<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
REGISTRATION NO. 333-43219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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
SUBJECT TO COMPLETION, DATED JUNE 23, 1998
SUBSCRIPTION OFFERING PROSPECTUS
3,393,769 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 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 3,393,769 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. This
Subscription Offering Prospectus and the related Subscription Exercise Notice
are being mailed to Eligible Subscribers of record as of the close of business
on June , 1998.
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 CLAIM AND INTEREST HOLDERS UNDER THE
PLAN, WERE ENTITLED TO PURCHASE 1,356,231 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 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") or, if certain conditions are met as
set forth herein, $4.75 per share (the "Discounted 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 or
the Discounted Subscription Purchase Price, as applicable, 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. 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.
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(1) STOCKHOLDERS(1)(2)
---------------------- ----------------------
<S> <C> <C>
Per Share................................................... $5.00 $5.00
Total(3).................................................... $16,968,845.00 $16,968,845.00
</TABLE>
- ---------------
(1) Assumes all Eligible Subscribers subscribe for Common Stock at the
Subscription Purchase Price.
(2) All expenses of issuance and distribution, estimated to be $575,000, will be
paid by the Company.
(3) Assumes all Eligible Subscribers exercise their subscription rights in full.
, 1998
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.
<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. 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 June 5, 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 June 5, 1998, the Company was operating or mobilizing 18 seismic data
acquisition crews, consisting of 14 land and four transition zone crews, and
owned approximately 35,000 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 June 5, 1998, the Company was operating or mobilizing a total of
eight crews in the United States, consisting of six land and two transition zone
crews, four land crews in Latin America, two 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. For the three months ended March 31, 1998, the Company's
total revenues were $47.9 million, with 41.3% from Latin America, 30.2% from the
United States, 17.1% from Canada and 11.4% from the Far East. As of March 31,
1998, the Company estimates that its total backlog was approximately $119.0
million, with approximately 93% of such amount expected to be completed in 1998.
The Company made approximately $12.4 million of capital expenditures during the
fourth quarter of 1997. The Company budgeted approximately $21 million of
capital expenditures in 1998 to upgrade and expand its seismic data acquisition
equipment and made approximately $8.7 million of such budgeted capital
expenditures during the first quarter of 1998.
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.
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"), to be registered under the Securities Act, for up to $100
million aggregate principal amount of the outstanding Original Notes (the
"Exchange Offer"). The Exchange Offer was completed on June 12, 1998. 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 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.
4
<PAGE> 6
THE SUBSCRIPTION OFFERING
Common Stock Offered by the
Selling Stockholders..... 3,393,769 shares
Common Stock Outstanding
after the Subscription
Offering................. 14,408,055 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 the related Subscription Exercise
Notice, which contain information concerning the Subscription Offering, are
being mailed to Eligible Subscribers of record as of June , 1998.
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 or the Discounted Subscription Purchase Price,
as applicable, 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 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 to purchase shares of Common Stock subject to any such defect or
irregularity. Deliveries required to be received
5
<PAGE> 7
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 or, if an Eligible
Subscriber chooses to execute the release contained in the Subscription Exercise
Notice, the Discounted Subscription Purchase Price of $4.75 per share. For
further information regarding the settlement of the lawsuit that led to the
Discounted Subscription Purchase Price, see "Business -- Legal Proceedings" and
"Subscription Procedures -- Purchase Price."
THE SUBSCRIPTION PURCHASE PRICE AND THE DISCOUNTED SUBSCRIPTION PURCHASE
PRICE ARE 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 THE DISCOUNTED SUBSCRIPTION
PURCHASE PRICE WAS DETERMINED IN CONNECTION WITH THE SETTLEMENT OF CERTAIN
CLAIMS BY ELIGIBLE SUBSCRIBERS AND NEITHER SHOULD 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 AND THE DISCOUNTED SUBSCRIPTION PURCHASE PRICE ARE
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 purchasing Common Stock in the
Subscription Offering. 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 two-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 GGI presented
below for the three months ended March 31, 1997 is derived from the unaudited
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 statement of operations data for the Company presented below for the
three months ended March 31, 1998 is derived from the unaudited consolidated
financial statements of the Company. The summary balance sheet data of the
Company at March 31, 1998 is derived from the unaudited 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 statement of
operations data for the Company for the three months ended March 31, 1998 gives
effect to the issuance of the Original Notes and the application of the net
proceeds therefrom us if they were completed at January 1, 1998. 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 GGI THE COMPANY
---------------------------------- --------------------------- ------------ ------------
YEAR ENDED NINE MONTHS THREE MONTHS PRO FORMA THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED ENDED YEAR ENDED ENDED ENDED
------------------ SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996(1) 1997 1997 1997(2) 1997 1998
------- -------- ------------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $91,996 $105,523 $ 92,705 $ 37,868 $173,865 $30,296 $47,895
Expenses:
Operating expenses........ 69,046 136,326 71,006 28,431 135,869 23,556 34,740
Selling, general and
administrative
expenses................ 8,527 17,865 6,473 3,507 12,379 2,060 3,802
Depreciation and
amortization............ 9,424 11,500 8,432 4,594 19,582 2,611 5,289
Asset impairment.......... -- 5,802 -- 6,369 6,369 -- --
------- -------- -------- -------- -------- ------- -------
Total expenses.......... 86,997 171,493 85,911 42,901 174,199 28,227 43,831
------- -------- -------- -------- -------- ------- -------
Operating income
(loss)................ 4,999 (65,970) 6,794 (5,033) (334) 2,069 4,064
Other income (deductions):
Interest expense, net..... (3,522) (7,522) (3,758) (1,362) (10,887) (1,387) (1,965)
Reorganization costs...... -- (412) (3,543) -- -- (993) --
Other..................... 2,076 (502) 2,266 (1,262) 815 295 (162)
------- -------- -------- -------- -------- ------- -------
Total other
deductions............ (1,446) (8,436) (5,035) (2,624) (10,072) (2,085) (2,127)
------- -------- -------- -------- -------- ------- -------
Income (loss) before
income taxes.......... 3,553 (74,406) 1,759 (7,657) (10,406) (16) 1,937
Income tax expense.......... 391 1,621 2,184 856 2,557 260 1,204
------- -------- -------- -------- -------- ------- -------
Income (loss) before
minority interest......... 3,162 (76,027) (425) (8,513) (12,963) (276) 733
Minority interest........... -- -- -- 2,847 -- -- --
------- -------- -------- -------- -------- ------- -------
Income (loss) from
continuing operations..... $ 3,162 $(76,027) $ (425) $ (5,666) $(12,963) $ (276) $ 733
======= ======== ======== ======== ======== ======= =======
OTHER FINANCIAL DATA:
Capital expenditures........ $14,921 $ 25,799 $ 4,154 $ 12,400 $ 27,215 $ 1,416 $ 8,666
OPERATING DATA (AT PERIOD END):
Seismic crews in
operation................. 14 14 13 20 20 14 23
Seismic recording channels
owned..................... 12,320 17,430 17,870 26,762 26,762 19,260 35,000
<CAPTION>
THE COMPANY
------------
PRO FORMA
THREE MONTHS
ENDED
MARCH 31,
1998
------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................... $47,895
Expenses:
Operating expenses........ 34,740
Selling, general and
administrative
expenses................ 3,802
Depreciation and
amortization............ 5,289
Asset impairment.......... --
-------
Total expenses.......... 43,831
-------
Operating income
(loss)................ 4,064
Other income (deductions):
Interest expense, net..... (2,413)
Reorganization costs...... --
Other..................... (162)
-------
Total other
deductions............ (2,575)
-------
Income (loss) before
income taxes.......... 1,489
Income tax expense.......... 1,204
-------
Income (loss) before
minority interest......... 285
Minority interest........... --
-------
Income (loss) from
continuing operations..... $ 285
=======
OTHER FINANCIAL DATA:
Capital expenditures........ $ 8,666
OPERATING DATA (AT PERIOD EN
Seismic crews in
operation................. 23
Seismic recording channels
owned..................... 35,000
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
THE COMPANY
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 25,312
Working capital............................................. 38,222
Total assets................................................ 192,022
Long-term debt, including current portion................... 102,343
Stockholders' equity........................................ 43,112
</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.
8
<PAGE> 10
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 March 31, 1998, the Company had total consolidated debt of approximately
$102.3 million and a ratio of total consolidated debt to total capitalization of
approximately 70.4% (76.0% after giving effect to the redemption by the Company
of its outstanding shares of cumulative pay-in-kind preferred stock, par value
$.001 per share ("Preferred Stock"), together with cumulative dividends thereon,
on June 5, 1998). See "Certain Relationships and Related Transactions." The
Company has $15 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
9
<PAGE> 11
be subject to future economic, financial and business conditions and other
factors, many of which are beyond the Company's control.
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 made
approximately $12.4 million of capital expenditures during the fourth quarter of
1997. The Company budgeted approximately $21 million of capital expenditures in
1998 to upgrade and expand its seismic data acquisition equipment and made
approximately $8.7 million of such budgeted capital expenditures during the
first quarter of 1998. The Company intends to continually maintain and
10
<PAGE> 12
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. During the first quarter of 1998, the Company made approximately
$155,000 of such expenditures and committed approximately $8.3 million in
connection with one multi-client data acquisition project. There can be no
assurance that the Company 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, on a pro forma
basis, and the first quarter of 1998, the five largest customers of the Company
accounted for approximately 31.9% and 38.0%, respectively, of the Company's net
sales. During 1997, on a pro forma basis, and the first quarter of 1998, no
single customer accounted for 10% or more of the Company's revenues. Although
GGI and Solid State have had long-term relationships with numerous customers,
the continuation of these relationships is primarily
11
<PAGE> 13
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.
