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): APRIL 21, 1999
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INPUT/OUTPUT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
1-13402 22-2286646
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(Commission File Number) (IRS Employer Identification No.)
11104 WEST AIRPORT BLVD., STAFFORD, TEXAS 77477
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 933-3339
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
On April 21, 1999, SCF-IV, L.P., a limited partnership organized
under the laws of the State of Delaware ("SCF-IV"), and Input/Output, Inc., a
Delaware corporation (the "Company") entered into a Purchase Agreement (the
"Purchase Agreement") pursuant to which SCF-IV agreed to purchase, in a
privately negotiated transaction, from the Company 40,000 shares of Series B
preferred stock, par value $0.01 per share (the "Series B Preferred Stock" or
the "Initial Shares"), of the Company, and the Company granted to SCF-IV an
option to purchase up to 15,000 additional shares of Series C preferred
stock, par value $0.01 per share (the "Series C Preferred Stock" or the
"Option Shares," and together with the Series B Preferred Stock, the
"Shares"), of the Company. SCF-IV purchased the Initial Shares on May 7, 1999
(the "Initial Closing Date"). The consideration paid by SCF-IV for the
Initial Shares was $40,000,000. The net cash proceeds will be used to fund
the Company's research and development projects, to provide additional
working capital and for general corporate purposes.
For a period of ninety days after the Initial Closing Date (the
"Option Period"), SCF-IV may, at its sole option, purchase up to 15,000
shares of the Series C Preferred Stock (the "Exercise Notice") under the
option granted under the Purchase Agreement. The purchase price payable for
the Option Shares will be $1,000 per share (or an aggregate maximum of
$15,000,000).
THE PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, the Company has agreed to use
its best efforts to take, or cause to be taken, such action as may be
necessary or advisable to ensure that immediately following the later of (i)
the Initial Closing Date and (ii) the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Company's Board of Directors
will be increased by one (if necessary) and an individual designated by
SCF-IV will be elected as a director of the Company in accordance with the
terms of the Shares as described below.
In connection with the Purchase Agreement, the Company has amended
its Rights Agreement with Harris Trust and Savings Bank as rights agent dated
as of January 17, 1997 (the "Rights Plan"), to provide that neither SCF-IV
nor any of its affiliates will be deemed to be an "Acquiring Person" within
the meaning of the Rights Plan by reason of the transactions contemplated by
the Purchase Agreement. The Company has agreed in the Purchase Agreement that
it will not further amend the Rights Plan, or adopt any similar agreement,
that conflicts with, or restricts SCF-IV to a greater extent than the
provisions contained in the Purchase Agreement. In addition, the Board of
Directors of the Company has approved SCF-IV and its affiliates becoming an
"interested stockholder" within the meaning of Section 203 of the Delaware
General Corporation Law (the "DGCL") and a "Related Person" within the
meaning of Article THIRTEENTH of the Company's Certificate of Incorporation
by reason of the acquisition by SCF-IV or any of its affiliates of (i) the
Shares, (ii) any shares issued to SCF-IV upon conversion of the Shares (the
"Underlying Shares"), (iii) any shares of Common Stock permitted to be
acquired by SCF-IV or any of its affiliates in accordance with the limitation
set forth in the standstill provisions contained in the Purchase Agreement
(discussed below) or (iv) any
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other securities (including shares of Common Stock issuable upon conversion,
exercise or exchange thereof pursuant to their terms) received by SCF-IV or
its affiliates pursuant to the Purchase Agreement.
Under the Purchase Agreement, SCF-IV has agreed that, without the
prior written consent of the Company, it will not sell or otherwise transfer
any of the Shares to any other person or entity other than a partner of
SCF-IV, who, in any event, shall agree to be bound by the transfer
restrictions contained in the Purchase Agreement. SCF-IV has also agreed
that, without the prior written consent of the Company, it will not, prior to
the earlier of (i) the seventh anniversary of the Initial Closing, or (ii)
the occurrence of a Change of Control (defined as (i) an agreement providing
for a Business Combination (defined below under "Series B Preferred Stock")
is approved by the Board of Directors of the Company or a Business
Combination is consummated, (ii) a tender offer for Common Stock is approved
or recommended by the Board of Directors of the Company or (iii) there is a
redemption, repurchase or reacquisition by the Company of rights issued
pursuant to the Rights Plan or any waiver of the application of the Rights
Plan to any beneficial owner other than SCF-IV or its affiliates except as
approved by SCF-IV's representative to the Board of Directors of the
Company), sell or otherwise transfer the Underlying Shares in a single
transaction or series of related transactions involving a number of shares in
the aggregate constituting in excess of 1% of the Company's issued and
outstanding shares of Common Stock at the time of such sale or transfer
(based on the Company's most recent report filed with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to such sale or transfer disclosing such
number of outstanding shares) to any entity which SCF-IV knows competes to a
material extent with the Company or is engaged to a material extent in the
energy services or equipment business, without first offering such shares to
the Company on the same terms and in the manner set forth in the Purchase
Agreement (subject to certain exceptions relating to an underwritten public
offering).
