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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES EXCHANGE ACT OF
1934*
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from________to________
Commission file number:
GRANT GEOPHYSICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0548468
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16850 Park Row, Houston, Texas 77084
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (281) 398-9503
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
None
Indicate by checkmark whether the registrant: (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [ ] Yes [X] No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [ ]
All of the outstanding capital stock of the registrant is held by Elliott
Associates, L.P. and Westgate International, L.P.
As of March 31, 1998, 14,152,555 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding.
Documents incorporated by reference: None
*This Annual Report on Form 10-K is filed pursuant the Indenture, dated as of
February 18, 1998, filed as an Exhibit hereto.
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PART I
Investors are cautioned that certain statements in this Form 10-K Annual
Report are forward looking and involve risk and uncertainties. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
and variations of such words and similar expressions are intended to identify
such forward looking statements. These statements are based on current
expectations and assumptions made by management and are not guarantees of future
performance. Therefore, actual events and results may differ materially from
those expressed or forecasted in the forward looking statements due to factors
such as weather conditions, demand for seismic data acquisition services in
general and specifically for the Company's services, and other factors
identified in the Company's filings with the Securities and Exchange Commission,
including the Company's Form 10-K Annual Report. The Company undertakes no
obligation to update any forward looking statements made in this Form 10-K
Annual Report. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Disclosure Regarding Forward-Looking Statements."
ITEM 1. BUSINESS.
OVERVIEW
Grant Geophysical, Inc., a Delaware corporation ("Grant," or the
"Company"), was formed in September 1997. On September 30, 1997, Grant acquired
substantially all of the assets and assumed certain liabilities of GGI
Liquidating Corporation ("GGI") pursuant to GGI's Second Amended Plan of
Reorganization (the "Plan"), which was confirmed by the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") on September 15,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." In December 1997, Grant acquired all of the
common stock of Solid State Geophysical Inc. ("Solid State"). Unless otherwise
indicated, the information set forth herein reflects the recent acquisition (the
"Acquisition") of Solid State. Unless the context otherwise requires, pro forma
data contained herein gives effect to Grant's purchase of GGI's assets and
certain related transactions and the Acquisition as if they were completed as of
January 1, 1997.
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 was 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.
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
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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.
Grant's principal office is located at 16850 Park Row, Houston, Texas 77084
and its telephone number is 281-398-9503.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s, and the application of seismic technology frequently has led to
significant discoveries of new oil and gas reservoirs. Seismology encompasses
the generation and recording of reflected or refracted seismic energy that, when
computer processed, produces 3D images or 2D cross sections of the earth's
subsurface structures. The computer processed seismic data is used by
geoscientists to identify geological characteristics favorable for the
accumulation of oil and gas and to evaluate the potential for commercial
production of oil and gas. More recently, seismic data has been used to monitor
and optimize the production of existing oil and gas reservoirs. During the last
fifty years, seismology has become the leading method used by oil and gas
companies to identify and image underground geological structures favorable for
hydrocarbon accumulation. Recent advances in seismic data acquisition
techniques, coupled with improvements in computer technology, have resulted in
an increased demand for seismic data acquisition services in both the
exploration for and development of new reservoirs and the further development of
existing reservoirs.
Seismic data acquisition services companies acquire seismic data in land
and transition zone environments by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the survey. An
energy source, such as a small explosive charge or mechanical vibrating unit, is
used to generate seismic energy that moves through the earth's subsurface and is
reflected by various underlying rock layers to the surface, where it is detected
by the geophones. For 2D seismic data acquisition, the typical configuration of
geophones and energy sources is a single line with an energy source and small
groups or strings of geophones placed at even intervals every few hundred feet
along the line. A geophone string typically consists of six to twelve geophones
connected by a cable. For 3D seismic data acquisition the typical configuration
is generally a grid of perpendicular lines spaced a few hundred to a few
thousand feet apart, with geophone strings spaced at intervals every few hundred
feet along one set of parallel lines and energy sources spaced at intervals
every few hundred feet along the perpendicular lines. Recording configurations
must be carefully designed to provide optimal imaging of the targeted subsurface
structures, while taking into account surface obstructions such as oil and gas
wells and pipelines, or restricted areas where permits to enter cannot be
obtained.
