As filed with the Securities and Exchange Commission on December 17, 1999
Registration No. 333-89863
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRANT GEOPHYSICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 1382 76-0548468
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION) CLASSIFICATION CODE
NUMBER)
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)
Michael P. Keirnan
Chief Financial Officer
Grant Geophysical, Inc.
16850 Park Row
Houston, Texas 77084
(281) 398-9503
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
William B. Masters
Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P.
201 St. Charles Avenue
New Orleans, Louisiana 70170
Phone: (504) 582-8000
Fax: (504) 582-8012
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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 statement 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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The
first prospectus relates to the offer by Grant Geophysical, Inc. to
exchange $100,000,000 aggregate principal amount of its outstanding 9 3/4 %
Senior Notes due 2008 for new shares of its 8% Convertible Preferred Stock
with an aggregate liquidation value equal to 65% of the aggregate principal
amount of the senior notes tendered plus 100% of the accrued and unpaid
interest thereon through the date of the exchange. The second prospectus
relates to the subscription offering by Elliott Associates, L.P. to all
holders of Grant's common stock, except Elliott and Westgate International,
L.P., to purchase shares of Grant's 8% Convertible Preferred Stock owned by
Elliott. The exchange offer prospectus and the subscription offering
prospectus will be substantially identical, except for the front cover
page, table of contents, summary of the offering, risk factors relating to
the particular offering and back cover page. The prospectus for the
exchange offer follows immediately after this Explanatory Note. Following
the exchange offer prospectus are the alternative pages to be used in the
subscription offering prospectus. The alternative pages for the
subscription offering prospectus are each labeled "Alternative Subscription
Offering Pages."
<PAGE>
PROSPECTUS
GRANT GEOPHYSICAL, INC.
OFFER TO EXCHANGE
$100,000,000 IN PRINCIPAL AMOUNT OF
9 3/4 % SENIOR NOTES DUE 2008
FOR
SHARES OF 8% CONVERTIBLE PREFERRED STOCK
WITH A LIQUIDATION VALUE OF $65,000,000
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY ___, 2000, UNLESS EXTENDED
TERMS OF THE EXCHANGE OFFER
* We are offering to exchange * At the same time as this
all of our outstanding 9 3/4% offer, one of our stockholders is
Senior Notes due 2008 for new conducting a subscription offering
shares of our preferred stock of up to 23,386 shares of
with an aggregate liquidation preferred stock to holders of our
value of $65,000,000. We will common stock. This exchange offer
also issue to participants in and the subscription offering are
the exchange offer new shares not dependent on each other.
of our preferred stock with a
liquidation value equal to the * There is currently no established
accrued and unpaid interest on trading market for either the
the senior notes tendered preferred stock or our common
through the date of the stock into which the preferred
exchange. stock is convertible. We do not
expect that a trading market for
* Tenders of outstanding senior the preferred stock or our common
notes may be withdrawn at any stock will develop following the
time prior to the expiration completion of the exchange offer.
of the exchange offer.
TERMS OF THE 8% CONVERTIBLE PREFERRED STOCK OFFERED IN EXCHANGE FOR THE NOTES
* DIVIDENDS
8% Cumulative annual dividends, payable quarterly in arrears, commencing
on April 1, 2000, in cash or, at our option, in shares of our preferred
stock.
* LIQUIDATION PREFERENCE
$100 per share.
* VOTING RIGHTS
The shares of preferred stock will vote together, as a single class,
with shares of our common stock on an as-converted basis.
* OPTIONAL REDEMPTION
We may redeem shares of the preferred stock at any time at a
redemption price equal to the liquidation preference.
* CONVERSION PRICE
$3 per share, subject to adjustment, and equal to an initial
conversion ratio of 33 1/3 shares of our common stock for each
share of preferred stock.
* CONVERSION RIGHT
The preferred stock is convertible into our common stock at any
time at the applicable conversion ratio.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE THE RISK FACTORS SECTION
BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is December ___, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Summary...................................... 1
Risk Factors............................................ 10
Forward-Looking Statements.............................. 13
The Exchange Offer...................................... 14
Use of Proceeds......................................... 23
Capitalization.......................................... 24
Ratio of Earnings to Fixed Charges...................... 25
Selected Financial Data................................. 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 28
Business................................................ 38
Management.............................................. 44
Executive Compensation.................................. 47
Principal Stockholders.................................. 50
Certain Relationships and Related Transactions.......... 51
Description of Capital Stock............................ 54
Legal Matters........................................... 57
Experts................................................. 57
Available Information................................... 58
Index to Financial Statements........................... F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO OFFER
THESE SECURITIES.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS TO
HELP YOU UNDERSTAND THE EXCHANGE OFFER AND THE PREFERRED STOCK. YOU
SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS TO UNDERSTAND FULLY THE TERMS
OF THE EXCHANGE OFFER AND THE PREFERRED STOCK. THE PROSPECTUS ALSO
CONTAINS TAX AND OTHER CONSIDERATIONS THAT ARE IMPORTANT TO YOU IN MAKING
YOUR INVESTMENT DECISION. WE USE DEFINED TERMS IN THIS PROSPECTUS.
"GRANT" REFERS TO GRANT GEOPHYSICAL, INC. THE WORDS "COMPANY," "WE," "OUR"
AND "OURS" REFER TO THE COMBINED OPERATIONS OF GRANT AND ITS CONSOLIDATED
SUBSIDIARIES. YOU SHOULD PAY SPECIAL ATTENTION TO THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
THE COMPANY
We are a leading provider of seismic data acquisition in land and
transition zone environments in selected markets, including the United
States and Canada. We also provide seismic data acquisition services in
Latin America, the Middle East and the Far East. Through our predecessors,
we have participated in the seismic data acquisition service business in
the United States and Latin America since the 1940s, the Far East since the
1960s and Canada since the 1970s. We have conducted operations in each of
these markets, as well as in the Middle East, in the past three years. Our
seismic data acquisition services are typically provided on an exclusive
contract basis to domestic and international oil and gas companies and
seismic data marketing companies. We also own interests in multi-client
seismic data covering selected areas in the United States and Canada that
are marketed broadly on a non-exclusive basis to oil and gas companies.
We utilize sophisticated equipment to perform specialized 3D and 2D
seismic surveys. All of our seismic data acquisition crews are capable of
performing surveys in land environments and two are equipped to perform
surveys in transition zone environments. Transition zone environments are
swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.
THE EXCHANGE OFFER AND SUBSCRIPTION OFFERING
The industry downturn that began late in the third quarter of 1998
prompted us to undertake activities we believe will both preserve our
financial strength and position us to respond when market demand increases.
Those activities include a worldwide reduction in personnel, a
restructuring of our operations and marketing efforts and a restricted
capital expenditure program.
Our board of directors and management determined that it would be in
the best interest of the Company and our stockholders if we conducted an
offer to exchange $100,000,000 principal amount of our 9 3/4 % Senior
Notes due 2008 for shares of new convertible preferred stock with an
aggregate liquidation value equal to 65% of the principal amount of senior
notes tendered plus 100% of the accrued interest on the senior notes
tendered. Through the exchange offer, we will reduce our outstanding
indebtedness by converting a portion of our debt into equity. We believe
that the consummation of the exchange offer will help us improve our
capital structure and preserve our financial strength.
We are currently conducting a separate consent solicitation to obtain
consents from the holders of our outstanding senior notes in order to amend
definitions and to modify some restrictive covenants in the indenture
governing the outstanding senior notes. The consent of holders of a
majority of the outstanding principal amount of the senior notes held by
holders other than us, our subsidiaries and our affiliates are required to
approve the proposed amendments to the indenture. Elliott Associates,
L.P. and Westgate International, L.P., which hold approximately $56.3 million
aggregate principal amount of senior notes, have advised us that they
will tender in the exchange offer all of the senior notes held by them if
the proposed amendments to the indenture have been previously approved.
After we receive the required consents, we plan to execute a supplemental
indenture with the trustee to cause the proposed amendments to take effect,
but only if, at that time, Elliott and Westgate have tendered all of their
senior notes in the exchange offer.
Between August 16, 1999 and December 13, 1999, we issued a
total of 132,000 shares of our 8% Exchangeable Preferred Stock to Elliott
at a price of $100 per share. The proceeds from the sale of the preferred
stock totaled an aggregate of $13,200,000 and were used to meet our cash
needs. Elliott is under no obligation to purchase any additional shares of
8% exchangeable preferred stock or otherwise provide additional financing
for our operations. The 8% exchangeable preferred stock is exchangeable
for any new securities that we propose to sell or issue. Prior
to the consummation of the exchange offer, we will issue to Elliott, in
exchange for all of the 8% exchangeable preferred stock then held by it,
shares of our 8% Convertible Preferred Stock with an aggregate liquidation
preference equal to the liquidation preference of the 8% exchangeable
preferred stock plus accrued and unpaid dividends thereon exchanged by
Elliott.
Elliott has proposed a subscription offering, to be held at the same
time as the exchange offer, of 15.26% of the shares of 8% convertible
preferred stock that it will hold prior to the consummation of the
exchange offer. In the subscription offering, Elliott will give our
stockholders, other than itself and Westgate, the opportunity to purchase
from Elliott their pro rata share of the 8% convertible preferred stock
that Elliott will receive in exchange for its 8% exchangeable preferred
stock on substantially the same terms upon which Elliott originally
acquired the 8% exchangeable preferred stock. Elliott chose to offer
15.26% of its shares of 8% convertible preferred stock in the subscription
offering because that is the percentage of our common stock held by our
stockholders other than Elliott and Westgate. Elliott has proposed the
subscription offering to permit our minority stockholders to participate,
on a pro rata basis, with Elliott in its equity investment in our 8%
convertible preferred stock acquired on the exchange of the 8% exchangeable
preferred stock. This will allow our minority stockholders to avoid any
dilution in their equity ownership as a result of Elliott's financing of
the Company through the purchase of the 8% exchangeable preferred stock.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $100 million aggregate principal amount of
our outstanding senior notes for shares of our 8% convertible preferred stock
with an aggregate liquidation value equal to 65% of the aggregate principal
amount of senior notes tendered plus 100% of the accrued and unpaid interest
on the senior notes tendered through the date of the exchange.
<S> <C>
The exchange offer......................... We are offering to exchange shares of new
preferred stock for the outstanding senior
notes. Outstanding senior notes may be
exchanged only in amounts which are equal to
whole multiples of $1,000. Notes
representing $100,000,000 aggregate principal
amount are presently outstanding.
If you participate in the exchange offer, you
will receive shares of new preferred stock
with an aggregate liquidation value equal to
65% of the aggregate principal amount of the
senior notes you tendered plus 100% of the
accrued and unpaid interest through the date
of the exchange on the senior notes you
tender.
Expiration of exchange offer.............. The exchange offer will expire at 5:00 p.m.,
New York City time, January __, 2000, unless
we, in our sole discretion, choose to
terminate the exchange offer or extend the
expiration date.
Conditions to the exchange offer.......... The exchange offer is subject to
conditions, which we may waive. We will
accept any senior notes tendered by Elliott
and Westgate. The exchange offer is not
conditioned upon any minimum aggregate
principal amount of senior notes being
tendered. See "The Exchange Offer -- Terms
of the Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for tendering senior notes..... If you wish to participate in the
exchange offer, you must complete, sign and
date the letter of transmittal and fax, mail
or deliver the letter of transmittal,
together with the outstanding senior notes,
to the exchange agent. If your outstanding
senior notes are held through The Depository
Trust Company, also known as DTC, you may
deliver your outstanding senior notes by
book-entry transfer.
In the alternative, if your outstanding
senior notes are held through the DTC and you
wish to participate in an exchange offer, you
may do so instead through the automated
tender offer program of the DTC. If you
tender under this program, you will agree to
be bound by the letter of transmittal that we
are providing with this prospectus as though
you had actually signed the letter of
transmittal.
Special procedures for beneficial owners.. If you beneficially own
outstanding senior notes registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee and you wish
to tender your outstanding senior notes in
the exchange offer, you should promptly
contact the registered holder and instruct it
to tender the outstanding senior notes on
your behalf.
If you wish to tender your outstanding senior
notes on your own behalf, you must either
arrange to have your outstanding senior notes
registered in your name or obtain a properly
completed bond power from the registered hold
prior to completing and executing the letter
of transmittal and delivering your
outstanding senior notes. The transfer of
registered ownership may take considerable
time.
Guaranteed delivery procedures............ If you wish to tender your outstanding
senior notes and cannot comply with the
requirement to deliver the letter of
transmittal and your outstanding senior notes
or use the automated tender offer program of
the DTC before the expiration time, you must
tender your outstanding senior notes
according to the guaranteed delivery
procedures described in the "The Exchange
Offer -- Terms of the Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal rights......................... You may withdraw the tender of your
outstanding senior notes at any time prior to
5:00 p.m., New York City time, on the
expiration date.
Acceptance of outstanding senior notes
and delivery of preferred stock......... Subject to conditions as described more
fully under "The Exchange Offer -- Terms of
the Exchange Offer --Conditions to the
Exchange Offer", we will accept for exchange
any and all outstanding senior notes which
are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on
the expiration date. The new preferred stock
issued in the exchange offer will be
delivered to you promptly following the
expiration date.
Use of proceeds........................... We will not receive any proceeds from the
issuance of new preferred stock in the
exchange offer.
Fees and expenses......................... We will pay all expenses incident to the
exchange offer.
Separate consent solicitation............. We are presently conducting a separate
consent solicitation to obtain consents from
the holders of outstanding senior notes to
amend definitions and modify restrictive
covenants in the indenture governing the
senior notes. Consents from a majority of
the outstanding holders of our senior notes
other than us, our subsidiaries and our
affiliates are required to approve the
proposed amendments.
Concurrent offering....................... One of our stockholders, Elliott, is
concurrently conducting, by means of a
separate prospectus, a subscription offering
of 15.26% of the shares of 8% convertible
preferred stock that will be held by it
prior to the consummation of the
exchange offer, to holders of our common
stock. The completion of the subscription
offering and this exchange offering are not
dependent on each other.
Exchange agent............................ LaSalle Bank National Association is serving
as the exchange agent in connection with the
exchange offer. The exchange agent can be
reached at 135 South LaSalle Street, Room
1960, Chicago, Illinois 60603, Attention:
Sarah H. Webb. For more information with
respect to the exchange offer, the telephone
number for the exchange agent is (312) 904-
2444 and the facsimile number for the
exchange agent is (312) 904-2236.
</TABLE>
<PAGE>
SUMMARY OF TERMS OF NEW PREFERRED STOCK
Securities offered......... Shares of our 8% convertible preferred stock.
Dividends.................. Dividends on the preferred stock are payable
in cash or, at our option, in additional
shares of preferred stock, on the first
business day of each January, April, July and
October beginning April 1, 2000. Dividends
on the preferred stock will accrue at the
rate of 8% per annum of the liquidation
preference and be cumulative from the date on
which the preferred stock was originally
issued. We intend to pay dividends on the
preferred stock in additional shares of
preferred stock until further notice.
Liquidation preference..... $100 per share, plus accrued and unpaid
dividends.
Voting rights.............. The shares of preferred stock will vote
together, as a single class, with shares of
our common stock on an as-converted basis.
Optional redemption........ We may redeem any of the preferred stock at
any time at a redemption price per share
equal to the liquidation preference,
including any accumulated and unpaid
dividends. Our ability to redeem the
preferred stock is subject to restrictive
covenants governing our indebtedness,
including the restricted payments test in the
indenture governing the senior notes.
Conversion rights.......... Each share of preferred stock may be
converted at any time at the option of the
holder into that number of shares of our
common stock as is equal to the liquidation
preference of that share, which includes
accrued and unpaid dividends, divided by an
initial conversion price of $3. The
conversion price is subject to adjustment
upon the occurrence of specified events. As
a result, each share of preferred stock will
initially be convertible into 33 1/3 shares
of our common stock. See "Description of
Capital Stock -- 8% Convertible Preferred
Stock--Conversion Rights."
Ranking.................... The preferred stock will rank:
* senior to our common stock and all
of our other capital stock unless the
terms of the other capital stock
expressly provide that it ranks equally
with the preferred stock; and
* equally with any of our capital
stock, the terms of which expressly
provide that it will rank equally with
the preferred stock. After the
consummation of the exchange offer, all
of our other outstanding capital stock
would rank junior to the preferred
stock.
RISK FACTORS
See "Risk Factors" for a discussion of factors you should carefully
consider before deciding whether to exchange your senior notes in the
exchange offer.
<PAGE>
SUMMARY SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following historical data, insofar as it relates to the year ended
December 31, 1998, has been derived from Grant's audited consolidated
financial statements included in this prospectus. The historical data as
of and for the nine months ended September 30, 1999 has been derived from
unaudited consolidated financial statements also appearing herein and
which, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results of the unaudited interim periods.
The pro forma statement of operations data reflect the issuance of our
8% exchangeable preferred stock to Elliott and, prior to the
completion of the subscription offering, the exchange of such shares,
together with accrued and unpaid dividends thereon, for shares of 8%
convertible preferred stock, and the completion of the exchange offer
assuming senior notes representing 100% of the aggregate principal amount
outstanding are exchanged for shares of new preferred stock, as if the
transactions were completed as of January 1, 1998. The pro forma balance
sheet data is as adjusted to give effect to the issuance of our shares of
8% exchangeable preferred stock to Elliott and, prior to the
completion of the subscription offering, the exchange of such shares,
together with accrued and unpaid dividends thereon, for shares of 8%
convertible preferred stock, and as further adjusted to give effect to the
completion of the exchange offer assuming senior notes representing 100% of
the aggregate principal amount outstanding are exchanged for shares of new
preferred stock, as if the transactions were completed as of September 30,
1999. The information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and with our consolidated financial statements and related notes included
in this prospectus. See also "Capitalization" and "Unaudited Pro Forma
Consolidated Statements of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------- ------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- --------------- -----------
(unaudited) (unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 175,512 $ 175,512 $ 44,721 $ 44,721
Operating income (loss)............... 6,346 6,346 (25,718) (25,718)
Income (loss) from continuing
operations.......................... (7,698) 1,423 (34,145) (26,421)
Net loss applicable to common stock... (8,138) (5,249) (34,213) (31,350)
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED (1):
Continuing operations................. $ (0.54) $ 0.10 $ (2.37) $ (1.83)
Dividend requirement on pay-in-
kind preferred stock............... (0.03) (0.47) --- (0.34)
------------ ------------ ------------ ------------
Net loss per common share............. $ (0.57) $ (0.37) $ (2.37) $ (2.17)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted..................... 14,257 14,257 14,526 14,526
CASH FLOW AND OTHER DATA:
Cash provided by operating activities. $ 15,815 $ (3,890)
Cash used in investing activities..... (31,305) (22,961)
Cash provided by financing activities. 16,821 20,625
Capital expenditures.................. 23,866 4,649
Ratio of earnings to fixed charges and
preferred dividends (2)............. 0.64 x 0.85 x(3) --(4) --(3)(4)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
---------------------------------------------
ACTUAL PRO FORMA
------------ -------------------------------
AS FURTHER
AS ADJUSTED ADJUSTED
--------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 1,949 $ 6,899 $ 6,449
Total assets 143,558 148,508 144,103
Notes payable, current portion of long-
term debt and capital lease obligations 7,651 7,651 7,651
Long-term debt, subordinated debt
and capital lease obligations
excluding current portion(5) 119,327 119,327 19,985
Total stockholders' equity (3,146) 1,804 97,932
</TABLE>
___________________________
(1)The pro forma earnings per share data assumes that senior notes
representing 100% of the aggregate principal amount outstanding are
exchanged for shares of new preferred stock.
(2)For purposes of calculating the ratio of earnings to fixed charges,
"earnings" means income before income taxes and minority interest plus
fixed charges less preferred stock dividends. Fixed charges include
interest on indebtedness, amortization of debt issue costs and discount
on senior notes, preferred stock dividends and that portion of lease
expense (one-third) that is deemed to be representative of an interest
factor. See also "Ratio of Earnings to Fixed Charges and Preferred
Dividends."
(3)The pro forma ratio of earnings to fixed charges and preferred dividends
assumes that senior notes representing 100% of the aggregate principal
amount outstanding are exchanged for shares of new preferred stock.
(4)Historical and pro forma earnings were inadequate to cover fixed charges
and preferred dividends by $33.8 million and $30.9 million,
respectively.
(5)Assumes that 100% of the aggregate principal amount of senior notes
outstanding are exchanged for new shares of 8% convertible preferred stock.
See the Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
RISK FACTORS
WE URGE YOU TO CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL
AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING ANY
INVESTMENT DECISIONS REGARDING THE EXCHANGE OFFER OR THE PREFERRED STOCK.
THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM
IMMATERIAL MAY ALSO IMPACT OUR BUSINESS OPERATIONS.
WE ARE DEPENDENT ON THE VOLATILE OIL AND GAS INDUSTRY
Our business depends in large part on the conditions of the oil and
gas industry, and specifically on the capital expenditures of our
customers. As a result of the decline in oil and gas prices beginning late
in the third quarter of 1998, the level of overall oil and gas industry
activity has declined substantially from levels experienced in recent
years. Decreases in our customers' capital spending in connection with
industry downturns have had and will likely result in decreased demand for
our services. Our results of operations have varied and may continue to
vary depending on the demand for our services. Unless demand increases, we
will likely continue to operate at a loss.
WE ARE HIGHLY LEVERAGED AND HAVE SIGNIFICANT DEBT SERVICE REQUIREMENTS
Our balance sheet is highly leveraged given our present operating
level. As of December 1, 1999, our total indebtedness was approximately
$130.0 million. If the exchange offer is not consummated, we will have
significant interest expense and principal repayment obligations under the
senior notes and our other debt. Our ability to meet our debt service
requirements and comply with the covenants in our various debt agreements,
including the indenture governing the senior notes, will depend upon our
future performance, which is subject to the volatile nature of the seismic
business and competitive, economic, financial and other factors that are
beyond our control. If we are unable to generate sufficient cash flow from
operations or obtain other financing in the future to service our debt, we
may be required to sell assets, reduce capital expenditures or refinance
all or a portion of our existing debt. There can be no assurance that any
such financing can be obtained, particularly in view of the restrictions on
our ability to incur additional debt under the indenture governing the
senior notes, and the fact that substantially all of our assets are pledged
to secure our term loan and working capital facility. As a result, the
value of the senior notes could be significantly impaired. Also, there can
be no assurance that Elliott or Westgate will provide additional financing
or otherwise guarantee or otherwise provide credit support to enable us to
obtain additional financing.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY INTENSE PRICE COMPETITION IN A
SLACK MARKET
Competition among seismic contractors historically is, and will
continue to be, intense. Competitive factors have in recent years included
price, crew experience, equipment availability, technological expertise and
reputation for quality and dependability. Some of our competitors operate
more data acquisition crews than we do and have substantially greater
financial and other resources. These larger and better financed operators
could enjoy an advantage over us if the competitive environment for
contract awards shifts to one characterized principally by intense price
competition.
OUR MULTI-CLIENT DATA LIBRARY COULD BECOME IMPAIRED DUE TO WEAK DEMAND OR
TECHNOLOGICAL OBSOLESCENCE
We have invested significant amounts in acquiring and processing
multi-client data. There is no assurance that we will be able to recover
all of the costs of these surveys in the future. Technological, regulatory
or other industry or general economic developments could render all or
portions of our library of multi-client data obsolete or otherwise impair
its value. As of December 31, 1998 and September 30, 1999, the total value
of the capitalized multi-client data library was $10.9 million and $24.4
million, respectively.
WE HAVE HIGH LEVELS OF FIXED COSTS
Our business has high fixed costs, and downtime or low productivity
due to reduced demand, weather interruptions, equipment failures or other
causes can result in significant operating losses.
TECHNOLOGICAL ADVANCES MAY ADVERSELY AFFECT OUR COMPETITIVENESS
Seismic data acquisition and processing is a capital intensive
business. The development of seismic data acquisition and processing
equipment has been characterized by rapid technological advancements in
recent years and we expect this trend to continue. Manufacturers of
seismic equipment may develop new systems that have competitive advantages
over systems now in use that could render our current equipment obsolete or
require us to make significant unplanned capital expenditures to maintain
our competitive position. Under such circumstances, there can be no
assurance that we would be able to obtain necessary financing on favorable
terms.
WE ARE DEPENDENT UPON SIGNIFICANT CUSTOMERS
We derive a significant amount of our revenue from a small number of
independent oil and gas producers in the United States and major oil
companies in international areas. During 1998 and the nine months ending
September 30, 1999, our five largest customers accounted for approximately
28.8% and 37.9% of revenues, respectively. While our revenues are derived
from a concentrated customer base, our significant customers may vary between
years. Our inability to continue to perform services for a number of
our large existing customers, if not offset by sales to new or other
existing customers, could have a material adverse effect on us.
WE COMPETE IN A HIGHLY COMPETITIVE INDUSTRY
We compete in a highly competitive area of the oilfield services
industry. Our services are sold in a highly competitive market and our
revenues and earnings may be affected by the following factors:
* fluctuations in the level of activity and major markets;
* changes in competitive prices;
* general economic conditions; and
* governmental regulation.
We compete with the oil and gas industry's largest seismic service
providers. Our management believes that the principal competitive factors
in the market areas served by us are product and service quality and
availability, technical proficiency and price.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO SIGNIFICANT RISKS
Our international operations are subject to risks inherent in doing
business in foreign countries. During the nine months ended September 30,
1999, approximately 41% of our revenue was attributed to projects in
international market areas. We expect international operations to continue
to contribute materially to our revenues for the foreseeable future.
International operations expose us to risks inherent in doing business
outside the United states, including:
* political changes;
* expropriation;
* currency restrictions and changes in currency exchange rates;
* taxes; and
* boycotts and other civil disturbances.
The risks associated with operating internationally are reflected in the
recent decrease in our international sales, other than Canada, from $73.0
million in 1998 to $10.2 million during the nine months ended September 30,
1999. The decrease was primarily attributable to general economic conditions
and political events in South America, the economic downturn in the Far East
and the overall worldwide market for oil and gas.
WE DEPEND ON KEY PERSONNEL
We depend on the continued services of our executive officers and
other key management personnel. If we would lose any of these officers or
other management personnel, this could adversely affect us.
THERE IS NO ESTABLISHED MARKET FOR OUR NEW PREFERRED STOCK OR OUR COMMON
STOCK
Although the new preferred stock may be resold or otherwise
transferred by holders who are not affiliates of our company without
compliance with the registration requirements under the Securities Act,
they will be new securities for which there is currently no established
trading market. Similarly, there is currently no established trading
market for the common stock into which the preferred stock is convertible.
We do not intend to apply for listing of the new preferred stock or our
common stock on a national securities exchange or for quotation on an
automated dealer quotation system. The liquidity of any market for the new
preferred stock or our common stock will depend upon the number of holders
of the stock, the interest of securities dealers in making a market in the
stock and other factors. Accordingly, there can be no assurance as to the
development or liquidity of any market for the stock. If an active trading
market for the new preferred stock or our common stock does not develop,
the market price and liquidity of the stock may be adversely affected. If
shares of the new preferred stock or our common stock are traded, they may
trade at a discount from their current value, depending upon the market for
similar securities, our performance and other factors.
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR COMMON STOCK
Unlike the new preferred stock, the common stock into which the new
preferred stock is convertible does not give the holder a right to receive
dividends. We have paid no dividends on our common stock and we cannot
assure you that we will achieve sufficient earnings to pay cash dividends
on our common stock in the near future. Further, we intend to retain
earnings to fund our operations. Additionally, the indenture governing
the senior notes and our credit facility restrict our ability to pay
dividends and make other distributions. Therefore, we do not anticipate
paying any cash dividends on our common stock for the foreseeable future.
See "Dividends."
OUR ABILITY TO PAY THE LIQUIDATION PREFERENCE AND DIVIDENDS ON THE
PREFERRED STOCK DEPENDS ON OUR FINANCIAL CONDITION AT THAT TIME
Our obligations to the holders of our debt and other creditors take
priority over our obligations to the holders of the preferred stock. The
indenture governing the senior notes and our credit facility restrict our
ability to pay dividends and make other distributions. Additionally, under
Delaware law, we may not redeem the preferred stock for its stated
liquidation preference if at that time our remaining assets are not
sufficient to pay our outstanding obligations or if that redemption would
impair our capital. See "Description of Capital Stock -- The 8% Convertible
Preferred Stock."
PREFERRED STOCK COULD RESULT IN POTENTIAL DILUTION AND IMPAIR THE PRICE OF
OUR COMMON STOCK
To the extent that the preferred stock is converted into our common
stock, our existing common stockholders will experience dilution in their
percentage ownership of Grant. So long as the preferred stock is
exercisable, the holders of preferred stock will have the opportunity to
profit from a rise in the price of our common stock. The additional shares
of common stock available for sale may have a negative impact on the price
and liquidity of the common stock that is currently outstanding.
EFFECTS OF THE EXCHANGE OFFER ON NON-EXCHANGED SENIOR NOTES
The tender of senior notes under the exchange offer will reduce the
aggregate principal amount of the senior notes traded or held in the market
place. As a result, it may become more difficult for holders to sell their
senior notes. In addition, the reduced liquidity of the senior notes
outstanding after the exchange offer could have the effect of reducing the
market price at which the senior notes may be sold.
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking
statements are those that predict or describe future events or trends and
that do not relate solely to historical matters. You can generally
identify forward-looking statements as statements containing the words
"believe," "expect," "anticipate," "intend," "estimate," "assume" or
similar expressions.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS BECAUSE THE
MATTERS THEY DESCRIBE ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER UNPREDICTABLE FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
Many relevant risks are described under the caption "Risk Factors" in this
prospectus, and you should consider the important factors listed there as
you read this prospectus.
Our actual results, performance or achievements may differ materially
from the anticipated results, performance or achievements that are
expressed or implied by our forward-looking statements. We assume no
responsibility to update our forward-looking statements.
<PAGE>
THE EXCHANGE OFFER
CONCURRENT SUBSCRIPTION OFFERING
Concurrently with this exchange offer, one of our stockholders, Elliott
Associates, L.P., is conducting an offering under a separate prospectus of
15.26% of the shares of 8% convertible preferred stock that will be held by
it prior to the consummation of the exchange offer, to holders
of our common stock, other than Elliott and Westgate International, L.P.
We will not receive any proceeds from the subscription offering, nor can we
assure you that Elliott will complete the concurrent subscription offering.
This exchange offer and the concurrent subscription offering are not
conditioned on each other. This prospectus relates only to the exchange
offer and not to the subscription offering.
TERMS OF THE EXCHANGE OFFER
GENERAL
Upon the terms and subject to the conditions described in this
prospectus and in the letter of transmittal, we will accept for exchange
any and all outstanding senior notes properly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date. We will
issue shares of new preferred stock with an aggregate liquidation value
equal to 65% of the aggregate principal amount of senior notes tendered
plus 100% of the accrued and unpaid interest through the date of exchange
on the senior notes tendered. Outstanding senior notes may be tendered
only in integral multiples of $1,000. We are not conditioning the exchange
offer upon any minimum aggregate principal amount of outstanding senior
notes being tendered for exchange.
As of the date of this prospectus, $100 million aggregate principal
amount of our senior notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of the outstanding
senior notes. There will be no fixed record date for determining
registered holders of outstanding senior notes entitled to participate in
the exchange offer.
We intend to conduct the exchange offer according to the applicable
requirements of the Securities Act of 1933 and the Securities Exchange Act
of 1934 and the rules and regulations of the Securities and Exchange
Commission. Outstanding senior notes that are not tendered for exchange in
the exchange offer will remain outstanding and continue to accrue interest
and will be entitled to the rights and benefits the holders have under the
indenture governing the senior notes.
We will be deemed to have accepted for exchange properly tendered
outstanding senior notes when we have given oral or written notice of such
acceptance to the exchange agent. The exchange agent will act as agent for
the tendering holders for the purposes of receiving the new preferred
stock. We will return any outstanding senior notes that we do not accept
for exchange for any reason without expense to the tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
If you tender outstanding senior notes in the exchange offer, you will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to
the exchange of your outstanding senior notes. We will pay all charges and
expenses, other than some applicable taxes, in connection with the exchange
offer. It is important for holders to read the section labeled "--Fees and
Expenses" for more details regarding fees and expenses incurred in the
exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
Unless sooner terminated, the exchange offer will expire at 5:00 p.m.,
New York City time, on January ___, 2000, unless we, in our sole discretion,
extend the exchange offer, in which case the expiration date will be the
latest date and time to which the exchange offer is extended. Although we
do not intend to extend the exchange offer at this time, we expressly
reserve the right to extend the exchange offer at any time by giving oral
or written notice to the exchange agent. We will also make a public
announcement of an extension no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date.
During any extension of the exchange offer, all outstanding senior notes
previously tendered in the exchange offer and not withdrawn will remain
subject to the exchange offer.
If any of the conditions described below under "--Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion to either:
* delay accepting for exchange any outstanding senior
notes;
* extend the exchange offer; or
* terminate the exchange offer
by giving oral or written notice of such delay, extension or termination to
the exchange agent. We also reserve the right to amend the terms of the
exchange offer in any manner. However, we must accept any senior notes
tendered by Elliott and Westgate and we may do so prior to the expiration date.
We will, as promptly as practicable, notify you orally or in writing
if there is any delay in acceptance, extension, termination or amendment of
the exchange offer. If we amend the exchange offer in any manner that we
determine to constitute a material change, we will promptly disclose the
amendment by means of a prospectus supplement that we will distribute to
you and, if required, a post effective amendment to the registration
statement of which this prospectus forms a part. Depending upon the
significance of the amendment to the exchange offer and the manner of
disclosure to the registered holders, we will extend the exchange offer for
a period of time if the exchange offer would otherwise expire during that
period.
