<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1999
Commission file number: 333-48799*
GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0548468
(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
Indicate by check mark whether the registrant (1) has filed all reports
required 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 requirements for the past 90 days.
Yes No
------ ------
As of November 15, 1999, 14,526,055 shares of common stock, par value
$.001 per share, were issued and outstanding. As of such date, there was no
public market for the common stock.
- --------------------------------------------------------------------------------
* The Commission file number refers to a Form S-4 registration statement filed
by the registrant under the Securities Act of 1933, which became effective May
14, 1998.
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999...............................................................1
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1998 and 1999......................................................3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1999......................................................4
Notes to Consolidated Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................18
Item 6. Exhibits and Reports on Form 8-K...............................................18
PART III. SIGNATURES...................................................................19
</TABLE>
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,921 $ 1,949
Restricted cash 106 17
Accounts receivable:
Trade(net of allowance for doubtful accounts of $86
and $499 at December 31, 1998 and September 30, 1999,
respectively) 25,918 13,823
Other 1,663 884
Inventories 512 442
Prepaids 4,639 2,954
Work in process 4,062 3,980
-------- --------
Total current assets 44,821 24,049
Property, plant and equipment 93,264 93,497
Less: accumulated depreciation 27,359 39,490
-------- --------
Net property, plant and equipment 65,905 54,007
Multi-client data, net 10,899 24,363
Goodwill, net 36,592 35,531
Deferred issue costs, net 4,297 3,955
Other assets 3,927 1,653
-------- --------
Total assets $166,441 $143,558
======== ========
</TABLE>
(Continued on next page)
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations $ 2,522 $ 7,651
Accounts payable 15,316 8,953
Accrued expenses 6,621 3,978
Accrued interest 3,798 1,367
Foreign income taxes payable 2,191 155
-------- --------
Total current liabilities 30,448 22,104
Revolving line of credit-affiliate 8,000 7,500
Long-term debt and capital lease obligations 102,817 111,827
Unearned revenue 2,115 2,971
Other liabilities and deferred credits 1,059 2,302
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares: 8% exchangeable series issued 82,500
shares at September 30, 1999. Authorized, issued
and outstanding zero at December 31, 1998 -- 8,250
Common stock, $.001 par value. Authorized 50,000,000
and 25,000,000 shares at September 30, 1999 and
December 31, 1998, respectively; issued and
outstanding 14,526,055 shares at September 30, 1999
and December 31, 1998 14 14
Additional paid-in capital 41,727 41,757
Accumulated deficit (17,253) (51,396)
Accumulated other comprehensive loss (2,486) (1,771)
-------- --------
Total stockholders' equity 22,002 (3,146)
-------- --------
Total liabilities and stockholders' equity $166,441 $143,558
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 50,995 $ 11,513 $ 147,357 $ 44,721
Expenses:
Direct operating expenses 37,913 14,003 107,445 38,587
Selling, general and administrative expenses 3,725 3,066 11,409 9,749
Depreciation and amortization 5,872 5,468 16,087 17,377
Charge for asset impairment -- 4,726 -- 4,726
--------- --------- --------- ---------
Total costs and expenses 47,510 27,263 134,941 70,439
--------- --------- --------- ---------
Operating income (loss) 3,485 (15,750) 12,416 (25,718)
Other income (expense):
Interest, net (2,516) (3,003) (6,820) (8,811)
Other (102) (88) (283) 840
--------- --------- --------- ---------
Total other expense (2,618) (3,091) (7,103) (7,971)
--------- --------- --------- ---------
Income (loss) before taxes 867 (18,841) 5,313 (33,689)
Income tax expense 710 35 3,218 456
--------- --------- --------- ---------
Net income (loss) 157 (18,876) 2,095 (34,145)
Preferred dividends -- 68 440 68
--------- --------- --------- ---------
Net income (loss) applicable to common stock $ 157 $ (18,944) $ 1,655 $ (34,213)
========= ========= ========= =========
INCOME PER COMMON SHARE - BASIC
AND DILUTED:
Net income (loss) $ 0.01 $ (1.31) $ 0.15 $ (2.37)
Dividend requirement on pay-in-kind
preferred stock -- -- (0.03) --
--------- --------- --------- ---------
Net income (loss) per common share $ 0.01 $ (1.31) $ 0.12 $ (2.37)
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
GRANT GEOPHYSICAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 2,095 $ (34,145)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Charge for asset impairment -- 4,726
Depreciation and amortization expense 16,087 17,377
Gain on sale of fixed assets (120) (157)
Provision for doubtful accounts 450 450
Exchange (gain) loss 679 (474)
Multi-client data amortization -- 520
Directors' stock compensation expense -- 30
Other non-cash items 48 59
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts receivable (12,239) 12,424
Inventories (2) 70
Prepaids (479) 1,685
Work in process (1,974) 82
Other assets (1,168) 2,627
INCREASE (DECREASE) IN:
Accounts payable 4,667 (6,363)
Accrued expenses (109) (2,864)
Foreign income tax payable 1,348 (2,036)
Other liabilities and deferred credits (1,235) 2,099
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 8,048 (3,890)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (18,031) (4,649)
Multi-client data (2,848) (18,640)
Proceeds from sale of assets 649 239
Restricted cash 226 89
Acquisition of Interactive Seismic Imaging (2,988) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (22,992) (22,961)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs (4,597) (940)
Borrowings made 105,020 49,061
Repayment on borrowings (75,249) (35,746)
Common stock issue costs (195) --
Proceeds from issuance of preferred stock -- 8,250
Redemption of preferred stock (10,000) --
Dividends paid (723) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,256 20,625
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (431) 254
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,119) (5,972)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,093 7,921
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,974 $ 1,949
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet of Grant Geophysical, Inc. and subsidiaries (the
"Company") as of September 30, 1999 and the related statements of operations and
cash flows for the nine months ended September 30, 1998 and 1999 are unaudited.
In the opinion of management, the accompanying unaudited condensed financial
statements of Grant and its consolidated subsidiaries contain all adjustments
necessary to present fairly the financial position as of September 30, 1999 and
the results of operations for the three and nine months ended September 30,
1999. The consolidated financial statements should be read in conjunction with
the audited financial statements and footnotes for the year ended December 31,
1998, included in the Company's Form 10-K, as filed with the Securities and
Exchange Commission (the "Commission").
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Multi-Client Data Library
The costs incurred in acquiring and processing multi-client seismic data
owned by the Company are capitalized. During the twelve-month period beginning
at the completion of the acquisition and processing of each multi-client survey,
costs are amortized based on revenues from such survey as a percentage of total
estimated revenues to be realized from such survey. Thereafter, amortization of
remaining capitalized costs is provided at the greater of the percentage of
realized revenues to total estimated revenues or straight line over four years.
On a quarterly basis, management estimates the residual value of each
survey, and additional amortization is provided if the remaining revenues
reasonably expected to be obtained from any survey are less than the carrying
value of such survey. See Note 2.
Asset Impairment
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of", long-lived assets and certain identifiable intangibles are
written down to their current fair value whenever events or changes in
circumstances indicate that the carrying amount of these assets are not
recoverable. These events or changes in circumstances may include but are not
limited to a significant change to the extent in which an asset is used, a
significant decrease in the market value of the asset, or a projection or
forecast that demonstrates continuing losses associated with an asset. If an
impairment is determined, the asset is written down to its current fair value
and a loss is recognized. See Note 2.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The more significant areas requiring the use of management estimates relate
to expected future sales associated with the Company's multi-client data
library, estimated future cash flows related to long-lived assets and valuation
allowances for deferred tax assets. Actual results could differ materially from
these estimates making it reasonably possible that a change in these estimates
could occur in the near future.
5
<PAGE> 8
Income (Loss) Per Common Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," basic income (loss) per common share is computed based
upon the weighted average number of common shares outstanding during each period
without any dilutive effects considered. Diluted income (loss) per common share
reflects dilution for all potentially dilutive securities including warrants and
convertible securities. The income (loss) is adjusted for cumulative preferred
stock dividends in calculating net income (loss) applicable to the common
stockholders.
