Operating Lease Of Marine Seismic Equipment 7/1/96

OPERATING LEASE OF MARINE SEISMIC EQUIPMENT


This lease (the "Lease") dated as of July 1, 1996, is between SEITEL GEOPHYSICAL, INC., a Delaware corporation (the "Lessor") and HORIZON EXPLORATION LIMITED, a United Kingdom corporation (the "Lessee").


WHEREAS, the Lessor is the owner of the marine seismic equipment more fully described in the purchase orders attached hereto as Exhibit A (the "Equipment"); and


WHEREAS, the Lessee is the charterer under a time charter with The Shanghai Bureau of Marine Geological Survey, dated April 12, 1994 of the Bahamas flag seismic data recording vessel DISCOVERER, Official No. 711122 (the "DISCOVERER"); and


WHEREAS, the Lessee is the charterer under a time charter with Tidewater Marine, Inc., dated February 9, 1996 of the U.S. flag seismic data recording vessel ABSHIRE TIDE, Official No. 663944 (the "ABSHIRE TIDE"); and


WHEREAS, the Lessee is the charterer under a time charter with Morr Vessel Management Ltd., dated February 4, 1981 of the UK flag seismic data recording vessel PACIFIC HORIZON, Official No. 6413807 (the "PACIFIC HORIZON"); and


WHEREAS, the Lessee is the charterer under a time charter with Simon-Horizon Limited, dated July 15, 1994 of the Bahamas flag seismic data recording vessel SIMON LABRADOR, Official No. 715224 (the "SIMON LABRADOR," and collectively with the DISCOVERER, the ABSHIRE TIDE, and the PACIFIC HORIZON, the "Vessels"); and


WHEREAS, the Lessee wishes to lease the Equipment from the Lessor in order to improve the seismic data acquisition capabilities of the Vessels;


NOW THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:


1. LEASE. (a) Subject to the provisions hereof, the Lessor hereby leases to the Lessee and the Lessee hereby leases from the Lessor the Equipment for a fixed term of five (5) years beginning on the date hereof.


(b) The term of this Lease may be extended for successive periods of one (1) year each upon written agreement of the parties hereto no later than thirty (30) days prior to termination.


2. RENT. The Equipment shall be leased at the monthly rental of U.S.$138,000.00 for the initial term specified in Section 1(a) above ("Rent"). The Rent for any extension terms shall be agreed to by the parties hereto. The Lessee agrees to pay the Lessor, or to its order, 2 Rent beginning on July 31, 1996 and thereafter on the last day of each successive month during the term of this Lease.


3. DELIVERY AND DISCLAIMER OF WARRANTIES. (a) As of the date hereof, Lessee confirms that the Equipment is in good and satisfactory operating condition, and has accepted delivery of the Equipment in such condition. The Lessor hereby warrants that as of the date hereof it has good and marketable title to the Equipment free and clear of claims by any third party (other than the security interest granted in favor of NationsBank in connection with the acquisition of the Equipment by Lessor, referred to herein as the "Bank Lien") and that it has the right to lease the Equipment. The Lessor further warrants that during the term of this Lease, so long as the Lessee is not in default of any other provisions thereof, the Lessee shall enjoy use of the Equipment free and clear of any person claiming title to or an interest in the Equipment by reason of the acts or omissions of the Lessor.


(b) THE LESSOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED AS TO THE EQUIPMENT INCLUDING AS TO ITS VALUE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED; PROVIDED, HOWEVER, THAT DURING THE TERM OF THIS LEASE THE LESSOR HEREBY TRANSFERS AND ASSIGNS TO THE LESSEE ALL MANUFACTURERS' WARRANTIES CONCERNING THE EQUIPMENT AND WILL ASSIST THE LESSEE WITH ANY CLAIMS AGAINST THE MANUFACTURER OF THE EQUIPMENT FOR DEFECTIVE OR NON-PERFORMING PRODUCT OR DESIGN.


