Debt and Capital Lease Obligations

9 Months Ended

Sep. 30, 2011

Debt and Capital Lease Obligations

Debt and Capital Lease Obligations

NOTE 4: Debt and Capital Lease Obligations

Long-term debt and capital lease obligations were as follows (in thousands):

	September 30,2011			December 31, 2010
	(Unaudited)
RBC Revolving Credit Facility —7.50% to 8.75%	$	—		$	23,000
Whitebox Revolving Credit Facility —11.125%	50,000			—
Senior Secured Notes, net of discount—9.75%	296,329			295,471
Capital lease obligations	6,193			1,696
Notes payable from vendor financing arrangements	337			751
Other	206			—
Total	353,065			320,918
Less: current portion	(3,120		)	(1,634		)
Total, net	$	349,945		$	319,284

Whitebox Revolving Credit Facility

On May 16, 2011, the Company received a commitment and summary of principal terms from the Lenders for a $50.0 million senior secured revolving credit facility.  On May 24, 2011, the RBC Revolving Credit Facility was assigned to the Lenders.  Contemporaneously with the assignment, the Company entered into a Forbearance Agreement and Amendment No. 5 whereby the Lenders agreed to waive compliance with certain terms and conditions under the RBC Revolving Credit Facility agreement, as previously modified and amended,  and to forbear from exercising any rights and remedies in connection with certain specified defaults under the RBC Revolving Credit Facility agreement until the earlier of August 22, 2011 or the execution of an amended and restated credit agreement.  Upon the assignment of the RBC Revolving Credit Facility to the Lenders, the Company borrowed $48.3 million under the Whitebox Revolving Credit Facility, used to repay the RBC Revolving Credit Facility and for general working capital purposes.

The amended and restated credit agreement facility was entered into among the Company and the Lenders on August 12, 2011.  In connection with this agreement, the Company paid a closing fee of $1.7 million in cash.  In addition, the Company paid a $4.0 million advisory fee by issuing shares of Geokinetics common stock, valued at 95% of the volume weighted average price over the trailing 10-day trading period following the execution of the amended and restated credit agreement.  On August 29, 2011, Geokinetics issued an aggregate of 1,041,668 shares of common stock (the “Advisory Shares”) to the Lenders.  The issuance of the Advisory Shares triggered the anti-dilution provisions of (i) Geokinetics’ Series B Preferred Stock, (ii) warrants issued on July 28, 2008 to purchase up to 240,000 shares of Common Stock (the “2008 Warrants”), and (iii) warrants issued on December 14, 2010 to purchase up to 3,495,000 shares of Common Stock (the “2010 Warrants”).  The issue price of the Advisory Shares was $3.84, which was less than the conversion price of the Series B Preferred Stock and the exercise prices of the 2008 and 2010 Warrants.  Accordingly, the conversion price of the Series B Preferred Stock and the exercise price of the 2008 Warrants were reduced in accordance with an anti-dilution formula, and the exercise price of the 2010 Warrants was reduced to the issue price of the Advisory Shares, or $3.84 per share.  The anti-dilution formula for the Series B Preferred stock reduced the conversion price by multiplying the conversion price by a fraction, the numerator of which was (i) the number of fully diluted shares of Common Stock outstanding prior to issuance plus the number of shares of Common Stock that $4.0 million would purchase at such conversion price and (ii) the denominator of which was the sum of the number of fully diluted shares outstanding prior to the issuance plus the number of shares issued in payment of the fee, which resulted in an adjusted conversion price of $15.95 per share.  The anti-dilution adjustment to the 2008 Warrants was similar, resulting in an adjusted exercise price of $9.05 per share.  See notes 5 and 6.  The closing fee and the advisory fee were recorded as deferred financing costs and will be amortized through the maturity date of this agreement.

Borrowings outstanding under the facility bear interest at 11.125%; amounts in excess of the amount outstanding and the total amount available of $50.0 million are subject to an unused commitment fee of 11.125%.  The facility does not provide for the issuance of letters of credit and will mature on September 1, 2014.  Borrowings under the facility are secured by certain of Geokinetics’ and its subsidiaries’ US assets and the pledge of a portion of the stock of certain of its foreign subsidiaries.  There are no scheduled amortization or commitment reductions prior to maturity but the Company is required to prepay the facility with proceeds from certain asset sales.  The Company has the option to prepay the facility upon the issuance of certain equity securities or after the first year, subject to a reduction fee schedule.  The facility has no financial maintenance covenants.

Until August 12, 2011, when the amended and restated credit agreement was executed, the Company incurred interest and fees based on the terms of the RBC Revolving Credit Facility, as amended.  Accordingly, the Company incurred a ticking fee of 1% per quarter based on the maximum availability under the facility, a 1.5% fee for unused commitments and borrowings bore interest at a floating rate based on a specific formula.  The interest rate based on this formula was 8.75% during the period between May 24, 2011 and August 12, 2011.

