SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number 0 -9268
GEOKINETICS INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-1690082
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5555 SAN FELIPE, SUITE 780 HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Small Business Issuer's telephone number, including area code (713) 850-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On March 31, 1997, there were 4,953,288 shares of Registrant's common stock
($.20 par value) outstanding.
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GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Condensed Statements of Financial Position
March 31, 1997 and December 31, 1996. . . . 3
Condensed Statements of Operations
Three Months Ended
March 31, 1997 and 1996. . . . . . . . . . . 5
Condensed Statements of Cash Flow
Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . 6
Notes to Interim Financial Statements. . . . . . . 7
Item 2. Management's Discussion and
Analysis or Plan of Operation . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
March 31 December 31
1997 1996
Unaudited Unaudited
----------- ----------
Current Assets:
Cash ................................... $ (46,536) $ 99,879
Cash-Restricted ........................ 248,337 316,991
Receivables ............................... 173,864 226,306
Prepaid expenses ....................... 56,652 59,865
Oil and gas properties held for resale 612,467 596,452
----------- ----------
Total Current Assets ............... 1,044,784 1,299,493
Property and Equipment:
Proved oil and gas Properties (net of
depletion) ........................... 756,246 776,043
(successful efforts method for oil
and gas properties)
Equipment (net of depreciation) ........ 3,838,989 3,839,658
Buildings (net of depreciation) ........ 128,106 128,106
Land ................................... 23,450 23,450
----------- ----------
Total Property and Equipment ...... 4,746,791 4,767,257
Other Assets:
Deferred tax benefit ................... 800,000 800,000
Deferred charges ....................... 75,028 76,317
Restricted investments ................. 21,700 21,700
----------- ----------
Total Other Assets ................. 896,728 898,016
----------- ----------
Total Assets ................... $ 6,688,303 $6,964,767
=========== ==========
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LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
1997 1996
Unaudited Unaudited
----------- -----------
Current Liabilities:
Accounts payable .......................... $ 775,842 $ 711,563
Accrued liabilities ....................... 406,248 387,319
Notes payable ............................. 1,384,698 1,384,698
Due to officer ............................ 106,722 106,722
Advances for lease bank ................... 406,000 406,000
Site restoration costs .................... 6,418 6,418
----------- -----------
Total Current Liabilities ............. 3,085,928 3,002,720
Long -Term Liabilities:
Long- term debt ........................... 4,778,447 4,860,124
----------- -----------
Total Liabilities ..................... 7,864,375 7,862,844
Stockholders' Equity:
Common stock (15,000,000 shares authorized;
4,953,288 shares issued and outstanding
@ 3/31/97 and 4,953,288 shares issued
and outstanding @ 12/31/96) ............. 990,657 990,657
Additional paid in capital .................. 3,924,345 3,924,345
Accumulated deficit ......................... (6,091,074) (5,813,079)
----------- -----------
Total Stockholders' Equity .............. (1,176,072) (898,077)
----------- -----------
Total Liabilities and
Stockholders' Equity .............. $ 6,688,303 $ 6,964,767
=========== ===========
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GEOKINETICS INC.
Condensed Statements of Operations
Three Months Ended
March 31
(unaudited)
----------------------------
1997 1996
----------- -----------
Revenues:
Oil and gas sales ........................ $ 125,961 $ 108,349
Operating fees ........................... 57,650 64,327
----------- -----------
Total Revenues ....................... 183,611 172,676
Expenses:
General and administrative .. $ 197,958 $ 482,712
Lease operating expenses .... 59,112 117,099
Amortization expense ........ 4,983 4,983
Depletion expense ........... 14,814 16,075
Depreciation expense ........ 669 673
----------- -----------
Total Expenses .......... 277,536 621,542
----------- -----------
Loss from operations ........ (93,925) (448,866)
Other Income (Expense):
Interest income ............ 170 2,725
Interest expense ........... (184,240) (86,439)
----------- -----------
Total Other Income ...... (184,070) (83,714)
Income (Loss) before provision
for income tax ................ $ (277,995) $ (532,580)
Provision for income tax ........ 0 0
----------- -----------
Total income tax ............ 0 0
----------- -----------
Net Income (Loss) .......... $ (277,995) $ (532,580)
=========== ===========
Earnings (Loss) per share ....... $ (0.06) $ (0.11)
=========== ===========
Weighted average common shares
and equivalents outstanding ... 4,953,288 4,953,288
=========== ===========
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GEOKINETICS INC.