CONDITIONS TO THE EXCHANGE OFFER
If in our reasonable judgment the exchange offer, or the making of any
exchange by a holder of outstanding senior notes, would violate applicable
law or any applicable interpretation of the staff of the Securities and
Exchange Commission:
* we will not be required to accept for exchange, or to
issue shares of new preferred stock in exchange for, any
outstanding senior notes; and
* we may terminate the exchange offer as provided in this
prospectus before accepting any outstanding senior notes for
exchange.
We expressly reserve the right to amend or terminate the exchange
offer, and to reject for exchange any outstanding senior notes not
previously accepted for exchange, upon the occurrence of any of the
conditions to the exchange specified above. We will give oral or written
notice of any extension, amendment, nonacceptance or termination to the
exchange agent and the holders of the outstanding senior notes as promptly
as practicable.
These conditions are for our sole benefit, and we may assert them or
waive them in whole or in part at any time or at various times in our sole
discretion. If we fail at any time to exercise any of these rights, this
failure will not mean that we have waived our rights. Each right will be
deemed an ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding senior notes
tendered and will not issue shares of new preferred stock in exchange for
any outstanding senior notes if, at that time, any stop order has been
threatened or is in effect with respect to the registration statement of
which this prospectus is a part.
PROCEDURES FOR TENDERING
Only a registered holder of outstanding senior notes may tender their
outstanding senior notes in the exchange offer. To tender in the exchange
offer, a holder must either (1) comply with the procedures for manual
tender or (2) comply with the automated tender offer program procedures of
DTC described below:
To complete a manual tender you must:
* complete, sign and date the letter of transmittal or a
facsimile of the letter of transmittal;
* have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires;
* mail, fax or deliver the letter of transmittal to the
exchange agent before the expiration date; and
* deliver the outstanding senior notes to be tendered to
the exchange agent with the letter of transmittal prior to the
expiration date or make book-entry delivery of the outstanding
senior notes to the exchange agent, in which case the exchange
agent must receive, before the expiration date, a timely
confirmation of book-entry transfer of the outstanding senior
notes into the exchange agent's account at DTC according to
the procedure for book-entry transfer described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents
at its address provided below under "-- The Exchange Agent" before the
expiration date. The tender by a holder that is not withdrawn before the
expiration date will constitute an agreement between the holder and us
according to the terms and subject to the conditions described in this
prospectus and in the letter of transmittal.
If you wish to tender your outstanding senior notes and cannot comply
with the requirement to deliver the letter of transmittal and your
outstanding senior notes or use the automated tender offer program of the
DTC before the expiration date, you must tender your outstanding senior
notes according to the guaranteed delivery procedures described below.
The method of delivery of the outstanding senior notes, the letter of
transmittal and all other required documents to the exchange agent is at
the holder's election and risk. Except as provided in the letter of
transmittal, delivery of these items will be deemed made only when actually
received or confirmed by the exchange agent. Rather than mail these items,
we recommend that holders use an overnight or hand delivery service. In
all cases, holders should allow sufficient time to ensure delivery to the
exchange agent before the expiration date. Holders should not send the
letter of transmittal or outstanding senior notes to us. Holders may
request their brokers-dealers, commercial banks, trust companies or other
nominees to effect the above transactions on their behalf.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's automated
tender offer program to tender outstanding senior notes. Instead of
physically completing and signing the letter of transmittal and delivering
it to the exchange agent, participants in the program may transmit their
acceptance of the exchange offer electronically. They may do so by causing
DTC to transfer the outstanding senior notes to the exchange agent according
to its procedures for transfer. DTC will then send an agent's message to the
exchange agent.
The term "agent's message" means a message transmitted by DTC,
received by the exchange agent and forming part of the book-entry
confirmation, stating that:
* DTC has received an express acknowledgment from a
participant in its automated tender offer program that is
tendering outstanding senior notes which are the subject of
book-entry confirmation;
* the participant has received and agrees to be bound by
the terms of the letter of transmittal or, in the case of an
agent's message relating to guaranteed delivery, that the
participant has received and agrees to be bound by the notice
of guaranteed delivery; and
* the agreement may be enforced against the participant.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own outstanding senior notes that are registered
in the name of a broker-dealer, commercial bank, trust company or other
nominee and you wish to tender those senior notes, you should contact the
registered holder promptly and instruct it to tender on your behalf. If
you are a beneficial owner and wish to tender on your own behalf, you must,
before completing and executing the letter of transmittal and delivering
your outstanding senior notes, either:
* make appropriate arrangements to register ownership of
the outstanding senior notes in your name; or
* obtain a properly completed bond power from the
registered holder of your outstanding senior notes.
The transfer of registered ownership may take considerable time and may not
be completed before the expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You do not need to have your signature guaranteed if the tendered
senior notes are registered in the name of the signer of the letter of
transmittal and the shares of new preferred stock to be issued in the
exchange are to be issued to the registered holder. In any other case, you
must endorse the outstanding senior notes to be tendered or accompany them
with written instruments of transfer in form satisfactory to us and duly
executed by the registered holder. In addition, the signature on the
endorsement or instrument of transfer must be guaranteed by an eligible
guarantor institution that is a member of one of the following recognized
signature guarantee programs:
* The Securities Transfer Agents Medallion Program;
* The New York Stock Exchange Medallion Signature Program;
* The Stock Exchange Medallion Program; or
* an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934.
If the new preferred stock or the outstanding senior notes not exchanged
are to be delivered to an address other than that of the registered holder
appearing on the register for the outstanding senior notes, the signature on
the letter of transmittal must be guaranteed by an eligible guarantor
institution.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered
outstanding senior notes and withdrawal of tendered outstanding senior
notes. Our determination will be final and binding. We reserve the
absolute right to reject any and all outstanding senior notes not properly
tendered or any outstanding senior notes our acceptance of which would, in
our opinion or the opinion of our counsel, be unlawful. We also reserve
the absolute right to waive any defects, irregularities or conditions of
tender as to particular outstanding senior notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding senior notes must be cured within the time we will determine.
Neither we, the exchange agent nor any other person will be under any duty
to give notification of defects or irregularities in tenders of outstanding
senior notes, or incur any liability for failure to give any such
notification. Tenders of outstanding senior notes will not be deemed made
until any defects or irregularities have been cured or waived. Any
outstanding senior notes received by the exchange agent that are not
properly tendered, and the defects or irregularities of which have not been
cured or waived, will be returned to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
ISSUANCE OF NEW PREFERRED STOCK
In all cases, we will issue shares of new preferred stock in
certificated form for the outstanding senior notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives both:
* the outstanding senior notes or a timely book-entry
confirmation of the outstanding senior notes into the exchange
agent's appropriate account at DTC; and
* a properly completed and duly executed letter of
transmittal and all other required documents or a properly
transmitted agent's message.
The new preferred stock issued in the exchange offer will be delivered to
you promptly following the expiration of the exchange offer.
RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered outstanding senior notes for exchange
for any reason described in the terms and conditions of the exchange offer
or if outstanding senior notes are submitted for a greater principal amount
than the holder desires to exchange, the unaccepted or nonexchanged
outstanding senior notes will be returned without expense to their
tendering holder. In the case of outstanding senior notes tendered by
book-entry transfer into the exchange agent's account at DTC according to
the procedures described below, the outstanding senior notes not exchanged
will be credited to an account maintained with DTC. These actions will
occur as promptly as practicable after the expiration or termination of the
exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the outstanding senior notes at DTC for purposes of the exchange
promptly after the date of this prospectus. Any financial institution
participating in DTC's system may make book-entry delivery of outstanding
senior notes by causing DTC to transfer the outstanding senior notes into
the exchange agent's account at DTC according to DTC's procedures for
transfer.
Holders whose outstanding senior notes are not immediately available
or who are unable to deliver confirmation of the book-entry tender of their
outstanding senior notes into the exchange agent's account at DTC or all
other documents required by the letter of transmittal to the exchange agent
on or before the expiration date must tender their outstanding senior notes
according to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding senior notes, but your
outstanding senior notes are not immediately available or you cannot
deliver your outstanding senior notes, the letter of transmittal or any
other required documents to the exchange agent or comply with the
applicable procedures under DTC's automated tender offer program before the
expiration date, you may tender if, before the expiration date, the
exchange agent receives from an eligible guarantor financial institution,
either a properly completed and duly executed notice of guaranteed delivery
or a properly transmitted agent's message and notice of guaranteed
delivery:
* stating your name and address;
* stating the registration number(s) of your outstanding
senior notes and the total principal amount of outstanding
senior notes tendered;
* stating that the tender is being made; and
* guaranteeing that, within five business days after the
expiration date, the letter of transmittal or an agent's
message in lieu thereof, together with the outstanding senior
notes or a book-entry confirmation and any other documents
required by the letter of transmittal, will be deposited by
the eligible guarantor institution with the exchange agent.
Unless the exchange agent receives the properly completed and executed
letter of transmittal, as well as all tendered outstanding senior notes in
proper form for transfer or a book-entry confirmation and all other
documents required by the letter of transmittal, within five business days
after the expiration date, we may, at our option, reject the tender.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their outstanding senior notes
according to the guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time before 5:00 p.m., New York City time, on the expiration
date. For a withdrawal to be effective:
* the exchange agent must receive a written notice of
withdrawal at the address listed below under "--Exchange Agent";
or
* you must comply with the appropriate procedures of
DTC's automated tender offer program system.
Any notice of withdrawal must:
* specify the name of the person who tendered the
outstanding senior notes to be withdrawn as depositor;
* identify the outstanding senior notes to be withdrawn,
including the registration numbers of the outstanding senior
notes and the total principal amount of the outstanding
senior notes;
* contain a statement that the holder is withdrawing its
election to have such outstanding senior notes exchanged;
* contain the signature of the depositor in the same
manner as the original signature on the letter of
transmittal used to deposit those outstanding senior notes
or be accompanied by documents of transfer sufficient to
permit the trustee for the outstanding senior notes to
register the transfer into the name of the depositor
withdrawing the tender; and
* specify the name in which the outstanding senior notes
are to be registered, if different from that of the
depositor.
If outstanding senior notes have been tendered under the procedure for
book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn
outstanding senior notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility
and time of receipt of notice of withdrawal. Our determination will be
final and binding on all parties. We will deem any outstanding senior
notes so withdrawn not to have been validly tendered for exchange for
purposes of the exchange offer.
Any outstanding senior notes that have been tendered for exchange, but
are not exchanged for any reason will be returned to their holder without
cost to the holder. In the case of outstanding senior notes tendered by
book-entry transfer into the exchange agent's account at DTC according to
the procedures described above, the outstanding senior notes will be
credited to an account maintained with DTC for the outstanding senior
notes. This return or crediting will take place as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Holders may re-tender properly withdrawn outstanding senior notes by
following one of the procedures described under the caption "--Procedures
for Tendering" above at any time on or before the expiration date.
EXCHANGE AGENT
We have appointed LaSalle Bank National Association as exchange agent
for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal
and requests for notices of guaranteed delivery should be directed to the
exchange agent addressed as follows:
LaSalle Bank National Association
Corporate Trust Administration, Room 1960
135 South LaSalle Street
Chicago, IL 60603
Attn: Sarah H. Webb
VIA FACSIMILE: CONFIRM BY TELEPHONE:
(312) 904-2236 (312) 904-2444
FEES AND EXPENSES
We will bear all fees and the expenses of soliciting tenders of the
outstanding senior notes. The principal solicitation is being made by
mail. However, we may make additional solicitation by telephone or in
person by our officers and regular employees and the officers and regular
employees of our affiliates. No additional compensation will be paid to
any such officers and employees who engage in soliciting tenders. We will
also pay the cash expenses to be incurred in connection with the exchange,
including:
* SEC registration fees;
* fees and expenses of the exchange agent and trustee;
* accounting and legal fees and printing costs; and
* related fees and expenses.
We have not retained any dealer-manager or other soliciting agent in
connection with the exchange offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the exchange offer.
We will, however, pay the exchange agent reasonable and customary fees for
its services and reimburse it for its related reasonable out-of-pocket
expenses. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this prospectus, the letter of transmittal and related
documents to the beneficial owners of the outstanding senior notes and in
handling or forwarding the tendered outstanding senior notes for exchange.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding senior notes under the exchange offer. The tendering holder,
however, will be required to pay any transfer taxes, whether imposed on the
registered holder or any other person, if:
* new preferred stock or outstanding senior notes for
principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be issued in the name of, any
person other than the registered holder of the outstanding
senior notes tendered;
* tendered outstanding senior notes are registered in the
name of any person other than the person signing the letter of
transmittal; or
* a transfer tax is imposed for any reason other than the
exchange of the outstanding senior notes under the exchange
offer.
If satisfactory evidence of payment of any applicable transfer taxes or an
exemption from payment of any applicable taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed
directly to such tendering holder.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the opinion of Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel to Grant,
regarding the material United States federal income tax consequences to the
holders of the senior notes resulting from the exchange. This discussion
does not purport to deal with all aspects of United States federal income
taxation that may be relevant to you if you are a holder who may be subject
to special federal income tax laws, such as a dealer in securities, a
financial institution, a life insurance company, an individual who is not a
citizen or resident of the United States or a corporation, partnership or
other entity that is not organized under the laws of the United States or
any of its political subdivisions, or a person that holds the senior notes
as part of a hedge, conversion transaction, straddle or other risk
reduction transaction. In addition, the following discussion does not
consider the effect of any applicable foreign, state or local tax laws.
Furthermore, this discussion does not purport to deal with all aspects of
United States federal income taxation that, because of specific
circumstances applicable to you, might be relevant to your decision to
participate in the exchange. You are strongly urged to consult your tax
advisors concerning the United States federal income tax considerations
that may be specific to you as well as any tax consequences arising under
the laws of any other taxing jurisdiction.
The discussion below is based upon the current provisions of the
Internal Revenue Code, existing and proposed treasury regulations
promulgated under the Internal Revenue Code, rulings of the Internal
Revenue Service and judicial decisions now in effect as of the date of this
prospectus. Such authorities may be repealed, revoked or modified,
possibly with retroactive effects, so as to result in United States federal
income tax consequences different from those described below.
TREATMENT OF THE EXCHANGE AS A RECAPITALIZATION UNDER INTERNAL REVENUE CODE
SECTION 368.
Based on our conclusions on the issues described below, the exchange
more likely than not constitutes a recapitalization under Section
368(a)(1)(E) of the Internal Revenue Code. As a result, you should not
recognize gain or loss on the exchange, except to the extent that preferred
stock is received for accrued interest. Your basis in the preferred stock
received, exclusive of shares received for accrued interest, will equal
your basis in the senior notes. The basis in the preferred stock received
for accrued interest will equal the fair market value of those shares. You
will recognize ordinary income attributable to any consideration received
as payment for accrued interest on the senior notes that was not previously
included in your income. If you have already included the accrued interest
in income, you will not recognize any additional income as a result of the
consideration received as payment for the accrued interest on the senior
notes.
CONCLUSIONS RELATING TO TAX CONSEQUENCES
Our opinion is based in part on our conclusion on issues that involve
areas of law that are ambiguous or with respect to which legal authority is
lacking and as to which limited guidance is available. We will not seek a
ruling from the Internal Revenue Service regarding these issues.
Consequently, there can be no assurance that the Internal Revenue Service
will not challenge one or more of the conclusions described below upon
which our opinion is based.
Our opinion is based on our conclusion that the senior notes likely
constitute securities for federal income tax purposes. The term security
is not defined in the Internal Revenue Code or in the treasury regulations
and has not been clearly defined in court decisions. Although there are a
number of factors that may affect the determination of whether a debt
instrument is a security, one of the most important factors is the original
term of the instrument, or the length of time between the issuance of the
instrument and its maturity. In general, instruments with an original term
of more than ten years are likely to be treated as securities, and
instruments with an original term of less than five years are unlikely to
be treated as securities. Because the term of the senior notes originally
exceeded ten years, we have concluded that the senior notes likely
constitute securities for federal income tax purposes. However, given the
uncertainty of the definition of security, it is possible that the Internal
Revenue Service could take the position that the senior notes do not
constitute securities. In that case, the exchange would not constitute a
recapitalization and you would recognize gain or loss on the exchange to
the extent that the fair market value of the preferred stock exceeds your
tax basis in your senior notes.
Our opinion also is based on our conclusion that the preferred stock
likely is not non-qualified preferred stock. Non-qualified preferred stock
is preferred stock that has one of several features, including a right on
behalf of the issuer to redeem the stock if, as of the issue date, it is
more likely than not that such right will be exercised. The term preferred
stock means stock which is limited and preferred as to dividends and does
not participate in corporate growth to any significant extent. Regulations
have not been issued on this standard. Moreover, the legislative history
is unclear as to the affect of the conversion privilege on the
classification of stock as preferred stock. Finally, regulations have not
been issued with respect to the more likely than not standard for
redemption exercise. It is possible that the Internal Revenue Service
could take the position that the preferred stock constitutes non-qualified
preferred stock. In that case, it is possible that the exchange would not
constitute a recapitalization and you would recognize gain or loss on the
exchange to the extent that the fair market value of the preferred stock
exceeds your tax basis in your senior notes. However, the legislative
history to the non-qualified preferred stock provisions of the Internal
Revenue Code indicates that an exchange of non-qualified preferred stock
for debt securities having the same or greater value can qualify as a tax-
free reorganization. As a result, use of the preferred stock does not
appear to preclude tax-free reorganization treatment even if such stock
constitutes non-qualified preferred stock.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
preferred stock in the exchange offer. In consideration for issuing the
new preferred stock, we will receive in exchange our outstanding senior
notes. We will issue new preferred stock with an aggregate liquidation
value equal to 65% of the aggregate amount of senior notes tendered plus
100% of the accrued and unpaid interest on the senior notes tendered
through the date of the exchange.
<PAGE>
CAPITALIZATION
We have provided our capitalization as follows:
* as of September 30, 1999;
* as adjusted to give effect to the issuance of our 8% exchangeable
preferred stock to Elliott and, prior to the completion of
the subscription offering, the exchange of such shares, together with
accrued and unpaid dividends thereon, for shares of 8% convertible
preferred stock; and
* as further adjusted to give effect to the completion of the exchange
offer assuming senior notes representing 100% of the aggregate principal
amount outstanding are exchanged for shares of our new preferred stock.
The consummation of the subscription offering will not affect our consolidated
debt or consolidated capitalization.
You should read this table in conjunction with the Unaudited Consolidated Pro
Forma Statement of Operations, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial
statements of the Company and GGI Liquidating Corporation, and the related
notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------------------------------
Historical Pro Forma
-------------- ------------------------------------------------------------------
As As Further
Adjusted Adjusted
-------------- --------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,949 $ 4,950(c) $ 6,899 $ (450)(g) $ 6,449
========== ========== ============
Current portion of long-term debt
and notes payable $ 7,651 $ 7,651 $ 7,651
========== ========== ============
Long-term debt,excluding current
indebtedness 9 3/4% Senior Notes
due 2008 99,342 99,342 (100,000)(d) 0
658 (e)
Other 19,985 19,985 19,985
---------- ---------- ------------
Total long-term debt 119,327 119,327 19,985
Stockholders' equity:
Preferred stock, $.001 par value
per share:
8% Convertible
Preferred Stock(a) 8,250 5,241(c) 13,491 65,000 (d) 78,491
Common stock, $.001 par value per
share (b) 14 14 14
Additional Paid-in capital 41,757 41,757 41,757
Accumulated (deficit) earning (51,396) (291)(c) (51,687) 35,000 (d) (20,559)
(658)(e)
(3,955)(e)
1,191 (d)
(450)(g)
Accumulated other comprehensive loss (1,771) (1,771) (1,771)
---------- ---------- ------------
Total stockholders' equity (3,146) 1,804 97,932
Total capitalization $ 123,832 $ 128,782 $ 125,568
========== ========== ============
</TABLE>
(a)Actual: 1,000,000 shares authorized, 8,250 shares outstanding; as
adjusted: 1,000,000 shares authorized, 13,491 shares outstanding; as
further adjusted: 1,000,000 shares authorized, 821,468 outstanding. Between
October 1, 1999 and December 1, 1999, the Company issued 50,177 shares of 8%.
Exchangeable preferred stock a price of $100 per share. The Company also
issued 677 shares of 8% exchangeable preferred stock to Elliott as of
October 1, 1999 as dividends on the 8% exchangeable preferred stock payable
on that date. The Company expects that an additional 2,228 shares of 8%
exchangeable preferred stock will be payable as accumulated dividends on the
8% exchangeable preferred stock at December 31, 1999. The Company further
expects that all shares of 8% exchangeable preferred stock owned by Elliott
will be exchanged prior to the subscription offering for shares
of 8% convertible preferred stock with a liquidation preference equal to
that of the 8% exchangeable preferred stock plus any accrued and unpaid
dividends on the shares exchanged.
(b)50,000,000 shares authorized, 14,526,055 shares outstanding.
(c)Adjustment to convert Elliott's 8% exchangeable preferred stock to 8%
convertible preferred stock including accrued but unpaid dividends.
(d)Adjustment to exchange 100% of the outstanding senior notes to 8%
convertible preferred stock including accrued but unpaid interest.
The range of possible results associated with the exchange offer,
assuming only 56.3% ($56.3 million face value) of the outstanding
senior notes, representing notes owned by Elliott, are exchanged are
presented in the Notes to Unaudited Pro Forma Consolidated Financial
Statements.
(e)Adjustment for the write off of the remaining debt discount.
(f)Adjustment for the write off of the remaining debt issuance costs.
(g)Adjustment to record the estimated expenses of the exchange offer and the
subscription offering.
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
GGI Grant
--------------------------------------- ------------------------------------------------------------------
Pro Forma
--------------------
Nine Months Nine Months
Nine Months Three Months ended ended
Years Ended December 31, Ended Ended Year Ended September Year Ended September
------------------------- September 30, December 31, December 31, 30, December 31, 30,
1994 1995 1996 1997 1997 1998 1999 1998 1999
----- -------- --------- ------------- ------------ ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to combined fixed
charges and preferred
dividends(1) --(2) 0.82x(3) --(2) 1.41 x --(2) 0.64x(3) --(2) 0.85x(3) --(2)
</TABLE>
(1) For purposes of calculating the ratio of earnings to combined fixed
charges and preferred dividends, "earnings" means income before income
taxes and minority interest plus fixed charges less preferred stock
dividends. Fixed charges include interest on indebtedness, amortization
of debt issue costs and discount on senior notes, preferred stock
dividends and that portion of lease expense (one-third) that is deemed
to be representative of an interest factor.
(2) Earnings were inadequate to cover combined fixed charges and preferred
dividends by $16.5 million, $80.8 million, $8.1 million, $33.8 million
and $30.9 million for the years ended December 31, 1994 and 1996, the
three months ended December 31, 1997, the nine months ended September
30, 1999 and the pro forma nine months ended September 30, 1999,
respectively. Earnings for the year ended December 31, 1994 include a
$9.9 million charge for asset impairment. In December 1996, GGI filed for
bankruptcy protection under the United States Bankruptcy Code. The
filing was precipitated by a number of factors, including GGI's
overly rapid expansion efforts in the United States and Latin
America, which contributed to poor operational results in those
markets, and the development of a proprietary data recording system,
which did not meet expectations. Earnings for the three months ended
December 31, 1997 include a $6.4 million charge for asset impairment.
Earnings for the nine months ended September 30, 1999 and pro
forma nine months ended September 30, 1999 include a $4.7 million
charge for asset impairment. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
(3) For the year ended December 31, 1995 and 1998 and the pro forma year
ended December 31, 1998, the coverage ratio was less than 1:1. The
Company would need to generate additional earnings of $1.7 million,
$4.2 million and $1.3 million, respectively, to achieve a coverage of
1:1 in these periods.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
the Company and its predecessor, Grant Liquidating Corporation, also known as
GGI. The following GGI data and the following Company data, insofar as it
relates to:
* the three-month period ended December 31, 1997;
* the year ended December 31, 1998; and
* the balance sheet at each of those respective dates
has been derived from audited consolidated financial statements, including
those appearing elsewhere in this prospectus.
The selected consolidated financial data as of and for the nine-month
periods ended September 30, 1999 and 1998 has been derived from unaudited
financial statements also appearing herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of
its financial position and results of the unaudited interim periods. The
selected historical financial data set forth below should be read in
conjunction with the consolidated financial statements and the related notes
included in this prospectus. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
GGI GRANT
---------------------------------------------- ----------------------------------
Nine months Three months Year
Year Ended December 31, ended ended ended
------------------------------ September 30, December 31, December 31,
1994 1995 1996 1997 1997 1998
---------- --------- --------- -------------- ----------------- ---------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 73,691 $ 91,996 $ 105,523 $ 92,705 $ 37,868 $ 175,512
Operating income (loss) (9,241) 4,999 (65,970) 6,794 (5,033) 6,346
Income (loss) from continuing
operations (11,438) 3,162 (76,027) (425) (5,666) (7,698)
Net loss applicable to common stock (6,143) (8,138)
LOSS PER COMMON SHARE -
ASSUMING BASIC AND DILUTED:
Continuing operations $ (1.18) $ (.54)
Dividend requirement on pay-in-
kind preferred stock (.10) (.03)
------------- -----------
Net loss per common share $ (1.28) $ (.57)
============= ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted 4,798 14,257
CASH FLOW AND OTHER DATA:
Cash provided by (used in) operating
activities $ 3,170 $ 2,759 $ (9,346) $ 4,526 $ 5,386 $ 15,815
Cash used in investing activities (9,698) (9,272) (10,181) (6,731) (19,715) (31,305)
Cash provided by financing activities 5,260 6,929 25,667 1,289 15,072 16,821
Capital expenditures 8,463 14,921 25,799 4,154 12,400 23,866
Ratio of earnings to combined fixed
charges and preferred dividends (1) -- (2) 0.82 x -- (2) 1.41 x -- (2) 0.64 x
BALANCE SHEET DATA:
(at end of period)
Working capital $ 3,022 $ 8,033 $ 22,421 $ 16,190 $ 14,373
Total assets 61,609 86,932 70,123 155,704 166,441
Pre-petition liabilities subject to
chapter 11 case - - 90,244 - -
Notes payable, current portion of
long-term debt and capital lease
obligations 14,495 18,430 589 1,158 2,522
Long-term debt, subordinated debt
and capital lease obligations
excluding current portion 4,917 8,789 - 75,195 110,817
Total stockholders' equity 26,399 29,715 (34,213) 41,992 22,002
</TABLE>
<TABLE>
<CAPTION>
Grant
----------------------------------------
Nine months ended
September 30,
----------------------------------------
1998 1999
------------------- ---------------
(unaudited)
(In thousands, except per share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 147,357 $ 44,721
Operating income (loss) 12,416 (25,718)
Income (loss) from continuing operations 2,095 (34,145)
Net income (loss) applicable to
common stock $ 1,655 $ (34,213)
============ ===========
INCOME (LOSS) PER SHARE
Continuing operations $ 0.15 $ (2.37)
Dividend requirement on pay-in-kind
preferred stock (0.03) -
------------ -----------
Net income (loss) per share $ 0.12 $ (2.37)
============ ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted 14,426 14,526
CASH FLOW AND OTHER DATA:
Cash provided by operating activities $ 8,048 $ (3,890)
Cash used in investing activities (22,992) (22,961)
Cash provided by financing activities 14,256 20,625
Capital expenditures 18,031 4,649
Ratio of earnings to combined fixed charges and
preferred dividends (1) 1.57x -- (2)
BALANCE SHEET DATA:
(at end of period)
Working capital $ 22,947 $ 1,949
Total assets 183,843 143,558
Notes payable, current portion of long-term debt
and capital lease obligations 2,865 7,651
Long-term debt, revolving line of credit-affiliate
and capital lease obligations excluding
current portion 107,575 119,327
Total stockholders' equity 31,532 (3,146)
</TABLE>
_________
(1)For purposes of calculating the ratio of earnings to fixed charges,
"earnings" means income before income taxes and minority interest plus
fixed charges less preferred stock dividends. Fixed charges include
interest on indebtedness, amortization of debt issue costs and discount
on senior notes, preferred stock dividends and that portion of lease
expense (one-third) that is deemed to be representative of an interest
factor. See also "Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends."
(2)Earnings were inadequate to cover fixed charges and preferred dividends
by $16.5 million, $80.8 million, $8.1 million, and $33.8 million for the
years ended December 31, 1994 and 1996, the three months ended December
31, 1997 and the nine months ended September 30, 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in September 1997. On September 30, 1997, Grant
acquired substantially all of the assets and assumed liabilities of GGI
under GGI's Second Amended Plan of Reorganization (the "Plan"), which was
confirmed by the United States Bankruptcy Court for the District of Delaware
on September 15, 1997. On December 23, 1997, Grant, through a wholly owned
Canadian subsidiary, acquired all of the outstanding shares of Solid State
Geophysical, Inc ("Solid State").
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
areas, which contributed to poor operating results in those areas,
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 debt, 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 liabilities of GGI.
RESULTS OF OPERATIONS
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Consolidated revenue decreased $102.7 million, or 70%, from
$147.4 million for the nine months ended September 30, 1998 to $44.7 million
for the nine months ended September 30, 1999. This decrease was the result
of lower demand for the Company's seismic acquisition services in both the
domestic and international markets. The decrease in the price of oil and
gas that occurred between the fourth quarter of 1997 and the first quarter
of 1999 has significantly reduced demand for the Company's services. While
demand has increased slightly in the third quarter of 1999, primarily in the
international market, the land seismic acquisition business remains severely
depressed over levels experienced during the prior year. The Company is
unable to predict with any certainty when the market for seismic services is
likely to recover and, until such time, will continue to experience
significant operating losses.
Revenues from the southern United States data acquisition operations
decreased $37.4 million, or 61%, from $61.0 million for the nine months
ended September 30, 1998 to $23.6 million for the nine months ended
September 30, 1999. This decrease was attributable to the Company operating
six seismic data acquisition crews continuously in the United States during
the nine months ended September 30, 1998 compared with only two to four
crews operating in the same period in 1999. In addition, during the third
quarter of 1999, two of the crews were performing multi-client projects with
average underwriting, or pre-commitments, of only 50% of total project
costs. This compares to the same period in 1998 when the average
underwriting for the two multi-client projects in process was approximately
88% of total costs. The significance of the decreased underwriting base to
the Company's revenues for the nine months ending September 30, 1999, is a
reflection of the Company's revenue recognition policy whereby only the
underwritten portion of the project is recognized as revenue during the
current period. Firm backlog for the United States at November 30, 1999 was
$8.1 million with approximately $7.6 million of that backlog scheduled for
completion in 2000.
Revenues from data processing were $1.2 million for the nine months
ended September 30, 1999. The Company purchased its data processing
operations in July 1998. Therefore, the nine months ended September 30,
1998 include only three months of activity and are not comparable. The
Company operated processing centers in Houston, Midland and Dallas, Texas
for the entire nine-month period in 1999.
Revenues from the Canadian data acquisition operations decreased $5.2
million, or 42%, from $12.5 million for the nine months ended September 30,
1998, to $7.3 million for the nine months ended September 30, 1999. The
majority of the decrease was due to a decrease in activity experienced
during the first quarter of 1999. The Company operated as many as six land
seismic crews in Canada during the first quarter of 1998, compared to only
three crews during the same period in 1999.
The Company began its multi-client data acquisition activities in the
United States and Canada during the second quarter of 1998. At September
30, 1999, the Company had completed all or a portion of fourteen data
library projects totaling approximately 1,685 square miles in Texas,
California, Wyoming and Canada. This consists of 853 square miles completed
in 1998 and 832 square miles during the first nine months of 1999. Due to
the continued depressed demand for seismic services, an inability to secure
adequate initial customer underwriting and a lack of sufficient liquidity,
the Company no longer intends to continue building a multi-client data
library in the southern United States. The Company is committed to only one
project located in Canada for approximately 13 squares miles. The costs of
that project are approximately 75% underwritten. The Company does not
intend to pursue any additional multi-client projects unless they are
substantially underwritten. The revenues associated with the underwriters'
portion of multi-client data programs are recognized as a component of the
data acquisition revenues discussed above. Revenue from sales of the data
library for the nine months ended September 30, 1999 was $2.4 million
compared to only $388,000 for the same period ended September 30, 1998.
Revenues from the Far East decreased $20.2 million, or 76%, from $26.5
million for the nine months ended September 30, 1998 to $6.3 million for the
nine months ended September 30, 1999. During the first nine months of 1998,
the Company's Far East operations consisted of as many as five crews: three
in Bangladesh and two in Indonesia. During the same period in 1999, the
Company operated one crew for the first four months in Bangladesh and is
currently mobilizing one crew in Indonesia.
Revenues from Latin America decreased $42.6 million, or 92%, from $46.5
million for the nine months ended September 30, 1998 to $3.9 million for the
nine months ended September 30, 1999. During the first nine months of 1998,
the Company's Latin American operations consisted of as many as seven
seismic crews operating in Bolivia, Brazil, Colombia, Ecuador and Guatemala.
During the same period in 1999, five crews operated in Mexico, Ecuador,
Guatemala, Brazil and Colombia.
