<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
REGISTRATION NO. 333-43219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
GRANT GEOPHYSICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1382 76-0548468
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
16850 PARK ROW
HOUSTON, TEXAS 77084
(281) 398-9503
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
LARRY E. LENIG, JR. JONATHAN D. POLLOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER ELLIOTT ASSOCIATES, L.P.
GRANT GEOPHYSICAL, INC. 712 FIFTH AVE.
16850 PARK ROW NEW YORK, NEW YORK 10011
HOUSTON, TEXAS 77084 (212) 506-2999
(281) 398-9503
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
------------------------
COPY TO:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 27, 1998
SUBSCRIPTION OFFERING PROSPECTUS
3,459,414 SHARES
[GRANT GEOPHYSICAL, INC. LOGO]
COMMON STOCK
------------------------
THE RIGHT TO SUBSCRIBE FOR SHARES OF COMMON STOCK PURSUANT TO THIS SUBSCRIPTION
OFFERING
WILL EXPIRE AT 5:00 P.M., CENTRAL STANDARD TIME, ON , 1998.
------------------------
Elliott Associates, L.P. ("Elliott") and Westgate International, L.P.
("Westgate," and together with Elliott, the "Selling Stockholders") are hereby
offering for sale 3,459,414 shares of Common Stock, par value $.001 per share
(the "Common Stock"), of Grant Geophysical, Inc. (the "Company") in a
subscription offering (the "Subscription Offering") to Eligible Subscribers (as
defined herein). The Subscription Offering is being made pursuant to the Second
Amended Plan of Reorganization (the "Plan") of the Company's predecessor, GGI
Liquidating Corporation ("GGI"). The Company will not receive any proceeds from
the sale of Common Stock offered pursuant to the Subscription Offering.
PURSUANT TO THE PLAN, THE COMPANY IS REQUIRED (IN MOST CIRCUMSTANCES) TO
OFFER 4,750,000 SHARES OF COMMON STOCK TO CERTAIN HOLDERS OF CLAIMS AND OTHER
INTERESTS UNDER THE PLAN FOR AN AGGREGATE PURCHASE PRICE OF $23,750,000. THE
PLAN ALSO AUTHORIZED THE OFFERING OF SHARES OF COMMON STOCK OF A SUCCESSOR
COMPANY ON ECONOMICALLY EQUIVALENT TERMS. THE PLAN PROVIDES, HOWEVER, THAT
ELLIOTT OR ITS AFFILIATES MAY PAY THE ENTIRE PURCHASE PRICE TO GGI, REPRESENTING
THE TOTAL ANTICIPATED PROCEEDS OF SUCH OFFERING, AND THEN CONDUCT A SUBSCRIPTION
OFFERING AND RETAIN THE PROCEEDS THEREFROM, WHICH ELLIOTT HAS ELECTED TO DO. SEE
"SUBSCRIPTION PROCEDURES -- SUBSCRIPTION RIGHTS; ELIGIBLE SUBSCRIBERS." BECAUSE
ELLIOTT AND CERTAIN OF ITS AFFILIATES, AS INTEREST HOLDERS UNDER THE PLAN, WERE
ENTITLED TO PURCHASE 1,290,586 SHARES OF COMMON STOCK IN AN OFFERING BY THE
COMPANY, THE SELLING STOCKHOLDERS ARE OFFERING THE BALANCE OF SUCH SHARES OF
COMMON STOCK TO THE ELIGIBLE SUBSCRIBERS PURSUANT TO THIS SUBSCRIPTION OFFERING.
Rights to subscribe for shares of Common Stock are nontransferable and will
expire if not exercised on or prior to 5:00 p.m., Central Standard Time, on
, 1998 (such time on such date being hereinafter called the
"Expiration Date"). Subscribers must make payment for shares prior to the
Expiration Date.
Eligible Subscribers may subscribe in the Subscription Offering at $5.00 per
share (the "Subscription Purchase Price") only for such number of shares as such
Eligible Subscriber is entitled to purchase in the Subscription Offering
pursuant to the Plan. NO PERSON IS REQUIRED TO SUBSCRIBE FOR SHARES OF COMMON
STOCK IN THE SUBSCRIPTION OFFERING.
A Subscription Exercise Notice accompanies this Subscription Offering
Prospectus. Each Eligible Subscriber who wishes to subscribe for shares of
Common Stock in the Subscription Offering must complete and execute a
Subscription Exercise Notice, indicating the number of shares of Common Stock
subscribed for. The Subscription Exercise Notice delivered to each Eligible
Subscriber sets forth the maximum number of shares of Common Stock that such
Eligible Subscriber is entitled to purchase in the Subscription Offering. Each
Eligible Subscriber must remit full payment with the Subscription Exercise
Notice by certified check or bank draft drawn upon a United States bank or wire
transfer in an amount equal to the product of the Subscription Purchase Price
and the number of shares of Common Stock subscribed for. See "Subscription
Procedures -- Exercise of Rights to Purchase Common Stock."
Eligible Subscribers must deliver the Subscription Exercise Notice, together
with payment, in person, to the Subscription Agent, or by using the enclosed
return envelope. Subscription Exercise Notices, once delivered, may not be
amended, modified or rescinded, unless permitted by the Selling Stockholders in
their sole discretion, to correct immaterial irregularities. Each Eligible
Subscriber will receive as many shares of Common Stock as are permitted to be
purchased by such Eligible Subscriber as set forth in the Plan provided that
such subscriber complies with the terms and conditions set forth herein. See
"Subscription Procedures."
In connection with the Subscription Offering, the Company has not made an
application to list the Common Stock on any securities exchange or to admit the
Common Stock for trading in the National Association of Securities Dealers
Automated Quotation System. See "Risk Factors -- No Public Market."
Any questions regarding the procedures for subscribing for Common Stock may
be directed to the Subscription Agent at (312) 904-2553.
------------------------
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF
CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY ELIGIBLE SUBSCRIBERS.
------------------------
THIS SUBSCRIPTION OFFERING PROSPECTUS AND THE RELATED SUBSCRIPTION EXERCISE
NOTICE CONTAIN IMPORTANT INFORMATION. ELIGIBLE SUBSCRIBERS ARE URGED TO READ
THIS SUBSCRIPTION OFFERING PROSPECTUS AND THE RELATED SUBSCRIPTION EXERCISE
NOTICE CAREFULLY BEFORE DECIDING WHETHER TO EXERCISE THEIR RIGHTS TO SUBSCRIBE
FOR SHARES OF COMMON STOCK PURSUANT TO THE SUBSCRIPTION OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION OFFERING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
SUBSCRIPTION PROCEEDS TO SELLING
PURCHASE PRICE STOCKHOLDERS(1)
---------------------- ----------------------
<S> <C> <C>
Per Share................................................... $5.00 $5.00
Total(2).................................................... $17,297,070.00 $17,297,070.00
</TABLE>
- ---------------
(1) All expenses of issuance and distribution, estimated to be $575,000, will be
paid by the Company.
(2) Assumes all Eligible Subscribers exercise their subscription rights in full.
, 1998
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Subscription Offering
Prospectus. Unless otherwise indicated, the information set forth herein
reflects the recent acquisition (the "Acquisition") of Solid State Geophysical
Inc., together with its consolidated subsidiaries ("Solid State"), by Grant. As
used herein, the term "GGI" refers to GGI Liquidating Corporation; the term
"Grant" refers to Grant Geophysical, Inc., a newly formed corporation that
purchased substantially all of the assets and assumed certain liabilities of GGI
in connection with the consummation of the Plan, together with Grant's
consolidated subsidiaries; and the term "Company" refers to the combined
operations of Grant and Solid State and their respective consolidated
subsidiaries. Unless the context otherwise requires, the pro forma statement of
operations data contained herein gives effect to the consummation of the Plan
and certain related transactions, the Acquisition and the issuance of the
Original Notes (as defined herein) and the application of the net proceeds
therefrom as if they were completed as of January 1, 1997, and the pro forma
balance sheet data contained herein gives effect to the issuance of the Original
Notes and the application of the net proceeds therefrom as if they were
completed at December 31, 1997. All currency amounts contained herein are,
unless otherwise specifically indicated, stated in U.S. dollars and conform to
United States generally accepted accounting principles. Eligible Subscribers
should carefully consider the information set forth under "Risk Factors."
THE COMPANY
The Company is a leading provider of seismic data acquisition services in
land and transition zone environments in selected markets, including the United
States, Canada, Latin America and the Far East. Through its predecessors,
including GGI and Solid State, the Company has participated in the seismic data
acquisition services business in the United States and Latin America since the
1940s, the Far East since the 1960s and Canada since the 1970s. The Company has
conducted operations in each of these markets, as well as in the Middle East and
Africa, in the past three years. The Company's seismic data acquisition services
typically are provided on an exclusive contract basis to domestic and
international oil and gas companies and seismic data marketing companies. The
Company also owns interests in certain multi-client seismic data covering
selected areas in the United States and Canada that is marketed broadly on a
non-exclusive basis to oil and gas companies.
According to industry sources, as of March 15, 1998, the Company is the
third largest land seismic data acquisition company operating in the western
hemisphere, based on the number of seismic data acquisition crews in operation.
As of March 15, 1998, the Company was operating or mobilizing 22 seismic data
acquisition crews, consisting of 18 land and four transition zone crews,
utilizing approximately 30,000 seismic recording channels. All of the Company's
seismic data acquisition crews are capable of performing three dimensional
("3D") and two dimensional ("2D") seismic surveys in land environments, and four
crews are equipped to perform surveys in transition zone environments.
Transition zone environments include swamps, marshes and shallow water areas
that require specialized equipment and must be surveyed with minimal disruption
to the natural environment. Three transition zone crews employ remote digital
seismic data recording systems, which are used primarily to perform surveys in
certain logistically challenging areas, such as highly populated regions where
cable-based recording systems are impractical. The Company has over 20 years of
experience operating in transition zone environments.
As of March 15, 1998, the Company was operating or mobilizing a total of
six crews in the United States, consisting of four land and two transition zone
crews, six land crews in Latin America, six land crews in Canada and four crews
in the Far East, consisting of two land and two transition zone crews. For the
twelve months ended December 31, 1997, on a pro forma basis, the Company's total
revenues were $173.9 million, with 40.2% from Latin America, 35.4% from the
United States, 11.3% from Canada, 5.3% from Africa and the Middle East and 7.8%
from the Far East. As of December 31, 1997, the Company estimates that its total
backlog was approximately $144.4 million, with approximately 92% of such amount
expected to be completed in 1998. The Company committed approximately $12
million of capital expenditures during the fourth quarter of 1997 and has
budgeted approximately $21 million of capital expenditures in 1998 to upgrade
and expand its seismic data acquisition equipment.
3
<PAGE> 5
THE REORGANIZATION AND THE ACQUISITION
In December 1996, GGI filed a voluntary petition for relief under chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"). In connection
with its reorganization, GGI replaced its senior management, disposed of
unprofitable operations and developed the Plan, which was consummated on
September 30, 1997 (the "Effective Date") with Grant's purchase of substantially
all of the assets and assumption of certain liabilities of GGI.
On December 23, 1997, Grant completed the acquisition of Solid State, a
leading provider of land seismic data acquisition services in Canada. The
Company believes that the combined operations of Grant and Solid State will
expand its market presence and enhance the Company's ability to compete more
effectively for projects in its selected markets. The Company also believes that
the Acquisition will increase management and operating depth, mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing overall crew utilization and reducing capital
expenditures. As of December 31, 1997, Solid State was operating or mobilizing
nine land seismic data acquisition crews, consisting of six crews in Canada, one
crew in the United States and two crews in Bolivia, utilizing approximately
9,200 seismic recording channels.
THE OFFERING OF SENIOR NOTES
On February 18, 1998, the Company issued $100 million aggregate principal
amount of its 9 3/4% Senior Notes due 2008, Series A (the "Original Notes"),
which are guaranteed by certain subsidiaries of the Company (the "Subsidiary
Guarantors"). The Original Notes were issued pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
of 1933 (the "Securities Act") and applicable state securities laws. In
connection with the issuance of the Original Notes, the Company and the
Subsidiary Guarantors entered into a registration rights agreement providing
that, among other things, the Company and the Subsidiary Guarantors would offer
to exchange up to $100 million aggregate principal amount of its 9 3/4% Senior
Notes due 2008, Series B (the "Exchange Notes," and together with the Original
Notes, the "Notes"), which are to be registered under the Securities Act, for up
to $100 million aggregate principal amount of the outstanding Original Notes
(the "Exchange Offer"). On March 27, 1998, the Company and the Subsidiary
Guarantors, pursuant to the requirements of such registration rights agreement,
filed with the Commission a Registration Statement on Form S-4 in connection
with the Exchange Offer (the "Exchange Offer Registration Statement"). As of the
date of this Subscription Offering Prospectus, the Exchange Offer Registration
Statement has not been declared effective by the Commission. The net proceeds
from the sale of the Original Notes were used to retire substantially all of the
Company's then outstanding indebtedness and purchase certain leased equipment,
and the remaining net proceeds are expected to be used by the Company to fund a
portion of its capital expenditure program, multi-client acquisition activities
and for working capital and other general corporate purposes.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s, and the application of seismic technology frequently has led to
significant discoveries of new oil and gas reservoirs. Seismology encompasses
the generation and recording of reflected or refracted seismic energy that, when
computer processed, produces 3D images or 2D cross sections of the earth's
subsurface structures. The computer processed seismic data is used by
geoscientists to identify geological structures favorable for the accumulation
of oil and gas and to evaluate the potential for commercial production of oil
and gas. More recently, seismic data has been used to monitor and optimize the
production of existing oil and gas reservoirs.
Technical advances in the seismic services industry have increased the
probability of oil and gas exploration success and improved the delineation of
subsurface geological structures, which have in turn lowered overall exploration
and development costs and increased worldwide demand for seismic services. In
addition, the industry is experiencing growing demand for non-exclusive
multi-client seismic data due to the high cost and risk of drilling exploration
wells and the relatively high cost of acquiring and processing 3D seismic data.
Multi-client
4
<PAGE> 6
data allows numerous oil and gas companies to purchase the same seismic data,
thereby expanding the overall market for such data while lowering the price
charged to each customer.
THE SUBSCRIPTION OFFERING
Common Stock Offered by the
Selling Stockholders..... 3,459,414 shares
Common Stock Outstanding
after the Subscription
Offering................. 14,390,055 shares
Use of Proceeds............ The Company will not receive any proceeds from the
sale of the Common Stock offered hereby.
SUBSCRIPTION PROCEDURES
The Subscription Offering is being effected pursuant to the Plan, which was
confirmed by the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on September 15, 1997 and became effective on the
Effective Date.
SUBSCRIPTION RIGHTS; ELIGIBLE SUBSCRIBERS
This Subscription Offering Prospectus and a Subscription Exercise Notice,
which contain information concerning the Subscription Offering, are being mailed
to each Eligible Subscriber.
The Plan provides that only Eligible Subscribers have the right to
participate in the Subscription Offering. Eligible Subscribers' rights to
purchase Common Stock are nontransferable, will not be evidenced by
certificates, and will expire on the Expiration Date. NO PERSON IS REQUIRED TO
PURCHASE ANY SHARES OF COMMON STOCK IN THE SUBSCRIPTION OFFERING.
EXERCISE OF RIGHTS TO PURCHASE COMMON STOCK
Each Eligible Subscriber who wishes to exercise rights to purchase shares
of Common Stock must properly complete, duly execute and deliver the
accompanying Subscription Exercise Notice indicating the number of shares of
Common Stock subscribed for, together with a certified check or bank draft drawn
upon a United States bank or wire transfer in an amount equal to the product of
the Subscription Purchase Price and the number of shares sought to be
subscribed. The Subscription Exercise Notice delivered to each Eligible
Subscriber sets forth the maximum number of shares of Common Stock that such
Eligible Subscriber is entitled to purchase in the Subscription Offering. The
Subscription Exercise Notice, together with full payment for shares subscribed
for, may be delivered, in person, to the Subscription Agent or be mailed in the
enclosed return envelope. Unless withdrawn, Subscription Exercise Notices, once
delivered, may not be amended or modified, unless permitted by the Selling
Stockholders in their sole discretion, to correct immaterial irregularities.
WHETHER HAND DELIVERED OR MAILED, SUBSCRIPTION EXERCISE NOTICES AND PAYMENT
MUST BE RECEIVED BY 5:00 P.M. CENTRAL STANDARD TIME ON , 1998.
Failure of such receipt by the expiration time for any reason, will be deemed a
waiver and release by the Eligible Subscriber of any rights the Eligible
Subscriber may have to purchase shares of Common Stock in the Subscription
Offering. Subscription Exercise Notices may be withdrawn prior to the Expiration
Date. To withdraw a Subscription Exercise Notice, a written notice of withdrawal
must be received by the Subscription Agent prior to the Expiration Date. Any
notice of withdrawal must (i) specify the name of the Eligible Subscriber, (ii)
indicate the number of shares of Common Stock subscribed for and (iii) be signed
by the Eligible Subscriber in the same manner as the original signature on the
Subscription Exercise Notice. All determinations as to proper completion, due
execution, timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted exercise of rights to purchase shares of Common
Stock shall be made by the Selling Stockholders, whose determination shall be
final and binding. The Selling Stockholders, in their sole discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as they may determine or reject the purported exercise of any
rights
5
<PAGE> 7
to purchase shares of Common Stock subject to any such defect or irregularity.
Deliveries required to be received by the Subscription Agent in connection with
a purported exercise of rights to purchase shares of Common Stock will not be
deemed to have been so received or accepted until actual receipt thereof by the
Subscription Agent shall have occurred and any defects or irregularities shall
have been waived or cured within such time as the Selling Stockholders may
determine in their sole discretion. Neither the Selling Stockholders nor the
Subscription Agent will have any obligation to give notice to any Eligible
Subscriber of any defect or irregularity in connection with any purported
exercise thereof or incur any liability as a result of any failure to give such
notice.
Questions regarding subscription procedures may be directed to the
Subscription Agent at (312) 904-2553.
SUBSCRIPTION AGENT
The Subscription Agent with respect to the Subscription Offering is LaSalle
National Bank (the "Subscription Agent"). The address and telephone number of
the Subscription Agent are set forth in "Subscription Procedures -- Subscription
Agent" and in the Subscription Exercise Notice.
PURCHASE PRICE
The Subscription Purchase Price will be $5.00 per share.
THE SUBSCRIPTION PURCHASE PRICE IS NOT INTENDED, AND MUST NOT BE CONSTRUED,
AS AN APPRAISAL OR RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
PURCHASING SHARES OF COMMON STOCK. THE SUBSCRIPTION PURCHASE PRICE WAS
DETERMINED IN CONNECTION WITH THE CONFIRMATION OF THE PLAN BY THE BANKRUPTCY
COURT AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE CURRENT LIQUIDATION
VALUE OF THE COMPANY OR THE PRICE AT WHICH THE COMMON STOCK WILL TRADE AFTER
COMPLETION OF THE SUBSCRIPTION OFFERING, AND THE SUBSCRIPTION PURCHASE PRICE IS
NOT INTENDED, AND MUST NOT BE CONSTRUED, TO EXPRESS AN OPINION AS TO THE VALUE
OF COMMON STOCK OFFERED HEREBY.
SETTLEMENT FOR SHARES; DELIVERY OF CERTIFICATES
As promptly as practicable following the Expiration Date, the Subscription
Agent will mail, or cause to be mailed, to each Eligible Subscriber that has
sought to exercise such rights to purchase shares of Common Stock, a written
statement specifying the number of shares of Common Stock validly and
effectively subscribed for, together with a stock certificate representing the
shares of Common Stock so purchased.
RISK FACTORS
An investment in the Common Stock involves certain risks that Eligible
Subscribers should carefully evaluate prior to exercising their subscription
rights. See "Risk Factors."
6
<PAGE> 8
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summary statement of operations data for GGI is presented below for
each of the years in the three-year period ended December 31, 1996 and for the
nine months ended September 30, 1997 and is derived from the consolidated
financial statements of GGI. The summary statement of operations data for the
Company is presented below for the three months ended December 31, 1997 and is
derived from the consolidated financial statements of the Company. The summary
balance sheet data of the Company at December 31, 1997 is derived from the
consolidated financial statements of the Company.
The summary unaudited pro forma statement of operations data for the
Company for the year ended December 31, 1997 gives effect to the consummation of
the Plan and certain related transactions, the Acquisition and issuance of the
Original Notes and the application of the net proceeds therefrom as if they were
completed as of January 1, 1997. The summary unaudited pro forma balance sheet
data at December 31, 1997 gives effect to the issuance of the Original Notes and
the application of the net proceeds therefrom as if they were completed at
December 31, 1997. The summary unaudited pro forma financial data does not
purport to represent what the financial position or results of operations of the
Company would actually have been if the transactions and events assumed therein
in fact occurred on the dates indicated or to project the financial position or
results of operations of the Company for any future date or period.
The summary historical and unaudited pro forma financial data should be
read in conjunction with the unaudited pro forma financial information and the
notes thereto, together with the selected consolidated historical financial
data, and the consolidated financial statements of the Company, GGI and Solid
State and the notes thereto, included elsewhere in this Subscription Offering
Prospectus.
<TABLE>
<CAPTION>
GGI THE COMPANY
--------------------------------------------- ---------------------------
NINE MONTHS THREE MONTHS PRO FORMA
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
----------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1996(1) 1997 1997 1997(2)
-------- ------- -------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 73,691 $91,996 $105,523 $ 92,705 $ 37,868 $173,865
Expenses:
Operating expenses.............. 53,132 69,046 136,326 71,006 28,431 135,869
Selling, general and
administrative expenses....... 7,810 8,527 17,865 6,473 3,507 12,379
Depreciation and amortization... 12,079 9,424 11,500 8,432 4,594 19,582
Asset impairment................ 9,911 -- 5,802 -- 6,369 6,369
-------- ------- -------- -------- -------- --------
Total expenses................ 82,932 86,997 171,493 85,911 42,901 174,199
-------- ------- -------- -------- -------- --------
Operating income (loss)....... (9,241) 4,999 (65,970) 6,794 (5,033) (334)
Other income (deductions):
Interest expense, net........... (3,384) (3,522) (7,522) (3,758) (1,362) (10,887)
Reorganization costs............ -- -- (412) (3,543) -- --
Other........................... 1,380 2,076 (502) 2,266 (1,262) 815
-------- ------- -------- -------- -------- --------
Total other deductions........ (2,004) (1,446) (8,436) (5,035) (2,624) (10,072)
-------- ------- -------- -------- -------- --------
Income (loss) before income
taxes....................... (11,245) 3,553 (74,406) 1,759 (7,657) (10,406)
Income tax expense................ 193 391 1,621 2,184 856 2,557
-------- ------- -------- -------- -------- --------
Income (loss) before minority
interest........................ (11,438) 3,162 (76,027) (425) (8,513) (12,963)
Minority interest................. -- -- -- -- 2,847 --
-------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations...................... $(11,438) $ 3,162 $(76,027) $ (425) $ (5,666) $(12,963)
======== ======= ======== ======== ======== ========
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
GGI THE COMPANY
--------------------------------------------- ---------------------------
NINE MONTHS THREE MONTHS PRO FORMA
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
----------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1996(1) 1997 1997 1997(2)
-------- ------- -------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures.............. $ 8,463 $14,921 $ 25,799 $ 4,154 $ 12,266 $ 27,081
OPERATING DATA (AT PERIOD END):
Seismic crews in operation........ 15 14 14 13 20 20
Seismic recording channels
owned........................... 12,520 12,320 17,430 17,870 26,762 26,762
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
AT DECEMBER 31, 1997
-----------------------
ACTUAL PRO FORMA
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................................................. $ 7,414 $ 29,880
Working capital................................................................... 16,190 38,656
Total assets...................................................................... 155,704 182,170
Long-term debt, including current portion......................................... 76,353 102,819
Stockholders' equity.............................................................. 41,992 41,992
</TABLE>
- ---------------
(1) Operating expenses for the year ended December 31, 1996 include costs of
operations in excess of planned costs in Peru ($23.0 million) and Nigeria
($2.5 million). The Company is no longer operating in Peru and Nigeria. Also
included in operating expenses are costs incurred in the United States
relating to the unsuccessful deployment of a proprietary data recording
system ($12.1 million) and a write-down of certain deferred costs, prepaid
expenses and other assets ($5.6 million). Selling, general and
administrative expenses for the year ended December 31, 1996 include a
reserve for doubtful accounts of $5.5 million, severance costs of $423,000,
the write-off of deferred costs of a proprietary data recording system of
$823,000 and legal fees of $367,000.
(2) Solid State's fiscal year end is August 31. For pro forma purposes, the
statement of operations data for Solid State has been adjusted to reflect
the periods December 1, 1996 through August 31, 1997 to combine with GGI's
nine months ended September 30, 1997 and the Company's three month period
ended December 31, 1997. For pro forma purposes, the statement of operations
data for Solid State has been translated from Canadian dollars into U.S.
dollars using the average exchange rates prevailing during the respective
periods. The statement of operations data for the three months ended
December 31, 1997 includes the combined operations of Solid State and Grant.
See Note 1 to the consolidated financial statements of the Company.
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RISK FACTORS
Eligible Subscribers should consider carefully the following factors, as
well as the other information provided elsewhere in this Subscription Offering
Prospectus before deciding whether to subscribe for shares of Common Stock. See
"Disclosure Regarding Forward-Looking Statements."
RECENT INSOLVENCY AND REORGANIZATION OF GGI; RECENT OPERATING LOSSES OF SOLID
STATE
GGI sought protection under chapter 11 of the Bankruptcy Code in December
1996. In the bankruptcy, previous investors in, and unsecured lenders to, GGI
incurred substantial losses. From 1992 to 1994 and in 1996, GGI had significant
operating losses, including a net loss of approximately $76.0 million in 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of GGI and the notes
thereto, included elsewhere in this Subscription Offering Prospectus.
In connection with GGI's reorganization, Grant was formed in September 1997
to acquire certain assets and assume certain liabilities of GGI. Former senior
management of GGI has been replaced since the commencement of its reorganization
in December 1996, and the Company's current senior management has concentrated
on formulating and refining the Company's business strategy. Since the
consummation of the Plan, the Company has no meaningful financial performance
history.
Solid State reported revenues of Cdn $47.7 million and Cdn $68.7 million
for its fiscal years ended August 31, 1996 and 1997, respectively, and a net
loss of Cdn $12.1 million and Cdn $5.5 million for fiscal years 1996 and 1997,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Solid State Acquisition." Management of
Solid State has disclosed in a note to its fiscal 1997 financial statements the
existence of material uncertainties that may affect Solid State's ability to
continue as a going concern. The auditors of Solid State, Price Waterhouse,
chartered accountants, have noted this significant doubt on Solid State's
ability to continue as a going concern in comments appended to their auditors'
report dated October 31, 1997. There can be no assurance that the financial
performance of Solid State will improve in future periods. If Solid State's
financial performance does not so improve, the Company's results of operations
and financial condition would be adversely affected.
SUBSTANTIAL LEVERAGE
At December 31, 1997, on a pro forma basis after giving effect to the
issuance of the Original Notes and the application of the net proceeds
therefrom, the Company would have had total consolidated debt of approximately
$102.8 million and a ratio of total consolidated debt to total capitalization of
approximately 71.0%. The Company has $5 million of borrowing capacity under the
Loan and Security Agreement, dated as of October 1, 1997, by and between Elliott
and Grant, as amended (the "Credit Facility"). The degree to which the Company
is leveraged could have several important consequences to holders of Common
Stock, including, without limitation, (i) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest and
principal on its indebtedness, (ii) the Company's leverage position will
substantially increase its vulnerability to economic downturns and may limit its
ability to withstand competitive pressures and (iii) the Company's ability to
obtain additional financing, including any future credit facilities, for working
capital, capital expenditures, acquisitions and other general corporate purposes
may be impaired.
Based on current operations, the Company expects that it will be able to
service the interest and principal obligations on its outstanding indebtedness
as well as fund its working capital needs, capital expenditures and other
operating expenses out of cash flow generated from operations, borrowings under
the Credit Facility and the net proceeds of the issuance of the Original Notes.
There can be no assurance, however, that the Company's business will continue to
generate cash flow at levels sufficient to meet these requirements. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its debt and capital expenditures, it may be required to sell assets,
reduce capital expenditures, refinance all or a portion of its existing debt
(including the Notes) or obtain additional financing. There can be no assurance
that such measures would be possible. The Company's ability to meet its debt
service obligations will be dependent upon its future performance, which will be
subject to future economic, financial and business conditions and other factors,
many of which are beyond the Company's control.
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RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the indenture governing the Notes (the
"Indenture") and the Credit Facility impose, and the terms and conditions of
future debt instruments of the Company may impose, restrictions on the Company
that affect, among other things, its ability to incur debt, pay dividends or
make distributions, make acquisitions, create liens, sell assets and make
certain investments.
The ability of the Company to comply with the terms of the Indenture, the
Credit Facility and any future debt instruments can be affected by events beyond
its control, including events and changes in the competitive environment, which
could impair the Company's operating performance. There can be no assurance that
the Company will be able to comply with the terms of the Indenture, the Credit
Facility and any future debt instruments. A breach of any of these terms or the
failure to fulfill the obligations thereunder beyond any applicable grace
periods could result in an event of default pursuant to which holders of such
indebtedness could declare all amounts outstanding under such debt instruments
to be due and payable immediately. Any such declaration under a debt instrument
is likely to result in an event of default under the other debt instruments of
the Company, if any, then outstanding. There can be no assurance that the assets
or cash flows of the Company would be sufficient to repay in full borrowings
under its outstanding debt instruments, whether upon maturity or in the event of
acceleration upon an event of default, or that the Company would be able to
refinance or restructure the payments of such indebtedness. The Company's
ability to meet its debt obligations will depend upon its ability to execute its
business strategy, which includes successfully integrating the business of Solid
State into its existing operations and other factors, many of which are not
within the Company's control.
DEPENDENCE UPON ENERGY INDUSTRY SPENDING
Demand for the Company's services depends upon the level of expenditures by
oil and gas companies for exploration, production and development activities.
These activities depend in part on current and expected oil and gas prices, the
cost of exploring for, producing and delivering oil and gas, the sale and
expiration dates of leases and concessions for oil and gas exploration in the
United States, Canada and other countries, the discovery rate of new oil and gas
reservoirs, domestic and international political, regulatory and economic
conditions and the ability of oil and gas companies to obtain capital. In
addition, a decrease in oil and gas expenditures could result from such factors
as unfavorable tax and other legislation or uncertainty concerning national
energy policies.
Since reaching a high in 1981, the number of companies providing seismic
data acquisition services has declined dramatically. Beginning in 1982, a sharp
decline in oil and gas prices led to a worldwide reduction in oil and gas
exploration activities. This decline resulted in a significant reduction in the
overall demand for seismic data acquisition services. Notwithstanding recent
increases in oil and gas exploration activity, no assurance can be given that
current levels of exploration activity will be maintained or that demand for the
Company's services will reflect the level of such activity. Decreases in
exploration activity would have a significant adverse effect upon the demand for
the Company's services and the Company's results of operations.
CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE
Seismic data acquisition is a capital intensive business. The development
of seismic data acquisition equipment has been characterized by rapid
technological advancements in recent years, and the Company expects this trend
to continue. There can be no assurance that manufacturers of seismic data
acquisition equipment will not develop new systems that have competitive
advantages over systems now in use that either render the Company's current
equipment obsolete or require the Company to make significant capital
expenditures to maintain its competitive position. The Company committed
approximately $12 million of capital expenditures during the fourth quarter of
1997 and has budgeted approximately $21 million of capital expenditures in 1998
to upgrade and expand its seismic data acquisition equipment. The Company
intends to continually maintain and periodically upgrade its seismic data
acquisition equipment as often as necessary to maintain its competitive
position. Such upgrades may require large expenditures of capital in addition to
the Company's other capital expenditures. For 1998, the Company has also
budgeted approximately $16 million of expenditures, before customer commitments,
for multi-client data acquisition activities. There can be no assurance that the
Company
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will have the necessary capital or that financing will be available on favorable
terms for any such future expenditures. The inability of the Company to access
the capital necessary to maintain and upgrade its seismic data acquisition
equipment and perform such multi-client data acquisition activities may have a
material adverse effect upon the Company's competitive position and the demand
for its services.
OPERATING RISKS; INSURANCE; HIGH FIXED COSTS
The Company's seismic data acquisition activities involve operating under
extreme weather and other hazardous conditions. Accordingly, these operations
are subject to risks of loss to property and injury to personnel from fires,
adverse weather and accidental explosions. Although the Company carries
insurance against these risks in amounts that it considers adequate, the Company
may not be able to obtain insurance against certain risks or for certain
equipment located from time to time in certain areas of the world.
Because of the high fixed costs involved in the major components of the
Company's business, downtime due to reduced demand, weather interruptions,
equipment failures, hazardous conditions or other causes can result in
significant operating losses. In recent years, GGI's contracts for seismic data
acquisition projects were predominately on a turnkey or on a combination
turnkey/term basis. Under the turnkey method, payments for data acquisition
projects are based upon the amount of data collected. Consequently, the Company
bears substantially all of the risk of business interruption caused by inclement
weather and other hazards. Under the term method, the customer pays a periodic
fee during the term of the project, thereby shifting certain risks of business
interruption to the customer. The Company also contracts for its services on a
cost-plus basis, which provides that the costs of a project, plus a percentage
fee, are borne by the customer. The Company plans to attempt to increase the
percentage of its term and cost-plus basis contracts in order to reduce the
financial risks associated with these operations; however, there can be no
assurance that such contracts will be widely acceptable to the Company's
customers or that competitors will not offer their services on a turnkey basis.
COMPETITION FOR SEISMIC BUSINESS
The land and transition zone seismic data acquisition business is highly
competitive. Competitive factors include price, crew availability, prior
performance, technology, safety, quality, dependability and the contractor's
expertise in the particular area where the survey is to be conducted. Certain of
the Company's major competitors operate more seismic data acquisition crews than
the Company, provide integrated seismic data acquisition, processing and
interpretation services, have substantially greater financial resources than the
Company, are subsidiaries or divisions of major industrial enterprises having
far greater resources than the Company or have more extensive relationships with
major domestic and international oil and gas companies. Such resources and
relationships may enable these competitors to maintain technological and certain
other advantages that may provide them with an advantage over the Company in
bidding for contracts.
RELIANCE ON SIGNIFICANT CUSTOMERS AND PROJECTS
As is the case for many service companies in the oil and gas industry, a
relatively small number of customers or a limited number of significant projects
may account for a large percentage of the Company's net sales in any given year.
Moreover, such customers and projects may, and often do, vary from year to year.
During 1996, GGI's five largest customers accounted for approximately 42.3% of
its net sales. GGI, during 1996, had revenues from a U.S. based international
oil company of approximately $14.8 million (14%). During 1997, the five largest
customers of the Company, on a pro forma basis, accounted for approximately
31.9% of the Company's net sales. During 1997, on a pro forma basis, no customer
accounted for 10% or more of the Company's combined revenues. Although GGI and
Solid State have had long-term relationships with numerous customers, the
continuation of these relationships is primarily dependent on the customers'
needs for the Company's services and the customers' ongoing satisfaction with
the price, quality, dependability and availability of the Company's services.
The loss or inability of the Company to obtain such significant projects in the
future could have a material impact on the operating results of the Company.
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RISKS INHERENT IN INTERNATIONAL OPERATIONS
Approximately 60.1% and 55.5% of GGI's revenues in 1996 and the nine months
ended September 30, 1997, respectively, and 55.3% of the Company's revenues in
the three months ended December 31, 1997 were derived from operations outside
the United States and Canada. On a pro forma basis, the Company's revenues
derived from operations outside the United States and Canada for the year ended
December 31, 1997, were approximately 53.3%. As a result, the Company is subject
to certain risks inherent in doing business internationally. In addition to
unpredictable operating risks, such risks include the possibility of unfavorable
changes in tax or other laws, partial or total expropriation, the disruption of
operations from labor and political disturbances, insurrection or war, the
effect of partial local ownership requirements in certain countries, currency
exchange rate fluctuations and restrictions on currency repatriation.
To reduce currency risks, the Company generally denominates its contracts
in U.S. dollars, Canadian dollars or other currencies that it believes to be
stable. The Company's operations in certain areas outside the United States and
Canada may, however, require the Company to denominate contracts in currencies
other than U.S. dollars or Canadian dollars. While the Company employs certain
policies intended to reduce the risk associated with exchange rate fluctuations,
there can be no assurance that such policies will be effective or that
fluctuations in the value of non-U.S. or Canadian currencies will not materially
affect the Company's revenues in the future. The Company presently does not use
derivatives or forward foreign currency exchange rate hedging contracts, but may
elect to do so in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Foreign Exchange Gains and
Losses."
The Company also obtains insurance against war, expropriation, confiscation
and nationalization when such insurance is available and when management
considers it advisable to do so. Such coverage is not always available, and when
available, is subject to unilateral cancellation by the insuring companies on
short notice. In addition, the Company's international operations may be in part
dependent upon foreign governmental funding of projects. Significant changes in
the level of foreign governmental funding of these projects could have an
unfavorable impact on the operating results of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the continued services of certain key executive officers and operating
personnel. The Company has entered into employment agreements with certain of
its key executive officers. See "Management -- Employment Agreements." The
Company also depends on the services of professionals such as engineers,
geologists and geophysicists. The loss of the services of certain key executive
officers and operating personnel or the loss or shortage of a significant number
of professionals could have a material adverse effect on the Company. The
Company does not maintain key employee insurance on any of its personnel.
NO PUBLIC MARKET
The Common Stock will constitute a new issue of securities with no
established trading market. In connection with the Subscription Offering, the
Company has not made an application to list the Common Stock on any securities
exchange or to admit the Common Stock for trading in the Nasdaq National Market
or the Nasdaq Smallcap Market. The Company currently does not intend to seek
such listing or admission for the Common Stock because of the limited number of
holders of Common Stock expected following the Subscription Offering. As a
result of such limited number of holders, the Company expects that it will not
meet the listing requirements of the New York Stock Exchange or the American
Stock Exchange or the admission requirements of the Nasdaq National Market or
the Nasdaq Smallcap Market following the Subscription Offering. In connection
with future offerings of Common Stock by the Company, management may consider
such listing or admission for the Common Stock; however there can be no
assurance that the Company will apply for such listing or admission in the
future. Neither the Subscription Agent nor any other person is obligated, or has
committed, to make a market in the Common Stock. Prior to the Subscription
Offering, there has been no public market for the Common Stock, and there can be
no assurance as to the development or continuation of any active trading market
for the Common Stock, or the ability of Eligible Subscribers to sell their
Common Stock. The
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Subscription Purchase Price in the Subscription Offering was determined in
connection with the confirmation of the Plan by the Bankruptcy Court and may not
be indicative of the price at which the Common Stock will trade after completion
of the Subscription Offering.
INVESTMENT IN MULTI-CLIENT DATA LIBRARY
The Company has a significant investment in multi-client data that is
marketed broadly on a non-exclusive basis to oil and gas companies. Solid State
has in the past experienced significant losses in connection with the
acquisition of multi-client data, as a result of substantially underestimating
the cost of acquiring such multi-client data and not obtaining adequate customer
commitments. See "Management's Discussion and Financial Analysis of Financial
Condition and Results of Operations -- Impact of Solid State Acquisition." In
addition, for the year ended December 31, 1997, the Company reduced the carrying
value of such data acquired by Solid State by approximately $5.9 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company intends to expand its multi-client data acquisition and
marketing efforts in the future. Although the Company will attempt to obtain
commitments for a majority of the costs of these surveys, future data licensing
to multiple customers may not enable the Company to fully recoup its costs.
Furthermore, even if the Company obtains commitments, the Company may not be
able to fully recoup its acquisition costs if it substantially underestimates
the cost of, or overestimates market demand for, such projects. Factors
affecting the Company's ability to recoup its costs include adverse
environmental or regulatory requirements, the inability or delay in obtaining
permits, and other technological, industry or general economic developments, as
well as the ultimate oil and gas prospectivity of the area surveyed, any of
which could render all or portions of the Company's library of multi-client data
obsolete or otherwise impair its value. In addition, revenues generated by
licensing of multi-client data are typically less predictable from period to
period than are revenues from surveys performed on an exclusive contract basis
for customers. For 1998, the Company has budgeted approximately $16 million of
expenditures, before customer commitments, for multi-client data acquisition
projects.
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's operations are subject to a variety of foreign, federal,
state and local laws and regulations, including laws and regulations relating to
the protection of human health and the environment. Violation of these laws and
regulations may result in civil and even criminal penalties. The Company
currently is required to invest financial and managerial resources to comply
with such laws, regulations and related permit requirements in its operations
and anticipates that it will continue to do so in the future. The Company's
seismic data acquisition contracts typically require customers to obtain all
necessary permits. Conversely, the acquisition of multi-client data may require
the Company to obtain required permits. Failure to obtain required permits in a
timely manner may result in crew downtime and operating losses. Although neither
GGI's nor the Company's cost of complying with governmental laws and regulations
has been significant to date, there can be no assurance that environmental laws
and regulations will not change in the future or that the Company will not incur
significant costs in the future performance of its operations. The modification
of existing laws or regulations or the adoption of new laws or regulations
curtailing oil and gas exploration or imposing more stringent restrictions on
seismic data acquisition operations could adversely affect the Company.
ACQUISITION OF SOLID STATE AND FUTURE ACQUISITIONS
The Acquisition is the first acquisition made by Grant. Although the
Company's management believes Solid State's business and customer base should
complement Grant's operations, there can be no assurance that the Company will
successfully integrate the business of Solid State into its existing operations
and effectively manage the increased size of the Company or that such activities
will not require a disproportionate amount of management's attention. The
Company's failure to successfully integrate Solid State's business into its
existing operations, or the occurrence of unexpected costs or liabilities in
connection with Solid State's operations, could have a material adverse effect
on the Company's results of operations and financial condition. See "-- Recent
Insolvency and Reorganization of GGI; Recent Operating Losses of Solid State."
The Company is actively seeking other strategic acquisitions that will
provide additional and complementary products, equipment and services. However,
there can be no assurance that attractive acquisitions will be
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available to the Company at reasonable prices or that the Company will
successfully integrate the operations and assets of any acquired business with
its own or that the Company's management will be able to manage effectively the
increased size of the Company or operate a new line of business. Any inability
on the part of the Company to integrate and manage acquired businesses could
have a material adverse effect on the Company's results of operations and
financial condition. The Company may, to the extent permitted by the Indenture,
the Credit Facility and any future debt instruments, incur substantial
indebtedness to finance future acquisitions. There can be no assurance that the
Company will be able to obtain any such financing or that, if available, such
financing will be on terms acceptable to the Company. See "-- Substantial
Leverage." Depending upon the circumstances of a particular acquisition, the
Company may fund an acquisition through the issuance of Common Stock or other
equity securities, or, to the extent permitted by the Indenture, the Credit
Facility and any future debt instruments, with additional borrowed funds.
Acquisitions may result in potentially dilutive issuances of equity securities,
increased depreciation and amortization expense, increased interest expense,
increased financial leverage or decreased operating income, any of which could
have a material adverse effect on the Company's operating results. See
"-- Restrictions Imposed by the Terms of the Company's Indebtedness" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL LIABILITY UNDER THE PLAN
Although GGI's bankruptcy proceedings resulted in the consummation of the
Plan on September 30, 1997, the Bankruptcy Court has retained jurisdiction over
disputes arising under the Plan. On December 11, 1997, certain Eligible
Subscribers commenced a lawsuit in the Bankruptcy Court against GGI, Grant,
Elliott, Westgate and SSGI (as defined herein) alleging various claims related
to the Plan and the Acquisition. Elliott has agreed to indemnify the Company
against any liability that the Company may incur by reason of any adverse final
judgment in the lawsuit. Nevertheless, if not resolved in the Company's favor,
this lawsuit, and the potential for other lawsuits related to the Plan, could
have an adverse effect on the Company's business, reputation, operating results
and financial condition. See "Business -- Legal Proceedings."
CONCENTRATION OF OWNERSHIP
The Selling Stockholders currently hold all of the issued and outstanding
shares of Common Stock. After the consummation of the Subscription Offering, the
Selling Stockholders will hold approximately 76% of the issued and outstanding
shares of Common Stock, assuming that all Eligible Subscribers exercise their
rights in full to purchase Common Stock in the Subscription Offering. In
addition, the holders of Common Stock are not entitled to cumulative voting
rights. Westgate also holds all of the issued and outstanding shares of
Preferred Stock (as defined herein) of the Company. The terms of the Preferred
Stock permit Westgate to designate two directors to the Board of Directors of
the Company and to vote on certain extraordinary matters presented for a
stockholder vote. As a result of such voting power, the Selling Stockholders
have the ability to elect all of the directors of the Company who will control
the management and affairs of the Company, as well as the ability to control the
outcome of other matters that may be submitted to a stockholder vote from time
to time. The voting power held by the Selling Stockholders may also have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company. See "The Company," "Selling
Stockholders" and "Certain Relationships and Related Transactions."
NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the consummation of the Plan and the Acquisition and in each
case, the transactions contemplated thereby, the financial condition and results
of operations of the Company will not be comparable to the financial condition
or results of operations reflected in the historical financial statements of
GGI, Grant and Solid State, included elsewhere in this Subscription Offering
Prospectus. See "Unaudited Pro Forma Financial Information," "Selected
Consolidated Historical Financial Data" and the consolidated financial
statements of the Company, GGI and Solid State and notes thereto, included
elsewhere in this Subscription Offering Prospectus.
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HOLDING COMPANY STRUCTURE
The Company is structured as a holding company that directly or indirectly
owns all or substantially all of the capital stock of its operating
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Consequently, the Company's cash
flow and ability to service its debt obligations, including the Notes, are
dependent upon the earnings of the subsidiaries and the distribution of those
earnings to the Company, or upon loans, advances or other payments made by the
subsidiaries to the Company. There can be no assurance that the earnings of the
Company's subsidiaries will be adequate for the Company to meet its debt service
obligations.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the marketplace, whether by
purchasers in the Subscription Offering or other stockholders of the Company,
purchasers in any future public offering or other stockholders of the Company,
or the perception that such sales could occur, may adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale."
Following the Subscription Offering, the Selling Stockholders will
beneficially own approximately 76% of the issued and outstanding shares of
Common Stock, assuming that all Eligible Subscribers exercise in full their
rights to purchase Common Stock in the Subscription Offering. A decision by the
Selling Stockholders to sell shares could adversely affect the market price of
the Common Stock. The Company and the Selling Stockholders have entered into a
Registration Rights Agreement (as defined herein), which requires the Company to
effect a registration statement, covering some or all of the Selling
Stockholders' shares, subject to certain terms and conditions. See "Certain
Relationships and Related Transactions -- Registration Rights Agreement."
Upon completion of the Subscription Offering, the shares of Common Stock
purchased by Eligible Subscribers will be freely tradeable without restriction
or further registration under the Securities Act.
NO DIVIDENDS
The Company currently does not intend to pay any cash dividends on the
Common Stock. The Company currently intends to retain any earnings for support
of its working capital, repayment of indebtedness, capital expenditures and
general corporate purposes. The Indenture and the Credit Facility contain
restrictions on the Company's ability to pay dividends or make other
distributions. The Indenture and the Credit Facility provide that the Company
may not declare any dividends or make any other payments or distributions except
in certain limited circumstances. See "Dividend Policy" and "-- Restrictions
Imposed by the Terms of the Company's Indebtedness."
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Subscription Offering Prospectus includes statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate," "expect," "estimate," "project"
and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management in written
material such as press releases, portions of "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and "Risk
Factors" contained in this Subscription Offering Prospectus.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such forward-looking statements are
subject to certain risks, uncertainties and assumptions, including without
limitation those identified below and under "Risk Factors." Should one or more
of these risks or uncertainties materialize, or should any of the underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected. Eligible
Subscribers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates.
Among the factors that will have a direct bearing on the Company's results
of operations and the oil and gas services industry in which it operates are the
effects of rapidly changing technology; the presence of competitors with greater
financial resources; risks associated with the Acquisition, including failure to
successfully manage the Company's growth and integrate the business operations
of Solid State; operating risks inherent in the oil and gas services industry;
regulatory uncertainties; potential liability under the Plan; worldwide
political stability and economic conditions and other risks associated with
international operations, including foreign currency exchange risk; and the
Company's successful execution of its strategy and internal operating plans. See
"Risk Factors."
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THE COMPANY
BACKGROUND
Grant was incorporated in Delaware in September 1997, and is the successor
to several seismic data acquisition companies. Solid State was incorporated in
Alberta, Canada in 1985. The Company's predecessor companies have been active in
the seismic data acquisition services business in the United States and Latin
America since the 1940s, the Far East since the 1960s and Canada since the
1970s. Additionally, the Company has significant operating experience in the
Middle East and West Africa.
THE REORGANIZATION
In 1996, GGI experienced a deteriorating financial condition and liquidity
crisis precipitated by several factors, including an overly rapid and
under-financed expansion in United States and Latin America, significant costs
related to the unsuccessful development of a proprietary data recording system
and poor operational results in the United States and certain international
markets. On December 6, 1996 (the "Petition Date"), GGI filed a voluntary
petition for relief with the Bankruptcy Court under chapter 11 of the Bankruptcy
Code.
In connection with its reorganization, GGI replaced its senior management
team, disposed of unprofitable operations, continued to operate as a
debtor-in-possession and developed the Plan, which was confirmed by the
Bankruptcy Court on September 15, 1997 and was consummated on the Effective
Date. The Plan provided that Grant would (i) purchase substantially all of the
assets of GGI for $47.5 million in cash (the "Cash Purchase Price"), (ii) assume
certain debts and long-term lease commitments of GGI not exceeding $15.1 million
and (iii) assume certain other liabilities of GGI.
In connection with the consummation of the Plan, the Selling Stockholders
satisfied certain claims against GGI in the amount of approximately $12.7
million, which was credited against the Cash Purchase Price. In addition,
Westgate purchased certain claims against GGI that were assumed by Grant, in the
principal amount of approximately $6.9 million. The Selling Stockholders also
purchased certain claims against GGI, in the principal amount of approximately
$5.6 million, which was credited against the Cash Purchase Price.
In exchange for the satisfaction or cancellation of certain claims against
GGI, Grant issued 19,571.162 shares of cumulative pay-in-kind preferred stock,
$0.001 par value per share (the "Preferred Stock"), to the Selling Stockholders.
The Preferred Stock provides for dividends payable annually in additional shares
of Preferred Stock at a rate of 10.5% per annum, the right to designate two
members of the Board of Directors of the Company and the right to vote on
certain extraordinary matters presented for a stockholder vote. See "Description
of Capital Stock -- Preferred Stock." On December 18, 1997 Grant exchanged
9,571.162 shares of Preferred Stock held by Elliott, together with accrued
dividends thereon, for a subordinated note (the "Subordinated Note") in the
aggregate principal amount of approximately $9.8 million. The Subordinated Note,
which accrued interest at the rate of 10.5% per annum, was repaid out of the net
proceeds from the issuance of the Original Notes. See "Certain Relationships and
Related Transactions -- Selling Stockholders." On December 30, 1997, the Selling
Stockholders purchased 9,499,998 shares of Common Stock for an amount equal to
the remainder of the Cash Purchase Price, which included the cancellation of
certain claims against GGI. In addition, upon consummation of the Subscription
Offering, Elliott is entitled to receive 237,500 shares of Common Stock pursuant
to the Plan. See "Certain Relationships and Related Transactions -- Selling
Stockholders."
THE ACQUISITION
As of November 20, 1997, Elliott held 5,963,565 shares, or 41.8%, and
Westgate held 3,341,544 shares, or 23.4% of the outstanding shares of common
stock of Solid State ("Solid State Stock"). In connection with the Acquisition,
the Selling Stockholders transferred their shares of Solid State Stock to Grant
in exchange for 4,652,555 shares of Common Stock. SSGI Acquisition Corp.
("SSGI"), a corporation organized under the laws of Alberta, Canada and a wholly
owned subsidiary of Grant, commenced a cash tender offer for all of the
outstanding shares of Solid State Stock not held by SSGI or its affiliates (the
"Tender Offer"). Grant subsequently transferred the shares of Solid State Stock
to SSGI.
17
<PAGE> 19
To consummate the Tender Offer and the Acquisition, on December 19, 1997,
Elliott advanced approximately $15.8 million to Grant (the "Acquisition
Financing") under a term note pursuant to the Credit Facility. Upon the
expiration of the Tender Offer on December 19, 1997, SSGI held approximately 99%
of the outstanding shares of Solid State Stock. On December 23, 1997, because
SSGI acquired over 90% of the outstanding shares of Solid State Stock not
already held by SSGI or its affiliates pursuant to the Tender Offer, SSGI
qualified to exercise its statutory right under Canadian law to acquire the
remaining shares of Solid State Stock on the same terms and at the same price as
the Tender Offer. On December 23, 1997, Solid State became an indirect wholly
owned subsidiary of the Company.
THE OFFERING OF SENIOR NOTES
On February 18, 1998, the Company issued $100 million aggregate principal
amount of its Original Notes, which are guaranteed by the Subsidiary Guarantors.
The Original Notes were issued pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In connection with the issuance of the
Original Notes, the Company and the Subsidiary Guarantors entered into a
registration rights agreement providing that, among other things, the Company
and the Subsidiary Guarantors would conduct the Exchange Offer. On March 27,
1998, the Company and the Subsidiary Guarantors, pursuant to the requirements of
such registration rights agreement, filed with the Commission the Exchange Offer
Registration Statement. As of the date of this Subscription Offering Prospectus,
the Exchange Offer Registration Statement has not been declared effective by the
Commission. The net proceeds from the sale of the Original Notes were used to
retire substantially all of Grant's then outstanding indebtedness and purchase
certain leased equipment, and the remaining net proceeds are expected to be used
by the Company to fund a portion of its capital expenditure program,
multi-client data acquisition activities and for working capital and other
general corporate purposes.
The Company's principal executive offices are located in Houston, Texas.
The Company's address is 16850 Park Row, Houston, Texas 77084, and its telephone
number is (281) 398-9503.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock sold by the Selling Stockholders in the Subscription Offering.
DIVIDEND POLICY
The Company currently intends to retain all future earnings for use in the
operations of its business and does not anticipate paying any cash dividends in
the foreseeable future. The declaration and payment in the future of any cash
dividend will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the earnings, capital requirements and
financial position of the Company, existing and/or future loan covenants and
general economic conditions. The Indenture and the Credit Facility provide that
the Company may not declare any dividends or make any other payments or
distributions except in certain limited circumstances. See "Risk Factors -- No
Dividends."
18
<PAGE> 20
CAPITALIZATION
The following table sets forth at December 31, 1997, the cash and cash
equivalents, debt and equity capitalization of the Company (i) on an actual
consolidated basis and (ii) on an unaudited pro forma basis after giving effect
to the issuance of the Original Notes and the application of the net proceeds
therefrom as if they were completed at December 31, 1997. This information
should be read in conjunction with "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, GGI and
Solid State, including the notes thereto, included elsewhere in this
Subscription Offering Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
----------------------
ACTUAL PRO FORMA
------ ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 7,414 $ 29,880
======== ========
Current portion of long-term debt and notes payable......... $ 1,158 $ 1,158
Long-term debt, excluding current indebtedness:
9-3/4% Senior Notes due 2008(2)........................... -- 99,215
10.5% subordinated note................................... 9,786 --
Other..................................................... 65,409 2,446
-------- --------
Total long-term debt................................... 75,195 101,661
-------- --------
Stockholders' equity:
Cumulative pay-in-kind preferred stock, $.001 par value
per share (20,000 shares authorized, 10,000 shares
outstanding)........................................... 10,000 10,000
Common stock, $.001 par value per share (25,000,000 shares
authorized, 14,152,555 shares outstanding)(3).......... 14 14
Paid-in capital........................................... 41,278 41,278
Accumulated deficit....................................... (8,833) (8,833)
Cumulative translation adjustment......................... (467) (467)
-------- --------
Total stockholders' equity............................. 41,992 41,992
-------- --------
Total capitalization................................... $118,345 $144,811
======== ========
</TABLE>
- ---------------
(1) Subsequent to the period presented, the Company incurred approximately $3.7
million of debt for working capital, accrued interest and equipment
purchases; however, this subsequent debt was paid with the net proceeds from
the issuance of the Original Notes.
(2) Issued to the Initial Purchaser at 99.215% of face value.
(3) Excludes 1,450,000 shares of Common Stock reserved for issuance under the
Incentive Plan (as defined herein). See "Management -- 1997 Equity and
Performance Incentive Plan" and Note 12 to the consolidated financial
statements of the Company.
19
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Financial Information") is based on the consolidated
financial statements of the Company, GGI and Solid State and has been prepared
to illustrate the effects of the consummation of the Plan and certain related
transactions, the Acquisition and the issuance of the Original Notes and the
application of the net proceeds therefrom.
The unaudited pro forma consolidated balance sheet at December 31, 1997
gives effect to the issuance of the Original Notes and the application of the
net proceeds therefrom as if they were completed at December 31, 1997. The
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 1997 gives effect to the consummation of the Plan and certain
related transactions, the Acquisition and the issuance of the Original Notes and
the application of the net proceeds therefrom as if they were completed as of
January 1, 1997.
Solid State's fiscal year end is August 31. For pro forma purposes, the
statement of operations data for Solid State has been adjusted to reflect the
nine month period December 1, 1996 through August 31, 1997 to combine with GGI's
statement of operations data for the nine months ended September 30, 1997 and
the Company's statement of operations data for the three month period ended
December 31, 1997 to complete the twelve month period ended December 31, 1997.
The statement of operations data for the three months ended December 31, 1997
includes the combined operations of Solid State and Grant. See Note 1 to the
consolidated financial statements of the Company. For pro forma purposes, the
statement of operations data for Solid State has been translated from Canadian
dollars into U.S. dollars using the average exchange rates prevailing during the
respective periods.
The Unaudited Pro Forma Financial Information does not purport to represent
what the financial position or results of operations of the Company would
actually have been if the transactions and events assumed therein in fact
occurred on the dates indicated or to project the financial position or results
of operations of the Company for any future date or period. The Unaudited Pro
Forma Financial Information is based on certain assumptions and adjustments
described in the notes hereto and should be read in conjunction therewith. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, GGI and
Solid State and the notes thereto, included elsewhere in this Subscription
Offering Prospectus.
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
THE COMPANY
AT DECEMBER 31, 1997
--------------------------------------
NOTES
OFFERING PRO
ACTUAL ADJUSTMENTS FORMA
------ ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 7,093 $ 22,466(a) $ 29,559
Restricted cash.......................................... 321 -- 321
Accounts receivable...................................... 31,982 -- 31,982
Inventories.............................................. 530 -- 530
Prepaid expenses......................................... 4,190 -- 4,190
Work-in-progress costs................................... 2,779 -- 2,779
-------- -------- --------
Total current assets.................................. 46,895 22,466 69,361
Property, plant and equipment, net....................... 64,504 -- 64,504
Multi-client data........................................ 5,736 -- 5,736
Goodwill................................................. 36,304 -- 36,304
Deferred issue costs..................................... -- 4,000(a) 4,000
Other assets............................................. 2,265 -- 2,265
-------- -------- --------
Total assets.......................................... $155,704 $ 26,466 $182,170
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations............................. $ 1,158 $ -- $ 1,158
Accounts payable......................................... 16,422 -- 16,422
Accrued expenses......................................... 10,318 -- 10,318
Income taxes payable..................................... 2,807 -- 2,807
-------- -------- --------
Total current liabilities............................. 30,705 -- 30,705
Long-term debt and capital lease obligations, excluding
current portion.......................................... 65,409 (62,963)(a) 2,446
Other liabilities and deferred credits..................... 7,812 -- 7,812
Senior Notes due 2008...................................... -- 99,215(a) 99,215
Subordinated Note.......................................... 9,786 (9,786)(a) --
-------- -------- --------
Total liabilities..................................... 113,712 26,466 140,178
Stockholders' equity:
Preferred Stock.......................................... 10,000 -- 10,000
Common Stock............................................. 14 -- 14
Additional paid-in capital............................... 41,278 -- 41,278
Accumulated deficit...................................... (8,833) -- (8,833)
Cumulative translation adjustment........................ (467) -- (467)
-------- -------- --------
Total stockholders' equity............................ 41,992 -- 41,992
-------- -------- --------
Total liabilities and stockholders' equity............ $155,704 $ 26,466 $182,170
======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
21
<PAGE> 23
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1997
-------------------------------------------------
NINE MONTHS ENDED THE COMPANY PLAN, THE
--------------------------- THREE MONTHS SUBORDINATED COMPANY
GGI SOLID STATE ENDED NOTE AND PRIOR TO NOTES
SEPTEMBER 30, AUGUST 31, DECEMBER 31, ACQUISITION THE NOTES OFFERING THE
1997 1997 1997 ADJUSTMENTS OFFERING ADJUSTMENTS COMPANY
------------- ----------- ------------ ------------ --------- ----------- -------
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $92,705 $43,292 $37,868 $ -- $173,865 $ -- $173,865
Expenses:
Operating expenses... 71,006 36,432 28,431 -- 135,869 -- 135,869
Selling, general and
administrative
expenses........... 6,473 2,399 3,507 -- 12,379 -- 12,379
Depreciation and
amortization....... 8,432 5,266 4,594 1,290(b) 19,582 -- 19,582
Special charge for
asset impairment... -- -- 6,369 -- 6,369 -- 6,369
------- ------- ------- ------- -------- ------- --------
Total costs and
expenses......... 85,911 44,097 42,901 1,290 174,199 -- 174,199
------- ------- ------- ------- -------- ------- --------
Operating income
(loss)........... 6,794 (805) (5,033) (1,290) (334) -- (334)
Other expense:
Interest expense,
net................ (3,758) (2,484) (1,362) 1,158(c) (6,446) (4,441)(f) (10,887)
Reorganization
costs.............. (3,543) -- -- 3,543(d) -- --
Other................ 2,266 (189) (1,262) -- 815 -- 815
------- ------- ------- ------- -------- ------- --------
Total other
expenses......... (5,035) (2,673) (2,624) 4,701 (5,631) (4,441) (10,072)
------- ------- ------- ------- -------- ------- --------
Income (loss)
before income
taxes and
minority
interest......... 1,759 (3,478) (7,657) 3,411 (5,965) (4,441) (10,406)
Income tax expense..... 2,184 (483) 856 --(e) 2,557 -- 2,557
------- ------- ------- ------- -------- ------- --------
Income (loss) before
minority
interest........... (425) (2,995) (8,513) 3,411 (8,522) (4,441) (12,963)
Minority interest...... -- -- 2,847 (2,847) -- -- --
------- ------- ------- ------- -------- ------- --------
Income (loss) from
continuing
operations........... $ (425) $(2,995) $(5,666) $ 564 $ (8,522) $(4,441) $(12,963)
======= ======= ======= ======= ======== ======= ========
OTHER FINANCIAL DATA:
Capital expenditures... $ 4,154 $10,661 $12,266 $ 27,081
OPERATING DATA (AT
PERIOD END):
Seismic crews in
operation............ 13 7 20 20
Seismic recording
channels owned....... 17,870 8,892 26,762 26,762
</TABLE>
See notes to unaudited pro forma financial statements.
22
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro forma adjustments for the balance sheet include the adjustments
necessary to record the issuance of the Original Notes and the application of
the net proceeds therefrom to retire substantially all of the outstanding debt
of the Company. The pro forma adjustments relating to the combined statement of
operations include those necessary in connection with the Acquisition to remove
interest associated with the debt that was retired with the net proceeds from
the issuance of the Original Notes and record interest for the Original Notes.
In addition, certain interest and reorganization costs that were associated with
the Plan have also been removed.
(a) Adjustment to record the net proceeds of the issuance of the Original
Notes. The net proceeds were used in part to repay the following: (i)
long-term debt, $62.963 million; (ii) Subordinated Note, $9.786
million; and (iii) issuance costs, $4.000 million. $22.466 million in
cash remained after repayment of such indebtedness. Subsequent to the
period presented, the Company incurred $3.700 million of debt for
working capital, accrued interest and equipment purchases; however,
this subsequent debt was repaid with the net proceeds from the
issuance of the Original Notes.
(b) Adjustment to record amortization of goodwill created in the
reorganization of Grant and the acquisition of the minority interest
in Solid State. The amortization period for the Grant and Solid State
goodwill is 30 years ($700,000 per annum) and 20 years ($765,000 per
annum), respectively. The amount for depreciation and amortization in
the three months ended December 31, 1997 includes $175,000 of goodwill
amortization for Grant.
(c) Adjustment to eliminate interest expense for debt held by GGI, which
was not assumed by Grant under the Plan ($2.976 million for the nine
month period ended September 30, 1997) and record interest expense for
the Subordinated Note and the $15.800 million term note.
(d) Adjustment to remove reorganization costs.
(e) Income tax expense has not been recorded as a result of the benefits
available from an operating loss carryforward of Grant.
