-----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, S5txXMXAs3NfhvjIZLJZnOo1z3/iUQX7Q5Ma6XZQfzQW1D+RI66yUcqI9lTBjzVJ akP5SGFi+uvfBmhnmrH+Cg== 0000950129-02-004037.txt : 20020813 0000950129-02-004037.hdr.sgml : 20020813 20020813113554 ACCESSION NUMBER: 0000950129-02-004037 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020806 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INPUT OUTPUT INC CENTRAL INDEX KEY: 0000866609 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 222286646 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12691 FILM NUMBER: 02728420 BUSINESS ADDRESS: STREET 1: 11104 W AIRPORT BLVD STREET 2: SUITE 200 CITY: STAFFORD STATE: TX ZIP: 77477 BUSINESS PHONE: 2819333339 MAIL ADDRESS: STREET 1: 11104 W AIRPORT BLVD STREET 2: SUITE 200 CITY: STAFFORD STATE: TX ZIP: 77477 8-K 1 h99012e8vk.txt INPUT/OUTPUT, INC. - AUGUST 6, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of earliest event reported): AUGUST 6, 2002 INPUT/OUTPUT, INC. (Exact name of registrant as specified in its charter) DELAWARE 1-13402 22-2286646 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 12300 PARC CREST DR. 77477 STAFFORD, TX (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (281) 933-3339 ITEM 5. OTHER EVENTS. On August 6, 2002, Input/Output, Inc., a Delaware corporation (the "Company"), entered into an Exchange Agreement (the "Exchange Agreement") with SCF-IV, L.P., a Delaware limited partnership ("SCF"), pursuant to which SCF exchanged all of the shares of the Company's Series B Convertible Preferred Stock and the Company's Series C Convertible Preferred Stock owned by it for (i) $30 million in cash, (ii) an unsecured promissory note (the "Note") in the original principal amount of $31 million and (iii) a warrant (the "Warrant") to purchase 2,673,517 shares of the Company's common stock, par value $0.01 per share ("Common Stock"), at an exercise price of $8.00 per share. The Company and SCF also entered into a Registration Rights Agreement (the "Registration Rights Agreement"), providing the holder of the Warrant with certain registration rights for the shares of Common Stock to be issued upon exercise or conversion of the Warrant. Immediately prior to the consummation of the transaction, David C. Baldwin, SCF's representative on the Company's Board of Directors, resigned as a director of the Company. As part of the Exchange Agreement, SCF and the Company agreed that the Purchase Agreement dated April 21, 1999 and the Registration Rights Agreement dated May 7, 1999, each between the Company and SCF, are terminated and of no further force or effect. The Note matures on May 7, 2004 and bears interest at an initial rate of 8% per annum through May 7, 2003, and thereafter at a rate of 13% per annum. Interest on the Note is payable quarterly by the Company commencing on November 7, 2002, and on each February 7, May 7, August 7 and November 7 thereafter until paid. The Company is permitted to prepay the outstanding indebtedness under the Note at any time prior to maturity without premium or penalty. Until payment in full of the Note, the Company (1) is required to either maintain a debt to total capitalization ratio that does not exceed 0.35 to 1.00, or maintain unrestricted cash and cash equivalents in an amount equal to or greater than the outstanding principal balance of the Note and (2) is not permitted to make any dividend payment or other distribution in cash or property on account of, or purchase or redeem, any shares of the Company's capital stock, other than dividends payable in Common Stock or redemptions or exchanges of the Company's capital stock for Common Stock. However, the Company shall be permitted (i) to repurchase shares of Common Stock so long as the aggregate amount expended by the Company in each twelve-month period starting August 6, 2002 does not exceed $5,000,000, and (ii) to acquire shares of Common Stock in connection with the exercise of stock options under the Company's compensation or benefit plans. In addition to payment defaults, events of default under the Note include (1) the breach of any covenant under the Note and the failure to cure such breach within ten business days of being notified of such breach, (2) any payment default or acceleration of any other debt of the Company having an aggregate outstanding principal amount of greater than $5,000,000 and (3) the consummation of any business combination in which the Company becomes a majority-owned subsidiary of another entity. The Warrant permits its holder to acquire up to 2,673,517 shares of Common Stock for an exercise price of $8.00 per share, and expires August 5, 2005. The holder is permitted (1) to pay cash or deliver indebtedness of the Company held by the holder for cancellation in payment of the exercise price or (2) surrender the Warrant to the Company on a "cashless" exercise basis and convert the spread between the then-current market value of the Common Stock and the exercise price of the Warrant into shares of Common Stock. The Warrant will not be exercisable by the holder thereof for any number of shares of Common Stock that would cause such holder to own beneficially more than 5% of the aggregate number of outstanding shares of Common Stock, minus one share, unless such holder shall have provided the Company with not less than 65 days' prior written notice of its current intent to exercise the Warrant for such greater number of shares. The exercise price and the number of shares of Common Stock under the Warrant are subject to certain adjustments to prevent dilution, including adjustments for (1) issuances of Common Stock by the Company at less than the exercise price of the Warrant or the market value of the Common Stock, (2) stock splits, subdivisions, reclassifications or combinations, (3) certain other -2- distributions of stock or assets by the Company to the holders of Common Stock, (4) certain business combinations and (5) certain pro rata repurchases of Common Stock by the Company. The holder of the Warrant also has an option to sell (or "put") to the Company the unexercised portion of the Warrant remaining during the five-business day period immediately following a business combination involving the Company where the holders of Common Stock receive consideration where less than 60% of its value consists of publicly traded common equity. The price to be paid for the shares subject to the put option is based on the number of shares of Common Stock then obtainable upon exercise of the Warrant immediately prior to the business combination valued pursuant to the Black-Scholes Valuation Model, using certain specified assumptions. The Registration Rights Agreement provides SCF or the holder or holders of at least 25% of the then outstanding Registrable Securities (which, subject to certain limitations, means the shares issued or issuable upon exercise or conversion of the Warrant) may request a registration of the Company of any or all of SCF's or such holder's Registrable Securities (a "Demand Registration"). However, the number of Registrable Securities to be included in such a Demand Registration must be at least 500,000 shares (as adjusted for certain changes in the capitalization of the Company). The holders of Registrable Securities will be entitled to request only one Demand Registration. The Registration Rights Agreement also entitles the holders of Registrable Securities the right to have their securities registered whenever the Company proposes to register any securities under the Securities Act of 1933, as amended (a "Piggyback Registration"). As contemplated by the Registration Rights Agreement, the ability of the holders of Registrable Securities to participate in Piggyback Registration will depend on the individual circumstances and the nature of the offering at issue. The registration expenses for Registrable Securities included in a Demand Registration will be borne by the holders of Registrable Securities; the registration expenses for Registrable Securities included in a Piggyback Registration will be borne by the Company. The Company is not permitted to enter into any new registration rights agreements that adversely affect in any material respect the rights of the holders of the Registrable Securities, without the prior written consent of the holders of a majority of the Registrable Securities. On August 7, 2002, SCF and certain of its affiliates filed Amendment No. 2 to its Schedule 13D regarding their beneficial ownership of securities of the Company (the "Schedule 13D Amendment"). In the Schedule 13D Amendment, SCF and its affiliates reported that (1) they may be deemed to beneficially own approximately 4.985% of the issued and outstanding Common Stock of the Company based on 50,956,889 issued and outstanding shares of Common Stock reported by the Company as of March 31, 2002 and (2) as a result, SCF and its affiliates ceased to be the beneficial owner of more than five percent of the Common Stock on August 6, 2002. On August 6, 2002, the Company issued a press release, which is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference, announcing the terms of the Exchange Agreement, the Note, the Warrant and the Registration Rights Agreement. The foregoing is qualified by reference to the terms of the Exchange Agreement, the Note, the Warrant and the Registration Rights Agreement. -3- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 10.21 Exchange Agreement dated August 6, 2002 by and between Input/Output, Inc. and SCF-IV, L.P. 10.22 Promissory Note dated August 6, 2002 payable by Input/Output, Inc. to SCF-IV, L.P. 10.23 Warrant dated August 6, 2002 issued by Input/Output, Inc. to SCF-IV, L.P. 10.24 Registration Rights Agreement dated August 6, 2002 by and between Input/Output, Inc. and SCF-IV, L.P. 99.1 Press Release issued on August 6, 2002 by Input/Output, Inc. -4- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 13, 2002 Input/Output, Inc. (Registrant) By: /s/ Brad Eastman ------------------------------------------------- Name: Brad Eastman Title: Vice President, General Counsel and Secretary -5- INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION 10.21 Exchange Agreement dated August 6, 2002 by and between Input/Output, Inc. and SCF-IV, L.P. 10.22 Promissory Note dated August 6, 2002 payable by Input/Output, Inc. to SCF-IV, L.P. 10.23 Warrant dated August 6, 2002 issued by Input/Output, Inc. to SCF-IV, L.P. 10.24 Registration Rights Agreement dated August 6, 2002 by and between Input/Output, Inc. and SCF-IV, L.P. 99.1 Press Release issued on August 6, 2002 by Input/Output, Inc. EX-10.21 3 h99012exv10w21.txt EXCHANGE AGREEMENT - SCF-IV, L.P. Exhibit 10.21 EXCHANGE AGREEMENT This Exchange Agreement, dated as of the 6th day of August, 2002 (this "Agreement"), is by and between Input/Output, Inc., a Delaware corporation (the "Company"), and SCF-IV, L.P., a Delaware limited partnership ("SCF"). WITNESSETH: WHEREAS, SCF is the legal and beneficial owner of (i) 40,000 shares of the Company's Series B Preferred Stock, par value $0.01 per share ("Series B Shares"), and (ii) 15,000 shares of the Company's Series C Preferred Stock, par value $0.01 per share ("Series C Shares"); WHEREAS, the Company and SCF have agreed, in accordance with the terms of this Agreement, for SCF to transfer and assign the Series B Shares and Series C Shares owned by SCF to the Company in exchange for (i) $30 million in cash payable by the Company to SCF, (ii) an unsecured promissory note of the Company payable to SCF in the original principal amount of $31 million maturing on May 7, 2004 and (iii) a warrant having a three-year term to purchase 2,673,517 shares of the Company's common stock, par value $.01 per share ("Common Stock"), at an exercise price of $8.00 per share; NOW, THEREFORE, for and in consideration of the premises and the mutual agreements contained herein, and the receipt of such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 THE EXCHANGE 1.1 Exchange. Contemporaneously with the execution and delivery hereof, but subject in all respects to the terms and conditions hereof, (a) SCF has sold, conveyed and transferred (and by these presents sells, conveys and transfers) the Series B Shares and Series C Shares beneficially owned by it to the Company, and the Company hereby acknowledges receipt of the Series B Shares and the Series C Shares in exchange for the consideration recited herein, and (b) the Company has sold, conveyed and transferred (and by these presents sells, conveys and transfers) to SCF (i) $30 million in cash (payable by wire transfer of same day funds from the Company to an account designated in writing by SCF to the Company), (ii) an unsecured promissory note of the Company payable to SCF (the "Note") in the form set forth in Exhibit A attached hereto and (iii) a warrant to purchase 2,673,517 shares of Common Stock (the "Warrant") in the form set forth in Exhibit B attached hereto, and SCF hereby acknowledges receipt of such consideration. In addition, the Company and SCF shall contemporaneously with the execution and delivery hereof, execute and deliver a registration rights agreement regarding the registration of the shares of Common Stock to be issued upon exercise of the Warrant (the "Registration Rights Agreement") substantially in the form set forth in Exhibit C attached hereto. 1.2 Deliveries. Contemporaneously with the execution and delivery hereof on this date (the "Closing Date"), the parties shall make the following deliveries to each other. (a) SCF shall deliver to the Company: -1- (1) the certificates evidencing all of the Series B Shares and Series C Shares beneficially owned by SCF, together with stock powers duly executed in blank for each certificate; (2) a duly executed counterpart of the Registration Rights Agreement; and (3) a duly executed resignation of David C. Baldwin from the Board of Directors of the Company and any and all other offices and positions of the Company (and its subsidiaries and affiliates) which he holds. (b) The Company shall deliver to SCF: (1) $30 million in cash by wire transfer of same day funds; (2) the duly executed Note; (3) the duly executed Warrant; and (4) the duly executed counterpart of the Registration Rights Agreement. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to SCF as follows: 2.1 Organization, Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own its properties and carry on its business as now being conducted. The Company is duly qualified or licensed to transact business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than such jurisdictions where the failure to be so qualified or licensed or to be in good standing, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on the business, operations, properties, condition (financial or otherwise), results of operations, assets, liabilities or prospects of the Company and its subsidiaries, taken as a whole. 2.2 Authority and Approvals. (a) The Company has all requisite corporate power and authority to enter into this Agreement and each of the other agreements contemplated hereby and to consummate each of the transactions and perform each of the obligations contemplated hereby and thereby. The execution and delivery of this Agreement and each of the other agreements and instruments contemplated hereby and the consummation of each of the transactions and the performance of each of the obligations contemplated hereby and thereby have been duly authorized by all -2- necessary corporate action on the part of the Company. This Agreement and the other agreements and instruments contemplated hereby have been duly executed and delivered by the Company. This Agreement and each of the other agreements and instruments contemplated hereby constitute a valid and binding obligation of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or in law). (b) The execution and delivery of this Agreement and the other agreements and instruments contemplated hereby and the consummation of the transactions contemplated hereby and thereby do not conflict with or violate (i) the organizational documents of the Company, (ii) any material agreement to which the Company is a party or to which its properties are subject or (iii) any law applicable to it, in each case in a manner that could reasonably be expected to have a material adverse effect on the business, operations, properties, condition (financial or otherwise), results of operations, assets, liabilities or prospects of the Company and its subsidiaries, taken as a whole. (c) No approval, authorization or consent from any governmental entity is required by or with respect to the Company in connection with the execution and delivery of this Agreement or any other agreement or instrument contemplated hereby by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except for any such approvals, authorizations or consents, the failure of which to be made or obtained (i) has not had and could not reasonably be expected to have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Company and its subsidiaries, taken as a whole and (ii) has not impaired and could not reasonably be expected to impair the ability of the Company to perform its obligations under this Agreement or any other agreement or instrument contemplated hereby in any material respect. 