As many as six geophone strings are connected to a field recording box,
which collects the seismic data from those geophones. The electrical output of
each geophone string becomes the electrical input for one recording channel, or
"trace," of seismic data. Once the geophones and field recording boxes are
deployed over a portion of the survey area, an energy source is activated, the
reflected seismic energy is detected by the geophones, and the signals from the
geophones are collected and digitized by the field recording boxes. These boxes
in turn transmit the seismic data by cable, radio telemetry or through hand-held
data collection units to a central recording system. The geophones and field
recording boxes from one end of the single recording line in the case of 2D
seismic data, or an area of multiple recording lines in the case of 3D seismic
data, are then removed and relocated elsewhere in the survey area. The seismic
energy source is again activated and the entire process is repeated, moving a
few hundred feet at a time, until the entire survey area is covered.
Historically, the acquisition of 2D seismic data was the principal seismic
data acquisition technique. However, with the advancement and miniaturization of
seismic data recording equipment and the improvement of computer technology in
the past ten years, high-density surveys, or 3D seismic data, which provide a
much more comprehensive subsurface image, have become the industry standard.
Recent technical advances in seismic data acquisition and computer processing
have also resulted in the acquisition of higher-resolution surveys using
three-component geophones, known as 3C-3D, which permit the recording of shear
wave information, in addition to conventional vertical profile seismic data. In
addition, the industry is increasingly utilizing time-lapse 3D, or 4D, seismic
data acquisition techniques, where surveys are periodically reacquired to
monitor and optimize production of existing reservoirs.
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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.
LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A land or transition zone seismic data acquisition crew typically consists
of a surveying crew that lays out the lines to be recorded and marks the sites
for energy source or geophone placement and equipment location, an explosives or
mechanical vibrating or compressed air unit crew, and a recording crew that lays
out the geophones and field recording boxes, directs shooting operations and
records the seismic energy reflected from subsurface structures. A land seismic
data acquisition crew utilizing an explosives unit is supported by several drill
crews, generally furnished by third parties under short-term contracts. Drill
crews operate in advance of the seismic data acquisition crew and bore shallow
holes for small explosive charges that, when detonated, produce the necessary
seismic impulse. In locations where conditions dictate or where the use of
explosives is precluded due to regulatory, topographical or ecological factors,
a mechanical vibrating unit or compressed air unit is substituted for explosives
as the seismic energy source. The Company also employs specialized crew
mobilization equipment to improve productivity 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.
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
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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 "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange Gains and Losses."
MARKETS
The Company is presently active in the United States, Canada, Latin America
and the Far East and has conducted activities in the Middle East and West Africa
within the last three years. The following table sets forth the Company's
revenues by geographic area, on a pro forma basis, for the periods shown:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
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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
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$123,465 $138,155 $173,865
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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 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
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subject to the patent rights of others, and the Company holds non-exclusive
licenses with respect to a number of such patents. While the Company regards as
beneficial its access to third-party technology through licensing, the Company
believes that substantially all presently licensed technology could be replaced
without significant disruption to the business.
LICENSING OF MULTI-CLIENT DATA
The Company presently owns a small library of multi-client seismic data
that is licensed to oil and gas companies on a non-exclusive basis and has an
interest in certain multi-client data that is owned by third-parties. This data
was previously acquired by GGI and Solid State in three principal areas:
southern Louisiana, New Mexico and western Canada. At December 31, 1997, 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.
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.
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. ("Geco-Prakla"), a subsidiary of
Schlumberger Limited, and several regional competitors. In Latin America and
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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,
safety, quality, dependability and the contractor's expertise in the particular
area where the survey is to be conducted.
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.
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.
ITEM 2. 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.