EXPENSES. Operating expenses of the Company as a percentage of revenues
increased to 86% for the nine months ended September 30, 1999 from 73% for
the nine months ended September 30, 1998. This percentage increase can be
attributed to reduced operating margins on multi-client projects during the
third quarter of 1999 and unanticipated startup and operating expenses on
two Latin American crews incurred during the second and third quarters of
1999. Operating expenses during the nine months ended September 30, 1999
decreased $68.8 million to $38.6 million, compared to $107.4 million for the
same period ended in 1998. This decrease is a result of the revenue decreases
experienced throughout all the Company's operating regions as described
above.
Selling, general and administrative expenses decreased $1.7 million, or
15%, to $9.7 million for the nine months ended September 30, 1999 from $11.4
million for the nine months ended September 30, 1998. Beginning in the
fourth quarter of 1998 and continuing through the first and second quarters
of 1999, the Company has reduced support and overhead personnel in all its
operating regions and corporate office. The effects of these cost
reductions are expected to be realized in reduced selling, general and
administrative expenses throughout the remainder of 1999. There have been
limited increases in support and overhead personnel during the third
quarter of 1999, in response to the increase in demand for seismic services
being experienced primarily in the international markets. While selling,
general and administrative expenses increased as a percentage of revenue to
22% in the first nine months of 1999 from 8% for the same period in 1998, such
amounts decreased in actual terms as a result of the Company's cost
reduction efforts outlined above, due to the Company's reduced revenue.
Depreciation and amortization increased $1.3 million, or 8%, to $17.4
million for the Company for the nine months ended September 30, 1999 from
$16.1 million for the nine months ended September 30, 1998. The increase
was the result of depreciation on new assets purchased during the twelve-
month period ended September 30, 1998.
The Company recorded a $4.7 million charge for asset impairment in the
quarter ended September 30, 1999. The Company recorded this special charge
to reduce the carrying value of its multi-client data to net realizable
value based on revised future licensing prospects for such data. 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.
OTHER INCOME (DEDUCTIONS). Interest expense, net of interest income,
increased $2.0 million, or 29%, to $8.8 million for the nine months ended
September 30, 1999 from $6.8 million for the nine months ended September 30,
1998. Interest expense for the nine months ended September 30, 1999 was
$9.4 million. The increase can be attributed to the sale on February 18,
1998 of $100 million of senior notes due 2008. Consequently, the period
ended September 30, 1999 included an additional forty-eight days of interest
expense due on the senior notes. In addition, the outstanding balance on the
Company's revolving credit facility increased $17.4 million between the two
periods. These funds were used to finance multi-client data projects, to
fund capital expenditures and to provide working capital.
TAX PROVISION. The income tax provision consisted of income taxes in
foreign countries. For the nine months ended September 30, 1998 this
includes provisions for taxes in Colombia, Ecuador, Guatemala, Bangladesh
and Indonesia. The same period in 1999 includes provisions for taxes in
Colombia, Ecuador, Bangladesh and Canada. No benefit for United States
federal income taxes was made for either period, given the uncertainty of
realization of such tax benefits.
THE COMPANY FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED
WITH THE COMPANY AND GGI COMBINED TWELVE-MONTH PERIOD ENDED DECEMBER 31,
1997
The following analysis compares the operating results of the Company
for the twelve-month period ended December 31, 1998 with 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.
Grant began operations immediately following its acquisition of
substantially all of the assets and liabilities of GGI on September 30, 1997
and Grant acquired Solid State in December 1997. Because of the significant
changes in Grant's control and management and scope of operations following
the consummation of the Plan, comparisons may not be meaningful.
REVENUES. Revenues of the Company for the twelve months ended December
31, 1998 were $175.5 million compared with $130.6 million of combined
revenue for GGI and the Company for the twelve months ended December 31,
1997. The increase of $44.9 million, or 34.4%, was the result of growth in
revenues in both the United States and the Far East and the inclusion of a
full year of Solid State's results of operations in 1998 compared to only
three months in 1997.
Revenues from the United States operations increased $24.9 million, or
46.4%, from $53.7 million to $78.7 million in 1998. Revenues from the
United States data acquisition operations increased $24.0 million, or 44.7%,
from $53.7 million in 1997 to $77.8 million in 1998. This increase was due
primarily to the addition of two Solid State crews in the northern United
States for the entire year versus only one crew for three months in 1997 and
the addition of new and more efficient recording instrumentation.
Productivity was enhanced by increasing the seismic recording channel count
per crew and, whenever possible, utilizing a twenty-four hour recording
schedule. During 1998, there were as many as eight seismic crews operational
in the United States versus only six to seven crews operational in 1997.
Beginning late in the third quarter of 1998, due primarily to the low oil
and gas prices, demand for data acquisition recording services in the United
States and elsewhere began to decline. By the end of December 1998, there
were six crews operating or mobilizing in the U.S.
Revenues from data processing were $957,000 for 1998. The Company
purchased the data processing operations in July 1998, therefore, there are
no comparable results for 1997. The Company operated processing centers in
Midland and Dallas, Texas for the entire six months and began operations in
a newly established Houston, Texas center during the fourth quarter of 1998.
Revenues from the Canadian data acquisition operations increased $9.7
million, or 217.3%, from $4.5 million in 1997 to $14.2 million in 1998. The
Company acquired these operations from Solid State effective September 30,
1997. The increase in 1998 is the result, therefore, of including a full
year of operations in the results of 1998 versus only three months in 1997.
From time to time during 1998, the Company operated as many as six land
seismic crews throughout Canada.
The Company began its multi-client data acquisition activities in the
United States and Canada during 1998. Crew operations began in the second
quarter with significant activity occurring in both the third and fourth
quarters. The Company has completed or is conducting eleven data library
projects totaling approximately 1,237 square miles in Texas, California,
Wyoming and Canada. At December 31, 1998, 624 square miles had been
completed and an additional 246 square miles are scheduled to be completed
by March 31, 1999. The remaining 367 square miles are to be completed later
in 1999. The Company and GGI had no multi-client data activity in 1997.
Revenues associated with the underwriters' portion of multi-client data
programs are recognized as part of the data acquisition revenues discussed
above in the southern United States, northern United States and Canada.
Revenues in Latin America decreased $5.9 million, or 10.2%, from $58.6
million in 1997 to $52.6 million in 1998. During 1998, the Company operated
as many as eight land seismic crews in Brazil, Guatemala, Colombia, Ecuador
and Bolivia. During 1997, combined Latin American operations for GGI and
the Company, while operating in the same countries, consisted of as many as
ten land seismic data acquisition crews. The Brazilian operations were
completed in March 1998 and the equipment was moved to work in Guatemala.
The Colombian operations were completed in the third quarter of 1998 and
both the Guatemalan and Bolivian contracts were finished in the fourth
quarter of 1998. Ecuadorian operations were completed in February 1999.
The Company currently has one land crew mobilizing to a project in Guatemala
and one transition zone crew mobilizing in Brazil. There are currently no
active crews operating in Latin America.
Revenues from the Far East increased $16.6 million, or 123.1%, from $13.5
million in 1997 to $30.1 million in 1998. During 1998, the Company operated
as many as five crews in the region: one land and two transition zone crews
in Bangladesh and one land and one transition zone crew in Indonesia.
During 1997, in Bangladesh, GGI and the Company operated one crew for the
entire year and mobilized one additional transition zone crew that began
operations in July 1997. By December 1998, there were three active crews in
the region. As of March 26, 1999, the Company's Far East operations
consisted of one land crew operating in Bangladesh.
EXPENSES. Direct operating expenses for the twelve months ended December
31, 1998 increased $29.5 million, or 29.7%, to $129.0 million compared with
$99.4 million for the twelve months ended December 31, 1997. Direct
operating expenses as a percentage of revenues decreased to 73.5% in 1998
from 76.2% in 1997. The overall dollar increase was the result of increased
crew activity in the southern United States and the Far East and the
inclusion of a full year of Solid State's results in 1998 versus only three
months in 1997. The percentage decrease is the result of improvements in
operating efficiencies primarily in the United States. These improvements
were the results of upgrading and expanding the Company's seismic data
recording equipment, careful and detailed project cost analysis and
management's ability to properly assess operating risk.
Selling, general and administrative expenses for the twelve months ended
December 31, 1998 increased $4.2 million to $14.2 million from $10.0 million
in 1997. Selling, general and administrative expenses as a percentage of
revenue increased only marginally to 8.1% in 1998 from 7.6% in 1997. The
overall dollar increase was primarily due to an approximate $1.5 million
increase as a result of the inclusion of Solid State for a full year in 1998
versus only three months in 1997, $1.1 million of additional costs incurred
to develop international and domestic markets and $537,000 for corporate
provisions for doubtful accounts and incentive bonuses and the remainder
related to a general increase in corporate support services.
Depreciation and amortization increased $9.3 million to $22.3 million in
1998 from $13.0 million for 1997. The increase was due to an increase of
approximately $3.8 million due to the inclusion of Solid State for a full
year in 1998 versus only three months in 1997, $1.5 million for the
amortization of goodwill and $3.8 million of depreciation on newly purchased
assets.
The charge for asset impairment was $3.8 million for 1998, compared to $6.4
million in 1997. At December 31, 1998 the Company recorded a special charge
of $3.2 million to reduce the carrying value of its multi-client data,
acquired through the purchase of Solid State during the fourth quarter of
1997, to its net realizable value based on current estimates of future
licensing prospects for such data. The charge for asset impairment recorded
in 1997 included a special charge of $5.9 million to write down the acquired
Solid State multi-client data to its then estimated net realizable value.
Also included in 1998 was a charge of $564,000 relating to the write-down in
the carrying value of in non-operating depreciable fixed assets to salvage
value. The remaining 1997 charge relates to a $247,000 write-down in the
carrying value of some non-operating depreciable fixed assets to salvage
value and a $253,000 write-down in the carrying value of other investments
and joint ventures.
OTHER INCOME (EXPENSES). Interest expense, net of interest income,
increased $4.2 million to $9.3 million in 1998 from $5.1 million in 1997.
This increase was the result of interest on debt both incurred and assumed
by the Company as a result of the Solid State acquisition and from the sale
on February 18, 1998 of $100 million of 9 3/4 % senior notes. Proceeds
from the sale were used to retire substantially all of the Company's
outstanding indebtedness, to fund capital expenditures and to provide
working capital for general corporate purposes.
Reorganization costs of $3.5 million in 1997 related to charges incurred
in connection with GGI's reorganization, which began in December 1996 and was
completed in September 1997. No comparable reorganization charges were
incurred by the Company in the three months ended December 1997 or for the
twelve months ended December 31, 1998. No comparable reorganization costs
are expected to be incurred in the future.
Other income of $1.0 million for 1997 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 in 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. In 1998, the Company recorded $635,000 in litigation
expense associated with the settlement, representing the cash paid by
Elliott and the $0.25 discount permitted the plaintiffs to purchase Grant
common stock in the subscription offering. See Note 13 to the Consolidated
Financial Statements.
TAX PROVISION. The income tax provision in both periods consisted of income
taxes in foreign countries. The increase in 1998 compared with 1997 is a
result of higher taxable income in Indonesia and Guatemala. No provision
for United States federal income tax was made in 1997 as GGI and the Company
each had taxable losses for which no benefit was recorded under FAS 109. In
1998, the Company provided for approximately $100,000 of alternative minimum
tax in the United States.
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 liabilities of GGI, and Grant acquired
Solid State in December 1997. Because of the significant changes in Grant's
corporate structure and scope of operations and the consummation of the
Plan, comparisons may not be meaningful.
REVENUES. Combined revenue of GGI and the Company for the twelve months
ended December 31, 1997 was $130.6 million compared with $105.5 million of
revenue realized by GGI for the twelve months ended December 31, 1996. The
increase of $25.1 million, or 23.7%, 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, or 27.6%, 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, or 2.5%, 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 direct 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. Direct operating expenses as a percentage of revenues
decreased to 76.2% in 1997 from 129.2% in 1996. During 1996 GGI experienced
significant cost overruns, which increased direct operating expenses on
several crews operating in the United States. Most notable were higher than
anticipated costs incurred by a transition zone crew as a result of adverse
weather conditions and costs associated with the unsuccessful deployment of
a proprietary data recording system. The proprietary data recording system
was abandoned in November 1996. Also in 1996, GGI's Peruvian operations
experienced crew costs significantly higher than originally projected
primarily due to a combination of modified job parameters that were not
accurately reflected in the turnkey contract price and a lack of effective
crew oversight.
Selling, general and administrative expenses for GGI and the Company for
the twelve months ended December 31, 1997 decreased $7.9 million to $10.0 in
1997 from $17.9 million in 1996. Selling, general and administrative
expenses also decreased as a percentage of revenue to 7.6% in 1997 from
17.0% in 1996. The decrease was primarily the result of general expense
reduction initiatives in 1997 and the accrual of 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 future licensing prospects for such data. The
remaining 1997 charge relates to a $247,000 write-down in the carrying value
of non-operating depreciable fixed assets to salvage value and a $253,000
write-down in the carrying value of 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, but which was abandoned in November
of 1996.
OTHER INCOME (EXPENSES). Interest expense, net of interest income,
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 of 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. The Company incurred no
reorganization charges in the three months ended December 1997.
Other income for 1997 of $1.0 million was the result of the aforementioned
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 taxable losses for which no benefit was recorded under FAS
109.
LIQUIDITY AND CAPITAL RESOURCES
As detailed elsewhere in this prospectus, demand for the Company's
seismic acquisition services has been and continues to be adversely affected
by the current industry downturn. As a result, the Company has required
additional financing to continue operations, complete its capital
expenditure program, implement its business strategy and meet its principal
and interest obligations with respect to the senior notes and its other
indebtedness. The Company's operating activities used $3.9 million in cash
during the nine months ended September 30, 1999, compared to generating cash
of $8.0 million for the comparable period in 1998. In 1999, cash used in
operating activities was primarily due to the Company's operating loss of
$25.7 million that was partially offset by the Company's depreciation and
amortization expense and decreases in accounts receivable.
Between August 16, 1999 and December 13, 1999, the Company
issued a total of 132,000 shares of its 8% exchangeable preferred stock to
Elliott at a price of $100 per share. This equity financing was required to
supplement the Company's available cash, cash flow generated from operations
and borrowings under the Foothill credit facility to provide sufficient
liquidity to fund the Company's cash requirements. Additionally, the
Company issued 677 shares of its 8% exchangeable preferred stock to Elliott
as of October 1, 1999 as dividends on the 8% exchangeable preferred stock
payable on that date. However, Elliott is under no obligation to purchase
any additional shares of 8% exchangeable preferred stock or otherwise provide
additional financing for our operations.
In order to improve the Company's liquidity and supplement its operating
activities, the Company has proposed to exchange all of its outstanding
senior notes for new shares of 8% convertible preferred stock with an
aggregate liquidation value equal to 65% of the aggregate principal amount
of the senior notes tendered in the exchange offer plus 100% of the accrued
and unpaid interest on the senior notes tendered. Through the proposed
exchange offer, the Company will reduce its outstanding indebtedness by
converting a portion of its debt into equity. If the exchange offer is
consummated, management believes this will increase the Company's liquidity
by reducing its principal payment obligations with respect to the senior
notes and reducing the cash required to make interest payments on the senior
notes. The Company's management believes that completing the exchange offer
will substantially improve the Company's financing options if demand for the
Company's seismic acquisitions services improves.
The Company's ability to meet its debt service and other obligations will
depend 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 consummate the proposed exchange offer, generate
sufficient cash flow from operations or otherwise comply with the terms of
the indenture governing the senior notes, the Foothills 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.
The Company has outstanding $100 million aggregate principal amount of
senior notes. The senior notes are governed by an indenture between the
Company, its subsidiary guarantors and LaSalle National Bank, as trustee.
The indenture governing the senior notes limits the ability of the Company
to incur additional indebtedness, pay dividends or make certain other
distributions, create liens, sell assets or enter into certain mergers or
acquisitions. In light of the Company's results of operations in 1999,
the Company is presently prohibited from incurring any debt to provide
additional working capital in excess of $25 million under the indenture and
is prohibited from paying dividends or other distributions.
The Company is currently conducting a separate consent solicitation to
obtain consents from the holders of its outstanding senior notes in order
to amend definitions and to modify some restrictive covenants in the
indenture. The consent of holders of a majority of the outstanding principal
amount of the senior notes held by holders other than the Company, its
subsidiaries and its affiliates is required to approve the proposed
amendments to the indenture. Elliott and Westgate, which hold approximately
$56.3 million aggregate principal amount of senior notes, have advised the
Company that they will tender in the exchange offer all of the senior notes
held by them if the proposed amendments to the indenture have been previously
approved. After the Company has received the required consents, it plans to
execute a supplemental indenture with the trustee to cause the proposed
amendments to take effect, but only if, at that time, Elliott and Westgate
have tendered all of their senior notes in the exchange offer.
As of December 1, 1999, the Company's total indebtedness was
approximately $130.2 million. The Company's total indebtedness is comprised
of $99.3 million aggregate principal amount of the senior notes, $23.9
million outstanding on the Foothill credit facility and $7.2 million of
combined loans and capitalized leases primarily incurred for the purpose of
financing capital expenditures.
The Company's internal sources of liquidity are its cash balances,
$986,000 at December 1, 1999, and cash flow from operations. External
sources include the unutilized portion of the Company's credit facility,
$539,000 at December 1, 1999, under a loan and security agreement with
Foothill Capital Corporation and Elliott, equipment financing and trade
credit. The credit facility limits the Company's ability to incur
additional debt, create liens, sell assets or enter into mergers or
acquisitions. Under the terms of the credit facility, the Company may
borrow up to $6 million through a revolving credit facility and term loans
of up to $19 million. The credit facility has a three year term and provides
for borrowings at an interest rate per annum of the prime rate plus 1 1/2%,
secured by liens on substantially all of the assets of the Company. In
addition, 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 purchases of goods and services to
support its ongoing field crew activities.
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, make principal and interest payments
on the Company's debt and provide working capital for operations. 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 23% of total revenues for the nine months ended September 30, 1999.
Capital expenditures for the nine months ended September 30, 1999
were $4.6 million. Capital expenditures are used to upgrade and expand
the Company's seismic data acquisition and recording equipment. The
remaining projected capital expenditure budget for 1999 is estimated to
be $4.0 million.
In addition to the capital expenditures listed above, for the nine
months ended September 30, 1999, the Company committed approximately
$32.7 million of expenditures for eight multi-client data acquisition
projects principally located in Texas, California, Wyoming and Canada.
Customer commitments for those projects were approximately 49% of the
project costs. Net investment by the Company for these projects was
$16.8 million. Throughout the remainder of 1999, the Company expects to
commit approximately $3.8 million, before customer commitments, for four
multi-client data acquisition projects located in Texas and Canada.
The Company's management believes that completion of the exchange offer,
together with existing cash balances, available borrowing capacity and cash
flow from operations will allow the Company to meet its capital requirements
for the next twelve months, based on its present operating levels. The Company
may require additional funds to support its working capital requirements
associated with expanding its operations through internal growth or
acquisitions or for other purposes, and it may seek to raise additional
funds through equity or debt financing. There can be no assurance that
additional financing will be available on commercially reasonable terms, or
that such financing will be available at all.
FOREIGN CURRENCY RISK
The Company conducts a substantial portion of its business in currencies
other than the U.S. or Canadian dollars, particularly various Latin American
currencies, and its operations are subject to fluctuations in foreign
currency exchange rates. Accordingly, the Company's international contracts
could be significantly affected by fluctuations in exchange rates. The
Company's international contracts requiring payment in currency other than
U.S. or Canadian dollars 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
favorable U.S. dollar conversion rate.
The Company's operating results were positively impacted by foreign
exchange gains of approximately $474,000 for the nine months ended
September 30, 1999 and negatively impacted by foreign exchange losses of
approximately $485,000 and $289,000 for the year ended December 31, 1998
and the three months ended December 31, 1997, respectively.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative financial
instrument be recorded in the balance sheet as either an asset or a
liability measured at its fair value, with changes in fair value recognized
currently in earnings. On July 7, 1999, the FASB delayed the effective date
of SFAS No. 133 for one year. The delay, published as SFAS No. 137, applies
to quarterly and annual financial statements. SFAS No. 133, as revised by
SFAS No. 137, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company has not yet determined the
impact of adoption.
YEAR 2000 COMPLIANCE
The Company has developed a formal plan to address Year 2000 ("Y2K")
issues as they relate to the Company's business and operations. In
accordance with that plan, the Company has taken inventory of, assessed,
tested and remediated where necessary all hardware and software used in its
business. The Company has similarly identified all external relationships,
including vendors, suppliers and customers, and has contacted those
considered important or critical to its ongoing operations. All of the
entities have subsequently confirmed their Y2K readiness in written
responses to the Company. To date, all critical items have been inventoried
and assessed, primarily by third party vendors. Internal assessment,
testing and remediation of critical components is also complete
Incremental out-of-pocket costs incurred through November 30, 1999 to
address Y2K issues amount to approximately $1.5 million. The Company
anticipates that up to an additional $100,000 will be expended during
December 1999 relating to this issue. These costs have been, and will
continue to be, funded by cash flows from operations.
While the Company believes that it has a readiness plan that will
mitigate the risk that Y2K issues will have a material adverse effect on
its business, the ultimate impact of this issue on the Company is uncertain.
In the most reasonably likely worst case scenario, long term interruptions
in suppliers' ability to deliver critical components or third parties'
ability to supply utilities or telecommunications to the Company's offices
or field locations could result in delayed delivery of products to
customers. In that event, the Company has prepared a contingency plan
whereby at any point of disruption, the Company has identified alternative
vendors for critical components and supplies used in its operations, most of
which are readily available from sources other than the present vendors used
by the Company. In addition, the Company has already taken steps to begin
stockpiling such necessary components and supplies for later use. The
Company plans to have on have on hand at any one time enough such materials
so that operations may be supported for at least one month during any
disruption. If delays of deliveries of products to customers occur in spite
of these preparations, it may have a material adverse effect on earnings
and cash flow. Therefore, there can be no assurance that Y2K issues will
not have a material effect on the Company's financial position, results of
operations or cash flows.
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of seismic data acquisition in land and
transition zone environments in selected markets, including the United
States and Canada. We also provide seismic data acquisition services in
Latin America, the Middle East and the Far East. Through our predecessors,
we have participated in the seismic data acquisition service business in the
United States and Latin America since the 1940s, the Far East since the
1960s and Canada since the 1970s. We have conducted operations in each of
these markets, as well as in the Middle East, in the past three years. Our
seismic data acquisition services are typically provided on an exclusive
contract basis to domestic and international oil and gas companies and
seismic data marketing companies. We also own interests in multi-client
seismic data covering selected areas in the United States and Canada that
are marketed broadly on a non-exclusive basis to oil and gas companies.
We utilize sophisticated equipment to perform specialized 3D and 2D
seismic surveys. All of our seismic data acquisition crews are capable of
performing surveys in land environments and two are equipped to perform
surveys in transition zone environments. Transition zone environments are
swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.
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.
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. As many as eight 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.
LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A land or transition zone 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, including
helicopters for rugged terrain or in agricultural areas, small watercraft
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 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 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 approximately 10,000 channels of 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 obstructions and areas where
conventional 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 has three data
processing centers at which it performs seismic data processing services.
These centers are located in Houston, Dallas and Midland, Texas.
The Company markets its seismic data acquisition and processing 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 generally
acquires seismic data on an exclusive contract basis for oil and gas
companies on:
* a turnkey basis, which provides a fixed fee for each project;
* a term basis, which provides for a periodic fee during the term
of the project; or
* a cost-plus basis, which provides that the costs of a project,
plus a percentage fee, are borne by the customer.
In addition, in the United States and Canada, the Company owns multi-client
seismic data that is marketed broadly on a non-exclusive basis to oil and
gas companies.
MARKET AREAS
As of December 1, 1999, the Company was operating or mobilizing a total of
two land crews in the United States, four land crews in Canada, three land
crews in Latin America, and one land crew in the Far East. For the nine
months ended September 30, 1999, the Company's total revenues were $44.7
million, with approximately 60% from the United States, 9% from Latin
America, 14% from the Far East and 17% from Canada.
In 1998, the Company conducted seismic operations 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 table set
forth below shows the Company's revenues by geographic area, on a pro forma
basis for the years ended December 31, 1996 and 1997 and on an actual basis
for the year ended December 31, 1998. Solid State Geophysical Inc.'s fiscal
year end was August 31 prior to December 31, 1998, when it was changed to a
calendar year. For pro forma purposes, revenues for Solid State have been
adjusted to reflect the period December 1 through November 30 for the year
ended 1996 and to reflect the period December 1, 1996 through August 31, 1997
to combine with GGI's year ended 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 include the combined operations of
Solid State and Grant. See Notes 1 and 4 to the Consolidated Financial
Statements of the Company and GGI for additional geographic information.
YEAR ENDED DECEMBER 31,
---------------------------------
PRO FORMA
-------------------
1996 1997 1998
-------- --------- ----------
(dollars in thousands)
United States $ 53,485 $ 61,630 $ 78,659
Canada 15,824 19,591 14,175
Latin America 60,688 69,877 52,604
Far East 5,412 13,482 30,074
West Africa and Middle East 2,746 9,285 -
--------- ---------- ----------
$138,155 $ 173,865 $ 175,512
========= ========== ==========
BACKLOG
The Company's backlog for seismic data acquisition and processing
services represents the revenues anticipated to be received by the Company
in connection with commitments for contracted services received from its
customers. As of November 30, 1999, the Company estimates that its backlog
was approximately $27.4 million. Approximately $5.3 million of the estimated
backlog will be completed in December 1999 and $22.1 million in the year 2000.
The Company's backlog is comprised of approximately thirty contracts,
distributed among the Company's geographic areas of operations as follows:
* 45% in Canada;
* 31% in the United States;
* 9% in Latin America; and
* 15% in the Far East.
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 any
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 and transition zone 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 spent approximately $36.3 million on
capital expenditures for the fifteen-month period ending December 31, 1998.
This included approximately $12.4 million in the fourth quarter of 1997 and
approximately $23.9 million during 1998. These expenditures were used
principally to upgrade and expand the Company's seismic data acquisition
equipment. Capital expenditures for the nine-month period ended September
30, 1999 were $4.6 million. The remaining projected capital budget for 1999
is estimated to be $4.0 million. The level of future capital expenditures
will depend on the availability of funding and market requirements as
dictated by industry activity levels.
Over the past several years, the Company has focused 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 equipment will be customized to the Company's
specifications to enhance operating efficiency. Some 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 its business.
LICENSING OF MULTI-CLIENT DATA
The Company acquires and processes seismic data for its own account by
conducting surveys, either partially or wholly funded by multiple customers.
In this mode of operation, the Company retains ownership of the data and
licenses the data on a non-exclusive basis. As of November 30, 1999, the
Company had no commitments from customers for multi-client data acquisition
projects.
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 project 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 data survey.
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 revenues in any given year. Moreover,
such customers and projects may, and often do, vary from year to year. For
the nine months ending September 30, 1999, the five largest customers of the
Company accounted for approximately $16.9 million, or 37.9%, of revenues.
Only one customer, a U.S.-based international oil company, comprised 10% or
more of the Company's revenues. That customer represented $4.9 million, or
10.9%, of net sales. During 1998, the five largest customers of the Company
accounted for approximately 28.8% of the Company's net sales, and no single
customer accounted for 10% or more of the Company's revenues. In the first
nine months of 1997, GGI had revenues from a foreign national oil company of
approximately $14.0 million, or 15% of total revenues, and also from a U.S.
based exploration company of approximately $9.9 million, or 11% of total
revenues. During 1997, on a pro forma basis, the five largest customers of
the Company accounted for approximately 31.9% of the Company's net sales.
During 1997, on a pro forma basis, no customer accounted for 10% or more of
the Company's combined revenues. During 1996, GGI's five largest customers
accounted for approximately 42.3% of net sales. GGI, during 1996, had
revenues from a U.S. based international oil company of approximately $14.8
million, or 14% of total reveues. The Company has had long-term relationships
with numerous customers. The continuation of these relationships is primarily
dependent on the customers' needs for the Company's services and the customers'
ongoing satisfaction with the price, quality, dependability and availability
of the Company's services.
COMPETITION
The acquisition and processing of proprietary and multi-client 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 1980's,
thereby reducing the number of competitors. The Company's principal
competitors in North America are Baker Atlas, Inc., a subsidiary of Baker
Hughes, Inc., Veritas DGC, Inc. and Geco-Prakla Inc., a subsidiary of
Schlumberger Limited. Although precise comparative figures are not
available, the Company believes that its principal competitors have
financial, operating and other resources in excess of those available to the
Company. Also, in North America the Company competes with several smaller
companies that target narrow market segments. In Latin America and the Far
East, the Company competes with Baker Atlas, Compagnie General de
Geophysique, Geco-Prakla and a few smaller 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.
EMPLOYEES
As of September 30, 1999, the Company employed approximately 573 full-time
and 1,874 temporary contract personnel worldwide. None of the Company's
employees is subject to collective bargaining agreements. The Company
considers its relations with its employees to be good.
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. Violations of various statutory and regulatory
programs that apply to the Company's operations can result in civil
penalties, remediation expenses, monetary damages, potential injunctions,
cease and desist orders and criminal penalties. Some environmental statutes
impose strict liability, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. 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 financial position, cash flows or results of operations.
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
The Company is occasionally a party to legal proceedings arising in the
ordinary course of its business. The Company is not currently a party to
any material legal proceedings.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and current principal position of each of our directors,
executive officers and significant employees as of the date of this
prospectus:
Name Age Position
- ----------------- ------ --------------------------------------
Donald W. Wilson 52 Chairman of the Board
Richard H. Ward 56 President, Chief Executive Officer,
and Director
Stephen H. Wood 58 Vice President and Chief Operating
Officer
Michael P. Keirnan 48 Vice President and Chief Financial
Officer
G. Matt McCarroll 42 Vice President - Business Development
W. Richard Anderson 46 Director
James R. Brock 39 Director
J. Kelly Elliott 69 Director
Jonathan D. Pollock 36 Director
Donald G. Russell 68 Director
Our executive officers are elected by and serve at the discretion of
our Board of Directors until their successors are duly elected and
qualified. There are no family relationships between or among any of our
directors or executive officers. See "Certain Relationships and Related
Transactions" for a description of certain other relationships between or
among our directors and executive officers.
DONALD H. WILSON has served as our Chairman of the Board since April 28,
1998 and as one of our directors since January 1998. Since October 1998,
Mr. Wilson has served as President and Chief Operating Officer of Odyssea
Marine, Inc., a marine services and power generation company controlled by
Elliott and Westgate. Mr. Wilson served as President and Chief Executive
Officer of Prime Natural Resources, Inc., an oil and gas exploration and
production company controlled by Elliott and Westgate, from January 1996
until October 1998. 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 OPI
International, Inc., a subsidiary of Offshore Pipelines, Inc., an
international marine construction company.
RICHARD H. WARD has served as our president and chief executive officer
since February 1999. From October 1998 until January 1999, Mr. Ward was
General Manager of Canadian Hunter Argentina S.A., an oil and gas company
operating in Argentina, and was also a business consultant in Argentina from
January 1998 to September 1998. Mr. Ward served as Vice President - Latin
America of Landmark Graphics, a computer graphics company specializing in
petroleum exploration, from June 1996 until December 1997 and served as
Manager - Geophysical Department of YPF S.A., the former national oil
company of Argentina, from June 1994 to May 1996. He was also the General
Manager of Latin American Operations of Veritas Geophysical from January
1994 until May 1994. Previously, Mr. Ward held key management positions
from 1989 to 1993 at Western Atlas International, an international
geophysical services company, and from 1970 to 1989 at Geosource, an
oilfield services contractor that was acquired by Halliburton in 1988.
STEPHEN H. WOOD has served as our vice president and chief operating
officer since February 1999. From November 1997 to February 1998, Mr. Wood
was the President of Universal Seismic Acquisition and Technologies, Inc.
and Chief Operating Officer of its parent company, Universal Seismic
Associates. From 1993 through November 1997, Mr. Wood was President of
Vortex Geophysical Operations, a consulting company specializing in
geophysical data and survey processing. He was previously employed by
Halliburton Geophysical Services, and its predecessor companies, from 1965
until 1992.
MICHAEL P. KEIRNAN has served as a vice president and chief financial
officer since May 1999. Mr. Keirnan previously served as Vice President and
Assistant to President from August 1998 to May 1999 and as our Vice
President and Chief Financial Officer from September 30, 1997 until August
1998. He 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 June 1993 through March
1996 and held other senior financial management positions with GGI dating
back to 1988.
G. MATT MCCARROLL has served as our Vice President - Business Development
since July 1999. Mr. McCarroll previously served as President of Augusta
Petroleum Partners, L.L.C., a petroleum exploration and acquisition company,
from 1997 until July 1999. He was employed by Plains Resources Inc., an oil
and gas exploration and production company, as Vice President - Land and
Exploration, from 1988 to 1997.
W. RICHARD ANDERSON has served as one of our directors since January
1998. Mr. Anderson previously served as a director of Solid State from
December 1996 through December 1997. Since October, 1998, he has served as
the Executive Vice-President, Chief Financial Officer and a director of
Prime Natural Resources. Prior to his employment at Prime, he was
employed by Hein & Associates LLP, a certified public accounting firm, where
he served as a partner from 1989 to January 1995 and as a managing partner
from January 1995 until October 1998.
JAMES R. BROCK has served as one of our directors since January 1998.