2.3 No Brokers or Finders. No agent, broker, finder or investment or commercial banker, or other person or firm engaged by or acting on behalf of the Company in connection with the negotiation, execution or performance of this Agreement is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement, other than any such fees or commissions paid to Simmons & Co. and such other fees and commissions that have been disclosed to SCF and as to which the Company shall have full responsibility. 2.4 Status of Securities. The issuance of the Warrant and the reservation and issuance of the shares of Common Stock to be issued by the Company upon exercise or conversion of the Warrant (the "Underlying Shares") have been duly authorized by all necessary corporate action on the part of the Company. The Warrant and the Underlying Shares, when issued upon exercise or conversion of the Warrant in accordance with the terms thereof, will be validly issued, fully paid and non-assessable. The issuance of the Warrant and the issuance and sale of the Underlying Shares will not be subject to the preemptive rights of any person. 2.5 No Other Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the express understanding of the Company that SCF is not making any -3- representation or warranty whatsoever, express or implied, other than those representations and warranties of SCF expressly set forth in this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SCF 3.1 Organization, Standing and Power. SCF is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite partnership power and authority to own, lease and operate its properties and to carry on its business as now being conducted and to execute and deliver this Agreement and the other agreements contemplated hereby to which SCF is a party and to consummate the transactions contemplated hereby and thereby. 3.2 Authority and Approvals. (a) The execution and delivery of this Agreement and the other agreements contemplated hereby to which SCF is a party have been duly and properly authorized by all necessary partnership action on the part of SCF. This Agreement and the other agreements contemplated hereby to which it is a party have been duly executed and delivered by SCF and constitute the valid and legally binding obligations of SCF, enforceable against it in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) No approval, authorization or consent from any governmental entity is required by or with respect to SCF in connection with the execution and delivery of this Agreement or any other agreement contemplated hereby by SCF or the consummation by SCF of the transactions contemplated hereby or thereby, except for any such approvals, authorizations or consents the failure of which to be made or obtained has not impaired and could not reasonably be expected to impair the ability of SCF to perform its obligations under this Agreement or any other agreement contemplated hereby in any material respect. 3.3 Series B Shares and Series C Shares. SCF has good title to the Series B Shares and the Series C Shares, free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restriction on transfer and any claim of any creditor, partner or affiliate of SCF on the Series B Shares or the Series C Shares. Upon exchange of the Series B Shares and the Series C Shares as provided in this Agreement, the Company will acquire good title to the Series B Shares and the Series C Shares free and clear of any lien, claim, security interest or other encumbrance. 3.4 No Brokers or Finders. No agent, broker, finder or investment or commercial banker, or other person or firm engaged by or acting on behalf of SCF in connection with the negotiation, execution or performance of this Agreement is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement, other than any such -4- fees or commissions that have been disclosed to the Company and as to which SCF shall have full responsibility. 3.5 No Other Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the express understanding of SCF that the Company is not making any representation or warranty whatsoever, express or implied, other than those representations and warranties of the Company expressly set forth in this Agreement. ARTICLE 4 SECURITIES LAWS PROVISIONS 4.1 Investment Intent. The Note, the Warrant and the Underlying Shares will be acquired for its own account for investment and with no intention of distributing or reselling such Warrant or such Underlying Shares or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any applicable state or any foreign country or jurisdiction. 4.2 Status. SCF covenants and agrees with the Company that at the date hereof, it is an accredited investor as defined in Rule 501(a) under the United States Securities Act of 1933, as amended (the "Securities Act"), and has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the Company and an investment in the Warrant and the Underlying Shares, and is able to bear the economic risk of such investment. 4.3 Access to Information. SCF represents and acknowledges that it (a) has had access to and the opportunity to review the Company's properties, assets, financial statements, contracts and other books and records and has made such investigation with respect thereto as it deems necessary to enter into the transactions contemplated hereby, (b) has been afforded the opportunity to ask appropriate representatives of the Company questions concerning the business, assets, financial condition and prospects of the company and (c) has been solely responsible for its own due diligence investigation of the Company and its business, for its own analysis of the merits and risks of an investment in the Warrant and the Underlying Shares, and for its own analysis of the terms of the investment in the Warrant and the Underlying Shares. 4.4 Transfer Restrictions. If SCF should decide to dispose of the Note, the Warrant or any of the Underlying Shares, SCF understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under the Securities Act. In connection with any offer, resale, pledge or other transfer (individually and collectively, a "Transfer") of the Note, the Warrant or any of the Underlying Shares other than pursuant to an effective registration statement, the Company may require that the transferor of the Note, the Warrant or any such Underlying Shares provide to the Company an opinion of counsel which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that such Transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable state or foreign securities laws. SCF agrees to the imprinting, so long as appropriate, of -5- substantially the following legend on the Note, the Warrant and certificates representing any of the Underlying Shares: THE SECURITIES (THE "SECURITIES") EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A "TRANSFER") THE SECURITIES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. IF THE PROPOSED TRANSFER IS TO BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW. The legend set forth above may be removed if and when the Note, the Warrant or the Underlying Shares, as the case may be, are disposed of pursuant to an effective registration statement under the Securities Act or the opinion of counsel referred to above has been provided to the Company. The Note, the Warrant and the share certificates representing the Underlying Shares shall also bear any additional legends required by applicable federal, state or foreign securities laws, which legends may be removed when, in the opinion of counsel to the Company, the same are no longer required under the applicable requirements of such securities laws. SCF agrees that, in connection with any Transfer of the Note, the Warrant or any of the Underlying Shares by it pursuant to an effective registration statement under the Securities Act, it will comply with all prospectus delivery requirements of the Securities Act. The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to the Note, the Warrant or any resale of the Underlying Shares. 4.5 Indemnification. (a) The Company agrees to indemnify SCF and its Affiliates (as defined below) and hold SCF and its Affiliates harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of SCF's counsel in connection with any investigative, administrative or judicial proceeding), which may be incurred by SCF or such Affiliates as a result of any claims made against SCF or such Affiliates by any person that relate to or arise out of (i) any breach by the -6- Company of any of its representations, warranties or covenants contained in this Agreement, the Note or the Warrant, or (ii) any litigation, investigation or proceeding instituted by any person with respect to this Agreement, the Note, the Warrant or the Underlying Shares (excluding, however, any such litigation, investigation or proceeding which arises solely from the acts or omissions of SCF or its Affiliates). Notwithstanding anything to the contrary above, it is expressly understood between the parties hereto that the Company pursuant to this Section 4.5 shall not be responsible for or assume any of the investment risk associated with any securities purchased hereunder. For the purposes of this Section 4.5(a), "Affiliate" means, with respect to any person, any other person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such person; for the purposes of this definition, the term "control" (and the correlative terms "controlling," "controlled by" and "under common control with") means possession of the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a person. (b) Any person entitled to indemnification hereunder will (i) give prompt notice to the Company of any claim with respect to which it seeks indemnification (but omission of such notice shall not relieve the Company from liability hereunder except to the extent that it is actually prejudiced by such failure to give notice) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified party and the Company with respect to such claim, permit the Company to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is not assumed by the Company, the Company will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The Company will not consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation. If the Company elects not to or is not entitled to assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified with respect to such claim, unless an actual conflict of interest exists between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the Company will be obligated to pay the fees and expenses of such additional counsel or counsels. ARTICLE 5 MISCELLANEOUS 5.1 No Waiver; Modification in Writing. No failure or delay on the part of the Company or SCF in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and SCF. Any amendment, supplement or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this -7- Agreement, no notice to or demand on any party hereto in any case shall entitle the other party to any other or further notice or demand in similar or other circumstances. 5.2 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 5.3 Fees and Expenses. Each party shall be responsible for its own expenses and the expenses of its legal and other advisors in conjunction with the negotiation, execution and performance of this Agreement. 5.4 Parties in Interest. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and noting in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 5.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or mailed by registered or certified mail (return receipt requested) or Federal Express or another recognized overnight courier to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to SCF, to: SCF-IV, L.P. 600 Travis, Suite 6600 Houston, Texas 77002 Attention: Anthony DeLuca Facsimile: (713) 227-7850 (b) If to the Company, to: Input/Output, Inc. 12300 Parc Crest Drive Stafford, Texas 77477 Attention: Mr. C. Robert Bunch Facsimile: (281) 879-3632 Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon -8- receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopies, three business days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one business day after the date of sending, if sent by Federal Express or other recognized overnight courier. 5.6 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 5.7 Entire Agreement. This Agreement (including the Exhibits hereto) and the other documents contemplated herein constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements, letters of intent and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. 5.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS. 5.9 Public Announcements. The Company and SCF shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby, except for statements required by law or by any listing agreements with or rules of any national securities exchange or made in disclosures reasonably determined as required to be filed pursuant to the applicable law. 5.10 Assignment. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any of the parties hereto, whether by operation of law or otherwise. 5.11 Headings. The headings of this Agreement are for convenience of reference only and are not part of the substance of this Agreement. 5.12 Termination of Prior Registration Rights Agreement. The parties hereto agree that the Purchase Agreement dated April 21, 1999 and the Registration Rights Agreement dated May 7, 1999, each between the Company and SCF, are hereby terminated and of no further force or effect. -9- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer as of the date first written above. INPUT/OUTPUT, INC. By /s/ C. Robert Bunch Name: C. Robert Bunch Title: Vice President SCF-IV, L.P. By: SCF-IV, G.P., Limited Partnership, its general partner By: L.E. Simmons & Associates, Incorporated, its general partner By: /s/ Andrew L. Waite Name: Andrew L. Waite Title: Managing Director -10- EX-10.22 4 h99012exv10w22.txt PROMISSORY NOTE - SCF-IV, L.P. EXHIBIT 10.22 THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAWS (COLLECTIVELY, THE "ACTS") NOR IS ANY SUCH REGISTRATION OR QUALIFICATION CONTEMPLATED. THIS PROMISSORY NOTE MAY NOT BE SOLD OR OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED OR QUALIFIED UNDER THE APPROPRIATE ACTS OR AN OPINION OF COUNSEL IS RECEIVED BY THE MAKER (WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE MAKER) TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THE HOLDER OF THIS PROMISSORY NOTE HAS AGREED TO SUCH RESTRICTIONS. PROMISSORY NOTE $31,000,000.00 Houston, Texas August 6, 2002 1. FOR VALUE RECEIVED, the undersigned, INPUT/OUTPUT, INC., a Delaware corporation ("Maker"), hereby promises to pay to the order of SCF-IV, L.P., a Delaware limited partnership, or its registered assigns ("Payee"), at 600 Travis, Suite 6600, Houston, Texas 77002 (or such other address as Payee shall so notify Maker), on May 7, 2004 (the "Maturity Date"), in lawful money of the United States of America, the principal amount of Thirty-One Million and No/100s Dollars ($31,000,000.00), and to pay interest accruing on the unpaid principal balance hereof from the date of the issuance of this Note until due and payable, in accordance with Section 2 hereof. 2. From August 6, 2002 through May 7, 2003, the unpaid principal balance of this Note shall bear interest at a rate per annum of eight percent (8%) ("Initial Interest Rate"). From May 8, 2003 until the Maturity Date, the unpaid principal balance of this Note shall bear interest at a rate per annum of thirteen percent (13%). Interest on the outstanding principal balance of this Note shall be due and payable in quarterly installments commencing on November 7, 2002, and on each February 7, May 7, August 7 and November 7 thereafter until the Maturity Date or until all outstanding principal and interest on this Note shall have been paid in full. In the event that the principal amount of this Note is not paid in full when such amount becomes due and payable, interest per annum at the lesser of (i) the Maximum Rate (as defined below) and (ii) the Initial Interest Rate plus ten percent (10%) shall continue to accrue on the balance of any unpaid principal until such balance is paid. 3. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day (as defined below), the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest due hereunder. Interest shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. /s/ CRB ------------------------------------- Initials for Identification Page 1 of 9 4. Maker shall have the right and privilege of prepaying the outstanding principal balance, plus accrued and unpaid interest thereon, in whole or in part, at any time or from time to time without premium or penalty and upon not less than two Business Days' notice to the holder hereof. All amounts prepaid shall be applied first to accrued and unpaid interest and the balance, if any, shall be applied to the payment of the principal amount. 5. The terms set forth below shall have the meanings assigned to such terms as used in this Note: "Affiliate" shall mean with respect to any person, any other person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such person. "Applicable Law" shall mean the law in effect from time to time and applicable to the transactions between Payee and Maker pursuant to this Note which lawfully permits the charging and collection of the highest permissible lawful non-usurious rate of interest on such transactions, including laws of the State of Texas, and to the extent controlling and providing for a higher lawful rate of interest, laws of the United States of America. It is intended that the Texas Finance Code shall be included in the laws of the State of Texas in determining Applicable Law and, for the purpose of applying the Texas Finance Code, the interest ceiling applicable to transactions under the Texas Finance Code shall be the applicable weekly ceiling from time to time in effect as described in and computed in accordance with Section 303 of the Texas Finance Code (V.T.C.A, Finance Code ss.303). Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Note. "Business Day" shall mean any day on which banks are open for general banking business in the State of Texas, other than on Saturday, Sunday, a legal holiday or any other day on which banks in the State of Texas are required or authorized by law or executive order to close. "Debt" shall mean, as of the date of the consolidated balance sheet contained in the most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q (as the case may be) filed by Maker with the Securities and Exchange Commission, without duplication and in each case as determined on a consolidated basis in accordance with GAAP, the aggregate amount of (i) obligations created or assumed by Maker or a subsidiary for the repayment of borrowed money, (ii) all indebtedness of Maker or a subsidiary under a revolving credit or similar agreement obligating the lender or lenders to extend credit, (iii) all obligations under leases which shall have been, in accordance with GAAP, initially classified by Maker as capital leases on the balance sheet of Maker or a subsidiary, and (iv) all guarantees of Debt of other persons by Maker or a subsidiary or in which Maker or a subsidiary otherwise assures a creditor against loss of the debtor to the extent of the lesser of the amount of such Debt and the /s/ CRB ------------------------------------- Initials for Identification Page 2 of 9 maximum stated amount of such guarantee or assurance against loss (except that guarantees by Maker of Debt of a subsidiary and guarantees of a subsidiary of Debt of Maker or any other subsidiary shall not be double-counted for purposes of Section 6(a) of this Note); provided, however, the term "Debt" shall specifically not include any indebtedness or other obligations related to (i) the sale/leaseback involving the Maker's headquarters in Stafford, Texas entered into by the Maker with NL Ventures III Stafford, L.P. on August 20, 2001 or (ii) the Common Stock Purchase Warrant issued on the date hereof by the Maker to the Payee. "Dividend Payment" shall mean dividends (in cash or Property) on, or other payments or distributions on account of, or the purchase or redemption of, any shares of any class of capital stock of Maker, but excluding dividends payable in respect of shares of common stock of Maker through the issuance of additional shares of common stock of Maker, and any redemption or exchange of any capital stock of Maker for common stock of Maker. "GAAP" shall mean United States generally accepted accounting principles. "Maximum Rate" shall mean the maximum lawful non-usurious rate of interest, if any, which Payee is permitted to charge Maker on the loan evidenced by this Note from time to time under Applicable Law. "Net Worth" shall mean, as of the date of the consolidated balance sheet contained in the most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed by Maker with the Securities and Exchange Commission, stockholders' equity of Maker and its subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Person" shall mean any individual, partnership, joint venture, firm, corporation, limited liability company or partnership, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Property" shall mean any right or interest in or to property or assets of any kind, whether real, personal or mixed and whether tangible or intangible and including capital stock or other ownership interests of any Person. "Total Capitalization" shall mean the sum of Debt plus Net Worth. "Unrestricted Cash" shall mean, as of any date, without duplication, cash, cash equivalents and the amount of any investments in non-Affiliates of Maker maturing within six months of the date of issuance or purchase thereof (or if such investments have no maturity date, which may, at the option of Maker, be redeemed for cash without penalty for full face value within six months), in each case as determined on a consolidated basis in accordance with GAAP and that is /s/ CRB ------------------------------------- Initials for Identification Page 3 of 9 not otherwise pledged, reserved, restricted or committed, as security or otherwise, under any contractual or legal obligation and with respect to which such cash, cash equivalents and investments may be used to pay this Note without contravening any contractual or legal obligation. 6. Maker covenants and agrees that prior to the Maturity Date and until payment in full of the indebtedness evidenced hereunder: (a) Maker shall maintain a ratio of Debt to Total Capitalization that does not exceed 0.35 to 1.00; provided, however, Maker shall be permitted to maintain a ratio of Debt to Total Capitalization of greater than 0.35 to 1.00 so long as the Maker's Unrestricted Cash is greater than or equal to the remaining outstanding principal amount of this Note; (b) Maker shall not declare or make any Dividend Payment, except that (i) Maker shall be permitted to repurchase shares of its common stock on the open market and in privately negotiated purchases, provided that the aggregate amount expended by Maker for repurchases of its common stock during the twelve (12) month period beginning on the date hereof and continuing until the first anniversary of the date hereof (and for each successive 12-month period thereafter) shall not exceed $5,000,000 with respect to any such 12-month period; and (ii) Maker shall be permitted to acquire shares of its common stock in connection with any surrender and delivery of such shares to Maker in payment of the exercise price or to pay withholding obligations by employees, directors and consultants in connection with their exercise of stock options under Maker's equity compensation or benefit plans as in effect from time to time; (c) Within five (5) Business Days following the filing by the Maker of a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K with the Securities and Exchange Commission, the Maker shall deliver to the Payee a certificate of a senior financial officer of Maker to the effect that (i) no Event of Default has occurred and is continuing (or describing any such Event of Default), (ii) no breach of any covenant contained herein has occurred and is continuing (or describing any such breach) and (iii) setting forth in reasonable detail the computations necessary to determine whether Maker is in compliance with clause (a) of this Section 6 as of the date of the consolidated balance sheet contained in such Form 10-Q or Form 10-K; (d) Maker shall, immediately upon becoming aware of the occurrence of any Event of Default, or of any event that, if it continues uncured, will, with the passage of time or notice or both, constitute an Event of Default, provide written notice to Payee describing the same and the steps being taken by Maker with respect thereto; and (e) Upon the occurrence and during the continuance of an Event of Default or any event that, if it continues uncured, will, with the passage of time or notice or both, constitute an Event of Default, Maker shall deliver to Payee, promptly when available and in any event within 30 days after the end of each month of each fiscal year, consolidated balance sheets of Maker and its subsidiaries as of the end of such month, /s/ CRB ------------------------------------- Initials for Identification Page 4 of 9 together with consolidated statements of earnings and consolidated statements of cash flow for such month and for the period beginning with the first day of such fiscal year and ending on the last day of such month, certified by an officer of Maker to have been prepared in accordance with GAAP and to present fairly the financial condition and results of operations of Maker and its subsidiaries, on a consolidated basis, at the date and for the periods indicated therein. 7. If any one of the following events shall occur and be continuing (an "Event of Default"): (a) Maker shall fail to pay timely when due, the principal of, or accrued unpaid interest on, this Note, and such failure to pay continues unremedied for a period of two (2) Business Days following written notice of such failure from Payee to Maker; (b) Maker shall violate any of the covenants set forth in Section 6 hereof and such violation continues unremedied for a period of ten (10) Business Days following written notice of such violation from Payee to Maker; (c) The institution by Maker of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Maker, or any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by Maker in furtherance of any such action; (d) If, within sixty (60) days after the commencement of an action against Maker (and service of process in connection therewith on Maker) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any statute, law or regulation, such action shall not have been resolved in favor of Maker or all orders or proceedings thereunder affecting the operations or the business of Maker stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of Maker of any trustee, receiver or liquidator of Maker or of all or any substantial part of the properties of Maker, such appointment shall not have been vacated or an order of relief against the Maker shall be entered in an involuntary case under the federal Bankruptcy Act; (e) Any default shall occur under the terms applicable to any Debt of Maker or any subsidiary in an aggregate principal amount which exceeds $5,000,000 and such default shall (i) consist of the failure to pay such Debt when due (subject to any applicable grace period), whether by acceleration or otherwise, or (ii) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable prior to its expressed maturity, and a period of thirty (30) days shall have elapsed following the occurrence of such default; or /s/ CRB ------------------------------------- Initials for Identification Page 5 of 9 (f) Any consolidation or merger of the Maker, or any issuance by the Maker of shares of common stock of Maker, or any consummation of a tender or exchange offer involving the capital stock of Maker, occurs in which more than 50% of the securities of any class or classes of Maker which are ordinarily entitled to elect a majority of the corporate directors become owned by any other single person or entity, either directly or indirectly; then, (i) with respect to any of the Events of Default specified in the preceding clauses (a) and (b), the Payee, at its option, may declare the unpaid principal portion of this Note to be immediately due and payable, whereupon the said portion of this Note and all accrued, earned and unpaid interest shall become immediately due and payable by Maker without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate maturity, notice of acceleration of maturity or any other notice of any kind to Maker, or any other Person liable hereon or with respect hereto, all of which are hereby expressly waived by Maker and each other person liable hereon or with respect hereto, anything contained herein or in any other documents or instruments to the contrary notwithstanding, and (ii) with respect to any of the Events of Default specified in the preceding clauses (c) and (d), the unpaid principal portion of this Note and all interest on this Note then accrued, earned and unpaid shall become automatically due and payable by Maker without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate maturity, notice of acceleration of maturity or any other notice of any kind to Maker or any other Person liable hereon or with respect hereto, all of which are expressly waived by Maker and each other Person liable hereon or with respect hereto, anything contained herein or in any documents or instruments to the contrary notwithstanding. 8. If this Note is collected by suit or through the U.S. Bankruptcy Court, or any judicial proceeding, or if this Note is not paid at maturity, however such maturity may be brought about, and it is placed in the hands of an attorney for collection (whether or not legal proceedings are instituted), then Maker agrees to pay, in addition to all other amounts owing hereunder, the collection costs and reasonable attorneys' fees of the holder hereof. 9. It is the intent of Payee and Maker in the execution and performance of this Note to remain in strict compliance with Applicable Law from time to time in effect. In furtherance thereof, Payee and Maker stipulate and agree that none of the terms and provisions contained in this Note shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate or in an amount in excess of the Maximum Rate or amount of interest permitted to be charged under Applicable Law. For purposes of this Note, "interest" shall include the aggregate of all charges which constitute interest under Applicable Law that are contracted for, charged, reserved, received or paid under this Note. Maker shall never be required to pay unearned interest and shall never be required to pay interest at a rate or in an amount in excess of the Maximum Rate or amount of interest that may be lawfully charged under Applicable Law. If this Note is prepaid, or if the maturity of this Note is accelerated for any reason, or if under any other contingency the effective rate or amount of interest which would otherwise be payable under this Note would exceed the Maximum Rate or amount of interest Payee or any other holder of this Note is allowed by Applicable Law to charge, contract for, take, /s/ CRB ------------------------------------- Initials for Identification Page 6 of 9 reserve or receive, or in the event Payee or any holder of this Note shall charge, contract for, take, reserve or receive monies that are deemed to constitute interest which would, in the absence of this provision, increase the effective rate or amount of interest payable under this Note to a rate or amount in excess of that permitted to be charged, contracted for, taken, reserved or received under Applicable Law then in effect, then the principal amount of this Note or the amount of interest which would otherwise be payable under this Note or both shall be reduced to the amount allowed under Applicable Law as now or hereinafter construed by the courts having jurisdiction, and all such moneys so charged, contracted for, taken, reserved or received that are deemed to constitute interest in excess of the Maximum Rate or amount of interest permitted by Applicable Law shall immediately be returned to or credited to the account of Maker upon such determination. Payee and Maker further stipulate and agree that, without limitation of the foregoing, all calculations of the rate or amount of interest contracted for, charged, taken, reserved or received under this Note which are made for the purpose of determining whether such rate or amount exceeds the Maximum Rate or amount, shall be made to the extent not prohibited by Applicable Law, by amortizing, prorating, allocating and spreading during the period of the full stated term of this Note, all interest at any time contracted for, charged, taken, reserved or received from Maker or otherwise by Payee or any other holder of this Note. 10. Maker and all sureties, endorsers and guarantors (if any) of this Note waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate maturity, notice of acceleration of maturity and all other notice, filing of suit and diligence in collecting this Note and agree to the release of any party primarily or secondarily liable hereon and further agree that it will not be necessary for any holder hereof, in order to enforce payment of this Note, to first institute suit or exhaust its remedies against any security herefor, and consent to any one or more extensions or postponements of time of payment of this Note on any terms or any other indulgences with respect hereto, without notice thereof to any of them. 11. This Note shall be governed by and construed in accordance with the internal laws of the State of Texas (excluding that body of laws relating to conflict of laws) and applicable federal laws of the United States of America. 