-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKF54qUAlHnmI0jXFqwTnKNPUcZpA5XmLYYei8Zd53PeraU8198O5vBPAtknyWlp KiTJkE4wT/b94ve3Uo0FlQ== 0000899243-02-000262.txt : 20020414 0000899243-02-000262.hdr.sgml : 20020414 ACCESSION NUMBER: 0000899243-02-000262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OYO GEOSPACE CORP CENTRAL INDEX KEY: 0001001115 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 760447780 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-36727 FILM NUMBER: 02540983 BUSINESS ADDRESS: STREET 1: 7334 N GESSNER RD CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7139399700 MAIL ADDRESS: STREET 1: 9777 W GULF BANK ROAD SUITE 5 CITY: HOUSTON STATE: TX ZIP: 77040 10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDING DECEMBER 31, 2001 ================================================================================ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended December 31, 2001 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-13601 OYO GEOSPACE CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 76-0447780 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 12750 South Kirkwood, Suite 200 Stafford, Texas 77477 (Address of Principal Executive Offices) (281) 494-8282 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 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 [ ] There were 5,544,705 shares of the Registrant's Common Stock outstanding as of the close of business on February 11, 2002. - -------------------------------------------------------------------------------- ================================================================================ Table of Contents Page PART I. FINANCIAL INFORMATION Number - ------------------------------ ------ Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risks 21 PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K 22 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS December 31, 2001 September 30, 2001 ----------------- ------------------ (unaudited) Current assets: Cash and cash equivalents ................................ $ 1,007 $ 882 Trade accounts and notes receivable, net ................. 13,550 11,539 Inventories .............................................. 31,270 28,737 Deferred income tax ...................................... 1,345 1,152 Prepaid expenses and other ............................... 1,400 1,299 -------- -------- Total current assets .................................. 48,572 43,609 Rental equipment, net ....................................... 2,676 2,075 Property, plant and equipment, net .......................... 19,972 20,307 Goodwill and other intangible assets, net ................... 4,668 4,775 Deferred income tax ......................................... 283 340 Other assets ................................................ 1,569 1,982 -------- -------- Total assets .......................................... $ 77,740 $ 73,088 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt ... $ 216 $ 1,033 Accounts payable ......................................... 3,395 4,984 Accrued expenses and other ............................... 4,051 4,047 Deferred revenue ......................................... 4,859 4,859 Income tax payable ....................................... 88 235 -------- -------- Total current liabilities ............................. 12,609 15,158 Long-term debt .............................................. 9,987 3,772 Deferred income tax ......................................... 1,475 1,367 -------- -------- Total liabilities ..................................... 24,071 20,297 -------- -------- Minority interest in consolidated subsidiary ................ 204 -- Stockholders' equity: Preferred stock .......................................... -- -- Common stock ............................................. 55 55 Additional paid-in capital ............................... 30,525 30,530 Retained earnings ........................................ 23,860 23,213 Accumulated other comprehensive loss ..................... (931) (865) Unearned compensation-restricted stock awards ............ (44) (142) -------- -------- Total stockholders' equity ............................ 53,465 52,791 -------- -------- Total liabilities and stockholders' equity ............ $ 77,740 $ 73,088 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) Three Months Three Months Ended Ended December 31, 2001 December 31, 2000 ----------------- ----------------- Sales .............................................. $ 12,900 $ 14,967 Cost of sales ...................................... 8,865 10,108 ----------- ----------- Gross profit ....................................... 4,035 4,859 Operating expenses: Selling, general and administrative expenses .... 2,876 2,982 Research and development expenses ............... 1,080 1,469 ----------- ----------- Total operating expenses ..................... 3,956 4,451 ----------- ----------- Income from operations ............................. 79 408 Other income (expense): Interest expense ................................ (151) (80) Interest income ................................. 50 34 Other, net ...................................... 5 24 ----------- ----------- Total other expense, net ..................... (96) (22) ----------- ----------- Income (loss) before income taxes, minority interest and extraordinary gain .......................... (17) 386 Income tax expense (benefit) ....................... (7) 115 ----------- ----------- Income (loss) before minority interest and extraordinary gain .......................... (10) 271 Minority interest .................................. (29) -- ----------- ----------- Income (loss) before extraordinary gain ............ (39) 271 Extraordinary gain, net of tax of $85 .............. 686 -- ----------- ----------- Net income ......................................... $ 647 $ 271 =========== =========== Basic earnings per share: Income (loss) before extraordinary item ......... $ (0.01) $ 0.05 Extraordinary gain .............................. 0.13 -- ----------- ----------- Net income ...................................... $ 0.12 $ 0.05 =========== =========== Diluted earnings per share: Income (loss) before extraordinary item ......... $ (0.01) $ 0.05 Extraordinary gain .............................. 0.13 -- ----------- ----------- Net income ...................................... $ 0.12 $ 0.05 =========== =========== Weighted average shares outstanding - Basic ........ 5,515,642 5,463,152 Weighted average shares outstanding - Diluted ...... 5,535,978 5,577,984 The accompanying notes are an integral part of the consolidated financial statements.
4
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Three Months Ended Ended December 31, 2001 December 31, 2000 ----------------- ----------------- Cash flows from operating activities: Net income ................................................. $ 647 $ 271 Adjustments to reconcile net income to net cash used in operating activities: Deferred income tax expense (benefit) .................... (27) 130 Depreciation and amortization ............................ 1,107 957 Amortization of restricted stock awards .................. 90 119 Extraordinary gain ....................................... (686) -- Minority interest ........................................ 29 -- Bad debt expense ......................................... 221 55 Effects of changes in operating assets and liabilities: Trade accounts and notes receivable ...................... (1,667) (2,725) Inventories .............................................. (1,847) (679) Prepaid expenses and other assets ........................ 126 (73) Accounts payable ......................................... (1,681) (426) Accrued expenses and other ............................... (1,046) 640 Income tax payable ....................................... (232) 153 ------- ------- Net cash used in operating activities .................. (4,966) (1,578) ------- ------- Cash flows from investing activities: Capital expenditures ....................................... (1,167) (1,384) Investment in business acquisition, net of cash acquired ... 913 -- Proceeds from sale of equipment ............................ 8 1 ------- ------- Net cash used in investing activities .................. (246) (1,383) ------- ------- Cash flows from financing activities: Increase in notes payable .................................. 9,068 3,816 Principal payments on notes payable ........................ (3,669) (3,863) Proceeds from exercise of stock options .................... 4 77 ------- ------- Net cash provided by financing activities .............. 5,403 30 ------- ------- Effect of exchange rate changes on cash ....................... (66) 16 ------- ------- Increase (decrease) in cash and cash equivalents .............. 125 (2,915) Cash and cash equivalents, beginning of period ................ 882 3,989 ------- ------- Cash and cash equivalents, end of period ...................... $ 1,007 $ 1,074 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
5 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The consolidated balance sheet of OYO Geospace Corporation and its subsidiaries (the "Company") at September 30, 2001 has been derived from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at December 31, 2001 and the consolidated statements of operations for the three months ended December 31, 2001 and 2000, and the consolidated statements of cash flows for the three months ended December 31, 2001 and 2000, have been prepared by the Company, without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the three months ended December 31, 2001 are not necessarily indicative of the operating results for a full year or of future operations. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2001. The Company has embarked on a long-term project to develop a deepwater seabed seismic array. The Company recognizes revenue when such long-term projects are completed and placed in-service; therefore, progress payments are classified as deferred revenue. In November 2001, the Company acquired an additional equity interest in a Russian joint venture; thereby, increasing its ownership percentage from 44% to 85%. As a result of this acquisition, the Company will record minority interest expense or income, reflecting the portion of earnings or loss, respectively, of the majority-owned operations allocated to the minority interest partners. For additional information, see Note 6 to the Consolidated Financial Statements contained in this Report on Form 10-Q. In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The Company adopted the provisions of SFAS 141 effective October 1, 2001. Among the provisions of SFAS 141 is the requirement to record as an extraordinary gain all negative goodwill resulting from new business combinations. As a result, the Company recorded an extraordinary gain of $686,000 relating to the acquisition of the Russian joint venture in November 2001. Also in July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment; or more frequently if impairment is indicated. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. The Company will adopt the provisions of SFAS 142 effective in its fiscal year beginning October 1, 2002. At December 31, 2001, the Company had goodwill, net of accumulated amortization, of $2.0 million. 6 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. Earnings Per Common Share The following table summarizes the calculation of net earnings and weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share (in thousands, except per share data):