(f) Adjustment to record the interest expense at 9.75% for the issuance of
the Original Notes. The net proceeds from the issuance of the Original
Notes were utilized to retire $72.749 million of outstanding
indebtedness at December 31, 1997. Estimated issue costs of $4.000
million are amortized over the life of the Notes.
23
<PAGE> 25
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The statement of operations data for GGI is presented below as of the end
of each of the years in the four-year period ended December 31, 1996 and the
nine-months ended September 30, 1997 is derived from the consolidated financial
statements of GGI. The balance sheet data of the Company at December 31, 1997
and the statement of operations data for the three months ended December 31,
1997 are derived from the consolidated financial statements of the Company. This
data should be read in conjunction with such consolidated financial statements
of GGI and the Company and the notes thereto, included elsewhere in this
Subscription Offering Prospectus.
<TABLE>
<CAPTION>
THE
GGI COMPANY
------------------------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------------------- SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1996(1) 1997 1997
--------- --------- --------- --------- ------------- ------------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 69,255 $ 73,691 $ 91,996 $ 105,523 $ 92,705 $ 37,868
Expenses:
Operating expenses..................... 53,678 53,132 69,046 136,326 71,006 28,431
Selling, general and administrative
expense.............................. 13,375 7,810 8,527 17,865 6,473 3,507
Depreciation and amortization.......... 13,078 12,079 9,424 11,500 8,432 4,594
Asset impairment....................... 3,339 9,911 -- 5,802 -- 6,369
--------- --------- --------- --------- --------- ---------
Total expenses....................... 83,470 82,932 86,997 171,493 85,911 42,901
--------- --------- --------- --------- --------- ---------
Operating income (loss).............. (14,215) (9,241) 4,999 (65,970) 6,794 (5,033)
Other income (deductions):
Interest expense, net.................. (3,020) (3,384) (3,522) (7,522) (3,758) (1,362)
Reorganization costs................... -- -- -- (412) (3,543) --
Other.................................. 425 1,380 2,076 (502) 2,266 (1,262)
--------- --------- --------- --------- --------- ---------
Total other income (deductions) ..... (2,595) (2,004) (1,446) (8,436) (5,035) (2,624)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.... (16,810) (11,245) 3,553 (74,406) 1,759 (7,657)
Income tax expense....................... 143 193 391 1,621 2,184 856
--------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest............................. (16,953) (11,438) 3,162 (76,027) (425) (8,513)
Minority interest........................ -- -- -- -- -- 2,847
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations............................. $ (16,953) $ (11,438) $ 3,162 $ (76,027) $ (425) $ (5,666)
========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
Capital expenditures..................... $ 5,781 $ 8,463 $ 14,921 $ 25,799 $ 4,154 $ 12,266
Cash provided by (used in) operating
activities............................. 2,133 3,170 2,759 (9,346) 4,526 5,386
Cash provided by (used in) investing
activities............................. (1,128) (9,698) (9,272) (10,181) (6,731) (19,715)
Cash provided by (used in) financing
activities............................. (3,486) 5,260 6,929 25,667 1,289 15,072
OPERATING DATA (AT PERIOD END):
Seismic crews in operation............... 15 15 14 14 13 20
Seismic recording channels owned......... 12,120 12,520 12,320 17,430 17,870 26,762
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
GGI THE COMPANY
---------------------------------------- -----------
AT DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ $ 2,992 $ 3,670 $ 1,147 $ 6,772 $ 7,414
Working capital..................................... 4,585 3,022 8,033 22,421 16,190
Total assets........................................ 70,745 61,609 86,932 70,123 155,704
Long-term debt, including current portion........... 15,859 19,412 27,219 589 76,353
Stockholders' equity (deficit)...................... 37,774 26,399 29,715 (34,213) 41,992
</TABLE>
- ---------------
(1) Operating expenses for the year ended December 31, 1996 include costs of
operations in excess of planned costs in Peru ($23.0 million) and Nigeria
($2.5 million). The Company is no longer operating in Peru and Nigeria. Also
included in operating expenses are costs incurred in the United States
relating to the unsuccessful deployment of a proprietary data recording
system ($12.1 million) and a write-down of certain deferred costs, prepaid
expenses and other assets ($5.6 million). Selling, general and
administrative expenses for the year ended December 31, 1996 include a
reserve for doubtful accounts of $5.5 million, severance costs of $423,000,
the write-off of deferred costs of a proprietary data recording system of
$823,000 and legal fees of $367,000.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this Subscription Offering Prospectus.
HISTORY AND OVERVIEW
Grant was formed in September, 1997, and on September 30, 1997, acquired
substantially all of the assets and assumed certain liabilities of GGI. On
December 23, 1997, Grant, through a wholly owned Canadian subsidiary, acquired
all of the outstanding shares of Solid State. In connection with such
acquisition, the Selling Stockholders exchanged all of their Solid State Stock
for Common Stock.
The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
generally acquires seismic data on an exclusive contract basis for oil and gas
companies on (i) a turnkey basis, which provides a fixed fee for each project,
(ii) a term basis, which provides for a periodic fee during the term of the
project or (iii) a cost-plus basis, which provides that the costs of a project,
plus a percentage fee, are borne by the customer. In addition, the Company
acquires and owns certain multi-client seismic data that is marketed broadly on
a non-exclusive basis to oil and gas companies. The Company believes that the
combined operations of Grant and Solid State will expand its market presence and
enhance the Company's ability to compete more effectively for projects in its
selected markets. The Company also believes that the acquisition of Solid State
increases management and operating depth, mitigates the effects of seasonality
and creates operating efficiencies by consolidating operations, increasing
overall crew utilization and reducing capital expenditures.
As of March 15, 1998, the Company was operating or mobilizing 22 seismic
data acquisition crews, consisting of 18 land and four transition zone crews,
utilizing approximately 30,000 seismic recording channels. According to industry
sources, as of March 15, 1998, the Company is the third largest land seismic
data acquisition company operating in the western hemisphere, based on the
number of seismic data acquisition crews in operation.
In December 1996, GGI filed for protection under the United States
Bankruptcy Code and began its reorganization under the supervision of the
Bankruptcy Court. The filing was precipitated by a number of factors, including
an overly rapid expansion in the United States and Latin American markets, which
contributed to poor operational results in these markets, particularly in Peru,
the attempted development of a proprietary data recording system, which did not
meet operating expectations and a lack of available capital, which led to a
severe working capital shortage. These factors impaired GGI's ability to service
its indebtedness, finance its existing capital expenditure requirements and meet
its working capital needs. In addition, GGI was unable to raise additional
equity, causing a disproportionate reliance on debt financing and equipment
leasing. In connection with its reorganization, GGI replaced its senior
management, disposed of unprofitable operations, operated as debtor in
possession and developed the Plan, which was confirmed by the Bankruptcy Court
on September 15, 1997 and consummated on September 30, 1997, with Grant's
purchase of substantially all of the assets and assumption of certain
liabilities of GGI. As part of the Plan, GGI will be dissolved and will cease to
exist once the remainder of its assets are distributed to its creditors.
The historical results of operations of the Company for the twelve months
ended December 31, 1997 are not directly comparable to the results of operations
of GGI due to the effects of the Acquisition.
26
<PAGE> 28
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
GGI THE COMPANY COMBINED
---------------------------------- ------------ -------------
YEAR ENDED NINE MONTHS THREE MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED ENDED
------------------ SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1997 1997
------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $91,996 $105,523 $ 92,705 $37,868 $130,573
Expenses:
Operating expenses................. 69,046 136,326 71,006 28,431 99,437
Selling, general and administrative
expenses........................ 8,527 17,865 6,473 3,507 9,980
Depreciation and amortization...... 9,424 11,500 8,432 4,594 13,026
Asset impairment................... -- 5,802 -- 6,369 6,369
------- -------- -------- ------- --------
Total costs and expenses........ 86,997 171,493 85,911 42,901 128,812
------- -------- -------- ------- --------
Operating income (loss)......... 4,999 (65,970) 6,794 (5,033) 1,761
Other expense:
Interest expense, net.............. (3,522) (7,522) (3,758) (1,362) (5,120)
Reorganization costs............... -- (412) (3,543) -- (3,543)
Other.............................. 2,076 (502) 2,266 (1,262) 1,004
------- -------- -------- ------- --------
Total other expenses............ (1,446) (8,436) (5,035) (2,624) (7,659)
------- -------- -------- ------- --------
Income (loss) before income
taxes........................... 3,553 (74,406) 1,759 (7,657) (5,898)
Income tax expense................... 391 1,621 2,184 856 3,040
------- -------- -------- ------- --------
Income (loss) from continuing
operations before minority
interest........................... 3,162 (76,027) (425) (8,513) (8,938)
Minority interest.................... -- -- -- 2,847 2,847
------- -------- -------- ------- --------
Net income (loss).................... $ 3,162 $(76,027) $ (425) $(5,666) $ (6,091)
======= ======== ======== ======= ========
</TABLE>
The Company and GGI Combined Twelve Month Period Ended December 31, 1997
Compared With GGI's Year Ended December 31, 1996
The following analysis compares the combined operating results of the
Company for the three month period ended December 31, 1997 (including the
operating results of Solid State for such period) and the operating results of
GGI for the nine month period ended September 30, 1997 with the operating
results of GGI for the twelve months ended December 31, 1996. As described
above, Grant began operations immediately following its acquisition of
substantially all of the assets and certain liabilities of GGI, and Grant
acquired Solid State in December, 1997. Because of the significant changes in
Grant's corporate structure and scope of operations and the consummation of the
Plan, comparisons may not be meaningful.
Revenues. Combined revenue of GGI and the Company for the twelve months
ended December 31, 1997 were $130.5 million compared $105.5 million of revenue
realized by GGI for the twelve months ended December 31, 1996. This increase was
the result of growth in revenues in both the United States and Bangladesh and
the inclusion of Solid State's results of operations for the quarter ended
December 31, 1997.
Revenues from the United States data acquisition operations increased $11.6
million from $42.1 million in 1996 to $53.7 million in 1997. This increase was
primarily attributed to two transition zone crews operating along the Gulf Coast
and the addition of two Solid State crews for the quarter ended December 31,
1997. From time to time during each period, GGI and the Company operated as many
as seven seismic data acquisition crews in the United States compared with a
peak of 8 crews in 1996.
Revenues in Latin America increased $1.4 million from $57.1 million in 1996
to $58.6 million in 1997. During 1997, combined Latin American operations for
GGI and the Company consisted of as many as ten land
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seismic data acquisition crews operating in Colombia, Ecuador, Brazil,
Guatemala, Bolivia, and Venezuela. The Company completed operations in Venezuela
in early October 1997 and transferred personnel and equipment to Canada. From
time to time during 1996, GGI operated as many as nine seismic crews in the
region, including four in Peru, two in Colombia and one in each of Bolivia,
Brazil and Ecuador.
Revenues from the Far East increased $8.1 million, or 149%, from $5.4
million in 1996 to $13.5 million in 1997. During 1997, GGI and the Company
operated one crew for the entire year and mobilized one additional transition
zone crew that began operations in Bangladesh in July 1997. GGI mobilized and
operated one land seismic data acquisition crew in Bangladesh during 1996.
Revenues from Canadian data acquisition operations were $4.5 million in
1997 compared to zero in 1996. The Company (through Solid State) operated as
many as five land seismic crews in Canada during 1997 while GGI had no
operations in Canada during 1996.
Expenses. The combined operating expenses for GGI and the Company for the
twelve months ended December 31, 1997 decreased $36.9 million to $99.4 million
compared with $136.3 million for GGI's twelve months ended December 31, 1996.
Operating expenses as a percentage of revenues decreased to 76% in 1997 from
129% in 1996. During 1996 GGI experienced significant cost overruns, which
increased operating expenses on several crews operating in the United States.
Most notable were higher than anticipated costs incurred by a transition zone
crew as a result of adverse weather conditions and costs associated with the
unsuccessful deployment of a proprietary data recording system. The proprietary
data recording system was abandoned in November 1996. Also in 1996, GGI's
Peruvian operations experienced crew costs significantly higher than originally
projected primarily due to a combination of modified job parameters that were
not accurately reflected in the turnkey contract price and a lack of effective
crew oversight.
Selling, general and administrative expenses for GGI and the Company for
the twelve months ended December 31, 1997 decreased $7.9 million to $10.0 in
1997 from $17.9 million in 1996. Selling, general and administrative expenses
also decreased as a percentage of revenue to 8% in 1997 from 17% in 1996. The
decrease was primarily the result of general expense reduction initiatives in
1997 and the accrual of certain nonrecurring charges and allowances in 1996,
including an approximate $5.5 million increase in reserves for doubtful
accounts.
Depreciation and amortization increased $1.5 million to $13.0 in 1997 from
$11.5 million for 1996. This increase was the result of depreciation on the
Solid State assets for the quarter ended December 31, 1997.
The charge for asset impairment was $6.4 million for 1997 compared to $5.8
million in 1996. At December 31, 1997 the Company recorded a special charge of
$5.9 million to reduce the carrying value of its multi-client data to net
realizable value based on realistic future licensing prospects for such data.
The remaining 1997 charge relates to a $247,000 write-down in the carrying value
of certain non-operating depreciable fixed assets to salvage value and a
$253,000 write-down in the carrying value of certain other investments and joint
ventures. At December 31, 1996, GGI recorded a special charge for asset
impairment of $5.8 million. The charge relates solely to the write-down of the
carrying value of a proprietary data recording system that GGI was developing
for use by its seismic data acquisition crews.
Other Income (Expenses). Interest expense, net, decreased $2.4 million to
$5.1 million in 1997 from $7.5 million in 1996. This was the result of a $3.3
million decrease due to a reduction in the use of credit facilities in Latin
America during all 1997 and in the United States during the quarter ended
December 31, 1997. This decrease was partially offset by $981,000 of interest
expense incurred by Solid State during the quarter ended December 31, 1997.
Reorganization costs of $412,000 in 1996 and $3.5 million for 1997 related
to charges incurred in connection with GGI's reorganization, which began in
December 1996 and was completed in September 1997. No reorganization charges
were incurred by the Company in the three months ended December 1997, and none
are expected to be incurred in the future.
Other income for 1997 of $1.0 million was the result of settlement of a
longstanding dispute between one of GGI's Brazilian subsidiaries and a former
customer relating to services rendered on contracts dating back to
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1983. In settlement of all claims, GGI received payment, net of related costs
and expenses, of approximately $2.4 million in July 1997. Income from that
settlement was offset by approximately $767,000 costs associated with the
Acquisition and approximately $289,000 of foreign currency exchange losses,
primarily related to US dollar based loans owed by Solid State prior to the
Acquisition.
Tax Provision. The income tax provision in both periods consisted of
income taxes in foreign countries. The increase in 1997 compared with 1996 is a
result of higher taxable income in Colombia and Ecuador. No provision for United
States federal income tax was made in either period as GGI and the Company each
had net loss carryforwards available.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. GGI's consolidated revenues increased $13.5 million, or 15%, from
$92.0 million in 1995 to $105.5 million in 1996. This increase resulted from
significant growth in GGI's international operations in Latin America and
Bangladesh, which growth was offset partially by a reduction in revenues from
the United States and Nigeria. During 1996, GGI's seismic data acquisition
capacity, measured by seismic recording channels owned, increased by
approximately 41%, from 12,320 to 17,430 seismic recording channels.
Revenues from United States data acquisition operations decreased $5.8
million, or 12%, to $42.1 million in 1996 when compared with 1995. This
reduction was principally the result of several factors experienced during the
fourth quarter of 1996, including a severe shortage of operating funds, which
caused major disruptions on many domestic crews and resulted in lower revenues.
Additionally, GGI's proprietary data recording system, which operated for four
months in 1996, experienced lower than anticipated production performance, which
led to crew disruptions and delays causing further loss of revenues. GGI's
inability to adequately fund the crew operating the proprietary data recording
system resulted in the suspension of the system's use in November 1996.
Furthermore, a transition zone crew, operating along the coast of Louisiana, was
hampered by severe weather and the frequent failure of leased equipment, which,
combined with the Company's liquidity problems, resulted in the postponement of
the survey.
Revenues from international operations increased $19.3 million, or 44%,
from $44.1 million in 1995, to $63.4 million in 1996. This increase was
primarily the result of significant increases in seismic operations in Latin
America and, to a lesser extent, in the Far East, which increases were partially
offset by a reduction in revenues from Nigeria.
Latin American revenue during 1996 increased $31.6 million, or 124%, from
$25.5 million in 1995, to $57.1 million in 1996. During 1996, GGI operated one
crew in each of Bolivia, Brazil and Ecuador, two crews in Colombia and four
crews in Peru. In 1995, crew activity consisted of one crew during the fourth
quarter in Bolivia, one crew in Brazil, one to two crews in Colombia and three
crews in Peru. The most significant revenue increases in 1996 occurred in
Colombia and Peru, where revenues increased $8.2 million, or 181%, to $12.7
million, and $13.8 million, or 100%, to $27.5 million, respectively. Due to
significant operating losses incurred in Peru during 1996, GGI discontinued
operations in Peru and moved the seismic equipment from its Peruvian crews to
other GGI crews.
Revenues from the Far East increased 49%, or $1.8 million, from $3.6
million in 1995, to $5.4 million in 1996. In 1996, crew activity consisted
primarily of one transition zone crew in operation for the entire year in
Bangladesh, as compared to 1995, when GGI operated one crew in Indonesia and
mobilized the Bangladesh crew in the fourth quarter.
Revenues from Nigeria decreased 94%, or $13.3 million, from $14.2 million
in 1995, to $904,000 in 1996. GGI operated three crews during most of 1995 in
Nigeria, but completed two of these three contracts in the fourth quarter of
1995 and the remaining contract in the first quarter of 1996. Although GGI
participated in bidding for new contracts, all three crews remained idle during
1996. Due to the risks involved in operating in Nigeria, the anticipated high
cost of mobilizing a new crew and the limited resources available to GGI at the
time, GGI sold its Nigerian operation as of December 1996. GGI had no revenues
from the Middle East during 1996. Middle East revenue in 1995, totaling
$786,000, was the result of various rental contracts for equipment and personnel
that expired in July 1995.
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Expenses. GGI's consolidated operating expenses increased $67.3 million, or
97%, from $69.0 million in 1995 to $136.3 million in 1996. Operating expenses as
a percentage of revenues increased to 129% in 1996 from 75% in 1995. This
increase was due to higher than anticipated operating costs principally in the
United States, Peru and Nigeria, accelerated amortization of prepaid and
deferred costs associated with certain ongoing operations, and the write-down of
certain other GGI assets as a result of a comprehensive review of GGI's
operations.
In the United States, adverse weather conditions and the repeated breakdown
of a leased data recording system combined to increase operating expenses by
approximately $7.7 million on one transition zone crew. The slow development and
late deployment of GGI's proprietary data recording system also affected
operations in the United States in 1996. The proprietary data recording system
was originally planned to be completed and operational by early 1996, but
completion was delayed until the summer of 1996. As a result, several contracts
that were priced and bid with the expectation that the proprietary data
recording system would be employed were performed with other, less appropriate
equipment. This resulted in operating losses on such contracts of approximately
$3.0 million. When the proprietary data recording system was finally deployed in
July 1996, the system's production performance was well below anticipated
levels, causing additional operating expenses of approximately $1.4 million. The
late deployment and poor performance of the proprietary data recording system
caused a general equipment shortage during most of 1996, resulting in a
shuffling of equipment between GGI's crews, which caused inefficiencies and
higher than anticipated operating expenses.
In Peru, actual operating expenses exceeded planned costs by approximately
$23.0 million, primarily due to a combination of modified job parameters that
were not accurately reflected in the turnkey contract price and a general lack
of effective crew oversight. In Nigeria, GGI continued to incur certain
operating expenses despite a lack of crew activity during most of the year.
These operating expenses exceeded expectations by $2.7 million and were
primarily related to standby costs incurred while pursuing new contracts.
Selling, general and administrative expenses increased $9.3 million, or
110%, from $8.5 million in 1995 to $17.9 million in 1996. Selling, general and
administrative expenses increased as a percentage of revenue to 17% in 1996 from
9% in 1995. This increase was primarily attributable to allowances and charges
incurred at the corporate headquarters that resulted in an increase in corporate
overhead of approximately $6.8 million, including an increase in the reserve for
doubtful trade accounts of approximately $5.5 million for 1996 compared to no
increase in the reserve for 1995. Other significant one time or unusual items
incurred in 1996 included severance costs of $423,000, a write-off of the
proprietary data recording system startup costs of $824,000 and legal fees and
settlements of $367,000.
Depreciation and amortization expenses increased $2.1 million, or 22%, from
$9.4 million in 1995, to $11.5 million in 1996. This increase was principally
due to the increased level of depreciable assets. Additions to fixed assets
during 1995 and 1996 were approximately $14.9 million and $25.8 million,
respectively.
At December 31, 1996, GGI recorded a special charge for asset impairment of
$5.8 million. Management considered this special charge to be necessary
following an assessment of events and changes in circumstances that clearly
indicated that the carrying value of certain assets was not recoverable. This
charge related solely to the write-down of the carrying value of the proprietary
data recording system discussed previously.
Other Income (Deductions). Interest expense, net, increased $4.0 million,
or 114%, from $3.5 million in 1995, to $7.5 million in 1996. The increase in
interest expense, net, was the result of $1.1 million of interest paid on
financing of additional equipment purchases, $964,000 related to increased
domestic working capital borrowings, $773,000 attributable to new financing
evidenced by subordinated convertible debentures and $988,000 of interest
attributable to an increased usage of foreign lines of credit.
Other income (deductions) for 1996 consisted primarily of foreign exchange
losses of $251,000 and a $198,000 loss on the sale of the Venezuelan and
Nigerian subsidiaries. Other income (deductions) for 1995 included a $1.2
million gain on an insurance settlement and a $212,000 gain on the sale of
miscellaneous fixed assets.
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Tax Provision. The income tax provisions in both periods consisted of
income taxes in foreign countries. No provision for United States federal income
taxes was made in either period as GGI had net operating losses available to
offset domestic taxable income.
RESULTS OF OPERATIONS OF SOLID STATE
Year Ended August 31, 1997 Compared to the Year Ended August 31, 1996
Net Contract Revenues. Solid State's consolidated net contract revenues
for seismic data acquisition services increased Cdn $18.6 million, or 68%, from
Cdn $27.3 million for fiscal 1996 to Cdn $45.9 million in fiscal 1997.
Solid State's Canadian seismic data acquisition activity increased Cdn $3.9
million, or 24%, from Cdn $16.0 million for fiscal 1996 to Cdn $19.9 million in
fiscal 1997. This increase was primarily the result of a higher industry demand
for services and favorable weather conditions coupled with overall higher
productivity by Solid State's seismic data acquisition crews.
Solid State's United States net contract revenues for seismic data
acquisition services increased Cdn $3.0 million, or 54%, from Cdn $5.6 million
in fiscal 1996 to Cdn $8.6 million in fiscal 1997. The increase in net contract
revenues was the result of the availability of equipment redeployed from
multi-client data library acquisition activity and improved productivity by
Solid State's seismic data acquisition crew.
Net contract revenue for seismic data acquisition services from geographic
areas located outside North America increased Cdn $11.8 million, or 207% from
Cdn $5.7 million in fiscal 1996 to Cdn $17.5 million in fiscal 1997. One crew
operated outside North America in fiscal 1996, while three crews operated
outside North America (in South America and the Middle East) during fiscal 1997.
Multi-client data library revenues decreased Cdn $10.9 million, or 73%,
from Cdn $14.9 million in fiscal 1996 to Cdn $4.0 million in fiscal 1997.
Revenues associated with a multi-client data acquisition project in southern
Louisiana, which revenues were recorded in fiscal 1996, accounted for
approximately Cdn $8.9 million of the decrease. The Canadian multi-client data
library sales were Cdn $6.0 million in fiscal 1996 compared to Cdn $191,000 in
fiscal 1997.
Cost of Sales. Solid State's costs of sales increased Cdn $12.0 million,
or 57%, from Cdn $21.3 million in fiscal 1996 to Cdn $33.3 million in fiscal
1997. The primary reason for the increase was the higher level of activity
experienced by Solid State's seismic data acquisition crews in most geographic
segments coupled with cost overruns associated with a Venezuelan crew resulting
from adverse weather and work conditions and productivity shortfalls related to
inexperienced local management. This Venezuelan contract was completed and the
crew demobilized and returned to Solid State's core operations in Canada. At
August 31, 1997, in accordance with Canadian generally accepted accounting
principles, all anticipated losses for the Venezuelan contract were provided
for.
General and Administrative Expenses. Solid State's general and
administrative expenses increased Cdn $968,000, or 32%, from Cdn $3.0 million in
fiscal 1996 to Cdn $4.0 million in fiscal 1997. This increase is primarily
attributed to the administrative expense of the Venezuelan activities discussed
above and severance expense for certain senior managers in the course of Solid
State's corporate restructuring process.
Restructuring Costs and Other. Solid State's restructuring costs and other
decreased Cdn $642,000, or 74%, from Cdn $873,000 in fiscal 1996 to Cdn $231,000
in fiscal 1997. The charges in 1996 represented legal fees, financial advisory
fees, and certain bank charges related to various financial restructuring
initiatives. In 1997, an additional restructuring expense of Cdn $231,000 was
incurred, which represented fees paid to financial advisors charged with
locating additional capital resources for Solid State.
Depreciation and Amortization. Solid State's depreciation and amortization
increased Cdn $3.1 million, or 53%, from Cdn $5.9 million in fiscal 1996 to Cdn
$9.0 million in fiscal 1997. This is a direct result of more equipment deployed
in seismic data acquisition operations.
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Interest. Solid State's short-term interest increased Cdn $1.0 million, or
109%, from Cdn $953,000 in fiscal 1996 to Cdn $2.0 million in fiscal 1997. This
increase was primarily because of additional borrowings at high interest rates.
Long-term interest increased Cdn $343,000, or 20% from Cdn $1.7 million in
fiscal 1996 to Cdn $2.1 million in fiscal 1997, reflecting higher loan balances
at slightly lower weighted interest rates.
Year Ended August 31, 1996 Compared to the Year Ended August 31, 1995
Net Contract Revenues. Solid State's consolidated net contract revenues
from seismic data acquisition services decreased Cdn $1.6 million, or 5% from
Cdn $28.9 million in fiscal 1995 to Cdn $27.3 million in fiscal 1996. Canadian
and United States net contract revenues increased, but were more than offset by
the overall decline in net contract revenues from locations outside North
America.
Net contract revenues from seismic data acquisition services in Canada
remained unchanged at Cdn $16.0 million in fiscal 1996 and fiscal 1995.
Net contract revenues for seismic data acquisition services in the United
States increased Cdn $5.5 million, or 19,768%, from Cdn $28,000 in fiscal 1995
to Cdn $5.6 million in fiscal 1996. This increase was the result of Solid State
entering the U.S. market for approximately the first half of fiscal 1996. This
crew was re-deployed to Canada in mid-year fiscal 1996.
Net contract revenue for seismic data acquisition services from geographic
segments located outside North America decreased Cdn $7.1 million, or 56%, from
Cdn $12.8 million in fiscal 1995 to Cdn $5.7 million in fiscal 1996. Three crews
operated outside North America (two in South America and one in the Middle East)
during fiscal 1995, while only one crew operated outside North America in fiscal
1996.
Multi-client data library revenues increased Cdn $14.1 million, or 1,826%,
from Cdn $773,000 in fiscal 1995 to Cdn $14.9 million in fiscal 1996. Revenues
associated with a multi-client data acquisition project in southern Louisiana,
which revenues were recorded in fiscal 1996, accounted for approximately Cdn
$8.9 million of the increase. The Canadian multi-client data library sales
increased from Cdn $773,000 in fiscal 1995 to Cdn $6.0 million in fiscal 1996.
Cost of Sales. Solid State's costs of sales increased Cdn $866,000, or 4%,
from Cdn $20.4 million in fiscal 1995 to Cdn $21.2 million in fiscal 1996.
Higher costs for leased recording equipment in Canada of approximately Cdn $1.1
million was the primary reason for the increase.
General and Administrative Expenses. Solid State's general and
administrative expenses increased Cdn $724,000, or 32%, from Cdn $2.3 million in
fiscal 1995 to Cdn $3.0 million in fiscal 1996. The primary reason for the
increase was that Solid State opened a new office in the United States and the
expenses reflect a full year's cost component.
Restructuring Costs and Other. Solid State's restructuring costs and other
increased Cdn $873,000, as Solid State incurred charges in 1996 for legal fees,
financial advisory fees, and certain bank charges related to various financial
restructuring initiatives. There were no corresponding costs in fiscal 1995.
Depreciation and Amortization. Solid State's depreciation and amortization
expense decreased Cdn $112,000, or 2%, from Cdn $6.0 million in fiscal 1995 to
Cdn $5.9 million in fiscal 1996.
Interest. Solid State's short-term interest increased Cdn $844,000, or
774%, from Cdn $109,000 in fiscal 1995 to Cdn $1.0 million in fiscal 1996. Solid
State utilized its credit facility with a local banking institution for the
majority of 1996. Long-term debt interest increased Cdn $648,000, or 61%, from
Cdn $1.1 million in fiscal 1995 to Cdn $1.7 million in fiscal 1996. This is a
result of a net increase in long-term debt and higher interest rates.
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CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
The discussion under "-- Results of Operations of Solid State" has been
prepared in conjunction with the consolidated financial statements, included
elsewhere in this Subscription Offering Prospectus, that have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP"). In
certain aspects GAAP as applied in the United States differs from Canadian GAAP.
Balance Sheet. Under Canadian GAAP, foreign exchange gains and losses
resulting from long-term monetary items of the reporting company are deferred
and amortized over the lives of those monetary items. Under U.S. GAAP these
gains and losses would be expenses in the period. At August 31, 1996 and 1997,
the deferred exchange loss on the balance sheet under U.S. GAAP would be zero.
Under U.S. GAAP the multi-client data, current portion, would be reclassed
to multi-client data, less current portion. The amounts that would be reclassed
at August 31, 1996 and 1997, are Cdn $6.0 million and Cdn $2.5 million
respectively.
Under U.S. GAAP debt covenants, violations must be waived for a full year
to classify the debt as long-term. None of the debt instruments had these
waivers. At August 31, 1997 Cdn $18.7 million currently classified as long-term
would be reclassed as current.
Consolidated Statements of Operations. For U.S. reporting, net amounts
billed to customers for reimbursable costs would have reduced revenues from
those reported in the financial statements and resulted in changed costs of
sales with no change in gross margins. The amount of revenue associated with the
reimbursable costs was Cdn $7.3 million, Cdn $12.7 million and Cdn $13.2 million
for the fiscal years ended August 31, 1995, 1996 and 1997, respectively.
Under U.S. GAAP, foreign exchange gains and losses resulting from long-term
monetary items of the reporting company are expensed in the period. Under
Canadian GAAP these gains and losses are deferred and amortized over the lives
of those monetary items. For the year ended August 31, 1995, Solid State had
gains totaling Cdn $121,000. For the fiscal years ended August 31, 1996 and
1997, Solid State had losses totaling Cdn $100,000 and Cdn $208,000,
respectively.
Additionally in the fiscal year ended August 31, 1997 for U.S. GAAP
reporting, proceeds from the conversion feature of the convertible debenture
that was issued in 1996 would have been considered part of shareholders' equity
instead of being reported as part of the debt amount. This significant amount
was determined by the difference between the conversion price for the shares and
the trading price of the shares at the date of the grant. When the debt was
retired in fiscal 1997, this difference was an additional loss on the
extinguishment of debt in the fiscal year ended August 31, 1997 in the amount of
Cdn $564,000.
SEASONALITY
GGI's land and transition zone seismic data acquisition activities were
traditionally seasonal in nature, with decreased revenues experienced during the
first quarter of each year due to the effects of weather conditions in the
United States and delays by customers in committing their annual geophysical
expenditure budgets to specific projects. The Company believes that the
Acquisition will help mitigate this traditional seasonality due to Solid State's
Canadian operations, which generally experience a peak during the first quarter
of the year, primarily due to favorable ground conditions in Canada.
IMPACT OF SOLID STATE ACQUISITION
The Company believes that the Acquisition will increase management and
operating depth, mitigate the effects of seasonality and create operating
efficiencies by consolidating operations, increasing overall crew utilization
and reducing capital expenditures. Solid State, however, has incurred operating
losses in two of its most recent three fiscal years and has experienced
significant net losses in each of its most recent three fiscal years after
accounting for costs and charges for interest, income taxes and asset
writedowns. Aggregate net losses during this three-year period totaled Cdn $21.6
million on aggregate contract revenues of Cdn $171.9 million.
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See the consolidated financial statements of Solid State and notes thereto,
included elsewhere in this Subscription Offering Prospectus.
The losses experienced by Solid State were primarily the result of
specific, identifiable events. The most significant loss incurred by Solid State
during this three-year period related to a 1996 multi-client data project in
southern Louisiana. On this project, Solid State incurred a loss of
approximately Cdn $8.6 million. This loss primarily resulted from materially
underestimated costs associated with working in swamp, marsh and river
environments where Solid State had very limited operating experience. The
collection of such multi-client data was completed in 1997, and such data was
written down to its then estimated net realizable value in connection with Solid
State's audit for fiscal 1996. At September 30, 1997, on a pro forma basis, the
carrying value of such multi-client data was approximately $11.3 million. Based
on licensing revenues actually realized and on future licensing prospects
identified for such data through December 31, 1997, management of the Company
determined that there had been a permanent impairment in the net realizable
value of such data. As a result, management of the Company reduced the carrying
value of its multi-client data as of December 31, 1997 by $5.9 million.
In fiscal 1997, Solid State incurred losses of approximately Cdn $5.5
million primarily related to a turnkey project for an oil company in Venezuela.
A combination of limited operating experience in the jungle environment,
combined with a lack of sufficient organizational infrastructure, resulted in
poor productivity and substantially increased costs. This project was completed
in November 1997 and the equipment and permanent personnel relocated to Solid
State's core Canadian operations. The losses associated with the Venezuelan
project were recognized in Solid State's fiscal 1997 results.
Management of the Company believes that the operating difficulties outside
of Canada that have impacted Solid State's financial results in the past three
years have been satisfactorily addressed and are less likely to reoccur in
future periods. However, because of conditions that may impair Solid State's
ability to continue as a going concern, Price Waterhouse, chartered accountants
for Solid State, has supplemented its opinion on Solid State's fiscal 1997
financial statements. There can be no assurance that the operations of Solid
State that are being purchased in the Acquisition will not incur significant
operating losses in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are its cash balances ($23.5
million at March 15, 1998) and cash flow from operations. External sources
include the unutilized portion of the Credit Facility ($5.0 million at March 15,
1998), equipment financing and trade credit. The Credit Facility contains a $5
million revolving credit facility, which currently provides for borrowings at an
interest rate per annum of the prime rate plus 2%, secured by liens on
substantially all of the assets of the Company and certain of its subsidiaries.
The Company anticipates that it will seek to replace the Credit Facility with a
new credit facility, which will provide the Company with greater borrowing
capacity. In addition to its borrowing under the Credit Facility, the Company
periodically enters into equipment financing agreements with sellers of seismic
data acquisition equipment to pay all or a portion of the purchase price of such
equipment and regularly utilizes normal trade credit in connection with certain
of its purchases of goods and services to support its ongoing field crew
activities.
On February 18, 1998, Grant issued $100 million aggregate principal amount
of Original Notes pursuant to exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act. The Original Notes are,
and the Exchange Notes will be, governed by the Indenture. The Notes bear
interest at 9 3/4% per annum and were sold at a discount to yield 9 7/8% per
annum. The net proceeds from the sale of the Original Notes were used to retire
substantially all of Grant's then outstanding indebtedness, purchase certain
leased equipment and provide for working capital.
At March 15, 1998, on a pro forma basis after giving effect to the issuance
of the Original Notes and the application of the net proceeds therefrom, the
Company's total indebtedness would have been approximately $108.1 million
(including approximately $300,000 under letters of credit). The Company's total
indebtedness is comprised of $99.2 million aggregate principal amount of the
Notes and $8.9 million of combined loans and capitalized leases incurred for the
purpose of financing capital expenditures.
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The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries (as defined in the Indenture) to, among other
things, incur additional indebtedness (including capital leases), incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company or any of its Restricted Subsidiaries. In addition, the Credit
Facility limits the Company from taking, without the consent of the lender,
certain actions, including creating indebtedness in excess of specified amounts
and declaring and paying dividends.
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, make principal and interest payments
required by the terms of its indebtedness and fund expenses associated with the
implementation of its business strategy. Because of the traditionally longer
period required to collect receivables and the high costs associated with
equipping and operating crews outside of the United States and Canada, the
Company requires significant levels of working capital to fund its international
operations. On a pro forma basis, these operations accounted for 53.3% of total
revenues for the twelve months ended December 31, 1997.
Combined capital expenditures for the twelve months ended December 31, 1997
were $27.1 million. Capital expenditures are used primarily by the Company to
purchase seismic data acquisition equipment. The Company committed approximately
$12 million of capital expenditures during the fourth quarter of 1997 and has
budgeted approximately $21 million of capital expenditures in 1998 to upgrade
and expand its seismic data acquisition equipment. For 1998, the Company has
also budgeted approximately $16 million of expenditures, before customer
commitments, for multi-client data acquisition activities. During the three
months ended December 31, 1997, capital expenditure commitments made by Grant
were financed primarily through the issuance of short-term promissory notes to
the sellers of equipment.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure program, fully implement
its business strategy and meet its principal and interest obligations with
respect to the Notes and its other indebtedness. The Company anticipates that
available cash, cash flow generated from operations and borrowings under the
Credit Facility will provide sufficient liquidity to fund these requirements for
the foreseeable future. However, the Company's ability to meet its debt service
and other obligations depends on its future performance, which in turn is
subject to general economic conditions and other factors beyond the Company's
control. If the Company is unable to generate sufficient cash flow from
operations or otherwise to comply with the terms of the Indenture, the Credit
Facility or its other debt instruments, it may be required to refinance all or a
portion of its existing debt or obtain additional financing. There can be no
assurance that such refinancing or additional financing will be available on
terms acceptable to the Company.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company conducts a substantial portion of its business in currencies
other than the U.S. dollar or Canadian dollar, particularly various Latin
American currencies, and its operations are subject to fluctuations in foreign
currency exchange rates. Accordingly, certain of the Company's international
contracts could be significantly affected by fluctuations in exchange rates,
particularly in Brazil and Columbia. The Company's international contracts
require payment in U.S. dollars, Canadian dollars, various local currencies or a
combination thereof. Payments in local currencies typically are indexed to
inflationary tables and generally are used for local expenses. The Company
attempts to structure the majority of its international contracts to be billed
and paid at a certain U.S. dollar conversion rate. Additionally, the Company's
foreign subsidiaries periodically enter into local currency debt to pay expenses
incurred locally. The Company presently does not use any derivatives or forward
foreign currency exchange rate hedging arrangements, but may elect to do so in
the future.
GGI's operating results were negatively impacted by foreign exchange losses
of approximately $98,000 during the nine months ended September 30, 1997, and
$251,000 during 1996. The Company's operating results were negatively impacted
by foreign exchange losses of approximately $289,000 during the three months
ended December 31, 1997. Foreign exchange gains positively impacted operating
results in 1995 by approximately $102,000.
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EFFECT OF INFLATION
Current economic conditions indicate that the costs of exploration and
production for oil and gas are increasing. The oil and gas industry historically
has experienced periods of rapid cost increases within short periods of time as
demand for drilling rigs, drilling pipe and other materials and supplies
increases. The oil and gas industry is currently experiencing such increases in
demand, which have historically led to rapid increases in costs. Increases in
exploration and production costs could lead to a decrease in such activities by
oil and gas companies, which would have an adverse effect on the demand for the
Company's services.
YEAR 2000 COMPLIANCE
The Company does not expect that the cost of converting its computer
systems to year 2000 compliance will be material to its financial condition. The
Company believes that it will be able to achieve year 2000 compliance by the end
of 1999, and it does not currently anticipate any disruption in its operations
as the result of any failure by the Company to be in compliance. The Company
does not currently have any information concerning the year 2000 compliance
status of its customers and vendors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company plans to adopt SFAS 130 in the first quarter of 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company plans to adopt SFAS 131 in the first quarter of 1998.
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BUSINESS
OVERVIEW
The Company is a leading provider of seismic data acquisition services in
land and transition zone environments in selected markets, including the United
States, Canada, Latin America and the Far East. In September 1997, Grant
purchased substantially all of the assets and certain of the liabilities of GGI,
and in December 1997, completed the acquisition of Solid State, a leading
provider of land seismic data acquisition services in Canada. Through its
predecessors, including GGI and Solid State, the Company has participated in the
seismic data acquisition services business in the United States and Latin
America since the 1940s, the Far East since the 1960s and Canada since the
1970s. The Company has conducted operations in each of these markets, as well as
in the Middle East and Africa, in the past three years. The Company's seismic
data acquisition services typically are provided on an exclusive contract basis
to domestic and international oil and gas companies and seismic data marketing
companies. The Company also owns interests in certain multi-client seismic data
covering selected areas in the United States and Canada that is marketed broadly
on a non-exclusive basis to oil and gas companies.
According to industry sources, as of March 15, 1998, the Company is the
third largest land seismic data acquisition company in the western hemisphere,
based on the number of seismic data acquisition crews in operation. As of March
15, 1998, the Company was operating or mobilizing 22 seismic data acquisition
crews, consisting of 18 land and four transition zone crews, utilizing
approximately 30,000 seismic recording channels, which use sophisticated
equipment to perform specialized 3D and 2D seismic surveys. All of the Company's
seismic data acquisition crews are capable of performing surveys in land
environments, and four are equipped to perform surveys in transition zone
environments. Transition zone environments include swamps, marshes and shallow
water areas that require specialized equipment and must be surveyed with minimal
disruption to the natural environment. Three transition zone crews employ remote
digital seismic data recording systems, which are used primarily to perform
surveys in certain logistically challenging areas, such as highly populated
regions where cable-based recording systems are impractical. The Company has
over 20 years of experience operating in transition zone environments.
The Company believes that the combined operations of Grant and Solid State
will expand its market presence and enhance the Company's ability to compete
more effectively for projects in its selected markets. The Company also believes
that the Acquisition will increase management and operating depth, mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing overall crew utilization and reducing capital
expenditures. As of the date of the Acquisition, Solid State was operating a
total of nine land crews consisting of six crews in Canada, one crew in the
United States and two in Bolivia.
As of March 15, 1998, the Company was operating or mobilizing a total of
six crews in the United States, consisting of four land and two transition zone
crews, six land crews in Latin America, six land crews in Canada and four crews
in the Far East, consisting of two land and two transition zone crews. For the
twelve months ended December 31, 1997, on a pro forma basis, the Company's total
revenues were $173.9 million, with approximately 40.2% from Latin America, 35.4%
from the United States, 11.3% from Canada, 5.3% from Africa and 7.8% from the
Far East. As of December 31, 1997, the Company estimates that its total backlog
was approximately $144.4 million, with approximately 92% of such amount expected
to be completed in 1998.
BUSINESS STRATEGY
The Company's objectives are to strengthen its position as an established
provider of land and transition zone seismic data acquisition and related
services, increase revenue and revenue predictability, and improve cash flow and
profitability. To achieve these objectives, the Company is pursuing the
following business strategies:
Expand and Upgrade Seismic Services in Selected Growth Markets. The Company
plans to expand and upgrade its seismic data acquisition services in growing
markets where it has significant operating experience, including the United
States, particularly in the Gulf Coast, mid-continent and West Texas regions,
Canada, Latin America and the Far East. The Company believes that its experience
in these markets provides it with certain advantages over its competitors,
including lower mobilization costs, well established customer relationships and
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familiarity with country specific socio-political dynamics. In 1998, one of the
Company's primary expansion focuses will be on the Far East, where the Company
perceives sustainable long-term growth opportunities.
Improve Operating Efficiency and Reduce Operating Risk. The Company
continually refines its operating procedures and acquires seismic data
acquisition equipment aimed at increasing the efficiency of its seismic data
acquisition crews. The Company also intends to increase efficiency by expanding
crew level accountability, implementing additional procedures designed to
control costs, improving revenue predictability, increasing contractual weather
downtime protection and improving bidding practices. Management believes that
the Acquisition is consistent with this strategy in that it will mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing crew utilization and reducing capital expenditures. In
addition, the Company has adopted policies to focus its operations primarily in
regions where it has significant operating experience and will undertake certain
higher-risk contracts only on a term or cost-plus basis. These policies are
intended to reduce the financial risks associated with operations in certain
geographic areas. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
Acquire Seismic Data Acquisition and Processing Businesses. The Company
regularly evaluates potential acquisitions of seismic data acquisition and
processing businesses to expand and strengthen its activities in its selected
markets. The United States and Canadian markets are served by a large number of
seismic data acquisition companies, and the Company believes that it can improve
its competitive position through acquisitions. The Company believes that its
utilization of the crews and equipment from such acquisitions would increase the
Company's capacity and further enable the Company to deploy crews and equipment
to international locations, which have historically yielded higher profit
margins. In addition, the Company believes that the acquisition of a seismic
data processing business would complement its existing services and thereby
improve its competitive position with existing and potential customers.
Management believes that entry into the seismic data processing business would
be accomplished best through the acquisition of an established seismic data
processing company.
Expand Selected Multi-Client Data Acquisition Activities. The Company plans
to increase its investment in non-exclusive multi-client data for licensing to
multiple oil and gas companies. Increased demand by oil and gas companies for
larger and higher cost 3D surveys has resulted in significant growth in the use
of multi-client data in active oil and gas producing regions. This increased
demand has expanded the market for such data and lowered the overall risk to
seismic data acquisition companies that acquire, process and own such data.
Recently, the Company entered into an agreement with a third party that
specializes in creating and marketing multi-client surveys. The Company intends
to conduct thorough marketing and cost analyses to determine the market demand
and funding requirements and obtain significant customer commitments before
initiating such projects, thereby reducing the overall investment risk
associated with such projects. For 1998, the Company has budgeted approximately
$16 million of expenditures, before customer commitments, for multi-client data
acquisition projects. See "Risk Factors -- Investment in Multi-Client Data
Library."
Invest in Leading Technology. The Company believes that growth in demand
for geophysical services will continue to be associated with new technologies.
The Company intends to periodically upgrade its seismic data acquisition
equipment to maintain technological capabilities comparable or superior to those
of its competitors. In addition, the Company intends to expand its use of
innovative seismic data acquisition techniques, including three-component 3D and
time-lapse 3D, or 4D, seismic data acquisition services, which are experiencing
growing market demand. For 1998, the Company has budgeted approximately $21
million of capital expenditures to upgrade and expand its seismic data
acquisition equipment.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s, and the application of seismic technology frequently has led to
significant discoveries of new oil and gas reservoirs. Seismology encompasses
the generation and recording of
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reflected or refracted seismic energy that, when computer processed, produces 3D
images or 2D cross sections of the earth's subsurface structures. The computer
processed seismic data is used by geoscientists to identify geological
characteristics favorable for the accumulation of oil and gas and to evaluate
the potential for commercial production of oil and gas. More recently, seismic
data has been used to monitor and optimize the production of existing oil and
gas reservoirs. During the last fifty years, seismology has become the leading
method used by oil and gas companies to identify and image underground
geological structures favorable for hydrocarbon accumulation. Recent advances in
seismic data acquisition techniques, coupled with improvements in computer
technology, have resulted in an increased demand for seismic data acquisition
services in both the exploration for and development of new reservoirs and the
further development of existing reservoirs.
Seismic data acquisition services companies acquire seismic data in land
and transition zone environments by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the survey. An
energy source, such as a small explosive charge or mechanical vibrating unit, is
used to generate seismic energy that moves through the earth's subsurface and is
reflected by various underlying rock layers to the surface, where it is detected
by the geophones. For 2D seismic data acquisition, the typical configuration of
geophones and energy sources is a single line with an energy source and small
groups or strings of geophones placed at even intervals every few hundred feet
along the line. A geophone string typically consists of six to twelve geophones
connected by a cable. For 3D seismic data acquisition the typical configuration
is generally a grid of perpendicular lines spaced a few hundred to a few
thousand feet apart, with geophone strings spaced at intervals every few hundred
feet along one set of parallel lines and energy sources spaced at intervals
every few hundred feet along the perpendicular lines. Recording configurations
must be carefully designed to provide optimal imaging of the targeted subsurface
structures, while taking into account surface obstructions such as oil and gas
wells and pipelines, or restricted areas where permits to enter cannot be
obtained.
As many as six geophone strings are connected to a field recording box,
which collects the seismic data from those geophones. The electrical output of
each geophone string becomes the electrical input for one recording channel, or
"trace," of seismic data. Once the geophones and field recording boxes are
deployed over a portion of the survey area, an energy source is activated, the
reflected seismic energy is detected by the geophones, and the signals from the
geophones are collected and digitized by the field recording boxes. These boxes
in turn transmit the seismic data by cable, radio telemetry or through hand-held
data collection units to a central recording system. The geophones and field
recording boxes from one end of the single recording line in the case of 2D
seismic data, or an area of multiple recording lines in the case of 3D seismic
data, are then removed and relocated elsewhere in the survey area. The seismic
energy source is again activated and the entire process is repeated, moving a
few hundred feet at a time, until the entire survey area is covered.
Historically, the acquisition of 2D seismic data was the principal seismic
data acquisition technique. However, with the advancement and miniaturization of
seismic data recording equipment and the improvement of computer technology in
the past ten years, high-density surveys, or 3D seismic data, which provide a
much more comprehensive subsurface image, have become the industry standard.
Recent technical advances in seismic data acquisition and computer processing
have also resulted in the acquisition of higher-resolution surveys using
three-component geophones, known as 3C-3D, which permit the recording of shear
wave information, in addition to conventional vertical profile seismic data. In
addition, the industry is increasingly utilizing time-lapse 3D, or 4D, seismic
data acquisition techniques, where surveys are periodically reacquired to
monitor and optimize production of existing reservoirs.
Technical advances in the seismic services industry have increased the
probability of oil and gas exploration success and improved the delineation of
subsurface geological structures, which have in turn lowered overall exploration
and development costs and increased worldwide demand for seismic services. In
addition, the industry is experiencing growing demand for non-exclusive
multi-client seismic data due to the high cost and risk of drilling exploration
wells and the relatively high cost of acquiring and processing 3D seismic data.
Multi-client data allows numerous oil and gas companies to purchase the same
seismic data, thereby expanding the overall market for such data while lowering
the price charged each customer.
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LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A seismic data acquisition crew typically consists of a surveying crew that
lays out the lines to be recorded and marks the sites for energy source or
geophone placement and equipment location, an explosives or mechanical vibrating
or compressed air unit crew, and a recording crew that lays out the geophones
and field recording boxes, directs shooting operations and records the seismic
energy reflected from subsurface structures. A land seismic data acquisition
crew utilizing an explosives unit is supported by several drill crews, generally
furnished by third parties under short-term contracts. Drill crews operate in
advance of the seismic data acquisition crew and bore shallow holes for small
explosive charges that, when detonated, produce the necessary seismic impulse.
In locations where conditions dictate or where the use of explosives is
precluded due to regulatory, topographical or ecological factors, a mechanical
vibrating unit or compressed air unit is substituted for explosives as the
seismic energy source. The Company also employs specialized crew mobilization
equipment to improve productivity in certain applications, including helicopters
for rugged terrain or in agricultural areas, small water craft for transition
zone applications, and man-portable equipment in jungle and other environments
where vehicular access is limited. Depending on the size of the seismic survey,
the location and other logistical factors, a typical land seismic data
acquisition crew operated by the Company may involve from as few as 30 to as
many as 1,500 employees.
One of the challenges inherent in land seismic data acquisition is
operating in challenging logistical environments without disrupting the
sensitive ecosystems in which surveys are frequently located. The Company
currently operates three seismic crews that employ remote digital seismic
equipment, which can be deployed without the use of conventional seismic cables,
thereby allowing access to such environments. Remote digital seismic equipment,
which uses radio signals to transmit data, is typically used in transition zone
and other logistically challenging environments such as highly populated regions
with numerous topographic obstructions and areas where conventional cable-based
recording systems are impractical. The Company has over 20 years of experience
operating in transition zone environments in the Gulf Coast region of the United
States, the Far East and Africa.
Once recorded by the seismic data acquisition crew, seismic data is
computer processed to enhance the recorded signal by reducing noise and
distortion and improving resolution to produce a representation of the survey
site's subsurface structures. The Company presently does not perform seismic
data processing services, although it plans to initiate such services in the
future. See " -- Business Strategy -- Acquire Seismic Data Acquisition and
Processing Businesses."
The Company markets its seismic data acquisition services from its Houston
and Calgary corporate offices and its regional and international administrative
centers by personnel whose duties include technical, supervisory or executive
responsibilities. The Company works closely with its clients to plan seismic
data acquisition projects in accordance with their specifications. Contracts are
executed with oil and gas companies on either a turnkey, term or cost-plus
basis. Turnkey contracts provide for payments from customers based upon the
amount of data collected. Term contracts provide that the customer is
responsible for a periodic fee during the term of the project. Cost-plus basis
contracts provide that the costs of a project plus a percentage fee are borne by
the customer, which significantly reduces the Company's risk of a cost overrun.
In addition, the Company's contracts typically specify the amount of weather and
other downtime risk that will be borne by the Company.
Contracts are usually awarded on a competitive bid basis. Contracts for
seismic data acquisition services outside the United States are typically
denominated in U.S. dollars, Canadian dollars or other currencies that the
Company believes to be stable. The Company's operations in certain areas outside
the United States and Canada may, however, require the Company to denominate
contracts in the local currency or partially in U.S. dollars and partially in
the currency of the country of operation. In such contracts, the local currency
is usually used to pay local crew-related expenses. See "Risk Factors -- Risks
Inherent in International Operations" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Foreign Exchange Gains and
Losses."
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MARKETS
The Company is presently active in the United States, Canada, Latin America
and the Far East and has conducted activities in the Middle East and West Africa
within the last three years. The following table sets forth the Company's
revenues by geographic area, on a pro forma basis, for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States................................ $ 51,079 $ 53,485 $ 61,630
Canada....................................... 16,796 15,824 19,591
Latin America................................ 32,623 60,688 69,877
Far East..................................... 3,621 5,412 13,482
Africa and Middle East....................... 19,346 2,746 9,285
-------- -------- --------
$123,465 $138,155 $173,865
======== ======== ========
</TABLE>
- ---------------
Solid State's fiscal year end is August 31. For pro forma purposes, revenues
for Solid State have been adjusted to reflect the periods December 1 through
November 30 for each of the years ended 1995 and 1996 and to reflect the
period December 1, 1996 through August 31, 1997 to combine with GGI's years
ended 1995 and 1996 and the nine months ended September 30, 1997 and the
Company's three months ended December 31, 1997. The revenues for the three
months ended December 31, 1997 includes the combined operations of Solid
State and Grant. See Note 1 to the consolidated financial statements of the
Company. See Note 5 to the consolidated financial statements of the Company
and GGI and Note 11 to the consolidated financial statements of Solid State
for additional geographic information.
BACKLOG
The Company's backlog for seismic data acquisition services represents the
revenues anticipated to be received by the Company in connection with
commitments for contracted services received from its customers. As of December
31, 1997, the Company estimates that its total backlog was approximately $144.4
million, with approximately 92% of such amount expected to be completed in 1998,
as compared to a total backlog of approximately $100 million as of December 31,
1996. Most of the Company's contracts are terminable by the customer upon
relatively short notice and, in some cases, without penalty. The Company's
backlog as of any particular date is not indicative of the likely operating
results for any succeeding period, and there can be no assurance that the amount
of backlog will ultimately be realized as revenue.
CAPITAL EXPENDITURES AND TECHNOLOGY
The Company's ability to compete and maintain a significant market position
in the land seismic data acquisition business is partially driven by its ability
to provide technology comparable to that of its primary competitors.
Accordingly, the Company continually maintains and periodically upgrades its
seismic data acquisition equipment to maintain its competitive position. The
Company committed approximately $12 million of capital expenditures during the
fourth quarter of 1997 and has budgeted approximately $21 million for this
purpose in 1998. Capital expenditures in 1998 will be used principally to
upgrade and expand its seismic data acquisition equipment. In addition, the
Company has budgeted approximately $16 million of expenditures, before customer
commitments, for multi-client data acquisition projects in 1998.
In connection with its capital expenditure program, the Company focuses its
efforts on developing operating procedures and acquiring equipment that will
enhance the efficiency of its seismic data acquisition crews and reduce the time
required to complete projects. The Company's strategy does not contemplate the
development of proprietary seismic data acquisition equipment, but instead
relies on the use of third-party equipment suppliers to provide such equipment,
although certain equipment will be customized to the Company's specifications to
enhance operating efficiency. Certain of the equipment, processes and techniques
used by the Company are subject to the patent rights of others, and the Company
holds non-exclusive licenses with respect to a number of such patents. While the
Company regards as beneficial its access to third-party technology through
licensing, the
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Company believes that substantially all presently licensed technology could be
replaced without significant disruption to the business.
LICENSING OF MULTI-CLIENT DATA
The Company presently owns a small library of multi-client seismic data
that is licensed to oil and gas companies on a non-exclusive basis and has an
interest in certain multi-client data that is owned by third-parties. This data
was previously acquired by GGI and Solid State in three principal areas:
southern Louisiana, New Mexico and western Canada. At December 31, 1997 on a pro
forma basis, the carrying value of multi-client data acquired by Solid State was
approximately $5.7 million.
In October 1997, Grant entered into an agreement with Millennium Seismic,
Inc. ("Millennium") to develop, market and regularly conduct non-exclusive
seismic surveys. Millennium's management has significant experience in the
planning, development and sale of multi-client surveys in the United States.
Under the agreement with Millennium, all surveys developed and acquired will be
owned by the Company, and Millennium will receive payments based on the revenues
obtained through licensing the acquired data. The Company plans to expand its
acquisition of multi-client seismic data by conducting additional surveys that
are partially or wholly funded by multiple customers. For 1998, the Company has
budgeted approximately $16 million of expenditures, before customer commitments,
for multi-client data acquisition activities.
Factors considered by the Company when determining whether to undertake a
multi-client survey include the availability of customer commitments to offset a
percentage of the survey cost, the number of potential customers for the
completed data, the location to be surveyed, the probability and timing of
future lease, concession, exploration and development activity in the area, and
the availability, quality and price of competing data. Although the Company
anticipates obtaining commitments for a substantial majority of the cost of any
future multi-client data survey and conducts thorough market and cost analyses
to determine the market demand and necessary funding prior to undertaking a
project, the Company still may not be able to fully recoup its costs if it
substantially underestimates the cost or overestimates market demand for such
multi-client project. See "Risk Factors -- Investment in Multi-Client Data
Library."
CUSTOMERS AND PROJECTS
The Company's customers consist of domestic and international oil and gas
companies and seismic data marketing companies. As is the case for many service
companies in the oil and gas industry, a relatively small number of customers or
a limited number of significant projects may account for a large percentage of
the Company's net sales in any given year. Moreover, such customers and projects
may, and often do, vary from year to year. During 1996 and the first nine months
of 1997, GGI's five largest customers accounted for approximately 42.3% and
53.0%, respectively, of GGI's net sales. GGI, during 1996, had revenues from a
U.S. based international oil company of approximately $14.8 million (14%). In
the first nine months of 1997, GGI had revenues from a foreign national oil
company of approximately $14.0 million (15%) and also from a U.S. based
exploration company of approximately $9.9 million (11%). During 1997, on a pro
forma basis, the five largest customers of the Company accounted for
approximately 31.9% of the Company's net sales. During 1997, on a pro forma
basis, no customer accounted for 10% or more of the Company's combined revenues.
Although GGI and Solid State have had long-term relationships with numerous
customers, the continuation of these relationships is primarily dependent on the
customers' needs for the Company's services and the customers' ongoing
satisfaction with the price, quality, dependability and availability of the
Company's services. See "Risk Factors -- Reliance on Significant Customers and
Projects."
COMPETITION
The acquisition of seismic data for the oil and gas industry is highly
competitive worldwide. However, as a result of changing technology and increased
capital requirements, the seismic industry has consolidated substantially since
the late 1980s, thereby reducing the number of competitors. The Company's
principal competitors in North America are Western Atlas, Inc. ("Western
Atlas"), Veritas DGC, Inc., Geco-Prakla Inc., a subsidiary of Schlumberger
Limited, and several regional competitors. In Latin America and the Far East,
the
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Company competes with Western Atlas, Compagnie General de Geophysique, Inc.,
Geco-Prakla Inc., and several other local competitors. Competition is based
primarily on price, crew availability, prior performance, technology, safety,
quality, dependability and the contractor's expertise in the particular area
where the survey is to be conducted. See "Risk Factors -- Competition for
Seismic Business."
EMPLOYEES
As of December 31, 1997 the Company employed approximately 750 full-time
personnel worldwide and approximately 2,600 auxiliary field personnel on
temporary contracts. None of the Company's employees is subject to collective
bargaining agreements. The Company considers its relations with its employees to
be good.
PROPERTIES
The Company owns a 30,000 square foot building and storage yard in Houston,
Texas which serves as its corporate headquarters, warehouse and staging
facility. The Company also owns its office, staging and repair facility located
on a two acre tract in New Iberia, Louisiana. In Calgary, Alberta, Canada, the
Company owns an 18,000 square foot building and storage yard that serves as the
Company's Canadian headquarters. In addition, the Company leases office,
warehouse and storage space in areas throughout the world as may be required
from time to time to support the Company's operations.
ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION
The Company's domestic operations are subject to a variety of federal,
state and local laws and regulations relating to the protection of human health
and the environment, the violation of which may result in civil or criminal
penalties. The Company invests financial and managerial resources to comply with
such laws and regulations and management believes that it is in compliance in
all material respects with applicable environmental laws and regulations.
Although such environmental expenditures by the Company historically have not
been significant, there can be no assurance that these laws and regulations will
not change in the future or that the Company will not incur significant costs in
the future performance of its operations. The Company is not involved in any
legal proceedings concerning environmental matters and is not aware of any
claims or potential liability concerning environmental matters that could have a
material adverse impact on the Company's business or consolidated financial
condition.
The Company's operations outside of the United States are subject to
similar environmental regulation in a number of foreign locations, including
Canada, Latin America, and the Far East. Management believes that the Company is
in material compliance with the existing environmental requirements of these
foreign governmental bodies. The Company has not incurred any significant
environmental cost in connection with the performance of its foreign operations;
however, any regulatory changes that impose additional environmental
restrictions or requirements on the Company or its customers could adversely
affect the Company through increased operating costs and decreased demand for
the Company's services.
LEGAL PROCEEDINGS
On December 11, 1997, certain Eligible Subscribers, acting through an "ad
hoc" committee (the "Plaintiffs") commenced a lawsuit in the Bankruptcy Court
against Grant, GGI, Elliott, Westgate and SSGI. The lawsuit alleges that (i) GGI
and Elliott breached their obligations under the Plan by seeking to complete the
Acquisition prior to commencing the Subscription Offering, (ii) the Acquisition
and certain related transactions are unfair to the Plaintiffs because they
dilute the value of the Common Stock to be issued to them under the Subscription
Offering and impair the Company's equity value and (iii) the Acquisition and
certain related transactions could and should have been, but were not,
adequately disclosed in the disclosure statement filed with the Bankruptcy Court
regarding the Plan. The Plaintiffs have requested (i) compensatory and punitive
damages in an unstated amount and (ii) revocation of the Plan.
In addition, the Plaintiffs sought to enjoin completion of the Acquisition
and certain related transactions pending a trial on the merits. This request for
injunctive relief was denied by the Bankruptcy Court on December 16, 1997, and
was denied on appeal by the United States District Court for the District of
Delaware on December
43
<PAGE> 45
19, 1997. Currently, discovery for the lawsuit is ongoing; however, no trial
date has been set. The Company believes that all claims by the Plaintiffs are
without merit and plans to vigorously defend the lawsuit. In addition, Elliott
has agreed to indemnify the Company against any liability that the Company may
incur by reason of any adverse final judgment in the lawsuit. Nevertheless, if
not resolved in the Company's favor, this lawsuit, and the potential for other
lawsuits related to the Plan, could have an adverse effect on the Company's
business, reputation, operating results and financial condition.
The Company is also involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on its
consolidated operations or financial position.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and current principal position of each director, executive
officer and significant employee of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ------ --------
<S> <C> <C>
Jonathan D. Pollock 34 Chairman of the Board
Larry E. Lenig, Jr. 49 President, Chief Executive Officer and Director
Mitchell L. Peters 42 Senior Vice President
Michael P. Keirnan 46 Vice President and Chief Financial Officer,
Treasurer and Secretary
Barry K. Burt 48 Vice President-International Operations
D. Hugh Fraser 50 Vice President-United States Operations
W. Richard Anderson 44 Director
James R. Brock 38 Director
J. Kelly Elliott 67 Director
Donald G. Russell 66 Director
Donald W. Wilson 50 Director
</TABLE>
Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any directors or executive officers of the
Company. See "Certain Relationships and Related Transactions -- Selling
Stockholders" for a description of certain other relationships between or among
directors and executive officers of the Company.
