2000 problem may impact other entities with
which the Company transacts business, and the Company cannot predict the effect
of the Year 2000 problem on such entities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 23, 1998, a class action lawsuit was filed against the Company
and its chief executive officer and chief financial officer in the U.S. District
Court for the Southern District of Texas, Houston Division. The complaint,
styled STANLEY MOSKOWITZ V. MITCHAM INDUSTRIES, INC., BILLY F. MITCHAM, JR. AND
ROBERTO RIOS, alleges violations of Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Sections 11 and 12(a)(2) of the Securities Act of 1933.
The complaint seeks class action status on behalf of those who purchased the
Company's common stock from June 4, 1997 through March 26, 1998 and
10
damages in an unspecified amount plus costs and attorney's fees. The
complaint alleges materially false and misleading misrepresentations and
omissions in public filings and announcements concerning the Company's
business and its allowance for doubtful accounts. The Company believes that
the plaintiffs' allegations are without merit and that there are meritorious
defenses to the allegations, and intends to defend the action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) REPORTS ON 8K
No reports on Form 8K were filed by the Company during the quarter
ended April 30, 1998.
(B) EXHIBITS
10.1 - Equipment Purchase Agreement, effective May 29, 1998, between
the Company, Input/Output, Inc., and I/O's subsidiary.
11 - Statement of Computation of Earnings Per Share
27 - Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: June 22, 1998
MITCHAM INDUSTRIES, INC.
/s/ ROBERTO RIOS
------------------------------------
ROBERTO RIOS,
VICE PRESIDENT FINANCE, SECRETARY AND TREASURER
(AUTHORIZED OFFICER AND PRINCIPAL ACCOUNTING OFFICER)
11
EQUIPMENT PURCHASE AGREEMENT
THIS EQUIPMENT PURCHASE AGREEMENT (the "AGREEMENT") is executed as of
the date set forth below by and between INPUT/OUTPUT, INC., a Delaware
corporation, and its wholly-owned subsidiary, GLOBAL CHARTER CORPORATION, a
Delaware corporation (together, "SELLER") and MITCHAM INDUSTRIES, INC., a
Texas corporation ("BUYER").
RECITALS:
A. Seller is primarily engaged in the business of manufacturing and selling
seismic data acquisition equipment and related products, and additionally
has been engaged in the business of leasing its equipment to its customers
under lease/purchase agreements.
B. Buyer is primarily engaged in the business of leasing seismic equipment,
including equipment and products manufactured by Seller, to its customers.
C. Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from
Seller, certain equipment and products owned by Seller that comprises a
substantial portion of Seller's inventory held for rental to customers more
particularly described in SCHEDULE 1 attached hereto (the "RENTAL
INVENTORY").
D. Certain of the Rental Inventory (the "LEASED INVENTORY") is subject to
certain leases and rental agreements (the "LEASES"), which Leased
Inventory and Leases are more particularly described on SCHEDULE 2
attached hereto, and Seller has agreed to assign the Leases to Buyer.
E. As additional consideration for the purchase and sale of the Rental
Inventory, Seller and Buyer have agreed to enter into a Preferred Supplier
Agreement ("SUPPLIER AGREEMENT") pursuant to which Buyer will commit to
purchase certain amounts of Products (defined therein) manufactured by
Seller over the term of the Supplier Agreement and Seller will agree to
give certain preferred pricing to Buyer in the form of discounts and
credits. The parties have agreed to the basic terms and conditions of the
Supplier Agreement as set forth on EXHIBIT A attached hereto (the "SUMMARY
OF TERMS"), which will be memorialized in a definitive Supplier Agreement
to be executed by the parties after the Effective Date.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller and Buyer hereby agree as follows:
1. DEFINED TERMS. As used in this Agreement, the following terms shall
have the meanings set forth below:
1
"ADDITIONAL INVENTORY" means the equipment and products owned by Seller
and leased to customers pursuant to the Additional Leases, as set forth on
SCHEDULE 3 attached hereto.
"ADDITIONAL LEASES" means those rental and lease/purchase agreements
between Seller and various customers for the rental of Additional Inventory,
as described in SCHEDULE 3 attached hereto.
"ASSIGNMENT" means the Assignment of Leases in the form attached hereto
as EXHIBIT B.
"BILL OF SALE" means the Bill of Sale in the form attached hereto as
EXHIBIT C.
"EFFECTIVE DATE" means May 29, 1998.