Senior Secured Notes Due 2014

On December 23, 2009, Holdings issued $300.0 million of Notes in a private placement to institutional buyers at an issue price of $294.3 million, or 98.093% of the principal amount.  The discount is accreted as an increase to interest expense over the term of the Notes.  At September 30, 2011 and December 31, 2010, the effective interest rate on the Notes was 11.1%, which includes the effect of the discount accretion and deferred financing costs amortization.  The stated interest rate on the Notes is 9.75% and is payable semi-annually in arrears on June 15 and December 15 of each year.  The Notes are fully and unconditionally guaranteed by Geokinetics and by each of Geokinetics’ current and future domestic subsidiaries (other than Holdings, which is the issuer of the Notes).  Pursuant to the terms of an inter-creditor agreement, the Notes are junior to the Whitebox Revolving Credit Facility as to receipt of collateral and/or collateral proceeds securing both the Whitebox Revolving Credit Facility and the Notes.  The Company may redeem up to 10% of the original principal amount of the Notes during each 12-month period at 103% of the principal amount plus accrued interest until the second anniversary following their issuance.  Thereafter, the Company may redeem all or part of the Notes at a prepayment premium which will decline over time.  In the event of occurrence of a change of control, the Company will be required to make an offer to repurchase the Notes at 101% of the principal amount plus accrued interest.  The indenture governing the Notes contains customary covenants for non-investment grade indebtedness, including restrictions on the Company’s ability to incur indebtedness, to declare or pay dividends and repurchase its capital stock, to invest the proceeds of asset sales, and to engage in transactions with affiliates.

Capital Lease and Vendor Financing Obligations

From time to time, the Company enters into capital leases and vendor financing arrangements to purchase certain equipment.  The equipment acquired from these vendors is paid over a specified period of time based on the terms agreed upon.  During the nine months ended September 30, 2011, the Company entered into various capital leases, due in 2014, for certain transportation equipment for a total amount of $6.7 million.

The amount due under all capital leases and vendor financing arrangements at September 30, 2011 and December 31, 2010 was approximately $6.5 million and $2.4 million, respectively.  The net book value of the property and equipment acquired under these capital leases and vendor financing agreements at September 30, 2011 and December 31, 2010 was approximately $8.4 million and $2.8 million, respectively.

Foreign Revolving Credit Lines

The Company maintains various foreign bank overdraft facilities used to fund short-term working capital needs.  At September 30, 2011, and December 31, 2010, the Company had approximately $3.2 million and $3.9 million, respectively, of available credit of which $0.2 million and $0.0 million, respectively, were outstanding under these facilities.

Extinguished Obligations

RBC Revolving Credit Facility

On February 12, 2010, the Company entered into a $50.0 million revolving credit and letters of credit facility, with a group of lenders led by RBC.  The RBC Revolving Credit Facility had an initial maturity date of February 12, 2013.  In the period between June 2010 and December 2010, the Company entered into Amendments No. 1, No. 2 and No. 3 to the RBC Revolving Credit Facility whereby the maximum borrowings were limited to the lesser of $40.0 million or a borrowing base and certain financial covenants were waived and modified.  Borrowings outstanding under the RBC Revolving Credit Facility bore interest at a floating rate based on a specific formula.  At December 31, 2010 and through May 24, 2011 the rate was 8.75%.  The outstanding balance under the facility was $29.8 million and $23.0 million at May 24, 2011 and December 31, 2010, respectively.

On April 1, 2011, the Company entered into a waiver of specific events of default that would have occurred on March 31, 2011 for failure to comply with certain financial reporting covenant requirements.  Additionally, the Company entered into Amendment No. 4, which modified the monthly maximum total leverage ratio, monthly cumulative adjusted EBITDA (as defined in the RBC Revolving Credit Facility agreement) targets and the Company’s interest cost.  This amendment also modified the final maturity date of the revolving credit facility to April 15, 2012.  In connection with Amendment No. 4 the Company wrote off $1.1 million of deferred financing costs related to the modification of the final maturity date, which is included in interest expense in the Company’s consolidated statement of operations.

On May 24, 2011, RBC and the other lenders assigned their rights and obligations under the RBC Revolving Credit Facility to the Lenders under the Whitebox Revolving Credit Facility and received full payment of the amounts then outstanding under the facility plus unpaid accrued interest and fees for a total payment of $30.5 million.  The Company did not incur any pre-payment fees or penalties related to the retirement of the RBC Revolving Credit Facility.  The Company wrote off $1.1 million of deferred financing costs associated with the early extinguishment of the RBC Revolving Credit Facility, which is included in other income (expense) in the Company’s consolidated statement of operations.

Other

On February 12, 2010, in conjunction with the closing of the acquisition of PGS Onshore, the Company fully extinguished certain borrowings and obligations as follows:

PNC Credit Facility.  Until February 12, 2010, the Company had a Revolving Credit, Term Loan and Security Agreement with PNC, as lead lender, which provided the Company with a $70.0 million revolving credit facility maturing in May 2012.  On February 12, 2010, the outstanding balance of $45.8 million was repaid and the revolving credit facility was terminated.  The Company recorded a loss of $1.0 million on the redemption of the revolving credit facility which consisted of $0.8 million related to the acceleration of costs that were being amortized over the expected life of the facility, and approximately $0.2 million related to prepayment penalties.  The loss is included in other income (expense) in the Company’s consolidated statement of operations.

CIT Group Equipment Financing.  The Company had several equipment lease agreements with CIT on seismic and other transportation equipment.  The outstanding balance at December 31, 2009 was approximately $12.1 million.  The Company recorded a loss of approximately $0.3 million on the redemption of these obligations related to prepayment penalties.  The loss is included in other income (expense) in the Company’s consolidated statement of operations.

Other Equipment Financing.  The Company had several other vendor financing arrangements for purchase of equipment.  At December 31, 2009, these obligations totaled approximately $9.9 million.  The Company recorded a loss of $1.0 million related to prepayment penalties to fully extinguish certain equipment financing agreements outstanding on February 12, 2010.  The loss is included in other income (expense) in the Company’s consolidated statement of operations.