(2) CHARGE FOR ASSET IMPAIRMENT
In the third quarter of 1999 the Company wrote down certain multi-client
data surveys in the amount of $4.7 million. The impairment of the multi-client
data in 1999 was due to reductions in estimates of future licensing prospects
for such data due to the current downturn in the industry.
(3) DEBT
On May 11, 1999, the Company entered into a Loan and Security Agreement
(the "Credit Facility") with Foothill Capital Corporation and Elliott Associates
L.P. ("Elliott"), the "Lenders", pursuant to which the Company may borrow up to
$6.0 million through a revolving facility and up to $19.0 million through two
term loans. Proceeds were used to repay all of the Company's outstanding
indebtedness to Elliott ($14.8 million) and will be used to provide additional
liquidity and working capital to support the Company's operations. The Credit
Facility imposes certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, incur liens,
pay dividends or make other distributions in cash or certain property,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other persons or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company or its subsidiaries, make Investments (as defined in the Credit
Facility) and maintain a minimum EBITDA (earnings before interest, tax,
depreciation and amortization) level.
(4) EQUITY FINANCING
On August 13, 1999, the board of directors of the Company created a series
of 120,000 shares of preferred stock, amended to 150,000 shares on October 13,
1999, designated as "8% Exchangeable Preferred Stock". The shares of 8%
Exchangeable Preferred Stock have a liquidation preference of $100 per share.
The 8% Exchangeable Preferred Stock is entitled to receive cumulative dividends
at the rate of 8% per annum of the liquidation preference. The dividends are
payable quarterly in cash or, at the Company's option, in shares of 8%
Exchangeable Preferred Stock. The shares of 8% Exchangeable Preferred Stock may
be exchanged, at the option of the holder, into such new securities as the
Company may from time to time propose to sell or issue. Between August 13, 1999
and November 1, 1999, the Company issued a total of 112,000 shares of 8%
Exchangeable Preferred Stock to Elliott at a price of $100 per share. The
proceeds from the sale of the preferred stock totaled an aggregate of
$11,200,000, and were used to meet the Company's cash needs. Elliott is under no
obligation to purchase any additional shares of 8% Exchangeable Preferred Stock
or otherwise provide additional financing for our operations.
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(5) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds $ 3,181 $ 547
Interest, net of amounts capitalized 6,490 10,671
</TABLE>
(6) SUBSEQUENT EVENTS
On September 30, 1999, the Company entered into an Asset Purchase
Agreement, effective October 30, 1999 for the purchase of certain seismic
acquisition equipment. The purchase price for the assets was 100,000 shares of
common stock and cash payments totaling $3 million. The cash payments are due in
three installments on October 31, 1999, December 31, 1999 and March 31, 2000.
On October 20, 1999, the board of directors of the Company voted to
increase the number of shares constituting the 8% Exchangeable Preferred Stock
of the Company from 120,000 to 150,000 and to amend the Certificate of
Designation to that effect.
On October 25, 1999, holders of greater than a majority of the outstanding
common stock voting power of the Company acted, by written consent, to further
amend the Amended and Restated Certificate of Incorporation to decrease the
number of authorized aggregate shares of capital stock of the Company from
60,000,000 to 55,000,000 shares thus decreasing the number of authorized shares
of the Company's preferred stock from 10,000,000 to 5,000,000 shares.
On October 25, 1999, Amendment No. 3 to Common Stock Registration Rights
Agreement, amending the definition of "Registerable Shares," was executed.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Grant Geophysical, Inc., a Delaware corporation (together with its
subsidiaries, "Grant," or 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 Liquidating Corporation ("GGI"), and its
acquired subsidiary, Solid State Geophysical Inc ("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.
The Company utilizes 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.
Due to the volatility of the price of oil and gas over the past year,
capital spending by oil and gas companies on oilfield related activities,
including seismic data acquisition and processing, has substantially decreased.
As a result, beginning late in the third quarter of 1998, the Company's global
seismic crew count, which includes both U.S. and foreign contracts, has
decreased significantly. As of November 1, 1999 the Company was operating or
mobilizing ten seismic data acquisition crews utilizing approximately 23,000
seismic recording channels. Due to the current availability of seismic recording
channels within the Company a typical seismic crew is utilizing significantly
higher channel counts today than a year ago. The Company's current seismic
recording channel capacity is slightly more than 32,000. By contrast, as of
November 1, 1998, the Company was operating or mobilizing 18 seismic data
acquisition crews utilizing approximately 30,000 seismic recording channels.
The industry downturn that began late in the third quarter of 1998 prompted
us to undertake activities we believe will both preserve our financial strength
and position us to respond when market demand increases. Those activities
include a worldwide reduction in personnel, a restructuring of our operations
and marketing efforts and a restricted capital expenditure program. Personnel
reductions began in the fourth quarter of 1998 and continued throughout the
first nine months of 1999. Overall, personnel were reduced from 863 full-time
and 2,162 temporary at September 30, 1998 to 573 full-time and 1,874 temporary
personnel at September 30, 1999. The corporate restructuring is the result of
changing market conditions and is designed to better utilize all our assets. The
restructuring of our operations and marketing efforts places a greater emphasis
on maximizing value from our multi-client data library in the United States and
Canada and refocuses international marketing efforts for proprietary data
acquisition on our established foreign markets.
On August 13, 1999, the board of directors of the Company created a series
of 120,000 shares of preferred stock, amended to 150,000 shares on October 13,
1999, designated as "8% Exchangeable Preferred Stock." The shares of 8%
Exchangeable Preferred Stock have a liquidation preference of $100 per share.
The 8% Exchangeable Preferred Stock is entitled to receive cumulative dividends
at the rate of 8% per annum of the liquidation preference with dividends being
payable quarterly in cash or, at the Company's option, in shares of 8%
Exchangeable Preferred Stock. The Company intends to pay dividends on the
preferred stock in additional shares of preferred stock until further notice.
The shares of 8% Exchangeable Preferred Stock may be exchanged, at the option of
the holder, into such new securities as the Company may from time to time
propose to sell or issue. Between August 13, 1999 and November 1, 1999, the
Company issued a total of 112,000 shares of 8% Exchangeable Preferred Stock to
Elliott at a price of $100 per share. The proceeds from the sale of the
preferred stock totaled an aggregate of $11,200,000, and were used to meet the
Company's cash needs. Elliott is under no obligation to purchase any additional
shares of 8% Exchangeable Preferred Stock or otherwise provide additional
financing for our operations.
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<PAGE> 11
On October 28, 1999 the Company filed a registration statement with the
Securities and Exchange Commission to register 8% Convertible Preferred Stock
and the common stock underlying the Convertible Preferred Stock. The board of
directors and management determined that it would be in the best interest of the
Company and our stockholders if we conducted an offer to exchange $100,000,000
principal amount of our 9 3/4% Senior Notes due 2008 for shares of Convertible
Preferred Stock with an aggregate liquidation value equal to 65% of the
principal amount of notes tendered plus 100% of the accrued interest on the
notes tendered. In conjunction with the exchange offer, the Company will seek
consents from the holders of the outstanding notes to amend certain definitions
and to modify certain restrictive covenants in the indenture governing the
outstanding notes. The consent of holders of a majority of the outstanding
principal amount of the notes held by holders other than the Company, our
subsidiaries and our affiliates are required to approve the proposed amendments
to the indenture. Elliott Associates, L.P. ("Elliott") and Westgate
International, LP, ("Westgate") which hold a majority of the aggregate principal
amount of the notes, have advised the Company that they will tender in the
exchange offer all of the notes held by them only if the proposed amendments to
the indenture are approved. The Company will execute a supplemental indenture
with the trustee to cause the proposed amendments to the indenture to take
effect only if Elliott and Westgate tender all of their notes in the exchange.