Condensed Statements of Cash Flows
Three Months Ended
March 31
(unaudited)
--------------------------
1997 1996
--------- -----------
Cash flows from operating activities:
Cash received from customers ............... $ 236,052 $ 157,037
Interest and dividends received ............ 170 2,337
Cash paid to suppliers and employees ....... (193,768) (568,150)
Interest paid .............................. (176,251) (86,438)
--------- -----------
Net cash used by operating activities .. (133,797) (495,214)
--------- -----------
Cash flows from investing activities
Cash payments for purchase of property
and equipment ............................ 0 (3,785,963)
Cash proceeds from restricted cash ......... 68,654 0
--------- -----------
Net cash provided (used) by
investing activities ................. 68,654 (3,785,963)
--------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ....... (81,273) 0
Proceeds from issuance of common stock ..... 0 125,833
Proceeds from long-term debt ............... 0 5,220,000
--------- -----------
Net cash provided (used) by
financing activities ................. (81,273) 5,345,833
--------- -----------
Net increase (decrease) in cash ................ (146,415) 1,064,656
Cash, beginning of period ...................... 99,879 16,905
--------- -----------
Cash, end of period ............................ $ (46,536) $ 1,081,561
========= ===========
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS
1. METHOD OF PRESENTATION
The interim financial statements contained herein have been prepared in
accordance with the instructions to Form 10-QSB and include all adjustments
which are, in the opinion of management, necessary to provide a fair statement
of the financial position and results of operations for the interim period
reported. The Company is currently working to complete its audit for the fiscal
year ended December 31, 1996, which financial statements will be provided by
amendment to the Company's Form 10-KSB filed for the fiscal year ended December
31, 1996. It is contemplated that it may be necessary for the Company to file an
amendment to this Form 10-QSB to properly reflect changes to the financial
information provided herein by incorporating the results of the Company's audit
for the fiscal year ended December 31, 1996. A summary of accounting policies
and other significant information will be included therein.
2. LIABILITY RELATING TO COMPANY LEASE BANK
The Company's wholly-owned subsidiary, Geokinetics Production Co., Inc.
("Production") has established a revolving credit facility (the "Lease Bank")
that receives cash deposits from private individuals and entities in order to
acquire oil and gas prospects. In exchange for such deposits, Production issues
promissory notes in principal amounts equal to the deposited cash amounts. These
notes bear a floating interest rate, currently at 12.25% per annum for the
quarter ended March 31, 1997, and are guaranteed by the Company. The Company's
liabilities indicated on the interim financial statements reflect the aggregate
principal amounts of the promissory notes payable to the private individuals and
entities that have made cash deposits with the Lease Bank.
3. NOTES PAYABLE
The Company's notes payable currently valued at $1,384,698 reflect, in part, (i)
the current (i.e., within one year) maturities, totaling $331,825 of the Quantum
loan, (ii) a promissory note payable to Input/Output, Inc., dated January 8,
1996 (as amended), in the principal amount of $330,848 representing indebtedness
incurred by the Company incident to its geophysical operations, and (iii)
certain promissory notes dated October 23, 1996 and October 31, 1996 totaling an
aggregate of $697,025 from a group of private sources including an outside
director of the Company to provide short term working capital for the Company's
operations. (See "Extension of Promissory Notes" under Liquidity and Capital
Reserves in Item 2 below.)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At March 31, 1997, the Company continues to incur various costs and
expenses related to its efforts to develop and diversify its seismic contracting
operations through a series of planned acquisitions. On March 6, 1996, the
Company obtained a $5,000,000 loan from an unaffiliated lender to finance the
initial operations of Quantum Geophysical, Inc. ("Quantum"). Quantum was formed
as a wholly-owned subsidiary to perform 3D seismic data acquisition services for
the energy industry in the United States. Quantum has not yet commenced
operations. On March 5, 1997, the Company entered into a Letter of Intent to
acquire 100% of the issued and outstanding capital stock of Signature
Geophysical Services, Inc., a Houston-based provider of 3D geophysical surveys
for the oil and gas industry. The Company is currently negotiating a definitive
agreement concerning this acquisition which is expected to close in the second
quarter of fiscal 1997. The financial requirements of the oil and gas business
as well as the start-up costs incurred in diversifying the Company's business
activities continues to require the Company to utilize a substantial portion of
its current assets and incur additional indebtedness in order to acquire
additional operating assets. As a result, the Company expects that it will be
required to raise substantial additional funds during the remainder of fiscal
1997 from the sale of equity and/or debt securities in order to finance the
Company's operations and proposed acquisitions strategy.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN
The Company's financial position at March 31, 1997 substantially reflects
the proceeds received by the Company from the $5,000,000 Quantum loan and the
Company's use of such proceeds. Current assets at March 31, 1997, totaled
$1,044,784 as compared with $1,299,493 at December 31, 1996. Cash at March 31,
1997 totaled negative $46,536 as compared to $99,879 at December 31, 1996.
Restricted cash reflects the proceeds from the Quantum loan that are restricted
for use in the Company's seismic operations and is, therefore not available to
meet the Company's working capital needs.
$500,000 BRIDGE FINANCING
On April 25, 1997, the Company obtained $500,000 in short-term financing
from private investment sources. The financing bears interest at 12% per annum.
In addition, the Company issued warrants to these private investment sources to
purchase an aggregate of 1,000,000 shares of its common stock at $.75 per share.
The Company is currently negotiating with these private investment sources to
obtain additional long-term financing. The Company believes that the acquisition
of substantial long-term financing is critical to the Company's future
operations.
<PAGE>
EXTENSION OF PROMISSORY NOTES
The Company defaulted on interest payable January 31, 1997 under certain
promissory notes with an aggregate value of $697,025. Two of such promissory
notes are held by an outside director of the Company. On March, 1997, the
Company signed an agreement with each noteholder whereby (i) all defaults have
been cured and waived, (ii) the Company will pay interest to each noteholder on
a monthly basis until maturity, and (iii) the maturity date of each note has
been extended until the earlier of June 30, 1997 or such time as the Company has
completed a private placement of debt and/or equity of not less than $4,000,000.
Additionally, the Company extended until December 31, 1997 the expiration date
of certain Common Stock Purchase Warrants that were previously issued to each
noteholder in consideration of the loans evidenced by these promissory notes.