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%. Approximately 52.7% of the
Company's revenues for the three months ended March 31, 1998 were derived from
operations outside the United States and Canada. 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
12
<PAGE> 14
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 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. In the first quarter of 1998, the Company made approximately $155,000
of such expenditures and committed approximately $8.3 million in connection with
one multi-client data acquisition project.
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
13
<PAGE> 15
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 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. Such Eligible Subscribers, however, agreed to
settle the lawsuit on June , 1998. 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, other Eligible
Subscribers who do not execute the release contained in the Subscription
Exercise Notice could commence other lawsuits related to the Plan, which may not
be subject to indemnification by Elliott, and which 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, other than restricted shares granted under the Incentive
Plan (as defined herein). 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. 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."
14
<PAGE> 16
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.
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."
15
<PAGE> 17
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."
16
<PAGE> 18
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.
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. On June 5, 1998, the Company redeemed and canceled all of the outstanding
shares of Preferred Stock, together with cumulative dividends thereon, in the
aggregate liquidation amount of approximately $10.7 million with available cash
balances. See "Certain Relationships and Related Transactions." 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. The Exchange
Offer was completed on June 12, 1998. 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 March 31, 1998, the cash and cash
equivalents, debt and equity capitalization of the Company. The as adjusted
column reflects the redemption and cancelation of the Preferred Stock, together
with cumulative dividends thereon, on June 5, 1998. 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 MARCH 31, AS ADJUSTED
-------------- AT MARCH 31,
1998 1998
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 25,312 $ 14,589
======== ========
Current portion of long-term debt and notes payable......... $ 1,052 $ 1,052
Long-term debt, excluding current indebtedness:
9 3/4% Senior Notes due 2008(1)........................... 99,224 99,224
Other..................................................... 2,067 2,067
-------- --------
Total long-term debt................................... 101,291 101,291
-------- --------
Stockholders' equity:
Cumulative pay-in-kind preferred stock, $.001 par value
per share (actual: 20,000 shares authorized, 10,000
shares outstanding; as adjusted: zero authorized, zero
outstanding)........................................... 10,000 --
Common stock, $.001 par value per share (25,000,000 shares
authorized, 14,170,555 shares outstanding)(2).......... 14 14
Paid-in capital........................................... 41,278 41,278
Accumulated deficit....................................... (8,100) (8,823)
Accumulated other comprehensive income.................... (80) (80)
-------- --------
Total stockholders' equity............................. 43,112 32,389
-------- --------
Total capitalization................................... $145,455 $134,732
======== ========
</TABLE>
- ---------------
(1) Issued to the Initial Purchaser at 99.215% of face value.
(2) Excludes 1,882,000 shares of Common Stock reserved for issuance under the
Incentive Plan and the 237,500 shares of Common Stock Elliott is entitled to
receive pursuant to the Plan upon completion of the Subscription Offering.
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 condensed consolidated statement 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. The unaudited proforma condensed consolidated
statement of operations data for the three months ended March 31, 1998 gives
effect to the issuance of the Original Notes and the application of the net
proceeds there from as if they were completed as of January 1, 1998.
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
and the three months ended March 31, 1998 include 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 STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1997
THE -------------------------------------------------
NINE MONTHS ENDED 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(a) 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(b) (6,446) (4,441)(e) (10,887)
Reorganization
costs............. (3,543) -- -- 3,543(c) -- --
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 --(d) 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 $12,400 $ 27,215
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.
21
<PAGE> 23
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
THE PRO FORMA
COMPANY MARCH 31, 1998
THREE MONTHS ---------------------
ENDED NOTES
MARCH 31, OFFERING THE
1998 ADJUSTMENTS COMPANY
------------ ----------- -------
(IN THOUSANDS, EXCEPT RATIOS AND
OPERATING DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $47,895 $ -- $47,895
Expenses:
Operating expenses........................................ 34,740 -- 34,740
Selling, general and administrative expenses.............. 3,802 -- 3,802
Depreciation and amortization............................. 5,289 -- 5,289
Special charge for asset impairment....................... -- -- --
------- ----- -------
Total costs and expenses................................ 43,831 -- 43,831
------- ----- -------
Operating income (loss)................................. 4,064 -- 4,064
Other expense:
Interest expense, net..................................... (1,965) (448) (e) (2,413)
Reorganization costs...................................... -- -- --
Other..................................................... (162) -- (162)
------- ----- -------
Total other expenses.................................... (2,127) (448) (2,575)
------- ----- -------
Income (loss) before income taxes and minority
interest.............................................. 1,937 (448) 1,489
Income tax expense.......................................... 1,204 -- 1,204
------- ----- -------
Income (loss) before minority interest.................... 733 (448) 285
Minority interest........................................... -- -- --
------- ----- -------
Income (loss) from continuing operations ................... 733 (448) 285
======= ===== =======
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ 8,666 $ 8,666
OPERATING DATA (AT PERIOD END):
Seismic crews in operation.................................. 23 23
Seismic recording channels owned............................ 35,000 35,000
</TABLE>
See notes to unaudited pro forma financial statements.
22
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The pro forma adjustments relating to the combined statement of operations
for the year ended December 31, 1997 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
eliminated. The pro forma adjustments relating to the combined statement of
operations for the three months ended March 31, 1998, include those necessary 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.
(a) 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.
(b) 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.
(c) Adjustment to remove reorganization costs.
(d) Income tax expense has not been recorded as a result of the benefits
available from an operating loss carryforward of Grant.
(e) 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 and February 18, 1998. Estimated
issue costs of $3.827 million will be amortized over the life of the
Notes.
23
<PAGE> 25
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The statement of operations data for GGI presented below for each of the
years in the four year period ended December 31, 1996 and the nine months ended
September 30, 1997 and the balance sheet data of GGI at the end of each of the
years in the four year period ended December 31, 1996 are derived from the
consolidated financial statements of GGI. The statement of operations data for
GGI for the three month period ended March 31, 1997 are derived from the
unaudited 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. The balance sheet data of the Company at March 31,
1998 and the statement of operations data for the three months ended March 31,
1998 are derived from the unaudited 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 THE
GGI COMPANY GGI COMPANY
-------------------------------------------------------- ------------ ------------ ------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
---------------------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996(1) 1997 1997 1997 1998
-------- -------- ------- -------- ------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 69,255 $ 73,691 $91,996 $105,523 $92,705 $ 37,868 $30,296 $47,895
Expenses:
Operating expenses...... 53,678 53,132 69,046 136,326 71,006 28,431 23,556 34,740
Selling, general and
administrative
expense............... 13,375 7,810 8,527 17,865 6,473 3,507 2,060 3,802
Depreciation and
amortization.......... 13,078 12,079 9,424 11,500 8,432 4,594 2,611 5,289
Asset impairment........ 3,339 9,911 -- 5,802 -- 6,369 -- --
-------- -------- ------- -------- ------- -------- ------- -------
Total expenses........ 83,470 82,932 86,997 171,493 85,911 42,901 28,227 43,831
-------- -------- ------- -------- ------- -------- ------- -------
Operating income
(loss).............. (14,215) (9,241) 4,999 (65,970) 6,794 (5,033) 2,069 4,064
Other income (deductions):
Interest expense, net... (3,020) (3,384) (3,522) (7,522) (3,758) (1,362) (1,387) (1,965)
Reorganization costs.... -- -- -- (412) (3,543) -- (993) --
Other................... 425 1,380 2,076 (502) 2,266 (1,262) 295 (162)
-------- -------- ------- -------- ------- -------- ------- -------
Total other income
(deductions)........ (2,595) (2,004) (1,446) (8,436) (5,035) (2,624) (2,085) (2,127)
-------- -------- ------- -------- ------- -------- ------- -------
Income (loss) before
income taxes........ (16,810) (11,245) 3,553 (74,406) 1,759 (7,657) (16) 1,937
Income tax expense........ 143 193 391 1,621 2,184 856 260 1,204
-------- -------- ------- -------- ------- -------- ------- -------
Income (loss) before
minority interest..... (16,953) (11,438) 3,162 (76,027) (425) (8,513) (276) 733
Minority interest......... -- -- -- -- -- 2,847 -- --
-------- -------- ------- -------- ------- -------- ------- -------
Income (loss) from
continuing operations... $(16,953) $(11,438) $ 3,162 $(76,027) $ (425) $ (5,666) $ (276) $ 733
======== ======== ======= ======== ======= ======== ======= =======
OTHER FINANCIAL DATA:
Capital expenditures...... $ 5,781 $ 8,463 $14,921 $ 25,799 $ 4,154 $ 12,400 $ 1,416 $ 8,666
Cash provided by (used in)
operating activities.... 2,133 3,170 2,759 (9,346) 4,526 5,386 2,122 (418)
Cash provided by (used in)
investing activities.... (1,128) (9,698) (9,272) (10,181) (6,731) (19,715) (1,238) 3,946
Cash provided by (used in)
financing activities.... (3,486) 5,260 6,929 25,667 1,289 15,072 (3,854) 22,304
OPERATING DATA (AT PERIOD
END):
Seismic crews in
operation............... 15 15 14 14 13 20 14 23
Seismic recording channels
owned................... 12,120 12,520 12,320 17,430 17,870 26,762 19,260 35,000
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
GGI THE COMPANY
-------------------------------------- -----------