The Company has agreed that, from and after the date of the Purchase
Agreement, it will not issue any Permitted Parity Securities (as defined
below), except for (i) the issuance of the Option Shares to SCF-IV or its
affiliates pursuant to the Purchase Agreement, or (ii) the issuance of a
number of shares of Permitted Parity Securities issued at a price of $1,000
cash per share in a single series within eighteen months of the Initial
Closing equal to 35,000 less the number of Option Shares purchased under the
Purchase Agreement (or, if the Option Period shall not yet have expired, less
the full 15,000 Option Shares); provided that if such Permitted Parity
Securities are issued after the first anniversary of the Initial Closing,
then SCF-IV will be entitled to prior written notice of such proposed
issuance and the terms thereof and shall have a right of first refusal option
to purchase any or all of such securities on the same terms as offered to the
proposed purchaser. "Permitted Parity Securities" for this purpose means up
to 35,000 shares of preferred stock of the Company constituting no more than
two series of preferred stock, each share of which (i) has a liquidation
preference of not more than $1,000 per share exclusive of accrued and unpaid
dividends, (ii) has a dividend rate of not more than one percent per annum,
(iii) has no more than one vote per share with respect to matters on which it
votes together with the Series B Preferred Stock and other Permitted Parity
Securities as a single class and (iv) is PARI PASSU with the Series B
Preferred Stock with respect to the payment of dividends and the
distributions upon Liquidation (as defined in the Certificate of Designation
of Series B Preferred Stock). The Series C Preferred Stock that may be issued
pursuant
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to the Purchase Agreement shall be considered Permitted Parity Securities for
purposes of the foregoing.
The Company agrees that if it issues any Permitted Parity Securities
(other than Option Shares) pursuant to the foregoing that have terms that
SCF-IV reasonably believes to be more favorable to the purchaser of such
shares than the terms of the Initial Shares, then SCF-IV shall have the right
to exchange all of the Shares purchased under the Purchase Agreement (or, if
such issuance occurs prior to the expiration of the Option Period and the
Option Closing has not occurred, all of the Shares that may be purchased
under the Purchase Agreement if SCF-IV agrees to pay the applicable purchase
price therefor upon such exchange) on a share for share basis.
By executing the Purchase Agreement, SCF-IV has agreed that, for a
period commencing on the date of the Purchase Agreement and ending on the
earlier of the third anniversary of the Initial Closing Date or the
occurrence of a Change of Control (as defined), it will not:
(a) directly or indirectly, take any action to acquire, in the
aggregate, beneficial ownership of more than 4% of the Company's
outstanding Common Stock or voting stock (based on the Company's most
recent Exchange Act report filed with the SEC prior to such acquisition
disclosing such number of outstanding shares), excluding from such
ownership the Initial Shares and Option Shares or the Underlying Shares
or any other Common Stock or voting stock acquired directly from the
Company;
(b) form or encourage the formation of a "group" within the
meaning of Section 13(d)(3) of the Exchange Act, to acquire, change or
influence control of the Company;
(c) solicit, or participate in any "solicitation" of "proxies"
or become a "participant" in any "election contest" or consent
solicitation (as such terms are defined or used under Regulation 14A
under the Exchange Act) with respect to the Company in opposition to
the recommendation of a majority of the Board of Directors of the
Company;
(d) initiate, propose or otherwise solicit stockholders for
the approval of, one or more stockholder proposals with respect to the
Company or induce any person to initiate any stockholder proposal, in
each case in opposition to the recommendation of a majority of the
Board of Directors of the Company;
(e) deposit any voting stock in a voting trust or subject them
to a voting agreement or other agreement or arrangement with respect to
the voting of such voting stock, other than any such trust, agreement
or other arrangement involving no persons other than SCF-IV, its
partners or affiliates; or
(f) solicit, propose or negotiate with any other person
(including the Company) with respect to any form of business
combination or other extraordinary transaction with the Company or any
of its subsidiaries, in each case which would result in a Change of
Control, or solicit, make or propose or negotiate with any other person
with respect to or announce
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an intent to make, any tender offer or exchange offer for any
securities of the Company, in each case in opposition to the
recommendation of a majority of the Board of Directors of the Company,
or publicly disclose an intent, purpose, plan or proposal with respect
to the Company, any of its subsidiaries, or any securities or assets of
the Company, that would violate the provisions of this paragraph (f);
provided, however, that nothing in the foregoing paragraphs (a)-(f) shall be
deemed to limit in any way (i) the right of SCF-IV to exercise its voting
rights in any manner it sees fit with respect to the Shares, the Underlying
Shares or any other shares of voting stock acquired by SCF-IV in accordance
with the Purchase Agreement, or (ii) the right of any director elected to the
Board of Directors as a representative of the holders of the Shares to take
any action he believes necessary to fulfill his fiduciary duties.