Since October 1998, Mr. Brock has served as Executive Vice President and
Chief Financial Officer of Odyssea Marine. From January 1995 through
October 1998, Mr. Brock served as Executive Vice President and Chief
Financial Officer of Prime Natural Resources. He has also served as a
director of Prime Natural Resources through February 1998. From January
1993 until January 1995, Mr. Brock served as Vice President-Treasurer of
Offshore Pipelines and also as its Corporate Controller and Chief Accounting
Officer from 1990. He was employed by Arthur Andersen & Co. from 1981 to
1990.
J. KELLY ELLIOTT has served as one of our directors since September 30,
1997. Previously, Mr. Elliott was Chairman of the Board of GGI from June
1993 through November 1995 and from November 1996 to September 1997. 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 Chairman of Seaboard International, a wellhead
and valve manufacturing company.
JONATHAN D. POLLOCK has served as one of our directors since September
30, 1997 and served as our Chairman of the Board from September 30, 1997
until April 28, 1998. Mr. Pollock has served as a Portfolio Manager with
Stonington Management Corporation, the management company of Elliott and
Westgate, since 1993. Mr. Pollock is also Chairman of the Board of Prime
Natural Resources, a director of Horizon Offshore, Inc., an offshore oil and
gas pipeline construction company controlled by Elliott and Westgate, and
Chairman of the Board of Odyssea Marine.
DONALD G. RUSSELL has served as one of our directors since September 30,
1997. He also served as a director of GGI from February 1997 until
September 30, 1997 and from July 1993 through November 1995. Mr. Russell
served as Chairman of the Board and Chief Executive Officer of Sonat
Exploration Company, an oil and gas exploration company, from 1988 until May
1998, and served as a director of Sonat, Inc., a diversified energy company,
from 1994 until May 1998. He has been Chairman of the Russell Companies
since May 1998.
DIRECTOR COMPENSATION
We pay each of our nonemployee directors a monthly retainer of $1,000 as
well as $500 for each board or committee meeting that they attend. Under
our 1997 Equity and Performance Incentive Plan, nonemployee directors will
receive 3,000 restricted shares of common stock on the date that the
director is first elected and again upon the date of each subsequent
reelection to the Board of Directors. Nonemployee directors are also
eligible to receive other awards under the Incentive Plan. See "-- 1997
Equity and Performance Incentive Plan."
On April 28, 1998, we entered into a consulting agreement with Donald W.
Wilson that pays Mr. Wilson an annual consulting fee of $100,000 for as long
as he remains our chairman of the board. This consulting fee was
subsequently reduced to $50,000 annually. The consulting agreement also
required us to grant an option to Mr. Wilson to purchase 50,000 shares of
our common stock under the Incentive Plan, which vests annually in equal one-
third increments, the first vesting having occurred on December 31, 1998,
and which has an average exercise price of $5.76 per share.
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to our
previous chief executive officer and to each of the two other most highly
compensated executive officers presently in our employ whose total annual
salary and bonus exceeded $100,000 for all services rendered in all
capacities to us during the fiscal year ended December 31, 1998. All
decisions regarding the compensation of our executive officers are made by
our board of directors. We did not, in that fiscal year, have any other
executive officers whose total annual salary and bonus exceeded $100,000. We
were organized in September 1997 and did not conduct any operations or have
any employees before that time. As a result, we do not have any executive
officers with respect to whom disclosure of executive compensation is
required under the Securities Act of 1933 or the rules and regulations
promulgated thereunder for 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------- --------------
Name and Other Annual Awards All Other
Principal Position Year Salary Compensation Options Compensation
- -------------------------- -------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Larry E. Lenig, Jr. (1) 1998 $180,000 340,000 $ 8,700
Chief Executive Officer
Michael P. Keirnan (2) 1998 $ 97,000 36,000 $ 1,391
Vice President and Assistant
to the President
D. Hugh Fraser(3) 1998 $104,400 36,000 $ 8,727
Vice President, Southern U.S.
Operations
</TABLE>
_______________
(1) Mr. Lenig became our president and chief executive officer effective
September 30, 1997. In conjunction with his appointment, Mr. Lenig was
awarded stock options. Mr. Lenig resigned as president and chief
executive officer on January 27, 1999.
(2) Mr. Keirnan was our chief financial officer from September 30, 1997 to
August 25, 1998, when he became the assistant to our president. Mr.
Keirnan became a vice president and our chief financial officer effective
in May 1999.
(3) Mr. Fraser became the director of sales and marketing effective March 12,
1999.
Richard H. Ward became president and chief executive officer effective
February 3, 1999. Mr. Ward's compensation includes a base salary of
$225,000 and a bonus, awarded by our board of directors in its sole
discretion. Mr. Ward was also granted options to purchase 600,000 shares of
our common stock.
Stephen H. Wood became a vice president and our chief operating officer
effective February 24, 1999. Mr. Wood's compensation includes a base salary
of $200,000 and a bonus, awarded by our board of directors in its sole
discretion. Mr. Wood was also granted options to purchase 200,000 shares of
our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the information regarding options granted
to our executive officers listed in the Summary Compensation Table during
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
------------ Potential Realizable Value at
% of Total Assumed Annual Rates
Options of Stock Price Appreciation
Granted to Exercise or for option term
Option Employees in Base Price -----------------------------
Name Granted Fiscal Year ($/Sh) Expiration Date 5% 10%
------ ------- ------------ ------------ ----------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Larry E. Lenig, Jr. 240,000 15.3% 5.76 February 8, 2008 $391,000 $622,000
100,000 6.4% 4.75 September 22, 2000 110,000 121,000
Michael P. Kiernan 36,000 2.3% 5.76 February 18, 2008 59,000 93,000
D. Hugh Fraser 36,000 2.3% 5.76 February 18, 2008 59,000 93,000
</TABLE>
AGGREGATED OPTION EXERCISES IN 1998
AND 1998 YEAR-END OPTION VALUES
The following table sets forth information with respect to the
unexercised options to purchase shares of our common stock that were
granted in 1998 or a prior year under our Incentive Plan to the executive
officers listed in the Summary Compensation Table and held by them on
December 31, 1998. There is no trading market for the common stock. None
of the named executive officers exercised any stock options during 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Option
Options at Year-End at Year-End
---------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Larry E. Lenig, Jr. 80,000 160,000 $ - $ -
Michael P. Keirnan 12,000 24,000 - -
D. Hugh Fraser 12,000 24,000 - -
</TABLE>
EMPLOYMENT AGREEMENTS
On January 27, 1999, we entered into a separation agreement and release
with Larry E. Lenig, Jr. in connection with his resignation as our president
and chief executive officer. This agreement replaced and superseded our
earlier employment agreement with Mr. Lenig. Under the terms of the
separation agreement, Mr. Lenig will receive $15,000 per month, plus health
benefits, from March 1999 through December 2001 and $7,500 per month, plus
health benefits, from January 2002 through December 2003. Mr. Lenig also
received a bonus of $180,000, which was earned under his employment
agreement with us based upon our 1998 results. He was also allowed to
retain 80,000 of the stock options awarded to him under our Incentive Plan.
Mr. Lenig's retained options are exercisable until February 2002. Mr. Lenig
agreed that until December 31, 2003, he would not compete with us, contact
our customers or solicit any of our employees to leave our employ.
Effective February 3, 1999, we entered into an employment agreement with
Richard H. Ward in which he has agreed to serve as our president and chief
executive officer. The employment agreement has an initial term through
February 3, 2002 and provides for an annual base salary of $225,000. In the
event Mr. Ward is terminated without cause, then we must make base salary
payments to him for the remainder of the term of the agreement. In the
event that we terminate Mr. Ward's employment because our board of directors
reasonably determines that Mr. Ward has failed to perform his obligations
under his employment agreement in a manner consistent with our board's
expectations, we must make payments of 50% of his base salary for the
remainder of the term of the agreement. Mr. Ward has agreed not to compete
against us throughout the term of his employment and for two years after.
He has also agreed not to disclose any confidential information during or
after the term of his employment.
Effective February 24, 1999, we entered into an employment agreement with
Stephen H. Wood in which he has agreed to serve as our chief operating
officer. The employment agreement has an initial term through February 24,
2002 and provides for an annual base salary of $200,000. In the event that
Mr. Wood is terminated without cause, we must make payments to him of 50% of
his base salary for the remainder of the term of the agreement. Mr. Wood
has agreed not to compete against us throughout the term of his employment
and for two years after. He has also agreed not to disclose any
confidential information during or after the term of his employment.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
Our 1997 Equity and Performance Incentive Plan was adopted by our Board
of Directors and approved by our stockholders in December 1997. We have
amended our Incentive Plan on two occasions to increase the numbers of
shares of our common stock reserved for issuance, which presently numbers
2,000,000 shares. The Incentive Plan provides for grants to our officers,
including officers who are also directors, employees, consultants and
nonemployee directors. These individuals may be granted awards of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, nonstatutory stock options, stock appreciation rights
and restricted shares and deferred shares of our common stock.
Our board of directors, or a committee of our board of directors
consisting of at least two nonemployee directors, is required to administer
our Incentive Plan. The board of directors currently administers the plan
and decides to whom awards may be granted, 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 will take into account the employee's present and
potential contributions to our success and other relevant factors. As of
September 15, 1999, our board of directors had granted outstanding awards
covering 1,802,500 shares. Options covering 800,000 shares awarded to
Richard H. Ward and Stephen H. Wood have an average exercise price of $4.25
and will vest annually in equal one-third increments beginning on February
1, 2000. All other options awarded have an average exercise price of $5.05
per share, with a range of $4.75 to $6.84 per share. This exercise price is
subject to adjustment. These options will vest annually in one-third
increments, the first third having vested on December 31, 1998. In
addition, a total of 36,000 restricted shares were granted to non-employee
directors. As of February 18, 1999, all shares granted to non-employee
directors were unrestricted, subject to the satisfaction of conditions set
forth under the Incentive Plan.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes information regarding beneficial ownership
of our common stock as of the date of this prospectus by our directors, our
5% stockholders and executive officers still in our employ. Also listed is
the percentage of our total common stock all executive officers and
directors own as a group. We believe, unless otherwise indicated, that each
person listed below has sole voting power and investment power with respect
to the shares attributed to them.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Beneficial Ownership Common Stock
-------------------- ------------
<S> <C> <C>
Elliott Associates, L.P. (1) 6,154,667 42.7%
Westgate International, L.P. (2) 6,154,666 42.7%
Richard H. Ward 200,000 1.4%
Steven H. Wood 26,667 *
Michael P. Keirnan 24,000(3) *
D. Hugh Fraser 24,000(3) *
Donald W. Wilson 39,333(3) *
W. Richard Anderson 6,000 *
James R. Brock 6,000 *
J. Kelly Elliott 6,000 *
Jonathan D. Pollock 6,000 *
Donald G. Russell 6,000 *
All executive officers and
directors as a group (10 persons) 344,000(4) 2.4%
</TABLE>
_______________
* Less than 1%.
(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., 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) Includes option grants covering the following number of shares that
are exercisable by February 28, 1999: Mr. Ward 200,000; Mr. Wood
26,667; Mr. Keirnan 12,000; Mr. Fraser 12,000; Mr. Wilson 16,667.
(4) Includes 267,334 shares subject to options that are exercisable by
February 28, 1999 held by executive officers and directors.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are controlled by Elliott and Westgate. Accordingly, as outlined
below, there have been a number of transactions between Elliott, Westgate
and us. All of our agreements with Elliott and Westgate have been made in
the context of a parent-controlled subsidiary relationship and have:
* been negotiated within the overall context of Grant
Geophysical's bankruptcy reorganization;
* involved subsequent acquisitions or financings with Elliott or
Westgate; or
* involved Elliott providing credit support for the Company.
Although we generally believe that the terms of each of these agreements
were entered into on terms at least as favorable to the Company as could be
obtained from unaffiliated third parties, we cannot assure you that the terms of
these agreements have not been more or less favorable than the terms that
may have been obtained by or from unaffiliated third parties.
REGISTRATION RIGHTS AGREEMENT
On September 19, 1997, we entered into a registration rights agreement
with Elliott and Westgate. Under that agreement, Elliott and Westgate
have the right to require or "demand" the registration of all common stock
that they beneficially own. Such demand rights are subject to the condition
that we would not be required to effect more than a total of five demand
registrations. The registration rights agreement also provides that no more
than three demand registrations can be made in one twelve-month period.
Covered stockholders also have the right to participate, or "piggyback," in
equity offerings if we propose to register any of our equity securities
under the Securities Act of 1933 for our own account or for the account of
other stockholders. This participation is subject to a reduction of the
size of such offering on the advice of the underwriters. We are required to
pay all expenses in connection with such demand and piggyback registrations
and are required to indemnify the selling stockholders against some
liabilities, including liabilities under the Securities Act. The rights
provided in the registration rights agreement are transferable to
transferees of all covered securities.
LOAN AND SECURITY AGREEMENT WITH ELLIOTT
On October 1, 1997, we entered in to a credit facility with Elliott
under which we could borrow up to $5 million in principal amount of
revolving loans at an annual interest rate equal to the prime rate plus 2%.
Loans to us under the credit facility were secured by liens on most of our
and our subsidiaries' assets, as well as by guarantees of our subsidiaries
in favor of Elliott. Under that credit facility, Elliott advanced us $1.6
million in revolving loans and $15.8 million under a term note to fund the
acquisition of Solid State Geophysical, Inc. On June 5, 1998, in connection
with the redemption of 10,000 shares of preferred stock held by Westgate, we
amended the credit facility to increase our borrowing capacity to $15
million and we extended the term of the facility to March 31, 2000. We
satisfied all of our obligations under this credit facility with proceeds
from our new credit facility with Foothill and Elliott.
THE ACQUISITION OF SOLID STATE GEOPHYSICAL, INC.
In connection with our acquisition of Solid State Geophysical, Inc.,
the principal stockholders of Solid State transferred their shares to us for
4,652,555 shares of our common stock. Elliott and Westgate then advanced us
the funds to consummate our tender offer for Solid State. As a result of
the acquisition, we, through our acquisition subsidiary, SSGI, assumed $36.4
million of debt of Solid State, of which $16.7 million was held by Elliott
and Westgate. We used a portion of the proceeds from the offering of our
senior notes to repay substantially all of this assumed indebtedness.
THE REORGANIZATION OF GRANT GEOPHYSICAL, INC.
In connection with the Second Amended Plan of Reorganization of Grant
Geophysical, Inc. and in exchange for the satisfaction of claims against our
predecessor corporation, GGI, by Oyo Geospace Corporation and Foothill
Capital Corporation, we issued 19,571.162 shares of our preferred stock to
Elliott and Westgate. Elliott also purchased a claim that had been
previously made against us by Madeleine, L.L.C.
On December 19, 1997, we exchanged 9,571.162 shares of preferred stock
held by Elliott for a subordinated note. Elliott had previously loaned
$10.2 million to us on November 26, 1997, under a demand promissory note
with interest at a rate per annum equal to the prime rate plus 2%. On
December 30, 1997, we paid, utilizing funds provided by Elliott and
Westgate, the remainder of the cash purchase price, approximately $34.8
million, which included the cancellation of the Madeleine claim and the
cancellation of the demand promissory note. In return, we issued 9.5
million shares of our common stock to Elliott and Westgate.
Under the reorganization plan of Grant, we were required to conduct a
rights offering of shares of our common stock to holders of claims against
us. Elliott and Westgate exercised their right to acquire 100% of the stock
of Grant on the date the reorganization was consummated and conducted a
subscription offering of their shares at a later date in lieu of the rights
offering. In 1998, we registered 3,459,414 shares of our common stock held
by Elliott and Westgate in a subscription offering conducted by them in
order to satisfy their subscription offering obligations under the
reorganization plan. A total of 2,080,722 shares of our common stock were
subscribed for and in exchange, Elliott and Westgate received proceeds of
approximately $9.9 million. In addition, upon the consummation of the
subscription offering, we issued 237,500 shares of our common stock to
Elliott.
SENIOR NOTE OFFERING
On February 18, 1998, we issued $100 million aggregate principal amount
of 9 3/4 % senior notes due 2008, which are guaranteed by some of our
subsidiaries. The proceeds from the senior note issuance were used to repay
indebtedness of Solid State assumed in the acquisition plus other
indebtedness held by Elliott, for capital expenditures and for working
capital purposes.
OPTION GRANT OF OUR COMMON STOCK BY ELLIOTT
On April 28, 1998, Elliott granted to Donald W. Wilson an option to
purchase 100,000 shares of our 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.
REDEMPTION OF PREFERRED STOCK HELD BY WESTGATE
On June 5, 1998, we redeemed 10,000 shares of preferred stock held by
Westgate, representing all of our outstanding preferred stock at the time,
for a redemption price of $10.7 million. This price was a total of the
liquidation amount of the preferred stock plus all accumulated, accrued and
unpaid dividends We canceled and retired the shares after their redemption.
LOAN AND SECURITY AGREEMENT WITH FOOTHILL AND ELLIOTT
On May 11, 1999, we entered into a loan and security agreement with
Foothill Capital Corporation and Elliott. Under the terms of the agreement,
we may borrow up to $6 million through a revolving credit facility and up to
$19 million through two term loans. We must pay interest on any such
borrowing at annual rate equal to the prime rate plus 1 1/2 %. Proceeds
from the loans made under this loan agreement were used to repay all of our
$14.8 million outstanding indebtedness to Elliott under our previous credit
facility and to provide us with additional liquidity and working capital to
support our operations. On August 12, 1999, the loan agreement was amended
to modify components of our earnings calculations under the agreement and to
allow interest payments on portions of our subordinated indebtedness
purchased by Elliott. On September 23, 1999, the loan agreement was amended
to increase the maximum principal amount of indebtedness under the Foothill
term loan to $11.67 million and to revise the repayment schedule of that
loan.
SALES OF OUR 8% EXCHANGEABLE PREFERRED STOCK TO ELLIOTT
Between August 16, 1999 and December 13, 1999, we issued a total of
132,000 shares of our 8% exchangeable preferred stock to Elliott at a price of
$100 per share. The proceeds from the sale of the preferred stock totaled an
aggregate of $13,200,000 and were used to provide us with additional working
capital. Additionally, we issued 677 shares of our 8% exchangeable preferred
stock to Elliott as of October 1, 1999 as dividends on the 8% exchangeable
preferred stock payable on that date.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of our
common stock, $0.001 par value per share, and 5,000,000 shares of our
preferred stock, $ 0.001 par value per share. As of December 13, 1999,
there were 14,526,055 shares of our common stock and 132,667 shares of our
preferred stock outstanding. The following summary description of our
capital stock may not be complete and is qualified in its entirety by
reference to our Amended and Restated Certificate of Incorporation and our
Amended and Restated Bylaws. Copies of these documents are filed as
exhibits to the registration statement, of which this prospectus forms a
part.
COMMON STOCK
All outstanding shares of our common stock are fully paid and
nonassessable. All holders of our 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 our stockholders. The holders of our 8% convertible
preferred stock will be entitled to vote together with the holders of our
common stock as a class on any matter on which the holders of our common
stock are entitled to vote. Votes may not be cumulated in the election of
our directors. Stockholders have no preemptive or subscription rights other
than the rights offered under this offering. Our common stock is neither
redeemable nor convertible, and there are no sinking fund provisions.
Holders of our common stock are entitled to dividends when, as and if
declared by our board of directors from funds legally available therefor and
are entitled, upon liquidation, to share ratably in all assets remaining
after payment of our liabilities. The rights of holders of our common stock
will be subject to any of our preferential rights of any preferred stock
that is issued and outstanding or that may be issued in the future.
PREFERRED STOCK
Our board of directors has the authority, without approval of our
stockholders, to issue shares of preferred stock in one or more series and
to fix the number of shares, rights, preferences and limitations of each
series. Among the specific matters with respect to the preferred stock that
may be determined by our board of directors are the dividend rights, the
redemption price, if any, the terms of a sinking fund, if any, the amount
payable in the event of any voluntary liquidation, dissolution or winding up
of our affairs, conversion rights, if any, and voting powers, if any.
THE 8% EXCHANGEABLE PREFERRED STOCK
VOTING RIGHTS
Except as otherwise required by Delaware law, holders of our 8%
exchangeable preferred stock shall not be entitled to vote on any matter
submitted to a vote of our stockholders. In all cases where Delaware law
provides that the holders of our 8% exchangeable preferred stock are
entitled to vote, holders shall have one vote for each share of our 8%
exchangeable preferred stock that they hold.
Dividends
The holders of our 8% exchangeable preferred stock are entitled to
receive cumulative dividends at the annual rate of 8% of the liquidation
value per share. If our board of directors so decides, any dividend may be
paid in kind with additional shares of our 8% exchangeable preferred stock.
LIQUIDATION PREFERENCE
In the event of our liquidation, dissolution, sale or winding up,
holders of our 8% exchangeable preferred stock are entitled to receive $100
per share plus all accrued or declared but unpaid dividends. This
liquidation value may be adjusted to account for any stock dividends,
combinations or splits. If our assets and funds legally available for
distribution to the holders of our 8% exchangeable preferred stock are
insufficient to permit payment of their full preferential amount, then such
holders will be entitled to share ratably the entire amount of such assets
or funds legally available for distribution.
REDEMPTION
We have the right to redeem the shares of our 8% exchangeable preferred
stock upon 60 days notice, at a price per share of the liquidation value at
that time plus all accrued or declared but unpaid dividends.
Exchange Rights
As long as any shares of our 8% exchangeable preferred stock are
outstanding, holders of the 8% exchangeable preferred stock may exchange
them for any new securities that we may propose to sell or issue. Holders
who elect to exchange will receive new securities having a purchase price
equal to the total liquidation value of our 8% exchangeable preferred stock
exchanged, plus all accumulated and unpaid dividends thereon.
THE 8% CONVERTIBLE PREFERRED STOCK
Upon completion of the exchange offer, up to 839,808 shares of our 8%
convertible preferred stock will be outstanding.
Voting Rights
The holders of our 8% convertible preferred stock shall vote together
as a single class with all other classes of our capital stock on all matters
submitted to a vote of our stockholders. Each share of 8% convertible
preferred stock is entitled to the number of votes equal to the number of
shares of full shares of our common stock into which it is convertible. In
all cases where Delaware law provides that the holders of our 8% convertible
preferred stock are entitled to vote separately as a class, holders shall
have one vote for each share of our 8% convertible preferred stock that they
hold.
Dividends
The holders of our 8% convertible preferred stock are entitled to
receive cumulative dividends at the annual rate of 8% of the liquidation
value per share. Dividends will be paid on the first business day of each
January, April, July and October beginning January 1, 2000. If our board of
directors so decides, any dividend may be paid in kind with additional
shares of our 8% convertible preferred stock. We intend to pay dividends on
the 8% convertible preferred stock in additional shares at the present time.
LIQUIDATION PREFERENCE
In the event of our liquidation, dissolution, sale or winding up,
holders of our 8% convertible preferred stock are entitled to receive $100
per share plus all accrued or declared but unpaid dividends. This
liquidation value may be adjusted to account for any stock dividends,
combinations or splits. If our assets and funds legally available for
distribution to the holders of our 8% convertible preferred stock are
insufficient to permit payment of their full preferential amount, then such
holders will be entitled to share ratably the entire amount of such assets
or funds legally available for distribution.
RANKING
The 8% convertible preferred stock will rank as follows:
* senior to our common stock and all of our other capital stock
unless the terms of the other capital stock expressly provide that
it ranks equally with the 8% convertible preferred stock; and
* equally to any of our capital stock that have terms that
expressly provide that it will rank equally with the 8%
convertible preferred stock. At the time of the closing of the
subscription offering and the exchange offer, all of our
outstanding capital stock will rank junior to the 8% convertible
preferred stock.
REDEMPTION
We have the right to redeem the shares of our 8% convertible preferred
stock, upon 60 days notice, at any time at a price per share equal to the
liquidation value at that time plus all accrued or declared but unpaid
dividends. Any 8% convertible preferred stock that we redeem shall cease to
be outstanding and the holders' right to dividends shall end at that time.
CONVERSION RIGHTS
At the option of the holder, shares of our 8% convertible preferred
stock may converted into shares of our common stock. The number of shares
of our common stock received upon conversion shall be determined by dividing
the liquidation preference plus all accrued or declared but unpaid dividends
by the conversion price then applicable to our 8% convertible preferred
stock. The initial conversion price of $3.00 was determined based in part
on a fairness opinion, which was delivered by an independent investment
advisory firm, stating that such price is fair, from a financial point of view,
to our stockholders. The initial conversion price of $3.00 is subject to
adjustment to protect against dilution of the conversion right if we:
* pay a stock dividend;
* subdivide or split the outstanding common stock;
* combine the outstanding common stock into a smaller number of
shares; or
* issue by reclassifying our common stock any shares
of common stock.
If the conversion price is adjusted, we will issue each holder of our
8% convertible preferred stock a certificate detailing such adjustments. We
will not issue any fractional shares upon any conversion into our common
stock, all fractional shares shall be rounded up to the nearest whole share.
<PAGE>
LEGAL MATTERS
The validity of the issuance of the rights offered in the
subscription offering and the preferred stock offered by us in the exchange
offering will be passed upon for us by Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P.
EXPERTS
The consolidated financial statements of Grant Geophysical, Inc. as of
December 31, 1998 and for the year then ended included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The consolidated financial statements of GGI as of December 31, 1996
and the nine-month period ended September 30, 1997 and the consolidated
financial statements of Grant Geophysical, Inc. as of December 31, 1997 have
been included in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants, and upon the authority of KPMG as
experts in accounting and auditing.
The report of KPMG 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.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the rights and the preferred stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement.
Some items may have been omitted from the prospectus as permitted by the
rules and regulations promulgated by the SEC. For further information with
respect to Grant Geophysical, Inc., the rights and the preferred stock
offered, please refer to the registration statement and its accompanying
exhibits.
Statements made in this prospectus as to the provisions of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such statement as to a contract, agreement
or other document filed as an exhibit to the registration statement, please
refer to the exhibit for a more complete description of the matter involved.
You may read and copy the registration statement and the exhibits, as
well as any reports and other information that we must file with the SEC, at
the public reference facilities of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also read and copy such information at the
SEC's regional offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Additionally, our SEC filings are available to the
public from the SEC's website at http://www.sec.gov.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
GRANT GEOPHYSICAL, INC.
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1998
and as of September 30, 1999 (unaudited)....................... F-2
Consolidated Statements of Operations:
Grant Geophysical, Inc. for the nine-month period ended
September 30, 1998 (unaudited) and the nine-month period
ended September 30, 1999 (unaudited)........................... F-4
Consolidated Statements of Cash Flows:
Grant Geophysical, Inc. for the nine-month period ended
September 30, 1998 (unaudited) and the nine-month period
ended September 30, 1999 (unaudited)........................... F-5
Notes to Consolidated Financial Statements............................. F-6
GRANT GEOPHYSICAL, INC. AND GGI LIQUIDATING CORPORATION
Report of Independent Accountants:
Grant Geophysical, Inc............................................ F-10
Independent Auditors' Report:
Grant Geophysical, Inc............................................ F-11
GGI Liquidating Corporation....................................... F-12
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1997 and 1998.......... F-13
Consolidated Statements of Operations:
GGI Liquidating Corporation for the year ended December 31,
1996 and for the nine-month period ended September 30,
1997........................................................... F-15
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the year ended December 31, 1998......... F-15
Consolidated Statement of Stockholders' Equity (Deficit):
GGI Liquidating Corporation for the year ended December 31,
1996........................................................... F-16
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the year ended December 31, 1998......... F-17
Consolidated Statements of Cash Flows:
GGI Liquidating Corporation for the years ended December 31,
1996 and for the nine-month period ended September 30,
1997........................................................... F-19
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and for the year ended December 31, 1998..... F-19
Notes to Consolidated Financial Statements............................. F-21
Supplementary Financial Information.................................... F-46
Grant Geophysical, Inc. Unaudited Pro Forma Consolidated Financial
Statements:
Introduction...................................................... F-47
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1998........................... F-48
Unaudited Pro Forma Consolidated Statement of Operations
for the Nine Months Ended September 30, 1999................... F-49
Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1999............................................. F-50
Notes to Unaudited Pro Forma Consolidated Financial
Statements........................................................... F-51
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,921 $ 1,949
Restricted cash 106 17
Accounts receivable:
Trade (net of allowance for doubtful accounts
of $86 and $499 at December 31, 1998 and
September 30, 1999, respectively) 25,918 13,823
Other 1,663 884
Inventories 512 442
Prepaids 4,639 2,954
Work in process 4,062 3,980
-------- --------
Total current assets 44,821 24,049
Property, plant and equipment 93,264 93,497
Less: accumulated depreciation 27,359 39,490
-------- --------
Net property, plant and equipment 65,905 54,007
Multi-client data, net 10,899 24,363
Goodwill, net 36,592 35,531
Debt issue costs, net 4,297 3,955
Other assets 3,927 1,653
-------- --------
Total assets $166,441 $143,558
======== ========
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations $ 2,522 $ 7,651
Accounts payable 15,316 8,953
Accrued expenses 6,621 3,978
Accrued interest 3,798 1,367
Foreign income taxes payable 2,191 155
-------- --------
Total current liabilities 30,448 22,104
Revolving line of credit-affiliate 8,000 7,500
Long-term debt and capital lease obligations 102,817 111,827
Unearned revenue 2,115 2,971
Other liabilities and deferred credits 1,059 2,302
Stockholders' equity:
Preferred stock, $.001 par value. Authorized
10,000,000 shares: 8% exchangeable series
(stated at liquidation preference of
$100 per share), issued 82,500 shares at
September 30, 1999. Authorized, issued and
outstanding zero at December 31, 1998 - 8,250
Common stock, $.001 par value. Authorized
50,000,000 and 25,000,000 shares at September
30, 1999 and December 31, 1998, respectively;
issued and outstanding 14,526,055 and
14,426,055 shares at September 30, 1999
and December 31, 1998, respectively 14 14
Additional paid-in capital 41,727 41,757
Accumulated deficit (17,253) (51,396)
Accumulated other comprehensive income (2,486) (1,771)
-------- --------
Total stockholders' equity 22,002 (3,146)
-------- --------
Total liabilities and stockholders' equity $166,441 $143,558
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1999
--------- ---------
(unaudited)
<S> <C> <C>
Revenues $ 147,357 $ 44,721
Expenses:
Direct operating expenses 107,445 38,587
Selling, general and administrative expenses 11,409 9,749
Depreciation and amortization 16,087 17,377
Charge for asset impairment - 4,726
-------- --------
Total costs and expenses 134,941 70,439
-------- --------
Operating income (loss) 12,416 (25,718)
Other income (expense):
Interest, net (6,820) (8,811)
Other (283) 840
-------- --------
Total other expense (7,103) (7,971)
-------- --------
Income (loss) before taxes 5,313 (33,689)
Income tax expense 3,218 456
-------- --------
Net income (loss) 2,095 (34,145)
Preferred dividends 440 68
-------- --------
Net income (loss) applicable to common stock $ 1,655 $(34,213)
======== ========
INCOME PER COMMON SHARE - BASIC
AND DILUTED:
Net income (loss) $ 0.15 $ (2.37)
Dividend requirement on pay-in-kind
preferred stock (0.03) -
-------- --------
Net income (loss) per common share $ 0.12 $ (2.37)
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
GRANT GEOPHYSICAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 2,095 $(34,145)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Charge for asset impairment - 4,726
Depreciation and amortization expense 16,087 17,377
(Gain) loss on sale of fixed assets (120) (157)
Provision for doubtful accounts 450 450
Exchange (gain) loss 679 (474)
Multi-client data amortization - 520
Directors' stock compensation expense - 30
Other non-cash items 48 59
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts receivable (12,239) 12,424
Inventories (2) 70
Prepaids (479) 1,685
Work in process (1,974) 82
Other assets (1,168) 2,627
INCREASE (DECREASE) IN:
Accounts payable 4,667 (6,363)
Accrued expenses (109) (2,864)
Foreign income tax payable 1,348 (2,036)
Other liabilities and deferred credits (1,235) 2,099
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,048 (3,890)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (18,031) (4,649)
Multi-client data (2,848) (18,640)
Proceeds from sale of assets 649 239
Restricted cash 226 89
Acquisition of Interactive Seismic Imaging (2,988) -
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (22,992) (22,961)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs (4,597) (940)
Borrowings made 105,020 49,061
Repayment on borrowings (75,249) (35,746)
Common stock issue costs (195) -
Proceeds from issuance of preferred stock - 8,250
Redemption of preferred stock (10,000) -
Dividends paid (723) -
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,256 20,625
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (431) 254
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,119) (5,972)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,093 7,921
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,974 $ 1,949
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet of Grant Geophysical, Inc. and subsidiaries (the
"Company") as of September 30, 1999 and the related statements of
operations and cash flows for the nine months ended September 30, 1998
and 1999 are unaudited. In the opinion of management, the accompanying
unaudited condensed financial statements of Grant and its consolidated
subsidiaries contain all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial
position as of September 30, 1999 and the results of operations
for the three and nine months ended September 30, 1999. The
consolidated financial statements should be read in conjunction with
the audited financial statements and footnotes for the year ended
December 31, 1998, included in the Company's Form 10-K, as filed with
the Securities and Exchange Commission (the "Commission").
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
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 at the completion of the acquisition and
processing 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. See Note 2.
ASSET IMPAIRMENT
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of", 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
to the extent in which an asset 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. See Note 2.
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.
The more significant areas requiring the use of management
estimates relate to expected future sales associated with the Company's
multi-client data library, estimated future cash flows related to long-
lived assets and valuation allowances for deferred tax assets. Actual
results could differ materially from these estimates making it
reasonably possible that a change in these estimates could occur in the
near future.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
INCOME (LOSS) PER COMMON SHARE
In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share," 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 cumulative preferred
stock dividends in calculating net income (loss) applicable to the
common stockholders.
