Exhibit 10.3
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
3226509 NOVA SCOTIA COMPANY
PROMISSORY NOTE
(Guaranteed by ION GEOPHYSICAL CORPORATION)
September 18, 2008

  US$35,000,000.00   Calgary, Alberta

     FOR VALUE RECEIVED, 3226509 NOVA SCOTIA COMPANY, a Nova Scotia unlimited
liability company, as the “Company”, promises to pay to 1236929 ALBERTA LTD., an
Alberta corporation, as “Payee”, in lawful money of the United States of
America, the principal sum of THIRTY-FIVE MILLION AND NO/100 DOLLARS
(US$35,000,000.00), together with accrued interest thereon at such rates and at
such time or times as provided for herein. This Promissory Note (the “Note”) is
issued pursuant to that certain Amended and Restated Share Purchase Agreement by
and among ION Geophysical Corporation, a Delaware corporation and the indirect
owner of all of the outstanding equity interests of the Company (“ION”), the
Payee, ARAM Systems Ltd., Canadian Seismic Rentals Inc. and the other “Sellers”
(as that term is defined therein), dated as of September 17, 2008 (as such
agreement may be further amended, restated, modified or supplemented, the “Share
Purchase Agreement”).
     Capitalized terms used herein that are not defined in this Note shall have
the respective meanings assigned to such terms in the Share Purchase Agreement.
     The following is a statement of the rights of Payee and the conditions to
which this Note is subject, and to which the Payee hereof, by the acceptance of
this Note, agrees:
     1. Definitions. As used in this Note, the following capitalized terms have
the following meanings:
          (a) “Company” means the entity executing this Note and its successors
and permitted assignees.
          (b) “Payee” shall mean the Person specified in the introductory
paragraph of this Note, or any Person who shall at such time be the permitted
assignee of this Note.

 

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          (c) “Senior Credit Facility” shall mean that certain Amended and
Restated Credit Agreement dated July 3, 2008 by and among ION, ION International
S.à r.l, the guarantors party thereto and the lenders party thereto, as amended
by that certain First Amendment thereto dated September 17, 2008, as same may be
further amended, modified or supplemented.
          (d) “Senior Indebtedness” shall mean the principal of (and premium, if
any), unpaid interest on and amounts reimbursable, fees, expenses, penalties,
costs of enforcement and other amounts due in connection with (i) the
obligations of ION and its Subsidiaries under the Senior Credit Facility,
(ii) the indebtedness of ION under its 5.50% Convertible Senior Notes due 2008,
(iii) indebtedness of ION under certain short-term bridge loans extended to ION
by Jefferies Funding LLC and its designees and assignees contemporaneously with
the issuance of this Note by ION (the “Short Term Bridge Loans”), (iv) the
liabilities of ION and its Subsidiaries with respect to capital leases and
obligations under its facility sale-leaseback facility, (v) all guaranties by
ION and its Subsidiaries of the obligations described in clauses (i) —
(iv) above, and (vi) any debentures, notes or other evidence of indebtedness
issued in exchange for, or in the refinancing of, such Senior Indebtedness, or
any indebtedness arising from the payment and satisfaction of such Senior
Indebtedness by a guarantor.
     2. Interest. Accrued interest on this Note shall be payable at such time as
the outstanding principal amount hereof shall be paid, as provided herein. The
Company promises to pay interest on the unpaid principal amount hereof for the
period from (and including) the date of the making of this Note to (but
excluding) the date that the Indebtedness under this Note shall be paid in full.
Interest on the unpaid principal amount of this Note shall accrue at the rate of
nine percent (9%) per annum (based on a year of 365 or 366 days, as the case may
be), except as provided in Sections 2(a) and 2(b) below.
          (a) In the event that the outstanding indebtedness under this Note is
not paid in full on or before the later to occur of the following:
(i) December 17, 2008 and (ii) the date that is forty-five (45) days following
the Financial Statements Delivery Date (such later date being referred to herein
as the “Interest Change Date”), then commencing on (and including) the date that
immediately follows the Interest Change Date, interest on the unpaid principal
amount of this Note shall accrue thereafter until paid at a rate equal to twelve
percent (12%) per annum; and
          (b) In the event that the outstanding indebtedness under this Note is
not paid in full on or before March 18, 2009, then commencing on (and including)
March 19, 2009, interest on the unpaid principal amount of this Note shall
accrue thereafter until paid at a rate equal to fifteen percent (15%) per annum.
     3. Payment of Interest and Principal. The indebtedness under this Note
shall be payable as set forth herein. The Company shall pay accrued interest
hereunder (a) upon the payment or prepayment of any principal amount owing under
this Note (but only on the principal amount so prepaid or paid) and (b) on the
Maturity Date (as defined below). The outstanding principal balance of this
Note, together with all accrued and unpaid interest thereon, shall be due and
payable on the date (the “Maturity Date”) that is the earlier to occur of:
(i) September 18, 2009 and (ii) the date that both (x) the Escrow Funds (in an
amount equal to