AT DECEMBER 31, THE COMPANY
---------------------------------------------------- AT MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................... $ 2,992 $ 3,670 $ 1,147 $ 6,772 $ 7,414 $ 25,312
Working capital.......................... 4,585 3,022 8,033 22,421 16,190 38,222
Total assets............................. 70,745 61,609 86,932 70,123 155,704 192,022
Long-term debt, including current
portion................................ 15,859 19,412 27,219 589 76,353 102,343
Stockholders' equity (deficit)........... 37,774 26,399 29,715 (34,213) 41,992 43,112
</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 June 5, 1998, the Company was operating or mobilizing 18 seismic data
acquisition crews, consisting of 14 land and four transition zone crews, and
owned approximately 35,000 seismic recording channels. According to industry
sources, as of June 5, 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 and the three months ended March 31, 1998 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 GGI THE COMPANY
---------------------------------- ------------ ------------- ------------ ------------
YEAR ENDED NINE MONTHS THREE MONTHS TWELVE MONTHS THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED ENDED ENDED ENDED ENDED
------------------ SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997 1997 1997 1998
------- -------- ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $91,996 $105,523 $ 92,705 $37,868 $130,573 $30,296 $47,895
Expenses:
Operating expenses..... 69,046 136,326 71,006 28,431 99,437 23,556 34,740
Selling, general and
administrative
expenses............. 8,527 17,865 6,473 3,507 9,980 2,060 3,802
Depreciation and
amortization......... 9,424 11,500 8,432 4,594 13,026 2,611 5,289
Asset impairment....... -- 5,802 -- 6,369 6,369 -- --
------- -------- -------- ------- -------- ------- -------
Total costs and
expenses........... 86,997 171,493 85,911 42,901 128,812 28,227 43,831
------- -------- -------- ------- -------- ------- -------
Operating income
(loss)............. 4,999 (65,970) 6,794 (5,033) 1,761 2,069 4,064
Other expense:
Interest expense,
net.................. (3,522) (7,522) (3,758) (1,362) (5,120) (1,387) (1,965)
Reorganization costs... -- (412) (3,543) -- (3,543) (993) --
Other.................. 2,076 (502) 2,266 (1,262) 1,004 295 (162)
------- -------- -------- ------- -------- ------- -------
Total other
expenses........... (1,446) (8,436) (5,035) (2,624) (7,659) (2,085) (2,127)
------- -------- -------- ------- -------- ------- -------
Income (loss) before
income taxes......... 3,553 (74,406) 1,759 (7,657) (5,898) (16) 1,937
Income tax expense....... 391 1,621 2,184 856 3,040 260 1,204
------- -------- -------- ------- -------- ------- -------
Income (loss) from
continuing operations
before minority
interest............... 3,162 (76,027) (425) (8,513) (8,938) (276) 733
Minority interest........ -- -- -- 2,847 2,847 -- --
------- -------- -------- ------- -------- ------- -------
Net income (loss)........ $ 3,162 $(76,027) $ (425) $(5,666) $ (6,091) $ (276) $ 733
======= ======== ======== ======= ======== ======= =======
</TABLE>
The Company's Three Months Ended March 31, 1998 Compared to GGI's Three Months
Ended March 31, 1997
The following analysis compares the operating results of the Company for
the three month period ended March 31, 1998 with the operating results of GGI
for the three month period ended March 31, 1997. As described above, Grant
acquired Solid State in December, 1997. Because of the significant changes in
Grant's corporate structure and scope of operations, the consummation of the
Plan and the Acquisition, comparisons may not be meaningful.
Revenues. Consolidated revenue increased $17.6 million, or 58%, from $30.3
million for GGI for the three months ended March 31, 1997 to $47.9 million in
revenue for the Company for the three months ended March 31, 1998. This increase
was the result of growth in revenues in the Far East, the United States and
Latin America and the inclusion of Solid State's results of operations. In the
aggregate, Solid State's operations added $14.0 million to revenue for the first
quarter of 1998.
Revenues from the United States data acquisition operations increased $3.8
million, or 36%, from $10.7 million for GGI for the quarter ended March 31, 1997
to $14.5 million for the Company for the quarter ended March 31, 1998. This
increase was attributable to the addition of one Solid State crew for the entire
first quarter of 1998, increased crew productivity as a result of a higher
channel count per crew and a more efficient use of both equipment and personnel
throughout the region. The Company operated six seismic data acquisition crews
continuously in the United States during the three months ended March 31, 1998
compared with a peak of seven crews operating from time to time for GGI during
the same period in 1997.
Revenues from Latin America increased $2.7 million, or 15%, from $17.1
million for GGI for the quarter ended March 31, 1997 to $19.8 million for the
Company for the quarter ended March 31, 1998. During the first
27
<PAGE> 29
quarter of 1997, GGI's Latin American operations consisted of as many as seven
land seismic data acquisition crews operating in Colombia, Ecuador, Brazil and
Peru. GGI completed operations in Peru and crews were withdrawn in January 1997.
During the first quarter of 1998, the Company operated as many as eight seismic
crews in the region, including three in Colombia, two in Bolivia and one each in
Guatemala, Brazil and Ecuador. The Company began operations in Guatemala in
September 1997 and acquired the Bolivian operations of Solid State in connection
with the Acquisition in December 1997.
Revenues from the Far East increased $3.0 million, or 122%, from $2.5
million for GGI for the first quarter of 1997 to $5.5 million for the Company
for the first quarter of 1998. During the first quarter of 1997, GGI operated
one land crew in and began mobilizing one transition zone crew to Bangladesh.
The transition zone crew began operations in July 1997. During the first quarter
of 1998, the Company operated two crews in Bangladesh for the entire period and
began mobilizing two crews to Indonesia. The Indonesian crews will begin data
acquisition during the second quarter of 1998.
Revenues from Canadian data acquisition operations were $8.0 million for
the Company's quarter ended March 31, 1998 compared to zero for GGI for the same
period in 1997. The Company (through Solid State) operated as many as six land
seismic crews in Canada during the three month period ended March 31, 1998 while
GGI had no operations in Canada during the same period in 1997. The Canadian
seismic business is seasonal with most of the crew activity occurring during the
months of October through March. The Company completed the seasonal operations
of four seismic data acquisition crews on April 1, 1998. Two crews currently are
active in Canada with two crews mobilizing operations into the northern and
western United States.
Expenses. Operating expenses of the Company as a percentage of revenues
decreased to 73% for the three months ended March 31, 1998 from 78% for GGI for
the three months ended March 31, 1997. This percentage decrease can be
attributed to overall improved operating efficiency, and in particular, to the
Company's Canadian crews during that period. GGI had no Canadian operations
during the same three month period ending March 31, 1997. Operating expenses
during the first quarter of 1998 increased $11.2 million to $34.7 million for
the Company compared with $23.6 million for GGI's same period ended March 31,
1997. This increase is a result of the revenue increases experienced in the
United States, Latin America, the Far East and Canada discussed above.
Other operating expenses increased $1.7 million, or 81%, to $3.8 million
for the Company for the quarter ended March 31, 1998 from $2.1 million for GGI
for the quarter ended March 31, 1997. Other operating expenses also increased as
a percentage of revenue to 8% in first quarter of 1998 from 7% in same period in
1997. The primary reason for these increases is the inclusion of Solid State
expenses during the Company's first quarter of 1998 with no corresponding
expense for GGI during that same period in 1997.
Depreciation and amortization increased $2.7 million, or 104%, to $5.3
million for the Company for the quarter ended March 31, 1998 from $2.6 million
for GGI for the quarter ended March 31, 1997. This increase is primarily
attributable to $1.3 million in depreciation on the acquired Solid State assets
and amortization of goodwill of $366,000, neither of which were incurred by GGI
during the first quarter of 1997, and to depreciation on new assets purchased by
the Company during the quarters ended December 31, 1997 and March 31, 1998.
Other Income (Deductions). Interest expense, net, increased $578,000, or
42%, to $2.0 million for the Company for the quarter ended March 31, 1998 from
$1.4 million for GGI for the quarter ended March 31, 1997. This increase was the
result of interest on debt both incurred and assumed by the Company as a result
of the Acquisition and the increase in debt resulting from the sale of the
Original Notes on February 18, 1998 in the aggregate principal amount of $100
million. Proceeds from the sale of the Original Notes were used to retire
substantially all of the Company's outstanding indebtedness, to fund capital
expenditures and provide working capital.
Reorganization costs of $993,000 for the quarter ended March 31, 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 March 31, 1998 and none
are expected to be incurred in the future.
28
<PAGE> 30
The Company's other expense for the three months ended March 31, 1998 of
$162,000 was principally the result of losses on foreign exchange transactions
incurred in connection with its Canadian operations. Other income for GGI of
$295,000 for that same period in 1997 related to gains on foreign exchange
transactions in Colombia and miscellaneous other income.
Tax Provision. The income tax provision in both periods consisted of
income taxes in foreign countries. The increase for the Company for the quarter
ended March 31, 1998 compared with GGI's quarter ended March 31, 1997 was a
result of higher taxable income in Colombia, Ecuador, Guatemala and Bangladesh.
No provision for United States federal income tax was made in either period as
GGI and the Company each had net loss carryforwards available.
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, the consummation of the
Plan and the Acquisition, 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 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
29
<PAGE> 31
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 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
30
<PAGE> 32
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.
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.
31
<PAGE> 33
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.
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.
32
<PAGE> 34
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.
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.
33
<PAGE> 35
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. At March
31, 1998, the carrying value of such multi-client data was approximately $5.3
million as a result of sales and amortization.
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 ($13.5
million at June 5, 1998 after giving effect to the redemption of the Preferred
Stock described below) and cash flow from operations. External sources include
the unutilized portion of the Credit Facility ($15.0 million at June 5, 1998),
equipment financing and trade credit. The Credit Facility contains a $15 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.