The Company defaulted on the payment of a promissory note in favor of
Input/Output, Inc. in the principal amount of $330,848 that was due on July 31,
1996. In April, 1997, the Company signed an agreement with Input/Ouput, Inc.
whereby (i) all defaults have been cured and waived, (ii) the Company will pay
interest to Input/Ouput, Inc. on a monthly basis until maturity, and (iii) the
maturity date of the note has been extended until October 1, 1997.
OIL AND GAS OPERATIONS
The Company (through its subsidiaries, HOC Operating Co., Inc. and
Geokinetics Production Co., Inc.) continues to conduct its oil and gas
operations consisting of acquiring, exploring, exploiting and developing oil and
gas properties. However, the oil and gas industry is a highly capital-intensive
business, especially in the initial stages of development of any venture. The
Company, therefore, requires capital principally to fund the following expenses:
(i) purchases of leases and other interests in oil and gas properties; (ii)
capital expenditures under agreements for geological, geophysical and seismic
costs as well as drilling and completion costs of wells; and (iii) general and
administrative expenses. The Company expects its oil and gas operations to
operate with a working capital deficiency during fiscal 1997.
RESULTS OF OPERATIONS
During the three months ended March 31, 1997, the Company incurred a loss
from operations of $277,995 compared to a loss of $532,580 during the comparable
period in 1996. This loss is primarily due to operating expenses the Company
incurred in connection with (i) the development of the Company's geophysical
data acquisition business, and (ii) expenses in oil and gas operations. General
and administrative expenses during the three-months ended March 31, 1997,
decreased to $197,957 compared with $482,712 during the comparable period in
1996. In addition, lease operating expenses from oil and gas operations during
the three months ended March 31, 1997, totaled $57,650 an approximate 11%
decrease of such expenses during the comparable period in 1996.
<PAGE>
DEFERRED TAX BENEFIT
The Company has reported an $800,000 asset relating to deferred tax
benefits as a result of the closing of the Quantum loan and the expected
commencement of Quantum's operations. This asset consists primarily of
differences in reporting Quantum's pre-operating costs and amortization and of
net operating losses. The value of such deferred tax benefits reflects the
amount that the Company believes to be realizable as a result of Quantum's
planned operations. As Quantum's operations commence and revenues are generated,
the company will review its valuation of deferred tax benefits and make
adjustments when necessary.
PLANNED PLACEMENT
The Company is continuing to negotiate a definitive agreement to acquire
100% of the capital stock of Signature Geophysical Services, Inc., a privately
owned geophysical contractor based in Houston, Texas. In order to finance the
Company's ongoing operations, including the acquisition of Signature Geophysical
Services, Inc. and certain other possible acquisitions, the Company plans to
issue and sell a minimum of $5,000,000 in equity and/or debt securities
("Placement"). There can be no assurance that the Signature Geophysical
Services, Inc. acquisition or the Placement will be completed. If the Placement
is not completed, the Company will be forced to seek other sources of financing
to continue its operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
10(a) Securities Purchase Agreement dated as of April 25, 1997 among
the Company and each of William R. Ziegler and Steven A.
Webster. Reference is made to Exhibit II to the Schedule 13D
filed with the Securities & Exchange Commission by William R.
Ziegler on May 5, 1997.
10(b) Form of 12% Senior Secured Promissory Note dated as of April
25, 1997 in the principal amount of $250,000 executed by the
Company to each of William R. Ziegler and Steven A. Webster.
Reference is made to Exhibit III to the Schedule 13D filed
with the Securities & Exchange Commission by William R.
Ziegler on May 5, 1997.
10(c) Form of Warrant to Purchase Common Stock dated as of April 25,
1997 issued by the Company to each of William R. Ziegler and
Steven A. Webster. Reference is made to Exhibit IV to the
Schedule 13D filed with the Securities & Exchange Commission
by William R. Ziegler on May 5, 1997.
10(d) Registration Rights Agreement dated as of April 25, 1997
executed by the Company and each of William R. Ziegler and
Steven A. Webster. Reference is made to Exhibit V to the
Schedule 13D filed with the Securities & Exchange Commission
by William R. Ziegler on May 5, 1997.
10(e) Consulting Agreement dated as of April 25, 1997 executed by
the Company and William R. Ziegler. Reference is made to
Exhibit VI to the Schedule 13D filed with the Securities &
Exchange Commission by William R. Ziegler on May 5, 1997.
10(f) Letter Agreement dated as of March 25, 1997 executed by the
Company and certain of the Company's lenders including William
H. Murphy(copy attached).
10(g) Common Stock Purchase Warrant dated as of March 31,
1997 issued by the Company to William H. Murphy (copy
attached).
(b) Reports on form 8-K
There were no form 8-K reports filed during the quarter ended March 31,
1997.
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEOKINETICS INC.