ITEM 3. 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 Associates, L.P. ("Elliott"),
Westgate International, L.P. ("Westgate") and Solid State. The lawsuit alleges
that (i) GGI and Elliott breached their obligations under the Plan by seeking to
complete the Acquisition prior to commencing an offering of the Company's common
stock, par value $.001 per share ("Common Stock"), to certain holders of claims
and other interests under the Plan (the "Subscription Offering"), (ii) the
Acquisition and certain related transactions 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
incurred by it in connection with 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 1, 1997, Elliott and Westgate, being all of the holders of
Preferred Stock and pursuant to a written consent without a meeting, elected
Donald Russell and J. Kelly Elliott to serve as directors of Grant. On the same
date, Elliott, as sole holder of Common Stock and pursuant to a written consent
without a meeting, elected Larry E. Lenig, Jr. to serve as a director of Grant.
On December 17, 1997, Elliott, as sole holder of Common Stock and pursuant
to a written consent without a meeting, approved Grant's Restated Certificate of
Incorporation increasing the authorized capital stock of Grant from 20,100
shares, consisting of 100 shares of Common Stock and 20,000 shares of cumulative
pay-in-kind preferred stock, par value $.001 per share ("Preferred Stock"), to
25,020,000 shares of capital stock, consisting of 25,000,000 shares of Common
Stock and 20,000 shares of Preferred Stock, and amending the terms of the
Preferred Stock.
On December 17, 1997, Elliott and Westgate, being all of the holders of
Preferred Stock and pursuant to a written consent without a meeting, approved
the Restated Certificate of Incorporation and consented to the redemption of
9,571.162 shares of Preferred Stock by Grant.
On December 18, 1997, Elliott and Westgate, being all of the holders of
Common Stock and pursuant to a written consent without a meeting, approved the
form of Incentive Plan (as defined herein).
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the outstanding capital stock of the registrant is held by Elliott
and Westgate (collectively, Elliott and Westgate are referred to as the
"Principal Stockholders").
On September 30, 1997, the Company issued 9,785.581 shares of Preferred
Stock to each of Elliott and Westgate in exchange for an aggregate of
$19,571,162 in cash and/or satisfaction of indebtedness of the Company.
In connection with the consummation of the Plan, on September 30, 1997, the
Company issued one share of Common Stock to Elliott in exchange for $1.00. On
December 19, 1997, the Company effected a two-to-one stock split in the form of
a stock dividend of shares to Elliott.
On December 18, 1997, Grant exchanged 9,571.162 shares of Preferred Stock
held by Elliott, together with accrued dividends thereon, for a $9.8 million
subordinated note (the "Subordinated Note"), which accrued interest at the rate
of 10.5% per annum. The Subordinated Note was repaid out of the net proceeds of
the issuance of the Original Notes (as defined below).
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On December 19, 1997, 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.
On December 30, 1997, the Company issued 4,094,495 shares of Common Stock
to Elliott and 5,405,505 shares of Common Stock to Westgate in exchange for an
aggregate of $33,953,054.
On February 18, 1998, the Company issued $100 million aggregate principal
amount of its 9 3/4% Senior Notes due 2008, Series A (the "Original Notes"),
which are guaranteed by certain subsidiaries of the Company (the "Subsidiary
Guarantors"). The Original Notes were issued pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
of 1933 (the "Securities Act") and applicable state securities laws. In
connection with the issuance of the Original Notes, the Company and the
Subsidiary Guarantors entered into a registration rights agreement providing
that, among other things, the Company and the Subsidiary Guarantors would offer
to exchange up to $100 million aggregate principal amount of its 9 3/4% Senior
Notes due 2008, Series B (the "Exchange Notes," and together with the Original
Notes, the "Notes"), which are to be registered under the Securities Act, for up
to $100 million aggregate principal amount of the outstanding Original Notes
(the "Exchange Offer"). On March 27, 1998, the Company and the Subsidiary
Guarantors, pursuant to the requirements of such registration rights agreement,
filed with the Commission a Registration Statement on Form S-4 in connection
with the Exchange Offer (the "Exchange Offer Registration Statement"). As of the
date of this Subscription Offering Prospectus, the Exchange Offer Registration
Statement has not been declared effective by the Commission. The net proceeds
from the sale of the Original Notes were used to retire substantially all of the
Company's then outstanding indebtedness and purchase certain leased equipment,
and the remaining net proceeds are expected to be used by the Company to fund a
portion of its capital expenditure program, multi-client acquisition activities
and for working capital and other general corporate purposes.