Three Months Ended -------------------------------------- December 31, 2001 December 31, 2000 ----------------- ----------------- Income (loss) before extraordinary gain ..... $ (39) $ 271 Extraordinary gain .......................... 686 -- ---------- ---------- Net earnings available to common stockholders .............................. $ 647 $ 271 ========== ========== Weighted average common shares outstanding .. 5,515,642 5,463,152 Weighted average common share equivalents outstanding ............................... 20,336 114,832 ---------- ---------- Weighted average common shares and common share equivalents outstanding ............ 5,535,978 5,577,984 ========== ========== Basic Earnings Per Share: Income (loss) before extraordinary gain ..... $ (0.01) $ 0.05 Extraordinary gain .......................... 0.13 -- ---------- ---------- Net income .................................. $ 0.12 $ 0.05 ========== ========== Diluted Earnings Per Share: Income (loss) before extraordinary gain ..... $ (0.01) $ 0.05 Extraordinary gain .......................... 0.13 -- ---------- ---------- Net income .................................. $ 0.12 $ 0.05 ========== ==========
3. Comprehensive Income Comprehensive income includes all changes in a company's equity, except those resulting from investments by and distributions to owners. The following table summarizes the components of comprehensive income (in thousands):
Three Months Ended -------------------------------------- December 31, 2001 December 31, 2000 ----------------- ----------------- Net income .................................. $ 647 $ 271 Foreign currency translation adjustments..... (66) 16 ---------- ---------- Total comprehensive income................... $ 581 $ 287 ========== ==========
7 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 4. Trade Accounts and Notes Receivable Trade accounts and notes receivable consisted of the following (in thousands):
December 31, 2001 September 30, 2001 ----------------- ------------------ Trade accounts receivable.................... $ 12,297 $ 9,566 Trade notes receivable....................... 1,990 2,443 Allowance for doubtful accounts and notes.... (737) (470) ---------- ---------- $ 13,550 $ 11,539 ========== ==========
5. Inventories Inventories consisted of the following (in thousands):
December 31, 2001 September 30, 2001 ----------------- ------------------ Finished goods............................... $ 4,415 $ 3,649 Work-in-process.............................. 12,142 9,653 Raw materials................................ 14,713 15,435 ---------- ---------- $ 31,270 $ 28,737 ========== ==========
The Company has received a large order and strong indications of interest for additional orders from customers to deliver deepwater reservoir characterization systems. Such orders and indications have a combined sales price of approximately $24 million. The expected delivery for these orders and indications is the spring and summer of 2002. To date, these orders and indications have not been formalized into written definitive contracts. In the case of the large order, the Company has been operating on the assumption that its agreements are reflected in a letter of intent and numerous subsequent exchanges of communication, and has received a substantial progress payment on the order. Because the Company has not formalized this order into a single, definitive written contract, it faces the risk that any disputes arising out of the order will be resolved in a manner and with a reference to terms that it did not agree to and which are unfavorable to the Company. The Company is not aware of any disputes or basis for any dispute at this time. Because of the scale and nature of these projects, there may be delays in their implementation and uncertainties about their final course. As a result, the Company is unable at present to predict the impact of such projects on its business and financial results and condition. The Company continues to believe, however, that its reservoir characterization systems, including the systems related to this matter, are important new technologies in its industry and will be important to its success in the future. At December 31, 2001, the Company capitalized inventory work-in-process costs of $9.7 million in connection with these projects. The Company received a $4.9 million progress payment from the customer in connection with the large order; this payment is classified as deferred revenues on its balance sheet. The terms of the large order require the customer to make periodic cash payments to the Company during various phases of the project. Significant payments, constituting approximately one-half of the large order, expected to be received after installation of the system are potentially refundable to the customer if the system significantly fails to perform its intended function over an agreed-upon term. If the system performs its intended function for the agreed-upon term, a significant amount of revenues from this order will be deferred to future accounting periods. If the 8 system significantly fails to perform its intended function, however, the Company may forfeit the refundable cash payments specified above. 6. Acquisition Effective November 8, 2001, the Company increased its equity ownership from 44% to 85% in a Russian joint venture formed more than ten years ago with Geophyspribor Ufa Production Association, Bank Vostock and Chori Co., Ltd. Since the increase in ownership, the operating results of the reorganized entity, now known as OYO-GEO Impulse International LLC ("OYO-GEO Impulse"), have been consolidated with those of the Company. Geophyspibor Ufa Production Association and Chori Co., Ltd. will continue as minority equity holders of OYO-GEO Impulse. In exchange for the additional equity ownership, the Company forgave a debt of $1.2 million owed to it by OYO-GEO Impulse. At the time of the acquisition, the Company's basis in the receivable and related equity investment was $0 as such items were written-off in 1994. In accordance with the provision of SFAS 141, the Company recorded an extraordinary gain of $686,000, net of income taxes of $85,000. This extraordinary gain resulted from the write-off of negative goodwill associated with the acquisition of the additional equity interest of OYO-GEO Impulse. The allocation of the purchase price and a reconciliation of the purchase price to the cash provided by business acquisitions is as follows: Fair values of assets and liabilities Accounts receivable.................................... $ 185 Inventories............................................ 686 Prepaid expenses and other ............................ 263 Accounts payable....................................... (92) Accrued expenses....................................... (1,009) Income taxes payable................................... (85) Minority interest...................................... (175) Negative goodwill...................................... (686) ------- Total allocated purchase price ........................ (913) Less consideration paid................................ -- ------- Cash provided by business acquisition.................. $ (913) ======= 7. Segment and Geographic Information The Company evaluates financial performance based on two business segments: Seismic and Commercial Graphics. The seismic product lines currently consist of geophones and hydrophones, including multi-component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cable, high definition reservoir characterization products and services, marine seismic cable retrieval devices and small data acquisition systems targeted at niche markets. Commercial graphic products include thermal imaging equipment and dry thermal film. 9 The following tables summarize the Company's segment information:
Three Months Ended Three Months Ended ------------------ ------------------ December 31, 2001 December 31, 2000 ------------------ ------------------ Net sales: Seismic.................................... $ 9,963 $ 11,885 Commercial Graphics........................ 3,001 3,100 Eliminations............................... (64) (18) -------- -------- Total $ 12,900 $ 14,967 ======== ======== Income from operations: Seismic.................................... $ 656 $ 915 Commercial Graphics........................ 352 351 Corporate.................................. (929) (858) -------- -------- Total...................................... $ 79 $ 408 ======== ========
December 31, 2001 September 30, 2001 ----------------- ------------------ Total assets: Seismic.................................... $ 63,212 $ 56,968 Commercial Graphics........................ 10,316 11,059 Corporate.................................. 4,212 5,061 -------- -------- $ 77,740 $ 73,088 ======== ========
8. Line of Credit The Company has a working line of credit pursuant to which it can borrow up to $10.0 million secured by its accounts receivable and inventory (the "Credit Agreement"). The Credit Agreement, as amended, expires in January 2003. Borrowings under the Credit Agreement are subject to borrowing base restrictions based on (i) consolidated net income plus consolidated interest expense, income taxes, depreciation and amortization and (ii) levels of eligible accounts receivable and inventories. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial amounts and contains other covenants customary in agreements of this type. As of December 31, 2001 there were borrowings of $6.3 million outstanding under the Credit Agreement, and additional borrowings available under the Credit Agreement of $2.3 million. The borrowing interest rate at December 31, 2001 was 4.75%. The Company recently amended its Credit Agreement to expire in January 2003. In connection with this amendment, the Company's borrowing interest rate has become the bank's prime rate with a minimum rate of 5%. In addition, the Company arranged for an additional promissory note of $2.5 million ("Additional Note") to assist the Company with the funding of several long-term projects. The Additional Note has a fixed borrowing rate of 8% and expires on July 15, 2002. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following analysis of the financial condition and results of operations of OYO Geospace Corporation should be read in conjunction with the Consolidated Financial Statements and Notes related thereto included elsewhere in this Form 10-Q. Industry Overview We design and manufacture instruments and equipment used in the acquisition and processing of seismic data. We have been in the seismic instrument and equipment business since 1980, marketing our products primarily to the oil and gas industry worldwide. We also design and manufacture thermal imaging equipment and distribute dry thermal film products to the commercial graphics industry. We have been serving the commercial graphics industry since 1995. Seismic Industry Geoscientists use seismic data to map potential or existing oil and gas bearing formations and the geologic structures that surround them. Seismic data is used primarily in connection with the exploration, development and production of oil and gas. Seismic data acquisition is conducted on land by combining a seismic energy source and a data recording system. The energy source imparts seismic waves into the earth, reflections of which are received and measured by geophones and hydrophones. Electrical signals generated by the geophones and hydrophones are simultaneously transmitted through leader wire, geophone and hydrophone string connectors and telemetric cable to data collection units, which store information for processing and analysis. Seismic thermal imaging products are output devices used in the field or office to create a graphic representation of the seismic data after it has been acquired. Marine seismic data acquisition is conducted primarily by large ocean-going vessels that tow long seismic cables known as "streamers". Usually, the energy source in marine seismic data acquisition is an airgun, and the reflected seismic waves are received and measured by hydrophones, which are an integral part of the streamers. The streamers simultaneously transmit the electrical impulses back to the vessel via telemetric cable included within the streamers, and the seismic data is recorded in much the same manner as it is on land. An estimated one to two-thirds of the reserves found with every oil and gas discovery will be left behind in the reservoir, not recoverable economically or at times even identified. Reservoir characterization and management programs, in which the reservoir is carefully imaged and monitored throughout the life of the field by seismic instruments and equipment, are now seen as vital tools for improving production recovery