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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GRANT GEOPHYSICAL, INC.
(AND ITS SUBSIDIARIES IDENTIFIED ON THE FOLLOWING PAGE)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1382 76-0548468
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
16850 PARK ROW
HOUSTON, TEXAS
(281) 398-9503
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LARRY E. LENIG, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GRANT GEOPHYSICAL, INC.
16850 PARK ROW
HOUSTON, TEXAS 77084
(281) 398-9503
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ] ____________
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CALCULATION OF REGISTRATION FEE
===============================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(1)
- ---------------------------------------------------------------------------------------------------------------
9 3/4 Senior Notes due 2008, Series B..... $100,000,000 $1,000.00 $100,000,000
- ---------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees of 9 3/4 Senior
Notes due 2008, Series B(2)............. N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Total................................... $100,000,000 100% $100,000,000
===============================================================================================================
========================================== ======================
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
- ------------------------------------------ ----------------------
9 3/4 Senior Notes due 2008, Series B..... $30,303.03
- -----------------------------------------------------------------------------------------
Subsidiary Guarantees of 9 3/4 Senior
Notes due 2008, Series B(2)............. N/A
- ---------------------------------------------------------------------------------------------------------------
Total................................... $30,303.03
===============================================================================================================
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is required with respect to the Subsidiary Guarantees.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective time until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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TABLE OF ADDITIONAL REGISTRANTS
ADDRESS,
INCLUDING ZIP
CODE, AND
STATE OR TELEPHONE
OTHER PRIMARY NUMBER,
JURISDICTION STANDARD INCLUDING AREA
OF INDUSTRIAL CODE, OF
INCORPORATION CLASSIFICATION IRS REGISTRANT'S
OR CODE EMPLOYER PRINCIPAL EXECUTIVE
NAME ORGANIZATION NUMBER ID NO. OFFICES
---- --------------- -------------- ----------- -------------------
Advanced Seismic Technology, Inc........... Texas 1382 76-0549540 *
Grant Geophysical Corp..................... Texas 1382 76-0553414 *
Grant Geophysical do Brasil Ltda........... Brazil 1382 n/a *
Grant Geophysical (Int'l), Inc............. Texas 1382 95-1852143 *
PT. Grant Geophysical
Indonesia................................ Indonesia 1382 n/a *
Recursos Energeticos Ltda.................. Colombia 1382 n/a *
Solid State Geophysical Inc................ Alberta, Canada 1382 n/a *
Solid State Internacional
Ingenieria C.A........................... Venezuela 1382 n/a *
Solid State Geophysical Corp............... Colorado 1382 84-1291349 *
SSGI Acquisition Corp...................... Alberta, Canada 1382 n/a *
- ---------------
* 16850 Park Row, Houston, Texas 77084, telephone (281) 398-9503.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 27, 1998
PROSPECTUS
[GRANT GEOPHYSICAL LOGO]
OFFER TO EXCHANGE ITS 9 3/4% SENIOR NOTES DUE 2008, SERIES B, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 9 3/4%
SENIOR NOTES DUE 2008, SERIES A.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998 UNLESS EXTENDED.
Grant Geophysical, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange up to $100,000,000 aggregate principal amount of its 9 3/4% Senior
Notes due 2008, Series B (the "Exchange Notes"), which have been registered
under the Securities Act of 1933 (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for up to $100,000,000 aggregate principal amount of its outstanding
9 3/4% Senior Notes due 2008, Series A (the "Original Notes" and together with
the Exchange Notes, the "Notes"). The terms of the Exchange Notes are
substantially identical in all respects to the terms of the Original Notes
except that (i) the Exchange Notes will be freely transferable by holders
thereof (other than as provided herein) and issued free of certain transfer
restrictions and registration rights relating to the Original Notes and (ii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of the Original Notes under the Registration Rights Agreement (as defined
herein), which rights will terminate upon the consummation of the Exchange Offer
(subject to certain limited exemptions). The Exchange Notes will evidence the
same debt as the Original Notes and will be issued under and be entitled to the
benefits of an Indenture dated as of February 18, 1998 governing the terms of
the Original Notes and the Exchange Notes (the "Indenture").
On February 18, 1998, the Company issued $100,000,000 aggregate principal
amount of Original Notes. The Original Notes were issued pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
Interest on the Exchange Notes will be payable semi-annually on February 15
and August 15 of each year, commencing August 15, 1998. Interest on the Exchange
Notes will accrue from the issuance of the Original Notes, February 18, 1998.
The Exchange Notes will mature on February 15, 2008 and will be redeemable at
the option of the Company, in whole or in part, from time to time on or after
February 15, 2003, at the redemption prices set forth herein, together with
accrued and unpaid interest to the date of redemption. If the Company
consummates one or more Equity Offerings on or before February 15, 2001, the
Company may at its option use all or a portion of the proceeds from such
offerings to redeem up to 35% of the aggregate principal amount of the Notes at
a redemption price equal to 109.750% of the aggregate principal amount thereof,
together with accrued and unpaid interest to the date of redemption, provided
that at least 65% of the aggregate principal amount of the Notes remains
outstanding immediately after such redemption. In addition, upon a Change of
Control and a corresponding Rating Decline, the holders of the Notes may require
the Company to purchase all or a portion of the Notes at a price equal to 101%
of the aggregate principal amount thereof, together with accrued and unpaid
interest to the date of purchase.
(continued on next page)
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SEE "RISK FACTORS" ON PAGE 12 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1998
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The Notes are senior unsecured obligations of the Company, ranking pari
passu in right of payment with all senior Indebtedness of the Company and senior
to all subordinated Indebtedness of the Company. The Notes are fully guaranteed
on a senior unsecured basis by the Subsidiary Guarantors, and the Subsidiary
Guarantees rank pari passu in right of payment with all senior Indebtedness of
the Subsidiary Guarantors and senior to all subordinated Indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantees may be released under certain
circumstances. The Notes and the Subsidiary Guarantees are effectively
subordinated to secured Indebtedness of the Company and the Subsidiary
Guarantors, including any Indebtedness under the Credit Facility (as defined
herein), which is secured by liens on substantially all of the assets of the
Company and certain Subsidiary Guarantors, or any future credit facility or
facilities that may be secured by liens on assets of the Company and its
subsidiaries. At December 31, 1997, on a pro forma basis after giving effect to
the issuance of the Original Notes and the application of the net proceeds
therefrom, the Notes would have been effectively subordinated to $3.9 million of
secured Indebtedness of the Company on a consolidated basis. The Indenture
permits the Company and its subsidiaries to incur additional Indebtedness in the
future, subject to certain limitations.
The Company will accept for exchange any and all Original Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on , 1998 (such time on such date being hereinafter called the
"Expiration Date"), unless extended by the Company, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Tenders of Original Notes may be withdrawn at any time prior
to the Expiration Date. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions that may be waived
by the Company and to the terms and provisions of the Registration Rights
Agreement dated as of February 18, 1998 among the Company, the Subsidiary
Guarantors and Jefferies & Company, Inc. (the "Initial Purchaser") (the
"Registration Rights Agreement"). See "Exchange Offer -- Conditions to the
Exchange Offer." Original Notes may be tendered only in denominations of $1,000
principal amount and integral multiples thereof.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Registration Rights Agreement. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in certain
interpretive letters addressed to third parties in other transactions, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than any holder that is an "affiliate" of
the Company within the meaning of Rule 405 of the Securities Act (an
"Affiliate") or a broker-dealer), without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder is not participating, and has no arrangement
or understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. However, neither the
Company nor any of the Subsidiary Guarantors has sought its own interpretive
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as it has in
such interpretive letters to third parties. However, any holder that is an
Affiliate of the Company or who intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes, or any broker-dealer who
purchased Original Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (i) will not be able to rely
on the applicable interpretations of the staff of the Commission set forth in
the above-mentioned interpretive letters, (ii) will not be entitled to tender
such Original Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. In
addition, if any broker-dealer holds Exchange
(continued on next page)
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Notes acquired for its own account as a result of market-making or other trading
activities and exchanges such Original Notes for Exchange Notes then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of Exchange Notes. The Letter of
Transmittal states that by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 120 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
There is no existing trading market for the Exchange Notes, and there can
be no assurance regarding the future development of a market for the Exchange
Notes. The Initial Purchaser has advised the Company that it currently intends
to make a market in the Exchange Notes. The Initial Purchaser is not obligated
to do so, however, and any market-making with respect to the Exchange Notes may
be discontinued at any time without notice. The Company does not intend to apply
for listing or quotation of the Exchange Notes on any securities exchange or
stock market.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER AND, IF GIVEN OR MADE, NO SUCH
INFORMATION OR REPRESENTATIONS SHOULD BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
SUBSIDIARY GUARANTORS SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information set forth herein reflects the recent
acquisition (the "Acquisition") of Solid State Geophysical Inc., together with
its consolidated subsidiaries ("Solid State"), by Grant. As used herein, the
term "GGI" refers to GGI Liquidating Corporation; the term "Grant" refers to
Grant Geophysical, Inc., a newly formed corporation that purchased substantially
all of the assets and assumed certain liabilities of GGI in connection with the
consummation of the Plan (as defined herein), together with Grant's consolidated
subsidiaries; and the term "Company" refers to the combined operations of Grant
and Solid State and their respective consolidated subsidiaries. Other
capitalized terms used in this Prospectus but not otherwise defined shall have
the meanings assigned to them in "Description of the Notes -- Certain
Definitions" beginning on page 79. Unless the context otherwise requires, the
pro forma statement of operations data contained herein gives effect to the
consummation of the Plan and certain related transactions, the Acquisition and
the issuance of the Original Notes and the application of the net proceeds
therefrom as if they were completed as of January 1, 1997, and the pro forma
balance sheet data contained herein gives effect to the issuance of the Original
Notes and the application of the net proceeds therefrom as if they were
completed at December 31, 1997. All currency amounts contained herein are,
unless otherwise specifically indicated, stated in U.S. dollars and conform to
United States generally accepted accounting principles.
THE COMPANY
The Company is a leading provider of seismic data acquisition services in
land and transition zone environments in selected markets, including the United
States, Canada, Latin America and the Far East. Through its predecessors,
including GGI and Solid State, the Company has participated in the seismic data
acquisition services business in the United States and Latin America since the
1940s, the Far East since the 1960s and Canada since the 1970s. The Company has
conducted operations in each of these markets, as well as in the Middle East and
Africa, in the past three years. The Company's seismic data acquisition services
typically are provided on an exclusive contract basis to domestic and
international oil and gas companies and seismic data marketing companies. The
Company also owns interests in certain multi-client seismic data covering
selected areas in the United States and Canada that is marketed broadly on a
non-exclusive basis to oil and gas companies.
According to industry sources, as of March 15, 1998, the Company is the
third largest land seismic data acquisition company operating in the western
hemisphere, based on the number of seismic data acquisition crews in operation.
As of March 15, 1998, the Company was operating or mobilizing 22 seismic data
acquisition crews, consisting of 18 land and four transition zone crews,
utilizing approximately 30,000 seismic recording channels. All of the Company's
seismic data acquisition crews are capable of performing three dimensional
("3D") and two dimensional ("2D") seismic surveys in land environments, and four
crews are equipped to perform surveys in transition zone environments.
Transition zone environments include swamps, marshes and shallow water areas
that require specialized equipment and must be surveyed with minimal disruption
to the natural environment. Three transition zone crews employ remote digital
seismic data recording systems, which are used primarily to perform surveys in
certain logistically challenging areas, such as highly populated regions where
cable-based recording systems are impractical. The Company has over 20 years of
experience operating in transition zone environments.
As of March 15, 1998, the Company was operating or mobilizing a total of
six crews in the United States, consisting of four land and two transition zone
crews, six land crews in Latin America, six land crews in Canada and four crews
in the Far East, consisting of two land and two transition zone crews. For the
twelve months ended December 31, 1997, on a pro forma basis, the Company's total
revenues were $173.9 million, with 40.2% from Latin America, 35.4% from the
United States, 11.3% from Canada, 5.3% from Africa and the Middle East and 7.8%
from the Far East. As of December 31, 1997, the Company estimates that its total
backlog was approximately $144.4 million, with approximately 92% of such amount
expected to be completed in 1998. The Company committed approximately $12
million of capital expenditures during the fourth quarter of 1997 and has
budgeted approximately $21 million of capital expenditures in 1998 to upgrade
and expand its seismic data acquisition equipment.
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THE REORGANIZATION AND THE ACQUISITION
In December 1996, GGI filed a voluntary petition for relief under chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
In connection with its reorganization, GGI replaced its senior management,
disposed of unprofitable operations and developed its Second Amended Plan of
Reorganization (the "Plan"), which was confirmed by the Bankruptcy Court on
September 15, 1997 and was consummated on September 30, 1997 (the "Effective
Date") with Grant's purchase of substantially all of the assets and assumption
of certain liabilities of GGI.
On December 23, 1997, Grant completed the acquisition of Solid State, a
leading provider of land seismic data acquisition services in Canada. The
Company believes that the combined operations of Grant and Solid State will
expand its market presence and enhance the Company's ability to compete more
effectively for projects in its selected markets. The Company also believes that
the Acquisition will increase management and operating depth, mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing overall crew utilization and reducing capital
expenditures. As of December 31, 1997, Solid State was operating or mobilizing
nine land seismic data acquisition crews, consisting of six crews in Canada, one
crew in the United States and two crews in Bolivia, utilizing approximately
9,200 seismic recording channels.
On December 24, 1997, pursuant to the requirements of the Plan, the Company
filed with the Commission a registration statement on Form S-1 (as amended, the
"Subscription Offering Registration Statement") to register 3,459,414 shares of
common stock, par value $.001 per share (the "Common Stock"), of the Company
held by Elliott Associates, L.P. ("Elliott") and Westgate International, L.P.
("Westgate," and together with Elliott, the "Principal Stockholders") for sale
to certain holders of claims and other interests under the Plan (the
"Subscription Offering"). The Company filed amendments to the Subscription
Offering Registration Statement on February 4, 1998 and March 27, 1998. As of
the date of this Prospectus, the Subscription Offering Registration Statement
has not been declared effective by the Commission.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s, and the application of seismic technology frequently has led to
significant discoveries of new oil and gas reservoirs. Seismology encompasses
the generation and recording of reflected or refracted seismic energy that, when
computer processed, produces 3D images or 2D cross sections of the earth's
subsurface structures. The computer processed seismic data is used by
geoscientists to identify geological structures favorable for the accumulation
of oil and gas and to evaluate the potential for commercial production of oil
and gas. More recently, seismic data has been used to monitor and optimize the
production of existing oil and gas reservoirs.
Technical advances in the seismic services industry have increased the
probability of oil and gas exploration success and improved the delineation of
subsurface geological structures, which have in turn lowered overall exploration
and development costs and increased worldwide demand for seismic services. In
addition, the industry is experiencing growing demand for non-exclusive
multi-client seismic data due to the high cost and risk of drilling exploration
wells and the relatively high cost of acquiring and processing 3D seismic data.
Multi-client data allows numerous oil and gas companies to purchase the same
seismic data, thereby expanding the overall market for such data while lowering
the price charged to each customer.
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THE EXCHANGE OFFER
Purpose and Effect of the
Exchange Offer........... The Original Notes were sold by the Company on
February 18, 1998 in a private transaction not
subject to the registration requirements of the
Securities Act. In connection therewith, the
Company and the Subsidiary Guarantors entered into
a Registration Rights Agreement providing for,
among other things, the Exchange Offer so that the
Exchange Notes will be freely transferable by the
holders thereof (other than as provided herein),
and issued free of certain transfer restrictions
relating to the Original Notes. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"
and "Plan of Distribution."
Terms of the Exchange
Offer.................... Upon the terms and subject to the conditions set
forth in this Prospectus and in the Letter of
Transmittal, the Company will accept any and all
Original Notes validly tendered and not withdrawn
prior to the Expiration Date. The Company will
issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Original Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However,
Original Notes may be tendered only in integral
multiples of $1,000 in principal amount. The terms
of the Exchange Notes are substantially identical
in all respects to the terms of the Original Notes
except that (i) the Exchange Notes will be freely
transferable by holders thereof (other than as
provided herein) and issued free of certain
transfer restrictions and registration rights
relating to the Original Notes and (ii) the holders
of the Exchange Notes will not be entitled to
certain rights of holders of the Original Notes
under the Registration Rights Agreement, which
rights will terminate upon consummation of the
Exchange Offer. The Exchange Notes will evidence
the same debt as the Original Notes and will be
issued under and entitled to the benefits of the
Indenture. As of the date of this Prospectus,
$100,000,000 aggregate principal amount of the
Original Notes was outstanding.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Interest on the Exchange
Notes.................... Interest on the Exchange Notes will be payable
semi-annually on February 15 and August 15 of each
year, commencing August 15, 1998. Interest on the
Exchange Notes will accrue from the date of
issuance of the Original Notes, February 18, 1998.
Consequently, holders who exchange their Original
Notes for Exchange Notes will receive the same
interest payment on August 15, 1998 that they would
have received had they not accepted the Exchange
Offer. See "The Exchange Offer -- Interest on the
Exchange Notes."
Procedure for Tendering.... Only a registered holder of Original Notes may
tender in the Exchange Offer. To tender in the
Exchange Offer, a holder must complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, have the signature thereon guaranteed if
required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or
such facsimile, together with any other required
documents, to the Exchange Agent prior to the
Expiration Date. In addition, (i) certificates for
such Original Notes, or a timely confirmation of a
book-entry transfer of such Original Notes, if such
procedure is available, into the Exchange Agent's
account at the Depository Trust Company ("DTC")
pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange
Agent prior to the Expiration Date, or (ii) the
holder must comply with the guaranteed delivery
procedures described below. See "The Exchange
Offer -- Procedures for Tendering."
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Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender directly, such beneficial owner
must, prior to completing and executing the Letter
of Transmittal and delivering such beneficial
owner's Original Notes, either make appropriate
arrangements to register ownership of the Original
Notes in such owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of record ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes (or complete the procedures for book
entry transfer), the Letter of Transmittal or any
other required documents to the Exchange Agent
prior to the Expiration Date may tender their
Original Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Except as otherwise provided herein, tenders of
Original Notes may be withdrawn at any time prior
to the Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
Conditions to the Exchange
Offer.................... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions
that may be waived by the Company and to the terms
and conditions of the Registration Rights
Agreement. The Company reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such conditions. See "The Exchange
Offer -- Conditions to the Exchange Offer."
Resales of Exchange
Notes.................... The Company and the Subsidiary Guarantors are
making the Exchange Offer of the Exchange Notes in
reliance on the position of the staff of the
Commission as set forth in certain interpretive
letters addressed to third parties in other
transactions. However, neither the Company nor any
of the Subsidiary Guarantors has sought its own
interpretive letter, and there can be no assurance
that the staff of the Commission would make a
similar determination with respect to the Exchange
Offer. Based on these interpretations by the staff
of the Commission, and subject to the two
immediately following sentences, the Company and
the Subsidiary Guarantors believe that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than a holder who is an
Affiliate or a broker-dealer without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the meaning
of the Securities Act) of such Exchange Notes.
However, any holder of Original Notes who is an
Affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose
of distributing Exchange Notes, or any
broker-dealer who purchased Original Notes from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act,
(i) will not be able to rely on the interpretations
of the staff of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not
be entitled to tender such Original Notes in the
Exchange Offer and (iii) must comply with the
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registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or other transfer of such Original Notes unless
such sale or transfer is made pursuant to an
exemption from such requirements. In addition,
Participating Broker-Dealers (as defined herein)
will be required to deliver a prospectus meeting
the requirements of the Securities Act in
connection with any resales of Exchange Notes as
described under "The Exchange Offer -- Resales of
Exchange Notes."
Each holder of Original Notes who wishes to
exchange Original Notes for Exchange Notes in the
Exchange Offer will be required to make certain
representations, which are contained in the Letter
of Transmittal. Each Participating Broker-Dealer
must acknowledge that it acquired the Original
Notes for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
Based on the position taken by the staff of the
Commission in the interpretive letters referred to
above, the Company and the Subsidiary Guarantors
believe that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with
respect to the Exchange Notes received upon
exchange of such Original Notes with this
Prospectus.
Exchange Agent............. LaSalle National Bank is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The address, telephone number and
facsimile number of the Exchange Agent are set
forth under "The Exchange Offer -- Exchange Agent."
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer.
THE NOTES
Securities Offered......... $100 million principal amount of 9 3/4% Senior
Notes due 2008, Series B.
Maturity Date.............. February 15, 2008.
Interest Rate and Payment
Dates.................... The Notes bear interest at a rate of 9 3/4% per
annum. Interest will be payable semi-annually on
February 15 and August 15, of each year commencing
August 15, 1998.
Ranking.................... The Notes are senior unsecured obligations of the
Company, ranking pari passu in right of payment
with all other senior Indebtedness of the Company
and senior to all subordinated Indebtedness of the
Company. The Notes and the Subsidiary Guarantees
are effectively subordinated to secured
Indebtedness of the Company and the Subsidiary
Guarantors, including any indebtedness under the
Loan and Security Agreement, dated October 1, 1997,
by and between Elliott and Grant, as amended (the
"Credit Facility"), which is secured by liens on
substantially all of the assets of the Company and
certain Subsidiary Guarantors, or any future credit
facility or facilities that may be secured by
certain assets of the Company and its subsidiaries.
At December 31, 1997, on a pro forma basis after
giving effect to the issuance of the Original Notes
and the application of the net proceeds therefrom,
the Notes would have been effectively subordinated
to $3.9 million of secured Indebtedness of the
Company. Subject to certain limitations, the
Company and its subsidiaries may incur additional
Indebtedness in the future. See "Description of the
Notes -- Ranking" and "-- Certain
Covenants -- Limitation on Indebtedness and
Disqualified Capital Stock."
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, from time to time, on
or after February 15, 2003, at the redemption
prices set forth herein, together with accrued and
unpaid interest to the date
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of redemption. If the Company consummates one or
more Equity Offerings on or before February 15,
2001, the Company may at its option use all or a
portion of the proceeds from such offerings to
redeem up to 35% of the aggregate principal amount
of the Notes at a redemption price equal to
109.750% of the aggregate principal amount thereof,
together with accrued and unpaid interest to the
date of redemption, provided that at least 65% of
the aggregate principal amount of Notes remains
outstanding immediately after such redemption. See
"Description of the Notes -- Redemption."
Change of Control.......... Upon the occurrence of a Change of Control and a
corresponding Rating Decline, the holders of the
Notes may require the Company to purchase all or a
portion of the Notes at a price equal to 101% of
the aggregate principal amount thereof, together
with accrued and unpaid interest to the date of
purchase. A Rating Decline is a downgrade of the
Notes by a Rating Agency below the rating of the
Notes on the date immediately prior to the date of
the first public announcement of an event or series
of events that results in a Change of Control or a
withdrawal by a Rating Agency of its rating of the
Notes. See "Description of the Notes -- Certain
Covenants -- Change of Control" and "-- Certain
Definitions."
Subsidiary Guarantees...... The Notes are fully guaranteed on a senior
unsecured basis by the Subsidiary Guarantors. Each
Subsidiary Guarantee ranks pari passu in right of
payment with all senior Indebtedness of the
Subsidiary Guarantor and senior in right of payment
to all future subordinated Indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantees
may be released under certain circumstances. See
"Description of the Notes -- Subsidiary Guarantees
of the Notes."
Certain Covenants.......... The Indenture contains certain covenants, including
covenants that limit: (i) the incurrence of
Indebtedness; (ii) restricted payments; (iii)
issuances and sales of capital stock of Restricted
Subsidiaries; (iv) sale-and-leaseback transactions;
(v) transactions with Affiliates; (vi) Liens; (vii)
asset sales; (viii) payment restrictions affecting
Restricted Subsidiaries; (ix) conduct of business;
and (x) mergers, consolidations or sales of all or
substantially all of the assets. See "Description
of the Notes -- Certain Covenants" and "-- Merger,
Consolidation and Sale of Assets."
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with the Exchange Offer and an investment in the Exchange Notes, see "Risk
Factors."
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summary statement of operations data for GGI is presented below for
each of the years in the three-year period ended December 31, 1996 and for the
nine months ended September 30, 1997 and is derived from the consolidated
financial statements of GGI. The summary statement of operations data for the
Company is presented below for the three months ended December 31, 1997 and is
derived from the consolidated financial statements of the Company. The summary
balance sheet data of the Company at December 31, 1997 is derived from the
consolidated financial statements of the Company.
The summary unaudited pro forma statement of operations data for the
Company for the year ended December 31, 1997 gives effect to the consummation of
the Plan and certain related transactions, the Acquisition and issuance of the
Original Notes and the application of the net proceeds therefrom as if they were
completed as of January 1, 1997. The summary unaudited pro forma balance sheet
data at December 31, 1997 gives effect to the issuance of the Original Notes and
the application of the net proceeds therefrom as if they were completed at
December 31, 1997. The summary unaudited pro forma financial data does not
purport to represent what the financial position or results of operations of the
Company would actually have been if the transactions and events assumed therein
in fact occurred on the dates indicated or to project the financial position or
results of operations of the Company for any future date or period.
The summary historical and unaudited pro forma financial data should be
read in conjunction with the unaudited pro forma financial information and the
notes thereto, together with the selected consolidated historical financial
data, and the consolidated financial statements of the Company, GGI and Solid
State and the notes thereto, included elsewhere in this Prospectus.
GGI THE COMPANY
--------------------------------------------- ---------------------------
NINE MONTHS THREE MONTHS PRO FORMA
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
----------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1996(1) 1997 1997 1997(2)
-------- ------- -------- ------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 73,691 $91,996 $105,523 $ 92,705 $ 37,868 $173,865
Expenses:
Operating expenses.............. 53,132 69,046 136,326 71,006 28,431 135,869
Selling, general and
administrative expenses....... 7,810 8,527 17,865 6,473 3,507 12,379
Depreciation and amortization... 12,079 9,424 11,500 8,432 4,594 19,582
Asset impairment................ 9,911 -- 5,802 -- 6,369 6,369
-------- ------- -------- -------- -------- --------
Total expenses................ 82,932 86,997 171,493 85,911 42,901 174,199
-------- ------- -------- -------- -------- --------
Operating income (loss)....... (9,241) 4,999 (65,970) 6,794 (5,033) (334)
Other income (deductions):
Interest expense, net........... (3,384) (3,522) (7,522) (3,758) (1,362) (10,887)
Reorganization costs............ -- -- (412) (3,543) -- --
Other........................... 1,380 2,076 (502) 2,266 (1,262) 815
-------- ------- -------- -------- -------- --------
Total other deductions........ (2,004) (1,446) (8,436) (5,035) (2,624) (10,072)
-------- ------- -------- -------- -------- --------
Income (loss) before income
taxes....................... (11,245) 3,553 (74,406) 1,759 (7,657) (10,406)
Income tax expense................ 193 391 1,621 2,184 856 2,557
-------- ------- -------- -------- -------- --------
Income (loss) before minority
interest........................ (11,438) 3,162 (76,027) (425) (8,513) (12,963)
Minority interest................. -- -- -- -- 2,847 --
-------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations...................... $(11,438) $ 3,162 $(76,027) $ (425) $ (5,666) $(12,963)
======== ======= ======== ======== ======== ========
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GGI THE COMPANY
--------------------------------------------- ---------------------------
NINE MONTHS THREE MONTHS PRO FORMA
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
----------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1995 1996(1) 1997 1997 1997(2)
-------- ------- -------- ------------- ------------ ------------
(IN THOUSANDS)
OTHER FINANCIAL DATA:
Capital expenditures.............. $ 8,463 $14,921 $ 25,799 $ 4,154 $ 12,266 $ 27,081
EBITDA(3)......................... 12,749 14,423 (48,668) 15,226 5,930 25,617
Ratio of EBITDA to interest
expense, net.................... 3.8x 4.1x -- 4.1x 4.4x 2.4x
OPERATING DATA (AT PERIOD END):
Seismic crews in operation........ 15 14 14 13 20 20
Seismic recording channels
owned........................... 12,520 12,320 17,430 17,870 26,762 26,762
THE COMPANY
AT DECEMBER 31, 1997
-----------------------
ACTUAL PRO FORMA
-------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash.............................................................................. $ 7,414 $ 29,880
Working capital................................................................... 16,190 38,656
Total assets...................................................................... 155,704 182,170
Long-term debt, including current portion......................................... 76,353 102,819
Stockholders' equity.............................................................. 41,992 41,992
- ---------------
(1) Operating expenses for the year ended December 31, 1996 include costs of
operations in excess of planned costs in Peru ($23.0 million) and Nigeria
($2.5 million). The Company is no longer operating in Peru and Nigeria. Also
included in operating expenses are costs incurred in the United States
relating to the unsuccessful deployment of a proprietary data recording
system ($12.1 million) and a write-down of certain deferred costs, prepaid
expenses and other assets ($5.6 million). Selling, general and
administrative expenses for the year ended December 31, 1996 include a
reserve for doubtful accounts of $5.5 million, severance costs of $423,000,
the write-off of deferred costs of a proprietary data recording system of
$823,000 and legal fees of $367,000.
(2) Solid State's fiscal year end is August 31. For pro forma purposes, the
statement of operations data for Solid State has been adjusted to reflect
the periods December 1, 1996 through August 31, 1997 to combine with GGI's
nine months ended September 30, 1997 and the Company's three month period
ended December 31, 1997. For pro forma purposes, the statement of operations
data for Solid State has been translated from Canadian dollars into U.S.
dollars using the average exchange rates prevailing during the respective
periods. The statement of operations data for the three months ended
December 31, 1997 includes the combined operations of Solid State and Grant.
See Note 1 to the consolidated financial statements of the Company.
(3) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization, certain non-cash charges, other income (expense) and
certain other non-recurring items, such as reorganization costs, and is
presented because it is a widely accepted financial indication of a
company's ability to incur and service debt. EBITDA is not a measurement
presented in accordance with GAAP and is not intended to be used in lieu of
GAAP presentations of results of operations and cash provided by operating
activities.
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RISK FACTORS
Holders of the Original Notes should consider carefully the following
factors, as well as the other information provided elsewhere in this Prospectus,
before deciding whether to tender their Original Notes in the Exchange Offer.
See "Disclosure Regarding Forward-Looking Statements."
INCURRENCE OF SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
At December 31, 1997, on a pro forma basis after giving effect to the
issuance of the Original Notes and the application of the net proceeds
therefrom, the Company would have had total consolidated debt of approximately
$102.8 million and a ratio of total consolidated debt to total capitalization of
approximately 71.0%. The Company anticipates that it will replace the Credit
Facility with a new credit facility with an unaffiliated lender or lenders
following the Exchange Offer, which will provide the Company with greater
borrowing capacity. The Company's level of indebtedness will have several
important effects on its future operations, including, without limitation, (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest and principal on its indebtedness, (ii) the Company's
leverage position will substantially increase its vulnerability to economic
downturns and may limit its ability to withstand competitive pressures and (iii)
the Company's ability to obtain additional financing, including any future
credit facilities, for working capital, capital expenditures, acquisitions and
other general corporate purposes may be impaired.
Based on current operations, the Company expects that it will be able to
service the interest and principal obligations on its outstanding indebtedness
as well as fund its working capital needs, capital expenditures and other
operating expenses out of cash flow generated from operations, borrowings under
the Credit Facility and the net proceeds of the issuance of the Original Notes.
There can be no assurance, however, that the Company's business will continue to
generate cash flow at levels sufficient to meet these requirements. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its debt and capital expenditures, it may be required to sell assets,
reduce capital expenditures, refinance all or a portion of its existing debt
(including the Notes) or obtain additional financing. There can be no assurance
that such measures would be possible. The Company's ability to meet its debt
service obligations will be dependent upon its future performance, which will be
subject to future economic, financial and business conditions and other factors,
many of which are beyond the Company's control.
RECENT INSOLVENCY AND REORGANIZATION OF GGI; RECENT OPERATING LOSSES OF SOLID
STATE
GGI sought protection under chapter 11 of the Bankruptcy Code in December
1996. In the bankruptcy, previous investors in, and unsecured lenders to, GGI
incurred substantial losses. From 1992 to 1994 and in 1996, GGI had significant
operating losses, including a net loss of approximately $76.0 million in 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of GGI and the notes
thereto, included elsewhere in this Prospectus.
In connection with GGI's reorganization, Grant was formed in September 1997
to acquire certain assets and assume certain liabilities of GGI. Former senior
management of GGI has been replaced since the commencement of its reorganization
in December 1996, and the Company's current senior management has concentrated
on formulating and refining the Company's business strategy. Since the
consummation of the Plan, the Company has no meaningful financial performance
history.
Solid State reported revenues of Cdn $47.7 million and Cdn $68.7 million
for its fiscal years ended August 31, 1996 and 1997, respectively, and a net
loss of Cdn $12.1 million and Cdn $5.5 million for fiscal years 1996 and 1997,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Solid State Acquisition." Management of
Solid State has disclosed in a note to its fiscal 1997 financial statements the
existence of material uncertainties that may affect Solid State's ability to
continue as a going concern. The auditors of Solid State, Price Waterhouse,
chartered accountants, have noted this significant doubt on Solid State's
ability to continue as a going concern in comments appended to their auditors'
report dated October 31, 1997. There can be no assurance that the financial
performance of Solid State will improve in future periods. If Solid State's
financial performance does not so improve, the Company's results of operations
and financial condition would be adversely affected.
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RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Indenture and the Credit Facility impose,
and the terms and conditions of future debt instruments of the Company may
impose, restrictions on the Company that affect, among other things, its ability
to incur debt, pay dividends or make distributions, make acquisitions, create
liens, sell assets and make certain investments.
The ability of the Company to comply with the terms of the Indenture, the
Credit Facility and any future debt instruments can be affected by events beyond
its control, including events and changes in the competitive environment, which
could impair the Company's operating performance. There can be no assurance that
the Company will be able to comply with the terms of the Indenture, the Credit
Facility and any future debt instruments. A breach of any of these terms or the
failure to fulfill the obligations thereunder beyond any applicable grace
periods could result in an event of default pursuant to which holders of such
indebtedness could declare all amounts outstanding under such debt instruments
to be due and payable immediately. Any such declaration under a debt instrument
is likely to result in an event of default under the other debt instruments of
the Company, if any, then outstanding. There can be no assurance that the assets
or cash flows of the Company would be sufficient to repay in full borrowings
under its outstanding debt instruments, whether upon maturity or in the event of
acceleration upon an event of default, or that the Company would be able to
refinance or restructure the payments of such indebtedness. The Company's
ability to meet its debt obligations will depend upon its ability to execute its
business strategy, which includes successfully integrating the business of Solid
State into its existing operations and other factors, many of which are not
within the Company's control.
EFFECTIVE SUBORDINATION
The Notes are unsecured and effectively subordinated in right of payment to
all existing and future secured Indebtedness of the Company and the Subsidiary
Guarantors, which include future borrowings under the Credit Facility or any
future secured credit facility. Borrowings under the Credit Facility are secured
by liens on substantially all of the assets of the Company and certain
Subsidiary Guarantors, and the Company anticipates that borrowings under any
future credit facility will be secured in a similar manner. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Accordingly, the lender under
the Credit Facility has, and a lender under any future secured credit facility
will have, a claim with respect to the assets constituting collateral for any
indebtedness thereunder that will be satisfied prior to the unsecured claims of
the holders of the Notes. See "Description of the Notes -- Ranking." In the
event of a default on the Notes or a bankruptcy, liquidation or reorganization
of the Company, such assets will be available to satisfy obligations with
respect to the Indebtedness secured thereby before any payment therefrom could
be made on the Notes or under the Subsidiary Guarantees. Thus, the Notes and the
Subsidiary Guarantees are effectively subordinated to claims of the lender under
the Credit Facility or any lender under a future secured credit facility to the
extent of such pledged collateral. At December 31, 1997, on a pro forma basis
after giving effect to the issuance of the Original Notes and the application of
the net proceeds therefrom, the Notes would have been effectively subordinated
to $3.9 million of secured Indebtedness of the Company.
The Notes are also effectively subordinated to all existing and future debt
and other liabilities of the Company's subsidiaries that do not guarantee the
Notes. In the event of an insolvency, liquidation or other reorganization of any
of the subsidiaries of the Company, creditors of such subsidiaries, including
trade creditors, would be entitled to payment in full from the assets of such
subsidiaries before the Company, as a stockholder, would be entitled to receive
any distribution therefrom.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to a Subsidiary Guarantor's issuance of a guarantee. To the extent
that a court were to find that (x) a guarantee was incurred by a Subsidiary
Guarantor with intent to hinder, delay or defraud any present or future creditor
or the Subsidiary Guarantor contemplated insolvency with a design to prefer one
or more creditors to the exclusion in whole or in part of others or (y) a
Subsidiary Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its guarantee and such Subsidiary Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the
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issuance of such guarantee, (iii) was engaged or about to engage in a business
or transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, the court could avoid or subordinate such guarantee in
favor of the Subsidiary Guarantor's creditors. Among other things, a legal
challenge of a guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantor as a result of the
issuance by the Company of the Notes. The Indenture contains a savings clause,
which generally limits the obligations of each Subsidiary Guarantor under a
guarantee to the maximum amount as will, after giving effect to all of the
liabilities of such Subsidiary Guarantor, result in such obligations not
constituting a fraudulent conveyance. To the extent a guarantee of any
Subsidiary Guarantor was avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the Notes would cease to have any
claim against such Subsidiary Guarantor and would be creditors solely of the
Company and any Subsidiary Guarantor whose guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Notes against the
issuer of an invalid guarantee would be subject to the prior payment of all
liabilities of such Subsidiary Guarantor. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy the
claims of the holders of the Notes relating to any avoided portions of any
guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Subsidiary Guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than the fair market value of all
of its assets at a fair valuation or if the present fair market value of its
assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and mature.
Based upon financial and other information, the Company and the Subsidiary
Guarantors believe that such guarantees were incurred for proper purposes and in
good faith and that, as a result of the issuance of the Original Notes and the
application of the net proceeds therefrom, the Company and each Subsidiary
Guarantor were solvent at the time of the issuance of the Original Notes and
continue to be solvent after issuing such guarantee, have sufficient capital for
carrying on their business and are able to pay their debts as they mature. There
can be no assurance, however, that a court passing on such standards would agree
with the Company and the Subsidiary Guarantors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of the Notes -- Subsidiary Guarantees of the
Notes."
CHANGE OF CONTROL
Upon a Change of Control and a corresponding Rating Decline, the Company
will be required to offer to repurchase all of the outstanding Notes at 101% of
the principal amount thereof, together with accrued and unpaid interest to the
date of purchase. There can be no assurance that the Company will have
sufficient funds available or will be permitted by its other debt agreements to
purchase the Notes upon the occurrence of a Change of Control and a
corresponding Rating Decline. In addition, a Change of Control may cause a
default under the Credit Facility or future credit facilities. The inability to
repurchase all of the tendered Notes would constitute an Event of Default under
the Indenture. See "Description of the Notes -- Certain Covenants -- Change of
Control."
DEPENDENCE UPON ENERGY INDUSTRY SPENDING
Demand for the Company's services depends upon the level of expenditures by
oil and gas companies for exploration, production and development activities.
These activities depend in part on current and expected oil and gas prices, the
cost of exploring for, producing and delivering oil and gas, the sale and
expiration dates of leases and concessions for oil and gas exploration in the
United States, Canada and other countries, the discovery rate of new oil and gas
reservoirs, domestic and international political, regulatory and economic
conditions and the ability of oil and gas companies to obtain capital. In
addition, a decrease in oil and gas expenditures could result from such factors
as unfavorable tax and other legislation or uncertainty concerning national
energy policies.
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Since reaching a high in 1981, the number of companies providing seismic
data acquisition services has declined dramatically. Beginning in 1982, a sharp
decline in oil and gas prices led to a worldwide reduction in oil and gas
exploration activities. This decline resulted in a significant reduction in the
overall demand for seismic data acquisition services. Notwithstanding recent
increases in oil and gas exploration activity, no assurance can be given that
current levels of exploration activity will be maintained or that demand for the
Company's services will reflect the level of such activity. Decreases in
exploration activity would have a significant adverse effect upon the demand for
the Company's services and the Company's results of operations.
CAPITAL INTENSIVE BUSINESS; RISK OF TECHNOLOGICAL OBSOLESCENCE
Seismic data acquisition is a capital intensive business. The development
of seismic data acquisition equipment has been characterized by rapid
technological advancements in recent years, and the Company expects this trend
to continue. There can be no assurance that manufacturers of seismic data
acquisition equipment will not develop new systems that have competitive
advantages over systems now in use that either render the Company's current
equipment obsolete or require the Company to make significant capital
expenditures to maintain its competitive position. The Company committed
approximately $12 million of capital expenditures during the fourth quarter of
1997 and has budgeted approximately $21 million of capital expenditures in 1998
to upgrade and expand its seismic data acquisition equipment. The Company
intends to continually maintain and periodically upgrade its seismic data
acquisition equipment as often as necessary to maintain its competitive
position. Such upgrades may require large expenditures of capital in addition to
the Company's other capital expenditures. For 1998, the Company has also
budgeted approximately $16 million of expenditures, before customer commitments,
for multi-client data acquisition activities. There can be no assurance that the
Company will have the necessary capital or that financing will be available on
favorable terms for any such future expenditures. The inability of the Company
to access the capital necessary to maintain and upgrade its seismic data
acquisition equipment and perform such multi-client data acquisition activities
may have a material adverse effect upon the Company's competitive position and
the demand for its services.
OPERATING RISKS; INSURANCE; HIGH FIXED COSTS
The Company's seismic data acquisition activities involve operating under
extreme weather and other hazardous conditions. Accordingly, these operations
are subject to risks of loss to property and injury to personnel from fires,
adverse weather and accidental explosions. Although the Company carries
insurance against these risks in amounts that it considers adequate, the Company
may not be able to obtain insurance against certain risks or for certain
equipment located from time to time in certain areas of the world.
Because of the high fixed costs involved in the major components of the
Company's business, downtime due to reduced demand, weather interruptions,
equipment failures, hazardous conditions or other causes can result in
significant operating losses. In recent years, GGI's contracts for seismic data
acquisition projects were predominately on a turnkey or on a combination
turnkey/term basis. Under the turnkey method, payments for data acquisition
projects are based upon the amount of data collected. Consequently, the Company
bears substantially all of the risk of business interruption caused by inclement
weather and other hazards. Under the term method, the customer pays a periodic
fee during the term of the project, thereby shifting certain risks of business
interruption to the customer. The Company also contracts for its services on a
cost-plus basis, which provides that the costs of a project, plus a percentage
fee, are borne by the customer. The Company plans to attempt to increase the
percentage of its term and cost-plus basis contracts in order to reduce the
financial risks associated with these operations; however, there can be no
assurance that such contracts will be widely acceptable to the Company's
customers or that competitors will not offer their services on a turnkey basis.
COMPETITION FOR SEISMIC BUSINESS
The land and transition zone seismic data acquisition business is highly
competitive. Competitive factors include price, crew availability, prior
performance, technology, safety, quality, dependability and the contractor's
expertise in the particular area where the survey is to be conducted. Certain of
the Company's major competitors operate more seismic data acquisition crews than
the Company, provide integrated seismic data acquisition, processing and
interpretation services, have substantially greater financial resources than the
Company, are
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subsidiaries or divisions of major industrial enterprises having far greater
resources than the Company or have more extensive relationships with major
domestic and international oil and gas companies. Such resources and
relationships may enable these competitors to maintain technological and certain
other advantages that may provide them with an advantage over the Company in
bidding for contracts.
RELIANCE ON SIGNIFICANT CUSTOMERS AND PROJECTS
As is the case for many service companies in the oil and gas industry, a
relatively small number of customers or a limited number of significant projects
may account for a large percentage of the Company's net sales in any given year.
Moreover, such customers and projects may, and often do, vary from year to year.
During 1996, GGI's five largest customers accounted for approximately 42.3% of
its net sales. GGI, during 1996, had revenues from a U.S. based international
oil company of approximately $14.8 million (14%). During 1997, the five largest
customers of the Company, on a pro forma basis, accounted for approximately
31.9% of the Company's net sales. During 1997, on a pro forma basis, no customer
accounted for 10% or more of the Company's combined revenues. Although GGI and
Solid State have had long-term relationships with numerous customers, the
continuation of these relationships is primarily dependent on the customers'
needs for the Company's services and the customers' ongoing satisfaction with
the price, quality, dependability and availability of the Company's services.
The loss or inability of the Company to obtain such significant projects in the
future could have a material impact on the operating results of the Company.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
Approximately 60.1% and 55.5% of GGI's revenues in 1996 and the nine months
ended September 30, 1997, respectively, and 55.3% of the Company's revenues in
the three months ended December 31, 1997 were derived from operations outside
the United States and Canada. On a pro forma basis, the Company's revenues
derived from operations outside the United States and Canada for the year ended
December 31, 1997, were approximately 53.3%. As a result, the Company is subject
to certain risks inherent in doing business internationally. In addition to
unpredictable operating risks, such risks include the possibility of unfavorable
changes in tax or other laws, partial or total expropriation, the disruption of
operations from labor and political disturbances, insurrection or war, the
effect of partial local ownership requirements in certain countries, currency
exchange rate fluctuations and restrictions on currency repatriation.
To reduce currency risks, the Company generally denominates its contracts
in U.S. dollars, Canadian dollars or other currencies that it believes to be
stable. The Company's operations in certain areas outside the United States and
Canada may, however, require the Company to denominate contracts in currencies
other than U.S. dollars or Canadian dollars. While the Company employs certain
policies intended to reduce the risk associated with exchange rate fluctuations,
there can be no assurance that such policies will be effective or that
fluctuations in the value of non-U.S. or Canadian currencies will not materially
affect the Company's revenues in the future. The Company presently does not use
derivatives or forward foreign currency exchange rate hedging contracts, but may
elect to do so in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Foreign Exchange Gains and
Losses."
The Company also obtains insurance against war, expropriation, confiscation
and nationalization when such insurance is available and when management
considers it advisable to do so. Such coverage is not always available, and when
available, is subject to unilateral cancellation by the insuring companies on
short notice. In addition, the Company's international operations may be in part
dependent upon foreign governmental funding of projects. Significant changes in
the level of foreign governmental funding of these projects could have an
unfavorable impact on the operating results of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the continued services of certain key executive officers and operating
personnel. The Company has entered into employment agreements with certain of
its key executive officers. See "Management -- Employment Agreements." The
Company also depends on the services of professionals such as engineers,
geologists and geophysicists. The loss of the services
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of certain key executive officers and operating personnel or the loss or
shortage of a significant number of professionals could have a material adverse
effect on the Company. The Company does not maintain key employee insurance on
any of its personnel.
INVESTMENT IN MULTI-CLIENT DATA LIBRARY
The Company has a significant investment in multi-client data that is
marketed broadly on a non-exclusive basis to oil and gas companies. Solid State
has in the past experienced significant losses in connection with the
acquisition of multi-client data, as a result of substantially underestimating
the cost of acquiring such multi-client data and not obtaining adequate customer
commitments. In addition, for the year ended December 31, 1997, the Company
reduced the carrying value of such data acquired by Solid State by approximately
$5.9 million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The Company intends to expand its multi-client data
acquisition and marketing efforts in the future. Although the Company will
attempt to obtain commitments for a majority of the costs of these surveys,
future data licensing to multiple customers may not enable the Company to fully
recoup its costs. Furthermore, even if the Company obtains commitments, the
Company may not be able to fully recoup its acquisition costs if it
substantially underestimates the cost of, or overestimates market demand for,
such projects. Factors affecting the Company's ability to recoup its costs
include adverse environmental or regulatory requirements, the inability or delay
in obtaining permits, and other technological, industry or general economic
developments, as well as the ultimate oil and gas prospectivity of the area
surveyed, any of which could render all or portions of the Company's library of
multi-client data obsolete or otherwise impair its value. In addition, revenues
generated by licensing of multi-client data are typically less predictable from
period to period than are revenues from surveys performed on an exclusive
contract basis for customers. For 1998, the Company has budgeted approximately
$16 million of expenditures, before customer commitments, for multi-client data
acquisition projects.