JONATHAN D. POLLOCK has served as Chairman of the Board of the Company
since September 30, 1997. Mr. Pollock has served as a Portfolio Manager with
Stonington Management Corporation, the management company of Elliott and
Westgate since 1989. Mr. Pollock is also a director of Tatham Offshore, Inc., an
oil and gas exploration services company, a director of F-W Oil Interests, Inc.,
an oil and gas exploration and production company, a director and Chairman of
Horizon Offshore, Inc., an oil and gas pipeline construction company, and a
director and Chairman of Horizon Barge and Towing, Inc.
LARRY E. LENIG, JR. has served as President, Chief Executive Officer and a
director of the Company since September 30, 1997, and President and Chief
Operating Officer of GGI from January 1997 until September 30, 1997. From 1993
through 1996, Mr. Lenig was engaged in private consulting to a variety of energy
and energy services companies and financial institutions. Mr. Lenig served as
President and Chief Operating Officer and a director of Digicon Inc., a seismic
services company, from 1989 until 1993.
MITCHELL L. PETERS has served as Senior Vice President of the Company since
December 1997 and has served as President and Chief Executive Officer and a
director of Solid State since 1985. Mr. Peters is also a director of Nortech
Geomatics Inc., an engineering services company.
MICHAEL P. KEIRNAN has served as Vice President and Chief Financial Officer
of the Company since September 30, 1997, and was Vice President and Chief
Financial Officer of GGI from February 1997 until September 30, 1997. From March
1996 until February 1997, Mr. Keirnan served as Manager of Treasury Operations
of Gundle/SLT Environmental, Inc., a plastic lining manufacturing company. Mr.
Keirnan also served
44
<PAGE> 46
as Controller and Treasurer of GGI from 1993 through March 1996 and held other
senior financial management positions with GGI since 1988.
BARRY K. BURT has served as Vice President-International Operations of the
Company since September 30, 1997, and was Vice President-International
Operations of GGI from December 1996 until September 30, 1997. From 1986 through
December 1996, Mr. Burt held a variety of management positions with GGI in
international operations.
D. HUGH FRASER has served as Vice President-United States Operations of the
Company since September 30, 1997, and was Vice President-United States
Operations of GGI from January 1992 until September 30, 1997. From 1986 through
January 1992, Mr. Fraser was an area manager of United States operations with
GGI.
W. RICHARD ANDERSON has served as a director of the Company since January
1998. Mr. Anderson previously served as a director of Solid State from December
1996 through December 1997. He has served as a managing partner of Hein +
Associates LLP, a certified public accounting firm, since January 1995 and as a
partner since 1989.
JAMES R. BROCK has served as a Director of the Company since January 1998.
Mr. Brock has served as Executive Vice President and Chief Financial Officer of
F-W Oil Interests, Inc., an oil and gas exploration and production company,
since January 1995. From November 1990 through December 1995, Mr. Brock served
as Treasurer, Corporate Controller and Chief Accounting Officer of Offshore
Pipelines, Inc., a marine engineering and construction company.
J. KELLY ELLIOTT has served as director of the Company since September 30,
1997. Until that time, Mr. Elliott was Chairman of the Board of GGI beginning on
November 20, 1996. He previously served as Chairman of the Board of GGI from
June 1993 through November 1995. Mr. Elliott has served as Chairman, President,
and Chief Executive Officer of Sigma Electronics, Inc., an electronics and
manufacturing company since 1991. Mr. Elliott is also a director of Tescorp,
Inc., a cable-manufacturing company. Mr. Elliott has no affiliation with Elliott
or Westgate.
DONALD G. RUSSELL has served as a director of the Company since September
30, 1997 and a director of GGI from February 1997 until September 30, 1997 and
from July 1993 through November 1995. Mr. Russell has served as Chairman of the
Board and Chief Executive Officer of Sonat Exploration Company, an oil and gas
exploration company, since 1988, and a director of Sonat, Inc., a diversified
energy company, since 1994.
DONALD W. WILSON has served as a Director of the Company since January
1998. Mr. Wilson has served as President and Chief Executive Officer of F-W Oil
Interests, Inc., an oil and gas exploration and production company, since
January 1996. From January 1995 through December 1995, Mr. Wilson served as
Executive Vice President - Worldwide Operations of J. Ray McDermott, S.A., a
marine engineering and construction company. From December 1992 through December
1994, Mr. Wilson served as President of O.P.I. International, Inc., a subsidiary
of Offshore Pipelines, Inc.
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company will be paid a monthly retainer of
$1,000 and $500 for each board or committee meeting attended by such director.
Under the Incentive Plan (as defined below), each nonemployee director of the
Company will receive 3,000 restricted shares of Common Stock on the date that
such director is first elected (after the adoption of the Incentive Plan) and
again upon the date of each subsequent reelection to the Board of Directors.
Nonemployee directors are also eligible to receive other awards under the
Incentive Plan. See "-- 1997 Equity and Performance Incentive Plan."
COMPENSATION OF EXECUTIVE OFFICERS
The Company was organized in September 1997 and did not conduct any
operations or have any employees before the Effective Date. As a result, the
Company does not have any executive officers with respect to whom disclosure of
executive compensation is required under the Securities Act or the rules and
regulations promulgated thereunder.
45
<PAGE> 47
EMPLOYMENT AGREEMENTS
Grant and Solid State have entered into employment agreements (the
"Employment Agreements") with Larry E. Lenig, Jr. and Mitchell L. Peters (the
"Executive Officers"), respectively. The Employment Agreements have an initial
term through December 31, 2000 and provide for annual base salaries of $180,000
for Mr. Lenig and Cdn $230,000 for Mr. Peters. Mr. Lenig's Employment Agreement
also provides for an annual bonus based on the Company's performance. The
Employment Agreements provide generally that, if the Executive Officer is
terminated for any reason other than for "cause" (as defined in the Employment
Agreements), the Company must: (i) in Mr. Lenig's case, make base salary
payments for the remainder of his Employment Agreement's term, and (ii) in Mr.
Peters' case, make a payment equal to two-times his base salary in effect as of
the date of termination. Each of Mr. Lenig and Mr. Peters has agreed pursuant to
the Employment Agreements not to compete with the Company by engaging in any
"competing business" (as defined in the Employment Agreements) for a period of,
in Mr. Peters' case, 24 months following termination of employment or, in Mr.
Lenig's case, 24 months following the term of his agreement.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan) was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997 and amended to increase the total shares available under the
Incentive Plan in February 1998. A total of 1,450,000 shares of Common Stock has
been reserved for issuance under the Incentive Plan. The Incentive Plan provides
for the grant to officers (including officers who are also directors),
employees, consultants and nonemployee directors of the Company and its
subsidiaries, of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code"), nonstatutory stock options,
stock appreciation rights and restricted shares and deferred shares of Common
Stock (collectively, the "Awards"). The Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
nonemployee directors. The Board of Directors or its designated committee will
select the employees and nonemployee directors to whom Awards may be granted and
the type of Award to be granted and determine, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. There are no awards currently
outstanding under the Incentive Plan. The Board of Directors, however, has
approved the grant of options to purchase an aggregate of 1,339,900 shares of
Common Stock to certain officers and other key employees of the Company. Options
approved by the Board of Directors will vest annually in equal increments over a
three-year period beginning on December 31, 1998, and have an average exercise
price of $6.07 per share.
401(k) PLAN
The Company has assumed GGI's defined contribution retirement plan, which
complies with Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan
was adopted by GGI in January of 1989 and assigned to the Company as of the
Effective Date. Substantially all U.S. based employees of the Company and its
subsidiaries with at least six months of continuous service are eligible to
participate and may contribute from 1% to 15% of their annual compensation.
Under the 401(k) Plan, the Company may provide matching contributions of a
discretionary percentage, as determined by the Board of Directors, of an
employee's contributions.
46
<PAGE> 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SELLING STOCKHOLDERS
In connection with the consummation of the Plan, the Selling Stockholders
satisfied certain claims of Foothill Capital Corporation against GGI (the
"Foothill Claim") in the principal amount of approximately $12.7 million. In
addition, Westgate purchased certain claims of Oyo Geospace Corporation against
GGI (the "Oyo Claim") that were assumed by Grant, in the principal amount of
approximately $6.9 million, and the Selling Stockholders purchased certain
claims of Madeleine L.L.C. against GGI (the "Madeleine Claim"), in the principal
amount of approximately $5.6 million. The Selling Stockholders' satisfaction of
the Foothill Claim was credited against the cash obligation under the Cash
Purchase Price. In exchange for the satisfaction of the Foothill Claim and the
cancellation of the Oyo Claim, Grant issued 19,571.162 shares of Preferred Stock
to the Selling Stockholders. The Preferred Stock provides for dividends payable
in additional shares of Preferred Stock at a rate of 10.5% per annum, the right
to designate two members of the Board of Directors and the right to vote on
certain extraordinary matters presented for a stockholder vote and, upon certain
events of default, the right to designate two additional members to the Board of
Directors. On December 19, 1997, Grant exchanged 9,571.162 shares of Preferred
Stock held by Elliott for the Subordinated Note. Elliott loaned $10.2 million to
the Company on November 26, 1997, under a demand promissory note (the
"Promissory Note"), with interest at a rate per annum equal to the prime rate
plus 2%. On December 30, 1997, the Selling Stockholders and the Company paid the
remainder of the Cash Purchase Price, approximately $34.8 million, which
included the satisfaction of the Madeleine Claim and the cancellation of the
Promissory Note, and the Company issued 9.5 million shares of Common Stock to
the Selling Stockholders in accordance with the Plan. In addition, upon
consummation of the Subscription Offering, Elliott is entitled to receive
237,500 shares of Common Stock pursuant to the Plan.
Elliott is a Delaware limited partnership and Westgate is a Cayman Islands
limited partnership, each of which invests and trades in a wide range of United
States and non-United States equity and debt securities and other financial and
investment interests, instruments and property. The general partners of Elliott
are Paul E. Singer and Braxton Associates, L.P., which was formed by Mr. Singer
in 1975. Elliott commenced operations in 1977, and its limited partners include
pension plans, corporations, family groups, individuals and a substantial
investment by Mr. Singer and his family. The general partner of Westgate is
Hambledon, Inc., a corporation controlled by Braxton Associates, L.P. Elliott
and Westgate are each managed by Stonington Management Corporation, a
corporation controlled by Mr. Singer. Jonathan D. Pollock, Chairman of the Board
of the Company, is also a Portfolio Manager with Stonington Management
Corporation and a director of F-W Oil Interests, Inc. In addition, Donald W.
Wilson and James R. Brock, directors of the Company, are officers of F-W Oil
Interests, Inc., an affiliate of the Selling Stockholders. Elliott has agreed to
indemnify the Company against any liability that the Company may incur by reason
of an adverse final judgment in the lawsuit brought by the Plaintiffs in the
Bankruptcy Court. See "Business -- Legal Proceedings."
LOAN AND SECURITY AGREEMENT
On October 1, 1997, Grant and Elliott entered into the Credit Facility
under which the Company may borrow up to an aggregate principal amount of $5
million in revolving loans. The Company is required to pay interest on the
outstanding principal balance of revolving loans at a rate per annum equal to
the prime rate plus 2%. The term of the Credit Facility runs through March 31,
1999 at which time all obligations of the Company under the Credit Facility are
due and payable. Elliott advanced $1.6 million of revolving loans pursuant to
the Credit Facility and also advanced the Acquisition Financing under a $15.8
million term note pursuant to the Credit Facility. The Company used a portion of
the proceeds from the offering of the Original Notes to repay the Acquisition
Financing and other indebtedness under the Credit Facility. The revolving loans
and any term notes under the Credit Facility are secured by liens on
substantially all of the assets of the Company and its subsidiaries and a pledge
by the Company of certain notes and all the outstanding shares of capital stock
of its subsidiaries. Certain subsidiaries of the Company have executed a
guaranty in favor of Elliott, each of which guarantees payment of all the
Company's obligations owed to Elliott under the Credit Facility. Each such
subsidiary has pledged its assets in favor of Elliott to secure its obligations
under its respective guaranty.
47
<PAGE> 49
REGISTRATION RIGHTS AGREEMENT
On September 19, 1997, the Selling Stockholders and the Company entered
into a Registration Rights Agreement, as amended (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, stockholders holding
at least 25% of the Registrable Securities (as defined below) have the right to
require, or "demand," registration of such Registrable Securities. Such demand
rights are subject to the condition that the Company would not be required to
effect more than five demand registrations and no more than three demands within
any twelve-month period. Such holders also have the right to participate, or
"piggyback," in equity offerings, if the Company proposes to register any of its
equity securities under the Securities Act for its own account or for the
account of other stockholders, subject to reduction of the size of such offering
on the advice of the underwriters. "Registrable Securities" is defined in the
Registration Rights Agreement as all shares of capital stock issued to the
Selling Stockholders in connection with the Plan or the Acquisition and any
equity securities of the Company issued or distributed in respect thereof by way
of any rights offering, stock dividend, stock split or other distribution,
recapitalization or reclassification and any equity securities acquired upon
exercise or conversion of any such securities. The Company is required to pay
all expenses in connection with such demand and piggyback registrations and is
required to indemnify the selling stockholders against certain liabilities,
including liabilities under the Securities Act. The rights provided in the
Registration Rights Agreement are transferable to transferees of Registrable
Securities. The Company is registering the Common Stock offered by the Selling
Stockholders in connection with the Subscription Offering pursuant to the
Registration Rights Agreement.
SOLID STATE AND THE ACQUISITION
Prior to the Tender Offer, the Selling Stockholders held an aggregate of
9,305,109 shares (representing approximately 62.5% of the fully diluted shares)
of Solid State Stock. In connection with the Acquisition, the Principal
Stockholders transferred their shares of Solid State Stock to Grant in exchange
for 4,652,555 shares of Common Stock. Grant subsequently contributed the shares
of Solid State Stock to SSGI prior to the completion of the Tender Offer. In
connection with the Tender Offer, the Selling Stockholders advanced the
Acquisition Financing to enable SSGI to consummate the Tender Offer. As a result
of the Acquisition, Grant, through SSGI, assumed $36.4 million of debt of Solid
State (the "Solid State Debt") of which $16.7 million was held by the Selling
Stockholders, which included approximately $4.2 million loaned to Solid State
and the U.S. Subsidiary (as defined herein) by the Selling Stockholders and
approximately $12.5 million loaned to the U.S. Subsidiary by Elliott under
various promissory notes. The Company used a portion of the proceeds from the
offering of the Original Notes to repay substantially all of this indebtedness.
In April 1996, the Selling Stockholders acquired 266,100 shares of Solid
State Stock at an approximate price of $1.80 per share. On April 23, 1996, Solid
State Geophysical Corp., a U.S. subsidiary of Solid State (the "U.S.
Subsidiary") issued to the Selling Stockholders a $2 million 8% Convertible
Debenture due April 30, 2001, convertible into 1,141,667 shares of Solid State
Stock. In addition, the Selling Stockholders loaned the U.S. Subsidiary $3
million due December 31, 1996 pursuant to a secured loan agreement, with
interest at 18% per annum. Such loans, and all other loans (described below) by
the Selling Stockholders to the U.S. Subsidiary, were guaranteed by Solid State.
As part of these transactions, the Selling Stockholders received warrants to
acquire 105,000 shares of Solid State Stock at an exercise price of Cdn $2.76
per share.
On October 16, 1996, the Selling Stockholders subscribed for 3,044,444
shares of Solid State Stock at a price of Cdn $1.35 per share for aggregate
proceeds of $3 million. In addition, pursuant to a secured loan agreement, the
Selling Stockholders advanced $9 million to the U.S. Subsidiary. The loan was
due October 31, 1999, and required Solid State to use its best efforts to
complete a rights offering to raise at least $4 million to pay down the loan by
January 31, 1997. Upon such repayment, the interest rate was to be reduced from
18% to 15%. The proceeds were used for working capital and to retire the April
23, 1996 loans. As part of the transaction, the Selling Stockholders received
125,000 warrants to acquire shares of Solid State Stock at an exercise price of
Cdn $1.65 per share and the warrants issued as part of the April 23, 1996
transaction were canceled.
On December 2, 1996, each of Richard Anderson, a nominee of Elliott serving
on the board of directors of Solid State, and Michael Latina, an employee of
Elliott and a director of Solid State, were awarded options to
48
<PAGE> 50
acquire 20,000 shares of Solid State Stock at an exercise price of Cdn $1.00 per
share. In January 1997, Elliott granted to Mitchell Peters, as an incentive, an
option to acquire 546,285 shares of Solid State Stock owned by Elliott at an
exercise price of Cdn $0.92 per share after payment to Elliott of Cdn $50,000
for the option, such option to be exercisable commencing February 1998. In
addition, in connection with the Tender Offer, Elliott agreed to repurchase such
option from Mr. Peters upon taking up any shares under the Tender Offer for an
aggregate consideration of approximately Cdn $1.4 million, representing the
difference in the Tender Offer price and exercise price multiplied by 546,285,
less Cdn $50,000. In connection with the Acquisition, Grant assumed Elliott's
obligation to repurchase such option.
In January 1997, Elliott and Westgate subscribed for 4,459,565 and
1,410,000 shares, respectively, at Cdn $0.92 per share. Aggregate proceeds of $4
million were used to retire indebtedness to Westgate and to reimburse expenses
of the Selling Stockholders.
On October 31, 1997, the Selling Stockholders exercised their warrants to
acquire 125,000 shares of Solid State Stock. The proceeds from the issuance of
the warrants were applied by Solid State to reduce the consolidated indebtedness
owed by Solid State to Elliott.
As of December 31, 1997, Solid State and the U.S. Subsidiary had
outstanding to the Selling Stockholders approximately $4.2 million in principal
amount under a loan agreement, which matures on October 31, 1999 and the U.S.
Subsidiary had outstanding to Elliott approximately $12.5 million in aggregate
principal amount under various promissory notes, all of which bear interest at
15% per annum. The maturities of such promissory notes were extended to March
31, 1999 prior to the offering of the Original Notes. The Company used a portion
of the proceeds from the offering of the Original Notes to repay substantially
all of this indebtedness.
APPLICATION OF PROCEEDS FROM THE ISSUANCE OF THE ORIGINAL NOTES
The net proceeds received by the Company from the issuance of the Original
Notes were used in part to repay certain indebtedness of the Company held by
Elliott, including the Subordinated Note in the principal amount of
approximately $9.8 million, the Acquisition Financing in the principal amount of
$15.8 million, and $1.6 million of revolving loans under the Credit Facility.
The net proceeds from the issuance of the Original Notes were also used in part
to repay certain indebtedness of the Company, which was incurred by Solid State,
to the Selling Stockholders, totaling approximately $16.7 million in aggregate
principal amount. In addition, the net proceeds of the issuance of the Original
Notes were used in part to repay approximately $1.6 million of accrued interest
owed to the Selling Stockholders.
OTHER
The Company engages, in the ordinary course of business, in various
transactions with its subsidiaries on a regular basis. These transactions
include the transfer of personnel and equipment, advances, repayments,
guarantees, and other similar transactions.
49
<PAGE> 51
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and Preferred Stock as of the date of this
Subscription Offering Prospectus by (i) each person who is known by the Company
to own beneficially more than 5% of the outstanding shares of the Common Stock
or Preferred Stock, (ii) each director and executive officer and (iii) all
executive officers and directors as a group. Unless otherwise indicated, each
person has sole voting power and investment power with respect to the shares
attributed to them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
---------------------------------------------- -------------------
PRIOR TO THE
SUBSCRIPTION AFTER THE SUBSCRIPTION
OFFERING OFFERING (3)
------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES (4) PERCENT (4) SHARES PERCENT
------------------------ --------- ------- ---------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Elliott Associates, L.P.(1)....... 7,076,278 50% 5,465,321 38% -- --%
Westgate International, L.P.(2)... 7,076,277 50 5,465,320 38 10,000 100
Jonathan D. Pollock............... -- -- -- -- -- --
Larry E. Lenig, Jr................ -- -- -- -- -- --
Mitchell L. Peters................ -- -- -- -- -- --
Michael P. Keirnan................ -- -- -- -- -- --
W. Richard Anderson............... -- -- -- -- -- --
James R. Brock.................... -- -- -- -- -- --
J. Kelly Elliott.................. -- -- -- -- -- --
Donald G. Russell................. -- -- -- -- -- --
Donald W. Wilson.................. -- -- -- -- -- --
All executive officers and
directors as a group (9
persons)........................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Paul E. Singer and Braxton Associates L.P., which is controlled by Mr.
Singer, are the general partners of Elliott. The business address of Elliott
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.
(2) Hambledon, Inc., which is controlled by Mr. Singer, is the sole general
partner of Westgate. Martley International, Inc. ("Martley"), which is
controlled by Mr. Singer, is the investment manager for Westgate. Martley
expressly disclaims equitable ownership of and pecuniary interest in any
shares of Common Stock. The business address of Westgate is Westgate
International, L.P. c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, British West
Indies.
(3) Assumes that all Eligible Subscribers exercise their rights in full to
purchase shares of Common Stock in the Subscription Offering.
(4) Including 237,500 shares of Common Stock, in aggregate, that the Selling
Stockholders are entitled to receive upon consummation of the Subscription
Offering pursuant to the Plan.
50
<PAGE> 52
SUBSCRIPTION PROCEDURES
The following discussion of the Subscription Offering does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Plan and the accompanying Subscription Exercise Notice,
which are incorporated herein by reference and is filed as an exhibit to the
Registration Statement of which this Subscription Offering Prospectus is a part.
See "Additional Information."
SUBSCRIPTION RIGHTS; ELIGIBLE SUBSCRIBERS
This Subscription Offering Prospectus and a Subscription Exercise Notice,
which contain information concerning the Subscription Offering, are being mailed
to each Eligible Subscriber.
The Plan provides that (i) Eligible Class 5 Claim Holders; (ii) holders of
Allowed Class 7 Interests; and (iii) holders of Allowed Class 8 Interests (each
as defined in the Plan, and collectively, the "Eligible Subscribers") have the
right to participate in the Subscription Offering. Each Eligible Subscriber's
right to purchase Common Stock is nontransferable, will not be evidenced by
certificates, and will expire on the Expiration Date. The Plan provides that
subscription rights shall represent the right to purchase, in the aggregate
4,750,000 shares of Common Stock, for an aggregate purchase price of
$23,750,000. The Eligible Subscribers are divided into the following three
groups: (i) Eligible Class 5 Claim Holders that have the right to purchase, in
the aggregate, 475,000 shares of Common Stock, for an aggregate purchase price
of $2,375,000, (ii) holders of Allowed Class 7 Interests that have the right to
purchase, in the aggregate, 4,255,000 shares of Common Stock, for an aggregate
purchase price of $21,275,000 and (iii) holders of Allowed Class 8 Interests
that have the right to purchase, in the aggregate, 20,000 shares of Common
Stock, for an aggregate purchase price of $100,000. NO PERSON IS REQUIRED TO
PURCHASE ANY SHARES OF COMMON STOCK IN THE SUBSCRIPTION OFFERING.
Pursuant to the Plan, the Company is required to conduct a subscription
offering of 4,750,000 shares of Common Stock to certain holders of claims and
other interests under the Plan for an aggregate purchase price of $23,750,000.
The Plan also authorized the offering of shares of common stock of a successor
company on economically equivalent terms. The Plan provides, however, that
Elliott or its affiliates may pay the entire purchase price to GGI, representing
the total anticipated proceeds of such offering, and then conduct a subscription
offering and retain the proceeds therefrom, which Elliott has elected to do.
Because Elliott and certain of its affiliates, as interest holders under the
Plan, were entitled to purchase 1,290,586 shares of Common Stock in an offering
by the Company, the Selling Stockholders are offering the balance of such shares
of Common Stock to the Eligible Subscribers pursuant to the Subscription
Offering. The Company is registering such shares of Common Stock pursuant to the
Registration Rights Agreement.
EXERCISE OF RIGHTS TO PURCHASE COMMON STOCK
Each Eligible Subscriber who wishes to exercise rights to purchase shares
of Common Stock must properly complete, duly execute and deliver the
accompanying Subscription Exercise Notice indicating the number of shares of
Common Stock subscribed for, together with a certified check or bank draft upon
a United States bank or wire transfer in an amount equal to the product of the
Subscription Purchase Price and the number of shares sought to be subscribed.
The Subscription Exercise Notice delivered to each Eligible Subscriber sets
forth the maximum number of shares of Common Stock that such Eligible Subscriber
is entitled to purchase in the Subscription Offering. The Subscription Exercise
Notice, together with full payment for shares subscribed for, may be delivered
to the Subscription Agent or be mailed in the enclosed return envelope. Unless
withdrawn, Subscription Exercise Notices, once delivered, may not be amended or
modified, unless permitted by the Selling Stockholders in their sole discretion,
to correct immaterial irregularities.
WHETHER HAND DELIVERED OR MAILED, SUBSCRIPTION EXERCISE NOTICES AND PAYMENT
MUST BE RECEIVED BY 5:00 P.M. CENTRAL STANDARD TIME ON , 1998.
Failure of such receipt by the expiration time for any reason, will be deemed a
waiver and release by the Eligible Subscriber of any rights the Eligible
Subscriber may have to purchase shares in the Subscription Offering. An executed
Subscription Exercise Notice, once delivered cannot be amended, modified or
rescinded by an Eligible Subscriber. Subscription Exercise Notices may be
withdrawn prior to the Expiration Date. To withdraw a Subscription Exercise
Notice, a written notice of withdrawal must be received by the Subscription
Agent prior to the Expiration Date. Any notice of withdrawal
51
<PAGE> 53
must (i) specify the name of the Eligible Subscriber, (ii) indicate the number
of shares of Common Stock subscribed for and (iii) be signed by the Eligible
Subscriber in the same manner as the original signature on the Subscription
Exercise Notice. All determinations as to proper completion, due execution
timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted exercise of subscription rights shall be made by
the Selling Stockholders, whose determination shall be final and binding. The
Selling Stockholders in their sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as they may determine or reject the purported exercise of any rights to
purchase shares of Common Stock subject to any such defect or irregularity.
Deliveries required to be received by the Subscription Agent in connection with
a purported exercise of rights to purchase shares of Common Stock will not be
deemed to have been so received or accepted until actual receipt thereof by the
Subscription Agent shall have occurred and any defects or irregularities shall
have been waived or cured within such time as the Selling Stockholders may
determine in their sole discretion. Neither the Selling Stockholders nor the
Subscription Agent will have any obligation to give notice to any Eligible
Subscriber of any defect or irregularity in connection with any purported
exercise thereof or incur any liability as a result of any failure to give such
notice.
Questions or requests regarding subscription procedures or related matters
may be directed to the Subscription Agent, (312) 904-2553.
LaSalle National Bank has been appointed as Subscription Agent for the
Subscription Offering. Delivery of Subscription Exercise Notices and any other
required documents, questions or requests, whether hand delivered or mailed,
should be directed to the Subscription Agent as follows:
LaSalle National Bank
Corporate Trust Operations, Room 1811
135 South LaSalle Street
Chicago, IL 60603
Attn: Grant Geophysical, Inc. Subscription Offering
Delivery to other than the above address will not constitute a valid
delivery.
PURCHASE PRICE
The Subscription Purchase Price will be $5.00 per share.
THE SUBSCRIPTION PURCHASE PRICE IS NOT INTENDED, AND MUST NOT BE CONSTRUED,
AS AN APPRAISAL OR RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
PURCHASING SHARES OF COMMON STOCK. THE SUBSCRIPTION PURCHASE PRICE WAS
DETERMINED IN CONNECTION WITH THE CONFIRMATION OF THE PLAN BY THE BANKRUPTCY
COURT AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE CURRENT LIQUIDATION
VALUE OF THE COMPANY OR THE PRICE AT WHICH THE COMMON STOCK WILL TRADE AFTER
COMPLETION OF THE SUBSCRIPTION OFFERING, AND THE SUBSCRIPTION PURCHASE PRICE IS
NOT INTENDED, AND MUST NOT BE CONSTRUED, TO EXPRESS AN OPINION AS TO THE VALUE
OF COMMON STOCK OFFERED HEREBY.
SETTLEMENT FOR SHARES; DELIVERY OF CERTIFICATES
As promptly as practicable following the Expiration Date, the Subscription
Agent will mail, or cause to be mailed, to each Eligible Subscriber that has
sought to exercise rights to purchase shares of Common Stock, a written
statement specifying the number of shares of Common Stock validly and
effectively subscribed for, together with a stock certificate representing the
shares of Common Stock so purchased.
Although it is anticipated that the Closing Date and delivery of the stock
certificates will occur as soon as practicable after the expiration of the
Subscription Offering, there can be no assurance that delays will not occur.
Subscribers may not be able to sell the shares purchased until certificates are
delivered.
52
<PAGE> 54
ACCOUNTING TREATMENT
On the Effective Date, each Eligible Subscriber generally recognized a loss
for United States federal income tax purposes to the extent that the amount of
cash or other property (including the fair market value, if any, of rights to
purchase Common Stock in the Subscription Offering) received by such Eligible
Subscriber under the Plan was exceeded by such Eligible Subscriber's basis in
its claim against GGI. Pursuant to the Plan, Eligible Subscribers received only
the right to purchase Common Stock in the Subscription Offering and, in some
circumstances, cash. Such rights to purchase, pursuant to the terms of the Plan,
may not be transferred by an Eligible Subscriber; accordingly, the Company
believes that an Eligible Subscriber may take the position that the rights to
purchase Common Stock in the Subscription Offering do not have any fair market
value. If such rights to purchase Common Stock were deemed to have value, each
Eligible Subscriber would have a basis in such Common Stock equal to the value
of such rights to purchase Common Stock as of the Effective Date. Consequently,
an Eligible Subscriber's taxable loss was determined as of the Effective Date
and should not be affected by whether or not such Eligible Subscriber purchases
Common Stock in the Subscription Offering. Eligible Subscribers that purchase
Common Stock in the Subscription Offering should have a basis in the Common
Stock equal to the Subscription Purchase Price increased by the fair market
value of such rights to purchase Common Stock, if any, as of the Effective Date.
Eligible Subscribers are, however, advised to consult their tax advisors as
to the United States federal income tax consequences of the Plan and purchasing
Common Stock in the Subscription Offering in light of their particular
circumstances, as well as the effect of any state, local or other tax laws.
SELLING STOCKHOLDERS
All of the 3,459,414 shares of Common Stock being offered hereby are being
offered by the Selling Stockholders. Prior to the Subscription Offering, all of
the shares of Common Stock of the Company have been owned by the Selling
Stockholders, with Elliott and Westgate holding 7,076,278 and 7,076,277 shares,
respectively. See "Certain Relationships and Related Transactions -- Selling
Stockholders." Assuming all Eligible Subscribers exercise their subscription
rights in full, following the Subscription Offering, Elliott and Westgate,
respectively, will hold 5,465,321 and 5,465,320 shares of Common Stock
(including 237,500 shares of Common Stock that the Selling Stockholders are
entitled to receive upon consummation of the Subscription Offering pursuant to
the Plan), which will constitute approximately 76% in aggregate of the
outstanding shares of Common Stock. Pursuant to the Registration Rights
Agreement, the Company is responsible for the expenses of the Subscription
Offering.
DESCRIPTION OF CAPITAL STOCK
The Company has and will have upon completion of the Subscription Offering
authorized capital stock consisting of 25 million shares of Common Stock, par
value $.001 per share, and 20,000 shares of Preferred Stock, par value $.001 per
share.
COMMON STOCK
All outstanding shares of Common Stock are fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights other than the
subscription rights offered to Eligible Subscribers pursuant to the Plan and
this Subscription Offering. The Common Stock is neither redeemable nor
convertible, and there are no sinking fund provisions. Holders of Common Stock
are entitled to dividends when, as and if declared by the Board of Directors
from funds legally available therefor and are entitled, upon liquidation, to
share ratably in all assets remaining after payment of liabilities. See
"Dividend Policy." The rights of holders of Common Stock will be subject to any
preferential rights of any Preferred Stock that is issued and outstanding or
that may be issued in the future.
53
<PAGE> 55
PREFERRED STOCK
Holders of Preferred Stock have dividend and liquidation preferences to
holders of Common Stock and all other outstanding capital stock of the Company
and have the right to approve the issuance of any parity or senior securities.
Dividends on Preferred Stock accrue at an annual rate of 10.5% and are
cumulative and payable annually in additional shares of Preferred Stock. The
Preferred Stock is redeemable by the Company at the Company's option at any time
at a price per share equal to 100% of the liquidation value of $1,000 per share,
plus accrued and unpaid dividends. The Company must also redeem the Preferred
Stock upon a Change in Control (as defined in the Certificate of Incorporation)
of the Company, in whole or in part, at the option of the holders of Preferred
Stock, at a redemption price per share equal to 105% of the liquidation value
plus accrued and unpaid dividends to the date of redemption. The Preferred
Stock, voting separately as a class, is entitled to elect two directors to the
Board of Directors of the Company. In addition, upon default by the Company in
its obligations under the terms of the Preferred Stock, the Board of Directors
of the Company shall be increased by two and the holders of the Preferred Stock
shall have the right to elect directors to fill such new directorships. Holders
of Preferred Stock are also entitled to vote as a class on certain extraordinary
matters, such as amendments to the Certificate of Incorporation or the issuance
of parity or senior securities, reclassification of junior securities to parity
or senior securities, the authorization of consolidations, mergers or the sale
or disposition of substantially all of the Company's assets or the authorization
of the sale or other disposition of properties or assets exceeding 25% of the
economic value of the Company. The holders of Preferred Stock do not have any
other voting rights, except as otherwise required by law.
LIMITATIONS ON LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Certificate of Incorporation limits the liability of directors to the
extent allowed by the Delaware General Corporation Law. Specifically, directors
will not be held liable to the Company or its stockholders for an act or
omission in such capacity as a director, except for liability as a result of (i)
a breach of the duty of loyalty to the Company or its stockholders, (ii) actions
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) payment of an improper dividend or improper
repurchase of the Company's stock under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) actions or omissions pursuant to which the
director will receive an improper personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Certificate of Incorporation does not eliminate the directors' duty of
care. The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care. The affirmative vote of the holders of two-thirds or more of the
outstanding voting stock of the Company will be required to amend this
provision.
The Certificate of Incorporation and By-laws provide that the Company is
generally required to indemnify its directors and officers for all judgments,
fines, settlements, legal fees and other expenses incurred in connection with
pending or threatened legal proceedings because of the director's or officer's
position with the Company or another entity that the director serves at the
Company's request, subject to certain conditions, and to advance funds to its
directors and officers to enable them to defend against such proceedings. To
receive indemnification, the director or officer must have been successful in
the legal proceeding or acted in good faith and in what was reasonably believed
to be a lawful manner and in the Company's best interest. The affirmative vote
of the holders of two-thirds or more of the outstanding voting stock of the
Company will be required to amend this provision.
54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Subscription Offering, the Selling Stockholders will
own approximately 76% of the outstanding Common Stock, assuming all Eligible
Subscribers exercise their subscription rights in full.
Upon completion of the Subscription Offering, the Company will have
14,390,055 shares of Common Stock outstanding. Of these shares, the 3,459,414
shares of Common Stock sold in the Subscription Offering will be freely
tradeable in the public market without restriction by persons other than
affiliates of the Company. The remaining 10,930,641 shares of Common Stock
outstanding will be "restricted securities" within the meaning of Rule 144 under
the Securities Act ("Rule 144"). Consequently, such shares may not be resold
unless they are registered under the Securities Act or resold pursuant to an
applicable exemption from registration under the Securities Act, such as Rule
144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year is, entitled to sell, within any three-month period, a
number of shares of Common Stock which does not exceed the greater of 1% of the
number of then-outstanding shares of the Common Stock or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 also may be subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities" under
Rule 144 for at least two years, is entitled to sell such shares under Rule
144(k) without regard to the volume limitation, manner of sale provisions,
public information requirements or notice requirements.
Prior to the Subscription Offering, there has been no public market for the
Common Stock and no prediction can be made as to the effect, if any, that sales
of shares of Common Stock or the availability of such shares for sale will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the open market
could adversely affect prevailing market prices. The Company has not made an
application to list the Common Stock on any securities exchange or to admit the
Common Stock for trading in the National Association of Securities Dealers
Automated Quotation System.
LEGAL MATTERS
Certain matters related to the validity of the Common Stock will be passed
upon for the Selling Stockholders by Jones, Day, Reavis & Pogue, Cleveland,
Ohio.
EXPERTS
The consolidated financial statements of GGI as of December 31, 1996 and
for each of the years in the two year period ended December 31, 1996 and the
nine month period ended September 30, 1997 and the consolidated financial
statements of the Company as of December 31, 1997 and for the three month period
ended December 31, 1997 have been included in this Subscription Offering
Prospectus in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1996
financial statements of GGI contains an explanatory paragraph that states that
GGI's recurring losses from operations and net capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
The consolidated financial statements of Solid State for each of the three
years ended August 31, 1997 and for each of the years in the period ended August
31, 1997 included in this Subscription Offering Prospectus have been audited by
Price Waterhouse, independent accountants, as stated in their report appearing
herein.
55
<PAGE> 57
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-1 under the Securities
Act, with respect to the Common Stock offered hereby. This Subscription Offering
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are omitted from the Subscription Offering Prospectus as
permitted by the rules and regulations promulgated by the Commission. For
further information with respect to the Company and the Common Stock offered in
the Subscription Offering, reference is hereby made to the Registration
Statement and the exhibits thereto. Statements made in this Subscription
Offering Prospectus as to the provisions of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
statement as to a contract, agreement or other document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as any such
reports and other information to be filed by the Company with the Commission,
may be inspected and copied at the public reference facilities of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the public reference
section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited condensed consolidated financial information for the first
three quarters of its fiscal year.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GRANT GEOPHYSICAL, INC.
Independent Auditors Report................................. F-2
Grant Geophysical, Inc.................................... F-2
GGI Liquidating Corporation............................... F-3
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1997........... F-4
GGI Liquidating Corporation as of December 31, 1996....... F-4
Consolidated Statement of Operations:
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997...................................... F-6
GGI Liquidating Corporation for the years ended December
31, 1995, 1996 and for the nine-month period ended
September 30, 1997..................................... F-6
Consolidated Statement of Stockholders' Equity:
Grant Geophysical, Inc. for the three month period ended
December 31, 1997...................................... F-7
GGI Liquidating Corporation for the years ended December
31, 1995 and 1996...................................... F-8
Consolidated Statement of Cash Flows:
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997...................................... F-9
GGI Liquidating Corporation for the years ended December
31, 1995 and 1996 and for the nine-month period ended
September 30, 1997..................................... F-9
Notes to Financial Statements............................... F-11
SOLID STATE GEOPHYSICAL, INC.
Auditors' Report -- Chartered Accountants................... F-36
Comments by Auditors for U.S. Readers on Canada -- U.S.
Reporting Difference --
Chartered Accountants..................................... F-36
Consolidated Balance Sheet.................................. F-37
Consolidated Statement of Operations and (Deficit) Retained
Earnings.................................................. F-38
Consolidated Statement of Changes in Financial Position..... F-39
Notes to Consolidated Financial Statements.................. F-40
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Grant Geophysical, Inc.
We have audited the accompanying consolidated balance sheet of Grant
Geophysical, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the three-month period then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of Grant
Geophysical, Inc. and subsidiaries, as of December 31, 1997, and the results of
their operations and their cash flows for the three-month period then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 19, 1998
F-2
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GGI Liquidating Corporation
We have audited the accompanying consolidated balance sheets of GGI
Liquidating Corporation (a debtor-in-possession as of December 31, 1996)
(formerly Grant Geophysical, Inc.) and subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1996 and the nine month period ended September 30, 1997. These
consolidated financial statements are the responsibility of GGI Liquidating
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial positions of GGI
Liquidating Corporation and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1996, and the nine month period ended
September 30, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that GGI Liquidating Corporation will
continue as a going concern which contemplates among other things, the
realization of assets and liquidation of liabilities in the ordinary course of
business. As discussed in Note 1 to the consolidated financial statements, GGI
Liquidating Corporation (the Petitioning Company) filed a voluntary petition for
reorganization under chapter 11 of the United States Bankruptcy Code on December
6, 1996. The chapter 11 case of the Petitioning Company is administered by the
United States Bankruptcy Court for the District of Delaware (the "Court"). The
Petitioning Company is operating the business as debtor-in-possession which
requires certain of its actions to be approved by the Court. In September 1997
the Court approved the "Second Amended Plan of Reorganization" (the "Plan")
filed by GGI Liquidating Corporation. The Plan was consummated on September 30,
1997, with the purchase by Grant Geophysical, Inc. of substantially all of the
assets and the assumption of certain liabilities of GGI Liquidating Corporation.
GGI Liquidating Corporation is currently in liquidation and will distribute all
of its assets pursuant to the Plan. Upon the completion of its asset
distribution, GGI Liquidating Corporation will dissolve and cease to exist. The
consolidated financial statements and financial statement schedule do not
include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of liabilities that
might result from the Plan and the distribution of assets pursuant thereto.
KPMG PEAT MARWICK LLP
Houston, Texas
December 22, 1997
F-3
<PAGE> 61
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,772 $ 7,093
Restricted cash........................................... 321 321
Accounts receivable:
Trade (net of allowance for doubtful accounts of $5,711
and $158 at December 31, 1996 and 1997,
respectively)......................................... 19,471 29,495
Other.................................................. 996 2,487
Inventories............................................... 503 530
Prepaids.................................................. 1,411 4,190
Work in process........................................... 1,071 2,779
------- --------
Total current assets................................. 30,545 46,895
Property, plant and equipment:
Land...................................................... 231 427
Buildings and improvements................................ 1,397 1,548
Plant facilities and store fixtures....................... 1,703 876
Machinery and equipment................................... 90,892 70,151
------- --------
Total property, plant and equipment.................. 94,223 73,002
Less accumulated depreciation............................. 56,555 8,498
------- --------
Net property, plant and equipment.................... 37,668 64,504
Multi-client data........................................... -- 5,736
Goodwill.................................................... -- 36,304
Other assets................................................ 1,910 2,265
------- --------
Total assets......................................... $70,123 $155,704
======= ========
</TABLE>
(Continued on next page)
F-4
<PAGE> 62
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations.............................. $ 589 $ 1,158
Accounts payable.......................................... 3,975 16,422
Accrued expenses.......................................... 3,051 10,318
Foreign income taxes payable.............................. 188 2,807
--------- --------
Total current liabilities............................ 7,803 30,705
Pre-petition liabilities subject to chapter 11 case......... 90,244 --
Long-term debt and capital lease obligations, excluding
current portion........................................... -- 65,409
Unearned revenue............................................ 6,031 5,443
Other liabilities and deferred credits...................... 258 2,369
Subordinated note........................................... -- 9,786
Stockholders' equity (deficit):
$2.4375 Convertible exchangeable preferred stock, $.01 par
value. Authorized 2,300,000 shares; issued and
outstanding 2,300,000 shares at December 31, 1996,
(liquidating preference $25 per share, aggregating
$57,500,000)........................................... 23 --
Junior preferred stock, $100 par value. Authorized 15,000
shares; issued and outstanding 14,904 shares at
December 31, 1996...................................... 1,490 --
Common stock, $.002 par value. Authorized 40,000,000
shares; issued and outstanding 20,641,765 shares at
December 31, 1996...................................... 41 --
Cumulative pay-in-kind preferred stock, $.001 par value.
None authorized, none issued or outstanding at December
31, 1996, Authorized 20,000 shares; issued and
outstanding 10,000 shares at December 31, 1997,
liquidating preference of $1,000 per share............. -- 10,000
Common stock, $.001 par value. None authorized, issued or
outstanding at December 31, 1996. Authorized 25,000,000
shares; issued and outstanding 14,152,555 shares at
December 31, 1997...................................... -- 14
Additional paid-in capital................................ 124,203 41,278
Accumulated deficit....................................... (159,970) (8,833)
Cumulative translation adjustment......................... -- (467)
--------- --------
Total stockholders' equity (deficit)................. (34,213) 41,992
--------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 70,123 $155,704
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 63
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT
------------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------- ------------
1995 1996 1997 1997
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues................................. $ 91,996 $ 105,523 $ 92,705 $ 37,868
Expenses:
Direct operating expenses.............. 69,046 136,326 71,006 28,431
Other operating expenses............... 8,527 17,865 6,473 3,507
Depreciation and amortization.......... 9,424 11,500 8,432 4,594
Special charge for asset impairment.... -- 5,802 -- 6,369
---------- ---------- ---------- --------
Total costs and expenses............. 86,997 171,493 85,911 42,901
---------- ---------- ---------- --------
Operating income (loss).............. 4,999 (65,970) 6,794 (5,033)
Other income (deductions):
Interest expense....................... (3,635) (7,558) (4,037) (1,431)
Reorganization costs................... -- (412) (3,543) --
Interest income........................ 113 36 279 69
Other.................................. 2,076 (502) 2,266 (1,262)
---------- ---------- ---------- --------
Total other deductions............... (1,446) (8,436) (5,035) (2,624)
---------- ---------- ---------- --------
Income (loss) before taxes and
minority interest................. 3,553 (74,406) 1,759 (7,657)
Income tax expense....................... 391 1,621 2,184 856
---------- ---------- ---------- --------
Income (loss) before minority
interest.......................... 3,162 (76,027) (425) (8,513)
Minority interest........................ -- -- -- 2,847
---------- ---------- ---------- --------
Net income (loss).................... $ 3,162 $ (76,027) $ (425) $ (5,666)
========== ========== ========== ========
Net loss applicable to common stock...... $ (2,096) $ (82,390) $ (425) $ (6,143)
========== ========== ========== ========
INCOME (LOSS) PER COMMON SHARE -- BASIC
AND DILUTED:
Net income (loss)........................ $ (1.18)
Dividend requirement on Pay-In-Kind
preferred stock........................ (0.10)
--------
Net loss per common share................ $ (1.28)
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 64
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
------------------------------------------------------------------------------------
CUMULATIVE ADDITIONAL CUMULATIVE TOTAL
PAY-IN-KIND COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
PREFERRED STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------------- ------ ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balances........ $ -- $-- $ -- $ -- $ -- $ --
Net loss................ -- -- -- (5,666) -- (5,666)
Common stock, one share
issued............... -- -- -- -- -- --
Cumulative preferred
stock issued......... 19,571 -- -- -- -- 19,571
Effectively issued
4,590,055 shares of
common stock for
majority investment
in Solid State....... -- 5 7,195 -- -- 7,200
"As if" pooling effect
of Solid State....... -- -- -- (2,952) -- (2,952)
Common stock, one share
issued............... -- -- -- -- -- --
Issued 62,500 shares of
common stock for
principal
shareholder's
exchange of warrants
in Solid State....... -- -- 144 -- -- 144
Issued 9,499,998 shares
to principal
stockholders in
accordance with the
Plan................. -- 9 33,939 -- -- 33,948
Converted 9.571
preferred shares to
Subordinated Note.... (9,571) -- -- -- -- (9,571)
Dividend-Preferred
Stock................ -- -- -- (215) -- (215)
Cumulative translation
adjustment........... -- -- -- -- (467) (467)
------- --- ------- ------- ----- -------
Balances at December 31,
1997.................... $10,000 $14 $41,278 $(8,833) $(467) $41,992
======= === ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 65
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI
--------------------------------------------------------------------------------------------
$2.4375
CONVERTIBLE SERIES A
EXCHANGEABLE CONVERTIBLE JUNIOR CUMULATIVE ADDITIONAL
PREFERRED PREFERRED PREFERRED PAY-IN-KIND COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK PREFERRED STOCK STOCK CAPITAL DEFICIT
------------ ----------- --------- --------------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1994......................... $22 $-- $1,490 $-- $24 $111,968 $ (87,105)
Net income................... -- -- -- -- -- -- 3,162
Restricted common stock
issued under the Incentive
Stock Option Plan.......... -- -- -- -- -- 86 --
Proceeds from sale of 15,000
shares under the Incentive
Stock Option Plan.......... -- -- -- -- -- 11 --
Restricted common stock
issued under the Employee
Retirement Savings Plan.... -- -- -- -- -- 57 --
--- --- ------ --- --- -------- ---------
Balances at December 31,
1995......................... 22 -- 1,490 -- 24 112,122 (83,943)
Net loss..................... -- -- -- -- -- -- (76,027)
Common stock issued in
connection with obtaining
equipment and short- and
long-term financing........ -- -- -- -- -- 389 --
Issuance of 143,000 shares of
$2.4375 Convertible
exchangeable preferred
stock, net of non-cash
issuance costs of
$171,000................... 1 -- -- -- -- 1,372 --
Issuance of 70,000 shares of
Series A convertible
preferred stock............ -- 1 -- -- -- 6,999 --
Conversion of convertible
debentures................. -- -- -- -- 7 2,767 --
Conversion of Series A
convertible preferred
stock...................... -- (1) -- -- 9 (8) --
Proceeds from the exercise of
200,000 warrants........... -- -- -- -- 1 150 --
Restricted common stock
issued under the Incentive
Stock Option Plan.......... -- -- -- -- -- 129 --
Proceeds from sale of 125,000
shares under the Incentive
Stock Option Plan.......... -- -- -- -- -- 145 --
Restricted common stock
issued under the Employee
Retirement Savings Plan.... -- -- -- -- -- 138 --
--- --- ------ --- --- -------- ---------
Balances at December 31,
1996....................... $23 $-- $1,490 $-- $41 $124,203 $(159,970)
--- --- ------ --- --- -------- ---------
<CAPTION>
GGI
----------------
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balances at December 31,
1994......................... $ 26,399
Net income................... 3,162
Restricted common stock
issued under the Incentive
Stock Option Plan.......... 86
Proceeds from sale of 15,000
shares under the Incentive
Stock Option Plan.......... 11
Restricted common stock
issued under the Employee
Retirement Savings Plan.... 57
--------
Balances at December 31,
1995......................... 29,715
Net loss..................... (76,027)
Common stock issued in
connection with obtaining
equipment and short- and
long-term financing........ 389
Issuance of 143,000 shares of
$2.4375 Convertible
exchangeable preferred
stock, net of non-cash
issuance costs of
$171,000................... 1,373
Issuance of 70,000 shares of
Series A convertible
preferred stock............ 7,000
Conversion of convertible
debentures................. 2,774
Conversion of Series A
convertible preferred
stock...................... --
Proceeds from the exercise of
200,000 warrants........... 151
Restricted common stock
issued under the Incentive
Stock Option Plan.......... 129
Proceeds from sale of 125,000
shares under the Incentive
Stock Option Plan.......... 145
Restricted common stock
issued under the Employee
Retirement Savings Plan.... 138
--------
Balances at December 31,
1996....................... $(34,213)
--------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 66
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 3,162 $(76,027) $ (425) $(5,666)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Special charge for asset impairment....... -- 5,802 -- 6,369
Provision for doubtful accounts........... -- 5,511 -- --
Depreciation and amortization expense..... 9,424 11,500 8,432 4,594
Deferred costs amortization............... 12,550 29,528 -- --
Loss on sale of subsidiaries.............. -- 198 -- --
(Gain) loss on the sale of fixed assets... (212) (25) 39 132
Gain on insurance claim................... (1,247) -- -- --
Exchange loss (gain)...................... (102) 251 98 (77)
Other non-cash items...................... 191 328 225 (2,544)
Changes in assets and liabilities, excluding
effects of divestitures:
(Increase) decrease in:
Accounts receivable.......................... (14,828) 13,346 2,375 694
Inventories.................................. 27 914 (27) --
Prepaids..................................... (1,701) 1,228 (538) (1,220)
Work-in-Process.............................. (18,439) (24,969) (268) (1,101)
Other assets................................. (521) 1,846 (1,031) 983
Increase (decrease) in:
Accounts payable............................. 10,637 9,328 3,143 (1,237)
Accrued expenses............................. 1,046 5,059 830 1,759
Foreign income taxes payable................. 122 390 1,767 487
Other liabilities and deferred credits....... 2,650 7,973 (2,320) 2,213
Change in pre-petition liabilities subject to
Chapter 11 case:
Accounts payable.......................... -- -- (2,226) --
Accrued expenses.......................... -- (125) (1,732) --
Foreign income tax payable................ -- -- (194) --
Other liabilities and deferred credits.... -- (1,402) (3,622) --
-------- -------- ------- -------
Net cash provided by (used in) operating
activities........................... 2,759 (9,346) 4,526 5,386
</TABLE>
(Continued on next page)
F-9
<PAGE> 67
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from (used in) investing activities:
Capital expenditures, net.................... (13,757) (10,339) (6,751) (3,994)
Proceeds from the sale of assets............. 255 25 20 182
Proceeds from the sale of
subsidiaries/businesses................... -- 39 -- --
Insurance proceeds from arson damage, net of
losses incurred........................... 1,351 -- -- --
Acquisition of the minority interest in Solid
State..................................... (15,903)
Restricted cash.............................. 2,879 94 -- --
-------- -------- ------- -------
Net cash used in investing activities... (9,272) (10,181) (6,731) (19,715)
Cash flows from (used in) financing activities:
Proceeds from the exercise of stock options
and warrants.............................. 11 296 -- --
Proceeds from issuance of $2.4375 preferred
stock, net of issuance costs.............. -- 1,544 -- --
Proceeds from issuance of Series A preferred
stock..................................... -- 7,000 -- --
Borrowings made during the period............ 89,950 122,354 4,207 31,270
Repayment on borrowings during the period.... (83,032) (105,757) (1,838) (15,363)
Proceeds from the issuance of Common Stock... 34,092
Repayment of debt due to GGI................. (33,948)
Pre-petition liabilities subject to Chapter
11 case:
Borrowings under credit facility.......... -- 3,612 49,385 --
Repayment on borrowings................... -- (3,382) (50,465) --
-------- -------- ------- -------
Net cash provided by financing
activities.............................. 6,929 25,667 1,289 15,072
Effect of exchange rate changes on cash........ (173) (415) (238) 160
-------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... 243 5,725 (1,153) 903
Cash and cash equivalents at beginning of
period....................................... 804 1,047 6,772 6,190
-------- -------- ------- -------
Cash and cash equivalents at end of period..... $ 1,047 $ 6,772 $ 5,618 $ 7,093
======== ======== ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES. SEE NOTE
17.
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 68
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
(1) BASIS OF PRESENTATION
Effective September 30, 1997, in connection with the plan of reorganization
(the "Plan"), Grant Geophysical, Inc. ("Grant"), which was formerly known as
Grant Acquisition Corporation, acquired substantially all of the assets and
assumed certain liabilities of GGI Liquidating Corporation ("GGI"), which was
formerly known as Grant Geophysical, Inc. Elliott Associates L.P. ("Elliott")
and Westgate International, L.P. ("Westgate") own all of the issued and
outstanding common and preferred stock of Grant. The general partners of Elliott
are Paul E. Singer and Braxton Associates, L.P. The general partner of Westgate
is Hambledon, Inc., a corporation controlled by Braxton Associates, L.P. Elliott
and Westgate are each managed by Stonington Management Corporation, a
corporation controlled by Mr. Singer. For financial statement purposes, the
purchase of GGI's assets by Grant was accounted for as a purchase acquisition.
The purchase price was allocated between the fair value of the GGI assets
purchased and liabilities assumed, and Grant recorded goodwill of approximately
$21.0 million. The effects of the acquisition have been reflected in Grant's
assets and liabilities at that date.
At September 30, 1997, Elliott held 5,888,565 shares or 40.7% and Westgate
held 3,291,544 shares, or 23.3% of the outstanding common shares of Solid State
Geophysical, Inc. ("Solid State Stock"). As of September 30, 1997, Elliott and
Westgate combined owned a controlling interest in both Solid State Geophysical,
Inc. ("Solid State") and Grant. As such, as of that date, Elliott and Westgate
were deemed to have transferred their ownership in Solid State to Grant in
exchange for 4,590,055 shares of Grant Common Stock. This transaction was
accounted for as an exchange of ownership interests between entities under
common control and the assets and liabilities transferred were accounted for at
historical cost in a manner similar to a pooling-of-interests. In November 1997,
Grant, through a wholly owned Canadian subsidiary, initiated a tender offer for
all of the outstanding common shares of Solid State not held by Grant. In
connection with the tender offer, Elliott and Westgate transferred its ownership
in Solid State to Grant in exchange for 4,652,555 shares of Grant Common Stock
and agreed to loan Grant $15.8 million to pay for shares tendered in the tender
offer and costs incurred in connection with such tender offer. Upon the
expiration of the Tender Offer on December 19, 1997, Grant held approximately
99% of the outstanding shares of Solid State Stock. On December 23, 1997,
because Grant acquired over 90% of the outstanding shares of Solid State Stock
not already held by Grant qualified to exercise its statutory right under
Canadian law to acquire the remaining shares of Solid State Stock on the same
terms and at the same price as the Tender Offer. On December 23, 1997 after
exercising these statutory rights, Solid State became an indirect wholly owned
subsidiary of the Grant The acquisition of the unaffiliated minority interest
under the tender offer was accounted for under the purchase method of accounting
at the date of acceptance. Grant recorded goodwill of approximately $15.3
million in connection with the acquisition of the unaffiliated minority
interest.
As a result, Grant's consolidated balance sheet as of December 31, 1997 and
statement of operations and cash flows for the three-months ended December 31,
1997 is presented using Grant's new basis of accounting, while the consolidated
balance sheets of GGI as of December 31, 1996 and the consolidated statements of
operations and cash flows for the two years ended December 31, 1996 and the
nine-months ended September 30, 1997 are presented using GGI's historical cost
basis of accounting. Because of the recent acquisition and related adjustment of
assets and liabilities to fair value as of December 31, 1997, the carrying value
of Grant's financial assets and liabilities approximates fair value.
On December 6, 1996, (the "Petition Date") GGI filed for protection under
the United States Bankruptcy Code and began its reorganization under the
supervision of the Bankruptcy Court. The reorganization was precipitated by
several factors, including overly rapid and underfinanced expansion in the
United States and Latin American markets, costs related to the development of a
proprietary data recording system and poor operational results in the United
States and certain international markets. These factors impaired GGI's ability
to service its indebtedness, finance its existing capital expenditure
requirements and meet its working capital needs. In
F-11
<PAGE> 69
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
addition, GGI was unable to raise additional equity, causing a disproportionate
reliance on debt financing and equipment leasing. In connection with the
reorganization, GGI replaced its senior management, disposed of unprofitable
operations and developed the Plan, which was consummated on September 30, 1997
(the "Effective Date") with the purchase by Grant of substantially all of the
assets and the assumption certain liabilities of GGI. GGI is currently in
liquidation and will distribute all of its assets pursuant to the Plan. Upon the
completion of its asset distribution, GGI will dissolve and cease to exist.
Grant was incorporated in Delaware in September 1997. The Company has
several wholly owned subsidiaries incorporated in the United States and certain
foreign jurisdictions and has established branch operations in various foreign
jurisdictions. The Company provides the petroleum industry with land and
transition zone seismic data acquisition services and operates or has operated
seismic crews in areas of oil and gas exploration in the United States, Canada,
Latin America, the Far East, the Middle East and Africa.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern Considerations--GGI
The accompanying financial statements of GGI have been prepared on a going
concern basis, which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business. As described earlier, GGI is
in the process of distributing its assets pursuant to the Plan and will be
dissolved. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of reported asset amounts or
the amounts and classification of liabilities that may result from the Plan and
the distribution of assets pursuant thereto.
Principles of Consolidation
Each of the consolidated financial statements include the accounts of GGI
or Grant and all of their respective majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Minority Interest
The minority interest calculated on the Consolidated Statement of
Operations is computed based on the minority ownership percentage in Solid State
during the fourth quarter of 1997. This minority interest was extinguished by
the tender offer and Solid State is a wholly owned subsidiary of Grant.
Revenues
Revenues from data acquisition are recognized based on contractual rates
set forth in the related contract. If the contract only provides a rate for the
completed service, revenue and any unearned revenue recorded is recognized based
on the percentage of the work effort completed compared with the total work
effort involved in the contract.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, all highly liquid
debt instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. There were no investments at December 31,
1996 and $510,000 at December 31, 1997.
Restricted Cash
At December 31, 1996 and 1997, restricted cash included three certificates
of deposit totaling $321,000 which are pledged as collateral for letters of
credit.
F-12
<PAGE> 70
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories, which consist primarily of miscellaneous supplies, are stated
at lower of cost or market. Cost is determined using the specific identification
method.
Work in Process
Expenses related to the work in progress of seismic crews are deferred and
recognized over the performance of the contract.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of future minimum lease payments
at the inception of the lease.
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the various classes of assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 5-10
Data processing equipment................................... 3-5
Office equipment............................................ 5-10
Seismic exploration and transportation equipment............ 3-10
</TABLE>
Plant and equipment held under capital leases are amortized by the
straight-line method over the shorter of the lease term or estimated useful life
of the asset. Expenditures for maintenance and repairs are charged to
operations. Betterments and major renewals are capitalized.
Multi-Client Data Library
The costs incurred in acquiring and processing multi-client seismic data
owned by the Company are capitalized. During the twelve month period beginning
with the initiation of acquisition of each multi-client survey, costs are
amortized based on revenues from such survey as a percentage of total estimated
revenues to be realized from such survey. Thereafter, amortization of remaining
capitalized costs is provided at the greater of the percentage of realized
revenues to total estimated revenues or straight line over four years.
On a quarterly basis, management estimates the residual value of each
survey, and additional amortization is provided if the remaining revenues
reasonably expected to be obtained from any survey are less than the carrying
value of such survey.
Asset Impairment
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Long-lived assets and certain identifiable intangibles are written down to
their current fair value whenever events or changes in circumstances indicate
that the carrying amount of these assets are not recoverable. These events or
changes in circumstances may include but are not limited to a significant change
in the extent in which an assets is used, a significant decrease in the market
value of the asset, or a projection or forecast that demonstrates continuing
losses associated with an asset. If an impairment is determined, the asset is
written down to its current fair value and a loss is recognized.
F-13
<PAGE> 71
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. Accumulated amortization was $175,000 as of December
31, 1997. Grant assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting Grant's average cost of funds. The assessment of the recoverability
of goodwill will be impacted if estimated future operating cash flows are not
achieved. The goodwill created in the purchase of GGI's assets is amortized over
30 years and the goodwill created in the acquisition of Solid State is amortized
over 20 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reorganization Costs
Reorganization costs consist of professional fees and similar types of
expenditures directly related to GGI's chapter 11 proceeding, and are expensed
as incurred. During 1996 and nine months ended September 30, 1997, GGI had
incurred approximately $412,000 and $3,543,000 of reorganization costs.
Foreign Exchange Gains and Losses
Grant has determined that the United States ("U.S.") dollar is its primary
functional currency in all foreign locations with the exception of its Canadian
subsidiaries. Accordingly, these foreign entities (other than Canada) translate
property and equipment (and related depreciation) and inventories into U.S.
dollars at the exchange rate in effect at the time of their acquisition while
other assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Remeasurement gains and losses are included in the
determination of net income and are reflected in other income (deductions) (See
Note 16). The Canadian subsidiaries use the Canadian dollar as their functional
currency and translate all assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of assets and liabilities are
recorded in the cumulative foreign currency translation adjustment account in
stockholders' equity. Grant does not presently use derivatives or forward
foreign exchange hedging contracts.
Income Taxes
The Financial Accounting Standards Board ("FASB") issued SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-14
<PAGE> 72
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Post-Employment Benefits
SFAS No. 112, "Employer's Accounting for Post-Employment Benefits,"
requires companies to account for benefits to former or inactive employees after
employment but before retirement on the accrual basis of accounting.
Post-employment benefits include every form of benefit provided to former or
inactive employees, their beneficiaries and covered dependents. Benefits
include, but are not limited to, salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of benefits such as
health care benefits and life insurance coverage. Adoption of SFAS No. 112 did
not materially affect GGI's consolidated results of operations or financial
position.
Income (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
specifies new measurement, presentation and disclosure requirements for earnings
per share and is required to be applied retroactively upon initial adoption.
Grant has adopted SFAS No. 128 effective December 31, 1997, and accordingly, has
restated herein all previously reported earnings per share data. Earnings per
share data have not been presented for GGI as this information is not
meaningful.
Basic income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period without any
dilutive effects considered. Diluted income (loss) per common share reflects
dilution for all potentially dilutive securities including warrants and
convertible securities. The income (loss) is adjusted for by cumulative
preferred stock dividends in calculating net income (loss) attributable to the
common shareholder.
Stock Based Compensation
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value method for accounting for stock-based
compensation plans either through recognition or disclosure. Grant has elected
to follow the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees,"
where compensation costs are not recognized in the Company's stock option plans.
