- Current report filing (8-K)
August 05 2010 - 7:14AM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
August 5, 2010 (August 4,
2010)
(Date of earliest event reported)
GEOKINETICS INC.
(Exact name of registrant as specified in its
charter)
Delaware
|
|
001-33460
|
|
94-1690082
|
(State or other jurisdiction of
|
|
(Commission File Number)
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
|
|
Identification Number)
|
1500 CityWest Blvd.,
Suite 800
Houston, Texas, 77042
(Address of principal executive offices)
(713) 850-7600
(Registrants telephone number, including area
code)
N/A
(Former name or former address, if changed
since last report)
Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 4.02 Non-Reliance on Previously
Issued Financial Statements or Related Audit Report or Completed Interim Review.
On August 4, 2010, the Audit Committee of the
Board of Directors of Geokinetics Inc. (the Company), after consultation with
and upon recommendation from management of the Company, concluded that its
financial statements: (a) for the three, six, and nine months ended March 31,
June 30 and September 30, 2009, respectively, and for the six and
nine months ended June 30 and September 30, 2009, respectively, which
are included in its Forms 10-Q for the quarters ended March 31, June 30,
and September 30, 2009, (b) for the year ended December 31,
2009, which are included in its Form 10-K for the year ended December 31,
2009, and (c) for the three months ended March 31, 2010, which are
included in its Form 10-Q for the quarter ended March 31, 2010, did
not properly account for the embedded derivative feature of its Series B-1
and B-2 Convertible Preferred Stock (the
Series B Preferred
Stock
) and the warrants issued in connection with the Series B-2
Convertible Preferred Stock (
Warrants
) in
accordance with United States generally accepted accounting principles as
amended effective January 1, 2009, and, as a result, cannot be relied
upon.
During the course of internal evaluation, our
accounting staff evaluated the Companys accounting treatment with respect to
its convertible securities that provide anti-dilution provisions which reduce
the strike price thereof in the event the Company issues additional shares of
common stock or securities convertible into common stock at a price less than
the then existing strike price of such convertible securities (also referred to
as down-round provisions). The question was raised in light of EITF
07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entitys Own Stock (FASB ASC 815-40-15-5) (
ASC 815
)
effective as of January 1, 2009, which outlines new guidance for
instruments indexed to an entitys own stock and the resulting liability or
equity classification based on that conclusion.
ASC 815 should have been adopted as of January 1,
2009 by classifying the Warrants and the conversion feature embedded in the Series B
Preferred Stock (collectively, the
Derivatives
)
as liabilities measured at fair value with changes in fair value recognized in
earnings in each subsequent reporting period and recording a cumulative-effect
adjustment to the opening balance of retained earnings. After discussions
with the Audit Committee of its Board of Directors and the Companys
independent registered public accounting firm, management has determined to:
·
file an amended Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2009 as soon as practicable, which will contain
restated financial information for the quarters ended March 31, 2009, June 30,
2009 and September 30, 2009, respectively, and the fiscal year ended December 31,
2009 reflecting the corrections made in response to these accounting errors;
and
·
file an amended Quarterly Report on Form 10-Q/A for the fiscal
quarter ended March 31, 2010 as soon as practicable, which will contain
restated financial information for the fiscal quarter ended March 31, 2010
reflecting the corrections made in response to these accounting errors.
The impact of these adjustments will result in
non-cash charges and benefits to be reflected below income from operations in
the Companys statements of operations and will have no impact on the Companys
cash, EBITDA (as defined in the Companys annual and quarterly filings) or
other results from operations.
Background on the Securities Evaluated
On December 15, 2006, the Company issued 350,000
shares of Series B Convertible Preferred Stock (later re-named Series B-1
Preferred Stock), $10.00 par value per share (
Series B-1
Stock
). The Series B-1 Stock has a liquidation preference of
$250.00 per share plus accrued and unpaid dividends. It originally paid
dividends at 8.0% payable in kind through October 31, 2011. It was
entitled to participate (a) in dividends paid to common stockholders on an
as-converted basis and (b) upon liquidation on an as-converted basis in
addition to its liquidation preference. The holders of a majority of the Series B-1
Stock had the option, beginning March 31, 2014, to require the Company to
acquire all of the outstanding shares of Series B-1 Stock. The Series B-1
Stock was originally convertible into common stock at $25.00 per share. The
conversion price was subject to a down-round provision whereby subsequent
equity issuances at a price below the existing conversion price will result in
a downward adjustment to the conversion price.