12. Subject to the restrictions on transfer described in Section 13 below, the rights and obligations of Maker and Payee shall be binding upon and inure to the benefit of the successors, assigns, heirs administrators and transferees of the parties. 13. With respect to any offer, sale or other disposition of this Note, Payee will give written notice to Maker prior thereto, describing briefly the manner thereof, together with a written opinion of Payee's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, Maker, as promptly as practicable, shall notify Payee that Payee may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to Maker. 14. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by /s/ CRB ------------------------------------- Initials for Identification Page 7 of 9 registered or certified mail, postage prepaid, at the respective addresses of the parties as set forth herein. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered. 15. No failure on the part of the Payee to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 16. Any provision of this Note may only be amended or modified with the Maker's and the Payee's prior written consent 17. In the event that any one or more of the provisions contained in this Note shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note. 18. THIS NOTE EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO REGARDING THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO REGARDING THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 19. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO: (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. /s/ CRB ------------------------------------- Initials for Identification Page 8 of 9 EXECUTED, DELIVERED AND EFFECTIVE as of the day and year first written above. MAKER: Input/Output, Inc. By: /s/ C. Robert Bunch Name: C. Robert Bunch Title: Vice President Address: 12300 Parc Crest Drive Stafford, Texas 77477 Attention: Mr. C. Robert Bunch /s/ CRB ------------------------------------- Initials for Identification Page 9 of 9 EX-10.23 5 h99012exv10w23.txt WARRANT - SCF-IV, L.P. Exhibit 10.23 THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE WITH (I) THE EXPRESS TERMS HEREOF AND (II) THAT CERTAIN EXCHANGE AGREEMENT (AS DEFINED BELOW), AND THEN ONLY PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. INPUT/OUTPUT, INC. COMMON STOCK PURCHASE WARRANT This Common Stock Purchase Warrant (this "Warrant") is issued as of the 6th day of August, 2002, by Input/Output, Inc., a Delaware corporation (the "Company"), to SCF-IV, L.P., a Delaware limited partnership (the "Holder"). WHEREAS, the Company and the Holder are parties to that certain Exchange Agreement dated as of the date hereof (the "Exchange Agreement"); and WHEREAS, the Company and the Holder have agreed under the Exchange Agreement that the Company will issue this Warrant under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holder agree as follows. Part 1. Issuance and Sale of Warrant. Subject to the terms and conditions hereof, the Company hereby grants to the Holder the right to purchase from the Company in the manner prescribed herein an aggregate of 2,673,517 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), at an exercise price of $8.00 per share. The amount and kind of securities purchasable pursuant to the rights granted hereunder and the exercise price for such securities are subject to adjustment pursuant to the provisions contained in this Warrant. Part 2. Exercise of Warrant; Termination. 2A. Exercise Period. The Holder may exercise, in whole or in part (but not as to a fractional share of Common Stock), the purchase rights represented by this Warrant at any time and from time to time during the term commencing on the date hereof and ending at 5:00 p.m., Houston, Texas time, on August 5, 2005 (the "Exercise Termination Date"), after which time and date this Warrant shall terminate and no longer be exercisable. -1- 2B. Exercise Procedure. (i) This Warrant will be deemed to have been exercised immediately prior to the close of business on the First Business Day on which the Company has received all of the following items (the "Exercise Time"): (a) a completed Exercise Agreement, as described in paragraph 2C below, executed by the Holder, exercising all or part of the purchase rights represented by this Warrant pursuant to paragraph 2A above; (b) this Warrant; and (c) any of the following forms of payment that in the aggregate will be equal to the Exercise Price (as such term is defined in Part 3 hereof) multiplied by the number of shares of Common Stock being purchased upon such exercise: (1) a cashier's check payable to the Company in an amount in U.S. dollars, (2) the delivery by the Holder of indebtedness or other obligations of the Company to the Holder to be cancelled by the Company, valued at the then-outstanding aggregate amount of outstanding principal of, premium (if any) of, and accrued and unpaid interest on, such indebtedness or (3) a combination of (1) and (2) above. In lieu of the payment required by this paragraph 2B(i)(c), Holder may exercise the Conversion Right set forth in paragraph 2E hereof. (ii) The Company will use its best efforts to deliver to the Holder certificates for shares of Common Stock purchased upon exercise of this Warrant within two (2) business days after the date of the Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised or converted, the Company will prepare a new Warrant, substantially identical hereto, representing the rights, formerly represented by this Warrant, which have not expired or been exercised or converted and will, within such two-day period, deliver such new Warrant to the Holder. (iii) The Common Stock issuable upon the exercise of this Warrant will be deemed to have been issued to the Purchaser at the Exercise Time, and the Purchaser will be deemed for all purposes to have become the record holder of such Common Stock at the Exercise Time. (iv) The Company will pay all taxes (other than any income taxes or other similar taxes), if any, attributable to the initial issuance of the Warrant and the issuance of the shares of Common Stock upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of the transfer of any Warrant, and no such issuance, delivery or transfer shall be made unless and until the person requesting such issuance or transfer has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that no such tax is payable or such tax has been paid. Each share of Common Stock issuable upon exercise of this Warrant will, upon payment of the Exercise Price therefor, be fully paid and -2- nonassessable and free from all liens and charges with respect to the issuance thereof. 2C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise Agreement, substantially in the form set forth in Exhibit I hereto, will be completed and executed. Such Exercise Agreement will be dated the actual date of execution thereof. 2D. Fractional Shares. If a fractional share of Common Stock would, but for the provisions of paragraph 2A, be issuable upon exercise of the rights represented by this Warrant, the Company will, within seven (7) days after the Exercise Time, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share in an amount equal to the difference between the Market Price (as defined below) of such fractional share as of the Exercise Time and the Exercise Price with respect to such fractional share. For the purposes of this Agreement, "Market Price" means, with respect to the Common Stock, on any given day, the last reported sale price or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices, in either case on the New York Stock Exchange or the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, (i) the closing sale price for such day reported by the Nasdaq Stock Market if such security is traded over-the-counter and quoted in the Nasdaq Stock Market, or (ii) if such security is so traded, but not so quoted on such day, the average of the closing reported bid and ask prices of such security as reported by the Nasdaq Stock Market or any comparable system, or (iii) if such security is not listed on the Nasdaq Stock Market or any comparable system but is actively traded, the average of the closing bid and ask prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price shall be deemed to be the fair value per share of such security as determined by a nationally recognized investment banking firm selected by the Company's Board of Directors and reasonably acceptable to Holder. 2E. Right to Convert Warrants. (i) The Holder shall have the right to convert the purchase rights represented by this Warrant (the "Conversion Right") at any time and from time to time prior to the expiration of the Exercise Termination Date into shares of Common Stock as provided for in this paragraph 2E. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price) that number of shares of Common Stock equal to: (M-E) x S --------- M Where: -3- M= the Market Price per share of Common Stock determined as of the immediately preceding business day on which the Common Stock is traded, E= Exercise Price in effect immediately prior to the exercise of the Conversion Right, and S= the number of shares ("purchase rights") to be converted under such Conversion Right exercise. (ii) The Conversion Right may be exercised by the Holder at any time prior to its expiration on any business day by delivering a written notice in the form attached hereto as Exhibit II (the "Conversion Notice") to the Company, exercising the Conversion Right and specifying (a) the total estimated number of shares of Common Stock the Holder proposes to acquire pursuant to such conversion and (b) a place and date not less than two nor more than 20 business days from the date of the Conversion Notice for the closing of such acquisition. Following receipt of the Conversion Notice, the Company shall notify Holder of the Company's calculation of the Market Price and, if sufficient purchase rights are available to Holder hereunder to acquire the number of shares of Common Stock specified in the Conversion Notice, the Company shall notify Holder that such exercise of the Conversion Right has been accepted. (iii) At any exercise of the Conversion Right under paragraph 2E(ii) hereof, (a) the Holder will surrender this Warrant and (b) the Company will deliver to the Holder a certificate or certificates for the number of shares of Common Stock issuable upon such conversion, together with cash in lieu of any fractional share, as provided in paragraph 2D above. In the event and to the extent that this Warrant has not been converted in full, then the Company shall prepare and deliver a new Warrant evidencing the rights hereunder which have not previously expired, been exercised or converted, in accordance with paragraph 2B(ii) hereof or this paragraph 2E. 2F. Limitation on Exercise. Notwithstanding anything contained in this Warrant to the contrary, this Warrant shall not be exercisable (whether in a single exercise or multiple exercises) by any single Holder for any number of shares of Common Stock greater than the number of shares of Common Stock that would cause such Holder to own beneficially (as calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) 5% of the aggregate number of outstanding shares of Common Stock, minus one, unless such Holder shall have provided the Company with not less than 65 days' prior written notice of its current intent to exercise this Warrant for such greater number of shares (which notice of intent shall not be binding). This notice requirement (i) shall only apply to the exercise of this Warrant for the number of shares of Common Stock which are in excess of the number of shares of Common Stock that would cause such Holder to own beneficially (as calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) 5% of the aggregate number of outstanding shares of Common Stock, minus one, and (ii) for the avoidance of doubt, shall not apply to any exercise of the Put Option. -4- Part 3. Adjustment of Exercise Price and Number of Shares. The initial exercise price as set forth in Part 1 shall be subject to adjustment from time to time as provided in this Part 3 (such price, or such price as last adjusted pursuant to the terms hereof, as the case may be, is herein called the "Exercise Price"), and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Part 3. 