(2) Charge for Asset Impairment
In the third quarter of 1999 the Company wrote down certain
multi-client data surveys in the amount of $4.7 million. The impairment
of the multi-client data in 1999 was due to reductions in estimates of
future licensing prospects for such data due to the current downturn in
the industry, and the Company's recent sales experience for such data.
(3) DEBT
On May 11, 1999, the Company entered into a Loan and Security
Agreement (the "Credit Facility") with Foothill Capital Corporation and
Elliott Associates L.P. ("Elliott"), the "Lenders", pursuant to which
the Company may borrow up to $6.0 million through a revolving facility
and up to $19.0 million through two term loans. Proceeds were used to
repay all of the Company's outstanding indebtedness to Elliott ($14.8
million) and will be used to provide additional liquidity and working
capital to support the Company's operations. The Credit Facility
imposes certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness,
incur liens, pay dividends or make other distributions in cash or
certain property, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other
persons or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of the Company or its
subsidiaries, make Investments (as defined in the Credit Facility) and
maintain a minimum EBITDA (earnings before interest, tax, depreciation
and amortization) level. The interest rate on the loans is 1.5% over
prime. Amounts available and outstanding at September 30, 1999 are
$412,000 and $22.4 million, respectively.
(4) EQUITY FINANCING
On August 13, 1999, the board of directors of the Company created
a series of 120,000 shares of preferred stock, amended to 150,000
shares on October 13, 1999, designated as "8% Exchangeable Preferred
Stock". The shares of 8% Exchangeable Preferred Stock have a
liquidation preference of $100 per share. The 8% Exchangeable Preferred
Stock is entitled to receive cumulative dividends at the rate of 8% per
annum of the liquidation preference. The dividends are payable
quarterly in cash or, at the Company's option, in shares of 8%
Exchangeable Preferred Stock. The shares of 8% Exchangeable Preferred
Stock may be exchanged, at the option of the holder, into such new
securities as the Company may from time to time propose to sell or
issue. Between August 16, 1999 and December 13, 1999, the Company
issued a total of 132,000 shares of 8% Exchangeable Preferred Stock to
Elliott at a price of $100 per share. The proceeds from the sale of the
preferred stock totaled an aggregate of $13,200,000, and were used to
meet the Company's cash needs. Additionally, the Company issued 677
shares of 8% Exchangeable Preferred Stock to Elliott as of October 1,
1999 as dividends on the 8% Exchangeable Preferred Stock payable on
that date.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds $ 3,181 $ 547
Interest 6,490 10,671
</TABLE>
(6) COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, Grant adopted Statement of Accounting
Standards No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive loss of Grant consists solely of foreign
currency translation adjustment for the periods presented.
Accumulated other comprehensive loss
at December 31, 1998 $ (2,486)
Foreign currency translation adjustment
for nine-month period ended September
30, 1999 715
--------
Accumulated other comprehensive loss at
September 30, 1999 $ (1,771)
========
(7) SEGMENT INFORMATION
Set forth below is certain information about the Company's reported
segments for the nine months ended September 30, 1999 and 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
1999 UNITED STATES CANADA LATIN AMERICA FAR EAST
---- ------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 26,606 $ 7,907 $ 3,912 $ 6,296
Operating Income (Loss) (15,530) (576) (6,706) (2,906)
</TABLE>
<TABLE>
<CAPTION>
1998 UNITED STATES CANADA LATIN AMERICA FAR EAST
---- ------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 61,552 $12,820 $ 46,456 $26,529
Operating Income (Loss) 1,479 (38) 7,569 3,406
</TABLE>
(8) SUBSEQUENT EVENTS
On September 30, 1999, the Company entered into an Asset Purchase
Agreement, effective October 30, 1999 for the purchase of certain
seismic acquisition equipment. The purchase price for the assets was
100,000 shares of common stock and cash payments totaling $3 million.
The cash payments are due in three installments on October 31, 1999,
December 31, 1999 and March 31, 2000.
On October 20, 1999, the board of directors of the Company voted
to increase the number of shares constituting the 8% Exchangeable
Preferred Stock of the Company from 120,000 to 150,000 and to amend the
Certificate of Designation to that effect.
On October 25, 1999, holders of greater than a majority of the
outstanding common stock voting power of the Company acted, by written
consent, to further amend the Amended and Restated Certificate of
Incorporation to decrease the number of authorized aggregate shares of
capital stock of the Company from 60,000,000 to 55,000,000 shares thus
decreasing the number of authorized shares of the Company's preferred
stock from 10,000,000 to 5,000,000 shares.
On October 25, 1999, Amendment No. 3 to Common Stock Registration
Rights Agreement, amending the definition of "Registerable Shares," was
executed.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Grant Geophysical, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Grant Geophysical, Inc. and its subsidiaries at
December 31, 1998 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for the opinion expressed
above.
/S/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
April 6, 1999
<PAGE>
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.
/S/ KPMG LLP
KPMG LLP
Houston, Texas
March 18, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GGI Liquidating Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of GGI Liquidating
Corporation (a debtor-in-possession as of December 31, 1996) (formerly
Grant Geophysical, Inc.) and subsidiaries for the year 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 results of operations and
cash flows of GGI Liquidating Corporation and subsidiaries for the year
ended December 31, 1996, and the nine month period ended September 30,
1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming that GGI Liquidating
Corporation will continue as a going concern which contemplates among
other things, the realization of assets and liquidation of liabilities in
the ordinary course of business. As discussed in Note 1 to the
consolidated financial statements, GGI Liquidating Corporation (the
Petitioning Company) filed a voluntary petition for reorganization under
chapter 11 of the United States Bankruptcy Code on December 6, 1996. The
chapter 11 case of the Petitioning Company is administered by the United
States Bankruptcy Court for the District of Delaware (the "Court"). The
Petitioning Company is operating the business as debtor-in-possession
which requires certain of its actions to be approved by the Court. In
September 1997 the Court approved the "Second Amended Plan of
Reorganization" (the "Plan") filed by GGI Liquidating Corporation. The
Plan was consummated on September 30, 1997, with the purchase by Grant
Geophysical, Inc. of substantially all of the assets and the assumption of
certain liabilities of GGI Liquidating Corporation. GGI Liquidating
Corporation is currently in liquidation and will distribute all of its
assets pursuant to the Plan. Upon the completion of its asset
distribution, GGI Liquidating Corporation will dissolve and cease to
exist. The consolidated financial statements and financial statement
schedule do not include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and classification
of liabilities that might result from the Plan and the distribution of
assets pursuant thereto.
/S/ KPMG LLP
KPMG LLP
Houston, Texas
December 22, 1997
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,093 $ 7,921
Restricted cash 321 106
Accounts receivable:
Trade (net of allowance for doubtful accounts
of $158 and $86 at December 31, 1997 and 1998,
respectively) 29,495 25,918
Other 2,487 1,663
Inventories 530 512
Prepaids 4,190 4,639
Work in process 2,779 4,062
--------- ---------
Total current assets 46,895 44,821
Property, plant and equipment:
Land 427 411
Buildings and improvements 1,548 1,932
Plant facilities and store fixtures 876 1,142
Machinery and equipment 70,151 89,779
--------- ---------
Total property, plant and equipment 73,002 93,264
Less accumulated depreciation 8,498 27,359
--------- ---------
Net property, plant and equipment 64,504 65,905
Multi-client data, net 5,736 10,899
Goodwill, net 36,304 36,592
Other assets 2,265 8,224
--------- ---------
Total assets $ 155,704 $ 166,441
========= =========
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable, current portion of long-term
debt and capital lease obligations $ 1,158 $ 2,522
Accounts payable 16,422 15,316
Accrued expenses 10,168 6,621
Accrued interest 150 3,798
Foreign income taxes payable 2,807 2,191
--------- ---------
Total current liabilities 30,705 30,448
Revolving line of credit - affiliate 800 8,000
Long-term debt and capital lease obligations 64,609 102,817
Unearned revenue 5,443 2,115
Other liabilities and deferred credits 2,369 1,059
Subordinated note 9,786 -
Stockholders' equity:
Cumulative pay-in-kind preferred stock, $.001
par value. Authorized 20,000 shares; issued and
outstanding 10,000 shares at December 31, 1997.
Authorized, issued and outstanding zero
at December 31, 1998 10,000 -
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
14,152,555 and 14,426,055 shares at December 31,
1997 and 1998, respectively 14 14
Additional paid-in capital 41,278 41,727
Accumulated deficit (8,833) (17,253)
Accumulated other comprehensive loss (467) (2,486)
--------- ---------
Total stockholders' equity 41,992 22,002
--------- ---------
Total liabilities and stockholders' equity $ 155,704 $ 166,441
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT
--------------------------------- -------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 105,523 $ 92,705 $ 37,868 $ 175,512
Expenses:
Direct operating expenses 136,326 71,006 28,431 128,962
Selling, general and administrative expenses 17,865 6,473 3,507 14,156
Depreciation and amortization 11,500 8,432 4,594 22,286
Charge for asset impairment 5,802 - 6,369 3,762
--------- --------- --------- ---------
Total costs and expenses 171,493 85,911 42,901 169,166
--------- --------- --------- ---------
Operating income (loss) (65,970) 6,794 (5,033) 6,346
Other income (expense):
Interest expense (7,558) (4,037) (1,431) (10,380)
Reorganization costs (412) (3,543) - -
Interest income 36 279 69 1,080
Other (502) 2,266 (1,262) (820)
--------- --------- --------- ---------
Total other expense (8,436) (5,035) (2,624) (10,120)
--------- --------- --------- ---------
Income (loss) before taxes and minority interest (74,406) 1,759 (7,657) (3,774)
Income tax expense (1,621) (2,184) (856) (3,924)
--------- --------- --------- ---------
Loss before minority interest (76,027) (425) (8,513) (7,698)
Minority interest - - 2,847 -
--------- --------- --------- ---------
Net loss $ (76,027) $ (425) $ (5,666) $ (7,698)
Dividend requirement on pay-in-kind preferred stock (6,353) - (477) (440)
--------- --------- --------- ---------
Net loss applicable to common stock $ (82,390) $ (425) $ (6,143) $ (8,138)
========= ========= ========= =========
LOSS PER COMMON SHARE - BASIC
AND DILUTED:
Net loss $ (1.18) $ (.54)
Dividend requirement on pay-in-kind
preferred stock (.10) (.03)
--------- ---------
Net loss per common share $ (1.28) $ (.57)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
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 TOTAL
EXCHANGEABLE CONVERTIBLE JUNIOR CUMULATIVE ADDITIONAL STOCKHOLDERS'
PREFERRED PREFERRED PREFERRED PAY-IN-KIND COMMON PAID-IN ACCUMULATED (DEFICIT)
STOCK STOCK STOCK PREFERRED STOCK STOCK CAPITAL DEFICIT EQUITY
------------ ----------- --------- --------------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995 22 - 1,490 - 24 112,122 (83,943) 29,715
Net loss - - - - - - (76,027) (76,027)
Common stock issued
in connection with
obtaining equipment
and short- and long-
term financing - - - - - 389 - 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 - 1,373
Issuance of 70,000 shares
of Series A convertible
preferred stock - 1 - - - 6,999 - 7,000
Conversion of
convertible
debentures - - - - 7 2,767 - 2,774
Conversion of Series A
convertible preferred
stock - (1) - - 9 (8) - -
Proceeds from the
exercise of 200,000
warrants - - - - 1 150 - 151
Restricted common stock
issued under the Incentive
Stock Option Plan - - - - - 129 - 129
Proceeds from sale of
125,000 shares under
Incentive Stock Option
Plan - - - - - 145 - 145
Restricted common
stock issued under
the Employee
Retirement Savings
Plan - - - - - 138 - 138
------------ ----------- --------- --------------- ------ ---------- ----------- ------------
Balances at December 31,
1996 $ 23 $ - $ 1,490 $ - $ 41 $ 124,203 $ (159,970) $ (34,213)
------------ ----------- --------- --------------- ------ ---------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
-------------------------------------------------------------------------------------
CUMULATIVE ACCUMULATED
PAY-IN-KIND ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT LOSS EQUITY
----------- ------- ---------- ----------- ------------- -------------
<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
Effective issuance of 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 - - - - - -
Issuance of 62,500 shares of
common stock for principal
shareholders' exchange of
warrants in Solid State - - 144 - - 144
Issuance of 9,499,998 shares to
principal stockholders in
accordance with the Plan - 9 33,939 - - 33,948
Conversion of 9,571 preferred
shares to Subordinated Note (9,571) - - - - (9,571)
Payment of preferred stock
dividend - - - (215) - (215)
Accumulated other
comprehensive loss - - - - (467) (467)
----------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 1997 $ 10,000 $ 14 $ 41,278 $ (8,833) $ (467) $ 41,992
=========== ====== ========== =========== ============= =============
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
-------------------------------------------------------------------------------------
CUMULATIVE ACCUMULATED
PAY-IN-KIND ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT LOSS EQUITY
----------- ------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ 10,000 $ 14 $ 41,278 $ (8,833) $ (467) $ 41,992
Net loss - - - (7,698) - (7,698)
Redemption of cumulative
pay-in-kind preferred stock (10,000) - - - - (10,000)
Issuance of 237,500 shares of
common stock to principal
shareholders in satisfaction of the
Registration Rights Agreement - - - - - -
Payment of dividends - - - (722) - (722)
Stock issue costs for registration
rights - - (336) - - (336)
Issuance of 36,000 shares of
common stock to non-employee
directors - - 150 - - 150
Non-cash litigation costs - - 635 - - 635
Accumulated other
comprehensive loss - - - - (2,019) (2,019)
----------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 1998 $ - $ 14 $ 41,727 $ (17,253) $ (2,486) $ 22,002
=========== ====== ========== =========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
---------------------------- ------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (76,027) $ (425) $ (5,666) $ (7,698)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Charge for asset impairment 5,802 - 6,369 3,762
Provision for doubtful accounts 5,511 - - 194
Depreciation and amortization expense 11,500 8,432 4,594 22,286
Deferred costs amortization 29,528 - - -
Loss on sale of subsidiaries 198 - - -
(Gain) loss on the sale of fixed assets (25) 39 132 (189)
Exchange loss (gain) 251 98 (77) 485
Non-cash litigation costs - - - 635
Other non-cash items 328 225 (2,544) 68
Changes in assets and liabilities,
excluding effects of divestitures:
Accounts receivable 13,346 2,375 694 3,046
Inventories 914 (27) - 18
Prepaids 1,228 (538) (1,220) 737
Work-in-process (24,969) (268) (1,101) (1,283)
Other assets 1,846 (1,031) 983 (414)
Accounts payable 9,328 3,143 (1,237) (1,149)
Accrued expenses 5,059 830 1,759 331
Foreign income taxes payable 390 1,767 487 (616)
Other liabilities and deferred credits 7,973 (2,320) 2,213 (4,398)
Change in pre-petition liabilities subject
to Chapter 11 case:
Accounts payable - (2,226) - -
Accrued expenses (125) (1,732) - -
Foreign income tax payable - (194) - -
Other liabilities and deferred costs (1,402) (3,622) - -
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities (9,346) 4,526 5,386 15,815
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
GRANT GEOPHYSICAL INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
---------------------------- ------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (10,339) $ (6,751) $ (3,994) $ (20,666)
Multi-client data - - - (8,500)
Proceeds from the sale of assets 25 20 182 634
Proceeds from the sale of subsidiaries/
businesses 39 - - -
Acquisition of the minority interest in
Solid State - - (15,903) -
Acquisition of Interactive Seismic Imaging - - - (2,988)
Restricted cash 94 - - 215
--------- --------- --------- ---------
Net cash used in investing activities (10,181) (6,731) (19,715) (31,305)
Cash flows from financing activities:
Debt issue costs - - - (4,629)
Common stock issue costs - - - (336)
Issuance of common stock - - - 150
Redemption of preferred stock - - - (10,000)
Dividends paid - - - (722)
Proceeds from the exercise of stock options
and warrants 296 - - -
Proceeds from issuance of $2.4375 preferred
stock, net of issuance costs 1,544 - - -
Proceeds from issuance of Series A
preferred stock 7,000 - - -
Borrowings made during the period 122,354 4,207 31,270 119,335
Repayment on borrowings during the period (105,757) (1,838) (15,363) (86,977)
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 - -
Repayment on borrowings (3,382) (50,465) - -
--------- --------- --------- ---------
Net cash provided by financing activities 25,667 1,289 15,072 16,821
Effect of exchange rate changes on cash (415) (238) 160 (503)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 5,725 (1,154) 903 828
Cash and cash equivalents at beginning of period 1,047 6,772 6,190 7,093
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 6,772 $ 5,618 $ 7,093 $ 7,921
========= ========= ========= =========
</TABLE>
Supplemental disclosures of noncash investing and financing activities. See
note 18.
See accompanying notes to consolidated financial statements
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997, AND 1998
(1) BASIS OF PRESENTATION
Effective September 30, 1997 ("the Effective Date"), 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 85.4% of the issued and outstanding common stock of
Grant at December 31, 1998. Westgate owned all of the preferred stock that
had been outstanding during 1997 and 1998. This preferred stock was
redeemed on June 5, 1998 and all authorized shares have been canceled. 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 $21.3
million. The effects of the acquisition are 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 (the "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 their ownership in Solid State to Grant in exchange for
4,652,555 shares of Grant Common Stock, which included an additional 62,500
shares obtained by exercising warrants on November 5, 1997, and agreed to
loan Grant $15.8 million to pay for shares tendered in the Tender Offer and
costs incurred in connection with the 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. Because Grant acquired over 90%
of the outstanding shares of Solid State Stock not previously held, 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. Grant completed such acquisition on December
23, 1997, after which 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 of the aforementioned transactions, Grant's consolidated
balance sheet as of December 31, 1997 and December 31, 1998 and statement
of operations and cash flows for the three-months ended December 31, 1997
and the year ended December 31, 1998 are presented using Grant's new basis
of accounting, while the consolidated statements of operations and cash
flows for the year ended December 31, 1996 and the nine-months ended
September 30, 1997 are presented using GGI's historical cost basis of
accounting.
Grant purchased, effective July 1, 1998, all of the outstanding
partnership interests in Interactive Seismic Imaging ("ISI"), a seismic
data processing company, for $3.6 million in cash. Grant had been a 10%
owner of ISI since its formation in 1994 and will integrate the ISI
operation into its domestic operational entity. The following working
capital items were acquired in the purchase: cash and cash equivalents -
$628,000 accounts receivable - $364,000 accounts payable - $43,000 and
accrued expenses - $36,000.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
of a subordinated note in exchange for 9,571.162 shares of Grant preferred
stock (see Note 7 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 (an
"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 aforementioned transactions as if
they were completed as of January 1, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR 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 of 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 is a holding company with no independent operations other than
its investments in its subsidiaries. Grant Geophysical Corp., Grant
Geophysical do Brasil Ltda., Grant Geophysical (Int'l), Inc., P.T. Grant
Geophysical Indonesia, Recuros Energeticos Ltda., Advanced Seismic
Technology, Inc., Solid State Geophysical Inc., Solid State Internacional
Ingenieria C.A., Solid State Geophysical Corp., and SSGI Acquisition Corp.
(the "Subsidiary Guarantors") represent all of the indirect and direct
wholly owned subsidiaries of Grant. Grant conducts all of its operations
through its subsidiaries. The Notes (see Note 7) are fully,
unconditionally, jointly and severally guaranteed by the Subsidiary
Guarantors, and therefore, separate financial statements of the Subsidiary
Guarantors will not be presented. Management has determined that the
information presented by such separate financial statements of the
Subsidiary Guarantors is not material to investors.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN CONSIDERATIONS-GGI
The accompanying financial statements of GGI have been prepared on a
going concern basis, which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. As
described earlier, GGI is in the process of distributing its assets
pursuant to the Plan and will be dissolved. The consolidated financial
statements do not include any adjustments relating to the recoverability
and classification of reported asset amounts or the amounts and
classification of liabilities that may result from the Plan and the
distribution of assets pursuant thereto.
PRINCIPLES OF CONSOLIDATION
Each of the consolidated financial statements include the accounts of
GGI or Grant and all of their respective majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
MINORITY INTEREST
The minority interest calculated on the Consolidated Statement of
Operations was 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 which resulted in Solid State becoming 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 investments with an original maturity of three months or less are
considered to be cash equivalents. Such investments totaled $510,000 and
$2,880,000 at December 31, 1997 and 1998, respectively.
RESTRICTED CASH
At December 31, 1997 and 1998, restricted cash included certificates
of deposit totaling $321,000 and $106,000, respectively, which were pledged
as collateral for letters of credit.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
A reconciliation of the allowance for doubtful accounts for GGI and
Grant is provided below (in thousands):
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------------- ----------------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 2,344 $ 5,711 $ 52 $ 158
Charged to costs and expenses 6,762 -- 106 292
Amounts written off (3,395) (5,659) -- (364)
----------- ------------ ----------- ------------
Balance at end of period $ 5,711 $ 52 $ 158 $ 86
=========== ============ =========== ============
</TABLE>
INVENTORIES
Inventories, which consist primarily of miscellaneous supplies, are
stated at lower of cost or market. Cost is determined using the specific
identification method.
WORK IN PROCESS
Expenses related to the work in progress of seismic crews are deferred
and recognized over the performance of the contract.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Plant and equipment
under capital leases are stated at the present value of future minimum
lease payments at the inception of the lease.
Depreciation is provided principally by the straight-line method over
the estimated useful lives of the various classes of assets as follows:
<TABLE>
<CAPTION>
<S> <C>
YEARS
Buildings and improvements 5-20
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. Amortization of assets recorded under capital leases is
included with depreciation expense. Expenditures for maintenance and
repairs are charged to operations. Betterments and major renewals are
capitalized.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 at the completion of the acquisition and processing 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. As of December 31,
1997 and 1998, accumulated amortization related to the Company's multi-
client data library was zero and $1.3 million, respectively.
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. See Note 3.
ASSET IMPAIRMENT
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", 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 to
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. See Note 3.
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
approximately $175,000 and $1,723,000 as of December 31, 1997 and 1998,
respectively. 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 reflective of 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 and the purchase of the remaining interest in ISI
is being amortized over 30 years and the goodwill created in the
acquisition of Solid State is being amortized over 20 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The more significant areas requiring the use of management estimates
relate to expected future sales associated with the Company's multi-client
data library, estimated future net cash flows related to long-lived assets
and valuation allowances for deferred tax assets. Actual results could
differ materially from these estimates making it reasonably possible that a
change in these estimates could occur in the near term.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REORGANIZATION COSTS
Reorganization costs consisting of professional fees and similar types
of expenditures directly related to GGI's chapter 11 bankruptcy proceeding
were expensed as incurred. During 1996 and the nine months ended September
30, 1997, GGI 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, those 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 15). 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 accumulated other comprehensive loss account in
stockholders' equity. Grant is presently using a forward contract to hedge
the value of the U.S. dollar on a 30 to 60 day basis. The notional amount
hedged is approximately $427,000 at December 31, 1998.
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 bases.
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.
The Company considers the undistributed earnings of its foreign
subsidiaries to be permanently reinvested. The Company has not provided
deferred U.S. income tax on those earnings, as it is not practicable to
estimate the amount of additional tax that might be payable should these
earnings be remitted or deemed remitted as dividends or if the Company
should sell its stock in the subsidiaries.
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.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME (LOSS) PER COMMON SHARE
In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share," 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 cumulative preferred stock dividends in calculating net income
(loss) attributable to the common shareholder. Earnings per share data
have not been presented for GGI as this information is not meaningful.
STOCK BASED COMPENSATION
As allowed by SFAS No. 123, the Company has elected to continue to
follow the accounting prescribed by Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees," whereby compensation costs
are recognized only in situations where stock compensation plans award
intrinsic value to recipients at the date of grant, rather than the fair
value method of SFAS No. 123. Pro forma disclosure of the estimated
effects on net income and earnings per share had the fair value method
prescribed by SFAS No. 123 been followed are included in Note 10.
SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 131 supersedes
SFAS 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management" approach.
The management approach designates the internal organization used by
management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS 131 also requires
disclosures about products and services, geographic areas and major
customers. The adoption of SFAS 131 did not affect results of operations
or financial position, but did affect the disclosure of segment
information (see Note 4).
RECLASSIFICATIONS
Certain amounts previously reported have been reclassified in order to
ensure comparability between the periods reported.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company competes in a highly competitive sector of the oil field
services industry. The Company's business depends in large part on the
conditions of the oil and gas industry, and specifically on the capital
expenditures of the Company's customers. As a result of the recent decline
in oil and gas prices, the level of overall oil and gas industry activity
has declined from levels experienced in recent years. The Company's
results of operations and cash flows could be adversely affected by
continued decreased capital spending levels and depressed oil and gas
prices.
(3) 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 systems which was not expected to generate future cash flows
adequate to support current carrying values. Accordingly, a $5,802,000
charge for asset impairment was recorded during the fourth quarter of 1996.
GRANT
In the fourth quarter of 1997 certain assets of Solid State were
written down to reflect their fair value in accordance with the Company's
asset impairment policy. Fair market value was determined by discounting
the assets' projected future cash flows. 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.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the fourth quarter of 1998, the Company wrote down certain non-
productive fixed assets to fair market value in the amount of $564,000 and
certain multi-client data surveys in the amount of $3.2 million. The
impairment of the multi-client data in 1997 and 1998 was due to reductions
in estimates of future licensing prospects for such data due to reduced
interest in the area by oil and gas companies and the current downturn in
the industry.
(4) SEGMENT INFORMATION
Grant has determined that its reportable segments are those based on
the Company's method of internal reporting, which disaggregates its one
product/service line (geophysical services) into four geographic
regions: the United States, Canada, Latin America and the Far East.
The accounting policies of the segments are the same as those
described in Note 2 - Summary of Significant Accounting Policies for
Segment Information. Grant evaluates the performance of its segments and
allocates resources to them based on operating income (loss). There are
no intersegment revenues.
The tables below present information about the Company's reported
segments for the periods indicated (dollars in thousands):
GRANT
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
UNITED STATES CANADA LATIN AMERICA FAR EAST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 78,659 $ 14,175 $ 52,604 $ 30,074
Operating Income (Loss) (2,741) (2,076) 8,314 2,849
Depreciation and
Amortization 11,314 4,067 4,547 2,358
</TABLE>
For the three months ended December 31, 1997:
<TABLE>
<CAPTION>
UNITED STATES CANADA LATIN AMERICA FAR EAST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 12,458 $ 4,468 $ 15,983 $ 4,959
Operating Income (Loss) (7,634) (1,488) 2,484 1,605
Depreciation and
Amortization 2,364 810 1,183 237
</TABLE>
GGI
For the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
UNITED STATES CANADA LATIN AMERICA FAR EAST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 41,267 $ - $ 42,567 $ 8,871
Operating Income (Loss) (1,924) - 6,373 2,345
Depreciation and
Amortization 5,205 - 2,826 401
</TABLE>
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
UNITED STATES CANADA LATIN AMERICA FAR EAST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenues $ 42,074 $ - $ 57,133 $ 6,316
Operating Income (Loss) (35,920) - (24,642) (5,408)
Depreciation and
Amortization 5,338 - 4,369 1,793
</TABLE>
Revenues and identifiable assets by country are as follows as of and
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
--------------------------- --------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues:
United States $ 42,074 $ 41,267 $ 12,458 $ 78,659
Canada - - 4,468 14,175
Colombia 12,722 19,797 2,836 17,948
Guatemala - 300 2,277 12,765
Bolivia 6,364 - 4,262 10,491
Ecuador 2,840 10,878 2,491 8,337
Brazil 7,717 8,896 2,852 3,063
Peru 27,490 2,696 - -
Other Latin America - - 1,265 -
Bangladesh 5,076 8,871 4,611 15,775
Indonesia 336 - - 14,299
Europe, Middle East and Africa 904 - 348 -
--------- --------- --------- ---------
$ 105,523 $ 92,705 $ 37,868 $ 175,512
========= ========= ========= =========
</TABLE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
GRANT
-------------------------------
DECEMBER 31,
-------------------------------
1997 1998
-------------- -------------
<S> <C> <C>
Identifiable assets:
United States $ 79,089 $ 103,265
Canada 35,278 25,811
Colombia 9,750 6,526
Guatemala 2,572 3,071
Bolivia 6,533 2,451
Ecuador 3,919 4,705
Brazil 6,564 685
Other Latin America 1,942 220
Bangladesh 5,688 10,258
Indonesia 1,663 6,736
Europe, Middle East and Africa 965 -
--------- ---------
Total identifiable assets 153,963 163,728
Corporate assets 1,741 2,713
--------- ---------
$ 155,704 $ 166,441
========= =========
</TABLE>
Revenues from a U.S. based international oil company were
approximately $20,233,000 (19%) for the year ended December 31, 1996. 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%). During 1998, the
Company did not derive more than 10% of its revenue from any single
customer.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
December 31, 1997
Land $ 427 $ -
Buildings and improvements 1,548 42
Furniture and fixtures 876 170
Capitalized leases 3,182 208
Machinery and equipment 66,969 8,078
----------- -----------
$ 73,002 $ 8,498
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
December 31, 1998
Land $ 411 $ -
Buildings and improvements 1,932 175
Furniture and fixtures 1,142 434
Capitalized leases 3,182 930
Machinery and equipment 86,597 25,820
----------- -----------
$ 93,264 $ 27,359
=========== ===========
</TABLE>
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
and
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Income Taxes
The composition of income tax expense follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
-------------------------------- ----------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Current:
State $ - $ - $ - $ -
Federal - - - 100
Foreign 1,621 2,184 856 3,824
Deferred:
State - - - -
Federal - - - -
Foreign - - - -
--------- --------- --------- ---------
Income tax expense $ 1,621 $ 2,184 $ 856 $ 3,924
========= ========= ========= =========
</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. 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. At December 31, 1998, $1,977,950 of these NOLs have
expired unused and the remainder, if unused, will expire between 1999 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. At December 31, 1998, none of these NOLs have
expired or been utilized. If unused, they will expire between 1999 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
Canadian NOLs 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.
<PAGE>
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 YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at U.S. Federal rate $ (25,298) $ 616 $ (2,680) $ (810)
Increases (reductions) in taxes from:
Foreign income taxed at more (less)
than U.S. rate 4,712 741 1,648 (79)
Losses with no tax benefit is
expected 22,207 827 1,888 4,813
--------- --------- --------- ---------
Income tax expense recorded $ 1,621 $ 2,184 $ 856 $ 3,924
========= ========= ========= =========
</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 YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Deferred tax asset:
Plant and equipment, principally due
to differences in depreciation $ 3,841 $ 5,042 $ 666 $ 1,190
Financing costs - - 244 127
Research and development costs - - 499 466
Allowance for doubtful accounts and
other accruals 3,042 - 58 146
Net operating loss carryforwards 58,795 8,026 10,720 11,311
Total 65,678 13,068 12,187 13,240
Deferred tax liability:
Plant and equipment, principally due
to differences in depreciation - - (339) (88)
--------- --------- --------- ---------
Net deferred tax asset 65,678 13,068 11,848 13,152
Valuation allowance (65,678) (13,068) (11,848) (13,152)
--------- --------- --------- ---------
Net deferred tax asset (liability) $ - $ - $ - $ -
========= ========= ========= =========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996
was $38,409,000. The gross change in the total valuation allowance for the
year ended December 31, 1996, the nine months ended September 30, 1997, the
three months ended December 31, 1997 and the year ended December 31, 1998,
was an increase of $27,269,000, a decrease of $52,610,000, a decrease of
$1,220,000 and an increase of $1,304,000, respectively. A full valuation
allowance was applied against the $3,152,234 in NOLs generated in 1998, due
to the uncertainty of their realization under SFAS No. 109.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) DEBT
A summary of notes payable, long-term debt, and capital lease
obligations was as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
-------- --------
<S> <C> <C>
Revolving lines of credit - affiliate:
Prime plus 2%, due March 31, 2000 at December 31, 1998 9.75% $ 800 $ 8,000
======== ========
Revolving lines of credit:
Term note - prime plus 2% at December 31, 1997 10.5% 15,800 -
Prime plus .75%, due February 17, 1998 at December 31, 1997 6.75% 2,565 -
Senior Notes - 9.75%, due February 15, 2008 - 99,283
Equipment notes payable-10.02%, due 2001 13,989 2,810
Other notes payable-6.74% to 10.38%, due 1999-2005 25,051 994
Capital lease obligations-10.46% to 11.09%, due 1999-2000 8,362 2,252
Subordinated Note-10.5% due March 31, 1999 9,786 -
-------- --------
Total long-term debt 75,553 105,339
Less current portion (1,158) (2,522)
-------- --------
Notes payable, long-term debt, capital lease obligations
and subordinated note, excluding current portion $ 74,395 $102,817
======== ========
</TABLE>
On March 18, 1998, all of the then-outstanding debt of Grant, with the
exception of approximately $3.6 million relating to one capital lease
obligation and one note payable, was 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 could borrow up
to an aggregate principal amount of $5 million (at December 31, 1997, $4.2
million was available for borrowing). Grant is required to pay interest on
the outstanding principal balance of revolving loans at a rate per annum
equal to the prime rate plus 2%. On December 18, 1997, the credit facility
was amended to provide for a term loan of $15.8 million in addition to the
revolving loans. The proceeds of the term loan were used by Grant to
purchase all of the stock of Solid State not already owned by Grant (see
Note 1). This original credit facility was due to expire on March 31, 1999
at which time all obligations of Grant under the credit facility were due
and payable. In connection with the redemption of the cumulative pay-in-
kind preferred stock, par value $.001 per share ("Preferred Stock") (see
Note 12), held by Westgate, on June 5, 1998, Elliott agreed to amend the
Credit Facility to increase the maximum borrowing capacity from $5 million
to $15 million and to extend the term of the facility from March 31, 1999
to March 31, 2000. In April 1999, the Credit Facility was further extended
to $20.0 million. At December 31, 1998, there was $7 million available for
borrowing. The loans under the credit facility are collateralized by all
of Grant's assets and a pledge by Grant of certain notes and all the
outstanding shares of capital stock of its subsidiaries. Each subsidiary
of Grant has executed a guaranty in favor of Elliott, each of which
guarantees payment of all Grant's obligations owed to Elliott under the
credit facility. Each subsidiary has pledged its assets in favor of
Elliott to secure its obligations under its respective guaranty. The
credit facility contains restrictions which, among other things, prohibit
Grant's right to pay dividends and limit its right to borrow money,
purchase fixed assets or engage in certain types of transactions without
the consent of the lender. The $15.8 million term loan was paid in full on
February 18, 1998 with the proceeds of the Senior Notes. (See below) At
December 31, 1998, the Company had violated a covenant in the Credit
Facility which limited the capital expenditures for any one year to a
maximum of $14 million. The Company obtained a consent and waiver to the
default from Elliott effective December 31, 1998.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 could borrow up to a principal amount of $3.6
million, collateralized by substantially all the assets of Solid State and
by assignment of receivables and bearing interest at Canadian prime rate
plus .75%. There was approximately $2.6 million outstanding at December
31, 1997. This facility was paid in full on February 18, 1998 and was
terminated. Following repayment of this note, the Solid State assets have
been pledged by Grant to collateralize 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 subordinated note 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, with
the exception of the $3.6 million noted above, were paid in full on
February 18, 1998 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. An additional $6.5 million
note was due from Solid State to the same Canadian bank that has the
revolver. The remainder of the other notes payable consists of local
short-term credit lines in certain foreign subsidiaries. These instruments
were paid in full on February 18, 1998 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 and payable in a lump sum on February 15,
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 ($73.0 million) and interest ($1.5 million) existing at
December 31, 1997. Total debt issue costs of $4.3 million were incurred in
connection with the offering and are being amortized over the term of the
notes.
