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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 333-48799*
GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0548468
(state of 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)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 398-9503
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by checkmark whether the registrant: (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] Yes [ ] No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 2000, 14,547,055 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
* The Commission file number refers to a Form S-4 registration statement filed
by the Company under the Securities Act of 1933, which became effective May
13, 1998.
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GRANT GEOPHYSICAL, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for the Company's Common Equity and Related 8
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations...................................
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting 19
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Company............. 19
Item 11. Executive Compensation...................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and 24
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 25
8-K.........................................................
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PART I
ITEM 1. BUSINESS.
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 and Canada. Grant also provides seismic
data acquisition services in Latin America, the Middle East and the Far East.
Through its predecessors, including GGI Liquidating Corporation ("GGI"), and its
acquired subsidiary, Solid State Geophysical, Inc. ("Solid State"), together
with their respective subsidiaries, 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, 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. Grant
also provides seismic data processing services through offices located in Dallas
and Houston, Texas.
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 two are equipped to
perform surveys in transition zone environments. Transition zone environments
are swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.
The market for seismic land acquisition, both domestically and in certain
international regions, remains significantly depressed. Capital spending by oil
and gas companies on seismic data acquisition and processing has substantially
decreased from levels experienced in the past several years. The Company's
global seismic crew count decreased from an average of 18 to 20 during 1998 to
an average of 10 to 12 during 1999. As of March 24, 2000, the Company had nine
active crews. As a result, the Company 1999 operating results were materially
adversely affected.
As of March 24, 2000, the Company was operating or mobilizing a total of
two crews in the United States, one crew in Latin America, five crews in Canada
and one crew in the Far East. For the twelve months ended December 31, 1999, the
Company's total revenues were $66.0 million, with approximately 48.9% from the
United States, 22.8% from Latin America, 11.4% from the Far East and 17.0% from
Canada.
Grant's principal executive office is located at 16850 Park Row, Houston,
Texas 77084 and its telephone number is 281-398-9503.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s.
Seismic data acquisition services companies acquire seismic data in land
and transition zone environments by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the survey. An
energy source, such as a small explosive charge or mechanical vibrating unit, is
used to generate seismic energy that moves through the earth's subsurface and is
reflected by various underlying rock layers to the surface, where it is detected
by the geophones. As many as eight geophone strings are connected to a field
recording box, which collects the seismic data from those geophones. The
electrical output of each geophone string becomes the electrical input for one
recording channel, or "trace," of seismic data. Once the geophones and field
recording boxes are deployed over a portion of the survey area, an energy source
is activated, the reflected seismic energy is detected by the geophones, and the
signals from the geophones are collected and digitized by the field recording
boxes. These boxes in turn transmit the seismic data by cable,
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radio telemetry or through hand-held data collection units to a central
recording system. The geophones and field recording boxes from one end of the
single recording line in the case of 2D seismic data, or an area of multiple
recording lines in the case of 3D seismic data, are then removed and relocated
elsewhere in the survey area. The seismic energy source is again activated and
the entire process is repeated, moving a few hundred feet at a time, until the
entire survey area is covered.
Historically, the acquisition of 2D seismic data was the principal seismic
data acquisition technique. However, with the advancement and miniaturization of
seismic data recording equipment and the improvement of computer technology in
the past ten years, high-density surveys, or 3D seismic data, which provide a
much more comprehensive subsurface image, have become the industry standard.
Recent technical advances in seismic data acquisition and computer processing
have also resulted in the acquisition of higher-resolution surveys using
three-component geophones, known as 3C-3D.
LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A land or transition zone seismic data acquisition crew typically consists
of a surveying crew that lays out the lines to be recorded and marks the sites
for energy source or geophone placement and equipment location, an explosives or
mechanical vibrating or compressed air unit crew, and a recording crew that lays
out the geophones and field recording boxes, directs shooting operations and
records the seismic energy reflected from subsurface structures. A land seismic
data acquisition crew utilizing an explosives unit is supported by several drill
crews, generally furnished by third parties under short-term contracts. Drill
crews operate in advance of the seismic data acquisition crew and bore shallow
holes for small explosive charges that, when detonated, produce the necessary
seismic impulse. In locations where conditions dictate or where the use of
explosives is precluded due to regulatory, topographical or ecological factors,
a mechanical vibrating unit or compressed air unit is substituted for explosives
as the seismic energy source. The Company also employs specialized crew
mobilization equipment to improve productivity in certain applications,
including helicopters for rugged terrain or in agricultural areas, small
watercraft for transition zone applications, and man-portable equipment in
jungle and other environments where vehicular access is limited. Depending on
the size of the seismic survey, the location and other logistical factors, a
seismic data acquisition crew operated by the Company may involve from as few as
30 to as many as 1,500 employees.
One of the challenges inherent in land seismic data acquisition is
operating in difficult logistical environments without disrupting the sensitive
ecosystems in which surveys are frequently located. The Company currently
operates approximately 10,000 channels of remote digital seismic equipment,
which can be deployed without the use of conventional seismic cables, thereby
allowing access to such environments. Remote digital seismic equipment, which
uses radio signals to transmit data, is typically used in transition zone and
other logistically challenging environments such as highly populated regions
with numerous topographic obstructions and areas where conventional cable-based
recording systems are impractical. The Company has over 20 years of experience
operating in transition zone environments in the Gulf Coast region of the United
States, the Far East and Africa.
Once recorded by the seismic data acquisition crew, seismic data is
computer processed to enhance the recorded signal by reducing noise and
distortion and improving resolution to produce a representation of the survey
site's subsurface structures. The Company presently has two data processing
centers at which it performs seismic data processing services. These centers are
located in Houston and Dallas, Texas.
The Company markets its seismic data acquisition and processing services
from its Houston and Calgary corporate offices and its regional and
international administrative centers by personnel whose duties include
technical, supervisory or executive responsibilities. The Company generally
acquires seismic data on an exclusive contract basis for oil and gas companies
on:
- a turnkey basis, which provides a fixed fee for each project;
- a term basis, which provides for a periodic fee during the term of the
project; or,
- a cost-plus basis, which provides that the costs of a project, plus a
percentage fee, are borne by the customer.
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In addition, in the United States and Canada, the Company acquires and owns
certain multi-client seismic data that is marketed broadly on a non-exclusive
basis to oil and gas companies.
The Company 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 Brazil and Colombia. 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.
MARKET AREAS
In 1999, the Company conducted seismic operations in the United States,
Canada, Latin America and the Far East and has conducted activities in the
Middle East and West Africa within the last three years.
The following table sets forth the Company's revenues by geographic area,
on a pro forma basis for the year ended December 31,1997 and on an actual basis
for the years ended December 31, 1998 and 1999, for the periods shown:
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YEAR ENDED DECEMBER 31,
-----------------------------
1997(1) 1998 1999
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States......................................... $ 61,630 $ 78,659 $32,243
Canada................................................ 19,591 14,175 11,232
Latin America......................................... 69,877 52,604 15,057
Far East.............................................. 13,482 30,074 7,515
Africa and Middle East................................ 9,285 -- --
-------- -------- -------
$173,865 $175,512 $66,047
======== ======== =======
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(1) Solid State's fiscal year end was August 31 prior to the year ended December
31, 1998 when it was changed to a calendar year. For pro forma purposes,
revenues for Solid State have been adjusted to reflect the period December
1, 1996 through August 31, 1997 to combine with GGI's nine months ended
September 30, 1997 and the Company's three months ended December 31, 1997.
The revenues for the three months ended December 31, 1997 include the
combined operations of Solid State and Grant. See Notes 1 and 4 to the
Consolidated Financial Statements of the Company and GGI for additional
geographic information.
BACKLOG
The Company's backlog for seismic data acquisition services represents the
revenues anticipated to be received by the Company in connection with
commitments for contracted services received from its customers. As of December
31, 1999, the Company estimates that its total backlog was approximately $24.2
million, all of which is expected to be completed in 2000. This compares to the
Company's estimated total backlog of $38.2 million and $144.4 million at
December 31, 1998 and 1997, respectively. The decrease reflects the overall
decline in demand, as described above, for seismic data acquisition and
processing services on a worldwide basis that began during the last half of
1998. As of March 24, 2000, the Company estimates that its total backlog is
approximately $30.8 million. Most of the Company's contracts are terminable by
the customer upon relatively short notice and, in some cases, without penalty.
The Company's backlog as of any particular date is not indicative of the likely
operating results for any succeeding period, and there can be no assurance that
any amount of backlog will ultimately be realized as revenue.
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CAPITAL EXPENDITURES AND TECHNOLOGY
The Company's ability to compete and maintain a significant market position
in the land and transition zone seismic data acquisition business is partially
driven by its ability to provide technology comparable to that of its primary
competitors. Accordingly, the Company continually maintains and periodically
upgrades its seismic data acquisition equipment to maintain its competitive
position. The Company spent approximately $36.3 million on capital expenditures
for the fifteen-month period ending December 31, 1998. This included
approximately $12.4 million in the fourth quarter of 1997 and approximately
$23.9 million during 1998. These expenditures were used principally to upgrade
and expand the Company's seismic data acquisition equipment. Due to the downturn
in the seismic industry, the Company incurred $9.5 million in 1999 on capital
expenditures and has budgeted $5.1 million in capital expenditures for 2000. The
level of future capital expenditures will depend on the availability of funding
and market requirements as dictated by industry activity levels.
Over the past several years, the Company has focused its efforts on
developing operating procedures and acquiring equipment that will enhance the
efficiency of its seismic data acquisition crews and reduce the time required to
complete projects. The Company's strategy does not contemplate the development
of proprietary seismic data acquisition equipment, but instead relies on the use
of third-party equipment suppliers to provide such equipment, although certain
equipment will be customized to the Company's specifications to enhance
operating efficiency. Certain of the equipment, processes and techniques used by
the Company are subject to the patent rights of others, and the Company holds
non-exclusive licenses with respect to a number of such patents. While the
Company regards as beneficial its access to third-party technology through
licensing, the Company believes that substantially all presently licensed
technology could be replaced without significant disruption to its business.
LICENSING OF MULTI-CLIENT DATA
The Company acquires and processes seismic data for its own account by
conducting surveys either partially or wholly funded by multiple customers. In
this mode of operation, ownership of the data is retained by the Company and the
data is licensed on a non-exclusive basis. As of December 31, 1999, there were
$1.7 million of commitments from customers for multi-client data acquisition
projects.
Factors considered when determining whether to undertake a multi-client
survey include the availability of customer commitments to offset a percentage
of the project cost, the number of potential customers for the completed data,
the location to be surveyed; the probability and timing of future lease,
concession, exploration and development activity in the area; and, the
availability, quality and price of competing data. Although the Company
anticipates obtaining commitments for a substantial majority of the cost of any
future multi-client data survey and conducts market and cost analyses to
determine the market demand and necessary funding prior to undertaking a
project, it still may not be able to fully recoup its costs if it substantially
underestimates the cost or overestimates market demand for such multi-client
data survey.
CUSTOMERS AND PROJECTS
The Company's customers consist of domestic and international oil and gas
companies and seismic data marketing companies. As is the case for many service
companies in the oil and gas industry, a relatively small number of customers or
a limited number of significant projects may account for a large percentage of
the Company's net revenues in any given year. Moreover, such customers and
projects may, and often do, vary from year to year. For 1999, the Company's five
largest customers accounted for approximately $21.3 million, or 32.3%, of
revenues and no single customer accounted for 10% or more of revenues. During
1998, the Company's five largest customers accounted for approximately 28.8% of
revenues, and no single customer accounted for 10% or more of revenues. In the
first nine months of 1997, GGI had revenues from a foreign national oil company
of approximately $14.0 million, or 15% of total revenues, and also from a U.S.
based exploration company of approximately $9.9 million, or 11% of total
revenues. During 1997, on a pro forma basis, the Company's five largest
customers accounted for approximately 31.9% of revenues. During 1997, on a pro
forma basis, no customer accounted for 10% or more of the Company's combined
revenues.
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COMPETITION
The acquisition and processing of proprietary and multi-client seismic data
for the oil and gas industry is highly competitive worldwide. However, as a
result of changing technology and increased capital requirements, the seismic
industry has consolidated substantially since the late 1980's, thereby reducing
the number of competitors. The Company's principal competitors in North America
are Baker Atlas, Inc., a subsidiary of Baker Hughes, Inc.; Veritas DGC, Inc.;
and Geco-Prakla Inc., a subsidiary of Schlumberger Limited. The Company competes
against these three companies for most of its seismic data acquisition and
processing contracts in North America. Although precise comparative figures are
not available, the Company believes that its principal competitors have
financial, operating and other resources in excess of its own. Also in North
America, the Company competes with approximately 20 smaller companies that
target narrow market segments. In Latin America and the Far East, the Company
competes with Baker Atlas, Compagnie General de Geophysique, Geco-Prakla and a
few smaller local competitors. Competition is based primarily on price, crew
availability, prior performance, technology, safety, quality, dependability and
the contractor's expertise in the particular area where the survey is to be
conducted.
EMPLOYEES
As of March 24, 2000, the Company employed approximately 455 full-time and
630 temporary contract personnel worldwide. None of the Company's employees is
subject to collective bargaining agreements. The Company considers its relations
with its employees to be good.
ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION
The Company's domestic operations are subject to a variety of federal,
state and local laws and regulations relating to the protection of human health
and the environment, the violation of which may result in civil or criminal
penalties. The Company invests financial and managerial resources to comply with
such laws and regulations and management believes that it is in compliance in
all material respects with applicable environmental laws and regulations.
Although such environmental expenditures by the Company historically have not
been significant, there can be no assurance that these laws and regulations will
not change in the future or that the Company will not incur significant costs in
the future performance of its operations. The Company is not involved in any
legal proceedings concerning environmental matters and is not aware of any
claims or potential liability concerning environmental matters that could have a
material adverse impact on the Company's financial position, cash flows or
results of operations.
The Company's operations outside of the United States are subject to
similar environmental regulation in a number of foreign locations, including
Canada, Latin America, and the Far East. Management believes that the Company is
in material compliance with the existing environmental requirements of these
foreign governmental bodies. The Company has not incurred any significant
environmental costs in connection with the performance of its foreign
operations; however, any regulatory changes that impose additional environmental
restrictions or requirements on the Company or its customers could adversely
affect the Company through increased operating costs and decreased demand for
the Company's services.
CAUTIONARY STATEMENTS
Certain statements made in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements". Forward-looking statements
may include, without limitation, the following:
- statements regarding the Company's business strategy, plans and
objectives;
- statements expressing the beliefs and expectations of management of the
Company regarding future demand for the Company's seismic services and
other events and conditions that may influence demand for the Company's
services and its performance in the future; and
- statements concerning the Company's business strategy and expectations,
industry conditions, market position, backlog, future operations,
margins, profitability, liquidity and capital resources.
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Forward-looking statements can generally be identified by such terminology
as "may," "will," "expect," "believe," "anticipate," "project," "estimate" or
similar expressions. Such statements are based on certain assumptions and
analyses made by the Company's management in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors that it believes to be appropriate. The Company
cautions that such statements are only predictions and not guarantees of future
performance and that actual results, developments and business decisions may
differ from those envisioned by the forward-looking statements.
All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are beyond the control
of the Company. Any one of such influences, or a combination, could materially
affect the accuracy of the forward-looking statements and the projections on
which the statements are based. Some important factors that could cause actual
results to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements include the following:
Dependence on the Oil and Gas Industry; Industry Volatility.
The Company's business depends in large part on the conditions of the oil
and gas industry, and specifically on the capital expenditures of the Company's
customers. As a result of the decline in oil and gas prices beginning late in
the third quarter of 1998, the level of overall oil and gas industry activity
declined substantially from levels experienced in recent years. Decreases in the
Company's customers' capital spending in connection with industry downturns have
had and will likely result in decreased demand for the Company's services. The
Company's results of operations have varied and may continue to vary depending
on the demand for services. Unless demand increases, the Company will likely
continue to operate at a loss.
The Company's Business could be adversely affected by Intense Price
Competition in a Slack Market.
Competition among seismic contractors historically is, and will continue to
be, intense. Competitive factors have in recent years included price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability. Certain of the Company's competitors operate more
data acquisition crews than the Company does and have substantially greater
financial and other resources. These larger and better-financed operators could
enjoy an advantage over the Company if the competitive environment for contract
awards shifts to one characterized principally by intense price competition.
The Company's Multi-Client Data Library could become Impaired due to Weak
Demand or Technological Obsolescence.
The Company has invested significant amounts in acquiring and processing
multi-client data. Although the management of the Company expects to recover all
the costs of such surveys, there is no assurance that the Company will be able
to do so in the future. Technological, regulatory or other industry or general
economic developments could render all or portions of the Company's library of
multi-client data obsolete or otherwise impair its value. As of December 31,
1999 and 1998, the total value of the capitalized multi-client data library was
$27.4 million and $10.9 million, respectively.
Risks of High Levels of Fixed Costs.
The Company's business has high fixed costs, and downtime or low
productivity due to reduced demand, weather interruptions, equipment failures or
other causes could result in significant operating losses.
Technology Risks.
Seismic data acquisition and processing is a capital-intensive business.
The development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements in recent years and the
Company expects this trend to continue. Manufacturers of seismic equipment may
develop new systems that have competitive advantages over systems now in use
that could render the Company's current equipment obsolete or require the
Company to make significant unplanned capital expenditures to maintain its
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competitive position. Under such circumstances, there can be no assurance that
the Company would be able to obtain necessary financing on favorable terms.
Dependence upon Significant Customers.
The Company derives a significant amount of its revenue from a small number
of major and independent oil and gas companies. The inability of the Company to
continue to perform services for a number of its large existing customers, if
not offset by contracts with new or other existing customers, could have a
material adverse effect on the Company's business and operations.
Intense Competition
The Company competes in a highly competitive area of the oil field services
industry. The Company's services are sold in a highly competitive market and its
revenues and earnings may be affected by the following factors:
- changes in competitive prices;
- fluctuations in the level of activity and major markets;
- general economic conditions; and
- governmental regulation.
The Company competes with the oil and gas industry's largest seismic
service providers. Management of the Company believes that the principal
competitive factors in the market areas served by the Company are product and
service quality and availability, technical proficiency and price.
Risks of International Operations.
The Company's international operations, which are expected to continue to
contribute materially to revenues for the foreseeable future, are subject to
risks inherent in doing business in foreign counties. These risks include, but
are not limited to:
- political changes;
- expropriation;
- currency restrictions and changes in currency exchange rates;
- taxes; and
- boycotts and other civil disturbances.