Had GGI adopted SFAS No. 123 for options granted after January 1, 1995,
GGI's net loss for the years ended December 31, 1995 and 1996 would have been
increased as follows (in thousands):
<TABLE>
<CAPTION>
GGI
-----------------------------------------
1995 1996
------------------- -------------------
AS AS
REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss....................................... $(2,096) $(2,215) $(82,390) $(82,612)
</TABLE>
For purposes of determining compensation costs using the provisions of SFAS
123, the fair value of option grants were determined using the Black-Scholes
option-valuation model. The key input variables used in valuing the options
were: risk-free interest rate of 8.5%; dividend yield of zero; stock price
volatility of 70%; expected option lives of four years.
Pursuant to the Plan, GGI's capital stock was canceled on the Effective
Date. As a result, GGI's Amended 1989 Long-Term Incentive Plan was also
canceled. As of December 31, 1997, Grant has not granted any awards under the
1997 Equity and Performance Plan. Therefore, the effect of SFAS No. 123 for the
nine months ended September 30, 1997 and the three months ended December 31,
1997 have not been presented.
F-15
<PAGE> 73
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain amounts previously reported have been reclassified in order to
ensure comparability between the periods reported.
Recent Accounting Pronouncements
The FASB issued "Reporting Comprehensive Income" ("SFAS 130") regarding
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company plans to adopt SFAS 130 in the first quarter of 1998.
The FASB issued "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131") regarding disclosures about segments of an enterprise
and related information. SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
the reporting of selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
Grant will adopt SFAS 131 for the fiscal year ending December 31, 1998.
F-16
<PAGE> 74
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PRE-PETITION LIABILITIES SUBJECT TO GGI'S CHAPTER 11 CASE
As a result of GGI's chapter 11 reorganization proceedings, all
pre-petition liabilities of GGI outstanding at December 31, 1996 were classified
as pre-petition liabilities subject to Chapter 11 case. The terms and amounts
due are subject to the conditions of the Plan confirmed on September 15, 1997.
GGI's secured and unsecured debt at December 31, 1996 was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRE-PETITION
ACCRUED
AMOUNT INTEREST TOTAL
------- ------------ -------
<S> <C> <C> <C>
SECURED DEBT:
Revolving line of credit, 12.7%-14.7%(A).................. $11,774 $ -- $11,774
Equipment notes payable, 7.3%-12.0%(A).................... 16,594 557 17,151
Other notes payable, 10.7%-15.0%(A)....................... 5,560 302 5,862
Capital lease obligations, 9.0%-27.0%(A).................. 8,971 198 9,169
Other Claims.............................................. 1,662 -- 1,662
------- ------ -------
$44,561 $1,057 $45,618
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRE-PETITION
ACCRUED
AMOUNT INTEREST TOTAL
------- ------------ -------
<S> <C> <C> <C>
UNSECURED DEBT:
Convertible Debentures, 8%(A)............................. $ 350 $ -- $ 350
Other notes payable, 6%-22%(A)............................ 11,266 158 11,424
Capital lease obligations, 12%-37%(A)..................... 687 37 724
Trade Accounts Payable.................................... 23,718 -- 23,718
Accrued Expenses.......................................... 2,956 -- 2,956
Other liabilities and deferred credits.................... 5,454 -- 5,454
------- ------ -------
44,431 195 44,626
------- ------ -------
TOTAL.................................................. $88,992 $1,252 $90,244
======= ====== =======
</TABLE>
- ------------
(A) Represents contractual stated interest rates.
On February 4, 1997, the Court approved a Financing Order that authorized
GGI to enter into an agreement to obtain secured post-petition financing with
its primary working capital lender (the "Lender") under which agreement the
Lender continued to advance funds to GGI for its operations. The Financing Order
was amended by order of the Court on April 9, 1997. Pursuant to the Amended
Financing Order, the Lender agreed to make revolving advances not to exceed
$12,500,000. The advances are not to exceed a borrowing base equal to a
percentage of certain trade accounts receivable and an overadvance amount. The
maximum permitted overadvance was $7,000,000 through September 30, 1997 when the
Amended Financing Order expired. A $125,000 fee was paid to the Lender. Interest
accrued at prime plus 3.75% on the advance funds and prime plus 7.25% on the
overadvance funds. Pursuant to the Plan, all loans made under the Financing
Order were paid in full on September 30, 1997.
On August 22, 1996, GGI amended a two-year term loan agreement with a
secured lender to increase the principal amount to $5,000,000. Interest on such
debt at the rate of 13.5% has been accruing since the petition date. Pursuant to
the Plan, this loan was paid in full December 31, 1997.
F-17
<PAGE> 75
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreements with certain lenders and lessors were reached and pursuant to
the Plan, GGI made payments of adequate protection in varying amounts. Pursuant
to the Plan, each of these loans and leases was paid in full or are included in
the liabilities assumed by Grant (see Note 9).
On March 27, 1996, GGI issued $3,000,000 of its 8% Convertible Debentures
("Debentures") due December 31, 1999. The Debentures were convertible, at the
option of the purchaser, into shares of GGI's Common Stock at a conversion price
of 80% of the five day average low trading price prior to the conversion
election of the Common Stock, provided that such 80% figure is increased to 100%
if the Debentures were converted within 45 days of the Closing Date. As of
December 31, 1996, approximately $2,650,000 of the Debentures had been converted
into 3,400,261 shares of GGI's Common Stock. The remaining amount is an
unsecured debt of GGI which will receive the recovery, if any, afforded to
allowed unsecured creditors pursuant to the Plan.
GGI borrowed an aggregate of $3,149,000 from Westgate and Elliott for
working capital purposes. This amount remained outstanding at December 31, 1996
and will receive the recovery, if any, afforded to allowed unsecured creditors
pursuant to the Plan.
Prior to the Petition Date, interest was accrued on all debt instruments
based on contractual rates. Interest was accrued on all secured equipment notes
payable and capital leases based on renegotiated rates of 7% to 11.09% from
December 7, 1996. All unsecured and undersecured debt were not entitled to
accrue interest since the Petition Date. Interest expense, based on contractual
rates of debt instruments, would have been approximately $7,667,000 for the year
ended December 31, 1996. Interest expense for the nine months ended September
30, 1997 and the three months ended December 31, 1997, has been accrued at the
renegotiated contractual rates.
(4) SPECIAL CHARGE FOR ASSET IMPAIRMENT
GGI
In 1994 GGI began development of a proprietary data recording system, which
was intended to replace an older recording system used in transition zone areas.
Problems with software design and hardware availability resulted in numerous
delays and substantial cost overruns. In addition, the completed system did not
meet performance expectations. Consequently, at December 31, 1996, GGI reduced
the carrying value of the proprietary data recording system which was not
expected to generate future cash flows adequate to support current carrying
values. Accordingly, a $5,802,000 charge for asset impairment was recorded
during the fourth quarter of 1996.
GRANT
In the fourth quarter of 1997 certain assets of Solid State were written
down to reflect their fair value in accordance with the asset impairment policy.
Accordingly, Grant recorded a $6,369,000 special charge for asset impairment in
the fourth quarter of 1997. This charge primarily consisted of $5,869,000
relating to the multi-client data library and $500,000 relating to miscellaneous
assets held by Solid State.
F-18
<PAGE> 76
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SUMMARY OF OPERATIONS
A summary of operations by geographical area follows (dollars in
thousands):
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues:
Canada...................................... $ -- $ -- $ -- $ 4,468
United States............................... 47,849 42,074 41,267 12,458
Middle East................................. 786 -- -- --
Africa...................................... 14,208 904 -- 348
Colombia.................................... 4,535 12,722 19,797 2,836
Peru........................................ 13,719 27,490 2,696 --
Other Latin America......................... 7,278 16,921 20,074 13,147
Far East.................................... 3,621 5,412 8,871 4,611
-------- -------- ------- -------
$ 91,996 $105,523 $92,705 $37,868
======== ======== ======= =======
Operating income (loss):
Canada...................................... $ -- $ -- $ -- $(1,488)
United States............................... 4,575 (35,920) (1,924) (7,634)
Middle East................................. 285 (144) -- 5
Africa...................................... 1,130 (4,281) -- (74)
Europe...................................... (821) (922) -- --
Colombia.................................... (271) (94) 4,750 137
Peru........................................ 1,205 (19,804) 4 --
Other Latin America......................... (714) (4,744) 1,619 2,347
Far East.................................... (390) (61) 2,345 1,674
-------- -------- ------- -------
$ 4,999 $(65,970) $ 6,794 $(5,033)
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Identifiable assets:
Canada.................................................... $ -- $ 35,278
United States............................................. 36,956 79,089
Africa.................................................... -- 504
Europe and the Middle East................................ 41 461
Colombia.................................................. 9,233 9,750
Peru...................................................... 10,354 --
Other Latin America....................................... 9,210 21,530
Far East.................................................. 2,701 7,351
------- --------
Total identifiable assets.............................. 68,495 153,963
Corporate assets.......................................... 1,628 1,741
------- --------
$70,123 $155,704
======= ========
</TABLE>
F-19
<PAGE> 77
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, revenue from a nationalized oil company totaled approximately
$10,048,000 (11%). Revenues from a U.S. based international oil company were
approximately $12,683,000 (14%) and $20,233,000 (19%) for the years ended
December 31, 1995 and 1996, respectively. For the nine months ended September
30, 1997, revenues from three oil companies, one domestic and two international,
were approximately $14,008,000 (15%), $9,924,000 (11%), $8,895,000 (10%).
(6) DIVESTITURES
During the fourth quarter of 1996, GGI sold the stock of its Venezuela
subsidiary and also entered into an agreement to sell the stock of its Nigeria
subsidiary. The sale of the Nigeria subsidiary was finalized in April 1997.
Proceeds from these sales totaled approximately $380,000. Other than a $198,000
loss recognized on these sales in 1996, these transactions did not have a
significant impact on GGI's operating results.
(7) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
ACCUMULATED
GGI COST DEPRECIATION
--- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
December 31, 1996
Land...................................................... $ 231 $ --
Buildings and improvements................................ 1,397 202
Plant facilities and store fixtures....................... 1,703 1,041
Machinery and equipment................................... 90,892 55,312
------- -------
$94,223 $56,555
======= =======
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
GRANT COST DEPRECIATION
----- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
December 31, 1997
Land...................................................... $ 427 $ --
Buildings and improvements................................ 1,547 42
Plant facilities and store fixtures....................... 876 170
Machinery and equipment................................... 70,152 8,286
------- -------
$73,002 $ 8,498
======= =======
</TABLE>
F-20
<PAGE> 78
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The composition of the income tax expense follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------- ------------- ------------
1995 1996 1997 1997
---- ------ ------------- ------------
<S> <C> <C> <C> <C>
Current:
State............................................. $ -- $ -- $ -- $ --
Federal........................................... -- -- -- --
Foreign........................................... 391 1,621 2,184 856
Deferred:
State............................................. -- -- -- --
Federal........................................... -- -- -- --
Foreign........................................... -- -- -- --
---- ------ ------ ----
Income tax expense............................. $391 $1,621 $2,184 $856
==== ====== ====== ====
</TABLE>
At December 31, 1996, GGI had net operating losses ("NOLs") of
approximately $173,000,000 available for carryforward for U.S. Federal income
tax purposes. The NOLs, if unused, will expire between 1997 and 2011. Since GGI
will, in accordance with the Plan, be liquidated, approximately $150,000,000 of
these NOLs will not be used and will expire at such time as GGI ceases to exist.
Grant acquired approximately $23,000,000 of GGI's U.S. NOLs on September
30, 1997. The NOLs, if unused, will expire between 1998 and 2011. Future
utilization of these NOLs will be restricted due to the change of ownership
resulting from the Plan. Based on current valuations, use of these NOLs would be
limited to approximately $704,000 annually.
Grant also acquired approximately $13,536,000 of Solid State's U.S. NOLs on
December 30, 1997. The NOLs, if unused, will expire between 1998 and 2011.
Future utilization of approximately $9,760,000 of these NOLs will be restricted
due to a change of ownership which occurred on February 25, 1997. Based on
current valuations, the restriction would be approximately $125,000 annually.
In addition, Grant acquired approximately $7,800,000 of Solid State's NOLs
in Canada on December 30, 1997. The NOLs, if unused, will expire between 2000
and 2005. Future utilization of these NOLs is restricted to income arising in
Canada from the same type of business operation that generated them.
All of these acquired NOLs, when utilized, will first reduce goodwill and
other noncurrent intangible assets related to the acquisition to zero, with any
remaining tax benefits recognized as a reduction of income tax expense.
F-21
<PAGE> 79
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The total income tax expense is different from the amount computed by
applying the U.S. Federal income tax rate to income before income taxes. The
reasons for these differences were as follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
--------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------- ------------- ------------
1995 1996 1997 1997
------ -------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Federal income tax expense (benefit) at
statutory rate.................................. $1,208 $(25,298) $ 616 $(2,707)
Increases (reductions) in taxes from:
Foreign income tax rate more (less) than U.S. rate
on foreign income............................... 110 4,712 741 1,648
Losses of the U.S. return group from which no
benefit is expected............................. -- 22,207 827 1,915
Utilization of prior year losses for which no
benefit was recognized.......................... (927) -- -- --
------ -------- ------ -------
Income tax expense recorded....................... $ 391 $ 1,621 $2,184 $ 856
====== ======== ====== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Deferred tax asset:
Plant and equipment, principally due to
differences in depreciation.................. $ 1,890 $ 3,841 $ 5,042 $ 666
Financing costs................................ -- -- -- 244
Research and development costs................. -- -- -- 499
Allowance for doubtful accounts and other
accruals..................................... -- 3,042 -- 58
Net operating loss carryforwards............... 36,519 58,795 8,026 10,720
-------- -------- -------- --------
Total................................ 38,409 65,678 13,068 12,187
Deferred tax liability:
Plant and equipment, principally due to
differences in depreciation.................. -- -- -- (339)
-------- -------- -------- --------
Net deferred tax asset......................... 38,409 65,678 13,068 11,848
-------- -------- -------- --------
Valuation allowance............................ (38,409) (65,678) (13,068) (11,848)
-------- -------- -------- --------
Net deferred tax asset (liability)............. $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$39,039,000. The net change in the total valuation allowance for the years ended
December 31, 1995, 1996, the nine months ended September 30, 1997, and the three
months ended December 31, 1997, was a decrease of $630,000, an increase of
$27,269,000, a decrease of $52,610,000, and a decrease of $1,220,000,
respectively.
F-22
<PAGE> 80
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) NOTES PAYABLE, LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND SUBORDINATED
NOTE
A summary of notes payable, long-term debt, and capital lease obligations
was as follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- -------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------- -------------
<S> <C> <C>
Revolving lines of credit:
Prime plus 2%, due March 31, 1999 at December 31, 1997
10.5%.................................................. $ 800
Term note--prime plus 2% at December 31, 1997 10.5%....... -- 15,800
Prime plus .75%, due February 17, 1997 at December 31,
1997 6.75%............................................. -- 2,565
Equipment notes payable--10.7% to 10.75%, due 1998-1999..... -- 13,989
Other notes payable--6.24% to 26.0%, due 1998-2005.......... 589 25,051
Capital lease obligations--7.5% to 12.0%, due 1998-2000..... -- 8,362
Subordinated Note -- 10.5% due March 31, 1999............... -- 9,786
---- -------
Total long term............................................. 589 76,353
Less current portion........................................ 589 1,158
---- -------
Notes payable, long-term debt, capital lease
obligations and subordinated note excluding current
portion............................................... $ -- $75,195
==== =======
</TABLE>
At the Petition Date all of GGI's notes payable, long-term debt and capital
lease obligations were reclassified to Pre-Petition Liabilities Subject to
Chapter 11 Case (see Note 3). At December 31, 1996, other notes payable
consisted of a revolving line of credit maintained by a foreign subsidiary.
As of March 18, 1998, all of the outstanding debt of Grant, with the
exception of approximately $3.6 million relating to one capital lease obligation
and one note payable, has been paid off with the proceeds of the Senior Notes
(see below).
On October 1, 1997, Grant and Elliott entered into a credit facility
providing for a revolving loan facility under which Grant may borrow up to an
aggregate principal amount of $5 million (at December 31, 1997, $4.2 million was
available for borrowing). Grant is required to pay interest on the outstanding
principal balance of revolving loans at a rate per annum equal to the prime rate
plus 2%. On December 18, 1997, the credit facility was amended to provide for a
term loan of $15.8 million in addition to the revolving loans. The proceeds of
the term loan were used by Grant to purchase all of the stock of Solid State not
already owned by Grant (see Note 1). The credit facility expires on March 31,
1999 at which time all obligations of Grant under the credit facility are due
and payable. The loans under the credit facility are secured by all of Grant's
assets and a pledge by Grant of certain notes and all the outstanding shares of
capital stock of its subsidiaries. Each subsidiary of Grant has executed a
guaranty in favor of Elliott, each of which guarantees payment of all Grant's
obligations owed to Elliott under the credit facility. Each subsidiary has
pledged its assets in favor of Elliott to secure its obligations under its
respective guaranty. The credit facility contains restrictions which, among
other things, prohibit Grant's right to pay dividends and limit its right to
borrow money, purchase fixed assets or engage in certain types of transactions
without the consent of the lender. The instrument was paid in full on February
18, 1998 with the proceeds of the Senior Notes. (See below)
At December 31, 1997, a foreign credit facility between Solid State and its
subsidiaries and a Canadian bank was in effect. Under this revolving facility
Grant may borrow up to a principal amount of $3.6 million, secured by
substantially all the assets of Solid State and by assignment of receivables and
bears interest at Canadian prime rate plus .75%. There was approximately $2.6
million outstanding at December 31, 1997. This facility was paid in full on
February 18, 1998 and was terminated. Following repayment of this note, the
Solid State assets have
F-23
<PAGE> 81
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
been pledged by Grant to secure the loans from Elliott described above and each
Solid State subsidiary has executed a guaranty in favor of Elliott in the form
described above.
On December 19, 1997 Elliott and Westgate exchanged 9,571.162 shares of
preferred stock with a liquidation value of $9,571,162, plus accrued dividends
of $215,000, for a subordinated note which bears interest at an annual rate of
10.5%. The instrument was paid in full on February 18, 1998 with the proceeds of
the Senior Notes. (See below)
The Company's equipment notes payable and capital lease obligations
represent installment loans or capital lease obligations primarily related to
the acquisition of seismic recording equipment. These instruments were paid in
full on February 18, 1997 with the proceeds of the Senior Notes. (See below)
At December 31, 1997, other notes payable included approximately $16.7
million due to Elliott from term loans entered into by Solid State during the
period February 1997 through October 1997. In addition, there is approximately
$6.5 million due by Solid State to the same Canadian bank that has the revolver.
The remainder of the payable consists of local short-term credit lines in
certain foreign subsidiaries. These instruments were paid in full on February
18, 1997 with the proceeds of the Senior Notes. (See below)
On February 18, 1998, Grant completed an offering of $100 million face
value 9 3/4% Senior Notes due 2008. The Notes bear interest from February 18, at
a rate per annum set forth above payable semi-annually on February 15 and August
15 of each year, commencing August 15, 1998. The net proceeds to Grant from the
sale of the Notes was approximately $95.2 million after deducting the Initial
Purchaser's discount and certain other estimated fees and expenses. Grant used
the proceeds to repay approximately $74.5 million of the outstanding balance of
debt and interest existing at December 31, 1997. This amount is comprised of
approximately $73.0 million in principal and $1.5 million in interest.
(10) LEASES
The future minimum rental payments for Grant's various noncancelable
operating leases at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
MINIMUM RENTALS OF
GRANT
----------------------
(DOLLARS IN THOUSANDS)
OPERATING
LEASES
------
<S> <C>
1998........................................................ $1,046
1999........................................................ 632
2000........................................................ 465
2001........................................................ 205
2002........................................................ 205
------
Total..................................................... $2,553
======
</TABLE>
The total rental expenses for each of the periods was as follows (dollars
in thousands):
<TABLE>
<CAPTION>
GGI GRANT
----------------------------------------- -----
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------------ ------------- ------------
1994 1995 1996 1997 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$2,758 $1,880 $2,089 $830 $996
</TABLE>
F-24
<PAGE> 82
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
Cash and short-term financial instruments
The carrying amount approximates fair value due to the short maturity of
these instruments.
Long-term notes receivable
The fair value has been estimated using the expected future cash flows
discounted at market interest rates which approximate its carrying value.
Long-term debt
The fair value of GGI's and Grant's long-term debt has been estimated based
on quoted market prices for the same or similar issues, or on the current rates
offered to GGI and Grant for debt of the same remaining maturities.
As a result of the Plan certain long-term debt claims against GGI at
December 31, 1996 will be settled at less than 100 percent of their value.
However, distributions under the Plan have not been completed, and until such
time as such distributions are completed, the fair value of these claims will
continue to be uncertain.
(12) EMPLOYEE BENEFIT PLANS
GGI Incentive Stock Option Plan
On November 1, 1996, GGI's Amended 1989 Long-Term Incentive Plan (the
"Plan") was amended to increase the shares of common stock reserved to cover the
granting of options to purchase shares of Common Stock ("Options"), issuing of
shares of Common Stock which are subject to vesting requirements or other
restrictions ("Restricted Stock") and issuing of Stock Appreciation Rights
("SAR") to employees to 2,803,930 shares.
GGI options were awarded at an option price determined by the Board of
Directors, which was not less than 100% of fair market value or 110% of fair
market value for employees already owning more than 10% of the voting power of
all classes of stock. The options were exercisable either by the purchase of
shares at the option price or as stock appreciation rights by which the employee
received cash or stock equivalent in value of the difference between the option
price and the market value of the stock at the exercise date. These options were
to
F-25
<PAGE> 83
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expire ten years from the date of grant and were exercisable as defined by the
stock option plan. No stock appreciation rights were granted. Transactions for
Options under the plan are summarized as follows:
<TABLE>
<CAPTION>
OPTION
SHARES PRICE
------ -----
<S> <C> <C>
Outstanding, December 31, 1994:
3,000 $ 0.10
262,000 0.938-1.313
20,000 2.50
108,750 7.00
--------
393,750
Granted............................................... 150,000 2.31
Exercised............................................. (15,000) 0.10-0.938
Outstanding, December 31, 1995:
250,000 $ 0.938-131
170,000 2.310-2.50
108,750 7.00
--------
528,750
Granted............................................... 784,000 2.219-2.688
Exercised............................................. (125,000) 1.125-1.313
Canceled.............................................. (125,000) 0.938-1.313
Canceled.............................................. (700,000) 2.219-2.688
Canceled.............................................. (45,000) 7.00
-------- ------------
Outstanding, December 31, 1996............................. 254,000 $2.219-2.688
Outstanding, December 31, 1996............................. 63,750 7.00
============
Exercisable, December 31, 1996............................. 56,000 $ 2.310
Exercisable, December 31, 1996............................. 63,750 7.00
============
</TABLE>
Additionally, a plan amendment was approved, effective January 1, 1996, by
the stockholders which permitted current and former non-employee directors of
GGI to participate in the plan solely for the purpose of receiving Restricted
Stock of GGI in lieu of part or all of the directors' fees. The shares of
Restricted Stock were automatically issued on the first day of each calendar
quarter following a calendar quarter of service. The fair market value of the
Restricted Stock was deemed to be the closing price of the common stock on the
last trading day of the preceding calendar quarter. In 1996 and 1995, 40,055 and
41,711 shares, respectively, of Restricted Stock were issued. The charges to
income totaled $127,000 and $103,000 in 1996 and 1995, respectively.
At December 31, 1996, 1,974,306 shares were available for future grants.
All options to acquire GGI's common stock and all stock appreciation rights
were canceled in connection with the Plan.
Grant 1997 Equity and Performance Incentive Plan
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Plan was amended in February 1998 to increase the number of
shares reserved for issuance under the Incentive Plan from one million shares of
Grant Common Stock to 1,450,000 shares of Grant Common Stock. The Incentive Plan
provides for the grant to officers (including officers who are also directors),
employees, consultants and nonemployee directors of Grant and its
F-26
<PAGE> 84
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries, of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code"), nonstatutory stock options,
stock appreciation rights and restricted shares and deferred shares of Grant
Common Stock (collectively, the "Awards"). The Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
nonemployee directors. The Board of Directors or its designated committee will
select the employees and non-employee directors to whom Awards may be granted
and the type of Award to be granted and determine, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. Option grants covering
1,339,900 shares have been approved by the Board of Directors but, as of March
15, 1998, such grants have not been distributed to the optionees. Options
approved by the Board will vest annually in equal one-third increments beginning
on December 31, 1998 and have an average exercise price of $6.07 per share
(range of $5 to $7.20 per share), subject to adjustment in certain
circumstances.
Employee Retirement Savings Plan
GGI established a defined contribution plan covering substantially all U.S.
employees whereby participants may elect to contribute between 1% and 15% of
their annual salary. Participants may not make contributions in excess of
$10,000 per year (as adjusted annually by the cost of living adjustment factor).
On the Effective Date, GGI assumed and assigned the plan to Grant. Under the
plan, the employer may contribute, on a discretionary basis, one-half of the
participant's contribution percentage up to 6% (limited to 3% of any employee's
annual salary). Beginning in August 1995, a portion of GGI's employer
contribution was made in the form of GGI common stock. The plan was amended in
June of 1997 to eliminate the employer's option to contribute common stock so
that discretionary contributions may be made only in the form of cash.
Contributions made by GGI for the years ended December 31, 1995, and 1996
totaled $154,000, which included 24,466 shares of GGI Common Stock with a market
value of $56,838, and 58,395 shares of GGI Common Stock with a market value of
$138,000, respectively. At December 31, 1995 and 1996, the plan held 24,466 and
82,861 shares of GGI Common Stock. Due to the cancellation of GGI's Common Stock
on the Effective Date, the plan administrator reduced the carrying value of the
shares held by the plan to zero and the trustee returned the certificates to
GGI. Cash contributions to the plan by Grant for the three-month period ended
December 31, 1997 totaled $39,000.
Other Postretirement Benefits
GGI sponsored a defined contribution postretirement plan which, pursuant to
the Plan, was assumed by GGI and assigned to Grant on the Effective Date. The
Plan provides medical coverage for eligible retirees and their dependents (as
defined in the plan). GGI and Grant adopted SFAS No. 106--"Employers' Accounting
for Postretirement Benefits Other Than Pensions" requiring companies to account
for these. The following sets forth
F-27
<PAGE> 85
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the plan's funded status reconciled with the amount shown in the consolidated
statement of operations on an accrual basis rather than a pay-as-you-go (cash)
basis as follows:
<TABLE>
<CAPTION>
GGI GRANT
--- -----
DECEMBER 31, DECEMBER 31,
1996 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents................................... $ (17) $ (17)
Fully eligible active plan participants................... (42) (49)
Other active plan participants............................ (308) (387)
----- -----
(367) (453)
Unrecognized net loss (gain).............................. 17 17
Unrecognized transition obligation........................ 118 111
----- -----
Accrued postretirement benefit cost.................... $(232) $(325)
===== =====
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
GGI GRANT
------------------------------------ -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------ -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost--benefits attributed
to service during the period... $41 $66 $52 $17
Interest cost on accumulated
postretirement benefit
obligation..................... 13 21 20 6
Amortization of transition
obligation over 20 years....... 7 7 5 2
Amortization of gain............. (2) -- -- --
Other amortizations.............. -- -- -- --
--- --- --- ---
Net periodic postretirement
benefit cost.............. $59 $94 $77 $25
=== === === ===
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per capita
cost of medical benefits was assumed for the year ended 1995, with a 7.25%, 7.0%
and 7.0% assumed annual rate for the year ended 1996, the nine months ended
September 30, 1997, and the three months ended December 31, 1997, respectively;
the rate was assumed to decrease gradually to 5% for 2001 and remain at that
level thereafter. The medical cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed medical
cost trend rates by 1% point in each year would increase the accumulated
postretirement benefit obligations as of December 31, 1995, 1996 and 1997 by
approximately $43,000, $56,000 and $68,749, respectively, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for the years ended December 31, 1995, 1996, and 1997 by $10,000, $15,000,
and $17,430, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for December 31, 1995, 1996, and
1997.
F-28
<PAGE> 86
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) STOCKHOLDERS' EQUITY (DEFICIT)
GGI
General
On the Effective Date, the capital stock of GGI was deemed to be cancelled,
extinguished and retired. Except for the holders of GGI's $2.4375 Convertible
Exchangeable Preferred Stock (the "2.4375 Preferred") and the Junior Preferred
Stock, no holders of any GGI equity security will receive any cash or other
distribution under the Plan, and the holders of such securities have no further
claims against GGI or rights relating to such securities other than the rights,
if any, provided by the Plan.
$2.4375 Convertible Exchangeable Preferred Stock
GGI had authorized 2,300,000 shares of $2.4375 Preferred ($0.01 par value,
$25.00 liquidation preference of which 2,157,000 was outstanding through March
20, 1996. The remaining 143,000 shares were issued on March 20, 1996. The
purchaser of the remaining shares was entitled to all unpaid, undeclared
dividends in arrears through March 31, 1996, totaling $1,220,000. The $2.4375
Preferred stock bore annual cumulative dividends of $2.4375 per share accruing
from July 26, 1991, payable quarterly on each March 31, June 30, September 30
and December 31, commencing September 30, 1991. It was convertible at any time
at the option of the holder, unless previously redeemed, into Common Stock
($.002 par value) of GGI at the initial conversion rate of 2.739726 shares of
Common Stock for each share of $2.4375 Preferred Stock. It was exchangeable, at
the option of GGI, in whole but not in part, on any dividend payment date
commencing September 30, 1993, for GGI's 9 3/4% Convertible Subordinated
Debentures (the "subordinated debentures") due 2016, at the rate of $25.00
principal amount of subordinated debentures for each share of $2.4375 Preferred
Stocks provided that all accumulated and unpaid dividends through the date of
exchange have been paid. Pursuant to the Plan, the $2.4375 Preferred was
canceled and the holders thereof are entitled to purchase shares of Grant Common
Stock in amounts provided in the Plan.
Series A Convertible Preferred Stock
GGI had authorized 75,000 shares of Series A Convertible Preferred Stock,
$0.01 par value. A total of 70,000 shares were issued in May 1996, all of which
have been converted into 4,428,404 shares of GGI Common Stock by December 31,
1996. Pursuant to the Plan all Series A Convertible Preferred Stock was
canceled.
Junior Preferred Stock
GGI had authorized 15,000 shares and had issued and outstanding 14,904
shares of nonvoting, redeemable Junior Preferred Stock with a $100 par value.
The shares were redeemable at any time by GGI upon 30-day written notice to
holders of such shares. No dividends were declared or paid on the Junior
Preferred stock. Pursuant to the Plan, the Junior Preferred Stock was canceled
and the holders thereof are entitled to purchase shares of Grant Common Stock in
amounts provided in the Plan.
Serial Preferred Stock
GGI had authorized 250,000 shares of Serial Preferred Stock, $100 par
value, none of which were issued and outstanding. Pursuant to the Plan, all
Serial Preferred Stock was canceled.
F-29
<PAGE> 87
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dividends in Arrears
The quarterly dividend payments for the periods of 1993 through December 6,
1996 and one quarterly dividend payment for 1992 on the $2.4375 preferred stock
were deferred by GGI's Board of Directors.
As of December 31, 1995 and 1996, preferred dividends in arrears on the
$2.4375 Preferred amounted to approximately $17,088,000 and $23,451,000,
respectively.
Pursuant to the Plan all unpaid dividends were canceled.
Common Stock (dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Balance, December 31, 1994.................................. 12,152,974 $24
Restricted common stock issued (Note 12).................. 41,711 --
Restricted common stock issued under the Employee
Retirement Savings Plan (Note 12)...................... 24,466 --
Stock options exercised................................... 15,000 --
---------- ---
Balance, December 31, 1995.................................. 12,234,151 24
Warrants exercised........................................ 200,000 1
Conversion of debentures.................................. 3,400,261 7
Conversion of Series A Preferred Stock.................... 4,428,404 9
Payment in connection with equipment and short- and
long-term financing (Note 15).......................... 155,499 --
Restricted common stock issued (Note 12).................. 40,055 --
Restricted common stock issued under the Employee
Retirement Savings Plan (Note 12)...................... 58,395 --
Stock options exercised................................... 125,000 --
---------- ---
Balance, December 31, 1996.................................. 20,641,765 $41
========== ===
</TABLE>
Pursuant to the Plan, all GGI common stock was canceled.
GRANT
Cumulative Preferred Stock
Grant has authorized 20,000 shares of cumulative pay-in-kind preferred
stock (the "Grant Preferred Stock"), par value $0.001 per share, with a
liquidation preference of $1,000 per share of which 10,000 are outstanding.
Dividends accrue and are cumulative from September 30, 1997, the date on which
such shares were issued. Dividends accrue at an annual rate of 10.5% of the
liquidation value and are payable annually on September 30 of each year.
Dividend interest accrues on dividends not paid on the dividend payment date at
a rate of 12.5% annually. Dividend payments or dividend interest shall be paid
only by issuing shares of cumulative preferred stock with an aggregate
liquidation preference equal to the amount of such dividends or dividend
interest. Upon the occurrence of a change in control, the Grant Preferred Stock
is redeemable at the option of the holder at a redemption price equal to 105% of
the liquidation value plus accrued and unpaid dividends and interest. Grant may
redeem at any time for cash the Grant Preferred Stock for 100% of the
liquidation value plus accrued and unpaid dividends and interest. Cumulative,
unpaid dividends associated with the Preferred Stock are approximately $262,000.
F-30
<PAGE> 88
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock
At December 31, 1997, Grant has authorized 25,000,000 shares of common
stock, par value $.001 per share, of which 14,152,555 shares are issued and
outstanding. The changes in common stock are as follows (dollars in thousands):
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
GRANT SHARES AMOUNT
----- ------ ------
<S> <C> <C>
Balance September 30, 1997.................................. 4,590,056 $ 5
Common stock issued......................................... 1 --
Common stock issued in exchange for warrants in Solid
State..................................................... 62,500
Common stock issued in connection with the reorganization
plan...................................................... 9,499,998 9
---------- ---
Balance, December 31, 1997.................................. 14,152,555 $14
========== ===
</TABLE>
(14) CONTINGENCIES
On December 11, 1997, certain persons, acting through an "ad hoc" committee
(the "Plaintiffs") commenced a lawsuit in the Bankruptcy Court against Grant,
GGI, Elliott, Westgate and a subsidiary of Grant. The lawsuit alleges that (i)
GGI and Elliott breached their obligations under the Plan by seeking to complete
the acquisition of Solid State prior to commencing a subscription offering to
purchase Grant Common Stock, (ii) the acquisition of Solid State and the certain
related transactions are unfair to the Plaintiffs because they dilute the value
of the Common Stock to be issued under such subscription offering and impair
Grant's equity value and (iii) the acquisition of Solid State and certain
related transactions could and should have been, but were not, adequately
disclosed in the disclosure statement filed with the Bankruptcy Court regarding
the Plan. The Plaintiffs have requested (i) compensatory and punitive damages in
an unstated amount and (ii) revocation of the Plan.
In addition, the Plaintiffs sought to enjoin completion of the acquisition
of Solid State and certain related transactions pending a trial on the merits.
This request for injunctive relief was denied by the Bankruptcy Court on
December 16, 1997, and was denied on appeal by the United States District Court
for the District of Delaware on December 19, 1997. A status conference was held
on this matter on January 21, 1998, at which time a discovery schedule was
established. Discovery in this matter is on-going. Grant believes that all
claims by the Plaintiffs are without merit and plans to vigorously defend the
lawsuit. In addition, Elliott has agreed to indemnify Grant and its subsidiary
against any liability that they may incur by reason of any adverse final
judgment in the lawsuit. Nevertheless, if not resolved in Grant's favor, this
lawsuit, and the potential for other lawsuits related to the Plan, could have an
adverse effect on Grant's business, reputation, operating results and financial
condition.
GGI and Grant are involved in various claims and legal actions arising in
the ordinary course of business. Other than the Plan and actions commenced
pursuant thereto or in connection therewith, management of GGI and management of
Grant are of the opinion that none of the claims and actions are likely to have
a material impact on GGI's or Grant's financial condition.
The Court generally has jurisdiction over all of GGI's property, as defined
in section 541 of the Bankruptcy Code, held on the Petition Date or acquired
thereafter. GGI may not engage in transactions except pursuant to the Plan
without prior approval of the Court.
GGI and Grant are subject to review by various taxing authorities for the
purpose of verifying compliance with numerous local tax laws and regulations. As
a result of one of these reviews, GGI was notified that, during 1995, it had
neglected to collect a certain tax from several clients and remit those
collections to the local
F-31
<PAGE> 89
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
government. The total amount of the potential assessment, including penalties
and interest, is approximately $6,000,000. GGI believes the tax authority's
claim is without merit. Moreover, such assessment was not filed as a claim in
GGI's chapter 11 case. As a result, GGI has made no provision for payment on the
assessment. GGI intends to vigorously protest any attempted enforcement of the
assessment; however, there can be no assurances regarding the outcome of any
such protest.
(15) RELATED PARTY TRANSACTIONS
During 1996, GGI entered into an exclusive agreement with Macdonald & King,
Incorporated, a financial services firm, for the purpose of assisting GGI in
securing additional sources of financing including equipment financing and short
and long-term financing. Mr. William C. Macdonald, a former director of GGI, is
the Chairman of the Board and sole shareholder of Macdonald & King,
Incorporated. Pursuant to the terms of the agreement, GGI issued 155,499 shares
of GGI Common Stock with a market value of approximately $388,748 to Macdonald &
King, Incorporated in connection with financing obtained by GGI prior to Mr.
Macdonald's resignation from GGI's Board of Directors effective August 8, 1996.
On March 20, 1996, GGI issued 143,000 shares of GGI's $2.4375 Preferred to
Westgate, an affiliate of Elliott, a holder of more than 5% of the $2.4375
Preferred, for an aggregate purchase price of $1,573,000. Westgate subsequently
sold its shares of $2.4375 Preferred to Liverpool Limited Partners, who also is
an affiliate of Elliott.
In November 1996, GGI borrowed an aggregate of $3,149,000 from Westgate and
Elliott for working capital purposes. The borrowings are in the form of
unsecured promissory notes and remain outstanding at December 31, 1996, and are
classified in pre-petition liabilities subject to the chapter 11 case.
A senior vice-president of Grant has loaned approximately CDN $500,000 for
a two year term at 10% interest to an entity in which the Company holds an 18%
common equity interest. Additionally, Grant owns $268,000 of redeemable,
cumulative preferred shares in the same entity. The Company uses this entity
F-32
<PAGE> 90
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
periodically to perform survey services. During the three months ended December
31, 1997, Grant paid approximately $364,000 to this entity.
See the discussion of debt financing with Elliott in Notes 3 and 9.
See discussion of the Subscription Offering in Note 9.
(16) OTHER INCOME (DEDUCTIONS)
Other Income (Deductions) consisted of the following:
<TABLE>
<CAPTION>
GGI GRANT
--------------------------------- -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
--------------- -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain (loss) on the sale of fixed
assets............................. $ 212 $ 25 $ (67) $ 50
Net gain (loss) on foreign
exchange........................... 102 (251) (98) (289)
Loss on sale of subsidiaries......... -- (198) -- --
Foreign credit insurance............. (73) (8) -- --
Gain on insurance settlement......... 1,247 -- 11 --
Merger costs......................... -- -- -- (767)
Investment income.................... -- -- -- 46
Legal settlements.................... -- -- 2,359(a) (66)
Miscellaneous........................ 588 (70) 61 (236)
------ ----- ------ -------
Total.............................. $2,076 $(502) $2,266 $(1,262)
====== ===== ====== =======
</TABLE>
- ---------------
(a) On July 15, 1997, GGI's Brazilian subsidiary finalized an agreement with a
former customer that resolved a long standing dispute relating to services
rendered on contracts dating back to 1983. In settlement of all claims, GGI
received payment, net of related costs and expenses, of approximately
$2,359,000.
F-33
<PAGE> 91
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Non Cash investing and financing activities consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
GGI GRANT
--------------------------------- -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------- -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS
FOLLOWS:
Taxes, net of refunds................. $ 968 $ 3,496 $2,037 $ 785
Interest, net of amounts
capitalized........................ 3,524 6,106 3,742 595
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property, plant and equipment debt
additions.......................... 8,106 19,718 1,483 8,406
Common Stock issued in exchange of
warrants in Solid State............ -- -- -- 144
Converted 9,571 Preferred Shares to A
Subordinated Note.................. -- -- -- 9,571
Dividend -- Preferred Stock........... -- -- -- 215
Debenture conversion.................. -- 2,774 -- --
Fair value of divestitures, net of
cash held.......................... -- 493 -- --
Receivables acquired in connection
with divestitures.................. $ -- $ 255 $ -- $ --
</TABLE>
(18) SUBSCRIPTION OFFERING
The Plan provides that (i) Eligible Class 5 Claim Holders; (ii) Eligible
Class 7 Interest Holders; and (iii) Eligible Class 8 Interest Holders, each as
defined in the Plan (collectively, the "Eligible Subscribers") have the right to
participate in the Subscription Offering. Each Eligible Subscriber's right to
purchase Grant Common Stock is nontransferable, will not be evidenced by
certificates, and will expire on the Expiration Date. The Plan provides that
subscription rights shall represent the right to purchase, in the aggregate
4,750,000 shares of Grant Common Stock, for an aggregate purchase price of
$23,750,000. The Eligible Subscribers are divided into the following three
groups: (i) Eligible Class 5 Interest Holders that have the right to purchase,
in the aggregate, 475,000 shares of Grant Common Stock, for an aggregate
purchase price of $2,375,000, (ii) Eligible Class 7 Claim Holders that have the
right to purchase, in the aggregate, 4,255,000 shares of Grant Common Stock, for
an aggregate purchase price of $21,275,000 and (iii) Eligible Class 8 Interest
Holders that have the right to purchase, in the aggregate, 20,000 shares of
Grant Common Stock, for an aggregate purchase price of $100,000.
Pursuant to the Plan, the Company is required to conduct a subscription
offering of 4,750,000 shares of Grant Common Stock to certain holders of claims
and other interests under the Plan for an aggregate purchase price of
$23,750,000. The Plan also authorized the offering of shares of common stock of
a successor company on economically equivalent terms. The Plan provides,
however, that Elliott or its affiliates may pay the entire purchase price to
GGI, representing the total anticipated proceeds of such offering, and then
conduct a subscription offering and retain the proceeds therefrom, which Elliott
has elected to do. Because Elliott and certain of its affiliates, as interest
holders under the Plan, were entitled to purchase 1,290,586 shares of Grant
Common Stock in an offering by the Company, the Selling Stockholders are
offering the balance of such shares of Grant Common Stock to the Eligible
Subscribers pursuant to the Subscription Offering. The Company is registering
such shares of Grant Common Stock pursuant to the Registration Rights Agreement.
F-34
<PAGE> 92
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION
SUPPLEMENTARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Quarterly financial information of GGI is summarized as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR ENDED
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
1996
Revenues............................. $27,808 $ 26,951 $ 26,166 $ 24,598 $105,523
Operating income/(loss).............. 1,060 955 (21,518)(2) (46,467)(3) (65,970)
Net loss............................. (572) (621) (23,655) (51,179) (76,027)
Net loss applicable to common
stock.............................. (3,106)(1) (2,023) (25,056) (52,205) (82,390)
1997
Revenues............................. $30,295 $ 36,873 $ 25,537
Operating income..................... 2070 3,532 1,192
Net income (loss).................... (275) 138 (287)
Net income (loss) applicable to
common stock....................... (275) 138 (287)
Quarterly financial information of Grant is summarized as follows:
1997
Revenues............................. -- -- -- $ 37,868
Operating income..................... -- -- -- (5,033)(4)
Net income (loss).................... -- -- -- (5,666)
Net income (loss) applicable to
common stock....................... -- -- -- (6,143)
INCOME (LOSS) PER COMMON SHARE--
BASIC AND DILUTED:
Net income (loss) per common stock... -- -- -- $(1.28)
</TABLE>
- ---------------
(1) Includes $1,220 cumulative adjustment for the prior unpaid, undeclared
dividends associated with the issuance of 143,000 shares of GGI's $2.4375
Preferred.
(2) Includes $8,374 recognition of anticipated contract losses in 1996.
(3) Includes $5,802 special charge for asset impairment (see Note 4 of Notes to
the Consolidated Financial Statements), $5,511 reserve for accounts
receivable determined to be uncollectible, $2,700 demobilization charge for
closed operations, $1,206 related to future estimated contract losses and
$412 of reorganization costs.
(4) Includes $6,369 special charge for asset impairment (see Note 4 of Notes to
the Consolidated Financial Statements). $5,869 is related to the impaired
multi-client data library and $500 is related to miscellaneous assets held
by Solid State.
F-35
<PAGE> 93
October 31, 1997, except for Note 17 (a to e) which is
as at November 27, 1997 and Note 17(f) which is as at March 19, 1998
AUDITORS' REPORT
To the Directors of
Solid State Geophysical Inc.
We have audited the consolidated balance sheets of Solid State Geophysical
Inc. as at August 31, 1996 and 1997 and the consolidated statements of
operations and (deficit) retained earnings and changes in financial position for
the years ended August 31, 1995, 1996 and 1997. These financial statements are
the responsibility of the Solid State Geophysical Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Solid State Geophysical Inc. as
at August 31, 1996 and 1997 and the results of its operations and the changes in
its financial position for the years ended August 31, 1995, 1996 and 1997 in
accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
October 31, 1997, except for Note 17 (a to e) which is
as at November 27, 1997 and Note 17(f) which is as at March 19, 1998
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
Solid State Geophysical Inc.'s ability to continue as a going concern, such as
those described in Note 1 to the financial statements. Our report to the
directors dated October 31, 1997, except for Note 17, which is as at November
27, 1997, is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
F-36
<PAGE> 94
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED BALANCE SHEET
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 308,000 $ 740,000
Accounts receivable....................................... 8,016,000 16,203,000
Income taxes recoverable.................................. 463,000 428,000
Work-in-progress.......................................... 430,000 989,000
Multi-client data, current portion (Notes 1 and 4)........ 5,978,000 2,454,000
Prepaid expenses, deposits and other...................... 1,169,000 1,200,000
Discontinued operations (Note 3).......................... 133,000 --
----------- -----------
16,497,000 22,014,000
Multi-client data, less current portion (Notes 1 and 4)..... 5,723,000 13,213,000
Other non-current assets (Note 3)........................... 1,527,000 1,137,000
Property and equipment (Note 5)............................. 31,638,000 35,161,000
Deferred exchange loss...................................... 26,000 234,000
Goodwill (Note 3)........................................... 189,000 --
----------- -----------
$55,600,000 $71,759,000
=========== ===========
LIABILITIES
Current liabilities
Bank indebtedness (Note 6)................................ $ 5,788,000 $ 5,235,000
Accounts payable and accrued liabilities.................. 17,290,000 18,605,000
Advances on contracts..................................... 2,101,000 --
Promissory notes (Note 7)................................. 2,600,000 11,109,000
Long-term debt -- current portion......................... 8,054,000 9,028,000
Discontinued operations (Note 3).......................... 180,000 --
----------- -----------
36,013,000 43,977,000
Long-term debt (Note 7)..................................... 14,526,000 18,693,000
Deferred income taxes....................................... 988,000 --
----------- -----------
51,527,000 62,670,000
----------- -----------
SHAREHOLDERS' EQUITY
Capital stock (Note 8)...................................... 14,758,000 24,469,000
Deficit..................................................... (10,685,000) (15,380,000)
----------- -----------
4,073,000 9,089,000
----------- -----------
$55,600,000 $71,759,000
=========== ===========
</TABLE>
Contingencies (Notes 1 and 16)
F-37
<PAGE> 95
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AND (DEFICIT) RETAINED EARNINGS
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CONTRACT REVENUE.................................. $48,357,000 $ 45,503,000 $ 77,999,000
Third party costs................................. 19,507,000 18,213,000 32,089,000
----------- ------------ ------------
NET CONTRACT REVENUE.............................. 28,850,000 27,290,000 45,910,000
Costs of sales.................................... 20,384,000 21,250,000 33,262,000
----------- ------------ ------------
GROSS PROFIT CONTRACT............................. 8,466,000 6,040,000 12,648,000
----------- ------------ ------------
DATA LIBRARY REVENUE.............................. 773,000 14,891,000 3,919,000
Amortization of data library...................... 476,000 20,694,000 4,784,000
----------- ------------ ------------
GROSS (LOSS) PROFIT DATA LIBRARY.................. 297,000 (5,803,000) (865,000)
----------- ------------ ------------
COMBINED GROSS PROFIT............................. 8,763,000 237,000 11,783,000
----------- ------------ ------------
General and administrative expenses............... 2,256,000 2,980,000 3,948,000
Restructuring costs and other..................... -- 873,000 231,000
----------- ------------ ------------
2,256,000 3,853,000 4,179,000
----------- ------------ ------------
EARNINGS (LOSS) BEFORE DEPRECIATION, INTEREST AND
DISCONTINUED OPERATIONS......................... 6,507,000 (3,616,000) 7,604,000
Depreciation and amortization..................... 5,968,000 5,856,000 8,974,000
----------- ------------ ------------
EARNINGS (LOSS) BEFORE INTEREST AND DISCONTINUED
OPERATIONS, WRITE-DOWN AND TAXES................ 539,000 (9,472,000) (1,370,000)
Interest
Short-term obligations....................... 109,000 953,000 1,993,000
Long-term debt............................... 1,066,000 1,714,000 2,057,000
----------- ------------ ------------
1,175,000 2,667,000 4,050,000
----------- ------------ ------------
(636,000) (12,139,000) (5,420,000)
INCOME TAX PROVISION (RECOVERY)
Current......................................... (250,000) (414,000) 69,000
Deferred........................................ 250,000 -- (915,000)
----------- ------------ ------------
-- (414,000) (846,000)
----------- ------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS AND WRITE-DOWN
OF DISCONTINUED OPERATIONS ASSETS............... (636,000) (11,725,000) (4,574,000)
Write-down of discontinued operations assets to
recoverable amount (Note 3)..................... 3,349,000 -- --
----------- ------------ ------------
(3,985,000) (11,725,000) (4,574,000)
Discontinued operations (Note 3).................. (938,000) (242,000) (121,000)
----------- ------------ ------------
NET LOSS.......................................... (4,923,000) (11,967,000) (4,695,000)
Retained earnings (deficit) at beginning of
year............................................ 6,205,000 1,282,000 (10,685,000)
----------- ------------ ------------
Retained earnings (deficit) at end of year........ $ 1,282,000 $(10,685,000) $(15,380,000)
=========== ============ ============
Loss per share before discontinued operations
(Note 8)........................................ $ (0.80) $ (2.34) $ (0.42)
=========== ============ ============
Loss per share after discontinued operations (Note
8).............................................. $ (0.98) $ (2.39) $ (0.44)
=========== ============ ============
</TABLE>
F-38
<PAGE> 96
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED STATEMENT OF CHANGES IN
FINANCIAL POSITION
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) CONTINUING OPERATING
ACTIVITIES
Loss before discontinued operations and
write-down of assets..................... $ (636,000) $(11,725,000) $ (4,574,000)
Charges (credits) to income not affecting
cash
Amortization of data library............. 476,000 20,694,000 4,784,000
Depreciation and amortization............ 5,968,000 5,856,000 8,974,000
Gain on disposal of fixed assets......... (54,000) (134,000) (325,000)
Deferred income taxes.................... 250,000 -- (915,000)
------------ ------------ ------------
6,004,000 14,691,000 7,944,000
Changes in working capital balances related
to operations............................ 10,924,000 1,168,000 (9,528,000)
------------ ------------ ------------
16,928,000 15,859,000 (1,584,000)
FINANCING ACTIVITIES
Promissory notes -- net.................... -- 2,600,000 8,509,000
Proceeds of long-term debt................. 12,839,000 11,007,000 19,777,000
Repayment of long-term debt................ (7,940,000) (5,193,000) (14,636,000)
Capital stock
Issued for options....................... -- 20,000 311,000
Issued for repayment of debt............. -- -- 3,989,000
Issued for cash.......................... -- -- 5,338,000
Deferred exchange gain (loss).............. 121,000 (100,000) (208,000)
------------ ------------ ------------
5,020,000 8,334,000 23,080,000
------------ ------------ ------------
INVESTING ACTIVITIES
Sale of operations of a subsidiary (Note
3)....................................... -- 2,275,000 177,000
Preferred shares acquired on sale of
operations of a subsidiary (Note 3)...... -- (1,441,000) --
Proceeds from disposal of fixed assets..... 91,000 698,000 3,476,000
Acquisition of fixed assets................ (10,888,000) (11,025,000) (15,770,000)
Data library............................... (7,680,000) (21,643,000) (8,439,000)
Other...................................... (200,000) 4,000 213,000
------------ ------------ ------------
(18,677,000) (31,132,000) (20,343,000)
------------ ------------ ------------
DISCONTINUED OPERATIONS (NOTE 3)
Operating activities....................... 126,000 (12,000) (121,000)
Financing activities....................... (188,000) 19,000 --
Investing activities....................... (898,000) (148,000) (47,000)
------------ ------------ ------------
(960,000) (141,000) (168,000)
------------ ------------ ------------
Change in cash.................................. 2,311,000 (7,080,000) 985,000
Cash (bank indebtedness less cash), beginning of
year.......................................... (711,000) 1,600,000 (5,480,000)
------------ ------------ ------------
Cash (bank indebtedness less cash), end of
year.......................................... $ 1,600,000 $ (5,480,000) $ (4,495,000)
============ ============ ============
</TABLE>
F-39
<PAGE> 97
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(1) CORPORATE FINANCING, OPERATIONS AND BASIS OF FINANCIAL PRESENTATION
These financial statements have been prepared on the basis that Solid State
Geophysical Inc. ("Solid State") will be able to complete major projects in
progress and generate sufficient timely cash flow to pay its liabilities in the
normal course of business. At August 31, 1997, Solid State had negative working
capital of $21,963,000 which amount includes $9,028,000, representing the
current portion of long-term debt due over the next twelve month period.
See Note 7 for details on debt covenant violations, postponement of certain
principal payments and extension of promissory note repayment dates.
Solid State's liquidity problems arose primarily from cost overruns
relating to a multi-client library acquisition, losses relating to the Nortech
operations which were sold and losses from performing certain large non-Canadian
data acquisition contracts for clients. Continued purchase of property, plant
and equipment was also a major factor in debt incurred.
Solid State had a loss for the year before discontinued operations of
$4,574,000; cash flow from continuing operations before changes in working
capital of $7,944,000 (before expenditures on the data library of $8,439,000)
and shareholders' equity, at year end, of $9,089,000.
The recovery of the data library and certain other assets is dependent upon
future occurrences. The amounts recorded for such assets are subject to
significant management estimates (see Notes 3 and 4).
Funding for Solid State's commitments must be provided by future data
library sales, normal operations, additional financing or the issue of share
capital. (See Note 17 for funds advanced after August 31, 1997.)
On August 30, 1997, Solid State's wholly owned subsidiary, Nortech Surveys
(Canada) Inc. was wound up into Solid State.
(2) ACCOUNTING POLICIES
The consolidated financial statements of Solid State have been prepared in
accordance with Canadian generally accepted accounting principles. The
significant accounting policies used in these consolidated financial statements
are:
Basis of consolidation
The consolidated financial statements include the accounts of Solid State;
Solid State Geophysical Corp. (a United States company); and Solid State
International Ingenieria, C.A. (a Venezuelan company).
Revenue recognition and work-in-progress
Solid State recognizes revenue on fixed price contracts on the basis of
percentage complete. Revenue on hourly rate contracts is recognized in the
period earned. Start-up costs, inventory and other costs related to contracts
not sufficiently underway to warrant revenue recognition are carried as
work-in-progress and charged to expense as revenue is recognized.
Work-in-progress is valued at the lower of cost and net realizable value.
Anticipated losses on contracts are recorded when reasonably determinable.
Multi-client data library
Solid State collects certain seismic data for its own account which it
resells to clients on a non-transferrable, non-exclusive basis. During the
period beginning with the initiation of each multi-client survey to the
completion of the survey, total estimated costs are amortized based on revenues
from such survey as a percentage of total estimated revenues to be realized from
such survey. After the survey is completed, amortization of remaining
F-40
<PAGE> 98
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capitalized costs is provided at the greater of the percentage of realized
revenues to total estimated revenues or over a period not to exceed four years.
Solid State periodically reviews the carrying value of multi-client data to
assess whether there has been a permanent impairment of value and records losses
in periods when the total estimated costs exceed total estimated sales or in
periods when it is determined that sales would not be sufficient to cover the
carrying value of the asset.
Depreciation
Property and equipment are depreciated on the straight-line basis to
reflect the estimated useful life of the related assets (Note 5).
Income taxes
Solid State prepares its financial statements on the deferred income tax
allocation basis. A provision is made for all income taxes currently payable as
well as for those deferred to future years as a result of timing differences
between income for income tax purposes and for accounting purposes arising
primarily from the difference between amounts claimed for fixed assets for
income tax purposes and depreciation recorded for accounting purposes.
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated to
Canadian dollar equivalents at exchange rates prevailing at the transaction
dates. Carrying values of monetary assets and liabilities reflect the exchange
rates at the balance sheet date. Translation gains and losses, except those
related to long-term debt, are included in earnings. Gains and losses related to
long-term debt are deferred and amortized over the remaining term of the debt.
The operations of foreign subsidiaries are considered to be integrated and
accordingly, the monetary assets and liabilities are translated at the rate of
exchange at the balance sheet date. Revenue and expenses of the foreign
subsidiaries are translated at the exchange rate prevailing at the date of the
transaction.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Solid State's policy is to amortize data library costs based upon the
anticipated revenues Solid State expects to realize over a period not to exceed
four years from the date of project completion or the end of any exclusive use
period. It is reasonably possible that those estimates of anticipated revenues,
the remaining estimated economic life of the data library, or both will be
reduced significantly in the near term due to competitive pressures. As a
result, the carrying amount of the data library costs may be reduced materially
in the near term.
(3) OTHER NON-CURRENT ASSETS
In July 1996, the operations of Nortech Surveys (Canada) Inc. were sold for
$2,275,000 and the operations were presented as discontinued operations. There
was no gain or loss recorded on the sale.
Part of the proceeds on sale was $1,263,000 of preferred shares of Nortech
Geomatics Inc. These shares have the right to receive quarterly cumulative
dividends at a rate equal to 80% of the prime interest rate, are non-voting,
have mandatory redemption of $200,000 per year and under certain conditions may
be converted into a one year promissory note. Under certain conditions these
shares may be converted into common shares after 2003. $206,000 of preferred
shares were redeemed in 1997. In fiscal 1997, $629,000 of the preferred shares
were converted into Common shares, which Solid State intends to sell.
F-41
<PAGE> 99
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ability of Solid State to liquidate its investment in Common shares on
a timely basis is dependent on the ability of Nortech Geomatics Inc. to become a
public company.
The following summarizes the results of Nortech's operations over the last
three fiscal periods and are reflected in the Consolidated Statement of
Operations and Deficit as a one line item -- Discontinued Operations:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues........................... $5,674,000 $3,595,000 $ --
Expenses
Operating and interest costs......... 5,989,000 3,607,000 121,000
Amortization......................... 623,000 230,000 --
---------- ---------- ----------
6,612,000 3,837,000 121,000
---------- ---------- ----------
Net loss............................... $ (938,000) $ (242,000) $ (121,000)
========== ========== ==========
</TABLE>
In addition to the loss shown above, $3,349,000 of the proprietary
engineering and system development costs and certain survey equipment included
in property and equipment related to the Nortech operations were written down to
their net recoverable amounts in 1995. In April 1994, Solid State acquired all
the outstanding shares of Seismoven C.A., a Venezuelan company, for
consideration of $270,000 (U.S. $200,000). The acquisition was accounted for
using the purchase method with the majority of the purchase consideration being
allocated to goodwill. Subsequent to acquisition, the Corporation's name was
changed to Solid State Internacional Ingenieria, C.A. The goodwill related to
this investment was expensed in 1997.
(4) MULTI-CLIENT DATA
Atchafalaya Bay
Work commenced on the Atchafalaya Bay project in late fiscal 1995 and the
project was 77% complete at August 31, 1996. In 1996, as part of a series of
transactions to enable completion of the project, Solid State sold its ownership
in this data bank, and retained an interest in the future revenues from the
project in return for completing the project.
Prior to the sale of its ownership interest, Solid State had a revenue
sharing agreement with another third party. Under this other revenue sharing
basis the first U.S. $10,500,000 went to Solid State, between $10,500,000 and
$13,000,000 revenue was split as follows: 73.7% to Solid State and 26.3% to the
other party. Revenue above $13,000,000 was shared 50/50. The other party's share
of this revenue sharing agreement was purchased by Solid State in conjunction
with its sale of the data library and the negotiation of its retained interest
in future revenues.
As at August 31, 1996, all anticipated losses related to the Atchafalaya
Bay project were recognized. The resultant net book value of $7,841,000
represented management's estimate of net future proceeds from data sales.
During the year ended August 31, 1997, Solid State spent an additional
$8,715,000 on this project achieving completion. Processing of the data is
anticipated to be completed in November 1997. Amortization of $3,815,000
resulted in a net book value at August 31, 1997 of $12,741,000 which represents
management's estimate of net future proceeds from data sales attributable to
Solid State. This estimate is supported by a current market valuation of the
project done by a data library valuer using the most likely undiscounted cash
flow model.
Solid State's share of revenues for the year ended August 31, 1997 was
$3,728,000. Total costs for the project are estimated to be $32,836,000,
including $3,188,000 of depreciation.
F-42
<PAGE> 100
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net revenue sharing arrangement, which is in U.S. dollars which was
converted to Canadian dollars at an average rate of $0.727 as at August 31, 1997
(closing rate $0.721), with the Atchafalaya Bay Data library owner is as
follows:
<TABLE>
<CAPTION>
CANADIAN RECORDED IN REVENUE TO
DOLLAR AUGUST 31,
SALES ------------------------
REVENUE SHARING BASIS REVENUE OWNER SOLID STATE 1996 1997
--------------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
First................... $11,414,000 $ -- $11,414,000 $8,882,000 $2,532,000
Next.................... 4,601,000 3,405,000 1,196,000 -- 1,196,000
----------- ----------- ----------- ---------- ----------
Sales to date............. 16,015,000 3,405,000 12,610,000 8,882,000 3,728,000
----------- ----------- ----------- ---------- ----------
Next.................... 7,405,000 5,480,000 1,925,000 -- --
Next.................... 8,280,000 -- 8,280,000 -- --
Next.................... 11,501,000 8,051,000 3,450,000 -- --
----------- ----------- ----------- ---------- ----------
Future sales.............. 27,186,000 13,531,000 13,655,000 -- --
----------- ----------- ----------- ---------- ----------
$43,201,000 $16,936,000 $26,265,000 $8,882,000 $3,728,000
=========== =========== =========== ========== ==========
</TABLE>
The revenue sharing basis in U.S. dollars is $8,394,000, $3,334,000,
$5,366,000, $6,000,000 and $8,334,000, respectfully, for the amounts shown in
the Canadian dollar Sales Revenue column.
Realization of these sales is dependent upon the availability of land in
the data area, petroleum discoveries or anticipated discoveries in that area and
general petroleum industry economics.
Canadian
No significant additions were made to the Canadian data library in the year
ended August 31, 1997. Amortization of $969,000 was recorded. As at August 31,
1997, the net book value was $2,926,000.
Recovery of these costs is dependent upon future sales which are influenced
by the availability of land in the data area, petroleum discoveries or
anticipated discoveries in that area and general petroleum industry economics.
Other
Certain financing agreements require all proceeds from the data library
sales to be applied against the specified debt (see Note 7).