The Notes were issued under an indenture (the "Indenture") entered
into among the Company, as issuer, the Subsidiary Guarantors, and LaSalle
National Bank, as trustee dated as of February 18, 1998. 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.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) LEASES
The future minimum lease payments under Grant's various capital and
noncancelable operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
CAPITAL OPERATING
YEARS LEASES LEASES
- --------------------------------------------------------------
<S> <C> <C>
1999 1,128 449
2000 1,373 347
2001 - 208
2002 - 208
2003 - 104
- --------------------------------------------------------------
Total minimum lease payments 2,501 1,316
Less: interest 249 -
- --------------------------------------------------------------
Present value of net minimum
Lease payments 2,252 1,316
- --------------------------------------------------------------
</TABLE>
Rental expense for each of the periods included in the accompanying
financial statements was as follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
---------------------------- ----------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
$2,089 $830 $996 $2,556
</TABLE>
(9) 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
maturities of these instruments.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The carrying value of accounts receivable, accounts payable and
accrued expenses are representative of fair value because of the short
maturity of those 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.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT
The carrying values of the Company's long-term debt instruments
approximate their fair values. Grant's long-term debt has been
estimated based on current quoted market prices for the same or
similar issues, or on the current rates offered to Grant for debt
of the same remaining maturities.
(10) STOCK-BASED COMPENSATION
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 Incentive Plan was amended in September
1998 to increase the number of shares reserved for issuance under the
Incentive Plan from 1,450,000 shares of Grant Common Stock to 1,900,000
shares of Grant Common Stock and subsequently, in February 1999, to
2,000,000 shares of Grant Common Stock. The Incentive Plan provides for
the grant to officers (including officers who are also directors),
employees, and non-employee 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. The Incentive Plan is not
a 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 December 31, 1998, Awards covering 1,644,300
shares have been made by the Board of Directors. During 1998, there were
66,600 option cancellations due to terminations. The Awards consist of
1,577,700 nonstatutory stock options that will vest annually in equal one-
third increments beginning on December 31, 1998. All such options were
granted at a price equal to or in excess of the fair market value of the
Company's stock at the date of grant. Such options have an exercise
price of range of $4.75 to $6.84 per share, subject to adjustment in
certain circumstances. In addition, 6,000 restricted shares (36,000 total
restricted shares) were granted to each non-employee director. One-half
(or 3,000) of such shares became unrestricted on August 18, 1998
and the remaining 3,000 will become unrestricted on February 18, 1999,
subject to the satisfaction of certain conditions set forth under the
Incentive Plan. The Company recognized approximately $150,000 in
compensation expense in 1998 in relation to such restricted shares, based
on its estimate of fair market value pursuant to SFAS No. 123.
The Company applies Accounting Principles Board Opinion 25 in
accounting for its share-based compensation plans and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized under
these plans, with the exception noted above, because as of the measurement
date, which in this case is the grant date, the exercise price of granted
options is equal to or in excess of the fair value of the underlying
shares. Had compensation cost for the Company's share-based compensation
plans been determined based on the fair values of the options awarded at
the grant dates, consistent with the provisions of SFAS No. 123, the
Company's net loss and loss per share would have been reduced to the pro
forma amounts indicated below.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GGI
Had GGI adopted SFAS No. 123 for options granted after January 1,
1995, GGI's net loss for the year ended December 31, 1996 would have been
increased as follows (in thousands):
<TABLE>
<CAPTION>
GGI
----------------------
1996
----------------------
AS
REPORTED PROFORMA
-------- --------
<S> <C> <C>
Net loss applicable to common stock $(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. Therefore, the effects of SFAS No. 123 for the nine
months ended September 30, 1997 have not been presented. Also, due to the
cancellation of GGI's Amended 1989 Long-Term Incentive Plan, no
transactions for options thereunder have been summarized.
GRANT
During the three months ended December 31, 1997 Grant did not grant
any awards under the 1997 Equity and Performance Plan and as a result
the pro forma disclosure provisions of SFAS No. 123 are not applicable for
the three months ended December 31, 1997.
Had Grant adopted SFAS No. 123 for options granted after January 1,
1998, Grant's net loss for the year ended December 31, 1998 would have
increased as follows:
<TABLE>
<CAPTION>
GRANT
----------------------
1998
----------------------
AS
REPORTED PROFORMA
-------- --------
<S> <C> <C>
Net loss applicable to common stock $ (8,138) $(11,293)
Loss per common share - basic and diluted $ (0.57) $ (0.79)
</TABLE>
The weighted average fair value of options granted during 1998 was
$1.94. The fair value of each option award is estimated on the grant date
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998: expected volatility of zero,
risk-free interest rate of 5.5%, an expected life of nine years and a
dividend yield of zero.
Option activity related to the plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, September 30, 1997 -0- -
Granted, Exercised and Forfeited -0- -
Outstanding, December 31, 1997 -0- -
Granted 1,644,300 $5.70
Forfeited 66,600 $5.76
Outstanding, December 31, 1998 1,577,700 $5.70
Exercisable, December 31, 1998 410,167 $4.75
</TABLE>
The outstanding options as of December 31, 1998 have a weighted
average contractual life of 8.72 years and exercise prices which range
from $4.75 to $6.84.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYEE BENEFIT PLANS
EMPLOYEE RETIREMENT SAVINGS PLAN
GGI had established a defined contribution plan covering substantially
all U.S. and certain foreign employees whereby participants could elect to
contribute between 1% and 15% of their annual salary. Participants could
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). The plan was amended in June 1997 to eliminate the employer's
option to contribute common stock so that discretionary contributions may
be made only in the form of cash. Contributions made by GGI for the year
ended December 31, 1996 consisted of 58,395 shares of GGI Common Stock with
a market value of $138,000. At December 31, 1996, the plan held 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 and the twelve-month period
ended December 31, 1998 totaled $39,000 and $188,000, respectively.
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).
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a reconciliation of the changes in the plan's benefit
obligations and fair values of assets during 1997 and 1998 and a statement
of the funded status of this plan as of December 31 of each year.
<TABLE>
<CAPTION>
GRANT
---------------------
1997 1998
-------- --------
(thousands of dollars)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Accumulated postretirement benefit obligation,
beginning of year $ (368) $ (453)
Service cost (69) (74)
Interest cost (26) (32)
Participant contributions - -
Amendments - -
Actuarial (loss)/gain - (36)
Benefits paid 10 10
------ ------
Accumulated postretirement benefit obligation
at end of year $ (453) $ (585)
====== ======
</TABLE>
<TABLE>
<CAPTION>
GRANT
---------------------
1997 1998
-------- --------
(thousands of dollars)
<S> <C> <C>
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ - $ -
Actual return on plan assets - -
Employer contribution 10 10
Participant contributions - -
Benefits paid (10) (10)
------ ------
Fair value of plan assets at end of year $ - $ -
====== ======
Funded status at end of year $ (453) $ (585)
Unrecognized net actuarial (loss)/gain 17 53
Unrecognized prior service cost - -
Unrecognized net transition obligation 111 103
------ ------
Accrued postretirement benefit cost $ (325) $ (429)
====== ======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
GGI Grant
----------------------------- ---------------------------
Year Nine months Three months Year
ended ended ended ended
December 31, September 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Service cost $ 66 $ 52 $ 17 $ 74
Interest cost 21 20 6 32
Amortization of transition
obligation over 20 years 7 5 2 7
Amortization of gain - - - -
Other amortization - - - -
Net periodic postretirement
benefit cost $ 94 $ 77 $ 25 $ 113
====== ====== ===== =====
</TABLE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For measurement purposes, a 6.5% annual rate of increase in the per
capita cost of medical benefits was assumed for the year ended 1996. The
rate was assumed to decrease gradually to 5% for 2001 and remain at that
level thereafter.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 6.75% as of December 31,
1997, and 1998, respectively.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the retiree health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage-
Point Increase Point Decrease
-------------- --------------
(thousands of dollars)
<S> <C> <C>
Effect on total of service and interest cost $ 19 $ (16)
Effect on postretirement benefit obligation 88 (76)
</TABLE>
(12) STOCKHOLDERS' EQUITY
Grant
- -----
Cumulative Preferred Stock
Grant had authorized 20,000 shares of cumulative pay-in-kind preferred
stock (the "Cumulative Preferred Stock"), par value $0.001 per share, with
a liquidation preference of $1,000 per share of which 10,000 shares were
outstanding as of December 31, 1997. Dividends accrued and were cumulative
from September 30, 1997, the date on which such shares were issued.
Dividends accrued at an annual rate of 10.5% of the liquidation value and
were payable annually on September 30 of each year. Unpaid dividends
associated with the Cumulative Preferred Stock, at December 31, 1997 and at
June 5, 1998, were approximately $262,000 and $440,000, respectively.
On June 5, 1998 the Company redeemed the 10,000 shares of Cumulative
Preferred Stock, held by Westgate, representing all such outstanding
shares, in the aggregate amount of $10.7 million, representing the
liquidation amount of such shares of Cumulative Preferred Stock, together
with all accumulated, accrued and unpaid dividends. Upon redemption, the
Cumulative Preferred Stock was canceled, retired and eliminated from the
shares that the Company is authorized to issue.
Common Stock
At December 31, 1998, Grant has authorized 25,000,000 shares of common
stock, par value $.001 per share, of which 14,426,055 shares are issued and
outstanding. The changes in common stock for the three months ended
December 31, 1997 and the year ended December 31, 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Common Stock
--------------------
Shares Amount
---------- --------
<S> <C> <C>
Balance September 30, 1997 4,590,056 $ 5
Common stock issued to directors 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
Common stock issued to directors 36,000 -
Common stock issued in connection with the underwriting of the
subscription offering 237,500 -
---------- --------
Balance, December 31, 1998 14,426,055 $ 14
========== ========
</TABLE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) CONTINGENCIES
On December 11, 1997, certain holders of interests under the Plan,
acting through an "ad hoc" committee (the "Plaintiffs") commenced a lawsuit
in the Bankruptcy Court against Grant, GGI, Elliott, Westgate and Solid
State. The lawsuit alleged that (i) GGI and Elliott breached their
obligations under the Plan by seeking to complete the Acquisition prior to
commencing an offering of the Company's common stock, par value $.001 per
share ("Common Stock"), to certain holders of claims and other interests
under the Plan (the "Subscription Offering"), (ii) the Acquisition and
certain related transactions were unfair to the Plaintiffs because they
diluted the value of the common Stock to be issued to them under the
Subscription Offering and impaired 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
19, 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 paid the
Plaintiffs $150,000 for reimbursement of legal expenses, and permitted the
Plaintiffs to purchase Grant Common Stock in the Subscription Offering at a
discounted subscription purchase price of $4.75 per share. The Company
recorded $635,000 in litigation expense associated with the Settlement,
representing the cash paid by Elliott and the $0.25 discount permitted the
Plaintiffs to purchase Grant Common Stock in the Subscription Offering. In
addition, Elliott has agreed to indemnify Grant against any liability that
they may incur in connection with the lawsuit. Nevertheless, other
eligible subscribers in the Subscription Offering who did not execute a
release in connection with the Subscription Offering 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, financial position, results of operations or cash flows.
In October 1998, Zurich American Insurance Company ("Zurich") made a
demand on Grant for the payment of $694,000 claimed to be due Zurich under
the terms of certain insurance policies issued by Zurich to GGI in 1996,
which policies were allegedly assumed by Grant at the conclusion of its
bankruptcy reorganization in 1997. Subsequent to December 31, 1998, a
settlement has been agreed to by the parties subject only to the execution
of a definitive Settlement Agreement and funding of the settlement at a
cost to Grant of $290,000. This amount has been accrued at December 31,
1998.
Grant is involved in various claims and legal actions arising in the
ordinary course of business. GGI is involved in various claims and legal
actions arising in the bankruptcy and related to the Plan. 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 adverse impact on
GGI's or Grant's financial position, results of operations or cash flow.
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
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
(14) 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, which also is an affiliate of Elliott.
In November 1996, GGI borrowed an aggregate of $3,149,000 from
Westgate and Elliott for working capital purposes. The borrowings were in
the form of unsecured promissory notes and remained outstanding at December
31, 1996, and are therefore classified in pre-petition liabilities subject
to the chapter 11 case.
A former senior vice-president of Grant loaned approximately CDN
$500,000 for a two-year term at 10% interest to Nortech Geomatics Inc.
("Nortech"), in which the Company held, at the time, an 18% common equity
interest. Additionally, Grant owned $268,000 of redeemable, cumulative
preferred shares of Nortech. Currently, the Company holds a 14.5% common
equity and no preferred shares. During 1998, Grant recorded a $271,000
write-down to reduce the carrying value of its investment in Nortech to
zero due to Nortech's uncertain financial condition. The Company used
Nortech periodically to perform survey services. The senior vice president
resigned in January 1998. During the three months ended December 31, 1997,
Grant paid Nortech approximately $364,000.
The Company's Chairman of the Board ("Chairman") is an officer of an
affiliate of the Principal Stockholders of Grant. On April 28, 1998,
Elliott granted to the Chairman options to purchase 100,000 shares of
Common Stock from Elliott. 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 at exercise prices equal to or in excess of
the fair market value of the Company's stock on date of grant. These
options will vest annually in equal one-third increments beginning on
December 31, 1998, and have an average exercise price of $6.07 per share.
See the discussion of debt financing with Elliott in Notes 7 and 12.
See discussion of the Subscription Offering in Note 19.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) OTHER INCOME (EXPENSE)
Other Income (Expense) consisted of the following:
<TABLE>
<CAPTION>
GGI GRANT
--------------------------- ---------------------------
Year Nine months Three months Year
ended ended ended ended
December 31, September 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Gain (loss) on the sale of fixed assets $ 25 $ (67) $ 50 $ 189
Net gain (loss) on foreign exchange (251) (98) (289) (485)
Loss on sale of subsidiaries (198) - - -
Foreign credit insurance (8) - - -
Gain on insurance settlement - 11 - -
Merger costs - - (767) -
Investment income - - 46 99
Legal settlements - 2,359(1) (66) (635)
Canadian investment write-off - - - (271)
GGI administrative fee - - - 60
Miscellaneous (70) 61 (236) 223
------- ------- --------- --------
Total $ (502) $ 2,266 $ (1,262) $ (820)
======= ======= ========= ========
</TABLE>
_______________
(1) 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.
(16) LOSS PER SHARE
Loss per common share-basic and diluted is computed as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
GGI Grant
------------------------------- ------------------------------
Year Nine months Three months Year
ended ended ended ended
December 31, September 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss applicable to common stock $ (82,390) $ (425) $ (6,143) $ (8,138)
========= ======== ========= ==========
Weighted average common shares 4,798 14,257
========= ==========
Loss per common share - basic and
diluted $ (1.28) $ (.57)
========= ==========
</TABLE>
Loss per share data for GGI have not been presented as this information is
not meaningful.
Dividends on GGI's $2.4375 convertible exchangeable preferred stock were
$6.4 million for the year ended December 31, 1996. Dividends on Grant's
pay-in-kind preferred stock were $477,000 and $440,000 in the three months
ended December 31, 1997 and the year ended December 31, 1998, respectively.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, Grant adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and
its components, including foreign currency translation adjustments and
unrealized gains (losses) on marketable securities classified as available-
for-sale. Grant's and GGI's total comprehensive loss is as follows for the
periods presented. The amount of tax benefit (net of the valuation
allowance required under SFAS No. 109) allocated by Grant to "Other
comprehensive loss - foreign currency translation adjustments" for
periods presented is zero.
<TABLE>
<CAPTION>
GGI Grant
------------------------------- ------------------------------
Year Nine months Three months Year
ended ended ended ended
December 31, September 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss applicable to common stock $ (82,390) $ (425) $ (6,143) $ (8,138)
Other comprehensive loss - foreign
currency translation adjustments - - (467) (2,019)
----------- --------- ---------- ----------
Total comprehensive loss $ (82,390) $ (425) $ (6,610) $ (10,157)
=========== ========= ========== ==========
</TABLE>
(18) SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Non Cash investing and financing activities consisted of the following
(in thousands):
<TABLE>
<CAPTION>
GGI Grant
--------------------------- --------------------------
Year Nine months Three months Year
ended ended ended ended
December 31, September 30, December 31, December 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds $ 3,496 $ 2,037 $ 785 $ 3,624
Interest, net of amounts capitalized 6,106 3,742 595 7,822
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment acquired
through debt issuance 19,718 1,483 8,406 3,200
Common Stock issued in exchange of warrants
in Solid State - - 144 -
Converted 9,571 Preferred Shares to A
Subordinated Note - - 9,571 -
Dividend - Preferred Stock - - 215 -
Debenture conversion 2,774 - - -
Fair value of divestitures, net of cash held 493 - - -
Receivables acquired in connection with
divestitures 255 - - -
Prepaid insurance debt additions $ - $ - $ - $ 1,186
</TABLE>
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) SUBSCRIPTION OFFERING
Pursuant to the Plan, the Company was required to conduct a
subscription offering (the "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 provided
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") could participate in
the Subscription Offering. Because Elliott and certain of its affiliates,
as interest holders under the Plan, were entitled to purchase 1,356,231
shares of Grant Common Stock in an offering by the Company, the Principal
Stockholders offered the balance of such shares of Grant Common Stock to
the Eligible Subscribers pursuant to the Subscription Offering. The
Company registered the shares of Grant Common Stock with the Commission
pursuant to the Subscription Offering. The registration statement became
effective on July 7, 1998, and rights to subscribe for shares of Common
Stock pursuant to the Subscription Offering expired if not exercised on
August 24, 1998. As a result of the Subscription Offering a total of
2,080,722 of shares were subscribed. The total purchase price for these
shares received by the Principal Shareholders was approximately $9,918,000.
(20) SUBSEQUENT EVENTS
On January 27, 1999, the Company's then President and CEO, resigned.
The former president's termination agreement provides for him to continue
employment through February 26, 1999 ("Termination Date") at which time he
would begin a five-year non-compete period during which the Company would
pay him $15,000 per month plus benefits from March 1999 through December
2001 and $7,500 per month plus benefits per month from January 2002 through
December 2003. In addition, the former President was paid a one-time cash
bonus of $180,000 and was allowed to keep-one-third (80,000) of the stock
options awarded to him under the 1997 Equity and Performance Incentive
Plan. The options are exercisable for a three-year period after
Termination Date.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Quarterly financial information of GGI is summarized as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
Quarterly financial information of Grant is summarized as follows:
<S> <C> <C> <C> <C>
1997
Revenues $ - $ - $ - $ 37,868
Operating income - - - (5,033)(1)
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)
1998
Revenues $ 47,895 $ 48,467 $ 50,995 $ 28,155
Operating income 4,064 4,867 3,485 (6,070)(2)
Net income (loss) 733 1,205 157 (9,793)
Net income (loss) applicable to
common stock 469 1,029 157 (9,793)
INCOME (LOSS) PER COMMON SHARE-
BASIC AND DILUTED:
Net income (loss) per common stock $ .03 $ .08 $ .01 $ (.69)
</TABLE>
______________
(1) Includes a $6,369 charge for asset impairment (see Note 3 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.
(2) Includes a $3,762 charge for asset impairment (see Note 3 of Notes to
the Consolidated Financial Statements). $3,198 is related to the impaired
multi-client data library and $564 is related to non-productive asset
write-downs.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of
Grant Geophysical, Inc. for the year ended December 31, 1998, the nine
months ended September 30, 1999 and as of September 30, 1999 were prepared
by the Company to give effect to:
* the issuance of the Company's 8% exchangeable preferred stock to
Elliott Associates, L.P. immediately prior to the completion of the
subscription offering;
* the exchange of such shares, together with accrued and unpaid
dividends thereon, for shares of 8% convertible preferred stock; and
* the completion of the exchange offer, assuming notes representing
100% of the aggregate principal amount outstanding are exchanged for
shares of new preferred stock.
The unaudited pro forma consolidated financial statements have been
prepared by applying certain pro forma adjustments to the Company's
consolidated financial statements for the year ended December 31, 1998, the
nine months ended September 30, 1999 and as of September 30, 1999, all as
included elsewhere in this prospectus. The pro forma adjustments are based
on certain assumptions and adjustments described in the notes set forth on
page F-51 and should be read in conjunction with those notes. Actual
adjustments may differ from the pro forma adjustments; however, management
believes that the assumptions provide a reasonable basis for presenting the
significant effects of the transactions as contemplated and that the pro
forma adjustments give appropriate effect to those assumptions and are
properly applied in the pro forma consolidated financial statements. The
unaudited pro forma consolidated balance sheet as of September 30, 1999 is
presented as if the aforementioned transactions occurred on that date. The
unaudited pro forma consolidated statements of operations for the year
ended December 31, 1998 and the nine months ended September 30, 1999 assume
that the aforementioned transactions occurred as of January 1, 1998.
The unaudited pro forma consolidated financial statements were
prepared assuming that the maximum amount of senior notes are exchanged for
new shares of 8% convertible preferred stock. The net effect of the
adjustment assuming 100% of the senior notes are exchanged is to recognize
an extraordinary gain in the statement of operations for the excess of the
net carrying value of the senior notes exchanged over the aggregate
liquidation value of the preferred stock to be offered.
Management believes the outcome of the exchange offer is difficult to
predict. Therefore, in order to give effect to the range of possible
results associated with the exchange offer, the following two alternative
scenarios are discussed in the Notes to the Unaudited Pro Forma
Consolidated Financial Statements:
* the exchange of 78.1% of the senior notes, representing all (56.3%
of total) of the senior notes owned by Elliott Associates, L.P. and
50% of the notes held by other noteholders; and
* the exchange of 56.3% of the senior notes, representing all of the
senior notes held by Elliott Associates, L.P.
The results assuming 78.1% of the senior notes are exchanged are
similar to those assuming 100% of the senior notes are exchanged, and an
extraordinary gain will be recognized for the excess of the net carrying
value of the senior notes exchanged over the aggregate liquidation value of
the preferred stock to be offered. However, if only 56.3% of the senior
notes, representing senior notes owned by Elliott Associates, L.P., are
exchanged, additional paid-in-capital would be credited in lieu of
extraordinary gain recognition in the statement of operations for the
excess of the net carrying value of the senior notes exchanged over the
aggregate liquidation value of the preferred stock to be offered.
Additional paid-in-capital is recognized in lieu of an extraordinary gain
due to the substantial participation of third parties in the exchange
offer.
The pro forma consolidated financial statements do not purport to
present the Company's results of operations or financial position had the
aforementioned transactions been completed on the respective dates listed
above, nor are they necessarily indicative of results of operations or
financial position that may be achieved in the future. The unaudited pro
forma financial information should be read in conjunction with the
Company's historical consolidated financial statements and the related
notes appearing elsewhere in this prospectus. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $ 175,512 $ - $ 175,512
Expenses:
Direct operating expenses 128,962 128,962
Selling, general and
administrative expenses 14,156 14,156
Depreciation and amortization 22,286 22,286
Charge for asset impairment 3,762 3,762
---------- ---------- -----------
Total costs and expenses 169,166 - 169,166
---------- ---------- -----------
Operating income 6,346 - 6,346
Other income (expense):
Interest expense (10,380) 9,121(a) (1,259)
Interest income 1,080 1,080
Other (820) (820)
---------- ---------- -----------
Total other expense (10,120) 9,121 (999)
---------- ---------- -----------
Income (loss) before taxes (3,774) 9,121 5,347
Income tax expense 3,924 -(b) 3,924
---------- ---------- -----------
Net income (loss) (7,698) 9,121 1,423
Preferred dividends 440 5,493 5,933
---------- ---------- -----------
Net loss applicable to common stock $ (8,138) $ 3,628 $ (4,510)
========== ========== ===========
(LOSS) INCOME PER COMMON SHARE -
BASIC AND DILUTED:
Net income (loss) $ (0.54) $ 0.10
Dividend requirement on pay-in-kind
preferred stock 0.03 (0.42)
---------- ---------- -----------
Net loss per common share $ (0.57) $ (0.32)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma consolidated financial statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $ 44,721 $ - $ 44,721
Expenses:
Direct operating expenses 38,587 38,587
Selling, general and
administrative expenses 9,749 9,749
Depreciation and amortization 17,377 17,377
Charge for asset impairment 4,726 4,726
---------- ---------- -----------
Total costs and expenses 70,439 - 70,439
---------- ---------- -----------
Operating loss (25,718) - (25,718)
Other income (expense):
Interest, net (8,811) 7,724(a) (1,087)
Other 840 840
---------- ---------- -----------
Total other expense (7,971) 7,724 (247)
---------- ---------- -----------
Income (loss) before taxes (33,689) 7,724 (25,965)
Income tax expense 456 -(b) 456
---------- ---------- -----------
Net income (loss) (34,145) 7,724 (26,421)
Preferred dividends 68 4,119(c) 4,187
---------- ---------- -----------
Net loss applicable to common stock $ (34,213) $ 3,605 $ (30,608)
========== ========== ===========
(LOSS) PER COMMON SHARE -
BASIC AND DILUTED:
Net (loss) $ (2.37) $ (1.82)
Dividend requirement on pay-in-kind
preferred stock - (0.29)
---------- ---------- -----------
Net loss per common share $ (2.37) $ (2.11)
</TABLE>
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,949 $ 4,950 (a) $ 6,449
(450)(e)
Restricted cash 17 17
Accounts receivable, net 13,823 13,823
Other current assets 8,260 - 8,260
---------- ---------- -----------
Total current assets 24,049 4,500 28,549
Multi-client library, net 24,363 24,363
Property and equipment, net 54,007 54,007
Goodwill, net 35,531 35,531
Debt issue costs, net 3,955 (3,955)(c) -
Other long-term assets 1,653 - 1,653
---------- ---------- -----------
Total assets $ 143,558 $ 545 $ 144,103
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt and
capital lease obligations 7,651 7,651
Accounts payable 8,953 8,953
Accrued expenses and other current 5,500 (1,191)(d) 4,309
---------- ---------- -----------
Total current liabilities 22,104 (1,191) 20,913
Revolving line of credit-affiliate 7,500 7,500
Long-term debt and capital
lease obligations 111,827 (100,000)(f) 12,485
658 (f)
Unearned revenue 2,971 2,971
Other liabilities and deferred credits 2,302 - 2,302
---------- ---------- -----------
Total liabilities 146,704 (100,533) 46,171
Stockholders' equity:
8% exchangeable preferred stock 8,250 4,950 (a) -
291 (a)
(13,491)(b)
8% convertible preferred stock - 13,491 (b) 78,491
65,000 (f)
Common stock 14 14
Addditional paid-in capital 41,757 41,757
Accumulated deficit (51,396) (291)(a) (20,559)
35,000 (f)
(658)(f)
(3,955)(c)
1,191 (d)
(450)(e)
Accumulated other comprehensive (loss) (1,771) - (1,771)
---------- ---------- -----------
Total stockholders' equity (3,146) 101,078 97,932
---------- ---------- -----------
Total liabilities and
stockholders' equity $ 143,558 $ 545 $ 144,103
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
The unaudited pro forma consolidated statements of operations give
effect to the following adjustments necessary to reflect the exchange offer
and subscription offering described on page F-47:
(a) Reflects the elimination of interest expense on senior notes,
including amortization of debt issuance costs and original
issue discount assuming 100% of the outstanding senior notes
are exchanged.
(b) No income tax expense is computed on pro forma adjustments
due to the Company's net operating loss carry-forward position.
(c) Reflects preferred stock dividends related to 686,563 shares of
8% convertible preferred stock assuming the exchange of 100% of
the outstanding senior notes.
The unaudited pro forma consolidated balance sheet has been prepared
to give effect to the following adjustments necessary to reflect the
exchange offer and subscription offering described on page F-47:
(a) Reflects the actual issuance, through the date of this
prospectus, to Elliott Associates L.P. of an additional 49,500
shares of 8% exchangeable preferred stock at a price of $100 per
share and related actual unpaid dividends of $291. As of the
date of this prospectus, we have issued a total of 132,000 shares
of 8% exchangeable preferred stock to Elliott at a price of $100
per share.
(b) Reflects the exchange of all outstanding shares of 8%
exchangeable preferred stock, including accrued and unpaid
dividends thereon, for shares of 8% convertible preferred stock.
(c) Reflects the write-off of the remaining unamortized debt issuance
costs.
(d) Reflects the offset of the accrued, but unpaid interest as of
September 30, 1999, relating to the senior notes exchanged.
(e) Reflects the payment of estimated expenses of the exchange offer
and subscription offering.
(f) Reflects the impact of the exchange offer assuming the exchange
of 100% of the outstanding senior notes. Under this assumption
and considering the exchange offer, we would issue 661,910 shares
of new preferred stock with an aggregate liquidation value of
$66,191,000. The result of the exchange would be an
extraordinary gain of $30,387, net of the write-off of debt
issuance costs.
<PAGE>
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
Adjustments (c), (d) and (f) assume that the maximum amount of senior
notes are exchanged for new shares of 8% convertible preferred stock. If
only 56.3% ($56.3 million face value) of the senior notes, representing
senior notes owned by Elliott Associates, L.P., are exchanged, the
adjustment related to debt issue costs and accrued expenses would be
reduced to represent the 56.3% exchanged and the 8% convertible preferred
stock would be reduced to give effect to the exchange offer. The
difference between the carrying value of the senior notes and the 8%
convertible preferred stock would be reflected as an increase to additional
paid-in-capital due to the related party nature of the exchange. Assuming
only 56.3% of the senior notes are exchanged, the historical cost of the
following line items in the unaudited pro forma consolidated balance sheet
at September 30, 1999 would be adjusted as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Cash $ 1,949 4,950 (a) $ 6,449
(450)(e)
Debt issue costs, net 3,955 (2,227)(c) 1,728
LIABILITIES
Accrued expenses and other current
liabilities 5,500 (671)(d) 4,829
Long-term debt and capital
lease obligations 111,827 (56,320)(f) 55,878
371 (f)
STOCKHOLDERS' EQUITY
8% exchangeable preferred stock 8,250 5,241 (a) -
(13,491)(b)
8% convertible preferred stock - 36,608 (f) 50,099
13,491 (b)
Additional paid-in capital 41,757 19,712 (f) 59,092
671 (d)
(371)(f)
(450)(e)
(2,227)(c)
Accumulated deficit (51,396) (291)(a) (51,687)
</TABLE>
Note that the explanation for the notes are the same as described
above, except that notes (c), (d) and (f) reflect the exchange assuming
56.3% rather than 100% of the senior notes are exchanged. The effects to
the pro forma statement of operations to increase interest expense and
preferred dividends resulted in a pro forma net loss applicable to common
stock of $32,184 and loss per common share of $2.22.
The effects of the exchange offer assuming 78.1% of the outstanding
senior notes are exchanged would result in an extraordinary gain
recognition of $24,232 in the unaudited pro forma consolidated statement of
operations for the nine months ended September 30, 1999. An extraordinary
gain is recognized in lieu of additional paid-in-capital due to the
substantial participation of third parties in the exchange offer. In
addition, the 8% convertible preferred stock and the remaining senior notes
to unaffiliated third parties in the unaudited pro forma consolidated
balance sheet as of September 30, 1999 would be adjusted to $64,295 and
$21,697, respectively. The effects to the pro forma statement of
operations to increase interest expense and preferred dividends resulted in
a pro forma net loss applicable to common stock of $31,401 and loss per
common share of $2.16.