3A. Common Stock Issued at Less than Market Price or Exercise Price. If the Company issues or sells any Common Stock other than Excluded Stock (as defined below) without consideration or for a consideration per share less than the Market Price per share of Common Stock on the immediately preceding business day on which the Common Stock is traded, or less than the Exercise Price in effect immediately prior to such issuance or sale, the Exercise Price in effect immediately prior to each such issuance or sale will immediately be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to such issuance or sale, by a fraction, (1) the numerator of which shall be (i) the number of shares of Common Stock outstanding prior to such issuance or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such additional shares of Common Stock so issued or sold would purchase at the higher of (x) the Market Price per share of Common Stock on the immediately preceding business day on which the Common Stock is traded and (y) the Exercise Price in effect immediately prior to such issuance or sale and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale. In such event, the number of shares of Common Stock issuable upon exercise of this Warrant shall be increased to the number obtained by dividing (i) the product of (a) the number of shares of Common Stock issuable upon exercise of the Warrant before such adjustment to the Exercise Price and (b) the Exercise Price in effect immediately prior to such adjustment by (ii) the reduced Exercise Price determined in accordance with the immediately preceding sentence. For the purposes of this paragraph 3A, the term "Excluded Stock" means (i) shares of Common Stock issued by the Company as a stock dividend, distribution, or in connection with a subdivision or reclassification of shares of Common Stock, in each case which are subject to paragraph 3B, (ii) shares of Common Stock to be issued to employees, directors, consultants or advisors of the Company pursuant to, and in accordance with the terms of, the Company's stock option, stock incentive, restricted stock, employee stock purchase or other similar plans or agreements, in each case that have been approved by the Company's stockholders or (iii) shares of Common Stock to be issued pursuant to this Warrant or the exercise thereof. For the purposes of any adjustment of the Exercise Price pursuant to this paragraph 3A, the following provisions shall be applicable: (i) in the case of the issuance of Common Stock for cash, the amount of the consideration received by the Company shall be deemed to be the amount of the cash proceeds received by the Company for such Common Stock before deducting therefrom any discounts or commissions allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof; -5- (ii) in the case of the issuance of Common Stock (otherwise than upon the conversion of shares of capital stock or other securities of the Company) for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company, irrespective of any accounting treatment; provided, however, that such fair value as determined by the Board of Directors of the Company shall not exceed the aggregate Market Price of the shares of Common Stock being issued as of the date the Board of Directors of the Company authorizes the issuance of such shares; (iii) in the case of the issuance of (x) options, warrants or other rights to purchase or acquire Common Stock (whether or not at the time exercisable), (y) securities by their terms convertible into or exchangeable for Common Stock (whether or not at the time so convertible or exchangeable) or (z) options, warrants or rights to purchase such convertible or exchangeable securities (whether or not at the time exercisable): (a) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights to purchase or acquire Common Stock (determined without considering or giving effect to any anti-dilution provisions of such options, warrants or rights that are comparable to the anti-dilution provisions contained herein) shall be deemed to have been issued at the time such options, warrants or rights are issued and for a consideration equal to the consideration (determined in the manner provided in paragraph 3A(i) and (ii)), if any, received by the Company upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby; (b) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof (determined without considering or giving effect to any anti-dilution provisions of such convertible or exchangeable securities or such options, warrants or rights that are comparable to the anti-dilution provisions contained herein), shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities and related options, warrants or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration (determined in the manner provided in paragraph 3A(i) and (ii)), if any, to be received by the Company upon the conversion or exchange of such securities, or upon the exercise of any related options, warrants or rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof; -6- (c) on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or rights or conversion or exchange of such convertible or exchangeable securities or any change in the consideration to be received by the Company upon such exercise, conversion or exchange, but excluding changes resulting from the anti-dilution provisions thereof (to the extent comparable to the anti-dilution provisions contained herein), the Exercise Price as then in effect shall forthwith be readjusted to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants or rights not exercised prior to such change, or of such convertible or exchangeable securities not converted or exchanged prior to such change, upon the basis of such change; (d) on the expiration or cancellation of any such options, warrants or rights (without exercise), or the termination of the right to convert or exchange such convertible or exchangeable securities (without exercise), if the Exercise Price shall have been adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants, rights or such convertible or exchangeable securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or rights, or upon the conversion or exchange of such convertible or exchangeable securities; and (e) if the Exercise Price shall have been adjusted upon the issuance of any such options, warrants, rights or convertible or exchangeable securities, no further adjustment of the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise, conversion or exchange thereof; provided, however, that no increase in the Exercise Price shall be made pursuant to subclauses (a) and (b) of this Section 3A(iii). 3B. Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company shall (1) declare a dividend or make a distribution on its Common Stock in shares of Common Stock, (2) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (3) combine or reclassify the outstanding Common Stock into a smaller number of shares, the number of shares of Common Stock obtainable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock which the Holder would have owned or been entitled to receive after such date had the Warrant been exercised immediately prior to such date. In the event of any adjustment to the total number of shares of Common Stock obtainable upon exercise of the unexercised portion of this Warrant pursuant to this paragraph 3B, the Exercise Price shall be adjusted to be the amount determined by multiplying (i) the Exercise Price by (ii) a fraction, the numerator of which is the number of shares of Common Stock payable upon exercise of this Warrant immediately prior to such adjustment and the denominator of which is the number of shares of Common Stock -7- covered by this Warrant immediately after such adjustment. Successive adjustments to the Exercise Price and to the number of shares of Common Stock obtainable upon exercise of this Warrant shall be made whenever any event specified above shall occur. 3C. Other Distributions. In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock (1) of the shares of any class other than its Common Stock or (2) of evidence of indebtedness of the Company or any of its subsidiaries or (3) of assets (including cash, but excluding ordinary cash dividends and dividends or distributions referred to in paragraph 3B), or (4) rights or warrants, then in each such case the Exercise Price in effect immediately prior thereto shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, (i) the numerator of which shall be an amount equal to the difference resulting from (A) the number of shares of Common Stock outstanding on such record date multiplied by the Market Price per share of Common Stock on such record date, less (B) the fair market value (as reasonably determined by the Board of Directors of the Company) of said shares or evidences of indebtedness or assets or rights or warrants to be so distributed, and (ii) the denominator of which shall be equal to the number of shares of Common Stock outstanding on such record date multiplied by the Market Price per share of Common Stock on such record date. In such event, the number of shares of Common Stock issuable upon exercise of this Warrant shall be increased to the number obtained by dividing (i) the product of (a) the number of shares of Common Stock issuable upon exercise of the Warrant before such adjustment to the Exercise Price and (b) the Exercise Price in effect immediately prior to such adjustment by (ii) the reduced Exercise Price determined in accordance with the immediately preceding sentence. Such adjustment to the Exercise Price shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Exercise Price then in effect shall be readjusted, effective as of the date when the Company's Board of Directors determines not to distribute such shares, evidence of indebtedness, assets, rights or warrants, as the case may be, to the Exercise Price that would then be in effect if such record date had not been fixed. 3D. Business Combinations. In case of any Business Combination (as defined below) in which the holders of shares of Common Stock are entitled to receive stock, securities or property by virtue of their ownership of Common Stock or a reclassification of Common Stock (other than a reclassification of Common Stock referred to in paragraph 3B), then, as a part of such Business Combination or reclassification, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor entity resulting from such Business Combination that a holder of the shares of Common Stock deliverable upon exercise of this Warrant would have been entitled to receive in such Business Combination, all subject to further adjustment as provided in this Part 3. If the per-share consideration payable to the holders for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined by the Board of Directors of the Company. In all events, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the -8- end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. In determining the kind and amount of stock, securities or the property obtainable upon consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the Holder shall have the right to make a similar election as of the Exercise Date with respect to the number of shares of stock or other securities or property. For the purposes of this paragraph 3D: "Business Combination" means: (i) any consolidation or merger of the Company with or into any person or entity of any kind, (ii) the sale, assignment, conveyance, transfer, lease or other disposition by the Company of all or substantially all of its assets followed by a liquidation of the Company, or (iii) any issuance, in a single transaction or series of related transactions, by the Company of shares of Common Stock and/or Common Stock Equivalents (defined below) in connection with the acquisition of assets (including cash) or securities by the Company or a subsidiary of the Company (including by way of merger of a subsidiary of the Company with or into a third party), except where (a) the stockholders of the Company immediately prior to such issuance own (in substantially the same proportion relative to each other as such stockholders owned the Common Stock, or the Voting Stock (defined below), as the case may be, immediately prior to such issuance) (1) more than 50% of the Voting Stock immediately after such issuance, and (2) more than 50% of the outstanding Common Stock immediately after such issuance, (b) the members of the Company's Board of Directors immediately prior to entering into the agreement relating to such issuance (and if no such agreement is entered into, then immediately prior to such issuance) constitute at least a majority of the Company's Board of Directors immediately after such issuance, with no arrangement or arrangements in place immediately after such issuance that would result in the members of the Company's Board of Directors immediately prior to entering into the agreement relating to such issuance (and if no agreement is entered into, then immediately prior to such issuance) ceasing to constitute at least a majority of the Company's Board of Directors and (c) no Person or group (as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder) immediately after such issuance is the beneficial owner of 40% or more of the total outstanding Voting Stock or Common Stock. In calculating the percentage of the Voting Stock of the Company owned by the stockholders of the Company immediately prior to the issuance of Common Stock or Common Stock Equivalents in which there is more than one class or series of Voting Stock, the percentage of the Voting Stock shall be calculated based on the number of votes eligible to be cast in the election of the directors of the Company -9- generally. In calculating the percentages of Voting Stock and Common Stock owned for purposes of this definition, such calculation shall be calculated on a basis assuming the exercise or conversion in full of all Common Stock Equivalents and on a basis disregarding all Common Stock Equivalents, and the percentage which results in the lower percentage owned by the shareholders of the Company shall apply in the application of clause (a) above. "Common Stock Equivalents" means rights, warrants, options, convertible securities or exchangeable securities, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event. "Voting Stock" means any and all shares, interests, participations or other equivalents, however designated, of the class or classes of capital or capital stock of the Company, pursuant to which the holders thereof have the general voting power to vote in the election of the Board of Directors of the Company. The foregoing provisions of this paragraph 3D are subject in all respects to Part 4 of this Warrant. 3E. Certain Repurchases of Common Stock. In case the Company effects a Pro Rata Repurchase (as defined below) of Common Stock, then the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the effective date of such Pro Rata Repurchase by a fraction of which (1) the numerator shall be (i) the product of (a) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (b) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which (2) the denominator shall be the product of (i) the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement of such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon exercise of this Warrant shall be increased to the number obtained by dividing (i) the product of (a) the number of shares of Common Stock issuable upon exercise of the Warrant before such adjustment to the Exercise Price and (b) the Exercise Price in effect immediately prior to such adjustment by (ii) the reduced Exercise Price determined in accordance with the immediately preceding sentence. For purposes of this Agreement, (i) the term "Pro Rata Repurchase" means any purchase of shares of Common Stock by the Company or any Affiliate (as defined below) thereof pursuant to any tender offer or exchange offer subject to Section 13(e) of the Securities Exchange Act of 1934, as amended, or pursuant to any other offer available to substantially all holders of Common Stock, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other person or any other property (including, without limitation, shares of capital stock, other securities or evidences of indebtedness of a subsidiary of the Company), or any combination thereof; provided, however, that "Pro Rata Repurchase" shall not include any purchase of shares by the Company or any Affiliate thereof made in accordance with the requirements of Rule 10b-18 as in effect under the Securities -10- Exchange Act of 1934, as amended; (ii) the "effective date" of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer and (iii) the term "Affiliate" means with respect to any person, any other person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such person. 3F. Rounding of Calculations; Minimum Adjustments. All calculations under this Part 3 shall be made to the nearest one tenth (1/10th) of a cent or to the nearest one hundredth (1/100th) of a share, as the case may be. Any provision of this Part 3 to the contrary notwithstanding, no adjustment in the Exercise Price shall be made if the amount of such adjustment would be less than $0.01, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. In addition, in no event shall the Exercise Price be adjusted to less than the lesser of $0.01 per share or the par value of the Common Stock. 3G. Timing of Issuance of Additional Common Stock upon Certain Adjustments. In any case in which the provisions of this Part 3 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (1) issuing to the Holder exercising after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (2) paying to such Holder any amount of cash in lieu of a fractional share of such Common Stock; provided, however, that the Company upon request shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment. 3H. Certain Events. If any event occurs of the type contemplated by the provisions of this Part 3 but not expressly provided for by such provisions, then the Company will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant, as applicable, so as to protect the rights of the Holder. 3I. No Duplication of Adjustments. If any action would require adjustment of the Exercise Price pursuant to more than one of the provisions of this Part 3, only one adjustment shall be made and such adjustment shall be the adjustment that results in the lowest Exercise Price after giving effect to such adjustment. 