SAExploration Holdings, Inc. – Files Amended Plan and Disclosure Statement Reflecting Significant Changes to Stakeholder Treatment; Updates on SEC and DOJ Investigations

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November 1, 2020 – The Debtors filed their Second Amended Plan of Reorganization and Third Amended Disclosure Statement [Docket Nos. 272 and 273, respectively] and separately filed a redline of each showing changes to the versions filed on September 15, 2020 [Docket No. 274 and 275, respectively]. 

The Debtors further requested Court approval of (i) the Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timeline culminating in a December 10th Plan confirmation hearing [Docket No. 276]. 

[Updated] On November 3rd, the Court issued an order approving the Disclosure Statement, etc. [Docket No. 292].

Earlier on November 1, 2020, the Debtors filed their Second Amended Plan of Reorganization and Third Amended Disclosure Statement [Docket Nos. 272 and 273, respectively].

The Second Amended Plan significantly modifies treatment of several key classes, notably Class 5 (“Term Loan Claims”); Class 6 (“Convertible Notes Claims”) and Class 8 (“General Unsecured Claims”). Holders of Term Loan Claims are now slated to receive 100% of the new equity to be issued under the Plan, up from 60% under the First Amended Plan. Holders of Convertible Notes Claims, who were previously slated to receive the 40% balance of the new equity, will now not receive any recovery and are deemed to reject the Plan. Holders of General Unsecured Claims, who were previously slated to share a minimal ($100k less fees for counsel) recovery, are now slated to get nothing and are also deemed to reject the Plan.

The RSA was amended on November 1, 2020 to reflect the changes to the treatment of stakeholders now reflected in the amended Plan and to amend/extend now largely missed RSA milestones. The RSA amendment (filed with Docket No. 274, see page 386) required that the Debtors file the amended plan by November 1st (now done) and further sets milestones of December 17th and 31st for Plan confirmation and effectiveness, respectively.

At filing, the RSA enjoyed stakeholder support which has now eroded. Whereas in the August 28, 2020 press release announcing the Chapter 11 filing, the Debtors advised that they had: “entered into a Restructuring Support Agreement (the ‘RSA’) with holders of 100% of the advances under its credit facility, holders of approximately 82.4% of the advances under its senior loan facility and holders of 100% of its outstanding 6.0% Senior Secured Convertible Notes due 2023 (the 'Convertible Notes')," those support levels now stand at 95% of the credit facility, approximately 77% for term loan advances and approximately 95% for the Convertible Notes. The drop from 100% to 95% support potentially significant in respect of the prepetition credit facility and Convertible Notes indenture which will have certain thresholds for amendments, "fundamental changes" etc set at 100%.

The revised Disclosure Statement also updates on SEC and DOJ investigations of certain of the Debtors' former executives; accused of fraud and now facing criminal and civil charges (and the prospect of being compelled to disgorge their "ill-gotten gains," see further below).

Plan Overview

The amended Disclosure Statement now provides: "The key elements of the Plan include: 

  • Prepetition Credit Agreement Lenders, Prepetition Term Loan Lenders and Prepetition Convertible Noteholders receive the New Equity, First Lien Exit Facility and Second Lien Exit Facility. 
    • The Prepetition Credit Agreement Lenders will exchange their debt for $20.5 million for (i) their Pro Rata share (measured by reference to the aggregate amount of Allowed Credit Agreement Claims) of participation in the Second Lien Exit Facility in an amount equal to such Allowed Credit Agreement Claim; (ii) the right to purchase pursuant to the Rights Offering up to their Pro Rata share (measured by reference to the aggregate amount of Allowed Credit Agreement Claims and the aggregate amount of Allowed Term Loan Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity; and (iii) the payment in full in Cash on the Effective Date of all Accrued Interest as of the Effective Date. 
    • The Prepetition Term Loan Lenders will exchange their debt for (i) their Pro Rata share (measured by reference to the aggregate amount of Allowed Term Loan Claims) of 100% of the New Equity under the Plan, subject to dilution by the (a) New First Lien Exit Facility Equity, (b) New Equity issued pursuant to the First Lien Exit Facility Put Option Premium, and (c) awards related to the New Equity issued under the Management Incentive Plan, and (ii) the right to purchase pursuant to the Rights Offering up to their Pro Rata share (measured by reference to the aggregate amount of Allowed Term Loan Claims and the aggregate amount of Allowed Credit Agreement Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity.
    • The Prepetition Convertible Noteholders Claims shall be discharged, canceled, and released, and extinguished as of the Effective Date and shall be of no further force or effect, and Holders of Convertible Notes Claims shall not receive any distribution on account of such Convertible Notes Claims. If approved by this Court, the Debtors’ restructuring will significantly reduce the Debtors’ debt load and associated cash interest expense, and provide them with additional liquidity to fund the Debtors’ continued operations. 
  • Releases and Exculpation. The Plan includes mutual releases in favor of (a) the Debtors and certain of their related persons, professionals, and entities, and (b) the Consenting Creditors and their related persons, professionals, and entities. The Plan will also provide for the exculpation of the Debtors and certain of their related persons, professionals, and entities."