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's operations are subject to a variety of foreign, federal,
state and local laws and regulations, including laws and regulations relating to
the protection of human health and the environment. Violation of these laws and
regulations may result in civil and even criminal penalties. The Company
currently is required to invest financial and managerial resources to comply
with such laws, regulations and related permit requirements in its operations
and anticipates that it will continue to do so in the future. The Company's
seismic data acquisition contracts typically require customers to obtain all
necessary permits. Conversely, the acquisition of multi-client data may require
the Company to obtain required permits. Failure to obtain required permits in a
timely manner may result in crew downtime and operating losses. Although neither
GGI's nor the Company's cost of complying with governmental laws and regulations
has been significant to date, there can be no assurance that environmental laws
and regulations will not change in the future or that the Company will not incur
significant costs in the future performance of its operations. The modification
of existing laws or regulations or the adoption of new laws or regulations
curtailing oil and gas exploration or imposing more stringent restrictions on
seismic data acquisition operations could adversely affect the Company.
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ACQUISITION OF SOLID STATE AND FUTURE ACQUISITIONS
The Acquisition is the first acquisition made by Grant. Although the
Company's management believes Solid State's business and customer base should
complement Grant's operations, there can be no assurance that the Company will
successfully integrate the business of Solid State into its existing operations
and effectively manage the increased size of the Company or that such activities
will not require a disproportionate amount of management's attention. The
Company's failure to successfully integrate Solid State's business into its
existing operations, or the occurrence of unexpected costs or liabilities in
connection with Solid State's operations, could have a material adverse effect
on the Company's results of operations and financial condition. See "-- Recent
Insolvency and Reorganization of GGI; Recent Operating Losses of Solid State."
The Company is actively seeking other strategic acquisitions that will
provide additional and complementary products, equipment and services. However,
there can be no assurance that attractive acquisitions will be available to the
Company at reasonable prices, or that the Company will successfully integrate
the operations and assets of any acquired business with its own or that the
Company's management will be able to manage effectively the increased size of
the Company or operate a new line of business. Any inability on the part of the
Company to integrate and manage acquired businesses could have a material
adverse effect on the Company's results of operations and financial condition.
The Company may, to the extent permitted by the Indenture, the Credit Facility
and any future debt instruments, incur substantial indebtedness to finance
future acquisitions. There can be no assurance that the Company will be able to
obtain any such financing or that, if available, such financing will be on terms
acceptable to the Company. Acquisitions may result in increased depreciation and
amortization expense, increased interest expense, increased financial leverage
or decreased operating income, any of which could have a material adverse effect
on the Company's operating results. See "-- Restrictions Imposed by the Terms of
the Company's Indebtedness" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
POTENTIAL LIABILITY UNDER THE PLAN
Although GGI's bankruptcy proceedings resulted in the consummation of the
Plan on September 30, 1997, the Bankruptcy Court has retained jurisdiction over
disputes arising under the Plan. On December 11, 1997, certain holders of
interests under the Plan commenced a lawsuit in the Bankruptcy Court against
GGI, Grant, Elliott, Westgate and SSGI (as defined herein) alleging various
claims related to the Plan and the Acquisition. Elliott has agreed to indemnify
the Company against any liability that the Company may incur by reason of any
adverse final judgment in the lawsuit. Nevertheless, if not resolved in the
Company's favor, this lawsuit, and the potential for other lawsuits related to
the Plan, could have an adverse effect on the Company's business, reputation,
operating results and financial condition. See "Business -- Legal Proceedings."
CONCENTRATION OF OWNERSHIP
The Principal Stockholders currently hold all of the issued and outstanding
shares of Common Stock. After the consummation of the Subscription Offering, the
Principal Stockholders will hold approximately 76% of the issued and outstanding
shares of Common Stock, assuming all of the shares of Common Stock registered in
the Subscription Offering are purchased. In addition, the holders of Common
Stock are not entitled to cumulative voting rights. Westgate also holds all of
the issued and outstanding shares of Preferred Stock (as defined herein) of the
Company. The terms of the Preferred Stock permit Westgate to designate two
directors to the Board of Directors of the Company and to vote on certain
extraordinary matters presented for a stockholder vote. As a result of such
voting power, the Principal Stockholders have the ability to elect all of the
directors of the Company who will control the management and affairs of the
Company, as well as the ability to control the outcome of other matters that may
be submitted to a stockholder vote from time to time. The voting power held by
the Principal Stockholders may also have the effect of discouraging certain
types of transactions involving an actual or potential change of control of the
Company. See "The Company" and "Certain Relationships and Related Transactions."
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NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the consummation of the Plan and the Acquisition and in each
case, the transactions contemplated thereby, the financial condition and results
of operations of the Company will not be comparable to the financial condition
or results of operations reflected in the historical financial statements of
GGI, Grant and Solid State, included elsewhere in this Prospectus. See
"Unaudited Pro Forma Financial Information," "Selected Consolidated Historical
Financial Data" and the consolidated financial statements of the Company, GGI
and Solid State and notes thereto, included elsewhere in this Prospectus.
HOLDING COMPANY STRUCTURE
The Company is structured as a holding company that directly or indirectly
owns all or substantially all of the capital stock of its operating
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. The Company conducts its business
through its subsidiaries, and all existing and future liabilities of the
Company's subsidiaries will be effectively senior to the Notes. See
"-- Effective Subordination." Consequently, the Company's cash flow and ability
to service its debt obligations, including the Notes, are dependent upon the
earnings of the subsidiaries and the distribution of those earnings to the
Company, or upon loans, advances or other payments made by the subsidiaries to
the Company. There can be no assurance that the earnings of the Company's
subsidiaries will be adequate for the Company to meet its debt service
obligations.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to apply for listing of
the Original Notes or the Exchange Notes on any securities exchange or to seek
the admission thereof to trading in the Nasdaq National Market or the Nasdaq
Smallcap Market. The Initial Purchaser has informed the Company that it
currently intends to make a market in the Exchange Notes. However, the Initial
Purchaser is not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Notes or the
ability of the holders to sell their Exchange Notes.
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Original Notes that
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Original Notes that remain
outstanding will not be entitled to any rights to have such Original Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions). The
Company does not intend to register under the Securities Act any Original Notes
that remain outstanding after consummation of the Exchange Offer (subject to
such limited exceptions, if applicable).
To the extent that Original Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Original Notes could be adversely
affected. In addition, to the extent that Original Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Original
Notes that remain outstanding after the Exchange Offer could be adversely
affected.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes statements that contain "forward-looking"
information (as defined in the Private Securities Litigation Reform Act of
1995). Words such as "anticipate," "expect," "estimate," "project" and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management in written material such as
press releases, portions of "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and "Risk Factors" contained in
this Prospectus.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such forward-looking statements are
subject to certain risks, uncertainties and assumptions, including without
limitation those identified below and under "Risk Factors." Should one or more
of these risks or uncertainties materialize, or should any of the underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected. Holders of
Original Notes are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates.
Among the factors that will have a direct bearing on the Company's results
of operations and the oil and gas services industry in which it operates are the
effects of rapidly changing technology; the presence of competitors with greater
financial resources; risks associated with the Acquisition, including failure to
successfully manage the Company's growth and integrate the business operations
of Solid State; operating risks inherent in the oil and gas services industry;
regulatory uncertainties; potential liability under the Plan; worldwide
political stability and economic conditions and other risks associated with
international operations, including foreign currency exchange risk; and the
Company's successful execution of its strategy and internal operating plans. See
"Risk Factors."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on February 18, 1998 (the
"Issue Date") to the Initial Purchaser in a private transaction not subject to
the registration requirements of the Securities Act. The Initial Purchaser
offered and sold the Original Notes only (i) to "Qualified Institutional Buyers"
(as defined in Rule 144A under the Securities Act) in reliance on the exemption
from the registration requirements of the Securities Act provided by Rule 144A,
(ii) to a limited number of institutional "Accredited Investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of Original Notes, executed and delivered to the Initial Purchaser a
letter containing certain representations and agreements and (iii) outside the
United States to non-U.S. persons in offshore transactions (as defined in
Regulation S under the Securities Act) in compliance with Regulation S under the
Securities Act.
In connection with the sale of the Original Notes, the Company and the
Subsidiary Guarantors entered into the Registration Rights Agreement, which
provides that: (i) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company and the Subsidiary Guarantors
will file a registration statement relating to the Exchange Offer (the "Exchange
Offer Registration Statement") with the Commission on or prior to 60 days after
the Issue Date, (ii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company and the Subsidiary Guarantors
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 120 days after the Issue
Date and (iii) unless the Exchange Offer would not be permitted by applicable
law or Commission policy, the Company and the Subsidiary Guarantors will
commence the Exchange Offer and use their best efforts to consummate the
Exchange Offer, on or before 180 days after the Issue Date. In the event that
the Company and the Subsidiary Guarantors fail to satisfy those or certain of
their obligations under the Registration Rights Agreement, the interest rate on
the Original Notes will be increased. The summary herein of certain provisions
of the Registration Rights Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference thereto.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Original Notes not tendered will not
have any further registration rights and such Original Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Original Notes could be adversely affected upon completion of the
Exchange Offer. Unless the context otherwise requires, the term "holder" with
respect to the Exchange Offer means any person in whose name the Original Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from the registered holder, or any person whose
Original Notes are held of record by DTC who desires to deliver such Original
Notes by book-entry transfer at DTC.
If (i) the Company and the Subsidiary Guarantors are not permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by any
applicable law or applicable interpretation of the Commission or the staff of
the Commission or (ii) any holder of Original Notes notifies the Company on or
prior to the 20th day following the consummation of the Exchange Offer that (A)
due to a change in law or policy it is not entitled to participate in the
Exchange Offer, (B) due to a change in law or policy it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this Prospectus is not appropriate or available for
such resales by such holder or (C) it is a broker-dealer that owns Original
Notes acquired directly from the Company or an Affiliate of the Company, the
Company and the Subsidiary Guarantors will file with the Commission a shelf
registration statement pursuant to Rule 415 under the Securities Act to cover
resales of such Original Notes by holders thereof. The Company and the
Subsidiary Guarantors are required to use their best efforts to cause such shelf
registration statement to be declared effective by the Commission within
specified periods.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
$1,000 principal amount of Original Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original Notes pursuant to the Exchange
Offer. However, Original Notes may be tendered only in integral multiples of
$1,000 in principal amount.
The terms of the Exchange Notes are substantially identical in all respects
to the terms of the Original Notes except that (i) the Exchange Notes will be
freely transferable by holders thereof (other than as provided herein) and
issued free of certain transfer restrictions and registration rights relating to
the Original Notes and (ii) the holders of the Exchange Notes will not be
entitled to certain rights of holders of the Original Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the
Original Notes and will be issued under and entitled to the benefits of the
Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Original Notes was outstanding. Of such amount, $99,000,000 aggregate
principal amount is registered in the name of Cede & Co., as nominee for DTC,
and $1,000,000 aggregate principal amount in the name of the beneficial holders
thereof or their nominees.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company and the Subsidiary Guarantors
intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company and
delivering the Exchange Notes to such holders. If any tendered Original Notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, the certificates for any
such unaccepted Original Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent of any extension by
oral or written notice and will make a public announcement thereof, each prior
to 9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. The Company reserves the right, in its sole
discretion, (i) to delay acceptance of any Original Notes, to extend the
Exchange Offer, or, if any of the conditions set forth herein under
"-- Conditions to the Exchange Offer" shall have not been satisfied, to
terminate the Exchange Offer or (ii) to amend the terms of the Exchange Offer in
any manner by giving oral or written notice of such delay, extension or
termination to the Exchange Agent. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the holders of Original Notes, and the Company will extend the
Exchange Offer for a period of time, depending on the significance of the
amendment and the manner of disclosure to the registered holders if the Exchange
Offer would otherwise expire during such time. Without limiting the manner in
which the Company may choose to make public announcements of any delay in
acceptance, extension, termination or amendment of
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the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will be payable semi-annually on February 15
and August 15 of each year, commencing August 15, 1998. Interest on the Exchange
Notes will accrue from the date of issuance of the Original Notes, February 18,
1998. Consequently, holders who exchange their Original Notes for Exchange Notes
will receive the same interest payment on August 15, 1998 that they would have
received had they not accepted the Exchange Offer.
PROCEDURES FOR TENDERING
The tender to the Company of Original Notes by a holder thereof pursuant to
any one of the procedures set forth below will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a registered holder of Original Notes may tender in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to the Expiration Date. In
addition, (i) certificates for such Original Notes, or a timely confirmation of
a book-entry transfer of such Original Notes, if such procedure is available,
into the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (ii) the holder must comply with the guaranteed
delivery procedures described below.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender in the Exchange Offer should contact such registered holder promptly
and instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender directly, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the
Original Notes tendered thereby, the signature must correspond with the name(s)
written on the face of the Original Notes without alteration, enlargement or any
change whatsoever. If the Letter of Transmittal is signed by a participant in
DTC, the signature must correspond with the name as it appears on the security
position listing as the holder of the Original Notes. If the Letter of
Transmittal is signed by a person other than the registered holder of any
Original Notes listed therein, such Original Notes must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender the
Original Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Original Notes. If the
Letter of Transmittal or any Original Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
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THE METHOD OF DELIVERY OF ORIGINAL NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE OPTION AND SOLE RISK OF
THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. DELIVERY IS RECOMMENDED BY OVERNIGHT OR HAND
DELIVERY SERVICE OR, IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or another "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by Original Notes (or a timely confirmation received of a book-entry
transfer of Original Notes into the Exchange Agent's account at DTC), is
received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery from an
Eligible Institution is received by the Exchange Agent. Issuances of Exchange
Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed
Delivery by an Eligible Institution will be made only against submission of a
duly signed Letter of Transmittal (and any other required documents) and the
deposit of the tendered Original Notes with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes the Company's
acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in tender of any
Original Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Original Notes or incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Original Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (i)
purchase or make offers for any Original Notes that remain outstanding after the
Expiration Date, or, as set forth under "-- Conditions to the Exchange Offer,"
to terminate the Exchange Offer and (ii) to the extent permitted by applicable
law, purchase Original Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may differ
from the terms of the Exchange Offer.
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BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Original
Notes at DTC for purposes of the Exchange Offer within two business days after
the date of this Prospectus, and any financial institution that is a participant
in DTC's book-entry transfer facility system may make book-entry delivery of the
Original Notes by causing DTC to transfer such Original Notes into the Exchange
Agent's account in accordance with DTC's procedures for such transfer. Although
delivery of Original Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must in any case be
transmitted to and received by the Exchange Agent on or prior to the Expiration
Date at one of its addresses set forth below under "-- Exchange Agent," or the
guaranteed delivery procedures described below.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes in the Exchange Offer and
(i) whose Original Notes are not immediately available, or (ii) who cannot
deliver their Original Notes (or complete the procedures for book-entry
transfer), the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Original Notes, the
registration number or numbers of such Original Notes (if applicable), and
the total principal amount of Original Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five business
days after the Expiration Date, the Letter of Transmittal, together with
the Original Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal,
together with the certificate(s) representing all tendered Original Notes
in proper form for transfer (or a confirmation of such a book-entry
transfer) and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within five business days after the
Expiration Date.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including, if applicable, the registration number or
numbers and total principal amount of such Original Notes), (iii) be signed by
the Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Original Notes to register the transfer
of such Original Notes into the name of the Depositor withdrawing the tender,
(iv) specify the name in which any such Original Notes are to be registered, if
different from that of the Depositor and (v) if applicable because the Original
Notes have been tendered pursuant to the book-entry procedures, specify the name
and number of the participant's account at DTC to be credited, if different than
that of the Depositor.
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28
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Original Notes so withdrawn are validly retendered. Any Original Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection or termination of the Exchange Offer. Properly withdrawn
Original Notes may be retendered by following one of the procedures described
above under "-- Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to issue Exchange Notes for, any Original
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer,
in the Company's judgment, would reasonably be expected to materially
impair the ability of the Company to proceed with the Exchange Offer, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred that, in the Company's judgment, would reasonably be expected
to materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted that, in the Company's
judgment, would reasonably be expected to materially impair the ability of
the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its judgment, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Outstanding Notes (see "--Withdrawal Rights") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to holders of Original Notes, and the Company will extend the
Exchange Offer for a period of time depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such period.
RESALES OF EXCHANGE NOTES
The Company and the Subsidiary Guarantors are making the Exchange Offer of
the Exchange Notes in reliance on the position of the staff of the Commission as
set forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor any of the Subsidiary Guarantors
has sought its own interpretive letter, and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties. Based on
these interpretations by the staff of the Commission, and subject to the two
immediately following sentences, the Company and the Subsidiary Guarantors
believe that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is an Affiliate or a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the
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ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder of Original Notes who is an Affiliate
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Notes, or any broker-dealer who purchased
Original Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (i) will not be able to rely on
the interpretations of the staff of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be entitled to tender such
Original Notes in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of such Original Notes unless such sale or transfer
is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Original Notes acquired for its own
account as a result of market-making or other trading activities and exchanges
such Original Notes for Exchange Notes (such broker-dealer referred to herein as
a "Participating Broker-Dealer"), then such Participating Broker-Dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of Exchange Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an Affiliate, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes and (iv) if such holder is
not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such
Exchange Notes. The Letter of Transmittal contains the foregoing
representations. In addition, the Company and the Subsidiary Guarantors may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the meaning
of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the
Original Notes to be exchanged in the Exchange Offer. Each Participating
Broker-Dealer must acknowledge that it acquired the Original Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. See "Plan
of Distribution." The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Commission in the interpretive
letters referred to above, the Company and the Subsidiary Guarantors believe
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes received upon exchange of such
Original Notes (other than Original Notes which represent an unsold allotment
from the original sale of the Original Notes) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such Exchange Notes. Accordingly, this Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Subsidiary Guarantors have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period of
120 days after the Expiration Date. See "Plan of Distribution." Any person,
including any Participating Broker-Dealer, who is an Affiliate may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact that makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
herein, in the light of the circumstances under which they were made, not
misleading, or of the occurrence of certain other events specified in the
Registration Agreement, such Participating Broker-Dealer will suspend the sale
of
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Exchange Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer, or the Company has given notice that the sale of the Exchange
Notes may be resumed, as the case may be.
EXCHANGE AGENT
LaSalle National Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Mail or Overnight Delivery: By Hand Delivery:
LaSalle National Bank LaSalle National Bank
Corporate Trust Division c/o IBJ Schroder Bank and Trust Company
135 South LaSalle Street One State Street--Floor SC1
Suite 1825 Securities Processing Window
Chicago, Illinois 60603 New York, New York 10004
Attention: Sarah H. Webb
To Confirm by Telephone or for Information:
(312) 904-2444
Facsimile Transmissions:
(312) 904-2236
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Original Notes pursuant to the
Exchange Offer. If, however, Exchange Notes or Original Notes not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
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31
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of the Exchange Offer, the Company will have
fulfilled its obligations under the Registration Rights Agreement, holders of
Original Notes who do not tender their Original Notes will not have any further
registration rights under the Registration Rights Agreement or otherwise
(subject to certain limited exceptions, if applicable). Accordingly, any holder
of Original Notes that does not exchange that holder's Original Notes for
Exchange Notes will continue to hold such untendered Original Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent such rights or limitations that, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Original Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company or any of its subsidiaries, (ii) to
a Qualified Institutional Buyer in compliance with Rule 144A, (iii) to an
institutional Accredited Investor that, prior to such transfer, furnishes to the
Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Offered Notes (the form of which
letter can be obtained from such Trustee), (iv) outside the United States in
compliance with Rule 904 of Regulation S under the Securities Act, (v) pursuant
to Rule 144 under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act; in each case in accordance with
any applicable securities laws of any state of the United States. Accordingly,
to the extent that Original Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Original Notes could be adversely
affected.
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THE COMPANY
BACKGROUND
Grant was incorporated in Delaware in September 1997, and is the successor
to several seismic data acquisition companies. Solid State was incorporated in
Alberta, Canada in 1985. The Company's predecessor companies have been active in
the seismic data acquisition services business in the United States and Latin
America since the 1940s, the Far East since the 1960s and Canada since the
1970s. Additionally, the Company has significant operating experience in the
Middle East and West Africa.
THE REORGANIZATION
In 1996, GGI experienced a deteriorating financial condition and liquidity
crisis precipitated by several factors, including an overly rapid and
under-financed expansion in United States and Latin America, significant costs
related to the unsuccessful development of a proprietary data recording system
and poor operational results in the United States and certain international
markets. On December 6, 1996 (the "Petition Date"), GGI filed a voluntary
petition for relief with the Bankruptcy Court under chapter 11 of the Bankruptcy
Code.
In connection with its reorganization, GGI replaced its senior management
team, disposed of unprofitable operations, continued to operate as a
debtor-in-possession and developed the Plan, which was confirmed by the
Bankruptcy Court on September 15, 1997 and was consummated on the Effective
Date. The Plan provided that Grant would (i) purchase substantially all of the
assets of GGI for $47.5 million in cash (the "Cash Purchase Price"), (ii) assume
certain debts and long-term lease commitments of GGI not exceeding $15.1 million
and (iii) assume certain other liabilities of GGI.
In connection with the consummation of the Plan, the Principal Stockholders
satisfied certain claims against GGI in the amount of approximately $12.7
million, which was credited against the Cash Purchase Price. In addition,
Westgate purchased certain claims against GGI that were assumed by Grant, in the
principal amount of approximately $6.9 million. The Principal Stockholders also
purchased certain claims against GGI, in the principal amount of approximately
$5.6 million, which was credited against the Cash Purchase Price.
In exchange for the satisfaction or cancellation of certain claims against
GGI, Grant issued 19,571.162 shares of cumulative pay-in-kind preferred stock,
$0.001 par value per share (the "Preferred Stock"), to the Principal
Stockholders. The Preferred Stock provides for dividends payable annually in
additional shares of Preferred Stock at a rate of 10.5% per annum, the right to
designate two members of the Board of Directors of the Company and the right to
vote on certain extraordinary matters presented for a stockholder vote. On
December 18, 1997 Grant exchanged 9,571.162 shares of Preferred Stock held by
Elliott, together with accrued dividends thereon, for a subordinated note (the
"Subordinated Note") in the aggregate principal amount of approximately $9.8
million. The Subordinated Note, which accrued interest at the rate of 10.5% per
annum, was repaid out of the net proceeds from the issuance of the Original
Notes. See "Certain Relationships and Related Transactions -- Principal
Stockholders." On December 30, 1997, the Principal Stockholders purchased
9,499,998 shares of Common Stock for an amount equal to the remainder of the
Cash Purchase Price, which included the cancellation of certain claims against
GGI. In addition, upon consummation of the Subscription Offering, Elliot is
entitled to receive 237,500 shares of Common Stock pursuant to the Plan. See
"Certain Relationships and Related Transactions -- Principal Stockholders."
Pursuant to the Plan, the Principal Stockholders will offer 3,459,414
shares of Common Stock in connection with the Subscription Offering to certain
holders of claims and other interests under the Plan. On December 24, 1997, the
Company filed the Subscription Offering Registration Statement with the
Commission to register such shares. The Company filed amendments to the
Subscription Offering Registration Statement on February 4, 1998 and March 27,
1998. As of the date of this Prospectus, the Subscription Offering Registration
Statement has not been declared effective by the Commission. The Principal
Stockholders expect to commence the Subscription Offering as soon as practicable
after the Subscription Offering Registration Statement becomes effective. The
Company will not receive any proceeds from the Subscription Offering.
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THE ACQUISITION
As of November 20, 1997, Elliott held 5,963,565 shares, or 41.8%, and
Westgate held 3,341,544 shares, or 23.4%, of the outstanding shares of common
stock of Solid State ("Solid State Stock"). In connection with the Acquisition,
the Principal Stockholders transferred their shares of Solid State Stock to
Grant in exchange for 4,652,555 shares of Common Stock. SSGI Acquisition Corp.
("SSGI"), a corporation organized under the laws of Alberta, Canada and a wholly
owned subsidiary of Grant, commenced a cash tender offer for all of the
outstanding shares of Solid State Stock not held by SSGI or its affiliates (the
"Tender Offer"). Grant subsequently transferred the shares of Solid State Stock
to SSGI.
To consummate the Tender Offer and the Acquisition, on December 19, 1997,
Elliott advanced approximately $15.8 million to Grant (the "Acquisition
Financing") under a term note pursuant to the Credit Facility. Upon the
expiration of the Tender Offer on December 19, 1997, SSGI held approximately 99%
of the outstanding shares of Solid State Stock. On December 23, 1997, because
SSGI acquired over 90% of the outstanding shares of Solid State Stock not
already held by SSGI or its affiliates pursuant to the Tender Offer, SSGI
qualified to exercise its statutory right under Canadian law to acquire the
remaining shares of Solid State Stock on the same terms and at the same price as
the Tender Offer. On December 23, 1997, Solid State became an indirect wholly
owned subsidiary of the Company.
The Company's principal executive offices are located in Houston, Texas.
The Company's address is 16850 Park Row, Houston, Texas 77084, and its telephone
number is (281) 398-9503.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Original Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Original Notes surrendered in
exchange for the Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
change in the capitalization of the Company.
The net proceeds to the Company from the issuance of the Original Notes
were approximately $95.2 million after deducting the Initial Purchaser's
discount and certain other estimated fees and expenses relating to the issuance
of the Original Notes. The Company used the net proceeds from the issuance of
the Original Notes to repay approximately $76.4 million of the Company's
outstanding indebtedness.
The remaining net proceeds from the issuance of the Original Notes are
expected to be used by the Company to fund a portion of its capital expenditure
program, multi-client data acquisition activities and for working capital and
other general corporate purposes, including possible acquisitions. See
"Business -- Business Strategy." Although the Company is currently evaluating
acquisition opportunities, it does not have any current understanding,
arrangement or agreement to acquire any such businesses or assets. Pending
application of the net proceeds from the issuance of the Original Notes, the
Company will invest such net proceeds in short-term, interest-bearing,
investment grade securities.
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CAPITALIZATION
The following table sets forth at December 31, 1997, the cash and cash
equivalents, debt and equity capitalization of the Company (i) on an actual
consolidated basis and (ii) on an unaudited pro forma basis after giving effect
to the issuance of the Original Notes and the application of the net proceeds
therefrom as if they were completed at December 31, 1997. This information
should be read in conjunction with "Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, GGI and
Solid State, including the notes thereto, included elsewhere in this Prospectus.
AT DECEMBER 31, 1997
----------------------
ACTUAL PRO FORMA
------ ---------
(IN THOUSANDS)
Cash and cash equivalents(1)................................ $ 7,414 $ 29,880
======== ========
Current portion of long-term debt and notes payable......... $ 1,158 $ 1,158
Long-term debt, excluding current indebtedness:
9 3/4% Senior Notes due 2008(2)........................... -- 99,215
10.5% subordinated note................................... 9,786 --
Other..................................................... 65,409 2,446
-------- --------
Total long-term debt................................... 75,195 101,661
-------- --------
Stockholders' equity:
Cumulative pay-in-kind preferred stock, $.001 par value
per share (20,000 shares authorized, 10,000 shares
outstanding)........................................... 10,000 10,000
Common stock, $.001 par value per share (25,000,000 shares
authorized, 14,152,555 shares outstanding)(3).......... 14 14
Paid-in capital........................................... 41,278 41,278
Accumulated deficit....................................... (8,833) (8,833)
Cumulative translation adjustment......................... (467) (467)
-------- --------
Total stockholders' equity............................. 41,992 41,992
-------- --------
Total capitalization................................... $118,345 $144,811
======== ========
- ---------------
(1) Subsequent to the period presented, the Company incurred approximately $3.7
million of debt for working capital, accrued interest and equipment
purchases; however, this subsequent debt was paid with the net proceeds from
the issuance of the Original Notes.
(2) Issued to the Initial Purchaser at 99.215% of face value.
(3) Excludes 1,450,000 shares of Common Stock reserved for issuance under the
Incentive Plan (as defined herein). See "Management -- 1997 Equity and
Performance Incentive Plan" and Note 12 to the consolidated financial
statements of the Company.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Financial Information") is based on the consolidated
financial statements of the Company, GGI and Solid State and has been prepared
to illustrate the effects of the consummation of the Plan and certain related
transactions, the Acquisition and the issuance of the Original Notes and the
application of the net proceeds therefrom.
The unaudited pro forma consolidated balance sheet at December 31, 1997
gives effect to the issuance of the Original Notes and the application of the
net proceeds therefrom as if they were completed at December 31, 1997. The
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 1997 gives effect to the consummation of the Plan and certain
related transactions, the Acquisition and the issuance of the Original Notes and
the application of the net proceeds therefrom as if they were completed as of
January 1, 1997.
Solid State's fiscal year end is August 31. For pro forma purposes, the
statement of operations data for Solid State has been adjusted to reflect the
nine month period December 1, 1996 through August 31, 1997 to combine with GGI's
statement of operations data for the nine months ended September 30, 1997 and
the Company's statement of operations data for the three month period ended
December 31, 1997 to complete the twelve month period ended December 31, 1997.
The statement of operations data for the three months ended December 31, 1997
includes the combined operations of Solid State and Grant. See Note 1 to the
consolidated financial statements of the Company. For pro forma purposes, the
statement of operations data for Solid State has been translated from Canadian
dollars into U.S. dollars using the average exchange rates prevailing during the
respective periods.
The Unaudited Pro Forma Financial Information does not purport to represent
what the financial position or results of operations of the Company would
actually have been if the transactions and events assumed therein in fact
occurred on the dates indicated or to project the financial position or results
of operations of the Company for any future date or period. The Unaudited Pro
Forma Financial Information is based on certain assumptions and adjustments
described in the notes hereto and should be read in conjunction therewith. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, GGI and
Solid State and the notes thereto, included elsewhere in this Prospectus.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
THE
COMPANY
AT DECEMBER 31, 1997
--------------------------------------
OFFERING PRO
ACTUAL ADJUSTMENTS FORMA
------ ----------- -----
(IN THOUSANDS)
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 7,093 $ 22,466(a) $ 29,559
Restricted cash.......................................... 321 -- 321
Accounts receivable...................................... 31,982 -- 31,982
Inventories.............................................. 530 -- 530
Prepaid expenses......................................... 4,190 -- 4,190
Work-in-progress costs................................... 2,779 -- 2,779
-------- -------- --------
Total current assets.................................. 46,895 22,466 69,361
Property, plant and equipment, net....................... 64,504 -- 64,504
Multi-client data........................................ 5,736 -- 5,736
Goodwill................................................. 36,304 -- 36,304
Deferred issue costs..................................... -- 4,000(a) 4,000
Other assets............................................. 2,265 -- 2,265
-------- -------- --------
Total assets.......................................... $155,704 $ 26,466 $182,170
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations............................. $ 1,158 $ -- $ 1,158
Accounts payable......................................... 16,422 -- 16,422
Accrued expenses......................................... 10,318 -- 10,318
Income taxes payable..................................... 2,807 -- 2,807
-------- -------- --------
Total current liabilities............................. 30,705 -- 30,705
Long-term debt and capital lease obligations, excluding
current portion.......................................... 65,409 (62,963)(a) 2,446
Other liabilities and deferred credits..................... 7,812 -- 7,812
Senior Notes due 2008...................................... -- 99,215(a) 99,215
Subordinated Note.......................................... 9,786 (9,786)(a) --
-------- -------- --------
Total liabilities..................................... 113,712 26,466 140,178
Stockholders' equity:
Preferred Stock.......................................... 10,000 -- 10,000
Common Stock............................................. 14 -- 14
Additional paid-in capital............................... 41,278 -- 41,278
Accumulated deficit...................................... (8,833) -- (8,833)
Cumulative translation adjustment........................ (467) -- (467)
-------- -------- --------
Total stockholders' equity............................ 41,992 -- 41,992
-------- -------- --------
Total liabilities and stockholders' equity............ $155,704 $ 26,466 $182,170
======== ======== ========
See notes to unaudited pro forma financial statements.
34
37
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
PRO FORMA
DECEMBER 31, 1997
------------------------------------------------
NINE MONTHS ENDED THE COMPANY PLAN, THE
--------------------------- THREE MONTHS SUBORDINATED COMPANY
GGI SOLID STATE ENDED NOTE AND PRIOR
SEPTEMBER 30, AUGUST 31, DECEMBER 31, ACQUISITION TO THE OFFERING THE
1997 1997 1997 ADJUSTMENTS OFFERING ADJUSTMENTS COMPANY
------------- ----------- ------------ ------------ -------- ----------- -------
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $92,705 $43,292 $37,868 $ -- $173,865 $ -- $173,865
Expenses:
Operating
expenses.......... 71,006 36,432 28,431 -- 135,869 -- 135,869
Selling, general and
administrative
expenses.......... 6,473 2,399 3,507 -- 12,379 -- 12,379
Depreciation and
amortization...... 8,432 5,266 4,594 1,290(b) 19,582 -- 19,582
Special charge for
asset
impairment........ -- -- 6,369 -- 6,369 -- 6,369
------- ------- ------- ------- -------- ------- --------
Total costs and
expenses........ 85,911 44,097 42,901 1,290 174,199 -- 174,199
------- ------- ------- ------- -------- ------- --------
Operating income
(loss).......... 6,794 (805) (5,033) (1,290) (334) -- (334)
Other expense:
Interest expense,
net............... (3,758) (2,484) (1,362) 1,158(c) (6,446) (4,441)(f) (10,887)
Reorganization
costs............. (3,543) -- -- 3,543(d) -- --
Other............... 2,266 (189) (1,262) -- 815 -- 815
------- ------- ------- ------- -------- ------- --------
Total other
expenses........ (5,035) (2,673) (2,624) 4,701 (5,631) (4,441) (10,072)
------- ------- ------- ------- -------- ------- --------
Income (loss)
before income
taxes and
minority
interest........ 1,759 (3,478) (7,657) 3,411 (5,965) (4,441) (10,406)
Income tax expense.... 2,184 (483) 856 --(e) 2,557 -- 2,557
------- ------- ------- ------- -------- ------- --------
Income (loss) before
minority
interest.......... (425) (2,995) (8,513) 3,411 (8,522) (4,441) (12,963)
Minority interest..... -- -- 2,847 (2,847) -- -- --
------- ------- ------- ------- -------- ------- --------
Income (loss) from
continuing
operations.......... $ (425) $(2,995) $(5,666) $ 564 $(8,522) $(4,441) $(12,963)
======= ======= ======= ======= ======== ======= ========
OTHER FINANCIAL DATA:
Capital
expenditures........ $ 4,154 $10,661 $12,266 $ 27,081
EBITDA(g)............. 15,226 4,461 5,930 25,617
OPERATING DATA (AT
PERIOD END):
Seismic crews in
operation........... 13 7 20 20
Seismic recording
channels owned...... 17,870 8,892 26,762 26,762
See notes to unaudited pro forma financial statements.
35
38
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro forma adjustments for the balance sheet include the adjustments
necessary to record the issuance of the Original Notes and the application of
the net proceeds therefrom to retire substantially all the outstanding debt of
the Company. The pro forma adjustments relating to the combined statement of
operations include those necessary in connection with the Acquisition, to remove
interest associated with the debt that was retired with the net proceeds from
the issuance of the Original Notes and record interest for the Original Notes.
In addition, certain interest and reorganization costs that were associated with
the Plan have also been removed.
(a) Adjustment to record the net proceeds of the issuance of the Original
Notes. The net proceeds were used in part to repay the following: (i)
long-term debt, $62.963 million; (ii) Subordinated Note, $9.786
million; and (iii) issuance costs, $4.000 million. $22.466 million in
cash remained after repayment of such indebtedness. Subsequent to the
period presented, the Company incurred $3.700 million of debt for
working capital, accrued interest and equipment purchases; however,
this subsequent debt was repaid with the net proceeds from the
issuance of the Original Notes.
(b) Adjustment to record amortization of goodwill created in the
reorganization of Grant and the acquisition of the minority interest
in Solid State. The amortization period for the Grant and Solid State
goodwill is 30 years ($700,000 per annum) and 20 years ($765,000 per
annum), respectively. The amount for depreciation and amortization in
the three months ended December 31, 1997 includes $175,000 of goodwill
amortization for Grant.
(c) Adjustment to eliminate interest expense for debt held by GGI, which
was not assumed by Grant under the Plan ($2.976 million for the nine
month period ended September 30, 1997) and record interest expense for
the Subordinated Note and the $15.800 million term note.
(d) Adjustment to remove reorganization costs.
(e) Income tax expense has not been recorded as a result of the benefits
available from an operating loss carryforward of Grant.
(f) Adjustment to record the interest expense at 9.75% for the issuance of
the Original Notes. The net proceeds from the issuance of the Original
Notes were utilized to retire $72.749 million of outstanding
indebtedness at December 31, 1997. Estimated issue costs of $4.000
million are amortized over the life of the Notes.
(g) EBITDA is defined as earnings before interest expense, taxes,
depreciation and amortization, certain non-cash charges, other income
(expense) and certain other non-recurring items, such as
reorganization costs, and is presented because it is a widely accepted
financial indication of a company's ability to incur and service debt.
EBITDA is not a measurement presented in accordance with GAAP and is
not intended to be used in lieu of GAAP presentations of results of
operations and cash provided by operating activities.
36
39
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The statement of operations data for GGI is presented below as of the end
of each of the years in the four-year period ended December 31, 1996 and the
nine-months ended September 30, 1997 is derived from the consolidated financial
statements of GGI. The balance sheet data of the Company at December 31, 1997
and the statement of operations data for the three months ended December 31,
1997 are derived from the consolidated financial statements of the Company. This
data should be read in conjunction with such consolidated financial statements
of GGI and the Company and the notes thereto, included elsewhere in this
Prospectus.
THE
GGI COMPANY
------------------------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------------------- SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1996(1) 1997 1997
--------- --------- --------- --------- ------------- ------------
(IN THOUSANDS, EXCEPT OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 69,255 $ 73,691 $ 91,996 $ 105,523 $ 92,705 $ 37,868
Expenses:
Operating expenses..................... 53,678 53,132 69,046 136,326 71,006 28,431
Selling, general and administrative
expense.............................. 13,375 7,810 8,527 17,865 6,473 3,507
Depreciation and amortization.......... 13,078 12,079 9,424 11,500 8,432 4,594
Asset impairment....................... 3,339 9,911 -- 5,802 -- 6,369
--------- --------- --------- --------- --------- ---------
Total expenses....................... 83,470 82,932 86,997 171,493 85,911 42,901
--------- --------- --------- --------- --------- ---------
Operating income (loss).............. (14,215) (9,241) 4,999 (65,970) 6,794 (5,033)
Other income (deductions):
Interest expense, net.................. (3,020) (3,384) (3,522) (7,522) (3,758) (1,362)
Reorganization costs................... -- -- -- (412) (3,543) --
Other.................................. 425 1,380 2,076 (502) 2,266 (1,262)
--------- --------- --------- --------- --------- ---------
Total other income (deductions)...... (2,595) (2,004) (1,446) (8,436) (5,035) (2,624)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.... (16,810) (11,245) 3,553 (74,406) 1,759 (7,657)
Income tax expense....................... 143 193 391 1,621 2,184 856
--------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest............................. (16,953) (11,438) 3,162 (76,027) (425) (8,513)
Minority interest........................ -- -- -- -- -- 2,847
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations............................. $ (16,953) $ (11,438) $ 3,162 $ (76,027) $ (425) $ (5,666)
========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
Capital expenditures..................... $ 5,781 $ 8,463 $ 14,921 $ 25,799 $ 4,154 $ 12,266
EBITDA(2)................................ 2,202 12,749 14,423 (48,668) 15,226 5,930
Cash provided by (used in) operating
activities............................. 2,133 3,170 2,759 (9,346) 4,526 5,386
Cash provided by (used in) investing
activities............................. (1,128) (9,698) (9,272) (10,181) (6,731) (19,715)
Cash provided by (used in) financing
activities............................. (3,486) 5,260 6,929 25,667 1,289 15,072
Ratio of EBITDA to interest expense,
net.................................... 0.7x 3.8x 4.1x -- 4.1x 4.4x
Ratio of total debt to EBITDA............ 7.2x 1.5x 1.9x -- 0.7x 12.9x
Ratio of earnings to fixed charges(3).... -- -- 1.8x -- 1.5x --
OPERATING DATA (AT PERIOD END):
Seismic crews in operation............... 15 15 14 14 13 20
Seismic recording channels owned......... 12,120 12,520 12,320 17,430 17,870 26,762
37
40
GGI THE COMPANY
---------------------------------------- -----------
AT DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ------- -------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................................ $ 2,992 $ 3,670 $ 1,147 $ 6,772 $ 7,414
Working capital..................................... 4,585 3,022 8,033 22,421 16,190
Total assets........................................ 70,745 61,609 86,932 70,123 155,704
Long-term debt, including current portion........... 15,859 19,412 27,219 589 76,353
Stockholders' equity (deficit)...................... 37,774 26,399 29,715 (34,213) 41,992
- ---------------
(1) Operating expenses for the year ended December 31, 1996 include costs of
operations in excess of planned costs in Peru ($23.0 million) and Nigeria
($2.5 million). The Company is no longer operating in Peru and Nigeria. Also
included in operating expenses are costs incurred in the United States
relating to the unsuccessful deployment of a proprietary data recording
system ($12.1 million) and a write-down of certain deferred costs, prepaid
expenses and other assets ($5.6 million). Selling, general and
administrative expenses for the year ended December 31, 1996 include a
reserve for doubtful accounts of $5.5 million, severance costs of $423,000,
the write-off of deferred costs of a proprietary data recording system of
$823,000 and legal fees of $367,000.
(2) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization, certain non-cash charges, other income (expense) and
certain other non-recurring items, such as reorganization costs, and is
presented because it is a widely accepted financial indication of a
company's ability to incur and service debt. EBITDA is not a measurement
presented in accordance with GAAP and is not intended to be used in lieu of
GAAP presentations of results of operations and cash provided by operating
activities.
(3) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor). Earnings were insufficient to cover
fixed charges in each period presented by the following amounts: three
months ended December 31, 1997 -- $8.1 million; years ended December
1996 -- $74.8 million; 1994 -- $11.2 million; 1993 -- $16.8 million and
1992 -- $29.1 million.
38
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
HISTORY AND OVERVIEW
Grant was formed in September, 1997, and on September 30, 1997, acquired
substantially all of the assets and assumed certain liabilities of GGI. On
December 23, 1997, Grant, through a wholly owned Canadian subsidiary, acquired
all of the outstanding shares of Solid State. In connection with such
acquisition, the Principal Stockholders exchanged all of their Solid State Stock
for Common Stock.
The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
generally acquires seismic data on an exclusive contract basis for oil and gas
companies on (i) a turnkey basis, which provides a fixed fee for each project,
(ii) a term basis, which provides for a periodic fee during the term of the
project or (iii) a cost-plus basis, which provides that the costs of a project,
plus a percentage fee, are borne by the customer. In addition, the Company
acquires and owns certain multi-client seismic data that is marketed broadly on
a non-exclusive basis to oil and gas companies. The Company believes that the
combined operations of Grant and Solid State will expand its market presence and
enhance the Company's ability to compete more effectively for projects in its
selected markets. The Company also believes that the acquisition of Solid State
increases management and operating depth, mitigates the effects of seasonality
and creates operating efficiencies by consolidating operations, increasing
overall crew utilization and reducing capital expenditures.
As of March 15, 1998, the Company was operating or mobilizing 22 seismic
data acquisition crews, consisting of 18 land and four transition zone crews,
utilizing approximately 30,000 seismic recording channels. According to industry
sources, as of March 15, 1998, the Company is the third largest land seismic
data acquisition company operating in the western hemisphere, based on the
number of seismic data acquisition crews in operation.
In December 1996, GGI filed for protection under the United States
Bankruptcy Code and began its reorganization under the supervision of the
Bankruptcy Court. The filing was precipitated by a number of factors, including
an overly rapid expansion in the United States and Latin American markets, which
contributed to poor operational results in these markets, particularly in Peru,
the attempted development of a proprietary data recording system, which did not
meet operating expectations and a lack of available capital, which led to a
severe working capital shortage. These factors impaired GGI's ability to service
its indebtedness, finance its existing capital expenditure requirements and meet
its working capital needs. In addition, GGI was unable to raise additional
equity, causing a disproportionate reliance on debt financing and equipment
leasing. In connection with its reorganization, GGI replaced its senior
management, disposed of unprofitable operations, operated as debtor in
possession and developed the Plan, which was confirmed by the Bankruptcy Court
on September 15, 1997 and consummated on September 30, 1997, with Grant's
purchase of substantially all of the assets and assumption of certain
liabilities of GGI. As part of the Plan, GGI will be dissolved and will cease to
exist once the remainder of its assets are distributed to its creditors.
The historical results of operations of the Company for the twelve months
ended December 31, 1997 are not directly comparable to the results of operations
of GGI due to the effects of the Acquisition.
39
42
RESULTS OF OPERATIONS
GGI THE COMPANY COMBINED
---------------------------------- ------------ -------------
YEAR ENDED NINE MONTHS THREE MONTHS TWELVE MONTHS
DECEMBER 31, ENDED ENDED ENDED
------------------ SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1997 1997
------- -------- ------------- ------------ -------------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $91,996 $105,523 $ 92,705 $37,868 $130,573
Expenses:
Operating expenses................. 69,046 136,326 71,006 28,431 99,437
Selling, general and administrative
expenses........................ 8,527 17,865 6,473 3,507 9,980
Depreciation and amortization...... 9,424 11,500 8,432 4,594 13,026
Asset impairment................... -- 5,802 -- 6,369 6,369
------- -------- -------- ------- --------
Total costs and expenses........ 86,997 171,493 85,911 42,901 128,812
------- -------- -------- ------- --------
Operating income (loss)......... 4,999 (65,970) 6,794 (5,033) 1,761
Other expense:
Interest expense, net.............. (3,522) (7,522) (3,758) (1,362) (5,120)
Reorganization costs............... -- (412) (3,543) -- (3,543)
Other.............................. 2,076 (502) 2,266 (1,262) 1,004
------- -------- -------- ------- --------
Total other expenses............ (1,446) (8,436) (5,035) (2,624) (7,659)
------- -------- -------- ------- --------
Income (loss) before income
taxes........................... 3,553 (74,406) 1,759 (7,657) (5,898)
Income tax expense................... 391 1,621 2,184 856 3,040
------- -------- -------- ------- --------
Income (loss) from continuing
operations before minority
interest........................... 3,162 (76,027) (425) (8,513) (8,938)
Minority interest.................... -- -- -- 2,847 2,847
------- -------- -------- ------- --------
Net income (loss).................... $ 3,162 $(76,027) $ (425) $(5,666) $ (6,091)
======= ======== ======== ======= ========
The Company and GGI Combined Twelve Month Period Ended December 31, 1997
Compared With GGI's Year Ended December 31, 1996
The following analysis compares the combined operating results of the
Company for the three month period ended December 31, 1997 (including the
operating results of Solid State for such period) and the operating results of
GGI for the nine month period ended September 30, 1997 with the operating
results of GGI for the twelve months ended December 31, 1996. As described
above, Grant began operations immediately following its acquisition of
substantially all of the assets and certain liabilities of GGI, and Grant
acquired Solid State in December, 1997. Because of the significant changes in
Grant's corporate structure and scope of operations and the consummation of the
Plan, comparisons may not be meaningful.