F-43
<PAGE> 101
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
COST
Balance as at September 1, 1995.................... $3,886,000 $ 4,874,000 $ 8,760,000
Additions.......................................... 5,214,000 19,246,000 24,460,000
---------- ----------- -----------
Balance as at September 1, 1996.................... $9,100,000 $24,120,000 $33,220,000
========== =========== ===========
Balance, as at September 1, 1996................... $9,100,000 $24,120,000 $33,220,000
Additions.......................................... 35,000 8,715,000 8,750,000
---------- ----------- -----------
Balance as at August 31, 1997...................... $9,135,000 $32,835,000 $41,970,000
========== =========== ===========
ACCUMULATED AMORTIZATION
Balance as at September 1, 1995.................... $ 964,000 $ -- $ 964,000
Amortization for the year.......................... 4,276,000 16,279,000 20,555,000
---------- ----------- -----------
Balance as at September 1, 1996.................... $5,240,000 $16,279,000 $21,519,000
========== =========== ===========
ACCUMULATED AMORTIZATION
Balance as at September 1, 1996.................... $5,240,000 $16,279,000 $21,519,000
Amortization for the year.......................... 969,000 3,815,000 4,784,000
---------- ----------- -----------
Balance as at August 31, 1997...................... $6,209,000 $20,094,000 $26,303,000
========== =========== ===========
NET BOOK VALUE AS AT AUGUST 31, 1996
Current portion.................................... $1,454,000 $ 4,524,000 $ 5,978,000
Non-current portion................................ 2,406,000 3,317,000 5,723,000
---------- ----------- -----------
$3,860,000 $ 7,841,000 $11,701,000
========== =========== ===========
NET BOOK VALUE AS AT AUGUST 31, 1997
Current portion.................................... $ 917,000 $ 1,537,000 $ 2,454,000
Non-current portion................................ 2,009,000 11,204,000 13,213,000
---------- ----------- -----------
$2,926,000 $12,741,000 $15,667,000
========== =========== ===========
</TABLE>
F-44
<PAGE> 102
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
---------- ------------- -----------
<S> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31, 1995
Revenues........................................... $ 773,000 $ -- $ 773,000
Amortization....................................... 476,000 -- 476,000
---------- ----------- -----------
Gross profit....................................... $ 297,000 $ -- $ 297,000
========== =========== ===========
FOR THE YEAR ENDED AUGUST 31, 1996
Revenues........................................... $6,009,000 $ 8,882,000 $14,891,000
Amortization....................................... 4,276,000 16,418,000 20,694,000
---------- ----------- -----------
Gross profit (loss)................................ $1,733,000 $(7,536,000) $(5,803,000)
========== =========== ===========
FOR THE YEAR ENDED AUGUST 31, 1997
Revenues........................................... $ 191,000 $ 3,728,000 $ 3,919,000
Amortization....................................... 969,000 3,815,000 4,784,000
---------- ----------- -----------
Gross loss......................................... $ (778,000) $ (87,000) $ (865,000)
========== =========== ===========
</TABLE>
(5) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- --------------- -----------
<S> <C> <C> <C>
Land............................................. $ 275,000 $ -- $ 275,000
Building......................................... 659,000 69,000 590,000
Recording equipment.............................. 42,329,000 16,507,000 25,822,000
Survey equipment................................. 2,235,000 1,429,000 806,000
Drilling equipment............................... 2,783,000 1,206,000 1,577,000
Vehicles (including boats)....................... 2,318,000 1,673,000 645,000
Office equipment................................. 653,000 408,000 245,000
Radio equipment.................................. 434,000 301,000 133,000
----------- ----------- -----------
51,686,000 21,593,000 30,093,000
Equipment under capital lease.................... 2,339,000 794,000 1,545,000
----------- ----------- -----------
$54,025,000 $22,387,000 $31,638,000
=========== =========== ===========
</TABLE>
F-45
<PAGE> 103
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, 1997
----------------------------------------------------------
DEPRECIATION
TERMS IN ACCUMULATED NET BOOK
YEARS COST DEPRECIATION VALUE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Land................................... -- $ 275,000 $ -- $ 275,000
Building............................... 20 681,000 108,000 573,000
Recording equipment.................... 2 - 7 51,809,000 22,430,000 29,379,000
Survey equipment....................... 3 - 5 2,251,000 1,737,000 514,000
Drilling equipment..................... 2 - 3 3,309,000 2,146,000 1,163,000
Vehicles (including boats)............. 3 - 5 2,606,000 2,080,000 526,000
Office equipment....................... 5 880,000 532,000 348,000
Radio equipment........................ 2 - 4 593,000 387,000 206,000
----- ----------- ----------- -----------
62,404,000 29,420,000 32,984,000
Equipment under capital lease.......... 3 - 5 3,239,000 1,062,000 2,177,000
----- ----------- ----------- -----------
$65,643,000 $30,482,000 $35,161,000
===== =========== =========== ===========
</TABLE>
Property and equipment are pledged as security pursuant to long-term debt
(see Note 7).
(6) OPERATING LOANS
Solid State and its subsidiaries have operating lines of credit of
$5,100,000 which were fully utilized at August 31, 1997. The credit facilities
are secured by assignments of receivables and bear interest at prime plus 0.75%
(6.5% at August 31, 1996; 5.5% -- 1997). (See Note 7 regarding covenant
violations).
(7) PROMISSORY NOTES AND LONG-TERM DEBT
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
PROMISSORY NOTES
Promissory note bearing interest at 18% with interest due
quarterly commencing July 1, 1996 and principal due and
payable December 31, 1996. Secured by future Multi-client
data sales ($1,900,000 U.S.). ............................ $ 2,600,000 $ --
Promissory note bearing interest at 15% with interest
commencing February 10, 1997 and $1,000,000 U.S. of
$2,000,000 U.S. principal due May 10, 1997 and balance due
August 10, 1997, all extended to November 30, 1997.
Secured by future Multi-client data sales ($2,000,000
U.S.). ................................................... -- 2,777,000
Promissory note bearing interest at 15% with interest
commencing February 19, 1997 and $1,000,000 U.S. of
$2,000,000 U.S. principal due May 19, 1997 and balance due
August 19, 1997, all extended to November 30, 1997.
Secured by future Multi-client data sales ($2,000,000
U.S.). ................................................... -- 2,777,000
Promissory note bearing interest at 15% with interest
commencing July 2, 1997 and balance due August 15, 1997,
extended to November 30, 1997. Secured by future
Multi-client data sales ($3,000,000 U.S.). ............... -- 4,166,000
Promissory note bearing interest at 15% with interest
commencing July 22, 1997 and balance due August 15, 1997,
extended to November 30, 1997. Secured by future
Multi-client data sales ($1,000,000 U.S.). ............... -- 1,389,000
----------- -----------
$ 2,600,000 $11,109,000
=========== ===========
</TABLE>
F-46
<PAGE> 104
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
LONG-TERM DEBT
Demand non-revolving loan bearing interest at prime plus
1.75% (6.5%) repayable in consecutive monthly installments
of $12,500 until January 1, 2002. ....................... $ 917,000 $ 663,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $13,750 U.S. until January 1, 2002
(1996 -- $1,054,500 U.S.; $728,800 U.S.). ............... 1,443,000 1,012,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $13,125 U.S. until January 1, 2002
(1996 -- $974,900 U.S.; $695,600 U.S.). .................. 1,334,000 966,000
Demand non-revolving loan bearing interest at prime plus
1.75% (6.5%) repayable in consecutive monthly installments
of $63,333 until January 1, 2002. ........................ 4,475,000 3,357,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $53,083 U.S. until January 1, 2002
(1996 -- $3,510,000 U.S.; $2,813,400 U.S.). .............. 4,803,000 3,906,000
Conditional sales agreement repayable in sixty equal monthly
installments of $89,437 U.S., with interest commencing
October 16, 1996. Secured by related equipment. Effective
interest rate of 10.471% ($3,703,000 U.S.) -- renegotiated
1996 CSA, adding additional equipment (including
consolidation of the following CSA). ..................... 5,782,000 5,141,000
Obligations under capital lease, secured by related
equipment, repayable in equal monthly installments of
$19,012 U.S., including interest (consolidated into CSA
$5,141,000). ............................................. 655,000 --
Convertible debenture bearing interest at 8% with interest
due quarterly commencing July 1, 1996 and failing the
exercise of conversion rights, principle due April 30,
2001. The debenture was convertible into 1,141,667 common
shares of the Corporation (convertible at $2.40 per share,
closing price at date of grant was $2.76). Repaid with
proceeds of financing in October 1996. ................... 2,737,000 --
Obligations under capital lease, secured by related
equipment, repayable in monthly installments of $52,000
(1996 -- $36,000), including interest at approximately
7.5%...................................................... 414,000 1,061,000
Conditional sales agreement repayable in 12 monthly
installments of $18,219 U.S. with interest commencing
November 26, 1997. Secured by related equipment. Effective
interest rate of 10.746% ($71,347 U.S.). ................. -- 99,000
Conditional sales agreement repayable with a principle
payment of $150,000 U.S. June 30, 1997; two monthly
installments of $250,000, including interest commencing
June 30, 1996; twenty-eight monthly installments of
$127,050 U.S., including interest until December 31, 1999.
Secured by related equipment. Effective interest rate of
10.746% ($3,592,566 U.S.). ............................... -- 4,988,000
Conditional sales agreement repayable in twenty four equal
monthly installments of $23,309 U.S., including interest,
with interest commencing September 30, 1997. Secured by
related equipment. Effective interest rate of 10.746%
($503,855 U.S.). ......................................... -- 700,000
</TABLE>
F-47
<PAGE> 105
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Promissory note bearing interest at 18% commencing October
17, 1996 (15% interest ($4,197,000 U.S.) effective
February 24, 1997). Interest due quarterly commencing
January 1, 1997, due October 1999 with minimal annual
payments of $1,380,000 ($1,000,000 U.S.). Secured by
future multi-client data sales. $4,000,000 U.S.
($5,400,000 Cdn.) converted to equity February 24,
1997. .................................................... $ -- $ 5,828,000
Other....................................................... 20,000 --
----------- -----------
22,580,000 27,721,000
Less: Current portion....................................... 8,054,000 9,028,000
----------- -----------
$14,526,000 $18,693,000
=========== ===========
</TABLE>
In 1997, Solid State postponed certain principal repayments.
At August 31, 1997, the Company was in violation of certain debt covenants
with its main banker. These violations were waived to October 31, 1997. The bank
retains the right to demand all loans after this date if there are covenant
violations. Certain promissory note and conditional sales agreement repayment
dates were not adhered to.
The demand non-revolving loans are secured by fixed and floating charge
debentures over all of the assets of Solid State, subsidiaries and specific
charges on property and equipment.
In certain debt agreements, there are cross-default provisions under which
a default in one agreement could become a default under such other agreements.
Principal repayments are as follows:
<TABLE>
<S> <C>
1998.................................................... $ 9,028,000
1999.................................................... 9,403,000
2000.................................................... 4,455,000
2001.................................................... 3,641,000
2002.................................................... 1,194,000
-----------
$27,721,000
===========
</TABLE>
F-48
<PAGE> 106
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) CAPITAL STOCK
Authorized share capital is comprised of unlimited common shares and
preferred shares.
<TABLE>
<CAPTION>
SHARES BOOK VALUE
---------- -----------
<S> <C> <C>
Total common shares outstanding September 1, 1993........... 2,800,000 $ 800,000
Common shares issued in accordance with initial public
offering.................................................. 2,000,000 12,238,000
Common shares issued upon acquisition of Nortech Surveys
(Canada) Inc. (Note 3).................................... 200,000 1,700,000
---------- -----------
Total common shares outstanding August 31, 1994 and 1995.... 5,000,000 14,738,000
Common shares issued in accordance with a rights offering in
March 1996................................................ 6,520 20,000
---------- -----------
Common shares outstanding August 31, 1996................... 5,006,520 14,758,000
Common shares issued to specified shareholders for debt, net
of issue costs less related deferred tax.................. 3,044,444 4,044,000
Common shares issued to specified shareholders for cash, net
of issue costs less related deferred tax.................. 5,869,565 5,356,000
Common shares issued under options.......................... 215,000 311,000
---------- -----------
Common shares outstanding August 31, 1997................... 14,135,529 $24,469,000
========== ===========
</TABLE>
Earnings per share for the year ended August 31, 1997 have been calculated
using the weighted average shares outstanding of 10,787,000 (1995 -- 5,000,000;
1996 -- 5,003,000).
Fully diluted earnings per share for 1997, 1996 and 1995 would have been
anti-dilutive.
(9) STOCK OPTIONS AND SHARES RESERVED
At August 31, 1997, Solid State had options to purchase 952,000 Common
shares outstanding, of which 325,000 expired subsequent to the year end. Prices
ranged from $1.00 to $6.50. During 1996, 505,000 options were granted. In 1997,
670,000 options were granted to purchase Common shares at between $0.95 and
$1.80. All options expire on or before December 31, 2000. Grant prices were
equal to or greater than fair market value at the dates of grant and to date
215,000 stock options have been exercised. They were warrants outstanding to
purchase 125,000 Common Shares at $1.65 per share.
(10) INCOME TAXES
Reconciliation of expected income tax provision to recorded income tax
provision:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Expected income tax (recovery) at
(1995 -- 44.34%; 1996 -- 44.53%;
44.62%)............................ $(2,144,000) $(3,357,000) $(2,418,000)
Future benefit of tax losses in
subsidiaries not recognized........ 1,219,000 2,943,000 1,572,000
Assets written off with no tax
basis.............................. 925,000 -- --
----------- ----------- -----------
Income taxes (recovery) per financial
statements......................... $ -- $ (414,000) $ (846,000)
=========== =========== ===========
</TABLE>
Solid State can defer future income taxes by claiming allowable income tax
deductions in excess of those provided in the accounting records.
F-49
<PAGE> 107
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Solid State does not anticipate repatriating income from foreign operations
and accordingly, has not provided for any possible future repatriation taxation.
At August 31, 1997, there was not a material amount in income which could be
repatriated.
Solid State has unclaimed research and development expenditures and
noncapital losses carried forward for income tax purposes of $1,489,000 and
$3,900,000 respectively, which resulted from operations in a Canadian
subsidiary. There are non-North American foreign subsidiaries with approximately
$4,400,000 of non-capital tax losses for accounting carried forward. The U.S.
subsidiary has non-capital accounting losses carried forward of approximately
$8,600,000 as at August 31, 1997, which may be claimable in future years. The
potential benefits of these items have not been reflected in the consolidated
financial statements. Realization of these losses is dependent upon taxable
income being earned in each jurisdiction that has the tax losses. Solid State
has non-capital losses of $2,762,000 resulting from its Canadian operations of
which $703,000 has a potential unrecorded benefit. The amount of tax losses
available is subject to normal audit by the various tax authorities which may
result in changes to the losses.
F-50
<PAGE> 108
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SEGMENTED INFORMATION
Solid State operates in two business segments with both domestic and
foreign contracts.
Industry segments
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
------------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
NET REVENUES FROM CUSTOMERS OUTSIDE THE ENTERPRISE
Seismic acquisition.............................. $28,850,000 $ 27,290,000 $45,910,000
Data library..................................... 773,000 14,891,000 3,919,000
----------- ------------ -----------
TOTAL.............................................. $29,623,000 $ 42,181,000 $49,829,000
=========== ============ ===========
OPERATING LOSS BEFORE RESTRUCTURING AND OTHER
COSTS, INTEREST AND WRITE-DOWN
Seismic acquisition.............................. $ 242,000 $ (2,796,000) $ (274,000)
Data library..................................... 297,000 (5,803,000) (865,000)
----------- ------------ -----------
TOTAL.............................................. $ 539,000 $ (8,599,000) $(1,139,000)
=========== ============ ===========
IDENTIFIABLE ASSETS
Seismic acquisition.............................. $40,032,000 $ 42,325,000 $55,035,000
Data library..................................... 7,797,000 11,701,000 15,667,000
Corporate........................................ -- 1,441,000 1,057,000
Discontinued operations.......................... 3,925,000 133,000 --
----------- ------------ -----------
TOTAL.............................................. $51,754,000 $ 55,600,000 $71,759,000
=========== ============ ===========
CAPITAL EXPENDITURES
Seismic acquisition.............................. $10,888,000 $ 11,025,000 $15,770,000
Data library..................................... 7,680,000 21,643,000 8,439,000
Discontinued operations.......................... 898,000 148,000 47,000
----------- ------------ -----------
TOTAL.............................................. $19,466,000 $ 32,816,000 $24,256,000
=========== ============ ===========
DEPRECIATION AND AMORTIZATION
Seismic acquisition.............................. $ 5,968,000 $ 5,856,000 $ 8,974,000
Data library..................................... 476,000 20,694,000 4,784,000
----------- ------------ -----------
TOTAL.............................................. $ 6,444,000 $ 26,550,000 $13,758,000
=========== ============ ===========
DISCONTINUED OPERATIONS
Operating loss................................... $ (938,000) $ (242,000) $ (121,000)
=========== ============ ===========
TOTAL INDUSTRY SEGMENTS
Net revenue from customers outside the
enterprise.................................... $29,623,000 $ 42,181,000 $49,829,000
=========== ============ ===========
SEGMENTED OPERATING INCOME (LOSS) BEFORE THE
FOLLOWING........................................ $ 539,000 $ (8,599,000) $(1,139,000)
Interest expense................................. (1,175,000) (2,667,000) (4,050,000)
Restructuring costs.............................. -- (873,000) (231,000)
Write-down of fixed assets....................... (3,349,000) -- --
Income tax recovery.............................. -- 414,000 846,000
Discontinued operations loss..................... (938,000) (242,000) (121,000)
----------- ------------ -----------
Net loss........................................... $(4,923,000) $(11,967,000) $(4,695,000)
=========== ============ ===========
</TABLE>
F-51
<PAGE> 109
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic segments
<TABLE>
<CAPTION>
AUGUST 31, 1995
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net contract revenue*........... $16,461,000 $ 28,000 $ 9,016,000 $ 4,118,000 $29,623,000
Earnings (loss) before
interest**.................... 1,748,000 (154,000) (1,867,000) 812,000 539,000
Identifiable assets............. 25,100,000 16,606,000 4,475,000 1,648,000 47,829,000
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net contract revenue*........... $22,053,000 $ 5,687,000 $14,445,000 $ (4,000) $42,181,000
Earnings (loss) before
interest...................... 283,000 587,000 (8,928,000) (541,000) (8,599,000)
Identifiable assets............. 25,521,000 1,490,000 27,951,000 505,000 55,467,000
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net contract revenue*........... $20,046,000 $10,818,000 $12,312,000 $ 6,653,000 $49,829,000
Earnings (loss) before
interest...................... 2,260,000 (3,749,000) (704,000) 1,054,000 (1,139,000)
Identifiable assets............. 27,016,000 13,238,000 25,434,000 6,071,000 71,759,000
</TABLE>
- ---------------
* Includes Data Library sales.
** Before write-down of fixed assets ($3,349,000 -- 1995, nil -- 1996 and 1997),
financial restructuring costs and discontinued operations.
As at August 31, (1995 -- 42%; 1996 -- 43%) 1997, approximately 59% of
identifiable foreign assets are represented by accounts receivable, multi-client
data and work-in-progress. The balance, represented by property and equipment,
is readily transferrable from country to country as contracts are negotiated.
(12) ECONOMIC DEPENDENCE
Solid State operates in several countries. These operations are dependent
upon the level of oil and gas exploration and development. Solid State operates
for several customers, the only customers that accounted for more than 10% of
the net contract revenue during the year ended August 31, 1996 were two
customers accounting for $4,204,000 of South American net contract revenues and
$5,815,000 of Canadian net contract revenues and during the year ended August
31, 1997 one customer accounted for $6,218,000 of South American net contract
revenues.
(13) FINANCIAL INSTRUMENTS
a) Fair value of financial assets and liabilities
Solid State's financial instruments are substantially all cash, accounts
receivable, income taxes receivable, accounts payable, promissory notes and
long-term debt. The book value for all financial instruments, including
$16,937,000 of promissory notes and long-term debt, approximates their fair
value. The $16,937,000 of long-term debt and promissory notes which are at 15%
were negotiated during the year and there was additional borrowings secured by
promissory notes subsequent to the year end with interest at 15%.
F-52
<PAGE> 110
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b) Interest rate risk
At August 31, 1997, Solid State had $15,139,000 of debt with variable
interest rates based upon bank prime rates. For each one percentage change in
interest rates, interest expense would change by $151,000.
c) Credit risk
A substantial portion of Solid State's receivables are with customers in
the oil and gas business and are subject to normal industry credit risks.
Accounts receivable in Venezuela with a national oil company are factored, with
Solid State paying an annual fee of 29% and having a contingent liability for
any receivables not ultimately collected. The amount received on factoring has
been recorded as a loan and included in current liabilities.
d) Foreign currency risk
$33,749,000 of Solid State's promissory notes and long-term debt is
repayable in U.S. dollars. This amount is hedged only by operations conducted in
U.S. dollars. For each $0.01 change in the Canadian dollar relative to the U.S.
dollar, the debt will change by approximately $470,000.
(14) RELATED PARTY TRANSACTIONS
During 1997, two creditors became the major shareholders ("investors") of
Solid State. At August 31, 1996, these creditors were owed money under two lines
of credit; one for $2,600,000 with interest at 18% and one for $2,737,000 with
interest at 8% and convertible into 1,146,667 Common shares of Solid State.
Subsequent to August 31, 1996, a further $2,877,000 ($2,100,000 U.S.) was
advanced to Solid State with interest at 18% to bring the total of these loans
to $5,480,000.
On October 16, 1996, Solid State completed a $16,440,000 ($12,000,000 U.S.)
equity/debt financing. The financing was as follows:
<TABLE>
<CAPTION>
Description CDN. U.S.
- ----------- ----------- -----------
<S> <C> <C>
3,044,444 Common shares (before net expenses of
$66,000)................................................ $ 4,110,000 $ 3,000,000
Secured loans with interest at 18% until a private
placement was completed and 15% thereafter;
Secured by data libraries; repayments from proceeds of
the data libraries revenues..........................
Minimum annual repayments of $1,370,000 ($1,000,000
U.S.) for the first two years and any balance in
October 1999......................................... 6,850,000 5,000,000
Proceeds from a private placement were to be used to
retire this loan..................................... 5,480,000 4,000,000
----------- -----------
$16,440,000 $12,000,000
=========== ===========
</TABLE>
F-53
<PAGE> 111
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The proceeds of the October 16, 1996, financing were used as follows:
<TABLE>
<CAPTION>
DESCRIPTION CDN. U.S.
- ----------- ----------- -----------
<S> <C> <C>
To repay convertible debt owing to the specified
investors............................................... $ 2,740,000 $ 2,000,000
To repay term debt owing to the specified investors....... 5,480,000 4,000,000
To repay related interest and legal costs to the specified
investors............................................... 330,000 240,000
To pay trade debt and interest in arrears on two
conditional sales agreements with a major equipment
supplier................................................ 1,645,000 1,200,000
To retire a conditional sales agreement with a major
supplier................................................ 655,000 479,000
To repay trade debt with Canadian and U.S. suppliers...... 4,385,000 3,200,000
For general working capital requirements.................. 1,205,000 881,000
----------- -----------
$16,440,000 $12,000,000
=========== ===========
</TABLE>
In February 1997, the investors purchased an additional 5,869,565 shares
for $5,356,000 net of expenses at which time they became the majority
shareholders of the Corporation.
In July 1997, an investor lent $5,600,000 ($4,000,000 U.S.) to Solid State
with interest at 15%.
At August 31, 1997, $16,937,000 ($12,198,000 U.S.) was owed to an investor
with interest at 15%.
Interest incurred during the year on the related party loans was $1,972,000
(1996 -- $339,000).
At August 31, 1997, the investors had 2 out of 4 directors on Solid State's
Board of Directors and were providing assistance for working capital (see Note
17).
(15) COMMITMENTS
In addition to the data library costs at August 31, 1997, Note 4, Solid
State had cash cost commitments to complete these programs estimated in the
amount of $227,000.
(16) CONTINGENCIES
Legal items relating to permitting and other business matters which were
incurred in the normal course of business were outstanding at August 31, 1997.
In most cases, any liability would be passed onto third parties.
(17) SUBSEQUENT EVENTS
Subsequent to the year end the following occurred:
(a) A shareholder advanced an additional $6,245,000 ($4,500,000 U.S.)
with interest at 15%.
(b) The major investors advised Solid State that they were considering
a take-over bid to acquire the minority Common shares at a price of $3.00
per share in cash. On November 27, 1997, the price was amended to $3.50 in
an offer to the minority shareholders.
(c) The covenant defaults indicated in Note 7 were waived to November
26, 1997.
(d) The due dates for the promissory notes indicated in Note 7 were
extended from November 30, 1997 to January 15, 1998.
(e) 125,000 warrants were exercised to purchase Common shares for
proceeds of $147,320 and 320,000 options were exercised to purchase shares
for proceeds of $392,000.
(f) The new shareholder of the Company determined that economic
factors regarding the Company's multi-client data had changed and that a
special charge for asset impairment of $5,900,000 U.S. was required. The
new shareholder recorded this amount in its December 31, 1997 financial
statements.
F-54
<PAGE> 112
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(19) CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (GAAP). In certain aspects GAAP as
applied in the United States differs from Canadian GAAP.
Canadian balance sheet
Under Canadian GAAP, foreign exchange gains and losses resulting from
long-term monetary items of the reporting company are deferred and amortized
over the lives of those monetary items. Under U.S. GAAP these gains and losses
would be expensed in the period.
<TABLE>
<CAPTION>
AUGUST 31
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Deferred exchange loss (per financial statements)........... $ 26,000 $ 234,000
------------ ------------
Deferred exchange loss (per U.S. GAAP)...................... $ -- $ --
============ ============
</TABLE>
Under U.S. GAAP the multi-client data, current portion would be grouped
with multi-client data, less current portion.
<TABLE>
<CAPTION>
AUGUST 31
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Current assets (per financial statements)................... $16,497,000 $22,014,000
Less: multi-client data, current portion.................... (5,978,000) (2,454,000)
----------- -----------
Current assets (per U.S. GAAP).............................. $10,519,000 $19,560,000
=========== ===========
Multi-client data, less current portion (per financial
statements)............................................... $ 5,723,000 $13,213,000
Add: multi-client data, current portion..................... 5,978,000 2,454,000
----------- -----------
Multi-client data (per U.S. GAAP)........................... $11,701,000 $ 15,667,00
=========== ===========
</TABLE>
The current portion of long-term debt under U.S. GAAP in 1997 would be
reduced by $1,074,000, which would reduce the current portion of the promissory
note to its minimal annual payment of $1,380,000 in 1998 rather than being the
total amount of the multi-client data, current portion. The 1997 working capital
would have been reduced by $1,380,000.
F-55
<PAGE> 113
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP debt covenants, violations must be waived for a full year
to classify the debt as long-term. Bank debt did not have covenants waived for
one year. This debt and the remaining long-term debt has been reclassified as
current.
<TABLE>
<CAPTION>
AUGUST 31,
1997
-----------
<S> <C>
Current liabilities (per financial statements).............. $43,977,000
Add: Long-term portion of debt.............................. 18,693,000
-----------
Current liabilities (per U.S. GAAP)......................... $62,670,000
===========
</TABLE>
Conditional sales agreements are supplier financing contracts.
Statement of changes in shareholders' equity
For U.S. reporting, the information contained in the consolidated statement
of operations and (deficit) retained earnings and Note 8, Capital stock, would
be combined to develop a complete statement of changes in shareholders' equity.
For U.S. reporting, the proceeds from the convertible debenture issued in
1996 would have been split between debt and shareholders' equity with the
majority of the amount going to shareholders' equity being determined by the
difference between the conversion price for the shares and the trading price of
the shares at the date of grant.
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Additional paid-in capital (per U.S. GAAP).................. $ 637,000 $ 637,000
============ ============
Deficit (per financial statements).......................... $(10,685,000) $(15,380,000)
Additional foreign exchange expense......................... (26,000) (234,000)
Additional financing cost................................... (53,000) (73,000)
Additional loss on extinguishment of debt................... -- (564,000)
------------ ------------
Deficit (per U.S. GAAP)..................................... $(10,764,000) $(16,251,000)
============ ============
</TABLE>
Consolidated statements of operations
For U.S. reporting, net amounts billed to customers for reimbursable costs
would have reduced revenues from those reported in the financial statements and
resulted in changed costs of sales with no change in gross margins.
F-56
<PAGE> 114
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Contract revenue (per financial statements)..... $48,357,000 $ 45,503,000 $ 77,999,000
Data library revenue (per financial 773,000 14,891,000 3,919,000
statements)...................................
----------- ------------ ------------
49,130,00 60,394,000 81,918,000
Reimbursable and third party revenue (7,265,000) (12,663,000) (13,218,000)
adjustments...................................
----------- ------------ ------------
Contract revenues (per U.S. GAAP)............... $41,865,000 $ 47,731,000 $ 68,700,000
=========== ============ ============
Costs of sales (per financial statements)....... $20,384,000 $ 21,250,000 $ 33,262,000
Amortization data bank (per financial 476,000 20,694,000 4,784,000
statements)...................................
----------- ------------ ------------
20,860,000 41,944,000 38,046,000
Reimbursable and third party cost adjustments... 12,242,000 5,550,000 18,871,000
----------- ------------ ------------
Cost of sales (per U.S. GAAP)................... $33,102,000 $ 47,494,000 $ 56,917,000
=========== ============ ============
</TABLE>
There is no significant difference in accounting for deferred taxes between
Canadian and U.S. GAAP. Under Canadian GAAP, the deferral method is used for
accounting for income taxes whereas under U.S. GAAP the asset and liability
approach is used. No deferred tax asset has been recorded for the tax losses
carried forward because valuation allowances were provided against all losses.
In Canada, earnings (loss) per share is calculated based on the weighted
average number of shares outstanding during the period. For U.S. GAAP, earnings
(loss) per share would be calculated using common stock equivalents outstanding
during the period. The weighted average number of shares outstanding gives
approximately the same loss per share as using common stock equivalent because
any potential conversions for common share equivalents would have the effect of
decreasing loss per share and therefore, would not be converted for purposes of
the calculation.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Net loss as reported............................. $(4,923,000) $(11,967,000) $(4,695,000)
Additional foreign exchange income (loss)........ 121,000 (100,000) (208,000)
Additional financing cost........................ -- (53,000) (20,000)
Additional loss on extinguishment of debt........ -- -- (564,000)
----------- ------------ -----------
Net loss in accordance with U.S. GAAP............ $(4,802,000) $(12,120,000) $(5,487,000)
=========== ============ ===========
Net loss per share............................... $ (0.96) $ (2.42) $ (0.51)
----------- ------------ -----------
Weighted average number of shares outstanding.... 5,000,000 5,003,000 10,787,000
=========== ============ ===========
</TABLE>
Consolidated statement of changes in financial position
The statement of changes in financial position is substantially the same as
the statement of cash flows prepared under U.S. GAAP, except for the following
differences:
For the U.S. GAAP, additional disclosure for cash interest and taxes paid
would be made:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid.................................. $1,108,000 $2,379,000 $3,593,000
---------- ---------- ----------
Taxes paid (recovered)......................... $1,046,000 $ (201,000) $ 107,000
========== ========== ==========
</TABLE>
F-57
<PAGE> 115
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For U.S. GAAP, cash provided by (used in) operating activities would
include operating activities from discontinued operations.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
---------------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Cash provided by continuing operating
activities before changes in working capital
balances related to operations (as
reported)................................... $6,004,000 $14,691,000 $7,944,000
Discontinued operations....................... 126,000 (12,000) (121,000)
---------- ----------- ----------
Cash provided by operating activities before
changes in working capital balances related
to operations in accordance with U.S.
GAAP........................................ $6,130,000 $14,679,000 $7,823,000
========== =========== ==========
</TABLE>
Under U.S. GAAP, the following would not have been disclosed in the cash
flow statement but would have been disclosed in a separate supplementary
schedule of non-cash financing and investing activities.
In 1997, there was one non-cash financing activity which was Common shares
valued at $3,989,000 issued to repay debt included in the statement of changes
in financial position.
In 1996 there was a non-cash investing activity which was the receipt of
$1,441,000 preferred shares on the sale of assets of a subsidiary.
In 1995, 1996 and 1997, there was the purchase of property and equipment
for the execution of capital leases and notes of $1,679,000, $6,662,000, and
$7,178,000 respectively, which would have affected financing and investing
activities.
For U.S. GAAP, bank indebtedness of 1995 -- $1,105,000; 1996 -- $5,788,000;
and 1997 -- $5,235,000; would have been shown as a financing activity. Cash
would be shown as 1995 -- $2,705,000; 1996 -- $308,000; and 1997 -- $740,000.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Financing activities as reporting........... $ 5,020,000 $ 8,334,000 $23,080,000
Change in bank indebtedness................. (304,000) 4,683,000 (553,000)
Change in proceeds of long-term debt........ (1,679,000) (6,662,000) (7,178,000)
----------- ----------- -----------
Financing activities in accordance with U.S.
GAAP...................................... $ 3,037,000 $ 6,355,000 $15,349,000
=========== =========== ===========
Investing activities as reported............ $18,677,000 $31,132,000 $20,343,000
Fixed assets purchased using supplier
debt...................................... (1,679,000) (6,662,000) (7,178,000)
----------- ----------- -----------
Investing activities in accordance with U.S.
GAAP...................................... $16,998,000 $24,470,000 $13,165,000
----------- ----------- -----------
Change in cash as reported.................. $ 2,311,000 $(7,080,000) $ 985,000
Change in bank indebtedness................. (304,000) 4,683,000 (553,000)
----------- ----------- -----------
Change in cash in accordance with U.S.
GAAP...................................... $ 2,007,000 $(2,397,000) $ 432,000
=========== =========== ===========
</TABLE>
F-58
<PAGE> 116
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS SUBSCRIPTION OFFERING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS SUBSCRIPTION
OFFERING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Summary......................................... 3
Risk Factors.................................... 9
Disclosure Regarding Forward-Looking
Statements.................................... 16
The Company..................................... 17
Use of Proceeds................................. 18
Dividend Policy................................. 18
Capitalization.................................. 19
Unaudited Pro Forma Financial Information....... 20
Unaudited Pro Forma Combined Balance Sheet...... 21
Unaudited Pro Forma Combined Statement of
Operations.................................... 22
Selected Consolidated Historical Financial
Data.......................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 37
Management...................................... 44
Certain Relationships and Related
Transactions.................................. 47
Security Ownership of Management and Principal
Stockholders.................................. 50
Subscription Procedures......................... 51
Selling Stockholders............................ 53
Description of Capital Stock.................... 53
Shares Eligible for Future Sale................. 55
Legal Matters................................... 55
Experts......................................... 55
Additional Information.......................... 56
Index to Financial Statements and Financial
Statement Schedule............................ F-1
3,459,414 SHARES
[GRANT GEOPHYSICAL, INC. LOGO]
COMMON STOCK
------------------------------------------------------
SUBSCRIPTION OFFERING PROSPECTUS
------------------------------------------------------
, 1998
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Common Stock
being registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 5,103
National Association of Securities Dealers, Inc. filing
fee....................................................... $ 2,230
Transfer Agent's and Registrar's fees....................... $ 10,000
Subscription Agent's fees................................... $ 15,000
Printing costs.............................................. $160,000
Accounting fees and expenses................................ $115,000
Legal fees and expenses..................................... $225,000
Miscellaneous expenses...................................... $ 42,667
--------
Total.................................................. $575,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
Registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the DGCL, the Registrant's Certificate of Incorporation
(the "Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the Registrant or to its stockholders for monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the Registrant and its stockholders (through
stockholders' derivative suits on behalf of the Registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.
The Registrant's Bylaws (the "Bylaws") provide that the Registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the Registrant or is or was serving at the request
of the Registrant as a director, officer, employee or agent of another
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful.
The Bylaws also provide that the Registrant may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Registrant to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Registrant unless and only to the extent that the Court of Chancery of the
State of
II-1
<PAGE> 118
Delaware or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in view of all
the circumstances of the case, such person if fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
The Bylaws also provide that to the extent a director or officer of the
Registrant has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Bylaws shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
Registrant may purchase and maintain insurance on behalf of a director or
officer of the Registrant against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the Registrant would have the power to indemnify him against such liabilities
under such Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 30, 1997, the Company issued 9,785,581 shares of Preferred
Stock to each of Elliott and Westgate in exchange for an aggregate of
$19,571,162 in cash and/or satisfaction of indebtedness of the Company.
In connection with the consummation of the Plan, on September 30, 1997, the
Company issued one share of Common Stock to Elliott in exchange for $1.00. On
December 19, 1997, the Company effected a two-to-one stock split in the form of
a stock dividend of shares to Elliott.
On December 18, 1997, Grant exchanged 9,571.162 shares of Preferred Stock
held by Elliott, together with accrued dividends thereon, for the Subordinated
Note.
On December 19, 1997, in connection with the Acquisition, the Selling
Stockholders transferred their shares of Solid State Stock to Grant in exchange
for 4,652,555 shares of Common Stock.
On February 18, 1998, the Company issued $100 million aggregate principal
amount of its 9 3/4% Senior Notes due 2008, Series A to Jefferies & Company,
Inc. (the "Initial Purchaser"). The Original Notes are guaranteed by the
Subsidiary Guarantors.
The foregoing transactions were effected pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 GGI's Second Amended Plan of Reorganization under chapter 11
of the Bankruptcy Code.
2.2 Offer to Purchase for Cash all of the Common Shares of Solid
State not already held by or on behalf of SSGI or its
Affiliates at a price of Cdn $3.50 per Common Share by SSGI.
3.1(i) Restated Certificate of Incorporation of the Company.
3.1(ii) Amended and Restated By-Laws of the Company.
4.1* Specimen Certificate for the Common Stock, par value $.001,
of the Company.
4.2 Registration Rights Agreement between Grant and Elliott,
dated September 19, 1997.
4.3 Amendment No. 1 to Registration Rights Agreement between
Grant and Elliott, dated October 1, 1997.
4.4 Amendment No. 2 to Registration Rights Agreement between
Grant and Elliott, dated December 17, 1997.
4.5* Registration Rights Agreement among the Company, the
Subsidiary Guarantors and the Initial Purchaser, dated
February 18, 1998.
</TABLE>
II-2
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
4.6* Indenture among the Company, the Subsidiary Guarantors and
LaSalle National Bank, as Trustee, dated February 18, 1998.
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Loan and Security Agreement between Grant and Elliott, dated
October 1, 1997.
10.2 First Amendment to Loan and Security Agreement between Grant
and Elliott, dated December 19, 1997.
10.3 Demand Promissory Note from Grant to Elliott, dated November
26, 1997.
10.4 Subordinated Promissory Note from Grant to Elliott, dated
December 18, 1997.
10.5 Stock Purchase Agreement among the Company, Elliott and
Westgate, dated December 19, 1997.
10.6 Restated and Amended Employment Agreement between Grant and
Larry E. Lenig, Jr., dated October 1, 1997.
10.7 Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997.
10.8* Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan.
10.9 Loan Agreement among Elliott, Westgate, Solid State and the
U.S. Subsidiary, dated October 16, 1996.
10.10 Form of Promissory Note from the U.S. Subsidiary to Elliott.
10.11 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated June 17, 1997.
10.12 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated September 4, 1997.
10.13 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated October 17, 1997.
10.14 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated November 30, 1997.
10.15 Letter Agreement between Elliott and Mitchell L. Peters,
dated November 24, 1997.
21.1* Subsidiaries of the Company.
23.1* Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of KPMG Peat Marwick LLP.
23.4* Consent of Price Waterhouse, Chartered Accountants.
24.1* Powers of Attorney.
99.1* Form of Subscription Exercise Notice.
</TABLE>
- ---------------
* Filed herewith
(b) Financial Statement Schedules.
All schedules have been omitted because they are not applicable, not
required or the required information is included in the financial statements and
notes thereto.
ITEM 17. UNDERTAKINGS
(a) Acceleration of Effectiveness. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense
II-3
<PAGE> 120
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) Rule 430A Prospectuses. The undersigned Registrant hereby undertakes
that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide public offering thereof.
II-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Houston, State of Texas, on March 27, 1998.
GRANT GEOPHYSICAL, INC.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LARRY E. LENIG, JR. President, Chief Executive Officer and Director March 27, 1998
- -------------------------------- (Principal Executive Officer)
Larry E. Lenig, Jr.
* Chief Financial Officer, Treasurer and Secretary March 27, 1998
- -------------------------------- (Principal Financial Officer)
Michael P. Keirnan
* Controller March 27, 1998
- -------------------------------- (Principal Accounting Officer)
Charles Ackerman
Chairman of the Board
- --------------------------------
Jonathan D. Pollock
* Director March 27, 1998
- --------------------------------
W. Richard Anderson
* Director March 27, 1998
- --------------------------------
James R. Brock
* Director March 27, 1998
- --------------------------------
J. Kelly Elliott
* Director March 27, 1998
- --------------------------------
Donald G. Russell
* Director March 27, 1998
- --------------------------------
Donald W. Wilson
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement pursuant to the Powers of
Attorney executed by the above-named officers and directors of the Company and
which have been filed with the Securities and Exchange Commission on behalf of
such officers and directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-5
<PAGE> 122
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 GGI's Second Amended Plan of Reorganization under chapter 11
of the Bankruptcy Code.
2.2 Offer to Purchase for Cash all of the Common Shares of Solid
State not already held by or on behalf of SSGI or its
Affiliates at a price of Cdn $3.50 per Common Share by SSGI.
3.1(i) Restated Certificate of Incorporation of the Company.
3.1(ii) Amended and Restated By-Laws of the Company.
4.1* Specimen Certificate for the Common Stock, par value $.001,
of the Company.
4.2 Registration Rights Agreement between Grant and Elliott,
dated September 19, 1997.
4.3 Amendment No. 1 to Registration Rights Agreement between
Grant and Elliott, dated October 1, 1997.
4.4 Amendment No. 2 to Registration Rights Agreement between
Grant and Elliott, dated December 17, 1997.
4.5* Registration Rights Agreement among the Company, the
Subsidiary Guarantors and the Initial Purchaser, dated
February 18, 1998.
4.6* Indenture among the Company, the Subsidiary Guarantors and
LaSalle National Bank, as Trustee, dated February 18, 1998.
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Loan and Security Agreement between Grant and Elliott, dated
October 1, 1997.
10.2 First Amendment to Loan and Security Agreement between Grant
and Elliott, dated December 19, 1997.
10.3 Demand Promissory Note from Grant to Elliott, dated November
26, 1997.
10.4 Subordinated Promissory Note from Grant to Elliott, dated
December 18, 1997.
10.5 Stock Purchase Agreement among the Company, Elliott and
Westgate, dated December 19, 1997.
10.6 Restated and Amended Employment Agreement between Grant and
Larry E. Lenig, Jr., dated October 1, 1997.
10.7 Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997.
10.8* Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan.
10.9 Loan Agreement among Elliott, Westgate, Solid State and the
U.S. Subsidiary, dated October 16, 1996.
10.10 Form of Promissory Note from the U.S. Subsidiary to Elliott.
10.11 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated June 17, 1997.
10.12 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated September 4, 1997.
10.13 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated October 17, 1997.
10.14 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated November 30, 1997.
10.15 Letter Agreement between Elliott and Mitchell L. Peters,
dated November 24, 1997.
21.1* Subsidiaries of the Company.
23.1* Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of KPMG Peat Marwick LLP.
23.4* Consent of Price Waterhouse, Chartered Accountants.
24.1* Powers of Attorney.
99.1* Form of Subscription Exercise Notice.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 4.1
GRANT GEOPHYSICAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN CHICAGO, ILLINOIS OR NEW YORK, NEW YORK.
COMMON STOCK CUSIP ____________
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR
VALUE PER SHARE, OF
Grant Geophysical, Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney on surrender of this
certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
TREASURER [SEAL] PRESIDENT
COUNTERSIGNED AND REGISTERED:
BY LaSALLE NATIONAL BANK
(CHICAGO, ILLINOIS) TRANSFER AGENT
AND REGISTRAR,
AUTHORIZED SIGNATURE.
<PAGE> 2
The corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ____________________ Custodian ___________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ____________________
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 4.5
GRANT GEOPHYSICAL, INC.
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGE HERETO
$100,000,000
9 3/4% Senior Notes due 2008, Series A
REGISTRATION RIGHTS AGREEMENT
Dated as of February 18, 1998
JEFFERIES & COMPANY, INC.
<PAGE> 2
GRANT GEOPHYSICAL, INC.
$100,000,000
9 3/4% Senior Notes due 2008, Series A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of February 18, 1998, by and among Grant Geophysical, Inc., a
Delaware corporation (the "COMPANY"), Geophysical Operations, Inc., Grant
Geophysical (Int'l), Inc., Advanced Seismic Technology, Inc., SSGI Acquisition
Corp., PT. Grant Geophysical Indonesia, Recursos Energeticos Ltda., Grant
Geophysical do Brasil Ltda., Solid State Geophysical Inc., Solid State
Internacional Ingenieria, C.A., and Solid State Geophysical Corp. (each a
"GUARANTOR" and, collectively, the "GUARANTORS"), and Jefferies & Company, Inc.
(the "INITIAL PURCHASER"), who has agreed to purchase $100,000,000 aggregate
principal amount of the Company's 9 3/4% Senior Notes due 2008, Series A (the
"SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 10, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchaser. In order to induce the Initial Purchaser
to purchase the Series A Notes, the Company and the Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchaser set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
ADDITIONAL INTEREST: As defined in Section 5(a) hereof.
ADVICE: As defined in Section 6.
BROKER-DEALER: Any broker or dealer registered under the
Exchange Act.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: The Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing
and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Series B Notes to be issued in the Exchange
Offer, (ii) the maintenance of such Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not
less than the minimum period
<PAGE> 3
required pursuant to Section 3(b) hereof and (iii) the delivery by the
Company to the Registrar under the Indenture of Series B Notes in the
same aggregate principal amount as the aggregate principal amount of
Series A Notes that were validly tendered by Holders thereof pursuant
to the Exchange Offer.
EFFECTIVENESS TARGET DATE: As defined in Section 5.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The registration by the Company under the Act
of the Series B Notes pursuant to a Registration Statement pursuant to
which the Company offers the Holders of all outstanding Transfer
Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Notes
in an aggregate principal amount equal to the aggregate principal
amount of the Transfer Restricted Securities tendered in such exchange
offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration
Statement relating to the Exchange Offer, including the related
Prospectus.
EXEMPT RESALES: The transactions in which the Initial
Purchaser proposes to sell the Series A Notes (i) to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the
Act, (ii) to certain institutional "accredited investors," as such term
is defined in Rule 501(a)(1), (2), (3) and (7) of Regulation D under
the Act ("ACCREDITED INSTITUTIONS"), and (iii) outside the United
States to certain persons who are not "U.S. persons" in "offshore
transactions" in compliance with Regulation S under the Act, as such
terms are defined in Regulation S under the Act.
HOLDERS: As defined in Section 2(b) hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated as of even date herewith,
among the Company, LaSalle National Bank, as trustee (the "Trustee"),
and the Guarantors, pursuant to which the Notes are to be issued, as
such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
INITIAL PURCHASER: As defined in the preamble hereto.
ISSUE DATE: The date on which the Series A Notes are
originally issued under the Indenture.
NASD: National Association of Securities Dealers, Inc.
NOTES: The Series A Notes and the Series B Notes.
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<PAGE> 4
PERSON: An individual, partnership, corporation, trust,
limited liability company or unincorporated organization, or a
government or agency or political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and
by all other amendments thereto, including post-effective amendments,
and all material incorporated by reference into such Prospectus.
REGISTRATION DEFAULT: As defined in Section 5(a) hereof.
REGISTRATION STATEMENT: Any registration statement of the
Company relating to (a) an offering of Series B Notes and the
Subsidiary Guarantees pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated
by reference therein.
SERIES B NOTES: The Company's 9 3/4% Senior Notes due 2008,
Series B, to be issued pursuant to the Indenture and the Exchange
Offer.
SHELF FILING EVENT: As defined in Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUBSIDIARY GUARANTEES: The joint and several guarantees of
the Company's payment obligations under the Notes by the Guarantors.
TIA: The Trust Indenture Act of 1939
(15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the
Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note until (i)
the date on which such Series A Note has been exchanged by a Person
other than a Broker-Dealer for a Series B Note in the Exchange Offer,
(ii) following the exchange by a Broker-Dealer in the Exchange Offer of
a Series A Note for a Series B Note, the date on which such Series B
Note is sold to a purchaser who receives from such Broker-Dealer on or
prior to the date of such sale a copy of the Prospectus contained in
the Exchange Offer Registration Statement, (iii) the date on which such
Series A Note has been effectively registered under the Act and
disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Series A Note is distributed to the public
pursuant to Rule 144 under the Act or may be distributed to the public
pursuant to Rule 144(k) under the Act.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
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<PAGE> 5
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) TRANSFER RESTRICTED SECURITIES. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is deemed to be
a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such
Person owns Transfer Restricted Securities of record.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable law
or Commission policy, the Company and the Guarantors shall (i) file with the
Commission on or prior to 60 days after the Issue Date, a Registration Statement
under the Act relating to the Series B Notes, the Subsidiary Guarantees and the
Exchange Offer, (ii) use their best efforts to have such Registration Statement
declared effective by the Commission under the Act on or prior to 120 days after
the Issue Date, and (iii) commence the Exchange Offer and use their best efforts
to issue, on or prior to 180 days after the Issue Date, Series B Notes in
exchange for all Series A Notes validly tendered prior thereto in the Exchange
Offer. In connection with the foregoing, the Company and the Guarantors shall
file (A) all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
if applicable, a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary filings in
connection with the registration and qualification of the Series B Notes and the
Subsidiary Guarantees to be made under the Blue Sky laws of such jurisdictions
as are necessary to permit the Exchange Offer to be Consummated. The Exchange
Offer Registration Statement shall be on the appropriate form under the Act
permitting registration of the Series B Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of the Series B Notes held
by Broker-Dealers as contemplated by Section 3(c) below. The Exchange Offer
shall not be subject to any condition, other than that the Exchange Offer does
not violate any applicable law or Commission policy.
(b) The Company and the Guarantors shall cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 business
days. The Company and the Guarantors shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Series B Notes and the Subsidiary Guarantees shall be included in the
Exchange Offer Registration Statement. The Company and the Guarantors shall use
their best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in any event on or prior to 180 days after the Issue Date.
(c) The Company and the Guarantors shall indicate in a "Plan of
Distribution" section contained in the Exchange Offer Registration Statement
that any Broker-Dealer who holds Notes that are Transfer Restricted Securities
and that were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired
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<PAGE> 6
directly from the Company) may exchange such Series A Notes pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with any resales of the Series B Notes
received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of the
Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company and the Guarantors may require each Holder as a
condition to its participation in the Exchange Offer to represent to the Company
and the Guarantors and their counsel in writing (which may be contained in the
applicable letter of transmittal) that at the time of the Consummation of the
Exchange Offer (i) any Series B Notes to be received by such Holder will be
acquired in the ordinary course of its business, (ii) such Holder is not
participating in, and it has no arrangement with any person to participate in,
the distribution (within the meaning of the Act) of the Series B Notes and (iii)
such Holder is neither an affiliate (as defined in Rule 405 of the Act) of the
Company or any Guarantor nor a Broker-Dealer tendering Notes acquired directly
from the Company for its own account.
The Company and the Guarantors shall use their best efforts to
keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) below to
the extent necessary to ensure that it is available for resales of Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 120 days from
the date on which the Exchange Offer is Consummated.
The Company and the Guarantors shall provide sufficient copies
of the latest version of such Prospectus to Broker-Dealers promptly upon request
at any time during such 120 day period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company and the Guarantors are not
permitted to file an Exchange Offer Registration Statement or to Consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company prior to the 20th day following the Consummation of the Exchange
Offer (A) that due to a change in law or policy such Holder is not entitled to
participate in the Exchange Offer, (B) that due to a change in law or policy
such Holder may not resell the Series B Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and that the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder, or (C) such Holder is a Broker-Dealer
and owns Notes acquired directly from the Company or an affiliate of the Company
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<PAGE> 7
(each such event referred to in clauses (i) and (ii), a "SHELF FILING EVENT"),
then the Company and the Guarantors shall (x) file with the Commission a shelf
registration statement pursuant to Rule 415 under the Act, which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"SHELF REGISTRATION STATEMENT") on or prior to the later of (1) 120 days after
the Issue Date and (2) 60 days after the occurrence of such Shelf Filing Event,
which Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the information
required pursuant to Section 4(b) hereof, and (y) use their best efforts to
cause such Shelf Registration Statement to be declared effective by the
Commission on or before 120 days after the occurrence of such Shelf Filing
Event, PROVIDED that if the Company and the Guarantors have not Consummated the
Exchange Offer within 180 days of the Issue Date, then the Company and the
Guarantors shall file the Shelf Registration Statement with the Commission on or
prior to the 181st day after the Issue Date and shall use their best efforts to
have the Shelf Registration Statement declared effective by the Commission
within 60 days after the date of filing thereof.
The Company and the Guarantors shall use their best efforts to keep
such Shelf Registration Statement continuously effective, supplemented and
amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for resales of Notes by the
Holders of Transfer Restricted Securities entitled to the benefit of this
Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of two years following the Issue Date
or such shorter period that will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto (the "EFFECTIVENESS PERIOD"); provided, however, that the Effectiveness
Period shall be extended to the extent required to permit dealers to comply with
the applicable prospectus delivery requirements of Rule 174 under the Act and as
otherwise provided herein.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Additional Interest pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. ADDITIONAL INTEREST
(a) If (i) any of the Registration Statements required by this
Agreement to be filed is not filed with the Commission on or prior to the date
specified for such filing in this Agreement, (ii) any of such Registration
Statements has not been declared effective by the Commission on or prior to the
date specified for such effectiveness in Sections 3(a) or 4(a) of this Agreement
(the "EFFECTIVENESS TARGET DATE"), whether or not the Company and the Guarantors
have breached any
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<PAGE> 8
obligations to use their best efforts, to cause any such Registration Statement
to be declared effective, (iii) the Company fails to issue, on or before 180
days after the Issue Date, Series B Notes in exchange for all Notes validly
tendered prior thereto in the Exchange Offer or (iv) any Registration Statement
required by this Agreement is filed and declared effective but shall thereafter
cease to be effective or usable for its intended purpose without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective on or prior to the
Effectiveness Target Date (each such event referred to in clauses (i) through
(iv), a "REGISTRATION DEFAULT"), then the interest rate on Transfer Restricted
Securities will increase ("ADDITIONAL INTEREST"), with respect to the first
90-day period immediately following the occurrence of such Registration Default,
by 0.50% per annum and will increase by an additional 0.50% per annum with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of 2.0% per annum with respect to all
Registration Defaults. Following the cure of all Registration Defaults, the
accrual of Additional Interest will cease and the interest rate will revert to
the original rate. All obligations of the Company and the Guarantors set forth
in this paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
(b) The Company shall notify the Trustee and paying agent under the
Indenture (or the trustee and paying agent under such other indenture under
which the Transfer Restricted Securities are issued) immediately upon the
happening of each and every Registration Default. The Company shall pay the
Additional Interest due on the Transfer Restricted Securities by depositing with
the paying agent (which shall not be the Company for these purposes) for the
Transfer Restricted Securi ties, in trust, for the benefit of the holders
thereof, prior to 11:00 A.M. on the next interest payment date specified by the
Indenture (or such other indenture), sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each interest
payment date specified by the Indenture (or such other indenture) to the record
holder entitled to receive the interest payment to be made on such date. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the Additional Interest provided for
in this Section 5 constitutes a reasonable estimate of the damages that will be
suffered by holders of Transfer Restricted Securities by reason of the happening
of any Registration Default.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their respective reasonable best
efforts to effect such exchange to permit the sale of Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Company and the Guarantors hereby agree to seek a
no-action letter or other favorable decision from the Commission
allowing the Company and the Guarantors to Consummate the Exchange
Offer.
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<PAGE> 9
The Company and the Guarantors hereby agree to pursue the issuance of
such a decision to the Commission staff level but shall not be required
to take commercially unreasonable action to effect a change of
Commission policy. The Company and the Guarantors hereby agree,
however, to (A) participate in telephonic conferences with the
Commission staff, (B) deliver to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if
any, upon which such counsel has concluded that the Exchange Offer
should be permitted and (C) diligently pursue a resolution (which need
not be favorable) by the Commission staff of such submission.
(ii) The Initial Purchaser, for itself and on behalf of the
Holders, hereby acknowledges and agrees, and each Holder by its
purchase of Transfer Restricted Securities shall be deemed to have
acknowledged and agreed, that any Broker-Dealer and any such Holder
using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on
the position of the Commission enunciated in Morgan Stanley and Co.,
Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable,
of Regulation S-K if the resales are of Series B Notes obtained by such
Holder in exchange for Series A Notes acquired by such Holder directly
from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, if the Commission so requests, the Company and
the Guarantors shall provide a supplemental letter to the Commission
(A) stating that the Company and the Guarantors are registering the
Exchange Offer in reliance on the position of the Commission enunciated
in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any
no-action letter obtained pursuant to clause (i) above and (B)
including a representation that neither the Company nor any Guarantor
has entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series B Notes in
its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B
Notes received in the Exchange Offer.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, if required, the Company and the Guarantors shall comply
with all the provisions of Section 6(c) below and shall use their respective
reasonable best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended method
or methods of distribution thereof and, pursuant thereto, the Company and the
Guarantors will prepare and file with the Commission in accordance with Section
4(a) hereof a Shelf Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for
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<PAGE> 10
the sale of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof.
(c) GENERAL PROVISIONS. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company and the Guarantors shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements (including, if required by the Act or any
regulation thereunder, financial statements of the Guarantors) for the
period specified in Section 3(b) or 4(a) of this Agreement, as
applicable; upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for the resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Guarantors shall
file promptly an appropriate amendment to such Registration Statement,
in the case of clause (A), correcting any such misstatement or
omission, and, in the case of either clause (A) or (B), use their
respective reasonable best efforts to cause such amendment to be
declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3(b) or 4(a) hereof, as
applicable, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by any such Person, to confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening
of any event that makes any
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statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantors shall use their respective reasonable
best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of
any Shelf Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Shelf Registration Statement
or Prospectus included therein (but excluding any documents
incorporated by reference as a result of the Company's periodic
reporting requirements under the Exchange Act), and neither the Company
nor any Guarantor shall file any such Shelf Registration Statement or
Prospectus include therein or any amendment or supplement to any such
Shelf Registration Statement or Prospectus (excluding all such
documents incorporated by reference as a result of the Company's
periodic reporting requirements under the Exchange Act) to which a
selling Holder of Transfer Restricted Securities covered by such Shelf
Registration Statement or the underwriter(s), if any, shall reasonably
object within five business days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission;
(v) promptly following the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus included therein, provide copies of such document to the
selling Holders and to the underwriter(s), if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and the Guarantors and cause the Company's
and the Guarantors' officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
provided, however, that the foregoing inspection and information
gathering (i) shall be coordinated on behalf of the selling Holders,
underwriters, or any representative thereof, by one counsel, who shall
be Vinson & Elkins L.L.P. or such other counsel as may be chosen by the
Holders of a majority in principal
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<PAGE> 12
amount of Transfer Restricted Securities, and (ii) shall not be
available for any such Holder who does not agree in writing to hold
such information in confidence.
(vii) if requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any Registration
Statement or Prospectus included therein, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating
to the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each
of the underwriter(s), if any, in connection with the offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto; provided that such use of the
Prospectus and any amendment or supplement thereto and such offering
and sale conforms to the Plan of Distribution set forth in the
Prospectus and complies with the terms of this Agreement and all
applicable laws and regulations thereunder;
(x) in the case of an Underwritten Registration, enter into
such customary agreements (including an underwriting agreement), make
such customary representations and warranties, deliver such customary
documents and certificates, and take all such other customary actions
in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any Shelf
Registration Statement contemplated by this Agreement, all to such
extent as may be reasonably requested by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or
resale pursuant to any Shelf Registration Statement contemplated by
this Agreement; and, without limiting the generality of the foregoing,
the Company and the Guarantors shall:
(A) furnish to each underwriter upon the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Shelf Registration Statement,
signed on behalf of the Company by two senior
-11-
<PAGE> 13
officers, one of whom must be its Chief Financial
Officer, confirming, as of such date, the matters set
forth in paragraphs (a), (c) and (d) of Section 8 of
the Purchase Agreement with respect to the
transactions contemplated by the Shelf Registration
Statement;
(2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of
counsel for the Company and the Guarantors, covering
the matters set forth in Section 8(f) of the Purchase
Agreement with respect to the transactions
contemplated by the Shelf Registration Statement, and
in any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company and
the Guarantors, representatives of the independent
accountants of the Company and the Guarantors and
representatives of the Initial Purchaser at which the
contents of the Registration Statement and related
matters were discussed and, although it does not
assume any responsibility for the accuracy,
completeness or fairness of the statements contained
in the Registration Statement during the course of
such participation, no facts came to its attention
that caused such counsel to believe that the
Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto
became effective, contained any untrue statement of a
material fact or omitted to state any fact required
to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration Statement
as of its date contained an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading (except as to financial
statements and related notes, the financial statement
schedules and other financial and statistical data
included therein); and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Shelf Registration
Statement, from the Company's independent accountants
if such comfort letter shall be issuable to the
underwriters in accordance with the relevant
accounting industry pronouncements, in the customary
form and covering matters of the type customarily
covered in comfort letters by underwriters in
connection with primary underwritten offerings, and
affirming the matters set forth in the comfort
letters delivered pursuant to Section 8(g) of the
Purchase Agreement, without exception; and
(B) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above.
If at any time the representations and warranties of the Company and
the Guarantors contemplated in clause (A)(1) above cease to be true and
correct, the Company shall so advise the Initial Purchasers and the
underwriter(s), if any, and each selling Holder promptly and, if
requested by any such Person, shall confirm such advice in writing;
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<PAGE> 14
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s) may reasonably request and do any and all
other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; provided, however, that
neither the Company nor the Guarantors shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in
suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is
not now so subject;
(xii) issue, upon the request of any Holder of Series A Notes
covered by the Shelf Registration Statement, Series B Notes, having an
aggregate principal amount equal to the aggregate principal amount of
Series A Notes being sold by such Holder; such Series B Notes to be
registered in the name of the purchaser(s) of such Notes, as the case
may be; in return, the Series A Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiii) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any,
may reasonably request at least two business days prior to any sale of
Transfer Restricted Securities made by such Person(s);
(xiv) if any fact or event contemplated by clause (c)(iii)(D)
above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xv) provide a CUSIP number for all Series B Notes not later
than the effective date of the Registration Statement and provide the
Trustee under the Indenture with one or more global certificates for
the Series B Notes that are in a form eligible for deposit with The
Depository Trust Company;
(xvi) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD;
(xvii) otherwise use their best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
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<PAGE> 15
(which need not be audited) for the twelve-month period (A) commencing
at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best efforts
Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration
Statement;
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate
with the Trustee and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use their
respective reasonable best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner; and
(xix) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15 of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof, such Holder will keep such notice confidential and
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(xiv)
hereof, or until it is advised in writing (the "Advice") by the Company that the
use of the Prospectus may be resumed, and has received copies of any additional
or supplemental filings that are incorporated by reference in the Prospectus. If
so directed by the Company, each Holder will deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Securities that was current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xiv) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses (including filings made by the Initial Purchaser or Holder with the
NASD (and, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel that may be required by the rules and regulations
of the NASD)); (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing of Prospectuses), messenger and delivery services and telephone; (iv)
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<PAGE> 16
all fees and disbursements of counsel for the Company and the Guarantors and,
subject to Section 7(b) below, the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing Notes on a
national securities exchange or automated quotation system, if any; and (vi) all
fees and disbursements of independent public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company and the Guarantors will, in any event, bear their
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or any Guarantor. The Company shall not be
responsible for any other expenses or costs, including but not limited to
commissions, fees and discounts of underwriters, brokers, dealers and agents.
(b) In connection with any Registration Statement required by this
Agreement (excluding the Exchange Offer Registration Statement), the Company and
the Guarantors will reimburse the Initial Purchaser and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Vinson & Elkins L.L.P. or such other counsel as
may be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) each Holder, (ii) the Initial Purchaser, (iii)
each person, if any, who controls any Holder or the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and (iii)
the respective officers, directors, partners, employees, representatives and
agents of any Holder or the Initial Purchaser or any controlling person (any
person referred to in clauses (i), (ii) or (iii) may hereinafter be referred to
as an "INDEMNIFIED HOLDER"), to the fullest extent lawful, from and against any
and all losses, liabilities, claims, damages and expenses whatsoever (including
but not limited to reasonable attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing or defending against
any investigation or litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company and the Guarantors will not be liable in any such case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company
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<PAGE> 17
by or on behalf of the any of the Holders expressly for use therein. This
indemnity agreement will be in addition to any liability that the Company and
the Guarantors may otherwise have, including under this Agreement.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company, each of the Guarantors
and each person, if any, who controls the Company or any Guarantor within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
of their respective officers, directors, employers, partners, representatives
and agents to the same extent as the foregoing indemnity from the Company and
the Guarantors to each of the Indemnified Holders, but only with respect to
information relating to such Holder furnished in writing by such Holder for use
in any Registration Statement, or in any amendment thereof or supplement
thereto; provided, however, that in no case shall any selling Holder be liable
or responsible for any amount in excess of proceeds received by such Holder upon
the sale of the Notes giving rise to such indemnification obligation. This
indemnity will be in addition to any liability that the Holders may otherwise
have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability that it may
have under this Section 8 or otherwise except to the extent that it has been
prejudiced in any material respect by such failure). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume and control the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it that are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection (a) or
(b) above shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its prior
written consent; provided that such consent was not unreasonably withheld.