On June 5, 1998, the Credit Facility was amended to increase the revolving
credit facility from $5 million to $15 million, and to extend the term of the
Credit Facility from March 31, 1999 to March 31, 2000. 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
June 5, 1998, the Company also redeemed and canceled all of the outstanding
shares of its Preferred Stock, together with cumulative dividends thereon, in
the aggregate amount of approximately $10.7 million with available cash
balances.
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 Notes are 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.
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At June 5, 1998, the Company's total indebtedness was approximately $102.5
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 $3.0 million of combined loans and capitalized leases
incurred for the purpose of financing capital expenditures.
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. These operations accounted for 52.7% of total revenues for the three
months ended March 31, 1998.
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 made approximately
$12.4 million of capital expenditures during the fourth quarter of 1997. The
Company budgeted approximately $21 million of capital expenditures in 1998 to
upgrade and expand its seismic data acquisition equipment and made approximately
$8.7 million of such budgeted capital expenditures during the first quarter of
1998. Approximately $5.6 million of the remaining $12.3 million of such capital
expenditures budgeted for 1998 is job dependent. For 1998, the Company has also
budgeted approximately $16 million of expenditures, before customer commitments,
for multi-client data acquisition activities. During the first quarter of 1998,
the Company made approximately $155,000 of such expenditures and committed
approximately $8.3 million in connection with one multi-client data acquisition
project. During the three months ended March 31, 1998, capital expenditure
commitments were made by the Company through the use of its cash reserves and
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
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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 and $247,000 during the
three months ended December 31, 1997 and the three months ended March 31, 1998,
respectively. Foreign exchange gains positively impacted operating results in
1995 by approximately $102,000.
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. 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 fourth 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 June 5, 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 June 5,
1998, the Company was operating or mobilizing 18 seismic data acquisition crews,
consisting of 14 land and four transition zone crews, and owned approximately
35,000 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 June 5, 1998, the Company was operating or mobilizing a total of
eight crews in the United States, consisting of six land and two transition zone
crews, four land crews in Latin America, two 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. For the three months ended March 31, 1998, the Company's total
revenues were $47.9 million, with 41.3% from Latin America, 30.2% from the
United States, 17.1% from Canada and 11.4% 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
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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
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. During the first quarter of 1998, the Company made
approximately $155,000 of such expenditures and committed approximately $8.3
million in connection with one multi-client data acquisition project. 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 and made approximately $8.7 million of such budgeted
capital expenditures during the first quarter of 1998.
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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 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
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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.
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 "Manage-
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ment's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange Gains and Losses."
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 each of the three years
ended December 31, 1997, and on an actual basis for the three months ended March
31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------- ENDED
1995 1996 1997 MARCH 31, 1998
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
United States................. $ 51,079 $ 53,485 $ 61,630 $14,484
Canada........................ 16,796 15,824 19,591 8,165
Latin America................. 32,623 60,688 69,877 19,778
Far East...................... 3,621 5,412 13,482 5,468
Africa and Middle East........ 19,346 2,746 9,285 --
-------- -------- -------- -------
$123,465 $138,155 $173,865 $47,895
======== ======== ======== =======
</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 March 31,
1998, the Company estimates that its total backlog was approximately $119.0
million, with approximately 93% of such amount expected to be completed in 1998,
as compared to a total backlog of approximately $144.4 million as of December
31, 1997. 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 made approximately $12.4 million of capital expenditures during the
fourth quarter of 1997. The Company budgeted approximately $21 million of
capital expenditures in 1998 to upgrade and expand its seismic data acquisition
equipment and made approximately $8.7 million of such budgeted capital
expenditures during the first quarter of 1998. Approximately $5.6 million of the
remaining $12.3 million of such capital expenditures is job dependent. In
addition, the Company has budgeted approximately $16 million of expenditures,
before customer commitments, for multi-client data acquisition projects in 1998.
During the first quarter of 1998, the Company made approximately $155,000 of
such expenditures and committed approximately $8.3 million in connection with
one multi-client data acquisition project.
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<PAGE> 45
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 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 and
March 31, 1998 the carrying value of multi-client data acquired by Solid State
was approximately $5.7 million and $5.3 million, respectively.
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. During the first quarter of 1998,
the Company made approximately $155,000 of such expenditures and committed
approximately $8.3 million in connection with one multi-client data acquisition.
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, and the first quarter of 1998, the five largest customers of the
Company accounted for approximately 31.9% and 38.0%, respectively, of the
Company's net sales. During 1997, on a pro forma basis, and the first quarter of
1998, no single customer accounted for 10% or more of the Company's revenues.
Although GGI and Solid State have had long-term relationships with numerous
customers, the continuation of these relationships is primarily dependent
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<PAGE> 46
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 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 March 31, 1998 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
45
<PAGE> 47
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 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 19, 1997. During the discovery process for the lawsuit the
parties began to discuss a settlement. These discussions led to a settlement of
the lawsuit on June , 1998 (the "Settlement"). Under the terms of the
Settlement, in exchange for a full and complete release of all of the
Plaintiffs' claims against Elliott, Westgate, the Company and their respective
officers, directors, partners, employees, agents, subsidiaries, affiliates,
successors and assigns relating to or arising out of the bankruptcy proceedings
of GGI and a dismissal of the lawsuit, Elliott shall pay to the Plaintiffs
$150,000 for reimbursement of legal expenses, and permit the Plaintiffs to
purchase Common Stock in the Subscription Offering at the Discounted
Subscription Purchase Price of $4.75 per share. See "Subscription
Procedures -- Purchase Price."
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.
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<PAGE> 48
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>
Larry E. Lenig, Jr. 49 President, Chief Executive Officer and Director
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
Donald W. Wilson 50 Chairman of the Board
W. Richard Anderson 44 Director
James R. Brock 38 Director
J. Kelly Elliott 67 Director
Jonathan D. Pollock 34 Director
Donald G. Russell 66 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.
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.
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 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.
DONALD W. WILSON has served as a Director of the Company since January 1998
and as Chairman of the Board since April 1998. Mr. Wilson has served as
President of Prime Natural Resources, 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.
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.
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<PAGE> 49
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
Prime Natural Resources, 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.
JONATHAN D. POLLOCK served as a director of the Company since September 30,
1997 and served as Chairman of the Board of the Company from September 30, 1997
until April 1998. 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 and Chairman of Prime Natural
Resources, 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 Odyssea Marine, Inc.
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.
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. The
initial grants of restricted shares of Common Stock under this provision of the
Incentive Plan, an aggregate of 18,000 shares, were made by the Board of
Directors on February 18, 1998. Nonemployee directors are also eligible to
receive other awards under the Incentive Plan. See "-- 1997 Equity and
Performance Incentive Plan."
Donald W. Wilson has also entered into a consulting agreement, dated April
28, 1998 with the Company (the "Consulting Agreement") that provides for an
annual consulting fee of $100,000 for as long as Mr. Wilson remains Chairman of
the Board of the Company. The Consulting Agreement also requires the Company to
grant an option to Mr. Wilson to purchase 50,000 shares of Common Stock under
the Incentive Plan. This option was granted April 28, 1998 and will vest
annually in equal one-third increments beginning on December 31, 1998, and has
an average exercise price of $5.76 per share.
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.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Employment
Agreement") with Larry E. Lenig, Jr.. The Employment Agreement has an initial
term through December 31, 2000 and provides for an annual base salary of
$180,000. The Employment Agreement also provides for an annual bonus based on
the
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<PAGE> 50
Company's performance. The Employment Agreement provides generally that, if Mr.
Lenig is terminated for any reason other than for "cause" (as defined in the
Employment Agreement), the Company must make base salary payments for the
remainder of his Employment Agreement's term. Mr. Lenig has agreed pursuant to
the Employment Agreement not to compete with the Company by engaging in any
"competing business" (as defined in the Employment Agreement) for a period of 24
months following the term of the Employment 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 and June 1998. A total of 1,900,000 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. The Board of Directors,
granted options to purchase an aggregate of 1,264,100 shares of Common Stock to
certain officers and other key employees of the Company on February 18, 1998.
These options granted by the Board of Directors will vest annually in equal
one-third increments beginning on December 31, 1998, and have an average
exercise price of $5.76 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.
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<PAGE> 51
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. On June 5, 1998 the Company
redeemed and canceled the remaining 10,000 shares of Preferred Stock, together
with cumulative dividends thereon, in the aggregate liquidation amount of
approximately $10.7 million, and amended the Company's Certificate of
Incorporation to eliminate the authorization of the Preferred Stock. 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, a director of the
Company, is also a Portfolio Manager with Stonington Management Corporation and
a director and Chairman of Prime Natural Resources, Inc. In addition, Donald W.
Wilson, Chairman of the Board of the Company, and James R. Brock, a director of
the Company, are officers of Prime Natural Resources, Inc., an affiliate of the
Selling Stockholders. Elliott also granted to Mr. Wilson, on April 28, 1998, an
option to purchase 100,000 shares of Common Stock from Elliott. This option
vests annually in equal one-third increments beginning on December 31, 1998, and
has an average exercise price of $5.76 per share. Elliott has also 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
Under the Credit Facility, the Company may borrow up to an aggregate
principal amount of $15 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, 2000 at which time all obligations of the Company under the
Credit Facility are due and payable. Prior to the issuance of the Original
Notes, Elliott had advanced $1.6 million of revolving loans pursuant to the
Credit Facility and had 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
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<PAGE> 52
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.
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
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<PAGE> 53
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 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.