Revenues. Combined revenue of GGI and the Company for the twelve months
ended December 31, 1997 were $130.5 million compared $105.5 million of revenue
realized by GGI for the twelve months ended December 31, 1996. This increase was
the result of growth in revenues in both the United States and Bangladesh and
the inclusion of Solid State's results of operations for the quarter ended
December 31, 1997.
Revenues from the United States data acquisition operations increased $11.6
million from $42.1 million in 1996 to $53.7 million in 1997. This increase was
primarily attributed to two transition zone crews operating along the Gulf Coast
and the addition of two Solid State crews for the quarter ended December 31,
1997. From time to time during each period, GGI and the Company operated as many
as seven seismic data acquisition crews in the United States compared with a
peak of 8 crews in 1996.
Revenues in Latin America increased $1.4 million from $57.1 million in 1996
to $58.6 million in 1997. During 1997, combined Latin American operations for
GGI and the Company consisted of as many as ten land
40
43
seismic data acquisition crews operating in Colombia, Ecuador, Brazil,
Guatemala, Bolivia, and Venezuela. The Company completed operations in Venezuela
in early October 1997 and transferred personnel and equipment to Canada. From
time to time during 1996, GGI operated as many as nine seismic crews in the
region, including four in Peru, two in Colombia and one in each of Bolivia,
Brazil and Ecuador.
Revenues from the Far East increased $8.1 million, or 149%, from $5.4
million in 1996 to $13.5 million in 1997. During 1997, GGI and the Company
operated one crew for the entire year and mobilized one additional transition
zone crew that began operations in Bangladesh in July 1997. GGI mobilized and
operated one land seismic data acquisition crew in Bangladesh during 1996.
Revenues from Canadian data acquisition operations were $4.5 million in
1997 compared to zero in 1996. The Company (through Solid State) operated as
many as five land seismic crews in Canada during 1997 while GGI had no
operations in Canada during 1996.
Expenses. The combined operating expenses for GGI and the Company for the
twelve months ended December 31, 1997 decreased $36.9 million to $99.4 million
compared with $136.3 million for GGI's twelve months ended December 31, 1996.
Operating expenses as a percentage of revenues decreased to 76% in 1997 from
129% in 1996. During 1996 GGI experienced significant cost overruns, which
increased operating expenses on several crews operating in the United States.
Most notable were higher than anticipated costs incurred by a transition zone
crew as a result of adverse weather conditions and costs associated with the
unsuccessful deployment of a proprietary data recording system. The proprietary
data recording system was abandoned in November 1996. Also in 1996, GGI's
Peruvian operations experienced crew costs significantly higher than originally
projected primarily due to a combination of modified job parameters that were
not accurately reflected in the turnkey contract price and a lack of effective
crew oversight.
Selling, general and administrative expenses for GGI and the Company for
the twelve months ended December 31, 1997 decreased $7.9 million to $10.0 in
1997 from $17.9 million in 1996. Selling, general and administrative expenses
also decreased as a percentage of revenue to 8% in 1997 from 17% in 1996. The
decrease was primarily the result of general expense reduction initiatives in
1997 and the accrual of certain nonrecurring charges and allowances in 1996,
including an approximate $5.5 million increase in reserves for doubtful
accounts.
Depreciation and amortization increased $1.5 million to $13.0 in 1997 from
$11.5 million for 1996. This increase was the result of depreciation on the
Solid State assets for the quarter ended December 31, 1997.
The charge for asset impairment was $6.4 million for 1997 compared to $5.8
million in 1996. At December 31, 1997 the Company recorded a special charge of
$5.9 million to reduce the carrying value of its multi-client data to net
realizable value based on realistic future licensing prospects for such data.
The remaining 1997 charge relates to a $247,000 write-down in the carrying value
of certain non-operating depreciable fixed assets to salvage value and a
$253,000 write-down in the carrying value of certain other investments and joint
ventures. At December 31, 1996, GGI recorded a special charge for asset
impairment of $5.8 million. The charge relates solely to the write-down of the
carrying value of a proprietary data recording system that GGI was developing
for use by its seismic data acquisition crews.
Other Income (Expenses). Interest expense, net, decreased $2.4 million to
$5.1 million in 1997 from $7.5 million in 1996. This was the result of a $3.3
million decrease due to a reduction in the use of credit facilities in Latin
America during all 1997 and in the United States during the quarter ended
December 31, 1997. This decrease was partially offset by $981,000 of interest
expense incurred by Solid State during the quarter ended December 31, 1997.
Reorganization costs of $412,000 in 1996 and $3.5 million for 1997 related
to charges incurred in connection with GGI's reorganization, which began in
December 1996 and was completed in September 1997. No reorganization charges
were incurred by the Company in the three months ended December 1997, and none
are expected to be incurred in the future.
Other income for 1997 of $1.0 million was the result of settlement of a
longstanding dispute between one of GGI's Brazilian subsidiaries and a former
customer relating to services rendered on contracts dating back to
41
44
1983. In settlement of all claims, GGI received payment, net of related costs
and expenses, of approximately $2.4 million in July 1997. Income from that
settlement was offset by approximately $767,000 costs associated with the
Acquisition and approximately $289,000 of foreign currency exchange losses,
primarily related to US dollar based loans owed by Solid State prior to the
Acquisition.
Tax Provision. The income tax provision in both periods consisted of
income taxes in foreign countries. The increase in 1997 compared with 1996 is a
result of higher taxable income in Colombia and Ecuador. No provision for United
States federal income tax was made in either period as GGI and the Company each
had net loss carryforwards available.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. GGI's consolidated revenues increased $13.5 million, or 15%, from
$92.0 million in 1995 to $105.5 million in 1996. This increase resulted from
significant growth in GGI's international operations in Latin America and
Bangladesh, which growth was offset partially by a reduction in revenues from
the United States and Nigeria. During 1996, GGI's seismic data acquisition
capacity, measured by seismic recording channels owned, increased by
approximately 41%, from 12,320 to 17,430 seismic recording channels.
Revenues from United States data acquisition operations decreased $5.8
million, or 12%, to $42.1 million in 1996 when compared with 1995. This
reduction was principally the result of several factors experienced during the
fourth quarter of 1996, including a severe shortage of operating funds, which
caused major disruptions on many domestic crews and resulted in lower revenues.
Additionally, GGI's proprietary data recording system, which operated for four
months in 1996, experienced lower than anticipated production performance, which
led to crew disruptions and delays causing further loss of revenues. GGI's
inability to adequately fund the crew operating the proprietary data recording
system resulted in the suspension of the system's use in November 1996.
Furthermore, a transition zone crew, operating along the coast of Louisiana, was
hampered by severe weather and the frequent failure of leased equipment, which,
combined with the Company's liquidity problems, resulted in the postponement of
the survey.
Revenues from international operations increased $19.3 million, or 44%,
from $44.1 million in 1995, to $63.4 million in 1996. This increase was
primarily the result of significant increases in seismic operations in Latin
America and, to a lesser extent, in the Far East, which increases were partially
offset by a reduction in revenues from Nigeria.
Latin American revenue during 1996 increased $31.6 million, or 124%, from
$25.5 million in 1995, to $57.1 million in 1996. During 1996, GGI operated one
crew in each of Bolivia, Brazil and Ecuador, two crews in Colombia and four
crews in Peru. In 1995, crew activity consisted of one crew during the fourth
quarter in Bolivia, one crew in Brazil, one to two crews in Colombia and three
crews in Peru. The most significant revenue increases in 1996 occurred in
Colombia and Peru, where revenues increased $8.2 million, or 181%, to $12.7
million, and $13.8 million, or 100%, to $27.5 million, respectively. Due to
significant operating losses incurred in Peru during 1996, GGI discontinued
operations in Peru and moved the seismic equipment from its Peruvian crews to
other GGI crews.
Revenues from the Far East increased 49%, or $1.8 million, from $3.6
million in 1995, to $5.4 million in 1996. In 1996, crew activity consisted
primarily of one transition zone crew in operation for the entire year in
Bangladesh, as compared to 1995, when GGI operated one crew in Indonesia and
mobilized the Bangladesh crew in the fourth quarter.
Revenues from Nigeria decreased 94%, or $13.3 million, from $14.2 million
in 1995, to $904,000 in 1996. GGI operated three crews during most of 1995 in
Nigeria, but completed two of these three contracts in the fourth quarter of
1995 and the remaining contract in the first quarter of 1996. Although GGI
participated in bidding for new contracts, all three crews remained idle during
1996. Due to the risks involved in operating in Nigeria, the anticipated high
cost of mobilizing a new crew and the limited resources available to GGI at the
time, GGI sold its Nigerian operation as of December 1996. GGI had no revenues
from the Middle East during 1996. Middle East revenue in 1995, totaling
$786,000, was the result of various rental contracts for equipment and personnel
that expired in July 1995.
42
45
Expenses. GGI's consolidated operating expenses increased $67.3 million, or
97%, from $69.0 million in 1995 to $136.3 million in 1996. Operating expenses as
a percentage of revenues increased to 129% in 1996 from 75% in 1995. This
increase was due to higher than anticipated operating costs principally in the
United States, Peru and Nigeria, accelerated amortization of prepaid and
deferred costs associated with certain ongoing operations, and the write-down of
certain other GGI assets as a result of a comprehensive review of GGI's
operations.
In the United States, adverse weather conditions and the repeated breakdown
of a leased data recording system combined to increase operating expenses by
approximately $7.7 million on one transition zone crew. The slow development and
late deployment of GGI's proprietary data recording system also affected
operations in the United States in 1996. The proprietary data recording system
was originally planned to be completed and operational by early 1996, but
completion was delayed until the summer of 1996. As a result, several contracts
that were priced and bid with the expectation that the proprietary data
recording system would be employed were performed with other, less appropriate
equipment. This resulted in operating losses on such contracts of approximately
$3.0 million. When the proprietary data recording system was finally deployed in
July 1996, the system's production performance was well below anticipated
levels, causing additional operating expenses of approximately $1.4 million. The
late deployment and poor performance of the proprietary data recording system
caused a general equipment shortage during most of 1996, resulting in a
shuffling of equipment between GGI's crews, which caused inefficiencies and
higher than anticipated operating expenses.
In Peru, actual operating expenses exceeded planned costs by approximately
$23.0 million, primarily due to a combination of modified job parameters that
were not accurately reflected in the turnkey contract price and a general lack
of effective crew oversight. In Nigeria, GGI continued to incur certain
operating expenses despite a lack of crew activity during most of the year.
These operating expenses exceeded expectations by $2.7 million and were
primarily related to standby costs incurred while pursuing new contracts.
Selling, general and administrative expenses increased $9.3 million, or
110%, from $8.5 million in 1995 to $17.9 million in 1996. Selling, general and
administrative expenses increased as a percentage of revenue to 17% in 1996 from
9% in 1995. This increase was primarily attributable to allowances and charges
incurred at the corporate headquarters that resulted in an increase in corporate
overhead of approximately $6.8 million, including an increase in the reserve for
doubtful trade accounts of approximately $5.5 million for 1996 compared to no
increase in the reserve for 1995. Other significant one time or unusual items
incurred in 1996 included severance costs of $423,000, a write-off of the
proprietary data recording system startup costs of $824,000 and legal fees and
settlements of $367,000.
Depreciation and amortization expenses increased $2.1 million, or 22%, from
$9.4 million in 1995, to $11.5 million in 1996. This increase was principally
due to the increased level of depreciable assets. Additions to fixed assets
during 1995 and 1996 were approximately $14.9 million and $25.8 million,
respectively.
At December 31, 1996, GGI recorded a special charge for asset impairment of
$5.8 million. Management considered this special charge to be necessary
following an assessment of events and changes in circumstances that clearly
indicated that the carrying value of certain assets was not recoverable. This
charge related solely to the write-down of the carrying value of the proprietary
data recording system discussed previously.
Other Income (Deductions). Interest expense, net, increased $4.0 million,
or 114%, from $3.5 million in 1995, to $7.5 million in 1996. The increase in
interest expense, net, was the result of $1.1 million of interest paid on
financing of additional equipment purchases, $964,000 related to increased
domestic working capital borrowings, $773,000 attributable to new financing
evidenced by subordinated convertible debentures and $988,000 of interest
attributable to an increased usage of foreign lines of credit.
Other income (deductions) for 1996 consisted primarily of foreign exchange
losses of $251,000 and a $198,000 loss on the sale of the Venezuelan and
Nigerian subsidiaries. Other income (deductions) for 1995 included a $1.2
million gain on an insurance settlement and a $212,000 gain on the sale of
miscellaneous fixed assets.
Tax Provision. The income tax provisions in both periods consisted of
income taxes in foreign countries. No provision for United States federal income
taxes was made in either period as GGI had net operating losses available to
offset domestic taxable income.
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RESULTS OF OPERATIONS OF SOLID STATE
Year Ended August 31, 1997 Compared to the Year Ended August 31, 1996
Net Contract Revenues. Solid State's consolidated net contract revenues
for seismic data acquisition services increased Cdn $18.6 million, or 68%, from
Cdn $27.3 million for fiscal 1996 to Cdn $45.9 million in fiscal 1997.
Solid State's Canadian seismic data acquisition activity increased Cdn $3.9
million, or 24%, from Cdn $16.0 million for fiscal 1996 to Cdn $19.9 million in
fiscal 1997. This increase was primarily the result of a higher industry demand
for services and favorable weather conditions coupled with overall higher
productivity by Solid State's seismic data acquisition crews.
Solid State's United States net contract revenues for seismic data
acquisition services increased Cdn $3.0 million, or 54%, from Cdn $5.6 million
in fiscal 1996 to Cdn $8.6 million in fiscal 1997. The increase in net contract
revenues was the result of the availability of equipment redeployed from
multi-client data library acquisition activity and improved productivity by
Solid State's seismic data acquisition crew.
Net contract revenue for seismic data acquisition services from geographic
areas located outside North America increased Cdn $11.8 million, or 207% from
Cdn $5.7 million in fiscal 1996 to Cdn $17.5 million in fiscal 1997. One crew
operated outside North America in fiscal 1996, while three crews operated
outside North America (in South America and the Middle East) during fiscal 1997.
Multi-client data library revenues decreased Cdn $10.9 million, or 73%,
from Cdn $14.9 million in fiscal 1996 to Cdn $4.0 million in fiscal 1997.
Revenues associated with a multi-client data acquisition project in southern
Louisiana, which revenues were recorded in fiscal 1996, accounted for
approximately Cdn $8.9 million of the decrease. The Canadian multi-client data
library sales were Cdn $6.0 million in fiscal 1996 compared to Cdn $191,000 in
fiscal 1997.
Cost of Sales. Solid State's costs of sales increased Cdn $12.0 million,
or 57%, from Cdn $21.3 million in fiscal 1996 to Cdn $33.3 million in fiscal
1997. The primary reason for the increase was the higher level of activity
experienced by Solid State's seismic data acquisition crews in most geographic
segments coupled with cost overruns associated with a Venezuelan crew resulting
from adverse weather and work conditions and productivity shortfalls related to
inexperienced local management. This Venezuelan contract was completed and the
crew demobilized and returned to Solid State's core operations in Canada. At
August 31, 1997, in accordance with Canadian generally accepted accounting
principles, all anticipated losses for the Venezuelan contract were provided
for.
General and Administrative Expenses. Solid State's general and
administrative expenses increased Cdn $968,000, or 32%, from Cdn $3.0 million in
fiscal 1996 to Cdn $4.0 million in fiscal 1997. This increase is primarily
attributed to the administrative expense of the Venezuelan activities discussed
above and severance expense for certain senior managers in the course of Solid
State's corporate restructuring process.
Restructuring Costs and Other. Solid State's restructuring costs and other
decreased Cdn $642,000, or 74%, from Cdn $873,000 in fiscal 1996 to Cdn $231,000
in fiscal 1997. The charges in 1996 represented legal fees, financial advisory
fees, and certain bank charges related to various financial restructuring
initiatives. In 1997, an additional restructuring expense of Cdn $231,000 was
incurred, which represented fees paid to financial advisors charged with
locating additional capital resources for Solid State.
Depreciation and Amortization. Solid State's depreciation and amortization
increased Cdn $3.1 million, or 53%, from Cdn $5.9 million in fiscal 1996 to Cdn
$9.0 million in fiscal 1997. This is a direct result of more equipment deployed
in seismic data acquisition operations.
Interest. Solid State's short-term interest increased Cdn $1.0 million, or
109%, from Cdn $953,000 in fiscal 1996 to Cdn $2.0 million in fiscal 1997. This
increase was primarily because of additional borrowings at high interest rates.
Long-term interest increased Cdn $343,000, or 20% from Cdn $1.7 million in
fiscal 1996 to Cdn $2.1 million in fiscal 1997, reflecting higher loan balances
at slightly lower weighted interest rates.
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Year Ended August 31, 1996 Compared to the Year Ended August 31, 1995
Net Contract Revenues. Solid State's consolidated net contract revenues
from seismic data acquisition services decreased Cdn $1.6 million, or 5% from
Cdn $28.9 million in fiscal 1995 to Cdn $27.3 million in fiscal 1996. Canadian
and United States net contract revenues increased, but were more than offset by
the overall decline in net contract revenues from locations outside North
America.
Net contract revenues from seismic data acquisition services in Canada
remained unchanged at Cdn $16.0 million in fiscal 1996 and fiscal 1995.
Net contract revenues for seismic data acquisition services in the United
States increased Cdn $5.5 million, or 19,768%, from Cdn $28,000 in fiscal 1995
to Cdn $5.6 million in fiscal 1996. This increase was the result of Solid State
entering the U.S. market for approximately the first half of fiscal 1996. This
crew was re-deployed to Canada in mid-year fiscal 1996.
Net contract revenue for seismic data acquisition services from geographic
segments located outside North America decreased Cdn $7.1 million, or 56%, from
Cdn $12.8 million in fiscal 1995 to Cdn $5.7 million in fiscal 1996. Three crews
operated outside North America (two in South America and one in the Middle East)
during fiscal 1995, while only one crew operated outside North America in fiscal
1996.
Multi-client data library revenues increased Cdn $14.1 million, or 1,826%,
from Cdn $773,000 in fiscal 1995 to Cdn $14.9 million in fiscal 1996. Revenues
associated with a multi-client data acquisition project in southern Louisiana,
which revenues were recorded in fiscal 1996, accounted for approximately Cdn
$8.9 million of the increase. The Canadian multi-client data library sales
increased from Cdn $773,000 in fiscal 1995 to Cdn $6.0 million in fiscal 1996.
Cost of Sales. Solid State's costs of sales increased Cdn $866,000, or 4%,
from Cdn $20.4 million in fiscal 1995 to Cdn $21.2 million in fiscal 1996.
Higher costs for leased recording equipment in Canada of approximately Cdn $1.1
million was the primary reason for the increase.
General and Administrative Expenses. Solid State's general and
administrative expenses increased Cdn $724,000, or 32%, from Cdn $2.3 million in
fiscal 1995 to Cdn $3.0 million in fiscal 1996. The primary reason for the
increase was that Solid State opened a new office in the United States and the
expenses reflect a full year's cost component.
Restructuring Costs and Other. Solid State's restructuring costs and other
increased Cdn $873,000, as Solid State incurred charges in 1996 for legal fees,
financial advisory fees, and certain bank charges related to various financial
restructuring initiatives. There were no corresponding costs in fiscal 1995.
Depreciation and Amortization. Solid State's depreciation and amortization
expense decreased Cdn $112,000, or 2%, from Cdn $6.0 million in fiscal 1995 to
Cdn $5.9 million in fiscal 1996.
Interest. Solid State's short-term interest increased Cdn $844,000, or
774%, from Cdn $109,000 in fiscal 1995 to Cdn $1.0 million in fiscal 1996. Solid
State utilized its credit facility with a local banking institution for the
majority of 1996. Long-term debt interest increased Cdn $648,000, or 61%, from
Cdn $1.1 million in fiscal 1995 to Cdn $1.7 million in fiscal 1996. This is a
result of a net increase in long-term debt and higher interest rates.
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
The discussion under "-- Results of Operations of Solid State" has been
prepared in conjunction with the consolidated financial statements, included
elsewhere in this Prospectus, that have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). In certain aspects
GAAP as applied in the United States differs from Canadian GAAP.
Balance Sheet. Under Canadian GAAP, foreign exchange gains and losses
resulting from long-term monetary items of the reporting company are deferred
and amortized over the lives of those monetary items.
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Under U.S. GAAP these gains and losses would be expenses in the period. At
August 31, 1996 and 1997, the deferred exchange loss on the balance sheet under
U.S. GAAP would be zero.
Under U.S. GAAP the multi-client data, current portion, would be reclassed
to multi-client data, less current portion. The amounts that would be reclassed
at August 31, 1996 and 1997, are Cdn $6.0 million and Cdn $2.5 million
respectively.
Under U.S. GAAP debt covenants, violations must be waived for a full year
to classify the debt as long-term. None of the debt instruments had these
waivers. At August 31, 1997 Cdn $18.7 million currently classified as long-term
would be reclassed as current.
Consolidated Statements of Operations. For U.S. reporting, net amounts
billed to customers for reimbursable costs would have reduced revenues from
those reported in the financial statements and resulted in changed costs of
sales with no change in gross margins. The amount of revenue associated with the
reimbursable costs was Cdn $7.3 million, Cdn $12.7 million and Cdn $13.2 million
for the fiscal years ended August 31, 1995, 1996 and 1997, respectively.
Under U.S. GAAP, foreign exchange gains and losses resulting from long-term
monetary items of the reporting company are expensed in the period. Under
Canadian GAAP these gains and losses are deferred and amortized over the lives
of those monetary items. For the year ended August 31, 1995, Solid State had
gains totaling Cdn $121,000. For the fiscal years ended August 31, 1996 and
1997, Solid State had losses totaling Cdn $100,000 and Cdn $208,000,
respectively.
Additionally in the fiscal year ended August 31, 1997 for U.S. GAAP
reporting, proceeds from the conversion feature of the convertible debenture
that was issued in 1996 would have been considered part of shareholders' equity
instead of being reported as part of the debt amount. This significant amount
was determined by the difference between the conversion price for the shares and
the trading price of the shares at the date of the grant. When the debt was
retired in fiscal 1997, this difference was an additional loss on the
extinguishment of debt in the fiscal year ended August 31, 1997 in the amount of
Cdn $564,000.
SEASONALITY
GGI's land and transition zone seismic data acquisition activities were
traditionally seasonal in nature, with decreased revenues experienced during the
first quarter of each year due to the effects of weather conditions in the
United States and delays by customers in committing their annual geophysical
expenditure budgets to specific projects. The Company believes that the
Acquisition will help mitigate this traditional seasonality due to Solid State's
Canadian operations, which generally experience a peak during the first quarter
of the year, primarily due to favorable ground conditions in Canada.
IMPACT OF SOLID STATE ACQUISITION
The Company believes that the Acquisition will increase management and
operating depth, mitigate the effects of seasonality and create operating
efficiencies by consolidating operations, increasing overall crew utilization
and reducing capital expenditures. Solid State, however, has incurred operating
losses in two of its most recent three fiscal years and has experienced
significant net losses in each of its most recent three fiscal years after
accounting for costs and charges for interest, income taxes and asset
writedowns. Aggregate net losses during this three-year period totaled Cdn $21.6
million on aggregate contract revenues of Cdn $171.9 million. See the
consolidated financial statements of Solid State and notes thereto, included
elsewhere in this Prospectus.
The losses experienced by Solid State were primarily the result of
specific, identifiable events. The most significant loss incurred by Solid State
during this three-year period related to a 1996 multi-client data project in
southern Louisiana. On this project, Solid State incurred a loss of
approximately Cdn $8.6 million. This loss primarily resulted from materially
underestimated costs associated with working in swamp, marsh and river
environments where Solid State had very limited operating experience. The
collection of such multi-client data was completed in 1997, and such data was
written down to its then estimated net realizable value in connection with Solid
State's audit for fiscal 1996. At September 30, 1997, on a pro forma basis, the
carrying value of such multi-client data was approximately $11.3 million. Based
on licensing revenues actually realized and on future
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licensing prospects identified for such data through December 31, 1997,
management of the Company determined that there had been a permanent impairment
in the net realizable value of such data. As a result, management of the Company
reduced the carrying value of its multi-client data as of December 31, 1997 by
$5.9 million.
In fiscal 1997, Solid State incurred losses of approximately Cdn $5.5
million primarily related to a turnkey project for an oil company in Venezuela.
A combination of limited operating experience in the jungle environment,
combined with a lack of sufficient organizational infrastructure, resulted in
poor productivity and substantially increased costs. This project was completed
in November 1997 and the equipment and permanent personnel relocated to Solid
State's core Canadian operations. The losses associated with the Venezuelan
project were recognized in Solid State's fiscal 1997 results.
Management of the Company believes that the operating difficulties outside
of Canada that have impacted Solid State's financial results in the past three
years have been satisfactorily addressed and are less likely to reoccur in
future periods. However, because of conditions that may impair Solid State's
ability to continue as a going concern, Price Waterhouse, chartered accountants
for Solid State, has supplemented its opinion on Solid State's fiscal 1997
financial statements. There can be no assurance that the operations of Solid
State that are being purchased in the Acquisition will not incur significant
operating losses in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are its cash balances ($23.5
million at March 15, 1998) and cash flow from operations. External sources
include the unutilized portion of the Credit Facility ($5.0 million at March 15,
1998), equipment financing and trade credit. The Credit Facility contains a $5
million revolving credit facility, which currently provides for borrowings at an
interest rate per annum of the prime rate plus 2%, secured by liens on
substantially all of the assets of the Company and certain of its subsidiaries.
The Company anticipates that it will seek to replace the Credit Facility with a
new credit facility, which will provide the Company with greater borrowing
capacity. In addition to its borrowing under the Credit Facility, the Company
periodically enters into equipment financing agreements with sellers of seismic
data acquisition equipment to pay all or a portion of the purchase price of such
equipment and regularly utilizes normal trade credit in connection with certain
of its purchases of goods and services to support its ongoing field crew
activities.
On February 18, 1998, Grant issued $100 million aggregate principal amount
of Original Notes pursuant to exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act. The Original Notes are,
and the Exchange Notes will be, governed by the Indenture. The Notes bear
interest at 9 3/4% per annum and were sold at a discount to yield 9 7/8% per
annum. The net proceeds from the sale of the Original Notes were used to retire
substantially all of Grant's then outstanding indebtedness, purchase certain
leased equipment and provide for working capital.
At March 15, 1998, on a pro forma basis after giving effect to the issuance
of the Original Notes and the application of the net proceeds therefrom, the
Company's total indebtedness would have been approximately $108.1 million
(including approximately $300,000 under letters of credit). The Company's total
indebtedness is comprised of $99.2 million aggregate principal amount of the
Notes and $8.9 million of combined loans and capitalized leases incurred for the
purpose of financing capital expenditures.
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries to, among other things, incur additional
indebtedness (including capital leases), incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, issue preferred stock, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company or
any of its Restricted Subsidiaries. In addition, the Credit Facility limits the
Company from taking, without the consent of the lender, certain actions,
including creating indebtedness in excess of specified amounts and declaring and
paying dividends.
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, make principal and interest payments
required by the terms of its indebtedness and fund expenses associated with the
implementation of its business strategy. Because of the traditionally longer
period required to collect receivables and the high costs associated with
equipping and operating crews outside of the United States and
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Canada, the Company requires significant levels of working capital to fund its
international operations. On a pro forma basis, these operations accounted for
53.3% of total revenues for the twelve months ended December 31, 1997.
Combined capital expenditures for the twelve months ended December 31, 1997
were $27.1 million. Capital expenditures are used primarily by the Company to
purchase seismic data acquisition equipment. The Company committed approximately
$12 million of capital expenditures during the fourth quarter of 1997 and has
budgeted approximately $21 million of capital expenditures in 1998 to upgrade
and expand its seismic data acquisition equipment. For 1998, the Company has
also budgeted approximately $16 million of expenditures, before customer
commitments, for multi-client data acquisition activities. During the three
months ended December 31, 1997, capital expenditure commitments made by Grant
were financed primarily through the issuance of short-term promissory notes to
the sellers of equipment.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure program, fully implement
its business strategy and meet its principal and interest obligations with
respect to the Notes and its other indebtedness. The Company anticipates that
available cash, cash flow generated from operations and borrowings under the
Credit Facility will provide sufficient liquidity to fund these requirements for
the foreseeable future. However, the Company's ability to meet its debt service
and other obligations depends on its future performance, which in turn is
subject to general economic conditions and other factors beyond the Company's
control. If the Company is unable to generate sufficient cash flow from
operations or otherwise to comply with the terms of the Indenture, the Credit
Facility or its other debt instruments, it may be required to refinance all or a
portion of its existing debt or obtain additional financing. There can be no
assurance that such refinancing or additional financing will be available on
terms acceptable to the Company.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company conducts a substantial portion of its business in currencies
other than the U.S. dollar or Canadian dollar, particularly various Latin
American currencies, and its operations are subject to fluctuations in foreign
currency exchange rates. Accordingly, certain of the Company's international
contracts could be significantly affected by fluctuations in exchange rates,
particularly in Brazil and Columbia. The Company's international contracts
require payment in U.S. dollars, Canadian dollars, various local currencies or a
combination thereof. Payments in local currencies typically are indexed to
inflationary tables and generally are used for local expenses. The Company
attempts to structure the majority of its international contracts to be billed
and paid at a certain U.S. dollar conversion rate. Additionally, the Company's
foreign subsidiaries periodically enter into local currency debt to pay expenses
incurred locally. The Company presently does not use any derivatives or forward
foreign currency exchange rate hedging arrangements, but may elect to do so in
the future.
GGI's operating results were negatively impacted by foreign exchange losses
of approximately $98,000 during the nine months ended September 30, 1997, and
$251,000 during 1996. The Company's operating results were negatively impacted
by foreign exchange losses of approximately $289,000 during the three months
ended December 31, 1997. Foreign exchange gains positively impacted operating
results in 1995 by approximately $102,000.
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.
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YEAR 2000 COMPLIANCE
The Company does not expect that the cost of converting its computer
systems to year 2000 compliance will be material to its financial condition. The
Company believes that it will be able to achieve year 2000 compliance by the end
of 1999, and it does not currently anticipate any disruption in its operations
as the result of any failure by the Company to be in compliance. The Company
does not currently have any information concerning the year 2000 compliance
status of its customers and vendors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company plans to adopt SFAS 130 in the first quarter of 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company plans to adopt SFAS 131 in the first quarter of 1998.
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BUSINESS
OVERVIEW
The Company is a leading provider of seismic data acquisition services in
land and transition zone environments in selected markets, including the United
States, Canada, Latin America and the Far East. In September 1997, Grant
purchased substantially all of the assets and certain of the liabilities of GGI,
and in December 1997, completed the acquisition of Solid State, a leading
provider of land seismic data acquisition services in Canada. Through its
predecessors, including GGI and Solid State, the Company has participated in the
seismic data acquisition services business in the United States and Latin
America since the 1940s, the Far East since the 1960s and Canada since the
1970s. The Company has conducted operations in each of these markets, as well as
in the Middle East and Africa, in the past three years. The Company's seismic
data acquisition services typically are provided on an exclusive contract basis
to domestic and international oil and gas companies and seismic data marketing
companies. The Company also owns interests in certain multi-client seismic data
covering selected areas in the United States and Canada that is marketed broadly
on a non-exclusive basis to oil and gas companies.
According to industry sources, as of March 15, 1998, the Company is the
third largest land seismic data acquisition company in the western hemisphere,
based on the number of seismic data acquisition crews in operation. As of March
15, 1998, the Company was operating or mobilizing 22 seismic data acquisition
crews, consisting of 18 land and four transition zone crews, utilizing
approximately 30,000 seismic recording channels, which use sophisticated
equipment to perform specialized 3D and 2D seismic surveys. All of the Company's
seismic data acquisition crews are capable of performing surveys in land
environments, and four are equipped to perform surveys in transition zone
environments. Transition zone environments include swamps, marshes and shallow
water areas that require specialized equipment and must be surveyed with minimal
disruption to the natural environment. Three transition zone crews employ remote
digital seismic data recording systems, which are used primarily to perform
surveys in certain logistically challenging areas, such as highly populated
regions where cable-based recording systems are impractical. The Company has
over 20 years of experience operating in transition zone environments.
The Company believes that the combined operations of Grant and Solid State
will expand its market presence and enhance the Company's ability to compete
more effectively for projects in its selected markets. The Company also believes
that the Acquisition will increase management and operating depth, mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing overall crew utilization and reducing capital
expenditures. As of the date of the Acquisition, Solid State was operating a
total of nine land crews consisting of six crews in Canada, one crew in the
United States and two in Bolivia.
As of March 15, 1998, the Company was operating or mobilizing a total of
six crews in the United States, consisting of four land and two transition zone
crews, six land crews in Latin America, six land crews in Canada and four crews
in the Far East, consisting of two land and two transition zone crews. For the
twelve months ended December 31, 1997, on a pro forma basis, the Company's total
revenues were $173.9 million, with approximately 40.2% from Latin America, 35.4%
from the United States, 11.3% from Canada, 5.3% from Africa and 7.8% from the
Far East. As of December 31, 1997, the Company estimates that its total backlog
was approximately $144.4 million, with approximately 92% of such amount expected
to be completed in 1998.
BUSINESS STRATEGY
The Company's objectives are to strengthen its position as an established
provider of land and transition zone seismic data acquisition and related
services, increase revenue and revenue predictability, and improve cash flow and
profitability. To achieve these objectives, the Company is pursuing the
following business strategies:
Expand and Upgrade Seismic Services in Selected Growth Markets. The Company
plans to expand and upgrade its seismic data acquisition services in growing
markets where it has significant operating experience, including the United
States, particularly in the Gulf Coast, mid-continent and West Texas regions,
Canada, Latin America and the Far East. The Company believes that its experience
in these markets provides it with certain advantages over its competitors,
including lower mobilization costs, well established customer relationships and
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familiarity with country specific socio-political dynamics. In 1998, one of the
Company's primary expansion focuses will be on the Far East, where the Company
perceives sustainable long-term growth opportunities.
Improve Operating Efficiency and Reduce Operating Risk. The Company
continually refines its operating procedures and acquires seismic data
acquisition equipment aimed at increasing the efficiency of its seismic data
acquisition crews. The Company also intends to increase efficiency by expanding
crew level accountability, implementing additional procedures designed to
control costs, improving revenue predictability, increasing contractual weather
downtime protection and improving bidding practices. Management believes that
the Acquisition is consistent with this strategy in that it will mitigate the
effects of seasonality and create operating efficiencies by consolidating
operations, increasing crew utilization and reducing capital expenditures. In
addition, the Company has adopted policies to focus its operations primarily in
regions where it has significant operating experience and will undertake certain
higher-risk contracts only on a term or cost-plus basis. These policies are
intended to reduce the financial risks associated with operations in certain
geographic areas. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
Acquire Seismic Data Acquisition and Processing Businesses. The Company
regularly evaluates potential acquisitions of seismic data acquisition and
processing businesses to expand and strengthen its activities in its selected
markets. The United States and Canadian markets are served by a large number of
seismic data acquisition companies, and the Company believes that it can improve
its competitive position through acquisitions. The Company believes that its
utilization of the crews and equipment from such acquisitions would increase the
Company's capacity and further enable the Company to deploy crews and equipment
to international locations, which have historically yielded higher profit
margins. In addition, the Company believes that the acquisition of a seismic
data processing business would complement its existing services and thereby
improve its competitive position with existing and potential customers.
Management believes that entry into the seismic data processing business would
be accomplished best through the acquisition of an established seismic data
processing company.
Expand Selected Multi-Client Data Acquisition Activities. The Company plans
to increase its investment in non-exclusive multi-client data for licensing to
multiple oil and gas companies. Increased demand by oil and gas companies for
larger and higher cost 3D surveys has resulted in significant growth in the use
of multi-client data in active oil and gas producing regions. This increased
demand has expanded the market for such data and lowered the overall risk to
seismic data acquisition companies that acquire, process and own such data.
Recently, the Company entered into an agreement with a third party that
specializes in creating and marketing multi-client surveys. The Company intends
to conduct thorough marketing and cost analyses to determine the market demand
and funding requirements and obtain significant customer commitments before
initiating such projects, thereby reducing the overall investment risk
associated with such projects. For 1998, the Company has budgeted approximately
$16 million of expenditures, before customer commitments, for multi-client data
acquisition projects. See "Risk Factors -- Investment in Multi-Client Data
Library."
Invest in Leading Technology. The Company believes that growth in demand
for geophysical services will continue to be associated with new technologies.
The Company intends to periodically upgrade its seismic data acquisition
equipment to maintain technological capabilities comparable or superior to those
of its competitors. In addition, the Company intends to expand its use of
innovative seismic data acquisition techniques, including three-component 3D and
time-lapse 3D, or 4D, seismic data acquisition services, which are experiencing
growing market demand. For 1998, the Company has budgeted approximately $21
million of capital expenditures to upgrade and expand its seismic data
acquisition equipment.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s, and the application of seismic technology frequently has led to
significant discoveries of new oil and gas reservoirs. Seismology encompasses
the generation and recording of reflected or refracted seismic energy that, when
computer processed, produces 3D images or 2D cross sections of
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the earth's subsurface structures. The computer processed seismic data is used
by geoscientists to identify geological characteristics favorable for the
accumulation of oil and gas and to evaluate the potential for commercial
production of oil and gas. More recently, seismic data has been used to monitor
and optimize the production of existing oil and gas reservoirs. During the last
fifty years, seismology has become the leading method used by oil and gas
companies to identify and image underground geological structures favorable for
hydrocarbon accumulation. Recent advances in seismic data acquisition
techniques, coupled with improvements in computer technology, have resulted in
an increased demand for seismic data acquisition services in both the
exploration for and development of new reservoirs and the further development of
existing reservoirs.
Seismic data acquisition services companies acquire seismic data in land
and transition zone environments by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the survey. An
energy source, such as a small explosive charge or mechanical vibrating unit, is
used to generate seismic energy that moves through the earth's subsurface and is
reflected by various underlying rock layers to the surface, where it is detected
by the geophones. For 2D seismic data acquisition, the typical configuration of
geophones and energy sources is a single line with an energy source and small
groups or strings of geophones placed at even intervals every few hundred feet
along the line. A geophone string typically consists of six to twelve geophones
connected by a cable. For 3D seismic data acquisition the typical configuration
is generally a grid of perpendicular lines spaced a few hundred to a few
thousand feet apart, with geophone strings spaced at intervals every few hundred
feet along one set of parallel lines and energy sources spaced at intervals
every few hundred feet along the perpendicular lines. Recording configurations
must be carefully designed to provide optimal imaging of the targeted subsurface
structures, while taking into account surface obstructions such as oil and gas
wells and pipelines, or restricted areas where permits to enter cannot be
obtained.
As many as six geophone strings are connected to a field recording box,
which collects the seismic data from those geophones. The electrical output of
each geophone string becomes the electrical input for one recording channel, or
"trace," of seismic data. Once the geophones and field recording boxes are
deployed over a portion of the survey area, an energy source is activated, the
reflected seismic energy is detected by the geophones, and the signals from the
geophones are collected and digitized by the field recording boxes. These boxes
in turn transmit the seismic data by cable, radio telemetry or through hand-held
data collection units to a central recording system. The geophones and field
recording boxes from one end of the single recording line in the case of 2D
seismic data, or an area of multiple recording lines in the case of 3D seismic
data, are then removed and relocated elsewhere in the survey area. The seismic
energy source is again activated and the entire process is repeated, moving a
few hundred feet at a time, until the entire survey area is covered.
Historically, the acquisition of 2D seismic data was the principal seismic
data acquisition technique. However, with the advancement and miniaturization of
seismic data recording equipment and the improvement of computer technology in
the past ten years, high-density surveys, or 3D seismic data, which provide a
much more comprehensive subsurface image, have become the industry standard.
Recent technical advances in seismic data acquisition and computer processing
have also resulted in the acquisition of higher-resolution surveys using
three-component geophones, known as 3C-3D, which permit the recording of shear
wave information, in addition to conventional vertical profile seismic data. In
addition, the industry is increasingly utilizing time-lapse 3D, or 4D, seismic
data acquisition techniques, where surveys are periodically reacquired to
monitor and optimize production of existing reservoirs.
Technical advances in the seismic services industry have increased the
probability of oil and gas exploration success and improved the delineation of
subsurface geological structures, which have in turn lowered overall exploration
and development costs and increased worldwide demand for seismic services. In
addition, the industry is experiencing growing demand for non-exclusive
multi-client seismic data due to the high cost and risk of drilling exploration
wells and the relatively high cost of acquiring and processing 3D seismic data.
Multi-client data allows numerous oil and gas companies to purchase the same
seismic data, thereby expanding the overall market for such data while lowering
the price charged each customer.
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LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A seismic data acquisition crew typically consists of a surveying crew that
lays out the lines to be recorded and marks the sites for energy source or
geophone placement and equipment location, an explosives or mechanical vibrating
or compressed air unit crew, and a recording crew that lays out the geophones
and field recording boxes, directs shooting operations and records the seismic
energy reflected from subsurface structures. A land seismic data acquisition
crew utilizing an explosives unit is supported by several drill crews, generally
furnished by third parties under short-term contracts. Drill crews operate in
advance of the seismic data acquisition crew and bore shallow holes for small
explosive charges that, when detonated, produce the necessary seismic impulse.
In locations where conditions dictate or where the use of explosives is
precluded due to regulatory, topographical or ecological factors, a mechanical
vibrating unit or compressed air unit is substituted for explosives as the
seismic energy source. The Company also employs specialized crew mobilization
equipment to improve productivity in certain applications, including helicopters
for rugged terrain or in agricultural areas, small water craft for transition
zone applications, and man-portable equipment in jungle and other environments
where vehicular access is limited. Depending on the size of the seismic survey,
the location and other logistical factors, a typical land seismic data
acquisition crew operated by the Company may involve from as few as 30 to as
many as 1,500 employees.
One of the challenges inherent in land seismic data acquisition is
operating in challenging logistical environments without disrupting the
sensitive ecosystems in which surveys are frequently located. The Company
currently operates three seismic crews that employ remote digital seismic
equipment, which can be deployed without the use of conventional seismic cables,
thereby allowing access to such environments. Remote digital seismic equipment,
which uses radio signals to transmit data, is typically used in transition zone
and other logistically challenging environments such as highly populated regions
with numerous topographic obstructions and areas where conventional cable-based
recording systems are impractical. The Company has over 20 years of experience
operating in transition zone environments in the Gulf Coast region of the United
States, the Far East and Africa.
Once recorded by the seismic data acquisition crew, seismic data is
computer processed to enhance the recorded signal by reducing noise and
distortion and improving resolution to produce a representation of the survey
site's subsurface structures. The Company presently does not perform seismic
data processing services, although it plans to initiate such services in the
future. See " -- Business Strategy -- Acquire Seismic Data Acquisition and
Processing Businesses."
The Company markets its seismic data acquisition services from its Houston
and Calgary corporate offices and its regional and international administrative
centers by personnel whose duties include technical, supervisory or executive
responsibilities. The Company works closely with its clients to plan seismic
data acquisition projects in accordance with their specifications. Contracts are
executed with oil and gas companies on either a turnkey, term or cost-plus
basis. Turnkey contracts provide for payments from customers based upon the
amount of data collected. Term contracts provide that the customer is
responsible for a periodic fee during the term of the project. Cost-plus basis
contracts provide that the costs of a project plus a percentage fee are borne by
the customer, which significantly reduces the Company's risk of a cost overrun.
In addition, the Company's contracts typically specify the amount of weather and
other downtime risk that will be borne by the Company.
Contracts are usually awarded on a competitive bid basis. Contracts for
seismic data acquisition services outside the United States are typically
denominated in U.S. dollars, Canadian dollars or other currencies that the
Company believes to be stable. The Company's operations in certain areas outside
the United States and Canada may, however, require the Company to denominate
contracts in the local currency or partially in U.S. dollars and partially in
the currency of the country of operation. In such contracts, the local currency
is usually used to pay local crew-related expenses. See "Risk Factors -- Risks
Inherent in International Operations" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Foreign Exchange Gains and
Losses."
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MARKETS
The Company is presently active in the United States, Canada, Latin America
and the Far East and has conducted activities in the Middle East and West Africa
within the last three years. The following table sets forth the Company's
revenues by geographic area, on a pro forma basis, for the periods shown:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
United States................................ $ 51,079 $ 53,485 $ 61,630
Canada....................................... 16,796 15,824 19,591
Latin America................................ 32,623 60,688 69,877
Far East..................................... 3,621 5,412 13,482
Africa and Middle East....................... 19,346 2,746 9,285
-------- -------- --------
$123,465 $138,155 $173,865
======== ======== ========
- ---------------
Solid State's fiscal year end is August 31. For pro forma purposes, revenues
for Solid State have been adjusted to reflect the periods December 1 through
November 30 for each of the years ended 1995 and 1996 and to reflect the
period December 1, 1996 through August 31, 1997 to combine with GGI's years
ended 1995 and 1996 and the nine months ended September 30, 1997 and the
Company's three months ended December 31, 1997. The revenues for the three
months ended December 31, 1997 includes the combined operations of Solid
State and Grant. See Note 1 to the consolidated financial statements of the
Company. See Note 5 to the consolidated financial statements of the Company
and GGI and Note 11 to the consolidated financial statements of Solid State
for additional geographic information.
BACKLOG
The Company's backlog for seismic data acquisition services represents the
revenues anticipated to be received by the Company in connection with
commitments for contracted services received from its customers. As of December
31, 1997, the Company estimates that its total backlog was approximately $144.4
million, with approximately 92% of such amount expected to be completed in 1998,
as compared to a total backlog of approximately $100 million as of December 31,
1996. Most of the Company's contracts are terminable by the customer upon
relatively short notice and, in some cases, without penalty. The Company's
backlog as of any particular date is not indicative of the likely operating
results for any succeeding period, and there can be no assurance that the amount
of backlog will ultimately be realized as revenue.
CAPITAL EXPENDITURES AND TECHNOLOGY
The Company's ability to compete and maintain a significant market position
in the land seismic data acquisition business is partially driven by its ability
to provide technology comparable to that of its primary competitors.
Accordingly, the Company continually maintains and periodically upgrades its
seismic data acquisition equipment to maintain its competitive position. The
Company committed approximately $12 million of capital expenditures during the
fourth quarter of 1997 and has budgeted approximately $21 million for this
purpose in 1998. Capital expenditures in 1998 will be used principally to
upgrade and expand its seismic data acquisition equipment. In addition, the
Company has budgeted approximately $16 million of expenditures, before customer
commitments, for multi-client data acquisition projects in 1998.
In connection with its capital expenditure program, the Company focuses its
efforts on developing operating procedures and acquiring equipment that will
enhance the efficiency of its seismic data acquisition crews and reduce the time
required to complete projects. The Company's strategy does not contemplate the
development of proprietary seismic data acquisition equipment, but instead
relies on the use of third-party equipment suppliers to provide such equipment,
although certain equipment will be customized to the Company's specifications to
enhance operating efficiency. Certain of the equipment, processes and techniques
used by the Company are subject to the patent rights of others, and the Company
holds non-exclusive licenses with respect to a number of such patents. While the
Company regards as beneficial its access to third-party technology through
licensing, the Company believes that substantially all presently licensed
technology could be replaced without significant disruption to the business.