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<PAGE> 18
SECTION 9. CONTRIBUTION
In order to provide for contribution in circumstances in which the
indemnification provided for in Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified thereunder,
the Company and the Guarantors, on the one hand, and the Holders on the other
hand, shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and the Guarantors, any
contribution received by the Company and the Guarantors from Persons, other than
a Holder, who may also be liable for contribution, including persons who control
the Company and the Guarantors within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which the Company, the Guarantors or any
Holder may be subject, (i) in such proportion as is appropriate to reflect the
relative fault of the Company and the Guarantors, on one hand, and each Holder,
on the other hand, in connection with the statements or omissions that resulted
in such losses, claims, damages, liabilities or expenses, or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative fault referred to
in clause (i) above but also other relevant equitable considerations. The
relative fault of the Company and the Guarantors, on one hand, and of each
Holder, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Guarantors or such Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Guarantors and each Holder of
Transfer Restricted Securities agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 9, (i) in no case shall any Holder be required to contribute any
amount in excess of the amount by which the proceeds received by such Holder
upon the sale of the Transfer Restricted Securities giving rise to such
obligation exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, (A) each Person, if any, who
controls any of the Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and (B) the respective officers, directors,
partners, employees, representatives and agents of such Holder or any
controlling Person shall have the same rights to contribution as the Holders,
and each Person, if any, who controls the Company or any Guarantor within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have
the same rights to contribution as the Company and the Guarantors, subject in
each case to clauses (i) and (ii) of this Section 9. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 9,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 9 or otherwise. No party shall be liable for
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<PAGE> 19
contribution with respect to any action or claim settled without its prior
written consent; provided that such written consent was not unreasonably
withheld.
SECTION 10. RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 12. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, however, that such investment bankers and managers must
be reasonably satisfactory to the Company.
SECTION 13. MISCELLANEOUS
(a) REMEDIES. The Company and the Guarantors agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate; provided that
the Additional Interest contemplated hereby shall be the exclusive monetary
remedy for any such breach of Section 3 or 4 of this agreement.
(b) NO INCONSISTENT AGREEMENTS. The Company and the Guarantors shall
not, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's or any
of the Guarantor's securities under any agreement in effect on the date hereof.
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<PAGE> 20
(c) ADJUSTMENTS AFFECTING THE NOTES. The Company and the Guarantors
shall not take any action with respect to the Notes that would materially and
adversely affect the ability of the Holders to Consummate the Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or any Guarantor:
Grant Geophysical, Inc.
16850 Park Row
Houston, TX 77084
Telecopier No.: (281) 398-9506
Attention: Larry E. Lenig, Jr.
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Telecopier No.: (216) 579-0212
Attention: Christopher M. Kelly
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
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<PAGE> 21
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment, the
successors and assigns of subsequent Holders of Transfer Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Transfer Restricted Securities from such Holder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT
OF LAW RULES THEREOF. THE COMPANY AND EACH GUARANTOR IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT
SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE
GUARANTEES, AND THE COMPANY AND EACH GUARANTOR IRREVOCABLY AGREE THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH
COURT.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
[Signature page to follow]
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
GRANT GEOPHYSICAL, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
GEOPHYSICAL OPERATIONS, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
GRANT GEOPHYSICAL (INT'L), INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
ADVANCED SEISMIC TECHNOLOGY, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
SSGI ACQUISITION CORP.
By GRANT GEOPHYSICAL, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: Executive Vice President
[Signature Page to Registration Rights Agreement]
<PAGE> 23
PT. GRANT GEOPHYSICAL INDONESIA
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President Director
RECURSOS ENERGETICOS LTDA.
By /s/ Barry K. Burt
---------------------------------------
Name: Barry K. Burt
Title: Alternate General Manager
GRANT GEOPHYSICAL DO BRASIL LTDA.
By /s/ Roberto D. Vianna
---------------------------------------
Name: Roberto D. Vianna
Title: Delegated Manager
SOLID STATE GEOPHYSICAL INC.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: President & Chief Executive
Officer
SOLID STATE INTERNACIONAL INGENIERIA,
C.A.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: Director
SOLID STATE GEOPHYSICAL CORP.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: President & Chief Executive
Officer
[Signature Page to Registration Rights Agreement]
<PAGE> 24
Accepted and agreed to as of
the date first above written:
JEFFERIES & COMPANY, INC.
By /s/ Joseph F. Maly, Jr.
----------------------------------------
Name: Joseph F. Maly, Jr.
Title: Managing Director
[Signature Page to Registration Rights Agreement]
<PAGE> 1
Exhibit 4.6
GRANT GEOPHYSICAL, INC.
AND
THE SUBSIDIARY GUARANTORS NAMED ON THE SIGNATURE
PAGE HERETO
9 3/4% Senior Notes due 2008, Series A
9 3/4% Senior Notes due 2008, Series B
----------------------
INDENTURE
Dated as of February 18, 1998
----------------------
----------------------
LASALLE NATIONAL BANK
Trustee
----------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ------------
<S> <C>
Section 310 (a)(1).....................................................6.7
(a)(2).....................................................6.7
(b)...............................................6.7,6.8, 6.9
Section 311 (a).......................................................6.12
(b).......................................................6.12
Section 312.............................................................7.1
Section 313.............................................................7.2
Section 314 (a)........................................................7.3
(a)(4).................................................10.8(a)
(c)(1)....................................................14.1
(c)(2)....................................................14.1
(e).......................................................14.1
Section 315 (a)........................................................6.1
(b).......................................................6.13
(c)........................................................6.1
(d)........................................................6.1
Section 316 (a) (last sentence).........................1.1("Outstanding")
(a)(1)(A).............................................5.2,5.12
(a)(1)(B).................................................5.13
(b)........................................................5.8
(c)....................................................14.3(d)
Section 317 (a)(1).....................................................5.3
(a)(2).....................................................5.4
(b).......................................................10.3
Section 318 (a)...................................................14.10(b)
<FN>
- --------
*This Cross-Reference Table is not part of the Indenture.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C> <C>
Section 1.1 Definitions..............................................................2
Section 1.2 Other Definitions.......................................................23
Section 1.3 Incorporation by Reference of Trust Indenture Act.......................24
Section 1.4 Rules of Construction...................................................24
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.........................................................25
Section 2.2 Form of Face of Security................................................26
Section 2.3 Form of Reverse of Security.............................................28
Section 2.4 Form of Notation Relating to Subsidiary Guarantee.......................32
Section 2.5 Form of Trustee's Certificate of Authentication.........................34
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.........................................................34
Section 3.2 Denominations...........................................................36
Section 3.3 Execution, Authentication, Delivery and Dating..........................36
Section 3.4 Temporary Securities....................................................37
Section 3.5 Registration of Transfer and Exchange...................................38
Section 3.6 Book-Entry Provisions for Global Securities.............................41
Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities........................42
Section 3.8 Payment of Interest; Interest Rights Preserved..........................43
Section 3.9 Persons Deemed Owners...................................................44
Section 3.10 Cancellation............................................................44
Section 3.11 Computation of Interest.................................................44
Section 3.12 Private Placement Legend................................................44
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.................................45
Section 4.2 Application of Trust Money..............................................46
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE V
REMEDIES
<S> <C> <C>
Section 5.1 Events of Default. .....................................................46
Section 5.2 Acceleration of Maturity; Rescission and Annulment......................48
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.........49
Section 5.4 Trustee May File Proofs of Claim........................................51
Section 5.5 Trustee May Enforce Claims Without Possession of Securities.............51
Section 5.6 Application of Money Collected..........................................52
Section 5.7 Limitation on Suits.....................................................52
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest....................................................53
Section 5.9 Restoration of Rights and Remedies......................................53
Section 5.10 Rights and Remedies Cumulative..........................................53
Section 5.11 Delay or Omission Not Waiver............................................53
Section 5.12 Control by Holders......................................................53
Section 5.13 Waiver of Past Defaults.................................................54
Section 5.14 Waiver of Stay, Extension or Usury Laws.................................54
ARTICLE VI
THE TRUSTEE
Section 6.1 Duties of Trustee.......................................................55
Section 6.2 Certain Rights of Trustee...............................................55
Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities..........57
Section 6.4 May Hold Securities.....................................................57
Section 6.5 Money Held in Trust.....................................................57
Section 6.6 Compensation and Reimbursement..........................................57
Section 6.7 Corporate Trustee Required; Eligibility.................................58
Section 6.8 Conflicting Interests...................................................58
Section 6.9 Resignation and Removal; Appointment of Successor.......................58
Section 6.10 Acceptance of Appointment by Successor..................................60
Section 6.11 Merger, Conversion, Consolidation or Succession to Business.............60
Section 6.12 Preferential Collection of Claims Against Company.......................60
Section 6.13 Notice of Defaults......................................................61
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
<S> <C> <C>
Section 7.1 Holders' Lists; Holder Communications; Disclosures
Respecting Holders......................................................61
Section 7.2 Reports By Trustee......................................................61
Section 7.3 Reports by Company......................................................62
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on Certain Terms....................63
Section 8.2 Successor Substituted...................................................64
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders......................64
Section 9.2 Supplemental Indentures with Consent of Holders.........................65
Section 9.3 Execution of Supplemental Indentures....................................66
Section 9.4 Effect of Supplemental Indentures.......................................67
Section 9.5 Conformity with Trust Indenture Act.....................................67
Section 9.6 Reference in Securities to Supplemental Indentures......................67
Section 9.7 Notice of Supplemental Indentures and Waivers...........................67
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and Interest.....................67
Section 10.2 Maintenance of Office or Agency.........................................68
Section 10.3 Money for Security Payments to Be Held in Trust.........................68
Section 10.4 Corporate Existence.....................................................69
Section 10.5 Payment of Taxes; Maintenance of Properties; Insurance..................70
Section 10.6 Limitation on Sale-Leaseback Transactions...............................70
Section 10.7 Limitation on Conduct of Business.......................................71
Section 10.8 Statement by Officers as to Default.....................................71
Section 10.9 Provision of Financial Information......................................71
Section 10.10 Limitation on Restricted Payments.......................................72
Section 10.11 Limitation on Guarantees by Subsidiary Guarantors.......................74
Section 10.12 Limitation on Indebtedness and Disqualified Capital Stock...............75
</TABLE>
iii
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<TABLE>
<S> <C> <C>
Section 10.13 Additional Subsidiary Guarantors........................................75
Section 10.14 Limitation on Issuances and Sales of Capital Stock by
Restricted Subsidiaries.................................................76
Section 10.15 Limitation on Liens.....................................................76
Section 10.16 Purchase of Securities Upon Change of Control...........................76
Section 10.17 Limitation on Asset Sales...............................................78
Section 10.18 Limitation on Transactions with Affiliates..............................81
Section 10.19 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.......................................82
Section 10.20 Waiver of Certain Covenants.............................................82
Section 10.21 Qualification of Indenture..............................................83
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption.....................................................83
Section 11.2 Applicability of Article................................................83
Section 11.3 Election to Redeem; Notice to Trustee...................................83
Section 11.4 Selection by Trustee of Securities to Be Redeemed.......................84
Section 11.5 Notice of Redemption....................................................84
Section 11.6 Deposit of Redemption Price.............................................85
Section 11.7 Securities Payable on Redemption Date...................................85
Section 11.8 Securities Redeemed in Part.............................................86
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance............86
Section 12.2 Defeasance and Discharge................................................86
Section 12.3 Covenant Defeasance.....................................................87
Section 12.4 Conditions to Defeasance or Covenant Defeasance.........................87
Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions..........................................89
Section 12.6 Reinstatement...........................................................89
ARTICLE XIII
SUBSIDIARY GUARANTEES
Section 13.1 Unconditional Guarantee.................................................90
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms...........91
Section 13.3 Release of Subsidiary Guarantors........................................92
Section 13.4 Limitation of Subsidiary Guarantors' Liability..........................92
</TABLE>
iv
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
Section 13.5 Contribution............................................................93
Section 13.6 Execution and Delivery of Notations of Subsidiary Guarantees............93
Section 13.7 Severability............................................................94
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Compliance Certificates and Opinions....................................94
Section 14.2 Form of Documents Delivered to Trustee..................................94
Section 14.3 Acts of Holders.........................................................95
Section 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors.............96
Section 14.5 Notice to Holders; Waiver...............................................96
Section 14.6 Effect of Headings and Table of Contents................................97
Section 14.7 Successors and Assigns..................................................97
Section 14.8 Severability............................................................97
Section 14.9 Benefits of Indenture...................................................97
Section 14.10 Governing Law; Trust Indenture Act Controls.............................97
Section 14.11 Legal Holidays..........................................................98
Section 14.12 No Recourse Against Others..............................................98
Section 14.13 Duplicate Originals.....................................................98
Section 14.14 No Adverse Interpretation of Other Agreements...........................99
Exhibit A - Form of Legend for Global Securities
Exhibit B - Transfer or Exchange Certificate
Exhibit C - Transferee Certificate for Institutional Accredited Investors
Exhibit D - Transferee Certificate for Regulation S Transfers
</TABLE>
v
<PAGE> 8
THIS INDENTURE, dated as of February 18, 1998, is by and among GRANT
GEOPHYSICAL, INC., a Delaware corporation (the "Company"), the SUBSIDIARY
GUARANTORS (as defined hereinafter) and LASALLE NATIONAL BANK, as trustee (the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 9 3/4%
Senior Notes due 2008, Series A and an issue of 9 3/4% Senior Notes due 2008,
Series B (such two issues, as amended or supplemented from time to time in
accordance with the terms hereof, being herein collectively called the
"Securities"), of substantially the tenor hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
The 9 3/4% Senior Notes due 2008, Series A are to be issued and sold in
transactions exempt from registration under the Securities Act, pursuant to a
Purchase Agreement, and the 9 3/4% Senior Notes due 2008, Series B are to be
issued in exchange for the 9 3/4% Senior Notes due 2008, Series A, pursuant to a
Registration Rights Agreement.
The Company owns, directly or indirectly, all of the equity ownership
of the outstanding Voting Stock of each initial Subsidiary Guarantor, and each
initial Subsidiary Guarantor is a member of the Company's consolidated group of
companies that are engaged in related businesses. Each initial Subsidiary
Guarantor will derive direct and indirect benefit from the issuance of the
Securities; accordingly, each initial Subsidiary Guarantor has authorized its
guarantee of the Company's obligations under this Indenture and the Securities,
and to provide therefor the initial Subsidiary Guarantors have duly authorized
the execution and delivery of this Indenture.
All things necessary have been done on the part of the Company and the
initial Subsidiary Guarantors to make the Securities, when issued and executed
by the Company and authenticated and delivered by the Trustee as herein
provided, the valid obligations of the Company, to make the Subsidiary
Guarantees, when the notations thereof on the Securities are executed by the
initial Subsidiary Guarantors, the valid obligation of the initial Subsidiary
Guarantors and to make this Indenture a valid agreement of the Company, the
initial Subsidiary Guarantors and the Trustee, in accordance with their
respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities (together with the related Subsidiary Guarantees) by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities (together with the related Subsidiary
Guarantees), without preference of one series of Securities over the other, as
follows:
1
<PAGE> 9
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at
the time such Person becomes a Restricted Subsidiary or (b) assumed in
connection with acquisitions of Properties from such Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of Properties from
such Person.
"Act," when used with respect to any Holder, has the meaning specified
in Section 14.3.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the Properties of such Subsidiary
Guarantor exceeds the total amount of liabilities of such Subsidiary Guarantor
at such date, including, without limitation, contingent liabilities (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date), but excluding liabilities under its Subsidiary Guarantee.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this definition, beneficial ownership of 10% or more
of the voting common equity (on a fully diluted basis) or options or warrants to
purchase such equity (but only if exercisable at the date of determination or
within 60 days thereof) of a Person shall be deemed to constitute control of
such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any other Restricted Subsidiary, (b) all or substantially all of the
Properties of any division or line of business of the Company or any of its
Restricted Subsidiaries or (c) any other Properties of the Company or any of its
Restricted Subsidiaries other than transfers of cash, Cash Equivalents, accounts
receivable or other Properties in the ordinary course of business or transfers
in accordance with the proviso to clause (vi) of the definition of Permitted
Investments. For the purposes of this definition, the term "Asset Sale" also
shall not include any of the following: (i) any transfer of Properties
(including Capital Stock) that is governed by, and made in accordance with, the
provisions of Article VIII hereof; (ii) any transfer of Properties to an
Unrestricted Subsidiary, if permitted under Section 10.10 hereof; (iii) sales of
damaged, worn-out or obsolete equipment or assets that, in the Company's
reasonable judgment, are either (x) no longer used or (y) no longer useful in
the business of the Company or its Restricted Subsidiaries; (iv) any lease of
any Property entered into in the ordinary
2
<PAGE> 10
course of business and with respect to which the Company or any Restricted
Subsidiary is the lessor, except any such lease that provides for the
acquisition of such Property by the lessee during or at the end of the term
thereof for an amount that is less than the fair market value thereof at the
time the right to acquire such property is granted; (v) any transfers that, but
for this clause (v), would be Asset Sales, if (A) the Company elects to
designate such transfers as not constituting Asset Sales and (B) after giving
effect to such transfers, the aggregate fair market value of the Properties
transferred in such transaction or any such series of related transactions so
designated by the Company does not exceed $1,000,000 and (vi) any trade or
exchange by the Company or any Restricted Subsidiary of equipment or other
assets for equipment or other assets owned or held by another Person, provided
that (x) the fair market value of the assets traded or exchanged by the Company
or such Restricted Subsidiary (together with any cash or Cash Equivalents to be
delivered by the Company or such Restricted Subsidiary) is reasonably equivalent
to the fair market value of the assets (together with any cash or Cash
Equivalents) to be received by the Company or such Restricted Subsidiary. The
fair market value of any non-cash proceeds of a disposition of assets and of any
assets referred to in the foregoing clause (vi) of this definition shall be
determined in the manner contemplated in the definition of "fair market value,"
the results of which determination shall be set forth in an Officer's
Certificate delivered to the Trustee.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at a rate of interest per annum equal to the discount rate which would be
applicable to a Capitalized Lease Obligation with a like term in accordance with
GAAP. As used in the preceding sentence, the "net amount of rent" under any such
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges. In the case of any lease which is terminable by the lessee upon payment
of a penalty, such net amount of rent shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory redemption
payment requirements) of such Indebtedness multiplied by (ii) the amount of each
such principal payment by (b) the sum of all such principal payments.
"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such board
of directors, and, with respect to any Subsidiary, either the board of directors
of such Subsidiary or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
its Board of Directors and to be in full
3
<PAGE> 11
force and effect on the date of such certification, and delivered to the
Trustee, and with respect to a Subsidiary, a copy of a resolution certified by
the Secretary or an Assistant Secretary of such Subsidiary to have been duly
adopted by its Board of Directors and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or Chicago are authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any Property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the purpose
of this Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 180 days or less of any financial
institution that is (x) a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000 or (y)
any commercial bank organized under the laws of any other country that is a
member of the Organization for Economic Cooperation and Development and has
total assets in excess of $500,000,000; (iii) commercial paper with a maturity
of 180 days or less issued by a corporation that is not an Affiliate of the
Company and is organized under the laws of any state of the United States or the
District of Columbia and rated at least A-l by S&P or at least P-l by Moody's;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any commercial bank meeting the specifications of clause (ii) above; (v)
overnight bank deposits and bankers' acceptances at any commercial bank meeting
the qualifications specified in clause (ii) above; (vi) deposits available for
withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (ii) above, provided all such deposits do not exceed
$7,500,000 in the aggregate at any one time; (vii) demand and time deposits and
certificates of deposit with any commercial bank organized in the United States
not meeting the qualifications specified in clause (ii) above, provided that
such deposits and certificates support bond, letter of credit and other similar
types of obligations incurred in the ordinary course of business; and (viii)
investments in money market or other mutual funds substantially all of whose
assets comprise securities of the types described in clauses (i) through (v)
above.
4
<PAGE> 12
"Change of Control" means the occurrence of any event or series of
events by which: (a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 50% of the total Voting Stock of the Company (other than Elliot, Westgate
or any of their Affiliates); (b) the Company consolidates with or merges into
another Person or any Person consolidates with, or merges into, the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is changed into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting Stock
of the Company is changed into or exchanged for Voting Stock of the surviving or
resulting Person that is Qualified Capital Stock and (ii) the holders of the
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly, not less than a majority of the Voting Stock of the surviving or
resulting Person immediately after such transaction; (c) the Company, either
individually or in conjunction with one or more Restricted Subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the Restricted
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the Properties of the Company and the Restricted
Subsidiaries, taken as a whole (either in one transaction or a series of related
transactions), including Capital Stock of the Restricted Subsidiaries, to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary); (d)
during any consecutive two-year period following the Issue Date, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (e) the liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as now
or hereafter in effect, together with all regulations thereunder issued by the
Internal Revenue Service.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding-up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
5
<PAGE> 13
"Consolidated EBITDA Coverage Ratio" means, for any period, the ratio
on a pro forma basis of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income, in each case, for such
period, of the Company and its Restricted Subsidiaries on a consolidated basis,
all determined in accordance with GAAP, to (b) the sum of such Consolidated
Interest Expense for such period; provided, however, that (i) the Consolidated
EBITDA Coverage Ratio shall be calculated on a pro forma basis assuming that (A)
the Indebtedness to be incurred (and all other Indebtedness incurred after the
first day of such period of four full fiscal quarters referred to in Section
10.12(a) hereof through and including the date of determination), and (if
applicable) the application of the net proceeds therefrom (and from any other
such Indebtedness), including to refinance other Indebtedness, had been incurred
on the first day of such four-quarter period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation and (B) any acquisition or disposition by the Company or
any Restricted Subsidiary of any Properties outside the ordinary course of
business, or any repayment of any principal amount of any Indebtedness of the
Company or any Restricted Subsidiary prior to the Stated Maturity thereof, in
either case since the first day of such period of four full fiscal quarters
through and including the date of determination, had been consummated on such
first day of such four-quarter period, (ii) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness
required to be computed on a pro forma basis in accordance with Section 10.12(a)
hereof and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Company, either the fixed or floating rate, (iii) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility required to be computed on a pro
forma basis in accordance with Section 10.12(a) hereof shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be reduced by the amount
of any repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility, (iv) notwithstanding
clauses (ii) and (iii) of this proviso, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such
agreements, and (v) if after the first day of the period referred to in clause
(a) of this definition the Company has permanently retired any Indebtedness out
of the Net Cash Proceeds of the issuance and sale of shares of Qualified Capital
Stock of the Company, Consolidated Interest Expense shall be calculated on a pro
forma basis as if such Indebtedness had been retired on the first day of such
period.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes (including state franchise
taxes accounted for as income taxes in accordance with GAAP) of the Company and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
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<PAGE> 14
"Consolidated Interest Expense" means, for any period, without
duplication, (i) the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (A) any amortization of
debt discount, (B) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (C) the interest portion of any
deferred payment obligation constituting Indebtedness, (D) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and (E) all accrued interest, in each case to the
extent attributable to such period, (b) to the extent any Indebtedness of any
Person (other than the Company or a Restricted Subsidiary) is guaranteed by the
Company or any Restricted Subsidiary, the aggregate amount of interest paid (to
the extent not accrued in a prior period) or accrued by such other Person during
such period attributable to any such Indebtedness, in each case to the extent
attributable to that period, (c) the aggregate amount of the interest component
of Capitalized Lease Obligations paid (to the extent not accrued in a prior
period), accrued or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period and (d) the aggregate amount of
dividends paid (to the extent not accrued in a prior period) or accrued on
Preferred Stock or Disqualified Capital Stock of the Company and its Restricted
Subsidiaries, to the extent such Preferred Stock or Disqualified Capital Stock
is owned by Persons other than the Company or any Restricted Subsidiary, less
(ii), to the extent included in clause (i) above, amortization of capitalized
debt issuance costs of the Company and its Restricted Subsidiaries during such
period.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends or distributions
are attributable to net income (or net loss) of such Person during such period
or during any prior period), (d) net income (or net loss) of any Person combined
with the Company or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(e) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of its net income is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, and (f)
income resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"Consolidated Net Tangible Assets" as of any date of determination,
means the sum of the amounts that would appear on a consolidated balance sheet
of the Company and its consolidated Subsidiaries (other than Unrestricted
Subsidiaries) as the total assets (less accumulated depreciation or
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) of the Company and its consolidated
Subsidiaries (other than Unrestricted Subsidiaries), determined on a
consolidated basis in accordance with GAAP, after giving effect to
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<PAGE> 15
purchase accounting and after deducting therefrom, to the extent otherwise
included, the amounts of (without duplication): (i) the aggregate amount of
liabilities of the Company and its consolidated Subsidiaries (other than
Unrestricted Subsidiaries) which may properly be classified as current
liabilities (including taxes accrued as estimated), determined on a consolidated
basis in accordance with GAAP; (ii) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(iii) the excess of cost over fair market value of assets or businesses
acquired; (iv) any revaluation or other write-up in book value of assets
subsequent to the last day of the fiscal quarter of the Company immediately
preceding the Issue Date as a result of a change in the method of valuation in
accordance with GAAP; and (v) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items (if included in total assets).
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of the Company and
its Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge for which an accrual of or reserve for cash charges for
any future period is required).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 135 South LaSalle Street, Chicago, Illinois 60603.
"Credit Facility" means that certain Loan and Security Agreement, dated
October 1, 1997, between the Company and Elliot.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.8 hereof.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors of the Company
is required to deliver a Board
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<PAGE> 16
Resolution hereunder, a member of the Board of Directors of the Company who does
not have any material direct or indirect financial interest (other than an
interest arising solely from the beneficial ownership of Capital Stock of the
Company) in or with respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by
its terms, by the terms of any security into which it is convertible or
exchangeable or by contract or otherwise, is, or upon the happening of an event
or passage of time would be, required to be redeemed or repurchased prior to the
final Stated Maturity of the Securities or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity. For purposes of Section 10.12(a) hereof, Disqualified
Capital Stock shall be valued at the greater of its voluntary or involuntary
maximum fixed redemption or repurchase price plus accrued and unpaid dividends.
For such purposes, the "maximum fixed redemption or repurchase price" of any
Disqualified Capital Stock which does not have a fixed redemption or repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were redeemed or repurchased
on the date of determination, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market value
shall be determined in good faith by the board of directors of the issuer of
such Disqualified Capital Stock; provided, however, that if such Disqualified
Capital Stock is not at the date of determination permitted or required to be
redeemed or repurchased, the "maximum fixed redemption or repurchase price"
shall be the book value of such Disqualified Capital Stock.
"Eligible Inventory" means the consolidated finished goods, raw
materials and work-in-process of the Company (excluding finished goods, raw
materials and work-in-process of Unrestricted Subsidiaries of the Company) less
applicable reserves, each of the foregoing determined on a consolidated basis in
accordance with GAAP.
"Eligible Receivables" means the consolidated trade receivables of the
Company (other than the trade receivables of Unrestricted Subsidiaries of the
Company) less the allowance for doubtful accounts, each of the foregoing
determined on a consolidated basis in accordance with GAAP.
"Elliot" means Elliot Associates, L. P., a Delaware limited
partnership.
"Equity Offering" means an offer and sale of Common Stock by the
Company pursuant to a registration statement that has been declared effective by
the Commission pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of the Company) or pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities
Act and applicable state securities laws.
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Event of Loss" means, with respect to any Property of the Company or
any Restricted Subsidiary, (i) any damage to such Property that results in an
insurance settlement with respect thereto on the basis of a total loss or a
constructive or compromised total loss or (ii) the confiscation, condemnation or
requisition of title to such Property by any government or any instrumentality
or
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<PAGE> 17
agency thereof. An Event of Loss shall be deemed to occur as of the date of the
insurance settlement, confiscation, condemnation or requisition of title, as
applicable.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.
"Exchange Offer" means the offer by the Company, pursuant to an
effective registration statement filed with the SEC, to exchange Series B
Securities for Outstanding Series A Securities in accordance with the terms and
provisions of a Registration Rights Agreement.
"Exchange Offer Consummation Date" means the date on which an Exchange
Offer is consummated in accordance with the terms and provisions of a
Registration Rights Agreement.
"Exempt Foreign Subsidiary" means (i) any Restricted Subsidiary engaged
in business exclusively outside the United States of America, irrespective of
its jurisdiction of incorporation and (ii) any other Restricted Subsidiary whose
assets (excluding any cash and Cash Equivalents) consist exclusively of Capital
Stock or Indebtedness of one or more Restricted Subsidiaries described in clause
(i) of this definition, that, in any case, is so designated by the Company in an
Officers' Certificate delivered to the Trustee and (a) is not a guarantor of,
and has not granted any Lien to secure, the Credit Facility or any other
Indebtedness of the Company or any Restricted Subsidiary other than another
Exempt Foreign Subsidiary and (b) does not have total Consolidated Net Tangible
Assets that, when aggregated with the total assets of any other Exempt Foreign
Subsidiary, exceed 10% of the Company's Consolidated Net Tangible Assets, as
determined in accordance with GAAP, as reflected on the Company's most recent
balance sheet.
"Fair market value" means with respect to any Property or Investment,
the fair market value of such Property or Investment at the time of the event
requiring such determination, as determined in good faith by the Board of
Directors of the Company, or, with respect to any Property or Investment in
excess of $7,500,000 (other than cash or Cash Equivalents), as determined by a
reputable appraisal firm that is, in the judgment of such Board of Directors,
qualified to perform the task for which such firm has been engaged and
independent with respect to the Company.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of
Title 11 of the United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of this Indenture.
The term "guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such
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<PAGE> 18
obligation, including, without limiting the foregoing, the payment of amounts
drawn down under letters of credit. When used as a verb, "guarantee" has a
corresponding meaning.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person, contingent or otherwise, for borrowed money
or for the deferred purchase price of Property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business) and all liabilities of such Person incurred in connection
with any letters of credit, bankers' acceptances or other similar credit
transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, outstanding on the date of this
Indenture or thereafter, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such Property), but excluding trade accounts payable
arising in the ordinary course of business, (d) the Attributable Indebtedness
respecting all Capitalized Lease Obligations of such Person, (e) all
Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon Property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such Property or
the amount of the obligation so secured), (f) all guarantees by such Person of
Indebtedness referred to in this definition and (g) all obligations of such
Person under or in respect of Currency Hedge Obligations and Interest Rate
Protection Obligations.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or similar case or proceeding in connection
therewith, relative to such Person or its creditors, as such, or its assets or
(b) any liquidation, dissolution or other winding-up proceeding of such Person,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy or (c) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of such Person.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
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<PAGE> 19
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other Property to others or
any payment for Property or services for the account or use of others), or any
purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities (including derivatives) or evidences of
Indebtedness issued by, any other Person. In addition, the fair market value of
the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an
"Investment" made by the Company in such Unrestricted Subsidiary at such time.
"Investments" shall exclude (a) extensions of trade credit or other advances to
customers on commercially reasonable terms in accordance with normal trade
practices or otherwise in the ordinary course of business, (b) Interest Rate
Protection Obligations and Currency Hedge Obligations, but only to the extent
that the same constitute Permitted Investments, and (c) endorsements of
negotiable instruments and documents in the ordinary course of business.
"Issue Date" means the date on which the Series A Securities were first
issued under this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any Property of any kind. A Person shall be deemed to own subject to
a Lien any Property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of
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<PAGE> 20
such Asset Sale, (iii) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) (x) owning a beneficial interest in the
Property subject to the Asset Sale or (y) having a Lien thereon and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee; provided, however, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Available Proceeds. "Net Available Proceeds@
means, with respect to any Event of Loss, the proceeds to the Company or any
Restricted Subsidiary as a result thereof in the form of cash or Cash
Equivalents, including insurance proceeds paid to the Company or any Restricted
Subsidiary, and all payments received by the Company or any Restricted
Subsidiary from any government or any instrumentality or agency thereof by way
of compensation for the requisition of title to Property, net of all fees and
expenses incurred by the Company or any Restricted Subsidiary related to the
collection or receipt of such proceeds, all as reflected in an Officers'
Certificate delivered to the Trustee.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or any Restricted Subsidiary incurred in connection
with the acquisition by the Company or such Restricted Subsidiary of any
Property and as to which (a) the holders of such Indebtedness agree that they
will look solely to the Property so acquired and securing such Indebtedness for
payment on or in respect of such Indebtedness, and neither the Company nor any
Subsidiary (other than an Unrestricted Subsidiary) (i) provides credit support,
including any undertaking, agreement or instrument which would constitute
Indebtedness or (ii) is directly or indirectly liable for such Indebtedness, and
(b) no default with respect to such Indebtedness would permit (after notice or
passage of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.
"Offering Circular" means the Offering Circular of the Company dated
February 10, 1998, pursuant to which the Original Securities are offered by the
Purchaser to Qualified Institutional Buyers, to a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) and outside the United States to non-U.S. persons
in offshore transactions in compliance with Regulation S.
"Officers" means, with respect to any Person, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer and the
Treasurer of such Person.
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<PAGE> 21
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company (or any Subsidiary Guarantor), including an employee of
the Company (or any Subsidiary Guarantor), and who shall be reasonably
acceptable to the Trustee.
"Original Securities" has the meaning ascribed thereto in Section 3.1.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities,
provided that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections
12.2 and 12.3 hereof, with respect to which the Company has effected
legal defeasance or covenant defeasance as provided in Article XII
hereof; and
(iv) Securities which have been paid pursuant to Section 3.7
hereof or in exchange for or in lieu of which other Securities have
been authenticated and delivered pursuant to this Indenture, other than
any such Securities in respect of which there shall have been presented
to the Trustee proof satisfactory to it that such securities are held
by a bona fide purchaser in whose hands the Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company, any Subsidiary Guarantor or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, consent, notice or waiver, only Securities which the Trustee knows to
be so owned shall be so disregarded. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company, any Subsidiary Guarantor or
any other obligor upon the Securities or any Affiliate of the Company, any
Subsidiary Guarantor or such other obligor.
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<PAGE> 22
"Pari Passu Indebtedness" means, with respect to any Net Proceeds from
Asset Sales, Indebtedness of the Company and its Restricted Subsidiaries the
terms of which require the Company or such Restricted Subsidiary to apply such
Net Proceeds to offer to repurchase or repay such Indebtedness.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Securities on behalf of the Company.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness (and any guarantee thereof) under one or more
credit facilities with banks and other financial institutions in an
aggregate principal amount at any one time outstanding not to exceed
(a) the greater of (x) $25,000,000 at any time outstanding or (y) the
sum of 85% of the amount of Eligible Receivables of the Company and its
Restricted Subsidiaries and 50% of the amount of Eligible Inventory of
the Company and its Restricted Subsidiaries, less (b) any amounts
derived from Asset Sales and applied to the permanent reduction of the
Indebtedness under any such credit facilities as contemplated by
Section 10.17 hereof (the "Maximum Bank Credit Amount"), and any
renewals, amendments, extensions, supplements, modifications,
deferrals, refinancings or replacements (each, for purposes of this
clause (i), a "refinancing") thereof, including any successive
refinancing thereof, so long as the aggregate principal amount of any
such new Indebtedness, together with the aggregate principal amount of
all other Indebtedness outstanding pursuant to this clause (i), shall
not at any one time exceed the Maximum Bank Credit Amount;
(ii) Indebtedness under the Original Securities and any Series
B Securities issued in exchange for Original Securities of an equal
principal amount;
(iii) Indebtedness outstanding or in effect on the date of
this Indenture (and not repaid or defeased with the proceeds of the
offering of the Original Securities);
(iv) Indebtedness under Interest Rate Protection Obligations,
provided that (1) such Interest Rate Protection Obligations are related
to payment obligations on Permitted Indebtedness or Indebtedness
otherwise permitted by Section 10.12(a) hereof, and (2) the notional
principal amount of such Interest Rate Protection Obligations does not
exceed the principal amount of such Indebtedness to which such Interest
Rate Protection Obligations relate;
(v) Indebtedness under Currency Hedge Obligations, provided
that (1) such Currency Hedge Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise
permitted by Section 10.12(a) hereof, or to the foreign currency cash
flows reasonably expected to be generated by the Company and its
Restricted Subsidiaries, and (2) the notional principal amount of such
Currency Hedge Obligations does not exceed the principal amount of such
Indebtedness and the amount of such foreign currency cash flows to
which such Currency Hedge Obligations relate;
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(vi) the Subsidiary Guarantees of the Original Securities (and
any assumption of the obligations guaranteed thereby);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company
or a Wholly Owned Restricted Subsidiary; provided, however, that upon
any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary or any other
subsequent transfer of any such Indebtedness (except to the Company or
a Wholly Owned Restricted Subsidiary), such Indebtedness shall be
deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of Section 10.12(a) hereof at the time the
Wholly Owned Restricted Subsidiary in question ceased to be a Wholly
Owned Restricted Subsidiary or the time such subsequent transfer
occurred;
(viii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including guaranties or
obligations of the Company or any Restricted Subsidiary with respect to
letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money
borrowed);
(ix) Non-Recourse Indebtedness;
(x) any renewals, substitutions, refinancings or replacements
(each, for purposes of this clause (x), a "refinancing") by the Company
or a Restricted Subsidiary of any Indebtedness incurred pursuant to
clause (iii) of this definition, including any successive refinancing
by the Company or such Restricted Subsidiary, so long as (A) any such
new Indebtedness shall be in a principal amount that does not exceed
the principal amount (or, if such new Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of
any premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing, plus the amount
of expenses of the Company or such Restricted Subsidiary incurred in
connection with such refinancing, (B) in the case of any refinancing of
Indebtedness that is pari passu with or subordinated in right of
payment to either the Securities or any Subsidiary Guarantees, then
such new Indebtedness is either pari passu with or subordinated in
right of payment to the Securities or any Subsidiary Guarantees, as the
case may be, at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life equal to
or longer than the Average Life of the Indebtedness being refinanced
and a final Stated Maturity that is at least 91 days later than the
final Stated Maturity of the Indebtedness being refinanced; and
(xi) any additional Indebtedness in an aggregate principal
amount not in excess of $7,500,000 at any one time outstanding and any
guarantee thereof.
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<PAGE> 24
"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its Properties to, the Company or a Wholly Owned Restricted
Subsidiary; (iv) Investments permitted under Section 10.17 or 10.18 hereof; (v)
Investments made in the ordinary course of business in prepaid expenses, lease,
utility, workers' compensation, performance and other similar deposits; (vi)
Investments in stock, obligations or securities received in settlement of debts
owing to the Company or any Restricted Subsidiary as a result of bankruptcy or
insolvency proceedings or upon the foreclosure, perfection or enforcement of any
Lien in favor of the Company or any Restricted Subsidiary, in each case as to
debt owing to the Company or any Restricted Subsidiary that arose in the
ordinary course of business of the Company or any such Restricted Subsidiary,
provided that any stocks, obligations or securities received in settlement of
debts that arose in the ordinary course of business (and received other than as
a result of bankruptcy or insolvency proceedings or upon foreclosure, perfection
or enforcement of any Lien) that are, within 30 days of receipt, converted into
cash or Cash Equivalents shall be treated as having been cash or Cash
Equivalents at the time received; (vii) other Investments in joint ventures,
corporations, limited liability companies or partnerships formed with or
organized by third Persons, which joint ventures, corporations, limited
liability companies or partnerships engage in a business substantially similar,
or related to the business conducted by the Company and its Restricted
Subsidiaries, provided such Investments do not, in the aggregate, exceed the sum
of (1) $3,000,000 and (2) the aggregate amount of principal repayments, interest
on Indebtedness, dividends, distributions or other return of capital received by
the Company or a Restricted Subsidiary from any Person (other than the Company
or any Subsidiary) in which the Company or any of its Restricted Subsidiaries
has an ownership interest.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of this Indenture;
(b) Liens securing the Securities or the Subsidiary
Guarantees;
(c) Liens in favor of the Company or any Restricted
Subsidiary;
(d) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness";
(e) Liens for taxes, assessments and governmental charges or
claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(f) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserve
17
<PAGE> 25
or other appropriate provision, if any, as shall be required by GAAP
shall have been made
in respect thereof;
(g) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, property, casualty,
liability and director's and officer's insurance, or to secure the
payment or performance of tenders, statutory or regulatory obligations,
surety and appeal bonds, bids, government contracts and leases,
performance and return of money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(h) judgment Liens not giving rise to an Event of Default so
long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated
shall not have expired;
(i) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease;
(j) purchase money Liens; provided, however, that (i) the
related purchase money Indebtedness shall not be secured by any
Property of the Company or any Restricted Subsidiary other than the
Property so acquired and any proceeds therefrom and (ii) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
(k) Liens securing obligations under or in respect of either
Currency Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
Property relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off; and
(o) Liens securing Non-Recourse Indebtedness; provided,
however, that the related Non-Recourse Indebtedness shall not be
secured by any Property of the Company or any Restricted Subsidiary
other than the Property acquired by the Company or any Restricted
Subsidiary with the proceeds of such Non-Recourse Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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<PAGE> 26
"Predecessor Security" of any particular Security means every previous
Security, including any Security of a different series, evidencing all or a
portion of the same debt as that evidenced by such particular Security; and, for
the purposes of this definition, any Security authenticated and delivered under
Section 3.7 hereof in exchange for a mutilated security or in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of this Indenture, including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth in Section 2.2 hereof.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person.
"Purchase Agreement" means the Purchase Agreement dated February [ ],
1998, among the Company, the Subsidiary Guarantors and the Purchaser or any
additional Purchase Agreement to be entered into in connection with the purchase
and sale of additional Series A Notes, which may be issued, authenticated and
delivered pursuant to Sections 3.1 and 3.3 hereof.
"Purchaser" means an initial purchaser of Series A Securities named in
a Purchase Agreement.
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Disqualified Capital Stock.
"Qualified Institutional Buyer" has the meaning attributed thereto in
Rule 144A under the Securities Act.
"Rating Agency" means S&P or Moody's or, if S&P or Moody's shall have
ceased to be a "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Act) or shall have ceased generally to make
publicly available a rating on any outstanding debt securities registered under
the Securities Act of any domestic company engaged primarily in the oil field
services business, such other organization or organizations, as the case may be,
then making publicly available a rating on the Securities as is selected by the
Company.
"Rating Date" means, in respect of a Change of Control, the business
day that is immediately before the day of the first public announcement of an
event or series of events that results in a Change of Control.
"Rating Decline" means the occurrence on any date following the Rating
Date and before a date that is 90 days after the occurrence of a corresponding
Change of Control (which period shall be deemed to be extended so long as prior
to the end of such 90-day period and continuing thereafter
19
<PAGE> 27
the rating of the Notes is under publicly announced consideration for possible
downgrade by a Rating Agency) of either of the following: (i) the rating of the
Notes by a Rating Agency within such period shall be at least one gradation
below the rating of the Notes by such Rating Agency on the Rating Date, or (ii)
a Rating Agency shall withdraw its rating of the Notes. A gradation shall
include changes within categories (e.g., with respect to Moody's a decline in a
rating from Ba1 to Ba2, or from B1 to B2, and with respect to S&P a decline in a
rating from BB+ to BB or from B+ to B, will constitute a decrease of one
gradation).
"Record Date" means a Regular Record Date or a Special Record Date.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Default" shall have the meaning ascribed thereto in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
to be dated on or about the Issue Date, among the Company, the Subsidiary
Guarantors and the Purchaser and any additional Registration Rights Agreement to
be entered into in connection with the issuance, authentication and delivery of
additional Series A Notes pursuant to Sections 3.1 and 3.3 hereof.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the February 1 or August 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer," when used with respect to the Trustee, means any
officer in the Corporate Trust Department of the Trustee, and also means, with
respect to a particular corporate trust matter, any other officer of the Trustee
to whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Investment" means (without duplication) (i) the designation
of a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary" and (ii) any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
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<PAGE> 28
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which Properties are sold or transferred by the Company or a
Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or one of its Restricted Subsidiaries.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Series A Securities or any Series B
Securities authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any successor act thereto.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5 hereof.
"Series A Securities" means the 9 3/4% Senior Notes due 2008, Series A,
being issued and sold pursuant to the Purchase Agreement and this Indenture.
"Series B Securities" means the 9 3/4% Senior Notes due 2008, Series B,
to be issued in exchange for the Series A Securities pursuant to the
Registration Rights Agreement and this Indenture.
"Significant Subsidiary" means (i) any Subsidiary of the Company that
would constitute a "Significant Subsidiary" under Rule 1-02(w) of Regulation S-X
under the Securities Act and (ii) any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary under Rule 1-02(w) of
Regulation S-X under the Securities Act.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8 hereof.
"Stated Maturity" means, when used with respect to any Indebtedness or
any installment of interest thereon, the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor which is expressly subordinated in right of payment to the
Securities or the Subsidiary Guarantees, as the case may be.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons performing
similar functions).
"Subsidiary Guarantee" has the meaning specified in Section 13.1
hereof.
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<PAGE> 29
"Subsidiary Guarantor" means (i) Geophysical Operations, Inc., (ii)
Grant Geophysical (Int'l), Inc., (iii) Advanced Seismic Technology, Inc., (iv)
SSGI Acquisition Corp., (v) PT. Grant Geophysical Indonesia, (vi) Recursos
Energeticos Ltda., (vii) Grant Geophysical do Brasil Ltda., (viii) Solid State
Geophysical Inc., (ix) Solid State Internacional Ingenieria, C.A., (x) Solid
State Geophysical Corp., (xi) each of the Company's other Restricted
Subsidiaries (other than an Exempt Foreign Subsidiary), if any, executing a
supplemental indenture in compliance with the provisions of Section 10.13(a)
hereof and (xii) any Person that becomes a successor guarantor of the Securities
in compliance with the provisions of Section 13.2 hereof, except to the extent
that any such Subsidiary Guarantor is hereinafter released under the terms of
this Indenture.
"Transfer Restricted Security" has the meaning attributed thereto in
the Registration Rights Agreement; provided, however, that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether or not any Security is a Transfer Restricted Security.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and in force at the date as of which this Indenture was executed
until such time as this Indenture is qualified under the TIA, and thereafter as
in effect on the date on which this Indenture is qualified under the TIA, except
as provided in Section 9.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination will be designated an Unrestricted Subsidiary by
the Board of Directors of the Company as provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as
(a) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; (c) such designation as an Unrestricted Subsidiary would be
permitted under Section 10.10 hereof; and (d) such designation shall not result
in the creation or imposition of any Lien on any of the Properties of the
Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien
the creation or imposition of which shall have been in compliance with Section
10.15 hereof); provided, however, that with respect to clause (a), the Company
or a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted
Subsidiary if (x) such liability constituted a Permitted Investment or a
Restricted Payment permitted by Section 10.10 hereof, in each case at the time
of incurrence, or (y) the liability would be a Permitted Investment at the time
of designation of such Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, on a pro forma basis (i) no Default or Event of
Default shall have occurred and be continuing, (ii) the Company could incur
$1.00 of additional Indebtedness (not including the incurrence of Permitted
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<PAGE> 30
Indebtedness) under Section 10.12(a) hereof and (iii) if any of the Properties
of the Company or any of its Restricted Subsidiaries would upon such designation
become subject to any Lien (other than a Permitted Lien), the creation or
imposition of such Lien shall have been in compliance with Section 10.15 hereof.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Westgate" means Westgate International, L.P., a Cayman Islands limited
partnership.
"Westgate Preferred Stock" means the 10,000 shares of Preferred Stock
owned by Westgate together with any and all dividends paid or accrued thereon.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to
the extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
Section 1.2 Other Definitions.
------------------
Term Defined
---- in Section
----------
"Additional Interest" ............ 3.1
"Agent Members" .................. 3.6
"Change of Control Notice" ....... 10.16(c)
"Change of Control Offer" ........ 10.16(a)
"Change of Control Purchase Date" 10.16(c)
"Change of Control Purchase Price" 10.16(a)
"Defaulted Interest" ............. 3.8
"Excess Proceeds" ................ 10.17(b)
"Funding Guarantor" .............. 13.5
"Global Security" ................ 2.1
"Judgment Currency" .............. 5.3
"Net Proceeds Deficiency" ........ 10.17(c)
"Net Proceeds Offer" ............. 10.17(c)
"Net Proceeds Payment Date" ...... 10.17(c)
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<PAGE> 31
"Offered Price" .................. 10.17(c)
"Pari Passu Indebtedness Amount .. 10.17(c)
"Pari Passu Offer ................ 10.17(c)
"Payment Amount" ................. 10.17(c)
"Payment Restriction" ............ 10.19
"Physical Securities" ............ 2.1
"Purchase Notice" ................ 10.17(c)
"Required Currency" .............. 5.3
"Restricted Payment" ............. 10.10(a)
"Surviving Entity" ............... 8.1(a)
"Trigger Date" ................... 10.17(c)
"U.S. Government Obligations" .... 12.4(a)
Section 1.3 Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
"indenture trustee" or "institutional trustee" means the
Trustee, and
"obligor" on the indenture securities means the Company or
any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.4 Rules of Construction.
----------------------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP and all accounting calculations will be
determined in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
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<PAGE> 32
(d) the masculine gender includes the feminine and the neuter;
(e) a "day" means a calendar day;
(f) when used with reference to the Securities, the expression "of like
tenor" refers to Securities of the same series;
(g) the term "merger" includes a statutory share exchange and the term
"merged" has a correlative meaning; and
(h) references to agreements and other instruments include subsequent
amendments and waivers but only to the extent not prohibited by this Indenture.
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.
----------------
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities or notations of Subsidiary Guarantees,
as the case may be, as evidenced by their execution of such Securities or
notations of Subsidiary Guarantees, as the case may be.
Except as indicated in the next succeeding paragraph, Securities
(including the notations thereon relating to the Subsidiary Guarantees and the
Trustee's certificate of authentication) shall be issued initially in the form
of one or more permanent global Securities substantially in the form set forth
in Sections 2.2 through 2.5 hereof (each being herein called a "Global
Security") deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided, and each shall bear the legend set forth on Exhibit A hereto. Subject
to the limitation set forth in Section 3.1, the principal amounts of the Global
Securities may be increased or decreased from time to time by adjustments made
on the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Securities (including the notations thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication) originally issued
and sold in reliance on any exemption from registration under the Securities Act
other than Rule 144A shall be issued, and Securities originally offered and sold
in reliance on Rule 144A may be issued, in the form of permanent certificated
securities in registered form in substantially the form set forth in Sections
2.2 through 2.5 hereto ("Physical Securities").
The Series A Securities and the Series B Securities, the notations
thereon relating to the Subsidiary Guarantees and the Trustee's certificate of
authentication shall be in substantially the respective forms set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, CUSIP or other numbers or other marks of identification and such
legends or endorsements placed thereon
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<PAGE> 33
as may be required by this Section or Section 3.12 or to comply with the rules
of any securities exchange or as may, consistently herewith, be determined by
the officers executing such Securities or notations of Subsidiary Guarantees, as
the case may be, as evidenced by their execution of the Securities or notations
of Subsidiary Guarantees, as the case may be. Any portion of the text of any
Security may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Security. In addition to the requirements of Section
2.3, the Securities may also have set forth on the reverse side thereof a form
of assignment and forms to elect purchase by the Company pursuant to Section
10.16 or 10.17 hereof.
Section 2.2 Form of Face of Security.
------------------------
[If a Series A Security or a Series B Security constituting a Transfer
Restricted Security-- THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD, EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES TO FOREIGN PURCHASERS IN
OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL GIVE EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.]
GRANT GEOPHYSICAL, INC.
9 3/4% Senior Note due 2008, Series ____
No._____ $____________
CUSIP No. 388085 _ _ _
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Grant Geophysical, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________ or registered assigns the principal sum of _________ Dollars on
February 15, 2008, at the office or agency of the Company referred to below, and
to pay interest thereon, commencing [if an Original Security--on August 15, 1998
and continuing semiannually thereafter, on February 15 and August 15 in each
year, from February 18, 1998] [if any other Security--on the first February 15
or August 15 following the original issuance of the Series __ Securities and
continuing semiannually thereafter, on February 15 and August 15 in each year,
from the date of original issuance of the Series __ Securities], or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 9 3/4% per annum, until the principal hereof is
paid or duly provided for, and (to the degree permitted by applicable law now or
at any time hereafter in force) to pay on demand interest on any overdue
interest (in each case, including post-petition interest in any proceeding under
any bankruptcy law) at the rate borne by the Series ____ Securities from the
date on which such overdue interest becomes payable to the date payment of such
interest has been made or duly provided for. The Company also promises to pay
any Additional Interest required by Section 5 of the Registration Rights
Agreement, upon the conditions, at the rates and for the periods specified
therein. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Series ___ Security (or one or more Predecessor
Securities) is registered on the Security Register at the close of business on
the Regular Record Date for such interest, which shall be the February 1 or
August 1 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Holder on such Regular
Record Date, and such Defaulted Interest, and (to the degree permitted by
applicable law now or at any time hereafter in force) interest on such Defaulted
Interest at the rate borne by the Series ____ Securities, may be paid to the
Person in whose name this Series ____ Security (or one or more Predecessor
Securities) is registered on the Security Register at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Series ____ Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Series ____ Securities may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
said Indenture. Accrued but unpaid interest on any Series A Security that is
exchanged for a Series B Security pursuant to a Registration Rights Agreement
shall be paid on or before the first Interest Payment Date on the Series B
Securities.
Payment of the principal of (and premium, if any, on) and interest on
this Series ____ Security will be made at the office or agency of the Company
maintained for that purpose in The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
may be made on Physical Securities at the option of the Company on or before the
due date (i) by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register or (ii) with respect to any
Holder owning Series ____ Securities in the principal amount of $500,000 or
more, by wire transfer to an account maintained by the Holder located in the
United States, as specified in a written notice to the Trustee by any such
Holder requesting payment by wire transfer and specifying the account to which
transfer is requested.
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<PAGE> 35
Reference is hereby made to the further provisions of this Series ____
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the trustee referred to on the reverse hereof by manual signature, this
Series ____ Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
GRANT GEOPHYSICAL, INC.
By:_________________________
President
Attest:
- ------------------------------
Secretary
Section 2.3 Form of Reverse of Security.
---------------------------
This Series ____ Security is one of a duly authorized issue of
securities of the Company designated as its 9 3/4% Senior Notes due 2008, Series
____ (herein called the "Series ____ Securities" and, together with the Series
____ Securities, the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $100,000,000 in
the case of Series A Securities issued on the Issue Date, which may be issued
under an indenture (herein called the "Indenture") dated as of February 18,
1998, by and among the Company, the initial Subsidiary Guarantors named therein
and LaSalle National Bank (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, the Subsidiary Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Securities are subject to redemption, at the option of the Company,
in whole or in part, at any time on or after February 15, 2003, upon not less
than 30 or more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amount) set forth below if redeemed
during the 12-month period beginning on February 15 of the years indicated
below:
Year Redemption Price
---- ----------------
2003 ..................................... 104.875%
2004 ..................................... 103.250%
2005 ..................................... 101.625%
2006 and thereafter ...................... 100.000%
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<PAGE> 36
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), all as provided in the Indenture.
Notwithstanding the foregoing, at any time on or prior to February 15,
2001, up to 35% of the aggregate principal amount of Securities originally
issued will be redeemable on one or more occasions, at the option of the
Company, upon not less than 30 or more than 60 days' notice, from the Net Cash
Proceeds of one or more Equity Offerings, at a Redemption Price equal to
109.750% of the aggregate principal amount of the Securities so redeemed,
together with accrued and unpaid interest to the Redemption Date, provided that
at least 65% of the aggregate principal amount of Securities originally issued
remains Outstanding immediately after such redemption and that such redemption
occurs within 60 days following the closing of any such Equity Offering.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Series __ Security in part only, a new Series __ Security or Securities for
the unredeemed or unpurchased portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund obligations.
Upon the occurrence of a Change of Control of the Company and a
corresponding Rating Decline, and subject to certain conditions and limitations
provided in the Indenture, the Company will be obligated to make an offer to
purchase all of the then Outstanding Securities, and will purchase, on a
Business Day not more than 60 nor less than 30 days following the date of a
Change of Control Offer, all of the then Outstanding Securities validly tendered
and not withdrawn at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date, all as provided in the Indenture.
In the event of Asset Sales, under certain circumstances, the Company
will be obligated to make a Net Proceeds Offer to purchase all or a specified
portion of each Holder's Securities at a purchase price equal to 100% of the
principal amount of the Securities, plus accrued and unpaid interest, if any, to
the Net Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (i)
failure to pay principal or premium, if any, upon maturity, redemption or
otherwise (including pursuant to a Change of Control Offer or a Net Proceeds
Offer); (ii) default for 30 days in payment of interest on any of the
Securities; (iii) default in the performance or breach of provisions relating to
mergers, consolidations and sales of all or substantially all assets or the
failure to make or consummate a Change of Control Offer or a Net Proceeds Offer;
(iv) failure for 45 days after notice to comply with any other covenants in the
Indenture, any Subsidiary Guarantee or the Securities; (v) certain payment
defaults under, and the acceleration prior to the maturity of, certain
Indebtedness of the Company or any
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<PAGE> 37
Subsidiary Guarantor or any other Restricted Subsidiary in an aggregate
principal amount in excess of $5,000,000; (vi) the failure of any Subsidiary
Guarantee of any Subsidiary Guarantor that is a Significant Subsidiary to be in
full force and effect (except as permitted by the Indenture); (vii) certain
final judgments or orders against the Company or any Subsidiary Guarantor or any
other Restricted Subsidiary in an aggregate amount of more than $5,000,000 over
the coverage under applicable insurance policies which remain unsatisfied and
either become subject to commencement of enforcement proceedings or remain
unstayed for a period of 60 days; and (viii) certain events of bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary. If
any Event of Default occurs and is continuing, the Trustee or the holders of at
least 25% in aggregate principal amount of the Outstanding Securities may
declare the principal of, premium, if any, and accrued and unpaid interest on
all the Securities to be due and payable immediately, except that (i) in the
case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary, the
principal amount of the Securities will become due and payable immediately
without further action or notice, and (ii) in the case of an Event of Default
which relates to certain payment defaults or acceleration with respect to
certain Indebtedness, such Event of Default and any consequential acceleration
of the Securities shall be automatically rescinded if the Indebtedness that is
the subject of such Event of Default has been repaid, or if the default relating
to such Indebtedness is waived or cured and if such Indebtedness has been
accelerated, then the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness (provided, in each case, that such
repayment, waiver, cure or rescission is effected within a period of 10 days
from the continuation of such default beyond the applicable grace period or the
occurrence of such acceleration), so long as such rescission does not conflict
with any judgment or decree. No Holder may pursue any remedy under the Indenture
unless the Trustee shall have failed to act after notice from such Holder of an
Event of Default and written request by Holders of at least 25% in aggregate
principal amount of the Outstanding Securities, and the offer to the Trustee of
indemnity reasonably satisfactory to it; however, such provision does not affect
the right to sue for enforcement of any overdue payment on a Security by the
Holder thereof. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the Outstanding Securities may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders
notice of any continuing default (except default in payment of principal,
premium or interest) if it determines in good faith that withholding the notice
is in the interest of the Holders. The Company is required to file annual and
quarterly reports with the Trustee as to the absence or existence of defaults.
The Indenture contains provisions for (i) defeasance at any time of the
entire indebtedness of the Company on this Series ____ Security and (ii)
discharge from certain restrictive covenants and the related Defaults and Events
of Default, upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Series ____ Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Subsidiary Guarantors and the rights of the Holders under the
Indenture at any time by the Company, the Subsidiary Guarantors and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain
30
<PAGE> 38
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Series ____ Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Series ____ Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Series ____ Security. Without the consent of any Holder, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, to qualify or
maintain the qualification of the Indenture under the Trust Indenture Act, to
add or release any Subsidiary Guarantor pursuant to the Indenture and to make
certain other specified changes and other changes that do not materially
adversely affect the interests of any Holder in any material respect.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Series ____ Security at the times, place, and rate, and in
the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Series ____ Security is registerable on the
Security Register of the Company, upon surrender of this Series ____ Security
for registration of transfer at the office or agency of the Company maintained
for such purpose duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Series ____ Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Series ____ Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Series ____ Securities are exchangeable for a like aggregate principal
amount of Series ____ Securities of a different authorized denomination, as
requested by the Holder surrendering the same.
[If a Series A Security--At the option of the Holders thereof, the
Series A Securities may be exchanged, pursuant to a Registration Rights
Agreement, for a like aggregate principal amount of Series B Securities.]
No service charge shall be made for any registration of transfer or
exchange of Series ____ Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
A director, officer, employee, incorporator, stockholder or Affiliate
of the Company or any Subsidiary Guarantor, as such, past, present or future
shall not have any personal liability under this Series ____ Security or any
other Security or the Indenture solely arising by reason of his or its status as
such director, officer, employee, incorporator, stockholder or Affiliate, or any
liability for any obligations of the Company or any Subsidiary Guarantor under
the Securities or the Indenture or for any claim solely based on, in respect of,
or by reason of such obligations or their creation. Each Holder, by accepting
this Series ____ Security with the notation of Subsidiary Guarantee endorsed
31
<PAGE> 39
hereon, waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of this Series ____ Security with the
notation of Subsidiary Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name this Series
____ Security is registered as the owner hereof for all purposes, whether or not
this Security is overdue, and neither the Company, the Subsidiary Guarantors,
the Trustee nor any agent shall be affected by notice to the contrary.
All terms used in this Series ____ Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. The Company
will furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to the Company at 16850 Park Row, Houston, Texas
77084, Attention: Chief Financial Officer (or such other address as the Company
may have furnished in writing to the Trustee).
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Series ____ Securities as a convenience to the Holders thereof.
No representation is made as to the accuracy of such numbers as printed on the
Series ____ Securities and reliance may be placed only on the other identifying
information printed hereon.
Interest on this Series ____ Security shall be computed on the basis of
a 360-day year comprised of twelve 30-day months.
This Series ____ Security shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
law principles.
Section 2.4 Form of Notation Relating to Subsidiary Guarantees.
--------------------------------------------------
The form of notation to be set forth on each Security relating to the
Subsidiary Guarantees shall be in substantially the following form:
SUBSIDIARY GUARANTEES
Subject to the limitations set forth in the Indenture, the initial
Subsidiary Guarantors and, if any, all additional Subsidiary Guarantors (as
defined in the Indenture referred to in the Series ____ Security upon which this
notation is endorsed and each being hereinafter referred to as a "Subsidiary
Guarantor," which term includes any additional or successor Subsidiary Guarantor
under the Indenture) have, jointly and severally, unconditionally guaranteed (a)
the due and punctual payment of the principal (and premium, if any) of and
interest on the Securities, whether at maturity, acceleration, redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and interest on the Securities, if any, to the degree permitted by applicable
law now or at any time hereafter in force (in all instances, including
post-petition interest in any proceeding under any bankruptcy law), (c) the due
and punctual performance of all other obligations of the Company to the Holders
or the Trustee, all in accordance with the terms set forth in the Indenture,
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and (d) in case of any extension of time of payment or renewal of any Securities
or any of such other obligations, the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at Stated Maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
No stockholder, officer, director, employee, incorporator or Affiliate
as such, past, present or future, of any Subsidiary Guarantor shall have any
personal liability under its Subsidiary Guarantee by reason of his or its status
as such stockholder, officer, director, employee, incorporator or Affiliate, or
any liability for any obligations of any Subsidiary Guarantor under the
Securities or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation.
Any Subsidiary Guarantor may be released from its Subsidiary Guarantee
upon the terms and subject to the conditions provided in the Indenture.
All terms used in this notation of Subsidiary Guarantee which are
defined in the Indenture referred to in this Series ____ Security upon which
this notation of Subsidiary Guarantees is endorsed shall have the meanings
assigned to them in such Indenture.
The Subsidiary Guarantees shall be binding upon the Subsidiary
Guarantors and shall inure to the benefit of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee
respecting the Series _____ Security upon which the foregoing Subsidiary
Guarantees are noted, the rights and privileges herein conferred upon that party
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
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<PAGE> 41
The Subsidiary Guarantees shall not be valid or obligatory for any
purpose until the certificate of authentication on the Series ____ Security upon
which the foregoing Subsidiary Guarantees are noted shall have been executed by
the Trustee under the Indenture by the manual signature of one of its authorized
signatories.
[SUBSIDIARY GUARANTORS]
By:_____________________________
President
Section 2.5 Form of Trustee's Certificate of Authentication.
------------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series ____ Securities referred to in the within
mentioned Indenture.
Dated: __________________________ LaSalle National Bank,
Trustee
By:________________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.
---------------
The aggregate principal amount of Series A Securities which may be
authenticated and delivered under this Indenture for original issue is limited
to (i) $100,000,000 of Series A Securities for original issue on the Issue Date
(the "Original Securities") and (ii) such additional principal amounts of Series
A Securities for original issue after the Issue Date as may be set forth in a
Company Order as provided in Section 3.3 hereof, and the aggregate principal
amount of Series B Securities which may be authenticated and delivered under
this Indenture for original issue is limited to (i) $100,000,000 of Series B
Securities for issue only in exchange for a like principal amount of Original
Securities and (ii) such additional principal amounts of Series B Securities
from time to time for issue only in exchange for a like principal amount of
other Series A Securities, in each case as set forth in a Company Order as
provided in Section 3.3 hereof. The aggregate principal amount
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<PAGE> 42
of Securities Outstanding at any one time may not exceed $100,000,000, plus any
additional principal amounts issued pursuant to this paragraph, except as
provided in Section 3.7 hereof.