Through the exchange offer, the Company will reduce outstanding indebtedness by
converting a portion of its debt into equity. The proposed amendments to the
indenture will allow for greater flexibility with respect to future financing
which the Company may consider. Despite the Company's efforts to reduce costs
through the restructuring described above, our operations are still consuming
cash. The Company believes that the consummation of the exchange offer and the
consent solicitation will help improve the capital structure and preserve our
financial strength.
As of November 1, 1999 the Company has issued to Elliott 112,000 shares of
8% Exchangeable Preferred Stock for cash proceeds totaling $11,200,000.
Immediately prior to the consummation of the exchange offer, the Company will
issue to Elliott, in exchange for all of the 8% Exchangeable Preferred Stock
then held by Elliott, shares of the Company's Convertible Preferred Stock with
an aggregate liquidation preference equal to the liquidation preference of the
8% Exchangeable Preferred Stock plus accrued and unpaid dividends thereon
exchanged by Elliott.
Elliott has proposed a subscription offering, to be held at the same time
as the exchange offer, of 15.26% of the shares of Convertible Preferred Stock it
receives in the exchange of 8% Exchangeable Preferred immediately prior to the
consummation of the exchange offer. In the subscription offering, Elliott will
give the Company's stockholders, other than Elliott and Westgate, the
opportunity to purchase from Elliott their pro rata share of the Convertible
Preferred Stock that Elliott will receive in exchange for its 8% Exchangeable
Preferred Stock on substantially the same terms upon which Elliott originally
acquired the 8% Exchangeable Preferred Stock. Elliott chose to offer 15.26% of
its shares Convertible Preferred Stock in the subscription offering because that
is the percentage of the Company's common stock held by our stockholders other
than Elliott and Westgate. Elliott has proposed the subscription offering to
permit the minority stockholders to participate, on a pro rata basis, with
Elliott in its equity investment in the Company's Convertible Preferred Stock on
the same terms as Elliott's investment in the 8% Exchangeable Preferred Stock.
The Company owns a library of multi-client seismic data that is licensed to
oil and gas companies on a non-exclusive basis and has a small interest in
certain multi-client data that is owned by third parties. Over the past several
years, oil and gas companies have moved toward multi-client surveys to reduce
finding costs. The Company has increased its participation in the activity and
has expanded the library of multi-client data to include projects located in
Texas, California, Wyoming and Canada.
The Company also provides seismic data processing through offices located
in Midland, Dallas and Houston, Texas. Services are provided on an exclusive
contract basis to oil and gas companies and to the Company's own multi-client
projects.
As of November 1, 1999, the Company was operating or mobilizing a total of
four land crews in the United States, two land crews in Canada, three land crews
in Latin America and one land crew in the Far East. For the nine months ended
September 30, 1999, the Company's total revenues were $44.7 million, with
approximately 60% from the United States, 9% from Latin America, 14% from the
Far East and 17% from Canada.
Grant's principal executive office is located at 16850 Park Row, Houston,
Texas 77084 and its telephone number is 281-398-9503.
9
<PAGE> 12
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Consolidated revenue decreased $39.5 million, or 77%, from $51.0
million for the three months ended September 30, 1998 to $11.5 million in
revenue for the three months ended September 30, 1999. This decrease was the
result of lower demand for the Company's seismic acquisition services in both
the domestic and international markets. Demand for the Company's services has
been significantly reduced by the decrease in the price of oil and gas that
occurred between the fourth quarter of 1997 and the first quarter of 1999. While
demand has increased slightly in the third quarter of 1999, primarily in the
international market, the land seismic acquisition business remains severely
depressed over levels experienced during the prior year. The Company is unable
to predict with any certainty when the market for seismic services is likely to
recover and, until such time, will continue to experience significant operating
losses.
Revenues from the United States data acquisition operations decreased $15.8
million, or 70%, from $22.6 million for the quarter ended September 30, 1998 to
$6.8 million for the quarter ended September 30, 1999. This decrease was
attributable to the Company operating six seismic data acquisition crews
continuously in the United States during the three months ended September 30,
1998 compared with only two to four crews operating the same period in 1999. In
addition, during the third quarter of 1999, two of the crews were performing
multi-client projects with average underwriting, or pre-commitments, of only 35%
of total project costs. This compares to the same period in 1998 when the
average underwriting for the two multi-client projects in process were
approximately 88% of total costs. The significance in the decrease in
underwriting relates to the Company's revenue recognition policy whereby only
the underwritten portion of the project is recognized as revenue during the
current period. Firm backlog for the United States is currently at $3.4 million.
Revenues from data processing decreased $150,000, or 32%, from $470,000 for
the quarter ended September 30, 1998 to $320,000 for the quarter ended September
30, 1999. The decrease is the result of processing third party trade or
propriety projects exclusively during the three months ended September 30, 1998
compared to processing several of the Company's multi-client projects which were
only partially underwritten during the same period in 1999.
Revenues from Canadian data acquisition operations decreased $1.3 million,
or 48%, from $2.7 million for the quarter ended September 30, 1998 compared to
$1.4 million for the quarter ended September 30, 1999. This decrease was due to
the Company operating from, time to time, three seismic data acquisition crews
during the three months ended September 30, 1999 compared with only one to two
operating during the same period in 1999.
The Company began its multi-client data acquisition activities in the
United States and Canada during the second quarter of 1998. At September 30,
1999 the Company had completed all or a portion of fourteen data library
projects totaling approximately 1,685 square miles in Texas, California, Wyoming
and Canada. This consists of 853 square miles completed in 1998, 508 square
miles during the first six months of 1999 and 324 square miles during the three
months ended September 30, 1999. An additional 129 square miles are scheduled to
be completed by November 30, 1999. Due the continued depressed demand for
seismic services, an inability to secure adequate initial customer underwriting
and a lack of sufficient liquidity, the Company no longer intends to continue
building a multi-client data library in the Southern United States. Activities
in Canada will continue. As long as the above factors persist, the Company will
be very selective in its decision to participate in multi-client projects. The
Company is committed to only one project located in Canada for approximately 13
squares miles. The costs of that project are at least 75% underwritten. The
revenues associated with the underwriters' portion of multi-client data programs
are recognized as part of the data acquisition revenues discussed above in the
southern United States, northern United States and Canada. Revenue from sales of
the data library for the quarter ended September 30, 1999 was $1.1 million
compared to only $142,000 for the quarter ended September 30, 1998.
Revenues from the Far East decreased $10.1 million, or 99%, from $10.2
million for the third quarter of 1998 to $92,000 for the third quarter of 1999.
During the third quarter of 1998, the Company's Far East operations
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<PAGE> 13
consisted of as many as four crews in the region; two crews in Bangladesh and
two crews in Indonesia. During the third quarter of 1999 the Company operated no
seismic crews in the region.
Revenues from Latin America decreased $13.1 million, or 89%, from $14.7
million for the quarter ended September 30, 1998 to $1.6 million for the Company
for the quarter ended September 30, 1999. During the third quarter of 1998, the
Company operated as many as five seismic crews in the region, in Bolivia,
Colombia, Ecuador and Guatemala. During the third quarter of 1999 Company is
operating three crews in Latin America: one each in Bolivia, Ecuador and
Guatemala.
Expenses. Operating expenses of the Company as a percentage of revenues
increased to 122% for the three months ended September 30, 1999 from 74% for the
three months ended September 30, 1998. This percentage increase can be
attributed to reduced operating margins on multi-client crews operating in the
United States and unanticipated startup and operating expenses on two Latin
American crews. Operating expenses during the third quarter of 1999 decreased
$23.9 million to $14.0 million compared to $37.9 million for same period ended
September 30, 1998. This decrease is a result of the revenue decreases
experienced in all operating regions as discussed above.