The Company has agreed to indemnify SCF-IV and its affiliates and
hold SCF-IV and its affiliates harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind, which may be
incurred by SCF-IV or such affiliates as a result of any claims made against
SCF-IV or such affiliates by any person that relate to or arise out of (i)
any breach by the Company of any of its representations, warranties or
covenants contained in the Purchase Agreement or in the agreements related
thereto, or (ii) any litigation, investigation or proceeding instituted by
any person with respect to the Purchase Agreement or the Shares or the
Underlying Shares (excluding, however, any such litigation, investigation or
proceeding which arises solely from the acts or omissions of SCF-IV or its
affiliates). Notwithstanding the foregoing, the Company will not be
responsible for or assume any of the investment risk associated with any
securities purchased under the Purchase Agreement.
THE SERIES B PREFERRED STOCK
The holders of Series B Preferred Stock are entitled to receive
cumulative cash dividends of $10.00 per annum (1% of the liquidation
preference) for each share of Series B Preferred Stock. The Series B
Preferred Stock is entitled to a liquidation preference of $1,000.00, plus
all accrued but unpaid dividends.
The Series B Preferred Stock is convertible at the holder's option
after the first to occur of any of the following (the "Initial Conversion
Date"): (i) the third anniversary of the original date of issuance of such
Shares (the "Issue Date"), (ii) the approval by the Board of Directors of the
Company of an agreement relating to a Business Combination or the
consummation of a Business Combination, (iii) a tender offer for Common Stock
is approved or recommended by the Board of Directors of the Company or (iv)
the redemption, repurchase or reacquisition by the Company of rights issued
pursuant to the Rights Plan or any waiver of the application of the Rights
Plan to any beneficial owner other than SCF-IV or its affiliates (except as
approved by SCF-IV's representative on the Board of Directors of the
Company). After the Initial Conversion Date and prior to the Mandatory
Conversion Date (defined below), the holders of Series B Preferred Stock will
be entitled to convert any and all shares of Series B Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock per share equal
to, at the option of the holder, one of, or if
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not specified by the holder, at the greater of, the following (such amount
being referred to as the "Conversion Ratio"): (a) $1,000.00 (plus any accrued
and unpaid dividends through the record date for determining shareholders
entitled to vote) divided by the conversion price of $8.00 (as adjusted from
time to time in accordance with the anti-dilution provisions in the Series B
Preferred Stock's Certificate of Designation) or (b) $1,000.00 increased at a
rate of eight percent per annum from the Issue Date, compounded quarterly,
less the amount of cash dividends actually paid through the applicable
conversion date (the "Adjusted Stated Value"), divided by the average market
price for the Common Stock during the ten trading day period prior to the
date of conversion (the "Conversion Ratio").
On April 20, 1999, the closing sales price per share of the Common
Stock on the New York Stock Exchange was $6.875.