The risks associated with operating internationally are reflected in the
$60.1 million decrease in the Company's international revenues, excluding
Canada, in 1999 as compared with 1998. The decrease was primarily attributable
to general economic conditions and political events in South America, the
economic downturn in the Far East and the overall world market for oil and gas.
Although it is impossible to predict the likelihood of such occurrences or
their effect on the operations of the Company, the management of the Company
believes that these risks are acceptable. However, the occurrence of any one of
these events could have a material adverse effect on the Company's operations.
Dependence on Key Personnel.
The Company depends on the continued services of its executive officers and
other key management personnel. If the Company were to lose any of these
officers or other management personnel, this could adversely affect its
operations.
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ITEM 2. PROPERTIES.
The Company owns a 30,000 square foot building and storage yard in Houston,
Texas, which serves as its corporate headquarters, and leases a 60,000 square
foot building, also in Houston, Texas, which serves as a warehouse and staging
facility. The Company also owns an office, staging and repair facility located
on a two-acre tract in New Iberia, Louisiana. In Calgary, Alberta (Canada), the
Company owns an 18,000 square foot building and storage yard that serves as the
Company's Canadian headquarters. In addition, the Company leases office,
warehouse and storage space in areas throughout the world as may be required
from time to time to support the Company's operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on the
Company's financial position, cash flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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 of the Company 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.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 24, 2000, there were 14,547,055 shares of the Company's common
stock, $.001 par value per share (the "Common Stock"), outstanding. See Item 12
for the number of shares of Common Stock owned by the Company's executive
officers, directors and each person known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock. The Common Stock is not
listed on any stock exchange or qualified for trading on any other market. The
Company does not anticipate paying cash dividends with respect to the common
stock in the future. In addition, the payment of cash dividends is currently
prohibited by the indenture governing the Company's 9 3/4% Senior Notes Due
2008 and credit agreements governing the Company's other indebtedness for
borrowed money.
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ITEM 6. SELECTED FINANCIAL DATA.
The statement of operations data of GGI presented below for each of the
years in the two-year period ended December 31, 1996, the nine-month period
ended September 30, 1997, and the balance sheet data of GGI at December 31, 1995
and 1996 are derived from the consolidated financial statements of GGI. The
statement of operations data for the three-month period ended December 31, 1997,
the year ended December 31, 1998 and the year ended December 31, 1999 and the
balance sheet data of the Company at December 31, 1997, 1998 and 1999 are
derived from the consolidated financial statements of the Company. The selected
historical financial data set forth below should be read in conjunction with the
consolidated financial statements and the notes thereto included in Item 8 of
this Form 10-K. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<CAPTION>
GGI GRANT
---------------------------------- ---------------------------------
YEAR ENDED NINE MONTHS THREE MONTHS YEAR ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------ SEPTEMBER 30, DECEMBER 31, ------------------
1995 1996 1997 1997 1998 1999
------- -------- ------------- ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $91,996 $105,523 $92,705 $37,868 $175,512 $66,047
Operating income (loss)................. 4,999 (65,970) 6,794 (5,033) 6,346 (33,113)
Other income (expense).................. (1,446) (8,436) (5,035) (2,624) (10,120) (11,404)
Income (loss) from continuing
operations............................ 3,162 (76,027) (425) (5,666) (7,698) (45,753)
Net loss applicable to Common stock... $(6,143) $ (8,138) (46,049)
======= ======== =======
LOSS PER COMMON SHARE -- BASIC AND
DILUTED:
Continuing operations................. $ (1.18) $ (.54) $ (3.16)
Dividend requirement on pay-in-kind
preferred stock..................... (.10) (.03) (.02)
------- -------- -------
Net loss per common share............. $ (1.28) $ (.57) $ (3.18)
======= ======== =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..................... 4,798 14,257 14,458
CASH FLOW DATA:
Cash provided by (used in) operating
activities............................ $ 2,759 (9,346) $ 4,526 $ 5,386 $ 17,338 (977)
Cash used in investing activities....... (9,272) (10,181) (6,731) (19,715) (32,828) (31,495)
Cash provided by financing activities... 6,929 25,667 1,289 15,072 16,821 27,163
Capital expenditures.................... 14,921 25,799 4,154 12,400 23,866 9,496
BALANCE SHEET DATA
Working capital......................... $ 8,033 $ 22,421 $16,190 $ 14,373 $(4,929)
Total assets............................ 86,932 70,123 155,704 166,441 149,996
Pre-petition liabilities subject to
Chapter 11 case....................... -- 90,244 -- -- --
Notes payable, current portion of
long-term debt and capital lease
obligations........................... 18,430 589 1,158 2,522 8,247
Long-term debt, subordinated debt and
capital lease obligations, excluding
current portion....................... 8,789 -- 75,195 110,817 119,709
Total stockholders' equity..... 29,715 (34,213) 41,992 22,002 (7,360)
</TABLE>
9
<PAGE> 12
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company was formed in September 1997. On September 30, 1997, the
Company acquired substantially all of the assets and assumed certain liabilities
of GGI under GGI's Second Amended Plan of Reorganization (the "Plan"), which was
confirmed by The United States Bankruptcy Court for the District of Delaware on
September 15, 1997. On December 23, 1997, the Company, through a wholly owned
Canadian subsidiary, acquired all of the outstanding shares of Solid State.
The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
generally acquires seismic data on an exclusive contract basis for oil and gas
companies on:
- a turnkey basis, which provides a fixed fee for each project;
- a term basis, which provides for a periodic fee during the term of the
project; or,
- a cost-plus basis, which provides that the costs of a project, plus a
percentage fee, are borne by the customer.
In addition, in the United States and Canada, the Company acquires and owns
certain multi-client seismic data that is marketed broadly on a non-exclusive
basis to oil and gas companies.
In December 1996, GGI filed for protection under the United States
Bankruptcy Code and began its reorganization under the supervision of the
Bankruptcy Court. In connection with its reorganization, GGI replaced its senior
management, disposed of unprofitable operations, operated as
debtor-in-possession and developed the Plan, which was confirmed by the
Bankruptcy Court on September 15, 1997 and consummated on September 30, 1997
(the "Effective Date"), with the Company's purchase of substantially all of the
assets and assumption of certain liabilities of GGI.
As a result of the decline in oil and gas prices beginning late in the
third quarter of 1998, the level of overall oil and gas industry activity, both
domestically and in certain international regions, has declined substantially
from levels experienced in recent years. Decreases in exploration and production
companies' capital spending in connection with industry downturns have had and
will likely result in decreased demand for the Company's services. The Company's
global seismic crew count has decreased from average of eighteen to twenty
during 1998 to a total of nine active crews as of March 24, 2000.
The historical results of operations of the Company for the years ended
December 31, 1998 and 1999 are presented below. Such results are not directly
comparable to the results of operations of GGI or the combined results of GGI
and the Company for the twelve months ended December 31, 1997 due to the effects
of the purchase of Solid State in September 1997.
10
<PAGE> 13
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
GGI GRANT
------------- ------------ (UNAUDITED) GRANT
COMBINED -------------------
NINE MONTHS THREE MONTHS TWELVE MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, -------------------
1997 1997 1997 1998 1999
------------- ------------ ------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $92,705 $37,868 $130,573 $175,512 $ 66,047
Expenses:
Direct operating expenses.......... 71,006 28,431 99,437 127,439 54,456
Selling, general and administrative
expenses........................ 6,473 3,507 9,980 14,156 13,529
Depreciation and amortization...... 8,432 4,594 13,026 23,809 26,147
Charge for asset impairment........ -- 6,369 6,369 3,762 5,028
------- ------- -------- -------- --------
Total costs and expenses... 85,911 42,901 128,812 169,166 99,160
------- ------- -------- -------- --------
Operating income (loss).... 6,794 (5,033) 1,761 6,346 (33,113)
Other income (expense):
Interest expense, net.............. (3,758) (1,362) (5,120) (9,300) (12,006)
Reorganization costs............... (3,543) -- (3,543) -- --
Other.............................. 2,266 (1,262) 1,004 (820) 602
------- ------- -------- -------- --------
Total other expenses....... (5,035) (2,624) (7,659) (10,120) (11,404)
------- ------- -------- -------- --------
Income (loss) before income
taxes........................... 1,759 (7,657) (5,898) (3,774) (44,517)
Income tax expense................... (2,184) (856) (3,040) (3,924) (1,236)
------- ------- -------- -------- --------
Loss from continuing operations
before minority interest........... (425) (8,513) (8,938) (7,698) (45,753)
Minority interest.................... -- 2,847 2,847 -- --
------- ------- -------- -------- --------
Net loss............................. (425) (5,666) (6,091) (7,698) (45,753)
------- ------- -------- -------- --------
Preferred dividends.................. -- (477) (477) (440) (296)
------- ------- -------- -------- --------
Net loss applicable to common
stock.............................. $ (425) $(6,143) $ (6,568) $ (8,138) $(46,049)
======= ======= ======== ======== ========
</TABLE>
THE COMPANY FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED WITH
THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1998
Revenues. Revenues for 1999 were $66.0 million, compared with $175.5
million for 1998. The decrease of $109.5 million, or 62.4%, 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 1998 and the first quarter of 1999
significantly reduced demand for the Company's services. Although commodity
prices have returned and are in fact at historically high levels, demand for
land and transition zone seismic acquisition services remains severely depressed
over levels experienced in recent years. 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 United States data acquisition operations decreased $49.4
million, or 63.5%, from $77.7 million in 1998 to $28.3 million in 1999. This
decrease was attributable to the Company operating six to eight contract seismic
data acquisition crews from time to time in the United States during 1998,
compared with only two to four crews in 1999. In addition, during 1999, two of
the crews were performing multi-client projects with average underwriting, or
pre-commitments, of approximately 39% of total project costs. This compares to
the same period in 1998 when the average underwriting for multi-client projects
was approximately 79% of total costs. The significance of the decrease in
underwriting affected 1999 sales because,
11
<PAGE> 14
pursuant to the Company's revenue recognition policy, a portion of project
underwriting is recognized as revenue during the current period. Firm backlog
for United States data acquisition projects at December 31, 1999 was $8.1
million.
Revenues from seismic data processing operations, purchased in July 1998,
were $1.5 million for 1999 compared to $957,000 for 1998. The Company operated
seismic data processing centers during 1999 in Midland, Dallas and Houston,
Texas. These centers process both third-party and Company-owned multi-client
data. In January 2000, the Company completed the consolidation of its Midland
center with operations in the Houston seismic data processing center.
Revenues from the Canadian data acquisition operations decreased $4.0
million, or 28.2%, from $14.2 million in 1998 to $10.2 million in 1999. This
decrease was due to a decline in activity experienced during the first three
quarters of 1999 when compared to first three quarters of 1998. This was
partially offset by increased seismic activity during the fourth quarter of 1999
when compared to fourth quarter 1998. The Company is encouraged by the recovery
of the Canadian market experienced at the end of 1999. During the first quarter
of 2000, four to five land seismic crews were operating in Canada as compared to
only three during the first quarter of 1999.
The Company began its multi-client data acquisition activities in the
United States and Canada during 1998. Multi-client crew operations began in the
second quarter of 1998 and were continuous through December 1999. During that
time, 17 projects were completed in Texas, California, Wyoming and Canada
covering a total of 1,648 square miles. There were 621 square miles completed in
1998. The cost of these projects was $23.7 million with approximately $18.6
million, or 78.4%, underwritten by third parties. There were 1,027 square miles
completed in 1999. The cost of these projects was $41.3 million with
approximately $18.4 million, or 44.5%, underwritten by third parties. Due to the
continued depressed demand for seismic services, an inability to secure adequate
initial customer underwriting and a lack of sufficient liquidity, the Company
has curtailed its strategy of building a multi-client data library in the
southern United States. As long as these factors persist, the Company will be
very selective in its decision to participate in multi-client projects. For the
year 2000, the Company has committed to only two multi-client projects, both
located in Canada. Estimated project costs are $1.3 million with 100% of the
costs underwritten by third parties. Revenues associated with the underwritten
portion of multi-client data programs are recognized as a component of the data
acquisition revenues discussed above. Revenue from sales of the data library for
1999 was $3.5 million, compared to only $388,000 for 1998.
Revenues in Latin America decreased $37.5 million, or 71.4%, from $52.6
million in 1998 to $15.1 million in 1999. During 1998, the Company's Latin
American operations consisted of as many as eight seismic crews operating in
Bolivia, Brazil, Colombia, Ecuador and Guatemala. During 1999, four to five
crews operated in Mexico, Ecuador, Guatemala, Brazil and Colombia. There are
currently a total of three land seismic acquisition crews operating or
mobilizing in this region.
Revenues from the Far East decreased $22.6 million, or 75.0%, from $30.1
million in 1998 to $7.5 million in 1999. During 1998, the Company operated as
many as five crews in the region: one land and two transition zone crews in
Bangladesh, and one land and one transition zone crew in Indonesia. During 1999,
the Company operated one to two crews, primarily in Indonesia. The Indonesian
crew is currently the only crew operational in this region.
Expenses. Direct operating expenses as a percentage of revenues increased
to 82.5% in 1999 from 72.6% in 1998. This percentage increase can be attributed
to reduced operating margins on multi-client projects during the third and
fourth quarters of 1999 and unanticipated start-up and operating expenses on two
Latin American crews incurred during the second and third quarters of 1999.
Direct operating expenses for the twelve months ended December 31, 1999
decreased $72.9 million, or 57.2%, to $54.5 million, compared to $127.4 million
for the twelve months ended December 31, 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 $.7 million, or
4.9%, to $13.5 million in 1999 from $14.2 million in 1998. This reduction is the
result of the Company's effort throughout 1999 to reduce support
12
<PAGE> 15
and overhead personnel in all of its operating regions and at the corporate
office level. There have been limited increases in support and overhead
personnel, during the third and fourth quarters of 1999, in response to the
increase in demand for seismic services being experienced primarily in the
Company's international markets. Selling, general and administrative expenses
increased as a percentage of revenue to 20.5% in 1999 from 8.1% in 1998. This
increase is a result of the revenue decreases experienced throughout all the
Company's operating regions as described above.
Depreciation and amortization increased $2.3 million, or 9.7%, to $26.1
million in 1999 from $23.8 million for 1998. This increase reflects additional
amortization of the Company's multi-client projects, partially offset by a
reduction in capital expenditures during 1999 as compared to 1998. Capital
expenditures were $9.5 million and $23.9 million for 1999 and 1998,
respectively.
The Company recorded charges for asset impairment of $5.0 million and $3.8
million for 1999 and 1998, respectively. All of the 1999 charge and $3.2 million
of the 1998 impairment were special charges to reduce the carrying value of the
Company's multi-client data library to net realizable value, based on revised
future licensing prospects for such data due to the current downturn in the
industry and the Company's recent sales experience 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. Also
included in the 1998 charge was a $564,000 write-down in the carrying value of
certain non-operating depreciable fixed assets to salvage value.
Other Income (Expenses). Interest expense, net, increased $2.7 million to
$12.0 million in 1999 from $9.3 million in 1998. A portion of the increase can
be attributed to the Company's sale on February 18, 1998 of $100 million of 9
3/4% Senior Notes (the "Senior Notes") due 2008. Consequently, 1999 included an
additional month and a half of interest expense on the Senior Notes as well as
interest on increased borrowings under the Company's revolving credit facility.
These funds were used to finance multi-client data projects, to fund capital
expenditures and provide working capital for operations.
Tax Provision. The income tax provision consisted of income taxes in
foreign countries. For 1998 this includes provisions for taxes in Colombia,
Ecuador, Guatemala, Bangladesh and Indonesia; for 1999 this includes provisions
for taxes in Colombia, Ecuador, Bangladesh and Canada. No benefit for United
States federal income tax loss carryforwards was recorded in either period,
given the uncertainty of realization of such tax benefits.
THE COMPANY FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED WITH
THE COMPANY AND GGI COMBINED TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1997
The following analysis compares the operating results of the Company for
the twelve-month period ended December 31, 1998 with combined operating results
of the Company for the three-month period ended December 31, 1997 (including the
operating results of Solid State for such period) and the operating results of
GGI for the nine-month period ended September 30, 1997. As described above,
Grant began operations immediately following its acquisition of substantially
all of the assets and certain liabilities of GGI on September 30, 1997 and Grant
acquired Solid State in December 1997. Because of the significant changes in
Grant's control and management and scope of operations following the
consummation of the Plan, comparisons may not be meaningful.
Revenues. Revenues of the Company for the twelve months ended December 31,
1998 were $175.5 million, compared with $130.6 million of combined revenue for
GGI and the Company for the twelve months ended December 31, 1997. The increase
of $44.9 million, or 34.4%, was the result of growth in revenues in both the
United States and the Far East and the inclusion of a full year of Solid State's
results of operations in 1998 compared to only three months in 1997.
Revenues from the United States operations increased $25.0 million, or
46.4%, from $53.7 million to $78.7 million in 1998. Revenues from the United
States data acquisition operations increased $24.1 million, or 44.7%, from $53.7
million in 1997 to $77.8 million in 1998. This increase was due primarily to the
addition of two Solid State crews in the northern United States for the entire
year versus only one crew for three months
13
<PAGE> 16
in 1997 and the addition of new and more efficient recording instrumentation.
Productivity was enhanced by increasing the seismic recording channel count per
crew and, whenever possible, utilizing a twenty-four hour recording schedule.
During 1998, there were as many as eight seismic crews operational in the United
States versus only six to seven crews operational in 1997. Beginning late in the
third quarter of 1998, due primarily to the low oil and gas prices, demand for
data acquisition recording services in the United States and elsewhere began to
decline. By the end of December 1998, there were six crews operating or
mobilizing in the U.S.
Revenues from seismic data processing were $957,000 for 1998. The Company
purchased its seismic data processing operations in July 1998; therefore, there
are no comparable results for 1997. The Company operated processing centers in
Midland and Dallas, Texas for the remaining six months and began operations in a
newly established Houston, Texas center during the fourth quarter of 1998.
Revenues from the Canadian data acquisition operations increased $9.7
million, or 215.6%, from $4.5 million in 1997 to $14.2 million in 1998. The
Company acquired these operations from Solid State effective September 30, 1997.
The increase in 1998 is the result, therefore, of including a full year of
operations in 1998 versus only three months in 1997. From time to time during
1998, the Company operated as many as six land seismic crews throughout Canada.