<PAGE>
PROSPECTUS Alternative Subscription Offering Pages
GRANT GEOPHYSICAL, INC.
SUBSCRIPTION OFFERING OF 23,386 SHARES OF
8% CONVERTIBLE PREFERRED STOCK
AT $100 PER SHARE
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY ___, 2000 UNLESS EXTENDED
TERMS OF THE SUBSCRIPTION OFFERING
* One of our stockholders, * The subscription rights expire
Elliott Associates, L.P., at 5:00 p.m., New York City
is offering up to 23,386 time, on January ___, 2000, if not
shares of our preferred properly exercised before that
stock to all holders of date.
our common stock other
than itself and Westgate * We will not receive any
International, L.P. as of proceeds from the subscription
_____________, 1999. offering.
* The selling stockholder * We will pay all expenses of the
has granted to you the subscription offering,
right to subscribe for estimated at $60,000.
one share of preferred
stock for every ____ * There is currently no
shares of common stock, established trading market for
or fraction thereof you either the preferred stock or
hold on _________, 1999. our common stock into which the
preferred stock is convertible.
* You may purchase one We do not expect that a trading
share of preferred stock market for the preferred stock
for every right granted or our common stock will
to you. develop following the
completion of the subscription
* The selling stockholder offering.
will not issue fractional
subscription rights and
will not pay cash in lieu
of subscription rights.
* The subscription rights
are non-transferrable and
will not trade on any
exchange or market.
Terms of the 8% Convertible Preferred Stock Offered in the Subscription Offering
* DIVIDENDS
8% cumulative annual dividends payable quarterly in arrears,
commencing on January 1, 2000, in cash or, at our option, in
shares of our preferred stock.
* LIQUIDATION PREFERENCE
$100 per share.
* OPTIONAL REDEMPTION
We may redeem shares of the preferred stock at any time at
a redemption price equal to the liquidation preference plus
accumulated and unpaid dividends.
* VOTING RIGHTS
The shares of preferred stock will vote together, as a single
class, with shares of our common stock on an as-converted basis.
* CONVERSION PRICE
$3 per share, subject to adjustment and equal to an initial
conversion ratio of 33 1/3 shares of our common stock for each
share of preferred stock.
* CONVERSION RIGHT
The preferred stock is convertible into our common stock at
any time at the applicable conversion ratio.
PER SHARE TOTAL
---------- -----------
Proceeds to selling stockholder $ 100 $23,386,000
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE THE RISK FACTORS
SECTION BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is December _, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Forward-Looking Statements
The Subscription Offering
Use of Proceeds
Capitalization
Ratio of Earnings to Fixed Charges
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Management
Executive Compensation
Principal Stockholders
Certain Relationships and Related Transactions
Description of Capital Stock
Legal Matters
Experts
Available Information
Index to Financial Statements
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO OFFER
THESE SECURITIES.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS TO
HELP YOU UNDERSTAND THE SUBSCRIPTION OFFERING AND THE PREFERRED STOCK. YOU
SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS TO UNDERSTAND FULLY THE TERMS
OF THE SUBSCRIPTION OFFERING AND THE PREFERRED STOCK, AS WELL AS THE TAX
AND OTHER CONSIDERATIONS THAT ARE IMPORTANT TO YOU IN MAKING YOUR
INVESTMENT DECISION. WE USE DEFINED TERMS IN THIS PROSPECTUS. "GRANT"
REFERS TO GRANT GEOPHYSICAL, INC. THE WORDS "COMPANY," "WE," "OUR" AND
"OURS" REFER TO THE COMBINED OPERATIONS OF GRANT AND ITS CONSOLIDATED
SUBSIDIARIES. YOU SHOULD PAY SPECIAL ATTENTION TO THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
THE COMPANY
We are a leading provider of seismic data acquisition in land and
transition zone environments in selected markets, including the United
States and Canada. We also provide seismic data acquisition services in
Latin America, the Middle East and the Far East. Through our predecessors,
we have participated in the seismic data acquisition service business in
the United States and Latin America since the 1940s, the Far East since the
1960s and Canada since the 1970s. We have conducted operations in each of
these markets, as well as in the Middle East, in the past three years. Our
seismic data acquisition services are typically provided on an exclusive
contract basis to domestic and international oil and gas companies and
seismic data marketing companies. We also own interests in multi-client
seismic data covering selected areas in the United States and Canada that
are marketed broadly on a non-exclusive basis to oil and gas companies.
We utilize sophisticated equipment to perform specialized 3D and 2D
seismic surveys. All of our seismic data acquisition crews are capable of
performing surveys in land environments and two are equipped to perform
surveys in transition zone environments. Transition zone environments are
swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.
THE EXCHANGE OFFER AND SUBSCRIPTION OFFERING
The industry downturn that began late in the third quarter of 1998
prompted us to undertake activities we believe will both preserve our
financial strength and position us to respond when market demand increases.
Those activities include a worldwide reduction in personnel, a
restructuring of our operations and marketing efforts and a restricted
capital expenditure program.
Our board of directors and management determined that it would be in
the best interest of the Company and our stockholders if we conducted an
offer to exchange $100,000,000 principal amount of our 9 3/4 % Senior
Notes due 2008 for shares of new convertible preferred stock with an
aggregate liquidation value equal to 65% of the principal amount of senior
notes tendered plus 100% of the accrued interest on the senior notes
tendered. Through the exchange offer, we will reduce our outstanding
indebtedness by converting a portion of our debt into equity. We believe
that the consummation of the exchange offer will help us improve our
capital structure and preserve our financial strength.
Between August 16, 1999 and December 13, 1999, we issued a
total of 132,000 shares of our 8% Exchangeable Preferred Stock to Elliott
at a price of $100 per share. The proceeds from the sale of the preferred
stock totaled an aggregate of $13,200,000, and were used to meet our cash
needs. Elliott is under no obligation to purchase any additional shares of
8% exchangeable preferred stock or otherwise provide additional financing
for our operations. The 8% exchangeable preferred stock is exchangeable
for any new securities that we propose to sell or issue. Prior
to the consummation of the exchange offer, we will issue to Elliott, in
exchange for all of the 8% exchangeable preferred stock then held by it,
shares of our 8% Convertible Preferred Stock with an aggregate liquidation
preference equal to the liquidation preference of the 8% exchangeable
preferred stock plus accrued and unpaid dividends thereon exchanged by
Elliott.
Elliott has proposed a subscription offering, to be held at the same
time as the exchange offer, of 15.26% of the shares of 8% convertible
preferred stock that it will hold prior to the consummation of the
exchange offer. In the subscription offering, Elliott will give our
stockholders, other than itself and Westgate, the opportunity to purchase
from Elliott their pro rata share of the 8% convertible preferred stock
that Elliott will receive in exchange for its 8% exchangeable preferred
stock on substantially the same terms upon which Elliott originally
acquired the 8% exchangeable preferred stock. Elliott chose to offer
15.26% of its shares of 8% convertible preferred stock in the subscription
offering because that is the percentage of our common stock held by our
stockholders other than Elliott and Westgate. Elliott has proposed the
subscription offering to permit our minority stockholders to participate,
on a pro rata basis, with Elliott in its equity investment in our 8%
convertible preferred stock acquired on the exchange of the 8% exchangeable
preferred stock. This will allow our minority stockholders to avoid any
dilution in their equity ownership as a result of Elliott's financing of
the Company through the purchase of the 8% exchangeable preferred stock.
<PAGE>
SUMMARY OF THE SUBSCRIPTION OFFERING
One of our stockholders, Elliott, is offering 15.26% of the shares of
8% convertible preferred stock held by it, which is expected to be 23,386
shares, to all holders of our common stock, other than Elliott and
Westgate, who held our common stock on _________, 1999.
Securities offered One of our stockholders, Elliott, is offering
15.26% of the shares of our 8% convertible
preferred stock held by it prior
to the consummation of the concurrent
exchange offer, to be issued upon exercise of
the subscription rights.
Record date __________, 1999
Expiration date The rights expire at 5:00 p.m., New York City
time, January ___, 2000, unless properly
exercised before that time.
Basic subscription privilege The selling stockholder has granted each
person who was a record holder of common
stock on the record date, other than the
selling stockholder, Westgate and their
affiliates, the right to purchase one share
of new preferred stock for each ___ shares of
common stock, held on the record date.
Oversubscription privilege If you exercise the basic subscription
privilege, you may also purchase additional
shares of new preferred stock that are not
purchased by other stockholders. If there
are not enough shares available to fill all
subscription for additional shares, the
available shares will be allocated pro rata
based on the number of shares each subscriber
for additional shares has purchased under the
basic subscription privilege.
Subscription price $100 per share, payable in cash. Payment by
personal check must clear payment on or
before the expiration date and may require
five or more business days in which to clear
payment. We recommend that stockholders pay
the subscription price by certified or
cashier's check drawn on a U.S. bank, U.S.
postal money order or wire transfer of funds.
Transferability of
subscription rights The subscription rights are not transferable.
No revocation If you exercise any subscription rights, you
are not allowed to revoke or change the
exercise or request a refund of monies paid.
Refund in the event of
cancellation If the selling stockholder withdraws
from the subscription offering, the selling
stockholder is obligated only to refund
payments actually received, without interest.
Procedure for exercising
subscription rights To exercise subscription rights, you must complete
the subscription exercise notice and deliver it to
the subscription agent with full payment under
both the basic and oversubscription privileges you
elect to exercise. The subscription agent must
receive the proper forms and payments on or before
the expiration date.
You may deliver the documents and payments by
mail or commercial courier. If regular mail
is used for this purpose, we recommend using
insured, registered mail. You may use an
alternative "Guaranteed Delivery Procedure"
if you are unable to deliver the subscription
exercise notice before the expiration date,
subject to the requirements for this
procedure described under "The Subscription
Offering -- Terms of the Subscription
Offering -- Guaranteed Delivery Procedures."
Payment adjustments If you send a payment that is insufficient to
purchase the number of shares requested, or
if the number of shares requested is not
specified in the subscription exercise
notice, the payment received will be applied
to exercise the subscription right to the
extent of the payment. If the payment
exceeds the amount required to exercise the
subscription right, the excess will be
refunded as soon as practicable. The selling
stockholder will not pay interest on any
payments received under the subscription
offering.
Nominee accounts If you wish to purchase shares in this
offering and your shares are held by a
securities broker, bank, trust company or
other nominee, you should promptly contact
those record holders and request them to
exercise subscription rights on your behalf.
If you are a record holder who wishes an
institution such as a broker or bank to
exercise your subscription rights for you,
you should contact that institution promptly
to arrange that method of exercise.
You are responsible for the payment of any
fees that brokers or other persons holding
your shares may charge.
Stock certificates The subscription agent will deliver stock
certificates representing the new preferred
stock purchased by the exercise of
subscription rights as soon as practicable
after the expiration date.
Amendment, extension and
termination The selling stockholder may amend, extend or
terminate the subscription offering at any
time prior to the expiration date at its sole
discretion. The selling stockholder will
issue a press release with respect to any
amendment, extension or termination of the
subscription rights of offering.
Concurrent offering We are concurrently offering, by means of a
separate prospectus, to exchange $100,000,000
in principal amount of our senior notes due
2008 for shares of our preferred stock with
an aggregate liquidation value equal to 65%
of the aggregate principal amount of senior
notes tendered plus 100% of the accrued
interest on the senior notes tendered.
Subscription agent LaSalle Bank National Association is serving
as the subscription agent in connection with
the subscription offering. The exchange
agent can be reached at 135 South LaSalle
Street, Room 1960, Chicago, Illinois 60603,
Attention: Sarah H. Webb. For more
information with respect to the subscription
offering, the telephone number for the
subscription agent is (312) 904-2444 and the
facsimile number for the subscription agent
is (312) 904-2236.
<PAGE>
SUMMARY OF TERMS OF NEW PREFERRED STOCK
Securities offered Shares of our 8% convertible preferred stock.
Dividends Dividends on the preferred stock are payable
in cash or, at our option, in additional
shares of preferred stock, on the first
business day of each January, April, July and
October beginning April 1, 2000. Dividends
on the preferred stock will accrue at the
rate of 8% per annum of the liquidation
preference and be cumulative from the date on
which the preferred stock was originally
issued. We intend to pay dividends on the
preferred stock in additional shares of
preferred stock until further notice.
Liquidation preference $100 per share, plus accrued and unpaid
dividends.
Voting rights The shares of preferred stock will vote
together, as a single class, with shares of
our common stock on an as-converted basis.
Optional redemption We may redeem any of the preferred stock at
any time at a redemption price per share
equal to the liquidation preference,
including any accumulated and unpaid
dividends. Our ability to redeem the
preferred stock is subject to restrictive
covenants governing our indebtedness,
including the restricted payments test in the
indenture governing the senior notes.
Conversion rights Each share of preferred stock may be
converted at any time at the option of the
holder into that number of shares of our
common stock as is equal to the liquidation
preference of that share, which includes
accrued and unpaid dividends, divided by an
initial conversion price of $3. The
conversion price is subject to adjustment
upon the occurrence of specified events. As
a result, each share of preferred stock will
initially be convertible into 33 1/3 shares
of our common stock. See "Description of
Capital Stock -- 8% Convertible Preferred
Stock--Conversion Rights."
Ranking The preferred stock will rank:
* senior to our common stock and all
of our other capital stock unless the
terms of the other capital stock
expressly provide that it ranks equally
with the preferred stock; and
* equally with any of our capital
stock, the terms of which expressly
provide that it will rank equally with
the preferred stock. As of the
completion of the subscription offering,
all of our other outstanding capital
stock would rank junior to the preferred
stock.
RISK FACTORS
See "Risk Factors" for a discussion of factors you should carefully
consider before deciding whether to participate in the subscription
offering.
<PAGE>
RISK FACTORS
WE URGE YOU TO CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL
AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING ANY
INVESTMENT DECISIONS REGARDING THE SUBSCRIPTION OFFERING OR THE PREFERRED
STOCK. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM
IMMATERIAL MAY ALSO IMPACT OUR BUSINESS OPERATIONS.
WE ARE DEPENDENT ON THE VOLATILE OIL AND GAS INDUSTRY
Our business depends in large part on the conditions of the oil and
gas industry, and specifically on the capital expenditures of our
customers. As a result of the decline in oil and gas prices beginning late
in the third quarter of 1998, the level of overall oil and gas industry
activity has declined substantially from levels experienced in recent
years. Decreases in our customers' capital spending in connection with
industry downturns have had and will likely result in decreased demand for
our services. Our results of operations have varied and may continue to
vary depending on the demand for our services. Unless demand increases, we
will likely continue to operate at a loss.
WE ARE HIGHLY LEVERAGED AND HAVE SIGNIFICANT DEBT SERVICE REQUIREMENTS
Our balance sheet is highly leveraged given our present operating
level. As of December 1, 1999, our total indebtedness was approximately $130.0
million. If the exchange offer is not consummated, we will have
significant interest expense and principal repayment obligations under the
senior notes and our other debt. Our ability to meet our debt service
requirements and comply with the covenants in our various debt agreements,
including the indenture governing the senior notes, will depend upon our
future performance, which is subject to the volatile nature of the seismic
business and competitive, economic, financial and other factors that are
beyond our control. If we are unable to generate sufficient cash flow from
operations or obtain other financing in the future to service our debt, we
may be required to sell assets, reduce capital expenditures or refinance
all or a portion of our existing debt. There can be no assurance that any
such financing can be obtained, particularly in view of the restrictions on
our ability to incur additional debt under the indenture governing the
senior notes, and the fact that substantially all of our assets are pledged
to secure our term loan and working capital facility. As a result, the
value of the senior notes could be significantly impaired. Also, there can
be no assurance that Elliott or Westgate will provide additional financing
or otherwise guarantee or otherwise provide credit support to enable us to
obtain additional financing.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY INTENSE PRICE COMPETITION IN A
SLACK MARKET
Competition among seismic contractors historically is, and will
continue to be, intense. Competitive factors have in recent years included
price, crew experience, equipment availability, technological expertise and
reputation for quality and dependability. Some of our competitors operate
more data acquisition crews than we do and have substantially greater
financial and other resources. These larger and better financed operators
could enjoy an advantage over us if the competitive environment for
contract awards shifts to one characterized principally by intense price
competition.
OUR MULTI-CLIENT DATA LIBRARY COULD BECOME IMPAIRED DUE TO WEAK DEMAND OR
TECHNOLOGICAL OBSOLESCENCE
We have invested significant amounts in acquiring and processing
multi-client data. There is no assurance that we will be able to recover
all of the costs of these surveys in the future. Technological, regulatory
or other industry or general economic developments could render all or
portions of our library of multi-client data obsolete or otherwise impair
its value. As of December 31, 1998 and September 30, 1999, the total value
of the capitalized multi-client data library was $10.9 million and $24.4
million, respectively.
WE HAVE HIGH LEVELS OF FIXED COSTS
Our business has high fixed costs, and downtime or low productivity
due to reduced demand, weather interruptions, equipment failures or other
causes can result in significant operating losses.
TECHNOLOGICAL ADVANCES MAY ADVERSELY AFFECT OUR COMPETITIVENESS
Seismic data acquisition and processing is a capital intensive
business. The development of seismic data acquisition and processing
equipment has been characterized by rapid technological advancements in
recent years and we expect this trend to continue. Manufacturers of
seismic equipment may develop new systems that have competitive advantages
over systems now in use that could render our current equipment obsolete or
require us to make significant unplanned capital expenditures to maintain
our competitive position. Under such circumstances, there can be no
assurance that we would be able to obtain necessary financing on favorable
terms.
WE ARE DEPENDENT UPON SIGNIFICANT CUSTOMERS
We derive a significant amount of our revenue from a small number of
independent oil and gas producers in the United States and major oil
companies in international areas. During 1998 and the nine months ending
September 30, 1999, our five largest customers accounted for approximately
28.8% and 37.9% of revenues, respectively. While our revenues are derived
from a concentrated customer base, our significant customers may vary between
years. Our inability to continue to perform services for a number of
our large existing customers, if not offset by sales to new or other
existing customers, could have a material adverse effect on us.
WE COMPETE IN A HIGHLY COMPETITIVE INDUSTRY
We compete in a highly competitive area of the oilfield services
industry. Our services are sold in a highly competitive market and our
revenues and earnings may be affected by the following factors:
* fluctuations in the level of activity and major markets;
* changes in competitive prices;
* general economic conditions; and
* governmental regulation.
We compete with the oil and gas industry's largest seismic service
providers. Our management believes that the principal competitive factors
in the market areas served by us are product and service quality and
availability, technical proficiency and price.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO SIGNIFICANT RISKS
Our international operations are subject to risks inherent in doing
business in foreign countries. During the nine months ended September 30,
1999, approximately 41% of our revenue was attributed to projects in
international market areas. We expect international operations to continue
to contribute materially to our revenues for the foreseeable future.
International operations expose us to risks inherent in doing business
outside the United states, including:
* political changes;
* expropriation;
* currency restrictions and changes in currency exchange rates;
* taxes; and
* boycotts and other civil disturbances.
The risks associated with operating internationally are reflected in the
recent decrease in our international sales, other than Canada, from $73.0
million in 1998 to $10.2 million during the nine months ended September 30,
1999. The decrease was primarily attributable to general economic conditions
and political events in South America, the economic downturn in the Far East
and the overall worldwide market for oil and gas.
WE DEPEND ON KEY PERSONNEL
We depend on the continued services of our executive officers and
other key management personnel. If we would lose any of these officers or
other management personnel, this could adversely affect us.
THERE IS NO ESTABLISHED MARKET FOR OUR NEW PREFERRED STOCK OR OUR COMMON
STOCK
Although the new preferred stock may be resold or otherwise
transferred by holders who are not affiliates of our company without
compliance with the registration requirements under the Securities Act,
they will be new securities for which there is currently no established
trading market. Similarly, there is currently no established trading
market for the common stock into which the preferred stock is convertible.
We do not intend to apply for listing of the new preferred stock or our
common stock on a national securities exchange or for quotation on an
automated dealer quotation system. The liquidity of any market for the new
preferred stock or our common stock will depend upon the number of holders
of the stock, the interest of securities dealers in making a market in the
stock and other factors. Accordingly, there can be no assurance as to the
development or liquidity of any market for the stock. If an active trading
market for the new preferred stock or our common stock does not develop,
the market price and liquidity of the stock may be adversely affected. If
shares of the new preferred stock or our common stock are traded, they may
trade at a discount from their current value, depending upon the market for
similar securities, our performance and other factors.
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR COMMON STOCK
Unlike the new preferred stock, the common stock into which the new
preferred stock is convertible does not give the holder a right to receive
dividends. We have paid no dividends on our common stock and we cannot
assure you that we will achieve sufficient earnings to pay cash dividends
on our common stock in the near future. Further, we intend to retain
earnings to fund our operations. Additionally, the indenture governing
the senior notes and our credit facility restrict our ability to pay
dividends and make other distributions. Therefore, we do not anticipate
paying any cash dividends on our common stock for the foreseeable future.
See "Dividends."
OUR ABILITY TO PAY THE LIQUIDATION PREFERENCE AND DIVIDENDS ON THE
PREFERRED STOCK DEPENDS ON OUR FINANCIAL CONDITION AT THAT TIME
Our obligations to the holders of our debt and other creditors take
priority over our obligations to the holders of the preferred stock. The
indenture governing the senior notes and our credit facility restrict our
ability to pay dividends and make other distributions. Additionally, under
Delaware law, we may not redeem the preferred stock for its stated
liquidation preference if at that time our remaining assets are not
sufficient to pay our outstanding obligations or if that redemption would
impair our capital. See "Description of Capital Stock -- The 8% Convertible
Preferred Stock."
RISKS RELATED TO THE SUBSCRIPTION OFFERING
DILUTION: The selling stockholder is offering subscription rights to
give our stockholders, other than the selling stockholder, Westgate
International, L.P. and their affiliates, an opportunity to participate in
an equity investment in the Company on the same terms as the selling
shareholder's investment in our 8% convertible preferred stock. If you
choose not to exercise your subscription rights, you will lose your
opportunity to make an equity investment in the Company on those terms.
Additionally, to the extent that holders of our outstanding senior notes
participate in the exchange offer being conducted at the same time as the
subscription offering, all of our stockholders, including those who
exercise their subscription rights, will own a smaller percentage of our
outstanding capital stock.
NO REVOCATION: You are not allowed to revoke or change your exercise
of subscription rights after you send in your subscription exercise notice
and payment. If the subscription offering is canceled, the selling
stockholder is obligated only to refund payments actually received, without
interest.
NEED TO ACT PROMPTLY AND FOLLOW SUBSCRIPTION INSTRUCTIONS:
Stockholders who desire to purchase shares of preferred stock in the
subscription offering must act promptly to ensure that all required forms
and payments are actually received by the subscription agent prior to the
expiration date. If you fail to complete and sign the required
subscription forms, send an incorrect payment amount, or otherwise fail to
follow the subscription procedures, the subscription agent may, depending
on the circumstances, reject your subscription or accept it to the full
extent of the payment received. Neither we, the selling stockholder, nor
the subscription agent undertakes to contact you concerning, or to attempt
to correct, an incomplete or incorrect subscription form. The selling
stockholder has the sole discretion to determine whether a subscription
exercise properly follows the subscription procedure.
RISK OF PERSONAL CHECKS: Any personal check used to pay for shares of
preferred stock must clear prior to the expiration date of the subscription
offering, and the clearing process may require five or more business days.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking
statements are those that predict or describe future events or trends and
that do not relate solely to historical matters. You can generally
identify forward-looking statements as statements containing the words
"believe," "expect," "anticipate," "intend," "estimate," "assume" or
similar expressions.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS BECAUSE THE
MATTERS THEY DESCRIBE ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER UNPREDICTABLE FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
Many relevant risks are described under the caption "Risk Factors" in this
prospectus, and you should consider the important factors listed there as
you read this prospectus.
Our actual results, performance or achievements may differ materially
from the anticipated results, performance or achievements that are
expressed or implied by our forward-looking statements. We assume no
responsibility to update our forward-looking statements.
<PAGE>
THE SUBSCRIPTION OFFERING
CONCURRENT EXCHANGE OFFER
Concurrently with this subscription offering by the selling stockholder,
we are offering to exchange $100,000,000 in principal amount of our 9 3/4
senior notes due 2008 for shares of our 8% convertible preferred stock with
an aggregate liquidation value equal to 65% of the aggregate principal
amount of senior notes tendered plus 100% of the accrued interest on the
senior notes tendered. We are conducting the exchange offer under a
separate prospectus. We will not receive any proceeds from the exchange
offer, nor can we assure you that we will complete the concurrent exchange
offer. This subscription offering and the concurrent exchange offer are
not conditioned on each other. This prospectus relates only to the
subscription offering and not to the exchange offer.
TERMS OF THE SUBSCRIPTION OFFERING
THE RIGHTS
Upon the terms and subject to the conditions described in this
prospectus and in the subscription exercise notice, one of our
stockholders, Elliott Associates, L.P., is distributing non-transferable
subscription rights to stockholders other than Elliott, Westgate and their
affiliates, who owned shares of our common stock on _____________, 1999, at
no cost to the stockholders. Elliott may be deemed to be an "underwriter"
within the meaning of the Securities Act of 1933. The selling shareholder
will distribute subscription rights for 15.26% of the shares of 8%
convertible preferred stock held by it prior to the consummation of the
exchange offer. The selling stockholder will give you one subscription right
for each ___ shares of common stock that you owned on _____________, 1999.
You will not receive fractional subscription rights during the subscription
offering, but instead we will round your number of subscription rights up to
the nearest whole number. Each subscription right will entitle you to
purchase one share of our 8% convertible preferred stock for $100. If you
wish to exercise your subscription rights, you must do so before 5:00 p.m.,
New York City time, on the expiration date. After that date, the subscription
rights will expire and will no longer be exercisable. You are not required to
purchase any shares of preferred stock in the subscription offering.
SUBSCRIPTION RIGHTS
BASIC SUBSCRIPTION PRIVILEGE. Each subscription right will entitle you
to receive, upon payment of $100, one share of our 8% convertible preferred
stock. The subscription agent will send you certificates representing the
shares of new preferred stock that you purchase with your subscription
right as soon as practicable after the expiration date, whether you
exercise your subscription rights immediately prior to that date or
earlier.
OVER-SUBSCRIPTION PRIVILEGE. Subject to the allocation below, each
subscription right also grants you an over-subscription privilege to
purchase additional shares of our 8% convertible preferred stock that are
not purchased by other stockholders under their basic subscription
privilege. You are entitled to exercise your over-subscription privilege
only if you exercise your basic subscription privilege in full. If you
wish to exercise your over subscription privilege, you should indicate the
number of additional shares that you would like to purchase in the space
provided on your subscription exercise notice. When you send in your
subscription exercise notice, you must also send the full purchase price
for the number of additional shares that you have requested to purchase.
This is in addition to the payment due for shares purchased through your
basic subscription privilege. If the number of shares remaining after the
exercise of all basic subscription privileges is not sufficient to satisfy
all over-subscription privileges, you will be allocated shares pro rata,
subject to elimination of fractional shares, in proportion to the number of
shares you purchased through your basic subscription privilege. However,
if your pro rata allocation exceeds the number of shares you requested on
your subscription exercise notice, then you will receive only the number of
shares that you requested, and the remaining shares from your pro rata
allocation will be divided among other stockholders exercising their over-
subscription privileges.
Banks, brokers and other nominees who exercise the over-subscription
privilege on behalf of beneficial owners of shares must report required
information to the subscription agent and the selling shareholder and other
information must be received from each beneficial owner exercising
subscription rights. Generally, banks, brokers and other nominees must
report
* the number of shares held on the record date on behalf of each
beneficial owner;
* the number of subscription rights as to which the basic
subscription privilege has been exercised on behalf of each
beneficial owner;
* that each beneficial owner's basic subscription privilege held
in the same capacity has been exercised in full; and
* the number of shares that are being requested through the over-
subscription privilege by each beneficial owner.
EXPIRATION DATE
The subscription rights will expire at 5:00 p.m., New York City time, on
January ___, 2000, unless the selling stockholder, in its sole discretion,
extends the subscription offering, in which case the expiration date will
be the latest date and time to which the subscription offering is extended.
Although the selling stockholder has informed us that it does not intend to
extend the subscription offering at this time, it expressly reserves the
right to extend the subscription offering at any time by giving oral or
written notice to the subscription agent. The selling stockholder will
also make a public announcement of an extension no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date. If you do not exercise your subscription rights on or
prior to that time, your subscription rights will be null and void. The
selling stockholder will not be required to sell shares of preferred stock
to you if the subscription agent receives your subscription exercise notice
or your payment after expiration date, regardless of when you sent the
subscription exercise notice and payment, unless you send the documents in
compliance with the guaranteed delivery procedures described below.
WITHDRAWAL RIGHT
The selling stockholder may withdraw the subscription offering at any
time prior to 5:00 p.m., New York City time, on the expiration date, for
any reason. If the selling stockholder withdraws the subscription
offering, any funds you paid with be promptly refunded, without interest or
penalty.
SUBSCRIPTION PRICE
The subscription price is $100 per share of preferred stock subscribed
for, payable in cash.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Only you may exercise the subscription right. You may not sell, give
away or otherwise transfer the subscription right.
EXERCISE OF SUBSCRIPTION RIGHTS
Please do not send subscription exercise notices or related forms to the
selling stockholder or to us. Please send the properly completed and
executed form of subscription exercise notice with full payment to the
subscription agent.
You should read carefully the forms of subscription exercise notice and
related instructions and forms which accompany this prospectus. You should
call the subscription agent at (312) 904-2553 promptly with any questions
you may have.
You may exercise your subscription rights by delivering to the
subscription agent, at the address specified under the heading
"Subscription Agent" below, on or prior to the expiration date:
* a properly completed and duly executed subscription exercise
notice; and
* payment in full of the subscription price for each share of
preferred stock you wish to purchase through the subscription
right.
If you are not a broker, bank or other eligible institution, you must
obtain a signature guarantee on the subscription exercise notice from a
broker, bank or other institution eligible to guarantee signatures in order
to exercise your subscription rights.
METHOD OF PAYMENT
If you exercise any subscription rights, you must deliver full payment
for the shares in the form of:
* a check, bank draft, or cashier's check drawn upon a United
States bank or a postal, telegraphic or express money order payable
to "LaSalle Bank National Association, as Subscription Agent"; or
* by wire transfer of immediately available funds to the account
maintained by the subscription agent for this subscription offering.
Please contact the subscription agent for specific instructions.
In order for you to timely exercise your rights, the subscription agent
must actually receive the subscription price before the expiration of the
rights in the form of:
* a personal check which must have timely cleared payment;
* a certified check or bank draft drawn upon a U.S. bank or of any
postal, telegraphic or express money order; or
* collected funds in the subscription agent's account designated
above.
Please note that funds paid by uncertified personal check may take at
least five business days to clear. Accordingly, if you wish to pay by
means of an uncertified person check, you should make payment sufficiently
in advance of the expiration date to ensure that the payment is received and
clears before that date. The selling stockholder is not responsible for
any delay in payment by you and we suggest that you consider payment by
means of a certified or cashier's check, money order or wire transfer of
funds.
GUARANTEED DELIVERY PROCEDURES
If you wish to exercise your subscription rights but cannot ensure that
the subscription agent will actually receive the executed subscription
exercise notice before the expiration date, you may alternatively exercise
your subscription rights by causing all of the following to occur within
the time prescribed:
* Full payment must be received by the subscription agent prior to
the expiration date for all shares of preferred stock you desire to
purchase under your subscription right.
* A properly executed notice of guaranteed delivery, substantially
in the form provided with your subscription exercise notice must be
received by the subscription agent on or prior to the expiration
date.
* The notice of guaranteed delivery must be executed by both you
and a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or
a commercial bank or trust company having an office or
correspondent in the United States or other eligible guarantor
institution. The notice of guaranteed delivery must state your
name, the number of subscription rights that you hold and the
number of shares of new preferred stock that you wish to purchase
with the subscription privilege. The notice of guaranteed delivery
must guarantee the delivery of your subscription exercise notice to
the subscription agent within three business days following the
date of the notice of guaranteed delivery.
* The properly completed subscription exercise notice, with any
required signature guarantees, must be received by the subscription
agent within three business days following the date of your notice
of guaranteed delivery.
The notice of guaranteed delivery may be delivered to the subscription
agent in the same manner as your subscription exercise notice at the
address set forth under the heading "Subscription Agent, below" or may be
transmitted to the subscription agent by facsimile transmission, to
facsimile number (312) 904-2236. To confirm facsimile deliveries, please
call (312) 904-2236.
Additional copies of the form of notice of guaranteed delivery are
available upon request from the subscription agent, at the address set
forth under the heading "Subscription Agent."
SIGNATURE GUARANTEES
Signatures on the subscription exercise notice do not need to be
guaranteed if either the subscription exercise notice provides that the
shares of preferred stock to be purchased are to be delivered directly to
the record owner of such subscription rights, or the subscription exercise
notice is submitted for the account of a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States. In any other case, the
signatures on the subscription exercise notice must be guaranteed by an
eligible guarantor institution that is a member of one of the following
recognized signature guarantee programs:
* The Securities Transfer Agents Medallion Program;
* The New York Stock Exchange Medallion Signature Program;
* The Stock Exchange Medallion Program; or
* an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934.