Selling, general and administrative expenses decreased $659,000, or 18%, to
$3.1 million for the quarter ended September 30, 1999 from $3.7 million for the
quarter ended September 30, 1998. Beginning in the fourth quarter of 1998 and
continuing through the first and second quarters of 1999 the Company has reduced
support and overhead personnel in all its operating regions and corporate
office. During the third quarter of 1999 the Company experienced a small
increase in support and overhead personnel in its international operating
regions in response to the increase in demand for services in those regions. The
effects of these cost reductions are expected to be realized in lower selling,
general and administrative expenses throughout the remainder of 1999. Selling,
general and administrative expenses increased as a percentage of revenue to 27%
in third quarter of 1999 from 7% in same period in 1998. The primary reason for
this increase is the reduction in revenue during the second quarter of 1999.
Depreciation and amortization decreased $408,000, or 7% to $5.5 million for
the quarter ended September 30, 1999 from $5.9 million for the quarter ended
September 30, 1998. Contributing to the decrease the low level of capital
purchases compared to prior years.
The charge for asset impairment was $4.7 million for the quarter ended
September 30, 1999. The Company recorded this special charge to reduce the
carrying value of its multi-client data to net realizable value based on
realistic future licensing prospects for such data. On a quarterly basis,
management estimates the residual value of each survey, and additional
amortization is provided if the remaining revenues reasonably expected to be
obtained from any survey are less than the carrying value of such survey.
Other Income (Deductions). Interest expense, net, increased $540,000, or
22%, to $3.1 million for the quarter ended September 30, 1999 from $2.5 million
for the quarter ended September 30, 1998. This increase was the result of the
increase in revolving credit facilities of $6.2 million between the two periods.
These funds were used to finance multi-client data projects, to purchase capital
expenditures and provide working capital.
Tax Provision. The income tax provision in both periods consisted of income
taxes in foreign countries. The quarter ending September 30, 1998 includes
provisions for taxes in Colombia, Ecuador, Guatemala, Bangladesh and Indonesia.
The quarter ended September 30, 1999 includes provisions for taxes in Colombia
and Ecuador. No provision for United States federal income tax was made with
respect to the United States and Canada for either period as each had net loss
carryforwards available.
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Consolidated revenue decreased $102.7 million, or 70%, from
$147.4 million for the nine months ended September 30, 1998 to $44.7 million in
revenue for the nine months ended September 30, 1999. This decrease was the
result of lower demand for the Company's seismic acquisition services in both
the domestic and international markets. The decrease in the price of oil and gas
that occurred between the fourth quarter of 1997 and the first quarter of 1999
have significantly reduced demand for the Company's services. While demand has
increased slightly in the third quarter of 1999, primarily in the international
market, the land seismic acquisition business remains severely depressed over
levels experienced during the prior year. The Company is unable to
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<PAGE> 14
predict with any certainty when the market for seismic services is likely to
recover and, until such time, will continue to experience significant operating
losses.
Revenues from the southern United States data acquisition operations
decreased $37.4 million, or 61%, from $61.0 million for the nine months ended
September 30, 1998 to $23.6 million for the nine months ended September 30,
1999. This decrease was attributable to the Company operating six seismic data
acquisition crews continuously in the United States during the three months
ended September 30, 1998 compared with only two to four crews operating the same
period in 1999. In addition, during the third quarter of 1999, two of the crews
were performing multi-client projects with average underwriting, or
pre-commitments, of only 50% of total project costs. This compares to the same
period in 1998 when the average underwriting for the two multi-client projects
in process were approximately 88% of total costs. The significance in the
decrease in underwriting relates to the Company's revenue recognition policy
whereby only the underwritten portion of the project is recognized as revenue
during the current period. Firm backlog for the United States is currently at
$3.4 million.
Revenues from data processing were $1.2 million for the nine months ended
September 30, 1999. The Company purchased the data processing operations in July
1998; therefore, the nine months ended September 30, 1998 include only three
months activity and are not comparable. The Company operated processing centers
in Houston, Midland and Dallas, Texas for the entire nine- month period in 1999.
Revenues from the Canada data acquisition operations decreased $5.2
million, or 42%, from $12.5 million for the nine months ended September 30,
1998, to $7.3 million for the nine months ended September 30, 1999. This
majority of the decrease was due to a decrease in activity experienced during
the first quarter of 1999. The Company operated as many as six land seismic
crews in Canada during the first quarter of 1998 compared to only three crews
during the same period in 1999.
The Company began its multi-client data acquisition activities in the
United States and Canada during the second quarter of 1998. At September 30,
1999 the Company had completed all or a portion of fourteen data library
projects totaling approximately 1,685 square miles in Texas, California, Wyoming
and Canada. This consists of 853 square miles completed in 1998, 832 square
miles during the first nine months of 1999. An additional 129 square miles are
scheduled for completion by November 30, 1999. Due the continued depressed
demand for seismic services, an inability to secure adequate initial customer
underwriting and a lack of sufficient liquidity, the Company no longer intends
to continue building a multi-client data library. As long as the above factors
persist, the Company will be very selective in its decision to participate in
multi-client projects. The Company is committed to only one project located in
Canada for approximately 13 squares miles. The costs of that project are at
least 75% underwritten. The revenues associated with the underwriters' portion
of multi-client data programs are recognized as part of the data acquisition
revenues discussed above in the southern United States, northern United States
and Canada. Revenue from sales of the data library for the nine months ended
September 30, 1999 was $2.4 million compared to only $388,000 million for the
same period ended September 30, 1998.
Revenues from the Far East decreased $20.2 million, or 76%, from $26.5
million for the nine months ended September 30, 1998 to $6.3 million for the
Company for the nine months ended September 30, 1999. During the first nine
months of 1998, the Company's Far East operations consisted of as many as five
crews: three in Bangladesh and two in Indonesia. During the same period in 1999
the Company operated one crew for the first four months Bangladesh and is
currently mobilizing one crew in Indonesia.
Revenues from Latin America decreased $42.6 million, or 92%, from $46.5
million for the nine months ended September 30, 1998 to $3.9 million for the
nine months ended September 30, 1999. During the first nine months of 1998, the
Company's Latin American operations consisted of as many as seven seismic crews
operating in Bolivia, Brazil, Colombia, Ecuador and Guatemala. During the same
period in 1999 five crews operated in Mexico, Ecuador, Guatemala, Brazil and
Colombia.
Expenses. Operating expenses of the Company as a percentage of revenues
increased to 86% for the nine months ended September 30, 1999 from 73% for the
nine months ended September 30, 1998. This percentage increase can be attributed
to reduced operating margins on multi-client projects during the third quarter
of 1999 and unanticipated startup and operating expenses on two Latin American
crews incurred during the second and third quarters of 1999. Operating expenses
during the nine months ended of 1999 decreased $68.8 million to $38.6
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<PAGE> 15
million compared to $107.4 million for the same period ended September 30, 1998.
This decrease is a result of the revenue decreases experienced throughout all
the Company's operating regions as described above.
Selling, general and administrative expenses decreased $1.7 million, or
15%, to $9.7 million for the nine months ended September 30, 1999 from $11.4
million for the nine months ended September 30, 1998. Beginning in the fourth
quarter of 1998 and continuing through the first and second quarters of 1999 the
Company has reduced support and overhead personnel in all its operating regions
and corporate office. The effects of these cost reductions are expected to be
realized in reduced selling, general and administrative expenses throughout the
remainder of 1999. There have been limited increases in support and overhead
personnel, during the third quarter of 1999, in response to the increase in
demand for seismic services being experienced primarily in the international
markets. Selling, general and administrative expenses increased as a percentage
of revenue to 22% in first nine months of 1999 from 8% in same period in 1998.
This decrease is a result of the revenue decreases experienced throughout all
the Company's operating regions as described above.
Depreciation and amortization increased $1.3 million, or 8% to $17.4
million for the Company for the nine months ended September 30, 1999 from $16.1
million for the nine months ended September 30, 1998. The increase was the
result of depreciation on new assets purchased during the twelve-month period
ended September 30, 1998.