"EQUIPMENT" means, collectively, the Rental Inventory and the Additional
Inventory.
"LEASED INVENTORY" means that portion of the Rental Inventory that is
leased to customers pursuant to the Leases, and described in SCHEDULE 3
attached hereto.
"LEASES" means those rental and lease/purchase agreements between Seller
and various customers for the rental of Leased Inventory, as described in
SCHEDULE 3 attached hereto.
"RENTAL INVENTORY" means the equipment and products of Seller described
in SCHEDULE 1 attached hereto.
"RENTAL FLEET" means, collectively, the Rental Inventory and the Leases,
and following the Second Closing Date, if any, the Additional Inventory and
the Additional Leases.
"SECOND CLOSING DATE" has the meaning given that term in SECTION 4.
"SUMMARY OF TERMS" means the basic terms and conditions that have been
agreed by Buyer and Seller to be contained in the Supplier Agreement and
which are attached hereto as EXHIBIT A.
"SUPPLIER AGREEMENT" means the Preferred Supplier Agreement to be
entered into by Buyer and Seller after the Effective Date, which shall
incorporate the terms and conditions (among other terms) set forth in the
Summary of Terms.
2. SALE OF RENTAL INVENTORY. On the Effective Date, Seller shall sell
to Buyer and Buyer shall purchase from Seller, the Rental Inventory. The
purchase price for the Rental Inventory shall be $15,000,000. In addition,
on the Effective Date, Seller shall assign the Leases to Buyer.
2
3. CLOSING. The closing of the transactions contemplated herein
("CLOSING") shall take place at the offices of Seller's counsel, or at such
other place as may be agreed by the parties, on the Effective Date. At the
Closing:
(a) Buyer shall deliver to Seller:
(i) the sum of $2,250,000 (being 15% of the purchase price for
the Rental Inventory), in cash or immediately available funds, and the
remainder of the purchase price for the Rental Equipment shall be due
and payable to Seller in cash or immediately available funds
immediately upon completion of the definitive form of the Supplier
Agreement.
(ii) an executed counterpart of the Assignment, executed by
Buyer.
(b) Seller shall deliver to Buyer:
(i) the Rental Inventory (other than the Leased Inventory);
provided, however, that certain items of Rental Inventory are in
transit to Seller from customers, and Seller will deliver those items
of Rental Inventory to Buyer promptly following receipt thereof;
(ii) the Bill of Sale executed by Seller with respect to the
Rental Inventory.
(iii) an executed counterpart of the Assignment executed by
Seller; and
(iv) the original of all Leases that are in Seller's possession,
and if the original of such Leases are not in Seller's possession, a
copy of those Leases.
4. SALE OF ADDITIONAL LEASED INVENTORY. Seller and Buyer acknowledge
and agree that: (a) the Leased Inventory does not constitute all of the
equipment and products owned by Seller that are leased to Seller's customers,
(b) certain other equipment and products constituting the Additional
Inventory have been leased by Seller to certain customers pursuant to the
Additional Leases, and (c) due to incomplete documentation with respect to
the Additional Inventory, Seller is not in a position to deliver and assign
the Additional Leases on the Effective Date. Seller intends to have the
documentation with respect to the Additional Inventory and Additional Leases
completed and assembled within fifteen (15) days after the Effective Date.
Seller hereby grants to Buyer the right and option to purchase the Additional
Equipment and the Additional Leases on or before the date that is thirty (30)
days after the Effective Date (the "SECOND CLOSING DATE"). If Buyer elects
to exercise its option and purchase the Additional Inventory prior to the
Second Closing Date, Seller and Buyer shall execute and deliver (i) an
Assignment of Leases with respect to the Additional Leases in substantially
the same form as the Assignment and (ii) a Bill of Sale with respect to the
Additional Inventory in substantially the
3
same form as the Bill of Sale. The purchase price for the Additional
Inventory shall be determined by agreement of the parties.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Buyer as follows:
(a) Seller is authorized to executed and deliver this Agreement and
to perform its obligations hereunder.
(b) Seller is the owner of the Rental Inventory and the Additional
Inventory, and is the lessor under the Leases and the Additional Leases.
6. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS OF BUYER. Buyer
hereby represents, warrants and acknowledges to Seller as follows:
(a) Buyer is authorized to executed and deliver this Agreement and to
perform its obligations hereunder.