3J. Notices. (i) Immediately upon any event causing adjustment of the Exercise Price, the Company will give written notice thereof to the Holder describing such event and the recalculation of the Exercise Price in reasonable detail. -11- (ii) The Company will give written notice to the Holder at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution on the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Business Combination, dissolution or liquidation. (iii) The Company will also give written notice to the Holder at least twenty (20) days prior to the date on which any Business Combination, dissolution or liquidation will take place. Part 4. Put Option. Subject to the terms of this Part 4, the Company hereby grants to the Holder an option to sell to the Company, and the Company shall be obligated to purchase from the Holder under such option (the "Put Option"), all (but not any portion) of this Warrant that remains unexercised and unconverted at a price based upon the number of shares of Common Stock then obtainable upon exercise of this Warrant (the "Put Shares"). The Put Option will be effective and exercisable only upon, and for a period of five (5) Business Days immediately following, the date of consummation of any Business Combination (the "Put Option Period") with respect to which the holders of Common Stock are entitled to receive aggregate consideration of which less than sixty percent (60%) of the aggregate value thereof is in the form of publicly traded common equity. 4A. Put Price. In the event that the Holder exercises the Put Option, the price (the "Put Price") to be paid to the Holder pursuant to this Warrant will be cash in an amount determined by reference to the number of Put Shares exercisable immediately prior to consummation of such Business Combination and valued pursuant to the Black-Scholes Valuation Model, based upon the following assumptions: (i) an unadjusted price of the Common Stock equal to the average closing price of the Common Stock for the ten (10) consecutive trading day-period preceding and exclusive of the date of the public announcement of such Business Combination; (ii) an exercise price equal to the Exercise Price in effect immediately prior to the date of the public announcement of such Business Combination; (iii) a stock price volatility of 60% on an annual basis; (iv) a risk-free rate of return equal to the effective yield of U.S. Treasury notes having a duration approximately equal to that of the remaining term of the Warrant as of the date of the public announcement of such Business Combination; (v) a dividend yield equal to the cash dividend yield of the Common Stock immediately prior to the date of the public announcement of such Business Combination; and (vi) a time to exercise assumption based upon the remaining term of the Warrant as of the date of the public announcement of such Business Combination. If the Holder and the Company are in good faith dispute with respect to the determination of the Put Price, each such party shall select a nationally recognized investment banking firm, and the two firms so selected shall select a third nationally recognized investment banking firm, which third firm shall determine the Put Price in accordance with the provisions of the first sentence of this Section 4A and provide each party with a written notice of such determination. Both the Holder and the Company shall be bound by such determination, each such party shall be responsible for all of the fees and expenses charged by the investment banking firm such party selects, and each such party will be responsible for one-half of the fees and expenses charged by the third investment banking firm in connection with its determination of the Put Price. -12- 4B. Exercise of Put Option. The Put Option may be exercised during the Put Option Period by the Holder giving written notice to the Company either prior to or during the Put Option Period of the Holder's election to exercise the Put Option, and the date of the Put Option Closing will be not less than sixty (60) days after the date of the consummation of the Business Combination. 4C. Put Option Closing. The closing for the purchase and sale of this Warrant under the Put Option, will take place at the principal executive offices of the Company on the date specified in such notice of exercise (the "Put Option Closing"). At the Put Option Closing, the Holder will deliver this Warrant duly endorsed in blank. In consideration therefor, the Company will deliver to the Holder the Put Price, which will be payable in immediately available funds, and the Company shall cancel on its books this Warrant certificate, and thereupon the rights of the Holder hereunder (other than the right to receive the Put Price) shall terminate. Part 5. No Voting Rights; Limitations of Liability. This Warrant will not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the Holder to purchase Common Stock, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of the Holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a stockholder of the Company. Part 6. Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal executive offices of the Company, for new warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new warrants will represent such portion of such rights as is designated by the Holder at the time of such surrender. The date the Company initially issues this Warrant will be deemed to be the date of issuance thereof regardless of the number of times new warrants or certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. All such Warrants representing portions of the rights hereunder are referred to herein as the "Warrants." Part 7. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder being deemed satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company, or, in the case of any such mutilation upon surrender of such certificate, the Company will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Part 8. Reservation of Shares. The Company covenants and agrees that at all times it shall reserve and keep available for the exercise of the Warrant up to 200,000 shares held in the treasury of the Company and such additional number of authorized shares of Common Stock as are sufficient to permit the exercise in full of the Warrant, and that it will take such action as may be required from time to time to assure that the par value per shares of the Underlying Shares is at all times equal to or less than the per share Exercise Price. Part 9. Listing of Shares. The Company shall use all commercially reasonable efforts to list on each national securities exchange on which any Common Stock may at any time be listed, subject to notice of issuance upon the exercise or conversion of this Warrant, and shall use its commercially -13- reasonable efforts to maintain such listing, so long as any other shares of its Common Stock shall be so listed, all shares of Common Stock from time to time issuable upon exercise or conversion of this Warrant. Part 10. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of Sections 2, 3 and 4 hereof and in taking of all such action as may be necessary or appropriate in order to protect the exercise and conversion rights of the holders of this Warrant against impairment. Part 11. Notices. Except as otherwise expressly provided herein, all notices referred to in this Warrant will be in writing and will be delivered personally or by registered or certified mail, return receipt requested, postage prepaid and will be deemed to have been given when so delivered or mailed (i) to the Company, at its principal executive offices, and (ii) to the Holder of this Warrant, at such Holder's address as it appears in the records of the Company (unless otherwise indicated by the Holder). Part 12. Successors and Assigns. The terms, provisions and rights evidenced by this Warrant shall inure to the benefit of, and be binding upon, the Company and the Holder and their respective successors and assigns. Part 13. Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder. Any waiver or amendment effected in accordance with this Part 13 shall be binding upon each holder of any shares of Common Stock purchased under this Warrant at the time outstanding (including any securities into which such shares have been converted or exchanged), each future holder of all such shares of Common Stock, and the Company. Part 14. Descriptive Headings; Governing Law. The descriptive headings of the several parts and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The construction, validity and interpretation of this Warrant will be governed by the laws of the State of Texas (excluding that body of laws relating to conflicts of laws). * * * -14- IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers under its corporate seal and to be dated as of the date first set forth above. INPUT/OUTPUT, INC. By: /s/ C. Robert Bunch Name: C. Robert Bunch Title: Vice President -15- EXHIBIT I EXERCISE AGREEMENT To: Input/Output, Inc. The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase _______ shares of the Common Stock covered by such Warrant and makes payment herewith in full therefor at the Exercise Price per share provided by such Warrant. Dated: ____________ HOLDER: __________________________ By:_______________________________ Name:_____________________________ Title:____________________________ -16- EXHIBIT II CONVERSION NOTICE (To be executed upon conversion of Warrant.) The undersigned hereby irrevocably elects to exercise the Conversion Right, represented by this Warrant, to purchase ________ shares of Common Stock and herewith tenders in payment for such shares this Warrant, all in accordance with the terms hereof. Dated:____________________ HOLDER: _______________________________ By:____________________________________ Name:__________________________________ Title:_________________________________ -17- EX-10.24 6 h99012exv10w24.txt REGISTRATION RIGHTS AGREEMENT Exhibit 10.24 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into this 6th day of August, 2002, by and between Input/Output Inc., a Delaware corporation (the "Company"), and SCF-IV, L.P., a Delaware limited partnership ("SCF"). RECITALS: This Agreement is made pursuant to the Exchange Agreement, dated August 6, 2002, between the Company and SCF (the "Exchange Agreement"). In order to induce SCF to enter into the Exchange Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. AGREEMENT: The parties hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms will have the following meanings: "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Demand Registration" has the meaning set forth in Section 3(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Majority" means 51% or more. "Market Price" means with respect to the Common Stock, on any given day, the last reported sale price or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices, in either case on the New York Stock Exchange or the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, (i) the closing sale price for such day reported by the Nasdaq Stock Market if such security is traded over-the-counter and quoted in the Nasdaq Stock Market, or (ii) if such security is so traded, but not so quoted on such day, the average of the closing reported bid and ask prices of such security as reported by the Nasdaq Stock Market or any comparable system, or (iii) if such security is not listed on the Nasdaq Stock Market or any comparable system but is actively traded, the average of the closing bid and ask prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price shall be deemed to be the fair value per share of such security as determined by a nationally recognized investment banking firm selected by the Company's Board of Directors and, for so long as SCF holds at least 25% of the Registrable Securities, is reasonably acceptable to SCF. -1- "Person" means any individual, partnership, corporation, limited liability company, trust or unincorporated organization or association, or a government or agency or political subdivision thereof. "Piggyback Registration" has the meaning set forth in Section 4(a). "Registration Expenses" has the meaning set forth in Section 7(a). "Registrable Securities" means the Underlying Shares and any other securities issued or issuable with respect to the Underlying Shares by way of stock dividend or stock split or in connection with a combination of shares, reclassification, recapitalization, merger, consolidation or other reorganization; provided, however, that a Registrable Security shall cease to be a Registrable Security to the extent provided in Section 2(a). "Rule 144" means Rule 144 under the Securities Act (or any similar provisions then in force). "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Underlying Shares" means all shares of Common Stock issuable by the Company upon exercise or conversion of the Warrant. "Underwritten registration" or "underwritten offering" means any registration in which securities of the Company are sold pursuant to a firm commitment underwriting. "Warrant" means the warrant issued pursuant to the Exchange Agreement. 2. SECURITIES SUBJECT TO THIS AGREEMENT. (a) Registrable Securities. The securities entitled to the benefits of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Registrable Security. A Registrable Security shall cease to be a Registrable Security when (i) it has been disposed of in a transaction effectively registered under the Securities Act, (ii) has been sold pursuant to Rule 144, (iii) it is held by a Person not entitled to the benefits of registration rights under this Agreement by virtue of Section 11(f) hereof, (iv) if the holder thereof is an "affiliate" of the Company within the meaning of Rule 144, at such time as the Registrable Securities held by such holder constitute less than 1% of the then outstanding shares of Common Stock and such Registrable Securities could be sold without registration pursuant to Rule 144, (v) if the holder thereof is not an "affiliate" of the Company within the meaning of Rule 144, at such time as the Registrable Securities held by such holder constitute less than 4% of the then outstanding shares of Common Stock and such Registrable Securities could be sold freely pursuant to paragraph (k) of Rule 144, or (vi) it has otherwise been transferred and a new certificate or other evidence of ownership for it not bearing the legend set forth in Section 4.4 of the Exchange Agreement (or other legend of -2- similar import) has been delivered (not subject to any stop transfer order) by or on behalf of the Company and no other restriction on transfer exists. (b) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns Registrable Securities or has the right to acquire such Registrable Securities (whether upon conversion, exercise or exchange of other securities or otherwise), disregarding any legal restrictions upon the exercise of such right, whether or not such acquisition has actually been effected. 