The charge for asset impairment was $4.7 million for the quarter ended
September 30, 1999. The Company recorded this special charge to reduce the
carrying value of its multi-client data to net realizable value based on
realistic future licensing prospects for such data. On a quarterly basis,
management estimates the residual value of each survey, and additional
amortization is provided if the remaining revenues reasonably expected to be
obtained from any survey are less than the carrying value of such survey.
Other Income (Deductions). Interest expense, net, increased $2.0 million,
or 29%, to $8.8 million for the nine months ended September 30, 1999 from $6.8
million for the nine months ended September 30, 1998. The increase can be
attributed to the sale on February 18, 1998 of $100 million of 9 3/4% senior
notes due 2008. Consequently, the period ending September 30, 1999 included an
additional forty-eight days of interest expense due on the senior notes. In
addition, the outstanding balance on the Company's revolving credit facility
increased $17.4 million between the two periods. These funds were used to
finance multi-client data projects, to purchase capital expenditures and provide
working capital.
Tax Provision. The income tax provision consisted of income taxes in
foreign countries. For the nine months ended September 30, 1998 this includes
provisions for taxes in Colombia, Ecuador, Guatemala, Bangladesh and Indonesia.
The same period in 1999 includes provisions for taxes in Colombia, Ecuador,
Bangladesh and Canada. No provision for United States federal income tax was
made with respect to the United States and Canada, for either period as each had
net loss carryforwards available.
LIQUIDITY AND CAPITAL RESOURCES
Demand for the Company's seismic acquisition services has been and
continues to be materially adversely affected by the current industry downturn.
Moreover, the Company continues to require substantial cash flow to maintain
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.
Between August 13, 1999 and November 1, 1999, the Company issued a total of
112,000 shares of its 8% Exchangeable Preferred Stock to Elliott at a price of
$100 per share. This equity financing was required to augment the Company's
available cash, cash flow generated from operations and borrowings under the
Foothill credit facility to provide sufficient liquidity to fund the Company's
cash requirements. However, Elliott is under no obligation to purchase any
additional shares of 8% Exchangeable Preferred Stock or otherwise provide
additional financing for our operations.
In order to improve the Company's liquidity, the Company has proposed to
exchange all of its outstanding 9 3/4% Senior Notes due 2008 for new shares of
8% Convertible Preferred Stock with an aggregate liquidation value equal to 65%
of the aggregate principal amount of the notes tendered in the exchange offer
plus 100% of the accrued and unpaid interest on the notes tendered. Through the
proposed exchange offer, the Company will reduce its outstanding indebtedness by
converting a portion of its debt into equity. If the exchange offer is
consummated, management believes this will increase the Company's liquidity by
reducing its principal payment obligations with
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<PAGE> 16
respect to the Notes and reducing the negative cash flow impact of its interest
payment obligations on the Notes. The Company intends to pay dividends on the
preferred stock in additional shares of preferred stock until further notice.
The Company's ability to meet its debt service and other obligations will
depend on its future performance, which in turn is subject to general economic
conditions and other factors beyond the Company's control. If the Company is
unable to consummate the proposed exchange offer, generate sufficient cash flow
from operations or otherwise comply with the terms of the indenture, the
Foothill credit facility or its other debt instruments, it may be required to
refinance all or a portion of its existing debt or obtain additional financing.
There can be no assurance that such refinancing or additional financing will be
available on terms acceptable to the Company.
The Company's internal sources of liquidity are its cash balances ($503,000
at November 1, 1999) and cash flow from operations. External sources include the
unutilized portion of the Company's credit facility ($651,000 at November 1,
1999) under a Loan and Security Agreement with Foothill Capital Corporation and
Elliott, equipment financing and trade credit. Under the terms of the credit
facility, the Company may borrow up to $6 million through a revolving credit
facility and term loans of up to $19 million. The credit facility has a three
year term and provides for borrowings at an interest rate per annum of the prime
rate plus 1 1/2%, secured by liens on substantially all of the assets of the
Company. In addition, the Company periodically enters into equipment financing
agreements with sellers of seismic data acquisition equipment to pay all or a
portion of the purchase price of such equipment and regularly utilizes normal
trade credit in connection with certain of its purchases of goods and services
to support its ongoing field crew activities.
The Company has outstanding $100 million aggregate principal amount of 9
3/4%Senior Notes due 2008. The notes are governed by an indenture, dated
February 18, 1998, between the Company, its subsidiary guarantors and LaSalle
National Bank, as trustee. The notes bear interest at 9 3/4% per annum, payable
semiannually, and were sold at A discount to yield 9 7/8% per annum. The net
proceeds from the sale of the notes were used to retire substantially all of
Grant's then-outstanding indebtedness, purchase certain leased equipment and
provide for working capital. In conjunction with the exchange offer, the Company
is seeking consents from the holders of the outstanding notes to amend certain
definitions and to modify certain restrictive covenants in the indenture
governing the outstanding notes. The consent of holders of a majority of the
outstanding principal amount of the notes held by holders other than the
Company, our subsidiaries and our affiliates are required to approve the
proposed amendments to the indenture. Elliott and Westgate which hold a majority
of the aggregate principal amount of the notes, have advised the Company that
they will tender in the exchange offer all of the notes held by them only if the
proposed amendments to the indenture are approved. The Company will execute a
supplemental indenture with the trustee to cause the proposed amendments to the
indenture to take effect only if Elliott and Westgate tender all of their notes
in the exchange.
As of November 1, 1999, the Company's total indebtedness was approximately
$130.4 million. The Company's total indebtedness is comprised of $99.3 million
aggregate principal amount of the Notes, $23.9 million outstanding on the
Foothill credit facility and $7.2 million of combined loans and capitalized
leases primarily incurred for the purpose of financing capital expenditures.
The Company's 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, including the acquisition and
processing of multi-client data. Because of the traditionally longer period
required to collect receivables and the high costs associated with equipping and
operating crews outside of the United States and Canada, the Company requires
significant levels of working capital to fund its international operations.
These operations accounted for 41% of total revenues for the nine months ended
September 30, 1999.
Capital expenditures for the nine months ended September 30, 1999 were $4.6
million. Capital expenditures are used to upgrade and expand the Company's
seismic data acquisition and recording equipment. The remaining projected
capital budget for 1999 is estimated to be $5.4 million with approximately 45%
of that amount dependent on future crew activity. For the nine months ended
September 30, 1999, the Company committed approximately $32.7 million of
expenditures for seven multi-client data acquisition projects principally
located in Texas, California, Wyoming and Canada. Customer commitments for those
projects were approximately 49% of the project costs. Net investment by the
Company for these projects was $16.8 million. Throughout the remainder of 1999,
the Company expects to commit approximately $3.2 million, before customer
commitments, for three multi-client data acquisition projects located in Texas
and Canada.
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EFFECT OF INFLATION
Current economic conditions indicate that the costs of exploration and
production for oil and gas are increasing. The oil and gas industry historically
has experienced periods of rapid cost increases within short periods of time as
demand for drilling rigs, drilling pipe and other materials and supplies
increases. The oil and gas industry is currently experiencing such increases in
demand, which have historically led to rapid increases in costs. Increases in
exploration and production costs could lead to a decrease in such activities by
oil and gas companies, which would have an adverse effect on the demand for the
Company's services.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative financial
instrument be recorded in the balance sheet as either an asset or a liability
measured at its fair value, with certain changes in fair value recognized
currently in earnings. On July 7, 1999, the FASB delayed the effective date of
SFAS No. 133 for one year. The delay, published as SFAS No. 137, applies to
quarterly and annual financial statements. SFAS No. 133, as revised by SFAS No.
137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company has not yet determined the impact of adoption.