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LICENSING OF MULTI-CLIENT DATA
The Company presently owns a small library of multi-client seismic data
that is licensed to oil and gas companies on a non-exclusive basis and has an
interest in certain multi-client data that is owned by third-parties. This data
was previously acquired by GGI and Solid State in three principal areas:
southern Louisiana, New Mexico and western Canada. At December 31, 1997, the
carrying value of multi-client data acquired by Solid State was approximately
$5.7 million.
In October 1997, Grant entered into an agreement with Millennium Seismic,
Inc. ("Millennium") to develop, market and regularly conduct non-exclusive
seismic surveys. Millennium's management has significant experience in the
planning, development and sale of multi-client surveys in the United States.
Under the agreement with Millennium, all surveys developed and acquired will be
owned by the Company, and Millennium will receive payments based on the revenues
obtained through licensing the acquired data. The Company plans to expand its
acquisition of multi-client seismic data by conducting additional surveys that
are partially or wholly funded by multiple customers. For 1998, the Company has
budgeted approximately $16 million of expenditures, before customer commitments,
for multi-client data acquisition activities.
Factors considered by the Company when determining whether to undertake a
multi-client survey include the availability of customer commitments to offset a
percentage of the survey cost, the number of potential customers for the
completed data, the location to be surveyed, the probability and timing of
future lease, concession, exploration and development activity in the area, and
the availability, quality and price of competing data. Although the Company
anticipates obtaining commitments for a substantial majority of the cost of any
future multi-client data survey and conducts thorough market and cost analyses
to determine the market demand and necessary funding prior to undertaking a
project, the Company still may not be able to fully recoup its costs if it
substantially underestimates the cost or overestimates market demand for such
multi-client project. See "Risk Factors -- Investment in Multi-Client Data
Library."
CUSTOMERS AND PROJECTS
The Company's customers consist of domestic and international oil and gas
companies and seismic data marketing companies. As is the case for many service
companies in the oil and gas industry, a relatively small number of customers or
a limited number of significant projects may account for a large percentage of
the Company's net sales in any given year. Moreover, such customers and projects
may, and often do, vary from year to year. During 1996 and the first nine months
of 1997, GGI's five largest customers accounted for approximately 42.3% and
53.0%, respectively, of GGI's net sales. GGI, during 1996, had revenues from a
U.S. based international oil company of approximately $14.8 million (14%). In
the first nine months of 1997, GGI had revenues from a foreign national oil
company of approximately $14.0 million (15%) and also from a U.S. based
exploration company of approximately $9.9 million (11%). During 1997, on a pro
forma basis, the five largest customers of the Company accounted for
approximately 31.9% of the Company's net sales. During 1997, on a pro forma
basis, no customer accounted for 10% or more of the Company's combined revenues.
Although GGI and Solid State have had long-term relationships with numerous
customers, the continuation of these relationships is primarily dependent on the
customers' needs for the Company's services and the customers' ongoing
satisfaction with the price, quality, dependability and availability of the
Company's services. See "Risk Factors -- Reliance on Significant Customers and
Projects."
COMPETITION
The acquisition of seismic data for the oil and gas industry is highly
competitive worldwide. However, as a result of changing technology and increased
capital requirements, the seismic industry has consolidated substantially since
the late 1980s, thereby reducing the number of competitors. The Company's
principal competitors in North America are Western Atlas, Inc. ("Western
Atlas"), Veritas DGC, Inc., Geco-Prakla Inc., a subsidiary of Schlumberger
Limited, and several regional competitors. In Latin America and the Far East,
the Company competes with Western Atlas, Compagnie General de Geophysique,
Geco-Prakla, and several other local competitors. Competition is based primarily
on price, crew availability, prior performance, technology,
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safety, quality, dependability and the contractor's expertise in the particular
area where the survey is to be conducted. See "Risk Factors -- Competition for
Seismic Business."
EMPLOYEES
As of December 31, 1997 the Company employed approximately 750 full-time
personnel worldwide and approximately 2,600 auxiliary field personnel on
temporary contracts. None of the Company's employees is subject to collective
bargaining agreements. The Company considers its relations with its employees to
be good.
PROPERTIES
The Company owns a 30,000 square foot building and storage yard in Houston,
Texas which serves as its corporate headquarters, warehouse and staging
facility. The Company also owns its office, staging and repair facility located
on a two acre tract in New Iberia, Louisiana. In Calgary, Alberta, Canada, the
Company owns an 18,000 square foot building and storage yard that serves as the
Company's Canadian headquarters. In addition, the Company leases office,
warehouse and storage space in areas throughout the world as may be required
from time to time to support the Company's operations.
ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION
The Company's domestic operations are subject to a variety of federal,
state and local laws and regulations relating to the protection of human health
and the environment, the violation of which may result in civil or criminal
penalties. The Company invests financial and managerial resources to comply with
such laws and regulations and management believes that it is in compliance in
all material respects with applicable environmental laws and regulations.
Although such environmental expenditures by the Company historically have not
been significant, there can be no assurance that these laws and regulations will
not change in the future or that the Company will not incur significant costs in
the future performance of its operations. The Company is not involved in any
legal proceedings concerning environmental matters and is not aware of any
claims or potential liability concerning environmental matters that could have a
material adverse impact on the Company's business or consolidated financial
condition.
The Company's operations outside of the United States are subject to
similar environmental regulation in a number of foreign locations, including
Canada, Latin America, and the Far East. Management believes that the Company is
in material compliance with the existing environmental requirements of these
foreign governmental bodies. The Company has not incurred any significant
environmental cost in connection with the performance of its foreign operations;
however, any regulatory changes that impose additional environmental
restrictions or requirements on the Company or its customers could adversely
affect the Company through increased operating costs and decreased demand for
the Company's services.
LEGAL PROCEEDINGS
On December 11, 1997, certain 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 SSGI. The lawsuit
alleges that (i) GGI and Elliott breached their obligations under the Plan by
seeking to complete the Acquisition prior to commencing the Subscription
Offering, (ii) the Acquisition and certain related transactions are unfair to
the Plaintiffs because they dilute the value of the Common Stock to be issued to
them under the Subscription Offering and impair the Company's equity value and
(iii) the Acquisition and certain related transactions could and should have
been, but were not, adequately disclosed in the disclosure statement filed with
the Bankruptcy Court regarding the Plan. The Plaintiffs have requested (i)
compensatory and punitive damages in an unstated amount and (ii) revocation of
the Plan.
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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. Currently, discovery for the lawsuit is ongoing;
however, no trial date has been set. The Company believes that all claims by the
Plaintiffs are without merit and plans to vigorously defend the lawsuit. In
addition, Elliott has agreed to indemnify the Company against any liability that
the Company may incur by reason of any adverse final judgment in the lawsuit.
Nevertheless, if not resolved in the Company's favor, this lawsuit, and the
potential for other lawsuits related to the Plan, could have an adverse effect
on the Company's business, reputation, operating results and financial
condition.
The Company is also involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on its
consolidated operations or financial position.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and current principal position of each director, executive
officer and significant employee of the Company are as follows:
NAME AGE POSITION
---- ------ --------
Jonathan D. Pollock 34 Chairman of the Board
Larry E. Lenig, Jr. 49 President, Chief Executive Officer and Director
Mitchell L. Peters 42 Senior Vice President
Michael P. Keirnan 46 Vice President and Chief Financial Officer, Treasurer and
Secretary
Barry K. Burt 48 Vice President-International Operations
D. Hugh Fraser 50 Vice President-United States Operations
W. Richard Anderson 44 Director
James R. Brock 38 Director
J. Kelly Elliott 67 Director
Donald G. Russell 66 Director
Donald W. Wilson 50 Director
Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any directors or executive officers of the
Company. See "Certain Relationships and Related Transactions -- Principal
Stockholders" for a description of certain other relationships between or among
directors and executive officers of the Company.
JONATHAN D. POLLOCK has served as Chairman of the Board of the Company
since September 30, 1997. Mr. Pollock has served as a Portfolio Manager with
Stonington Management Corporation, the management company of Elliott and
Westgate since 1989. Mr. Pollock is also a director of Tatham Offshore, Inc., an
oil and gas exploration services company, a director of F-W Oil Interests, Inc.,
an oil and gas exploration and production company, a director and Chairman of
Horizon Offshore, Inc., an oil and gas pipeline construction company, and a
director and Chairman of Horizon Barge and Towing, Inc.
LARRY E. LENIG, JR. has served as President, Chief Executive Officer and a
director of the Company since September 30, 1997, and President and Chief
Operating Officer of GGI from January 1997 until September 30, 1997. From 1993
through 1996, Mr. Lenig was engaged in private consulting to a variety of energy
and energy services companies and financial institutions. Mr. Lenig served as
President and Chief Operating Officer and a director of Digicon Inc., a seismic
services company, from 1989 until 1993.
MITCHELL L. PETERS has served as Senior Vice President of the Company since
December 1997 and has served as President, Chief Executive Officer and a
director of Solid State since 1985. Mr. Peters is also a director of Nortech
Geomatics Inc., an engineering services company.
MICHAEL P. KEIRNAN has served as Vice President and Chief Financial Officer
of the Company since September 30, 1997, and was Vice President and Chief
Financial Officer of GGI from February 1997 until September 30, 1997. From March
1996 until February 1997, Mr. Keirnan served as Manager of Treasury Operations
of Gundle/SLT Environmental, Inc., a plastic lining manufacturing company. Mr.
Keirnan also served as Controller and Treasurer of GGI from 1993 through March
1996 and held other senior financial management positions with GGI since 1988.
BARRY K. BURT has served as Vice President-International Operations of the
Company since September 30, 1997, and was Vice President-International
Operations of GGI from December 1996 until September 30, 1997. From 1986 through
December 1996, Mr. Burt held a variety of management positions with GGI in
international operations.
D. HUGH FRASER has served as Vice President-United States Operations of the
Company since September 30, 1997, and was Vice President-United States
Operations of GGI from January 1992 until September 30, 1997. From 1986 through
January 1992, Mr. Fraser was an area manager of United States operations with
GGI.
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W. RICHARD ANDERSON has served as a director of the Company since January
1998. Mr. Anderson previously served as a director of Solid State from December
1996 through December 1997. He has served as a managing partner of Hein +
Associates LLP, a certified public accounting firm, since January 1995 and as a
partner since 1989.
JAMES R. BROCK has served as a Director of the Company since January 1998.
Mr. Brock has served as Executive Vice President and Chief Financial Officer of
F-W Oil Interests, Inc., an oil and gas exploration and production company,
since January 1995. From November 1990 through December 1995, Mr. Brock served
as Treasurer, Corporate Controller and Chief Accounting Officer of Offshore
Pipelines, Inc., a marine engineering and construction company.
J. KELLY ELLIOTT has served as a director of the Company since September
30, 1997. Until that time, Mr. Elliott was Chairman of the Board of GGI
beginning on November 20, 1996. He previously served as Chairman of the Board of
GGI from June 1993 through November 1995. Mr. Elliott has served as Chairman,
President, and Chief Executive Officer of Sigma Electronics, Inc., an
electronics and manufacturing company, since 1991. Mr. Elliott is also a
director of Tescorp, Inc., a cable-manufacturing company. Mr. Elliott has no
affiliation with Elliott or Westgate.
DONALD G. RUSSELL has served as a director of the Company since September
30, 1997 and a director of GGI from February 1997 until September 30, 1997 and
from July 1993 through November 1995. Mr. Russell has served as Chairman of the
Board and Chief Executive Officer of Sonat Exploration Company, an oil and gas
exploration company, since 1988, and a director of Sonat, Inc., a diversified
energy company, since 1994.
DONALD W. WILSON has served as a Director of the Company since January
1998. Mr. Wilson has served as President and Chief Executive Officer of F-W Oil
Interests, Inc., an oil and gas exploration and production company, since
January 1996. From January 1995 through December 1995, Mr. Wilson served as
Executive Vice President - Worldwide Operations of J. Ray McDermott, S.A., a
marine engineering and construction company. From December 1992 through December
1994, Mr. Wilson served as President of O.P.I. International, Inc., a subsidiary
of Offshore Pipelines, Inc.
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company will be paid a monthly retainer of
$1,000 and $500 for each board or committee meeting attended by such director.
Under the Incentive Plan (as defined below), each nonemployee director of the
Company will receive 3,000 restricted shares of Common Stock on the date that
such director is first elected (after the adoption of the Incentive Plan) and
again upon the date of each subsequent reelection to the Board of Directors.
Nonemployee directors are also eligible to receive other awards under the
Incentive Plan. See "-- 1997 Equity and Performance Incentive Plan."
COMPENSATION OF EXECUTIVE OFFICERS
The Company was organized in September 1997 and did not conduct any
operations or have any employees before the Effective Date. As a result, the
Company does not have any executive officers with respect to whom disclosure of
executive compensation is required under the Securities Act or the rules and
regulations promulgated thereunder.
EMPLOYMENT AGREEMENTS
Grant and Solid State have entered into employment agreements (the
"Employment Agreements") with Larry E. Lenig, Jr. and Mitchell L. Peters (the
"Executive Officers"), respectively. The Employment Agreements have an initial
term through December 31, 2000 and provide for annual base salaries of $180,000
for Mr. Lenig and Cdn $230,000 for Mr. Peters. Mr. Lenig's Employment Agreement
also provides for an annual bonus based on the Company's performance. The
Employment Agreements provide generally that, if the Executive Officer is
terminated for any reason other than for "cause" (as defined in the Employment
Agreements), the Company must: (i) in Mr. Lenig's case, make base salary
payments for the remainder of his Employment Agreement's term, and (ii) in Mr.
Peters' case, make a payment equal to two-times his base salary in effect as of
the date of
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termination. Each of Mr. Lenig and Mr. Peters has agreed pursuant to the
Employment Agreements not to compete with the Company by engaging in any
"competing business" (as defined in the Employment Agreements) for a period of,
in Mr. Peters' case, 24 months following termination of employment or, in Mr.
Lenig's case, 24 months following the term of his agreement.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan) was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997 and amended to increase the total shares available under the
Incentive Plan in February 1998. A total of 1,450,000 shares of Common Stock has
been reserved for issuance under the Incentive Plan. The Incentive Plan provides
for the grant to officers (including officers who are also directors),
employees, consultants and nonemployee directors of the Company and its
subsidiaries, of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code"), nonstatutory stock options,
stock appreciation rights and restricted shares and deferred shares of Common
Stock (collectively, the "Awards"). The Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
nonemployee directors. The Board of Directors or its designated committee will
select the employees and nonemployee directors to whom Awards may be granted and
the type of Award to be granted and determine, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. There are no awards currently
outstanding under the Incentive Plan. The Board of Directors, however, has
approved the grant of options to purchase an aggregate of 1,339,900 shares of
Common Stock to certain officers and other key employees of the Company. Options
approved by the Board of Directors will vest annually in equal one-third
increments beginning on December 31, 1998, and have an average exercise price of
$6.07 per share.
401(k) PLAN
The Company has assumed GGI's defined contribution retirement plan, which
complies with Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan
was adopted by GGI in January of 1989 and assigned to the Company as of the
Effective Date. Substantially all U.S. based employees of the Company and its
subsidiaries with at least six months of continuous service are eligible to
participate and may contribute from 1% to 15% of their annual compensation.
Under the 401(k) Plan, the Company may provide matching contributions of a
discretionary percentage, as determined by the Board of Directors, of an
employee's contributions.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDERS
In connection with the consummation of the Plan, the Principal Stockholders
satisfied certain claims of Foothill Capital Corporation against GGI (the
"Foothill Claim") in the principal amount of approximately $12.7 million. In
addition, Westgate purchased certain claims of Oyo Geospace Corporation against
GGI (the "Oyo Claim") that were assumed by Grant, in the principal amount of
approximately $6.9 million, and the Principal Stockholders purchased certain
claims of Madeleine L.L.C. against GGI (the "Madeleine Claim"), in the principal
amount of approximately $5.6 million. The Principal Stockholders' satisfaction
of the Foothill Claim was credited against the cash obligation under the Cash
Purchase Price. In exchange for the satisfaction of the Foothill Claim and the
cancellation of the Oyo Claim, Grant issued 19,571.162 shares of Preferred Stock
to the Principal Stockholders. The Preferred Stock provides for dividends
payable in additional shares of Preferred Stock at a rate of 10.5% per annum,
the right to designate two members of the Board of Directors, the right to vote
on certain extraordinary matters presented for a stockholder vote and, upon
certain events of default, the right to designate two additional members to the
Board of Directors. On December 19, 1997, Grant exchanged 9,571.162 shares of
Preferred Stock held by Elliott for the Subordinated Note. Elliott loaned $10.2
million to the Company on November 26, 1997, under a demand promissory note (the
"Promissory Note"), with interest at a rate per annum equal to the prime rate
plus 2%. On December 30, 1997, the Principal Stockholders and the Company paid
the remainder of the Cash Purchase Price, approximately $34.8 million, which
included the satisfaction of the Madeleine Claim and the cancellation of the
Promissory Note, and the Company issued 9.5 million shares of Common Stock to
the Principal Stockholders in accordance with the Plan. In addition, upon
consummation of the Subscription Offering, Elliott is entitled to receive
237,500 shares of Common Stock pursuant to the Plan.
Elliott is a Delaware limited partnership and Westgate is a Cayman Islands
limited partnership, each of which invests and trades in a wide range of United
States and non-United States equity and debt securities and other financial and
investment interests, instruments and property. The general partners of Elliott
are Paul E. Singer and Braxton Associates, L.P., which was formed by Mr. Singer
in 1975. Elliott commenced operations in 1977, and its limited partners include
pension plans, corporations, family groups, individuals and a substantial
investment by Mr. Singer and his family. The general partner of Westgate is
Hambledon, Inc., a corporation controlled by Braxton Associates, L.P. Elliott
and Westgate are each managed by Stonington Management Corporation, a
corporation controlled by Mr. Singer. Jonathan D. Pollock, Chairman of the Board
of the Company, is also a Portfolio Manager with Stonington Management
Corporation and a director of F-W Oil Interests, Inc. In addition, Donald W.
Wilson and James R. Brock, directors of the Company, are officers of F-W Oil
Interests, Inc., an affiliate of the Principal Stockholders.
Pursuant to the Plan, the Principal Stockholders will offer 3,459,414
shares of Common Stock in connection with the Subscription Offering to certain
holders of claims and other interests under the Plan. On December 24, 1997, the
Company filed the Subscription Offering Registration Statement with the
Commission to register such shares. The Company will not receive any proceeds
from the Subscription Offering. The Principal Stockholders expect to commence
the Subscription Offering as soon as practicable after the Subscription Offering
Registration Statement becomes effective. In addition, Elliott has agreed to
indemnify the Company against any liability that the Company may incur by reason
of an adverse final judgment in the lawsuit brought by the Plaintiffs in the
Bankruptcy Court. See "Business -- Legal Proceedings."
LOAN AND SECURITY AGREEMENT
On October 1, 1997, Grant and Elliott entered into the Credit Facility
under which the Company may borrow up to an aggregate principal amount of $5
million in revolving loans. The Company is required to pay interest on the
outstanding principal balance of revolving loans at a rate per annum equal to
the prime rate plus 2%. The term of the Credit Facility runs through March 31,
1999 at which time all obligations of the Company under the Credit Facility are
due and payable. Elliott advanced $1.6 million of revolving loans pursuant to
the Credit Facility and also advanced the Acquisition Financing under a $15.8
million term note pursuant to the Credit Facility. The Company used a portion of
the proceeds from the offering of the Original Notes to repay the Acquisition
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Financing and other indebtedness under the Credit Facility. The revolving loans
and any term notes under the Credit Facility are secured by liens on
substantially all of the assets of the Company and its subsidiaries and a pledge
by the Company of certain notes and all the outstanding shares of capital stock
of its subsidiaries. Certain subsidiaries of the Company have executed a
guaranty in favor of Elliott, each of which guarantees payment of all the
Company's obligations owed to Elliott under the Credit Facility. Each such
subsidiary has pledged its assets in favor of Elliott to secure its obligations
under its respective guaranty.
PRINCIPAL STOCKHOLDERS REGISTRATION RIGHTS AGREEMENT
On September 19, 1997, the Principal Stockholders and the Company entered
into a registration rights agreement, as amended (the "Principal Stockholders
Registration Rights Agreement"). Pursuant to the Principal Stockholders
Registration Rights Agreement, stockholders holding at least 25% of the
Registrable Securities (as defined below) have the right to require, or
"demand," registration of such Registrable Securities. Such demand rights are
subject to the condition that the Company would not be required to effect more
than five demand registrations and no more than three demands within any
twelve-month period. Such holders also have the right to participate, or
"piggyback," in equity offerings, if the Company proposes to register any of its
equity securities under the Securities Act for its own account or for the
account of other stockholders, subject to reduction of the size of such offering
on the advice of the underwriters. "Registrable Securities" is defined in the
Principal Stockholders Registration Rights Agreement as all shares of capital
stock issued to the Principal Stockholders in connection with the Plan or the
Acquisition and any equity securities of the Company issued or distributed in
respect thereof by way of any rights offering, stock dividend, stock split or
other distribution, recapitalization or reclassification and any equity
securities acquired upon exercise or conversion of any such securities. The
Company is required to pay all expenses in connection with such demand and
piggyback registrations and is required to indemnify the selling stockholders
against certain liabilities, including liabilities under the Securities Act. The
rights provided in the Principal Stockholders Registration Rights Agreement are
transferable to transferees of Registrable Securities. The Company is
registering the Common Stock offered by the Principal Stockholders in connection
with the Subscription Offering pursuant to the Principal Stockholders
Registration Rights Agreement.
SOLID STATE AND THE ACQUISITION
Prior to the Tender Offer, the Principal Stockholders held an aggregate of
9,305,109 shares (representing approximately 62.5% of the fully diluted shares)
of Solid State Stock. In connection with the Acquisition, the Principal
Stockholders transferred their shares of Solid State Stock to Grant in exchange
for 4,652,555 shares of Common Stock. Grant subsequently contributed the shares
of Solid State Stock to SSGI prior to the completion of the Tender Offer. In
connection with the Tender Offer, the Principal Stockholders advanced the
Acquisition Financing to enable SSGI to consummate the Tender Offer. As a result
of the Acquisition, Grant, through SSGI, assumed $36.4 million of debt of Solid
State (the "Solid State Debt") of which $16.7 million was held by the Principal
Stockholders, which included approximately $4.2 million loaned to Solid State
and the U.S. Subsidiary by the Principal Stockholders and approximately $12.5
million loaned to the U.S. Subsidiary by Elliott under various promissory notes.
The Company used a portion of the proceeds from the offering of the Original
Notes to repay substantially all of this indebtedness.
In April 1996, the Principal Stockholders acquired 266,100 shares of Solid
State Stock at an approximate price of $1.80 per share. On April 23, 1996, the
U.S. Subsidiary issued to the Principal Stockholders a $2 million 8% Convertible
Debenture due April 30, 2001, convertible into 1,141,667 shares of Solid State
Stock. In addition, the Principal Stockholders loaned the U.S. Subsidiary $3
million due December 31, 1996 pursuant to a secured loan agreement, with
interest at 18% per annum. Such loans, and all other loans (described below) by
the Principal Stockholders to the U.S. Subsidiary, were guaranteed by Solid
State. As part of these transactions, the Principal Stockholders received
warrants to acquire 105,000 shares of Solid State Stock at an exercise price of
Cdn $2.76 per share.
On October 16, 1996, the Principal Stockholders subscribed for 3,044,444
shares of Solid State Stock at a price of Cdn $1.35 per share for aggregate
proceeds of $3 million. In addition, pursuant to a secured loan agreement, the
Principal Stockholders advanced $9 million to the U.S. Subsidiary. The loan was
due October 31,
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1999, and required Solid State to use its best efforts to complete a rights
offering to raise at least $4 million to pay down the loan by January 31, 1997.
Upon such repayment, the interest rate was to be reduced from 18% to 15%. The
proceeds were used for working capital and to retire the April 23, 1996 loans.
As part of the transaction, the Principal Stockholders received 125,000 warrants
to acquire shares of Solid State Stock at an exercise price of Cdn $1.65 per
share and the warrants issued as part of the April 23, 1996 transaction were
canceled.
On December 2, 1996, each of Richard Anderson, a nominee of Elliott serving
on the board of directors of Solid State, and Michael Latina, an employee of
Elliott and a director of Solid State, were awarded options to acquire 20,000
shares of Solid State Stock at an exercise price of Cdn $1.00 per share. In
January 1997, Elliott granted to Mitchell Peters, as an incentive, an option to
acquire 546,285 shares of Solid State Stock owned by Elliott at an exercise
price of Cdn $0.92 per share after payment to Elliott of Cdn $50,000 for the
option, such option to be exercisable commencing February 1998. In addition, in
connection with the Tender Offer, Elliott agreed to repurchase such option from
Mr. Peters upon taking up any shares under the Tender Offer for an aggregate
consideration of approximately Cdn $1.4 million, representing the difference in
the Tender Offer price and exercise price multiplied by 546,285, less Cdn
$50,000. In connection with the Acquisition, Grant assumed Elliott's obligation
to repurchase such option.
In January 1997, Elliott and Westgate subscribed for 4,459,565 and
1,410,000 shares, respectively, at Cdn $0.92 per share. Aggregate proceeds of $4
million were used to retire indebtedness to Westgate and to reimburse expenses
of the Principal Stockholders.
On October 31, 1997, the Principal Stockholders exercised their warrants to
acquire 125,000 shares of Solid State Stock. The proceeds from the issuance of
the warrants were applied by Solid State to reduce the consolidated indebtedness
owed by Solid State to Elliott.
As of December 31, 1997, Solid State and the U.S. Subsidiary had
outstanding to the Principal Stockholders approximately $4.2 million in
principal amount under a loan agreement, which matures on October 31, 1999, and
the U.S. Subsidiary had outstanding to Elliott approximately $12.5 million in
aggregate principal amount under various promissory notes, all of which bear
interest at 15% per annum. The maturities of such promissory notes were extended
to March 31, 1999, prior to the offering of the Original Notes. The Company used
a portion of the proceeds from the offering of the Original Notes to repay
substantially all of this indebtedness.
APPLICATION OF PROCEEDS FROM THE ISSUANCE OF THE ORIGINAL NOTES
The net proceeds received by the Company from the issuance of the Original
Notes were used in part to repay certain indebtedness of the Company held by
Elliott, including the Subordinated Note in the principal amount of
approximately $9.8 million, the Acquisition Financing in the principal amount of
$15.8 million, and $1.6 million of revolving loans under the Credit Facility.
The net proceeds from the issuance of the Original Notes were also used in part
to repay certain indebtedness of the Company, which was incurred by Solid State,
to the Principal Stockholders, totaling approximately $16.7 million in aggregate
principal amount. In addition, the net proceeds of the issuance of the Original
Notes were used in part to repay approximately $1.6 million of accrued interest
owed to the Principal Stockholders.
OTHER
The Company engages, in the ordinary course of business, in various
transactions with its subsidiaries on a regular basis. These transactions
include the transfer of personnel and equipment, advances, repayments,
guarantees, and other similar transactions.
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and Preferred Stock as of the date of this
Prospectus by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of the Common Stock or Preferred Stock,
(ii) each director and executive officer and (iii) all executive officers and
directors as a group. Unless otherwise indicated, each person has sole voting
power and investment power with respect to the shares attributed to them.
BENEFICIAL OWNERSHIP
--------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
---------------------------------------------- -------------------
PRIOR TO THE
SUBSCRIPTION AFTER THE SUBSCRIPTION
OFFERING OFFERING (3)
------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES (4) PERCENT (4) SHARES PERCENT
------------------------ --------- ------- ---------- ----------- --------- -------
Elliott Associates, L.P.(1)....... 7,076,278 50% 5,465,321 38% -- --%
Westgate International, L.P.(2)... 7,076,277 50 5,465,320 38 10,000 100
Jonathan D. Pollock............... -- -- -- -- -- --
Larry E. Lenig, Jr................ -- -- -- -- -- --
Mitchell L. Peters................ -- -- -- -- -- --
Michael P. Keirnan................ -- -- -- -- -- --
W. Richard Anderson............... -- -- -- -- -- --
James R. Brock.................... -- -- -- -- -- --
J. Kelly Elliott.................. -- -- -- -- -- --
Donald G. Russell................. -- -- -- -- -- --
Donald W. Wilson.................. -- -- -- -- -- --
All executive officers and
directors as a group (9
persons)........................ -- -- -- -- -- --
- ---------------
(1) Paul E. Singer and Braxton Associates L.P., which is controlled by Mr.
Singer, are the general partners of Elliott. The business address of Elliott
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.
(2) Hambledon, Inc., which is controlled by Mr. Singer, is the sole general
partner of Westgate. Martley International, Inc. ("Martley"), which is
controlled by Mr. Singer, is the investment manager for Westgate. Martley
expressly disclaims equitable ownership of and pecuniary interest in any
shares of Common Stock. The business address of Westgate is Westgate
International, L.P. c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, British West
Indies.
(3) Assumes all of the shares of Common Stock registered in the Subscription
Offering are purchased.
(4) Including 237,500 shares of Common Stock, in aggregate, that the Principal
Stockholders are entitled to receive upon consummation of the Subscription
Offering pursuant to the Plan.
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DESCRIPTION OF THE NOTES
GENERAL
The Original Notes were, and the Exchange Notes will be, issued under the
Indenture among the Company, the Subsidiary Guarantors, and LaSalle National
Bank, as trustee (the "Trustee"). The Indenture has been qualified under, and is
subject to and governed by, the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the Indenture, including
the definitions of certain terms contained therein and those terms that are made
a part of the Indenture by reference to the Trust Indenture Act. Copies of the
Indenture are available from the Company upon request. Capitalized terms not
otherwise defined below or elsewhere in this Prospectus have the meanings given
to them in the Indenture. For purposes of this section, references to the
"Company" shall mean Grant Geophysical, Inc. excluding its subsidiaries and
references to the Notes include the Original Notes and the Exchange Notes unless
the context otherwise requires. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions."
The Indenture provided for the issuance of up to $100 million of Notes in
connection with the issuance of the Original Notes and provides the flexibility
of issuing additional Notes (in addition to the Exchange Notes) in the future.
Any additional Notes (other than the Exchange Notes) issued under the Indenture
will be identical in all respects other than purchase price and issuance date.
The obligations of the Company under the Notes are guaranteed on a senior
unsecured basis by the Subsidiary Guarantors. See "-- Subsidiary Guarantees of
Notes."
Any Original Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are senior unsecured obligations of the Company issued in an
aggregate principal amount of $100 million. The Notes will be issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of, premium, if any, and interest on, the Notes
will be payable, and the Notes will be transferable, at the office or agency of
the Trustee in the City of New York maintained for such purposes, which
initially will be the corporate trust office or agency of the Trustee. In
addition, in the event the Notes do not remain in book-entry form, interest may
be paid, at the option of the Company, by check mailed to the registered holders
of the Notes at their respective addresses as shown on the Note Register,
subject to the right of any holder of Notes in the principal amount of $500,000
or more to request payment by wire transfer. No service charge will be made for
any transfer, exchange or redemption of the Notes, but the Company or the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge that may be payable in connection therewith.
The Notes will mature on February 18, 2008. Interest on the Notes will
accrue at the rate of 9 3/4% per annum and will be payable semiannually in cash
in arrears on February 15 and August 15, of each year, in the case of the
Exchange Notes, commencing August 15, 1998, to the Persons in whose name the
Notes are registered in the Note Register at the close of business on the
February 1 or August 1 next preceding such interest payment date. The interest
rate on the Notes is subject to increase if the Company fails to satisfy certain
provisions of the Registration Rights Agreement. See "Exchange Offer -- Purpose
and Effect of the Exchange Offer." Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or after February 15, 2003, upon
not less than 30 or more than 60 days' notice, subject to certain conditions and
at the redemption prices (expressed as percentages of principal amount) set
forth below, plus accrued and unpaid interest, if any, to the date of redemption
(subject to the right of Holders of record on the
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relevant record date to receive interest due on an interest payment date that is
on or prior to the date of redemption), if redeemed during the 12-month period
beginning on February 15 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2003........................................................ 104.875%
2004........................................................ 103.250%
2005........................................................ 101.625%
2006 and thereafter......................................... 100.000%
In the event that less than all of the Notes are to be redeemed, the
particular Notes (or any portion thereof that is an integral multiple of $1,000)
to be redeemed shall be selected not less than 30 or more than 60 days prior to
the date of redemption by the Trustee, from the outstanding Notes not previously
called for redemption, pro rata, by lot or by any other method the Trustee shall
deem fair and appropriate.
Notwithstanding the foregoing, at any time on or prior to February 15,
2001, up to 35% of the aggregate principal amount of the Notes originally issued
will be redeemable on one or more occasions, at the option of the Company, upon
not less than 30 or more than 60 days' notice, from the Net Cash Proceeds of one
or more Equity Offerings, at a redemption price equal to 109.750% of the
aggregate principal amount of the Notes so redeemed, together with accrued and
unpaid interest to the date of redemption, provided that at least 65% of the
aggregate principal amount of the Notes originally issued remains outstanding
immediately after such redemption and that such redemption occurs within 60 days
following the closing of any such Equity Offering.
Offers to Purchase. As described below, (a) upon the occurrence of a
Change of Control and a corresponding Rating Decline, the Company will be
obligated to make an offer to purchase all of the then outstanding Notes at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase and (b) upon
certain sales or other dispositions of assets, the Company may be obligated to
make offers to purchase Notes with a portion of the Net Available Proceeds of
such sales or other dispositions at a purchase price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of purchase. See "-- Certain Covenants -- Change of Control" and "--
Limitation on Asset Sales."
RANKING
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all senior Indebtedness of the Company, and
senior in right of payment to all Subordinated Indebtedness of the Company. The
Notes and the Subsidiary Guarantees, however, are effectively subordinated to
secured Indebtedness of the Company and the Subsidiary Guarantors, respectively,
with respect to the assets securing such Indebtedness, including any
Indebtedness under the Credit Facility or any future credit facility, which is,
or may be, secured by liens on substantially all of the assets of the Company
and the Subsidiary Guarantors. At December 31, 1997, on a pro forma basis after
giving effect to the issuance of the Original Notes and the application of the
net proceeds therefrom, the Notes would have been effectively subordinated to
$3.9 million of secured Indebtedness of the Company and the Subsidiary
Guarantors. Subject to certain limitations, the Company and its Subsidiaries may
incur additional Indebtedness in the future. See "-- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock."
SUBSIDIARY GUARANTEES OF THE NOTES
Each Subsidiary Guarantor has fully and unconditionally guaranteed, jointly
and severally, to each Holder and the Trustee, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of, premium, if any, and interest on the Notes pursuant to
its Subsidiary Guarantee. The initial Subsidiary Guarantors are all of the
Company's current Subsidiaries (other than an Exempt Foreign Subsidiary). In
addition to the initial Subsidiary Guarantors, the Company will cause each
Subsidiary of the Company (other than an Exempt Foreign Subsidiary) that becomes
a Restricted Subsidiary after the date of the Indenture and (i) has assets,
businesses, divisions, real property or equipment with a fair market value in
excess of $1.5 million or (ii) incurs any Indebtedness (other than to the
Company) to execute and deliver a
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supplement to the Indenture pursuant to which such Restricted Subsidiary will
guarantee the payment of the Notes on the same terms and conditions as the
Subsidiary Guarantees by the initial Subsidiary Guarantors. At its option, the
Company may designate an Exempt Foreign Subsidiary as a Subsidiary Guarantor
and, at the Company's request, the Trustee will release from its Subsidiary
Guarantee and related obligations any Subsidiary Guarantor that the Company
certifies is then an Exempt Foreign Subsidiary.
The Subsidiary Guarantees are senior unsecured obligations of each
respective Subsidiary Guarantor and rank pari passu in right of payment with all
senior Indebtedness of such Subsidiary Guarantor, and senior in right of payment
to all future Subordinated Indebtedness of such Subsidiary Guarantor. However,
the Subsidiary Guarantees are effectively subordinated to secured Indebtedness
of the Subsidiary Guarantors, with respect to the assets securing such
Indebtedness. At December 31, 1997, on a pro forma basis after giving effect to
the issuance of the Original Notes and the application of the net proceeds
therefrom, the Subsidiary Guarantors had no Indebtedness outstanding, other than
the guarantees under the Credit Facility or the Subsidiary Guarantees. See
"Capitalization."
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to
the Company or another Subsidiary Guarantor without limitation, except to the
extent any such transaction is subject to the "Merger, Consolidation and Sale of
Assets" covenant of the Indenture. Each Subsidiary Guarantor may consolidate
with or merge into or sell all or substantially all of its properties and assets
to a Person other than the Company or another Subsidiary Guarantor (whether or
not Affiliated with the Subsidiary Guarantor), provided that (a) if the
surviving Person is not the Subsidiary Guarantor, the surviving Person agrees to
assume such Subsidiary Guarantor's Subsidiary Guarantee and all its obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Subsidiary Guarantee) and (b) such transaction
does not (i) violate any of the covenants described below under "-- Certain
Covenants" or (ii) result in a Default or Event of Default immediately
thereafter that is continuing.
Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its properties and assets) to a Person
other than the Company or another Subsidiary Guarantor and pursuant to a
transaction that is otherwise in compliance with the Indenture (including as
described in the foregoing paragraph), such Subsidiary Guarantor shall be deemed
released from its Subsidiary Guarantee and the related obligations set forth in
the Indenture; provided, however, that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of the Company or any other
Restricted Subsidiary shall also terminate or be released upon such sale or
other disposition. Each Subsidiary Guarantor that is designated as an
Unrestricted Subsidiary in accordance with the Indenture shall be released from
its Subsidiary Guarantee and all related obligations under the Indenture for so
long as it remains an Unrestricted Subsidiary.
Separate financial statements of the Subsidiary Guarantors have not been
provided because the Subsidiary Guarantors are jointly and severally liable for
the obligations of the Company under the Notes, and the aggregate assets,
earnings and equity of the Subsidiary Guarantors are substantially equivalent to
the consolidated assets, earnings and equity of the Company.
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CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness and Disqualified Capital Stock. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, create,
incur, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of (collectively, "incur") any Indebtedness (including
any Acquired Indebtedness but excluding any Permitted Indebtedness) or any
Disqualified Capital Stock; provided that, the Company and any Subsidiary
Guarantor may incur Indebtedness (including any Acquired Indebtedness) or
Disqualified Capital Stock, in each case, if, on a pro forma basis after giving
effect to such incurrence and the application of the proceeds therefrom, the
Consolidated EBITDA Coverage Ratio for the four full quarters immediately
preceding such event, taken as one period, would have been equal to or greater
than 2.0 to 1.0.
(b) Neither the Company nor any Subsidiary Guarantor will incur any
Indebtedness that is expressly subordinated to any other Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be, unless such
Indebtedness, by its terms or the terms of any agreement or instrument pursuant
to which such Indebtedness is issued or outstanding, is also expressly made
subordinate to the Notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be, at least to the extent it is subordinated to such
other Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any other distribution to
holders of, any shares of Capital Stock of the Company (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock of the Company or in options, warrants or other rights to purchase
Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Restricted Subsidiary) or any options, warrants or other rights to acquire
such Capital Stock;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, before any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness; or
(iv) make any Restricted Investment;
(such payments or other actions described in clauses (i) through (iv) being
collectively referred to as "Restricted Payments"), unless at the time of and
after giving pro forma effect to the proposed Restricted Payment (the amount of
any such Restricted Payment, if other than cash, shall be the amount determined
by the Board of Directors of the Company, whose determination shall be
conclusive and evidenced by a Board Resolution),
(1) no Default or Event of Default shall have occurred and be continuing,
(2) the Company could incur $1.00 of additional Indebtedness (excluding
Permitted Indebtedness) in accordance with paragraph (a) of the "-- Limitation
on Indebtedness and Disqualified Capital Stock" covenant, and
(3) the aggregate amount of all Restricted Payments declared or made after
the date of the Indenture shall not exceed the sum (without duplication) of the
following:
(A) 50% of the Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on January 1, 1998 and ending
on the last day of the Company's last fiscal quarter ending prior to the
date of such proposed Restricted Payment (or, if such Consolidated Net
Income is a loss, minus 100% of such loss);
(B) the aggregate Net Cash Proceeds and the fair market value of
Capital Stock received after the date of the Indenture by the Company from
the issuance or sale (other than to any of its Restricted Subsidiaries) of
shares of Qualified Capital Stock of the Company or any options, warrants
or rights to purchase such shares of Qualified Capital Stock of the
Company; provided, however, that at the time of such issuance or sale of
shares of Qualified Capital Stock of the Company or any options, warrants
or rights to purchase such
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shares of Qualified Capital Stock of the Company, (i) the cumulative
aggregate fair market value of Capital Stock received by the Company under
this clause (3)(B) does not exceed $15 million and (ii) such Qualified
Capital Stock of the Company is publicly traded, and the Company is subject
to, and in compliance with, the informational requirements of the Exchange
Act and the rules and regulations thereunder;
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company;
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of Indebtedness or shares of Disqualified
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company, together with the aggregate cash received by
the Company at the time of such conversion or exchange;
(E) to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Unrestricted Subsidiaries resulting
from dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or a Restricted Subsidiary after the
date of the Indenture from any Unrestricted Subsidiary or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued in each case as provided in the definition of Investment), not to
exceed in the case of any Unrestricted Subsidiary the total amount of
Investments (other than Permitted Investments) in such Unrestricted
Subsidiary made by the Company and its Restricted Subsidiaries in such
Unrestricted Subsidiary after the date of the Indenture; and
(F) $5 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii) and (iii) below) no Default or Event of Default shall have occurred and be
continuing:
(i) the payment of any dividend on any Capital Stock of the Company or
any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above;
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds of,
a substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;
(iii) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Cash Proceeds from, a
substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company; and
(iv) the purchase or redemption of any Subordinated Indebtedness
following a Change of Control and a corresponding Rating Decline pursuant
to provisions of such Subordinated Indebtedness substantially similar to
those described under "-- Change of Control" below after the Company shall
have complied with the provisions under "-- Change of Control" below,
including payment of the applicable Change of Control Purchase Price.
The actions described in clauses (i), (ii), (iii) and (iv) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be made in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a), provided that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i).
(c) Notwithstanding anything to the contrary contained in the Indenture,
the Company may repay the Subordinated Note, the Acquisition Financing and the
debt owed (including capital leases) by Solid State and Grant with the net
proceeds from the offering of the Original Notes and redeem the Westgate
Preferred Stock. The actions described in this paragraph (c) shall be Restricted
Payments that shall be permitted to be made in
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accordance with this paragraph (c) but shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (i) will not permit any Restricted Subsidiary to
issue or sell any Capital Stock to any Person other than the Company or a Wholly
Owned Restricted Subsidiary and (ii) will not permit any Person other than the
Company or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any
Restricted Subsidiary, in each case except with respect to a Wholly Owned
Restricted Subsidiary as described in the definition of "Wholly Owned Restricted
Subsidiary."
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction unless (i) the Company or such Restricted Subsidiary, as the case
may be, would be able to incur Indebtedness (not including the incurrence of
Permitted Indebtedness) in an amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction pursuant to paragraph (a) of the
"Limitation on Indebtedness and Disqualified Capital Stock" covenant, (ii) the
Company or such Restricted Subsidiary receives proceeds from such Sale/Leaseback
Transaction at least equal to the fair market value of the property or assets
subject thereto and (iii) the Company applies an amount in cash equal to the Net
Available Proceeds of the Sale/Leaseback Transaction in accordance with the
provisions of the "Limitation on Asset Sales" covenant as if such Sale/Leaseback
Transaction were an Asset Sale.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets or property
or the rendering of any services) with, or for the benefit of, any Affiliate of
the Company (other than the Company or a Restricted Subsidiary), unless (i) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that would be available in a comparable arm's length transaction with
unrelated third parties, (ii) with respect to any one transaction or series of
related transactions involving aggregate payments in excess of $1 million, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above,
(iii) with respect to a transaction or series of related transactions involving
payments in excess of $2.5 million but less than or equal to $7.5 million in the
aggregate, the Company delivers an Officers' Certificate to the Trustee
certifying that (A) such transaction or series of related transactions complies
with clause (i) above and (B) such transaction or series of related transactions
has been approved by a majority of the Disinterested Directors of the Company,
and (iv) with respect to any one transaction or series of related transactions
involving aggregate payments in excess of $7.5 million, the Company delivers an
Officers' Certificate to the Trustee certifying to the two matters referred to
in clause (iii) above and that the Company has obtained a written opinion from
an independent nationally recognized investment banking firm or appraisal firm
specializing or having a speciality in the type and subject matter of the
transaction or series of related transactions at issue, which opinion shall be
to the effect set forth in clause (i) above or shall state that such transaction
or series of related transactions is fair from a financial point of view to the
Company or such Restricted Subsidiary; provided, however, that the foregoing
restriction shall not apply to (v) loans or advances to officers, directors and
employees of the Company or any Restricted Subsidiary made in the ordinary
course of business and consistent with past practices of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $3 million
outstanding at any one time, (w) indemnities of officers, directors and
employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions, (x) the payment of reasonable and customary regular fees
to directors of the Company or any of its Restricted Subsidiaries who are not
employees of the Company or any Affiliate, (y) the Company's employee
compensation and other benefit arrangements, or (z) the repayment of the
Subordinated Note, the Acquisition Financing and the repayment of debt owed
(including capital leases) by the Company as described under "Use of Proceeds"
in the offering circular relating to the issuance of the Original Notes and the
redemption of the Westgate Preferred Stock.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective properties or assets, whether now
owned or acquired after the date
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of the Indenture, or any income, profits or proceeds therefrom, to secure (a)
any Indebtedness of the Company or such Restricted Subsidiary (if it is not also
a Subsidiary Guarantor), unless prior to, or contemporaneously therewith, the
Notes are equally and ratably secured, or (b) any Indebtedness of any Subsidiary
Guarantor, unless prior to, or contemporaneously therewith, the Subsidiary
Guarantees are equally and ratably secured; provided, however, that if such
Indebtedness is expressly subordinated to the Notes or the Subsidiary
Guarantees, the Lien securing such Indebtedness will be subordinated and junior
to the Lien securing the Notes or the Subsidiary Guarantees, as the case may be,
with the same relative priority as such Indebtedness has with respect to the
Notes or the Subsidiary Guarantees. The foregoing covenant will not apply to any
Lien securing Acquired Indebtedness, provided that any such Lien extends only to
the properties or assets that were subject to such Lien prior to the related
acquisition by the Company or such Restricted Subsidiary and was not created,
incurred or assumed in contemplation of such transaction. The incurrence of
additional secured Indebtedness by the Company and its Restricted Subsidiaries
is subject to further limitations on the incurrence of Indebtedness as described
under "-- Limitation on Indebtedness and Disqualified Capital Stock."
Change of Control. Upon the occurrence of a Change of Control and a
corresponding Rating Decline, the Company will be obligated to make an offer to
purchase all of the then outstanding Notes (a "Change of Control Offer"), and
will purchase, on a Business Day (the "Change of Control Purchase Date") not
more than 60 nor less than 30 days following the date of the Change of Control
Offer, all of the then outstanding Notes validly tendered pursuant to such
Change of Control Offer and not withdrawn, at a purchase price (the "Change of
Control Purchase Price") equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date. The
Change of Control Offer is required to be made within 30 Business Days following
the date of a Change of Control and a corresponding Rating Decline and remain
open for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company will, not
later than the 30th Business Day after the occurrence of a Rating Decline
following a Change of Control (or, in the event the Rating Decline occurs before
the corresponding Change of Control, not later than the 30th Business Day
following the occurrence of the Change in Control), give to the Trustee and each
Holder a notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that Holders must follow to accept the Change of Control Offer.