(b) Except for the limited warranties set forth in SECTION 8 below,
Buyer hereby acknowledges that Buyer is purchasing the Rental Fleet, and
those assets and property shall be conveyed and transferred to Buyer, "AS
IS, WHERE IS, AND WITH ALL FAULTS" and specifically and expressly without
any warranties, representations, or guarantees, either express or implied,
of any kind, nature, or type whatsoever from or on behalf of Seller.
SELLER HAS NOT, DOES NOT, AND WILL NOT WITH RESPECT TO THE RENTAL FLEET,
MAKE ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW, INCLUDING, BUT IN NO WAY LIMITED TO, ANY WARRANTY OF
CONDITION, MERCHANTABILITY, HABITABILITY, OR FITNESS FOR A PARTICULAR USE,
OR WITH RESPECT TO THE VALUE, PROFITABILITY, OR MARKETABILITY OF THE RENTAL
FLEET.
7. PREFERRED SUPPLIER AGREEMENT. As consideration for the execution
and consummation of this Agreement, Buyer and Seller have agreed to enter
into a Supplier Agreement on the terms set forth in the Summary of Terms.
Buyer and Seller acknowledge and agree that (a) the Summary of Terms contain
the basic business terms that the parties have agreed upon, but that
additional terms and conditions may be reasonably required by the respective
parties and their counsel, and (b) they will negotiate the other terms of the
Supplier Agreement in good faith and use reasonable efforts to have the
definitive form of the Supplier Agreement signed by the parties by June 30,
1998. Seller agrees that the purchase price for the Equipment will count
towards the Buyer's minimum annual purchase requirement for Year 1 under the
Supplier Agreement.
4
8. PRODUCT WARRANTIES. The sale of the Rental Fleet is made without
warranty of any kind, except as set forth in SECTION 5; and provided further
that Seller will provide a limited 90-day warranty on the Rental Inventory
and the Additional Inventory as provided in EXHIBIT D.
9. TAXES. All sales, value added, use, excise and other taxes arising
from the transaction are to be paid by Buyer. Buyer agrees to indemnify and
hold Seller harmless from and against any liability for such sales, use,
excise, or other taxes arising from the transactions contemplated by this
Agreement.
10. EXPORT RESTRICTIONS. Buyer agrees that it shall comply with any
and all laws, regulations, orders, or other restrictions of the United States
of America relating to the export and re-export of commodities and technical
data which may be imposed from time to time. Buyer will not export or
re-export, directly or indirectly any products or information with respect to
the Equipment to any destination prohibited by such laws, regulations, orders
or other restrictions without the prior authorization of the appropriate U.S.
Government authorities. Buyer agrees that its obligations under this section
shall survive Closing.
11. PROPRIETARY RIGHTS, LICENSE AND CONFIDENTIALITY.
(a) Buyer acknowledges that the Equipment contains certain hardware
components and software proprietary to Seller. Seller, for itself and its
assignees, hereby grants to Buyer a non-exclusive, irrevocable license to
use the software for the purpose of operating the Equipment. The license
granted hereunder is for an undetermined period and shall survive the
Closing.
(b) Buyer acknowledges that any hardware and software proprietary to
Seller are trade secrets and constitute a valuable asset of Seller. Buyer
agrees that it shall exercise at least the same degree of care and
discretion with respect to the hardware and software as it exercises in
protecting its own confidential information; that it shall not disclose or
otherwise make available, without the prior written consent of Seller, the
hardware or software or any copies of it to any other person and that it
shall not copy or reproduce the hardware or software. Buyer agrees that
this provision shall survive the Closing.
(c) Buyer further acknowledges that it shall not, without the prior
written consent of Seller, divulge any information relating to the terms of
this Agreement to any third party, except as to the extent required by law,
and shall take all reasonable action to prevent its employees and all
others, if any, involved in this Agreement from divulging such information
to third parties.
12. PRORATION OF RENTAL PAYMENTS. Rental payments under the Leases and
the Additional Leases actually paid to and received by Seller for the month
in which the Closing (or the Second Closing Date) occurs shall be prorated as
of the Effective Date or the Second Closing Date, as appropriate. Buyer
shall make a diligent attempt after the Closing to collect any rental
payments delinquent at the time of the assignment of the Leases or Additional
Leases in the usual
5
course of business and shall remit Seller's portion of those collections to
Seller promptly after receipt by Buyer. Nothing in this subparagraph shall
prohibit, limit or restrict Seller from collecting or attempting to collect
directly from any lessee in any lawful manner after Closing any rents
delinquent as of Closing.