A "Business Combination" for this purpose means (i) any
consolidation or merger of the Company with or into any person or (ii) any
Change of Control Stock Issuance (defined below), or (iii) 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. A "Change of Control Stock Issuance" means any issuance, in a single
transaction or series of related transactions, by the Company of shares of
Common Stock or Common Stock equivalents in connection with the acquisition
of assets (including cash) or securities by the Company or a subsidiary of
the Company (including by way of a merger of a subsidiary of the Company with
or into a person), except where (i) the shareholders of the Company
immediately prior to such issuance own (in substantially the same proportion
relative to each other as such shareholders owned the Common Stock or voting
stock of the Company, as the case may be, immediately prior to such
consummation) (x) more than 50% of the voting stock of the Company
immediately after such issuance, and (y) more than 50% of the outstanding
Common Stock immediately after such issuance, (ii) the members of the Board
of Directors of the Company immediately prior to entering into the agreement
relating to such issuance (or if no such agreement is entered into, then
immediately prior to the consummation of such issuance) constitute at least a
majority of the Board of Directors of the Company immediately after such
issuance, with no agreements or arrangements in place immediately after such
consummation that would result in the members of the Board of Directors of
the Company immediately prior to the entering into the agreement relating to
such issuance ceasing to constitute at least a majority of the Board of
Directors of the Company and (iii) no person or group of persons immediately
after such issuance is the beneficial owner of 40% or more of the total
outstanding voting stock of the Company or Common Stock.
On the fifth anniversary of the Issue Date (the "Mandatory
Conversion Date"), each outstanding share of Series B Preferred Stock shall,
without any action on the part of the holder, be converted automatically into
a number of fully paid and nonassessable shares of Common Stock equal to the
Conversion Ratio, provided the Shelf Registration Statement (discussed below)
contemplated by the Registration Rights Agreement is then in effect.
In the event of a conversion of Series B Preferred Stock pursuant to
which the Conversion Ratio is determined using clause (b) above, then,
provided that full cumulative dividends have been
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paid or declared and set apart for payment upon all outstanding shares of
Series B Preferred Stock for all past dividend periods, the Company may
redeem for cash up to 50% (or such greater percentage as the holders shall
agree) of the shares of Series B Preferred Stock submitted for conversion at
a redemption price per share equal to the Adjusted Stated Value (a
"Redemption Offer"), in lieu of effecting such conversion.
If the Company issues Common Stock upon conversion of the Series B
Preferred Stock pursuant to which the Conversion Ratio is calculated pursuant
to clause (b) of the definition of Conversion Ratio as set forth above, the
Company shall not be obligated to issue, in the aggregate, a number of shares
of Common Stock in excess of the NYSE Limitation upon conversion of the
Series B Preferred Stock. The "NYSE Limitation" shall mean the maximum number
of shares of Common Stock that could be issued by the Company pursuant to the
conversion of the Series B Preferred Stock and any substantially similar
series of Permitted Parity Securities issued to the holder (including any
Series C Preferred Stock) pursuant to the terms of the Purchase Agreement
without triggering a requirement to obtain the approval of the Company's
shareholders of such issuance pursuant to Section 312.03(c) of the New York
Stock Exchange Listed Company Manual as in effect on the Issue Date. To the
extent that any shares of Series B Preferred Stock are submitted for
conversion such that the NYSE Limitation would be exceeded, such excess
shares shall, in lieu of being converted into Common Stock, be redeemed in
exchange for a cash payment equal to the Adjusted Stated Value per share.
Following the expiration or earlier termination of the applicable
waiting period under the HSR Act (the "HSR Expiration Date"), holders of the
Series B Preferred Stock will be entitled to vote upon all matters upon which
the holders of Common Stock and other Permitted Parity Securities are
entitled to vote. The holders of Series B Preferred Stock, when voting
together with the Common Stock as a single class, will be entitled to cast a
number of votes equal to $1,000.00 (plus any accrued and unpaid dividends
through the record date for determining the shareholders entitled to vote)
divided by the conversion price of $8.00 (as adjusted from time to time in
accordance with the Series B Preferred Stock's Certificate of Designation).
After the HSR Expiration Date, the holders of Series B Preferred Stock,
voting together as a class with other Permitted Parity Securities, shall be
entitled to elect one member of the Board of Directors of the Company. The
consent of the holders of a majority of the Series B Preferred Stock, voting
together as a class with other Permitted Parity Securities, will be necessary
to (i) amend, alter or repeal the Series B Preferred Stock Certificate of
Designation to authorize, create or issue parity securities or senior
securities, (ii) issue any parity or senior securities or (iii) consummate
any Business Combination. Further, the consent of the holders of at least a
majority of the Series B Preferred Stock, voting separately as a single class
with one vote per share, will be necessary to amend, alter or repeal any of
the provisions of (i) the Series B Preferred Stock Certificate of Designation
or any certificate of designation relating to any parity securities, or (ii)
the Certificate of Incorporation of the Company, so as to adversely affect
any of the rights, preferences or privileges of the holders of Series B
Preferred Stock.