The occurrence of a Change of Control may result in the lender under the
Credit Facility or any future credit facilities having the right to require the
Company to repay all Indebtedness outstanding thereunder. There can be no
assurance that the Company will have available funds sufficient to repay all
Indebtedness owing under the Credit Facility or any future credit facilities or
to fund the purchase of the Notes upon a Change of Control and a corresponding
Rating Decline. In the event a Change of Control and a corresponding Rating
Decline occur at a time when the Company does not have available funds
sufficient to pay the Change of Control Purchase Price for all of the Notes
delivered by Holders seeking to accept the Change of Control Offer, an Event of
Default would occur under the Indenture. The definition of Change of Control
includes, among other events, an event by which the Company sells, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries, taken as a
whole; the phrase "all or substantially all" is subject to applicable legal
precedent and, as a result, in the future there may be uncertainty as to whether
or not a Change of Control has occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control and a corresponding Rating Decline if another Person makes the
Change of Control Offer at the same purchase price, at the same time and
otherwise in substantial compliance with the requirements applicable to a Change
of Control Offer to be made by the Company and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, in the event
that a Change of Control and a corresponding Rating Decline occur and the
Company is required to purchase Notes as described above. The existence of a
Holder's right to require, subject to certain conditions, the Company to
repurchase its Notes upon a Change of Control and a
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corresponding Rating Decline may deter a third party from acquiring the Company
in a transaction that constitutes, or results in, a Change of Control.
Limitation on Asset Sales. (a) The Company will not, and will not permit
any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale, (ii) at
least 75% of the consideration received by the Company or the Restricted
Subsidiary, as the case may be, in respect of such Asset Sale consists of cash
or Cash Equivalents and (iii) the Company delivers to the Trustee an Officers'
Certificate certifying that such Asset Sale complies with clauses (i) and (ii).
The amount (without duplication) of any Indebtedness (other than Subordinated
Indebtedness) of the Company or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Restricted Subsidiary, as the case may be, is unconditionally
released by the holder of such Indebtedness, shall be deemed to be cash or Cash
Equivalents for purposes of clause (ii) and shall also be deemed to constitute a
repayment of, and a permanent reduction in, the amount of such Indebtedness for
purposes of the following paragraph.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale or
incurs an Event of Loss, the Company or such Restricted Subsidiary may either,
no later than 365 days after such Asset Sale or such Event of Loss, (i) apply
all or any of the Net Available Proceeds therefrom to permanently repay
Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary or (ii) invest all or any part of the Net Available
Proceeds thereof in properties and assets that replace the properties or assets
that were the subject of such Asset Sale or such Event of Loss, as the case may
be, or in other properties or assets that will be used in the business of the
Company and its Restricted Subsidiaries. Pending the final application of any
such Net Available Proceeds, the Company or any Restricted Subsidiary may
temporarily reduce outstanding revolving credit borrowings, including borrowings
under the Credit Facility, or otherwise invest such Net Available Proceeds in a
manner that is not prohibited by the Indenture. The amount of such Net Available
Proceeds not applied or invested as provided in the first sentence of this
paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $10
million, the Company will be required to make an offer to purchase, from all
Holders of the Notes and then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any such Pari Passu Indebtedness equal
to such Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined in clause (ii) below) of all Notes tendered), and
(B) to the extent required by any such Pari Passu Indebtedness and provided
there is a permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the
date such Net Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness
Amount (such shortfall constituting a "Net Proceeds Deficiency"), the
Company may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitation
on Restricted Payments" covenant.
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(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis.
(iv) Upon completion of such Net Proceeds Offer, the amount of Excess
Proceeds shall be reset to zero.
The Company will not permit any Restricted Subsidiary to enter into or suffer to
exist any agreement that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make a Net
Proceeds Offer following any Asset Sale. The Company will comply with Rule 14e-1
under the Exchange Act, and any other securities laws and regulations
thereunder, if applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Guarantees by Subsidiary Guarantors. The Company will not
permit any Subsidiary Guarantor to guarantee the payment of any Subordinated
Indebtedness of the Company unless such guarantee shall be subordinated to such
Subsidiary Guarantor's Subsidiary Guarantee at least to the same extent as such
Subordinated Indebtedness is subordinated to the Notes; provided, however, that
this covenant will not be applicable to any guarantee of any Subsidiary
Guarantor that (i) existed at the time such Person became a Subsidiary of the
Company and (ii) was not incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary of the Company.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or suffer to exist or allow to
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock, or make payments on any
Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to
make loans or advances to the Company or any other Restricted Subsidiary, (c) to
transfer any of its property or assets to the Company or any other Restricted
Subsidiary or (d) to guarantee the Notes (any such restrictions being
collectively referred to herein as a "Payment Restriction"), except in any such
case for such encumbrances or restrictions existing under or by reason of (i)
the Indenture, the Credit Facility or any other agreement in effect or entered
into on the date of the Indenture, or (ii) any agreement, instrument or charter
of or in respect of a Restricted Subsidiary entered into prior to the date on
which such Restricted Subsidiary became a Restricted Subsidiary and outstanding
on such date and not entered into in connection with or in contemplation of
becoming a Restricted Subsidiary, provided such consensual encumbrance or
restriction is not applicable to any properties or assets other than those owned
or held by the Restricted Subsidiary at the time it became a Restricted
Subsidiary or subsequently acquired by such Restricted Subsidiary other than
from the Company or any other Restricted Subsidiary, or (iii) pursuant to an
agreement effecting a modification, renewal, refinancing, replacement or
extension of any agreement, instrument or charter (other than the Indenture)
referred to in clause (i) or (ii) above, provided, however, that the provisions
relating to such encumbrance or restriction are not materially less favorable to
the Holders of the Notes than those under or pursuant to the agreement,
instrument or charter so modified, renewed, refinanced, replaced or extended, or
(iv) customary provisions restricting the subletting or assignment of any lease
or the transfer of copyrighted or patented materials, or (v) provisions in
agreements that restrict the assignment of such agreements or rights thereunder,
or (vi) the sale or other disposition of any properties or assets subject to a
Lien securing Indebtedness, or (vii) rights of refusal or other similar
provisions that are customary in joint venture agreements or other agreements
entered into by the Company or any Restricted Subsidiary in the ordinary course
of business.
Limitation on Conduct of Business. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than the oil field services business and such other businesses as
are reasonably necessary or desirable to facilitate the conduct and operation of
such business.
Reports. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee (with exhibits), and
provide to each Holder of Notes (without exhibits), without cost to such Holder,
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copies of such reports and documents within 15 days after the date on which the
Company files such reports and documents with the Commission or the date on
which the Company would be required to file such reports and documents if the
Company were so required and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the Exchange
Act, to supply at its cost copies of such reports and documents (including any
exhibits thereto) to any Holder of Notes, securities analyst or prospective
investor promptly upon written request. In addition, the Indenture requires that
for so long as any of the Notes remain outstanding the Company will make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
consummated the Exchange Offer for the Offered Notes for securities identical in
all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Offered Notes
pursuant to an effective registration statement filed by the Company.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "-- Certain Definitions" describes the
circumstances under which a Subsidiary of the Company may be designated as an
Unrestricted Subsidiary by the Board of Directors of the Company.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or group of Affiliated Persons, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto: (i) either (A) if the transaction is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (B) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company or its Restricted Subsidiaries, as the case
may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed
of (any such surviving Person or transferee Person being called the "Surviving
Entity") shall be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
shall, in either case, expressly assume by a supplemental indenture to the
Indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
and, in each case, the Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of Company or any of its Restricted Subsidiaries which
becomes an obligation of the Company or any of its Restricted Subsidiaries in
connection with or as a result of such transaction or transactions as having
been incurred at the time of such transaction or transactions), no Default or
Event of Default shall have occurred and be continuing; (iii) except in the case
of the consolidation or merger of any Restricted Subsidiary with or into the
Company, immediately after giving effect to such transaction or transactions on
a pro forma basis, the Consolidated Net Worth of the Company (or the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is at
least equal to the Consolidated Net Worth of the Company immediately before such
transaction or transactions; (iv) except in the case of the consolidation or
merger of the Company with or into a Restricted Subsidiary or any Restricted
Subsidiary with or into the Company or another Restricted Subsidiary,
immediately before and immediately after giving effect to such transaction or
transactions on a pro forma basis, the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) pursuant to the first
paragraph of the "-- Limitation on Indebtedness and Disqualified Capital Stock"
covenant; (v) if the Company is not the
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continuing obligor under the Indenture, then each Subsidiary Guarantor then in
existence, unless it is the Surviving Entity, shall have by supplemental
indenture to the Indenture confirmed that its Subsidiary Guarantee of the Notes
shall apply to the Surviving Entity's obligations under the Indenture and the
Notes; and (vi) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) shall have delivered to the Trustee, in
form and substance reasonably satisfactory to the Trustee, (a) an Officers'
Certificate stating that such consolidation, merger, transfer, lease or other
disposition and any supplemental indenture in respect thereto comply with the
requirements under the Indenture and (b) an Opinion of Counsel stating that the
requirements of clause (i) of this paragraph have been satisfied.
Upon any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis in accordance with the foregoing, in which the Company is not
the continuing corporation, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if the Surviving Entity had been named as
the Company therein, and thereafter the Company will be discharged from all
obligations and covenants under the Indenture and the Notes and may be
liquidated and dissolved.
EVENTS OF DEFAULT
The following constitute "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Notes, whether such payment is due at Stated Maturity, upon
redemption, upon repurchase pursuant to a Change of Control Offer or a Net
Proceeds Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest on any of
the Notes, when due and payable, and the continuance of such default for a
period of 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of the
"Limitation on Asset Sales" covenant; or
(iv) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Notes, any
Subsidiary Guarantee or the Indenture (other than a default specified in
(i), (ii) or (iii) above) for a period of 45 days after written notice of
such failure stating that it is a "notice of default" under the Indenture
and requiring the Company or such Subsidiary Guarantor, as the case may be,
to remedy the same shall have been given (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or
interest on any Indebtedness of the Company (other than the Notes) or any
Subsidiary Guarantor or any other Restricted Subsidiary for money borrowed
when due, or any other default resulting in acceleration of any
Indebtedness of the Company or any Subsidiary Guarantor or any other
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $5 million and provided,
further, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of
10 days from the continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, as the case may be, such
Event of Default under the Indenture and any consequential acceleration of
the Notes shall be automatically rescinded, so long as such rescission does
not conflict with any judgment or decree; or
(vi) any Subsidiary Guarantee of any Subsidiary Guarantor that is a
Significant Subsidiary shall for any reason cease to be, or be asserted by
the Company or any such Subsidiary Guarantor, as applicable, not to be, in
full force and effect (except pursuant to the release of any such
Subsidiary Guarantee in accordance with the Indenture); or
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(vii) final judgments or orders rendered against the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or
in an aggregate amount, that is more than $5 million over the coverage
under applicable insurance policies and either (A) commencement by any
creditor of an enforcement proceeding upon such judgment (other than a
judgment that is stayed by reason of pending appeal or otherwise) or (B)
the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or
(viii) the entry of a decree or order by a court having jurisdiction
in the premises (A) for relief in respect of the Company or of a
Significant Subsidiary (other than an Unrestricted Subsidiary) in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (B)
adjudging the Company or any such Significant Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or any Significant Subsidiary
(other than an Unrestricted Subsidiary) under any applicable federal or
state law, or appointing under any such law a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any such Significant Subsidiary or of a substantial part of
its consolidated assets, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(ix) the commencement by the Company or any Significant Subsidiary
(other than an Unrestricted Subsidiary) of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or any other case or proceeding to be
adjudicated bankrupt or insolvent, or the consent by the Company or any
Significant Subsidiary (other than an Unrestricted Subsidiary) to the entry
of a decree or order for relief in respect thereof in an involuntary case
or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any such Significant Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law,
or the consent by it under any such law to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or any such Significant Subsidiary or of any substantial
part of its consolidated assets, or the making by it of an assignment for
the benefit of creditors under any such law, or the admission by it in
writing of its inability to pay its debts generally as they become due or
taking of corporate action by the Company or any such Significant
Subsidiary in furtherance of any such action.
If an Event of Default (other than as specified in clause (viii) or (ix)
above) occurs and is continuing, the Trustee, by written notice to the Company,
or the Holders of not less than 25% in aggregate principal amount of the Notes
then outstanding, by written notice to the Trustee and the Company, may, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall, declare all unpaid
principal of, premium, if any, and accrued and unpaid interest on all of the
Notes to be due and payable immediately, upon which declaration all amounts
payable in respect of the Notes shall be immediately due and payable. If an
Event of Default specified in clause (viii) or (ix) above occurs and is
continuing, then all unpaid principal of, premium, if any, and accrued and
unpaid interest on all of the Notes shall become and be immediately due and
payable without any declaration, notice or other act on the part of the Trustee
or any Holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company, the Subsidiary Guarantors
and the Trustee, may rescind and annul such declaration and its consequences if
(a) the Company or any Subsidiary Guarantor has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all outstanding Notes, (iii) all unpaid principal of and premium, if any, on any
Notes which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Notes, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue interest
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and overdue principal at the rate borne by the Notes (without duplication of any
amount paid or deposited pursuant to clause (ii) or (iii)); (b) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (c) all Events of Default, other than the non-payment of
principal of, premium, if any, or interest on the Notes that has become due
solely by such declaration of acceleration, have been cured or waived.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless (a) such Holder has notified the
Trustee of a continuing Event of Default, (b) the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the Notes and the Indenture, and (c) the Trustee has failed to
institute such proceeding within 60 days after receipt of such notice, request
and offer of indemnity and the Trustee, within such 60-day period, has not been
given directions inconsistent with such written request by Holders of a majority
in aggregate principal amount of the outstanding Notes. Such limitations will
not apply, however, to a suit instituted by the Holder of a Note for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Note on or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee will be required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee under the Indenture.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee shall mail to each Holder notice of the Default within 60 days after the
occurrence thereof. Except in the case of a Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the Holders of the Notes if the Trustee determines in good faith that
withholding the notice is in the interest of the Holders of the Notes.
The Company will be required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company will also be
required to notify the Trustee within 10 days of any Default or Event of
Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Guarantor with respect to the outstanding
Notes (such action being a "legal defeasance"). Such legal defeasance means that
the Company and any Subsidiary Guarantor shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes and to
have been discharged from all their other obligations with respect to the Notes
and any Subsidiary Guarantee, except for (i) the rights of Holders of
outstanding Notes to receive payment in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (ii) the respective
obligations of the Company and the Subsidiary Guarantors to replace any
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the legal defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
terminate the obligations of the Company and any Subsidiary Guarantor with
respect to certain covenants that are set forth in the Indenture, some of which
are described under "-- Certain Covenants" above, and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Notes (such action being a "covenant defeasance"). In the event
covenant defeasance occurs, certain events (not including nonpayment,
bankruptcy,
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insolvency and reorganization events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company or any Subsidiary Guarantor must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding Notes to
redemption or maturity; (ii) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance or covenant defeasance had not
occurred (in the case of legal defeasance, such opinion must refer to and be
based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit or insofar as
clauses (viii) and (ix) under the first paragraph of "Events of Default" are
concerned, at any time during the period ending on the 91st day after the date
of deposit; (iv) such legal defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest under the Indenture or the Trust
Indenture Act with respect to any securities of the Company or any Subsidiary
Guarantor; (v) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument to which the Company or any Subsidiary Guarantor is a party or by
which it is bound; and (vi) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee,
which, taken together, state that all conditions precedent under the Indenture
to either legal defeasance or covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen, mutilated or destroyed Notes which have been replaced or
paid and Notes for whose payment money or certain United States government
obligations have theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable at their Stated Maturity within one year,
or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit (in the case
of Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be, together with instructions from the Company
irrevocably directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums then due and payable under the Indenture by the Company; and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel which, taken together, state that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, any Subsidiary Guarantors and the Trustee
may, without the consent of the Holders of the Notes, amend or supplement the
Indenture or the Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act,
adding or releasing any Subsidiary Guarantor pursuant to the terms of the
Indenture, or making any change that does not materially adversely affect the
rights of any Holder of Notes. Other amendments and modifications of the
Indenture or the Notes may be made by the Company, any
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Subsidiary Guarantors and the Trustee with the consent of the Holders of not
less than a majority of the aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, (b) reduce the principal amount of, premium, if any, or interest on any
Note, (c) change the coin or currency of payment of principal of, premium, if
any, or interest on, any Note, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note, (e) reduce the
above-stated percentage of aggregate principal amount of outstanding Notes
necessary to modify or amend the Indenture, (f) reduce the percentage of
aggregate principal amount of outstanding Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, (h) change the ranking of the Notes or
the Subsidiary Guarantees in a manner adverse to the Holders or expressly
subordinate in right of payment the Notes or the Subsidiary Guarantees to any
other Indebtedness or (i) amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control and a corresponding Rating Decline or make and consummate a Net Proceeds
Offer with respect to any Asset Sale or modify any of the provisions or
definitions with respect thereto.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the Holders of all Notes, waive any
existing default under the Indenture and its consequences, except a default in
the payment of principal of, premium, if any, or interest on the Notes, or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the Holder of each Note outstanding.
THE TRUSTEE
LaSalle National Bank serves as trustee under the Indenture.
The Indenture (including provisions of the Trust Indenture Act incorporated
by reference therein) contains limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture permits the
Trustee to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed by the
laws of the State of New York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of such
terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of properties or assets from such Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities of such Guarantor at such
date, including, without limitation, contingent liabilities (after giving effect
to all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under its Subsidiary Guarantee.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or
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otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of this definition, beneficial
ownership of 10% or more of the voting common equity (on a fully diluted basis)
or options or warrants to purchase such equity (but only if exercisable at the
date of determination or within 60 days thereof) of a Person shall be deemed to
constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any other Restricted Subsidiary, (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries or (c) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than transfers of cash, Cash
Equivalents, accounts receivable or other properties or assets in the ordinary
course of business or transfers in accordance with the proviso to clause (vi) of
the definition of Permitted Investments. For the purposes of this definition,
the term "Asset Sale" also shall not include any of the following: (i) any
transfer of properties or assets (including Capital Stock) that is governed by,
and made in accordance with, the provisions described under "-- Merger,
Consolidation and Sale of Assets"; (ii) any transfer of properties or assets to
an Unrestricted Subsidiary, if permitted under the "Limitation on Restricted
Payments" covenant; (iii) sales of damaged, worn-out or obsolete equipment or
assets that, in the Company's reasonable judgment, are either (x) no longer used
or (y) no longer useful in the business of the Company or its Restricted
Subsidiaries; (iv) any lease of any property entered into in the ordinary course
of business and with respect to which the Company or any Restricted Subsidiary
is the lessor, except any such lease that provides for the acquisition of such
property by the lessee during or at the end of the term thereof for an amount
that is less than the fair market value thereof at the time the right to acquire
such property is granted; (v) any transfers that, but for this clause (v), would
be Asset Sales, if (A) the Company elects to designate such transfers as not
constituting Asset Sales and (B) after giving effect to such transfers, the
aggregate fair market value of the properties or assets transferred in such
transaction or any such series of related transactions so designated by the
Company does not exceed $1 million and (vi) any trade or exchange by the Company
or any Restricted Subsidiary of equipment or other assets for equipment or other
assets owned or held by another Person, provided that the fair market value of
the assets traded or exchanged by the Company or such Restricted Subsidiary
(together with any cash or Cash Equivalents to be delivered by the Company or
such Restricted Subsidiary) is reasonably equivalent to the fair market value of
the assets (together with any cash or Cash Equivalents) to be received by the
Company or such Restricted Subsidiary. The fair market value of any non-cash
proceeds of a disposition of assets and of any assets referred to in the
foregoing clause (vi) of this definition shall be determined in the manner
contemplated in the definition of "fair market value," the results of which
determination shall be set forth in an Officer's Certificate delivered to the
Trustee.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at a rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with a like term in accordance with GAAP. As used
in the preceding sentence, the "net amount of rent" under any such lease for any
such period shall mean the sum of rental and other payments required to be paid
with respect to such period by the lessee thereunder, excluding any amounts
required to be paid by such lessee on account of maintenance and repairs,
insurance, taxes, assessments, water rates or similar charges. In the case of
any lease which is terminable by the lessee upon payment of a penalty, such net
amount of rent shall also include the amount of such penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is (x) a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million or (y) any
commercial bank organized under the laws of any other country that is a member
of the Organization for Economic Cooperation and Development and has total
assets in excess of $500 million; (iii) commercial paper with a maturity of 180
days or less issued by a corporation that is not an Affiliate of the Company and
is organized under the laws of any state of the United States or the District of
Columbia and rated at least A-l by S&P or at least P-l by Moody's; (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any
commercial bank meeting the specifications of clause (ii) above; (v) overnight
bank deposits and bankers' acceptances at any commercial bank meeting the
qualifications specified in clause (ii) above; (vi) deposits available for
withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (ii) above, provided all such deposits do not exceed $7.5
million in the aggregate at any one time; (vii) demand and time deposits and
certificates of deposit with any commercial bank organized in the United States
not meeting the qualifications specified in clause (ii) above, provided that
such deposits and certificates support bond, letter of credit and other similar
types of obligations incurred in the ordinary course of business; and (viii)
investments in money market or other mutual funds substantially all of whose
assets comprise securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any event or series of events
by which: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of
the total Voting Stock of the Company (other than Elliott, Westgate or any of
their Affiliates); (b) the Company consolidates with or merges into another
Person or any Person consolidates with, or merges into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is changed into or exchanged for Voting Stock of the surviving or
resulting Person that is Qualified Capital Stock and (ii) the holders of the
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly, not less than a majority of the Voting Stock of the surviving or
resulting Person immediately after such transaction; (c) the Company, either
individually or in conjunction with one or more Restricted Subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the Restricted
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the properties and assets of the Company and the
Restricted Subsidiaries, taken as a whole (either in one transaction or a series
of related transactions), including Capital Stock of the Restricted
Subsidiaries, to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary); (d) during any consecutive two-year period following the Issue
Date, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; or (e) the liquidation or dissolution of the Company.
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"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding-up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated EBITDA Coverage Ratio" means, for any period, the ratio on a
pro forma basis of (a) the sum of Consolidated Net Income, Consolidated Interest
Expense, Consolidated Income Tax Expense and Consolidated Non-cash Charges
deducted in computing Consolidated Net Income, in each case, for such period, of
the Company and its Restricted Subsidiaries on a consolidated basis, all
determined in accordance with GAAP, to (b) the sum of such Consolidated Interest
Expense for such period; provided, however, that (i) the Consolidated EBITDA
Coverage Ratio shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred (and all other Indebtedness incurred after the first
day of such period of four full fiscal quarters referred to in the covenant
described in paragraph (a) under "-- Certain Covenants -- Limitation on
Indebtedness and Disqualified Capital Stock" through and including the date of
determination), and (if applicable) the application of the net proceeds
therefrom (and from any other such Indebtedness), including to refinance other
Indebtedness, had been incurred on the first day of such four-quarter period
and, in the case of Acquired Indebtedness, on the assumption that the related
transaction (whether by means of purchase, merger or otherwise) also had
occurred on such date with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation and (B) any acquisition
or disposition by the Company or any Restricted Subsidiary of any properties or
assets outside the ordinary course of business, or any repayment of any
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
prior to the Stated Maturity thereof, in either case since the first day of such
period of four full fiscal quarters through and including the date of
determination, had been consummated on such first day of such four-quarter
period, (ii) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness required to be computed on a pro
forma basis in accordance with the covenant described in paragraph (a) under
"-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital
Stock" and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Company, either the fixed or floating rate, (iii) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility required to be computed on a pro
forma basis in accordance with the covenant described in paragraph (a) under
"-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital
Stock" shall be computed based upon the average daily balance of such
Indebtedness during the applicable period, provided that such average daily
balance shall be reduced by the amount of any repayment of Indebtedness under a
revolving credit facility during the applicable period, which repayment
permanently reduced the commitments or amounts available to be reborrowed under
such facility, (iv) notwithstanding clauses (ii) and (iii) of this proviso,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Rate Protection
Obligations, shall be deemed to have accrued at the rate per annum resulting
after giving effect to the operation of such agreements, and (v) if after the
first day of the period referred to in clause (a) of this definition the Company
has permanently retired any Indebtedness out of the Net Cash Proceeds of the
issuance and sale of shares of Qualified Capital Stock of the Company,
Consolidated Interest Expense shall be calculated on a pro forma basis as if
such Indebtedness had been retired on the first day of such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (A) any amortization of debt discount,
(B) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (C) the interest portion of any deferred payment
obligation constituting Indebtedness, (D) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (E) all accrued interest, in
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each case to the extent attributable to such period, (b) to the extent any
Indebtedness of any Person (other than the Company or a Restricted Subsidiary)
is guaranteed by the Company or any Restricted Subsidiary, the aggregate amount
of interest paid (to the extent not accrued in a prior period) or accrued by
such other Person during such period attributable to any such Indebtedness, in
each case to the extent attributable to that period, (c) the aggregate amount of
the interest component of Capitalized Lease Obligations paid (to the extent not
accrued in a prior period), accrued or scheduled to be paid or accrued by the
Company and its Restricted Subsidiaries during such period and (d) the aggregate
amount of dividends paid (to the extent not accrued in a prior period) or
accrued on Preferred Stock or Disqualified Capital Stock of the Company and its
Restricted Subsidiaries, to the extent such Preferred Stock or Disqualified
Capital Stock is owned by Persons other than the Company or any Restricted
Subsidiary, less (ii), to the extent included in clause (i) above, amortization
of capitalized debt issuance costs of the Company and its Restricted
Subsidiaries during such period.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends or distributions
are attributable to net income (or net loss) of such Person during such period
or during any prior period), (d) net income (or net loss) of any Person combined
with the Company or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(e) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of its net income is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, and (f)
income resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"Consolidated Net Tangible Assets" as of any date of determination, means
the sum of the amounts that would appear on a consolidated balance sheet of the
Company and its consolidated Subsidiaries (other than Unrestricted Subsidiaries)
as the total assets (less accumulated depreciation or amortization, allowances
for doubtful receivables, other applicable reserves and other properly
deductible items) of the Company and its consolidated Subsidiaries (other than
Unrestricted Subsidiaries), determined on a consolidated basis in accordance
with GAAP, after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of (without
duplication): (i) the aggregate amount of liabilities of the Company and its
consolidated Subsidiaries (other than Unrestricted Subsidiaries) which may
properly be classified as current liabilities (including taxes accrued as
estimated), determined on a consolidated basis in accordance with GAAP; (ii)
minority interests in consolidated Subsidiaries held by Persons other than the
Company or a Restricted Subsidiary; (iii) the excess of cost over fair market
value of assets or businesses acquired; (iv) any revaluation or other write-up
in book value of assets subsequent to the last day of the fiscal quarter of the
Company immediately preceding the Issue Date as a result of a change in the
method of valuation in accordance with GAAP; and (v) unamortized debt discount
and expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items (if included in total assets).
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less the amount of such stockholders' equity attributable
to Disqualified Capital Stock or treasury stock of the Company and its
Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge for which an accrual of or reserve for cash charges for
any future period is required).
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"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed or repurchased prior to the final Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time prior to such final Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity. For purposes of the covenant described in paragraph (a) under
"-- Certain Covenants -- Limitation on Indebtedness and Disqualified Capital
Stock," Disqualified Capital Stock shall be valued at the greater of its
voluntary or involuntary maximum fixed redemption or repurchase price plus
accrued and unpaid dividends. For such purposes, the "maximum fixed redemption
or repurchase price" of any Disqualified Capital Stock which does not have a
fixed redemption or repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were redeemed or repurchased on the date of determination, and if such price is
based upon, or measured by, the fair market value of such Disqualified Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Disqualified Capital Stock; provided, however,
that if such Disqualified Capital Stock is not at the date of determination
permitted or required to be redeemed or repurchased, the "maximum fixed
redemption or repurchase price" shall be the book value of such Disqualified
Capital Stock.
"Eligible Inventory" means the consolidated finished goods, raw materials
and work-in-process of the Company (excluding finished goods, raw materials and
work-in-process of Unrestricted Subsidiaries of the Company) less applicable
reserves, each of the foregoing determined on a consolidated basis in accordance
with GAAP.
"Eligible Receivables" means the consolidated trade receivables of the
Company (other than the trade receivables of Unrestricted Subsidiaries of the
Company) less the allowance for doubtful accounts, each of the foregoing
determined on a consolidated basis in accordance with GAAP.
"Equity Offering" means an offer and sale of Common Stock by the Company
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than a registration statement
on Form S-8 or otherwise relating to equity securities issuable under any
employee benefit plan of the Company) or pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"Event of Loss" means, with respect to any property or asset of the Company
or any Restricted Subsidiary, (i) any damage to such property or asset that
results in an insurance settlement with respect thereto on the basis of a total
loss or a constructive or compromised total loss or (ii) the confiscation,
condemnation or requisition of title to such property or asset by any government
or any instrumentality or agency thereof. An Event of Loss shall be deemed to
occur as of the date of the insurance settlement, confiscation, condemnation or
requisition of title, as applicable.
"Exempt Foreign Subsidiary" means (i) any Restricted Subsidiary engaged in
business exclusively outside the United States of America, irrespective of its
jurisdiction of incorporation and (ii) any other Restricted
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Subsidiary whose assets (excluding any cash and Cash Equivalents) consist
exclusively of Capital Stock or Indebtedness of one or more Restricted
Subsidiaries described in clause (i) of this definition, that, in any case, is
so designated by the Company in an Officers' Certificate delivered to the
Trustee and (a) is not a guarantor of, and has not granted any Lien to secure,
the Credit Facility or any other Indebtedness of the Company or any Restricted
Subsidiary other than another Exempt Foreign Subsidiary and (b) does not have
total Consolidated Net Tangible Assets that, when aggregated with the total
assets of any other Exempt Foreign Subsidiary, exceed 10% of the Company's
Consolidated Net Tangible Assets, as determined in accordance with GAAP, as
reflected on the Company's most recent balance sheet.
"Fair market value" means, with respect to any asset or Investment, the
fair market value of such asset or Investment at the time of the event requiring
such determination, as determined in good faith by the Board of Directors of the
Company, or, with respect to any asset or Investment in excess of $7.5 million
(other than cash or Cash Equivalents), as determined by a reputable appraisal
firm that is, in the judgment of such Board of Directors, qualified to perform
the task for which such firm has been engaged and independent with respect to
the Company.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business) and all liabilities of such Person incurred in connection
with any letters of credit, bankers' acceptances or other similar credit
transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, outstanding on the date of the
Indenture or thereafter, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) the Attributable Indebtedness
respecting all Capitalized Lease Obligations of such Person, (e) all
Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
the amount of the obligation so secured), (f) all guarantees by such Person of
Indebtedness referred to in this definition and (g) all obligations of such
Person under or in respect of Currency Hedge Obligations and Interest Rate
Protection Obligations.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
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payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
Interest Rate Protection Obligations and Currency Hedge Obligations, but only to
the extent that the same constitute Permitted Indebtedness, and (c) endorsements
of negotiable instruments and documents in the ordinary course of business.
"Issue Date" means the date on which the Offered Notes first were issued
under the Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or in the Indenture provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale, (iii)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) (x) owning a beneficial interest in the properties or
assets subject to the Asset Sale or (y) having a Lien thereon and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee; provided, however, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Available Proceeds. "Net Available Proceeds"
means, with respect to any Event of Loss, the proceeds to the Company or any
Restricted Subsidiary as a result thereof in the form of cash or Cash
Equivalents, including insurance proceeds paid to the Company or any Restricted
Subsidiary, and all payments received by the Company or any Restricted
Subsidiary from any government or any instrumentality or agency thereof by way
of compensation for the requisition of title to property, net of all fees and
expenses incurred by the Company or any Restricted Subsidiary related to the
collection or receipt of such proceeds, all as reflected in an Officers'
Certificate delivered to the Trustee.
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"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company or any Restricted Subsidiary incurred in connection
with the acquisition by the Company or such Restricted Subsidiary of any
property or assets and as to which (a) the holders of such Indebtedness agree
that they will look solely to the property or assets so acquired and securing
such Indebtedness for payment on or in respect of such Indebtedness, and neither
the Company nor any Subsidiary (other than an Unrestricted Subsidiary) (i)
provides credit support, including any undertaking, agreement or instrument
which would constitute Indebtedness or (ii) is directly or indirectly liable for
such Indebtedness, and (b) no default with respect to such Indebtedness would
permit (after notice or passage of time or both), according to the terms
thereof, any holder of any Indebtedness of the Company or a Restricted
Subsidiary to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and the
transfer of the Notes.
"Pari Passu Indebtedness" means, with respect to any Net Proceeds from
Asset Sales, Indebtedness of the Company and its Restricted Subsidiaries the
terms of which require the Company or such Restricted Subsidiary to apply such
Net Proceeds to offer to repurchase or repay such Indebtedness.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness (and any guarantee thereof) under one or more credit
facilities with banks and other financial institutions in an aggregate
principal amount at any one time outstanding not to exceed (a) the greater
of (x) $25 million at any time outstanding or (y) the sum of 85% of the
amount of Eligible Receivables of the Company and its Restricted
Subsidiaries and 50% of the amount of Eligible Inventory of the Company and
its Restricted Subsidiaries, less (b) any amounts derived from Asset Sales
and applied to the permanent reduction of the Indebtedness under any such
credit facilities as contemplated by the "Limitation on Asset Sales"
covenant (the "Maximum Bank Credit Amount"), and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings or
replacements (each, for purposes of this clause (i), a "refinancing")
thereof, including any successive refinancing thereof, so long as the
aggregate principal amount of any such new Indebtedness, together with the
aggregate principal amount of all other Indebtedness outstanding pursuant
to this clause (i), shall not at any one time exceed the Maximum Bank
Credit Amount;
(ii) Indebtedness under the Offered Notes and any Exchange Notes
issued in exchange for the Offered Notes of an equal principal amount;
(iii) Indebtedness outstanding or in effect on the date of the
Indenture (and not repaid or defeased with the proceeds of the offering of
the Offered Notes);
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (1) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted
by paragraph (a) of the "Limitation on Indebtedness and Disqualified
Capital Stock" covenant, and (2) the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of such Indebtedness to which such Interest Rate Protection Obligations
relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (1)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a)
of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant
or to the foreign currency cash flows reasonably expected to be generated
by the Company and its Restricted Subsidiaries, and (2) the notional
principal amount of such Currency Hedge Obligations does not exceed the
principal amount of such Indebtedness and the amount of such foreign
currency cash flows to which such Currency Hedge Obligations relate;
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(vi) the Subsidiary Guarantees of the Notes (and any assumption of the
obligations guaranteed thereby);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or
a Wholly Owned Restricted Subsidiary; provided, however, that upon any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly Owned Restricted Subsidiary ceasing to be
a Wholly Owned Restricted Subsidiary or any other subsequent transfer of
any such Indebtedness (except to the Company or a Wholly Owned Restricted
Subsidiary), such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of paragraph
(a) of the "Limitation on Indebtedness and Disqualified Capital Stock"
covenant at the time the Wholly Owned Restricted Subsidiary in question
ceased to be a Wholly Owned Restricted Subsidiary or the time such
subsequent transfer occurred;
(viii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary in the
ordinary course of business, including guaranties or obligations of the
Company or any Restricted Subsidiary with respect to letters of credit
supporting such bid, performance or surety obligations (in each case other
than for an obligation for money borrowed);
(ix) Non-Recourse Indebtedness;
(x) any renewals, substitutions, refinancing or replacements (each,
for purposes of this clause (x), a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness incurred pursuant to clause (iii)
of this definition, including any successive refinancing by the Company or
such Restricted Subsidiary, so long as (A) any such new Indebtedness shall
be in a principal amount that does not exceed the principal amount (or, if
such new Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing, (B) in the case of
any refinancing of Indebtedness that is pari passu with or subordinated in
right of payment to either the Notes or any Subsidiary Guarantees, then
such new Indebtedness is either pari passu with or subordinated in right of
payment to the Notes or any Subsidiary Guarantees, as the case may be, at
least to the same extent as the Indebtedness being refinanced and (C) such
new Indebtedness has an Average Life equal to or longer than the Average
Life of the Indebtedness being refinanced and a final Stated Maturity that
is at least 91 days later than the final Stated Maturity of the
Indebtedness being refinanced; and
(xi) any additional Indebtedness in an aggregate principal amount not
in excess of $7.5 million at any one time outstanding and any guarantee
thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the "Limitation on Asset
Sales" covenant or the "Limitation on Transactions with Affiliates" covenant;
(v) Investments made in the ordinary course of business in prepaid expenses,
lease, utility, workers' compensation, performance and other similar deposits;
(vi) Investments in stock, obligations or securities received in settlement of
debts owing to the Company or any Restricted Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in
each case as to debt owing to the Company or any Restricted Subsidiary that
arose in the ordinary course of business of the Company or any such Restricted
Subsidiary, provided that any stocks, obligations or securities received in
settlement of debts that arose in the ordinary course of business (and received
other than as a result of bankruptcy or insolvency proceedings or upon
foreclosure, perfection or enforcement of any Lien) that are, within 30 days of
receipt, converted into cash or Cash Equivalents shall be treated as having been
cash or Cash Equivalents at the time received; (vii) other
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Investments in joint ventures, corporations, limited liability companies or
partnerships formed with or organized by third Persons, which joint ventures,
corporations, limited liability companies or partnerships engage in a business
substantially similar, or related, to the business conducted by the Company and
its Restricted Subsidiaries, provided such Investments do not, in the aggregate,
exceed the sum of (1) $3 million and (2) the aggregate amount of principal
repayments, interest on Indebtedness, dividends, distributions or other return
of capital received by the Company or a Restricted Subsidiary from any Person
(other than the Company or any Subsidiary) in which the Company or any of its
Restricted Subsidiaries has an ownership interest.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the Indenture;
(b) Liens securing the Notes or the Subsidiary Guarantees;
(c) Liens in favor of the Company or any Restricted Subsidiary;
(d) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness";
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, property, casualty, liability and director's and
officer's insurance, or to secure the payment or performance of tenders,
statutory or regulatory obligations, surety and appeal bonds, bids,
government contracts and leases, performance and return of money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(j) purchase money Liens; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of the Company or any Restricted Subsidiary other than the property or
assets so acquired and any proceeds therefrom and (ii) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition;
(k) Liens securing obligations under or in respect of either Currency
Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off; and
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(o) Liens securing Non-Recourse Indebtedness; provided, however, that
the related Non-Recourse Indebtedness shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets acquired by the Company or any Restricted Subsidiary
with the proceeds of such Non-Recourse Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Rating Agency" means S&P or Moody's or, if S&P or Moody's shall have
ceased to be a "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act) or shall have ceased generally to
make publicly available a rating on any outstanding debt securities registered
under the Securities Act of any domestic company engaged primarily in the oil
field services business, such other organization or organizations, as the case
may be, then making publicly available a rating on the Notes as is selected by
the Company.
"Rating Date" means, in respect of a Change of Control, the business day
that is immediately before the day of the first public announcement of an event
or series of events that results in a Change of Control.
"Rating Decline" means the occurrence on any date following the Rating Date
and before a date that is 90 days after the occurrence of a corresponding Change
of Control (which period shall be deemed to be extended so long as prior to the
end of such 90-day period and continuing thereafter the rating of the Notes is
under publicly announced consideration for possible downgrade by a Rating
Agency) of either of the following: (i) the rating of the Notes by a Rating
Agency within such period shall be at least one gradation below the rating of
the Notes by such Rating Agency on the Rating Date, or (ii) a Rating Agency
shall withdraw its rating of the Notes. A gradation shall include changes within
categories (e.g., with respect to Moody's a decline in a rating from Ba1 to Ba2,
or from B1 to B2, and with respect to S&P a decline in a rating from BB+ to BB
or from B+ to B, will constitute a decrease of one gradation).
"Restricted Investment" means (without duplication) (i) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary" and (ii) any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by the Company or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or one of its Restricted Subsidiaries.
"Significant Subsidiary" means (i) any Subsidiary of the Company that would
constitute a "Significant Subsidiary" under Rule 1-02(w) of Regulation S-X under
the Securities Act and (ii) any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary under Rule 1-02(w) of Regulation S-X
under the Securities Act.
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"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor which is expressly subordinated in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons performing
similar functions).
"Subsidiary Guarantee" means any guarantee of the Notes by any Subsidiary
Guarantor in accordance with the provisions described under "-- Subsidiary
Guarantees of Notes."
"Subsidiary Guarantor" means (i) Grant Geophysical Corp., (ii) Grant
Geophysical (Int'l), Inc., (iii) Advanced Seismic Technology, Inc., (iv) SSGI
Acquisition Corp., (v) PT. Grant Geophysical Indonesia, (vi) Recursos
Energeticos Ltda., (vii) Grant Geophysical do Brasil Ltda., (viii) Solid State
Geophysical Inc., (ix) Solid State Internacional Ingenieria C.A., (x) Solid
State Geophysical Corp., (xi) each of the Company's other Restricted
Subsidiaries (other than an Exempt Foreign Subsidiary), if any, executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture and (xii) any Person that becomes a successor guarantor of the
Notes in compliance with the provisions described under "-- Subsidiary
Guarantees of Notes," except to the extent that any such Subsidiary Guarantor is
hereinafter released under the terms of the Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; (c) such designation as an Unrestricted Subsidiary would be
permitted under the "Limitation on Restricted Payments" covenant; and (d) such
designation shall not result in the creation or imposition of any Lien on any of
the properties or assets of the Company or any Restricted Subsidiary (other than
any Permitted Lien or any Lien the creation or imposition of which shall have
been in compliance with the "Limitation on Liens" covenant); provided, however,
that with respect to clause (a), the Company or a Restricted Subsidiary may be
liable for Indebtedness of an Unrestricted Subsidiary if (x) such liability
constituted a Permitted Investment or a Restricted Payment permitted by the
"Limitation on Restricted Payments" covenant, in each case at the time of
incurrence, or (y) the liability would be a Permitted Investment at the time of
designation of such Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation on a pro forma basis, (i) no Default or Event of
Default shall have occurred and be continuing, (ii) the Company could incur
$1.00 of additional Indebtedness (not including the incurrence of Permitted
Indebtedness) under the first paragraph of the "Limitation on Indebtedness and
Disqualified Capital Stock" covenant and (iii) if any of the properties and
assets of the Company or any of its Restricted Subsidiaries would upon such
designation become subject to any Lien (other than a Permitted Lien), the
creation or imposition of such Lien shall have been in compliance with the
"Limitation on Liens" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
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or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Westgate Preferred Stock" means the 10,000 shares of Preferred Stock owned
by Westgate together with any and all dividends paid or accrued thereon.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by a single, permanent global certificate in definitive,
fully registered form (the "Global Note"). The Global Note will be deposited
with, or on behalf of, DTC and registered in the name of a nominee of DTC.
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of Notes of the individual beneficial
interests represented by such Global Note to the respective accounts for persons
who have accounts with DTC and (ii) ownership of beneficial interests in the
Global Note will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by or on behalf of the Initial Purchaser and ownership of beneficial
interests in the Global Note will be limited to persons who have accounts with
DTC ("participants") or persons who own interests through participants.
Qualified Institutional Buyers will hold their interests in the Global Note
directly through DTC, if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in any Global Note will
be able to transfer that interest except in accordance with DTC's procedures in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any paying agent of the Company will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Note as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in the Global Note held through such participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds. If a holder
requires physical delivery of certificates representing such
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holders interest ("Certificated Securities") for any reason, including to sell
Notes to persons in states which require physical delivery of the Certificated
Securities, or to pledge such securities, such holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser or the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, or at the Company's election at any time, Certificated
Securities will be issued in exchange for the Global Note.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchanged Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with any resale of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that for a period of 120 days after the Expiration Date, it will use
reasonable efforts to make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale; provided that such Participating Broker-Dealer indicates in the Letter
of Transmittal that it is a Participating Broker-Dealer. In addition, until
, 1998, all broker-dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by Participating Broker-Dealers or any other persons. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or though brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities
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Act, and any profit on any resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt or
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it shall extend the 120-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers have received copies of the
supplement or amended Prospectus necessary to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any Participating Broker-Dealers) and certain
parties related to the holders against certain liabilities, including
liabilities under the Securities Act.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-4 under the Securities
Act, with respect to the Exchange Offer. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are omitted from
this Prospectus as permitted by the rules and regulations promulgated by the
Commission. For further information with respect to the Company and the Exchange
Notes, reference is hereby made to the Registration Statement and the exhibits
thereto. 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, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as any such
reports and other information to be filed by the Company with the Commission,
may be inspected and copied at the public reference facilities of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the public reference
section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
As a result of the Exchange Notes, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
Pursuant to the Indenture, the Company has agreed that, whether or not the
Company is subject to filing requirements under Section 13 or 15(d) of the
Exchange Act, and so long as any Notes remain outstanding, it will file with the
Commission (but only if the Commission at such time is accepting such voluntary
filings) and will send the Trustee copies of the financial information,
documents and reports that would have been required to be filed with the
Commission pursuant to the Exchange Act.
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LEGAL MATTERS
Certain matters related to the validity of the Exchange Notes will be
passed upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of GGI as of December 31, 1996 and
for each of the years in the two year period ended December 31, 1996 and the
nine month period ended September 30, 1997 and the consolidated financial
statements of the Company as of December 31, 1997 and for the three month period
ended December 31, 1997 have been included in this Prospectus in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1996
financial statements of GGI contains an explanatory paragraph that states that
GGI's recurring losses from operations and net capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
The consolidated financial statements of Solid State for each of the three
years ended August 31, 1997 and for each of the years in the period ended August
31, 1997 included in this Prospectus have been audited by Price Waterhouse,
independent accountants, as stated in their report appearing herein.
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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
----
GRANT GEOPHYSICAL, INC.
Independent Auditors Report................................. F-2
Grant Geophysical, Inc.................................... F-2
GGI Liquidating Corporation............................... F-3
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1997........... F-4
GGI Liquidating Corporation as of December 31, 1996....... F-4
Consolidated Statement of Operations:
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997...................................... F-6
GGI Liquidating Corporation for the years ended December
31, 1995, 1996 and for the nine-month period ended
September 30, 1997..................................... F-6
Consolidated Statement of Stockholders' Equity:
Grant Geophysical, Inc. for the three month period ended
December 31, 1997...................................... F-7
GGI Liquidating Corporation for the years ended December
31, 1995 and 1996...................................... F-8
Consolidated Statement of Cash Flows:
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997...................................... F-9
GGI Liquidating Corporation for the years ended December
31, 1995 and 1996 and for the nine-month period ended
September 30, 1997..................................... F-9
Notes to Financial Statements............................... F-11
SOLID STATE GEOPHYSICAL, INC.
Auditors' Report -- Chartered Accountants................... F-36
Comments by Auditors for U.S. Readers on Canada -- U.S.
Reporting Difference --
Chartered Accountants..................................... F-36
Consolidated Balance Sheet.................................. F-37
Consolidated Statement of Operations and (Deficit) Retained
Earnings.................................................. F-38
Consolidated Statement of Changes in Financial Position..... F-39
Notes to Consolidated Financial Statements.................. F-40
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Grant Geophysical, Inc.