SHARES HELD FOR OTHERS
If you are a broker, a trustee or a depository for securities, or you
otherwise hold shares of common stock for the account of a beneficial owner
of common stock, you should notify the beneficial owner of such shares as
soon as possible to obtain instructions with respect to their subscription
rights. If you are a beneficial owner of common stock held by a holder of
record, such as a broker, trustee or a depository for securities, you
should contact the holder and ask him or her to effect transactions in
accordance with your instructions.
AMBIGUITIES IN EXERCISE OF SUBSCRIPTION RIGHTS
If you do not specify the number of subscription rights being exercised
on your subscription exercise notice, or if your payment is not sufficient
to pay the total purchase price for all of the shares that you indicated
you wished to purchase, you will be deemed to have exercised the maximum
number of subscription rights that could be exercised for the amount of the
payment that the subscription agent receives from you. If your payment
exceeds the total purchase price for all of the subscription rights shown
on your subscription exercise notice, your payment will be applied, until
depleted, to subscribe for shares of new preferred stock in the following
order:
(1) to subscribe for the number of shares, if any, that you indicated
on the subscription exercise notice that you wished to purchase
through your subscription privilege;
(2) to subscribe for shares of new preferred stock until your
subscription privilege has been fully exercised. Any excess
payment remaining after the foregoing allocation will be returned
to you as soon as practicable by mail, without interest or
deduction.
REGULATORY LIMITATION
The selling stockholder will not be required to issue you shares of
preferred stock in the subscription offering if, in its opinion, you would
be required to obtain prior clearance or approval from any state or federal
regulatory authorities to own or control such shares if, at the time the
subscription rights expire, you have not obtained such clearance or
approval.
DETERMINATIONS UNDER THE SUBSCRIPTION OFFERING
All questions concerning the timeliness, validity, form and eligibility
of any exercise of subscription rights will be determined by the selling
stockholder, and its determinations will be final and binding. The selling
stockholder may, in its sole discretion, waive any defect or irregularity,
or permit a defect or irregularity to be corrected within such time as it
may determine, or reject the purported exercise of any subscription right
by reason of any defect or irregularity.
Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the
selling stockholder determines, in its sole discretion. Neither the
selling stockholder, the subscription agent, Grant nor any other person
will be under any duty to notify you of any defect or irregularity in
connection with the submission of a subscription exercise notice, or incur
any liability for failure to give any such notification.
NO REVOCATION
After you have exercised your subscription privilege, YOU MAY NOT REVOKE
THAT EXERCISE. You should not exercise your subscription rights unless you
are certain that you wish to purchase shares of preferred stock.
FEES AND EXPENSES
We will pay all fees charged by the subscription agent. You are
responsible for paying any other commissions, fees, taxes or other expenses
incurred in connection with the exercise of the subscription rights.
Neither Grant nor the subscription agent will pay such expenses.
SUBSCRIPTION AGENT
The selling stockholder has appointed LaSalle Bank National Association
as subscription agent for the subscription offering. The subscription
agent's address for packages sent by mail or overnight delivery is:
LaSalle Bank National Association
Corporate Trust Administrator, Room 1960
135 South LaSalle Street
Chicago, IL 60603
Attn: Sarah H. Webb
The Subscription Agent's telephone number is 312-904-2444 and its
facsimile number is 312-904-2236. You should deliver your subscription
exercise notice, payment of the subscription price and notice of guaranteed
delivery, if any, to the subscription agent. We will pay the fees and
expenses of the subscription agent, which we estimate will total $10,000.
We have also agreed to indemnify the subscription agent from any liability
which it may incur in connection with the subscription offering.
IMPORTANT
Please carefully read the instructions accompanying the subscription
exercise notice and follow those instructions in detail. Do not send
subscription exercise notices directly to the selling stockholder or to us.
You are responsible for choosing the payment and delivery method for your
subscription exercise notice, and you bear the risks associated with such
delivery. If you choose to deliver your subscription exercise notice and
payment by mail, you should use registered mail, properly insured, with
return receipt requested. You should also allow a sufficient number of
days to ensure delivery to the subscription agent and clearance of payment
prior to 5:00 p.m., New York City Time, on the expiration date. Because
uncertified personal checks may take at least five business days to clear,
we strongly urge you to pay, or arrange for payment, by means of certified,
cashier's check, money order or wire transfer.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising subscription rights, or if you would like additional copies of
this prospectus, the instructions, or the notice of guaranteed delivery,
you should contact us at:
Grant Geophysical, Inc.
16850 Park Row
Houston, Texas 77084
Attention: Michael P. Keirnan, Chief Financial Officer
Telephone: 281-398-9503
<PAGE>
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 securities
being registered hereby. All amounts are estimated except for the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission registration fee... $ 19,737
Printing costs........................................ $ 5,000*
Accounting fees and expenses.......................... $ 75,000*
Legal fees and expenses............................... $ 100,000*
Miscellaneous expenses................................ $ 15,263*
----------
Total................................................. $ 215,000
==========
* Estimate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate the personal liability of directors of a
corporation to the corporation or to any of its stockholders for monetary
damage for a breach of the director's fiduciary duty as a director, except
in the case where the director breached the duty of loyalty, failed to act
in good faith, engaged in intentional misconduct, knowingly violated a law,
authorized the payment of a dividend, approved a stock repurchase in
violation of Delaware corporate law or obtained an improper personal
benefit. The Registrant's Amended and Restated Certificate of
Incorporation (the "Charter") contains a provision that eliminates the
personal liability of the directors of the Registrant as set forth above.
Section 145 of the DGCL empowers a Delaware corporation to 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 such corporation by reason of the fact that such person is or was
a director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. A corporation may indemnify
such person against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation to procure a judgment in its favor under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses, including attorneys' fees, which
he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights
to which an officer or director may be entitled under any corporation's by-
law, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, the Registrant has adopted a
by-law that provides that, to the fullest extent permitted by DGCL, the
Registrant shall indemnify any person serving as a director or officer of
the Registrant and every such director or officer serving at the request of
the Registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for
expenses incurred in the defense of, or in connection with, any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative. Under Section 145 of the DGCL and the
Registrant's by-laws, such indemnification shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled
under any law, the Charter, any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 145(g) also empowers a Delaware corporation to purchase and
maintain insurance on behalf of its directors, officers, employees or
agents against liabilities asserted or incurred by the individuals in those
capacities, whether or not the corporation would have the power under
Section 145 to indemnify them against such liability. The Registrant has
purchased and maintains insurance to protect persons entitled to
indemnification pursuant to its by-laws and the DGCL against expenses,
judgments, fines and amounts paid in settlement, to the fullest extent
permitted by the DGCL. The Registrant has also entered into an agreement
with each of its directors requiring the Registrant to indemnify the
director to the fullest extent allowed by Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The sales of the following securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of the Securities Act, or Rule 506 or Rule 701 promulgated
thereunder. In each such transaction, the recipients of securities
represented their intentions to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the securities issued in
such transactions.
On October 11, 1999, the Company issued 100,000 shares of the Company's
Common Stock to The Andrews Group International, Inc., ("Andrews") under
an Asset Purchase Agreement dated as of the date thereof, between Andrews
and the Company.*
On October 1, 1999, the Company issued 677 shares of its 8% Exchangeable
Preferred Stock to Elliott Associates, L.P. ("Elliott") as payment in-kind
for dividends payable on that date on the 8% Exchangeable Preferred Stock
held by Elliott.*
Between August 13, 1999 and December 13, 1999, the Company issued
132,000 shares of 8% Exchangeable Preferred Stock to Elliott in exchange
for an aggregate of $13,200,000.*
On February 24, 1999, Stephen H. Wood, Chief Operating Officer of the
Company, was granted an option to purchase 200,000 shares of the Company's
Common Stock at a purchase price of $4.25 per share. The exercisability of
the options granted to Mr. Wood are subject to vesting requirements.**
On February 3, 1999, Richard H. Ward, President and Chief Executive
Officer of the Company, was granted an option to purchase 600,000 shares of
the Company's Common Stock at a purchase price of $4.25 per share. The
exercisability of the options granted to Mr. Ward are subject to vesting
requirements.**
Between February 18, 1998 and June 30, 1998, under the Grant Geophysical,
Inc. 1997 Equity and Performance Incentive Plan, as amended, employees of
the Company were granted options to purchase an aggregate of 1,287,100
shares of the Company's Common Stock at an average purchase price of $5.05 per
share and the range was between $4.75 and $6.84. The exercisability of the
options granted to employees of the Company are subject to vesting
requirements.**
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.***
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
International, L.P. ("Westgate") in exchange for an aggregate of
$33,953,054 in cash and/or satisfaction of indebtedness of the Company.*
On December 19, 1997, in connection with the acquisition of Solid State
Geophysical Inc. ("Solid State"), Elliott and Westgate transferred their
shares of Solid State to the Company in exchange for 4,652,555 shares of
Common Stock.*
On December 18, 1997, the Company exchanged 9,571.162 shares of
Preferred Stock held by Elliott, together with accrued dividends thereon,
for a 10.5% Subordinated Note due March 31, 1999 in the principal amount of
$9,786,114.35.*
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.*
The following transaction was conducted in reliance upon the exemption
from registration for securities issued under a plan of reorganization
provided in section 1145 of the Bankruptcy Code.
In connection with the consummation of GGI Liquidation Corporation's
Second Amended Plan of Reorganization, 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.
* Offering made under the exemption offered by Section 4(2)
** Offering made under the exemption offered by Rule 701
*** Offering made under the exemption offered by Rule 506 and resale of the
senior notes under the exemption offered by Rule 144A
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of the
Registrant's Current Report on Form 8-K filed with the
Commission on August 19, 1999).
3.2 Articles of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant.*
3.3 Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 of the Registrant's Current
Report on Form 8-K filed with the Commission on August 19,
1999).
4.1 Certificate of Designations of 8% Exchangeable Preferred
Stock of the Registrant (incorporated by reference to
Exhibit 4.1 of the Registrant's Current Report on Form 8-K
filed with the Commission on August 19, 1999).
4.2 Certificate of Designations of 8% Convertible Preferred
Stock of the Registrant.**
4.3 Specimen Certificate for the Common Stock, par value $.001
per share, of the Registrant (incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on
Form S-1, File No. 333-43219, originally filed with the
Commission on December 24, 1997).
4.4 Specimen Certificate for the 8% Exchangeable Preferred
Stock, par value $.001 per share, of the Registrant.*
4.5 Specimen Certificate for the 8% Convertible Preferred Stock,
par value $.001 per share, of the Registrant.*
4.6 Indenture dated as of February 18, 1998, by and among the
Registrant, LaSalle National Bank, as trustee, and the
subsidiary guarantors, as defined therein (incorporated by
reference to Exhibit 4.6 of the Registrant's Registration
Statement on Form S-1, File No. 333-43219, originally filed
with the Commission on December 24, 1997).
5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. regarding legality of securities being
registered.**
8.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. regarding tax matters.**
10.1 Registration Rights Agreement between the Registrant and
Elliott dated September 19, 1997 (incorporated by reference
to Exhibit 4.2 of the Registrant's Registration Statement on
Form S-1, File No. 333-43219, originally filed with the
Commission on December 24, 1997).
10.2 Amendment No. 1 to Registration Rights Agreement between the
Registrant and Elliott, dated October 1, 1997 (incorporated
by reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1, File No. 333-43219, originally filed
with the Commission on December 24, 1997).
10.3 Amendment No. 2 to Registration Rights Agreement between the
Registrant and Elliott, dated December 17, 1997
(incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form S-1, File No.
333-43219, originally filed with the Commission on December
24, 1997).
10.4 Amendment No. 3 to Registration Rights Agreement between the
Registrant and Elliott, dated October 25, 1999.*
10.5 Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997 (incorporated by
reference to Exhibit 10.7 of the Registrant's Registration
Statement on Form S-1, File No. 333-43219, originally filed
with the Commission on December 24, 1997).
10.6 Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan, as amended.*
10.7 Consulting Agreement between the Registrant and Donald W.
Wilson, dated April 28, 1998 (incorporated by reference to
Exhibit 10.16 of Amendment No. 1 to the Registrant's
Registration Statement on Form S-4, File No. 33-48799, filed
with the Commission on May 8, 1998).
10.8 Letter Agreement between the Registrant and Larry E. Lenig,
Jr., dated January 27, 1999 (incorporated by reference to
Exhibit 10.16 of the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1998, filed with
the Commission on April 8, 1999).
10.9 Employment Agreement between the Registrant and Richard H.
Ward, dated February 3, 1999 (incorporated by reference to
Exhibit 10.17 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed with the
Commission on April 8, 1999).
10.10 Loan and Security Agreement dated as of May 11, 1999 by and
among the Registrant, Elliott and Foothill Capital
Corporation (incorporated by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, filed with the Commission on August 13,
1999).
10.11 Amendment No. 1 to Loan and Security Agreement, dated as of
August 12, 1999, by and among the Registrant, Elliott and
Foothill Capital Corporation.*
10.12 Amendment No. 2 to Loan and Security Agreement,dated as of
September 23, 1999, by and among the Registrant, Elliott and
Foothill Capital Corporation.*
10.13 Employment Agreement between the Registrant and Stephen H.
Wood, dated February 24, 1999 (incorporated by reference to
Exhibit 10.18 of the Registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1998, filed with the
Commission on April 8, 1999).
10.14 Form of Indemnity Agreement between the Registrant and its
directors (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed with the
Commission on August 19, 1999).
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.**
16.1 Letter from KPMG LLP, dated November 30, 1998, regarding
change in certifying accountant (incorporated by reference
to Exhibit 16 of the Registrant's Current Report on Form 8-K
filed with the Commission on December 1, 1998).
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. (included in Exhibits 5.1 and 8.1).
23.2 Consent of KPMG LLP to GGI Liquidation Corporation.**
23.3 Consent of KPMG LLP to Grant Geophysical, Inc.**
23.4 Consent of PricewaterhouseCoopers LLP**
24.1 Power of Attorney (included in the Signature Page to this
Registration Statement).
99.1 Form of Subscription Exercise Notice.*
99.2 Form of Notice of Guaranteed Delivery for Subscription
Exercise Notice.*
99.3 Form of Letter of Transmittal.*
99.4 Form of Notice of Guaranteed Delivery for Letter of
Transmittal.*
(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.
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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
Registrant 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 Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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, 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 offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 14th day of December, 1999.
GRANT GEOPHYSICAL, INC.
By: /s/ Richard H. Ward
-----------------------------------
Richard H. Ward
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard H. Ward President, Chief Executive Officer December 14, 1999
- ------------------------- and Director
Richard H. Ward (Principal Executive Officer)
/S/ Michael P. Keirnan* Chief Financial Officer, December 14, 1999
- ------------------------- Treasurer and Secretary
Michael P. Keirnan (Principal Financial and
Accounting Officer)
/S/ Donald W. Wilson* Chairman of the Board December 14, 1999
- -------------------------
Donald W. Wilson
/S/ W. Richard Anderson* Director December 14, 1999
- -------------------------
W. Richard Anderson
/S/ James R. Brock* Director December 14, 1999
- -------------------------
James R. Brock
/S/ J. Kelly Elliott* Director December 14, 1999
- -------------------------
J. Kelly Elliott
/S/ Jonathan D. Pollock* Director December 14, 1999
- -------------------------
Jonathan D. Pollock
/S/ Donald G. Russell* Director December 14, 1999
- -------------------------
Donald G. Russell
*By: /S/ Richard H. Ward
----------------------------
Richard H. Ward
Attorney-in-Fact and Agent
</TABLE>
Exhibit 4.2
CERTIFICATE OF DESIGNATIONS
of
8% CONVERTIBLE PREFERRED STOCK
of
GRANT GEOPHYSICAL, INC.
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
Grant Geophysical, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), hereby certifies that
the following resolution was adopted at a meeting of the board of directors
of the Company (the "Board of Directors") dated December 7, 1999 pursuant
to Section 151(g) of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the Amended and
Restated Certificate of Incorporation of the Company, the Board of
Directors hereby creates a series of Preferred Stock, par value $0.001 per
share, of the Company and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof
as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "8% Convertible Preferred Stock" (the "8% Convertible
Preferred Stock") and the number of shares constituting the 8% Convertible
Preferred Stock shall be one million (1,000,000). Such number of shares
may be increased or decreased at any time by resolution of the Board of
Directors; provided, however, no decrease shall reduce the number of shares
of 8% Convertible Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance
upon the exercise of outstanding options, rights, or warrants for, or upon
the conversion or exchange of any outstanding securities issued by the
Company convertible or exchangeable into 8% Convertible Preferred Stock.
Section 2. LIQUIDATION. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the Company, out of the assets
available for distribution to shareholders, the 8% Convertible Preferred
Stock shall be entitled to receive, in preference to any payment to the
common stock, $0.001 par value per share (the "Common Stock"), and any
other stock of the Company ranking junior to the 8% Convertible Preferred
Stock, $100.00 per share plus an amount equal to all dividends (whether or
not earned or declared) accrued and unpaid on each such share up to the
date fixed for distribution (the "Preferred Liquidation Value"). After
the 8% Convertible Preferred Stock has been paid, the remaining assets
shall be paid to the Common Stock and other junior classes of stock in
accordance with their respective priority, if any. In the event the net
assets of the Company are insufficient to pay the holders of the 8%
Convertible Preferred Stock the full amount of their preference set forth
above, then the remaining net assets of the Company shall be divided among
and paid to the holders of the shares of 8% Convertible Preferred Stock
ratably per share in proportion to the full per share amounts to which they
are entitled, and the Common Stock and other junior classes of stock will
receive nothing.
Section 3. DIVIDENDS. The 8% Convertible Preferred Stock is entitled
to receive, out of legally available funds, cumulative dividends
("Preferred Dividends") from the issuance date thereof at the annual rate
of eight percent (8%) of the Preferred Liquidation Value per share. All
Preferred Dividends shall be payable quarterly on the first business day of
each January, April, July and October of each year (each, a "Dividend
Payment Date") commencing on January 1, 2000, to each holder of record at
the start of business on such Dividend Payment Date. Preferred Dividends
shall begin to accrue on outstanding shares of 8% Convertible Preferred
Stock and to accumulate from the issuance date of such shares whether or
not earned or declared, but Preferred Dividends for any period less than a
full quarterly period between Dividend Payment Dates shall be computed on
the basis of a 365-day year for the actual number of days elapsed.
Interest shall accrue on accumulated but unpaid Preferred Dividends at the
Default Rate (as defined below). At the Company's option, any Preferred
Dividend may be paid, in whole or in part, in fully paid and non-assessable
shares of 8% Convertible Preferred Stock having an aggregate Preferred
Liquidation Value equal to the amount of the cash dividend that otherwise
would have been required to be paid pursuant to this Section 3. The
"Default Rate" shall be 12% per annum.
Section 4. CONVERSION. The holders of the 8% Convertible Preferred
Stock have conversion rights as follows:
(a) DEFINITIONS. For purposes of this Section 4, the following
definitions shall apply:
(i) "Issuance Date" shall mean, with respect to the 8% Convertible
Preferred Stock, the first date on which the Company issued any shares of
such 8% Convertible Preferred Stock.
(ii) "Conversion Price" shall mean, with respect to the 8% Convertible
Preferred Stock, the price, determined pursuant to this Section 4, at which
shares of Common Stock shall be deliverable upon conversion of shares of
such 8% Convertible Preferred Stock.
(b) RIGHT TO CONVERT. Each share of 8% Convertible Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share until the close of business on the
date on which such share is redeemed by the Company pursuant to Section 6,
into such number of fully paid and non-assessable shares of Common Stock as
determined by dividing the Preferred Liquidation Value (calculated
including accumulated and unpaid dividends thereon up to the date of
conversion) by the Conversion Price applicable to such 8% Convertible
Preferred Stock in effect at the time of conversion. For purposes of
determining the number of shares of Common Stock into which the 8%
Convertible Preferred Stock is convertible, the initial Conversion Price
shall be $3.00.
(c) MECHANICS OF CONVERSION. Each holder of 8% Convertible Preferred
Stock who desires to convert the same into shares of Common Stock pursuant
to this Section 4 shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or any transfer agent for the
8% Convertible Preferred Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same. Such
notice shall state the number of shares of 8% Convertible Preferred Stock
being converted. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender of the certificates
representing the shares of 8% Convertible Preferred Stock to be converted,
and the person entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price in effect
from time to time for the 8% Convertible Preferred Stock shall be subject
to adjustment in certain cases as follows:
(i) Stock Dividends. In the event the Company at any time or from
time to time after the original Issuance Date shall declare or pay any
dividend on the Common Stock or other class or series of Preferred Stock
payable in Common Stock, then and in any such event, the then applicable
Conversion Price of the 8% Convertible Preferred Stock shall be
proportionately decreased upon the close of business on the record date for
the determination of holders of any class of securities entitled to receive
such dividend; provided, however, that if such record date is fixed and
such dividend is not fully paid the only proportional decrease in the then
applicable Conversion Price will be with respect to the number of shares of
Common Stock actually issued in such dividend, and such shares will be
deemed to have been issued as of the close of business on such record date,
and the Conversion Price shall be recomputed accordingly.
(ii) Adjustments for Subdivisions, Combinations or Consolidation of
Common Stock. In the event the outstanding shares of Common Stock shall be
subdivided, by stock split or otherwise, into a greater number of shares of
Common Stock, the Conversion Price applicable to the 8% Convertible
Preferred Stock then in effect shall, concurrently with the effectiveness
of such subdivision, be proportionately decreased. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price applicable to the 8% Convertible Preferred
Stock then in effect shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(iii) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the 8% Convertible Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for in Section 4(d)(ii) above), the Conversion Price then
in effect shall, concurrently with the effectiveness of such reorganization
or reclassification, be proportionately adjusted such that the 8%
Convertible Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of share of Common Stock that would have
been subject to receipt by the holders upon conversion of the 8%
Convertible Preferred Stock immediately before that change, subject to
further adjustment as provided in this Section 4.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
4, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder
of 8% Convertible Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any holder of 8% Convertible Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of 8% Convertible Preferred Stock.
(f) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the 8% Convertible Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole share. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one share of 8% Convertible
Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share.
(g) NO IMPAIRMENT. The Company will not, by amendment of its Amended
and Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and take all such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the 8% Convertible Preferred Stock
against impairment.
(h) RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for issuance upon the conversion
of shares of 8% Convertible Preferred Stock as herein provided, such number
of shares of Common Stock as, from time to time, shall be issuable upon the
conversion of all the shares of the 8% Convertible Preferred Stock at the
time outstanding.
Section 5. VOTING RIGHTS.
(a) Except as set forth below or as otherwise provided by Delaware
law, holders of shares of 8% Convertible Preferred Stock shall not be
entitled to vote as a separate class, but shall vote together with the
holders of shares of all other classes of capital stock of the Company
having general voting powers as one class, on all matters submitted to a
vote of the Company's stockholders. Each holder of shares of 8%
Convertible Preferred Stock shall be entitled to the number of votes equal
to the number of full shares of Common Stock into which the holder's 8%
Convertible Preferred Stock is convertible (as adjusted pursuant to Section
4), at the record date for the determination of the stockholders entitled
to vote on such matters or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is first
executed. In all cases where the holders of shares of 8% Convertible
Preferred Stock have the right to vote separately as a class as provided
elsewhere herein or otherwise by Delaware law, such holders shall be
entitled to one vote for each such share held by them respectively.
(b) Without the affirmative vote of the holders of not less than a
majority of the shares of 8% Convertible Preferred Stock, voting together
as a single class, the Company shall not:
(i) amend its Amended and Restated Certificate of Incorporation or
any other document to alter or change any rights, preferences or privileges
of the 8% Convertible Preferred Stock;
(ii) authorize another class or series of shares senior to or ranking
in parity with the 8% Convertible Preferred Stock with respect to
distribution of assets on liquidation; or
(iii) purchase, redeem or otherwise acquire any Common Stock, either
directly or through a subsidiary, excluding the purchase of Common Stock
from an employee or consultant of the Company.
Section 6. REDEMPTION.
(a) The Company shall have the right, at any time and at its sole
option and election, to redeem the shares of 8% Convertible Preferred
Stock, in whole or in part, on such date as may be specified in a notice of
redemption given as provided in Section 6(b) (any such date a "Redemption
Date") at a price per share (the "Redemption Price") equal to (A) 100% of
the Preferred Liquidation Value (which includes dividends thereon, whether
or not declared or payable, to the applicable Redemption Date) in
immediately available funds.
(b) Notice of any redemption of shares of 8% Convertible Preferred
Stock pursuant to Section 6(a) shall be mailed at least thirty (30), but
not more than sixty (60), days prior to the applicable Redemption Date to
each holder of the shares of 8% Convertible Preferred Stock to be redeemed,
at such holder's address as it appears on the transfer books of the
Company. In order to facilitate the redemption of shares of 8% Convertible
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of 8% Convertible Preferred Stock to be redeemed,
or may cause the transfer books of the Company for the 8% Convertible
Preferred Stock to be closed, not more than sixty (60) days or less than
ten (10) days prior to the applicable Redemption Date.
(c) Notice of redemption having been given as provided in Section
6(b), notwithstanding that any certificates for such shares shall not have
been surrendered for cancellation, from and after the Redemption Date
designated in the notice of redemption (i) the shares represented thereby
shall no longer be deemed outstanding, (ii) the rights to receive dividends
thereon shall cease to accrue and (iii) all rights of the holders of shares
of 8% Convertible Preferred Stock to be redeemed shall cease and terminate,
excepting only the right to receive the Redemption Price therefor and the
right to convert such shares into shares of Common Stock until the close of
business on such Redemption Date, in accordance with Section 4 hereof.
Section 7. REACQUIRED SHARES. Any shares of 8% Convertible Preferred
Stock converted, exchanged, redeemed, purchased or otherwise acquired by
the Company in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. No such shares shall be reissued.
Section 8. PREEMPTIVE RIGHTS. Except as provided herein, the 8%
Convertible Preferred Stock is not entitled to any preemptive rights in
respect of any securities of the Company
Section 9. AMENDMENT AND WAIVER. The Company may not amend this
Certificate of Designations or waive compliance with any of the provisions
hereof without, in either instance, the affirmative vote (at a meeting) or
the written consent (with or without a meeting) of the holders of a
majority of the shares of 8% Convertible Preferred Stock; provided that no
such action will change the dividend rate, the Preferred Liquidation Value
or the amount payable on redemption of the 8% Convertible Preferred Stock
without the prior written consent of each holder of 8% Convertible
Preferred Stock.
Section 10. SEVERABILITY OF PROVISIONS. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidated or otherwise adversely affective the remaining provisions
hereof. If a court of competent jurisdiction should determine that a
provisions hereof would be valid or enforceable if a period of time were
extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to
render the provision in question effective and valid under applicable law.
IN WITNESS WHEREOF, Grant Geophysical, Inc. has caused this
Certificate of Designations of 8% Convertible Preferred Stock to be duly
executed by Richard H. Ward, its President, this 7th day of December, 1999.
GRANT GEOPHYSICAL, INC.
By:_______________________
Richard H. Ward
President
Exhibit 5.1
JONES, WALKER
WAECHTER, POITEVENT
CARRERE & DENEGRE, L.L.P.
December __, 1999
Grant Geophysical, Inc.
16850 Park Row
Houston, Texas 77084
Gentlemen:
We have acted as your counsel in connection with the preparation of the
registration statement on Form S-1 (the "Registration Statement") filed by
Grant Geophysical, Inc. (the "Company") under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission (the "Commission"), on
the date hereof, with respect to the registration of 709,948 shares of 8%
Convertible Preferred Stock, $.001 par value per share (the "Convertible
Preferred Stock"), the shares of common stock, $.001 par value per share,
underlying the Convertible Preferred Stock (the "Underlying Shares").
In so acting, we have examined originals, or photostatic or certified
copies, of such records of the Company, certificates of officers of the
Company and of public officials, and such other documents as we have deemed
relevant. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
documents.
Based upon the foregoing, we are of the opinion that:
1. The Convertible Preferred Stock, when issued and sold upon the
terms described in the Registration Statement, will be validly issued and
outstanding, fully paid and non-assessable.
2. The Underlying Shares, into which the Convertible Preferred Stock
may be converted, are duly authorized and when issued in accordance with the
Company's certificate of incorporation, will be validly issued and
outstanding, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus included
therein under the caption "Legal Matters." In giving this consent, we do not
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the general
rules and regulations of the Commission promulgated thereunder.
Very truly yours,
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
Exhibit 8.1
JONES, WALKER
WAECHTER, POITEVENT
CARRERE & DENEGRE, L.L.P.
December __, 1999
Grant Geophysical, Inc.
16850 Park Row
Houston, Texas 77084
Ladies and Gentlemen:
We have acted as counsel to Grant Geophysical, Inc., a Delaware
corporation ("Grant"), in connection with the proposed exchange by Grant of
its 9 3/4% Senior Notes due 2008 for shares of its 8% Convertible Preferred
Stock (the "Exchange"), as described in the Registration Statement on Form
S-1(the "Registration Statement") filed by Grant with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise,
identified to our satisfaction, of the Registration Statement and such
other documents as we have deemed necessary or appropriate as a basis for
the opinion set forth below. Our opinion is conditioned on, among other
things, the initial and continuing accuracy of the facts, information,
covenants and representations set forth in the documents referred to above
and the statements, representations and agreements made by Grant.
In our examination, we have assumed that the transactions related to
the Exchange will be consummated in accordance with the Registration
Statement, and that none of the terms and conditions contained therein will
have been waived or modified in any respect prior to the date on which the
Registration Statement is declared effective by the SEC.
In rendering our opinion, we have considered applicable provisions of
the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury
Regulations promulgated thereunder (the "Regulations"), pertinent judicial
authorities, rulings of the Internal Revenue Service and such other
authorities as we have considered relevant. It should be noted that the
Code, Regulations, judicial decisions and administrative interpretations
are subject to change at anytime and, in some circumstances, with
retroactive effect. A change in any of the authorities upon which our
opinion is based could affect our conclusions herein.
Based solely upon the foregoing, it is our opinion that the
discussions set forth under the caption "United States Federal Income Tax
Consequences" in the Registration Statement accurately summarizes the
material federal income tax consequences of the Exchange.
Except as set forth above, we express no opinion to any party as to
the tax consequences, whether Federal, state, local, or foreign, of the
Exchange or of any transactions related thereto or contemplated by the
Registration Statement. We disclaim any undertaking to advise you of any
subsequent changes of the facts stated or assumed herein or any subsequent
changes in applicable law. We hereby consent to the filing of this opinion
as Exhibit 8.1 to the Registration Statement and the use of our name under
the heading "United States Federal Income Tax Consequences" in the
Registration Statement.
Very truly yours
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
EXHIBIT 12.1
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Year ended Year ended Year ended 9 Mos ended 3 Mos ended Year ended 9 Mos ended Year ended 9 Mos ended
31-Dec-94 31-Dec-95 31-Dec-96 30-Sep-97 31-Dec-97 31-Dec-98 30-Sep-99 31-Dec-98 30-Sep-99
---------- ---------- ---------- ----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense 3,561 3,635 7,558 4,037 1,431 10,380 9,385 1,259 1,661
Estimated interest
within rental expense 919 627 696 277 332 852 639 852 639
Dividends on preferred stock 5,258 5,258 6,383 -- 477 440 68 6,672 4,929
------ ------ ------ ------ ------ ------ ------ ------ ------
Total fixed charges and
preferred dividends 9,738 9,520 14,617 4,314 2,240 11,672 10,092 8,783 7,229
------ ------ ------ ------ ------ ------ ------ ------ ------
Pre-tax income (loss) before
minority interests (11,245) 3,553 (74,406) 1,759 (7,657) (3,774) (33,689) 5,347 (25,965)
Add: Fixed charges and
preferred dividends 9,738 9,520 14,617 4,314 2,240 11,672 10,092 8,783 7,229
------ ------ ------ ------ ------ ------ ------- ------ -------
Sub-total (1,507) 13,073 (59,789) 6,073 (5,417) 7,898 (23,597) 14,130 (18,736)
Less: Dividends on
preferred stock 5,258 5,258 6,363 -- 477 440 68 6,672 4,929
------ ------ ------ ------ ------ ------ ------- ------ -------
Earnings (6,765) 7,815 (66,152) 6,073 (5,894) 7,458 (23,665) 7,458 (23,665)
------ ------ ------ ------ ------ ------ ------- ------ -------
Earnings inadequate to
cover combined fixed
charges/dividends ratio (16,503) (1,705) (80,769) -- (8,134) (4,214) (33,757) (1,325) (30,894)
</TABLE>
<TABLE>
<CAPTION>
COMPUTATION OF RATIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings/Combined fixed
charges and preferred
dividends (0.69)x 0.82x (4.53)x 1.41x (2.63)x 0.64x (2.34)x 0.85x (3.27)x
======== ======= ======== ======= ======== ======= ======== ======= ========
</TABLE>
Exhibit 23.2
The Board of Directors
GGI Liquidating 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 December 22, 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 Liquidating Corporation is currently in liquidation and
will distribute all of its assets pursuant to the Plan.
/S/ KPMG LLP
-------------------------
KPMG LLP
Houston, Texas
December 14, 1999
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 LLP
--------------------
KPMG LLP
Houston, Texas
December 14, 1999
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration
Statement on Form S-1 of our report dated April 6, 1999, relating to the
consolidated financial statements of Grant Geophysical, Inc., which appear
in such Amendment. We also consent to the reference to us under the
heading "Experts" in such Amendment.
/S/PRICEWATERHOUSECOOPERS LLP
---------------------------------
PricewaterhouseCoopers LLP
Houston, Texas
December 14, 1999