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the then-outstanding principal amount of this Note, plus the Interest Amount)
have been paid and deposited in escrow pursuant to the terms of
Section 1.5(a)(i) of the Share Purchase Agreement, and (y) the Incremental
Interest Amount has been paid in full to Payee pursuant to the terms of Section
1.5(a)(ii) of the Share Purchase Agreement. Such payment into escrow of the
Escrow Funds and payment to Payee of the Incremental Interest Amount by the
Company shall be deemed to be the payment in full of the outstanding
indebtedness evidenced by this Note, whereupon Payee shall mark this Note as
“Cancelled” and surrender this Note to the Company. This Note may be prepaid, at
any time, in whole or in part, with each such prepayment being applied first to
accrued and unpaid interest, and then to outstanding principal, upon one
(1) Business Day’s prior written notice, without premium or penalty. Whenever
any payment to be made hereunder shall be stated to be due on a day that is not
a Business Day, 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.
     4. Right of Set-Off. The Company shall have the right to withhold and set
off against any amount due hereunder, the amount of (a) any indemnification of
money Damages to which the Company (or any Buyer Indemnified Person) is entitled
under Article 8 of the Share Purchase Agreement, but only subject to and in
accordance with the terms of Section 8.11(a) thereof, and (B) any purchase price
adjustments payable by Sellers pursuant to Section 1.5 of the Share Purchase
Agreement, but only subject to and in accordance with the terms of Section
1.5(a)(v) thereof.
     5. Events of Default. The occurrence of any of the following shall
constitute an “Event of Default” under this Note:
          (a) Failure to Pay. The Company shall fail in any material respect to
pay (i) any principal payment on the due date thereof as provided herein or
(ii) any interest or other payment required under the terms of this Note on the
date due, and such payment shall not have been made within ten (10) Business
Days of the Company’s receipt of Payee’s written notice to the Company of such
failure to pay; provided, however, that any exercise by the Company in good
faith of its right of setoff pursuant to Section 4 above, whether or not
ultimately determined to be justified, shall not constitute an Event of Default
hereunder;
          (b) Breach of Covenants. The Company shall fail in any material
respect to observe or perform any covenant, obligation, condition or agreement
contained in this Note and (i) such failure shall continue for thirty (30) days,
or (ii) if such failure is not curable within such thirty (30) day period, but
is reasonably capable of cure within sixty (60) days, then either (A) such
failure shall continue for sixty (60) days or (B) the Company shall not have
commenced curative measures in a manner reasonably satisfactory to Payee within
such initial thirty (30) day period;
          (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v) become
“insolvent” (as such term may be defined or interpreted under applicable
statutory authority), (vi) commence a