The Series A Securities shall be known and designated as the "9 3/4%
Senior Notes due 2008, Series A" of the Company. Their Stated Maturity shall be
February 15, 2008, and they shall bear interest at the rate of 9 3/4% per annum
from February 18, 1998, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on February 15
and August 15 in each year, commencing, in the case of the Original Securities,
August 15, 1998, and at said Stated Maturity, until the principal thereof is
paid or duly provided for.
The Series B Securities shall be known and designated as the "9 3/4%
Senior Notes due 2008, Series B" of the Company. Their Stated Maturity shall be
February 15, 2008, and they shall bear interest at the rate of 9 3/4% per annum
from the date of original issuance of the Series B Securities, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, payable semiannually on February 15 and August 15 in each year, commencing
on the first February 15 or August 15 following the original issuance of the
Series B Securities, and at said Stated Maturity, until the principal thereof is
paid or duly provided for.
Upon the occurrence of a Registration Default, the interest rate on
Transfer Restricted Securities shall increase ("Additional Interest"), with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, by 0.50% per annum and shall increase by an additional
0.50% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of 2.0% per annum
with respect to all Registration Defaults. Following the cure of a Registration
Default, the accrual of Additional Interest with respect to such Registration
Default shall cease and upon the cure of all Registration Defaults the interest
rate shall revert to the original rate. Any Additional Interest due on any
Security shall be payable on the appropriate Interest Payment Date to the Holder
entitled to receive the interest payment to be made on such date. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the date of the applicable Registration Default.
Accrued but unpaid interest on any Series A Security that is exchanged
for a Series B Security pursuant to the Registration Rights Agreement shall be
paid on or before the first Interest Payment Date on the Series B Securities.
The Series A Securities and the Series B Securities shall be considered
collectively to be a single class for all purposes of this Indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York; provided, however, that, at the option
of the Company, interest may be paid on Physical Securities on or before the due
date (i) by check mailed to addresses of the Persons entitled thereto as such
addresses shall appear on the Security Register, or (ii) with respect to any
Holder owning Securities in the principal amount of $500,000 or more, by wire
transfer to an account maintained by the Holder located in the United States, as
specified in a written notice to the Trustee by any such Holder requesting
payment by wire transfer and specifying the account to which transfer is
requested.
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<PAGE> 43
As provided in the Registration Rights Agreement and subject to the
limitations set forth therein, at the option of the Holders, the Series A
Securities shall be exchangeable for Series B Securities of like aggregate
principal amount pursuant to an Exchange Offer.
The Securities shall be redeemable as provided in Article XI hereof.
The Securities shall be subject to defeasance at the option of the
Company as provided in Article XII hereof.
The Securities shall be guaranteed by the Subsidiary Guarantors as
provided in Article XIII hereof.
Section 3.2 Denominations.
--------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
-----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or a Vice President of the Company, under
its corporate seal affixed thereto or reproduced thereon and attested by its
Secretary or an Assistant Secretary of the Company. The signature of any of
these officers on the Securities may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any one or more times after the execution and delivery of this
Indenture, the Company may deliver Series A Securities executed by the Company
and having the notations of Subsidiary Guarantees executed by the Subsidiary
Guarantors to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Series A Securities, and the Trustee in
accordance with such Company Order shall authenticate and deliver such Series A
Securities with the notations of Subsidiary Guarantees thereon as provided in
this Indenture. Such Company Order shall specify the principal amount of the
Series A Securities to be authenticated and the date on which the original issue
of Series A Securities is to be authenticated. In addition, on or prior to any
Exchange Offer Consummation Date, the Company may deliver Series B Securities
executed by the Company and having the notations of Subsidiary Guarantees
executed by the Subsidiary Guarantors to the Trustee for authentication,
together with a Company Order for the authentication and delivery of such Series
B Securities, and the Trustee in accordance with such Company Order shall
authenticate and deliver such Series B Securities with the notations of
Subsidiary Guarantees thereon as provided in this Indenture. Such Company Order
shall specify the principal amount of the Series B Securities to be
authenticated and the date on which the Series B Securities are to be exchanged
for an equal principal amount of Series A Securities.
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<PAGE> 44
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with Article VIII
hereof, shall be consolidated or merged with or into any other Person or shall
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its Properties to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a sale, conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII hereof,
any of the Securities authenticated or delivered prior to such sale,
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person be exchanged for other
Securities executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Securities as specified in such request for the purpose
of such exchange. If Securities shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
Section 3.4 Temporary Securities.
---------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and having
the notations of Subsidiary Guarantees thereon and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities and notations of Subsidiary Guarantees may determine,
as conclusively evidenced by their execution of such Securities and notations of
Subsidiary Guarantees.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2
hereof, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of like tenor and of authorized
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denominations having the notations of Subsidiary Guarantees thereon. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
Section 3.5 Registration of Transfer and Exchange.
--------------------------------------
The Company shall cause to be kept a register (the "Security Register")
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Security Register shall be in written form or any other form
capable of being converted into written form within a reasonable time. At all
reasonable times and during normal business hours, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Subject to the provisions of this Section 3.5 and Section 3.6 hereof,
upon surrender for registration of transfer of any Security at the office or
agency of the Company designated pursuant to Section 10.2 hereof, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of like
tenor and of any authorized denomination and of a like aggregate principal
amount, each such Security having the notation of Subsidiary Guarantees thereon.
Furthermore, any Holder of a Global Security shall, by acceptance of
such Global Security, be deemed to have agreed that transfers of beneficial
interests in such Global Security may be effected only through a book-entry
system maintained by the Depository (or its agent), and that ownership of a
beneficial interest in a Global Security shall be required to be reflected in a
book entry.
At the option of any Holder, Securities may be exchanged for other
Securities of like tenor and of any authorized denomination and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
the office or agency of the Company designated pursuant to Section 10.2 hereof.
Further, at the option of any Holder Series A Securities may be exchanged,
pursuant to an Exchange Offer and subject to the terms and conditions thereof,
for Series B Securities of like aggregate principal amount, upon surrender of
the Series A Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, the
Subsidiary Guarantors shall execute notations of Subsidiary Guarantees on, and
the Trustee shall authenticate and deliver, the Securities which the Holder
making the exchange is entitled to receive.
All Securities and the Subsidiary Guarantees noted thereon issued upon
any registration of transfer or exchange of Securities shall be the valid
obligations of the Company and the respective Subsidiary Guarantors, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing. As a special
condition to
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registration of transfer or exchange of any Transfer Restricted Securities
involving removal of a Private Placement Legend (other than pursuant to an
effective registration statement under the Securities Act), the Holder
requesting such registration of transfer or exchange shall furnish the Opinion
of Counsel called for by Section 3.12 hereof. The following additional special
conditions shall apply to the indicated types of transfers or exchanges:
(a) Respecting any requested registration of transfer or exchange of
Transfer Restricted Securities in the form of Physical Securities, such Physical
Securities shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents, as applicable:
(1) if such Physical Security is being delivered to the
Security Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in substantially the form of Exhibit B hereto); or
(2) if such Physical Security is being transferred to a
Qualified Institutional Buyer in accordance with Rule 144A under the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto); or
(3) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification to that
effect (in substantially the form of Exhibit B hereto), a Transferee
Certificate for Institutional Accredited Investors in the form of
Exhibit C hereto and an Opinion of Counsel to the effect that such
transfer is in compliance with the Securities Act; or
(4) if such Physical Security is being transferred in reliance
on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit B hereto), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit D hereto
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
(5) if such Physical Security is being transferred in reliance
on Rule 144, delivery of a certification to that effect (substantially
in the form of Exhibit B hereto); or
(6) if such Physical Security is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto) and an Opinion of Counsel to the effect that
such transfer is in compliance with the Securities Act.
(b) Respecting any requested exchange of a Physical Security for a
beneficial interest in a Global Security, such Physical Security shall be
accompanied, in the sole discretion of the Company, by the following additional
information and documents:
(1) if such Physical Security or Global Security is a Transfer
Restricted Security, a certification, substantially in the form of
Exhibit B hereto, that such Physical Security is being transferred to a
Qualified Institutional Buyer; and
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<PAGE> 47
(2) written instructions directing the Security Registrar to
make, or to direct the Depository to make, an endorsement on the Global
Security to reflect an increase in the aggregate amount of the
Securities represented by the Global Security;
whereupon the Security Registrar shall cancel such Physical Security and cause,
or direct the Depository to cause, in accordance with the standing instructions
and procedures existing between the Depository and the Security Registrar, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Security is then outstanding, the Company
shall issue and the Trustee shall upon Company Order authenticate a new Global
Security in the appropriate amount.
(c) Any Person having a beneficial interest in a Global Security may
upon request to the Security Registrar exchange such beneficial interest for a
Physical Security. Upon receipt by the Security Registrar of written
instructions (or such other form of instructions as is customary for the
Depository) from the Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Security and upon receipt by the Security
Registrar of a written order or such other form of instructions as is customary
for the Depository or the Person designated by the Depository as having such a
beneficial interest containing registration instructions and, in the case of any
such transfer or exchange of a beneficial interest in Transfer Restricted
Securities, the following additional information and documents:
(1) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner, a
certification from such Person to that effect (in substantially the
form of Exhibit B hereto); or
(2) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule 144A under the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto); or
(3) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a certification to that
effect (substantially in the form of Exhibit B hereto), a Transferee
Certificate for Institutional Accredited Investors in the form of
Exhibit C hereto and an Opinion of Counsel to the effect that such
transfer is in compliance with the Securities Act; or
(4) if such beneficial interest is being transferred in
reliance on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit B hereto), a Transferor
Certificate for Regulation S Transfers in the form of Exhibit D hereto
and an Opinion of Counsel to the effect that such transfer is in
compliance with the Securities Act; or
(5) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of Exhibit B
hereto); or
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<PAGE> 48
(6) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B hereto) and an Opinion of Counsel to the effect that
such transfer is in compliance with the Securities Act,
then the Security Registrar will cause, in accordance with the standing
instructions and procedures existing between the Depository and the Security
Registrar, the aggregate principal amount of the Global Security to be reduced
and, following such reduction, the Company will execute and, upon receipt of a
Company Order, the Trustee will authenticate and deliver to the transferee a
Physical Security. Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 3.5(c) shall be registered in such
names and in such authorized denominations as the Depository, pursuant to
instructions from Agent Members or otherwise, shall instruct the Security
Registrar in writing. The Security Registrar shall deliver such Physical
Securities to the Persons in whose names such Physical Securities are so
registered.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to the Exchange Offer or Section 3.4, 9.6 or 11.8 hereof
not involving any transfer.
Neither the Trustee, the Security Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Physical
Security during a period beginning at the opening of business 15 days before the
mailing of a notice of redemption of Securities selected for redemption under
Section 11.4 hereof and ending at the close of business on the day of such
mailing of the relevant notice of redemption, or (ii) to register the transfer
of or exchange any Physical Security so selected for redemption in whole or in
part, except the unredeemed portion of any such Security being redeemed in part.
Section 3.6 Book-Entry Provisions for Global Securities.
--------------------------------------------
Each Global Security shall be (i) registered in the name of the
Depository for such Global Security or the nominee of such Depository, (ii)
delivered to the Trustee as custodian for such Depository and (iii) bear the
legend set forth in Exhibit A hereto.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Security, and the Depository may be treated by the Company, the
Subsidiary Guarantors, the Trustee and any agent of the Company, the Subsidiary
Guarantors or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Subsidiary Guarantors, the Trustee or any agent of the Company,
the Subsidiary Guarantors or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or shall
impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a holder of any
Security.
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Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global Security
may be transferred or exchanged for Physical Securities in accordance with the
rules and procedures of the Depository and the provisions of Section 3.5 hereof.
In addition, Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in a Global Security if, and only if,
either (1) the Depository notifies the Company that it is unwilling or unable to
continue as depositary for the Global Security and a successor depositary is not
appointed by the Company within 90 days of such notice, or (2) the Company
determines not to have the Securities represented by the Global Security and
notifies the Depository and the Security Registrar thereof.
In connection with the transfer of an entire Global Security to
beneficial owners pursuant to this Section, the Global Security shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall upon Company Order authenticate and deliver, to
each beneficial owner identified by the Depository, in exchange for its
beneficial interest in the Global Security, an equal aggregate principal amount
of Physical Securities of authorized denominations.
The Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities.
-------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, the Subsidiary Guarantors and the Trustee such security or indemnity as
may be required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute, the Subsidiary Guarantors shall
execute the notation of Subsidiary Guarantees, and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a new
Security of like tenor and principal amount, having the notation of Subsidiary
Guarantees thereon, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and
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the respective Subsidiary Guarantors, whether or not the mutilated, destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities of like tenor duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.8 Payment of Interest; Interest Rights Preserved.
-----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
10.2 hereof.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the degree permitted by
applicable law now or at any time hereafter in force) interest on such defaulted
interest at the rate borne by the Securities (such defaulted interest in all
instances, including post-petition interest in any proceeding under any
bankruptcy law, and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided
in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, and such
money when deposited shall be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 14.5 hereof, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
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(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.9 Persons Deemed Owners.
----------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Subsidiary Guarantors, the Security Registrar, the
Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Section 3.8 hereof) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Subsidiary Guarantors, the Security Registrar, the
Trustee or any agent of the Company, the Subsidiary Guarantors or the Trustee
shall be affected by notice to the contrary.
Section 3.10 Cancellation.
-------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order or in accordance
with the Trustee's usual practice; provided, however, that the Trustee shall not
be required to destroy canceled Securities.
Section 3.11 Computation of Interest.
------------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Section 3.12 Private Placement Legend.
-------------------------
(a) All Series A Securities originally issued hereunder shall bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
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<PAGE> 52
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (ii) such Security has been sold pursuant to an effective registration
statement under the Securities Act. Upon the transfer, exchange or replacement
of Securities not bearing the Private Placement Legend, the Security Registrar
shall deliver Securities that do not bear the Private Placement Legend.
(b) By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
----------------------------------------
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities, as expressly provided for in this Indenture) as to all Outstanding
Securities, and the Trustee, at the expense of the Company, shall, upon payment
of all amounts due the Trustee under Section 6.6 hereof, execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(a) either
(1) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been mutilated, destroyed, lost
or stolen and which have been replaced or paid as provided in Section
3.7 hereof and (ii) Securities for whose payment money or United States
governmental obligations of the type described in clause (i) of the
definition of Cash Equivalents have theretofore been deposited in trust
with the Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3 hereof) have been delivered to
the Trustee for cancellation, or
(2) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company,
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<PAGE> 53
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be, together with instructions from the Company
irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be;
(b) the Company has paid all other sums then due and payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state
that all conditions precedent herein relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6 hereof and, if money
shall have been deposited with the Trustee pursuant to this Section, the
obligations of the Trustee under Section 4.2 hereof and the last paragraph of
Section 10.3 hereof shall survive.
Section 4.2 Application of Trust Money.
---------------------------
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money deposited with the Trustee pursuant to Section 4.1 hereof shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.
ARTICLE V
REMEDIES
Section 5.1 Events of Default.
------------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of the principal of or premium, if any, on
any of the Securities when the same becomes due and payable, whether such
payment is due at Stated Maturity, upon redemption, upon repurchase pursuant to
a Change of Control Offer or a Net Proceeds Offer, upon acceleration or
otherwise; or
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<PAGE> 54
(b) default in the payment of any installment of interest on any of the
Securities, when it becomes due and payable, and the continuance of such default
for a period of 30 days; or
(c) default in the performance or breach of the provisions of Article
VIII hereof, the failure to make or consummate a Change of Control Offer in
accordance with the provisions of Section 10.16 or the failure to make or
consummate a Net Proceeds Offer in accordance with the provisions of Section
10.17; or
(d) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Securities, any
Subsidiary Guarantee or this Indenture (other than a default specified in
subparagraph (a), (b) or (c) above) for a period of 45 days after written notice
of such failure stating that it is a "notice of default" hereunder and requiring
the Company or such Subsidiary Guarantor, as the case may be, to remedy the same
shall have been given (x) to the Company by the Trustee or (y) to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount of
the Securities then Outstanding; or
(e) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or interest
on any Indebtedness of the Company (other than the Securities) or any Subsidiary
Guarantor or any other Restricted Subsidiary for money borrowed when due, or any
other default resulting in acceleration of any Indebtedness of the Company or
any Subsidiary Guarantor or any other Restricted Subsidiary for money borrowed,
provided that the aggregate principal amount of such Indebtedness shall exceed
$5,000,000; or
(f) any Subsidiary Guarantee of any Subsidiary Guarantor that is a
Significant Subsidiary shall for any reason cease to be, or be asserted by the
Company or any such Subsidiary Guarantor, as applicable, not to be, in full
force and effect (except pursuant to the release of any such Subsidiary
Guarantee in accordance with this Indenture); or
(g) final judgments or orders rendered against the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary that are unsatisfied and
that require the payment in money, either individually or in an aggregate
amount, that is more than $5,000,000 over the coverage under applicable
insurance policies and either (A) commencement by any creditor of an enforcement
proceeding upon such judgment (other than a judgment that is stayed by reason of
pending appeal or otherwise) or (B) the occurrence of a 60-day period during
which a stay of such judgment or order, by reason of pending appeal or
otherwise, was not in effect; or
(h) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or of a Significant
Subsidiary (other than an Unrestricted Subsidiary) in an involuntary case or
proceeding under the Federal Bankruptcy Code or any other applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or (B)
adjudging the Company or any such Significant Subsidiary bankrupt or insolvent,
or approving a petition seeking reorganization, arrangement, adjustment or
composition of the Company or any Significant Subsidiary (other than an
Unrestricted Subsidiary) under the Federal Bankruptcy Code or any other
applicable federal or state law, or appointing under any such law a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any such Significant Subsidiary or of a substantial part of
its consolidated assets, or ordering the winding up
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or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a period
of 60 consecutive days; or
(i) the commencement by the Company or any Significant Subsidiary
(other than an Unrestricted Subsidiary) of a voluntary case or proceeding under
the Federal Bankruptcy Code or any other applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or proceeding
to be adjudicated bankrupt or insolvent, or the consent by the Company or any
Significant Subsidiary (other than an Unrestricted Subsidiary) to the entry of a
decree or order for relief in respect thereof in an involuntary case or
proceeding under the Federal Bankruptcy Code or any other applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Company or any such Significant Subsidiary of a petition or
consent seeking reorganization or relief under any applicable federal or state
law, or the consent by it under any such law to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or any such Significant Subsidiary or of any substantial part of its
consolidated assets, or the making by it of an assignment for the benefit of
creditors under any such law, or the admission by it in writing of its inability
to pay its debts generally as they become due or taking of corporate action by
the Company or any such Significant Subsidiary in furtherance of any such
action.
Section 5.2 Acceleration of Maturity; Rescission and Annulment.
---------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 5.1(h) or (i) hereof) occurs and is continuing, the Trustee, by written
notice to the Company, or the Holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding, by written notice to the
Trustee and the Company may, and the Trustee upon the request of the Holders of
not less than 25% in aggregate principal amount of the Outstanding Securities
shall, by a notice in writing to the Company, declare all unpaid principal of,
premium, if any, and accrued and unpaid interest on all the Securities to be due
and payable immediately, upon which declaration all amounts payable in respect
of the Securities shall be immediately due and payable. If an Event of Default
specified in Section 5.1(h) or (i) hereof occurs and is continuing, the amounts
described above shall become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Securities Outstanding, by written notice
to the Company, the Subsidiary Guarantors and the Trustee, may rescind and annul
such declaration and its consequences if
(a) the Company or any Subsidiary Guarantor has paid or deposited with
the Trustee a sum sufficient to pay,
(1) all overdue interest on all Outstanding Securities,
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(2) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which have become due otherwise than by such
declaration of acceleration, including any Securities required to have
been purchased on a Change of Control Date or a Net Proceeds Payment
Date pursuant to a Change of Control Offer or a Net Proceeds Offer, as
applicable, and interest on such unpaid principal at the rate borne by
the Securities,
(3) to the degree that payment of such interest is permitted
by applicable law now or at any time hereafter in force, interest on
overdue interest and overdue principal at the rate borne by the
Securities (without duplication of any amount paid or deposited
pursuant to clauses (1) and (2) above), and
(4) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction as certified to the Trustee by the Company; and
(c) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities that have become
due solely by such declaration of acceleration, have been cured or waived as
provided in Section 5.13 hereof.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in
Section 5.1(e) hereof shall have occurred and be continuing, such Event of
Default and any consequential acceleration of the Securities shall be
automatically rescinded if the Indebtedness that is the subject of such Event of
Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness has been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness (provided, in each case, that such repayment, waiver, cure or
rescission is effected within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration), and written notice of such repayment, or cure or waiver and
rescission, as the case may be, shall have been given to the Trustee by the
Company and countersigned by the holders of such Indebtedness or a trustee,
fiduciary or agent for such holders or other evidence satisfactory to the
Trustee of such events is provided to the Trustee, within 30 days after any such
acceleration in respect of the Securities, and so long as such rescission of any
such acceleration of the Securities does not conflict with any judgment or
decree as certified to the Trustee by the Company.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
-------------------------------------------------------
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
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(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof or with respect to any Security
required to have been purchased by the Company on the Change of Control Purchase
Date or the Net Proceeds Payment Date pursuant to a Change of Control Offer or
Net Proceeds Offer, as applicable,
then the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest, and
interest on any overdue principal (and premium, if any) and, to the extent that
payment of such interest shall be permitted by applicable law now or at any time
hereafter in force, upon any overdue installment of interest, at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
money adjudged or decreed to be payable in the manner provided by law out of the
Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate suits, actions and judicial proceedings in law or
equity as the Trustee shall deem most effectual for collection of all sums due
in connection with the Securities and to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy as the Trustee shall deem most effectual to protect any
of its rights or the rights of the Holders.
To the fullest extent allowed under applicable law, if for the purpose
of obtaining judgment against the Company in any court it is necessary to
convert the sum due in respect of the principal of, or premium, if any, or
interest on, the Securities of any series (the "Required Currency") into a
currency in which a judgment will be rendered (the "Judgment Currency"), the
rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the Business Day next preceding
that on which final judgment is given. Neither the Company nor the Trustee shall
be liable for any shortfall nor shall it benefit from any windfall in payments
to Holders of Securities under this Section caused by a change in exchange rates
between the time the amount of a judgment against the Company is calculated as
above and the time the Trustee converts the Judgment Currency into the Required
Currency to make payments under this Section to Holders of Securities, but
payment of such judgment shall discharge all amounts owed by the Company on the
claim or claims underlying such judgment.
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Section 5.4 Trustee May File Proofs of Claim.
---------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Securities, their creditors or the Property of the
Company, any Subsidiary Guarantor or of such other obligor, the Trustee
(irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company, the Subsidiary
Guarantors or such other obligor for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents and take any other actions including
participation as a full member of any creditor or other committee as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any money or other Property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.6 hereof regardless of whether such
amounts have been allowed as a claim in any such judicial proceeding.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the Subsidiary Guarantees or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 5.5 Trustee May Enforce Claims Without Possession of
Securities.
-------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
or the Subsidiary Guarantees may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
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Section 5.6 Application of Money Collected.
-------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee under
Section 6.6 hereof;
SECOND: to the payment of the amounts then due and unpaid for
principal of (and premium, if any, on) and interest on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: the balance, if any, to the Company.
Section 5.7 Limitation on Suits.
--------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee indemnity
reasonably acceptable to the Trustee against the costs, expenses and liabilities
to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or more in
aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
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Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest.
----------------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article XII
hereof) and in such Security of the principal of (and premium if any, on) and
(subject to Section 3.8 hereof) interest on, such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
Section 5.9 Restoration of Rights and Remedies.
-----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereunder and all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
Section 5.10 Rights and Remedies Cumulative.
-------------------------------
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 3.7 hereof, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
-----------------------------
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 5.12 Control by Holders.
-------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, provided that
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(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining therein.
Section 5.13 Waiver of Past Defaults.
------------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the Securities
waive any existing Default or Event of Default hereunder and its consequences,
except a Default or Event of Default
(a) in respect of the payment of the principal of (or premium, if any,
on) or interest on any Security, or
(b) in respect of a covenant or provision hereof which under Article IX
hereof cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected thereby.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend to
any subsequent or other fault or Event of Default or impair any right consequent
thereon.
Section 5.14 Waiver of Stay, Extension or Usury Laws.
----------------------------------------
Each of the Company and the Subsidiary Guarantors covenants (to the
extent that each may lawfully do so) that it will not at any time insist upon,
plead or in any manner whatsoever claim or take the benefit or advantage of, any
stay, extension, or usury law or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any
Subsidiary Guarantor from paying all or any portion of the principal of
(premium, if any, on) or interest on the Securities as contemplated herein, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each of the Company and the Subsidiary
Guarantors hereby expressly waives all benefit or advantage of any such law, and
covenant that they will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
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ARTICLE VI
THE TRUSTEE
Section 6.1 Duties of Trustee.
------------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, and shall be fully protected in so relying, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided, however, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph shall not limit the effect of Section 6.1(b);
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 5.12.
Section 6.2 Certain Rights of Trustee.
--------------------------
Subject to the provisions of Section 6.1 hereof:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
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(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may reasonably see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it in good faith to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture;
and
(i) the Trustee shall not be deemed to have notice or knowledge of any
matter unless a Responsible Officer has actual knowledge thereof or unless
written notice thereof is received by the Trustee at its Corporate Trust Office
and such notice references the Securities generally, the Company or this
Indenture.
The Trustee shall not be required to advance, expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
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Section 6.3 Trustee Not Responsible for Recitals or Issuance of
Securities.
---------------------------------------------------
The recitals contained herein and in the Securities and the notations
of Subsidiary Guarantees thereon, except for the Trustee's certificates of
authentication, shall be taken as the statements of the Company or the
Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture, the Subsidiary Guarantees or the
Securities, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Securities and perform its
obligations hereunder. The Trustee shall not be accountable for the use or
application by the Company of any Securities or the proceeds thereof.
Section 6.4 May Hold Securities.
--------------------
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, the Subsidiary Guarantors or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to TIA Sections 310(b) and 311 in the case of the Trustee, may
otherwise deal with the Company and the Subsidiary Guarantors with the same
rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
Section 6.5 Money Held in Trust.
--------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company or any Subsidiary Guarantor.
Section 6.6 Compensation and Reimbursement.
-------------------------------
The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to the Trustee's wilful misconduct, negligence
or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without wilful misconduct, negligence or bad
faith on its part, (i) arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or (ii) in connection with
enforcing this indemnification provision.
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The obligations of the Company under this Section 6.6 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding. As security for the performance of such obligations of
the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of (and premium, if any, on) or
interest on particular Securities. Such lien shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in paragraph (h) or (i) of Section
5.1 of this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.
Section 6.7 Corporate Trustee Required; Eligibility.
----------------------------------------
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 6.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article. No obligor under the Securities or person
directly or indirectly controlling, controlled by, or under common control with,
such obligor shall serve as Trustee hereunder.
Section 6.8 Conflicting Interests.
----------------------
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act; provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
Section 6.9 Resignation and Removal; Appointment of Successor.
--------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10 hereof.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by Section 6.10 hereof shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the
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resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 6.7
hereof and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in aggregate principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the Company
or the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee. The
evidence of such successorship may, but need not be, evidenced by a supplemental
indenture.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 14.5 hereof. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
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Section 6.10 Acceptance of Appointment by Successor.
---------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of all amounts due
it under Section 6.6 hereof, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all money
and other Property held by such retiring Trustee hereunder. Upon request of any
such successor Trustee, the Company shall execute any and all instruments for
more fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 6.11 Merger, Conversion, Consolidation or Succession to
Business.
--------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities of like tenor or in this Indenture provided;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
Section 6.12 Preferential Collection of Claims Against Company.
--------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
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Section 6.13 Notice of Defaults.
-------------------
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any, on) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Holders' Lists; Holder Communications; Disclosures
Respecting Holders.
--------------------------------------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. Neither the Company, any Subsidiary Guarantor nor the Trustee shall
be under any responsibility with regard to the accuracy of such list. If the
Trustee is not the Security Registrar, the Company shall furnish to the Trustee
semi-annually before each Regular Record Date, and at such other times as the
Trustee may reasonably request in writing, a list, in such form as the Trustee
may reasonably request, as of such date of the names and addresses of the
Holders then known to the Company. The Company and the Trustee shall also
satisfy any other requirements imposed upon each of them by TIA Section 312(a).
Holders may communicate pursuant to Section 312(b) of the TIA with
other Holders with respect to their rights under this Indenture or the
Securities. Every Holder of Securities, by receiving and holding the same,
agrees with the Company, the Subsidiary Guarantors, the Security Registrar and
the Trustee that none of the Company, the Subsidiary Guarantors, the Security
Registrar or the Trustee, or any agent of any of them, shall be held accountable
by reason of the disclosure of any information as to the names and addresses of
the Holders in accordance with TIA Section 312, regardless of the source from
which such information was derived, that each of such Persons shall have the
protection of TIA Section 312(c) and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).
Section 7.2 Reports By Trustee.
-------------------
Within 60 days after February 15 of each year commencing with February
15, 1999, the Trustee shall transmit by mail to the Holders, as their names and
addresses appear in the Security Register, a brief report dated as of such
February 15 in accordance with and to the extent required under TIA Section
313(a). The Trustee shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
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Commencing at the time this Indenture is qualified under the Trust
Indenture Act, a copy of each Trustee's report, at the time of its mailing to
Holders of Securities, shall be mailed to the Company and filed with the
Commission and each stock exchange, if any, on which the Securities are listed.
Section 7.3 Reports by Company.
-------------------
The Company shall:
(a) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
said Sections, then the Company shall file with the Trustee such information,
documents or reports as required pursuant to Section 10.9 hereof;
(b) for so long as any of the Securities remain outstanding the Company
will make available to any prospective purchaser of the Securities or beneficial
owner of the Securities in connection with any sale thereof the information
required by Rule 144A(d)(4) under the Securities Act, until such time as the
Company has either consummated the Exchange Offer for the Transfer Restricted
Securities for securities identical in all material respects which have been
registered under the Securities Act or until such time as the holders thereof
have disposed of such Transfer Restricted Securities pursuant to an effective
registration statement filed by the Company;
(c) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(d) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information, documents and
reports (without exhibits except to the extent required by TIA Section 313(c))
required to be filed by the Company pursuant to paragraph (a) or (b) of this
Section as may be required by rules and regulations prescribed from time to time
by the Commission; and
(e) for so long as PT. Grant Geophysical Indonesia is a Subsidiary
Guarantor the Company will, or will cause PT. Grant Geophysical Indonesia to,
file with the Department of Finance, the Team for the Coordination of the
management of the Offshore Commercial Borrowing (the "PKLN Team") and Bank
Indonesia all initial, periodical and other reports as may be required with
respect to the Guarantee of such Subsidiary Guarantor.
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on Certain Terms.
-----------------------------------------------------
The Company shall not, in any single transaction or a series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
the Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any Person or group of Affiliated Persons, and the Company shall not
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the Properties of the Company
and its Restricted Subsidiaries on a consolidated basis to any other Person or
group of Affiliated Persons, unless at the time and after giving effect thereto:
(a) either (i) if the transaction is a merger or consolidation, the
Company shall be the surviving Person of such merger or consolidation, or (ii)
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which the Properties of the Company or its
Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed,
transferred, leased or otherwise disposed of (any such surviving Person or
transferee Person being called the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case, expressly assume
by a supplemental indenture to this Indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture, and, in each case, this Indenture shall
remain in full force and effect;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries which becomes the obligation of the Company or any of
its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have occurred
and be continuing;
(c) except in the case of the consolidation or merger of any Restricted
Subsidiary with or into the Company, immediately after giving effect to such
transaction or transactions on a pro forma basis, the Consolidated Net Worth of
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or transactions;
(d) except in the case of the consolidation or merger of the Company
with or into a Restricted Subsidiary or any Restricted Subsidiary with or into
the Company or another Restricted Subsidiary, immediately before and immediately
after giving effect to such transaction or transactions on a pro forma basis
(assuming that the transaction or transactions occurred on the first day of the
period of four full fiscal quarters ending immediately prior to the consummation
of such transaction or transactions, with the appropriate adjustments with
respect to the transaction or
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transactions being included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor under this
Indenture) could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) under Section 10.12(a) hereof;
(e) if the Company is not the continuing obligor under this Indenture,
then each Subsidiary Guarantor then in existence, unless it is the Surviving
Entity, shall have by supplemental indenture confirmed that its Subsidiary
Guarantee of the Securities shall apply to the Surviving Entity's obligations
under this Indenture and the Securities; and
(f) the Company (or the Surviving Entity if the Company is not the
continuing obligor under this Indenture) shall have delivered to the Trustee, in
form and substance reasonably satisfactory to the Trustee, (i) an Officers'
Certificate stating that such consolidation, merger, conveyance, transfer, lease
or other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, comply with the requirements
under this Indenture and (ii) an Opinion of Counsel stating that the
requirements of Section 8.1(a) have been satisfied.
Section 8.2 Successor Substituted.
----------------------
Upon any consolidation of the Company with or merger of the Company
into any other corporation or any sale, assignment, lease, conveyance, transfer
or other disposition of all or substantially all of the Properties of the
Company and its Restricted Subsidiaries on a consolidated basis in accordance
with Section 8.1 hereof, in which the Company is not the continuing corporation,
the Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such Surviving Entity had been named as the Company herein, and in the
event of any such sale, assignment, lease, conveyance, transfer or other
disposition, the Company (which term shall for this purpose mean the Person
named as the "Company" in the first paragraph of this Indenture or any successor
Person which shall theretofore become such in the manner described in Section
8.1 hereof) shall be discharged of all obligations and covenants under this
Indenture and the Securities, and the Company may be dissolved and liquidated
and such dissolution and liquidation shall not cause a Change of Control under
clause (e) of the definition thereof to occur unless the sale, assignment,
lease, conveyance, transfer or other disposition of all or substantially all of
the Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any Person otherwise results in a Change of Control.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders.
---------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, each of the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee upon
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Company Request, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(b) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company; or
(c) to comply with any requirement of the SEC in connection with
qualifying this Indenture under the TIA or maintaining such qualification
thereafter; or
(d) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee pursuant to the requirements of Sections 6.9 and 6.10
hereof; or
(e) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture provided that such action shall not materially adversely
affect the rights of any Holder; or
(f) to secure the Securities or the Subsidiary Guarantees pursuant to
the requirements of Section 10.15 hereof or otherwise; or
(g) to add any Restricted Subsidiary as an additional Subsidiary
Guarantor as provided in Section 10.13(a) hereof or to evidence the succession
of another Person to any Subsidiary Guarantor pursuant to Section 13.2(b) hereof
and the assumption by any such successor of the covenants and agreements of such
Subsidiary Guarantor contained herein, in the Securities and in the Subsidiary
Guarantee of such Subsidiary Guarantor; or
(h) to release a Subsidiary Guarantor from its Subsidiary Guarantee
pursuant to Section 13.3 hereof; or
(i) to provide for uncertificated Securities in addition to or in place
of certificated Securities; or
(j) to provide for a global note representing Securities offered and
sold in compliance with Regulation S under the Securities Act in addition to or
in place of certificated Securities.
Section 9.2 Supplemental Indentures with Consent of Holders.
------------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, each of the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee upon Company Request may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner
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the rights of the Holders under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the rate
of interest thereon or any premium thereon, or change the coin or currency in
which principal of any Security or any premium or the interest on any Security
is payable, or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date); or
(b) reduce the percentage of aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder or the consequences of a default provided for in this
Indenture; or
(c) modify any of the provisions of this Section or Sections 5.13 and
10.20 hereof, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby;
(d) change the ranking of the Securities or the Subsidiary Guarantees
in a manner adverse to the Holders or expressly subordinate in right of payment
the Securities or the Subsidiary Guarantees to any other Indebtedness; or
(e) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control, or to
make and consummate a Net Proceeds Offer with respect to any Asset Sale, or
modify any of the provisions or definitions with respect thereto.
It shall not be necessary for any Act of the Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3 Execution of Supplemental Indentures.
-------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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Section 9.4 Effect of Supplemental Indentures.
----------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5 Conformity with Trust Indenture Act.
------------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6 Reference in Securities to Supplemental Indentures.
---------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company, with the notations of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors, and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of like tenor.
Section 9.7 Notice of Supplemental Indentures and Waivers.
----------------------------------------------
Promptly after (i) the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2 hereof or (ii)
a waiver under Section 5.13 or 10.20 hereof becomes effective, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 14.5 hereof, setting forth in general terms the
substance of such supplemental indenture or waiver, as the case may be.
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of (and premium, if any, on) and
interest (including Additional Interest) on the Securities in accordance with
the terms of the Securities and this Indenture. The Company shall notify the
Trustee and any Paying Agent immediately upon the occurrence of any Registration
Default and, with respect to Additional Interest payments pursuant to Section 5
of the Registration Rights Agreement, the Company shall notify the Trustee and
any Paying Agent prior to any Interest Payment Date of the amount of Additional
Interest payable to each Holder.
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Section 10.2 Maintenance of Office or Agency.
--------------------------------
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities, the Subsidiary Guarantees and this
Indenture may be served. The Corporate Trust Office shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the aforementioned office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind any such designation.
Further, if at any time there shall be no such office or agency in The City of
New York where the Securities may be presented or surrendered for payment, the
Company shall forthwith designate and maintain such an office or agency in The
City of New York, in order that the Securities shall at all times be payable in
The City of New York. The Company will give prompt written notice to the Trustee
of any such designation or rescission and any change in the location of any such
other office or agency.
Section 10.3 Money for Security Payments to Be Held in Trust.
------------------------------------------------
If the Company shall at any time act as its own Paying Agent, it shall,
on or before 11:00 a.m., Eastern time, on each due date of the principal of (and
premium, if any, on) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sum
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will on or before 11:00 a.m., Eastern time, on each due date of
the principal of (and premium, if any, on), or interest on, any Securities,
deposit with a Paying Agent immediately available funds sufficient to pay the
principal (and premium, if any) or interest so becoming due, such funds to be
held in trust for the benefit of the Persons entitled to such principal, premium
or interest, and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
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(a) hold all sums held by it for the payment of the principal of (and
premium, if any, on) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Subject to applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium, if any, on) or interest
on any Security and remaining unclaimed for two years after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 10.4 Corporate Existence.
--------------------
Except as expressly permitted by Article VIII hereof, Section 10.17
hereof or other provisions of this Indenture, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such existence of its Restricted
Subsidiaries, rights or franchises, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole, and that the loss thereof is not disadvantageous in any material
respect to the Holders.
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Section 10.5 Payment of Taxes; Maintenance of Properties;
Insurance.
--------------------------------------------
The Company shall or, as applicable, shall cause its Restricted
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the Property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made in accordance with GAAP.
The Company shall or, as applicable, shall cause its Restricted
Subsidiaries to, cause all material Properties owned by the Company or any
Restricted Subsidiary and used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted), all as in
the judgment of the Company or such Restricted Subsidiary may be necessary so
that its business may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company or any
Restricted Subsidiary from discontinuing the maintenance of any of such
Properties if such discontinuance is, in the judgment of the Company or such
Restricted Subsidiary, as the case may be, desirable in the conduct of the
business of the Company or such Restricted Subsidiary and not disadvantageous in
any material respect to the Holders. Notwithstanding the foregoing, nothing
contained in this Section 10.5 shall limit or impair in any way the right of the
Company and its Restricted Subsidiaries to sell, divest and otherwise to engage
in transactions that are otherwise permitted by this Indenture.
The Company shall at all times keep all of its, and cause its
Restricted Subsidiaries to keep their, Properties which are of an insurable
nature insured with insurers, believed by the Company to be responsible, against
loss or damage to the extent that property of similar character and in a similar
location is usually so insured by corporations similarly situated and owning
like Properties.
The Company or any Restricted Subsidiary may adopt such other plan or
method of protection, in lieu of or supplemental to insurance with insurers,
whether by the establishment of an insurance fund or reserve to be held and
applied to make good losses from casualties, or otherwise, conforming to the
systems of self-insurance maintained by corporations similarly situated and in a
similar location and owning like Properties, as may be determined by the Board
of Directors of the Company or such Restricted Subsidiary.
Section 10.6 Limitation on Sale-Leaseback Transactions.
------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, assume, guarantee or otherwise become
liable with respect to any Sale/Leaseback Transaction unless (a) the Company or
such Restricted Subsidiary, as the case may be, would be able to incur
Indebtedness (not including the incurrence of Permitted Indebtedness) in an
amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction
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pursuant to Section 10.12(a) hereof, (b) the Company or such Restricted
Subsidiary receives proceeds from such Sale/Leaseback Transaction at least equal
to the fair market value of the Property subject thereto and (c) the Company
applies an amount in cash equal to the Net Available Proceeds of the
Sale/Leaseback Transaction in accordance with the provisions of Section 10.17
hereof as if such Sale/Leaseback Transaction were an Asset Sale.
Section 10.7 Limitation on Conduct of Business.
----------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in the conduct of any business other than the oil field
services business and such other businesses as are reasonably necessary or
desirable to facilitate the conduct and operation of such business.
Section 10.8 Statement by Officers as to Default.
------------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company and within 45 days of the end of each of
the first, second and third quarters of each fiscal year of the Company, an
Officers' Certificate stating that a review of the activities of the Company and
its Restricted Subsidiaries during the preceding fiscal quarter or fiscal year,
as applicable, has been made under the supervision of the signing Officers with
a view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of such Officer's
knowledge the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and no Default or Event of Default has
occurred and is continuing (or, if a Default or Event of Default shall have
occurred to either such Officer's knowledge, describing all such Defaults or
Events of Default of which such Officer may have knowledge and what action the
Company is taking or proposes to take with respect thereto). Such Officers'
Certificate shall comply with TIA Section 314(a)(4). For purposes of this
Section 10.8(a), such compliance shall be determined without regard to any
period of grace or requirement of notice under this Indenture.
(b) The Company shall, so long as any of the Securities is outstanding,
deliver to the Trustee, upon any of its Officers becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company proposes to take with respect thereto,
within 10 days of its occurrence.
Section 10.9 Provision of Financial Information.
-----------------------------------
The Company shall file on a timely basis with the SEC, to the extent
such filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15 of the Exchange Act. The Company shall
also file with the Trustee (with exhibits), and provide to each Holder of
Securities (without exhibits), without cost to such Holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required and, if filing such reports and documents with the Commission is not
accepted by the Commission
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or is prohibited under the Exchange Act, the Company shall supply at its cost
copies of such reports and documents (including any exhibits thereto) to any
Holder of Securities, securities analyst or prospective investor promptly upon
written request given in accordance with Section 14.4 hereof.
Section 10.10 Limitation on Restricted Payments.
----------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take the following actions:
(i) declare or pay any dividend on, or make any other
distribution to holders of, any shares of Capital Stock of the Company
(other than dividends or distributions payable solely in shares of
Qualified Capital Stock of the Company or in options, warrants or other
rights to purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any Affiliate thereof (other than
any Restricted Subsidiary) or any options, warrants or other rights to
acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, any Subordinated Indebtedness, or
(iv) make any Restricted Investment;
(such payments or other actions described in clauses (i) through (iv) being
collectively referred to as "Restricted Payments"), unless at the time of and
after giving pro forma effect to the proposed Restricted Payment (the amount of
any such Restricted Payment, if other than cash, shall be the amount determined
by the Board of Directors of the Company, whose determination shall be
conclusive and evidenced by a Board Resolution), (A) no Default or Event of
Default shall have occurred and be continuing, (B) the Company could incur $1.00
of additional Indebtedness (excluding Permitted Indebtedness) in accordance with
Section 10.12(a) hereof and (C) the aggregate amount of all Restricted Payments
declared or made after the date of this Indenture shall not exceed the sum
(without duplication) of the following:
(1) 50% of the Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on January 1, 1998 and
ending on the last day of the Company's last fiscal quarter ending
prior to the date of such proposed Restricted Payment (or, if such
Consolidated Net Income shall be a loss, minus 100% of such loss), plus
(2) the aggregate Net Cash Proceeds and the fair market value of
Capital Stock received after the date of this Indenture by the Company
from the issuance or sale (other than to any of its Restricted
Subsidiaries) of shares of Qualified Capital Stock of the Company or
any options, warrants or rights to purchase such shares of Qualified
Capital Stock of the Company; provided, however, that at the time of
such issuance or sale of shares of Qualified Capital Stock of the
Company or any options, warrants or rights to purchase such shares of
Qualified Capital Stock of the Company, (i) the cumulative aggregate
fair market value of
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Capital Stock received by the Company under this clause (C)(2) does not
exceed $15,000,000 and (ii) such Qualified Capital Stock of the Company
is publicly traded, and the Company is subject to, and in compliance
with, the informational requirements of the Exchange Act and the rules
and regulations thereunder; plus
(3) the aggregate Net Cash Proceeds received after the date of this
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus
(4) the aggregate Net Cash Proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any
of its Restricted Subsidiaries) of Indebtedness or shares of
Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock of the Company, together with the aggregate
cash received by the Company at the time of such conversion or
exchange, plus
(5) to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Unrestricted Subsidiaries resulting
from dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or a Restricted Subsidiary after
the date of this Indenture from any Unrestricted Subsidiary or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued in each case as provided in the definition of Investment), not
to exceed in the case of any Unrestricted Subsidiary the total amount
of Investments (other than Permitted Investments) in such Unrestricted
Subsidiary made by the Company and its Restricted Subsidiaries in such
Unrestricted Subsidiary after the date of this Indenture, plus
(6) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii) and (iii) below) no Default or Event of Default shall have occurred and be
continuing:
(i) the payment of any dividend on any Capital Stock of the
Company or any Restricted Subsidiary within 60 days after the date of
declaration thereof, if at such declaration date such declaration
complied with the provisions of paragraph (a) above (and such payment
shall be deemed to have been paid on such date of declaration for
purposes of any calculation required by the provisions of paragraph (a)
above);
(ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
or any Restricted Subsidiary, in exchange for, or out of the aggregate
Net Cash Proceeds of, a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock
of the Company;
(iii) the repurchase, redemption, repayment, defeasance or
other acquisition or retirement for value of any Subordinated
Indebtedness in exchange for, or out of the
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aggregate Net Cash Proceeds from, a substantially concurrent issuance
and sale (other than to a Restricted Subsidiary) of shares of Qualified
Capital Stock of the Company; and
(iv) the purchase or redemption of any Subordinated
Indebtedness following a Change of Control and a corresponding Rating
Decline pursuant to provisions of such Subordinated Indebtedness
substantially similar to those described under Section 10.16 after the
Company shall have complied with the provisions of Section 10.16,
including payment of the applicable Change of Control Purchase Price.
The actions described in clauses (i), (ii), (iii) and (iv) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be made in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a), provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce
the amount that would otherwise be available under clause (C) of paragraph (a)
when declared, but not also when subsequently paid pursuant to such clause (i).
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Company may repay the Subordinated Note (as defined in the
Offering Circular), the Acquisition Financing (as defined in the Offering
Circular) and the debt owed (including capital leases) by the Company with the
net proceeds of the Offering as described under "Use of Proceeds" in the
Offering Circular and redeem the Westgate Preferred Stock. The actions described
in this paragraph (c) shall be Restricted Payments that shall be permitted to be
made in accordance with this paragraph (c) but shall not reduce the amount that
would otherwise be available for Restricted Payments under clause (C) of
paragraph (a).
(d) In computing Consolidated Net Income under paragraph (a) above, (1)
the Company shall use audited financial statements for the portions of the
relevant period for which audited financial statements are available on the date
of determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion of
such period and (2) the Company shall be permitted to rely in good faith on the
financial statements and other financial data derived from the books and records
of the Company that are available on the date of determination. If the Company
makes a Restricted Payment which, at the time of the making of such Restricted
Payment would in the good faith determination of the Company be permitted under
the requirements of this Indenture, such Restricted Payment shall be deemed to
have been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period.
Section 10.11 Limitation on Guarantees by Subsidiary Guarantors.
--------------------------------------------------
The Company shall not permit any Subsidiary Guarantor to guarantee the
payment of any Subordinated Indebtedness of the Company unless such guarantee
shall be subordinated to such Subsidiary Guarantor's Subsidiary Guarantee at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Securities; provided, however, that this Section 10.11 shall not be
applicable to any guarantee of any Subsidiary Guarantor that (i) existed at the
time such Person
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became a Subsidiary of the Company and (ii) was not incurred in connection with,
or in contemplation of, such Person's becoming a Subsidiary of the Company.
Section 10.12 Limitation on Indebtedness and Disqualified Capital
Stock.
---------------------------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume, guarantee or in any manner become
directly or indirectly liable for the payment of (collectively, "incur") any
Indebtedness (including any Acquired Indebtedness but excluding any Permitted
Indebtedness), or any Disqualified Common Stock; provided that, the Company and
any Subsidiary Guarantor may incur Indebtedness (including any Acquired
Indebtedness) or Disqualified Capital Stock, in each case, if, on a pro forma
basis after giving effect to such incurrence and the application of the proceeds
therefrom, the Consolidated EBITDA Coverage Ratio for the four full fiscal
quarters immediately preceding such event, taken as one period, would have been
equal to or greater than 2.0 to 1.0.
(b) Neither the Company nor any Subsidiary Guarantor shall incur any
Indebtedness that is expressly subordinated to any other Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be, unless such
Indebtedness, by its terms or the terms of any agreement or instrument pursuant
to which such Indebtedness is issued or outstanding, is also expressly made
subordinate to the Securities or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be, at least to the extent it is subordinated to such
other Indebtedness.
(c) The amount of any guarantee by the Company or any Restricted
Subsidiary of any Indebtedness of the Company or one or more Restricted
Subsidiaries shall not be deemed to be outstanding or incurred for purposes of
this Section 10.12 hereof in addition to the amount of Indebtedness which it
guarantees.
(d) For purposes of this Section 10.12, Indebtedness of any Person that
becomes a Restricted Subsidiary by merger, consolidation or other acquisition
shall be deemed to have been incurred by the Company and the Restricted
Subsidiary at the time such Person becomes a Restricted Subsidiary.
Section 10.13 Additional Subsidiary Guarantors.
---------------------------------
(a) The Company shall cause each Subsidiary (other than an Exempt
Foreign Subsidiary) that becomes a Restricted Subsidiary after the date of this
Indenture and (i) has assets, businesses, divisions, real property or equipment
with a fair market value in excess of $1,500,000 or (ii) incurs any Indebtedness
(other than to the Company) to execute and deliver a supplemental indenture to
this Indenture agreeing to be bound by its terms applicable to a Subsidiary
Guarantor and providing for a Subsidiary Guarantee of the Securities by such
Restricted Subsidiary.
(b) At its option, by delivery of a Company Request to the Trustee, the
Company may designate an Exempt Foreign Subsidiary as a Subsidiary Guarantor.
(c) Notwithstanding the foregoing and the other provisions of this
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant
to this Section 10.13 shall provide
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by its terms that it shall be automatically and unconditionally released and
discharged upon the terms and conditions set forth in Section 13.3 hereof.
Section 10.14 Limitation on Issuances and Sales of Capital Stock
--------------------------------------------------
by Restricted Subsidiaries.
---------------------------
The Company (a) shall not permit any Restricted Subsidiary to issue or
sell any Capital Stock to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary and (b) shall not permit any Person other than the Company
or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any
Restricted Subsidiary, in each case except with respect to a Wholly Owned
Restricted Subsidiary as described in the definition of "Wholly Owned Restricted
Subsidiary."
Section 10.15 Limitation on Liens.
--------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume, affirm or suffer to exist or
become effective any Lien of any kind, except for Permitted Liens, upon any of
their respective Properties, whether now owned or acquired after the date of
this Indenture, or any income, profits or proceeds therefrom, to secure (a) any
Indebtedness of the Company or such Restricted Subsidiary (if it is not also a
Subsidiary Guarantor), unless prior to, or contemporaneously therewith, the
Securities are equally and ratably secured, or (b) any Indebtedness of any
Subsidiary Guarantor, unless prior to, or contemporaneously therewith, the
Subsidiary Guarantees are equally and ratably secured; provided, however, that
if such Indebtedness is expressly subordinated to the Securities or the
Subsidiary Guarantees, the Lien securing such Indebtedness shall be subordinated
and junior to the Lien securing the Securities or the Subsidiary Guarantees, as
the case may be, with the same relative priority as such Indebtedness has with
respect to the Securities or the Subsidiary Guarantees. The foregoing covenant
shall not apply to any Lien securing Acquired Indebtedness, provided that any
such Lien extends only to the Properties that were subject to such Lien prior to
the related acquisition by the Company or such Restricted Subsidiary and was not
created, incurred or assumed in contemplation of such transaction.
Section 10.16 Purchase of Securities Upon Change of Control.
----------------------------------------------
(a) Upon the occurrence of a Change of Control and a corresponding
Rating Decline, the Company shall be obligated to make an offer to purchase (a
"Change of Control Offer") all of the then Outstanding Securities, and will
purchase, on a Business Day (the "Change of Control Purchase Date") not more
than 60 nor less than 30 days following the date of the Change of Control Offer,
all of the then Outstanding Securities validly tendered pursuant to such Change
of Control Offer and not withdrawn, at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date (as
defined below), in accordance with the procedures set forth in paragraphs (b),
(c) and (d) of this Section. The Company shall, subject to the provisions
described below, be required to purchase all Securities validly tendered into
the Change of Control Offer and not withdrawn. The Company will not be required
to make a Change of Control Offer upon a Change of Control and a corresponding
Rating Decline if another Person makes the Change of Control Offer at the same
purchase price, at the same time and otherwise in substantial compliance with
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the requirements applicable to a Change of Control Offer to be made by the
Company and purchases all Securities validly tendered and not withdrawn under
such Change of Control Offer.
(b) The Change of Control Offer is required to be made within 30
Business Days following the date of a Change of Control and a corresponding
Rating Decline and remain open for at least 20 Business Days and until the close
of business on the fifth Business Day prior to the Change of Control Purchase
Date (as defined below).
(c) In order to effect such Change of Control Offer, the Company will,
not later than the 30th Business Day after the occurrence of a Rating Decline
following a Change of Control (or, in the event the Rating Decline occurs before
the corresponding Change of Control, not later than the 30th Business Day
following the occurrence of the Change of Control), the Company shall give to
the Trustee in the manner provided in Section 14.4 and each Holder of the
Securities in the manner provided in Section 14.5, a notice (the "Change of
Control Notice") governing the terms of the Change of Control Offer and stating:
(1) that a Change in Control and a corresponding Rating
Decline have occurred and that such Holder has the right to require the
Company to repurchase such Holder's Securities, or portion thereof, at
the Change of Control Purchase Price;
(2) any information regarding such Change of Control and
corresponding Rating Decline required to be furnished pursuant to Rule
13e-1 under the Exchange Act and any other securities laws and
regulations thereunder;
(3) a purchase date (the "Change of Control Purchase Date")
which shall be on a Business Day and no earlier than 30 days nor later
than 60 days following the date of the Change of Control Offer;
(4) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest;
(5) that unless the Company defaults in depositing money with
the Paying Agent in accordance with the last paragraph of clause (d) of
this Section 10.16, or payment is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control
Purchase Date; and
(6) the instructions a Holder must follow in order to have his
Securities repurchased in accordance with paragraph (d) of this
Section.
(d) Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Change of Control Notice at least five Business Days prior to the Change of
Control Purchase Date. Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than three Business Days prior to the
Change of Control Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the certificate number(s) (in the
case of Physical Securities) and principal amount
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of the Securities delivered for purchase by the Holder as to which his election
is to be withdrawn and a statement that such Holder is withdrawing his election
to have such Securities purchased. Holders whose Securities are purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
On the Change of Control Purchase Date, the Company shall (i) accept
for payment Securities or portions thereof validly tendered pursuant to a Change
of Control Offer, (ii) irrevocably deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities or portions thereof so
tendered, and (iii) deliver or cause to be delivered to the Trustee the
Securities so accepted. The Paying Agent shall promptly mail or deliver to
Holders of the Securities so tendered payment in an amount equal to the purchase
price for the Securities, and the Company shall execute and the Trustee shall
authenticate and mail or make available for delivery to such Holders a new
Security having the notation of Subsidiary Guarantees thereon executed by the
Subsidiary Guarantors and equal in principal amount to any unpurchased portion
of the Security which any such Holder did not surrender for purchase. The
Company shall announce the results of a Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date. For purposes of this
Section 10.16, the Trustee will act as the Paying Agent.
(e) The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control and a
corresponding Rating Decline occur and the Company is required to purchase
Securities as described in this Section 10.16.
Section 10.17 Limitation on Asset Sales.
--------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the Properties sold
or otherwise disposed of pursuant to the Asset Sale, (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash or Cash Equivalents and
(iii) the Company delivers to the Trustee an Officers' Certificate certifying
that such Asset Sale complies with clauses (i) and (ii) of this Section
10.17(a). The amount (without duplication) of any Indebtedness (other than
Subordinated Indebtedness) of the Company or such Restricted Subsidiary that is
expressly assumed by the transferee in such Asset Sale and with respect to which
the Company or such Restricted Subsidiary, as the case may be, is
unconditionally released by the holder of such Indebtedness, shall be deemed to
be cash or Cash Equivalents for purposes of clause (ii) and shall also be deemed
to constitute a repayment of, and a permanent reduction in, the amount of such
Indebtedness for purposes of the following paragraph.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale or incurs an Event of Loss, the Company or such Restricted Subsidiary may
either, no later than 365 days after such Asset Sale or such Event of Loss, (i)
apply all or any of the Net Available Proceeds therefrom to permanently repay
Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary, or (ii) invest all or any part of the Net Available
Proceeds thereof in Properties that replace the Properties that were the subject
of such Asset Sale or such
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Event of Loss, as the case may be, or in other Properties that will be used in
the business of the Company and its Restricted Subsidiaries. Pending the final
application of any such Net Available Proceeds, the Company or any Restricted
Subsidiary may temporarily reduce outstanding revolving credit borrowings,
including borrowings under the Credit Facility, or otherwise invest such Net
Available Proceeds in a manner that is not prohibited by the Indenture. The
amount of such Net Available Proceeds not applied or invested as provided in the
first sentence of this paragraph shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$10,000,000 (the "Trigger Date"), the Company shall make an offer to purchase,
from all Holders of the Securities and then outstanding Pari Passu Indebtedness
required to be repurchased or repaid on a permanent basis in connection with an
Asset Sale, an aggregate principal amount of Securities and any such Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(1) Not later than the 30th day following the Trigger Date,
the Company shall give to the Trustee in the manner provided in Section
14.4 hereof and each Holder of the Securities in the manner provided in
Section 14.5 hereof, a notice (a "Purchase Notice") offering to
purchase (a "Net Proceeds Offer") from all Holders of the Securities
the maximum principal amount (expressed as a multiple of $1,000) of
Securities that may be purchased out of an amount (the "Payment
Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of
the Securities and the denominator of which is the sum of the
outstanding principal amount of the Securities and such Pari Passu
Indebtedness, if any (subject to proration in the event such amount is
less than the aggregate Offered Price (as defined in clause (2) below)
of all Securities tendered), and to the extent required by any such
Pari Passu Indebtedness and provided there is a permanent reduction in
the principal amount of such Pari Passu Indebtedness, the Company shall
make an offer to purchase such Pari Passu Indebtedness (a "Pari Passu
Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to
the excess of the Excess Proceeds over the Payment Amount.
(2) The offer price for the Securities shall be payable in
cash in an amount equal to 100% of the principal amount of the
Securities tendered pursuant to a Net Proceeds Offer, plus accrued and
unpaid interest, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with the procedures
set forth in paragraph (d) of this Section. To the extent that the
aggregate Offered Price of the Securities tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or
repaid pursuant to the Pari Passu Offer is less than the Pari Passu
Indebtedness Amount (such shortfall constituting a "Net Proceeds
Deficiency"), the Company may use such Net Proceeds Deficiency, or a
portion thereof, for general corporate purposes, subject to the
limitations of Section 10.10 hereof.
(3) If the aggregate Offered Price of Securities validly
tendered and not withdrawn by Holders thereof exceeds the Payment
Amount, Securities to be purchased will be selected on a pro rata basis
by the Trustee based on the aggregate principal amount
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of Securities so tendered. Upon completion of a Net Proceeds Offer, the
amount of Excess Proceeds shall be reset to zero.
(4) The Purchase Notice shall set forth a purchase date (the
"Net Proceeds Payment Date"), which shall be on a Business Day no
earlier than 30 days nor later than 60 days from the Trigger Date. The
Purchase Notice shall also state (i) that a Trigger Date with respect
to one or more Asset Sales has occurred and that such Holder has the
right to require the Company to repurchase such Holder's Securities at
the Offered Price, subject to the limitations described in the
foregoing paragraph (3), (ii) any information regarding such Net
Proceeds Offer required to be furnished pursuant to Rule 13e-1 under
the Exchange Act and any other securities laws and regulations
thereunder, (iii) that any Security, or portion thereof, not tendered
or accepted for payment will continue to accrue interest, (iv) that,
unless the Company defaults in depositing money with the Paying Agent
in accordance with the last paragraph of clause (d) of this Section
10.17, or payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Payment Date, and (v)
the instructions a Holder must follow in order to have his Securities
repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Purchase Notice at least five Business Days prior to the Net Proceeds Payment
Date. Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than three Business Days prior to the Net Proceeds Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the certificate number(s) (in the case of Physical Securities)
and principal amount of the Securities delivered for purchase by the Holder as
to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Securities purchased. Holders whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
On the Net Proceeds Payment Date, the Company shall (i) accept for
payment Securities or portions thereof validly tendered pursuant to a Net
Proceeds Offer in an aggregate principal amount equal to the Payment Amount or
such lesser amount of Securities as has been tendered, (ii) irrevocably deposit
with the Paying Agent money sufficient to pay the purchase price of all
Securities or portions thereof so tendered in an aggregate principal amount
equal to the Payment Amount or such lesser amount and (iii) deliver or cause to
be delivered to the Trustee the Securities so accepted. The Paying Agent shall
promptly mail or deliver to Holders of the Securities so accepted payment in an
amount equal to the purchase price, and the Company shall execute and the
Trustee shall authenticate and mail or make available for delivery to such
Holders a new Security having the notation of Subsidiary Guarantees thereon
executed by the Subsidiary Guarantors and equal in principal amount to any
unpurchased portion of the Security which any such Holder did not surrender for
purchase. Any Securities not so accepted will be promptly mailed or delivered to
the Holder thereof. The Company shall announce the results of a Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Payment Date. For
purposes of this Section 10.17, the Trustee will act as the Paying Agent.
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(e) The Company shall not permit any Restricted Subsidiary to enter
into or suffer to exist any agreement that would place any restriction of any
kind (other than pursuant to law or regulation) on the ability of the Company to
make a Net Proceeds Offer following any Asset Sale. The Company shall comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Securities as described in this Section
10.17.
Section 10.18 Limitation on Transactions with Affiliates.
-------------------------------------------
------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of Property or the rendering of any services) with,
or for the benefit of, any Affiliate of the Company (other than the Company or a
Restricted Subsidiary), unless (i) such transaction or series of related
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be available in a
comparable arm's-length transaction with unrelated third parties, (ii) with
respect to any one transaction or series of related transactions involving
aggregate payments in excess of $1,000,000, the Company delivers an Officers'
Certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above, (iii) with respect to a transaction
or series of related transactions involving payments in excess of $2,500,000 but
less than or equal to $7,500,000 in the aggregate, the Company delivers an
Officers' Certificate to the Trustee certifying that (A) such transaction or
series of related transactions complies with clause (i) above and (B) such
transaction or series of related transactions has been approved by a majority of
the Disinterested Directors of the Company, and (iv) with respect to any one
transaction or series of related transactions involving aggregate payments in
excess of $7,500,000 the Company delivers an Officers' Certificate to the
Trustee certifying to the two matters referred to in clause (iii) above and that
the Company has obtained a written opinion from an independent nationally
recognized investment banking firm or appraisal firm specializing or having a
speciality in the type and subject matter of the transaction or series of
related transactions at issue, which opinion shall be to the effect set forth in
clause (i) above or shall state that such transaction or series of related
transactions is fair from a financial point of view to the Company or such
Restricted Subsidiary; provided, however, that the foregoing restriction shall
not apply to (v) loans or advances to officers, directors and employees of the
Company or any Restricted Subsidiary made in the ordinary course of business and
consistent with past practices of the Company and its Restricted Subsidiaries in
an aggregate amount not to exceed $3,000,000 outstanding at any one time, (w)
indemnities of officers, directors and employees of the Company or any
Restricted Subsidiary permitted by bylaw or statutory provisions, (x) the
payment of reasonable and customary regular fees to directors of the Company or
any of its Restricted Subsidiaries who are not employees of the Company or any
Affiliate, (y) the Company's employee compensation and other benefit
arrangements, or (z) the repayment of the Subordinated Note, the Acquisition
Financing and the repayment of debt owed (including capital leases) by the
Company as described in the Offering Circular under "Use of Proceeds" and the
redemption of the Westgate Preferred Stock.