The Company began its multi-client data acquisition activities in the
United States and Canada during 1998. Crew operations began in the second
quarter with significant activity occurring in both the third and fourth
quarters. The Company has completed or is conducting eleven data library
projects totaling approximately 1,234 square miles in Texas, California, Wyoming
and Canada. At December 31, 1998, 621 square miles had been completed and an
additional 246 square miles were scheduled for completion by March 31, 1999. The
Company and GGI had no multi-client data activity in 1997. 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.
Revenues in Latin America decreased $6.0 million, or 10.2%, from $58.6
million in 1997 to $52.6 million in 1998. During 1998, the Company operated as
many as eight land seismic crews in Brazil, Guatemala, Colombia, Ecuador and
Bolivia. During 1997, combined Latin American operations for GGI and the
Company, while operating in the same countries, consisted of as many as ten land
seismic data acquisition crews. The Brazilian operations were completed in March
1998 and the equipment was moved to work in Guatemala. The Colombian operations
were completed in the third quarter of 1998 and both the Guatemalan and Bolivian
contracts were finished in the fourth quarter of 1998. Ecuadorian operations
were completed in February 1999.
Revenues from the Far East increased $16.6 million, or 123.1%, from $13.5
million in 1997 to $30.1 million in 1998. During 1998, the Company operated as
many as five crews in the region: one land and two transition zone crews in
Bangladesh and one land and one transition zone crew in Indonesia. During 1997,
in Bangladesh, GGI and the Company operated one crew for the entire year and
mobilized one additional transition zone crew that began operations in July
1997. By December 1998, there were three active crews in the region.
Expenses. Direct operating expenses for the twelve months ended December
31, 1998 increased $28.0 million, or 28.2%, to $127.4 million compared with
$99.4 million for the twelve months ended December 31, 1997. Direct operating
expenses as a percentage of revenues decreased to 73.5% in 1998 from 76.2% in
1997. The overall dollar increase was the result of increased crew activity in
the southern United States and the Far East and the inclusion of a full year of
Solid State's results in 1998 versus only three months in 1997. The percentage
decrease is the result of improvements in operating efficiencies primarily in
the United States. These improvements were the results of upgrading and
expanding the Company's seismic data recording equipment, careful and detailed
project cost analysis and management's ability to properly assess operating
risk.
Selling, general and administrative expenses for the twelve months ended
December 31, 1998 increased $4.2 million to $14.2 million from $10.0 million in
1997. Selling, general and administrative expenses as a percentage of revenue
increased only marginally to 8.1% in 1998 from 7.6% in 1997. The overall dollar
14
<PAGE> 17
increase was primarily due to an approximate $1.5 million increase as a result
of the inclusion of Solid State for a full year in 1998 versus only three months
in 1997, $1.1 million of additional costs incurred to develop international and
domestic markets, $537,000 for corporate provisions for doubtful accounts and
incentive bonuses and the remainder related to a general increase in corporate
support services.
Depreciation and amortization increased $10.8 million to $23.8 million in
1998 from $13.0 million for 1997. The increase was due to an increase of
approximately $3.8 million due to the inclusion of Solid State for a full year
in 1998 versus only three months in 1997, $1.5 million for the amortization of
goodwill, $3.8 million of depreciation on newly purchased assets and $1.5
million for amortization of the multi-client data library.
The charge for asset impairment was $3.8 million for 1998 compared to $6.4
million in 1997. At December 31, 1998, the Company recorded a special charge of
$3.2 million to reduce the carrying value of its multi-client data, acquired
through the purchase of Solid State during the fourth quarter of 1997, to its
net realizable value based on revised estimates of future licensing prospects
for such data. The charge for asset impairment recorded in 1997 included a
special charge of $5.9 million to write down the acquired Solid State
multi-client data to its then-estimated net realizable value. The acquisition of
Solid State in 1997 occurred in two parts: the acquisition of the majority
interest and the acquisition of the minority interest. The 1997 impairment
charge relates only to certain assets of Solid State that were acquired during
the acquisition of the majority interest. These assets had been originally
recorded at historical cost. None of the $6.4 million impairment charge
recognized in 1997 related to the assets acquired as part of the acquisition of
the minority interest. Also included in 1998, was a charge of $564,000 relating
to the write-down in the carrying value of certain non-operating depreciable
fixed assets to salvage value. The remaining 1997 charge relates to a $247,000
write-down in the carrying value of certain non-operating depreciable fixed
assets to salvage value and a $253,000 write-down in the carrying value of
certain other investments and joint ventures.
Other Income (Expenses). Interest expense, net, increased $4.2 million to
$9.3 million in 1998 from $5.1 million in 1997. This increase was the result of
interest on debt both incurred and assumed by the Company as a result of the
Solid State acquisition and from the sale on February 18, 1998 of $100 million
of 9 3/4% senior notes due 2008 (the "Senior Notes"). Proceeds from the sale
were used to retire substantially all of the Company's outstanding indebtedness,
to fund capital expenditures and to provide working capital for general
corporate purposes.
Reorganization costs of $3.5 million in 1997 related to charges incurred in
connection with GGI's reorganization, which began in December 1996 and was
completed in September 1997. No comparable reorganization charges were incurred
by the Company in the three months ended December 1997 or for the year ended
December 31, 1998.
Other income of $1.0 million for 1997 was the result of settlement of a
long-standing dispute between one of GGI's Brazilian subsidiaries and a former
customer relating to services rendered on contracts dating back to 1983. In
settlement of all claims, GGI received payment, net of related costs and
expenses, of approximately $2.4 million in July 1997. Income from that
settlement was offset by approximately $767,000 in costs associated with the
Solid State acquisition and approximately $289,000 of foreign currency exchange
losses, primarily related to US dollar based loans owed by Solid State prior to
its acquisition by Grant. In 1998, the Company recorded $635,000 in litigation
expense associated with the settlement of litigation related to the Solid State
acquisition, representing the cash paid by Elliott Associates, L.P. ("Elliott")
and the $0.25 discount permitted the plaintiffs to purchase the Company's common
stock in the subscription offering (see Note 13 to the Consolidated Financial
Statements).
Tax Provision. The income tax provision in both periods consisted of income
taxes in foreign countries. The increase in 1998 compared with 1997 is a result
of higher taxable income in Indonesia and Guatemala. No provision for United
States federal income tax was made in 1997 as GGI and the Company each had
taxable losses for which no benefit was recorded under FAS 109. In 1998, the
Company provided for approximately $100,000 of alternative minimum tax in the
United States.
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
As discussed previously, demand for the Company's seismic acquisition
services has been and continues to be adversely affected by reduced industry
activity continuing through December 31, 1999. As a result, the Company has
required additional financing to continue operations, complete its capital
expenditure program, implement its business strategy and meet its principal and
interest obligations with respect to the Senior Notes and other indebtedness.
The Company's operating activities used $1.2 million in cash during 1999,
compared to cash generated of $17.3 million for the comparable period in 1998.
In 1999, cash used in operating activities was primarily due to the Company's
net loss of $45.8 million, partially offset by non-cash charges (impairment and
depreciation and amortization expense) and a decrease in accounts receivable.
Between August 16, 1999 and December 29, 1999, the Company issued a total
of 149,000 shares of 8% exchangeable preferred stock (the "Exchangeable
Preferred Stock") to Elliott at a price of $100 per share. This equity financing
was required to supplement available cash, cash flow generated from operations
and borrowings under the credit facility with Foothill Capital Corporation
("Foothill") to provide sufficient liquidity to fund the Company's cash
requirements. Additionally, the Company issued 677 shares, 2,252 shares and
1,265 shares of Exchangeable Preferred Stock to Elliott as of October 1, 1999,
January 1, 2000 and February 7, 2000, respectively, as payment-in-kind dividends
on the Exchangeable Preferred Stock payable on those dates. On February 7, 2000,
the Company exchanged all the outstanding Exchangeable Preferred Stock, 153,194
shares, for an equal number of shares of its new 8% convertible preferred stock
(the "Convertible Preferred Stock") with a liquidation preference of $100 per
share. This was a non-cash transaction for the Company.
In order to improve its liquidity and supplement its operating activities,
pursuant to a registration statement originally filed on October 28, 1999 and
declared effective on January 12, 2000, the Company offered to exchange (the
"Exchange Offer") $100,000,000 aggregate principal amount of its outstanding
Senior Notes for shares of its Convertible Preferred Stock with an aggregate
liquidation value equal to 65% of the aggregate principal amount of the Senior
Notes tendered, plus 100% of the accrued and unpaid interest thereon through the
date of the exchange. On January 19, 2000, a total of $56,320,000 of the Senior
Notes, together with $2,364,000 of accrued and unpaid interest, were exchanged
for 389,722 shares of Convertible Preferred Stock. The Senior Notes exchanged
represent all of the Senior Notes previously held by Elliott and Westgate
International, L.P. ("Westgate") No other Senior Notes were tendered and the
Exchange Offer expired on February 7, 2000. The consummation of the Exchange
Offer has increased the Company's liquidity by reducing its principal payment
obligations with respect to the Senior Notes and reducing the negative cash flow
impact of its interest payment obligations on the Senior Notes. The Company
intends to pay dividends on the Convertible Preferred Stock in additional shares
of Convertible Preferred Stock until further notice.
In connection with the Exchange Offer, the Company solicited consents from
the holders of its Senior Notes in order to amend definitions and to modify
certain restrictive covenants in the indenture governing the Senior Notes. The
original indenture limited the Company's ability to incur additional
indebtedness, pay dividends or make certain other distributions, create liens,
sell assets or enter into certain mergers or acquisitions. The consent of
holders of a majority of the outstanding principal amount of the Senior Notes
held by holders other than the Company, its subsidiaries and affiliates was
required to approve the proposed amendments to the indenture. This required
majority was achieved by January 19, 2000. Following the tender of the Senior
Notes by Elliott and Westgate, the Company executed a First Supplemental
Indenture with LaSalle Bank National Association, the trustee under the
indenture governing the Senior Notes, dated January 19, 2000 that caused the
approved amendments to take effect. The First Supplemental Indenture, among
other things, amended the definition of permitted indebtedness to allow for the
increase of incurred debt from $25 million to $50 million and increased
additional indebtedness from $7.5 million to $10 million.
The Company entered into a Loan and Security Agreement with Foothill and
Elliott dated May 11, 1999. Under the terms of the original credit facility, the
Company could borrow up to $25 million. The facility was comprised of a $6
million revolving credit facility and term loans of up to $11.5 million and $7.5
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. On February 14, 2000,
significant
16
<PAGE> 19
modifications to the credit facility were completed. The Foothill/Elliott credit
facility was increased from $25 million to $29 million. This was accomplished by
increasing commitments under the revolving credit facility from $6 million to
$10 million, subject to borrowing base limitations. In addition, the notional
$11.5 million term loan, which had been reduced through periodic principal
payments to $10.1 million, was increased to the original outstanding balance of
$11.5 million. The Company was in compliance with debt covenants included in the
Loan and Security Agreement as of December 31, 1999.
As of December 31, 1999, the Company's total indebtedness was approximately
$127.9 million. The total indebtedness was comprised of $99.4 million aggregate
principal amount of the Senior Notes, $23.1 million outstanding on the
Foothill/Elliott credit facility and $5.4 million of combined loans and
capitalized leases primarily incurred for the purpose of financing capital
expenditures. Subsequent to the Exchange Offer, on March 30, 2000, the Company's
total indebtedness has been reduced to approximately $73.3 million, comprised of
$43.4 million in Senior Notes, $25.4 million outstanding on the Foothill/Elliott
credit facility and $4.5 million of combined loans and capitalized leases.
The Company's ability to meet its debt service and other obligations will
depend on its future performance, which in turn is subject to economic
conditions (both general and within the oil and gas industry) and other factors
beyond the Company's control. If the Company is unable to generate sufficient
cash flow from operations or otherwise comply with the terms of the indenture,
the First Supplemental Indenture, the Foothill/Elliott 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/equity capital. There can be no
assurance that such refinancing or additional financing/equity capital will be
available on terms acceptable to the Company.
The Company's internal sources of liquidity are its working capital and
cash flow from operations. External sources include borrowings, to the extent
available, under the Company's credit facility with Foothill/Elliott, equipment
financing and trade credit. 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'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 selective 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,
excluding Canada. These operations, excluding Canada, accounted for 34.2% of
total revenues for the twelve months ended December 31, 1999.
Capital expenditures for 1999 were approximately $9.5 million and were used
primarily to upgrade and expand the Company's seismic data acquisition and
recording equipment. The projected capital budget for the year 2000 is
approximately $5.1 million, primarily for the upgrade and replacement of the
Company's seismic data acquisition and recording equipment. Actual capital
expenditures may be reduced to a level consistent with funding availability.
In addition to the capital expenditures listed above, for the year ended
December 31, 1999 the Company spent approximately $24.7 million on eleven
multi-client data acquisition projects principally located in Texas, California,
Wyoming and Canada. Customer commitments for those projects were approximately
40% of the project costs.
Management believes that the completion of the Exchange Offer, together
with existing cash balances, available borrowing capacity and expected cash flow
from operations will allow the Company to meet capital and debt service
requirements for the next twelve months, based on expected operating levels. The
Company may require additional funds to support working capital requirements
associated with expanding its operations through internal growth or acquisitions
or for other purposes and may seek to raise additional funds through equity or
debt financing. There can be no assurance that additional financing will be
available on commercially reasonable terms, or that such financing will be
available at all.
17
<PAGE> 20
FOREIGN CURRENCY 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 international operations are subject to fluctuations in
foreign currency exchange rates. Accordingly, the Company's international
contracts could be significantly affected by fluctuations in exchange rates.
International contracts requiring payment in currency other than U.S. or
Canadian dollar 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 favorable U.S. dollar
conversion rate.
The Company's operating results were positively impacted by foreign
exchange gains of approximately $351,000 for the year ended December 31, 1999,
negatively impacted by a foreign exchange loss of approximately $485,000 for the
year ended December 31, 1998, and positively impacted by $77,000 of foreign
exchange gains for the three months ended December 31, 1997.
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. 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 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 READINESS DISCLOSURE
The Year 2000 ("Y2K") problem refers to the inability of certain computer
systems and other equipment with embedded chips or processors (collectively
"Business Systems") to correctly interpret the century from a date in which the
year is represented by only two digits. Business Systems which are not Y2K ready
may not be able to correctly process certain data, or in extreme situations, may
cause a system to be disabled or fail to function reliably. As of March 24,
2000, the Company has not experienced any Y2K disruptions or failures in its
Business Systems and is not aware of any disruptions or failures with its
significant customers, suppliers, and business partners. Total costs incurred
through December 31, 1999 by the Company in connection with the Y2K issue,
including costs incurred in connection with a major upgrade of its accounting
and financial reporting systems to meet Y2K requirements, were approximately
$1.6 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's debt consists of both fixed-interest and variable-interest
rate debt; consequently, the Company's earnings and cash flows, as well as the
fair values of its fixed-rate debt instruments, are subject to interest-rate
risk. The Company has performed sensitivity analyses to assess the impact of
this risk based on a hypothetical ten-percent increase in market interest rates.
Market rate volatility is dependent on many factors that are impossible to
forecast, and actual interest rate increases could be more severe than the
hypothetical ten-percent increase.
18
<PAGE> 21
The Company estimates that if prevailing market interest rates had been ten
percent higher throughout 1998 and 1999, and all other factors affecting the
company's debt remained the same, pretax earnings would have been lower by $1.0
million in 1998 and $1.3 million in 1999. With respect to the fair value of the
Company's fixed-interest rate debt, if prevailing market interest rates had been
ten percent higher at year-end 1998 and 1999, and all other factors affecting
the Company's debt remained the same, the fair value of the Company's fixed-rate
debt, as determined on a present-value basis, would have been lower by
approximately $1 million at December 31, 1998 and 1999, respectively. Given the
composition of the Company's debt structure, the Company does not, for the most
part, actively manage its interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in a separate section of this report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The name, age and current principal position of each director, executive
officer and significant employee of the Company at March 24, 2000 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Donald W. Wilson...................... 52 Chairman of the Board
Richard H. Ward....................... 56 President and Chief Executive Officer
Thomas L. Easley...................... 54 Executive Vice President -- Finance &
Administration
Stephen H. Wood....................... 59 Vice President and Chief Operating
Officer
G. Matt McCarroll..................... 42 Vice President -- Business Development
James R. Brock........................ 39 Director
J. Kelly Elliott...................... 68 Director
Michael R. Latina..................... 27 Director
Jonathan D. Pollock................... 35 Director
Donald G. Russell..................... 67 Director
</TABLE>
Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any directors or executive officers of the
Company. See "Certain Relationships and Related Transactions" for a description
of certain other relationships between or among directors and executive officers
of the Company.
Donald W. Wilson has served as Chairman of the Board of the Company since
April 28, 1998 and as a director of the Company since January 1998. Since
October 1998, Mr. Wilson has served as President and Chief Operating Officer of
Odyssea Marine, Inc. ("Odyssea"), a marine services and power generation company
controlled by Elliott and Westgate. Mr. Wilson served as President and Chief
Executive Officer of Prime Natural Resources, Inc. ("Prime Natural Resources"),
an oil and gas exploration and production company controlled by Elliott and
Westgate, from January 1996 until October 1998. From January 1995 through
December 1995, Mr. Wilson served as Executive Vice President -- Worldwide
Operations of J. Ray McDermott, S.A., a marine engineering and construction
company. From December 1992 through December 1994, Mr. Wilson served as
President of OPI International, Inc., a subsidiary of Offshore Pipelines, Inc.
("Offshore Pipelines"), an international marine construction company.
19
<PAGE> 22
Richard H. Ward has served as President and Chief Executive Officer of the
Company since February 1999. From October 1998 until January 1999, Mr. Ward was
General Manager of Canadian Hunter Argentina S.A., an oil and gas company
operating in Argentina, and was also a business consultant in Argentina from
January 1998 to September 1998. Mr. Ward served as Vice President -- Latin
America of Landmark Graphics, a computer graphics company specializing in
petroleum exploration, from June 1996 until December 1997 and served as
Manager -- Geophysical Department of YPF S.A., the former national oil company
of Argentina, from June 1994 to May 1996. He was also General Manager of Latin
American Operations of Veritas Geophysical from January 1994 until May 1994.
Previously, Mr. Ward held key management positions from 1989 to 1993 at Western
Atlas International, an international geophysical services company, and from
1970 to 1989 at Geosource, an oilfield services contractor that was acquired by
Halliburton in 1988.
Thomas L. Easley has served as Vice President -- Finance & Administration
of the Company since February 7, 2000. Mr. Easley served as Vice President &
Chief Financial Officer of Boots & Coots International Well Control, Inc., an
international well control and firefighting company from September 1996 to
February 7, 2000; Vice President & Chief Financial Officer of D. I. Industries,
Inc., a land drilling contractor, from May 1995 to August 1996; and, Vice
President -- Finance of Huthnance International, Inc., an offshore drilling
contractor, from June 1992 to May 1995. He is also a Certified Public
Accountant.