YEAR 2000 COMPLIANCE
The Company has developed a formal plan to address Year 2000 ("Y2K") issues
as they relate to the Company's business and its operations. In accordance with
that plan, the Company is taking inventory of, assessing, testing and
remediating where necessary, all hardware and software used in its business. The
Company is similarly identifying all external relationships, including vendors,
suppliers and customers, and will contact all of those entities considered
important or critical to its ongoing operations, to determine their own level of
Y2K readiness. In addition, the Company is preparing contingency plans to
address failures in unidentified systems or temporary disturbances in local
utilities and infrastructure. The Company estimates that it will complete its
plan, including remedial action, during the fourth quarter of 1999.
Incremental out-of-pocket costs incurred through September 30, 1999 to
address the Y2K issue amount to approximately $1.4 million. The Company
anticipates that up to an additional $400,000 will be expended during the fourth
quarter of 1999 relating to this issue. These costs have been, and are expected
to continue to be, funded by cash flows from operations.
To date, all critical items have been inventoried and assessed, primarily
by third party vendors. Internal assessment, testing and remediation of critical
components is effectively complete, with the exception of some business
applications, which are expected to be tested and deployed by the end of the
fourth quarter 1999. It is anticipated that contingency planning and change
control procedures will continue until the end of 1999.
Inventory and assessment of critical vendors / suppliers is complete.
While the Company believes that it has a readiness plan that will mitigate
the risk that the Y2K issue will have a material adverse effect on its business,
the ultimate impact of this issue on the Company is uncertain. Long term
interruptions in suppliers' ability to deliver critical components, third
parties' ability to supply utilities or telecommunications to the Company's
offices or field locations; or the Company's failure to complete, in a timely
manner, the remediation of its non-compliant computer-controller equipment,
could result in delayed delivery of products to customers, resulting in a
material adverse effect on earnings and cash flow. Therefore, there can be no
assurance that the Y2K issue will not have a material effect on the Company's
financial position, results of operations or cash flows. .
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<PAGE> 18
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-Q Quarterly Report) with the 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 of Solid State
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts a substantial portion of its business in currencies
other than the U.S. or Canadian dollars, particularly various Latin American
currencies, and its operations are subject to fluctuations in foreign currency
exchange rates. Accordingly, certain of the Company's international contracts
could be significantly affected by fluctuations in exchange rates, particularly
in Mexico. The Company's international contracts requiring payment in currency
other than U.S. or Canadian dollars typically are indexed to inflationary tables
and generally are used for local expenses. The Company attempts to structure the
majority of its international contracts to be billed and paid at a certain U.S.
dollar conversion rate.
The Company's operating results were negatively impacted by foreign
exchange losses of approximately $80,000 during the three months ended September
30, 1999 and positively impacted by foreign exchange gains of approximately
$470,000 for the nine months ended September 30, 1999.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 11, 1999, holders of greater than a majority of the outstanding
common stock and voting power of the Company approved, by written consent,
proposals to (i) amend the Company's Certificate of Incorporation to increase
the authorized capital of the Company to 60,000,000 shares, comprised of
50,000,000 shares of common stock and 10,000,000 shares of preferred stock; and
(ii) amend the Company's Bylaws to provide new procedures relating to
shareholder proposals, shareholder notification, and amendments of the Bylaws.
On August 11, 1999, holders of greater than a majority of the outstanding
common stock and voting power of the Company acted, by written consent, to
reelect Donald W. Wilson, Richard H. Ward, J. Kelly Elliott, Donald G. Russell,
Jonathan D. Pollock, W. Richard Anderson, and James R. Brock as directors of the
Company.
On August 13, 1999, the board of directors of the Company created a series
of 120,000 shares of preferred stock designated as "8% Exchangeable Preferred
Stock."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
Exhibit No.
4.02 Amendment Number One to Loan and Security Agreement dated
as of August 12, 1999 by and among the Company, Elliott
Associates, L.P. and Foothill Capital Corporation.
4.03 Amendment Number Two to Loan and Security Agreement dated
as of September 23, 1999 by and among the Company,
Elliott Associates, L.P. and Foothill Capital Corporation.
27.01 Financial data schedule.
(b) Reports on Form 8-K
On August 19, 1999, the Company filed a current report on Form 8-K related
to the amendment of the Company's Certificate of Incorporation to authorize and
issue preferred stock and to increase authorized common stock.
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SIGNATURES
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 thereunto duly authorized on the 15th day of November 1999.
GRANT GEOPHYSICAL, INC.
By /s/ RICHARD H. WARD
---------------------------------------
Richard H. Ward
Chief Executive Officer,
Director
(Principal Executive Officer)
By /s/ MICHAEL P. KEIRNAN
---------------------------------------
Michael P. Keirnan
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit
No. Description
------- -----------
4.02 Amendment Number One to Loan and Security Agreement
dated as of August 12, 1999 by and among the Company,
Elliott Associates, L.P. and Foothill Capital
Corporation.
4.03 Amendment Number Two to Loan and Security Agreement
dated as of September 23, 1999 by and among the
Company, Elliott Associates, L.P. and Foothill
Capital Corporation.
27.01 Financial data schedule.
<PAGE> 1
EXHIBIT 4.02
AMENDMENT NUMBER ONE
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated effective as of August 12, 1999 is entered into by and among
Grant Geophysical, Inc., a Delaware corporation ("Borrower"), Foothill Capital
Corporation, a California corporation ("Foothill"), and Elliott Associates,
L.P., a Delaware limited partnership ("EALP"), in light of the following:
WHEREAS, Borrower, EALP and Foothill are parties to that certain Loan
and Security Agreement (the "Loan and Security Agreement") dated as of May 11,
1999; and
WHEREAS, Borrower and EALP have requested that certain provisions of
the Loan and Security Agreement be amended, and Foothill has agreed to amend
such provisions in accordance with the terms hereof, so as to provide for the
following:
(a) the inclusion of cash proceeds from issuance of
preferred stock in the calculation of EBITDA of Borrower, and
(b) the allowance of EALP to receive interest payments on
subordinated indebtedness of Borrower purchased by EALP.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, conditions, and provisions as hereinafter set forth, the parties
hereto agree as follows:
1. Definitions. Initially capitalized terms used herein have the
meanings defined in the Loan and Security Agreement unless otherwise defined
herein.
"Subordinated Notes" means the 9-3/4% Senior Notes due 2008
issued by Borrower on February 18, 1998, in the aggregate principal
amount of $100,000,000.
2. Amendment to the Definition of EBITDA. Section 1.1 of the Loan and
Security Agreement is hereby amended by amending the definition of "EBITDA" to
read in full as follows:
"EBITDA" of any Person for any period shall mean the sum of.
(a) the net income (or net loss) from operations of such
Person and its Subsidiaries on a consolidated basis (determined in
accordance with GAAP) for such period, without giving effect to any
extraordinary or unusual gains (losses) or gain, (losses) from the sale
of assets (other than the sale of assets in the ordinary course of
business) or unrealized currency gains (losses); plus
AMENDMENT NO.1 - PAGE 1
<PAGE> 2
(b) the amount of any cash equity investment in such Person
for such period, including any cash equity investment made in
consideration for the issuance of preferred stock of such Person; plus
(c) to the extent that any of the items referred to in any of
clauses (i) through (iii) below were deducted in calculating such net
income:
(i) consolidated interest expense of such Person for
such period;
(ii) income tax expense of such Person and its
Subsidiaries with respect to their operations for such
period; and
(iii) the amount of all non-cash charges (including,
without limitation, depreciation and amortization), if any,
of such Person and its Subsidiaries for such period.