rates. Seismic surveys repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the effects of production. We expect to incur significant future research and development expenditures aimed at the development of additional seismic acquisition products and services used for high definition reservoir characterization for use in both land and marine environments While orders for our products can vary substantially from quarter to quarter, reservoir characterization projects, especially deepwater projects, require the use of more equipment over a longer period of time than required by conventional surface seismic systems. Revenue recognition in accordance with generally accepted accounting principles for these large-scale projects has the potential to result in substantial fluctuations in quarterly performance. These variations may impact our operating results and cash flow, manufacturing capability and expense levels in any given quarter. We have received a large order and strong indications of interest for additional orders from customers to deliver deepwater reservoir characterization systems. Such orders and indications have a combined sales price of 11 approximately $24 million. The expected delivery for these orders and indications is the spring and summer of 2002. To date, these orders and indications have not been formalized into written definitive contracts. In the case of the large order, we have been operating on the assumption that our agreements are reflected in a letter of intent and numerous subsequent exchanges of communication, and we have received a substantial progress payment on the order. Because we have not formalized this order into a single, definitive written contract, we face the risk that any disputes arising out of the order will be resolved in a manner and with a reference to terms that we did not agree to and which are unfavorable to us. We are not aware of any disputes or the basis for any dispute at this time. Because of the scale and nature of these projects, there may be delays in their implementation and uncertainties about their final course. As a result, we are unable at present to predict the impact of such projects on our business and financial results and condition. We continue to believe, however, that our reservoir characterization systems, including the systems related to this matter, are important new technologies in our industry and will be important to our success in the future. At December 31, 2001, we have capitalized inventory work-in-process costs of $9.7 million in connection with these orders and indications. We have received a $4.9 million progress payment from the customer in connection with the large order; this payment is classified as deferred revenues on our balance sheet. The terms of the large order require the customer to make periodic cash payments to us during various phases of the project. Significant payments, constituting approximately one-half of the large order, expected to be received after installation of the system are potentially refundable to the customer if the system significantly fails to perform its intended function over an agreed-upon term. If the system performs its intended function for the agreed-upon term, a significant amount of revenues from this order will be deferred to future accounting periods. If the system significantly fails to perform its intended function, however, we may forfeit the refundable cash payments specified above. Commercial Graphics Industry We developed our commercial graphics business segment over time as we leveraged our thermal imaging product technology, originally designed for seismic data processing applications, into new markets. With minor product modifications, we were successful in adapting these products for use in the commercial graphics industry. Our commercial graphics business segment manufactures and sells thermal imaging equipment and distributes dry thermal film primarily to the screen print, point of sale, signage and textile market sectors. Our thermal imaging equipment is capable of producing data images ranging in size from 12 to 54 inches wide. This business segment has some sales to customers in the seismic industry. We expanded this segment last year by acquiring EcoPRO, a dry thermal film distribution business, and by altering the marketing focus of our European subsidiary. 12 Results of Operations We report and evaluate financial information for two segments: Seismic and Commercial Graphics. Summary financial data by business segment follows:
Three Months Ended Three Months Ended ------------------ ------------------ December 31, 2001 December 31, 2000 ----------------- ----------------- Seismic Revenue................................... $ 9,963 $ 11,885 Operating income.......................... 656 915 Commercial Graphics Revenue................................... 3,001 3,100 Operating income.......................... 352 351 Corporate Revenue................................... -- -- Operating loss............................ (929) (858) Eliminations Revenue................................... (64) (18) Operating income.......................... -- -- Consolidated Totals Revenue................................... 12,900 14,967 Operating income.......................... 79 408
Overview First Quarter of Fiscal Year 2002 Compared to First Quarter of Fiscal Year 2001. Consolidated sales for the three months ended December 31, 2001 decreased $2.1 million, or 13.8%, from the corresponding period of the prior fiscal year. The decrease in sales was due to a significant decline in the demand for our land-based seismic products resulting from a decline in worldwide seismic activity. This decrease was partially offset by an increase in sales associated with our acquisition and consolidation of OYO-GEO Impulse. Consolidated gross profits for the three months ended December 31, 2001 decreased by $0.8 million, or 17.0%, from the corresponding period of the prior year. The lower gross profits resulted from lower sales levels primarily resulting from deterioration in the demand for our land-based seismic products. The decline in gross profit margins we realized from sales of our land-based seismic products was partially offset by improved gross profit margins realized from the sale of our marine-based seismic products and from commercial graphics products. Consolidated operating expenses for the three months ended December 31, 2001 decreased $0.5 million, or 11.1%, from the corresponding periods of the prior fiscal year. The lower expenses are a result of an effort by the Company to reduce expenses during a period of declining revenues. Our effective tax rate for the three months ended December 31, 2001 was 41.2% compared to a benefit of 29.8% for the three months ended December 31, 2000. The tax rate of the current period includes a benefit resulting from the resolution of contingent tax matters from prior years. 13 Seismic Our seismic product lines currently consist of geophones and hydrophones, including multi-component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cable, high definition reservoir characterization products and services, marine seismic cable retrieval devices and small data acquisition systems targeted at niche markets. Revenue Sales of our seismic products for the three months ended December 31, 2001 decreased $1.9 million, or 16.2%, from the corresponding period of the prior year. The decrease in seismic product sales primarily resulted from the decrease in sales of our land-based products caused by decreasing worldwide oil and gas exploration activities. This decrease was partially offset by an increase in sales associated with our (i) acquisition and consolidation of OYO-GEO Impulse, (ii) reservoir characterization products and services and (iii) marine-based seismic products. Operating Income Operating income for the three months ended December 31, 2001 was $0.7 million, a decrease of $0.3 million from the corresponding period of the prior year. The decrease in operating income primarily resulted from decreased gross profits associated with lower sales levels from our land-based seismic products. Such decrease in operating income was partially offset by an increase in operating income from (i) our reservoir characterization products and services, (ii) our marine-based seismic products and (iii) the acquisition and consolidation of OYO-GEO Impulse. International Business Development Initiative Effective November 8, 2001, the Company increased its equity ownership from 44% to 85% in a Russian joint venture formed more than ten years ago with Geophyspribor Ufa Production Association, Bank Vostock and Chori Co., Ltd. Since the increase in ownership, the operating results of the reorganized entity, now known as OYO-GEO Impulse International LLC ("OYO-GEO Impulse"), have been consolidated with those of the Company. Geophyspibor Ufa Production Association and Chori Co., Ltd. will continue as minority equity holders of OYO-GEO Impulse. In exchange for the additional equity ownership, the Company forgave a debt of $1.2 million owed to it by OYO-GEO Impulse. At the time of the acquisition, the Company's basis in the receivable and related equity investment was $0 as such items were written-off in 1994. In accordance with the provision of SFAS 141, the Company recorded an extraordinary gain of $686,000, net of income taxes of $85,000. This extraordinary gain resulted from the write-off of negative goodwill associated with the acquisition of the additional equity interest of OYO-GEO Impulse. Commercial Graphics Our commercial graphics business segment manufactures and sells thermal imaging equipment and distributes dry thermal film primarily to the screen print, point of sale, signage and textile market sectors. This business segment has some sales to customers in the seismic industry. Revenue Sales of our commercial graphics products for the three months ended December 31, 2001 decreased $0.1 million, or 3.2% from the corresponding period of the prior year. Such decrease is primarily due to decreased sales of equipment, partially offset by increased sales of dry thermal film products resulting from the EcoPRO acquisition. 14 Operating Income The operating income for the three months ended December 31, 2001 was virtually unchanged from the corresponding period of the prior year. The operating margin improvement resulted from improving gross profits resulting from increased sales of dry thermal film. Liquidity and Capital Resources At December 31, 2001, we had $1.0 million in cash and cash equivalents. For the three months ended December 31, 2001, we used approximately $5.0 million of cash in operating activities principally resulting from increases in accounts receivable and inventories and decreases in account payable and accrued expenses. For the three months ended December 31, 2001, we used approximately $246,000 of cash in investing activities primarily resulting from $1.2 million of capital expenditures. Such amount was offset by $0.9 million of cash we received through the acquisition of an additional interest in, and consolidation of, OYO-GEO Impulse. We estimate that our capital expenditures in fiscal year 2002 will range between $4.0 to $5.0 million, which we expect to fund through operating cash flows and borrowings under our credit facilities. For the three months ended December 31, 2001, we generated approximately $5.4 million of cash from financing activities primarily resulting from borrowings under our credit facilities with the bank. We have a working capital line of credit pursuant to which we can borrow up to $10.0 million secured by our accounts receivable and inventory (the "Credit Agreement"). The Credit Agreement, as amended, expires in January 2003. Borrowings under the Credit Agreement are subject to borrowing base restrictions based on (i) consolidated net income plus consolidated interest expense, income taxes, depreciation and amortization and (ii) levels of eligible accounts receivable and inventories. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial amounts and contains other covenants customary in agreements of this type. As of December 31, 2001 there were borrowings of $6.3 million outstanding under the Credit Agreement, and additional borrowings available under the Credit Agreement of $2.3 million. The borrowing interest rate at December 31, 2001 was 4.75%. We recently amended our Credit Agreement to expire in January 2003. In connection with this amendment, our borrowing interest rate has become the bank's prime rate with a minimum rate of 5%. In addition, we arranged for an additional promissory note of $2.5 million ("Additional Note") to assist the Company with the funding of several long-term projects. The Additional Note has a fixed borrowing rate of 8% and expires on July 15, 2002. Purchase of Intellectual Property Rights A private corporation headquartered in New York State is currently the primary supplier of dry thermal film used by our customers in the thermal imaging equipment we manufacture (the "Primary Film Supplier"). We also have a secondary supplier of dry thermal film headquartered in Europe. We know of no other supplier of dry thermal film for our thermal imaging equipment. While alternate suppliers might be able to provide dry thermal film, such film has not historically performed as well in our thermal imaging equipment. We are presently evaluating and working on an opportunity to purchase certain intellectual property rights from our Primary Film Supplier for $2.0 million. Such purchase will give us exclusive ownership of all technology used by the Primary Film Supplier to manufacture dry thermal film used in the thermal imaging equipment we manufacture. Such purchase includes technology currently existing and any technology hereinafter developed by the Primary Film Supplier. In connection with the purchase, we expect to license the technology to the Primary Film Supplier on a perpetual basis, so long as it can meet predefined quality and delivery requirements. Should the Primary Film Supplier not meet such requirements, we expect to have the right to license any third party to manufacture dry thermal film. Should we conclude the purchase of this technology, we expect to receive favorable price concessions from the Primary Film Supplier. The proceeds from the sale are intended to be used by the Primary Film Supplier to fund its working capital needs, thereby enabling it to continue supplying dry thermal film to 15 us for distribution to our customers. We have no assurance that the pending transaction with the Primary Film Supplier will close or if it does close, that it will assure us a continued supply of dry thermal film for the foreseeable future or that our Primary Film Supplier will use the funds for working capital purposes. We have received a large order and strong indications of interest for additional orders from customers to deliver deepwater reservoir characterization systems. At December 31, 2001, we have capitalized inventory work-in-process costs of $9.7 million in connection with these projects. Decisions by customers regarding the timing, nature and size of purchases for deepwater characterization systems could significantly impact our liquidity and results of operations, particularly if orders were cancelled, modified or delayed and if anticipated orders do not occur as expected. We believe that the combination of existing cash reserves, cash flows from operations and borrowing availability under our existing credit facilities should provide us sufficient capital resources and liquidity to fund the pending acquisition of intellectual property rights from our Primary Film Supplier and our planned operations through fiscal year 2002. However, there can be no assurance that such sources of capital will be sufficient to support our capital requirements in the long-term, and we may be required to issue additional debt or equity securities in the future to meet our capital requirements. There can be no assurance we would be able to issue additional equity or debt securities in the future on terms that are acceptable to the Company or at all. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The Company adopted the provisions of SFAS 141 effective October 1, 2001. Among the provisions of SFAS 141 is the requirement to record as an extraordinary gain all negative goodwill resulting from new business combinations. As a result, the Company recorded an extraordinary gain of $686,000 relating to the acquisition of the additional interest in the Russian joint venture in November 2001. Also in July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment; or more frequently if impairment is indicated. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. The Company will adopt the provisions of SFAS 142 effective in its fiscal year beginning October 1, 2002. At December 31, 2001, the Company had goodwill, net of accumulated amortization, of $2.0 million. Forward Looking Statements and Risks Certain of the statements we make in this document and in documents incorporated by reference herein, including those made under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such statements include projections of our expectations regarding our future capital expenditures, product lines, growth of product markets and other statements that relate to future events or circumstances. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied by such forward-looking statements, including the risks and factors described below. You are cautioned to consider the following factors and risks in connection with evaluating any such forward-looking statements or otherwise evaluating an investment in our company. Our New Products May Not Achieve Market Acceptance. In recent years, we have incurred significant expenditures to fund our research and development efforts and we intend to continue those expenditures in the future. However, research and development is by its nature speculative, and we cannot assure you that these expenditures will result in the development of new products or services or that 16 any new products and services we have developed recently or may develop in the future will be commercially marketable or profitable to us. In particular, we have incurred substantial expenditures to develop our recently introduced HDSeis(TM) product line for borehole and reservoir characterization applications. For a discussion of particular factors and risks relating to projects in the reservoir characterization area, see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Industry Overview" in this Report on Form 10-Q. We cannot assure you that we will realize our expectations regarding market acceptance and revenues from these products and services. A Decline in Industry Conditions Could Affect our Projected Results. Any unexpected material changes in oil and gas prices or other market trends that would impact seismic exploration activity would likely affect the forward-looking information contained in this document. Our results for fiscal year 2000 were materially and adversely affected by the downturn in the industry that began in fiscal year 1999. Although our results for fiscal year 2001 showed an improvement over fiscal year 2000 due to increases in oil and gas prices, the oil and gas industry is extremely volatile and subject to change based on political and economic factors outside our control as evidenced by recent decreases in oil and gas prices. Our estimates as to future results and industry trends described in this document are based on assumptions regarding the future level of seismic exploration activity and its effect on the demand and pricing of our products and services. In analyzing the market and its impact on us, we have made the following assumptions for fiscal year 2002: o Oil and gas prices will, on average, be weaker than fiscal year 2001. As a result, seismic exploration activity will decrease. o Demand for seismic instruments and equipment will decline from fiscal year 2001 levels. o Demand for our new high definition reservoir characterization products and services will increase as those products and services become known to the industry and as the need for reservoir characterization technology increases. o Deep-water marine seismic activity will remain constrained. o Demand for our products used in the commercial graphics industry will increase with continued market acceptance and new product introductions. o Pricing for many of our products will continue to be subject to pricing pressures due to seismic industry customer consolidations and competition as the seismic industry enters another economic downturn. We have based these assumptions on various macro-economic factors, and actual market conditions could vary materially from those assumed. We May Experience Fluctuations in Quarterly Results of Operations. Historically, the rate of new orders for our products has varied substantially from quarter to quarter. Moreover, we typically operate, and expect to continue to operate, on the basis of orders in hand for our products before we commence substantial manufacturing "runs"; hence, the completion of orders, particularly large orders for deepwater reservoir characterization projects, can significantly impact the operating results and cash flow for any quarter, and results of operations for any one quarter may not be indicative of results of operations for future quarters. 17 Our Credit Risks Could Increase as our Customers Continue to Face Difficult Economic Circumstances. We believe and have assumed that our allowance for bad debts at December 31, 2001 is adequate in light of known circumstances. However, we cannot assure you that sufficient aggregate amounts of uncollectible receivables and bad debt write-offs will not have a material adverse effect on our future results of operations. Many of our customers have suffered from lower revenues and experienced liquidity challenges resulting from the economic difficulties throughout our industry. We have in the past incurred significant write-offs in our accounts receivable due to customer credit problems. We have found it necessary from time to time to extend trade credit to long-term customers and others where some risks of nonpayment or late payment exist. Given recent industry conditions, some of our customers have experienced a liquidity difficulty, which increases those credit risks. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources", contained in this Report on Form 10-Q. Demand for Our Products is Volatile. Demand for our products depends primarily on the level of worldwide oil and gas exploration activity. That activity, in turn, depends primarily on prevailing oil and gas prices. Historically, the markets for oil and gas have been volatile, and those markets are likely to continue to be volatile. Oil and gas prices are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include the level of consumer demand, weather conditions, domestic and foreign governmental regulations, price and availability of alternative fuels, political conditions in the Middle East and other significant oil-producing regions, foreign supply of oil and gas, price of foreign imports and overall economic conditions. Continued low demand for our products could materially and adversely affect our results of operations and liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Industry Overview". We Have a Relatively Small Public Float, and Our Stock Price May be Volatile. We have approximately 2.4 million shares outstanding held by nonaffiliates. This small float results in a relatively illiquid market for our common stock. Our average daily trading volume during fiscal year 2001 has been around 5,000 shares. Our small float and daily trading volumes may result in greater volatility of our stock price. Our Industry is Characterized by Rapid Technological Evolution and Product Obsolescence. Our instruments and equipment are constantly undergoing rapid technological improvement. Our future success depends on our ability to continue to: o improve our existing product lines; o address the increasingly sophisticated needs of our customers; o maintain a reputation for technological leadership; o maintain market acceptance; o anticipate changes in technology and industry standards; and o respond to technological developments on a timely basis. Current