The following is an amended summary of classes, claims, voting rights and expected recoveries showing changes in bold (defined terms are in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
  • Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%
  • Class 4 (“Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 65% – 70%. Each Holder shall receive (i) its Pro Rata share (measured by reference to the aggregate amount of Credit Agreement Claims) of participation in the Second Lien Exit Facility in an amount equal to such Credit Agreement Claim; (ii) the right to purchase pursuant to the Rights Offering up to its Pro Rata share (measured by reference to the aggregate amount of Credit Agreement Claims and aggregate amount of Term Loan Claims) of the New First Lien Exit Facility Equity; and (iii) the payment in full in Cash on the Effective Date of all Accrued Interest as of the Effective Date.
  • Class 5 (“Term Loan Claims”) is impaired and entitled to vote on the Plan. The estimated recovery is 1.6% – 3.8%. Each Holder shall receive (i) its Pro Rata share (measured by reference to the aggregate amount of Term Loan Claims) of 100% of the New Equity under the Plan, subject to dilution by the (a) New First Lien Exit Facility Equity, (b) New Equity issued pursuant to the First Lien Exit Facility Put Option Premium and (c) awards related to the New Equity issued under the Management Incentive Plan and (ii) the right to purchase pursuant to the Rights Offering up to its Pro Rata share (measured by reference to the aggregate amount of Term Loan Claims and the aggregate amount of Credit Agreement Claims) of (A) the term loans under the First Lien Exit Facility and (B) the New First Lien Exit Facility Equity.
  • Class 6 (“Convertible Notes Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
  • Class 7 (“PPP Loan Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Will be reinstated on Effective Date.
  • Class 8 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
  • Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 10 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 12 (“SAE Holdings Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

SEC Complaint

The Third Amended Disclosure Statement notes, "On October 8, 2020, the Securities and Exchange Commission (the 'SEC') filed a complaint against SAE Holdings and its former executive officers Jeffrey Hastings, Brent Whiteley, Brian Beatty and Michael Scott (the 'Former Executives') in the U.S. District Court for the Southern District of New York captioned U.S. Securities and Exchange Commission, v. SAExploration Holdings, Inc. et al. Civil Action No. 1:20-CV-8423 (the 'SEC Lawsuit') arising out of the actions of the Former Executives…Section 13(b)(5) and Rule 13b2-1 thereunder, and Messrs. Hastings, Whiteley and Beatty with also violating Exchange Act Rules 10b-5(b), 13a-14, and 13b2-2. The SEC seeks a permanent injunction against violations of the aforementioned provisions against SAE Holdings and does not seek any monetary relief. From the Former Executives, the SEC also seeks permanent injunctions as well as civil penalties, disgorgement of allegedly ill-gotten gains with prejudgment interest and officer-and-director bars against each of them. Additionally, the SEC seeks to have Messrs. Hastings, Whiteley and Beatty reimburse SAE Holdings for incentive-based compensation pursuant to Section 304(a) of the Sarbanes-Oxley Act of 2002. The Department of Justice, U.S. Attorney’s Office for the Southern District of New York (the 'DOJ') also announced criminal charges against Mr. Hastings in a parallel action. We have an agreement-in-principle to resolve the SEC Lawsuit as to SAE Holdings in which we would agree to the requested injunctions not to violate any of the above provisions."

According to an SEC press release announcing the filing of the complaint, "The Securities and Exchange Commission today charged Houston-based seismic data company, SAExploration Holdings Inc. (SAE), and four former executives for a multi-year accounting fraud that falsely inflated the company’s revenue by approximately $100 million and concealed the theft of millions of dollars by the executives. SAE issued restated financial statements in February and declared bankruptcy in August.