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<PAGE> 54
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common 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, (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
---------------------------------------------------------
PRIOR TO THE AFTER THE
SUBSCRIPTION OFFERING SUBSCRIPTION OFFERING(4)
----------------------- ---------------------------
NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES(5) PERCENT(5)
------------------------ --------- ------- --------- -----------
<S> <C> <C> <C> <C>
Elliott Associates, L.P.(1)................... 7,076,278 50% 5,498,143 38%
Westgate International, L.P.(2)............... 7,076,277 50 5,498,143 38
Larry E. Lenig, Jr............................ -- -- -- --
Michael P. Keirnan............................ -- -- -- --
Donald W. Wilson(3)........................... 3,000 * 3,000 *
W. Richard Anderson(3)........................ 3,000 * 3,000 *
James R. Brock(3)............................. 3,000 * 3,000 *
J. Kelly Elliott(3)........................... 3,000 * 3,000 *
Jonathan D. Pollock(3)........................ 3,000 * 3,000 *
Donald G. Russell(3).......................... 3,000 * 3,000 *
All executive officers and directors as a
group (9 persons)(3)........................ 18,000 * 18,000 *
</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) Represents shares of restricted stock granted under the Incentive Plan.
(4) Assumes that all Eligible Subscribers exercise their rights in full to
purchase shares of Common Stock in the Subscription Offering.
(5) 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.
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<PAGE> 55
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 of record as of the close of business on June ,
1998.
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 claim and interest holders
under the Plan, were entitled to purchase 1,356,231 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 or the Discounted Subscription Purchase Price, as
applicable, 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 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. Unless
withdrawn, Subscription Exercise Notices, once delivered, cannot be amended or
modified, unless permitted by the Selling Stockholders in their sole discretion,
to
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<PAGE> 56
correct material irregularities. 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 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 1825
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 or, if an Eligible
Subscriber chooses to execute the release contained in the Subscription Exercise
Notice, the Discounted Subscription Purchase Price of $4.75 per share. The
release contained in the Subscription Exercise Notice provides that such
Eligible Subscriber, after consultation with a legal advisor as such Eligible
Subscriber deems necessary, fully and forever releases, acquits and discharges
Elliott, Westgate, the Company and their respective officers, directors,
partners, employees, agents, subsidiaries, affiliates, successors and assigns
from any and all claims, debts, rights, demands, judgments, obligations, causes
of action, liabilities, costs and expenses (including expert and attorneys'
fees) whatsoever, of any and every kind or description, known or unknown, in law
or in equity, vested or contingent, direct or indirect, past, present and
future, including but not limited to any claims, debts, rights, demands,
judgments, obligations, causes of action (including any rights or causes of
action under the securities laws of any jurisdiction, other than U.S. federal
securities laws), liabilities, costs and expenses (including expert and
attorneys' fees) in any way relating to, or arising from the bankruptcy
proceedings of GGI (Case No. 96-1936 (HSB)).
For further information regarding the lawsuit that led to the Discounted
Subscription Purchase Price, see "Business -- Legal Proceedings."
THE SUBSCRIPTION PURCHASE PRICE AND THE DISCOUNTED SUBSCRIPTION PURCHASE
PRICE ARE 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 THE DISCOUNTED SUBSCRIPTION
55
<PAGE> 57
PURCHASE PRICE WAS DETERMINED IN CONNECTION WITH THE SETTLEMENT OF CERTAIN
CLAIMS BY ELIGIBLE SUBSCRIBERS AND NEITHER 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 AND THE DISCOUNTED SUBSCRIPTION PURCHASE PRICE
ARE 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.
TAX CONSEQUENCES
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. 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
or the Discounted Subscription Purchase Price, as applicable, increased by the
fair market value of such rights to purchase Common Stock, if any, as of the
Effective Date. Eligible Subscribers that do not purchase Common Stock in the
Subscription Offering should, upon the expiration of the Subscription Offering,
recognize a loss for United States federal income tax purposes equal to the fair
market value, if any, of such rights to purchase Common Stock 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 3,393,769 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 (other than restricted shares granted
under the Incentive Plan) 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, each of Elliott and Westgate will hold
5,498,143 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.
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<PAGE> 58
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.
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.
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.
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
14,408,055 shares of Common Stock outstanding. Of these shares, up to 3,393,769
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
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<PAGE> 59
remaining 11,014,286 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.
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
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<PAGE> 60
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.
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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 and March
31, 1998............................................... F-4
GGI Liquidating Corporation as of December 31, 1996....... F-4
Consolidated Statement of Operations:
Grant Geophysical, Inc. for the three month periods ended
December 31, 1997 and March 31, 1998................... F-6
GGI Liquidating Corporation for the years ended December
31, 1995, 1996, for the nine month period ended
September 30, 1997 and for the three month period ended
March 31, 1997......................................... F-6
Consolidated Statement of Stockholders' Equity:
Grant Geophysical, Inc. for the three month periods ended
December 31, 1997 and March 31, 1998................... 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 periods ended
December 31, 1997 and March 31, 1998................... F-9
GGI Liquidating Corporation for the years ended December
31, 1995 and 1996, for the nine month period ended
September 30, 1997 and for the three month period ended
March 31, 1997......................................... F-9
Notes to Financial Statements............................... F-11
SOLID STATE GEOPHYSICAL, INC.
Auditors' Report -- Chartered Accountants................... F-38
Comments by Auditors for U.S. Readers on Canada -- U.S.
Reporting Difference --
Chartered Accountants..................................... F-38
Consolidated Balance Sheet.................................. F-39
Consolidated Statement of Operations and (Deficit) Retained
Earnings.................................................. F-40
Consolidated Statement of Changes in Financial Position..... F-41
Notes to Consolidated Financial Statements.................. F-42
</TABLE>
F-1
<PAGE> 62
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> 63
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.
These matters raise substantial doubt about the Petitioning Company's ability to
continue as a going concern. 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> 64
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT GRANT
------------ ------------ -----------
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 6,772 $ 7,093 $ 24,991
Restricted cash......................................... 321 321 321
Accounts receivable:
Trade (net of allowance for doubtful accounts of
$5,711, $158 and $400 at December 31, 1996, 1997,
and March 31, 1998, respectively).................. 19,471 29,495 42,065
Other................................................ 996 2,487 1,751
Inventories............................................. 503 530 525
Prepaids................................................ 1,411 4,190 4,808
Work in process......................................... 1,071 2,779 2,320
------- -------- --------
Total current assets............................... 30,545 46,895 76,781
Property, plant and equipment:
Land.................................................... 231 427 427
Buildings and improvements.............................. 1,397 1,548 1,591
Plant facilities and store fixtures..................... 1,703 876 892
Machinery and equipment................................. 90,892 70,151 78,883
------- -------- --------
Total property, plant and equipment................ 94,223 73,002 81,793
Less accumulated depreciation........................... 56,555 8,498 13,222
------- -------- --------
Net property, plant and equipment.................. 37,668 64,504 68,571
Multi-client data, net.................................... -- 5,736 5,284
Goodwill, net............................................. -- 36,304 35,954
Deferred issue costs, net................................. -- -- 3,796
Other assets, net......................................... 1,910 2,265 1,636
------- -------- --------
Total assets....................................... $70,123 $155,704 $192,022
======= ======== ========
</TABLE>
(Continued
on next page)
F-4
<PAGE> 65
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT GRANT
------------ ------------ ---------
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations.......................... $ 589 $ 1,158 $ 1,052
Accounts payable...................................... 3,975 16,422 23,554
Accrued expenses...................................... 3,051 10,318 10,322
Foreign income taxes payable.......................... 188 2,807 3,631
--------- -------- --------
Total current liabilities........................ 7,803 30,705 38,559
Pre-petition liabilities subject to chapter 11 case..... 90,244 -- --
Long-term debt and capital lease obligations, excluding
current portion....................................... -- 65,409 101,291
Unearned revenue........................................ 6,031 5,443 5,822
Other liabilities and deferred credits.................. 258 2,369 3,238
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 and March 31, 1998 liquidating preference
of $1,000 per share................................ -- 10,000 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 and
14,170,555 at March 31, 1998....................... -- 14 14
Additional paid-in capital............................ 124,203 41,278 41,278
Accumulated deficit................................... (159,970) (8,833) (8,100)
Accumulated other comprehensive income................ -- (467) (80)
--------- -------- --------
Total stockholders' equity (deficit)............. (34,213) 41,992 43,112
--------- -------- --------
Total liabilities and stockholders' equity
(deficit)..................................... $ 70,123 $155,704 $192,022
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 66
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 GGI GRANT
------------------------------------------- ------------ ------------- ------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
-------------------------- ------------- ------------ ------------- ------------
1995 1996 1997 1997 1997 1998
---------- ---------- ------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 91,996 $ 105,523 $ 92,705 $ 37,868 $ 30,296 $ 47,895
Expenses:
Direct operating
expenses............. 69,046 136,326 71,006 28,431 23,556 34,740
Other operating
expenses............. 8,527 17,865 6,473 3,507 2,060 3,802
Depreciation and
amortization......... 9,424 11,500 8,432 4,594 2,611 5,289
Special charge for
asset impairment..... -- 5,802 -- 6,369 -- --
---------- ---------- ---------- -------- ---------- --------
Total costs and
expenses........... 86,997 171,493 85,911 42,901 28,227 43,831
---------- ---------- ---------- -------- ---------- --------
Operating income
(loss)............. 4,999 (65,970) 6,794 (5,033) 2,069 4,064
Other income
(deductions):
Interest expense....... (3,635) (7,558) (4,037) (1,431) (1,391) (2,168)
Reorganization costs... -- (412) (3,543) -- (993) --
Interest income........ 113 36 279 69 4 203
Other.................. 2,076 (502) 2,266 (1,262) 295 (162)
---------- ---------- ---------- -------- ---------- --------
Total other
deductions......... (1,446) (8,436) (5,035) (2,624) (2,085) (2,127)