We have audited the accompanying consolidated balance sheet of Grant
Geophysical, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the three-month period then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of Grant
Geophysical, Inc. and subsidiaries, as of December 31, 1997, and the results of
their operations and their cash flows for the three-month period then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 19, 1998
F-2
100
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GGI Liquidating Corporation
We have audited the accompanying consolidated balance sheets of GGI
Liquidating Corporation (a debtor-in-possession as of December 31, 1996)
(formerly Grant Geophysical, Inc.) and subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1996 and the nine month period ended September 30, 1997. These
consolidated financial statements are the responsibility of GGI Liquidating
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial positions of GGI
Liquidating Corporation and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1996, and the nine month period ended
September 30, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that GGI Liquidating Corporation will
continue as a going concern which contemplates among other things, the
realization of assets and liquidation of liabilities in the ordinary course of
business. As discussed in Note 1 to the consolidated financial statements, GGI
Liquidating Corporation (the Petitioning Company) filed a voluntary petition for
reorganization under chapter 11 of the United States Bankruptcy Code on December
6, 1996. The chapter 11 case of the Petitioning Company is administered by the
United States Bankruptcy Court for the District of Delaware (the "Court"). The
Petitioning Company is operating the business as debtor-in-possession which
requires certain of its actions to be approved by the Court. In September 1997
the Court approved the "Second Amended Plan of Reorganization" (the "Plan")
filed by GGI Liquidating Corporation. The Plan was consummated on September 30,
1997, with the purchase by Grant Geophysical, Inc. of substantially all of the
assets and the assumption of certain liabilities of GGI Liquidating Corporation.
GGI Liquidating Corporation is currently in liquidation and will distribute all
of its assets pursuant to the Plan. Upon the completion of its asset
distribution, GGI Liquidating Corporation will dissolve and cease to exist. The
consolidated financial statements and financial statement schedule do not
include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of liabilities that
might result from the Plan and the distribution of assets pursuant thereto.
KPMG PEAT MARWICK LLP
Houston, Texas
December 22, 1997
F-3
101
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,772 $ 7,093
Restricted cash........................................... 321 321
Accounts receivable:
Trade (net of allowance for doubtful accounts of $5,711
and $158 at December 31, 1996 and 1997,
respectively)......................................... 19,471 29,495
Other.................................................. 996 2,487
Inventories............................................... 503 530
Prepaids.................................................. 1,411 4,190
Work in process........................................... 1,071 2,779
------- --------
Total current assets................................. 30,545 46,895
Property, plant and equipment:
Land...................................................... 231 427
Buildings and improvements................................ 1,397 1,548
Plant facilities and store fixtures....................... 1,703 876
Machinery and equipment................................... 90,892 70,151
------- --------
Total property, plant and equipment.................. 94,223 73,002
Less accumulated depreciation............................. 56,555 8,498
------- --------
Net property, plant and equipment.................... 37,668 64,504
Multi-client data........................................... -- 5,736
Goodwill.................................................... -- 36,304
Other assets................................................ 1,910 2,265
------- --------
Total assets......................................... $70,123 $155,704
======= ========
(Continued on next page)
F-4
102
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations.............................. $ 589 $ 1,158
Accounts payable.......................................... 3,975 16,422
Accrued expenses.......................................... 3,051 10,318
Foreign income taxes payable.............................. 188 2,807
--------- --------
Total current liabilities............................ 7,803 30,705
Pre-petition liabilities subject to chapter 11 case......... 90,244 --
Long-term debt and capital lease obligations, excluding
current portion........................................... -- 65,409
Unearned revenue............................................ 6,031 5,443
Other liabilities and deferred credits...................... 258 2,369
Subordinated note........................................... -- 9,786
Stockholders' equity (deficit):
$2.4375 Convertible exchangeable preferred stock, $.01 par
value. Authorized 2,300,000 shares; issued and
outstanding 2,300,000 shares at December 31, 1996,
(liquidating preference $25 per share, aggregating
$57,500,000)........................................... 23 --
Junior preferred stock, $100 par value. Authorized 15,000
shares; issued and outstanding 14,904 shares at
December 31, 1996...................................... 1,490 --
Common stock, $.002 par value. Authorized 40,000,000
shares; issued and outstanding 20,641,765 shares at
December 31, 1996...................................... 41 --
Cumulative pay-in-kind preferred stock, $.001 par value.
None authorized, none issued or outstanding at December
31, 1996, Authorized 20,000 shares; issued and
outstanding 10,000 shares at December 31, 1997,
liquidating preference of $1,000 per share............. -- 10,000
Common stock, $.001 par value. None authorized, issued or
outstanding at December 31, 1996. Authorized 25,000,000
shares; issued and outstanding 14,152,555 shares at
December 31, 1997...................................... -- 14
Additional paid-in capital................................ 124,203 41,278
Accumulated deficit....................................... (159,970) (8,833)
Cumulative translation adjustment......................... -- (467)
--------- --------
Total stockholders' equity (deficit)................. (34,213) 41,992
--------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 70,123 $155,704
========= ========
See accompanying notes to consolidated financial statements.
F-5
103
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GGI GRANT
------------------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------- ------------
1995 1996 1997 1997
---------- ---------- ------------- ------------
Revenues................................. $ 91,996 $ 105,523 $ 92,705 $ 37,868
Expenses:
Direct operating expenses.............. 69,046 136,326 71,006 28,431
Other operating expenses............... 8,527 17,865 6,473 3,507
Depreciation and amortization.......... 9,424 11,500 8,432 4,594
Special charge for asset impairment.... -- 5,802 -- 6,369
---------- ---------- ---------- --------
Total costs and expenses............. 86,997 171,493 85,911 42,901
---------- ---------- ---------- --------
Operating income (loss).............. 4,999 (65,970) 6,794 (5,033)
Other income (deductions):
Interest expense....................... (3,635) (7,558) (4,037) (1,431)
Reorganization costs................... -- (412) (3,543) --
Interest income........................ 113 36 279 69
Other.................................. 2,076 (502) 2,266 (1,262)
---------- ---------- ---------- --------
Total other deductions............... (1,446) (8,436) (5,035) (2,624)
---------- ---------- ---------- --------
Income (loss) before taxes and
minority interest................. 3,553 (74,406) 1,759 (7,657)
Income tax expense....................... 391 1,621 2,184 856
---------- ---------- ---------- --------
Income (loss) before minority
interest.......................... 3,162 (76,027) (425) (8,513)
Minority interest........................ -- -- -- 2,847
---------- ---------- ---------- --------
Net income (loss).................... $ 3,162 $ (76,027) $ (425) $ (5,666)
========== ========== ========== ========
Net loss applicable to common stock...... $ (2,096) $ (82,390) $ (425) $ (6,143)
========== ========== ========== ========
INCOME (LOSS) PER COMMON SHARE -- BASIC
AND DILUTED:
Net income (loss)........................ $ (1.18)
Dividend requirement on Pay-In-Kind
preferred stock........................ (0.10)
--------
Net loss per common share................ $ (1.28)
========
See accompanying notes to consolidated financial statements.
F-6
104
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
GRANT
------------------------------------------------------------------------------------
CUMULATIVE ADDITIONAL CUMULATIVE TOTAL
PAY-IN-KIND COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
PREFERRED STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------------- ------ ---------- ----------- ----------- ----------------
Beginning balances........ $ -- $-- $ -- $ -- $ -- $ --
Net loss................ -- -- -- (5,666) -- (5,666)
Common stock, one share
issued............... -- -- -- -- -- --
Cumulative preferred
stock issued......... 19,571 -- -- -- -- 19,571
Effectively issued
4,590,055 shares of
common stock for
majority investment
in Solid State....... -- 5 7,195 -- -- 7,200
"As if" pooling effect
of Solid State....... -- -- -- (2,952) -- (2,952)
Common stock, one share
issued............... -- -- -- -- -- --
Issued 62,500 shares of
common stock for
principal
shareholder's
exchange of warrants
in Solid State....... -- -- 144 -- -- 144
Issued 9,499,998 shares
to principal
stockholders in
accordance with the
Plan................. -- 9 33,939 -- -- 33,948
Converted 9.571
preferred shares to
Subordinated Note.... (9,571) -- -- -- -- (9,571)
Dividend-Preferred
Stock................ -- -- -- (215) -- (215)
Cumulative translation
adjustment........... -- -- -- -- (467) (467)
------- --- ------- ------- ----- -------
Balances at December 31,
1997.................... $10,000 $14 $41,278 $(8,833) $(467) $41,992
======= === ======= ======= ===== =======
See accompanying notes to consolidated financial statements.
F-7
105
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
GGI
--------------------------------------------------------------------------------------------
$2.4375
CONVERTIBLE SERIES A
EXCHANGEABLE CONVERTIBLE JUNIOR CUMULATIVE ADDITIONAL
PREFERRED PREFERRED PREFERRED PAY-IN-KIND COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK PREFERRED STOCK STOCK CAPITAL DEFICIT
------------ ----------- --------- --------------- ------ ---------- -----------
Balances at December 31,
1994......................... $22 $-- $1,490 $-- $24 $111,968 $ (87,105)
Net income................... -- -- -- -- -- -- 3,162
Restricted common stock
issued under the Incentive
Stock Option Plan.......... -- -- -- -- -- 86 --
Proceeds from sale of 15,000
shares under the Incentive
Stock Option Plan.......... -- -- -- -- -- 11 --
Restricted common stock
issued under the Employee
Retirement Savings Plan.... -- -- -- -- -- 57 --
--- --- ------ --- --- -------- ---------
Balances at December 31,
1995......................... 22 -- 1,490 -- 24 112,122 (83,943)
Net loss..................... -- -- -- -- -- -- (76,027)
Common stock issued in
connection with obtaining
equipment and short- and
long-term financing........ -- -- -- -- -- 389 --
Issuance of 143,000 shares of
$2.4375 Convertible
exchangeable preferred
stock, net of non-cash
issuance costs of
$171,000................... 1 -- -- -- -- 1,372 --
Issuance of 70,000 shares of
Series A convertible
preferred stock............ -- 1 -- -- -- 6,999 --
Conversion of convertible
debentures................. -- -- -- -- 7 2,767 --
Conversion of Series A
convertible preferred
stock...................... -- (1) -- -- 9 (8) --
Proceeds from the exercise of
200,000 warrants........... -- -- -- -- 1 150 --
Restricted common stock
issued under the Incentive
Stock Option Plan.......... -- -- -- -- -- 129 --
Proceeds from sale of 125,000
shares under the Incentive
Stock Option Plan.......... -- -- -- -- -- 145 --
Restricted common stock
issued under the Employee
Retirement Savings Plan.... -- -- -- -- -- 138 --
--- --- ------ --- --- -------- ---------
Balances at December 31,
1996....................... $23 $-- $1,490 $-- $41 $124,203 $(159,970)
--- --- ------ --- --- -------- ---------
GGI
----------------
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
Balances at December 31,
1994......................... $ 26,399
Net income................... 3,162
Restricted common stock
issued under the Incentive
Stock Option Plan.......... 86
Proceeds from sale of 15,000
shares under the Incentive
Stock Option Plan.......... 11
Restricted common stock
issued under the Employee
Retirement Savings Plan.... 57
--------
Balances at December 31,
1995......................... 29,715
Net loss..................... (76,027)
Common stock issued in
connection with obtaining
equipment and short- and
long-term financing........ 389
Issuance of 143,000 shares of
$2.4375 Convertible
exchangeable preferred
stock, net of non-cash
issuance costs of
$171,000................... 1,373
Issuance of 70,000 shares of
Series A convertible
preferred stock............ 7,000
Conversion of convertible
debentures................. 2,774
Conversion of Series A
convertible preferred
stock...................... --
Proceeds from the exercise of
200,000 warrants........... 151
Restricted common stock
issued under the Incentive
Stock Option Plan.......... 129
Proceeds from sale of 125,000
shares under the Incentive
Stock Option Plan.......... 145
Restricted common stock
issued under the Employee
Retirement Savings Plan.... 138
--------
Balances at December 31,
1996....................... $(34,213)
--------
See accompanying notes to consolidated financial statements.
F-8
106
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
Cash flows from operating activities:
Net income (loss)............................ $ 3,162 $(76,027) $ (425) $(5,666)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Special charge for asset impairment....... -- 5,802 -- 6,369
Provision for doubtful accounts........... -- 5,511 -- --
Depreciation and amortization expense..... 9,424 11,500 8,432 4,594
Deferred costs amortization............... 12,550 29,528 -- --
Loss on sale of subsidiaries.............. -- 198 -- --
(Gain) loss on the sale of fixed assets... (212) (25) 39 132
Gain on insurance claim................... (1,247) -- -- --
Exchange loss (gain)...................... (102) 251 98 (77)
Other non-cash items...................... 191 328 225 (2,544)
Changes in assets and liabilities, excluding
effects of divestitures:
(Increase) decrease in:
Accounts receivable.......................... (14,828) 13,346 2,375 694
Inventories.................................. 27 914 (27) --
Prepaids..................................... (1,701) 1,228 (538) (1,220)
Work-in-Process.............................. (18,439) (24,969) (268) (1,101)
Other assets................................. (521) 1,846 (1,031) 983
Increase (decrease) in:
Accounts payable............................. 10,637 9,328 3,143 (1,237)
Accrued expenses............................. 1,046 5,059 830 1,759
Foreign income taxes payable................. 122 390 1,767 487
Other liabilities and deferred credits....... 2,650 7,973 (2,320) 2,213
Change in pre-petition liabilities subject to
Chapter 11 case:
Accounts payable.......................... -- -- (2,226) --
Accrued expenses.......................... -- (125) (1,732) --
Foreign income tax payable................ -- -- (194) --
Other liabilities and deferred credits.... -- (1,402) (3,622) --
-------- -------- ------- -------
Net cash provided by (used in) operating
activities........................... 2,759 (9,346) 4,526 5,386
(Continued on next page)
F-9
107
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
Cash flows from (used in) investing activities:
Capital expenditures, net.................... (13,757) (10,339) (6,751) (3,994)
Proceeds from the sale of assets............. 255 25 20 182
Proceeds from the sale of
subsidiaries/businesses................... -- 39 -- --
Insurance proceeds from arson damage, net of
losses incurred........................... 1,351 -- -- --
Acquisition of the minority interest in Solid
State..................................... -- -- -- (15,903)
Restricted cash.............................. 2,879 94 -- --
-------- -------- ------- -------
Net cash used in investing activities... (9,272) (10,181) (6,731) (19,715)
Cash flows from (used in) financing activities:
Proceeds from the exercise of stock options
and warrants.............................. 11 296 -- --
Proceeds from issuance of $2.4375 preferred
stock, net of issuance costs.............. -- 1,544 -- --
Proceeds from issuance of Series A preferred
stock..................................... -- 7,000 -- --
Borrowings made during the period............ 89,950 122,354 4,207 31,270
Repayment on borrowings during the period.... (83,032) (105,757) (1,838) (15,363)
Proceeds from the issuance of Common Stock... -- -- -- 34,092
Repayment of debt due to GGI................. -- -- -- (33,948)
Pre-petition liabilities subject to Chapter
11 case:
Borrowings under credit facility.......... -- 3,612 49,385 --
Repayment on borrowings................... -- (3,382) (50,465) --
-------- -------- ------- -------
Net cash provided by financing
activities.............................. 6,929 25,667 1,289 15,072
Effect of exchange rate changes on cash........ (173) (415) (238) 160
-------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... 243 5,725 (1,153) 903
Cash and cash equivalents at beginning of
period....................................... 804 1,047 6,772 6,190
-------- -------- ------- -------
Cash and cash equivalents at end of period..... $ 1,047 $ 6,772 $ 5,618 $ 7,093
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES. SEE NOTE
17.
See accompanying notes to consolidated financial statements.
F-10
108
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
(1) BASIS OF PRESENTATION
Effective September 30, 1997, in connection with the plan of reorganization
(the "Plan"), Grant Geophysical, Inc. ("Grant"), which was formerly known as
Grant Acquisition Corporation, acquired substantially all of the assets and
assumed certain liabilities of GGI Liquidating Corporation ("GGI"), which was
formerly known as Grant Geophysical, Inc. Elliott Associates L.P. ("Elliott")
and Westgate International, L.P. ("Westgate") own all of the issued and
outstanding common and preferred stock of Grant. The general partners of Elliott
are Paul E. Singer and Braxton Associates, L.P. The general partner of Westgate
is Hambledon, Inc., a corporation controlled by Braxton Associates, L.P. Elliott
and Westgate are each managed by Stonington Management Corporation, a
corporation controlled by Mr. Singer. For financial statement purposes, the
purchase of GGI's assets by Grant was accounted for as a purchase acquisition.
The purchase price was allocated between the fair value of the GGI assets
purchased and liabilities assumed, and Grant recorded goodwill of approximately
$21.0 million. The effects of the acquisition have been reflected in Grant's
assets and liabilities at that date.
At September 30, 1997, Elliott held 5,888,565 shares or 40.7% and Westgate
held 3,291,544 shares, or 23.3% of the outstanding common shares of Solid State
Geophysical, Inc. ("Solid State Stock"). As of September 30, 1997, Elliott and
Westgate combined owned a controlling interest in both Solid State Geophysical,
Inc. ("Solid State") and Grant. As such, as of that date, Elliott and Westgate
were deemed to have transferred their ownership in Solid State to Grant in
exchange for 4,590,055 shares of Grant Common Stock. This transaction was
accounted for as an exchange of ownership interests between entities under
common control and the assets and liabilities transferred were accounted for at
historical cost in a manner similar to a pooling-of-interests. In November 1997,
Grant, through a wholly owned Canadian subsidiary, initiated a tender offer for
all of the outstanding common shares of Solid State not held by Grant. In
connection with the tender offer, Elliott and Westgate transferred its ownership
in Solid State to Grant in exchange for 4,652,555 shares of Grant Common Stock
and agreed to loan Grant $15.8 million to pay for shares tendered in the tender
offer and costs incurred in connection with such tender offer. Upon the
expiration of the Tender Offer on December 19, 1997, Grant held approximately
99% of the outstanding shares of Solid State Stock. On December 23, 1997,
because Grant acquired over 90% of the outstanding shares of Solid State Stock
not already held by Grant qualified to exercise its statutory right under
Canadian law to acquire the remaining shares of Solid State Stock on the same
terms and at the same price as the Tender Offer. On December 23, 1997 after
exercising these statutory rights, Solid State became an indirect wholly owned
subsidiary of the Grant The acquisition of the unaffiliated minority interest
under the tender offer was accounted for under the purchase method of accounting
at the date of acceptance. Grant recorded goodwill of approximately $15.3
million in connection with the acquisition of the unaffiliated minority
interest.
As a result, Grant's consolidated balance sheet as of December 31, 1997 and
statement of operations and cash flows for the three-months ended December 31,
1997 is presented using Grant's new basis of accounting, while the consolidated
balance sheets of GGI as of December 31, 1996 and the consolidated statements of
operations and cash flows for the two years ended December 31, 1996 and the
nine-months ended September 30, 1997 are presented using GGI's historical cost
basis of accounting. Because of the recent acquisition and related adjustment of
assets and liabilities to fair value as of December 31, 1997, the carrying value
of Grant's financial assets and liabilities approximates fair value.
On December 6, 1996, (the "Petition Date") GGI filed for protection under
the United States Bankruptcy Code and began its reorganization under the
supervision of the Bankruptcy Court. The reorganization was precipitated by
several factors, including overly rapid and underfinanced expansion in the
United States and Latin American markets, costs related to the development of a
proprietary data recording system and poor operational results in the United
States and certain international markets. These factors impaired GGI's ability
to service its indebtedness, finance its existing capital expenditure
requirements and meet its working capital needs. In
F-11
109
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
addition, GGI was unable to raise additional equity, causing a disproportionate
reliance on debt financing and equipment leasing. In connection with the
reorganization, GGI replaced its senior management, disposed of unprofitable
operations and developed the Plan, which was consummated on September 30, 1997
(the "Effective Date") with the purchase by Grant of substantially all of the
assets and the assumption certain liabilities of GGI. GGI is currently in
liquidation and will distribute all of its assets pursuant to the Plan. Upon the
completion of its asset distribution, GGI will dissolve and cease to exist.
Grant was incorporated in Delaware in September 1997. The Company has
several wholly owned subsidiaries incorporated in the United States and certain
foreign jurisdictions and has established branch operations in various foreign
jurisdictions. The Company provides the petroleum industry with land and
transition zone seismic data acquisition services and operates or has operated
seismic crews in areas of oil and gas exploration in the United States, Canada,
Latin America, the Far East, the Middle East and Africa.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern Considerations--GGI
The accompanying financial statements of GGI have been prepared on a going
concern basis, which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business. As described earlier, GGI is
in the process of distributing its assets pursuant to the Plan and will be
dissolved. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of reported asset amounts or
the amounts and classification of liabilities that may result from the Plan and
the distribution of assets pursuant thereto.
Principles of Consolidation
Each of the consolidated financial statements include the accounts of GGI
or Grant and all of their respective majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Minority Interest
The minority interest calculated on the Consolidated Statement of
Operations is computed based on the minority ownership percentage in Solid State
during the fourth quarter of 1997. This minority interest was extinguished by
the tender offer and Solid State is a wholly owned subsidiary of Grant.
Revenues
Revenues from data acquisition are recognized based on contractual rates
set forth in the related contract. If the contract only provides a rate for the
completed service, revenue and any unearned revenue recorded is recognized based
on the percentage of the work effort completed compared with the total work
effort involved in the contract.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, all highly liquid
debt instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. There were no investments at December 31,
1996 and $510,000 at December 31, 1997.
Restricted Cash
At December 31, 1996 and 1997, restricted cash included three certificates
of deposit totaling $321,000 which are pledged as collateral for letters of
credit.
F-12
110
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories, which consist primarily of miscellaneous supplies, are stated
at lower of cost or market. Cost is determined using the specific identification
method.
Work in Process
Expenses related to the work in progress of seismic crews are deferred and
recognized over the performance of the contract.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of future minimum lease payments
at the inception of the lease.
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the various classes of assets as follows:
YEARS
-----
Buildings and improvements.................................. 5-10
Data processing equipment................................... 3-5
Office equipment............................................ 5-10
Seismic exploration and transportation equipment............ 3-10
Plant and equipment held under capital leases are amortized by the
straight-line method over the shorter of the lease term or estimated useful life
of the asset. Expenditures for maintenance and repairs are charged to
operations. Betterments and major renewals are capitalized.
Multi-Client Data Library
The costs incurred in acquiring and processing multi-client seismic data
owned by the Company are capitalized. During the twelve month period beginning
with the initiation of acquisition of each multi-client survey, costs are
amortized based on revenues from such survey as a percentage of total estimated
revenues to be realized from such survey. Thereafter, amortization of remaining
capitalized costs is provided at the greater of the percentage of realized
revenues to total estimated revenues or straight line over four years.
On a quarterly basis, management estimates the residual value of each
survey, and additional amortization is provided if the remaining revenues
reasonably expected to be obtained from any survey are less than the carrying
value of such survey.
Asset Impairment
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Long-lived assets and certain identifiable intangibles are written down to
their current fair value whenever events or changes in circumstances indicate
that the carrying amount of these assets are not recoverable. These events or
changes in circumstances may include but are not limited to a significant change
in the extent in which an assets is used, a significant decrease in the market
value of the asset, or a projection or forecast that demonstrates continuing
losses associated with an asset. If an impairment is determined, the asset is
written down to its current fair value and a loss is recognized.
F-13
111
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. Accumulated amortization was $175,000 as of December
31, 1997. Grant assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting Grant's average cost of funds. The assessment of the recoverability
of goodwill will be impacted if estimated future operating cash flows are not
achieved. The goodwill created in the purchase of GGI's assets is amortized over
30 years and the goodwill created in the acquisition of Solid State is amortized
over 20 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reorganization Costs
Reorganization costs consist of professional fees and similar types of
expenditures directly related to GGI's chapter 11 proceeding, and are expensed
as incurred. During 1996 and nine months ended September 30, 1997, GGI had
incurred approximately $412,000 and $3,543,000 of reorganization costs.
Foreign Exchange Gains and Losses
Grant has determined that the United States ("U.S.") dollar is its primary
functional currency in all foreign locations with the exception of its Canadian
subsidiaries. Accordingly, these foreign entities (other than Canada) translate
property and equipment (and related depreciation) and inventories into U.S.
dollars at the exchange rate in effect at the time of their acquisition while
other assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Remeasurement gains and losses are included in the
determination of net income and are reflected in other income (deductions) (See
Note 16). The Canadian subsidiaries use the Canadian dollar as their functional
currency and translate all assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of assets and liabilities are
recorded in the cumulative foreign currency translation adjustment account in
stockholders' equity. Grant does not presently use derivatives or forward
foreign exchange hedging contracts.
Income Taxes
The Financial Accounting Standards Board ("FASB") issued SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-14
112
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Post-Employment Benefits
SFAS No. 112, "Employer's Accounting for Post-Employment Benefits,"
requires companies to account for benefits to former or inactive employees after
employment but before retirement on the accrual basis of accounting.
Post-employment benefits include every form of benefit provided to former or
inactive employees, their beneficiaries and covered dependents. Benefits
include, but are not limited to, salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of benefits such as
health care benefits and life insurance coverage. Adoption of SFAS No. 112 did
not materially affect GGI's consolidated results of operations or financial
position.
Income (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
specifies new measurement, presentation and disclosure requirements for earnings
per share and is required to be applied retroactively upon initial adoption.
Grant has adopted SFAS No. 128 effective December 31, 1997, and accordingly, has
restated herein all previously reported earnings per share data. Earnings per
share data have not been presented for GGI as this information is not
meaningful.
Basic income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period without any
dilutive effects considered. Diluted income (loss) per common share reflects
dilution for all potentially dilutive securities including warrants and
convertible securities. The income (loss) is adjusted for by cumulative
preferred stock dividends in calculating net income (loss) attributable to the
common shareholder.
Stock Based Compensation
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value method for accounting for stock-based
compensation plans either through recognition or disclosure. Grant has elected
to follow the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees,"
where compensation costs are not recognized in the Company's stock option plans.
Had GGI adopted SFAS No. 123 for options granted after January 1, 1995,
GGI's net loss for the years ended December 31, 1995 and 1996 would have been
increased as follows (in thousands):
GGI
-----------------------------------------
1995 1996
------------------- -------------------
AS AS
REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- --------
Net loss....................................... $(2,096) $(2,215) $(82,390) $(82,612)
For purposes of determining compensation costs using the provisions of SFAS
123, the fair value of option grants were determined using the Black-Scholes
option-valuation model. The key input variables used in valuing the options
were: risk-free interest rate of 8.5%; dividend yield of zero; stock price
volatility of 70%; expected option lives of four years.
Pursuant to the Plan, GGI's capital stock was canceled on the Effective
Date. As a result, GGI's Amended 1989 Long-Term Incentive Plan was also
canceled. As of December 31, 1997, Grant has not granted any awards under the
1997 Equity and Performance Plan. Therefore, the effect of SFAS No. 123 for the
nine months ended September 30, 1997 and the three months ended December 31,
1997 have not been presented.
F-15
113
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain amounts previously reported have been reclassified in order to
ensure comparability between the periods reported.
Recent Accounting Pronouncements
The FASB issued "Reporting Comprehensive Income" ("SFAS 130") regarding
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company plans to adopt SFAS 130 in the first quarter of 1998.
The FASB issued "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131") regarding disclosures about segments of an enterprise
and related information. SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
the reporting of selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
Grant will adopt SFAS 131 for the fiscal year ending December 31, 1998.
F-16
114
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PRE-PETITION LIABILITIES SUBJECT TO GGI'S CHAPTER 11 CASE
As a result of GGI's chapter 11 reorganization proceedings, all
pre-petition liabilities of GGI outstanding at December 31, 1996 were classified
as pre-petition liabilities subject to Chapter 11 case. The terms and amounts
due are subject to the conditions of the Plan confirmed on September 15, 1997.
GGI's secured and unsecured debt at December 31, 1996 was as follows (dollars in
thousands):
DECEMBER 31, 1996
--------------------------------
PRE-PETITION
ACCRUED
AMOUNT INTEREST TOTAL
------- ------------ -------
SECURED DEBT:
Revolving line of credit, 12.7%-14.7%(A).................. $11,774 $ -- $11,774
Equipment notes payable, 7.3%-12.0%(A).................... 16,594 557 17,151
Other notes payable, 10.7%-15.0%(A)....................... 5,560 302 5,862
Capital lease obligations, 9.0%-27.0%(A).................. 8,971 198 9,169
Other Claims.............................................. 1,662 -- 1,662
------- ------ -------
$44,561 $1,057 $45,618
======= ====== =======
DECEMBER 31, 1996
--------------------------------
PRE-PETITION
ACCRUED
AMOUNT INTEREST TOTAL
------- ------------ -------
UNSECURED DEBT:
Convertible Debentures, 8%(A)............................. $ 350 $ -- $ 350
Other notes payable, 6%-22%(A)............................ 11,266 158 11,424
Capital lease obligations, 12%-37%(A)..................... 687 37 724
Trade Accounts Payable.................................... 23,718 -- 23,718
Accrued Expenses.......................................... 2,956 -- 2,956
Other liabilities and deferred credits.................... 5,454 -- 5,454
------- ------ -------
44,431 195 44,626
------- ------ -------
TOTAL.................................................. $88,992 $1,252 $90,244
======= ====== =======
- ------------
(A) Represents contractual stated interest rates.
On February 4, 1997, the Court approved a Financing Order that authorized
GGI to enter into an agreement to obtain secured post-petition financing with
its primary working capital lender (the "Lender") under which agreement the
Lender continued to advance funds to GGI for its operations. The Financing Order
was amended by order of the Court on April 9, 1997. Pursuant to the Amended
Financing Order, the Lender agreed to make revolving advances not to exceed
$12,500,000. The advances are not to exceed a borrowing base equal to a
percentage of certain trade accounts receivable and an overadvance amount. The
maximum permitted overadvance was $7,000,000 through September 30, 1997 when the
Amended Financing Order expired. A $125,000 fee was paid to the Lender. Interest
accrued at prime plus 3.75% on the advance funds and prime plus 7.25% on the
overadvance funds. Pursuant to the Plan, all loans made under the Financing
Order were paid in full on September 30, 1997.
On August 22, 1996, GGI amended a two-year term loan agreement with a
secured lender to increase the principal amount to $5,000,000. Interest on such
debt at the rate of 13.5% has been accruing since the petition date. Pursuant to
the Plan, this loan was paid in full December 31, 1997.
F-17
115
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreements with certain lenders and lessors were reached and pursuant to
the Plan, GGI made payments of adequate protection in varying amounts. Pursuant
to the Plan, each of these loans and leases was paid in full or are included in
the liabilities assumed by Grant (see Note 9).
On March 27, 1996, GGI issued $3,000,000 of its 8% Convertible Debentures
("Debentures") due December 31, 1999. The Debentures were convertible, at the
option of the purchaser, into shares of GGI's Common Stock at a conversion price
of 80% of the five day average low trading price prior to the conversion
election of the Common Stock, provided that such 80% figure is increased to 100%
if the Debentures were converted within 45 days of the Closing Date. As of
December 31, 1996, approximately $2,650,000 of the Debentures had been converted
into 3,400,261 shares of GGI's Common Stock. The remaining amount is an
unsecured debt of GGI which will receive the recovery, if any, afforded to
allowed unsecured creditors pursuant to the Plan.
GGI borrowed an aggregate of $3,149,000 from Westgate and Elliott for
working capital purposes. This amount remained outstanding at December 31, 1996
and will receive the recovery, if any, afforded to allowed unsecured creditors
pursuant to the Plan.
Prior to the Petition Date, interest was accrued on all debt instruments
based on contractual rates. Interest was accrued on all secured equipment notes
payable and capital leases based on renegotiated rates of 7% to 11.09% from
December 7, 1996. All unsecured and undersecured debt were not entitled to
accrue interest since the Petition Date. Interest expense, based on contractual
rates of debt instruments, would have been approximately $7,667,000 for the year
ended December 31, 1996. Interest expense for the nine months ended September
30, 1997 and the three months ended December 31, 1997, has been accrued at the
renegotiated contractual rates.
(4) SPECIAL CHARGE FOR ASSET IMPAIRMENT
GGI
In 1994 GGI began development of a proprietary data recording system, which
was intended to replace an older recording system used in transition zone areas.
Problems with software design and hardware availability resulted in numerous
delays and substantial cost overruns. In addition, the completed system did not
meet performance expectations. Consequently, at December 31, 1996, GGI reduced
the carrying value of the proprietary data recording system which was not
expected to generate future cash flows adequate to support current carrying
values. Accordingly, a $5,802,000 charge for asset impairment was recorded
during the fourth quarter of 1996.
GRANT
In the fourth quarter of 1997 certain assets of Solid State were written
down to reflect their fair value in accordance with the asset impairment policy.
Accordingly, Grant recorded a $6,369,000 special charge for asset impairment in
the fourth quarter of 1997. This charge primarily consisted of $5,869,000
relating to the multi-client data library and $500,000 relating to miscellaneous
assets held by Solid State.
F-18
116
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SUMMARY OF OPERATIONS
A summary of operations by geographical area follows (dollars in
thousands):
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
Total revenues:
Canada...................................... $ -- $ -- $ -- $ 4,468
United States............................... 47,849 42,074 41,267 12,458
Middle East................................. 786 -- -- --
Africa...................................... 14,208 904 -- 348
Colombia.................................... 4,535 12,722 19,797 2,836
Peru........................................ 13,719 27,490 2,696 --
Other Latin America......................... 7,278 16,921 20,074 13,147
Far East.................................... 3,621 5,412 8,871 4,611
-------- -------- ------- -------
$ 91,996 $105,523 $92,705 $37,868
======== ======== ======= =======
Operating income (loss):......................
Canada...................................... $ -- $ -- $ -- $(1,488)
United States............................... 4,575 (35,920) (1,924) (7,634)
Middle East................................. 285 (144) -- 5
Africa...................................... 1,130 (4,281) -- (74)
Europe...................................... (821) (922) -- --
Colombia.................................... (271) (94) 4,750 137
Peru........................................ 1,205 (19,804) 4 --
Other Latin America......................... (714) (4,744) 1,619 2,347
Far East.................................... (390) (61) 2,345 1,674
-------- -------- ------- -------
$ 4,999 $(65,970) $ 6,794 $(5,033)
======== ======== ======= =======
GGI GRANT
------------ ------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
Identifiable assets:
Canada.................................................... $ -- $ 35,278
United States............................................. 36,956 79,089
Africa.................................................... -- 504
Europe and the Middle East................................ 41 461
Colombia.................................................. 9,233 9,750
Peru...................................................... 10,354 --
Other Latin America....................................... 9,210 21,530
Far East.................................................. 2,701 7,351
------- --------
Total identifiable assets.............................. 68,495 153,963
Corporate assets.......................................... 1,628 1,741
------- --------
$70,123 $155,704
======= ========
F-19
117
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, revenue from a nationalized oil company totaled approximately
$10,048,000 (11%). Revenues from a U.S. based international oil company were
approximately $12,683,000 (14%) and $20,233,000 (19%) for the years ended
December 31, 1995 and 1996, respectively. For the nine months ended September
30, 1997, revenues from three oil companies, one domestic and two international,
were approximately $14,008,000 (15%), $9,924,000 (11%), $8,895,000 (10%).
(6) DIVESTITURES
During the fourth quarter of 1996, GGI sold the stock of its Venezuela
subsidiary and also entered into an agreement to sell the stock of its Nigeria
subsidiary. The sale of the Nigeria subsidiary was finalized in April 1997.
Proceeds from these sales totaled approximately $380,000. Other than a $198,000
loss recognized on these sales in 1996, these transactions did not have a
significant impact on GGI's operating results.
(7) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
ACCUMULATED
GGI COST DEPRECIATION
--- ------- ------------
(DOLLARS IN THOUSANDS)
December 31, 1996
Land...................................................... $ 231 $ --
Buildings and improvements................................ 1,397 202
Plant facilities and store fixtures....................... 1,703 1,041
Machinery and equipment................................... 90,892 55,312
------- -------
$94,223 $56,555
======= =======
ACCUMULATED
GRANT COST DEPRECIATION
----- ------- ------------
(DOLLARS IN THOUSANDS)
December 31, 1997
Land...................................................... $ 427 $ --
Buildings and improvements................................ 1,547 42
Plant facilities and store fixtures....................... 876 170
Machinery and equipment................................... 70,152 8,286
------- -------
$73,002 $ 8,498
======= =======
F-20
118
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The composition of the income tax expense follows (dollars in thousands):
GGI GRANT
-------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------- ------------- ------------
1995 1996 1997 1997
---- ------ ------------- ------------
Current:
State............................................. $ -- $ -- $ -- $ --
Federal........................................... -- -- -- --
Foreign........................................... 391 1,621 2,184 856
Deferred:
State............................................. -- -- -- --
Federal........................................... -- -- -- --
Foreign........................................... -- -- -- --
---- ------ ------ ----
Income tax expense............................. $391 $1,621 $2,184 $856
==== ====== ====== ====
At December 31, 1996, GGI had net operating losses ("NOLs") of
approximately $173,000,000 available for carryforward for U.S. Federal income
tax purposes. The NOLs, if unused, will expire between 1997 and 2011. Since GGI
will, in accordance with the Plan, be liquidated, approximately $150,000,000 of
these NOLs will not be used and will expire at such time as GGI ceases to exist.
Grant acquired approximately $23,000,000 of GGI's U.S. NOLs on September
30, 1997. The NOLs, if unused, will expire between 1998 and 2011. Future
utilization of these NOLs will be restricted due to the change of ownership
resulting from the Plan. Based on current valuations, use of these NOLs would be
limited to approximately $704,000 annually.
Grant also acquired approximately $13,536,000 of Solid State's U.S. NOLs on
December 30, 1997. The NOLs, if unused, will expire between 1998 and 2011.
Future utilization of approximately $9,760,000 of these NOLs will be restricted
due to a change of ownership which occurred on February 25, 1997. Based on
current valuations, the restriction would be approximately $125,000 annually.
In addition, Grant acquired approximately $7,800,000 of Solid State's NOLs
in Canada on December 30, 1997. The NOLs, if unused, will expire between 2000
and 2005. Future utilization of these NOLs is restricted to income arising in
Canada from the same type of business operations that generated them.
All of these acquired NOLs, when utilized, will first reduce goodwill and
other noncurrent intangible assets related to the acquisition to zero, with any
remaining tax benefits recognized as a reduction of income tax expense.
F-21
119
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):
GGI GRANT
--------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------- ------------- ------------
1995 1996 1997 1997
------ -------- ------------- ------------
U.S. Federal income tax expense (benefit) at
statutory rate.................................. $1,208 $(25,298) $ 616 $(2,707)
Increases (reductions) in taxes from:
Foreign income tax rate more (less) than U.S. rate
on foreign income............................... 110 4,712 741 1,648
Losses of the U.S. return group from which no
benefit is expected............................. -- 22,207 827 1,915
Utilization of prior year losses for which no
benefit was recognized.......................... (927) -- -- --
------ -------- ------ -------
Income tax expense recorded....................... $ 391 $ 1,621 $2,184 $ 856
====== ======== ====== =======
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):
GGI GRANT
-------------------------------------- ------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------------- ------------- ------------
1995 1996 1997 1997
-------- -------- ------------- ------------
Deferred tax asset:
Plant and equipment, principally due to
differences in depreciation.................. $ 1,890 $ 3,841 $ 5,042 $ 666
Financing costs................................ -- -- -- 244
Research and development costs................. -- -- -- 499
Allowance for doubtful accounts and other
accruals..................................... -- 3,042 -- 58
Net operating loss carryforwards............... 36,519 58,795 8,026 10,720
-------- -------- -------- --------
Total................................ 38,409 65,678 13,068 12,187
Deferred tax liability:
Plant and equipment, principally due to
differences in depreciation.................. -- -- -- (339)
-------- -------- -------- --------
Net deferred tax asset......................... 38,409 65,678 13,068 11,848
Valuation allowance............................ (38,409) (65,678) (13,068) (11,848)
-------- -------- -------- --------
Net deferred tax asset (liability)............. $ -- $ -- $ -- $ --
======== ======== ======== ========
The valuation allowance for deferred tax assets as of January 1, 1995 was
$39,039,000. The net change in the total valuation allowance for the years ended
December 31, 1995, 1996, the nine months ended September 30, 1997, and the three
months ended December 31, 1997, was a decrease of $630,000, an increase of
$27,269,000, a decrease of $52,610,000, and a decrease of $1,220,000,
respectively.
(9) NOTES PAYABLE, LONG-TERM DEBT, CAPITAL LEASE OBLIGATIONS AND SUBORDINATED
NOTE
A summary of notes payable, long-term debt, and capital lease obligations
was as follows (dollars in thousands):
F-22
120
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GGI GRANT
------------- -------------
DECEMBER 31, DECEMBER 31,
1996 1997
------------- -------------
Revolving lines of credit:
Prime plus 2%, due March 31, 1999 at December 31, 1997
10.5%.................................................. $ 800
Term note--prime plus 2% at December 31, 1997 10.5%....... -- 15,800
Prime plus .75%, due February 17, 1997 at December 31,
1997 6.75%............................................. -- 2,565
Equipment notes payable--10.7% to 10.75%, due 1998-1999..... -- 13,989
Other notes payable--6.24% to 26.0%, due 1998-2005.......... 589 25,051
Capital lease obligations--7.5% to 12.0%, due 1998-2000..... -- 8,362
Subordinated Note -- 10.5% due March 31, 1999............... -- 9,786
---- -------
Total long term............................................. 589 76,353
Less current portion........................................ 589 1,158
---- -------
Notes payable, long-term debt, capital lease
obligations and subordinated note excluding current
portion............................................... $ -- $75,195
==== =======
At the Petition Date all of GGI's notes payable, long-term debt and capital
lease obligations were reclassified to Pre-Petition Liabilities Subject to
Chapter 11 Case (see Note 3). At December 31, 1996, other notes payable
consisted of a revolving line of credit maintained by a foreign subsidiary.
As of March 18, 1998, all of the outstanding debt of Grant, with the
exception of approximately $3.6 million relating to one capital lease obligation
and one note payable, has been paid off with the proceeds of the Senior Notes
(see below).
On October 1, 1997, Grant and Elliott entered into a credit facility
providing for a revolving loan facility under which Grant may borrow up to an
aggregate principal amount of $5 million (at December 31, 1997, $4.2 million was
available for borrowing). Grant is required to pay interest on the outstanding
principal balance of revolving loans at a rate per annum equal to the prime rate
plus 2%. On December 18, 1997, the credit facility was amended to provide for a
term loan of $15.8 million in addition to the revolving loans. The proceeds of
the term loan were used by Grant to purchase all of the stock of Solid State not
already owned by Grant (see Note 1). The credit facility expires on March 31,
1999 at which time all obligations of Grant under the credit facility are due
and payable. The loans under the credit facility are secured by all of Grant's
assets and a pledge by Grant of certain notes and all the outstanding shares of
capital stock of its subsidiaries. Each subsidiary of Grant has executed a
guaranty in favor of Elliott, each of which guarantees payment of all Grant's
obligations owed to Elliott under the credit facility. Each subsidiary has
pledged its assets in favor of Elliott to secure its obligations under its
respective guaranty. The credit facility contains restrictions which, among
other things, prohibit Grant's right to pay dividends and limit its right to
borrow money, purchase fixed assets or engage in certain types of transactions
without the consent of the lender. The instrument was paid in full on February
18, 1998 with the proceeds of the Senior Notes. (See below)
At December 31, 1997, a foreign credit facility between Solid State and its
subsidiaries and a Canadian bank was in effect. Under this revolving facility
Grant may borrow up to a principal amount of $3.6 million, secured by
substantially all the assets of Solid State and by assignment of receivables and
bears interest at Canadian prime rate plus .75%. There was approximately $2.6
million outstanding at December 31, 1997. This facility was paid in full on
February 18, 1998 and was terminated. Following repayment of this note, the
Solid State assets have been pledged by Grant to secure the loans from Elliott
described above and each Solid State subsidiary has executed a guaranty in favor
of Elliott in the form described above.
F-23
121
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 19, 1997 Elliott and Westgate exchanged 9,571.162 shares of
preferred stock with a liquidation value of $9,571,162, plus accrued dividends
of $215,000, for a subordinated note which bears interest at an annual rate of
10.5%. The instrument was paid in full on February 18, 1998 with the proceeds of
the Senior Notes. (See below)
The Company's equipment notes payable and capital lease obligations
represent installment loans or capital lease obligations primarily related to
the acquisition of seismic recording equipment. These instruments were paid in
full on February 18, 1997 with the proceeds of the Senior Notes. (See below)
At December 31, 1997, other notes payable included approximately $16.7
million due to Elliott from term loans entered into by Solid State during the
period February 1997 through October 1997. In addition, there is approximately
$6.5 million due by Solid State to the same Canadian bank that has the revolver.
The remainder of the payable consists of local short-term credit lines in
certain foreign subsidiaries. These instruments were paid in full on February
18, 1997 with the proceeds of the Senior Notes. (See below)
On February 18, 1998, Grant completed an offering of $100 million face
value 9 3/4% Senior Notes due 2008. The Notes bear interest from February 18, at
a rate per annum set forth above payable semi-annually on February 15 and August
15 of each year, commencing August 15, 1998. The net proceeds to Grant from the
sale of the Notes was approximately $95.2 million after deducting the Initial
Purchaser's discount and certain other estimated fees and expenses. Grant used
the proceeds to repay approximately $74.5 million of the outstanding balance of
debt and interest existing at December 31, 1997. This amount is comprised of
approximately $73.0 million in principal and $1.5 million in interest.
(10) LEASES
The future minimum rental payments for Grant's various noncancelable
operating leases at December 31, 1997 were as follows:
MINIMUM RENTALS OF
GRANT
----------------------
(DOLLARS IN THOUSANDS)
OPERATING
LEASES
------
1998........................................................ $1,046
1999........................................................ 632
2000........................................................ 465
2001........................................................ 205
2002........................................................ 205
------
Total..................................................... $2,553
======
The total rental expenses for each of the periods was as follows (dollars
in thousands):
GGI GRANT
----------------------------------------- -----
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------------ ------------- ------------
1994 1995 1996 1997 1997
---- ---- ---- ---- ----
$2,758 $1,880 $2,089 $830 $996
F-24
122
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
Cash and short-term financial instruments
The carrying amount approximates fair value due to the short maturity of
these instruments.
Long-term notes receivable
The fair value has been estimated using the expected future cash flows
discounted at market interest rates which approximate its carrying value.
Long-term debt
The fair value of GGI's and Grant's long-term debt has been estimated based
on quoted market prices for the same or similar issues, or on the current rates
offered to GGI and Grant for debt of the same remaining maturities.
As a result of the Plan certain long-term debt claims against GGI at
December 31, 1996 will be settled at less than 100 percent of their value.
However, distributions under the Plan have not been completed, and until such
time as such distributions are completed, the fair value of these claims will
continue to be uncertain.
(12) EMPLOYEE BENEFIT PLANS
GGI Incentive Stock Option Plan
On November 1, 1996, GGI's Amended 1989 Long-Term Incentive Plan (the
"Plan") was amended to increase the shares of common stock reserved to cover the
granting of options to purchase shares of Common Stock ("Options"), issuing of
shares of Common Stock which are subject to vesting requirements or other
restrictions ("Restricted Stock") and issuing of Stock Appreciation Rights
("SAR") to employees to 2,803,930 shares.