competitors or new market entrants may develop new technologies, products or standards that could render our products obsolete. We cannot assure you that we will be successful in developing and marketing, on a timely and cost effective basis, product enhancements or new products that respond to technological developments, that are accepted in the marketplace or that comply with industry standards. We Operate in Highly Competitive Markets. The markets for our products are highly competitive. Many of our existing and potential competitors have substantially greater marketing, financial and technical resources than we do. Additionally, two competitors in our 18 seismic business segment currently offer a broader range of instruments and equipment for sale and market this equipment as a "packaged" data acquisition system. We do not now offer for sale such a complete "packaged" data acquisition system. Further, certain of our competitors offer financing arrangements to customers on terms that we may not be able to match. In addition, new competitors may enter the market and competition could intensify. We cannot assure you that sales of our products will continue at current volumes or prices if current competitors or new market entrants introduce new products with better features, performance, price or other characteristics than our products. Competitive pressures or other factors also may result in significant price competition that could have a material adverse effect on our results of operations. We Have a Limited Market. In our seismic business segment, we market our products to contractors and large, independent and government-owned oil and gas companies. We estimate that, based on published industry sources, fewer than 100 seismic contracting companies are currently operating worldwide (excluding those operating in Russia and the former Soviet Union, India, the People's Republic of China and certain Eastern European countries, where seismic data acquisition activity is difficult to verify). We estimate that fewer than ten seismic contractors are engaged in marine seismic exploration. In November 2001, two of our largest seismic customers (Petroleum Geo-Services ASA and Veritas DGC Inc.), announced plans to merge. Due to these market factors, a relatively small number of customers have accounted for most of our sales. The loss of a small number of these customers could materially and adversely impact our sales. We Cannot Be Certain of Patent Protection of Our Products. We have applied for and hold certain patents relating to our seismic data acquisition and other products. We cannot assure you that our patents will prove enforceable, that any patents will be issued for which we have applied or that competitors will not develop functionally similar technology outside the protection of any patents we have or may obtain. Our Foreign Marketing Efforts Face Additional Risks and Difficulties. Net sales outside the United States accounted for approximately 57% of our net sales during fiscal year 2001. Additionally, our United States subsidiaries engage in significant export sales. Substantially all of our sales from the United States are made in U.S. dollars, but from time to time we may make sales in foreign currencies and may, therefore, be subject to foreign currency fluctuations on our sales. In addition, net assets reflected on the balance sheet of our Russian, Canadian and U.K. subsidiaries are subject to currency fluctuations. Significant foreign currency fluctuations could adversely impact our results of operations. Foreign sales are subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist activities, civil disturbances, embargo and government activities, all of which may disrupt markets. Foreign sales are also generally subject to the risk of compliance with additional laws, including tariff regulations and import and export restrictions. Sales in certain foreign countries require prior United States government approval in the form of an export license. We cannot assure you that we will not experience difficulties in connection with future foreign sales. We Rely on Key Suppliers for Significant Product Components. A Japanese manufacturer unaffiliated with us is currently the only supplier of wide format thermal printheads that we use to manufacture our wide format thermal imager equipment. We often return significant quantities of these products to the manufacturer for repair, testing and quality assurance review. We believe we maintain an adequate inventory of these printheads to continue production for two to three months. The Primary Film Supplier, a private corporation headquartered in New York State, is currently the primary supplier of dry thermal film used by our customers in the thermal imaging equipment we manufacture. We also have a secondary supplier of dry thermal film headquartered in Europe. We know of no other supplier of dry thermal film 19 for our thermal imaging equipment. While alternate suppliers might be able to provide dry thermal film, such film has not historically performed as well in our thermal imaging equipment. We are presently evaluating and working on an opportunity to purchase certain intellectual property rights from our Primary Film Supplier for $2.0 million. Such purchase will give us exclusive ownership of all technology used by the Primary Film Supplier to manufacture dry thermal film used in the thermal imaging equipment we manufacture. Such purchase includes technology currently existing and any technology hereinafter developed by the Primary Film Supplier. In connection with the purchase, we expect to license the technology to the Primary Film Supplier on a perpetual basis, so long as it can meet predefined quality and delivery requirements. Should the Primary Film Supplier not meet such requirements, we expect to have the right to license any third party to manufacture dry thermal film. Should we conclude the purchase of this technology, we expect to receive favorable price concessions from the Primary Film Supplier. The proceeds from the sale are intended to be used by the Primary Film Supplier to fund its working capital needs, thereby enabling it to continue supplying dry thermal film to us for distribution to our customers. We have no assurance that the pending transaction with the Primary Film Supplier will close or if it does close, that it will assure us a continued supply of dry thermal film for the foreseeable future, or that our Primary Film Supplier will use the funds for working capital purposes. If the Japanese manufacturer were to discontinue supplying these printheads or was unable or unwilling to supply printheads in sufficient quantities to meet our requirements, or if our Primary Film Supplier was to discontinue supplying dry thermal film or was unable or unwilling to supply dry thermal film in sufficient quantities to meet our requirements, our ability to compete in the thermal imaging marketplace could be severely damaged, which could adversely affect our financial performance. We Are Subject to Control by a Principal Stockholder. OYO Corporation, a Japanese corporation, owns indirectly in the aggregate approximately 51.7% of our common stock. Accordingly, OYO Corporation, through its wholly owned subsidiary OYO Corporation U.S.A, is able to elect all of our directors and to control our management, operations and affairs. We currently have, and may continue to have, a variety of contractual relationships with OYO Corporation and its affiliates. Our Success Depends Upon A Limited Number of Key Personnel. Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly skilled engineers and other professionals. If we fail to continue to attract and retain such professionals, our ability to compete in the industry could be adversely effected. In addition, our success depends to a significant extent upon the abilities and efforts of several members of our senior management. Recent Terrorist Attacks on the U.S. Together With the Recent Downturn in the U.S. Economy May Adversely Affect our Business. While we are not yet able to evaluate fully the effect of the recent terrorist attacks on the U.S., which appear to have coincided with or contributed to a general downturn in the U.S. economy, both such matters could adversely affect our business in ways that we cannot yet identify. However, both may adversely affect the demand for oil and gas generally and therefore, the demand for our services to the oil and gas industry and related service industry. They could also affect adversely the demand for consumer products, which could in turn adversely affect our commercial graphics business. To the extent these factors adversely affect other seismic companies in the industry, we could see an oversupply of products and services and downward pressure on pricing for seismic products and services that would affect us adversely. 20 Item 3. Quantitative and Qualitative Disclosures about Market Risk The following discussion of our exposure to various market risks contains "forward looking statements" that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of foreign currency rates, as well as other factors, actual results could differ materially from those projected in this forward looking information. Adoption of New Accounting Pronouncements Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS No. 137 and SFAS No. 138, was issued by the Financial Accounting Standards Board in June 1998. SFAS 133 requires us to record all derivatives on the balance sheet at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or for forecasted transactions, deferred and recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. Foreign Currency Exchange Rate Risk We purchase printheads from OYO Corporation whereby such purchases are denominated in Japanese Yen. We routinely attempt to hedge our currency exposure on these purchases by entering into foreign currency forward contracts with a bank. The purpose of entering into these forward hedge contracts is to eliminate variability of cash flows associated with foreign currency exposure risk on amounts payable in Japanese Yen. Under SFAS No. 133 and related interpretations, our forward contracts with the bank are considered derivatives. SFAS No. 133, which is effective for our fiscal year 2001, requires that we record these foreign currency forward contracts on the balance sheet and mark them to fair value at each reporting date. Resulting gains and losses are reflected in income and were not material for our fiscal quarter ended December 31, 2001. 21 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this Quarterly Report. 10.1 Second Amendment to Loan Agreement, dated as of January 15, 2002, by and between Concord Technologies, LP, Geospace Engineering Resources International, LP, Geo Space, LP, OYO Instruments, LP and OYOG Operations, LP and Southwest Bank of Texas, N.A. 10.2 Promissory Note A, dated January 15, 2002, made by Concord Technologies, LP, Geospace Engineering Resources International, LP, Geo Space, LP, OYO Instruments, LP and OYOG Operations, LP payable to the order of Southwest Bank of Texas, N.A. 10.3 Promissory Note B, dated January 15, 2002, made by Concord Technologies, LP, Geospace Engineering Resources International, LP, Geo Space, LP, OYO Instruments, LP and OYOG Operations, LP payable to the order of Southwest Bank of Texas, N.A. (b) The Company did not file any reports on Form 8-K during the quarter for which this report is filed. 