Stephen H. Wood has served as Vice President and Chief Operating Officer of
the Company since February 1999. From November 1997 to February 1998, Mr. Wood
was the President of Universal Seismic Acquisition and Technologies, Inc. and
Chief Operating Officer of its parent company, Universal Seismic Associates.
From 1993 through November 1997 Mr. Wood was President of Vortex Geophysical
Operations, a consulting company specializing in geophysical data and survey
processing. He was previously employed by Halliburton Geophysical Services, and
its predecessor companies, from 1965 until 1992.
G. Matt McCarroll has served as Vice President -- Business Development of
the Company since July 1999. Mr. McCarroll previously served as President of
Augusta Petroleum Partners, LLC., a petroleum exploration and acquisition
company, from 1997 until July 1999. He was employed by Plains Resources Inc., an
oil and gas exploration and production company, as Vice President -- Land and
Exploration, from 1988 to 1997.
James R. Brock has served as a director of the Company since January 1998.
Since October 1998, Mr. Brock has served as Executive Vice President and Chief
Financial Officer of Odyssea. From January 1995 through October 1998, Mr. Brock
served as Executive Vice President and Chief Financial Officer of Prime Natural
Resources and also served as a director of that Company through February 1998.
From January 1993 until January 1995, Mr. Brock served as Vice
President-Treasurer of Offshore Pipelines, an international marine construction
company and also as its Corporate Controller and Chief Accounting Officer from
1990. He was employed by Arthur Andersen & Co., from 1981 to 1990.
J. Kelly Elliott has served as a director of the Company since September
30, 1997. Until that time, Mr. Elliott was Chairman of the Board of GGI
beginning on November 20, 1996. He previously served as Chairman of the Board of
GGI from June 1993 through November 1995. Mr. Elliott has served as Chairman,
President, and Chief Executive Officer of Sigma Electronics, Inc., an
electronics and manufacturing company, since 1991. Mr. Elliott is also Chairman
of Seaboard International, a wellhead and valve manufacturing company. Mr.
Elliott has no affiliation with Elliott Associates or Westgate.
Michael R. Latina has served as a director of the Company since February
2000. Mr. Latina has been a Portfolio Manager of energy sector investments for
Stonington Management Corporation, the management company of Elliott and
Westgate, since 1998. Mr. Latina is also a director of Prime Natural Resources;
Odyssea; Intedyne LLC, a provider of drilling tools to the oil and gas and
roadboring industries; Baycorp Holdings, Inc. an independent wholesale generator
of electricity; and Houston Street Exchange, Inc., an internet based exchange
for trading wholesale electric power and other energy commodities. He served as
a Director of Solid State from 1996 to 1997 and from 1994 to 1996 was an
investment banker in the Media and Entertainment Group with Bear, Stearns & Co.,
Inc.
20
<PAGE> 23
Jonathan D. Pollock has served as a director of the Company since September
30, 1997 and as Chairman of the Board of the Company from September 30, 1997
until April 28, 1998. Mr. Pollock has served as a Portfolio Manager with
Stonington Management Corporation, since 1998. Mr. Pollock is also a director of
Tatham Offshore, Inc., an oil and gas exploration services company, Chairman of
Prime Natural Resources, Chairman of the Board of Horizon Offshore, Inc., an
offshore oil and gas pipeline construction company, and Chairman of the Board of
Odyssea.
Donald G. Russell has served as a director of the Company since September
30, 1997 and a director of GGI from February 1997 until September 30, 1997 and
from July 1993 through November 1995. Mr. Russell served as Chairman of the
Board and Chief Executive Officer of Sonat Exploration Company, an oil and gas
exploration company, from 1988 until May 1998, and a director of Sonat, Inc., a
diversified energy company, from 1994 until May 1998. He has been Chairman of
the Russell Companies since May 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes information concerning the compensation of
the Company's Chief Executive Officer and the other four most highly compensated
executive officers for 1999 (the "Named Executive Officers"). The Company was
organized in September 1997 and did not conduct any operations or have any
employees before the Effective Date. As a result, the Company does not have any
executive officers with respect to whom disclosure of executive compensation is
required under the Securities Act or the rules and regulations promulgated
thereunder for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
NAME AND OTHER ANNUAL AWARDS ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
- ------------------ ---- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard H. Ward(1)....................... 1999 $203,926 -- 600,000 --
President and Chief Executive Officer
Larry E. Lenig, Jr.(2)................... 1999 $360,000 -- 80,000(3) --
Former President and Chief Executive 1998 $180,000 -- 340,000 $8,708
Officer
Michael P. Keirnan(4).................... 1999 $105,024 -- -- --
Vice President, Chief Financial Officer 1998 $ 97,000 -- 36,000 $1,391
Stephen H. Wood(5)....................... 1999 $173,559 -- 200,000 --
Vice President, Chief Operating Officer
G. Matt. McCarroll(6).................... 1999 $ 94,456 -- -- --
Vice President, Business Development
Barry K. Burt(7)......................... 1999 $148,769 -- -- --
Vice President, International
Operations 1998 $112,600 -- 36,000 $7,667
</TABLE>
- ---------------
(1) Mr. Ward became President and Chief Executive Officer effective February 3,
1999. In conjunction with his appointment, Mr. Ward was awarded 600,000
stock options.
(2) Mr. Lenig resigned as President and Chief Executive Officer effective
January 27, 1999.
(3) In connection with the separation agreement between Mr. Lenig and the
Company, Mr. Lenig retained 80,000 of the 340,000 stock options previously
granted to him.
(4) Mr. Keirnan was Assistant to the President through June 1999 when he became
Chief Financial Officer. Mr. Keirnan has resigned effective March 31, 2000.
21
<PAGE> 24
(5) Mr. Wood became Vice President and Chief Operating Officer effective
February 24, 1999. In conjunction with his appointment, Mr. Wood was awarded
200,000 stock options.
(6) Mr. McCarroll became Vice President -- Business Development in July 1999.
(7) Mr. Burt resigned effective July 29, 1999.
The following table sets forth additional information with respect to stock
options granted in 1999 under the Company's Incentive Plan to the Named
Executive Officers.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------ POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR OPTION
GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE ------------------------------
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
- ---- ------- ------------ ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Ward........... 600,000 75% 4.25 2/3/2009 $977,000 $1,556,000
Stephen H. Wood........... 200,000 25% 4.25 2/24/2009 $326,000 $ 519,000
</TABLE>
The following table sets forth information with respect to the unexercised
options to purchase shares of common stock which were granted in 1999 or a prior
year under the Company's 1997 Equity and Performance Incentive Plan to the Named
Executive Officers and held by them at December 31, 1999. None of the Named
Executive Officers exercised any stock options during 1999.
AGGREGATED OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTION
OPTIONS AT YEAR-END AT YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard H. Ward............................... -- 600,000 $ -- $ --
Stephen H. Wood............................... -- 200,000 -- --
Larry E. Lenig, Jr............................ 80,000 -- -- --
Michael P. Keirnan............................ 24,000 12,000.... -- --
</TABLE>
- ---------------
(1) There is no trading market for the Common Stock.
EMPLOYMENT AGREEMENTS
On January 27, 1999, the Company entered into a Separation Agreement and
Release (the "Separation Agreement") with Larry E. Lenig, Jr. in connection with
his resignation as the Company's President and Chief Executive Officer. Under
the terms of the Separation Agreement, Mr. Lenig will receive $15,000 per month,
plus health benefits, from March 1999 through December 2001, and $7,500 per
month, plus health benefits, from January 2002 through December 2003. Mr. Lenig
also received a bonus of $180,000, which was earned pursuant to his employment
agreement with the Company based upon the Company's 1998 results, and was
allowed to retain one-third (80,000) of the stock options awarded to him under
the 1997 Equity and Performance Incentive Plan. The stock options retained by
Mr. Lenig are exercisable until February 28, 2002. Mr. Lenig agreed that, for a
five-year period, he would not (i) compete with the Company, (ii) contact the
Company's customers or (iii) solicit any of the Company's employees to leave the
Company. The Separation Agreement replaced and superseded the Restated and
Amended Employment Agreement between the Company and Mr. Lenig dated October 1,
1997.
22
<PAGE> 25
Effective February 3, 1999, the Company entered into an employment
agreement with Richard H. Ward, pursuant to which Mr. Ward agreed to serve as
President and Chief Executive Officer of the Company. Mr. Ward's employment
agreement has an initial term through February 3, 2002, and provides for an
annual base salary of $225,000. In the event Mr. Ward is terminated without
"cause" (as defined in his employment agreement), the Company must make base
salary payments for the remainder of the term of his agreement. In the event the
Company terminates Mr. Ward's employment because the Board of Directors
reasonably determines that Mr. Ward has failed to perform his obligations under
his employment agreement in a manner consistent with the Board's expectations,
the Company must make payments of 50% of the base salary for the remainder of
the term of his agreement. Mr. Ward also agreed not to compete against the
Company throughout the term of his employment and for two years thereafter, and
not to disclose any confidential information during and after the term of his
employment.
Effective February 24, 1999, the Company entered into an employment
agreement with Stephen H. Wood, pursuant to which Mr. Wood agreed to serve as
Chief Operating Officer of the Company. Mr. Wood's employment agreement has an
initial term through February 24, 2002, and provides for an annual base salary
of $200,000. In the event Mr. Wood is terminated without "cause" (as defined in
his employment agreement), the Company must make payments of 50% of the base
salary for the remainder of the term of his agreement. Mr. Wood also agreed not
to compete against the Company throughout the term of his employment and for two
years thereafter, and not to disclose any confidential information during and
after the term of his employment.
Effective February 7, 2000, the Company entered into an employment
agreement with Thomas L. Easley, pursuant to which Mr. Easley agreed to serve as
Executive Vice President -- Finance & Administration of the Company. Mr.
Easley's employment agreement has an initial term through February 7, 2002, and
provides for an annual base salary of $225,000. Mr. Easley also agreed not to
compete against the Company throughout the term of his employment and for two
years thereafter, and not to disclose any confidential information during and
after the term of his employment.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Incentive Plan was amended on three occasions to increase the
numbers of shares reserved for issuance, which presently is 2,250,000 shares.
The Incentive Plan provides for the grant to officers (including officers who
are also directors), employees, consultants and non-employee directors of Grant
and its subsidiaries. These individuals may be granted awards of "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, non-statutory stock options, stock appreciation rights and restricted
shares and deferred shares of Grant common stock.
The Board of Directors, or a committee of the Board of Directors consisting
of at least two non-employee directors, is required to administer the Incentive
Plan. The Board of Directors currently administers the plan and decides to whom
awards may be granted, the type of award to be granted and determine, as
applicable, the number of shares to be subject to each award, the exercise price
and the vesting. In making such determinations, the Board of Directors will take
into account the employee's present and potential contributions to our success
and other relevant factors. As of December 31, 1999, the Board of Directors had
granted outstanding awards covering 1,766,400 shares. Options covering 800,000
shares awarded to Richard H. Ward and Stephen H. Wood have an average exercise
price of $4.25 and vest annually in equal one-third increments beginning on
February 1, 2000. All other options awarded have an average exercise price of
$5.76 per share, with a range of $4.75 to $6.84 per share. These options vest
annually in one-third increments, the first third having vested on December 31,
1998. In addition, as of March 24, 2000, a total of 57,000 restricted shares
were granted to non-employee directors, with 54,000 of such shares being
unrestricted, subject to the satisfaction of conditions set forth under the
Incentive Plan.
23
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at March 24, 2000 by (i) each person
known to the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock, (ii) each director and executive officer and (iii) all
executive officers and directors as a group, including persons deemed to share
voting and investment power.
<TABLE>
<CAPTION>
AMOUNT
AND PERCENT
NATURE OF OF
BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP STOCK
- ------------------------ ---------- -------
<S> <C> <C>
Elliott Associates, L.P.(1)................................. 6,154,667 42.3%
Westgate International, L.P.(2)............................. 6,154,666 42.3%
Donald W. Wilson(3)......................................... 42,333
Richard H. Ward(3).......................................... 200,000 1.4%
Thomas L. Easley............................................ -- *
Steven H. Wood(3)........................................... 66,666 *
Michael P. Keirnan(3)....................................... 24,000 *
James R. Brock.............................................. 9,000 *
J. Kelly Elliott............................................ 9,000 *
Michael R. Latina........................................... 3,000 *
Jonathan D. Pollock......................................... 9,000 *
Donald G. Russell........................................... 9,000 *
All executive officers and directors as a group (10
persons).................................................. 371,999 2.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Paul E. Singer and Braxton Associates L.P., which is controlled by Mr.
Singer, are the general partners of Elliott. The business address of Elliott
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.
(2) Hambledon, Inc., which is controlled by Mr. Singer, is the sole general
partner of Westgate. Martley International, Inc. ("Martley"), which is
controlled by Mr. Singer, is the investment manager for Westgate. Martley
expressly disclaims equitable ownership of and pecuniary interest in any
shares of Common Stock. The business address of Westgate is Westgate
International, L.P. c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, British West
Indies.
(3) Includes stock options covering the following number of shares that are
exercisable by May 23, 2000: Mr. Ward 200,000, Mr. Wood 66,666, Mr. Wilson
33,333, and Mr. Keirnan 24,000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 11, 1999, the Company entered into a loan and security agreement
with Foothill and Elliott. Under the terms of that agreement, the Company may
borrow up to $6 million through a revolving credit facility and up to $19
million through two term loans. The Company must pay interest on any such
borrowing at annual rate equal to the prime rate plus 1 1/2%. Proceeds from the
loans made under this loan agreement were used to repay all the Company's $14.8
million outstanding indebtedness to Elliott under a previous credit facility and
to provide additional liquidity and working capital to support operations. On
August 12, 1999, the loan agreement was amended to modify components of the
Company's earnings calculations under the agreement and to allow interest
payments on portions subordinated indebtedness of the Company purchased by
Elliott. On September 23, 1999, the loan agreement was amended to increase the
maximum principal amount of indebtedness under the Foothill term loan to $11.67
million and to revise the repayment schedule of that loan. On February 14, 2000,
the credit facility was further increased to $29 million by increasing
commitments under the revolving facility to $10 million and increasing the term
loan back to the original outstanding balance of $11.5 million.
24
<PAGE> 27
Between August 16, 1999 and January 5, 2000 the Company issued a total of
149,000 shares of Exchangeable Preferred Stock to Elliott at a price of $100 per
share. The proceeds from the sale of the Exchangeable Preferred Stock totaled an
aggregate of $14,900,000 and were used to provide the Company with additional
working capital. Additionally, the Company issued 677 shares, 2,252 shares and
1,265 shares of Exchangeable Preferred Stock to Elliott as of October 1, 1999,
January 1, 2000 and February 7, 2000, respectively, as dividends on the
Company's Exchangeable Preferred Stock payable on those dates.
On January 19, 2000, pursuant to a registration statement originally filed
on October 28, 1999 and declared effective on January 12, 2000, $56,320,000 of
Senior Notes held by Elliott and Westgate, together with $2,364,000 of accrued
and unpaid interest thereon, were exchanged for 389,722 shares of Convertible
Preferred Stock.
On February 7, 2000, the Company exchanged all the outstanding Exchangeable
Preferred Stock owned by Elliott, 153,194 shares, for an equal number of shares
of Convertible Preferred Stock having a liquidation preference of $100 per
share.
During 1999, the Company performed data acquisition and processing services
for an affiliated oil and gas exploration and production company. Further, this
affiliated company has participated as an underwriter in one of the Company's
multi-client data library programs. Revenues for these services were
approximately $4,090,000 for 1999 and related accounts receivables outstanding
at December 31, 1999 was $1,600,000. Management of the Company believes such
operations were conducted under terms and conditions comparable to third-party
customers.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements and Financial Statement Schedule" set
forth on Page F-1.
No schedule or schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are required,
or such schedules are not applicable, and therefore, have been omitted.
(3) EXHIBITS
The exhibits filed as part of this Form 10-K are listed on the Index to
Exhibits immediately preceding such exhibits, which index is incorporated herein
by reference.
(b) REPORTS ON FORM 8-K
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement covering the Company's last fiscal year
has been or will be circulated to security holders.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 30th day of March 2000.
GRANT GEOPHYSICAL, INC.
By: /s/ RICHARD H. WARD
----------------------------------
Richard H. Ward
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RICHARD H. WARD President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Richard H. Ward
/s/ THOMAS L. EASLEY Executive Vice President -- Finance &
- ----------------------------------------------------- Administration and Secretary (Chief
Thomas L. Easley Financial Officer)
/s/ JOHN S. SUTJAK Controller (Principal Accounting Officer)
- -----------------------------------------------------
John S. Sutjak
/s/ DONALD W. WILSON Chairman of the Board and Director
- -----------------------------------------------------
Donald W. Wilson
/s/ JAMES R. BROCK Director
- -----------------------------------------------------
James R. Brock
/s/ J. KELLY ELLIOTT Director
- -----------------------------------------------------
J. Kelly Elliott
/s/ MICHAEL R. LATINA Director
- -----------------------------------------------------
Michael R. Latina
/s/ JONATHAN D. POLLOCK Director
- -----------------------------------------------------
Jonathan D. Pollock
/s/ DONALD G. RUSSELL Director
- -----------------------------------------------------
Donald G. Russell
</TABLE>
26
<PAGE> 29
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GRANT GEOPHYSICAL, INC. AND GGI LIQUIDATING CORPORATION
Report of Independent Accountants:
Grant Geophysical, Inc. .................................. F-1
Independent Auditors' Report:
Grant Geophysical, Inc.................................... F-2
GGI Liquidating Corporation............................... F-3
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1998 and
1999................................................... F-4
Consolidated Statements of Operations:
GGI Liquidating Corporation for the nine-month period
ended September 30, 1997............................... F-5
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the years ended December 31, 1998
and 1999............................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit):
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the years ended December 31, 1998
and 1999............................................... F-6
Consolidated Statements of Cash Flows:
GGI Liquidating Corporation for the nine-month period
ended September 30, 1997............................... F-8
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and for the years ended December 31,
1998 and 1999.......................................... F-8
Notes to Consolidated Financial Statements.................. F-9
Supplementary Financial Information......................... F-35
</TABLE>
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Grant Geophysical, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Grant Geophysical, Inc. and its subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 29, 2000
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Grant Geophysical, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Grant Geophysical, Inc. and subsidiaries
for the three month period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presents fairly, in all material respects, the results of operations and cash
flows of Grant Geophysical, Inc. and subsidiaries, for the three month period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
March 18, 1998
F-2
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GGI Liquidating Corporation
We have audited the accompanying consolidated statements of operations and
cash flows of GGI Liquidating Corporation and subsidiaries for the nine month
period ended September 30, 1997. These consolidated financial statements are the
responsibility of GGI Liquidating Corporation's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of GGI Liquidating Corporation and subsidiaries for the nine month period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that GGI Liquidating Corporation will
continue as a going concern which contemplates among other things, the
realization of assets and liquidation of liabilities in the ordinary course of
business. As discussed in Note 1 to the consolidated financial statements, GGI
Liquidating Corporation (the Petitioning Company) filed a voluntary petition for
reorganization under chapter 11 of the United States Bankruptcy Code on December
6, 1996. The chapter 11 case of the Petitioning Company is administered by the
United States Bankruptcy Court for the District of Delaware (the "Court"). The
Petitioning Company is operating the business as debtor-in-possession which
requires certain of its actions to be approved by the Court. In September 1997
the Court approved the "Second Amended Plan of Reorganization" (the "Plan")
filed by GGI Liquidating Corporation. The Plan was consummated on September 30,
1997, with the purchase by Grant Geophysical, Inc. of substantially all of the
assets and the assumption of certain liabilities of GGI Liquidating Corporation.