---------- ---------- ---------- -------- ---------- --------
Income (loss) before
taxes and minority
interest........... 3,553 (74,406) 1,759 (7,657) (16) 1,937
Income tax expense....... 391 1,621 2,184 856 260 1,204
---------- ---------- ---------- -------- ---------- --------
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) $ (276) $ 733
========== ========== ========== ======== ========== ========
Net income (loss)
applicable to common
stock.................. $ (2,096) $ (82,390) $ (425) $ (6,143) $ (276) $ 469
========== ========== ========== ======== ========== ========
INCOME (LOSS) PER COMMON
SHARE -- BASIC AND
DILUTED:
Net income (loss) per
common share before
preferred dividends.... $ (1.18) $ 0.05
Dividend requirement on
pay-in-kind preferred
stock.................. (0.10) (0.02)
-------- --------
Net income (loss) per
common share........... $ (1.28) $ 0.03
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 67
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
--------------------------------------------------------------------------------------
ACCUMULATED
CUMULATIVE ADDITIONAL OTHER TOTAL
PAY-IN-KIND COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
PREFERRED STOCK STOCK CAPITAL DEFICIT INCOME 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)
Other comprehensive
income............. -- -- -- -- (467) (467)
------- --- ------- ------- ----- -------
Balances at December 31,
1997.................. $10,000 $14 $41,278 $(8,833) $(467) $41,992
Net income............ -- -- -- 733 -- 733
Other comprehensive
income............. -- -- -- -- 387 387
------- --- ------- ------- ----- -------
Balance at March 31,
1998 (unaudited)...... $10,000 $14 $41,278 $(8,100) $ (80) $43,112
======= === ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 68
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> 69
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT GGI GRANT
----------------------------------- ------------ ------------- -------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
------------------- ------------- ------------ ------------- -------------
1995 1996 1997 1997 1997 1998
-------- -------- ------------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ 3,162 $(76,027) $ (425) $(5,666) $ (276) $ 733
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 -- -- -- 200
Depreciation and amortization
expense........................ 9,424 11,500 8,432 4,594 2,611 5,289
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 28 (27)
Gain on insurance claim.......... (1,247) -- -- --
Exchange loss (gain)............. (102) 251 98 (77) (146) 247
Other non-cash items............. 191 328 225 (2,544) -- 7
Changes in assets and liabilities,
excluding effects of divestitures:
(Increase) decrease in:
Accounts receivable................ (14,828) 13,346 2,375 694 (1,535) (12,034)
Inventories........................ 27 914 (27) -- -- 5
Prepaids........................... (1,701) 1,228 (538) (1,220) 492 (618)
Work-in-Process.................... (18,439) (24,969) (268) (1,101) (2,306) 459
Other assets....................... (521) 1,846 (1,031) 983 (305) 613
Increase (decrease) in:
Accounts payable................... 10,637 9,328 3,143 (1,237) 2,616 2,632
Accrued expenses................... 1,046 5,059 830 1,759 2,705 4
Foreign income taxes payable....... 122 390 1,767 487 351 824
Other liabilities and deferred
credits.......................... 2,650 7,973 (2,320) 2,213 2,546 1,248
Change in pre-petition liabilities
subject to Chapter 11 case:
Accounts payable................. -- -- (2,226) -- (636) --
Accrued expenses................. -- (125) (1,732) -- (2,236) --
Foreign income tax payable....... -- -- (194) -- (150) --
Other liabilities and deferred
credits........................ -- (1,402) (3,622) -- (1,637) --
-------- -------- ------- ------- ------- --------
Net cash provided by (used in)
operating activities........ 2,759 (9,346) 4,526 5,386 2,122 (418)
</TABLE>
(Continued on next page)
F-9
<PAGE> 70
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT GGI GRANT
-------------------------------------- ------------ ------------ ------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
---------------------- ------------- ------------ ------------ ------------
1995 1996 1997 1997 1997 1998
-------- -------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from (used in)
investing activities:
Capital expenditures, net..... (13,757) (10,339) (6,751) (3,994) (1,243) (4,166)
Proceeds from the sale of
assets...................... 255 25 20 182 5 220
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) (1,238) (3,946)
Cash flows from provided by
(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 -- -- -- --
Debt issue cost............... -- -- -- -- -- (3,796)
Borrowings made during the
period...................... 89,950 122,354 4,207 31,270 -- 100,279
Repayment on borrowings during
the period.................. (83,032) (105,757) (1,838) (15,363) (3) (74,179)
Proceeds from the issuance of
Common Stock................ -- -- -- 33,948 -- --
Repayment of debt due to
GGI......................... -- -- -- (34,783) -- --
Pre-petition liabilities
subject to Chapter 11 case:
Borrowings under credit
facility.................. -- 3,612 49,385 -- 12,943 --
Repayment on borrowings..... -- (3,382) (50,465) -- (16,794) --
-------- -------- ------- ------- -------- --------
Net cash provided (used by)
by financing activities... 6,929 25,667 1,289 15,072 (3,854) 22,304
Effect of exchange rate changes
on cash....................... (173) (415) (238) 160 24 (42)
-------- -------- ------- ------- -------- --------
Net increase (decrease) in
cash and cash equivalents... 243 5,725 (1,154) 903 (2,946) 17,898
Cash and cash equivalents at
beginning of period........... 804 1,047 6,772 6,190 6,772 7,093
-------- -------- ------- ------- -------- --------
Cash and cash equivalents at end
of period..................... $ 1,047 $ 6,772 $ 5,618 $ 7,093 $ 3,826 $ 24,991
======== ======== ======= ======= ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES. SEE
NOTE 17.
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 71
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND
MARCH 31, 1998 (UNAUDITED)
(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") (collectively known as the
"Principal Stockholders") 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 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 sheets as of December 31, 1997
and March 31, 1998 and statement of operations and cash flows for the three
months ended December 31, 1997 and March 31, 1998 are presented using Grant's
new basis of accounting, while the consolidated balance sheet of GGI as of
December 31, 1996 and the consolidated statements of operations and cash flows
for the two years ended December 31, 1996, the nine-months ended September 30,
1997 and the three months ended March 31, 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.
Presented below is the unaudited pro forma effect of the combination of
Solid State and Grant. Pro forma adjustments have been made to record the
consummation of the Plan and certain related transactions, the issuance
F-11
<PAGE> 72
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of a subordinated note in exchange for 9,571.162 shares of Grant preferred stock
(see Note 9 for a discussion of the subordinated note), the Acquisition, which
includes the transfer of shares of Solid State Stock to Grant by the Principal
Stockholders, which has been accounted for as an exchange of ownership interest
between entities under common control (as-if-pooling) and the acquisition of the
unaffiliated minority interest of Solid State, which has been accounted for as a
purchase. The unaudited pro forma information gives effect to the transaction as
if was completed as of January 1, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $138,155 $173,865
======== ========
Net Loss.................................................... $(84,569) $ (8,522)
======== ========
Net Loss applicable to common stock......................... $(85,619) $ (9,572)
======== ========
Basic loss per share........................................ $ (5.95) $ (0.67)
======== ========
</TABLE>
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 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
Unaudited Interim Financial Information
The balance sheet of Grant as of March 31, 1998 and the related statements
of operations and cash flows for the three months ended March 31, 1998 and GGI's
statements of operations and cash flows for the three months ended March 31,
1997 are unaudited. In the opinion of management, the accompanying unaudited
condensed financial statements of Grant and its consolidated subsidiaries
contain all adjustments necessary to present fairly the financial position as of
March 31, 1998 and the results of operations for the three months ended March
31, 1998.
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
F-12
<PAGE> 73
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
described earlier, GGI is in the process of distributing its assets pursuant to
the Plan and will be dissolved. These matters raise substantial doubt about
GGI's ability to continue as a going concern. 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, $510,000 at December 31, 1997 and $18.1 million (unaudited) at March 31,
1998.
Restricted Cash
At December 31, 1996, 1997 and March 31, 1998 (unaudited), restricted cash
included three certificates of deposit totaling $321,000 which are pledged as
collateral for letters of credit.
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.
F-13
<PAGE> 74
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-14
<PAGE> 75
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-15
<PAGE> 76
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 applicable to common stock............ $(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 had 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.
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
F-16
<PAGE> 77
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
adopted 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 in the fourth quarter of 1998.
(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
F-17
<PAGE> 78
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-18
<PAGE> 79
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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>
F-19
<PAGE> 80
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<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-20
<PAGE> 81
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................................ 1,548 42
Plant facilities and store fixtures....................... 876 170
Machinery and equipment................................... 70,151 8,286
------- -------
$73,002 $ 8,498
======= =======
</TABLE>
F-21
<PAGE> 82
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 operations 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-22
<PAGE> 83
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 $(2,680)
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 1,888
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-23
<PAGE> 84
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 GRANT
------------- ------------- -----------
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <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 25,051 497
Capital lease obligations--7.5% to 12.0%, due
1998-2000.............................................. -- 8,362 2,622
Senior Notes payable -- 9.75%, due 2008.................. 99,224
Subordinated Note -- 10.5% due March 31, 1999............ -- 9,786 --
---- ------- --------
Total long term.......................................... 589 76,353 102,343
Less current portion..................................... 589 1,158 1,052
---- ------- --------
Notes payable, long-term debt, capital lease
obligations and subordinated note excluding
current portion................................... $ -- $75,195 $101,291
==== ======= ========
</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 and March 31,
1998 $4.2 million (unaudited) and $5 million (unaudited) was available for
borrowing, respectively). 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 term loan was repaid with the proceeds
of the Senior Notes on February 18, 1998 (see below). On June 5, 1998 the credit
facility was amended to provide an aggregate borrowing capacity of up to $15
million (unaudited) and extend the term of the credit facility. The credit
facility expires on March 31, 2000 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
F-24
<PAGE> 85
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
transactions without the consent of the lender. The credit facility 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 with the proceeds of the Senior Notes (see below), and was
terminated. Following repayment of this note, the Solid State assets have 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 revolving
facility described above. 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.