3. Amendment to Certain Provisions Regarding Subordination by EALP.
Section 17.16 of the Loan and Security Agreement is hereby amended by deleting
subsection (d) thereof in its entirety and adding and inserting in its place the
following new subsection (d):
(d) If any money or other property (except for payments of
interest on the EALP Term Note and interest on the Subordinated Notes
owned and held by EALP, as such interest accrues and becomes due and
payable prior to the occurrence of a Default) is received by EALP for
application on the EALP Obligations before the Foothill are paid in
full, in cash, EALP will hold such money and other property in trust
for Foothill and, promptly after receipt, deliver such money and other
property to Foothill. After the occurrence and during the continuance
of a Default, then the exception for payments of interest on the EALP
Term Note and on the Subordinated Notes owned and held by EALP, which
exception is set forth parenthetically in the preceding sentence, shall
not apply. Upon cure of the Default within the period(s) of time
provided for in Article 8, above, then EALP may receive payments of
interest on the EALP Term Note and interest on the Subordinated Notes
owned and held by EALP, as such interest accrues and becomes due and
payable.
4. Representations and Warranties. Borrower hereby represents and
warrants to Foothill as follows:
(a) The execution, delivery and performance by Borrower of
this Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval or notice to or action be, any Person in order to be effective and
enforceable.
(b) The Loan and Security Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, without defenses
counterclaim or offset.
AMENDMENT NO.1 - PAGE 2
<PAGE> 3
5. Consent Regarding Rising Star Receivable. Reference is made to that
certain Account (the "Rising Star Receivable") owing to Borrower by Rising Star
Energy, Limited Partnership #1 ("Rising Star") on a geological survey in Midland
and Upton Counties, Texas, involving phases of a survey identified as "Azalea,"
"South Azalea," and "Azalea Extension," all as more further described in
Supplemental Agreement No. 1, dated September 24, 1998, between Borrower and
Rising Star. Foothill and EALP agree to subordinate the security interest in the
Rising Star Receivable granted under the Loan and Security Agreement to the
interest of a transferee and/or factor of the Rising Star Receivable, who
provides value to Borrower in exchange for such transfer and or factoring of the
Rising Star Receivable.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Loan and Security Agreement are and shall remain in full force
and effect and all references therein to the Loan and Security Agreement shall
henceforth refer to the Loan and Security Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Loan and Security Agreement.
(b) This Amendment shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts.
(c) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument.
(d) This Amendment, together with the Loan and Security Agreement and
the other Loan Documents, contains the entire and exclusive agreement of the
parties hereto with reference to the matters discussed herein and therein. This
Amendment supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in writing executed by both of the
parties hereto.
(e) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Loan and Security Agreement, respectively.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
AMENDMENT NO.1 - PAGE 3
<PAGE> 4
IN WITNESS HEREOF, this Amendment has been executed and delivered as of
the date first set forth above.
GRANT GEOPHYSICAL, INC.
a Delaware corporation
By:
--------------------------------------
Mike Keirnan
Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent and
as a Lender
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ELLIOTT ASSOCIATES, L.P.
a Delaware limited partnership
By:
--------------------------------------
Paul E. Singer,
General Partner
AMENDMENT NO.1 - PAGE 4
<PAGE> 1
EXHIBIT 4.03
AMENDMENT NUMBER TWO
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated effective as of September 23, 1999, is entered into by and
among Grant Geophysical, Inc., a Delaware corporation ("Borrower"), Foothill
Capital Corporation, a California corporation ("Foothill") and Elliott
Associates, L.P., a Delaware limited partnership ("EALP"), in light of the
following:
WHEREAS, Borrower, EALP and Foothill are parties to that certain Loan
and Security Agreement (the "Loan and Security Agreement"), dated as of May 11,
1999, as amended by Amendment Number One to Loan and Security Agreement, dated
to be effective as of August 13, 1999, by and among Borrower, Foothill and EALP;
and
WHEREAS, Borrower has acquired seven seismic vibrator buggies
(collectively, the "Acquired Equipment") in accordance with the terms of the
Loan and Security Agreement and has requested that certain provisions of the
Loan and Security Agreement be amended, so as to provide for the following;
(a) an increase in the principal amount of the FCC Term Loan
to $11,673,500, and provide a revised payment scheduled for the
repayment of the FCC Term Loan; and
(b) the amendment and restatement of the FCC Term Note to
reflect the changes of referenced above.
WHEREAS, subject to the conditions set forth in this Amendment,
Foothill and EALP have agreed to amend the Loan and Security Agreement as set
forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, conditions, and provisions as hereinafter set forth, the parties
hereto agree as follows:
1. DEFINITIONS. Initially capitalized terms used herein have the
meanings defined in the Loan and Security Agreement unless otherwise defined
herein.
2. AMENDMENTS.
2.01 AMENDMENT TO THE SECTION 1.1 OF THE LOAN AND SECURITY AGREEMENT.
Section 1.1 of the Loan and Security Agreement is hereby amended by adding the
following definition of "Second Amendment to Loan and Security Agreement" to
such section in the appropriate alphabetical order, such definition to read in
its entirety as follows:
""Second Amendment to Loan and Security Agreement" means that
certain Second Amendment to Loan and Security Agreement, dated to be
effective as of September 23, 1999, by and among Borrower, Foothill and
EALP."
AMENDMENT NO.2 - PAGE 1
<PAGE> 2
2.02 AMENDMENT AND RESTATEMENT OF SECTION 2.3 OF THE LOAN AND SECURITY
AGREEMENT. Effective as of the date hereof, Section 2.3 of the Loan and Security
Agreement is hereby amended and restated in its entirety to read as follows:
"2.3 FCC TERM LOAN.
(a) General. Foothill has agreed to make a term loan (the
"FCC Term Loan") to Borrower in the stated principal amount not to
exceed Eleven Million Six Hundred Seventy-three Thousand Five Hundred
Dollars ($11,673,500.00). The FCC Term Loan shall be repaid in
thirty-two monthly installments, and one final installment, of
principal in the following amounts:
<TABLE>
<CAPTION>
Month Installment Amount
----- ------------------
<S> <C>
October 1, 1999 $287,500.00
November 1, 1999, through May 1, 2002 $313,400.00/month
May 11, 2002 The outstanding principal
balance of the FCC Term Loan
</TABLE>
Each such principal installment shall be due and payable on the first
day of each month commencing October 1, 1999, and continuing on the
first day of each succeeding month until and including the date on
which the unpaid balance of the FCC Term Loan is paid in full. The
outstanding principal balance and all accrued and unpaid interest under
the FCC Term Loan shall be due and payable upon the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or
otherwise. Subject to Section 3.6, the unpaid principal balance of the
FCC Term Loan may be prepaid in whole or in part at any time during the
term of this Agreement upon 30 days prior written notice by Borrower to
Foothill, all such prepaid amounts to be applied to the installments
due on the FCC Term Loan in the inverse order of their maturity. All
amounts outstanding under the FCC Term Loan shall constitute
Obligations.
(b) Prepayment Upon Disposition of Eligible Equipment.
Except as otherwise expressly permitted by Section 7.4 of this
Agreement, Borrower shall prepay the FCC Term Loan in an amount equal
to the net proceeds of any disposition of Eligible Equipment,
regardless of whether such disposition is permitted under Section 7.4
of this Agreement (but without approving any such disposition not
otherwise expressly permitted under Section 7.4 of this Agreement). The
mandatory prepayment shall be due and payable immediately upon the
corresponding disposition of Eligible Equipment. Mandatory prepayments
shall be applied to installments under the FCC Term Loan in inverse
order of maturity.
(c) FCC Term Note. The FCC Term Loan shall be evidenced
by that certain Amended and Restated Secured Promissory Note, dated
September 23, 1999, in the original principal amount of $11,673,500.00,
executed by Borrower, payable to the order of Foothill, the form of
which is attached as Exhibit A to the Second Amendment to Loan
AMENDMENT NO.2 - PAGE 2
<PAGE> 3
and Security Agreement (together with any and all renewals, extensions
and modifications thereof, the "FCC Term Note").