According to the SEC's complaint, starting in 2015, SAE, at the direction of the four executives – former CEO and Chairman Jeffrey Hastings, former CFO and General Counsel Brent Whiteley, former CEO and COO Brian Beatty and former VP of Operations Michael Scott – entered into a series of seismic data acquisition contracts totaling approximately $140 million with a purportedly unrelated Alaska-based company that was in fact controlled by Hastings and Whiteley. The complaint alleges that, of the amount SAE recorded in revenue, approximately $100 million was improperly recorded in light of the Alaskan company's inability to pay and the SAE executives' control of the company. As alleged in the complaint, to create the false impression that the Alaskan company was actually paying SAE for seismic data, Hastings, Whiteley, Beatty, and Scott misappropriated nearly $6 million from SAE and used the funds for a series of round trip transactions that caused the money to be sent back to SAE. The complaint alleges that, in addition, the executives also stole a total of approximately $6 million for themselves. The complaint further alleges that Whiteley separately misappropriated an additional $4 million through a fictitious invoice scheme.

….The SEC's complaint charges the defendants with violating the antifraud, books and records and internal accounting controls provisions of the federal securities laws. The complaint also charges SAE with violating the reporting provisions of the federal securities laws and the four executives with aiding and abetting those violations. The SEC seeks a permanent injunction against SAE and permanent injunctions, civil penalties, disgorgement of allegedly ill-gotten gains with prejudgment interest and officer-and-director bars against the four executives. Additionally, the SEC seeks to have Hastings, Whiteley, and Beatty reimburse SAE for incentive-based compensation pursuant to Section 304(a) of the Sarbanes-Oxley Act. The complaint also charges Hastings's and Whiteley's spouses, Lori Hastings and Thomas O'Neill, as relief defendants and seeks disgorgement of allegedly ill-gotten gains plus prejudgment interest."

The following Exhibits were attached to the Second Amended Disclosure Statement [Docket No. 139]:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Restructuring Support Agreement
  • Exhibit C: Liquidation Analysis
  • Exhibit D: Financial Projections
  • Exhibit E: Valuation Analysis
  • Exhibit F: Rights Offering Procedures

Amended Key Dates

  • Completion of Plan Solicitation and Mailing of Amended Combined Hearing Notice: November 6, 2020
  • Plan Supplement Filing Deadline: November 24, 2020
  • Plan Voting Deadline, Deadline to Object to final approval of Disclosure Statement and Confirmation and Release Opt Out Deadline: December 4, 2020
  • Hearing on Final Approval of Disclosure Statement and Confirmation of Plan (the “Combined Hearing”): December 10, 2020

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Faust Declaration“), Michael Faust, the Debtors’ Chairman and CEO, detailed the events leading to SAE’s Chapter 11 filing. The Faust Declaration provides: “Although the Debtors generated net income and cash from operating activities in the first six months of 2020, they have reported recurring losses from operations and have not generated cash from operating activities for the six years ended December 31, 2019, and as of June 30, 2020, the Debtors had a stockholders’ deficit of $33.2 million. The Debtors anticipate negative cash flows from operating activities to begin to occur again in the second half of 2020 and continue for the foreseeable future due to, among other things, the significant uncertainty in the outlook for oil and natural gas development as a result of the significant decline in oil prices since the beginning of 2020 due to the COVID-19 coronavirus pandemic and its impact on the worldwide economy and global demand for oil. Due to these market conditions, certain of the Debtors' scheduled or anticipated projects have been cancelled or delayed and there is no assurance as to when they may resume, if at all.”

Liquidation Analysis (see Exhibit C to Disclosure Statement [Docket No. 274] for notes)

About the Debtors

According to the Debtors: “SAE is an international oilfield services company offering a full range of vertically-integrated seismic data acquisition, data processing and interpretation, and logistical support services throughout North America, South America, Asia Pacific, Africa and the Middle East. In addition to the acquisition of 2D, 3D, time-lapse 4D and multi-component seismic data on land, in transition zones and offshore in depths reaching 3,000 meters, SAE offers a full suite of data processing and interpretation services utilizing its proprietary, patent-protected software, and also provides in-house logistical support services, such as program design, planning and permitting, camp services and infrastructure, surveying, drilling, environmental assessment and reclamation and community relations. SAE operates crews around the world, performing major projects for its blue-chip customer base, which includes major integrated oil companies, national oil companies and large independent oil and gas exploration companies. With its global headquarters in Houston, Texas, SAE supports its operations through a multi-national presence in the United States, United Kingdom, Canada, Peru, Colombia, Bolivia, Malaysia and Singapore.”

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