In connection with the sale of the Original Notes, the Company entered into
a Registration Rights Agreement pursuant to which the Company agreed to file
with the Commission an Exchange Offer Registration Statement (the "Registration
Statement"). The Registration Statement was filed on March 24, 1998, amended on
May 8, 1998 and became effective on May 13, 1998. Pursuant to the Registration
Statement, the Company has registered $100 million aggregate principal amount of
its 9 3/4% Senior Notes Series B due 2008 (the "Exchange Notes" and together
with the Original Notes, the "Notes") for which the holders of all outstanding
Original Notes may exchange the aggregate principal amount of Original Notes for
the aggregate principal amount of Exchange Notes. This offer is valid until 5:00
p.m., New York City time on June 12, 1998 (unless extended).
The terms of the Exchange Notes are substantially identical in all respects
to the terms of the Original Notes except that (i) the Exchange Notes will be
freely transferable by holders thereof (except in certain circumstances) and are
issued free of certain transfer restrictions and registration rights relating to
the Original Notes and (ii) holders of the Exchange Notes will not be entitled
to certain rights of holders of the Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer (subject to certain limited exemptions). The Exchange Notes will evidence
the same debt as the Original Notes
F-25
<PAGE> 86
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and will be issued under and be entitled to the benefits of an Indenture dated
as of February 18, 1998 governing the terms of the Original Notes and the
Exchange Notes.
(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,
----------------------- ------------- ------------
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C>
$1,880 $2,089 $830 $996
</TABLE>
(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.
F-26
<PAGE> 87
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 $0.938-1.313
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>
F-27
<PAGE> 88
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, and amended in
June 1998 to increase the number of shares reserved to 1,900,000. The Incentive
Plan provides for the grant to officers (including officers who are also
directors), employees, consultants and nonemployee directors of Grant 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 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. As of May 15, 1998, Awards
covering 1,282,100 shares have been made by the Board of Directors. The Awards
consist of 1,264,100 nonstatutory stock options that will vest annually in equal
one-third increments beginning on December 31, 1998. All options have an average
exercise price of $5.76 per share (range of $4.75 to $6.84 per share), subject
to adjustment in certain circumstances. In addition, 3,000 restricted shares
(18,000 total restricted shares) were granted to each non-employee director and
will vest on August 18, 1998 provided that such director continues to serve on
the Board of Directors until such date.
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
F-28
<PAGE> 89
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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>
F-29
<PAGE> 90
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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.
F-30
<PAGE> 91
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-31
<PAGE> 92
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 cumulative and unpaid dividends and interest. Cumulative,
unpaid dividends associated with the Preferred Stock were approximately $262,000
and $526,000 at December 31, 1997 and March 31, 1998, respectively. On June 5,
1998, the Company redeemed and canceled all of the outstanding shares of its
Preferred Stock, together with cumulative dividends thereon, in the aggregate
amount of approximately $10.7 million with available cash balances.
Common Stock
At December 31, 1997 and March 31, 1998 (unaudited), Grant has authorized
25,000,000 shares of common stock, par value $.001 per share, of which
14,152,555 and 14,170,555 shares are issued and outstanding respectively. 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
Restricted Common Stock issued to the Board of Directors.... 18,000 --
---------- ---
Balance, March 31, 1998 (unaudited)......................... 14,170,555 $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.
F-32
<PAGE> 93
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. During the discovery process
for the lawsuit the parties began to discuss a settlement. These discussions led
to a settlement of the lawsuit on June , 1998 (the "Settlement"). Under the
terms of the Settlement, in exchange for a full and complete release of all of
the Plaintiffs' claims against Elliott, Westgate, the Company and their
respective officers, directors, partners, employees, agents, subsidiaries,
affiliates, successors and assigns relating to or arising out of the bankruptcy
proceedings of GGI and a dismissal of the lawsuit, Elliott shall pay to the
Plaintiffs $150,000 for reimbursement of legal expenses, and permit the
Plaintiffs to purchase Common Stock in the Subscription Offering at the
Discounted Subscription Purchase Price of $4.75 per share. In addition, Elliott
has agreed to indemnify Grant and its subsidiary against any liability that they
may incur in connection with the lawsuit. Nevertheless, other Eligible
Subscribers who do not execute the release contained in the Subscription
Exercise Notice could commence other lawsuits related to the Plan, which may not
be subject to indemnification by Elliott, and which 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 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.
F-33
<PAGE> 94
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
periodically to perform survey services. During the three months ended December
31, 1997, Grant paid approximately $364,000 to this entity.
The Company's Chairman of the Board ("Chairman") is an officer of an
affiliate of the Principal Stockholders of Grant. Elliot granted to the
Chairman, on April 28, 1998, options to purchase 100,000 shares of Common Stock
from Elliot. Additionally, the Chairman has entered into a consulting agreement,
dated April 28, 1998, with Grant (the "Consulting Agreement") which provides for
an annual consulting fee of $100,000 for as long as he remains Chairman. Under
the Consulting Agreement, the Chairman was also granted options by the Company
to purchase 50,000 shares of Common Stock under the Incentive Plan. These
options will vest annually in equal one-third increments beginning on December
31, 1998, and have an average exercise price of $5.76 per share.
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 GGI GRANT
------------------------------ ------------- ------------- -------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
-------------- ------------- ------------- ------------- -------------
1995 1996 1997 1997 1997 1998
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Gain (loss) on the sale of fixed
assets........................ $ 212 $ 25 $ (67) $ 50 $(28) $ 27
Net gain (loss) on foreign
exchange...................... 102 (251) (98) (289) 146 (247)
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) 177 58
------ ----- ------ ------- ---- -----
Total......................... $2,076 $(502) $2,266 $(1,262) $295 $(162)
====== ===== ====== ======= ==== =====
</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-34
<PAGE> 95
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non Cash investing and financing activities consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
GGI GRANT GGI GRANT
-------------------------------- ------------ ------------- -------------
NINE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
------------ ------------- ------------ ------------ ------------
1995 1996 1997 1997 1997 1998
---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <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 1,402 1,417
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Property, plant and equipment debt
additions........................... $8,106 $19,718 $1,483 $8,406 $ 173 $4,500
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 -- -- 60 --
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 1,356,231 shares of Grant
F-35
<PAGE> 96
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock in an offering by the Company, the Principal 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.
(19) ADOPTION OF ACCOUNTING STANDARDS
Effective January 1, 1998, Grant adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Comprehensive income includes all changes
in a company's equity, including, among other things, foreign currency
translation adjustments, notes receivable from employee stock ownership plans,
deferred gains (losses) on hedging activities, and unrealized gains (losses) on
marketable securities classified as available-for-sale. Grant's and GGI's total
comprehensive earnings are as follows for the periods presented.
<TABLE>
<CAPTION>
GGI GRANT
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income (loss)........................................ $(276) $ 733
Other comprehensive income--foreign currency
translation............................................ -- 387
----- ------
Total comprehensive earnings............................. $(276) $1,120
===== ======
</TABLE>
F-36
<PAGE> 97
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
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..................... 2,070 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-37
<PAGE> 98
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 (a to e) which is as at
November 27, 1997 and Note 17 (f) which is as at March 19, 1998, 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-38
<PAGE> 99
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-39
<PAGE> 100
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-40
<PAGE> 101
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-41
<PAGE> 102
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-42
<PAGE> 103
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-43
<PAGE> 104
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-44
<PAGE> 105
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-45
<PAGE> 106
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-46
<PAGE> 107
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-47
<PAGE> 108
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-48
<PAGE> 109
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-49
<PAGE> 110
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-50
<PAGE> 111
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-51
<PAGE> 112
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-52
<PAGE> 113
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-53
<PAGE> 114
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-54
<PAGE> 115
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-55
<PAGE> 116
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-56
<PAGE> 117
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-57
<PAGE> 118
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-58
<PAGE> 119
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-59
<PAGE> 120
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-60
<PAGE> 121
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 Statement of
Operations.................................... 21
Selected Consolidated Historical Financial
Data.......................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 39
Management...................................... 47
Certain Relationships and Related
Transactions.................................. 50
Security Ownership of Management and Principal
Stockholders.................................. 53
Subscription Procedures......................... 54
Selling Stockholders............................ 56
Description of Capital Stock.................... 57
Shares Eligible for Future Sale................. 57
Legal Matters................................... 58
Experts......................................... 58
Additional Information.......................... 58
Index to Financial Statements and Financial
Statement Schedule............................ F-1
</TABLE>
3,393,769 SHARES
[GRANT GEOPHYSICAL, INC. LOGO]
COMMON STOCK
------------------------------------------------------
SUBSCRIPTION OFFERING PROSPECTUS
------------------------------------------------------
, 1998
<PAGE> 122
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
II-1
<PAGE> 123
adjudged to be liable to the Registrant unless and only to the extent that the
Court of Chancery of the State of 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 December 30, 1997, the Company issued 4,094,494 shares of Common Stock
to Elliott and 5,405,504 shares of Common Stock to Westgate in exchange for an
aggregate of $33,953,054.
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, as
amended.
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.
</TABLE>
II-2
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
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.
10.16 Consulting Agreement between the Company and Donald W.
Wilson, dated April 28, 1998.