The foregoing transactions were effected pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
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 held by the Principal Stockholders for sale in 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 report,
the Subscription Offering Registration Statement has not been declared effective
by the Commission.
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ITEM 6. SELECTED 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. The
selected historical financial data set forth below should be read in conjunction
with the consolidated financial statements and the notes thereto included in
Item 8 of this Form 10-K. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
GGI GRANT
--------------------------------------------------------------------- ------------
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- ------------- ------------
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 69,255 $ 73,691 $ 91,996 $ 105,523 $ 92,705 $ 37,868
Operating Income (loss).......... (14,215) (9,241) 4,999 (65,970) 6,794 (5,033)
Income (Loss) From Continuing
Operations..................... (16,953) (11,438) 3,162 (76,027) (425) (5,666)
Net Income (Loss) applicable to
common stock................... $ (6,143)
=========== =========== =========== =========== =========== ===========
INCOME (LOSS) PER COMMON
SHARE -- ASSUMING BASIC AND
DILUTED:
Continuing operations.......... $ (1.18)
Dividend requirement on pay-in-
kind preferred stock......... (.10)
.................................
-----------
Net loss per common share...... $ (1.28)
.................................
===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted.............. 4,797,935
CASH FLOW DATA:
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
Capital Expenditures............. 5,781 8,463 14,921 25,799 4,154 12,400
RATIO:
Ratio of earnings to fixed
charges and preferred
dividends...................... 1.5x
BALANCE SHEET DATA:
Working Capital.................. $ 4,585 $ 3,022 $ 8,033 $ 22,421 $ 16,190
Total Assets..................... 70,745 61,609 86,932 70,123 155,704
Pre-petition liabilities subject
to chapter 11 case............. -- -- -- 90,244 --
Notes payable, current portion of
long-term debt and capital
lease obligations.............. 8,880 14,495 18,430 589 1,158
Long-term debt and capital lease
obligations excluding current
portion........................ 6,979 4,917 8,789 -- 75,195
Total stockholder's equity....... 37,774 26,399 29,715 (34,213) 41,992
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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.
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 (the "Effective
Date"), 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.
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RESULTS OF OPERATIONS
THE
GGI 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
------- -------- ------------- ------------ -------------
(IN THOUSANDS)
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
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time during each period, GGI and the Company operated as many as seven seismic
data acquisition crews in the United States compared with a peak of 8 crews in
1996.
Revenues in Latin America increased $1.4 million from $57.1 million in 1996
to $58.6 million in 1997. During 1997, combined Latin American operations for
GGI and the Company consisted of as many as ten land seismic data acquisition
crews operating in Colombia, Ecuador, Brazil, Guatemala, Bolivia, and Venezuela.
The Company completed operations in Venezuela in early October 1997 and
transferred personnel and equipment to Canada. From time to time during 1996,
GGI operated as many as nine seismic crews in the region, including four in
Peru, two in Colombia and one in each of Bolivia, Brazil and Ecuador.
Revenues from the Far East increased $8.1 million, or 149%, from $5.4
million in 1996 to $13.5 million in 1997. During 1997, GGI and the Company
operated one crew for the entire year and mobilized one additional transition
zone crew that began operations in Bangladesh in July 1997. GGI mobilized and
operated one land seismic data acquisition crew in Bangladesh during 1996.