(Registrant)
Date: May 15, 1997 Jay D. Haber
PRESIDENT
Paul Miles
CONTROLLER
VIA MESSENGER/OVERNIGHT DELIVERY
March 26, 1997
Mr. Richard W. Harbin Mr. Michael A. Kimmel
306 Cinnamon Oak Lane 1101 Thornblade Blvd.
Houston, Texas 77079 Greer, South Carolina 29650-4513
Mrs. Elinor T. Harbin Mr. William H. Murphy
5522 Woodway 2200 Post Oak Blvd., Suite 514
Houston, Texas 77056 Houston, Texas 77056
Elinor T. Harbin Trust
c/o Mrs. Elinor T. Harbin
5522 Woodway
Houston, Texas 77056
Re: WAIVER OF DEFAULTS UNDER OUTSTANDING PROMISSORY NOTES
Gentlemen and Lady:
After my meeting with Mr. Harbin and Mr. Murphy, I believe it is in our
collective interest to resolve the pending defaults under the terms of the
promissory notes which have been issued to each of you. Resolution of the
defaults is critical to continuing the interest of William R. Ziegler in
financing the ongoing operations of Geokinetics and its subsidiaries. The
following proposal is intended to incorporate the initial proposal made by our
counsel, Mr. Spring, to Mr. Houghton, by letter dated March 20, 1997; the
suggestions made by Mr. Houghton in his letter to Mr. Spring dated March 20; and
the discussions held yesterday.
Geokinetics proposes to resolve the outstanding indebtedness due to you as
follows:
1. Geokinetics is ready to pay all accrued interest on the outstanding notes
(at the predefault rate) through March 14, 1997, immediately upon your
execution of this letter agreement.
2. Geokinetics is ready to reimburse you for the reasonable attorney's fees
incurred by you in connection with the defaults under the notes and
preparation of the foreclosure notices.
3. Geokinetics will modify your outstanding warrants to continue their
existence through December 31, 1997. Additionally, the warrants will be
amended as follows immediately below. The remaining terms of the warrants
will remain the same, including their exercise price.
The warrants issued in conjunction with the promissory notes will be
amended to provide that the following paragraph be inserted as Article
5.(a)(ii):
"(ii) if the Company shall issue more than ten percent (10%) of its
then outstanding shares of Common Stock, whether pursuant to a
merger, consolidation or an acquisition of the stock or assets of
another corporation or entity, or otherwise, then the number of
shares purchasable under this Warrant immediately prior to the issue
of such additional Common Stock shall immediately be increased so
that the number of shares purchasable under this Warrant shall bear
the same ratio to the number of shares of Common Stock outstanding
immediately after the issuance of such additional Common Stock as
the number of shares purchasable under this Warrant immediately
prior to the issuance of such additional Common Stock bears to the
number of shares of Common Stock outstanding immediately prior to
the issuance of such additional Common Stock."
4. On a monthly basis, Geokinetics would furnish each of you a monthly,
unaudited financial statement for Geokinetics and a statement of
gross and net revenues from the wells pledged to you.
5. Geokinetics will agree to modify the terms of each of the
outstanding promissory notes as follows:
a) The maturity date of each such note will be extended to June
30, 1997, or such earlier date as Geokinetics funds a private
placement of not less than $4,000,000;
b) Interest would be paid on a current basis on each of April 30,
May 31, and June 30 (or the date of funding the private
placement referred to in subparagraph (a) above, if earlier);
and
c) The notes would be modified to eliminate the thirty-day notice
required to be given by the holders in the event of a monetary
default.
6. The modified or amended terms of the instruments referred to above
would be reflected by appropriate documentation, satisfactory to you
and your counsel.
In consideration for the foregoing, each of you agrees to waive all
existing defaults under the notes AB INITIO and agree to withdraw the pending
foreclosure actions and remove the posted foreclosure notices.
Mr. Ziegler has told us that he is not interested in a thirty-day
solution, and we have made the foregoing proposal with his position in mind. The
matter must be resolved immediately. If this proposal is acceptable to you,
please indicate by each of you signing a copy of this letter in the space
provided below and returning it to me by facsimile by noon tomorrow.
Sincerely,
GEOKINETICS INC.
/s/ JAY D. HABER
Jay D. Haber
President
/s/ RICHARD W. HARBIN
Richard W. Harbin
/s/ ELINOR T. HARBIN
Elinor T. Harbin
/s/ ELINOR T. HARBIN
Elinor T. Harbin, Trustee
/s/ MICHAEL A. KIMMEL
Michael A. Kimmel
/s/ WILLIAM H. MURPHY
William H. Murphy
cc: Mr. James J. Spring
Mr. Thomas Houghton
Exhibit 10(g)
Form of Common Stock Purchase Warrant
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON ADVICE TO THE
CORPORATION BY ITS COUNSEL THAT REGISTRATION IS NOT REQUIRED FOR SUCH
SALE, ASSIGNMENT OR TRANSFER.
THE TRANSFER OF THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF IS SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED
BELOW, AND NO TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED.
GEOKINETICS INC.
COMMON STOCK PURCHASE WARRANT
No. 19-A
THIS IS TO CERTIFY THAT, for value received, William H. Murphy (the
"HOLDER"), upon due exercise of this Warrant, is entitled to purchase from
Geokinetics Inc., a Delaware corporation (the "COMPANY") on or before the close
of business on December 31, 1997 (the "EXPIRATION DATE"), all or any part of
136,385 shares of fully paid and non-assessable Common Stock, $.20 par value, of
the Company (the "COMMON STOCK"), at a purchase price per share (the "PURCHASE
PRICE") computed pursuant to Section 1 below.
This Warrant is hereinafter called the "Warrant," and the shares of Common
Stock issuable upon exercise hereof are hereinafter called the "Warrant Shares."