4. USE AND OPERATION. So long as no Event of Default shall occur and be continuing, the Lessee shall have the full use of the Equipment and may employ the Equipment in any lawful trade or commerce; provided, however, that the Lessee covenants and agrees that it will not permit the Equipment to be incorporated or installed in or attached to the Vessels or any other vessel, building or real property in such manner as to become part of or subject to any liens, security interest or encumbrances on the Vessels, any other vessel or any building or real property or so as to preclude the removal of the Equipment from the Vessels or any other location without material injury to the Equipment (it being the intention of the parties that the Equipment is, and shall remain, personal property throughout the term of this Lease); and provided, further, that the Equipment shall not be used or operated in any manner contrary to any applicable law, treaty or convention, or any rule or regulation issued thereunder. The Lessee, at its sole cost and expense, shall perform all routine maintenance and repairs on the Equipment and all major repairs or overhauls of the Equipment required to keep the Equipment in good operating condition.


5. OWNERSHIP. This agreement is a lease, and no title, equity or right in or to the Equipment shall pass to the Lessee except the rights herein expressly granted, nor shall the Lessee have any lien or charge on the Equipment.


2 3
6. ALTERATIONS. With the prior written consent of the Lessor, the Lessee shall have the right, at its sole expense, to make alterations, modifications, additions or attachments to the Equipment so long as the value or usefulness of the Equipment is not reduced thereby. Except as otherwise agreed by the Lessor, all alterations, modifications, additions and attachments of whatsoever kind or nature made to the Equipment shall immediately become the property of the Lessor and shall be subject to all terms of this Lease.


7. LOSS AND DAMAGE. (a) The Lessee shall assume and bear the risk of loss and damage to the Equipment and all component parts thereof from any cause whatsoever whether or not covered by insurance. No loss or damage to the Equipment or any component part thereof shall impair any obligations of the Lessee under this Lease which shall continue in full force and effect as hereinafter expressly provided. The Lessee shall repair or cause to be repaired all damage to the Equipment.


(b) In the event that all or part of the Equipment shall, as a result of any cause, other than an act or omission of the Lessor, become lost, stolen, destroyed or rendered irreparably unusable or damaged, as determined by the Lessee, then the Lessee shall, within ten (10) days after it shall have made such determination, fully inform the Lessor of such loss or damage and shall pay the Lessor the then casualty value of the equipment, together with all Rent and any other sums past due or becoming due to and including the date of such payment. Upon payment of said amounts this Lease shall terminate.


(c) If the Vessels or the Equipment is taken by requisition or governmental action as a result of the Lessee's operation of the Vessels or by virtue of any actions arising by, through or under the Lessee or its agents or contractors, the Lessee shall be responsible for obtaining the release of the Equipment, and Rent shall continue until the Lessor receives any insurance proceeds for such requisition.


(d) NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY CONTAINED IN THIS SECTION 7 OR ELSEWHERE IN THIS LEASE, IF THERE IS ANY PARTIAL OR TOTAL OR CONSTRUCTIVE OR COMPROMISED TOTAL LOSS OF ANY OF THE VESSELS OR THE EQUIPMENT DURING THE PERIOD OF THIS LEASE, THE LESSEE HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS THE LESSOR FOR AND AGAINST ANY INSURANCE DEDUCTIBLES AND UNINSURED LOSSES INCURRED BY THE LESSEE. ALL SUCH INSURANCE SHORTFALLS SHALL BE PAID BY LESSEE TO LESSOR ON DEMAND.


(e) If, at the time of scheduled redelivery of the Equipment under this Lease, the Equipment is damaged or otherwise in need of repair or other work to restore it to pre-hire condition as set forth herein the Lessee shall continue to pay Rent during such repairs and other work and the Equipment shall not be considered redelivered until it has been restored to said pre-hire condition.


8. INSURANCE. Commencing on the date hereof and continuing until the Lessee has redelivered possession of the Equipment to the Lessor or as otherwise herein provided, whether or not this Lease has terminated as to the Equipment, the Lessee, at its expense, agrees to obtain and maintain all risk public liability and property damage insurance for the Equipment


3 4 in an amount and with insurers satisfactory to the Lessor; provided, however, that property damage insurance on the Equipment shall always be in an amount equal to the casualty value of the Equipment as determined by the Lessor; which casualty value shall be U.S.$5,902,374.00 on the date hereof. The insurance obtained pursuant to this ...