GGI Liquidating Corporation is currently in liquidation and will distribute all
of its assets pursuant to the Plan. Upon the completion of its asset
distribution, GGI Liquidating Corporation will dissolve and cease to exist. The
consolidated financial statements and financial statement schedule do not
include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of liabilities that
might result from the Plan and the distribution of assets pursuant thereto.
KPMG LLP
Houston, Texas
December 22, 1997
F-3
<PAGE> 33
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,921 $ 2,703 $ 2,703
Restricted cash........................................... 106 17 17
Accounts receivable:
Trade (net of allowance for doubtful accounts of $86 and
$352 at December 31, 1998 and 1999, respectively...... 25,918 18,345 18,345
Other................................................... 1,663 736 736
Inventories............................................... 512 446 446
Prepaids.................................................. 4,639 4,392 3,961
Work in process........................................... 4,062 1,570 1,570
-------- -------- --------
Total current assets................................ 44,821 28,209 27,778
Property, plant and equipment:
Land...................................................... 411 422 422
Buildings and improvements................................ 1,932 1,989 1,989
Plant facilities and store fixtures....................... 1,142 1,438 1,438
Machinery and equipment................................... 89,779 91,807 91,807
-------- -------- --------
Total property, plant and equipment................. 93,264 95,656 95,656
Less accumulated depreciation............................. 27,359 42,136 42,136
-------- -------- --------
Net property, plant and equipment................... 65,905 53,520 53,520
Multi-client data library, net.............................. 10,899 27,430 27,430
Goodwill, net............................................... 36,592 35,387 35,387
Other assets................................................ 8,224 5,450 3,289
-------- -------- --------
Total assets........................................ $166,441 $149,996 $147,404
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations............................... $ 2,522 $ 8,247 $ 8,247
Accounts payable.......................................... 15,316 12,876 12,876
Accrued expenses.......................................... 6,621 6,928 6,928
Accrued interest.......................................... 3,798 3,832 1,758
Foreign income taxes payable.............................. 2,191 1,255 1,255
-------- -------- --------
Total current liabilities........................... 30,448 33,138 31,064
Revolving line of credit -- affiliate....................... 8,000 7,500 7,500
Long-term debt and capital lease obligations................ 102,817 112,209 56,249
Unearned revenue............................................ 2,115 2,167 2,167
Other liabilities and deferred credits...................... 1,059 2,342 2,342
Commitment and contingencies (Note 13)...................... -- -- --
Stockholders' Equity:
Preferred stock, $.001 par value. Authorized 1,000,000
shares.
8% convertible preferred series, liquidation value $100
per share; issued and outstanding -0- and -0-shares at
December 31, 1998 and 1999 (538,754 pro forma shares
issued and outstanding at December 31, 1999)............ -- -- 53,875
8% exchangeable preferred series, liquidation value $100
per share; issued and outstanding -0- and 149,677 shares
at December 31, 1998 and 1999 (-0- pro forma shares
issued and outstanding at December 31, 1999)............ -- 14,968 --
Common stock, $.001 par value. Authorized 25,000,000 shares;
issued and outstanding 14,426,055 shares at December 31,
1998. Authorized 50,000,000 shares; issued and outstanding
14,544,055 shares at December 31, 1999.................... 14 15 15
Additional paid-in capital.................................. 41,727 42,111 58,871
Accumulated deficit......................................... (17,253) (63,074) (63,299)
Accumulated other comprehensive loss........................ (2,486) (1,380) (1,380)
-------- -------- --------
Total stockholders' equity.......................... 22,002 (7,360) 48,082
-------- -------- --------
Total liabilities and stockholders' equity.......... $166,441 $149,996 $147,404
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 34
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
GGI GRANT
------------- --------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1997 1997 1998 1999
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................................... $92,705 $37,868 $175,512 $ 66,047
Expenses:
Direct operating expenses................... 71,006 28,431 127,439 54,456
Selling, general and administrative
expenses................................. 6,473 3,507 14,156 13,529
Depreciation and amortization............... 8,432 4,594 23,809 26,147
Charge for asset impairment................. -- 6,369 3,762 5,028
------- ------- -------- --------
Total costs and expenses............ 85,911 42,901 169,166 99,160
------- ------- -------- --------
Operating income (loss)............. 6,794 (5,033) 6,346 (33,113)
Other income (expense):
Interest expense............................ (4,037) (1,431) (10,380) (12,572)
Reorganization costs........................ (3,543) -- -- --
Interest income............................. 279 69 1,080 566
Other....................................... 2,266 (1,262) (820) 602
------- ------- -------- --------
Total other expense................. (5,035) (2,624) (10,120) (11,404)
------- ------- -------- --------
Income (loss) before taxes and
minority interest................. 1,759 (7,657) (3,774) (44,517)
Income tax expense............................ (2,184) (856) (3,924) (1,236)
------- ------- -------- --------
Loss before minority interest....... (425) (8,513) (7,698) (45,753)
Minority interest............................. -- 2,847 -- --
------- ------- -------- --------
Net loss............................ (425) (5,666) (7,698) (45,753)
Preferred dividends........................... -- (477) (440) (296)
------- ------- -------- --------
Net loss applicable to common
stock............................. $ (425) $(6,143) $ (8,138) $(46,049)
======= ======= ======== ========
LOSS PER COMMON SHARE -- BASIC AND DILUTED:
Net loss...................................... $ (1.18) $ (.54) $ (3.16)
Dividend requirement on pay-in-kind preferred
stock....................................... (.10) (.03) (.02)
------- -------- --------
Net loss per common share..................... $ (1.28) $ (.57) $ (3.18)
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 35
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
-------------------------------------------------------------------------------
CUMULATIVE ACCUMULATED
PAY-IN-KIND ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT LOSS EQUITY
----------- ------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1997.......................... $ -- $-- $ -- $ -- $ -- $ --
Net loss...................... -- -- -- (5,666) -- (5,666)
Common stock, one share
issued..................... -- -- -- -- -- --
Cumulative preferred stock
issued..................... 19,571 -- -- -- -- 19,571
Effective issuance of
4,590,055 shares of common
stock for majority
investment in Solid
State...................... -- 5 7,195 -- -- 7,200
"As if" pooling effect of
Solid State................ -- -- -- (2,952) -- (2,952)
Common stock, one share
issued..................... -- -- -- -- -- --
Issuance of 62,500 shares of
common stock for principal
shareholders' exchange of
warrants in Solid State.... -- -- 144 -- -- 144
Issuance of 9,499,998 shares
to principal stockholders
in accordance with the
Plan....................... -- 9 33,939 -- -- 33,948
Conversion of 9,571 preferred
shares to Subordinated
Note....................... (9,571) -- -- -- -- (9,571)
Payment of preferred stock
dividend................... -- -- -- (215) -- (215)
Translation adjustment........ -- -- -- -- (467) (467)
------- --- ------- ------- ----- -------
Balances at December 31, 1997... $10,000 $14 $41,278 $(8,833) $(467) $41,992
======= === ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements
Continued
F-6
<PAGE> 36
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GRANT
-------------------------------------------------------------------------------
CUMULATIVE ACCUMULATED
PAY-IN-KIND ADDITIONAL OTHER TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT LOSS EQUITY
----------- ------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997... $ 10,000 $14 $41,278 $ (8,833) $ (467) $ 41,992
Net loss...................... -- -- -- (7,698) -- (7,698)
Redemption of cumulative
pay-in-kind preferred
stock...................... (10,000) -- -- -- -- (10,000)
Issuance of 237,500 shares of
common stock to principal
shareholders in
satisfaction of the
Registration Rights
Agreement.................. -- -- -- -- -- --
Payment of dividends.......... -- -- -- (722) -- (722)
Stock issue costs for
registration rights........ -- -- (336) -- -- (336)
Issuance of 36,000 shares of
common stock to
non-employee directors..... -- -- 150 -- -- 150
Non-cash litigation costs..... -- -- 635 -- -- 635
Translation adjustments....... -- -- -- -- (2,019) (2,019)
-------- --- ------- -------- ------- --------
Balances at December 31, 1998... $ -- $14 $41,727 $(17,253) $(2,486) $ 22,002
Net loss...................... -- -- -- (45,753) -- (45,753)
Issuance of 149,677 shares of
preferred stock............ 14,968 -- -- -- -- 14,968
Payment of dividends.......... -- -- -- (68) -- (68)
Issuance of 18,000 shares of
common stock to
non-employee directors..... -- -- 84 -- -- 84
Issuance of 100,000 shares of
common stock............... -- 1 300 -- -- 301
Translation adjustment........ -- -- -- -- 1,106 1,106
-------- --- ------- -------- ------- --------
Balances at December 31, 1999... $ 14,968 $15 $42,111 $(63,074) $(1,380) $ (7,360)
======== === ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 37
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
------------- ----------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -------------------
1997 1997 1998 1999
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (425) $ (5,666) $ (7,698) $(45,753)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Charge for asset impairment............................. -- 6,369 3,762 5,028
Provision for doubtful accounts......................... -- -- 194 765
Depreciation and amortization expense................... 8,432 4,594 22,286 22,865
Amortization of multi-client data library............... -- -- 1,523 3,282
(Gain) loss on the sale of fixed assets................. 39 132 (189) 176
Exchange loss (gain).................................... 98 (77) 485 (351)
Non-cash litigation costs............................... -- -- 635 --
Minority interest in net loss........................... -- (2,847) -- --
Other non-cash items.................................... 225 303 68 163
Changes in assets and liabilities:
Accounts receivable..................................... 2,375 694 3,046 7,735
Inventories............................................. (27) -- 18 66
Prepaids................................................ (538) (1,220) 737 247
Work-in-process......................................... (268) (1,101) (1,283) 2,492
Other assets............................................ (1,031) 983 (414) 2,785
Accounts payable........................................ 3,143 (1,237) (1,149) (2,440)
Accrued expenses........................................ 830 1,759 331 1,564
Foreign income taxes payable............................ 1,767 487 (616) (936)
Other liabilities and deferred credits.................. (2,320) 2,213 (4,398) 1,335
Change in pre-petition liabilities subject to Chapter 11
case:
Accounts payable........................................ (2,226) -- -- --
Accrued expenses........................................ (1,732) -- -- --
Foreign income tax payable.............................. (194) -- -- --
Other liabilities and deferred costs.................... (3,622) -- -- --
-------- -------- -------- --------
Net cash provided by (used in) operating activities..... 4,526 5,386 17,338 (977)
Cash flows from investing activities:
Capital expenditures...................................... (6,751) (3,994) (20,666) (7,196)
Multi-client data......................................... -- -- (10,023) (24,732)
Proceeds from the sale of assets.......................... 20 182 634 344
Acquisition of the minority interest in Solid State....... -- (15,903) -- --
Acquisition of Interactive Seismic Imaging................ -- -- (2,988) --
Restricted cash........................................... -- -- 215 89
-------- -------- -------- --------
Net cash used in investing activities............... (6,731) (19,715) (32,828) (31,495)
Cash flows from financing activities:
Debt issue costs.......................................... -- -- (4,629) (11)
Common stock issue costs.................................. -- -- (336) --
Issuance of common stock.................................. -- -- 150 --
Redemption of preferred stock............................. -- -- (10,000) --
Dividends paid............................................ -- -- (722) (68)
Borrowings made during the period......................... 4,207 31,270 119,335 64,095
Repayment on borrowings during the period................. (1,838) (15,363) (86,977) (51,821)
Proceeds from the issuance of preferred stock............. -- -- -- 14,968
Proceeds from the issuance of common stock................ -- 33,948 -- --
Repayment of debt due to GGI.............................. -- (34,783) -- --
Pre-petition liabilities subject to Chapter 11 case:
Borrowings under credit facility........................ 49,385 -- -- --
Repayment on borrowings................................. (50,465) -- -- --
-------- -------- -------- --------
Net cash provided by financing activities............... 1,289 15,072 16,821 27,163
Effect of exchange rate changes on cash..................... (238) 160 (503) 91
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (1,154) 903 828 (5,218)
Cash and cash equivalents at beginning of period............ 6,772 6,190 7,093 7,921
-------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 5,618 $ 7,093 $ 7,921 $ 2,703
======== ======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES. SEE NOTE
18.
See accompanying notes to consolidated financial statements
F-8
<PAGE> 38
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999
(1) BASIS OF PRESENTATION
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 and Canada. Grant also provides seismic
data acquisition services in Latin America, the Middle East and the Far East.
Through its predecessors, including GGI Liquidating Corporation ("GGI"), and its
acquired subsidiary, Solid State Geophysical, Inc. ("Solid State"), together
with their respective subsidiaries, the Company has participated in the seismic
data acquisition services business in the United States, Canada, Latin America,
the Far East, Middle East, and Africa.
Effective September 30, 1997 ("the Effective Date"), in connection with the
plan of reorganization (the "Plan"), Grant Geophysical, Inc. ("Grant"), which
was formerly known as Grant Acquisition Corporation, acquired substantially all
of the assets and assumed certain liabilities of GGI Liquidating Corporation
("GGI"), which was formerly known as Grant Geophysical, Inc. Elliott Associates
L.P. ("Elliott") and Westgate International, L.P. ("Westgate") (collectively
known as the "Principal Stockholders") owned 85.4% and 84.6% of the issued and
outstanding common stock of Grant at December 31, 1998 and 1999. Westgate owned
all of the preferred stock that was outstanding in 1998. This preferred stock
was redeemed on June 5, 1998 and all authorized shares have been canceled.
Elliott owned all of the outstanding shares of the 8% Exchangeable Preferred
Stock at December 31, 1999. The general partners of Elliott are Paul E. Singer
and Braxton Associates, L.P. The general partner of Westgate is Hambledon, Inc.,
a corporation controlled by Braxton Associates, L.P.. Elliott and Westgate are
each managed by Stonington Management Corporation, a corporation controlled by
Mr. Singer. For financial statement purposes, the purchase of GGI's assets by
Grant was accounted for as a purchase acquisition. The purchase price was
allocated between the fair value of the GGI assets purchased and liabilities
assumed, and Grant recorded goodwill of approximately $21.3 million. The effects
of the acquisition are reflected in Grant's assets and liabilities as of the
effective date.
The acquisition of Solid State Geophysical, Inc. ("Solid State") by Grant
during the fourth quarter of 1997 occurred in two parts: the acquisition of the
majority interest and the acquisition of the minority interest. As of September
30, 1997 the Principal Stockholders owned a controlling interest in both Solid
State (approximately 64%) and Grant (100%). As such, at that date, the Principal
Stockholders were deemed to have transferred their ownership in Solid State to
Grant. The acquisition of the majority interest in Solid State was accounted for
as an exchange of ownership interests between entities under common control, and
the assets and liabilities of Solid State were transferred to Grant's Financial
Statements at historical cost in a manner similar to a pooling-of-interests. The
acquisition of the unaffiliated minority interest began in November 1997 when
Grant initiated a tender offer (the "Tender Offer") for all the outstanding
common shares of Solid State not held by Grant. In connection with the Tender
Offer, the Principal Stockholders transferred their ownership of Solid State to
Grant and agreed to loan Grant $15.8 million to pay for the shares tendered in
the Tender Offer. The Tender Offer expired on December 19, 1997 and the
acquisition was completed on December 23, 1997, after which Solid State became a
wholly owned subsidiary of Grant. The acquisition of the unaffiliated minority
interest in Solid State was accounted for as a purchase, resulting in
approximately $15.3 million in goodwill.
As a result of the aforementioned transactions, Grant's consolidated
balance sheet as of December 31, 1998 and December 31, 1999 and statement of
operations and cash flows for the three months ended December 31, 1997 and the
years ended December 31, 1998 and 1999 are presented using Grant's new basis of
F-9
<PAGE> 39
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting, while the consolidated statements of operations and cash flows for
the nine months ended September 30, 1997 are presented using GGI's historical
cost basis of accounting.
Grant purchased, effective July 1, 1998, all of the outstanding partnership
interests in Interactive Seismic Imaging ("ISI"), a seismic data processing
company, for $3.6 million in cash. Grant had been a 10% owner of ISI since its
formation in 1994, and subsequent to the July 1 acquisition, Grant integrated
the ISI operation into its domestic operational entity. The following working
capital items were acquired in the purchase: cash and cash
equivalents -- $628,000; accounts receivable -- $364,000; accounts
payable -- $43,000; and accrued expenses -- $36,000.