The term "Warrant" shall also include other warrants granted by the Company on
the date of grant of this Warrant, and the term "Warrant Shares" shall also
include shares issuable upon exercise thereof.
1. PURCHASE PRICE. The Purchase Price per share of Common Stock under this
Warrant is $1.25.
2. EXERCISE OF WARRANT. The Holder of this Warrant may, at any time on or
before the Expiration Date, exercise this Warrant in whole or in part from time
to time for the purchase of the shares of Common Stock which such Holder is then
entitled to purchase hereunder at the Purchase Price (as hereinafter defined).
In order to exercise this Warrant in whole or in part, the Holder hereof shall
deliver to the Company (a) a written notice of such Holder's election to
exercise this Warrant,
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 1
<PAGE>
which notice shall specify the number of whole shares of Common Stock to be
purchased, (b) payment of the aggregate purchase price of the shares of Common
Stock being purchased in cash, certified or cashiers check, or by the delivery
of the Note (as described below) in the manner provided in the second paragraph
of this Section 1, and (c) this Warrant; PROVIDED, HOWEVER, that, in case the
issuance of such shares shall not have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), the Company may require that such
Holder furnish to the Company a written statement that such Holder is purchasing
such shares for such Holder's own account for investment and not with a view to
the distribution thereof and that none of such shares will be offered or sold in
violation of the provisions of the Securities Act. Upon receipt of the notice of
exercise, the payment and surrender of this Warrant, the Company shall, as
promptly as practicable, execute or cause to be executed and deliver to such
Holder a certificate or certificates representing the aggregate number of shares
of Common Stock specified in such notice. The stock certificate or certificates
so delivered shall be in the such denominations as may be specified in such
notice and shall be registered in the name of such Holder or, subject to Section
4, such other name as shall be designated in such notice.
This Warrant represents an amendment and modification of that certain
Warrant No. 19 dated October 23, 1996, issued to Holder by the Company and is
being issued pursuant to the terms of that certain letter agreement dated as of
March 26, 1996, between the Company and the holders, including Holder, of
certain common stock purchase warrants and promissory notes issued by the
Company on October 23, 1996.
The Purchase Price for the aggregate number of whole shares of
Common Stock to be purchased must be paid in full to the Company in cash, or by
cashiers or certified check payable to the order of the Company. In addition,
the parties acknowledge that this Warrant is being issued to the Holder as
partial consideration for a business loan and financial advisory services
("LOAN") made by Holder to the Company, evidenced in part by one or more
promissory notes (the "NOTES") issued by the Company to Holder. Accordingly, in
the event the Holder exercises this Warrant, in whole or in part, Holder may, at
Holder's option, apply the face value of the Notes, in whole or in part, towards
the aggregate purchase price of the shares of Common Stock to be purchased. In
such event, prior to the issuance of any stock certificate or certificates in
the manner provided in this Section, Holder shall deliver to the Company, the
Notes and a duly executed release in a form acceptable to the Company, together
with the balance of the purchase price, if any.
No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant. If this Warrant shall have been exercised only in
part, the Company shall, at the time of delivery of such certificate or
certificates, deliver to such Holder a new warrant evidencing the rights of such
Holder to purchase the remaining shares of Common Stock called for by this
Warrant, which new warrant shall in all other respects be identical with this
Warrant, or, at the request of such Holder, appropriate notation may be made on
this Warrant and the same returned to such Holder. If the Notes shall have been
partially applied towards the aggregate purchase price of the shares of Common
Stock under this Warrant, Holder shall tender the original Notes to the Company.
Thereafter, the Company will issue new promissory notes to Holder containing
substantially the same terms and conditions of the Notes with a principal amount
equal to the unapplied outstanding principal balance on the Notes. Upon
acceptance by Holder of such new promissory Notes, the Company will issue a new
Warrant in the manner and on the terms specified herein.
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 2
<PAGE>
The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, execution and delivery of stock certificates
under this Section, except that, in case such stock certificates are to be
registered in a name or names other than the name of the Holder of this Warrant,
all stock transfer taxes payable upon the execution and delivery of such stock
certificate or certificates shall be paid by the Holder hereof at the time of
delivering the notice of exercise mentioned above. In such case, the Holder
hereof shall deliver with such notice of exercise evidence, satisfactory to the
Company, that such taxes have been paid.
The Company represents, warrants and agrees that all shares of
Common Stock issuable upon any exercise of this Warrant shall be validly
authorized and issued, fully paid and nonassessable.
This Warrant shall not entitle the Holder hereof to any of the
rights of a stockholder of the Company.
3. TRANSFER, DIVISION AND COMBINATION. Subject to the provisions of
Section 4, this Warrant is transferable in the same manner and with the same
effect as in the case of a negotiable instrument payable to a specified person.
The Company, however, may treat the registered Holder hereof as the owner hereof
for all purposes until this Warrant shall have been surrendered for transfer as
hereinafter provided. Upon surrender of this Warrant at the principal office of
the Company, together with a written assignment of this Warrant duly executed by
the Holder hereof or his agent or attorney, the Company shall, subject to
Section 4, execute and deliver a new warrant or warrants in the name of the
assignee or assignees and in the denominations specified in such instrument of
assignment, and this Warrant shall promptly be canceled.
This Warrant may, subject to Section 4, be divided or combined with
other warrants upon presentation hereof at the principal office of the Company,
together with a written notice specifying the names and denominations in which
new warrants are to be issued signed by the Holder or his agent or attorney.