Revenues from Canadian data acquisition operations were $4.5 million in
1997 compared to zero in 1996. The Company (through Solid State) operated as
many as five land seismic crews in Canada during 1997 while GGI had no
operations in Canada during 1996.
Expenses. The combined operating expenses for GGI and the Company for the
twelve months ended December 31, 1997 decreased $36.9 million to $99.4 million
compared with $136.3 million for GGI's twelve months ended December 31, 1996.
Operating expenses as a percentage of revenues decreased to 76% in 1997 from
129% in 1996. During 1996 GGI experienced significant cost overruns, which
increased operating expenses on several crews operating in the United States.
Most notable were higher than anticipated costs incurred by a transition zone
crew as a result of adverse weather conditions and costs associated with the
unsuccessful deployment of a proprietary data recording system. The proprietary
data recording system was abandoned in 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.
12
14
No reorganization charges were incurred by the Company in the three months ended
December 1997, and none are expected to be incurred in the future.
Other income for 1997 of $1.0 million was the result of settlement of a
longstanding dispute between one of GGI's Brazilian subsidiaries and a former
customer relating to services rendered on contracts dating back to 1983. In
settlement of all claims, GGI received payment, net of related costs and
expenses, of approximately $2.4 million in July 1997. Income from that
settlement was offset by approximately $767,000 costs associated with the
Acquisition and approximately $289,000 of foreign currency exchange losses,
primarily related to US dollar based loans owed by Solid State prior to the
Acquisition.
Tax Provision. The income tax provision in both periods consisted of
income taxes in foreign countries. The increase in 1997 compared with 1996 is a
result of higher taxable income in Colombia and Ecuador. No provision for United
States federal income tax was made in either period as GGI and the Company each
had net loss carryforwards available.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. GGI's consolidated revenues increased $13.5 million, or 15%,
from $92.0 million in 1995 to $105.5 million in 1996. This increase resulted
from significant growth in GGI's international operations in Latin America and
Bangladesh, which growth was offset partially by a reduction in revenues from
the United States and Nigeria. During 1996, GGI's seismic data acquisition
capacity, measured by seismic recording channels owned, increased by
approximately 41%, from 12,320 to 17,430 seismic recording channels.
Revenues from United States data acquisition operations decreased $5.8
million, or 12%, to $42.1 million in 1996 when compared with 1995. This
reduction was principally the result of several factors experienced during the
fourth quarter of 1996, including a severe shortage of operating funds, which
caused major disruptions on 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
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new contracts, all three crews remained idle during 1996. Due to the risks
involved in operating in Nigeria, the anticipated high cost of mobilizing a new
crew and the limited resources available to GGI at the time, GGI sold its
Nigerian operation as of December 1996. GGI had no revenues from the Middle East
during 1996. Middle East revenue in 1995, totaling $786,000, was the result of
various rental contracts for equipment and personnel that expired in July 1995.
Expenses. GGI's consolidated operating expenses increased $67.3 million,
or 97%, from $69.0 million in 1995 to $136.3 million in 1996. Operating expenses
as a percentage of revenues increased to 129% in 1996 from 75% in 1995. This
increase was due to higher than anticipated operating costs principally in the
United States, Peru and Nigeria, accelerated amortization of prepaid and
deferred costs associated with certain ongoing operations, and the write-down of
certain other GGI assets as a result of a comprehensive review of GGI's
operations.
In the United States, adverse weather conditions and the repeated breakdown
of a leased data recording system combined to increase operating expenses by
approximately $7.7 million on one transition zone crew. The slow development and
late deployment of GGI's proprietary data recording system also affected
operations in the United States in 1996. The proprietary data recording system
was originally planned to be completed and operational by early 1996, but
completion was delayed until the summer of 1996. As a result, several contracts
that were priced and bid with the expectation that the proprietary data
recording system would be employed were performed with other, less appropriate
equipment. This resulted in operating losses on such contracts of approximately
$3.0 million. When the proprietary data recording system was finally deployed in
July 1996, the system's production performance was well below anticipated
levels, causing additional operating expenses of approximately $1.4 million. The
late deployment and poor performance of the proprietary data recording system
caused a general equipment shortage during most of 1996, resulting in a
shuffling of equipment between GGI's crews, which caused inefficiencies and
higher than anticipated operating expenses.