GGI options were awarded at an option price determined by the Board of
Directors, which was not less than 100% of fair market value or 110% of fair
market value for employees already owning more than 10% of the voting power of
all classes of stock. The options were exercisable either by the purchase of
shares at the option price or as stock appreciation rights by which the employee
received cash or stock equivalent in value of the difference between the option
price and the market value of the stock at the exercise date. These options were
to
F-25
123
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expire ten years from the date of grant and were exercisable as defined by the
stock option plan. No stock appreciation rights were granted. Transactions for
Options under the plan are summarized as follows:
OPTION
SHARES PRICE
------ -----
Outstanding, December 31, 1994:
3,000 $ 0.10
262,000 0.938-1.313
20,000 2.50
108,750 7.00
--------
393,750
Granted............................................... 150,000 2.31
Exercised............................................. (15,000) 0.10-0.938
Outstanding, December 31, 1995:
250,000 $ 0.938-131
170,000 2.310-2.50
108,750 7.00
--------
528,750
Granted............................................... 784,000 2.219-2.688
Exercised............................................. (125,000) 1.125-1.313
Canceled.............................................. (125,000) 0.938-1.313
Canceled.............................................. (700,000) 2.219-2.688
Canceled.............................................. (45,000) 7.00
-------- ------------
Outstanding, December 31, 1996............................. 254,000 $2.219-2.688
Outstanding, December 31, 1996............................. 63,750 7.00
============
Exercisable, December 31, 1996............................. 56,000 $ 2.310
Exercisable, December 31, 1996............................. 63,750 7.00
============
Additionally, a plan amendment was approved, effective January 1, 1996, by
the stockholders which permitted current and former non-employee directors of
GGI to participate in the plan solely for the purpose of receiving Restricted
Stock of GGI in lieu of part or all of the directors' fees. The shares of
Restricted Stock were automatically issued on the first day of each calendar
quarter following a calendar quarter of service. The fair market value of the
Restricted Stock was deemed to be the closing price of the common stock on the
last trading day of the preceding calendar quarter. In 1996 and 1995, 40,055 and
41,711 shares, respectively, of Restricted Stock were issued. The charges to
income totaled $127,000 and $103,000 in 1996 and 1995, respectively.
At December 31, 1996, 1,974,306 shares were available for future grants.
All options to acquire GGI's common stock and all stock appreciation rights
were canceled in connection with the Plan.
Grant 1997 Equity and Performance Incentive Plan
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Plan was amended in February 1998 to increase the number of
shares reserved for issuance under the Incentive Plan from one million shares of
Grant Common Stock to 1,450,000 shares of Grant Common Stock. The Incentive Plan
provides for the grant to officers (including officers who are also directors),
employees, consultants and nonemployee directors of Grant and its
F-26
124
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries, of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code"), nonstatutory stock options,
stock appreciation rights and restricted shares and deferred shares of Grant
Common Stock (collectively, the "Awards"). The Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
nonemployee directors. The Board of Directors or its designated committee will
select the employees and non-employee directors to whom Awards may be granted
and the type of Award to be granted and determine, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. Option grants covering
1,339,900 shares have been approved by the Board of Directors but, as of March
15, 1998, such grants have not been distributed to the optionees. Options
approved by the Board will vest annually in equal one-third increments beginning
on December 31, 1998 and have an average exercise price of $6.07 per share
(range of $5 to $7.20 per share), subject to adjustment in certain
circumstances.
Employee Retirement Savings Plan
GGI established a defined contribution plan covering substantially all U.S.
employees whereby participants may elect to contribute between 1% and 15% of
their annual salary. Participants may not make contributions in excess of
$10,000 per year (as adjusted annually by the cost of living adjustment factor).
On the Effective Date, GGI assumed and assigned the plan to Grant. Under the
plan, the employer may contribute, on a discretionary basis, one-half of the
participant's contribution percentage up to 6% (limited to 3% of any employee's
annual salary). Beginning in August 1995, a portion of GGI's employer
contribution was made in the form of GGI common stock. The plan was amended in
June of 1997 to eliminate the employer's option to contribute common stock so
that discretionary contributions may be made only in the form of cash.
Contributions made by GGI for the years ended December 31, 1995, and 1996
totaled $154,000, which included 24,466 shares of GGI Common Stock with a market
value of $56,838, and 58,395 shares of GGI Common Stock with a market value of
$138,000, respectively. At December 31, 1995 and 1996, the plan held 24,466 and
82,861 shares of GGI Common Stock. Due to the cancellation of GGI's Common Stock
on the Effective Date, the plan administrator reduced the carrying value of the
shares held by the plan to zero and the trustee returned the certificates to
GGI. Cash contributions to the plan by Grant for the three-month period ended
December 31, 1997 totaled $39,000.
Other Postretirement Benefits
GGI sponsored a defined contribution postretirement plan which, pursuant to
the Plan, was assumed by GGI and assigned to Grant on the Effective Date. The
Plan provides medical coverage for eligible retirees and their dependents (as
defined in the plan). GGI and Grant adopted SFAS No. 106--"Employers' Accounting
for Postretirement Benefits Other Than Pensions" requiring companies to account
for these. The following sets forth
F-27
125
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the plan's funded status reconciled with the amount shown in the consolidated
statement of operations on an accrual basis rather than a pay-as-you-go (cash)
basis as follows:
GGI GRANT
--- -----
DECEMBER 31, DECEMBER 31,
1996 1997
---- ----
(DOLLARS IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees and dependents................................... $ (17) $ (17)
Fully eligible active plan participants................... (42) (49)
Other active plan participants............................ (308) (387)
----- -----
(367) (453)
Unrecognized net loss (gain).............................. 17 17
Unrecognized transition obligation........................ 118 111
----- -----
Accrued postretirement benefit cost.................... $(232) $(325)
===== =====
Net periodic postretirement benefit cost included the following components:
GGI GRANT
------------------------------------ -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------ -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Service cost--benefits attributed
to service during the period... $41 $66 $52 $17
Interest cost on accumulated
postretirement benefit
obligation..................... 13 21 20 6
Amortization of transition
obligation over 20 years....... 7 7 5 2
Amortization of gain............. (2) -- -- --
Other amortizations.............. -- -- -- --
--- --- --- ---
Net periodic postretirement
benefit cost.............. $59 $94 $77 $25
=== === === ===
For measurement purposes, a 12% annual rate of increase in the per capita
cost of medical benefits was assumed for the year ended 1995, with a 7.25%, 7.0%
and 7.0% assumed annual rate for the year ended 1996, the nine months ended
September 30, 1997, and the three months ended December 31, 1997, respectively;
the rate was assumed to decrease gradually to 5% for 2001 and remain at that
level thereafter. The medical cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed medical
cost trend rates by 1% point in each year would increase the accumulated
postretirement benefit obligations as of December 31, 1995, 1996 and 1997 by
approximately $43,000, $56,000 and $68,749, respectively, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for the years ended December 31, 1995, 1996, and 1997 by $10,000, $15,000,
and $17,430, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for December 31, 1995, 1996, and
1997.
F-28
126
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) STOCKHOLDERS' EQUITY (DEFICIT)
GGI
General
On the Effective Date, the capital stock of GGI was deemed to be cancelled,
extinguished and retired. Except for the holders of GGI's $2.4375 Convertible
Exchangeable Preferred Stock (the "2.4375 Preferred") and the Junior Preferred
Stock, no holders of any GGI equity security will receive any cash or other
distribution under the Plan, and the holders of such securities have no further
claims against GGI or rights relating to such securities other than the rights,
if any, provided by the Plan.
$2.4375 Convertible Exchangeable Preferred Stock
GGI had authorized 2,300,000 shares of $2.4375 Preferred ($0.01 par value,
$25.00 liquidation preference of which 2,157,000 was outstanding through March
20, 1996. The remaining 143,000 shares were issued on March 20, 1996. The
purchaser of the remaining shares was entitled to all unpaid, undeclared
dividends in arrears through March 31, 1996, totaling $1,220,000. The $2.4375
Preferred stock bore annual cumulative dividends of $2.4375 per share accruing
from July 26, 1991, payable quarterly on each March 31, June 30, September 30
and December 31, commencing September 30, 1991. It was convertible at any time
at the option of the holder, unless previously redeemed, into Common Stock
($.002 par value) of GGI at the initial conversion rate of 2.739726 shares of
Common Stock for each share of $2.4375 Preferred Stock. It was exchangeable, at
the option of GGI, in whole but not in part, on any dividend payment date
commencing September 30, 1993, for GGI's 9 3/4% Convertible Subordinated
Debentures (the "subordinated debentures") due 2016, at the rate of $25.00
principal amount of subordinated debentures for each share of $2.4375 Preferred
Stocks provided that all accumulated and unpaid dividends through the date of
exchange have been paid. Pursuant to the Plan, the $2.4375 Preferred was
canceled and the holders thereof are entitled to purchase shares of Grant Common
Stock in amounts provided in the Plan.
Series A Convertible Preferred Stock
GGI had authorized 75,000 shares of Series A Convertible Preferred Stock,
$0.01 par value. A total of 70,000 shares were issued in May 1996, all of which
have been converted into 4,428,404 shares of GGI Common Stock by December 31,
1996. Pursuant to the Plan all Series A Convertible Preferred Stock was
canceled.
Junior Preferred Stock
GGI had authorized 15,000 shares and had issued and outstanding 14,904
shares of nonvoting, redeemable Junior Preferred Stock with a $100 par value.
The shares were redeemable at any time by GGI upon 30-day written notice to
holders of such shares. No dividends were declared or paid on the Junior
Preferred stock. Pursuant to the Plan, the Junior Preferred Stock was canceled
and the holders thereof are entitled to purchase shares of Grant Common Stock in
amounts provided in the Plan.
Serial Preferred Stock
GGI had authorized 250,000 shares of Serial Preferred Stock, $100 par
value, none of which were issued and outstanding. Pursuant to the Plan, all
Serial Preferred Stock was canceled.
F-29
127
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dividends in Arrears
The quarterly dividend payments for the periods of 1993 through December 6,
1996 and one quarterly dividend payment for 1992 on the $2.4375 preferred stock
were deferred by GGI's Board of Directors.
As of December 31, 1995 and 1996, preferred dividends in arrears on the
$2.4375 Preferred amounted to approximately $17,088,000 and $23,451,000,
respectively.
Pursuant to the Plan all unpaid dividends were canceled.
Common Stock (dollars in thousands)
COMMON STOCK
--------------------
SHARES AMOUNT
------ ------
Balance, December 31, 1994.................................. 12,152,974 $24
Restricted common stock issued (Note 12).................. 41,711 --
Restricted common stock issued under the Employee
Retirement Savings Plan (Note 12)...................... 24,466 --
Stock options exercised................................... 15,000 --
---------- ---
Balance, December 31, 1995.................................. 12,234,151 24
Warrants exercised........................................ 200,000 1
Conversion of debentures.................................. 3,400,261 7
Conversion of Series A Preferred Stock.................... 4,428,404 9
Payment in connection with equipment and short- and
long-term financing (Note 15).......................... 155,499 --
Restricted common stock issued (Note 12).................. 40,055 --
Restricted common stock issued under the Employee
Retirement Savings Plan (Note 12)...................... 58,395 --
Stock options exercised................................... 125,000 --
---------- ---
Balance, December 31, 1996.................................. 20,641,765 $41
========== ===
Pursuant to the Plan, all GGI common stock was canceled.
GRANT
Cumulative Preferred Stock
Grant has authorized 20,000 shares of cumulative pay-in-kind preferred
stock (the "Grant Preferred Stock"), par value $0.001 per share, with a
liquidation preference of $1,000 per share of which 10,000 are outstanding.
Dividends accrue and are cumulative from September 30, 1997, the date on which
such shares were issued. Dividends accrue at an annual rate of 10.5% of the
liquidation value and are payable annually on September 30 of each year.
Dividend interest accrues on dividends not paid on the dividend payment date at
a rate of 12.5% annually. Dividend payments or dividend interest shall be paid
only by issuing shares of cumulative preferred stock with an aggregate
liquidation preference equal to the amount of such dividends or dividend
interest. Upon the occurrence of a change in control, the Grant Preferred Stock
is redeemable at the option of the holder at a redemption price equal to 105% of
the liquidation value plus accrued and unpaid dividends and interest. Grant may
redeem at any time for cash the Grant Preferred Stock for 100% of the
liquidation value plus accrued and unpaid dividends and interest. Cumulative,
unpaid dividends associated with the Preferred Stock are approximately $262,000.
F-30
128
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock
At December 31, 1997, Grant has authorized 25,000,000 shares of common
stock, par value $.001 per share, of which 14,152,555 shares are issued and
outstanding. The changes in common stock are as follows (dollars in thousands):
COMMON STOCK
--------------------
GRANT SHARES AMOUNT
----- ------ ------
Balance September 30, 1997.................................. 4,590,056 $ 5
Common stock issued......................................... 1 --
Common stock issued in exchange for warrants in Solid
State..................................................... 62,500
Common stock issued in connection with the reorganization
plan...................................................... 9,499,998 9
---------- ---
Balance, December 31, 1997.................................. 14,152,555 $14
========== ===
(14) CONTINGENCIES
On December 11, 1997, certain persons, acting through an "ad hoc" committee
(the "Plaintiffs") commenced a lawsuit in the Bankruptcy Court against Grant,
GGI, Elliott, Westgate and a subsidiary of Grant. The lawsuit alleges that (i)
GGI and Elliott breached their obligations under the Plan by seeking to complete
the acquisition of Solid State prior to commencing a subscription offering to
purchase Grant Common Stock, (ii) the acquisition of Solid State and the certain
related transactions are unfair to the Plaintiffs because they dilute the value
of the Common Stock to be issued under such subscription offering and impair
Grant's equity value and (iii) the acquisition of Solid State and certain
related transactions could and should have been, but were not, adequately
disclosed in the disclosure statement filed with the Bankruptcy Court regarding
the Plan. The Plaintiffs have requested (i) compensatory and punitive damages in
an unstated amount and (ii) revocation of the Plan.
In addition, the Plaintiffs sought to enjoin completion of the acquisition
of Solid State and certain related transactions pending a trial on the merits.
This request for injunctive relief was denied by the Bankruptcy Court on
December 16, 1997, and was denied on appeal by the United States District Court
for the District of Delaware on December 19, 1997. A status conference was held
on this matter on January 21, 1998, at which time a discovery schedule was
established. Discovery in this matter is on-going. Grant believes that all
claims by the Plaintiffs are without merit and plans to vigorously defend the
lawsuit. In addition, Elliott has agreed to indemnify Grant and its subsidiary
against any liability that they may incur by reason of any adverse final
judgment in the lawsuit. Nevertheless, if not resolved in Grant's favor, this
lawsuit, and the potential for other lawsuits related to the Plan, could have an
adverse effect on Grant's business, reputation, operating results and financial
condition.
GGI and Grant are involved in various claims and legal actions arising in
the ordinary course of business. Other than the Plan and actions commenced
pursuant thereto or in connection therewith, management of GGI and management of
Grant are of the opinion that none of the claims and actions are likely to have
a material impact on GGI's or Grant's financial condition.
The Court generally has jurisdiction over all of GGI's property, as defined
in section 541 of the Bankruptcy Code, held on the Petition Date or acquired
thereafter. GGI may not engage in transactions except pursuant to the Plan
without prior approval of the Court.
GGI and Grant are subject to review by various taxing authorities for the
purpose of verifying compliance with numerous local tax laws and regulations. As
a result of one of these reviews, GGI was notified that, during 1995, it had
neglected to collect a certain tax from several clients and remit those
collections to the local
F-31
129
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
government. The total amount of the potential assessment, including penalties
and interest, is approximately $6,000,000. GGI believes the tax authority's
claim is without merit. Moreover, such assessment was not filed as a claim in
GGI's chapter 11 case. As a result, GGI has made no provision for payment on the
assessment. GGI intends to vigorously protest any attempted enforcement of the
assessment; however, there can be no assurances regarding the outcome of any
such protest.
(15) RELATED PARTY TRANSACTIONS
During 1996, GGI entered into an exclusive agreement with Macdonald & King,
Incorporated, a financial services firm, for the purpose of assisting GGI in
securing additional sources of financing including equipment financing and short
and long-term financing. Mr. William C. Macdonald, a former director of GGI, is
the Chairman of the Board and sole shareholder of Macdonald & King,
Incorporated. Pursuant to the terms of the agreement, GGI issued 155,499 shares
of GGI Common Stock with a market value of approximately $388,748 to Macdonald &
King, Incorporated in connection with financing obtained by GGI prior to Mr.
Macdonald's resignation from GGI's Board of Directors effective August 8, 1996.
On March 20, 1996, GGI issued 143,000 shares of GGI's $2.4375 Preferred to
Westgate, an affiliate of Elliott, a holder of more than 5% of the $2.4375
Preferred, for an aggregate purchase price of $1,573,000. Westgate subsequently
sold its shares of $2.4375 Preferred to Liverpool Limited Partners, who also is
an affiliate of Elliott.
In November 1996, GGI borrowed an aggregate of $3,149,000 from Westgate and
Elliott for working capital purposes. The borrowings are in the form of
unsecured promissory notes and remain outstanding at December 31, 1996, and are
classified in pre-petition liabilities subject to the chapter 11 case.
A senior vice-president of Grant has loaned approximately CDN $500,000 for
a two year term at 10% interest to an entity in which the Company holds an 18%
common equity interest. Additionally, Grant owns $268,000 of redeemable,
cumulative preferred shares in the same entity. The Company uses this entity
F-32
130
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
periodically to perform survey services. During the three months ended December
31, 1997, Grant paid approximately $364,000 to this entity.
See the discussion of debt financing with Elliott in Notes 3 and 9.
See discussion of the Subscription Offering in Note 9.
(16) OTHER INCOME (DEDUCTIONS)
Other Income (Deductions) consisted of the following:
GGI GRANT
--------------------------------- -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
--------------- -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Gain (loss) on the sale of fixed
assets............................. $ 212 $ 25 $ (67) $ 50
Net gain (loss) on foreign
exchange........................... 102 (251) (98) (289)
Loss on sale of subsidiaries......... -- (198) -- --
Foreign credit insurance............. (73) (8) -- --
Gain on insurance settlement......... 1,247 -- 11 --
Merger costs......................... -- -- -- (767)
Investment income.................... -- -- -- 46
Legal settlements.................... -- -- 2,359(a) (66)
Miscellaneous........................ 588 (70) 61 (236)
------ ----- ------ -------
Total.............................. $2,076 $(502) $2,266 $(1,262)
====== ===== ====== =======
- ---------------
(a) On July 15, 1997, GGI's Brazilian subsidiary finalized an agreement with a
former customer that resolved a long standing dispute relating to services
rendered on contracts dating back to 1983. In settlement of all claims, GGI
received payment, net of related costs and expenses, of approximately
$2,359,000.
F-33
131
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Non Cash investing and financing activities consisted of the following
(amounts in thousands):
GGI GRANT
--------------------------------- -------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
---------------- -------------- -------------
1995 1996 1997 1997
---- ---- ---- ----
CASH PAID FOR INTEREST AND TAXES WAS AS
FOLLOWS:
Taxes, net of refunds................. $ 968 $ 3,496 $2,037 $ 785
Interest, net of amounts
capitalized........................ 3,524 6,106 3,742 595
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property, plant and equipment debt
additions.......................... 8,106 19,718 1,483 8,406
Common Stock issued in exchange of
warrants in Solid State............ -- -- -- 144
Converted 9,571 Preferred Shares to A
Subordinated Note.................. -- -- -- 9,571
Dividend -- Preferred Stock........... -- -- -- 215
Debenture conversion.................. -- 2,774 -- --
Fair value of divestitures, net of
cash held.......................... -- 493 -- --
Receivables acquired in connection
with divestitures.................. $ -- $ 255 $ -- $ --
(18) SUBSCRIPTION OFFERING
The Plan provides that (i) Eligible Class 5 Claim Holders; (ii) Eligible
Class 7 Interest Holders; and (iii) Eligible Class 8 Interest Holders, each as
defined in the Plan (collectively, the "Eligible Subscribers") have the right to
participate in the Subscription Offering. Each Eligible Subscriber's right to
purchase Grant Common Stock is nontransferable, will not be evidenced by
certificates, and will expire on the Expiration Date. The Plan provides that
subscription rights shall represent the right to purchase, in the aggregate
4,750,000 shares of Grant Common Stock, for an aggregate purchase price of
$23,750,000. The Eligible Subscribers are divided into the following three
groups: (i) Eligible Class 5 Interest Holders that have the right to purchase,
in the aggregate, 475,000 shares of Grant Common Stock, for an aggregate
purchase price of $2,375,000, (ii) Eligible Class 7 Claim Holders that have the
right to purchase, in the aggregate, 4,255,000 shares of Grant Common Stock, for
an aggregate purchase price of $21,275,000 and (iii) Eligible Class 8 Interest
Holders that have the right to purchase, in the aggregate, 20,000 shares of
Grant Common Stock, for an aggregate purchase price of $100,000.
Pursuant to the Plan, the Company is required to conduct a subscription
offering of 4,750,000 shares of Grant Common Stock to certain holders of claims
and other interests under the Plan for an aggregate purchase price of
$23,750,000. The Plan also authorized the offering of shares of common stock of
a successor company on economically equivalent terms. The Plan provides,
however, that Elliott or its affiliates may pay the entire purchase price to
GGI, representing the total anticipated proceeds of such offering, and then
conduct a subscription offering and retain the proceeds therefrom, which Elliott
has elected to do. Because Elliott and certain of its affiliates, as interest
holders under the Plan, were entitled to purchase 1,290,586 shares of Grant
Common Stock in an offering by the Company, the Selling Stockholders are
offering the balance of such shares of Grant Common Stock to the Eligible
Subscribers pursuant to the Subscription Offering. The Company is registering
such shares of Grant Common Stock pursuant to the Registration Rights Agreement.
F-34
132
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION
SUPPLEMENTARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Quarterly financial information of GGI is summarized as follows:
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR ENDED
------- ------- ------- ------- ----------
1996
Revenues............................. $27,808 $ 26,951 $ 26,166 $ 24,598 $105,523
Operating income/(loss).............. 1,060 955 (21,518)(2) (46,467)(3) (65,970)
Net loss............................. (572) (621) (23,655) (51,179) (76,027)
Net loss applicable to common
stock.............................. (3,106)(1) (2,023) (25,056) (52,205) (82,390)
1997
Revenues............................. $30,295 $ 36,873 $ 25,537
Operating income..................... 2070 3,532 1,192
Net income (loss).................... (275) 138 (287)
Net income (loss) applicable to
common stock....................... (275) 138 (287)
Quarterly financial information of Grant is summarized as follows:
1997
Revenues............................. -- -- -- $ 37,868
Operating income..................... -- -- -- (5,033)(4)
Net income (loss).................... -- -- -- (5,666)
Net income (loss) applicable to
common stock....................... -- -- -- (6,143)
INCOME (LOSS) PER COMMON SHARE--
BASIC AND DILUTED:
Net income (loss) per common stock... -- -- -- $(1.28)
- ---------------
(1) Includes $1,220 cumulative adjustment for the prior unpaid, undeclared
dividends associated with the issuance of 143,000 shares of GGI's $2.4375
Preferred.
(2) Includes $8,374 recognition of anticipated contract losses in 1996.
(3) Includes $5,802 special charge for asset impairment (see Note 4 of Notes to
the Consolidated Financial Statements), $5,511 reserve for accounts
receivable determined to be uncollectible, $2,700 demobilization charge for
closed operations, $1,206 related to future estimated contract losses and
$412 of reorganization costs.
(4) Includes $6,369 special charge for asset impairment (see Note 4 of Notes to
the Consolidated Financial Statements). $5,869 is related to the impaired
multi-client data library and $500 is related to miscellaneous assets held
by Solid State.
F-35
133
October 31, 1997, except for Note 17 (a to e) which is
as at November 27, 1997 and Note 17(f) which is as at March 19, 1998
AUDITORS' REPORT
To the Directors of
Solid State Geophysical Inc.
We have audited the consolidated balance sheets of Solid State Geophysical
Inc. as at August 31, 1996 and 1997 and the consolidated statements of
operations and (deficit) retained earnings and changes in financial position for
the years ended August 31, 1995, 1996 and 1997. These financial statements are
the responsibility of the Solid State Geophysical Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Solid State Geophysical Inc. as
at August 31, 1996 and 1997 and the results of its operations and the changes in
its financial position for the years ended August 31, 1995, 1996 and 1997 in
accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
October 31, 1997, except for Note 17 (a to e) which is
as at November 27, 1997 and Note 17(f) which is as at March 19, 1998
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
Solid State Geophysical Inc.'s ability to continue as a going concern, such as
those described in Note 1 to the financial statements. Our report to the
directors dated October 31, 1997, except for Note 17, which is as at November
27, 1997, is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
F-36
134
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED BALANCE SHEET
(IN CANADIAN DOLLARS)
AUGUST 31,
--------------------------
1996 1997
----------- -----------
ASSETS
Current assets
Cash...................................................... $ 308,000 $ 740,000
Accounts receivable....................................... 8,016,000 16,203,000
Income taxes recoverable.................................. 463,000 428,000
Work-in-progress.......................................... 430,000 989,000
Multi-client data, current portion (Notes 1 and 4)........ 5,978,000 2,454,000
Prepaid expenses, deposits and other...................... 1,169,000 1,200,000
Discontinued operations (Note 3).......................... 133,000 --
----------- -----------
16,497,000 22,014,000
Multi-client data, less current portion (Notes 1 and 4)..... 5,723,000 13,213,000
Other non-current assets (Note 3)........................... 1,527,000 1,137,000
Property and equipment (Note 5)............................. 31,638,000 35,161,000
Deferred exchange loss...................................... 26,000 234,000
Goodwill (Note 3)........................................... 189,000 --
----------- -----------
$55,600,000 $71,759,000
=========== ===========
LIABILITIES
Current liabilities
Bank indebtedness (Note 6)................................ $ 5,788,000 $ 5,235,000
Accounts payable and accrued liabilities.................. 17,290,000 18,605,000
Advances on contracts..................................... 2,101,000 --
Promissory notes (Note 7)................................. 2,600,000 11,109,000
Long-term debt -- current portion......................... 8,054,000 9,028,000
Discontinued operations (Note 3).......................... 180,000 --
----------- -----------
36,013,000 43,977,000
Long-term debt (Note 7)..................................... 14,526,000 18,693,000
Deferred income taxes....................................... 988,000 --
----------- -----------
51,527,000 62,670,000
----------- -----------
SHAREHOLDERS' EQUITY
Capital stock (Note 8)...................................... 14,758,000 24,469,000
Deficit..................................................... (10,685,000) (15,380,000)
----------- -----------
4,073,000 9,089,000
----------- -----------
$55,600,000 $71,759,000
=========== ===========
Contingencies (Notes 1 and 16)
F-37
135
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AND (DEFICIT) RETAINED EARNINGS
(IN CANADIAN DOLLARS)
YEARS ENDED AUGUST 31,
-------------------------------------------
1995 1996 1997
----------- ------------ ------------
CONTRACT REVENUE.................................. $48,357,000 $ 45,503,000 $ 77,999,000
Third party costs................................. 19,507,000 18,213,000 32,089,000
----------- ------------ ------------
NET CONTRACT REVENUE.............................. 28,850,000 27,290,000 45,910,000
Costs of sales.................................... 20,384,000 21,250,000 33,262,000
----------- ------------ ------------
GROSS PROFIT CONTRACT............................. 8,466,000 6,040,000 12,648,000
----------- ------------ ------------
DATA LIBRARY REVENUE.............................. 773,000 14,891,000 3,919,000
Amortization of data library...................... 476,000 20,694,000 4,784,000
----------- ------------ ------------
GROSS (LOSS) PROFIT DATA LIBRARY.................. 297,000 (5,803,000) (865,000)
----------- ------------ ------------
COMBINED GROSS PROFIT............................. 8,763,000 237,000 11,783,000
----------- ------------ ------------
General and administrative expenses............... 2,256,000 2,980,000 3,948,000
Restructuring costs and other..................... -- 873,000 231,000
----------- ------------ ------------
2,256,000 3,853,000 4,179,000
----------- ------------ ------------
EARNINGS (LOSS) BEFORE DEPRECIATION, INTEREST AND
DISCONTINUED OPERATIONS......................... 6,507,000 (3,616,000) 7,604,000
Depreciation and amortization..................... 5,968,000 5,856,000 8,974,000
----------- ------------ ------------
EARNINGS (LOSS) BEFORE INTEREST AND DISCONTINUED
OPERATIONS, WRITE-DOWN AND TAXES................ 539,000 (9,472,000) (1,370,000)
Interest
Short-term obligations....................... 109,000 953,000 1,993,000
Long-term debt............................... 1,066,000 1,714,000 2,057,000
----------- ------------ ------------
1,175,000 2,667,000 4,050,000
----------- ------------ ------------
(636,000) (12,139,000) (5,420,000)
INCOME TAX PROVISION (RECOVERY)
Current......................................... (250,000) (414,000) 69,000
Deferred........................................ 250,000 -- (915,000)
----------- ------------ ------------
-- (414,000) (846,000)
----------- ------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS AND WRITE-DOWN
OF DISCONTINUED OPERATIONS ASSETS............... (636,000) (11,725,000) (4,574,000)
Write-down of discontinued operations assets to
recoverable amount (Note 3)..................... 3,349,000 -- --
----------- ------------ ------------
(3,985,000) (11,725,000) (4,574,000)
Discontinued operations (Note 3).................. (938,000) (242,000) (121,000)
----------- ------------ ------------
NET LOSS.......................................... (4,923,000) (11,967,000) (4,695,000)
Retained earnings (deficit) at beginning of
year............................................ 6,205,000 1,282,000 (10,685,000)
----------- ------------ ------------
Retained earnings (deficit) at end of year........ $ 1,282,000 $(10,685,000) $(15,380,000)
=========== ============ ============
Loss per share before discontinued operations
(Note 8)........................................ $ (0.80) $ (2.34) $ (0.42)
=========== ============ ============
Loss per share after discontinued operations (Note
8).............................................. $ (0.98) $ (2.39) $ (0.44)
=========== ============ ============
F-38
136
SOLID STATE GEOPHYSICAL INC.
CONSOLIDATED STATEMENT OF CHANGES IN
FINANCIAL POSITION
(IN CANADIAN DOLLARS)
YEARS ENDED AUGUST 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
CASH PROVIDED BY (USED IN) CONTINUING OPERATING
ACTIVITIES
Loss before discontinued operations and
write-down of assets..................... $ (636,000) $(11,725,000) $ (4,574,000)
Charges (credits) to income not affecting
cash
Amortization of data library............. 476,000 20,694,000 4,784,000
Depreciation and amortization............ 5,968,000 5,856,000 8,974,000
Gain on disposal of fixed assets......... (54,000) (134,000) (325,000)
Deferred income taxes.................... 250,000 -- (915,000)
------------ ------------ ------------
6,004,000 14,691,000 7,944,000
Changes in working capital balances related
to operations............................ 10,924,000 1,168,000 (9,528,000)
------------ ------------ ------------
16,928,000 15,859,000 (1,584,000)
FINANCING ACTIVITIES
Promissory notes -- net.................... -- 2,600,000 8,509,000
Proceeds of long-term debt................. 12,839,000 11,007,000 19,777,000
Repayment of long-term debt................ (7,940,000) (5,193,000) (14,636,000)
Capital stock
Issued for options....................... -- 20,000 311,000
Issued for repayment of debt............. -- -- 3,989,000
Issued for cash.......................... -- -- 5,338,000
Deferred exchange gain (loss).............. 121,000 (100,000) (208,000)
------------ ------------ ------------
5,020,000 8,334,000 23,080,000
------------ ------------ ------------
INVESTING ACTIVITIES
Sale of operations of a subsidiary (Note
3)....................................... -- 2,275,000 177,000
Preferred shares acquired on sale of
operations of a subsidiary (Note 3)...... -- (1,441,000) --
Proceeds from disposal of fixed assets..... 91,000 698,000 3,476,000
Acquisition of fixed assets................ (10,888,000) (11,025,000) (15,770,000)
Data library............................... (7,680,000) (21,643,000) (8,439,000)
Other...................................... (200,000) 4,000 213,000
------------ ------------ ------------
(18,677,000) (31,132,000) (20,343,000)
------------ ------------ ------------
DISCONTINUED OPERATIONS (NOTE 3)
Operating activities....................... 126,000 (12,000) (121,000)
Financing activities....................... (188,000) 19,000 --
Investing activities....................... (898,000) (148,000) (47,000)
------------ ------------ ------------
(960,000) (141,000) (168,000)
------------ ------------ ------------
Change in cash.................................. 2,311,000 (7,080,000) 985,000
Cash (bank indebtedness less cash), beginning of
year.......................................... (711,000) 1,600,000 (5,480,000)
------------ ------------ ------------
Cash (bank indebtedness less cash), end of
year.......................................... $ 1,600,000 $ (5,480,000) $ (4,495,000)
============ ============ ============
F-39
137
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(1) CORPORATE FINANCING, OPERATIONS AND BASIS OF FINANCIAL PRESENTATION
These financial statements have been prepared on the basis that Solid State
Geophysical Inc. ("Solid State") will be able to complete major projects in
progress and generate sufficient timely cash flow to pay its liabilities in the
normal course of business. At August 31, 1997, Solid State had negative working
capital of $21,963,000 which amount includes $9,028,000, representing the
current portion of long-term debt due over the next twelve month period.
See Note 7 for details on debt covenant violations, postponement of certain
principal payments and extension of promissory note repayment dates.
Solid State's liquidity problems arose primarily from cost overruns
relating to a multi-client library acquisition, losses relating to the Nortech
operations which were sold and losses from performing certain large non-Canadian
data acquisition contracts for clients. Continued purchase of property, plant
and equipment was also a major factor in debt incurred.
Solid State had a loss for the year before discontinued operations of
$4,574,000; cash flow from continuing operations before changes in working
capital of $7,944,000 (before expenditures on the data library of $8,439,000)
and shareholders' equity, at year end, of $9,089,000.
The recovery of the data library and certain other assets is dependent upon
future occurrences. The amounts recorded for such assets are subject to
significant management estimates (see Notes 3 and 4).
Funding for Solid State's commitments must be provided by future data
library sales, normal operations, additional financing or the issue of share
capital. (See Note 17 for funds advanced after August 31, 1997.)
On August 30, 1997, Solid State's wholly owned subsidiary, Nortech Surveys
(Canada) Inc. was wound up into Solid State.
(2) ACCOUNTING POLICIES
The consolidated financial statements of Solid State have been prepared in
accordance with Canadian generally accepted accounting principles. The
significant accounting policies used in these consolidated financial statements
are:
Basis of consolidation
The consolidated financial statements include the accounts of Solid State;
Solid State Geophysical Corp. (a United States company); and Solid State
International Ingenieria, C.A. (a Venezuelan company).
Revenue recognition and work-in-progress
Solid State recognizes revenue on fixed price contracts on the basis of
percentage complete. Revenue on hourly rate contracts is recognized in the
period earned. Start-up costs, inventory and other costs related to contracts
not sufficiently underway to warrant revenue recognition are carried as
work-in-progress and charged to expense as revenue is recognized.
Work-in-progress is valued at the lower of cost and net realizable value.
Anticipated losses on contracts are recorded when reasonably determinable.
Multi-client data library
Solid State collects certain seismic data for its own account which it
resells to clients on a non-transferrable, non-exclusive basis. During the
period beginning with the initiation of each multi-client survey to the
completion of the survey, total estimated costs are amortized based on revenues
from such survey as a percentage of total estimated revenues to be realized from
such survey. After the survey is completed, amortization of remaining
F-40
138
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capitalized costs is provided at the greater of the percentage of realized
revenues to total estimated revenues or over a period not to exceed four years.
Solid State periodically reviews the carrying value of multi-client data to
assess whether there has been a permanent impairment of value and records losses
in periods when the total estimated costs exceed total estimated sales or in
periods when it is determined that sales would not be sufficient to cover the
carrying value of the asset.
Depreciation
Property and equipment are depreciated on the straight-line basis to
reflect the estimated useful life of the related assets (Note 5).
Income taxes
Solid State prepares its financial statements on the deferred income tax
allocation basis. A provision is made for all income taxes currently payable as
well as for those deferred to future years as a result of timing differences
between income for income tax purposes and for accounting purposes arising
primarily from the difference between amounts claimed for fixed assets for
income tax purposes and depreciation recorded for accounting purposes.
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated to
Canadian dollar equivalents at exchange rates prevailing at the transaction
dates. Carrying values of monetary assets and liabilities reflect the exchange
rates at the balance sheet date. Translation gains and losses, except those
related to long-term debt, are included in earnings. Gains and losses related to
long-term debt are deferred and amortized over the remaining term of the debt.
The operations of foreign subsidiaries are considered to be integrated and
accordingly, the monetary assets and liabilities are translated at the rate of
exchange at the balance sheet date. Revenue and expenses of the foreign
subsidiaries are translated at the exchange rate prevailing at the date of the
transaction.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Solid State's policy is to amortize data library costs based upon the
anticipated revenues Solid State expects to realize over a period not to exceed
four years from the date of project completion or the end of any exclusive use
period. It is reasonably possible that those estimates of anticipated revenues,
the remaining estimated economic life of the data library, or both will be
reduced significantly in the near term due to competitive pressures. As a
result, the carrying amount of the data library costs may be reduced materially
in the near term.
(3) OTHER NON-CURRENT ASSETS
In July 1996, the operations of Nortech Surveys (Canada) Inc. were sold for
$2,275,000 and the operations were presented as discontinued operations. There
was no gain or loss recorded on the sale.
Part of the proceeds on sale was $1,263,000 of preferred shares of Nortech
Geomatics Inc. These shares have the right to receive quarterly cumulative
dividends at a rate equal to 80% of the prime interest rate, are non-voting,
have mandatory redemption of $200,000 per year and under certain conditions may
be converted into a one year promissory note. Under certain conditions these
shares may be converted into common shares after 2003. $206,000 of preferred
shares were redeemed in 1997. In fiscal 1997, $629,000 of the preferred shares
were converted into Common shares, which Solid State intends to sell.
F-41
139
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ability of Solid State to liquidate its investment in Common shares on
a timely basis is dependent on the ability of Nortech Geomatics Inc. to become a
public company.
The following summarizes the results of Nortech's operations over the last
three fiscal periods and are reflected in the Consolidated Statement of
Operations and Deficit as a one line item -- Discontinued Operations:
1995 1996 1997
---------- ---------- ----------
Net revenues........................... $5,674,000 $3,595,000 $ --
Expenses
Operating and interest costs......... 5,989,000 3,607,000 121,000
Amortization......................... 623,000 230,000 --
---------- ---------- ----------
6,612,000 3,837,000 121,000
---------- ---------- ----------
Net loss............................... $ (938,000) $ (242,000) $ (121,000)
========== ========== ==========
In addition to the loss shown above, $3,349,000 of the proprietary
engineering and system development costs and certain survey equipment included
in property and equipment related to the Nortech operations were written down to
their net recoverable amounts in 1995. In April 1994, Solid State acquired all
the outstanding shares of Seismoven C.A., a Venezuelan company, for
consideration of $270,000 (U.S. $200,000). The acquisition was accounted for
using the purchase method with the majority of the purchase consideration being
allocated to goodwill. Subsequent to acquisition, the Corporation's name was
changed to Solid State Internacional Ingenieria, C.A. The goodwill related to
this investment was expensed in 1997.
(4) MULTI-CLIENT DATA
Atchafalaya Bay
Work commenced on the Atchafalaya Bay project in late fiscal 1995 and the
project was 77% complete at August 31, 1996. In 1996, as part of a series of
transactions to enable completion of the project, Solid State sold its ownership
in this data bank, and retained an interest in the future revenues from the
project in return for completing the project.
Prior to the sale of its ownership interest, Solid State had a revenue
sharing agreement with another third party. Under this other revenue sharing
basis the first U.S. $10,500,000 went to Solid State, between $10,500,000 and
$13,000,000 revenue was split as follows: 73.7% to Solid State and 26.3% to the
other party. Revenue above $13,000,000 was shared 50/50. The other party's share
of this revenue sharing agreement was purchased by Solid State in conjunction
with its sale of the data library and the negotiation of its retained interest
in future revenues.
As at August 31, 1996, all anticipated losses related to the Atchafalaya
Bay project were recognized. The resultant net book value of $7,841,000
represented management's estimate of net future proceeds from data sales.
During the year ended August 31, 1997, Solid State spent an additional
$8,715,000 on this project achieving completion. Processing of the data is
anticipated to be completed in November 1997. Amortization of $3,815,000
resulted in a net book value at August 31, 1997 of $12,741,000 which represents
management's estimate of net future proceeds from data sales attributable to
Solid State. This estimate is supported by a current market valuation of the
project done by a data library valuer using the most likely undiscounted cash
flow model.
Solid State's share of revenues for the year ended August 31, 1997 was
$3,728,000. Total costs for the project are estimated to be $32,836,000,
including $3,188,000 of depreciation.
F-42
140
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net revenue sharing arrangement, which is in U.S. dollars which was
converted to Canadian dollars at an average rate of $0.727 as at August 31, 1997
(closing rate $0.721), with the Atchafalaya Bay Data library owner is as
follows:
CANADIAN RECORDED IN REVENUE TO
DOLLAR AUGUST 31,
SALES ------------------------
REVENUE SHARING BASIS REVENUE OWNER SOLID STATE 1996 1997
--------------------- ----------- ----------- ----------- ---------- ----------
First................... $11,414,000 $ -- $11,414,000 $8,882,000 $2,532,000
Next.................... 4,601,000 3,405,000 1,196,000 -- 1,196,000
----------- ----------- ----------- ---------- ----------
Sales to date............. 16,015,000 3,405,000 12,610,000 8,882,000 3,728,000
----------- ----------- ----------- ---------- ----------
Next.................... 7,405,000 5,480,000 1,925,000 -- --
Next.................... 8,280,000 -- 8,280,000 -- --
Next.................... 11,501,000 8,051,000 3,450,000 -- --
----------- ----------- ----------- ---------- ----------
Future sales.............. 27,186,000 13,531,000 13,655,000 -- --
----------- ----------- ----------- ---------- ----------
$43,201,000 $16,936,000 $26,265,000 $8,882,000 $3,728,000
=========== =========== =========== ========== ==========
The revenue sharing basis in U.S. dollars is $8,394,000, $3,334,000,
$5,366,000, $6,000,000 and $8,334,000, respectfully, for the amounts shown in
the Canadian dollar Sales Revenue column.
Realization of these sales is dependent upon the availability of land in
the data area, petroleum discoveries or anticipated discoveries in that area and
general petroleum industry economics.
Canadian
No significant additions were made to the Canadian data library in the year
ended August 31, 1997. Amortization of $969,000 was recorded. As at August 31,
1997, the net book value was $2,926,000.
Recovery of these costs is dependent upon future sales which are influenced
by the availability of land in the data area, petroleum discoveries or
anticipated discoveries in that area and general petroleum industry economics.
Other
Certain financing agreements require all proceeds from the data library
sales to be applied against the specified debt (see Note 7).
F-43
141
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CANADA UNITED STATES TOTAL
---------- ------------- -----------
COST
Balance as at September 1, 1995.................... $3,886,000 $ 4,874,000 $ 8,760,000
Additions.......................................... 5,214,000 19,246,000 24,460,000
---------- ----------- -----------
Balance as at September 1, 1996.................... $9,100,000 $24,120,000 $33,220,000
========== =========== ===========
Balance, as at September 1, 1996................... $9,100,000 $24,120,000 $33,220,000
Additions.......................................... 35,000 8,715,000 8,750,000
---------- ----------- -----------
Balance as at August 31, 1997...................... $9,135,000 $32,835,000 $41,970,000
========== =========== ===========
ACCUMULATED AMORTIZATION
Balance as at September 1, 1995.................... $ 964,000 $ -- $ 964,000
Amortization for the year.......................... 4,276,000 16,279,000 20,555,000
---------- ----------- -----------
Balance as at September 1, 1996.................... $5,240,000 $16,279,000 $21,519,000
========== =========== ===========
ACCUMULATED AMORTIZATION
Balance as at September 1, 1996.................... $5,240,000 $16,279,000 $21,519,000
Amortization for the year.......................... 969,000 3,815,000 4,784,000
---------- ----------- -----------
Balance as at August 31, 1997...................... $6,209,000 $20,094,000 $26,303,000
========== =========== ===========
NET BOOK VALUE AS AT AUGUST 31, 1996
Current portion.................................... $1,454,000 $ 4,524,000 $ 5,978,000
Non-current portion................................ 2,406,000 3,317,000 5,723,000
---------- ----------- -----------
$3,860,000 $ 7,841,000 $11,701,000
========== =========== ===========
NET BOOK VALUE AS AT AUGUST 31, 1997
Current portion.................................... $ 917,000 $ 1,537,000 $ 2,454,000
Non-current portion................................ 2,009,000 11,204,000 13,213,000
---------- ----------- -----------
$2,926,000 $12,741,000 $15,667,000
========== =========== ===========
F-44
142
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CANADA UNITED STATES TOTAL
---------- ------------- -----------
FOR THE YEAR ENDED AUGUST 31, 1995
Revenues........................................... $ 773,000 $ -- $ 773,000
Amortization....................................... 476,000 -- 476,000
---------- ----------- -----------
Gross profit....................................... $ 297,000 $ -- $ 297,000
========== =========== ===========
FOR THE YEAR ENDED AUGUST 31, 1996
Revenues........................................... $6,009,000 $ 8,882,000 $14,891,000
Amortization....................................... 4,276,000 16,418,000 20,694,000
---------- ----------- -----------
Gross profit (loss)................................ $1,733,000 $(7,536,000) $(5,803,000)
========== =========== ===========
FOR THE YEAR ENDED AUGUST 31, 1997
Revenues........................................... $ 191,000 $ 3,728,000 $ 3,919,000
Amortization....................................... 969,000 3,815,000 4,784,000
---------- ----------- -----------
Gross loss......................................... $ (778,000) $ (87,000) $ (865,000)
========== =========== ===========
(5) PROPERTY AND EQUIPMENT
AUGUST 31, 1996
---------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- --------------- -----------
Land............................................. $ 275,000 $ -- $ 275,000
Building......................................... 659,000 69,000 590,000
Recording equipment.............................. 42,329,000 16,507,000 25,822,000
Survey equipment................................. 2,235,000 1,429,000 806,000
Drilling equipment............................... 2,783,000 1,206,000 1,577,000
Vehicles (including boats)....................... 2,318,000 1,673,000 645,000
Office equipment................................. 653,000 408,000 245,000
Radio equipment.................................. 434,000 301,000 133,000
----------- ----------- -----------
51,686,000 21,593,000 30,093,000
Equipment under capital lease.................... 2,339,000 794,000 1,545,000
----------- ----------- -----------
$54,025,000 $22,387,000 $31,638,000
=========== =========== ===========
F-45
143
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1997
----------------------------------------------------------
DEPRECIATION
TERMS IN ACCUMULATED NET BOOK
YEARS COST DEPRECIATION VALUE
------------ ----------- ------------ -----------
Land................................... -- $ 275,000 $ -- $ 275,000
Building............................... 20 681,000 108,000 573,000
Recording equipment.................... 2 - 7 51,809,000 22,430,000 29,379,000
Survey equipment....................... 3 - 5 2,251,000 1,737,000 514,000
Drilling equipment..................... 2 - 3 3,309,000 2,146,000 1,163,000
Vehicles (including boats)............. 3 - 5 2,606,000 2,080,000 526,000
Office equipment....................... 5 880,000 532,000 348,000
Radio equipment........................ 2 - 4 593,000 387,000 206,000
----- ----------- ----------- -----------
62,404,000 29,420,000 32,984,000
Equipment under capital lease.......... 3 - 5 3,239,000 1,062,000 2,177,000
----- ----------- ----------- -----------
$65,643,000 $30,482,000 $35,161,000
===== =========== =========== ===========
Property and equipment are pledged as security pursuant to long-term debt
(see Note 7).