Presented below is the unaudited pro forma effect of the combination of
Solid State and Grant. Pro forma adjustments have been made to record the
consummation of the Plan and certain related transactions, the issuance of a
subordinated note in exchange for 9,571 shares of Grant preferred stock, the
Solid State acquisition, (which includes the transfer of shares of Solid State
stock to Grant by the Principal Stockholders), and the acquisition of the
unaffiliated minority interest of Solid State, which was accounted for as a
purchase. The unaudited pro forma information gives effect to the aforementioned
transactions as if they were completed as of January 1, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Revenues......................................... $173,865
========
Net loss......................................... $ (8,522)
========
Net loss applicable to common stock.............. $ (9,572)
========
Loss per share -- basic and diluted.............. $ (0.67)
========
</TABLE>
On December 6, 1996 (the "Petition Date"), GGI filed for protection under
the United States Bankruptcy Code and began its reorganization under the
supervision of the Bankruptcy Court. The reorganization was precipitated by
several factors, including overly rapid and under-financed expansion in the
United States and Latin American markets, costs related to the development of a
proprietary data recording system and poor operational results in the United
States and certain international markets. These factors impaired GGI's ability
to service its indebtedness, finance its existing capital expenditure
requirements and meet its working capital needs. In addition, GGI was unable to
raise additional equity, causing a disproportionate reliance on debt financing
and equipment leasing. In connection with the reorganization, GGI replaced its
senior management, disposed of unprofitable operations and developed the Plan,
which was consummated on September 30, 1997 (the "Effective Date") with the
purchase by Grant of substantially all of the assets and the assumption of
certain liabilities of GGI. GGI is currently in liquidation and will distribute
all of its assets pursuant to the Plan. Upon the completion of its asset
distribution, GGI will dissolve and cease to exist.
Grant is a holding company with no independent operations other than its
investments in its subsidiaries. Grant Geophysical Corp., Grant Geophysical do
Brasil Ltda., Grant Geophysical (Int'l), Inc., P.T. Grant Geophysical Indonesia,
Recuros Energeticos Ltda., Advanced Seismic Technology, Inc., Solid State
Geophysical Inc., Solid State Internacional Ingenieria C.A., Solid State
Geophysical Corp., and SSGI Acquisition Corp. (the "Subsidiary Guarantors")
represent all of the indirect and direct wholly owned subsidiaries of Grant.
Grant conducts all of its operations through its subsidiaries. The Senior Notes
(see Note 7) are fully, unconditionally, jointly and severally guaranteed by the
Subsidiary Guarantors. Management has determined that information presented by
separate financial statements of the Subsidiary Guarantors is not material to
investors.
F-10
<PAGE> 40
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern Considerations -- GGI
The accompanying financial statements of GGI have been prepared on a going
concern basis, which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business. As described earlier, GGI is
in the process of distributing its assets pursuant to the Plan and will be
dissolved. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of reported asset amounts or
the amounts and classification of liabilities that may result from the Plan and
the distribution of assets pursuant thereto.
Principles of Consolidation
Each of the consolidated financial statements include the accounts of GGI
or Grant and all of their respective majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Minority Interest
The minority interest reflected in the Consolidated Statements of
Operations was computed based on the minority ownership percentage in Solid
State outstanding through December 23, 1997, the date of Grant's acquisition of
the remaining minority interest in Solid State.
Revenues
Revenue from non-cancelable exclusive and non-exclusive seismic surveys is
recognized in accordance with the percentage of completion method of accounting
based upon costs incurred as a percentage of total estimated costs. Revenue from
cancelable exclusive seismic surveys is recognized as data are acquired and
become chargeable to the customer. Anticipated losses on survey contracts are
recognized when such losses are determinable.
Revenue from the licensing of multi-client data surveys is recognized when
the Company obtains a non-cancelable commitment from the customer.
Revenue from the Company's data processing services is recognized as the
services are performed.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, all highly liquid
investments with an original maturity of three months or less are considered to
be cash equivalents. Such investments totaled $2,880,000 and $351,000 at
December 31, 1998 and 1999, respectively.
Restricted Cash
At December 31, 1998 and 1999, restricted cash included certificates of
deposit totaling $106,000 and $17,000, respectively, which were pledged as
collateral for letters of credit.
F-11
<PAGE> 41
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Doubtful Accounts
A reconciliation of the allowance for doubtful accounts for GGI and Grant
is provided below (in thousands).
<TABLE>
<CAPTION>
GGI GRANT
------------- ------------------------------------------
NINE MONTH THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at beginning of period........ $ 5,711 $ 52 $158 $ 86
Charged to costs and expenses......... -- 106 292 765
Amounts written off................... (5,659) -- (364) (499)
------- ---- ---- -----
Balance at end of period.............. $ 52 $158 $ 86 $ 352
======= ==== ==== =====
</TABLE>
Inventories
Inventories, which consist primarily of miscellaneous supplies, are stated
at the lower of cost or market. Cost is determined using the specific
identification method.
Work in Process
Expenses related to the work in progress of seismic crews are deferred and
recognized over the performance of the contract.
Mobilization Cost
Transportation and other expenses incurred prior to commencement of
geophysical operations in an area, that would not have been incurred otherwise,
are deferred and amortized over the lesser of the term of the related contract
or backlog of contracts in that area or one year.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of future minimum lease payments
at the inception of the lease.
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the various classes of assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 5-20
Data processing equipment................................... 3-5
Plant facilities and store fixtures......................... 5-10
Seismic exploration and transportation equipment............ 3-10
</TABLE>
Plant and equipment held under capital leases are amortized by the
straight-line method over the shorter of the lease term or estimated useful life
of the asset. Expenditures for maintenance and repairs are charged to
operations. Betterments and major renewals are capitalized. Amortization of
assets recorded under capital leases is included with depreciation and
amortization expense.
F-12
<PAGE> 42
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Amortization expense associated with the Company's multi-client data library was
$1.5 million and $3.3 million for the years ended December 31, 1998 and 1999,
respectively. As of December 31, 1998 and 1999, accumulated amortization related
to the Company's multi-client data library was $1.5 million and $4.8 million,
respectively.
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 or group of surveys are less
than the carrying value of such survey or group of surveys (see Note 3).
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 amounts 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 3).
Goodwill
Goodwill, representing the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. Accumulated amortization was approximately $1,723,000 and
$3,238,000 as of December 31, 1998 and 1999, respectively. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflective of Grant's average
cost of funds. The assessment of the recoverability of goodwill will be impacted
if estimated future operating cash flows are not achieved. The goodwill created
in the purchase of GGI's assets and the purchase of the remaining interest in
ISI is being amortized over 30 years and the goodwill created in the acquisition
of Solid State's minority interest is being amortized over 20 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-13
<PAGE> 43
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 net 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 term.
Reorganization Costs
Reorganization costs consisting of professional fees and similar types of
expenditures directly related to GGI's Chapter 11 bankruptcy proceeding were
expensed as incurred. During the nine months ended September 30, 1997, GGI
incurred approximately $3,543,000 of reorganization costs.
Foreign Exchange Gains and Losses
The United States ("U.S.") dollar is the Company's primary functional
currency in all foreign locations with the exception of its Canadian
subsidiaries. Accordingly, those foreign entities (other than Canada) translate
property and equipment (and related depreciation) and inventories into U.S.
dollars at the exchange rate in effect at the time of their acquisition while
other assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Remeasurement gains and losses are included in the
determination of net income and are reflected in other income (expense) (See
Note 15). The Canadian subsidiaries use the Canadian dollar as their functional
currency and translate all assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of Canadian assets and liabilities
are recorded in the accumulated other comprehensive loss account in
stockholders' equity.
Income Taxes
Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company considers the undistributed earnings of
its foreign subsidiaries to be permanently reinvested. The Company has not
provided deferred U.S. income tax on those earnings, and it is not practicable
to estimate the amount of additional tax that might be payable should these
earnings be remitted or deemed remitted as dividends or if the Company should
sell its stock in these foreign subsidiaries.
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) attributable to the
common shareholder. Earnings per share data have not been presented for GGI as
this information is not meaningful.
F-14
<PAGE> 44
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
As allowed by SFAS No. 123, "Accounting of Stock Based Compensation" the
Company has elected to continue to follow the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation expense is recognized only in situations where
stock compensation plans award intrinsic value to recipients at the date of
grant, rather than following the fair value method of SFAS No. 123. Pro forma
disclosure of the estimated effects on net income and income (loss) per common
share had the fair value method prescribed by SFAS No. 123 been followed is
included in Note 10.
Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131 supersedes SFAS 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization used by management for making operating
decisions and assessing performance as the basis for determining the Company's
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS 131 did not
affect results of operations or financial position but did affect the disclosure
of segment information (see Note 4).
Reclassifications
Certain amounts previously reported have been reclassified to conform to
current year financial statement presentation.
Current Industry Conditions
The Company competes in a highly competitive sector of the oil and gas
services industry. The Company's business depends in large part on the
conditions of the oil and gas exploration and production industry sector, and
specifically on capital expenditure levels of the Company's customers directed
toward seismic data acquisition and processing. As a result of the decline in
oil and gas prices beginning late in the third quarter of 1998 and continuing
into the first quarter of 1999, the level of overall oil and gas industry
activity declined significantly in 1999 from levels experienced in recent years.
The Company's results of operations and cash flows, both domestically and in
certain international regions, have been and will continue to be adversely
affected should capital spending levels by the Company's customers continue at
depressed levels and thereby reduce demand for the Company's services.
As indicated in the accompanying Consolidated Statements of Operations, the
Company sustained a significant loss in 1999. As discussed in Note 20,
subsequent to December 31, 1999, the Company completed the exchange of
approximately $56.3 million of long-term debt and related accrued interest of
approximately $2.4 million for the Company's 8% Convertible Preferred Stock.
Further, the Company's senior credit facility was modified and increased to
provide additional working capital sources. Management's recent actions have
also included downsizing personnel and operations to meet reduced market demand
and slow down the cash drain caused by operating losses. Further cost reduction
initiatives are being reviewed and capital expenditures are being examined for
necessity and priority. Management believes the recent steps it has taken will
allow the Company to meet its debt service requirements and provide sufficient
cash flows to operate, realize its assets and discharge its liabilities in the
normal course of business.
F-15
<PAGE> 45
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes a prolonged
depression in oil and gas exploration activity will have a material adverse
effect on the Company's financial position and results of operations.
(3) CHARGE FOR ASSET IMPAIRMENT
Grant
In the fourth quarter of 1997, certain assets of Solid State were written
down to reflect their fair value in accordance with the Company's asset
impairment policy. Fair market value was determined by discounting the assets'
projected future cash flows. Accordingly, Grant recorded a $6,369,000 special
charge for asset impairment in the fourth quarter of 1997. This charge primarily
consisted of $5,869,000 relating to Solid State's multi-client data library and
$500,000 relating to miscellaneous assets held by Solid State.
In the fourth quarter of 1998, the Company wrote down certain
non-productive fixed assets to fair market value in the amount of $564,000 and
certain multi-client data surveys in the amount of $3.2 million
In the third and fourth quarters of 1999, the Company wrote down certain
multi-client data surveys in the amounts of $4.7 million and $302,500,
respectively.
The impairments in 1997, 1998 and 1999 were due to revised estimates of
future licensing prospects for such data due to reduced interest in the area by
oil and gas companies and depressed exploration activities in the oil and gas
exploration and production industry sector.
(4) SEGMENT INFORMATION
Grant has determined that its reportable segments are those based on the
Company's method of internal reporting, which disaggregates its one
product/service line (geophysical services) into four geographic regions: the
United States, Canada, Latin America and the Far East.
The accounting policies of the segments are the same as those described in
Note 2 - Summary of Significant Accounting Policies for Segment Information.
Grant evaluates the performance of its segments and allocates resources to them
based on operating income (loss). There are no intersegment revenues.
F-16
<PAGE> 46
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tables below present information about the Company's reported segments
for the periods indicated (dollars in thousands):
Grant
<TABLE>
<CAPTION>
LATIN
UNITED STATES CANADA AMERICA FAR EAST TOTAL
------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999:
Revenues............................... $ 32,243 $11,232 $15,057 $ 7,515 $ 66,047
Operating Loss......................... (19,684) (1,999) (6,444) (4,986) (33,113)
Depreciation and Amortization.......... 16,502 3,763 2,677 3,205 26,147
FOR THE YEAR ENDED DECEMBER 31, 1998
Revenues............................... $ 78,659 $14,175 $52,604 $30,074 $175,512
Operating Income (Loss)................ ( 2,741) (2,076) 8,314 2,849 6,346
Depreciation and Amortization.......... 12,430 4,474 4,547 2,358 23,809
FOR THE THREE MONTHS ENDED DECEMBER 31,
1997:
Revenues............................... $ 12,458 $ 4,468 $15,983 $ 4,959 $ 37,868
Operating Income (Loss)................ (7,634) (1,488) 2,484 1,605 (5,033)
Depreciation and Amortization.......... 2,364 810 1,183 237 4,594
</TABLE>
GGI
For the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
LATIN
UNITED STATES CANADA AMERICA FAR EAST TOTAL
------------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues......................... $41,267 $ -- $42,567 $8,871 $92,705
Operating Loss................... (1,924) -- 6,373 2,345 6,794
Depreciation and Amortization.... 5,205 -- 2,826 401 8,432
</TABLE>
F-17
<PAGE> 47
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues and identifiable assets by country are as follows as of and for
the periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
GGI GRANT
------------- ---------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------
1997 1997 1998 1999
------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Total revenues
United States......................... $41,267 $12,458 $ 78,659 $32,243
Canada................................ -- 4,468 14,175 11,232
Latin America......................... 42,567 15,983 52,604 15,057
Far East.............................. 8,871 4,611 30,074 7,515
Europe, Middle East and Africa........ -- 348 -- --
------- ------- -------- -------
$92,705 $37,868 $175,512 $66,047
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Identifiable assets:
United States............................................. $103,265 $ 91,271
Canada.................................................... 25,811 31,900
Latin America............................................. 17,658 11,643
Far East.................................................. 16,994 8,264
-------- --------
Total identifiable assets................................. 163,728 143,078
Corporate assets.......................................... 2,713 6,918
-------- --------
$166,441 $149,996
======== ========
</TABLE>
For the nine months ended September 30, 1997, revenues from three oil
companies, one domestic and two international, were approximately $14,008,000
(15%), $9,924,000 (11%) and $8,895,000 (10%). During 1998 and 1999, the Company
did not derive more than 10% of its revenue from any single customer.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1998
Land...................................................... $ 411 $ --
Buildings and improvements................................ 1,932 175
Plant facilities and store fixtures....................... 1,142 434
Machinery and equipment................................... 89,779 26,750
------- -------
$93,264 $27,359
======= =======
</TABLE>
F-18
<PAGE> 48
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1999
Land...................................................... $ 422 $ --
Buildings and improvements................................ 1,989 360
Plant facilities and store fixtures....................... 1,438 874
Machinery and equipment................................... 91,807 40,902
------- -------
$95,656 $42,136
======= =======
</TABLE>
Depreciation expense on property, plant and equipment for the first nine
months and last three months of 1997, and the years ended December 31, 1998 and
1999 was $8,432,000, $4,419,000, $20,798,000 and $21,329,000, respectively.
(6) INCOME TAXES
The amounts of income (loss) before income taxes attributable to domestic
and foreign operations follow (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- ----------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -------------------
1997 1997 1998 1999
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Domestic.............................. $(6,959) $(10,258) $(12,861) $(30,160)
Foreign............................... 8,718 2,601 9,087 (14,357)
------- -------- -------- --------
$ 1,759 $ (7,657) $ (3,774) $(44,517)
======= ======== ======== ========
</TABLE>
The components of income tax expense follow (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- ------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ---------------
1997 1997 1998 1999
------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Current:
State................................... $ -- $ -- $ -- $ --
Federal................................. -- -- 100 --
Foreign................................. 2,184 856 3,824 1,236
Deferred:
State................................... -- -- -- --
Federal................................. -- -- -- --
Foreign................................. -- -- -- --
------ ---- ------ ------
Income tax expense...................... $2,184 $856 $3,924 $1,236
====== ==== ====== ======
</TABLE>
F-19
<PAGE> 49
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total income tax expense is different from the amount computed by
applying the U.S. Federal income tax rate to income before income taxes. The
reasons for these differences were as follows (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- ---------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------
1997 1997 1998 1999
------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at U.S.
Federal rate......................... $ 616 $(2,680) $(1,321) $(15,581)
Increases (reductions) in taxes from:
Foreign income taxed at more (less)
than U.S. rate....................... 741 1,648 (79) 530
Losses with no tax benefit expected.... 827 1,888 5,324 16,287
------ ------- ------- --------
Income tax expense recorded............ $2,184 $ 856 $ 3,924 $ 1,236
====== ======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (dollars in thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- --------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1997 1997 1998 1999
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Plant and equipment, principally due
to differences in depreciation... $ 5,042 $ 666 $ 1,190 $ 1,425
Financing costs..................... -- 244 127 84
Research and development costs...... -- 499 466 494
Allowance for doubtful accounts and
other accruals................... -- 58 146 119
Net capital loss carryforwards...... -- -- -- 113
Net operating loss carry forwards... 8,026 10,720 11,311 29,258
-------- -------- -------- --------
Total....................... 13,068 12,187 13,240 31,493
Deferred tax liabilities:
Goodwill amortization............... -- -- (307) (557)
Plant and equipment, principally due
to differences in depreciation... -- (339) (88) --
-------- -------- -------- --------
Net deferred tax asset.............. 13,068 11,848 12,845 30,936
Valuation allowance................. (13,068) (11,848) (12,845) (30,936)
-------- -------- -------- --------
Net deferred tax asset
(liability)............... $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
A valuation allowance is established when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
valuation allowance is then adjusted when the realization of deferred tax assets
becomes more likely than not. Adjustments are also made to recognize the
expiration of net operating loss carryforwards, with equal and offsetting
adjustments to the related deferred tax asset. The increase in the valuation
allowance during 1998 and 1999 of approximately $997,000 and $18,091,000,
respectively, resulted primarily from current period net operating losses.
F-20
<PAGE> 50
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, Grant has U.S. ($71,383,000) and non-U.S.
($10,791,000) net operating loss carryforwards of approximately $82,174,000.
Such tax loss carryforwards expire in varying amounts during the periods from
2000 through 2011 and 2016 through 2019, except for $1,966,000 of the non-U.S.
loss which has an indefinite carryforward period.
Internal Revenue Service regulations restrict the utilization of U.S. net
operating loss carryforwards and other tax benefits for any company in which an
"ownership change" (as defined in Section 382 of the Internal Revenue Code) has
occurred. Grant has concluded that two "ownership changes" have occurred. The
first occurred in connection with the GGI reorganization on September 30, 1997.
The utilization of GGI's U.S. net operating loss carryforwards existing at this
date is limited to approximately $704,000 per year. The second "ownership
change" occurred on December 30, 1997 as a result of the reorganization of Solid
State. The utilization of Solid State's U.S. net operating losses at this date
is limited to approximately $125,000 per year.