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.
14
16
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.
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.
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 a credit facility entered into with Elliott on
October 1, 1997 (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 an indenture, dated February 18,
1998, between the Company, the Subsidiary Guarantors and LaSalle National Bank,
as trustee (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 (as defined in the Indenture) to, among other
things, incur additional indebtedness (including capital leases), incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company or any of its Restricted Subsidiaries. In addition, the Credit
Facility limits the Company from taking, without the consent of the lender,
certain actions, including creating indebtedness in excess of specified amounts
and declaring and paying dividends.
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17
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, make principal and interest payments
required by the terms of its indebtedness and fund expenses associated with the
implementation of its business strategy. Because of the traditionally longer
period required to collect receivables and the high costs associated with
equipping and operating crews outside of the United States and Canada, the
Company requires significant levels of working capital to fund its international
operations. On a pro forma basis, these operations accounted for 53.3% of total
revenues for the twelve months ended December 31, 1997.
Combined capital expenditures for the twelve months ended December 31, 1997
were $27.1 million. Capital expenditures are used primarily by the Company to
purchase seismic data acquisition equipment. The Company committed approximately
$12 million of capital expenditures during the fourth quarter of 1997 and has
budgeted approximately $21 million of capital expenditures in 1998 to upgrade
and expand its seismic data acquisition equipment. For 1998, the Company has
also budgeted approximately $16 million of expenditures, before customer
commitments, for multi-client data acquisition activities. During the three
months ended December 31, 1997, capital expenditure commitments made by Grant
were financed primarily through the issuance of short-term promissory notes to
the sellers of equipment.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure program, fully implement
its business strategy and meet its principal and interest obligations with
respect to the Notes and its other indebtedness. The Company anticipates that
available cash, cash flow generated from operations and borrowings under the
Credit Facility will provide sufficient liquidity to fund these requirements for
the foreseeable future. However, the Company's ability to meet its debt service
and other obligations depends on its future performance, which in turn is
subject to general economic conditions and other factors beyond the Company's
control. If the Company is unable to generate sufficient cash flow from
operations or otherwise to comply with the terms of the Indenture, the Credit
Facility or its other debt instruments, it may be required to refinance all or a
portion of its existing debt or obtain additional financing. There can be no
assurance that such refinancing or additional financing will be available on
terms acceptable to the Company.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company conducts a substantial portion of its business in currencies
other than the U.S. dollar or Canadian dollar, particularly various Latin
American currencies, and its operations are subject to fluctuations in foreign
currency exchange rates. Accordingly, certain of the Company's international
contracts could be significantly affected by fluctuations in exchange rates,
particularly in Brazil and Columbia. The Company's international contracts
require payment in U.S. dollars, Canadian dollars, various local currencies or a
combination thereof. Payments in local currencies typically are indexed to
inflationary tables and generally are used for local expenses. The Company
attempts to structure the majority of its international contracts to be billed
and paid at a certain U.S. dollar conversion rate. Additionally, the Company's
foreign subsidiaries periodically enter into local currency debt to pay expenses
incurred locally. The Company presently does not use any derivatives or forward
foreign currency exchange rate hedging arrangements, but may elect to do so in
the future.
GGI's operating results were negatively impacted by foreign exchange losses
of approximately $98,000 during the nine months ended September 30, 1997, and
$251,000 during 1996. The Company's operating results were negatively impacted
by foreign exchange losses of approximately $289,000 during the three months
ended December 31, 1997. Foreign exchange gains positively impacted operating
results in 1995 by approximately $102,000.
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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements by its
employees or information included in written material, such as press releases
and filings (including this Form 10-K Annual Report) with the Securities and
Exchange Commission (including portions of the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
certain other sections contained in such filings) may contain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995.