2
On July 28, 2008, the Company issued 350,000
shares of Series B-2 Convertible Preferred Stock, $10.00 par value per
share (
Series B-2 Stock
). The Series B-2
Stock had a liquidation preference of $250.00 per share plus accrued and unpaid
dividends. It paid dividends at 8.0% payable in kind through October 31,
2011. It was entitled to participate (a) in dividends paid to common
stockholders on an as-converted basis and (b) upon liquidation on an as-converted
basis in addition to its liquidation preference. The holders of a majority of
the Series B-2 Stock had the option, beginning December 15, 2015, to
require the Company to acquire all of the outstanding shares of Series B-2
Stock. The Series B-2 Stock was convertible into common stock at $25.00
per share. The conversion price was subject to a down-round provision whereby
subsequent equity issuances at a price below the existing conversion price will
result in a downward adjustment to the conversion price.
In connection with the issuance of the Series B-2
Stock, the Company issued Warrants to purchase up to 240,000 shares of common
stock with an exercise price of $20.00 per share. The exercise price of the
Warrants is subject to a down-round provision whereby subsequent equity
issuances at a price below the existing exercise price will result in a
downward adjustment to the exercise price.
On December 18, 2009, the Series B-2 Stock
was exchanged for Series C Mandatorily Redeemable Preferred Stock. At that
same time, the Series B-1 Stock was amended to: increase the dividend rate
from 8.0% to 9.75%; reduce the conversion price from $25 to $17.436; extend the
date through which the Company will be able to pay dividends in kind until December 15,
2015; and delay the date the Company will be required to redeem the Series B-1
Stock until December 15, 2015. In
addition the Warrants exercise price was reset to $9.25 as a result of the
equity offering that closed on December 18, 2009.
Analysis
The Warrants
The Warrants meet the definition of a derivative.
After January 1, 2009, the Warrants do not meet any scope exceptions,
including the scope exception in ASC
815-10-15-74 for instruments indexed to the issuers own shares and classified
in equity. Under ASC 815, the Warrants are not considered indexed to the
Companys common stock because the strike price contingently adjusts
based on the price per share of subsequent equity issuances. This
adjustment to the strike price violates the requirement that the contract
settle by exchanging a fixed number of the Companys shares for a fixed value,
or be adjusted only for typical inputs to a valuation model for a contract that
settles on a fixed-for-fixed basis.
Therefore, the Company should report the Warrants as a
derivative liability at fair value with periodic changes in fair value
reflected in current earnings. From March 31, 2009 through March 31,
2010, the Company reported the Warrants as equity.
The Preferred Stock
The conversion feature embedded within the Series B
Preferred Stock meets the definition of a derivative. After January 1,
2009, the embedded conversion feature does not meet any scope exceptions,
including the scope exception in ASC 815-10-15-74 for instruments indexed to
the issuers own shares and classified in equity. Under ASC 815, the embedded
conversion feature is not considered indexed to the Companys common stock
because the strike price contingently adjusts based on the price per share of
subsequent equity issuances. Further, the embedded equity derivative feature is
not clearly and closely related to the debt-like host.
Therefore, the Company should bifurcate the embedded
conversion feature from the host preferred share and report the conversion
feature at fair value with periodic changes in fair value reflected in current
earnings. The Company did not previously separately report the value of the
embedded conversion feature.
3
Item 7.01 Regulation FD Disclosure.
On August 5, 2010, the Company issued a press
release announcing its upcoming restatement of financial statements. A copy of the press release is attached
hereto as exhibit 99.1, the contents of which are furnished in its entirety.
The information in Item 7.01 of this Current Report on
Form 8-K, including the exhibit, is deemed to be furnished and shall not
be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1933, as amended, nor shall it be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, except as shall be
expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d)
Exhibits
99.1 Press
Release dated August 5, 2010, announcing upcoming restatement of financial
statements.
4
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
|
|
GEOKINETICS INC.
|
|
|
|
|
|
|
August 5, 2010
|
|
By:
|
/s/ Scott A. McCurdy
|
|
|
|
Scott A. McCurdy
|
|
|
|
Senior Vice President and Chief Financial Officer
|
5
Geokinetics, Inc. (AMEX:GOK)
Historical Stock Chart
From Jun 2024 to Jul 2024
Geokinetics, Inc. (AMEX:GOK)
Historical Stock Chart
From Jul 2023 to Jul 2024