(7) DEBT
A summary of notes payable, long-term debt, and capital lease obligations
was as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Term Loan -- affiliate:
Prime plus 2% (9.75% at December 31, 1998), due March 31,
2000................................................... $ 8,000 $ --
Prime plus 1.5% (10% at December 31, 1999), due May 11,
2002................................................... -- 7,500
-------- --------
$ 8,000 $ 7,500
======== ========
Revolving Credit Line and Term Loans:
Term note -- prime plus 1.5% (10% at December 31, 1999),
due May 11, 2002....................................... $ -- $ 10,759
Revolving credit line -- prime plus 1.5% (10% at December
31, 1999), due May 11, 2002............................ -- 4,805
Senior Notes -- 9.75%, due February 15, 2008.............. 99,283 99,361
Equipment notes payable -- 10.02%, due 2001............... 2,810 3,135
Other notes payable -- 6.58% to 10.38%, due 1999-2005..... 994 1,075
Capital lease obligations -- 10.46% to 11.09%, due
1999-2000.............................................. 2,252 1,321
-------- --------
Total long-term debt...................................... 105,339 120,456
Less current portion...................................... (2,522) (8,247)
-------- --------
Notes payable, long-term debt and capital lease
obligations excluding current portion........... $102,817 $112,209
======== ========
</TABLE>
On March 18, 1998, all of the then outstanding debt of Grant, with the
exception of approximately $3.6 million relating to one capital lease obligation
and one note payable, was paid off with the proceeds of the Senior Notes (see
below).
On October 1, 1997, Grant and Elliott entered into a credit facility (the
"Credit Facility") providing for a revolving loan facility under which Grant
could borrow up to an aggregate principal amount of $5 million. On December 18,
1997, the credit facility was amended to provide for a term loan of $15.8
million in addition to the revolving loan. The proceeds of the term loan were
used by Grant to purchase all of the stock of Solid State not already owned by
Grant (see Note 1). This original credit facility was due to expire on March 31,
1999, at which time all obligations of Grant under the credit facility were due
and payable. In connection with the redemption of the cumulative pay-in-kind
preferred stock, par value $.001 per share ("Preferred Stock") (see Note 12),
held by Westgate, Elliott agreed to amend the Credit Facility on June 5, 1998 to
increase the
F-21
<PAGE> 51
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum borrowing capacity from $5 million to $15 million and to extend the term
of the facility from March 31, 1999 to March 31, 2000. In April 1999, the Credit
Facility was further extended to $20 million. The loans under the Credit
Facility were collateralized by all of Grant's assets and a pledge by Grant of
certain notes and all the outstanding shares of capital stock of its
subsidiaries. Each subsidiary of Grant executed a guaranty in favor of Elliott,
each of which guaranteed payment of all Grant's obligations owed to Elliott
under the Credit Facility. Each subsidiary pledged its assets in favor of
Elliott to secure its obligations under its respective guaranty. The Credit
Facility contained restrictions which, among other things, prohibited Grant's
right to pay dividends and limited its right to borrow money, purchase fixed
assets or engage in certain types of transactions without the consent of the
lender. The $15.8 million term loan was paid in full on February 18, 1998 with
the proceeds of the Senior Notes (See below). At December 31, 1998, the Company
was in technical violation of a covenant in the Credit Facility which limited
the capital expenditures for any one year to a maximum of $14 million. The
Company obtained from Elliott a consent and waiver to the default, effective
December 31, 1998. In addition, the Credit Facility limits the Company from
taking, without the consent of the lender, certain actions, including creating
indebtedness in excess of specified amounts and declaring and paying dividends.
On May 11, 1999, the Company entered into a Loan and Security Agreement
(the "Foothill/Elliott Credit Facility") with Foothill Capital Corporation and
Elliott (collectively the "Lenders"), pursuant to which the Company could 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 to provide additional liquidity and
working capital to support the Company's operations. The Foothill/Elliott 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
Foothill/Elliott Credit Facility) and maintain a minimum EBITDA (earnings before
interest, tax, depreciation and amortization) level. The interest rate on the
loans is 1.5% over prime. Amounts available and outstanding at December 31, 1999
are $196,000 and $23.1 million, respectively.
The Company's equipment notes payable and capital lease obligations
represent installment loans or capital lease obligations primarily related to
the acquisition of seismic recording equipment. These instruments, with the
exception of $3.6 million noted above, were paid in full on February 18, 1998
with the proceeds of the Senior Notes (see below).
On February 18, 1998, Grant completed an offering of $100 million face
value 9 3/4% Senior Notes due and payable in a lump sum on February 15, 2008.
The Senior Notes bear interest from February 18, at a rate per annum set forth
above payable semi-annually on February 15 and August 15 of each year,
commencing August 15, 1998. The net proceeds to Grant from the sale of the
Senior Notes was approximately $95.2 million after deducting the Initial
Purchaser's discount and certain other estimated fees and expenses. Grant used
the proceeds to repay approximately $74.5 million of the outstanding balance of
debt ($73.0 million) and interest ($1.5 million) existing at December 31, 1997.
Total debt issue costs of $4.3 million were incurred in connection with the
offering and are being amortized over the term of the notes.
The Senior Notes were issued under an indenture (the "Indenture") entered
into among the Company, as issuer, the Subsidiary Guarantors, and LaSalle Bank
National Association, as trustee, dated as of February 18, 1998. The Indenture
imposes certain limitations on the ability of the Company and its Restricted
Subsidiaries (as defined in the Indenture) to, among other things, incur
additional indebtedness (including capital leases), incur liens, pay dividends
or make certain other restricted payments, consummate certain asset
F-22
<PAGE> 52
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sales, enter into certain transactions with affiliates, issue preferred stock,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company or any of its Restricted Subsidiaries.
As of December 31, 1999, the maturities of the Company's notes payable,
long-term debt and capital lease obligations (dollars in thousands) are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31 AMOUNT
- ------------ --------
<S> <C> <C>
2000....................................................... $ 8,247
2001....................................................... 4,527
2002....................................................... 15,616
2003....................................................... 82
2004....................................................... 91
Thereafter.................................................... 99,393
--------
$127,956
========
</TABLE>
(8) LEASES
The Company had under capital and operating leases office and warehouse
space and equipment with remaining terms ranging from approximately one to four
years. The future minimum lease payments under Grant's various capital and
non-cancelable operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
YEARS ------- ---------
<S> <C> <C>
2000...................................................... $1,373 $1,572
2001...................................................... -- 839
2002...................................................... -- 439
2003...................................................... -- 116
2004...................................................... -- --
------ ------
Total minimum lease payments................................ 1,373 2,966
Less interest............................................... (52) --
------ ------
Present value of net minimum lease payments....... $1,321 $2,966
====== ======
</TABLE>
Accumulated amortization for capitalized leases was $2,508,000 and
$3,456,000 at December 31, 1998 and 1999, respectively.
Rental expense for each of the periods included in the accompanying
financial statements was as follows (dollars in thousands):
<TABLE>
<CAPTION>
GRANT
------------------------------------
GGI YEAR ENDED
------------------ DECEMBER 31,
NINE MONTHS ENDED THREE MONTHS ENDED ---------------
SEPTEMBER 30, 1997 DECEMBER 31, 1997 1998 1999
------------------ ------------------ ------ ------
<S> <C> <C> <C>
$830 $996 $2,556 $2,227
</TABLE>
F-23
<PAGE> 53
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Methodology and assumptions used to assess fair value of classes of
financial instruments follows:
Cash and short-term financial instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short-term maturities of such instruments.
Long-term notes receivable
The fair value has been estimated using the expected future cash flows
discounted at market interest rates which approximate its carrying value.
Long-term debt
The carrying values of the Company's long-term debt instruments approximate
their fair values. Grant's long-term debt has been estimated based on current
quoted market prices for the same or similar issues, or on the current rates
offered to Grant for debt of the same remaining maturities.
(10) STOCK-BASED COMPENSATION
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Incentive Plan was amended in September 1998 to increase the
number of shares reserved for issuance under the Incentive Plan from 1,450,000
shares of Grant Common Stock to 1,900,000 shares of Grant Common Stock and
subsequently, in February 1999, to 2,000,000 shares of Grant Common Stock. The
Incentive Plan provides for the grant to officers (including officers who are
also directors), employees, and non-employee directors of Grant and its
subsidiaries, of "incentive stock options" (within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code")), nonstatutory stock options,
stock appreciation rights and restricted shares. The Incentive Plan is not a
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
non-employee directors. The Board of Directors or its designated committee will
select the employees and non-employee directors to whom awards may be granted
and the type of award to be granted and determine, as applicable, the number of
shares to be subject to each award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. As of December 31, 1999,
awards covering 1,766,400 shares have been made by the Board of Directors.
During 1999, there were 613,800 option cancellations due to terminations. The
1998 awards include 966,400 non-statutory stock options that will vest annually
in equal one-third increments beginning on December 31, 1998. All such options
were granted at a price equal to or in excess of the then estimated fair market
value of the Company's stock at the date of grant. Such options have an average
exercise price of $5.76 per share (range of $4.75 to $6.84 per share), subject
to adjustment in certain circumstances. The 1999 awards consist of 800,000
non-statutory stock options that will vest annually in equal one-third
increments beginning on February 1, 2000. Such options have an exercise price of
$4.25 per share. In addition, 9,000 restricted shares (54,000 total restricted
shares, 36,000 in 1998 and 18,000 in 1999) were granted to each non-employee
director subject to the satisfaction of certain conditions set forth under the
Incentive Plan. The Company recognized approximately $150,000 and $54,000 in
compensation expense in
F-24
<PAGE> 54
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 and 1999, respectively, in relation to such restricted shares, based on its
estimate of fair market value pursuant to SFAS No. 123. As of March 24, 2000,
all 51,000 of such shares were unrestricted.
STOCK OPTIONS
A summary of the status of stock options granted is presented below.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF SHARES AVERAGE
UNDER OPTION EXERCISE PRICE
------------ --------------
<S> <C> <C>
Shares under option at December 31, 1997................... -- --
Granted.................................................. 1,644,300 $5.70
Exercised................................................ -- $0.00
Canceled................................................. 66,600 $5.76
--------- -----
Shares under option at December 31, 1998................... 1,577,700 $5.70
Granted.................................................. 802,500 $4.25
Exercised................................................ -- $0.00
Canceled................................................. 613,800 $5.73
--------- -----
Shares under option at December 31, 1999................... 1,766,400 $5.03
========= =====
Options exercisable at December 31,
1998..................................................... 410,167 $4.75
1999..................................................... 605,533 $5.11
</TABLE>
The following table summarizes information with respect to stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER
RANGE OF OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
EXERCISE AT REMAINING AVERAGE AT AVERAGE
PRICES 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.75 to $6.84 966,400 8.23 $5.76 605,533 $5.11
$4.25 800,000 4.11 $4.25 --
--------- ------- -----
1,766,400 605,533 $5.11
========= =======
</TABLE>
The Company applies Accounting Principles Board Opinion 25 in accounting
for its share-based compensation plans and has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized under these plans, with
the exception noted above, because as of the measurement date, which in this
case is the grant date, the exercise price of granted options is equal to or in
excess of the fair value of the underlying shares. Had compensation cost for the
Company's share-based compensation plans been determined based on the fair
values of the options granted after January 1, 1998, consistent with the
provisions of SFAS No. 123, the Company's net loss and loss per share would have
increased as follows:
<TABLE>
<CAPTION>
GRANT
--------------------
1998
--------------------
AS
REPORTED PRO FORMA
-------- ---------
<S> <C> <C>
Net loss applicable to common stock......................... $ (8,138) $(11,293)
Loss per common share -- basic and diluted.................. $ (0.57) $ (0.79)
</TABLE>
F-25
<PAGE> 55
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GRANT
--------------------
1999
--------------------
AS
REPORTED PRO FORMA
-------- ---------
<S> <C> <C>
Net loss applicable to common stock......................... $(46,049) $(46,049)
Loss per common share -- basic and diluted.................. $ (3.18) $ (3.18)
</TABLE>
The weighted average fair value of options granted during 1998 and 1999 was
$1.94 and $0, respectively. The fair value of each option award is estimated on
the grant date using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1998 and 1999: expected
volatility of zero, risk-free interest rate of 5.5% and 4.7%, expected lives of
ten and five years, respectively, and a dividend yield of zero.
GGI
Pursuant to the Plan, GGI's capital stock was canceled on the Effective
Date. As a result, GGI's Amended 1989 Long-Term Incentive Plan was also
canceled. Therefore, the effects of SFAS No. 123 for the nine months ended
September 30, 1997 have not been presented.
Grant
During the three months ended December 31, 1997 Grant did not grant any
awards under the 1997 Equity and Performance Plan. Therefore, the effects of
SFAS No. 123 for the three months ended December 31, 1997 have not been
presented.
(11) EMPLOYEE BENEFIT PLANS
Employee Retirement Savings Plan
GGI had established a defined contribution plan covering substantially all
U.S. and certain foreign employees whereby participants could elect to
contribute between 1% and 15% of their annual salary. Participants could not
make contributions in excess of $10,000 per year (as adjusted annually by the
cost of living adjustment factor). On the Effective Date, GGI assumed and
assigned the plan to Grant. Under the plan, the employer may contribute, on a
discretionary basis, one-half of the participant's contribution percentage up to
6% (limited to 3% of any employee's annual salary). The plan was amended in June
1997 to eliminate the employer's option to contribute common stock so that
discretionary contributions may be made only in the form of cash. Cash
contributions to the plan by Grant for the three-month period ended December 31,
1997 and years ended December 31, 1998 and 1999 totaled $39,000, $196,000 and
$94,000, respectively.
Other Postretirement Benefits
GGI sponsored a defined contribution postretirement plan which, pursuant to
the Plan, was assumed by GGI and assigned to Grant. The plan is contributory and
is structured to provide medical coverage for eligible retirees and their
dependents (as defined in the plan). Generally, employees who have completed 10
years of continuous service with the Company, are between 55 and 64 years of
age, and are ineligible for Medicare are eligible for plan participation.
Liabilities for postretirement health care benefits are not material to the
Company's results of operations or financial position.
F-26
<PAGE> 56
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) STOCKHOLDERS' EQUITY
Grant
PREFERRED STOCK
Grant had authorized 20,000 shares of cumulative pay-in-kind preferred
stock (the "Cumulative Preferred Stock"), par value $0.001 per share, with a
liquidation preference of $1,000 per share of which 10,000 shares were
outstanding . Dividends accrued and were cumulative from September 30, 1997, the
date on which such shares were issued. Dividends accrued at an annual rate of
10.5% of the liquidation value and were payable annually on September 30 of each
year.
On June 5, 1998 the Company redeemed the 10,000 shares of Cumulative
Preferred Stock, held by Westgate, representing the liquidation amount of all
such outstanding shares of Cumulative Preferred Stock, together with all
accumulated, accrued and unpaid dividends of approximately $702,000, in the
aggregate amount of $10.7 million. Upon redemption, the Cumulative Preferred
Stock was canceled, retired and eliminated from the shares that the Company is
authorized to issue.
Grant has authorized 150,000 shares of 8% exchangeable pay-in-kind
preferred stock (the "Exchangeable Preferred Stock"), par value $0.001 per
share, with a liquidation preference of $100 per share, of which 149,677 shares
were outstanding as of December 31, 1999. Dividends accrued at an annual rate of
8%, of the liquidation value and paid quarterly on April 1, July 1, October 1
and January 1. Unpaid dividends associated with the Exchangeable Preferred Stock
at December 31, 1999 were approximately $225,000. The shares were issued between
August 16 and December 29, 1999 and dividends accrued from the issuance date.
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.
See Note 20 -- Subsequent Events for discussion of the issuance of shares
of the Company's 8% Convertible Preferred Stock for outstanding shares of the
Company's Exchangeble Preferred Stock and a portion of the Company's outstanding
Senior Notes.
Common Stock
At December 31, 1999, Grant had authorized 50,000,000 shares of common
stock, par value $.001 per share, of which 14,544,055 shares are issued and
outstanding. 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 included the issuance
of 100,000 shares of common stock, valued at $3.00 per share, which management
considers fair market value at such time. The changes in common
F-27
<PAGE> 57
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock for the three months ended December 31, 1997 and the years ended December
31, 1998 and 1999 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
SHARES AMOUNT
---------- ------
<S> <C> <C>
Balance September 30, 1997.................................. 4,590,056 $ 5
Common stock issued to directors.......................... 1 --
Common stock issued in exchange for warrants in Solid
State.................................................. 62,500 --
Common stock issued in connection with the reorganization
plan................................................... 9,499,998 9
---------- ---
Balance December 31, 1997................................... 14,152,555 $14
========== ===
Common stock issued to directors.......................... 36,000 --
Common stock issued in connection with subscription
offering............................................... 237,500 --
---------- ---
Balance, December 31, 1998.................................. 14,426,055 $14
========== ===
Common stock issued to directors.......................... 18,000 --
Common stock issued in connection with the purchase of
equipment.............................................. 100,000 1
---------- ---
Balance, December 31, 1999.................................. 14,544,055 $15
========== ===
</TABLE>
(13) CONTINGENCIES
On December 11, 1997, certain holders of interests under the Plan, acting
through an "ad hoc" committee, (the "Plaintiffs") commenced a lawsuit in the
Bankruptcy Court against Grant, GGI, Elliott, Westgate and Solid State. The
lawsuit alleged that (i) GGI and Elliott breached their obligations under the
Plan by seeking to complete the Solid State acquisition prior to commencing an
offering of the Company's common stock, par value $.001 per share ("Common
Stock"), to certain holders of claims and other interests under the Plan (the
"Subscription Offering"), (ii) the Solid State acquisition and certain related
transactions were unfair to the Plaintiffs because they diluted the value of the
common Stock to be issued to them under the Subscription Offering and impaired
the Company's equity value and (iii) the Solid State acquisition and certain
related transactions could and should have been, but were not, adequately
disclosed in the disclosure statement filed with the Bankruptcy Court regarding
the Plan. The Plaintiffs requested (i) compensatory and punitive damages in an
unstated amount and (ii) revocation of the Plan. In addition, the Plaintiffs
sought to enjoin completion of the Solid State acquisition and certain related
transactions pending a trial on the merits. This request for injunctive relief
was denied by the Bankruptcy Court on December 16, 1997, and was denied on
appeal by the United States District Court for the District of Delaware on
December 19, 1997. During the discovery process for the lawsuit, the parties
began to discuss a settlement. These discussions led to a settlement of the
lawsuit on June 19, 1998 (the "Settlement"). Under the terms of the Settlement,
in exchange for a full and complete release of all of the Plaintiffs' claims
against Elliott, Westgate, the Company and their respective officers, directors,
partners, employees, agents, subsidiaries, affiliates, successors and assigns
relating to or arising out of the bankruptcy proceedings of GGI and a dismissal
of the lawsuit, Elliott paid the Plaintiffs $150,000 for reimbursement of legal
expenses and permitted the Plaintiffs to purchase Grant Common Stock in the
Subscription Offering at a discounted subscription purchase price of $4.75 per
share. The Company recorded $635,000 in litigation expense associated with the
Settlement, representing the cash paid by Elliott and the $0.25 discount
permitted the Plaintiffs to purchase Grant Common Stock in the Subscription
Offering. In addition, Elliott agreed to indemnify Grant against any liability
that they may incur in connection with the lawsuit. Nevertheless, other eligible
subscribers in the Subscription Offering who did not execute a release in
connection with the Subscription Offering could commence other lawsuits related
to
F-28
<PAGE> 58
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Plan, which may not be subject to indemnification by Elliott, and which
could have an adverse effect on Grant's business, reputation, financial
position, results of operations or cash flows.