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
II-3
<PAGE> 125
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 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> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 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 June 23, 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. 3 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 June 23, 1998
- -------------------------------- (Principal Executive Officer)
Larry E. Lenig, Jr.
* Chief Financial Officer, Treasurer and Secretary June 23, 1998
- -------------------------------- (Principal Financial Officer)
Michael P. Keirnan
* Controller June 23, 1998
- -------------------------------- (Principal Accounting Officer)
Charles Ackerman
* Chairman of the Board June 23, 1998
- --------------------------------
Donald W. Wilson
* Director June 23, 1998
- --------------------------------
W. Richard Anderson
* Director June 23, 1998
- --------------------------------
James R. Brock
* Director June 23, 1998
- --------------------------------
J. Kelly Elliott
Director June 23, 1998
- --------------------------------
Jonathan D. Pollock
* Director June 23, 1998
- --------------------------------
Donald G. Russell
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 3 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> 127
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, as
amended.
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.
10.16 Consulting Agreement between the Company and Donald W.
Wilson, dated April 28, 1998.
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 3.1(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
GRANT GEOPHYSICAL, INC.
(as amended)
Grant Geophysical, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is Grant Geophysical, Inc. (the
"Company").
SECOND. The address of the Company's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the company's registered agent at such address is The Corporation
Trust Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").
"FOURTH. The Company is authorized to issue 25,000,000 shares of common
stock, par value $0.001 per share ("Common Stock"). The holders of Common Stock
shall be entitled to one vote on each matter submitted to a vote at a meeting
of stockholders for each share of Common Stock held of record by such holder as
of the record date for such meeting."
FIFTH. The By-Laws of the Company may be amended or repealed (after
adoption by the sole director identified herein) only by the stockholders.
SIXTH. Section 1. NUMBER, ELECTION, AND TERMS OF DIRECTORS. The number of
the Directors of the Company shall be fixed by, or in the manner provided in,
the By-Laws of the Company. Election of Directors of the Company need not be by
written ballot unless requested by the Chairman of the Board or by the holders
of a majority of the Company's common stock and
<PAGE> 2
present in person or represented by proxy at a meeting of the stockholders at
which Directors are to be elected.
Section 2. NO CUMULATIVE VOTING. Holders of shares of common stock
of the Company shall not be entitled to cumulative voting rights in the election
of directors.
SEVENTH. The provisions of Section 203 of the DGCL or any statute of
like tenor or effect that is hereafter enacted shall not apply to the Company.
EIGHTH. To the full extent permitted by the DGCL or any other
applicable law currently or hereafter in effect, no Director of the Company will
be personally liable to the company or its stockholders for or with respect to
any acts or omissions in the performance of his or her duties as a Director of
the Company. Any repeal or modification of this Article Eighth will not
adversely affect any right or protection of a Director of the Company existing
prior to such repeal or modification.
NINTH. Each person who is or was or had agreed to become a Director or
officer of the company, and each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Company as an
employee or agent of the Company or as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other entity,
whether for profit or not for profit (including the heirs, executors,
administrators, or estate of such person), will be indemnified by the Company to
the full extent permitted by the DGCL or any other applicable law as currently
or hereafter in effect. The right of indemnification provided in this Article
Ninth (a) will not be exclusive of any other rights to which any person seeking
indemnification may otherwise be entitled or any contract approved by a majority
of the entire Board (whether or not the Directors approving such contract are or
are to be parties to such contract or similar contracts), and (b) will be
applicable to matters otherwise within its scope whether or not such matters
arose or arise before or after the filing of this Certificate of Incorporation.
Without limiting the generality or the effect of the foregoing, the Company may
adopt By-Laws, or enter into one or more agreements with any person, which
provide for indemnification greater or different than that provided in this
Article Ninth or the DGCL. Any amendment or repeal of, or adoption of any
provision inconsistent with, this Article Ninth will not adversely affect any
right or protection existing hereunder, or arising out of facts occurring, prior
to such amendment, repeal, or adoption and no such amendment, repeal, or
adoption, will affect the legality, validity, or enforceability of any contract
entered into or right granted prior to the effective date of such amendment,
repeal, or adoption.
TENTH. The books of the company may be kept (subject to any requirement
of the DGCL) outside the State of Delaware at such place or places as may be
designated form time to time by the Board or in the By-Laws of the Company.
<PAGE> 1
[JONES, DAY, REAVIS & POGUE LETTERHEAD]
Exhibit 5.1
June 23, 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. 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 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
June 23, 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
June 23, 1998
<PAGE> 1
Exhibit 23.4
[PRICE WATERHOUSE LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Subscription Offering Prospectus of Grant
Geophysical, Inc. constituting part of this Amendment No. 3 to the Registration
Statement on Form S-1 of our report dated 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, 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 (a to e) which is as at
November 27, 1997 and Note 17(f) which is as at March 19, 1998. We also consent
to the references to us under the headings "Experts" in such Prospectus.
/s/ Price Waterhouse
CHARTERED ACCOUNTANTS
JUNE 22, 1998
<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 TIME, ON
, 1998 (THE "EXPIRATION DATE"). SUBSCRIPTION EXERCISE NOTICES MUST
BE RECEIVED BY THE SUBSCRIPTION AGENT BY 5:00 P.M., CENTRAL 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") or, if I choose to execute the release in the box
captioned "Release," at a price of $4.75 per Share (the "Discounted 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
Selling Shareholders 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."
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Subscription Offering Prospectus.
The Subscription Agent:
LASALLE NATIONAL BANK
Corporate Trust Administration, Rm 1825
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.,
Central Time, 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 Administration Room 1825
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 or, if you choose to execute
the release in the box captioned "Release," of the Discounted
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:
LaSalle National Bank, Chicago, IL
ABA #071000505
LASALLE CHGO/CTR/BNF = OMC Trust/AC-2090067/
RFB = 62-7948-20-1/
OBI = M. Baig, 4-2584
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 OR THE DISCOUNTED SHARE PURCHASE PRICE OF $4.75.(1)
Purchase Number of Shares Share Purchase Price Total Purchase
Price: Purchased $5.00 Price
------------------------ * or Discounted = $ ----------------------
Share Purchase Price
$4.75(1)
Method of Check the appropriate box that shows how you wish to pay for the Shares.
Payment:
[ ] certified check or bank draft [ ] wire transfer
</TABLE>
(1) In order to purchase Shares at the Discounted Share Purchase Price, you MUST
execute the release in the box captioned "Release" below.
RELEASE
- --------------------------------------------------------------------------------
In consideration for the right to purchase Shares at the Discounted
Subscription Purchase Price of $4.75 per Share instead of the Subscription
Purchase Price of $5.00 per Share, after consultation with a legal advisor as I
deem necessary, I, being duly authorized to do so, hereby fully and forever
release, acquit and discharge Elliott, Westgate, the Company and their
respective officers, directors, partners, employees, agents, subsidiaries,
affiliates, successors and assigns, on my behalf and on behalf of the Eligible
Subscriber (including its affiliates, members and partners) set forth in the box
entitled Eligible Subscriber Information set forth above, from any and all
claims, debts, rights, demands, judgments, obligations, causes of action,
liabilities, costs and expenses (including expert and attorneys' fees)
whatsoever, of any and every kind or description, known or unknown, in law or in
equity, vested or contingent, direct or indirect, past, present and future,
including but not limited to any claims, debts, rights, demands, judgments,
obligations, causes of action (including any rights or causes of action under
the securities laws of any jurisdiction, other than U.S. federal securities
laws), liabilities, costs and expenses (including expert and attorneys' fees) in
any way relating to, or arising from the bankruptcy proceedings of GGI
Liquidating Corporation (Case No. 96-1936 (HSB)) in the United States Bankruptcy
Court for the District of Delaware.
Eligible Subscriber
Signature Date ____________________________
Title:
<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
IMPORTANT TAX INFORMATION
<TABLE>
<S> <C> <C>
- -------------------------------
PAYER'S NAME: LASALLE NATIONAL BANK
- ---------------------------------------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND DATING BELOW or
Employer
Identification Number
------------------------
-------------------------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY Part 2--Awaiting TIN [ ]
THAT (1) the number shown on this form is my correct TIN
FORM W-9 (or I am waiting for a number to be issued to me), (2) I ------------------------
DEPARTMENT OF THE TREASURY am not subject to backup withholding either because I am
INTERNAL REVENUE SERVICE exempt from backup withholding, I have not been notified ------------------------------
PAYOR'S REQUEST FOR TAXPAYER by the Internal Revenue Service (the "IRS") that I am Part 3--Exempt [ ]
IDENTIFICATION NUMBER (TIN) subject to backup withholding as a result of a failure to
report all interest or dividends or the IRS has notified ------------------------
me that I am no longer subject to backup withholding and
(3) any other information provided on this form is true
and 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
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
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 ____________________
<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.
Unless withdrawn, this Subscription Exercise Notice, once delivered, may
not be amended or modified 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
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 ON THE FOLLOWING PAGE)
NOTE: THIS SUBSCRIPTION EXERCISE NOTICE IS NOT VALID UNLESS SIGNED BELOW -- EVEN
IF YOU HAVE SIGNED IN THE BOX ENTITLED "RELEASE."
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Signature Date
- --------------------------------------------- ---------------------------------------------
Signature Date
</TABLE>
- ------------------------------------------------------------------------------
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
$ .
<TABLE>
<S> <C>
[ ] Elliott Associates, L.P. [ ] Westgate International, L.P.
</TABLE>
<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.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
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 Registration,"
PARTNERSHIP: 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.
- ---------------------------------------------------------------------------------------------
</TABLE>
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.