Subject to compliance with the preceding paragraph and with Section 4, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new warrant or warrants in exchange for the warrant
or warrants to be divided or combined in accordance with such notice.
The Holder shall pay all expenses, taxes and other charges payable
in connection with the preparation execution and delivery of Warrants under this
Section 3.
4. RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES ACT; REGISTRATION
RIGHTS.
(a) This Warrant and the related Warrant Shares shall not be
transferable except upon the conditions specified in this Section, which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act or any applicable state securities laws in
respect of the transfer of such Warrant or such Warrant Shares.
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 3
<PAGE>
(b) By acceptance of this Warrant, the Holder of this Warrant
agrees, prior to any transfer or attempted transfer of such Warrant or the
related Warrant Shares, to give written notice to the Company of such Holder's
intention to effect such transfer. The notice shall describe the manner and
circumstances of the proposed transfer in detail and shall contain an
undertaking by the Holder to furnish such other information as may be required
to enable the Company's counsel to render the opinions referred to below, and
shall give the identity and address of the Holder's counsel. The Holder shall
submit a copy of the notice to the counsel designated in the notice and the
Company shall submit a copy thereof to its counsel, and the following provisions
shall apply:
(i) If, in the opinion of both the Company's and the
Holder's counsel, the proposed transfer of the Warrant or Warrant Shares may be
effected without registration of the Warrant or Warrant Shares under the
Securities Act, the Company shall, as promptly as practicable, so notify the
Holder who will then be entitled to transfer the Warrant or Warrant Shares in
accordance with the terms of the notice delivered by the Holder to the Company.
(ii) If, in the opinion of either the Company's or the
Holder's counsel, the proposed transfer of the Warrant or Warrant Shares may not
be effected without registration of the Warrant or Warrant Shares under the
Securities Act, the Company shall, as promptly as practicable, so notify the
Holder, and the Company shall not be obligated to effect the proposed transfer,
except pursuant to an offering registered under the Securities Act.
(c) If the Company shall file a registration statement under the
Securities Act (other than a registration statement on Form S-8), the Company
shall give written notice thereof to the Holder of this Warrant. Upon written
notice from the Holder, received by the Company within the time period (not
fewer than ten (10) days) specified in such notice, that the Holder desires that
the Company include the Warrant Shares in such registration statement (which
request shall specify the number of Warrant Shares which such Holder desires to
include in such registration statement), the Company shall use its best efforts
to include all or a portion of the Warrant Shares in such registration
statement, subject to such conditions as may be determined by the Company. The
Holder shall be permitted to withdraw all or any part of the Warrant Shares from
such registration statement prior to the effective date of such registration. If
such registration statement is filed in connection with an underwritten offering
on behalf of the Company (a "PRIMARY REGISTRATION"), Holder may sell, at the
sole discretion of the Company, all or part of the Warrant Shares included in
the registration statement on the same terms and conditions that apply to the
other securities being issued and sold by the Company. If such registration
statement is filed in connection with an underwritten secondary registration on
behalf of other holders of the Company's securities (a "SECONDARY
REGISTRATION"), Holder may sell, at the sole discretion of the Company, all or
part of the Warrant Shares included in the registration statement on the same
terms and conditions that apply to the securities being sold by the person or
persons who initiated the Secondary Registration. If, however, the Company
concludes before the effectiveness of such registration statement that to
include all or part of the Warrant Shares requested by the Holder in any
registration would be detrimental to any offering of securities by the Company,
the number of Warrant Shares to be included in the registration may be reduced
(or eliminated) to the extent deemed appropriate in the sole discretion of the
Company, in good faith,
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 4
<PAGE>
after using its best efforts to include all or as many as possible of the
Warrant Shares requested by the Holder.
With respect to any registration of Warrant Shares under the
Securities Act pursuant to Subsection (c) of this Section, the Company shall pay
all expenses incurred by it in effecting such registration (including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of special audits incident
to or required by any such registration); PROVIDED, HOWEVER, that the Company
shall not be required to pay (i) the fees and expenses of counsel or other
advisors for the Holder, (ii) underwriting discounts and commissions relating to
any of the Warrant Shares to be registered or (iii) premiums on insurance
required by any underwriter insofar as such premiums relate to the offering of
Warrant Shares.
(d) It shall be a condition precedent to the obligation of the
Company to take any action pursuant to Subsection (c) of this Section that the
Holder of the Warrant Shares to be registered under each such registration shall
furnish to the Company such information regarding the securities held by such
Holder and the intended method of disposition thereof as the Company shall
reasonably request in connection with the action to be taken by the Company.
In no event shall the Company be required (i) to amend any
registration statement filed pursuant to Subsection (c) of this Section after it
has become effective, or to amend or supplement any prospectus to permit the
continued disposition of the securities registered under any registration
statement, or (ii) to execute a general consent to service in process or to
qualify to do business in any state in connection with the qualification of the
Warrant Shares for sale under state securities laws.