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voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it or (vii) take any
action for the purpose of effecting any of the foregoing;
          (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of the Company
or of all or a substantial part of the property thereof, or an involuntary case
or other proceedings seeking liquidation, reorganization or other relief with
respect to the Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced, and an order
for relief entered or such proceeding shall not be dismissed or discharged
within sixty (60) days of such commencement; or
          (e) Senior Indebtedness. ION shall be in default under the terms of
any Senior Indebtedness where (i) such default has resulted in the acceleration
of such Senior Indebtedness prior to its stated maturity, and (ii) the principal
amount at maturity of such Senior Indebtedness under which there has been such a
default aggregates $20.0 million or more.
     6. Rights of Payee upon Default. Upon the occurrence or existence of any
Event of Default (other than any Event of Default referred to in Sections 5(c)
or 5(d) hereof), and at any time thereafter during the continuance of such Event
of Default, Payee may, by written notice to the Company, declare all outstanding
obligations payable by the Company hereunder to be immediately due and payable
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein to the contrary
notwithstanding. Upon the occurrence or existence of any Event of Default
described in Sections 5(c) or 5(d) hereof, immediately and without notice, all
outstanding obligations payable by the Company hereunder shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, Payee may exercise any other right, power or
remedy granted to it otherwise permitted to it by law, either by suit in equity
or by action at law, or both.
     7. Guarantee. The payment of principal of and interest on this Note is
guaranteed by ION pursuant to the terms of that certain Guaranty dated as of
September 18, 2008, and Payee shall be entitled to the benefits of such
Guaranty.
     8. Special Company Covenants.
          (a) The Company agrees that until all outstanding indebtedness under
this Note is paid in full, ION shall not, and shall cause its Subsidiaries not
to, incur, assume, suffer to exist or issue any indebtedness or debt security
other than (i) indebtedness created under the Senior Credit Facility, including
renewals, extensions, and refinancings thereof, in an aggregate principal amount
at any one time outstanding not to exceed US$235,000,000, (ii) this Note;
(iii) the outstanding 5.50% Convertible Senior Notes due 2008, (iv) equipment
financing facilities, capital leases and/or sale/leaseback arrangements in an
aggregate amount not to exceed US$44,000,000 at any time outstanding,
(v) indebtedness existing as of the date hereof until such

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amounts are repaid; (vi) indebtedness of ION owed to a Subsidiary and of a
Subsidiary owed to ION or any other Subsidiary, (vii) indebtedness arising under
any hedging agreement permitted under the Senior Credit Facility, (viii) letters
of credit and /or bank guarantees not issued under the Senior Credit Facility up
to an aggregate maximum amount at any time of US$6,600,000, (ix) indebtedness of
any entity that becomes a Subsidiary after the date hereof, in an aggregate
amount not to exceed US$44,000,000, provided that such indebtedness exists at
the time such entity becomes a Subsidiary and is not created in contemplation of
or in connection with such entity becoming a Subsidiary, (x) purchase money
indebtedness, (xi) unsecured indebtedness subordinate in right of payment to the
indebtedness arising under this Note, (xii) indebtedness arising on account of
deferred charges, deferred workers compensation liabilities, or deferred
employee medical liabilities, (xiii) any financed insurance premiums,
(xiv) indemnities and surety obligations arising in the ordinary course of
business, (xv) obligations consisting of trade payables (including trade notes
payable) that are not more than ninety (90) days past due, (xvi) other unsecured
indebtedness (including notes payable) that shall not exceed, at any time
outstanding, in the aggregate, US$45,000,000, (xvii) indebtedness (the
“Refinancing Debt”) incurred in the form of “Bridge Loans”, “Notes”, “Exchange
Notes” and/or “Term Loans” as such terms are defined in that certain Commitment
Letter dated August 28, 2008 by and between Jefferies Finance LLC and ION, in an
aggregate principal amount not to exceed US$175,000,000, provided that the
proceeds of the Refinancing Debt are used to repay in full (A) the outstanding
revolving credit loan indebtedness under the Senior Credit Facility originally
incurred contemporaneously with the issuance of this Note and (B) the
outstanding indebtedness under the Short Term Bridge Loans, (xviii) indebtedness
under the Short Term Bridge Loans in an aggregate principal amount outstanding
not to exceed $41,000,000 at any one time, (xix) guarantees by ION of any
indebtedness of a Subsidiary and by any Subsidiary of any indebtedness of ION or
any other Subsidiary to the extent that such indebtedness is permitted under the
foregoing clauses (i) through (xviii); provided, however, anything herein to the
contrary notwithstanding, indebtedness permitted in clauses (iv), (ix), (x),
(xi) and (xvi) shall not in the aggregate exceed $20,000,000 at any time
outstanding.
          (b) In addition, the Company agrees that at such time that ION incurs
the Refinancing Debt and applies a portion of the proceeds thereof to the
payment in full of (i) the outstanding revolving credit loan indebtedness under
the Senior Credit Facility originally incurred contemporaneously with the
issuance of this Note and (ii) the outstanding indebtedness under the Short Term
Bridge Loans, the total proceeds from such Refinancing Debt shall also include
amounts sufficient to repay in full, which at such time shall be applied to
repay in full, the then-outstanding principal of and interest on the
indebtedness under this Note.
     9. Successors and Assigns. Subject to the restrictions on transfer
described in Section 10 below, the rights and obligations of the Payee shall be
binding upon and benefit the successors, assigns and transferees of the Payee.
     10. Waiver and Amendment. Any provision of this Note may be amended, waived
or modified only upon the prior written consent of the Company and Payee.
     11. Transfer of this Note. This Note shall not be assigned or transferred
by Payee without the express prior written consent of the Company, which consent
shall not be unreasonably withheld; provided, however, that if an Event of
Default has occurred and remains