13. NOTICES. Any notice or delivery to be given hereunder by either
party to the other may be effected by personal delivery in writing, certified
mail, postage prepaid, mailgram or telegram, and shall be deemed communicated
as of delivery, unless otherwise provided in this Agreement in accordance
with this paragraph at the address set forth below:
Seller: Input/Output, Inc.
11104 West Airport, Suite 200
Stafford, Texas 77477
Attention: Gay Mayeux, Chief Financial Officer
Buyer: Mitcham Industries, Inc.
P.O. Box 1175
Huntsville, Texas 77342
Attention: Bill F. Mitcham, Jr.
14. MISCELLANEOUS PROVISIONS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between Seller and Buyer with respect to the purchase and sale of
the Equipment and no representation or statement not contained herein shall
be binding upon Seller or Buyer as a warranty or otherwise, unless in
writing and executed by the party to be bound thereby. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
(b) GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Texas.
(c) RISK OF LOSS. The sale of the Equipment (other than Leased
Inventory and Additional Inventory) hereunder will be F.O.B. Seller's plant
in Stafford, Texas, with Buyer being responsible for the cost of shipping
and transporting the Equipment.
(d) BINDING EFFECT. This Agreement is binding upon and inures to the
benefit of Seller and Buyer and their respective successors and assigns.
(e) FURTHER ACTS. In addition to the acts and deeds recited in this
Agreement and contemplated to be performed, executed and/or delivered by
Seller or Buyer, Seller and Buyer agree to perform, execute and/or deliver
or cause to be performed, executed and/or delivered at the Closing or after
the Closing any and all further acts, deeds and
6
assurances as are reasonably necessary to consummate the transactions
contemplated hereby.
(f) TIME OF THE ESSENCE. It is expressly agreed by Buyer and Seller
that time is of the essence with respect to this Agreement.
(g) ATTORNEY'S FEES. If either party hereto employs an attorney to
enforce or defend its rights hereunder, the prevailing party shall be
entitled to recover its reasonable attorney's fees.
(h) MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same agreement, and any of the parties to this Agreement may
execute this Agreement by signing any of the counterparts.
7
EXECUTED as of May 29, 1998.
INPUT/OUTPUT, INC., a Delaware corporation
By: /s/ DENNIS N. JORDHOY
----------------------------------------
Dennis N. Jordhoy, Vice President-Sales
GLOBAL CHARTER CORPORATION, a Delaware
corporation
By: /s/ RONALD A. HARRIS
----------------------------------------
Ronald A. Harris, President
MITCHAM INDUSTRIES, INC., a Texas corporation
By: /s/ BILL F. MITCHAM
----------------------------------------
Bill F. Mitcham, President and Chief
Executive Officer
8
EXHIBIT 11
MITCHAM INDUSTRIES, INC.
Computation of Earnings per Common
and Common Equivalent Share
(In thousands except per share data)
Three months
ended April 30,
-------------------------------
1998 1997
----------- -----------
COMPUTATION OF BASIC EARNINGS PER
COMMON SHARE:
Net income................................................ $ 1,680 $ 1,723
----------- -----------
Weighted average number of common shares
outstanding........................................... 9,437,000 6,060,000
Earnings per common share................................. $ 0.18 $ 0.28
----------- -----------
----------- -----------
COMPUTATION OF EARNING PER COMMON SHARE
ASSUMING DILUTION:
Net income................................................ $ 1,680 $ 1,723
----------- -----------
Weighted average number of common shares
outstanding........................................... 9,437,000 6,060,000
Net effect of dilutive stock options and warrants
based on the treasury stock method, using the
average market price.................................. 320,000 179,000
----------- -----------
Common shares outstanding assuming dilution............... 9,757,000 6,239,000
----------- -----------
----------- -----------
Earnings per common share assuming dilution............... $ 0.17 $ 0.28
----------- -----------
----------- -----------
12
5
1,000
3-MOS
JAN-31-1999
FEB-01-1998
APR-30-1998
1,704
19,855
20,965
1,465
1,074
42,877
48,481
9,862
81,496
2,936
0
0
0
95
75,765
81,496
8,362
15,453
7,913
12,968
4,447
608
0
2,586
906
1,680
0
0
0
1,680
.18
.17