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. 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. Investors 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in a separate section of this report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in, or disagreements with, accountants on accounting
and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
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
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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.
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.
ITEM 11. EXECUTIVE COMPENSATION.
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."
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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 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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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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 AFTER THE SUBSCRIPTION
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.
ITEM 13. 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
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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 incurred by it in connection with
the lawsuit brought by the Plaintiffs in the Bankruptcy Court. See "Business --
Legal Proceedings."
LOAN AND SECURITY AGREEMENT
On October 1, 1997, Grant and Elliott entered into the Credit Facility
under which the Company may borrow up to an aggregate principal amount of $5
million in revolving loans. The Company is required to pay interest on the
outstanding principal balance of revolving loans at a rate per annum equal to
the prime rate plus 2%. The term of the Credit Facility runs through March 31,
1999 at which time all obligations of the Company under the Credit Facility are
due and payable. Elliott advanced $1.6 million of revolving loans pursuant to
the Credit Facility and also advanced the Acquisition Financing under a $15.8
million term note pursuant to the Credit Facility. The Company used a portion of
the proceeds from the offering of the Original Notes to repay the Acquisition
Financing and other indebtedness under the Credit Facility. The revolving loans
and any term notes under the Credit Facility are secured by liens on
substantially all of the assets of the Company and its subsidiaries and a pledge
by the Company of certain notes and all the outstanding shares of capital stock
of its subsidiaries. Certain subsidiaries of the Company have executed a
guaranty in favor of Elliott, each of which guarantees payment of all the
Company's obligations owed to Elliott under the Credit Facility. Each such
subsidiary has pledged its assets in favor of Elliott to secure its obligations
under its respective guaranty.
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
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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 Grant initiating a cash tender offer for Solid State (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's
common stock. In connection with the Acquisition, the Principal Stockholders
transferred their shares of Solid State to Grant in exchange for 4,652,555
shares of Common Stock. In connection with the Tender Offer, the Principal
Stockholders advanced $15.8 million (the "Acquisition Financing") to enable
Grant 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, 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.
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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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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements and Financial Statement Schedule" set
forth on Page F-1.
No schedule or schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are required,
or such schedules are not applicable, and therefore, have been omitted.
(3) EXHIBITS
The exhibits filed as part of this Form 10-K are listed on the Index to
Exhibits immediately preceding such exhibits, which index is incorporated herein
by reference.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(C) EXHIBITS
See Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULE
The Consolidated Financial Statement Schedule is set forth beginning on page
F-1.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement covering the Company's last fiscal year
has been or will be circulated to security holders.
25
27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GRANT GEOPHYSICAL, INC.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
DATE: March 31, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY E. LENIG, JR. President, Chief Executive March 31, 1998
- ------------------------------------------------ Officer and Director
Larry E. Lenig, Jr. (Principal Executive Officer)
* Chief Financial Officer, Treasurer and March 31, 1998
- ------------------------------------------------ Secretary (Principal Financial Officer)
Michael P. Keirnan
* Controller (Principal Accounting Officer) March 31, 1998
- ------------------------------------------------
Charles Ackerman
Chairman of the Board
- ------------------------------------------------ Director
Jonathan D. Pollock
* Director March 31, 1998
- ------------------------------------------------
W. Richard Anderson
* Director March 31, 1998
- ------------------------------------------------
James R. Brock
* Director March 31, 1998
- ------------------------------------------------
J. Kelly Elliott
* Director March 31, 1998
- ------------------------------------------------
Donald G. Russell
* Director March 31, 1998
- ------------------------------------------------
Donald W. Wilson
- ---------------
* The undersigned, by signing her name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and Directors of the Company and filed with the
Securities and Exchange Commission on behalf of such officers and Directors.
By: /s/ LARRY E. LENIG, JR.
------------------------------------
Larry E. Lenig, Jr.
President and Chief Executive
Officer
26
28
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
F-1
29
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 ba