THE SERIES C PREFERRED STOCK
The Series C Preferred Stock, if issued, will have substantially the
same terms as the Series
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B Preferred Stock, except for the determination of the conversion price. The
conversion price for the Series C Preferred Stock will be equal to 125% of
the average market price per share of the Common Stock for the ten trading
days ending on and including the trading day prior to the date on which
SCF-IV notifies the Company that it wishes to exercise its option to purchase
some or all of the Series C Preferred Stock; provided, however, that if such
average is less than $4.80, then the initial conversion price shall be $6.00
and if such average is higher than $6.80, the initial conversion price shall
be $8.50, subject to certain anti-dilution adjustments.
THE REGISTRATION RIGHTS AGREEMENT
The Company has entered into a Registration Rights Agreement with
SCF-IV pursuant to which the holder or holders of at least 25% of the then
outstanding Registrable Securities (which subject to certain limitations
means the Underlying Shares and any other securities issued or issuable with
respect to the Underlying Shares) at any time on or after the earlier of (i)
the Initial Conversion Date or (ii) the date sixty days prior to the third
anniversary of the date of the initial issuance of the Series B Preferred
Stock, may request a registration of the Company of any or all of SCF-IV's
Registrable Securities (a "Demand Registration"); provided, however, that the
number of Registrable Securities to be included in such a Demand Registration
must be at least 1,000,000 or such lesser number of Registrable Securities as
have an aggregate market price of at least $10,000,000 as of the date of such
request. The holders of Registrable Securities will be entitled to request an
aggregate of two Demand Registrations. The Registration Rights Agreement also
entitles the holders of Registrable Securities the right to have such
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 Rights Agreement obligates the
Company to file a shelf registration statement (the "Shelf Registration
Statement") relating to all of the Registrable Securities prior to the
Mandatory Conversion Date and to cause such Shelf Registration Statement to
remain in effect for one year (subject to certain suspension rights). The
registration expenses with relation to Registrable Securities included in a
Demand Registration will be borne by the holders of Registrable Securities;
the registration expenses with relation to Registrable Securities included in
a Piggyback Registration or the Shelf Registration will be borne by the
Company.
BENEFICIAL OWNERSHIP BY SCF-IV
According to its Schedule 13D filed with the SEC on April 30, 1999,
SCF-IV may be deemed to beneficially own 5,000,000 shares of Common Stock
based on its acquisition of 40,000 shares of Series B Preferred Stock. The
5,000,000 shares of Common Stock represent shares issuable to SCF-IV upon
conversion of the Initial Shares, based on the $8.00 fixed conversion price
described above. Such 5,000,000 shares of Common Stock would constitute
approximately 9.0% of the issued and outstanding Common Stock of the Company.
This amount excludes (i) an indeterminate number of additional shares of
Common Stock that may be acquired by SCF-IV upon conversion of the Initial
Shares pursuant to market price-based conversions as described above, or in
respect of accrued and unpaid dividends and (ii) shares of Common Stock that
may be acquired upon the conversion of the
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Option Shares, since the conversion price for such shares has not been
established.
The sale of the Series B Preferred Stock and the offer to sell the
Series C Preferred Stock was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
The foregoing, to the extent it summarizes terms of agreements or
documents, is qualified in its entirety by reference to the full text of such
documents, copies of which have been filed herewith as exhibits and are
incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
4.1* Certificate of Designation related to Series B Preferred Stock
dated May 7, 1999.
4.2* Form of Certificate of Designation related to Series C
Preferred Stock.
10.1* Purchase Agreement by and between the Company and SCF-IV dated
April 21, 1999.
10.2* Registration Rights Agreement by and between the Company and
SCF-IV dated May 7, 1999.
10.3* First Amendment to Rights Agreement by and between the Company
and Harris Trust and Savings Bank as Rights Agent, dated
April 21, 1999.
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* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INPUT/OUTPUT, INC.
By: /s/ W. J. "ZEKE" ZERINGUE
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W. J. "Zeke" Zeringue
Chief Executive Officer
Date: May 7, 1999
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