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uncured, then Payee’s rights and obligations under this Note shall be freely
assignable by Payee so long as Payee and its assignee comply with all applicable
securities laws in relation to such assignment.
     12. Notices. All notices, requests, demands, claims, instructions and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, instruction or other communication to be given hereunder by either party
to the other shall be sent by facsimile (with confirmation received of the
recipient’s number) to the number stated below or shall be delivered personally
or sent by registered or certified mail (postage prepaid and return receipt
requested) to the address stated below.
If to the Company:
c/o ION Geophysical Corporation
2105 CityWest Blvd, Suite 400
Houston, Texas 77042-2839
Attention: R. Brian Hanson
Facsimile: (281) 879-3674
Copy to (which shall not constitute notice):
ION Geophysical Corporation
2105 CityWest Blvd, Suite 400
Houston, Texas 77042-2839
Attention: David L. Roland
Facsimile: (281) 879-3600
And
Mayer Brown LLP
700 Louisiana Street, Suite 3400
Houston, Texas 77002
Attention: Marc H. Folladori
Facsimile: (713) 238-4696
If to Payee:
161 Lochend Drive
Cochrane, Alberta T4C 2H2
Attention: Donald G. Chamberlain
Facsimile: (403) 932-2438

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Copy to (which shall not constitute notice):
Borden Ladner Gervais LLP
1000 Canterra Tower
400 Third Avenue S.W.
Calgary, Alberta T2P 4H2
Attention:   David C. Whelan
Facsimile:   (403) 266-1395
or at such other facsimile number or address for a party as shall be specified
by like notice. Any notice which is delivered personally in the manner provided
herein shall be deemed to have been duly given to the party to whom it is
directed upon actual receipt by such party. Any notice which is sent by
facsimile or addressed and mailed in the manner herein provided shall be
conclusively presumed to have been duly given to the party to which it is
addressed on the date indicated on the facsimile confirmation or the postal
receipt. Any party may change the address to which notices, requests, demands,
claims and other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.
     13. Payment. All payments hereunder shall be made in lawful money of the
United States of America.
     14. Governing Law. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the Province of Alberta, without regard to the conflicts of law
provisions thereof or of any other jurisdiction.
     15. Submission to Jurisdiction. Each party to this Note irrevocably and
unconditionally attorns to the jurisdiction of the courts of the Province of
Alberta in any Action arising out of or relating to this Note and agrees that
all claims in respect of such Action may be heard and determined in any such
court. Each party also agrees not to bring any Action arising out of or relating
to the this Note in any other court. Each party waives any objection to venue in
any such Action and any defense of inconvenient forum to the maintenance of any
Action so brought and waives any bond, surety or other security that might be
required of any other party with respect thereto and waives any right to elect
trial by jury. Any party may make service on any other party by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 12. Nothing in this
Section 15 will affect the right of any party to bring any Action arising out of
or relating to this Note in any other court or to serve legal process in any
other manner permitted at Law or in equity. Each party agrees that a final
judgment in any Action so brought shall be conclusive and may be enforced by
Action on the judgment or in any other manner provided at Law or in equity.
[Signature page follows]

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     IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first written above.

                  3226509 NOVA SCOTIA COMPANY         a Nova Scotia unlimited
liability company (the         “Company”)    
 
           
 
  By:   /s/ David L. Roland    
 
     
 
   
 
  Name:   David L. Roland    
 
           
 
           
 
  Title:   Vice President    
 
           

         
 
        ACCEPTED AND AGREED TO BY:    
 
        1236929 ALBERTA LTD. (the “Payee”)    
 
       
By:
  /s/ Donald Chamberlain    
 
 
 
   
Name:
  Donald Chamberlain    
 
       
 
       
Title:
  President