(e) In the event of any registration of any of its securities under
the Securities Act pursuant to this Section, the Company shall indemnify and
hold harmless the seller of such securities and each other person, if any, who
controls such seller within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which such seller
or controlling person may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. In addition, the Company shall reimburse such seller and each such
controlling person for any legal or any other expenses reasonably incurred by
such seller or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. The Company shall
not, however, be obligated under this Subsection (e) to indemnify or reimburse
any person to the extent that such loss, claim, damage or liability arises out
of or is based upon an untrue statement, alleged untrue statement, omission or
alleged omission made in a registration statement, preliminary or final
prospectus, or any amendment thereof or supplement
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 5
<PAGE>
thereto in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by the seller or the controlling
person specifically for use in the preparation thereof. If the offering pursuant
to any such registration statement is made through underwriters, the Company
agrees to enter into an underwriting agreement in customary form with such
underwriters and to indemnify such underwriters and each person who controls
such underwriters within the meaning of the Securities Act. In the event of any
registration by the Company of any of its securities under the Securities Act
pursuant to this Section, each seller of the securities so registered will
indemnify and hold harmless the Company, each other person, if any, who controls
the Company within the meaning of the Securities Act and each officer and
director of the Company to the same extent that the Company agrees to indemnify
it, but only with respect to the written information relating to such seller
furnished to the Company by such seller as aforesaid.
(f) Each certificate for Warrant Shares issued upon exercise of this
Warrant shall bear a legend to the effect that the Warrant Shares may not be
transferred except upon compliance with the provisions of this Section 4, and
each certificate for Warrant Shares transferred pursuant to Subsection (b)(i) of
this Section shall also bear such a legend unless, in the opinion of counsel for
the Company, such a legend is not required.
(g) The Holder hereby covenants and agrees with the Company as
follows:
(i) The Holder acknowledges being informed that this
Warrant or the Warrant Shares must held by the Holder indefinitely unless the
Warrants or Warrant Shares are registered for sale by the Holder under the
Securities Act or an exemption from such registration is available. The Holder
understands that any routine sale of the Warrant Shares made in reliance upon
Rule 144 promulgated under the Securities Act can be made only in limited
amounts after the expiration of a period of two years from the date of receipt
of the Warrant and otherwise in accordance with the terms and conditions of Rule
144, and further understands that in the event that the exemption from
registration provided by Rule 144 is not available, compliance with some other
exemption under the Securities Act will be required in the absence of
registration.
(ii) The Company may instruct its transfer agents not to
transfer any of the Warrant Shares unless the transfer agents have been advised
by the Company or otherwise have been satisfied that the Holder has complied
with the provisions above-described.
(iii) The Holder understands that the Company has not
covenanted and is not obligated to furnish a registration statement under the
Securities Act covering the Warrants or the Warrant Shares, to file a
notification under any regulations promulgated pursuant to the Securities Act
with respect to the Warrants or the Warrant Shares, or to take any other action
that would make available an exemption from registration, except as set forth in
Section 4(b). The Company covenants and agrees that it will use its best efforts
to make publicly available, from time to time, such information as will permit
the Holder to comply with the requirements of Rule 144 relating to current
public information, that it will upon request furnish the Holder a written
certificate relating to its compliance with the reporting requirements of the
Securities Exchange Act of 1934, as amended, and
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 6
<PAGE>
the regulations and rules thereunder and that it will otherwise cooperate in
good faith with the Holder in connection with any sale under Rule 144.
5. ADJUSTMENTS TO NUMBER OF SHARES PURCHASABLE UPON EXERCISE OF WARRANTS.
(a) As used herein, "Common Stock" shall mean stock of the Company
of any class, whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets of the Company
without limit as to the amount or percentage; PROVIDED, HOWEVER, that the term
"Warrant Shares" shall mean only the Common Stock, $.20 par value, of the
Company and stock of any other class into which such presently authorized Common
Stock may hereinafter have been changed. In case by reason of the operation of
this Section 5 this Warrant shall be exercisable for any other shares of stock
or other securities or property of the Company or of any other corporation, any
reference herein to the exercise of this Warrant shall be deemed to refer to and
include the exercise of this Warrant for such other shares of stock or other
securities or property.
(b) The number of shares of Common Stock or the class of securities
purchasable upon any exercise of this Warrant, as appropriate, are subject to
adjustment as set forth in this Section 5, without any adjustment in the
Purchase Price:
(i) If the Company shall issue more than ten percent (10%) of
its then outstanding shares of Common Stock, whether pursuant to a merger,
consolidation or an acquisition of the stock or assets of another corporation or
entity, or otherwise, then the number of shares purchasable under this Warrant
immediately prior to the issue of such additional Common Stock shall immediately
be increased so that the number of shares purchasable under this Warrant shall
bear the same ratio to the number of shares of Common Stock outstanding
immediately after the issuance of such additional Common Stock as the number of
shares purchasable under this Warrant immediately prior to the issuance of such
additional Common Stock bears to the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional Common Stock.
(ii) If the number of issued and outstanding shares of Common
Stock shall increase by more than ten percent (10%) as a result of a
subdivision, combination, consolidation or reclassification of the Common Stock,
or the payment of a stock dividend, the number of shares purchasable under this
Warrant shall be proportionately increased. Conversely, if the number of issued
and outstanding shares of Common Stock of the Company are in any manner combined
into a smaller number of shares by more than ten percent (10%), the number of
shares purchasable under this Warrant shall be proportionately reduced.
(c) Except as otherwise provided herein, the effective date of any
adjustment pursuant to this Section 5 shall be the effective date of the event
that causes such adjustment. The adjustments provided for in this Section 5
shall apply to each successive event specified herein that causes an adjustment.
