Details of the Grant Geophysical purchase: Geokinetics bought all Grant stock from Elliott Associates and Elliott International for $125,000,000 cash, with $5,000,000 held in escrow at Amegy Bank. It was funded by a $55,000,000 unsecured Senior Bridge Loan from Avista and a $100,000,000 unsecured Junior Bridge Loan (borrower: Geokinetics Holdings) from Avista and Royal Bank of Canada, both due Sept 8, 2007. About $12,000,000 of the PNC debt was repaid, and PNC's agreement was amended (Grant added, covenants changed, maturity moved to the earlier of Sept 8, 2007 or refinancing of the Senior Bridge Loan). Geokinetics also agreed to sell 220,000 Series B Senior Convertible Preferred shares to Avista entities and Levant America for $55,000,000 at a closing expected Oct 26, 2006, to repay the Senior Bridge Loan; this creates new preferred stock ahead of common, which is a dilution risk (inference). Scott McCurdy, Grant's CFO, became Geokinetics CFO on a three-year contract at $200,000 base salary plus 175,000 restricted shares.
The board approved a new pay plan for directors: each gets restricted shares worth $50,000 (priced at the Sept 6, 2006 close), vesting over three years, plus cash fees of $15,000 a year, extra fees for the Chairman ($15,000), Audit chair ($7,500) and Compensation chair ($5,000), $1,000 per board meeting and $250 per committee meeting, effective back to May 17, 2006. The attached press release announces that Geokinetics completed the purchase of Grant Geophysical on September 8, 2006 for $125 million cash (subject to adjustments), financed by Avista Capital Holdings and Royal Bank of Canada, with part used to repay existing Geokinetics and Grant debt. The release says this lifts nominal crew count to 20 from three a year ago and names Scott McCurdy as incoming CFO.
On July 25, 2006 (effective July 28) subsidiary Quantum Geophysical signed a three-year capital lease with CIT Group/Equipment Financing: 36 monthly payments of $190,017.46, totalling $6,840,628.56, with a purchase option at the end. Geokinetics and its principal subsidiaries guarantee it. The press release says it funds about 5,000 more channels of seismic equipment and a new 3D crew, taking the company to roughly 37,000 channels owned. This adds to the company's debt-like obligations alongside the new PNC facility.
20 July 2006asset acquisition disposition● Neutral
A fourth amendment to the December 2005 Trace acquisition report, filed after SEC comments on the company's registration statement (S-1/A) and a June 26, 2006 follow-up letter. Trace's third-party reimbursable costs are now shown as expenses rather than netted against revenue, so Trace's 2004 expenses and revenue are presented gross. The filing states this did not change net earnings or pro forma income from continuing operations. It is a presentation change, not new news about the business.
On June 12, 2006 Geokinetics and four subsidiaries closed a new $24,000,000 credit facility with PNC Bank: a $12,000,000 term loan and a $12,000,000 revolving line. The term loan proceeds were used mainly to pay off all obligations to HSBC Bank Canada, the lender inherited with Trace, so the HSBC credit agreement is replaced. The CEO called it a step in integrating Trace.
14 June 2006asset acquisition disposition● Neutral
A third amendment to the December 2005 Trace acquisition report, re-filing Trace's financials and pro forma statements. Per the filing's explanatory note in the later amendment, it dropped the gross profit and EBITDA line items from Trace's income statement. It also added pro forma explanations: the difference between the CDN $35,000,000 price and the US $18,173,764 cash payment, and the nature of the capital assets bought. The figures themselves are not changed in a way that alters the deal terms.
On March 28, 2006 Geokinetics and the purchasers in its November 30, 2005 private placement amended their registration rights agreement. The deadline for the resale registration statement to take effect moved to April 30, 2006 (May 31 if the SEC does a full review). The penalty the company could owe for missing that deadline, or for failing to keep the registration effective, is now capped at 10% of each purchaser's purchase price. This is the resale registration still owed to placement investors; it was not completed on time, but the cap limits the company's exposure.
A second amendment to the December 2005 report on the Trace Energy Services purchase (CDN $35,000,000 cash plus 1,000,000 shares, completed December 1, 2005). It adds Trace's audited 2002-2004 financials (KPMG, Canadian accounting rules), nine-month 2005 figures and pro forma combined statements. Trace's reported 2004 contract revenue was CDN $60,384,178 with net earnings of CDN $1,455,247. No new transaction terms are given.
Andreeff Equity Advisors, L.L.C, Dane Andreeff, Maple Leaf Partners, L.P, Maple Leaf Offshore, Ltd disclosed a new substantial GEOKINETICS INC shareholding (27.37% of votes).
15 Dec 2005capital raising announcement▲ GoodMajor
On December 9, 2005 Geokinetics completed the second and final closing of its private placement, selling 4,550,000 common shares at $1.25 for $5,687,500, plus five-year warrants for 455,000 shares at $2.00. Total proceeds from both closings were $30,837,500. This portion is for general corporate purposes and working capital, since the first closing went to Trace and the equipment payoff. Placement agent RBC Capital Markets received warrants for 274,050 shares. Shareholders are diluted further.
What it means for a shareholder
4.5m new shares at $1.25 to raise about $5.7m. Shares on issue before the raise aren't in the record, so the dilution can't be worked out.
This amendment adds financial information on the Trace acquisition already reported on December 2. It contains unaudited pro forma statements (assuming the Trace purchase and the share offering) and Trace's own financial statements in Canadian dollars. On that basis, 2004 combined revenue would have been $77,790,099 against $43,144,830 for Geokinetics alone, with a pro forma loss from continuing operations of $2,415,467. These are hypothetical figures, and the purchase price allocation is preliminary and uses a June 30, 2005 share price.
2 Dec 2005asset acquisition disposition▲ GoodMajor
The Trace Energy Services acquisition announced in August closed on December 1, 2005, funded by a private placement of common stock for $25,150,000 with five-year warrants for 2,012,000 shares at $2.00. (The filing gives two different share counts for the placement, 20,120,000 and 25,150,000.) Geokinetics also paid GeoLease Partners $2,582,558.58 to end its equipment lease. Trace brings a CDN $17,638,652 credit agreement with HSBC Bank Canada, guaranteed by Geokinetics and its principal subsidiaries. CDN $2,000,000 and the 1,000,000 shares issued to the sellers are held in escrow. All 8,333 Series A preferred shares, issued a year earlier, were converted into 8,832,980 common shares, so the preferred is gone and common shareholders are diluted.
Subsidiary Quantum Geophysical exercised its option to buy a 5040-channel RSR System II seismic recording system it had been leasing from Mitcham Industries. It owes monthly payments of $167,225 from July 2005 through April 2006 plus a final $81,100 in May 2006, after which it takes title to the equipment.
Geokinetics agreed on July 29, 2005 to buy all of Calgary-based Trace Energy Services for CDN $35,000,000 in cash (subject to adjustments) plus 1,000,000 Geokinetics shares. The sellers are SCF-III, L.P. and James White. Closing depends on Geokinetics obtaining satisfactory financing and is expected in the fourth quarter of 2005. The filing's Item 8.01 says the deal was consummated, but the press release attached to it says only that an agreement was signed and closing is still to come.
The board awarded $190,000 in total bonuses to six senior executives and key employees on March 4, 2005, for fiscal 2004. The filing says not all conditions for the bonus pool were met, but a substantial portion were, so the board paid the bonuses anyway. This is a payout under the incentive program already disclosed in the 2003 annual report.
