6. DEBT

Credit Agreement

The Company’s existing amended and restated credit agreement with Sovereign Bank (the “Credit Agreement”) includes a term loan feature and a revolving loan feature, and also allows for the issuance of letters of credit and other promissory notes. The Company can borrow up to a maximum of $20.0 million pursuant to the Credit Agreement, subject to the terms and limitations discussed below.

The Credit Agreement provides for a revolving loan feature (the “Line of Credit) that permits the Company to borrow, repay and re-borrow, from time to time until June 30, 2017, up to the lesser of (i) $20.0 million or (ii) a sum equal to (a) 80% of the Company’s eligible accounts receivable (less the outstanding principal balance of term loans and letters of credit under the Credit Agreement) and (b) the lesser of (i) 50% of the value of certain of the Company’s core equipment or (ii) $12,500,000. The Company has not utilized the Line of Credit during the current year. Because the Company’s ability to borrow funds under the Line of Credit is tied to the amount of the Company’s eligible accounts receivable and value of certain of the Company’s core equipment, if the Company’s accounts receivable decrease materially for any reason, including delays, reductions or cancellations by clients or decreased demand for our services, or the value of the Company’s pledged core equipment decreases materially, our ability to borrow to fund operations or other obligations may be limited.

The Credit Agreement also provides for a term loan feature. The Company has no outstanding notes payable under the term loan feature of the Credit Agreement, and any notes outstanding under this feature would count towards the maximum amounts we may borrow under the Credit Agreement.

The Company has three outstanding notes payable under the Credit Agreement that are not under the term loan feature (and therefore, do not count towards the maximum amounts that we may borrow) which were incurred to purchase (and/or are secured by) equipment, representing a remaining aggregate principal amount of $3,403,000 as of September 30, 2016.

The Company’s obligations under the Line of Credit are secured by a security interest in the Company’s accounts receivable and certain of the Company’s core equipment, and the term notes are also secured by certain of the Company’s core equipment. Interest on amounts outstanding under the Credit Agreement accrues at the lesser of 4.5% or the prime rate (as quoted in the Wall Street Journal), subject to an interest rate floor of 2.5%. The Credit Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and other fundamental changes. The Company is also obligated to meet certain financial covenants, including (i) a ratio of (x) total liabilities minus subordinated debt to (y) tangible net worth plus subordinated debt not to exceed 1.00:1.00, (ii) a ratio of current assets to current liabilities of at least 1.50:1.00, and (iii) required tangible net worth of not less than $150,000,000. The Company was in compliance with all covenants under the Credit Agreement, including specified ratios, as of September 30, 2016.

Sovereign Bank has also issued a letter of credit in the amount of $1,767,000 in favor of AIG Assurance Company in order to support payment of certain insurance obligations of the Company. The principal amount of this letter of credit is collateralized by certain of the Company’s core equipment and does not count as funds borrowed under our Line of Credit.

Other Indebtedness

The Company, during August 2016, paid in full one note payable to a finance company for insurance.

In addition, the Company leases vehicles and certain specialized seismic equipment under leases classified as capital leases. The Company’s condensed consolidated balance sheet as of September 30, 2016 includes capital lease obligations of $590,000.

The following tables set forth the aggregate principal amount under the Company’s outstanding notes payable and the interest rates as of September 30, 2016 and December 31, 2015:


	September 30, 2016			December 31, 2015
Notes payable to commercial banks
Aggregate principal amount outstanding	$	3,403,000		$	8,654,000
Interest rates		3.5% - 4.5	%		3.5% - 4.5	%


	September 30, 2016			December 31, 2015
Notes payable to finance company for insurance
Aggregate principal amount outstanding	$	—		$	838,000
Interest rates		—	%		2.35	%

The aggregate maturities of the notes payable at September 30, 2016 are as follows:


October 2016 - September 2017	$	3,403,000
	$	3,403,000

The following is a schedule showing future minimum lease payments under capital leases by years and the present value of the minimum lease payments as of September 30, 2016:


October 2016 - September 2017	$	525,000
October 2017 - September 2018		65,000
	$	590,000

Interest rates on these leases ranged from 3.16% to 6.88%.