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 7
<PAGE>
(d) In case of any consolidation of the Company with or the merger
of the Company into another corporation or in the case of any conveyance or
transfer of all or substantially all of the properties of the Company to another
corporation entitled to acquire and operate the same, the Company or such
successor or acquiring corporation, as the case may be, shall take all steps
necessary to amend the terms and conditions of this Warrant so that the Holder
shall have the right to exercise the Warrant into the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, conveyance or transfer by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been converted immediately prior to such reclassification,
change, consolidation, merger, conveyance or transfer. Such amendment shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 5 hereof. The above
provisions of this Subsection (d) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, conveyances or transfers. Notice of the execution of an
amendment hereto pursuant to this Section 5(d) shall be given pursuant to
Section 7 below.
6. SPECIAL AGREEMENTS OF THE COMPANY.
(a) The Company covenants and agrees that it will reserve and set
apart and have at all times, a number of shares of authorized but unissued
Common Stock deliverable upon the exercise of the Warrants or any other rights
or privileges provided for therein sufficient to enable it at any time to
fulfill all of its obligations thereunder; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the exercise of the Warrants at the Purchase Price then in effect, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
As a condition precedent to the taking of any action which
would cause an adjustment reducing the Purchase Price below the then par value,
if any, per share of the Common Stock issuable upon exercise of this Warrant,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
its Common Stock at the Purchase Price upon conversion of this Warrant in
accordance with the provisions of this Section 6.
If any shares of the Company reserved or to be reserved for
the purpose of exercise of this Warrant require registration or qualification
with or approval of any governmental authority under any Federal or State law
before such shares may be validly issued upon exercise, then the Company
covenants that it will in good faith and as expeditiously as possible endeavor
to secure such registration or approval, as the case may be; PROVIDED, HOWEVER,
that this provision shall not require the Company to endeavor to secure such
registration, qualification or approval in order to enable any person to sell or
distribute this Warrant or any Common Stock received upon exercise of this
Warrant.
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 8
<PAGE>
The Company covenants that all shares of Common Stock which
may be issued upon exercise of this Warrant will be, upon issuance, fully paid
and nonassessable and, except as set forth herein, the Company will pay all
taxes, liens and charges with respect to the issuance thereof.
(b) Whenever the number of shares purchasable under this Warrant or
the Purchase Price shall be adjusted as required by the provisions of Section 5
hereof, the Company shall forthwith mail a notice setting forth the adjusted
Purchase Price and the adjusted number of Warrant Shares for which this Warrant
is exercisable to the registered Holder of this Warrant at his last address as
it shall appear on the registration books, but failure to give or receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such
adjustment in Purchase Price or number of Warrant Shares.
(c) In case the Company proposes:
(i) to pay any stock dividend upon the Common Stock, make
any distribution (other than ordinary cash dividends payable out of earnings) or
offer any subscription or other rights to the Holders of Common Stock;
(ii) to effect any capital reorganization or
reclassification of capital stock of the Company; or
(iii) to effect the consolidation, merger, sale of all or
substantially all of the assets, liquidation, dissolution or winding up of the
Company;
then the Company shall cause notice of any such intended action to be given to
the Holder of this Warrant not less than twenty (20) nor more than forty (40)
days prior to the date on which such capital reorganization, reclassification,
consolidation, merger, sale, liquidation, dissolution or winding up shall be
effected, as the case may be.
7. NOTICES. Any notice or other document required or permitted to be given
or delivered to the Holder of this Warrant and the Warrant Shares shall be sent
by certified or registered mail to the address shown on this Warrant or such
other address as shall have been furnished to the Company in writing by such
Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be sent by certified or registered mail to the
principal office of the Company at 5555 San Felipe, Suite 780, Houston, Texas
77056, attention of the President, or such other address as shall have been
furnished to the Holder of Warrants and Holders of Warrant Shares by the
Company.
8. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its President and its Secretary.
GEOKINETICS INC.,
a Delaware corporation
/s/JAY D. HABER
By: Jay D. Haber, President
ATTEST:
/s/MICHAEL HALE
Michael Hale, Secretary
DATE: March 31,1997
GEOKINETICS INC. COMMON STOCK PURCHASE WARRANT - PAGE 10
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES TO
TRANSFER THE WARRANT
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers unto ________________________ the right to purchase
__________________ shares evidenced by the within Warrant, and does hereby
irrevocably constitute and appoint __________________________________________
Attorney to transfer the said Warrant on the books of the Company, with full
power of substitution.
Signature
Print Name
Address
Dated: _______________, ______
In the presence of:
- -------------------------------
NOTICE
The signature of the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES TO
EXERCISE THE WARRANT
The undersigned hereby exercises the right to purchase _______
____________________ shares covered by this Warrant according to the conditions
thereof and herewith makes payment of the Purchase Price for such in full.
Signature
Print Name
Address
Date: ___________________, _____
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 201,801
<SECURITIES> 21,700
<RECEIVABLES> 173,864
<ALLOWANCES> 0
<INVENTORY> 612,467
<CURRENT-ASSETS> 1,044,784
<PP&E> 4,746,791
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,688,303
<CURRENT-LIABILITIES> 3,085,928
<BONDS> 0
0
0
<COMMON> 990,657
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,688,303
<SALES> 0
<TOTAL-REVENUES> 183,611
<CGS> 0
<TOTAL-COSTS> 461,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (277,995)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (277,995)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