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. OYO GEOSPACE CORPORATION Date: February 12, 2002 By: /s/ GARY D. OWENS ------------------------------------- Gary D. Owens, Chairman of the Board President and Chief Executive Officer (duly authorized officer) Date: February 12, 2002 By: /s/ THOMAS T. MCENTIRE ------------------------------------- Thomas T. McEntire Chief Financial Officer (principal financial officer) 23 EX-10.1 3 dex101.txt SECOND AMENDMENT TO LOAN AGREEMENT Exhibit 10.1 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of January 15, 2002, is between CONCORD TECHNOLOGIES, LP, a Texas limited partnership ("Concord"), GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP, a Texas limited partnership ("Engineering"), GEO SPACE, LP, a Texas limited partnership ("Geo Space"), OYO INSTRUMENTS, LP, a Texas limited partnership ("Instruments"), and OYOG OPERATIONS, LP, a Texas limited partnership ("Operations", and together with Concord, Engineering, Geo Space and Instruments, the "Borrowers"), jointly and severally, and SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender"). RECITALS: A. Borrowers and Lender entered into that certain Loan Agreement dated as of February 16, 2001, as amended by First Amendment to Loan Agreement dated as of February 17, 2001 (the "Agreement"). B. Borrowers and Lender now desire to amend the Agreement as herein set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. Definitions Section I.1. Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the meanings given to such terms in the Agreement, as amended hereby. ARTICLE II. Amendments Section II.1. Amendment to Certain Definitions. (a) The following definitions shall be added to Section 1.1 of the Agreement in proper alphabetical order: "Advance-A" means an advance of funds by Lender to Borrowers pursuant to Article II. "Advance-B" means an advance of funds by Lender to Borrowers pursuant to Article XII. "Advance Request Form-A" means a certificate, in substantially the form of Exhibit "K" hereto, properly completed and signed by an Authorized Representative requesting an Advance-A. "Advance Request Form-B" means a certificate, in substantially the form of Exhibit "P" hereto, properly completed and signed by an Authorized Representative requesting an Advance-B. "Commitment-A" means the obligation of Lender to make Advances-A hereunder in an aggregate principal amount at any time outstanding up to but not exceeding $10,000,000.00. "Commitment-B" means the obligation of Lender to make Advances-B hereunder in an aggregate principal amount at any time outstanding up to but not exceeding $2,500,000.00. "Commitments" means Commitment-A and Commitment-B. "Lockbox" means the post office box designated in any agreement executed by Borrowers and Lender with respect to lockbox services, which may be comprised of Lender's Corporate Treasury Management Services Agreement and the Lockbox Service Exhibit thereto, as the same may be amended, supplemented or modified. "Note-A" means the promissory note executed by Borrowers payable to the order of Lender, in substantially the form of Exhibit "A" hereto, and all extensions, renewals, and modifications thereof and all substitutions therefor. "Note-B" means the promissory note executed by Borrowers payable to the order of Lender, in substantially the form of Exhibit "O" hereto, and all extensions, renewals, and modifications thereof and all substitutions therefor. "Notes" means Note-A and Note-B. "Payment Account" means the depository account of Borrowers designated in the Lockbox Agreement as the account into which proceeds of the Lockbox collections are to be deposited. "Termination Date-A" means 11:00 a.m., Houston, Texas time on January 14, 2003, or such earlier date on which the Commitment-A terminates as provided in this Agreement. "Termination Date-B" means 11:00 a.m., Houston, Texas time on July 15, 2002, or such earlier date on which the Commitment-B terminates as provided in this Agreement. "Termination Dates" means Termination Date-A and Termination Date-B. (b) The definition of the term "Default Rate" shall be amended to read in its entirety as follows: "Default Rate" means a per annum rate of interest equal to the lesser of (a) the sum of the Prime Rate then in effect from day to day plus two percent (2.0%), but not less than seven percent (7.0%) per annum, or (b) the Maximum Rate; provided, however, that with respect to the Advances-B and Note-B only, the term "Default Rate" shall mean a per annum rate of interest equal to ten percent (10%) per annum. (c) Clauses (a) and (b) contained in the definition of the term "Eligible Accounts" are amended to read in their entirety as follows: (a) are due and payable within thirty (30) days; (b) have been outstanding less than one hundred twenty (120) days past the original date of invoice; (d) The following terms shall be deleted from Section 1.1 of the Agreement: "Advance" "Advance Request Form" -3- "Annualized" "Commitment" "Note" "Termination Date" Section II.2. Amendment to Article II. Each reference in Article II of the Agreement to "Advance", "Advances", "Advance Request Form", "Commitment", "the Note" and "Termination Date" in Article II shall be revised to read "Advance-A", "Advances-A", "Advance Request Form-A", "Commitment-A", "Note-A" and "Termination Date-A", respectively. Section II.3. Amendment to Section 2.4. Clause (b) contained in Section 2.4 of the Agreement is amended to read in its entirety as follows: (b) the greater of (i) the Prime Rate in effect from day to day or (ii) five percent (5.0%) per annum, and each change in the rate of interest charged on the Advances shall become effective, without notice to any Borrower, on the effective date of each change in the Prime Rate or the Maximum Rate, as the case may be; Section II.4. Amendment to Article III. Each reference to "Note" in Article III shall be revised to read "Notes". Section II.5. Amendment to Section 5.2. Section 5.2 of the Agreement is amended to read in its entirety as follows: Section 5.2. All Extensions of Credit. The obligation of Lender to make any Advance-A, any Advance-B or issue any Letter of Credit (including the initial Advance-A, the initial Advance-B and the initial Letter of Credit) is subject to receipt by Lender of the items required by Section 2.5(b), if applicable, 2.9, and 12.5, and such additional documents as Lender may reasonably request. Section II.6. Amendment to Section 7.1. Clause (l) shall be added to Section 7.1 of the Agreement and shall read in its entirety as follows: (l) Inventory Report. As soon as available, and in any event within thirty (30) days after the end of each month, an inventory report as of the end of such month certified by an officer of each Borrower acceptable to Lender. -4- Section II.7. Amendment to Article VII. Section 7.13 shall be added to Article VII of the Agreement immediately after Section 7.12 in numerical order, and shall read in its entirety as follows: Section 7.13. Lockbox. (a) Each Borrower will cause the proceeds from the accounts receivable of such Borrower to be remitted by check to the Lockbox or by wire transfer to the Payment Account. If no Event of Default exists, all collected funds (as determined by Lender in accordance with its customary practices with respect to similar accounts) with respect to acceptable checks received in the Lockbox shall be deposited by Lender into the Payment Account. If an Event of Default has occurred and is continuing, all funds with respect to checks received in the Lockbox and all amounts received in the Payment Account shall be paid, delivered or transferred to Lender and applied by Lender to the Obligations. (b) Each Borrower hereby pledges and assigns to Lender, and grants to Lender a security interest in, the Collateral Account and in all cash, instruments, securities and funds on deposit therein, all interest and cash or other property received in connection therewith or in exchange therefor, and all proceeds of all of the above, now or hereafter existing, as additional collateral security for the Obligations. In addition to Lender's common law rights of setoff, each Borrower hereby grants to Lender, upon the occurrence and during the continuance of an Event of Default, the right to offset all or a portion of the funds in the Collateral Account. Section II.8. Amendment to Section 8.7. The first sentence contained in Section 8.7 of the Agreement is amended to read in its entirety as follows: No Borrower will make, nor will it permit any Guarantor or any Subsidiary to make, any capital contribution to or investment in any Person, except for an investment in Labelon Corporation in an aggregate principal amount which does not exceed $2,000,000.00. Section II.9. Amendment to Section 9.3. Section 9.3 of the Agreement is amended to read in its entirety as follows: Section 9.3. Ratio of Senior Debt to EBITDA. Parent will maintain a Ratio of Senior Debt to EBITDA of not greater than (a) 2.50 to 1.00 as of December 31, 2001, (b) 4.00 to 1.00 as of March 31, 2002, and (c) 2.50 to 1.00 as of June 30, 2002 and at all times thereafter. The Ratio of Senior Debt to EBITDA shall be calculated and tested quarterly as of the last day of each fiscal quarter of Parent on -5- a cumulative basis (rolling four quarter basis) for the four fiscal quarters ended as of the date of calculation. Section II.10. Amendment to Section 10.2. Each reference to "Commitment" contained in Section 10.2 shall be revised to read "Commitments". Section II.11. Amendment to Section 11.6. Each reference to "Note" and "Commitment" contained in Section 11.6 shall be revised to read "Notes" and "Commitments", respectively. Section II.12. Amendment to Section 11.15. Each reference to "Note", "Commitment" and Termination Date" contained in Section 11.15 shall be revised to read "Notes", "Commitments" and Termination Dates", respectively. Section II.13. Amendment to Article XI. Section 11.19 shall be added to Article XI immediately following Section 11.18 of the Agreement and shall read in its entirety as follows: Section 11.19. Document Imaging. Borrowers understand and agree that (a) Lender's document retention policy involves the imaging of executed loan documents and the destruction of the paper originals, and (b) Borrowers waive any right that it may have to claim that the imaged copies of the Loan Documents are not originals. Section II.14. Addition of Article XII. Article XII shall be added to the Agreement immediately after Article XI and shall read in its entirety as follows: ARTICLE XII. Advances-B ---------- Section 12.1. Advances-B. Subject to the terms and conditions of this Agreement, Lender agrees to make one or more Advances-B to Borrowers from time to time from the date hereof to and including the Termination Date-B in an aggregate principal amount at any time outstanding up to but not exceeding the Commitment-B; provided that the aggregate amount of all Advances-B at any time outstanding shall not exceed the Commitment-B. Lender shall have no obligation to make any Advance-B if an Event of Default or an Unmatured Event of Default has occurred and is continuing. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, Borrowers may borrow, repay, and reborrow hereunder. -6- Section 12.2. Note-B. The obligation of Borrowers to repay the Advances-B shall be evidenced by the Note-B executed by Borrowers, payable to the order of Lender, in the principal amount of the Commitment-B. Section 12.3. Repayment of Advances-B. Borrowers shall repay the unpaid principal amount of all Advances-B on the earlier of (a) the Termination Date-B or (b) such other dates on which the Advances-B are or may be required to be paid pursuant to this Agreement. Section 12.4. Interest. The unpaid principal amount of the Advances-B shall bear interest prior to maturity at a rate equal to eight percent (8.0%) per annum. Accrued and unpaid interest on the Advances-B shall be payable on the fifteenth (15th) day of each month commencing on February 15, 2002, and on the earlier of the Termination Date-B or any other date on which the principal amount of the Advances-B is paid (whether as a result of optional or mandatory prepayment or acceleration). If an Event of Default has occurred and is continuing, all principal of the Advances-B and all past due interest thereon shall bear interest at the Default Rate. Section 12.5. Requests for Advances-B. Borrowers shall give Lender notice of each requested Advance-B by delivery to Lender of an Advance Request Form-B executed by an Authorized Representative, properly completed and containing the information required therein. Assuming that each Advance Request Form-B is in proper form, if Lender receives an Advance Request Form-B prior to 1:00 p.m. on any Business Day, Lender will make the requested Advance-B on the same Business Day, and if Lender receives an Advance Request Form-B after 1:00 p.m., Lender will make the requested Advance-B on the next Business Day. Section 12.6. Use of Proceeds. The proceeds of the Advances-B shall be used for working capital and general corporate purposes. Section 12.7. Facility Fee. Borrowers agree to pay to Lender a facility fee in the amount of $10,000.00 on the Closing Date. Such facility fee shall be fully earned when paid. Section II.15. Amendment to Exhibits. (a) Exhibit "A" to the Agreement (Note-A) is amended to conform in its entirety to Annex "A" to this Amendment, (b) Exhibit "F" to the Agreement (Guaranty-General Partner) is amended to conform in its entirety to Annex "F" to this Amendment, (c) Exhibit "G" to the Agreement (Guaranty-Limited Partner) is amended to conform in its entirety to Annex "G" to this Amendment, (d) Exhibit "H" to the Agreement (Guaranty-Parent) is amended to -7- conform in its entirety to Annex "H" to this Amendment, (e) Exhibit "J" to the Agreement (Arbitration Agreement) is amended to conform in its entirety to Annex "I" to this Amendment, (f) Exhibit "K" to the Agreement (Advance Request Form-A) is amended to conform in its entirety to Annex "J" to this Amendment, (g) Exhibit "L" to the Agreement (Borrowing Base Certificate) is amended to conform in its entirety to Annex "K" to this Amendment, (h) Exhibit "M" to the Agreement (No Default Certificate) is amended to conform in its entirety to Annex "L" to this Amendment, (i) Exhibit "O" shall be added to the Agreement (Note-B) in the form of Annex "N" to this Amendment and (j) Exhibit "P" shall be added to the Agreement (Advance Request Form-B) in the form of Annex "O" to this Amendment. ARTICLE III. Conditions Precedent Section III.1. Conditions. The effectiveness of this Amendment is subject to the receipt by Lender of the following in form and substance satisfactory to Lender: (a) Certificate - Borrowers, Parent and General Partner. A certificate of the Secretary or the Assistant Secretary (or another an officer acceptable to Lender) of Parent, General Partner and each Borrower certifying resolutions of the board of directors of the Parent, the sole member of General Partner, and the General Partner as general partner of each Borrower which authorize the execution, delivery and performance by Parent, General Partner and each Borrower of this Amendment (if applicable) and the other Loan Documents to which such Person is or is to be a party. (b) Governmental Certificates - Parent, General Partner and Each Borrower. Certificates issued by the appropriate government official of the state of organization of Parent, General Partner and each Borrower as to the existence and good standing of such Person, and certificates of existence and good standing of Parent and General Partner as a foreign entity in the state of Texas. (c) Certificate - Limited Partner. A certificate of a Manager of Limited Partner (or another officer of Limited Partner acceptable to Lender) certifying resolutions of the Members of Limited Partner which authorize the execution, delivery and performance by Limited Partner of the Guaranty-Limited Partner and the other Loan Documents to which Limited Partner is or is to be a party. -8- (d) Governmental Certificates - Limited Partner. Certificates issued by the appropriate government officials of the state of Nevada as to the existence and good standing of Limited Partner. (e) Notes. Note-A and Note-B executed by Borrowers. (f) Amendment to Security Agreements. A First Amendment to Security Agreements executed by Borrowers, respectively, substantially in the form of Annexes "B", "C", "D", "E" and "M" hereto. (g) Guaranty Agreements. The Guaranty Agreements executed by Guarantors, respectively. (h) Arbitration Agreement. The Arbitration Agreement executed by Borrower and Guarantors. (i) Facility Fee. The facility fee referred to in Section 12.7 of the Agreement. (j) UCC Search. A Uniform Commercial Code search showing all financing statements and other documents or instruments on file against Borrowers in the office of the Secretary of State of Texas. (k) Additional Information. Such additional documents, instruments and information as Lender may request. Section III.2. Additional Conditions. The effectiveness of this Amendment is also subject to the satisfaction of the additional conditions precedent that (a) the representations and warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct as of the date hereof as if made on the date hereof, (b) all proceedings, corporate or otherwise, taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender, and (c) no Event of Default or Unmatured Event of Default shall have occurred and be continuing. -9- ARTICLE IV. Ratifications, Representations, and Warranties Section IV.1. Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement are ratified and confirmed and shall continue in full force and effect. Borrowers and Lender agree that the Agreement as amended hereby shall continue to be the legal, valid and binding obligation of such Persons enforceable against such Persons in accordance with its terms. Section IV.2. Representations, Warranties and Agreements. Each Borrower hereby represents and warrants to Lender that (a) the execution, delivery, and performance of this Amendment and any and all other Loan Documents executed or delivered in connection herewith have been authorized by all requisite action on the part of such Borrower and General Partner and will not violate the Organizational Documents of such Borrower, (b) the representations and warranties contained in the Agreement as amended hereby, and all other Loan Documents are true and correct on and as of the date hereof as though made on and as of the date hereof, (c) no Event of Default or Unmatured Event of Default has occurred and is continuing, (d) Borrower is in full compliance with all covenants and agreements contained in the Agreement as amended hereby, (e) Borrower is indebted to Lender pursuant to the terms of the Notes, as the same may have been renewed, modified, extended and rearranged, including, without limitation, renewals, modifications and extensions made pursuant to this Amendment, (f) the liens, security interests, encumbrances and assignments created and evidenced by the Loan Documents are, respectively, valid and subsisting liens, security interests, encumbrances and assignments and secure the Notes as the same may have been renewed, modified or rearranged, including, without limitation, renewals, modifications and extensions made pursuant to this Amendment and (g) Borrower has no claims, credits, offsets, defenses or counterclaims arising from the Loan Documents or Lender's performance under the Loan Documents. -10- ARTICLE V. Miscellaneous Section V.1. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Documents including any Loan Document furnished in connection with this Amendment shall fully survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely on them. Section V.2. Reference to Agreement. Each of the Loan Documents, including the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement, as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement, as amended hereby. Section V.3. Expenses of Lender. As provided in the Agreement, Borrowers agree to pay on demand all reasonable costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and the other documents and instruments executed pursuant hereto, including, without limitation, the reasonable costs and fees of Lender's legal counsel. Section V.4. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section V.5. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN HOUSTON, HARRIS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. Section V.6. Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Lender and Borrowers and their respective successors and assigns, except no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. Section V.7. Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an -11- original, but all of which when taken together shall constitute one and the same instrument. Section V.8. Effect of Waiver. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant, condition or duty by Borrowers shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. Section V.9. Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section V.10. ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. Executed as of the date first written above. BORROWERS: CONCORD TECHNOLOGIES, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer -12- GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer GEO SPACE, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer OYO INSTRUMENTS, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer -13- OYOG OPERATIONS, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer LENDER: SOUTHWEST BANK OF TEXAS, N.A. By: /s/ EDWARD K. BOWDON ------------------------------------- Edward K. Bowdon Vice President -14- -15- EX-10.2 4 dex102.txt PROMISSORY NOTE A Exhibit 10.2 PROMISSORY NOTE --------------- $10,000,000.00 Houston, Texas January 15, 2002 FOR VALUE RECEIVED, the undersigned, CONCORD TECHNOLOGIES, LP, a Texas limited partnership, GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP, a Texas limited partnership, GEO SPACE, LP, a Texas limited partnership, OYO INSTRUMENTS, LP, a Texas limited partnership and OYOG OPERATIONS, LP, a Texas limited partnership, jointly and severally ("Maker"), hereby promise to pay to the order of SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Payee"), at its offices at Five Post Oak Park, 4400 Post Oak Parkway, Houston, Harris County, Texas, or such other address as may be designated by Payee, in lawful money of the United States of America, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or so much thereof as may be advanced and outstanding hereunder, together with interest on the outstanding principal balance from day to day remaining, at a varying rate per annum which shall from day to day be equal to the lesser of (a) the Maximum Rate (hereinafter defined) or (b) the greater of (i) the Prime Rate (hereinafter defined) of Payee in effect from day to day or (ii) five percent (5.0%) per annum, and each change in the rate of interest charged hereunder shall become effective, without notice to Maker, on the effective date of each change in the Prime Rate or the Maximum Rate, as the case may be; provided, however, if at any time the rate of interest specified in clause (b) preceding shall exceed the Maximum Rate, thereby causing the interest rate hereon to be limited to the Maximum Rate, then any subsequent reduction in the Prime Rate shall not reduce the rate of interest hereon below the Maximum Rate until the total amount of interest accrued hereon equals the amount of interest which would have accrued hereon if the rate specified in clause (b) preceding had at all times been in effect. If an Event of Default (hereinafter defined) has occurred and is existing, the principal hereof and any past due interest hereon shall bear interest at the Default Rate (hereinafter defined). Principal of and interest on this Note shall be due and payable as follows: (a) Accrued and unpaid interest on this Note shall be payable monthly, on the first (1st) day of each month commencing on February 1, 2002 and upon the maturity of this Note, however such maturity may be brought about; and (b) All outstanding principal of this Note and all accrued interest hereon shall be due and payable on January 14, 2003. Principal of this Note shall be subject to mandatory prepayment at the times described in the Agreement (hereinafter defined). Interest on the indebtedness evidenced by this Note shall be computed on the basis of a year of 365 days, and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: "Agreement" means that certain Loan Agreement dated as of February 16, 2001 between Maker and Payee, as amended by First Amendment to Loan Agreement dated as of February 17, 2001, and Second Amendment to Loan Agreement dated as of January 15, 2002, as the same may be further amended or modified from time to time. "Default Rate" means a per annum rate of interest equal to the lesser of (a) the sum of the Prime Rate plus two percent (2.0%), but not less than seven percent (7.0%), or (b) the Maximum Rate. "Event of Default" shall have the meaning given to such term in the Agreement. "Maximum Rate" means the maximum rate of nonusurious interest permitted from day to day by applicable law, including Chapter 303 of the Texas Finance Code (the "Code") (and as the same may be incorporated by reference in other Texas statutes). To the extent that Chapter 303 of the Code is relevant to any holder of this Note for the purposes of determining the Maximum Rate, each such holder elects to determine such applicable legal rate pursuant to the "weekly ceiling," from time to time in effect, as referred to and defined in Chapter 303 of the Code; subject, however, to the limitations on such applicable ceiling referred to and defined in the Code, and further subject to any right such holder may have subsequently, under applicable law, to change the method of determining the Maximum Rate. "Prime Rate" shall mean that variable rate of interest per annum established by Payee from time to time as its prime rate which shall vary from time to time. Such rate is set by Payee as a general reference rate of interest, taking into account such factors as Payee may deem appropriate, it being understood that many of Payee's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate charged to any customer and that Payee may make various commercial or other loans at rates of interest having no relationship to such rate. This Note (a) is Note-A provided for in the Agreement and (b) is secured as provided in the Agreement. Maker may prepay the principal of this Note upon the terms and conditions specified in the Agreement. Maker may borrow, repay, and reborrow hereunder upon the terms and conditions specified in the Agreement. Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the Maximum Rate. If any excess of interest in such respect is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this loan transaction, the provisions of this paragraph shall govern and prevail, and neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to pay the excess amount of such interest, or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the Maximum Rate shall be deemed charged, required or permitted by any court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by this Note so that the interest for the entire term does not exceed the Maximum Rate. If default occurs in the payment of principal or interest under this Note, or upon the occurrence of any other Event of Default, as such term is defined in the Agreement, the holder hereof may, at its option, (a) declare the entire unpaid principal of and accrued interest on this Note immediately due and payable without notice, demand or presentment, all of which are hereby waived, and upon such declaration, the same shall become and shall be immediately due and payable, (b) foreclose or otherwise enforce all liens or security interests securing payment hereof, or any part hereof, (c) offset against this Note any sum or sums owed by the holder hereof to Maker and (d) take any and all other actions -3- available to Payee under this Note, the Agreement, the Loan Documents (as such term is defined in the Agreement) at law, in equity or otherwise. Failure of the holder hereof to exercise any of the foregoing options shall not constitute a waiver of the right to exercise the same upon the occurrence of a subsequent Event of Default. If the holder hereof expends any effort in any attempt to enforce payment of all or any part or installment of any sum due the holder hereunder, or if this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceedings, Maker agrees to pay all costs, expenses, and fees incurred by the holder, including all reasonable attorneys' fees. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN HARRIS COUNTY, TEXAS. Maker and each surety, guarantor, endorser, and other party ever liable for payment of any sums of money payable on this Note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non-payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, and any impairment of any collateral securing this Note, all without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any of said indebtedness, or to release or substitute part or all of the collateral securing this Note, or to grant any other indulgences or forbearances whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder. This Note is in renewal and extension of, but not in discharge or novation of, the indebtedness and obligations evidenced by that certain promissory note in the original principal amount of $10,000,000.00, dated February 16, 2001, executed by Maker and payable to the order of Payee. -4- CONCORD TECHNOLOGIES, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer GEO SPACE, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer OYO INSTRUMENTS, LP By: OYOG, LLC, its general partner -5- By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer OYOG OPERATIONS, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer -6- EX-10.3 5 dex103.txt PROMISSORY NOTE B Exhibit 10.3 PROMISSORY NOTE --------------- $2,500,000.00 Houston, Texas January 15, 2002 FOR VALUE RECEIVED, the undersigned, CONCORD TECHNOLOGIES, LP, a Texas limited partnership, GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP, a Texas limited partnership, GEO SPACE, LP, a Texas limited partnership, OYO INSTRUMENTS, LP, a Texas limited partnership and OYOG OPERATIONS, LP, a Texas limited partnership, jointly and severally ("Maker"), hereby promise to pay to the order of SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Payee"), at its offices at Five Post Oak Park, 4400 Post Oak Parkway, Houston, Harris County, Texas, or such other address as may be designated by Payee, in lawful money of the United States of America, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00), or so much thereof as may be advanced and outstanding hereunder, together with interest on the outstanding principal balance from day to day remaining, at a rate equal to eight percent (8.0%) per annum. If an Event of Default (hereinafter defined) has occurred and is existing, the principal hereof and any past due interest hereon shall bear interest at the Default Rate (hereinafter defined). Principal of and interest on this Note shall be due and payable as follows: (a) Accrued and unpaid interest on this Note shall be payable monthly, on the fifteenth (15th) day of each month commencing on February 15, 2002 and upon the maturity of this Note, however such maturity may be brought about; and (b) All outstanding principal of this Note and all accrued interest hereon shall be due and payable on July 15, 2002. Principal of this Note shall be subject to mandatory prepayment at the times described in the Agreement (hereinafter defined). Interest on the indebtedness evidenced by this Note shall be computed on the basis of a year of 365 days, and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: "Agreement" means that certain Loan Agreement dated as of February 16, 2001 between Maker and Payee, as amended by First Amendment to Loan Agreement dated as of February 17, 2001, and Second Amendment to Loan Agreement dated as of January 15, 2002, and as the same may be further amended or modified from time to time. "Default Rate" means a per annum rate of interest equal to ten percent (10%) per annum. "Event of Default" shall have the meaning given to such term in the Agreement. "Maximum Rate" means the maximum rate of nonusurious interest permitted from day to day by applicable law, including Chapter 303 of the Texas Finance Code (the "Code") (and as the same may be incorporated by reference in other Texas statutes). To the extent that Chapter 303 of the Code is relevant to any holder of this Note for the purposes of determining the Maximum Rate, each such holder elects to determine such applicable legal rate pursuant to the "weekly ceiling," from time to time in effect, as referred to and defined in Chapter 303 of the Code; subject, however, to the limitations on such applicable ceiling referred to and defined in the Code, and further subject to any right such holder may have subsequently, under applicable law, to change the method of determining the Maximum Rate. "Prime Rate" shall mean that variable rate of interest per annum established by Payee from time to time as its prime rate which shall vary from time to time. Such rate is set by Payee as a general reference rate of interest, taking into account such factors as Payee may deem appropriate, it being understood that many of Payee's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate charged to any customer and that Payee may make various commercial or other loans at rates of interest having no relationship to such rate. This Note (a) is Note-B provided for in the Agreement and (b) is secured as provided in the Agreement. Maker may prepay the principal of this Note upon the terms and conditions specified in the Agreement. Maker may borrow, repay, and reborrow hereunder upon the terms and conditions specified in the Agreement. Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the Maximum Rate. If any excess of interest in such respect is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this loan transaction, the provisions of this paragraph shall govern and prevail, and neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to pay the excess amount of such interest, or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the Maximum Rate shall be deemed charged, required or permitted by any court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by this Note so that the interest for the entire term does not exceed the Maximum Rate. If default occurs in the payment of principal or interest under this Note, or upon the occurrence of any other Event of Default, as such term is defined in the Agreement, the holder hereof may, at its option, (a) declare the entire unpaid principal of and accrued interest on this Note immediately due and payable without notice, demand or presentment, all of which are hereby waived, and upon such declaration, the same shall become and shall be immediately due and payable, (b) foreclose or otherwise enforce all liens or security interests securing payment hereof, or any part hereof, (c) offset against this Note any sum or sums owed by the holder hereof to Maker and (d) take any and all other actions available to Payee under this Note, the Agreement, the Loan Documents (as such term is defined in the Agreement) at law, in equity or otherwise. Failure of the holder hereof to exercise any of the foregoing options shall not constitute a waiver of the right to exercise the same upon the occurrence of a subsequent Event of Default. If the holder hereof expends any effort in any attempt to enforce payment of all or any part or installment of any sum due the holder hereunder, or if this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceedings, Maker agrees to pay all costs, expenses, and fees incurred by the holder, including all reasonable attorneys' fees. -3- THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN HARRIS COUNTY, TEXAS. Maker and each surety, guarantor, endorser, and other party ever liable for payment of any sums of money payable on this Note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non-payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, and any impairment of any collateral securing this Note, all without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any of said indebtedness, or to release or substitute part or all of the collateral securing this Note, or to grant any other indulgences or forbearances whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder. CONCORD TECHNOLOGIES, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer GEOSPACE ENGINEERING RESOURCES INTERNATIONAL, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer -4- GEO SPACE, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer OYO INSTRUMENTS, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer OYOG OPERATIONS, LP By: OYOG, LLC, its general partner By: /s/ THOMAS T. MCENTIRE --------------------------------- Thomas T. McEntire Vice President and Chief Financial Officer -5- -----END PRIVACY-ENHANCED MESSAGE-----