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
upon fulfillment of the following conditions, in each case to the satisfaction
of Foothill:
(a) a counterpart of this amendment shall be executed by
Borrower and delivered to Foothill;
(b) a counterpart of this Amendment shall be executed by EALP
and delivered to Foothill;
(c) each of AST, GGC and GGII shall reaffirm its obligations
under the applicable Subsidiary Guaranty, pursuant to an instrument in
form and substance satisfactory to Foothill;
(d) Borrower shall execute and deliver to Foothill an amended
and restated secured promissory note in the form attached hereto as
Exhibit A; and
(e) Borrower shall pay all fees and expenses required to be
paid by Borrower pursuant to Section 6.03 of this Amendment.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
4.01 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants to Foothill as follows:
(a) the execution delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action
of Borrower and do not and will not require any registration with,
consent or approval of, notice to or action by, any Person in order to
be effective and enforceable;
(b) the execution, delivery and performance by Borrower of
this Amendment will not violate the articles of incorporation, bylaws
or any other agreement to which Borrower is a party or by which the
property of Borrower may be bound;
(c) the Loan and Security Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms,
without defense, counterclaim or offset;
(d) the representations and warranties contained in the Loan
and Security Agreement (as amended by this Amendment) and each other
Loan Document are true and correct on and as of the date hereof as
though made on and as of the date hereof, except to the extent such
representations and warranties relate to an earlier date;
AMENDMENT NO.2 - PAGE 3
<PAGE> 4
(e) Borrower is in full compliance with all covenants and
agreements contained in the Loan and Security Agreement as amended by
this Amendment and all such covenants and agreements are, and shall
remain, in full force and effect;
(f) an indication of the agent's security interests on
certificates of titles issued with respect to the Acquired Equipment is
not required to perfect the security interests of the Agent in the
Acquired Equipment, and
(g) the security interests of the Agent granted by the Loan
and Security Agreement in the Acquired Equipment constitute perfected,
first-priority security interests in the Acquired Equipment.
4.02 COVENANTS OF BORROWER. Within fifteen days of the date hereof,
Borrower shall, or shall cause each of GGBL, PTGI and SSGI to take the following
actions:
(a) each of GGBL, PTGI and SSGI shall reaffirm their
respective obligations under the applicable Subsidiary Guaranties,
pursuant to an instrument in form and substance satisfactory to
Foothill; and
(b) provide Foothill with evidence satisfactory to Foothill of
the filing of a duly executed and completed "Application for
Registration of Water Well Drilling or Construction Machinery"
(collectively, the "Applications") with the Texas Department of
Transportation with respect to each of the seven pieces of Acquired
Equipment
Upon receipt of the approved copies of the Applications, Borrower promptly shall
forward copies of same to Foothill, and Borrower promptly shall proceed to
purchase the requested plates from the appropriate county tax assessor-collector
in accordance with the requirements of the Applications. The failure of Borrower
to comply with any portion of the requirements of this Section 4.02 shall
constitute an "Event of Default" pursuant to Section 8 of the Loan and Security
Agreement, as amended by this Amendment
5. AGREEMENT OF EALP. EALP hereby joins in this Amendment for the
purpose of consenting to the terms hereof. EALP hereby agrees that all terms,
covenants and provisions of the Loan and Security Agreement and the other Loan
Documents are, and shall remain, in full force and effect, including (without
limitation) the subordination provisions set forth at Section 17.16 of the Loan
and Security Agreement and EALP's guaranty of the Obligations of Borrower (other
than the EALP Term Loan) pursuant to the EALP Guaranty, which EALP Guaranty is
hereby acknowledged and reaffirmed with respect to all Obligations of Borrower
(other than the EALP Term Loan) arising pursuant to the Loan and Security
Agreement and other Loan Documents, as amended by this Amendment.
6. MISCELLANEOUS.
6.01 SU]RVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made herein and in the Loan and Security Agreement shall survive
the execution and
AMENDMENT NO.2 - PAGE 4
<PAGE> 5
delivery of this Amendment and no investigation by Foothill or any closing
shall affect the representations and warranties or the right of Foothill to
rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. The Loan and Security Agreement, as
amended hereby, and all other Loan Documents, whether now or hereafter executed
and delivered, are hereby amended so that any reference to the Loan and Security
Agreement shall mean a reference to the Loan and Security Agreement, as amended
by this Amendment.
6.03 EXPENSES OF FOOTHILL AND WAIVER FEE. In consideration of
Foothill's execution and delivery of this Amendment, Borrower shall pay to
Foothill an amendment fee in the amount of $10,000, which fee shall be earned by
Foothill and shall be due and payable upon the execution by Foothill of a
counterpart of this Amendment. In addition to such waiver fee and as provided in
the Loan and Security Agreement, Borrower agrees to pay on demand all costs and
expenses incurred by Foothill in connection with the preparation, negotiation
and execution of this Amendment including, without limitation, the costs and
fees of Foothill's legal counsel and appraiser, and all costs and expenses
incurred by Foothill in connection with the enforcement or preservation of any
rights under the Loan and Security Agreement, as amended hereby, or any other
Loan Document.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Foothill and Borrower and their respective Successors
and assigns, except Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Foothill.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.08 SCHEDULE C-1. Notwithstanding the execution of this Amendment,
Schedule C-1 to the Loan and Security Agreement shall not be changed or
modified, and the percentages and limitations set forth in such schedule shall
be applied by the parties to the Loan and Security Agreement without change or
modification as a result of this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
AMENDMENT NO.2 - PAGE 5
<PAGE> 6
6.10 FINAL AGREEMENT. THE LOAN AND SECURITY AGREEMENT, AS AMENDED
HEREBY, AND THE OTHER LOAN DOCUMENTS REPRESENT THE ENTIRE EXPRESSION OF THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF ON THE DATE THIS
AMENDMENT IS EXECUTED. THE LOAN AND SECURITY AGREEMENT, AS AMENDED HEREBY, MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND FOOTHILL.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE OBLIGATIONS (AS DEFINED IN THE LOAN AND SECURITY
AGREEMENT) OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM
FOOTHILL. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER
DISCHARGES FOOTHILL, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR
UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT OR CONDITIONAL, AT
LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST
FOOTHILL, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY,
AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY OBLIGATIONS
(AS DEFINED IN THE LOAN AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE MAXIMUM RATE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
LOAN AND SECURITY AGREEMENT OR ANY AGREEMENT, DOCUMENT OR INSTRUMENT ENTERED
INTO IN CONNECTION THEREWITH.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
AMENDMENT NO.2 - PAGE 6
<PAGE> 7
IN WITNESS HEREOF, this Amendment his been executed and delivered as of
the date first set forth above.
GRANT GEOPHYSICAL, INC.
a Delaware corporation
By: /s/ MIKE KEIRNAN
-----------------------------
Mike Keirnan
Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent and
as a Lender
By: /s/ AMY LAM
----------------------------
Name: AMY LAM
----------------------
Title: Vice President
---------------------
ELLIOTT ASSOCIATES, L.P.
a Delaware limited partnership
By:
----------------------------
Paul E. Singer,
General Partner
AMENDMENT NO.2 - PAGE 7
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866722
<NAME> GRANT GEOPHYSICAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,966
<SECURITIES> 0
<RECEIVABLES> 15,206
<ALLOWANCES> 499
<INVENTORY> 442
<CURRENT-ASSETS> 24,049
<PP&E> 93,497
<DEPRECIATION> 39,490
<TOTAL-ASSETS> 143,558
<CURRENT-LIABILITIES> 22,104
<BONDS> 0
0
8,250
<COMMON> 14
<OTHER-SE> (11,410)
<TOTAL-LIABILITY-AND-EQUITY> 143,558
<SALES> 44,721
<TOTAL-REVENUES> 44,721
<CGS> 0
<TOTAL-COSTS> 70,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,385
<INCOME-PRETAX> (33,689)
<INCOME-TAX> 456
<INCOME-CONTINUING> (34,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,145)
<EPS-BASIC> (2.37)
<EPS-DILUTED> (2.37)
</TABLE>