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Section 10.19 Limitation on Dividends and Other Payment
-----------------------------------------
Restrictions Affecting Restricted Subsidiaries.
-----------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or suffer to exist or allow to become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise, or make
any other distributions on its Capital Stock, or make payments on any
Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to
make loans or advances to the Company or any other Restricted Subsidiary, (c) to
transfer any of its Property to the Company or any other Restricted Subsidiary
or (d) to guarantee the Securities (any such restrictions being collectively
referred to herein as a "Payment Restriction"), except in any such case for such
encumbrances or restrictions existing under or by reason of (i) this Indenture,
the Credit Facility or any other agreement in effect or entered into on the date
of this Indenture, or (ii) any agreement, instrument or charter of or in respect
of a Restricted Subsidiary entered into prior to the date on which such
Restricted Subsidiary became a Restricted Subsidiary and outstanding on such
date and not entered into in connection with or in contemplation of becoming a
Restricted Subsidiary, provided such consensual encumbrance or restriction is
not applicable to any Properties other than those owned or held by the
Restricted Subsidiary at the time it became a Restricted Subsidiary or
subsequently acquired by such Restricted Subsidiary other than from the Company
or any other Restricted Subsidiary, or (iii) pursuant to an agreement effecting
a modification, renewal, refinancing, replacement or extension of any agreement,
instrument or charter (other than this Indenture) referred to in clause (i) or
(ii) above, provided, however, that the provisions relating to such encumbrance
or restriction are not materially less favorable to the Holders of the
Securities than those under or pursuant to the agreement, instrument or charter
so modified, renewed, refinanced, replaced or extended, or (iv) customary
provisions restricting the subletting or assignment of any lease or the transfer
of copyrighted or patented materials, or (v) provisions in agreements that
restrict the assignment of such agreements or rights thereunder, or (vi) the
sale or other disposition of any Properties subject to a Lien securing
Indebtedness, or (vii) rights of refusal or other similar provisions that are
customary in joint venture agreements or other agreements entered into by the
Company or any Restricted Subsidiary in the ordinary course of business.
Section 10.20 Waiver of Certain Covenants.
----------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 10.5 through 10.12, Sections
10.14 and 10.15 and Sections 10.18 through 10.19 hereof if, before or after the
time for such compliance, the Holders of at least a majority in aggregate
principal amount of the Outstanding Securities and the Subsidiary Guarantors, by
Act of such Holders and written agreement of the Subsidiary Guarantors, waive
such compliance in such instance with such term, provision or condition, but no
such waiver shall extend to or affect such term, provision or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
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Section 10.21 Qualification of Indenture.
---------------------------
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith. In connection with any such
qualification of this Indenture under the TIA, the Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption.
--------------------
The Securities may be redeemed, at the option of the Company, as a
whole or from time to time in part, at any time on or after February 15, 2003,
upon not less than 30 or more than 60 days' notice to each Holder of Securities
to be redeemed, subject to the conditions and at the Redemption Prices
(expressed as percentages of principal amount) specified in the form of
Security, together with accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders on the relevant record date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
In addition, at any time and from time to time on or prior to February
15, 2001, up to 35% of the aggregate principal amount of Securities originally
issued may be redeemed, at the election of the Company, upon not less than 30 or
more than 60 days' notice to each Holder of Securities to be redeemed, from the
Net Cash Proceeds of one or more Equity Offerings, at the Redemption Price
(expressed as a percentage of principal amount) specified in the form of
Security, together with accrued and unpaid interest, if any, to the Redemption
Date, provided that at least 65% of the aggregate principal amount of Securities
originally issued remains Outstanding immediately after such redemption and that
such redemption occurs within 60 days following the closing of any such Equity
Offering.
Section 11.2 Applicability of Article.
-------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 11.3 Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 11.1 hereof shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed and shall deliver to the
Trustee such
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documentation and records as shall enable the Trustee to select the Securities
to be redeemed pursuant to Section 11.4 hereof. Any election to redeem
Securities shall be revocable until the Company gives a notice of redemption
pursuant to Section 11.5 hereof to the Holders of Securities to be redeemed.
Section 11.4 Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata, by lot or by any
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of
Securities; provided, however, that any such partial redemption shall be in
integral multiples of $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs of this Section 11.4
shall not apply with respect to any redemption affecting only a Global Security,
whether such Global Security is to be redeemed in whole or in part. In the case
of any such redemption in part, the unredeemed portion of the principal amount
of the Global Security shall be in an authorized denomination.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 11.5 Notice of Redemption.
---------------------
Notice of redemption shall be given in the manner provided for in
Section 14.5 hereof not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) in the case of a partial redemption of Physical Securities, the
identification of the particular Securities to be redeemed, and, if any Global
Security or Physical Security is to be redeemed in part, the portion of the
principal amount thereof to be redeemed;
(d) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in Section
11.7 hereof) will become due and
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payable upon each such Security, or the portion thereof, to be redeemed, and
that, unless the Company shall default in the payment of the Redemption Price
and any applicable accrued and unpaid interest, interest thereon will cease to
accrue on and after said date; and
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
If any of the Securities to be redeemed is in the form of a Global
Security, then the Company shall modify such notice to the extent necessary to
accord with the provisions of the Depositary applicable to redemptions.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other Securities.
Section 11.6 Deposit of Redemption Price.
----------------------------
On or before 11:00 a.m., Eastern time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3 hereof) immediately available funds in an amount
sufficient to pay the Redemption Price of, and accrued and unpaid interest on,
all the Securities which are to be redeemed on such Redemption Date.
Section 11.7 Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender of
any such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued and
unpaid interest, if any, to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section 3.8
hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
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Section 11.8 Securities Redeemed in Part.
----------------------------
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 10.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal amount of the Security so
surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
-----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 12.2 or Section 12.3
hereof be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article XII.
Section 12.2 Defeasance and Discharge.
-------------------------
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.2, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their respective obligations with respect
to all Outstanding Securities on the date the conditions set forth in Section
12.4 hereof are satisfied (hereinafter, "legal defeasance"). For this purpose,
such legal defeasance means that the Company and the Subsidiary Guarantors shall
be deemed (i) to have paid and discharged their respective obligations under the
Outstanding Securities, provided, however, that the Securities shall continue to
be deemed to be "Outstanding" for purposes of Section 12.5 hereof and the other
Sections of this Indenture referred to in clauses (A) and (B) below, and (ii) to
have satisfied all their other obligations with respect to such Securities and
this Indenture (and the Trustee, at the expense and direction of the Company,
shall execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 12.4 hereof and as more fully
set forth in such Section, payments in respect of the principal of (and premium
if any, on) and interest on such Securities when such payments are due (or at
such time as the Securities would be subject to redemption at the option of the
Company in accordance with this Indenture), (B) the respective obligations of
the Company and the Subsidiary Guarantors under Sections 3.3, 3.4, 3.5, 3.6,
3.7, 5.8, 6.6, 6.9, 6.10, 10.2, 10.3, 10.21, 13.1 (to the extent it relates to
the foregoing Sections and this Article XII), 13.4 and 13.5 hereof, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder, and (D)
the obligations of the Company and the Subsidiary Guarantors under this Article
XII. Subject to compliance with this
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Article XII, the Company may exercise its option under this Section 12.2
notwithstanding the prior exercise of its option under Section 12.3 hereof with
respect to the Securities.
Section 12.3 Covenant Defeasance.
--------------------
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.3, (i) the Company and each Subsidiary Guarantor
shall be released from their respective obligations under any covenant contained
in Article VIII, in Sections 10.5 through 10.19 and in Sections 10.21 and 13.2
hereof and (ii) the occurrence of any event specified in Section 5.1(c) or
5.1(d) hereof (with respect to any of Article VIII, Sections 10.5 through 10.19,
Section 10.21 and Section 13.2) shall be deemed not to be or result in an Event
of Default, in each case with respect to the Outstanding Securities on and after
the date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company and each Subsidiary Guarantor may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Article or Section (to the extent
so specified in the case of Sections 5.1(c) and 5.1(d) hereof), whether directly
or indirectly, by reason of any reference elsewhere herein to any such Article
or Section or by reason of any reference in any such Article or Section to any
other provision herein or in any other document, but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
In addition, upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.3, subject to the satisfaction of the conditions
set forth in Section 12.4 hereof, Sections 5.1(e) and 5.1(g) hereof shall not
constitute Events of Default.
Section 12.4 Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to application of either Section
12.2 or Section 12.3 hereof to the Outstanding Securities:
(a) The Company or any Subsidiary Guarantor shall irrevocably have
deposited or caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 6.7 hereof who shall agree to comply with
the provisions of this Article XII applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in United States dollars in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of (and premium,
if any, on) and interest on the Outstanding Securities on the Stated Maturity
thereof (or Redemption Date, if applicable), provided that the Trustee shall
have been irrevocably instructed in writing by the Company to apply such money
or the proceeds of such U.S. Government Obligations
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to said payments with respect to the Securities. Before such a deposit, the
Company may give to the Trustee, in accordance with Section 11.3 hereof, a
notice of its election to redeem all of the Outstanding Securities at a future
date in accordance with Article XI hereof, which notice shall be irrevocable.
Such irrevocable redemption notice, if given, shall be given effect in applying
the foregoing. For this purpose, "U.S. Government Obligations" means securities
that are (x) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
(b) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit or, insofar as
Sections 5.1(h) and 5.1(i) are concerned, at any time during the period ending
on the 91st day after the date of such deposit.
(c) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company or any Subsidiary
Guarantor.
(d) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound, as evidenced to the Trustee in an Officers'
Certificate delivered to the Trustee concurrently with such deposit.
(e) In the case of an election under Section 12.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable federal income tax laws, in either case providing that
the Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such legal defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such legal defeasance had
not occurred (it being understood that (x) such Opinion of Counsel shall also
state that such ruling or applicable law is consistent with the conclusions
reached in such Opinion of Counsel and (y) the Trustee shall be under no
obligation to investigate the basis or correctness of such ruling).
(f) In the case of an election under Section 12.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding
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Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred.
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for relating to either the legal defeasance under
Section 12.2 hereof or the covenant defeasance under Section 12.3 (as the case
may be) have been complied with.
Section 12.5 Deposited Money and U.S. Government Obligations to
--------------------------------------------------
Be Held in Trust; Other Miscellaneous Provisions.
--------------------------------------------------
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee--collectively for
purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against all taxes, fees
or other charges imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 12.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.
Anything in this Article XII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 12.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
Section 12.6 Reinstatement.
--------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 12.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and the Subsidiary Guarantors' obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 12.2 or 12.3 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 12.5 hereof; provided, however,
that if the Company or any Subsidiary Guarantor makes any payment of principal
of (or premium, if any, on) or interest on any Security following the
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reinstatement of its obligations, the Company or such Subsidiary Guarantor shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE XIII
SUBSIDIARY GUARANTEES
Section 13.1 Unconditional Guarantee.
------------------------
Each Subsidiary Guarantor hereby fully and unconditionally, jointly and
severally, guarantees (each such guarantee being referred to herein as this
"Subsidiary Guarantee," with all such guarantees being referred to herein as the
"Subsidiary Guarantees") to each Holder of Securities authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns, the
full and prompt performance of the Company's obligations under this Indenture
and the Securities and that:
(a) the principal of (and premium, if any, on) and interest on the
Securities will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of
and interest on the Securities, if any, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise;
subject, however, in the case of clauses (a) and (b) above, to the limitations
set forth in Section 13.4 hereof.
Solely for purposes of the Interest Act (Canada), the yearly rate of
interest that is equivalent to the rate payable on the Securities is the rate
payable multiplied by the actual number of days in the year and divided by 360.
Failing payment when due of any amount so guaranteed or any performance
so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately. Each Subsidiary Guarantor
hereby agrees that its obligations hereunder shall, to the extent permitted by
law, be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives, to the extent permitted by
law, diligence, presentment, demand of payment, filing of claims with a court in
the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands
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whatsoever and covenants that its Subsidiary Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities,
this Indenture and in this Subsidiary Guarantee. If any Holder or the Trustee is
required by any court or otherwise to return to the Company, any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or any Subsidiary Guarantor, any amount paid
by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor agrees it shall not be
entitled to enforce any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as
between each Subsidiary Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article V hereof for the purposes of
this Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article V hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
the purpose of this Subsidiary Guarantee.
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on
-----------------------------------------------
Certain Terms.
--------------
(a) Except as set forth in Article VIII hereof, nothing contained in
this Indenture or in any of the Securities shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor or shall prevent any sale, conveyance or other disposition of all or
substantially all the Properties of a Subsidiary Guarantor to the Company or
another Subsidiary Guarantor.
(b) Except as set forth in Article VIII hereof, nothing contained in
this Indenture or in any of the Securities shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into a Person other than the Company or
another Subsidiary Guarantor (whether or not Affiliated with the Subsidiary
Guarantor), or successive consolidations or mergers in which a Subsidiary
Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance or other disposition of all or substantially all
the Properties of a Subsidiary Guarantor to a Person other than the Company or
another Subsidiary Guarantor (whether or not Affiliated with the Subsidiary
Guarantor) authorized to acquire and operate the same; provided, however, that
(i) immediately after such transaction, and giving effect thereto, no Default or
Event of Default shall have occurred as a result of such transaction and be
continuing, (ii) such transaction shall not violate any of the covenants of
Sections 10.1 through 10.19 hereof, and (iii) each Subsidiary Guarantor hereby
covenants and agrees that, upon any such consolidation, merger, sale, conveyance
or other disposition, such Subsidiary Guarantor's Subsidiary Guarantee set forth
in this Article XIII and in a notation to the Securities, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in a merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by such Person formed by such
consolidation, or into which the Subsidiary Guarantor shall have merged, or by
the Person that shall have acquired such Property (except to the extent the
following Section 13.3 would result in the release of such Subsidiary Guarantee,
in which case such
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surviving Person or transferee of such Property shall not have to execute any
such supplemental indenture and shall not have to assume such Subsidiary
Guarantor's Subsidiary Guarantee). In the case of any such consolidation,
merger, sale, conveyance or other disposition and upon the assumption by the
successor Person, by supplemental indenture executed and delivered to the
Trustee and satisfactory in form to the Trustee of the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as the initial Subsidiary Guarantor.
Section 13.3 Release of Subsidiary Guarantors.
---------------------------------
Upon the sale or disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its Properties) to a Person other than
the Company or another Subsidiary Guarantor and pursuant to a transaction that
is otherwise in compliance with the terms of this Indenture, including but not
limited to the provisions of Section 13.2 hereof or pursuant to Article VIII
hereof, such Subsidiary Guarantor shall be deemed released from its Subsidiary
Guarantee and all related obligations under this Indenture; provided, however,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, other Indebtedness
of the Company or any other Restricted Subsidiary shall also terminate or be
released upon such sale or other disposition. The Trustee shall deliver an
appropriate instrument evidencing such release upon receipt of a Company Request
accompanied by an Officers' Certificate and an Opinion of Counsel certifying
that such sale or other disposition was made by the Company in accordance with
the provisions of this Indenture. Each Subsidiary Guarantor that is designated
as an Unrestricted Subsidiary in accordance with the provisions of this
Indenture shall be released from its Subsidiary Guarantee and all related
obligations under this Indenture for so long as it remains an Unrestricted
Subsidiary. Upon delivery to the Trustee of a Company Request, each Subsidiary
Guarantor that is designated therein as an Exempt Foreign Subsidiary shall be
released from its Subsidiary Guarantee and all related obligations under this
Indenture for so long as it remains an Exempt Foreign Subsidiary. The Trustee
shall deliver an appropriate instrument evidencing any such release upon its
receipt of the Board Resolution designating such Unrestricted Subsidiary or such
Company Request, as the case may be. Any Subsidiary Guarantor not released in
accordance with this Section 13.3 shall remain liable for the full amount of
principal of (and premium, if any, on) and interest on the Securities as
provided in this Article XIII.
Section 13.4 Limitation of Subsidiary Guarantors' Liability.
-----------------------------------------------
Each Subsidiary Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law. To effectuate the foregoing intention, the
Holders and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect
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of the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 13.5 hereof, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting such a
fraudulent conveyance or fraudulent transfer. This Section 13.4 is for the
benefit of the creditors of each Subsidiary Guarantor, and, for purposes of the
Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act and each other similar federal or state law, any
Indebtedness of a Subsidiary Guarantor that (a) constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness", and (b) is secured by Liens permitted pursuant to clause (d) of
the definition of "Permitted Liens" shall be deemed to have been incurred prior
to the incurrence by such Subsidiary Guarantor of liability under its Subsidiary
Guarantee.
Section 13.5 Contribution.
-------------
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor (if
any) in a pro rata amount based on the Adjusted Net Assets of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Subsidiary Guarantor's
obligations with respect to its Subsidiary Guarantee.
Section 13.6 Execution and Delivery of Notations of Subsidiary
-------------------------------------------------
Guarantees.
-----------
To evidence its Subsidiary Guarantee set forth in Section 13.1 hereof,
each Subsidiary Guarantor hereby agrees to execute the notations of Subsidiary
Guarantees in substantially the form set forth in Section 2.4 hereof to be
endorsed on all Securities ordered to be authenticated and delivered by the
Trustee, and each Subsidiary Guarantor agrees that this Indenture shall be
executed on behalf of such Subsidiary Guarantor by its President, one of its
Vice Presidents or one of its other authorized officers. Each Subsidiary
Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 13.1
hereof shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Subsidiary Guarantee. Each such
notation of Subsidiary Guarantee shall be signed on behalf of each Subsidiary
Guarantor by its President, one of its Vice Presidents or one of its other
authorized officers (each of whom shall, in each case, have been duly authorized
by all requisite corporate action) prior to the authentication of the Security
on which it is endorsed, and the delivery of such Security by the Trustee, after
the authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of such Subsidiary
Guarantor. Such signatures upon the notation of Subsidiary Guarantee may be by
manual or facsimile signature of such officers and may be imprinted or otherwise
reproduced on the Subsidiary Guarantee, and in case any such officer who shall
have signed the notation of Subsidiary Guarantee shall cease to be such officer
before the Security on which such notation of Subsidiary Guarantee is endorsed
shall have been authenticated and delivered by the Trustee or disposed of by the
Company, such Security nevertheless may be authenticated and delivered or
disposed of as though the person who signed the notation of Subsidiary Guarantee
had not ceased to be such officer of the Subsidiary Guarantor.
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Section 13.7 Severability.
-------------
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Compliance Certificates and Opinions.
-------------------------------------
Upon any application or request by the Company or any Subsidiary
Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act or this Indenture. Each such certificate and each such
opinion shall be in the form of an Officers' Certificate or an Opinion of
Counsel or certificate or opinion of an independent public accountant, as
applicable, and shall comply with the requirements of this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
Person, such condition or covenant has been complied with.
The certificates and opinions provided pursuant to this Section 14.1
and the statements required by this Section 14.1 shall comply in all respects
with TIA Sections 314(c) and (e).
Section 14.2 Form of Documents Delivered to Trustee.
---------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but
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one such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such Opinion of Counsel may be based, insofar as it relates to factual matters,
upon an officers' certificate, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such matters
is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 14.3 Acts of Holders.
----------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership, principal amount and serial numbers of Securities
held by any Person, and the date of holding the same, shall be proved by the
Security Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date
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shall be the record date specified in or pursuant to such Board Resolution,
which shall be a date not earlier than the date 30 days prior to the first
solicitation of Holders generally in connection therewith and not later than the
date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date, provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
including, without limitation, any Series B Security exchanged for a Series A
Security, in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
Section 14.4 Notices, etc. to Trustee, Company and Subsidiary
------------------------------------------------
Guarantors.
-----------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to or filed with,
(1) the Trustee by any Holder, the Company or any Subsidiary Guarantor
shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing (in the English language) and delivered
in person or mailed by certified or registered mail (return receipt
requested) to the Trustee at its Corporate Trust Office; or
(2) the Company or any Subsidiary Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing (in the English
language) and delivered in person or mailed by certified or registered
mail (return receipt requested) to the Company or such Subsidiary
Guarantor, as applicable, addressed to it at the Company's offices
located at 16850 Park Row, Houston, Texas 77084, Attention: Chief
Financial Officer, or at any other address otherwise furnished in
writing to the Trustee by the Company.
Section 14.5 Notice to Holders; Waiver.
--------------------------
Where this Indenture provides for notice of any event to Holders by the
Company, the Trustee or any Paying Agent, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing (in the English
language) and mailed, first-class postage prepaid, to each Holder affected by
such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In
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any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Section 14.6 Effect of Headings and Table of Contents.
-----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 14.7 Successors and Assigns.
-----------------------
All covenants and agreements in this Indenture by the Company and the
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 14.8 Severability.
-------------
In case any provision in this Indenture or in the Securities or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
Section 14.9 Benefits of Indenture.
----------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, the Holders and, to the
extent set forth in Section 13.4 hereof, creditors of Subsidiary Guarantors) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 14.10 Governing Law; Trust Indenture Act Controls.
--------------------------------------------
(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE SECURITIES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK. THE COMPANY AND EACH SUBSIDIARY
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<PAGE> 105
GUARANTOR IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE
CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE SECURITIES OR THE SUBSIDIARY GUARANTEES, AND THE COMPANY AND EACH
SUBSIDIARY GUARANTOR IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH COURT.
(b) Effective upon and subject to the qualification of this Indenture
pursuant to the provisions of the Trust Indenture Act, if and to the extent that
any provision of this Indenture limits, qualifies or conflicts with the duties
imposed by operation of Section 318(c) of the Trust Indenture Act, or conflicts
with any provision (an "incorporated provision") required by or deemed to be
included in this Indenture by operation of such Trust Indenture Act section,
such imposed duties or incorporated provision shall control.
Section 14.11 Legal Holidays.
---------------
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities or
the Subsidiary Guarantee) payment of interest or principal (and premium, if any)
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity or Maturity; provided, however, that
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, Stated Maturity or Maturity, as the case may be.
Section 14.12 No Recourse Against Others.
---------------------------
A director, officer, employee, stockholder, incorporator or Affiliate,
as such, past, present or future, of the Company or any Subsidiary Guarantor
shall not have any personal liability under the Securities or this Indenture
solely by reason of his or its status as a director, officer, employee,
stockholder, incorporator or Affiliate or any liability for any obligations of
the Company or any Subsidiary Guarantor under the Securities or this Indenture
or for any claim solely based on, in respect of or by reason of such obligations
or their creation. Each Holder, by accepting any of the Securities, waives and
releases all such liability to the extent permitted by applicable law.
Section 14.13 Duplicate Originals.
--------------------
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
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Section 14.14 No Adverse Interpretation of Other Agreements.
----------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
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<PAGE> 107
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
ISSUER:
GRANT GEOPHYSICAL, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
GEOPHYSICAL OPERATIONS, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
GRANT GEOPHYSICAL (INT'L), INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
ADVANCED SEISMIC TECHNOLOGY, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President and Chief Executive
Officer
SSGI ACQUISITION CORP.
By GRANT GEOPHYSICAL, INC.
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: Executive Vice President
[Signature Page to Indenture]
<PAGE> 108
PT. GRANT GEOPHYSICAL INDONESIA
By /s/ Larry E. Lenig, Jr.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: President Director
RECURSOS ENERGETICOS LTDA.
By /s/ Barry K. Burt
---------------------------------------
Name: Barry K. Burt
Title: Alternate General Manager
GRANT GEOPHYSICAL DO BRASIL LTDA.
By /s/ Roberto D. Vianna
---------------------------------------
Name: Roberto D. Vianna
Title: Delegated Manager
SOLID STATE GEOPHYSICAL INC.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: President & Chief Executive
Officer
SOLID STATE INTERNACIONAL INGENIERIA,
C.A.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: Director
SOLID STATE GEOPHYSICAL CORP.
By /s/ Mitchell L. Peters
---------------------------------------
Name: Mitchell L. Peters
Title: President & Chief Executive
Officer
[Signature Page to Indenture]
<PAGE> 109
TRUSTEE:
LASALLE NATIONAL BANK
By /s/ Sarah H. Webb
-----------------------------
Name: Sarah H. Webb
Title: First Vice President
[Signature Page to Indenture]
<PAGE> 110
EXHIBIT A
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend in addition to the Private Placement Legend, if required by Section 3.12
hereof, in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
A-1
<PAGE> 111
EXHIBIT B
Form of Certificate to Be Delivered upon Exchange
or Registration of Transfer of Securities
Re: 9 3/4% Senior Notes due 2008, Series A, and
9 3/4% Senior Notes due 2008, Series B
(the "Securities"), of Grant Geophysical, Inc.
LaSalle National Bank, Trustee
135 South LaSalle Street
Chicago, Illinois 60603
This Certificate relates to $_________ principal amount of Securities
held in the form of *|_| a beneficial interest in a Global Security or *|_|
Physical Securities by _________________ (the "Transferor").
The Transferor:*
|_| has requested by written order that the Security Registrar deliver
in exchange for its beneficial interest in the Global Security held by the
Depository a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and in an aggregate principal amount equal to
its beneficial interest in such Global Security (or the portion thereof
indicated above); or
|_| has requested by written order that the Security Registrar exchange
its Physical Security or Physical Securities for a beneficial interest in the
Global Security in an aggregate principal amount equal to such Physical Security
or Physical Securities (or the portion thereof indicated above); or
|_| has requested that the Security Registrar by written order exchange
or register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 3.5 of such Indenture,
and that the transfer of these Securities does not require registration under
the Securities Act of 1933, as amended (the "Act") because *:
|_| Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of subparagraph (a)(1) or (c)(1) of Section
3.5 of the Indenture).
|_| Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
|_| Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act).
B-1
<PAGE> 112
|_| Such Security is being transferred in reliance on Regulation S
under the Act.
|_| Such Security is being transferred in reliance on Rule 144 under
the Act.
|_| Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
_________________________________
[INSERT NAME OF TRANSFEROR]
By:______________________________
[Authorized Signatory]
Date:__________________________
*Check applicable box.
B-2
<PAGE> 113
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
________________________, __________
LaSalle National Bank, Trustee
135 South LaSalle Street
Chicago, Illinois 60603
Re: Grant Geophysical, Inc. Indenture (the "Indenture")
relating to 9 3/4% Senior Notes due 2008, Series A,
or 9 3/4% Senior Notes due 2008, Series B
Ladies and Gentlemen:
In connection with our proposed purchase of 9 3/4% Senior Notes due
2008, Series A, or 9 3/4% Series Notes due 2008, Series B (the "Securities"), of
Grant Geophysical, Inc. (the "Company"), we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C) to
an institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee a signed letter substantially in the form hereof, (D) outside the
United States in accordance with Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing Securities from us a notice advising such purchaser that
resales of the Securities are restricted as stated herein.
C-1
<PAGE> 114
4. We understand that, on any proposed resale of Securities, we will be
required to furnish to you and the Company, such certification, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Securities purchased by us will bear a legend to the
foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be, for an indefinite period.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion, for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act.
You and the Company and yours and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_____________________________
[Authorized Signatory]
C-2
<PAGE> 115
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------------------
__________________, ________
LaSalle National Bank, Trustee
135 South LaSalle Street
Chicago, Illinois 60603
Re: Grant Geophysical, Inc. ("the Company")
9 3/4% Senior Notes due 2008, Series A, and 9 3/4%
Senior Notes due 2008, Series B (the "Securities")
--------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $______________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knew that the transaction had
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company and yours and their respective counsel are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in
D-1
<PAGE> 116
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby. Defined terms used herein without definition have the
respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:______________________________
[Authorized Signature]
D-2
<PAGE> 1
[JONES, DAY, REAVIS & POGUE LETTERHEAD]
Exhibit 5.1
March 27, 1998
Grant Geophysical, Inc.
16850 Park Row
Houston, Texas 77084
Re: 3,459,414 Shares of Common Stock, par value
$.001 per share, of Grant Geophysical, Inc.
-------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Grant Geophysical, Inc., a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-1 (Registration Statement No. 333-43219) filed by the
Company with the Securities and Exchange Commission (the "Registration
Statement") relating to 3,459,414 shares of common stock, par value $.001 per
share, of the Company ("Common Stock") held by Elliott Associates, L.P.
("Elliott") and Westgate International, L.P. ("Westgate").
In rendering this opinion, we have assumed that the signatures
on all documents examined by us are genuine and that the persons who affixed
such signatures to such documents had authority to do so. We have examined such
documents, records and matters of law as we have deemed necessary for purposes
of this opinion and, based thereupon, we are of the opinion that an aggregate
of 3,459,414 shares of Common Stock held by Elliott and Westgate on the date
hereof and subject to the Registration Statement are duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and to the reference to us under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
Very truly yours,
/s/ JONES, DAY, REAVIS & POGUE
<PAGE> 1
EXHIBIT 10.8
GRANT GEOPHYSICAL, INC.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1997 Equity and Performance Incentive
Plan is to attract and retain consultants, directors, officers and other key
employees for Grant Geophysical, Inc., a Delaware corporation, and its
Subsidiaries and to provide to such persons incentives and rewards for superior
performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section
5 of this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for
determining the Spread upon the exercise of a Free-Standing Appreciation Right
and a Tandem Appreciation Right.
"Board" means the Board of Directors of the Company and, to
the extent of any delegation by the Board to a committee (or subcommittee
thereof) pursuant to Section 16 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section
12 of this Plan.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Shares" means shares of the common stock, par value $
.001 per share, of the Company or any security into which such shares may be
changed by reason of any transaction or event of the type referred to in Section
11 of this Plan.
"Company" means Grant Geophysical, Inc., a Delaware
corporation.
"Date of Grant" means the date specified by the Board on which
a grant of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective, which shall not be earlier than the date on which the Board takes
action with respect thereto.
"Deferral Period" means the period of time during which
Deferred Shares are subject to deferral limitations under Section 7 of this
Plan.
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<PAGE> 2
"Deferred Shares" means an award made pursuant to Section 7 of
this Plan of the right to receive Common Shares at the end of a specified
Deferral Period.
"Director" means a member of the Board of Directors of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right.
"Incentive Stock Options" means Option Rights that are
intended to qualify as "incentive stock options" under Section 422 of the Code
or any successor provision.
"Management Objectives" means the achievement or performance
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares or dividend credits
pursuant to this Plan.
"Market Value per Share" means, as of any particular date, (i)
the closing sale price per Common Share as reported on the principal exchange on
which Common Shares are then trading (or, if applicable, the NASDAQ National
Market System) on the Date of Grant or the date of exercise, as the case may be,
or, if there shall have been no sales on the Date of Grant, on the next
preceding trading day during which a sale shall have occurred, or (ii) if clause
(i) does not apply, the fair market value of the Common Shares as determined by
the Board.
"Nonemployee Director" means a Director who is not an employee
of the Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable on exercise of
an Option Right.
"Option Right" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4 of this Plan.
"Participant" means (i) a person who is selected by the Board
to receive benefits under this Plan and is at that time a consultant or an
officer (including an officer who is also a Director) or other key employee of
the Company or one or more Subsidiaries or has agreed to commence serving in any
of such capacities within 90 days of the Date of Grant and (ii) a Nonemployee
Director who has received one or more automatic grants of Restricted Shares
pursuant to Section 9 of this Plan.
2
<PAGE> 3
"Performance Period" means, in respect of a Performance Share
or Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a
unit equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this Grant Geophysical, Inc. 1997 Equity and
Performance Incentive Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(f) of this Plan.
"Restricted Shares" means Common Shares granted or sold
pursuant to Section 6 or Section 9 of this Plan as to which neither the
substantial risk of forfeiture nor the prohibition on transfers referred to in
such Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any
successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation or other entity in which the
Company now or hereafter directly or indirectly owns or controls more than 50
percent of the outstanding shares or other securities (representing the right to
vote for the election of directors or other managing authority) issued by such
corporation or other entity or, in the case of a partnership or other entity
that does not have outstanding shares or other securities, in which the Company
now or hereafter has a direct or indirect ownership interest (representing the
right generally to make decisions for such partnership or other entity) of more
than 50 percent; provided, however, for the purposes of determining whether any
person may be a Participant for the purposes of any grant of Incentive Stock
Options, "Subsidiary" means any corporation in which the Company then directly
or indirectly owns or controls more than 50 percent of the total combined voting
power represented by all classes of stock issued by such corporation.
"Tandem Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is granted in tandem with an
Option Right.
"Voting Power" means, at any time, the total votes relating to
the then-outstanding securities entitled to vote generally in the election of
Directors.
3
<PAGE> 4
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 3(b) and Section 11, the number of Common Shares that may be
issued or transferred upon the exercise of Option Rights or Appreciation Rights,
as Restricted Shares and thereafter released from substantial risks of
forfeiture, as Deferred Shares, in payment of Performance Shares or Performance
Units that have been earned, or in payment of dividend equivalents paid with
respect to awards made under this Plan, shall not exceed in the aggregate
1,450,000 Common Shares. Such shares may be shares of original issuance or
treasury shares or a combination thereof.
(b) The number of Common Shares available in Section 3(a)
shall be adjusted to account for Common Shares relating to awards that expire,
are forfeited or are transferred, surrendered or relinquished upon the payment
of any Option Price by the transfer to the Company of outstanding Common Shares
or upon satisfaction of any withholding amount. Upon payment in cash of the
benefit provided by any award granted under this Plan, any Common Shares that
were covered by that award shall again be available for issue or transfer
hereunder.
4. OPTION RIGHTS. The Board may from time to time authorize the grant
to Participants of options to purchase Common Shares upon such terms and
conditions as the Board may determine consistent with this Plan. Each grant of
Option Rights may utilize any or all of the authorizations, and shall be subject
to all of the requirements, contained in the following provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains, subject to the limitations set forth in Section 3 of this
Plan.
(b) Each grant shall specify an Option Price per share, which
shall be determined by the Board; provided, however, that if the Common Shares
are listed on a national securities exchange (or the NASDAQ National Market
System) on the Date of Grant, the Option Price per share shall not be less than
the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be
payable (i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of outstanding Common Shares owned by the
Optionee, or other consideration authorized pursuant to Section 4(d), having a
value at the time of exercise equal to the total Option Price or (iii) by a
combination of such methods of payment.
(d) The Board may at or after the Date of Grant determine that
payment of the Option Price of any Option Right (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares or
other Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond
4
<PAGE> 5
to any that apply to the consideration surrendered, but such risks and
restrictions shall apply to Common Shares received only to the extent of (i) the
number of Restricted Shares or other Common Shares, Deferred Shares or
Performance Shares surrendered, (ii) the Spread of any unexercisable portion of
Option Rights surrendered or (iii) the stated value of Performance Units
surrendered.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a broker on a date satisfactory to the
Company of some or all of the shares to which the subject exercise relates.
(f) Any grant may, at or after the Date of Grant, provide for
the automatic grant of Reload Option Rights to an Optionee upon the exercise of
Option Rights (including Reload Option Rights) using Common Shares or other
consideration specified in Section 4(d). Reload Option Rights shall cover up to
the number of Common Shares, Deferred Shares, Option Rights or Performance
Shares (or the number of Common Shares having a value equal to the value of any
Performance Units) surrendered to the Company upon any such exercise in payment
of the Option Price or to meet any withholding obligations. Reload Option Rights
shall not have an Option Price that is less than the applicable Market Value per
Share at the time of exercise and shall be on such other terms as may be
specified by the Board, which may be the same as or different from those of the
original Option Rights.
(g) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such Participant remain
unexercised.
(h) Each grant shall specify the period or periods of
continuous service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a Change in Control.
(i) Any grant of Option Rights may specify Management
Objectives that must be achieved as a condition to the exercise of such rights.
(j) Option Rights granted under this Plan may be (i) options,
including but not limited to Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify or (iii) combinations of the foregoing.
(k) At or after the Date of Grant of any Option Right other
than an Incentive Stock Option, the Board may provide for the payment of
dividend equivalents to the Optionee on a current, deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(l) The exercise of an Option Right shall result in the
cancellation on a share-for-share basis of any Tandem Appreciation Right
authorized under Section 5 of this Plan.
(m) No Option Right shall be exercisable more than 10 years
from the Date of Grant.
5
<PAGE> 6
(n) Each grant of Option Rights shall be evidenced by an
agreement, which shall be executed on behalf of the Company by an officer and
delivered to the Optionee and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
5. APPRECIATION RIGHTS. (a) The Board may from time to time authorize
the grant of Tandem Appreciation Rights to any Optionee in respect of Option
Rights granted hereunder, and may from time to time authorize the grant of
Free-Standing Appreciation Rights to any Participant, upon such terms and
conditions as the Board may determine consistent with this Plan. A Tandem
Appreciation Right shall be a right of the Optionee, exercisable by surrender of
the related Option Right, to receive from the Company an amount determined by
the Board, which shall be expressed as a percentage of the Spread (not exceeding
100 percent) at the time of exercise. Tandem Appreciation Rights may be granted
at any time prior to the exercise or termination of the related Option Rights;
provided, however, that a Tandem Appreciation Right awarded in relation to an
Incentive Stock Option must be granted concurrently with such Incentive Stock
Option. A FreeStanding Appreciation Right shall be a right of the Participant to
receive from the Company an amount determined by the Board, which shall be
expressed as a percentage of the Spread (not exceeding 100 percent) at the time
of exercise.
(b) Each grant of Appreciation Rights may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(i) Any grant may specify that the amount payable on
exercise of the subject Appreciation Right may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either
grant to the Participant or retain in the Board the right to elect
among those alternatives.
(ii) Any grant may specify that the amount payable on
exercise of the subject Appreciation Right may not exceed a maximum
specified by the Board at the Date of Grant.
(iii) Any grant may specify waiting periods before
exercise and permissible exercise dates or periods.
(iv) Any grant may specify that the subject
Appreciation Right may be exercised only in the event of, or earlier in
the event of, a Change in Control.
(v) Any grant may provide for the payment to the
Participant of dividend equivalents thereon in cash or Common Shares on
a current, deferred or contingent basis.
(vi) Any grant may specify Management Objectives that
must be achieved as a condition of the exercise of the subject
Appreciation Right.
(vii) Each grant shall be evidenced by an agreement,
which shall be executed on behalf of the Company by an officer and
delivered to and accepted by the
6
<PAGE> 7
Participant and shall describe the subject Appreciation Right, identify
any related Option Right and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
(c) Any grant of a Tandem Appreciation Right shall provide
that the subject Tandem Appreciation Right may be exercised only at a time when
the related Option Right is also exercisable and the Spread is positive and by
surrender of the related Option Right for cancellation.
(d) Regarding Free-Standing Appreciation Rights only:
(i) Each grant shall specify a Base Price, which
shall be equal to or greater than the Market Value per Share
on the Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing
Appreciation Rights previously granted to the Participant
remain unexercised; and
(iii) No Free-standing Appreciation Right granted
under this Plan may be exercised more than 10 years from the
Date of Grant.
6. RESTRICTED SHARES. The Board may from time to time authorize the
grant or sale of Restricted Shares to Participants upon such terms and
conditions as the Board may determine consistent with this Plan. Each grant or
sale of Restricted Shares may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant or sale shall constitute an immediate transfer
of the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each grant or sale may be made without additional
consideration or in consideration of a payment by the Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code and may provide for the earlier
termination of such period in the event of a Change in Control.
(d) Each grant or sale shall provide that, during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Board at the Date of Grant (which
may include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
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<PAGE> 8
(e) Any grant may specify Management Objectives that, if
achieved, will result in termination or early termination of the restrictions
applicable to such shares. Any grant may specify in respect of such Management
Objectives a minimum acceptable level of achievement and may set forth a formula
for determining the number of Restricted Shares on which restrictions will
terminate if performance is at or above the minimum level but falls short of
full achievement of the specified Management Objectives.
(f) Any grant or sale may require that any or all dividends or
other distributions paid on the Restricted Shares covered thereby during the
period of such restrictions be automatically deferred and reinvested in
additional Restricted Shares, which may be subject to the same restrictions as
the underlying award.
(g) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Company by an officer and delivered to
and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing Restricted Shares (together with a
stock power or powers endorsed in blank by the Participant in whose name such
certificates are registered) shall be held in custody by the Company until all
restrictions thereon shall have lapsed.
7. DEFERRED SHARES. The Board may from time to time authorize the grant
or sale of Deferred Shares to Participants upon such terms and conditions as the
Board may determine consistent with this Plan. Each grant or sale may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, subject to the fulfillment of such
conditions during the Deferral Period as the Board may specify.
(b) Any grant or sale may be made without additional
consideration or in consideration of a payment by the Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each grant or sale shall be subject to a Deferral Period,
which shall be determined by the Board at the Date of Grant, and may provide for
the earlier termination of the Deferral Period in the event of a Change in
Control.
(d) During the Deferral Period, the Participant shall have no
right to transfer any rights under the award and shall have no ownership or
voting rights with respect to the Deferred Shares covered thereby, but the Board
may at or after the Date of Grant authorize the payment of dividend equivalents
on such Deferred Shares on a current, deferred or contingent basis in cash or
additional Common Shares.
8
<PAGE> 9
(e) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Company by an officer and delivered to
and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may from time to
time authorize the grant of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each grant may utilize any or all of the authorizations, and shall
be subject to all of the requirements, contained in the following provisions:
(a) Each grant shall specify the number of Performance Shares
or Performance Units to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance
Share or Performance Unit shall be determined by the Board on the Date of Grant
and may be subject to earlier termination in the event of a Change in Control.
(c) Each grant shall specify Management Objectives that, if
achieved, will result in payment or early payment of the subject Performance
Shares or Performance Units, and any grant may specify in respect of such
Management Objectives a minimum acceptable level of achievement and shall set
forth a formula for determining the number of Performance Shares or Performance
Units that will be earned if performance is at or above the minimum level but
falls short of full achievement of the specified Management Objectives. Each
grant shall specify that, before the subject Performance Shares or Performance
Units shall be earned and paid, the Board must certify that the specified
Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash or Common Shares or any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among those alternatives.
(e) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum specified by the
Board at the Date of Grant. Any grant of Performance Units may specify that the
amount payable or the number of Common Shares issued with respect thereto may
not exceed maximums specified by the Board at the Date of Grant.
(f) At or after the Date of Grant of Performance Shares, the
Board may provide for the payment of dividend equivalents thereon in cash or
additional Common Shares on a current, deferred or contingent basis.
9
<PAGE> 10
(g) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Company by an officer and delivered to and accepted
by the Participant and shall contain such other terms and provisions, consistent
with this Plan, as the Board may approve.
9. AUTOMATIC GRANTS OF RESTRICTED SHARES TO NONEMPLOYEE DIRECTORS. On
the date that he or she is first elected or reelected as a Nonemployee Director
following the adoption of this Plan by the Board, and on the date of each annual
meeting of the stockholders of the Company thereafter at which he or she is
reelected as a Nonemployee Director, each Nonemployee Director shall
automatically receive a grant of 3,000 Restricted Shares, subject to the terms
and conditions set forth in the form of Restricted Shares Agreement attached
hereto as Exhibit A.
10. TRANSFERABILITY. (a) Except as otherwise determined by the Board,
no Option Right, Appreciation Right or other derivative security granted under
this Plan shall be transferable by a Participant other than by will or the laws
of descent and distribution. Except as otherwise determined by the Board, Option
Rights and Appreciation Rights shall be exercisable during a Participant's
lifetime only by the Participant or his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or
all of the Common Shares that are to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon payment under any
grant of Performance Shares or Performance Units, or are no longer subject to
the substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
11. ADJUSTMENTS. The Board may, in its sole discretion, make or provide
for such adjustments in the numbers of Common Shares covered by Option Rights,
Appreciation Rights, Deferred Shares and Performance Shares outstanding
hereunder, in the Option Price and Base Price provided in Option Rights and
Appreciation Rights outstanding hereunder, and in the kind of shares covered
thereby, as the Board may in good faith determine is equitably required to
prevent dilution or expansion of the rights of Participants that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets
or issuance of rights or warrants to purchase securities or (c) any other
corporate transaction or event having an effect similar to any of the foregoing;
provided, however, that any such adjustments to an Incentive Stock Option may be
made only if and to the extent that such adjustments would not cause the
Incentive Stock Option to cease to qualify as such. In the event of any
transaction or event referred to in the preceding sentence, the Board may also,
in its sole discretion, provide in substitution for any or all outstanding
awards under this Plan such alternative consideration as the Board may in good
faith determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced. The Board may
also, in its sole discretion, make or provide for such adjustments in the number
of
10
<PAGE> 11
shares specified in Section 3 of this Plan as the Board may in good faith
determine is appropriate to reflect any transaction or event described in the
first sentence of this Section 11.
12. CHANGE IN CONTROL. For the purposes of this Plan, a "Change in
Control" shall mean the occurrence of one or more of the following events:
(a) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization, less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction is held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(b) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of Common Shares immediately prior to
such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), as promulgated pursuant to the
Exchange Act, disclosing that any "person" (as defined in Sections 3(a)(9) and
13(d)(3) or 14(d)(2) of the Exchange Act) has become the "beneficial owner" (as
defined in Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing more than 30 percent of the Voting
Power;
Notwithstanding the provisions of this Section 12, a "Change
in Control" shall not be deemed to have occurred for purposes of this Plan
solely because (i) the Company, a Subsidiary, Elliott Associates, L.P.
("Elliott"), Westgate International, L.P. ("Westgate"), an Elliott or Westgate
affiliate, or any Company-sponsored employee stock ownership plan or other
employee benefit plan of the Company either files or becomes obligated to file
with the Securities and Exchange Commission a report or proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) pursuant to the Exchange
Act, disclosing beneficial ownership by it of shares, whether in excess of 30
percent of the Voting Power or otherwise, or because the Company reports that a
change in control of the Company has or may have occurred, or will or may occur
in the future, by reason of such beneficial ownership; (ii) of a change in
control of any Subsidiary; or (iii) the Company effects a registered public
equity offering, after which offering less than a majority of the combined
voting power of the then-outstanding securities of the Company is held in the
aggregate by the holders of securities entitled to vote generally in the
election of Directors immediately prior to such offering.
13. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
11
<PAGE> 12
14. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
to be made or benefit to be realized by a Participant or other person under this
Plan, and the amounts available to the Company for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of such
taxes required to be withheld, which may in the discretion of the Board include
relinquishment of a portion of such payment or benefit. The Company and a
Participant or such other person may also make similar arrangements with respect
to the payment of any taxes with respect to which withholding is not required.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant
or combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. The Board may also approve such supplements to or
amendments, restatements or alternative versions of this Plan as it may consider
necessary or appropriate for such purposes, without thereby affecting the terms
of this Plan as in effect for any other purpose, and the Secretary or other
appropriate officer of the Company may certify any such document as having been
approved and adopted in the same manner as this Plan. No such special terms,
supplements, amendments or restatements, however, shall include any provisions
that are inconsistent with the terms of this Plan as then in effect, unless this
Plan could have been amended to eliminate such inconsistency without further
approval by the shareholders of the Company.
16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than two Nonemployee Directors appointed by the Board. A majority of
the committee (or subcommittee) shall constitute a quorum, and the action of the
members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee (or subcommittee).
(b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units, and any determination by the
Board pursuant to any provision of this Plan or any such agreement, notification
or document, shall be final and conclusive. No member of the Board shall be
liable for any such action or determination made in good faith.
17. AMENDMENTS, ETC. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that (i) any
amendment that must be approved by the stockholders of the Company in order to
comply with applicable law or the rules of any national
12
<PAGE> 13
securities exchange upon which the Common Shares are traded or quoted shall not
be effective unless and until such approval has been obtained and (ii) to the
extent that any amendment would adversely affect the rights of Participants who
then hold outstanding awards under this Plan, such amendment shall be of no
force or effect insofar as such awards then outstanding under this Plan are
concerned. Presentation of this Plan or any amendment hereof for stockholder
approval shall not be construed to limit the Company's authority to offer
similar or dissimilar benefits under other plans without stockholder approval.
(b) With the concurrence of the affected Participant, the
Board may cancel any agreement evidencing an Option Right or any other award
granted under this Plan. In the event of any such cancellation, the Board may
authorize the grant of new Option Rights or other awards hereunder, which may or
may not cover the same number of Common Shares as had been covered by the
canceled Option Right or other award, at such Option Price, in such manner and
subject to such other terms, conditions and discretion as would have been
permitted under this Plan had the canceled Option Right or other award not been
granted.
(c) The Board may grant under this Plan any award or
combination of awards authorized under this Plan in exchange for the
cancellation of an award that was not granted under this Plan, including but not
limited to any award that was granted prior to the adoption of this Plan by the
Board, and any such award or combination of awards so granted under this Plan
may or may not cover the same number of Common Shares as had been covered by the
canceled award and shall be subject to such other terms, conditions and
discretion as would have been permitted under this Plan had the canceled award
not been granted.
(d) The Board also may permit Participants to elect to defer
the issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Board also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
(e) The Board may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral by
the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(f) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not then immediately exercisable in full, or any
Restricted Shares as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not then lapsed, or any Deferred
Shares as to which the Deferral Period has not then ended, or any Performance
Shares or Performance Units that have not then been fully earned, or who holds
Common Shares subject to any transfer restriction imposed pursuant to Section
10(b) of this Plan, the Board may in its sole discretion accelerate the time at
which such Option Right or Appreciation Right may be exercised or the time at
which such substantial risk of forfeiture or prohibition or restriction on
transfer will lapse or the time when such Deferral Period will end or the
13
<PAGE> 14
time at which such Performance Shares or Performance Units will be deemed to
have been fully earned or the time when such transfer restriction will terminate
or may waive any other limitation or requirement under any such award.
(g) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Company or
any Subsidiary and shall not interfere in any way with any right the Company or
any Subsidiary would otherwise have to terminate such Participant's employment
or other service at any time.
(h) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive Stock
Option from qualifying as such, such provision shall be null and void with
respect to such Option Right. Such provision, however, shall remain in effect
for other Option Rights and there shall be no further effect on any provision of
this Plan.
18. TERMINATION. No grant shall be made under this Plan more than 15
years after the date on which this Plan is first approved by the stockholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
14
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
OF
THE COMPANY
Name Jurisdiction
- ---- ------------
Advanced Seismic Technology, Inc....................... Texas
Grant Geophysical Corp................................. Texas
Grant Geophysical do Brasil Ltda....................... Brazil
Grant Geophysical (Int'l), Inc......................... Texas
PT. Grant Geophysical
Indonesia............................................. Indonesia
Recursos Energeticos Ltda.............................. Colombia
Solid State Geophysical Inc............................ Alberta, Canada
Solid State Internacional
Ingenieria C.A........................................ Venezuela
Solid State Geophysical Corp........................... Colorado
SSGI Acquisition Corp.................................. Alberta, Canada
Saudi Solid State Co. Ltd.............................. Saudi Arabia
(50% ownership joint venture)
<PAGE> 1
Exhibit 23.2
The Board of Directors
GGI Liquidation Corporation
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Our report dated April 4, 1997, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a net
capital deficiency, which raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty. In September
1997 the Court approved the "Second Amended Plan of Reorganization" (the "Plan")
filed by GGI Liquidating Corporation. The Plan was consummated on September 30,
1997, with the purchase by Grant Geophysical, Inc. of substantially all of the
assets and the assumption of certain liabilities of GGI Liquidation Corporation.
GGI Liquidation Corporation is currently in liquidation and will distribute all
of its assets pursuant to the Plan.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
March 26, 1998
<PAGE> 1
Exhibit 23.3
The Board of Directors
Grant Geophysical, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
March 26, 1998
<PAGE> 1
Exhibit 23.4
[PRICE WATERHOUSE LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus of Grant Geophysical, Inc.
constituting part of this Registration Statement on Form S-1 of our report
dated October 31, 1997, except for Note 17 which is as at November 27, 1997
relating to the financial statements of Solid State Geophysical Inc., which
appears in such Prospectus. We also consent to the use in such Prospectus of
our Comments by Auditors for U.S. readers on Canadian - U.S. Reporting
Differences dated October 31, 1997, except for Note 17 which is as at November
27, 1997. We also consent to the references to us under the headings "Experts"
in such Prospectus.
/s/ Price Waterhouse
Price Waterhouse
CHARTERED ACCOUNTANTS
DECEMBER 23, 1997
<PAGE> 1
Exhibit 24.1
DIRECTOR OF
GRANT GEOPHYSICAL, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director of Grant Geophysical, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jonathan D. Pollock and Larry E. Lenig, Jr. and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him and in his name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, $.001 par value
per share of the Corporation, with any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements or any additional registration statement filed pursuant to Rule 462
promulgated under the Securities Act, with full power and authority to do and
perform any and all acts and things whatsoever that any of said attorneys or
their substitutes may deem necessary or desirable, in his or their sole
discretion, with any such act or thing being hereby ratified and approved in all
respects without any further act or deed whatsoever.
EXECUTED as of February 4, 1998.
/s/ Donald W. Wilson
- -----------------------------
Donald W. Wilson
Director
<PAGE> 1
EXHIBIT 99.1
------------
SUBSCRIPTION EXERCISE NOTICE
for Shares of Common Stock of
GRANT GEOPHYSICAL, INC.
-----------------------
THE SUBSCRIPTION OFFERING WILL TERMINATE AT 5:00 P.M., CENTRAL STANDARD
TIME, ON ____________, 1998 (THE "EXPIRATION DATE"). SUBSCRIPTION
EXERCISE NOTICES MUST BE RECEIVED BY THE SUBSCRIPTION AGENT BY 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
-----------------------
- --------------------------------------------------------------------------------
ELIGIBLE SUBSCRIBER INFORMATION
- --------------------------------------------------------------------------------
[AFFIX LABEL HERE]
[LABEL TO INCLUDE NAME OF, AND NUMBER OF SHARES
ALLOCATED TO, THE ELIGIBLE SUBSCRIBER]
- --------------------------------------------------------------------------------
On the terms and subject to the conditions set forth in the Second
Amended Plan of Reorganization (the "Plan") of GGI Liquidating Corporation and
this Subscription Exercise Notice, I hereby subscribe for and agree to purchase
from the Selling Stockholders (as defined in the Subscription Offering
Prospectus, dated _______________, 1998 (the "Subscription Offering
Prospectus")) the number of shares (the "Shares") of common stock, par value
$.001 per share ("Common Stock"), of Grant Geophysical, Inc. (the "Company")
indicated below in the box entitled "Shares To Be Purchased," at a price of
$5.00 per Share (the "Subscription Purchase Price"). I acknowledge that I am an
Eligible Subscriber (as such term is defined in the Subscription Offering
Prospectus dated _______________, 1998) and am therefore entitled to purchase
the Shares, provided, however, that the Company shall have no obligation to sell
any Shares to any Eligible Subscriber who is a resident of a jurisdiction in
which the sale of Common Stock to him would constitute a violation of the
securities, "Blue Sky" or other laws of such jurisdiction. The right to purchase
Common Stock in the Subscription Offering is nontransferable under the Plan, and
the addition to this Subscription Exercise Notice of the name of an individual
who is not an Eligible Subscriber will result in the voiding of this
Subscription Exercise Notice. For a complete description of the procedures for
subscribing for Shares of Common Stock, see the information set forth under the
heading "Subscription Procedures" in the Subscription Offering Prospectus. For a
description of certain of the risks associated with an investment in the Shares,
see the information set forth in the Subscription Offering Prospectus under the
heading "Risk Factors."
The Subscription Agent:
LASALLE NATIONAL BANK
Corporate Trust Operations, Rm 1811
135 South LaSalle Street
Chicago, IL 60603
1-800-246-5761
312-904-2553
<PAGE> 2
- --------------------------------------------------------------------------------
SUBSCRIPTION EXERCISE PROCEDURES
- --------------------------------------------------------------------------------
Eligible Subscribers should complete the following steps prior to 5:00 p.m. on
the Expiration Date:
(1) Complete and return this Subscription Exercise Notice by mail,
overnight delivery or hand delivery to:
LaSalle National Bank
Corporate Trust Operations Room 1811
135 South LaSalle Street
Chicago, IL 60603
Attn: Grant Geophysical, Inc. Subscription Offering
(2) Payment for Shares must be made by certified check or bank
draft drawn upon a United States Bank or wire transfer in an
amount equal to the product of the Subscription Purchase Price
and the number of shares sought to be purchased. Checks should
be made payable to: LaSalle National Bank and wire transfers
should be addressed to:
- --------------------------------------------------------------------------------
As promptly as practicable following the Expiration Date, the Subscription Agent
will mail (or cause to be mailed), to each Eligible Subscriber that has sought
to subscribe for Shares, a written statement specifying the number of Shares
that were validly and effectively purchased by such Eligible Subscriber,
together with a stock certificate representing the Shares purchased.
- --------------------------------------------------------------------------------
If this Subscription Exercise Notice is executed on behalf of a
corporation, partnership, trust or other entity, I represent that the person(s)
signing this Subscription Exercise Notice has/have been duly authorized to
execute this Subscription Exercise Notice and all other instruments in
connection with the purchase of the Shares and the signature(s) is/are binding
upon such corporation, partnership, trust or other entity. The Selling
Stockholders retain the right to request the production of an appropriate
certification of such authorization.
In the event there is any conflict between this Subscription Exercise
Notice and the Subscription Offering Prospectus, the terms set forth in the
Subscription Offering Prospectus shall be controlling.
This Subscription Exercise Notice may be amended only in writing by the
Eligible Subscriber named above, and only if such writing is received before the
Expiration Date.
-----------------------
Shares will be issued in the name(s) and sent to the address specified
in the box captioned "Stock Registration."
<PAGE> 3
- --------------------------------------------------------------------------------
SHARES TO BE PURCHASED
- --------------------------------------------------------------------------------
Allocation: _______________ Shares
Instruction: Your "Allocation" is the number of Shares set forth in the box
entitled Eligible Subscriber Information set forth above. You
may subscribe to purchase your Allocation in full, or you may
subscribe to purchase any number of Shares less than your
Allocation. Indicate below the number of shares you will
purchase. No fractional shares will be issued. Please complete
the following sentence:
I HEREBY SUBSCRIBE TO PURCHASE FROM THE SELLING STOCKHOLDERS
___________ SHARES AT THE SHARE PURCHASE PRICE OF $5.00.
Purchase Number of Shares Share Purchase Total Purchase
Price: Purchased * Price = Price
$5.00 $
---------------- ---------------
Method of Check the appropriate box that shows how you wish to pay for
Payment: the Shares.
[ ] certified check or bank draft [ ] wire transfer
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
STOCK REGISTRATION
(See Guidelines for Registering Stock below)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------- -------------------------------
Name(s) in which stock is to be registered Number of Shares to be registered
The right to purchase Common Stock in the Subscription Offering is not
transferable under the Plan, and the addition to this Subscription Exercise
Notice of the name of an individual who is not an Eligible Subscriber will
result in the voiding of this Subscription Exercise Notice.
- --------------------------------------- -------------------------------
Name(s) in which stock is to be registered Number of Shares to be registered
The right to purchase Common Stock in the Subscription Offering is not
transferable under the Plan, and the addition to this Subscription Exercise
Notice of the name of an individual who is not an Eligible Subscriber will
result in the voiding of this Subscription Exercise Notice.
-----------------------------------------------------------------
Street Address
-------------------------------- -------------------------------
City County
-------------------------------- -------------------------------
State ZIP Code
</TABLE>
- --------------------------------------
Social Security or Tax ID Number
Day Telephone
------------------------------
Evening Telephone
--------------------------
The manner of ownership shall be:
[ ] Individual
[ ] Joint Tenants
[ ] Tenants in Common
[ ] Other
---------------------------------------------------
(write in corporation, partnership, trust, estate, etc.)
Delivery of stock certificate will be made to the address you specify above.
- --------------------------------------------------------------------------------
<PAGE> 5
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR Social Security Number
TIN IN THE BOX AT RIGHT AND or
FORM W-9 CERTIFY BY SIGNING AND DATING Employer Identification Number
BELOW
Department of the Treasury ------------------
Internal Revenue Service
Payor's Request for Taxpayer
Identification Number (TIN)
CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY Part 2 -- THAT (1) the number
shown on this form is my correct taxpayer
identification number (or I am waiting for a number Awaiting TIN [ ]
to be issued I am not subject to backup withholding
either because I am exempt from backup withholding,
I have not been notified by the Internal Revenue ------------------------------
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends or the IRS has notified me that Part 3 --
I am no longer subject to backup withholding and (3) any
other information provided on this form is true and Exempt [ ]
correct.
Name
----------------------------------------------------
Address
------------------------------------------------
---------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) in the certification above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX PAYER IDENTIFICATION NUMBER
<S> <C>
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Center or Social Security
Administration Office or (b) I intend to mail or delivery an application
in the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a
number.
- --------------------------------- ------------------------------------
Signature Date
- ----------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
</TABLE>
<PAGE> 6
ACKNOWLEDGMENT
I have received and carefully reviewed the Subscription Offering
Prospectus with respect to the Subscription Offering and sale of the Shares,
including the information set forth under the heading "Risk Factors," which
describes certain of the risks associated with an investment in the Shares. No
information or representations have been given to me by representatives of the
Company, the Selling Stockholders or anyone else other than those contained in
the Subscription Offering Prospectus.
This Subscription Exercise Notice cannot be revoked or amended by me
after the Expiration Date. After acceptance by the Selling Stockholders, this
Subscription exercise Notice shall be binding on my heirs, estate, legal
representatives, assigns and successors, and shall survive my death, disability
or dissolution.
THIS SUBSCRIPTION EXERCISE NOTICE MUST BE RECEIVED BY 5:00 P.M. CENTRAL
STANDARD TIME ON ________________, 1998 IN ORDER TO PARTICIPATE IN THE
SUBSCRIPTION OFFERING. RETURN YOUR COMPLETED SUBSCRIPTION EXERCISE NOTICE IN
THE ENVELOPE PROVIDED.
SIGNATURE(S) OF ELIGIBLE SUBSCRIBER
(See Guidelines for Registering Stock below)
NOTE: THIS SUBSCRIPTION EXERCISE NOTICE IS NOT VALID UNLESS SIGNED.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
- ------------------------------------ --------------------------
Signature Date
- ------------------------------------ --------------------------
Signature Date
- ----------------------------------------------------------
Title (if subscribing as custodian, corporate officer, etc.)
- --------------------------------------------------------------------------------
ACCEPTANCE
(for use by Selling Stockholders Only)
Accepted for ______________ Shares of Common Stock at a total Purchase
Price of $_________________.
Elliott Associates, L.P. Westgate International, L.P.
By: By:
---------------------------- ------------------------------
- --------------------------------------------------------------------------------
<PAGE> 7
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stockholder registrations which we will use in issuing
your Grant Geophysical, Inc. Stock Certificate(s). If you have any questions,
please consult your legal advisor.
Stock ownership must be registered in one of the following manners.
- --------------------------------------------------------------------------------
GENERAL INSTRUCTIONS: - Include the first name, middle initial and
last name of each person listed. Avoid the
use of an initial in place of the first
name.
- Do not use titles such as "Mr.," "Mrs.,"
"Dr.," etc.
- Omit words that do not affect ownership
rights such as "special account," "personal
property," etc.
- Check the appropriate space in the box
captioned "Stock Registration" to indicate
manner of ownership.
- --------------------------------------------------------------------------------
INDIVIDUAL: Instructions: In the box captioned "Stock
Registration," print the first name, middle
initial and last name of the stockholder. In
the box captioned "Signature(s) of
Stockholder(s)," the stockholder must sign
his or her name.
- --------------------------------------------------------------------------------
JOINT TENANTS: Joint Tenancy with Right of Survivorship
identifies two or more persons as owners of
the stock. Upon the death of one of the
owners, ownership automatically passes to
the surviving tenant(s).
Instructions: In the box captioned "Stock
Registration," print the first name, middle
initial and last name of each joint tenant.
In the box captioned "Signature(s) of
Stockholder(s)," each stockholder must sign
his or her name.
- --------------------------------------------------------------------------------
TENANTS IN COMMON: Tenants in Common identifies two or more
persons as owners of the stock. Upon the
death of one co-tenant, ownership of the
stock passes to the heirs of the deceased
co-tenant and the surviving co-tenant(s).
Instructions: In the box captioned "Stock
Registration," print the first name, middle
initial and last name of each co-tenant. In
the box captioned "Signature(s) of
Stockholder(s)," each stockholder must sign
his or her name.
- --------------------------------------------------------------------------------
CORPORATION OR Instructions: In the box captioned "Stock
PARTNERSHIP Registration," print the name of the
corporation, partnership, trust, estate or
other entity. In the box captioned
"Signature(s) of Stockholder(s)," the
authorized signatory/signatories for the
corporation, partnership, trust, estate or
other entity must sign his, her or their
names, as the case may be.
================================================================================
FOR ASSISTANCE COMPLETING THIS SUBSCRIPTION EXERCISE NOTICE OR QUESTIONS
REGARDING THE SUBSCRIPTION OFFERING, CALL THE SUBSCRIPTION AGENT AT (312)
904-2553 AND ASK TO SPEAK TO A REPRESENTATIVE ABOUT THE GRANT GEOPHYSICAL, INC.
SUBSCRIPTION OFFERING.