(6) OPERATING LOANS
Solid State and its subsidiaries have operating lines of credit of
$5,100,000 which were fully utilized at August 31, 1997. The credit facilities
are secured by assignments of receivables and bear interest at prime plus 0.75%
(6.5% at August 31, 1996; 5.5% -- 1997). (See Note 7 regarding covenant
violations).
(7) PROMISSORY NOTES AND LONG-TERM DEBT
AUGUST 31,
--------------------------
1996 1997
----------- -----------
PROMISSORY NOTES
Promissory note bearing interest at 18% with interest due
quarterly commencing July 1, 1996 and principal due and
payable December 31, 1996. Secured by future Multi-client
data sales ($1,900,000 U.S.). ............................ $ 2,600,000 $ --
Promissory note bearing interest at 15% with interest
commencing February 10, 1997 and $1,000,000 U.S. of
$2,000,000 U.S. principal due May 10, 1997 and balance due
August 10, 1997, all extended to November 30, 1997.
Secured by future Multi-client data sales ($2,000,000
U.S.). ................................................... -- 2,777,000
Promissory note bearing interest at 15% with interest
commencing February 19, 1997 and $1,000,000 U.S. of
$2,000,000 U.S. principal due May 19, 1997 and balance due
August 19, 1997, all extended to November 30, 1997.
Secured by future Multi-client data sales ($2,000,000
U.S.). ................................................... -- 2,777,000
Promissory note bearing interest at 15% with interest
commencing July 2, 1997 and balance due August 15, 1997,
extended to November 30, 1997. Secured by future
Multi-client data sales ($3,000,000 U.S.). ............... -- 4,166,000
Promissory note bearing interest at 15% with interest
commencing July 22, 1997 and balance due August 15, 1997,
extended to November 30, 1997. Secured by future
Multi-client data sales ($1,000,000 U.S.). ............... -- 1,389,000
----------- -----------
$ 2,600,000 $11,109,000
=========== ===========
F-46
144
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31,
--------------------------
1996 1997
----------- -----------
LONG-TERM DEBT
Demand non-revolving loan bearing interest at prime plus
1.75% (6.5%) repayable in consecutive monthly installments
of $12,500 until January 1, 2002. ....................... $ 917,000 $ 663,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $13,750 U.S. until January 1, 2002
(1996 -- $1,054,500 U.S.; $728,800 U.S.). ............... 1,443,000 1,012,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $13,125 U.S. until January 1, 2002
(1996 -- $974,900 U.S.; $695,600 U.S.). .................. 1,334,000 966,000
Demand non-revolving loan bearing interest at prime plus
1.75% (6.5%) repayable in consecutive monthly installments
of $63,333 until January 1, 2002. ........................ 4,475,000 3,357,000
Demand non-revolving loan bearing interest at lender's U.S.
dollar cost of funds plus 1.75% repayable in consecutive
monthly installments of $53,083 U.S. until January 1, 2002
(1996 -- $3,510,000 U.S.; $2,813,400 U.S.). .............. 4,803,000 3,906,000
Conditional sales agreement repayable in sixty equal monthly
installments of $89,437 U.S., with interest commencing
October 16, 1996. Secured by related equipment. Effective
interest rate of 10.471% ($3,703,000 U.S.) -- renegotiated
1996 CSA, adding additional equipment (including
consolidation of the following CSA). ..................... 5,782,000 5,141,000
Obligations under capital lease, secured by related
equipment, repayable in equal monthly installments of
$19,012 U.S., including interest (consolidated into CSA
$5,141,000). ............................................. 655,000 --
Convertible debenture bearing interest at 8% with interest
due quarterly commencing July 1, 1996 and failing the
exercise of conversion rights, principle due April 30,
2001. The debenture was convertible into 1,141,667 common
shares of the Corporation (convertible at $2.40 per share,
closing price at date of grant was $2.76). Repaid with
proceeds of financing in October 1996. ................... 2,737,000 --
Obligations under capital lease, secured by related
equipment, repayable in monthly installments of $52,000
(1996 -- $36,000), including interest at approximately
7.5%...................................................... 414,000 1,061,000
Conditional sales agreement repayable in 12 monthly
installments of $18,219 U.S. with interest commencing
November 26, 1997. Secured by related equipment. Effective
interest rate of 10.746% ($71,347 U.S.). ................. -- 99,000
Conditional sales agreement repayable with a principle
payment of $150,000 U.S. June 30, 1997; two monthly
installments of $250,000, including interest commencing
June 30, 1996; twenty-eight monthly installments of
$127,050 U.S., including interest until December 31, 1999.
Secured by related equipment. Effective interest rate of
10.746% ($3,592,566 U.S.). ............................... -- 4,988,000
Conditional sales agreement repayable in twenty four equal
monthly installments of $23,309 U.S., including interest,
with interest commencing September 30, 1997. Secured by
related equipment. Effective interest rate of 10.746%
($503,855 U.S.). ......................................... -- 700,000
F-47
145
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31,
--------------------------
1996 1997
----------- -----------
Promissory note bearing interest at 18% commencing October
17, 1996 (15% interest ($4,197,000 U.S.) effective
February 24, 1997). Interest due quarterly commencing
January 1, 1997, due October 1999 with minimal annual
payments of $1,380,000 ($1,000,000 U.S.). Secured by
future multi-client data sales. $4,000,000 U.S.
($5,400,000 Cdn.) converted to equity February 24,
1997. .................................................... $ -- $ 5,828,000
Other....................................................... 20,000 --
----------- -----------
22,580,000 27,721,000
Less: Current portion....................................... 8,054,000 9,028,000
----------- -----------
$14,526,000 $18,693,000
=========== ===========
In 1997, Solid State postponed certain principal repayments.
At August 31, 1997, the Company was in violation of certain debt covenants
with its main banker. These violations were waived to October 31, 1997. The bank
retains the right to demand all loans after this date if there are covenant
violations. Certain promissory note and conditional sales agreement repayment
dates were not adhered to.
The demand non-revolving loans are secured by fixed and floating charge
debentures over all of the assets of Solid State, subsidiaries and specific
charges on property and equipment.
In certain debt agreements, there are cross-default provisions under which
a default in one agreement could become a default under such other agreements.
Principal repayments are as follows:
1998.................................................... $ 9,028,000
1999.................................................... 9,403,000
2000.................................................... 4,455,000
2001.................................................... 3,641,000
2002.................................................... 1,194,000
-----------
$27,721,000
===========
F-48
146
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) CAPITAL STOCK
Authorized share capital is comprised of unlimited common shares and
preferred shares.
SHARES BOOK VALUE
---------- -----------
Total common shares outstanding September 1, 1993........... 2,800,000 $ 800,000
Common shares issued in accordance with initial public
offering.................................................. 2,000,000 12,238,000
Common shares issued upon acquisition of Nortech Surveys
(Canada) Inc. (Note 3).................................... 200,000 1,700,000
---------- -----------
Total common shares outstanding August 31, 1994 and 1995.... 5,000,000 14,738,000
Common shares issued in accordance with a rights offering in
March 1996................................................ 6,520 20,000
---------- -----------
Common shares outstanding August 31, 1996................... 5,006,520 14,758,000
Common shares issued to specified shareholders for debt, net
of issue costs less related deferred tax.................. 3,044,444 4,044,000
Common shares issued to specified shareholders for cash, net
of issue costs less related deferred tax.................. 5,869,565 5,356,000
Common shares issued under options.......................... 215,000 311,000
---------- -----------
Common shares outstanding August 31, 1997................... 14,135,529 $24,469,000
========== ===========
Earnings per share for the year ended August 31, 1997 have been calculated
using the weighted average shares outstanding of 10,787,000 (1995 -- 5,000,000;
1996 -- 5,003,000).
Fully diluted earnings per share for 1997, 1996 and 1995 would have been
anti-dilutive.
(9) STOCK OPTIONS AND SHARES RESERVED
At August 31, 1997, Solid State had options to purchase 952,000 Common
shares outstanding, of which 325,000 expired subsequent to the year end. Prices
ranged from $1.00 to $6.50. During 1996, 505,000 options were granted. In 1997,
670,000 options were granted to purchase Common shares at between $0.95 and
$1.80. All options expire on or before December 31, 2000. Grant prices were
equal to or greater than fair market value at the dates of grant and to date
215,000 stock options have been exercised. They were warrants outstanding to
purchase 125,000 Common Shares at $1.65 per share.
(10) INCOME TAXES
Reconciliation of expected income tax provision to recorded income tax
provision:
1995 1996 1997
----------- ----------- -----------
Expected income tax (recovery) at
(1995 -- 44.34%; 1996 -- 44.53%;
44.62%)............................ $(2,144,000) $(3,357,000) $(2,418,000)
Future benefit of tax losses in
subsidiaries not recognized........ 1,219,000 2,943,000 1,572,000
Assets written off with no tax
basis.............................. 925,000 -- --
----------- ----------- -----------
Income taxes (recovery) per financial
statements......................... $ -- $ (414,000) $ (846,000)
=========== =========== ===========
Solid State can defer future income taxes by claiming allowable income tax
deductions in excess of those provided in the accounting records.
F-49
147
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Solid State does not anticipate repatriating income from foreign operations
and accordingly, has not provided for any possible future repatriation taxation.
At August 31, 1997, there was not a material amount in income which could be
repatriated.
Solid State has unclaimed research and development expenditures and
noncapital losses carried forward for income tax purposes of $1,489,000 and
$3,900,000 respectively, which resulted from operations in a Canadian
subsidiary. There are non-North American foreign subsidiaries with approximately
$4,400,000 of non-capital tax losses for accounting carried forward. The U.S.
subsidiary has non-capital accounting losses carried forward of approximately
$8,600,000 as at August 31, 1997, which may be claimable in future years. The
potential benefits of these items have not been reflected in the consolidated
financial statements. Realization of these losses is dependent upon taxable
income being earned in each jurisdiction that has the tax losses. Solid State
has non-capital losses of $2,762,000 resulting from its Canadian operations of
which $703,000 has a potential unrecorded benefit. The amount of tax losses
available is subject to normal audit by the various tax authorities which may
result in changes to the losses.
F-50
148
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SEGMENTED INFORMATION
Solid State operates in two business segments with both domestic and
foreign contracts.
Industry segments
YEAR ENDED AUGUST 31
------------------------------------------
1995 1996 1997
----------- ------------ -----------
NET REVENUES FROM CUSTOMERS OUTSIDE THE ENTERPRISE
Seismic acquisition.............................. $28,850,000 $ 27,290,000 $45,910,000
Data library..................................... 773,000 14,891,000 3,919,000
----------- ------------ -----------
TOTAL.............................................. $29,623,000 $ 42,181,000 $49,829,000
=========== ============ ===========
OPERATING LOSS BEFORE RESTRUCTURING AND OTHER
COSTS, INTEREST AND WRITE-DOWN
Seismic acquisition.............................. $ 242,000 $ (2,796,000) $ (274,000)
Data library..................................... 297,000 (5,803,000) (865,000)
----------- ------------ -----------
TOTAL.............................................. $ 539,000 $ (8,599,000) $(1,139,000)
=========== ============ ===========
IDENTIFIABLE ASSETS
Seismic acquisition.............................. $40,032,000 $ 42,325,000 $55,035,000
Data library..................................... 7,797,000 11,701,000 15,667,000
Corporate........................................ -- 1,441,000 1,057,000
Discontinued operations.......................... 3,925,000 133,000 --
----------- ------------ -----------
TOTAL.............................................. $51,754,000 $ 55,600,000 $71,759,000
=========== ============ ===========
CAPITAL EXPENDITURES
Seismic acquisition.............................. $10,888,000 $ 11,025,000 $15,770,000
Data library..................................... 7,680,000 21,643,000 8,439,000
Discontinued operations.......................... 898,000 148,000 47,000
----------- ------------ -----------
TOTAL.............................................. $19,466,000 $ 32,816,000 $24,256,000
=========== ============ ===========
DEPRECIATION AND AMORTIZATION
Seismic acquisition.............................. $ 5,968,000 $ 5,856,000 $ 8,974,000
Data library..................................... 476,000 20,694,000 4,784,000
----------- ------------ -----------
TOTAL.............................................. $ 6,444,000 $ 26,550,000 $13,758,000
=========== ============ ===========
DISCONTINUED OPERATIONS
Operating loss................................... $ (938,000) $ (242,000) $ (121,000)
=========== ============ ===========
TOTAL INDUSTRY SEGMENTS
Net revenue from customers outside the
enterprise.................................... $29,623,000 $ 42,181,000 $49,829,000
=========== ============ ===========
SEGMENTED OPERATING INCOME (LOSS) BEFORE THE
FOLLOWING........................................ $ 539,000 $ (8,599,000) $(1,139,000)
Interest expense................................. (1,175,000) (2,667,000) (4,050,000)
Restructuring costs.............................. -- (873,000) (231,000)
Write-down of fixed assets....................... (3,349,000) -- --
Income tax recovery.............................. -- 414,000 846,000
Discontinued operations loss..................... (938,000) (242,000) (121,000)
----------- ------------ -----------
Net loss........................................... $(4,923,000) $(11,967,000) $(4,695,000)
=========== ============ ===========
F-51
149
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic segments
AUGUST 31, 1995
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
Net contract revenue*........... $16,461,000 $ 28,000 $ 9,016,000 $ 4,118,000 $29,623,000
Earnings (loss) before
interest**.................... 1,748,000 (154,000) (1,867,000) 812,000 539,000
Identifiable assets............. 25,100,000 16,606,000 4,475,000 1,648,000 47,829,000
AUGUST 31, 1996
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
Net contract revenue*........... $22,053,000 $ 5,687,000 $14,445,000 $ (4,000) $42,181,000
Earnings (loss) before
interest...................... 283,000 587,000 (8,928,000) (541,000) (8,599,000)
Identifiable assets............. 25,521,000 1,490,000 27,951,000 505,000 55,467,000
AUGUST 31, 1997
---------------------------------------------------------------------
MIDDLE EAST
SOUTH AND
CANADA AMERICAN UNITED STATES OTHER TOTAL
----------- ----------- ------------- ----------- -----------
Net contract revenue*........... $20,046,000 $10,818,000 $12,312,000 $ 6,653,000 $49,829,000
Earnings (loss) before
interest...................... 2,260,000 (3,749,000) (704,000) 1,054,000 (1,139,000)
Identifiable assets............. 27,016,000 13,238,000 25,434,000 6,071,000 71,759,000
- ---------------
* Includes Data Library sales.
** Before write-down of fixed assets ($3,349,000 -- 1995, nil -- 1996 and 1997),
financial restructuring costs and discontinued operations.
As at August 31, (1995 -- 42%; 1996 -- 43%) 1997, approximately 59% of
identifiable foreign assets are represented by accounts receivable, multi-client
data and work-in-progress. The balance, represented by property and equipment,
is readily transferrable from country to country as contracts are negotiated.
(12) ECONOMIC DEPENDENCE
Solid State operates in several countries. These operations are dependent
upon the level of oil and gas exploration and development. Solid State operates
for several customers, the only customers that accounted for more than 10% of
the net contract revenue during the year ended August 31, 1996 were two
customers accounting for $4,204,000 of South American net contract revenues and
$5,815,000 of Canadian net contract revenues and during the year ended August
31, 1997 one customer accounted for $6,218,000 of South American net contract
revenues.
(13) FINANCIAL INSTRUMENTS
a) Fair value of financial assets and liabilities
Solid State's financial instruments are substantially all cash, accounts
receivable, income taxes receivable, accounts payable, promissory notes and
long-term debt. The book value for all financial instruments, including
$16,937,000 of promissory notes and long-term debt, approximates their fair
value. The $16,937,000 of long-term debt and promissory notes which are at 15%
were negotiated during the year and there was additional borrowings secured by
promissory notes subsequent to the year end with interest at 15%.
F-52
150
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b) Interest rate risk
At August 31, 1997, Solid State had $15,139,000 of debt with variable
interest rates based upon bank prime rates. For each one percentage change in
interest rates, interest expense would change by $151,000.
c) Credit risk
A substantial portion of Solid State's receivables are with customers in
the oil and gas business and are subject to normal industry credit risks.
Accounts receivable in Venezuela with a national oil company are factored, with
Solid State paying an annual fee of 29% and having a contingent liability for
any receivables not ultimately collected. The amount received on factoring has
been recorded as a loan and included in current liabilities.
d) Foreign currency risk
$33,749,000 of Solid State's promissory notes and long-term debt is
repayable in U.S. dollars. This amount is hedged only by operations conducted in
U.S. dollars. For each $0.01 change in the Canadian dollar relative to the U.S.
dollar, the debt will change by approximately $470,000.
(14) RELATED PARTY TRANSACTIONS
During 1997, two creditors became the major shareholders ("investors") of
Solid State. At August 31, 1996, these creditors were owed money under two lines
of credit; one for $2,600,000 with interest at 18% and one for $2,737,000 with
interest at 8% and convertible into 1,146,667 Common shares of Solid State.
Subsequent to August 31, 1996, a further $2,877,000 ($2,100,000 U.S.) was
advanced to Solid State with interest at 18% to bring the total of these loans
to $5,480,000.
On October 16, 1996, Solid State completed a $16,440,000 ($12,000,000 U.S.)
equity/debt financing. The financing was as follows:
Description CDN. U.S.
- ----------- ----------- -----------
3,044,444 Common shares (before net expenses of
$66,000)................................................ $ 4,110,000 $ 3,000,000
Secured loans with interest at 18% until a private
placement was completed and 15% thereafter;
Secured by data libraries; repayments from proceeds of
the data libraries revenues..........................
Minimum annual repayments of $1,370,000 ($1,000,000
U.S.) for the first two years and any balance in
October 1999......................................... 6,850,000 5,000,000
Proceeds from a private placement were to be used to
retire this loan..................................... 5,480,000 4,000,000
----------- -----------
$16,440,000 $12,000,000
=========== ===========
F-53
151
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The proceeds of the October 16, 1996, financing were used as follows:
DESCRIPTION CDN. U.S.
- ----------- ----------- -----------
To repay convertible debt owing to the specified
investors............................................... $ 2,740,000 $ 2,000,000
To repay term debt owing to the specified investors....... 5,480,000 4,000,000
To repay related interest and legal costs to the specified
investors............................................... 330,000 240,000
To pay trade debt and interest in arrears on two
conditional sales agreements with a major equipment
supplier................................................ 1,645,000 1,200,000
To retire a conditional sales agreement with a major
supplier................................................ 655,000 479,000
To repay trade debt with Canadian and U.S. suppliers...... 4,385,000 3,200,000
For general working capital requirements.................. 1,205,000 881,000
----------- -----------
$16,440,000 $12,000,000
=========== ===========
In February 1997, the investors purchased an additional 5,869,565 shares
for $5,356,000 net of expenses at which time they became the majority
shareholders of the Corporation.
In July 1997, an investor lent $5,600,000 ($4,000,000 U.S.) to Solid State
with interest at 15%.
At August 31, 1997, $16,937,000 ($12,198,000 U.S.) was owed to an investor
with interest at 15%.
Interest incurred during the year on the related party loans was $1,972,000
(1996 -- $339,000).
At August 31, 1997, the investors had 2 out of 4 directors on Solid State's
Board of Directors and were providing assistance for working capital (see Note
17).
(15) COMMITMENTS
In addition to the data library costs at August 31, 1997, Note 4, Solid
State had cash cost commitments to complete these programs estimated in the
amount of $227,000.
(16) CONTINGENCIES
Legal items relating to permitting and other business matters which were
incurred in the normal course of business were outstanding at August 31, 1997.
In most cases, any liability would be passed onto third parties.
(17) SUBSEQUENT EVENTS
Subsequent to the year end the following occurred:
(a) A shareholder advanced an additional $6,245,000 ($4,500,000 U.S.)
with interest at 15%.
(b) The major investors advised Solid State that they were considering
a take-over bid to acquire the minority Common shares at a price of $3.00
per share in cash. On November 27, 1997, the price was amended to $3.50 in
an offer to the minority shareholders.
(c) The covenant defaults indicated in Note 7 were waived to November
26, 1997.
(d) The due dates for the promissory notes indicated in Note 7 were
extended from November 30, 1997 to January 15, 1998.
(e) 125,000 warrants were exercised to purchase Common shares for
proceeds of $147,320 and 320,000 options were exercised to purchase shares
for proceeds of $392,000.
(f) The new shareholder of the Company determined that economic
factors regarding the Company's multi-client data had changed and that a
special charge for asset impairment of $5,900,000 U.S. was required. The
new shareholder recorded this comment in its December 31, 1997 financial
statements.
F-54
152
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(19) CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (GAAP). In certain aspects GAAP as
applied in the United States differs from Canadian GAAP.
Canadian balance sheet
Under Canadian GAAP, foreign exchange gains and losses resulting from
long-term monetary items of the reporting company are deferred and amortized
over the lives of those monetary items. Under U.S. GAAP these gains and losses
would be expensed in the period.
AUGUST 31
----------------------------
1996 1997
------------ ------------
Deferred exchange loss (per financial statements)........... $ 26,000 $ 234,000
------------ ------------
Deferred exchange loss (per U.S. GAAP)...................... $ -- $ --
============ ============
Under U.S. GAAP the multi-client data, current portion would be grouped
with multi-client data, less current portion.
AUGUST 31
--------------------------
1996 1997
----------- -----------
Current assets (per financial statements)................... $16,497,000 $22,014,000
Less: multi-client data, current portion.................... (5,978,000) (2,454,000)
----------- -----------
Current assets (per U.S. GAAP).............................. $10,519,000 $19,560,000
=========== ===========
Multi-client data, less current portion (per financial
statements)............................................... $ 5,723,000 $13,213,000
Add: multi-client data, current portion..................... 5,978,000 2,454,000
----------- -----------
Multi-client data (per U.S. GAAP)........................... $11,701,000 $ 15,667,00
=========== ===========
The current portion of long-term debt under U.S. GAAP in 1997 would be
reduced by $1,074,000, which would reduce the current portion of the promissory
note to its minimal annual payment of $1,380,000 in 1998 rather than being the
total amount of the multi-client data, current portion. The 1997 working capital
would have been reduced by $1,380,000.
F-55
153
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP debt covenants, violations must be waived for a full year
to classify the debt as long-term. Bank debt did not have covenants waived for
one year. This debt and the remaining long-term debt has been reclassified as
current.
AUGUST 31,
1997
-----------
Current liabilities (per financial statements).............. $43,977,000
Add: Long-term portion of debt.............................. 18,693,000
-----------
Current liabilities (per U.S. GAAP)......................... $62,670,000
===========
Conditional sales agreements are supplier financing contracts.
Statement of changes in shareholders' equity
For U.S. reporting, the information contained in the consolidated statement
of operations and (deficit) retained earnings and Note 8, Capital stock, would
be combined to develop a complete statement of changes in shareholders' equity.
For U.S. reporting, the proceeds from the convertible debenture issued in
1996 would have been split between debt and shareholders' equity with the
majority of the amount going to shareholders' equity being determined by the
difference between the conversion price for the shares and the trading price of
the shares at the date of grant.
AUGUST 31,
----------------------------
1996 1997
------------ ------------
Additional paid-in capital (per U.S. GAAP).................. $ 637,000 $ 637,000
============ ============
Deficit (per financial statements).......................... $(10,685,000) $(15,380,000)
Additional foreign exchange expense......................... (26,000) (234,000)
Additional financing cost................................... (53,000) (73,000)
Additional loss on extinguishment of debt................... -- (564,000)
------------ ------------
Deficit (per U.S. GAAP)..................................... $(10,764,000) $(16,251,000)
============ ============
Consolidated statements of operations
For U.S. reporting, net amounts billed to customers for reimbursable costs
would have reduced revenues from those reported in the financial statements and
resulted in changed costs of sales with no change in gross margins.
F-56
154
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED AUGUST 31,
-------------------------------------------
1995 1996 1997
----------- ------------ ------------
Contract revenue (per financial statements)..... $48,357,000 $ 45,503,000 $ 77,999,000
Data library revenue (per financial 773,000 14,891,000 3,919,000
statements)...................................
----------- ------------ ------------
49,130,00 60,394,000 81,918,000
Reimbursable and third party revenue (7,265,000) (12,663,000) (13,218,000)
adjustments...................................
----------- ------------ ------------
Contract revenues (per U.S. GAAP)............... $41,865,000 $ 47,731,000 $ 68,700,000
=========== ============ ============
Costs of sales (per financial statements)....... $20,384,000 $ 21,250,000 $ 33,262,000
Amortization data bank (per financial 476,000 20,694,000 4,784,000
statements)...................................
----------- ------------ ------------
20,860,000 41,944,000 38,046,000
Reimbursable and third party cost adjustments... 12,242,000 5,550,000 18,871,000
----------- ------------ ------------
Cost of sales (per U.S. GAAP)................... $33,102,000 $ 47,494,000 $ 56,917,000
=========== ============ ============
There is no significant difference in accounting for deferred taxes between
Canadian and U.S. GAAP. Under Canadian GAAP, the deferral method is used for
accounting for income taxes whereas under U.S. GAAP the asset and liability
approach is used. No deferred tax asset has been recorded for the tax losses
carried forward because valuation allowances were provided against all losses.
In Canada, earnings (loss) per share is calculated based on the weighted
average number of shares outstanding during the period. For U.S. GAAP, earnings
(loss) per share would be calculated using common stock equivalents outstanding
during the period. The weighted average number of shares outstanding gives
approximately the same loss per share as using common stock equivalent because
any potential conversions for common share equivalents would have the effect of
decreasing loss per share and therefore, would not be converted for purposes of
the calculation.
YEARS ENDED AUGUST 31,
------------------------------------------
1995 1996 1997
----------- ------------ -----------
Net loss as reported............................. $(4,923,000) $(11,967,000) $(4,695,000)
Additional foreign exchange income (loss)........ 121,000 (100,000) (208,000)
Additional financing cost........................ -- (53,000) (20,000)
Additional loss on extinguishment of debt........ -- -- (564,000)
----------- ------------ -----------
Net loss in accordance with U.S. GAAP............ $(4,802,000) $(12,120,000) $(5,487,000)
=========== ============ ===========
Net loss per share............................... $ (0.96) $ (2.42) $ (0.51)
----------- ------------ -----------
Weighted average number of shares outstanding.... 5,000,000 5,003,000 10,787,000
=========== ============ ===========
Consolidated statement of changes in financial position
The statement of changes in financial position is substantially the same as
the statement of cash flows prepared under U.S. GAAP, except for the following
differences:
For the U.S. GAAP, additional disclosure for cash interest and taxes paid
would be made:
YEARS ENDED AUGUST 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
Interest paid.................................. $1,108,000 $2,379,000 $3,593,000
---------- ---------- ----------
Taxes paid (recovered)......................... $1,046,000 $ (201,000) $ 107,000
========== ========== ==========
F-57
155
SOLID STATE GEOPHYSICAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For U.S. GAAP, cash provided by (used in) operating activities would
include operating activities from discontinued operations.
YEARS ENDED AUGUST 31,
---------------------------------------
1995 1996 1997
---------- ----------- ----------
Cash provided by continuing operating
activities before changes in working capital
balances related to operations (as
reported)................................... $6,004,000 $14,691,000 $7,944,000
Discontinued operations....................... 126,000 (12,000) (121,000)
---------- ----------- ----------
Cash provided by operating activities before
changes in working capital balances related
to operations in accordance with U.S.
GAAP........................................ $6,130,000 $14,679,000 $7,823,000
========== =========== ==========
Under U.S. GAAP, the following would not have been disclosed in the cash
flow statement but would have been disclosed in a separate supplementary
schedule of non-cash financing and investing activities.
In 1997, there was one non-cash financing activity which was Common shares
valued at $3,989,000 issued to repay debt included in the statement of changes
in financial position.
In 1996 there was a non-cash investing activity which was the receipt of
$1,441,000 preferred shares on the sale of assets of a subsidiary.
In 1995, 1996 and 1997, there was the purchase of property and equipment
for the execution of capital leases and notes of $1,679,000, $6,662,000, and
$7,178,000 respectively, which would have affected financing and investing
activities.
For U.S. GAAP, bank indebtedness of 1995 -- $1,105,000; 1996 -- $5,788,000;
and 1997 -- $5,235,000; would have been shown as a financing activity. Cash
would be shown as 1995 -- $2,705,000; 1996 -- $308,000; and 1997 -- $740,000.
YEARS ENDED AUGUST 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
Financing activities as reporting........... $ 5,020,000 $ 8,334,000 $23,080,000
Change in bank indebtedness................. (304,000) 4,683,000 (553,000)
Change in proceeds of long-term debt........ (1,679,000) (6,662,000) (7,178,000)
----------- ----------- -----------
Financing activities in accordance with U.S.
GAAP...................................... $ 3,037,000 $ 6,355,000 $15,349,000
=========== =========== ===========
Investing activities as reported............ $18,677,000 $31,132,000 $20,343,000
Fixed assets purchased using supplier
debt...................................... (1,679,000) (6,662,000) (7,178,000)
----------- ----------- -----------
Investing activities in accordance with U.S.
GAAP...................................... $16,998,000 $24,470,000 $13,165,000
----------- ----------- -----------
Change in cash as reported.................. $ 2,311,000 $(7,080,000) $ 985,000
Change in bank indebtedness................. (304,000) 4,683,000 (553,000)
----------- ----------- -----------
Change in cash in accordance with U.S.
GAAP...................................... $ 2,007,000 $(2,397,000) $ 432,000
=========== =========== ===========
F-58
156
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................... 4
Summary Historical and Unaudited Pro Forma
Financial Data........................... 10
Risk Factors............................... 12
Disclosure Regarding Forward-Looking
Statements............................... 20
The Exchange Offer......................... 21
The Company................................ 30
Use of Proceeds............................ 31
Capitalization............................. 32
Unaudited Pro Forma Financial Information.. 33
Selected Consolidated Historical Financial
Data..................................... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 39
Business................................... 50
Management................................. 58
Certain Relationships and Related
Transactions............................. 61
Security Ownership of Management and
Principal Stockholders................... 64
Description of the Notes................... 65
Plan of Distribution....................... 93
Available Information...................... 94
Legal Matters.............................. 95
Experts.................................... 95
Index to Financial Statements and Financial
Statement Schedule....................... F-1
$100,000,000
[GRANT GEOPHYSICAL LOGO]
OFFER TO EXCHANGE ITS
9 3/4% SENIOR NOTES DUE 2008,
SERIES B, WHICH HAVE
BEEN REGISTERED
UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS
OUTSTANDING
9 3/4% SENIOR NOTES
DUE 2008, SERIES A
---------------------------------
PROSPECTUS
---------------------------------
, 1998
157
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
Registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the DGCL, the Registrant's Certificate of Incorporation
(the "Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the Registrant or to its stockholders for monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the Registrant and its stockholders (through
stockholders' derivative suits on behalf of the Registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.
The Registrant's Bylaws (the "Bylaws") provide that the Registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the Registrant or is or was serving at the request
of the Registrant as a director, officer, employee or agent of another
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful.
The Bylaws also provide that the Registrant may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Registrant to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Registrant unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person if fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Bylaws also provide that to the extent a director or officer of the
Registrant has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Bylaws shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
Registrant may purchase and maintain insurance on behalf of a director or
officer of the Registrant against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the Registrant would have the power to indemnify him against such liabilities
under such Bylaws.
II-1
158
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 GGI's Second Amended Plan of Reorganization under chapter 11
of the Bankruptcy Code (incorporated by reference to Exhibit
2.1 of the Subscription Offering Registration Statement,
filed with the Commission on December 24, 1997).
2.2 Offer to Purchase for Cash all of the Common Shares of Solid
State not already held by or on behalf of SSGI or its
Affiliates at a price of Cdn $3.50 per Common Share by SSGI
(incorporated by reference to Exhibit 2.2 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
3.1(i) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1(i) of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
3.1(ii) Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.1(ii) of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.1 Form of Exchange Note (included in Exhibit 4.6).
4.2 Registration Rights Agreement between Grant and Elliott,
dated September 19, 1997 (incorporated by reference to
Exhibit 4.2 of the Subscription Offering Registration
Statement, filed with the Commission on December 24, 1997).
4.3 Amendment No. 1 to Registration Rights Agreement between
Grant and Elliott, dated October 1, 1997 (incorporated by
reference to Exhibit 4.3 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.4 Amendment No. 2 to Registration Rights Agreement between
Grant and Elliott, dated December 17, 1997 (incorporated by
reference to Exhibit 4.4 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.5 Registration Rights Agreement among the Company, the
Subsidiary Guarantors and the Initial Purchaser, dated
February 18, 1998 (incorporated by reference to Exhibit 4.5
of Amendment No. 2 to the Subscription Offering Registration
Statement, filed with the Commission on March 27, 1998).
4.6 Indenture among the Company, the Subsidiary Guarantors and
LaSalle National Bank, as Trustee, dated February 18, 1998
(incorporated by reference to Exhibit 4.6 of Amendment No. 2
to the Subscription Offering Registration Statement, filed
with the Commission on March 27, 1998).
5.1** Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Loan and Security Agreement between Grant and Elliott, dated
October 1, 1997 (incorporated by reference to Exhibit 10.1
of the Subscription Offering Registration Statement, filed
with the Commission on December 24, 1997).
10.2 First Amendment to Loan and Security Agreement between Grant
and Elliott, dated December 19, 1997 (incorporated by
reference to Exhibit 10.2 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.3 Demand Promissory Note from Grant to Elliott, dated November
26, 1997 (incorporated by reference to Exhibit 10.3 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
10.4 Subordinated Promissory Note from Grant to Elliott, dated
December 18, 1997 (incorporated by reference to Exhibit 10.4
of the Subscription Offering Registration Statement, filed
with the Commission on December 24, 1997).
II-2
159
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.5 Stock Purchase Agreement among the Company, Elliott and
Westgate, dated December 19, 1997 (incorporated by reference
to Exhibit 10.5 of Amendment No. 1 to the Subscription
Offering Registration Statement, filed with the Commission
on February 4, 1998).
10.6 Restated and Amended Employment Agreement between Grant and
Larry E. Lenig, Jr., dated October 1, 1997 (incorporated by
reference to Exhibit 10.6 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.7 Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997 (incorporated by
reference to Exhibit 10.7 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.8 Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan (incorporated by reference to Exhibit 10.8 of
Amendment No. 2 to the Subscription Offering Registration
Statement, filed with the Commission on March 27, 1998).
10.9 Loan Agreement among Elliott, Westgate, Solid State and the
U.S. Subsidiary, dated October 16, 1996 (incorporated by
reference to Exhibit 10.9 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1998).
10.10 Form of Promissory Note from the U.S. Subsidiary to Elliott
(incorporated by reference to Exhibit 10.10 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
10.11 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated June 17, 1997 (incorporated by
reference to Exhibit 10.11 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.12 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated September 4, 1997 (incorporated
by reference to Exhibit 10.12 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.13 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated October 17, 1997 (incorporated by
reference to Exhibit 10.13 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.14 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated November 30, 1997 (incorporated
by reference to Exhibit 10.14 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.15 Letter Agreement between Elliott and Mitchell L. Peters,
dated November 24, 1997 (incorporated by reference to
Exhibit 10.15 of the Subscription Offering Registration
Statement, filed with the Commission on December 24, 1997).
12.1* Statement regarding computation of ratios.
21.1* Subsidiaries of the Company.
23.1** Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of KPMG Peat Marwick LLP.
23.4* Consent of Price Waterhouse, Chartered Accountants.
24.1* Power of Attorney.
25.1* Statement of Eligibility of Trustee, LaSalle National Bank,
on Form T-1.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
- ---------------
* Filed herewith
** To be filed by amendment
II-3
160
(b) Financial Statement Schedules.
All schedules have been omitted because they are not applicable, not
required or the required information is included in the financial statements and
notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one Business Day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in the City of Houston, State of Texas,
on March 27, 1998.
GRANT GEOPHYSICAL, INC.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President, Chief Executive Officer and Director March 27, 1998
- -------------------------------- (Principal Executive Officer)
Larry E. Lenig, Jr.
* Chief Financial Officer, Treasurer and Secretary March 27, 1998
- -------------------------------- (Principal Financial Officer)
Michael P. Keirnan
* Controller March 27, 1998
- -------------------------------- (Principal Accounting Officer)
Charles Ackerman
* Chairman of the Board March 27, 1998
- --------------------------------
Jonathan D. Pollock
* Director March 27, 1998
- --------------------------------
W. Richard Anderson
* Director March 27, 1998
- --------------------------------
James R. Brock
* Director March 27, 1998
- --------------------------------
J. Kelly Elliott
* Director March 27, 1998
- --------------------------------
Donald G. Russell
* Director March 27, 1998
- --------------------------------
Donald W. Wilson
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-5
162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Advanced
Seismic Technology, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunder duly authorized, in the City
of Houston, State of Texas, on March 27, 1998.
ADVANCED SEISMIC TECHNOLOGY, INC.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President, Chief Executive Officer March 27, 1998
- -------------------------------- and Director (Principal Executive Officer)
Larry E. Lenig, Jr.
* Vice President, Chief Financial Officer, March 27, 1998
- -------------------------------- and Director (Principal Financial Officer
Michael P. Keirnan and Principal Accounting Officer)
* Director March 27, 1998
- --------------------------------
W. Jay Jones
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-6
163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Grant
Geophysical Corp. (f/k/a/ Geophysical Operations, Inc.) has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Houston, State of Texas, on March 27, 1998.
GRANT GEOPHYSICAL CORP.
(f/k/a/ GEOPHYSICAL OPERATIONS, INC.)
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President, Chief Executive Officer March 27, 1998
- -------------------------------- and Director (Principal Executive Officer)
Larry E. Lenig, Jr.
* Vice President, Chief Financial Officer March 27, 1998
- -------------------------------- and Director (Principal Financial Officer
Michael P. Keirnan and Principal Accounting Officer)
* Director March 27, 1998
- --------------------------------
D. Hugh Fraser
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-7
164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Grant
Geophysical Do Brasil Ltda. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunder duly authorized, in the City
of Houston, State of Texas, on March 27, 1998.
GRANT GEOPHYSICAL DO BRASIL LTDA.
By: *
------------------------------------
Roberto D. Vianna
Delegated Manager
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.
SIGNATURE TITLE DATE
--------- ----- ----
* Delegated Manager (Principal Executive Officer, March 27, 1998
- -------------------------------- Principal Financial Officer and Principal
Roberto D. Vianna Accounting Officer)
Grant Geophysical (Int'l), Inc. Majority Shareholder
By: /s/ LARRY E. LENIG, JR. March 27, 1998
----------------------------
Larry E. Lenig, Jr.
President and Chief
Executive Officer
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-8
165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Grant
Geophysical (Int'l), Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunder duly authorized, in the City
of Houston, State of Texas, on March 27, 1998.
GRANT GEOPHYSICAL (INT'L), INC.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President, Chief Executive Officer March 27, 1998
- -------------------------------- and Director (Principal Executive Officer)
Larry E. Lenig, Jr.
* Vice President, Chief Financial Officer and March 27, 1998
- -------------------------------- Director (Principal Financial Officer and
Michael P. Keirnan Principal Accounting Officer)
* Secretary and Director March 27, 1998
- --------------------------------
W. Jay Jones
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-9
166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pt. Grant
Geophysical Indonesia has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunder duly authorized, in the City of
Houston, State of Texas, on March 27, 1998.
PT. GRANT GEOPHYSICAL INDONESIA
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President Director
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President Director (Principal Executive March 27, 1998
- -------------------------------- Officer, Principal Financial Officer
Larry E. Lenig, Jr. and Principal Accounting Officer)
* Commissioner March 27, 1998
- --------------------------------
Michael P. Keirnan
* Commissioner March 27, 1998
- --------------------------------
Barry K. Burt
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-10
167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Recursos
Energeticos Ltda. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Houston, State of Texas, on March 27, 1998.
RECURSOS ENERGETICOS LTDA.
By: *
------------------------------------
Barry K. Burt
Alternate General Manager
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.
SIGNATURE TITLE DATE
--------- ----- ----
* General Manager March 27, 1998
- -------------------------------- (Principal Executive Officer)
Narciso Chiquillo
* Alternate General Manager March 27, 1998
- -------------------------------- (Principal Financial Officer and Principal
Barry K. Burt Accounting Officer)
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-11
168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SSGI
Acquisition Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Houston, State of Texas, on March 27, 1998.
SSGI ACQUISITION CORP.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
Executive Vice President
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.
SIGNATURE TITLE DATE
--------- ----- ----
* President (Principal Executive Officer) March 27, 1998
- --------------------------------
Jonathan D. Pollock
/s/ LARRY E. LENIG, JR. Executive Vice President (Principal Executive March 27, 1998
- -------------------------------- Officer)
Larry E. Lenig, Jr.
* Secretary (Principal Financial Officer and March 27, 1998
- -------------------------------- Principal Accounting Officer)
Michael P. Keirnan
Grant Geophysical, Inc. Acting on behalf of the Board of Directors of March 27, 1998
SSGI Acquisition Corp. pursuant to the
By: /s/ LARRY E. LENIG, JR. Unanimous Shareholders Agreement, dated November
- -------------------------------- 26, 1997.
Larry E. Lenig, Jr.
President and Chief Executive
Officer
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-12
169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Solid State
Geophysical Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Houston, State of Texas, on March 27, 1998.
SOLID STATE GEOPHYSICAL CORP.
By: *
------------------------------------
Mitchell L. Peters
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.
SIGNATURE TITLE DATE
--------- ----- ----
* President, Chief Executive Officer and Director March 27, 1998
- -------------------------------- (Principal Executive Officer, Principal
Mitchell L. Peters Financial Officer and Principal Accounting
Officer)
/s/ LARRY E. LENIG, JR. Director March 27, 1998
- --------------------------------
Larry E. Lenig, Jr.
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-13
170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Solid State
Geophysical Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunder duly authorized, in the City of Houston,
State of Texas, on March 27, 1998.
SOLID STATE GEOPHYSICAL INC.
By: *
------------------------------------
Mitchell L. Peters
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.
SIGNATURE TITLE DATE
--------- ----- ----
* President, Chief Executive Officer March 27, 1998
- -------------------------------- and Director (Principal Executive Officer,
Mitchell L. Peters Principal Financial Officer and Principal
Accounting Officer)
/s/ LARRY E. LENIG, JR. Director March 27, 1998
- --------------------------------
Larry E. Lenig, Jr.
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-14
171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Solid State
Internacional Ingenieria, C.A. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunder duly authorized, in the City
of Houston, State of Texas, on March 27, 1998.
SOLID STATE INTERNACIONAL INGENIERIA,
C.A.
By: *
------------------------------------
Mitchell L. Peters
Director
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.
SIGNATURE TITLE DATE
--------- ----- ----
* Director (Principal Executive Officer, Principal March 27, 1998
- -------------------------------- Financial Officer and Principal Account Officer)
Mitchell L. Peters
* Director March 27, 1998
- --------------------------------
Barry K. Burt
/s/ LARRY E. LENIG, JR. Director March 27, 1998
- --------------------------------
Larry E. Lenig, Jr.
* Director March 27, 1998
- --------------------------------
Michael P. Keirnan
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ LARRY E. LENIG, JR.
---------------------------------------------------------
Larry E. Lenig, Jr.
as Attorney-in-Fact
II-15
172
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 GGI's Second Amended Plan of Reorganization under chapter 11
of the Bankruptcy Code (incorporated by reference to Exhibit
2.1 of the Subscription Offering Registration Statement,
filed with the Commission on December 24, 1997).
2.2 Offer to Purchase for Cash all of the Common Shares of Solid
State not already held by or on behalf of SSGI or its
Affiliates at a price of Cdn $3.50 per Common Share by SSGI
(incorporated by reference to Exhibit 2.2 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
3.1(i) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1(i) of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
3.1(ii) Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.1(ii) of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.1 Form of Exchange Note (included in Exhibit 4.6).
4.2 Registration Rights Agreement between Grant and Elliott,
dated September 19, 1997 (incorporated by reference to
Exhibit 4.2 of the Subscription Offering Registration
Statement, filed with the Commission on December 24, 1997).
4.3 Amendment No. 1 to Registration Rights Agreement between
Grant and Elliott, dated October 1, 1997 (incorporated by
reference to Exhibit 4.3 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.4 Amendment No. 2 to Registration Rights Agreement between
Grant and Elliott, dated December 17, 1997 (incorporated by
reference to Exhibit 4.4 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
4.5 Registration Rights Agreement among the Company, the
Subsidiary Guarantors and the Initial Purchaser, dated
February 18, 1998 (incorporated by reference to Exhibit 4.5
of Amendment No. 2 to the Subscription Offering Registration
Statement, filed with the Commission on March 27, 1998).
4.6 Indenture among the Company, the Subsidiary Guarantors and
LaSalle National Bank, as Trustee, dated February 18, 1998
(incorporated by reference to Exhibit 4.6 of Amendment No. 2
to the Subscription Offering Registration Statement, filed
with the Commission on March 27, 1998).
5.1** Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Loan and Security Agreement between Grant and Elliott, dated
October 1, 1997 (incorporated by reference to Exhibit 10.1
of the Subscription Offering Registration Statement, filed
with the Commission on December 24, 1997).
10.2 First Amendment to Loan and Security Agreement between Grant
and Elliott, dated December 19, 1997 (incorporated by
reference to Exhibit 10.2 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.3 Demand Promissory Note from Grant to Elliott, dated November
26, 1997 (incorporated by reference to Exhibit 10.3 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
10.4 Subordinated Promissory Note from Grant to Elliott, dated
December 18, 1997 (incorporated by reference to Exhibit 10.4
of the Subscription Offering Registration Statement, filed
with the Commission on December 24, 1997).
173
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.5 Stock Purchase Agreement among the Company, Elliott and
Westgate, dated December 19, 1997 (incorporated by reference
to Exhibit 10.5 of Amendment No. 1 to the Subscription
Offering Registration Statement, filed with the Commission
on February 4, 1998).
10.6 Restated and Amended Employment Agreement between Grant and
Larry E. Lenig, Jr., dated October 1, 1997 (incorporated by
reference to Exhibit 10.6 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.7 Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997 (incorporated by
reference to Exhibit 10.7 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.8 Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan (incorporated by reference to Exhibit 10.8 of
Amendment No. 2 to the Subscription Offering Registration
Statement, filed with the Commission on March 27, 1998).
10.9 Loan Agreement among Elliott, Westgate, Solid State and the
U.S. Subsidiary, dated October 16, 1996 (incorporated by
reference to Exhibit 10.9 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1998).
10.10 Form of Promissory Note from the U.S. Subsidiary to Elliott
(incorporated by reference to Exhibit 10.10 of the
Subscription Offering Registration Statement, filed with the
Commission on December 24, 1997).
10.11 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated June 17, 1997 (incorporated by
reference to Exhibit 10.11 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.12 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated September 4, 1997 (incorporated
by reference to Exhibit 10.12 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.13 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated October 17, 1997 (incorporated by
reference to Exhibit 10.13 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.14 Letter Agreement among Elliott, Westgate, Solid State and
the U.S. Subsidiary, dated November 30, 1997 (incorporated
by reference to Exhibit 10.14 of the Subscription Offering
Registration Statement, filed with the Commission on
December 24, 1997).
10.15 Letter Agreement between Elliott and Mitchell L. Peters,
dated November 24, 1997 (incorporated by reference to
Exhibit 10.15 of the Subscription Offering Registration
Statement, filed with the Commission on December 24, 1997).
12.1* Statement regarding computation of ratios.
21.1* Subsidiaries of the Company.
23.1** Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of KPMG Peat Marwick LLP.
23.4* Consent of Price Waterhouse, Chartered Accountants.
24.1* Power of Attorney.
25.1* Statement of Eligibility of Trustee, LaSalle National Bank,
on Form T-1.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
- ---------------
* Filed herewith
** To be filed by amendment