3. DEMAND REGISTRATION. (a) Requests for Registration. Subject to the provisions of Section 3(b), SCF or any holder or holders of at least a Majority of the then outstanding Registrable Securities may request at any time a registration by the Company under the Securities Act of all or part of their Registrable Securities (a "Demand Registration"); provided, however that the number of Registrable Securities to be included in such Demand Registration must be at least 500,000 (such number of shares to be appropriately adjusted in the event of any stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation or other reorganization). Within ten days after receipt of such request, the Company will serve written notice by overnight courier of such registration request to all holders of Registrable Securities and will, subject to the provisions of Section 3(b), include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 business days after distribution to the applicable holder of the Company's notice. All requests made pursuant to this Section 3(a) will specify the amount of Registrable Securities to be registered and will also specify the intended method of disposition thereof; provided, however, that such method of disposition will be limited to an underwritten offering if requested by the holders of a Majority of the Registrable Securities requested to be included in such registration. (b) Number of Registrations. The holders of Registrable Securities will be entitled to request only one Demand Registration. A registration initiated as a Demand Registration will not constitute a Demand Registration for the purposes of the foregoing (i) unless such registration has been declared effective by the SEC and remains effective for the period set forth in Section 6(a)(iii); provided, however, that, if more than 15% of the Registrable Securities requested to be included in a Demand Registration which is an underwritten registration can be excluded therefrom by reason of the provisions of Section 3(d), the holders of Registrable Securities will be entitled to one additional Demand Registration or (ii) if after such registration has been declared effective by the SEC it is subject to any stop order, injunction or other adverse order or action of the SEC or other governmental authority. (c) No Rights of Company or Other Securityholders to Piggyback on Demand Registrations. Neither the Company or any of its securityholders (other than the holders of Registrable Securities in such capacity) has any right to include any of the Company's securities in a registration statement initiated as a Demand Registration under this Section 3, unless (i) such securities are of the same class as the Registrable Securities being registered, (ii) the holders of a Majority of the Registrable Securities being registered in such registration consent to such -3- inclusion in writing, subject to Section 3(d), (iii) if such Demand Registration is an underwritten offering, the managing underwriters agree that some or all of such securities can be included without adversely affecting such offering or offering price and (iv) the Company or the selling securityholders, as applicable, agree to sell their securities on the same terms and conditions as apply to Registrable Securities and the holders of such Registrable Securities. If any securityholders of the Company (other than the holders of Registrable Securities in such capacity) register securities of the Company pursuant to a Demand Registration hereunder in accordance with the provisions of this Section 3(c), such securityholders will pay the fees and expenses of counsel to such security holders and their pro rata share of the Registration Expenses if such pro rata share of the Registration Expenses for such registration are not paid by the Company for any reason. (d) Priority on Demand Registrations. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company and the selling holders of the Registrable Securities in writing that in their opinion the number of Registrable Securities requested to be included exceeds the number of securities which can be sold in such offering without adversely affecting the proposed offering or the offering price, the Company will include in such registration the number of Registrable Securities which in the opinion of such underwriters can be sold without adversely affecting the proposed offering or the offering price, and such securities will be allocated pro rata among the holders of Registrable Securities on the basis of the number of the Registrable Securities requested to be included in such registration by their respective holders. If securities (other than Registrable Securities) are proposed to be included by the Company or its other securityholders in a Demand Registration which is an underwritten offering (subject to and in accordance with the provisions of Section 3(c)) and the managing underwriters advise the Company and the selling holders of Registrable Securities in writing that fewer than all of said other securities can be sold, in addition to all the Registrable Securities being registered, without adversely affecting the proposed offering or the offering price in such underwritten offering, those other securities which are permitted to be included will be allocated among the Company and the other securityholders in such proportions as such securityholders and the Company may agree. (e) Selection of Underwriters. If any Demand Registration is an underwritten offering, or a best efforts underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Company; provided, however, such investment bankers and manages must be reasonably satisfactory to the holders of a Majority of the Registrable Securities requested to be included in such offering. (f) Other Registration Rights Agreements. Without the prior written consent of the holders of a Majority of the Registrable Securities, the Company will not enter into any new registration rights agreements that adversely affect in any material respect the rights of the holders of the Registrable Securities. 4. PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. Whenever the Company proposes to register any securities under the Securities Act (excluding registrations on Form S-4 or S-8 or equivalent forms), other -4- than pursuant to a Demand Registration under Section 3 (a "Piggyback Registration"), the Company will give written notice to all holders of Registrable Securities of its intention to effect such a registration not later than the earlier to occur of (i) the tenth day following receipt by the Company of notice of exercise of other demand registration rights or (ii) 30 days prior to the anticipated filing date. Subject to the provisions of Section 4(c) and (d), the Company will include in such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten business days after the receipt by the applicable holder of Registrable Securities of the Company's notice. The holders of Registrable Securities will be permitted to withdraw all or any part of such holder's Registrable Securities from a Piggyback Registration at any time prior to the date such Piggyback Registration becomes effective with the SEC, provided that, in the case of an underwritten offering, such withdrawal is consistent with customary and reasonable restrictions agreed upon by the managing underwriter. If a Piggyback Registration is an underwritten offering effected under (i) Section 4(c), all Persons whose securities are included in the Piggyback Registration will be obligated to sell their securities on the same terms and conditions as apply to the securities being issued and sold by the Company or (ii) Section 4(d), all Persons whose securities are included in the Piggyback Registration will be obligated to sell their securities on the same terms and conditions as apply to the securities being sold by the Person or Persons who initiated the Piggyback Registration under Section 4(d). Notwithstanding the foregoing, if, at any time after giving written notice of a Piggyback Registration but prior to the effective date of the registration statement filed in connection therewith, the Company shall determine for any reason not to register such securities, the Company may, at its election give written notice of such determination to the holders of Registrable Securities and thereupon shall be relieved of its obligation to register any Registrable Securities in such registration. (b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities included in a Piggyback Registration will be paid by the Company. (c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the total number or dollar amount of securities requested to be included in such registration exceeds the number or dollar amount of securities which can be sold in such offering without adversely affecting the offering or the offering price, the Company will include in such registration: (i) first, all securities the Company proposes to sell, (ii) second, up to the full number or dollar amount of Registrable Securities requested to be included in such registration in excess of the number or dollar amount of securities the Company proposes to sell which, in the opinion of such underwriters, can be sold without adversely affecting the offering or the offering price (allocated pro rata among the holders of such Registrable Securities on the basis of the dollar amount or number of Registrable Securities requested to be included therein by each such holder) and (iii) third, such other securities (provided such securities are of the same class as the securities being sold by the Company) as are requested to be included in such registration equal to the balance, if any, allocated among the holders of such securities in such proportions as the Company and such holders may agree. (d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities (other -5- holders of Registrable Securities in their capacity as such), and the managing underwriters advise the Company in writing that in their opinion the dollar amount or number or securities requested to be included in such registration exceeds the dollar amount or number of securities which can be sold in such offering without adversely affecting the offering or the offering price, the Company will include in such registration (i) first, the number or dollar amount of securities which in the opinion of such underwriters can be sold without adversely affecting the offering or the offering price of the securities intended to be included therein on behalf of the other holders of the Company's securities, allocated among the holders of such securities in such proportions as the Company and such holders may agree, and (ii) to the extent of the balance, if any, the Registrable Securities requested to be included in such registration, allocated pro rata among the holders of such Registrable Securities on the basis of the dollar amount or number of securities requested to be included therein by each such holder. (e) Underwritten Offering of Different Classes of Securities. Notwithstanding anything to the contrary in this Section 4, if a Piggyback Registration is an underwritten offering of a class of securities of the Company different from the Registrable Securities proposed to be included in such offering and the managing underwriters advise that in their opinion Registrable Securities of a different class cannot be included in such offering without adversely affecting the offering or the offering price, then the holders of the Registrable Securities shall not be entitled to include Registrable Securities in such registration. (f) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, as between the Company and the holders of Registrable Securities, the Company will have the right to select the investment banker or investment bankers and manager or managers to administer the offering. 5. DEFERRAL OF FILING. Notwithstanding anything to the contrary in this Agreement, the Company may defer the filing (but not the preparation) of a registration statement required by Section 3 until a date not later than 60 days (less the number of days during the previous twelve months that the use of a prospectus was suspended pursuant to this Section 5 or Section 11(a)) after the date of receipt by the Company of a request for a Demand Registration if at the time the Company receives such request it is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed) and the Company determines in good faith that such disclosure would be materially detrimental to the Company and its shareholders. Any registration statement the filing of which is deferred pursuant to the foregoing shall be filed forthwith if the negotiations or other activities are disclosed or terminated. In order to defer the filing of a registration statement pursuant to this Section 5, the Company shall promptly, upon determining to seek such deferral, deliver to each requesting holder a certificate signed by the President or Chief Financial Officer of the Company stating that the Company is deferring such filing in accordance with this Section 5. Within 20 days after receiving such certificate, the requesting holder may withdraw such request by giving notice to the Company, and, if withdrawn, the request for a Demand Registration shall be deemed not to have been made for all -6- purposes of this Agreement, provided that the Company may defer the filing of a registration statement pursuant to the foregoing not more than once during any twelve month period. 6. REGISTRATION PROCEDURES. (a) Whenever the Company is obligated to register any Registrable Securities in accordance with the terms and conditions of this Agreement, the Company will use its best efforts to effect the registration and to permit the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and file with the SEC, not later than 60 days after receipt of a request to file a registration statement with respect to such Registrable Securities, a registration statement with respect to such Registrable Securities, and use its best efforts to cause such registration statement to become effective; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a Majority of the Registrable Securities being registered in such registration statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; each such registration statement will be on a form for which the Company then qualifies, which is available for the sale of the Registrable Securities in accordance with the intended method of disposition thereof and which is reasonably satisfactory to the holders of a Majority of the Registrable Securities being registered (or the managing underwriters in the case of a firm or best efforts underwriting offering); (ii) notify each seller of Registrable Securities of any stop order issued by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it at the earliest possible time if entered; (iii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 90 days, or such shorter period as may be required if all Registrable Securities covered by such registration statement are sold prior to the expiration of such 90-day period (except in connection with an underwritten offering, in which case such registration statement shall be kept effective as long as the underwriters reasonably request in the underwriting agreement), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iv) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may -7- reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (v) use all commercially reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(a)(v), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (vi) use all commercially reasonable efforts to cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vii) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement or any document incorporated therein by reference contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and prepare and file promptly with the SEC a supplement or amendment to such prospectus or any such document incorporated therein by reference so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (viii) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed; (ix) provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration statement; (x) enter into such customary agreements (including an underwriting agreement in customary form with customary lock-up provisions not to exceed 180 days) and take all such other actions in connection therewith as the holders of a Majority of the Registrable Securities being registered or the managing underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xi) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the -8- Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (xii) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a Majority of the Registrable Securities being registered or the managing underwriters reasonably request; and (xiii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but nor more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement will satisfy the provisions of Section 11(a) of the Securities Act. (b) The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such securities as the Company may from time to time reasonably request. 7. REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of counsel for the Company and of all independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), fees and expenses of underwriters customarily paid by the issuer of securities (excluding discounts and commissions), the reasonable fees and expenses of any special experts retained by the Company or at the request of the managing underwriters in connection with such registration and fees and expenses of other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), will be borne by the Company; provided, however, that all out of pocket Registration Expenses incurred by the Company pursuant to Section 3 shall be borne by the sellers of Registrable Securities and other persons (including the Company) selling Common Stock pursuant to the applicable registration statement on a pro rata basis based on the number of shares of Common Stock to be sold pursuant to such registration statement. (b) In connection with each registration hereunder, the holders of the Registrable Securities included therein shall be responsible for all fees and expenses of their counsel and for all underwriting discounts and commissions payable in respect of any sales of Registrable Securities. -9- 8. INDEMNIFICATION; CONTRIBUTION. (a) Indemnification by Company. In the event of any registration of Registrable Securities hereunder, the Company agrees to indemnify to the full extent permitted by law, each holder of Registrable Securities, its officers, directors and partners and each Person who controls such holder (within the meaning of the Securities Act and the Exchange Act) against all losses, claims, damages, liabilities and expenses (or actions in respect thereof) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus relating to the registration of such Registrable Securities or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are contained in any information furnished in writing to the Company by such holder expressly for use therein. The Company will reimburse each holder of Registrable Securities, its officers, directors, constituent partners and controlling Persons for any legal and other expenses as incurred in connection with investigating or defending any such losses, claims, damages, liabilities, expenses or actions. In connection with a firm commitment or best efforts underwritten offering, the Company will indemnify the underwriters or agents, their officers, directors, partners and each Person who controls such underwriters (within the meaning of the Securities Act and the Exchange Act) or agents to the same extent as provided above (or such greater extent as may be customarily required by the managing underwriters) with respect to the indemnification of the holders of Registrable Securities. (b) Indemnification by Holder of Registrable Securities. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and agrees to indemnify, to the extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act and the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any written information or affidavit furnished by such holder specifically for such registration statement and then only to the extent of the net proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement in reliance upon such information. The holders of Registrable Securities will reimburse, to the extent of the net proceeds, received by the holders of Registrable Securities, the Company, its officers, directors and controlling persons for any legal and other expenses as incurred in connection with investigation or defending any such losses, claims, damages, liabilities, expenses or actions. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification (but omission of such notice shall not relieve the indemnifying party from liability hereunder except to the extent such indemnifying party is actually prejudiced by such failure to give notice) and (ii) unless in such indemnified party's reasonable judgment a -10- conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless an actual conflict of interest exists between such indemnified party and any other such indemnified parties with respect to such claim, in which event the indemnifying party will be obligated to pay the fees and expenses of such additional counsel or counsels. (d) Contribution. If the indemnification provided for in Section 8(a) is unavailable or insufficient to hold harmless each of the indemnified parties against any losses, claims, damages, liabilities and expenses (or actions in respect thereof) to which such persons may become subject under the Securities Act, then the indemnifying party shall, in lieu of indemnifying each party entitled to indemnification hereunder, contribute to the amount paid or payable by such party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and such indemnified persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, liabilities or expenses. The relative fault of such persons shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact, or omission or alleged omission to state a material fact, relates to information supplied by or concerning the indemnifying party on the one hand, or by such indemnified person on the other, and such person's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other allocation that does not take into account the equitable considerations referred to in this Section 8(d). No person guilty of fraudulent misrepresentation within the meaning of the Act shall be entitled to contribution from any person that is not guilty of such fraudulent misrepresentation. 9. RULE 144. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available such information), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder -11- of Registrable Securities, the company will deliver to such holder a written statement that it has complied with such requirements 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS; LOCKUP. No Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all customary questionnaires, powers of attorney, underwriting agreements and other documents required under the terms of such underwriting arrangements. If a holder of Registrable Securities is participating in a Piggyback Registration that is an underwritten registration, such holder will (if requested by the managing underwriter) enter into an agreement not to sell or otherwise transfer or dispose of any Registrable Securities or other securities of the Company held by such holder for a specified period of time (not to exceed 180 days) following the effective date of the registration statement. Such agreement shall be in writing in a form reasonably satisfactory to the holder, the Company and the managing underwriter. The Company may impose stop transfer instructions with respect to the Registrable Securities or other securities subject to the foregoing restriction until the end of the lock-up period. 11. MISCELLANEOUS. (a) Right to Suspend. The Company may, by notice in writing to each holder of Registrable Securities, require the holder of Registrable Securities to suspend use of any prospectus included in a registration statement filed hereunder if the Company reasonably determines that it contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading or that any transaction in which the Company is engaged or proposes to engage would require an amendment to such registration statement or a supplement to such prospectus (including any such amendment or supplement made through incorporation by reference to a report filed under Section 13 of the Exchange Act). Each holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in this Section 11(a), such holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of a properly supplemented or amended prospectus, and, if so directed by the Company, such holder will deliver to the Company all copies, other than permanent file copies, then in such holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company gives any such notice, the time period mentioned in Section 6(a)(iii), if applicable, will be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of such supplemented or amended prospectus. The Company agrees to use its reasonable best efforts to cause any suspension of use of any prospectus pursuant to this paragraph to be as short a period of time as possible. -12- (b) Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of at least a Majority of the outstanding Registrable Securities. (d) Registrable Securities Held by the Company or its Affiliates. Whenever the consent or approval of holders of all or any specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (other than SCF if it is such an affiliate) will not be counted in determining whether such consent or approval was given by such holders. (e) Notices. All notices hereunder shall be in writing and shall be effective (i) on the day on which delivered if delivered personally or transmitted by telex or telegram or telecopier with evidence of receipt, (ii) one business day after the date on which the same is delivered to a nationally recognized overnight courier service with evidence of receipt, or (iii) five business days after the date on which the same is deposited, postage prepaid, in the U.S. mail, sent by certified or registered mail, return receipt requested, and addressed to the party to be notified at the address set forth in the Exchange Agreement for the Company, or at the address for the holder of the Registrable Securities set forth in a registry maintained by the Company, or at such other address and/or telecopy or telex number and/or to the attention of such other person as the Company or the holder of the Registrable Securities may designate by ten-day advance written notice. (f) Successors and Assigns; Transfer of Registration Rights. This Agreement will inure to the benefit of and be binding upon the successors and assigns of each of the parties; provided however that the registration rights granted by this Agreement may be transferred only (i) by operation of law, or (ii) to any Person to whom SCF sells or otherwise transfers Registrable Securities who (A) upon such transfer, will hold 500,000 or more Registrable Securities (such number of shares to be appropriately adjusted in the event of any stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, consolidated or other reorganization) and (B) agrees to be bound by the terms and conditions of this Agreement and signs an addendum to this Agreement to such effect. (g) Counterparts. This agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and will not limit or otherwise affect the meaning hereof. -13- (i) Governing Law; Jurisdiction. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to conflict of law principles. Any holder of Registrable Securities may bring any action or proceeding to enforce or arising out of this Agreement or in the instruments and agreements annexed hereto in any court of competent jurisdiction. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein will not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Exchange Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (l) Attorney's Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the successful party will be entitled to recover reasonable attorney's fees in addition to any other available remedy. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INPUT/OUTPUT, INC. By: /s/ C. Robert Bunch Name: C. Robert Bunch Title: Vice President SCF-IV, L.P. By: SCF-IV, G.P., Limited Partnership, its General Partner By: L. E. Simmons & Associates, Incorporated, its General Partner By: /s/ Andrew L. Waite Name: Andrew L. Waite Title: Managing Director -15- EX-99.1 7 h99012exv99w1.txt PRESS RELEASE ISSUED ON AUGUST 6, 2002 Exhibit 99.1 Io INPUT/OUTPUT, INC. NEWS RELEASE FOR FURTHER INFORMATION CONTACT: C. ROBERT BUNCH CHIEF ADMINISTRATIVE OFFICER (281) 933-3339 - -------------------------------------------------------------------------------- TUESDAY, AUGUST 6, 2002 INPUT/OUTPUT ANNOUNCES REPURCHASE OF CONVERTIBLE PREFERRED STOCK HOUSTON - Input/Output, Inc. (NYSE: IO) announced that earlier today it repurchased all of the 40,000 outstanding shares of its Series B Convertible Preferred Stock and all of the 15,000 outstanding shares of its Series C Convertible Preferred Stock (the "Preferred Stock") from the holder, SCF-IV, L.P. ("SCF"), a Houston-based private equity fund specializing in oil service investments. In exchange for the Preferred Stock, IO has paid SCF $30 million in cash at closing, issued SCF a $31 million unsecured promissory note due May 7, 2004 (the "Note") and granted SCF warrants to purchase 2,673,517 shares of IO common stock at $8.00 per share through August 5, 2005. The Note bears interest at 8 percent per annum until May 7, 2003, at which time the interest rate will increase to 13 percent. Immediately preceding the closing of this transaction, David C. Baldwin, the elected representative of the holder of the Preferred Stock, resigned from the Company's board of directors. The Series B and Series C Convertible Preferred Stock were issued in May 1999 and August 1999, respectively, at a purchase price of $1,000 per share (the "Stated Value"), for an aggregate of $55 million. Since that time, the Preferred Stock has earned an 8 percent dividend, of which 1 percent was paid quarterly in cash and the balance was accrued to increase the Adjusted Stated Value ($1,000 per share Stated Value plus accrued and unpaid dividends) of the Preferred Stock. The Adjusted Stated Value of the Preferred Stock as reflected in the equity section of the Company's June 30, 2002 balance sheet was $68.3 million. The comparable Adjusted Stated Value of the Preferred Stock as of today would be $68.8 million. The Preferred Stock became convertible at the option of SCF on May 7, 2002. Under its terms, the number of shares into which the Preferred Stock would have been convertible is the greater of (i) Stated Value divided by approximately $8.14 per share or (ii) Adjusted Stated Value divided by the average market price of IO common stock during the ten-day trading period immediately prior to conversion. IO had the right, without the holder's consent, to redeem for cash up to one-half of any Preferred Stock tendered for conversion based on the Adjusted Stated Value of such Preferred Stock on the conversion date. If SCF had converted all of the Preferred Stock today and IO had declined to exercise its redemption rights, SCF would have received about 9.2 million shares of IO common stock, representing 15.3% of the total outstanding common stock of the Company after giving effect to the conversion. According to L.E. Simmons, Chairman and President of SCF's general partner, "We are pleased to be able to realize our liquidity objectives for SCF in a manner consistent with the Company's longer-term objectives and potential." Mr. Simmons continued, "During the past twelve months, we have monetized all or part of SCF's investments in six companies, enabling us to make significant capital distributions to our investors. We remain quite optimistic that we will realize significant additional value from our continuing equity investment in IO." "This transaction satisfies SCF's interest in liquidity without compromising IO's balance sheet or causing the issuance of a large number of common shares at a price that the Company believes is significantly below its intrinsic value," said Tim Probert, the Company's President and Chief Executive Officer. "Our current stock price reflects the widespread economic uncertainty as well as the cyclical downturn in the oil service markets. In addition, our recent operating results have been impacted by heavy expenditures necessary to bring new technologies, principally based on the Company's revolutionary VectorSeis(R) digital sensor, to market. However, our first products based on the VectorSeis platform were only commercially introduced this May and have not yet had an opportunity to fully prove themselves in the marketplace. Therefore, we are quite pleased that we were able to accommodate SCF's desires in a way that both preserves value for our common shareholders and maintains the Company's ability to pursue its strategic objectives. This transaction also satisfies the criteria under which we have previously repurchased our common stock." Simmons & Company International represented I/O in this transaction. Simmons & Company, headquartered in Houston, Texas, is an investment bank which focuses on the global energy industry. About Input/Output, Inc. - Input/Output, Inc., is an industry leader in seismic acquisition imaging technology for land, marine, transition zone and in-well exploration, production and reservoir monitoring. The company specializes in technology that creates value for the energy industry in the areas of 2D, 3D, 4D and multi-component seismic data. Additional information on Input/Output, Inc. is available at www.i-o.com or via email at ir@i-o.com. The information included herein contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements concerning the expected value of I/O's common stock, future industry performance, future operating results and market acceptance of new technology, principally the Company's VectorSeis digital sensor. Actual results may vary fundamentally from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties include future growth in demand for geophysical products and services, the timing and development of I/O's products and services and market acceptance of I/O's new and revised product offerings. Additional risk factors which could affect actual results are disclosed by I/O from time to time in its filings with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----