In October 1998, Zurich American Insurance Company ("Zurich") made a demand
on Grant for the payment of $694,000 claimed to be due Zurich under the terms of
certain insurance policies issued by Zurich to GGI in 1996, which policies were
allegedly assumed by Grant at the conclusion of its bankruptcy reorganization in
1997. A settlement was agreed to by the parties subject only to the execution of
a definitive Settlement Agreement and funding of the settlement at a cost to
Grant of $290,000. This amount was accrued at December 31, 1998 and paid in
1999.
Grant is involved in various claims and legal actions arising in the
ordinary course of business. GGI is involved in various claims and legal actions
arising in the bankruptcy and related to the Plan. Management of GGI and
management of Grant are of the opinion that none of the claims and actions are
likely to have a material adverse impact on GGI's or Grant's financial position,
results of operations or cash flows.
The Court generally has jurisdiction over all of GGI's property, as defined
in section 541 of the Bankruptcy Code, held on the Petition Date or acquired
thereafter. GGI may not engage in transactions except pursuant to the Plan
without prior approval of the Court.
(14) RELATED PARTY TRANSACTIONS
A former senior vice resident of Grant loaned approximately CDN $500,000
for a two-year term at 10% interest to an entity in which the Company held, at
the time, a 18% common equity interest. Additionally, Grant owned $268,000 of
redeemable, cumulative preferred shares in the same entity. Currently, the
Company holds a 14.5% common equity and no preferred shares. During 1998, Grant
recorded a $271,000 write-down to reduce the carrying value of its investment in
this entity to zero due to the entity's uncertain financial condition. The
Company has in the past used this entity periodically to perform survey
services. The senior vice president resigned in January 1998. During the three
months ended December 31, 1997, Grant paid approximately $364,000 to this
entity.
The Company's Chairman of the Board ("Chairman") is an officer of an
affiliate of the Principal Stockholders of Grant. On April 28, 1998, Elliott
granted to the Chairman options to purchase 100,000 shares of Common Stock from
Elliott. Additionally, the Chairman has entered into a consulting agreement,
dated April 28, 1998, with Grant (the "Consulting Agreement") which provides for
an annual consulting fee of $100,000 for as long as he remains Chairman. Under
the Consulting Agreement, the Chairman was also granted options by the Company
to purchase 50,000 shares of Common Stock under the Incentive Plan at exercise
prices equal to or in excess of the fair market value of the Company's stock on
date of grant. These options will vest annually in equal one-third increments
beginning on December 31, 1998, and have an average exercise price of $6.07 per
share.
See Note 19 for a discussion of the subscription offering and Notes 7, 12
and 20 for debt financing with Elliott.
During 1999, the Company performed data acquisition and processing services
for an affiliated oil and gas exploration and production company. Further, this
affiliated company has participated as an underwriter in one of the Company's
multi-client data library programs. Revenues for these services were
approximately $4,090,000 for 1999 and related accounts receivable outstanding at
December 31, 1999 was $1,600,000. Management of the Company believes such
operations were conducted under terms and conditions comparable to third-party
customers.
F-29
<PAGE> 59
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) OTHER INCOME (EXPENSE)
Other Income (Expense) consisted of the following:
<TABLE>
<CAPTION>
GGI GRANT
------------- ----------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -------------
1997 1997 1998 1999
------------- ------------ ----- -----
<S> <C> <C> <C> <C>
Gain (loss) on the sale of fixed assets.... $ (67) $ 50 $ 189 $(176)
Net gain (loss) on foreign exchange........ (98) (289) (485) 351
Gain on insurance settlement............... 11 -- -- 78
Merger costs............................... -- (767) -- --
Investment income.......................... -- 46 99 --
Legal settlements.......................... 2,359(1) (66) (635) 285
Canadian investment write-off.............. -- -- (271) --
GGI administrative fee..................... -- -- 60 --
Miscellaneous.............................. 61 (236) 223 64
------ ------- ----- -----
Total............................ $2,266 $(1,262) $(820) $ 602
====== ======= ===== =====
</TABLE>
- ---------------
(1) On July 15, 1997, GGI's Brazilian subsidiary finalized an agreement with a
former customer that resolved a long-standing dispute relating to services
rendered on contracts dating back to 1983. In settlement of all claims, GGI
received payment, net of related costs and expenses, of approximately
$2,359,000.
(16) LOSS PER SHARE
Loss per common share-basic and diluted is computed as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
GGI GRANT
------------- ---------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------
1997 1997 1998 1999
------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Net loss applicable to common stock...... $(425) $(6,143) $(8,138) $(46,049)
===== ======= ======= ========
Weighted average common shares........... 4,798 14,257 14,458
======= ======= ========
Loss per common share -- basic and
diluted................................ $ (1.28) $ (.57) $ (3.18)
======= ======= ========
</TABLE>
Loss per share data for GGI have not been presented as this information is
not meaningful.
Dividend requirements on Grant's pay-in-kind preferred stock were $477,000,
$440,000 and $296,000 for the three months ended December 31, 1997 and the years
ended December 31, 1998 and 1999, respectively.
(17) COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, Grant adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and display of comprehensive income and its components, including
foreign currency translation adjustments and unrealized gains (losses) on
marketable securities classified as available-for-sale. Grant's and GGI's total
comprehensive loss is as follows for the periods presented. No tax benefit
(after consideration of the valuation allowance required
F-30
<PAGE> 60
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under SFAS No. 109) has been allocated to "Other comprehensive loss -- foreign
currency translation adjustments" for any of the reported periods.
<TABLE>
<CAPTION>
GGI GRANT
------------- --------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------
1997 1997 1998 1999
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net loss applicable to common stock... $(425) $(6,143) $ (8,138) $(46,049)
Other comprehensive gain
(loss) -- foreign currency
translation adjustments............. -- ( 467) (2,019) 1,106
----- ------- -------- --------
Total comprehensive loss.... $(425) $(6,610) $(10,157) $(44,943)
===== ======= ======== ========
</TABLE>
(18) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-cash investing and financing activities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
GGI GRANT
------------- -------------------------------
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ----------------
1997 1997 1998 1999
------------- ------------ ------ -------
<S> <C> <C> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds.................................. $2,037 $ 785 $3,624 $ 2,282
Interest, net of amounts capitalized................... 3,742 595 7,822 10,765
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment acquired through debt
issuance............................................. $1,483 $8,406 $3,200 $ 2,000
Property, plant and equipment acquired through stock
issuance............................................. -- -- -- 300
Common Stock issued in exchange of warrants in Solid
State................................................ -- 144 --
Converted 9,571 Preferred Shares to A Subordinated
Note................................................. -- 9,571 -- --
Dividends -- Preferred Stock........................... -- 215 -- 68
Prepaid insurance premium financing additions.......... -- -- 1,186 --
</TABLE>
(19) SUBSCRIPTION OFFERING
Pursuant to the Plan, the Company was required to conduct a subscription
offering (the "Subscription Offering") of 4,750,000 shares of Grant Common Stock
to certain holders of claims and other interests under the Plan for an aggregate
purchase price of $23,750,000. The Plan provided that (i) Eligible Class 5 Claim
Holders; (ii) Eligible Class 7 Interest Holders; and (iii) Eligible Class 8
Interest Holders, each as defined in the Plan (Collectively, the "Eligible
Subscribers") could participate in the Subscription Offering. Because Elliott
and certain of its affiliates, as interest holders under the Plan, were entitled
to purchase 1,356,231 shares of Grant Common Stock in an offering by the
Company, the Principal Stockholders offered the balance of such shares of Grant
Common Stock to the Eligible Subscribers pursuant to the Subscription Offering.
The Company registered the shares of Grant Common Stock with the Commission
pursuant to the Subscription Offering. The registration statement became
effective on July 7, 1998, and rights to subscribe for shares of Common Stock
pursuant to the Subscription Offering expired if not exercised on August 24,
1998. As a result of the Subscription Offering a total of 2,080,722 of shares
were subscribed. The total purchase price for these shares received by the
Principal Shareholders was approximately $9,918,000.
F-31
<PAGE> 61
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(20) SUBSEQUENT EVENTS
Pursuant to a registration statement initially filed on October 28, 1999,
and declared effective on January 12, 2000, the Company offered to exchange (the
"Exchange Offer") $100,000,000 aggregate principal amount of its outstanding
Senior Notes due 2008 for new shares of its 8% Convertible Preferred Stock
("Convertible Preferred Stock") with an aggregate liquidation value equal to 65%
of the aggregate principal amount of the Senior Notes tendered plus 100% of the
accrued and unpaid interest thereon through the date of the exchange. On January
19, 2000, a total of $56,320,000 of the Senior Notes, together with $2,364,000
of accrued and unpaid interest, were exchanged for 389,722 shares of the
Convertible Preferred Stock. The Senior Notes exchanged represent all of the
Senior Notes previously held by Elliott and Westgate. No other Senior Notes were
tendered and the Exchange Offer expired on February 7, 2000. The Company intends
to pay dividends on the Convertible Preferred Stock in additional shares of
Convertible Preferred Stock until further notice.
In connection with the Exchange Offer, the Company solicited consents from
the holders of its Senior Notes in order to amend definitions and to modify some
restrictive covenants in the indenture governing the Senior Notes. The consent
of holders of a majority of the outstanding principal amount of the Senior Notes
held by holders other than Grant, its subsidiaries and affiliates was required
to approve the proposed amendments to the indenture. The consent was approved on
January 19, 2000. Following the tender of the Senior Notes by Elliott and
Westgate, the Company executed a First Supplemental Indenture with LaSalle Bank
National Association, the trustee, dated January 19, 2000 that caused the
approved amendments to take effect. The Supplemental Indenture, among other
things, amended the definition of permitted indebtedness to allow for the
increase of incurred debt from $25 million to $50 million, increased additional
indebtedness from $7.5 million to $10 million and allows for the payment of
dividends on Convertible Preferred in additional shares of Convertible
Preferred.
On January 27, 2000, the Company issued an additional 3,000 shares of
restricted common stock to a new Director.
On February 14, 2000, the Company completed significant modifications to
the Loan and Security Agreement with Foothill and Elliott dated May 11, 1999.
The Foothill/Elliott credit facility was increased from $25 million to $29
million. This was accomplished by increasing commitments under the revolving
credit facility from $6 million to $10 million, subject to borrowing base
limitations. Additionally, the term loan, which had been reduced through
periodic payments to $10.1 million, was increased to the original outstanding
balance of $11.5 million.
Pursuant to an agreement reached March 3, 2000, the Company agreed to
purchase the contractual interests held by a broker having exclusive
multiple-year marketing rights for certain of the Company's multi-client data
surveys. As a result of this agreement, further data sales and transfer fee
commissions will not be payable to this broker, except for two designated data
surveys. Consideration provided by the Company for the purchase of such
interests included $2.3 million cash paid at closing; a $700,000 8% promissory
note payable in 12 quarterly installments; assignment to the broker of interests
held in certain of the Company's data surveys having a carrying value of
approximately $1.2 million; and assignment of a portion of an overiding royalty
interest held by the Company in one designated data survey.
F-32
<PAGE> 62
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(21) PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The unaudited pro forma consolidated balance sheet of Grant Geophysical,
Inc. for the year ended December 31, 1999 was prepared by the Company to give
effect to the following exchange transactions completed subsequent to December
31, 1999, as discussed in Note 20:
- the issuance of the Company's Exchangeable Preferred Stock to Elliott
prior to the completion of the subscription offering;
- the exchange of such shares, together with accrued and unpaid dividends
thereon, for shares of Convertible Preferred Stock; and,
- the completion of the exchange offer, reflecting Senior Notes
representing 56.32% of the Company's aggregate principal amount of Senior
Notes outstanding being exchanged for shares of the Company's Convertible
Preferred Stock.
The difference between the carrying value of the Senior Notes and the
Convertible Preferred Stock has been reflected as an increase to additional
paid-in-capital due to the related party nature of the exchange. With 56.32% of
the Senior Notes exchanged, the historical cost of the following line items in
the unaudited pro forma consolidated balance sheet at December 31, 1999 is
adjusted as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS AS ADJUSTED
- ------ ---------- ----------- -----------
<S> <C> <C> <C>
Prepaids................................................. $ 4,392 $ (431)(b) $ 3,961
Other Assets............................................. 5,450 (2,161)(e) 3,289
Accrued Interest......................................... 3,832 (2,074)(c) 1,758
Long Term Debt (9.75% Senior Notes)...................... 112,209 (56,320)(a) 56,249
360(d)
Convertible Preferred Stock.............................. -- 36,608(a) 53,875
2,074(c)
15,193(g)
Exchangeable Preferred Stock............................. 14,968 225(f) --
(15,193)(g) --
Additional Paid-In Capital............................... 42,111 19,712(a) 58,871
(431)(b)
(360)(d)
(2,161)(e)
Accumulated Deficit...................................... (63,074) (225)(f) (63,299)
</TABLE>
The unaudited pro forma consolidated balance sheet has been prepared to
give effect to the following adjustments necessary to reflect the exchange offer
and subscription offering described in Note 20:
(a) Reflects the exchange of 56.32% of the Senior Notes for Convertible
Preferred Stock at 65% of face value with the discount credited to
additional paid-in capital.
(b) Reflects the charge of associated Convertible Preferred Stock issue costs
to additional paid-in capital.
(c) Reflects the exchange of accrued interest at December 31, 1999 on the
Senior Notes for Convertible Preferred Stock.
(d) Reflects the elimination of the discount on the Senior Notes associated
with the 56.32% of such notes exchanged.
F-33
<PAGE> 63
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Reflects the elimination of the deferred debt issue costs associated with
the 56.32% of the Senior Notes exchanged.
(f) Reflects the Exchangeable Preferred Stock issued for the dividends due for
the fourth quarter of 1999 on the outstanding Exchangeable Preferred Stock.
(g) Reflects the exchange of all Exchangeable Preferred Stock issued for an
equal amount of Convertible Preferred Stock.
F-34
<PAGE> 64
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Quarterly financial information of Grant is summarized as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------
<S> <C> <C> <C> <C>
1998
Revenues................................... $47,895 $48,467 $ 50,995 $ 28,155
Operating income........................... 4,064 4,867 3,485 (6,070)(1)
Net income (loss).......................... 733 1,205 157 (9,793)
Net income (loss) applicable to common
stock.................................... 469 1,029 157 (9,793)
Income (loss) per common share --
Basic and diluted:
Net income (loss) per common stock......... $ .03 $ .08 $ .01 $ (.69)
1999
Revenues................................... $22,734 $10,474 $ 11,513 $ 21,326
Operating (loss)........................... (4,361) (5,607) (15,750)(2) (7,395)(3)
Net loss................................... (6,871) (8,398) (18,876) (11,608)
Net loss applicable to common stock........ (6,871) (8,398) (18,944) (11,836)
LOSS PER COMMON SHARE --
BASIC AND DILUTED:
Net loss per common stock.................. $ (.48) $ (.58) $ (1.31) $ (.81)
</TABLE>
- ---------------
(1) Includes a $3,762 charge for asset impairment (see Note 3 to the
Consolidated Financial Statements). $3,198 is related to the impaired
multi-client data library and $564 is related to non-productive asset
write-downs.
(2) Includes a $4,726 charge for asset impairment of the multi-client data
library (see Note 3 to Consolidated Financial Statements).
(3) Includes a $302 charge for asset impairment of the multi-client data library
(see Note 3 to Consolidated Financial Statements).
F-35
<PAGE> 65
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
the Registrant's Current Report on Form 8-K filed with
the Commission on August 19, 1999)
3.2 -- Articles of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant.
(incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form S-1, File No.
333-89863, originally filed with the commission on
October 28, 1999)
3.3 -- Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.2 of the
Registrant's Current Report on Form 8-K filed with the
Commission on August 19, 1999)
4.1 -- Certificate of Designations of 8% Exchangeable Preferred
Stock of the Registrant (incorporated by reference to
Exhibit 4.1 of the Registrant's Current Report on Form
8-K filed with the Commission on August 19, 1999)
4.2 -- Certificate of Designations of 8% Convertible Preferred
Stock of the Registrant. (incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on
Form S-1, File No. 333-89863, originally filed with the
Commission on October 28, 1999).
4.3 -- Specimen Certificate for the Common Stock, par value
$.001 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-1, File No. 333-43219, originally
filed with the Commission on December 24, 1997)
4.4 -- Specimen Certificate for the 8% Exchangeable Preferred
Stock, par value $.001 per share, of the Registrant.
(incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form S-1, File No.
333-89863, originally filed with the Commission on
October 28, 1999).
4.5 -- Specimen Certificate for the 8% Convertible Preferred
Stock, par value $.001 per share, of the Registrant.
(incorporated by reference to Exhibit 4.5 of the
Registrant's Registration Statement on Form S-1, File No.
333-89863, originally filed with the Commission on
October 28, 1999).
4.6 -- Indenture dated as of February 18, 1998, by and among the
Registrant, LaSalle National Bank, as trustee, and the
subsidiary guarantors, as defined therein (incorporated
by reference to Exhibit 4.6 of the Registrant's
Registration Statement on Form S-1, File No. 333-43219,
originally filed with the Commission on December 24,
1997)
4.7 -- First Supplemental Indenture, dated as of January 19,
2000, by and among the Registrant, LaSalle Bank National
Association, as trustee, and the subsidiary guarantors,
as defined therein.*
10.1 -- Registration Rights Agreement between the Registrant and
Elliott Associates, L.P. dated September 19, 1997
(incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-1, File No.
333-43219, originally filed with the Commission on
December 24, 1997)
10.2 -- Amendment No. 1 to Registration Rights Agreement between
the Registrant and Elliott Associates, L.P., dated
October 1, 1997 (incorporated by reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-1,
File No. 333-43219, originally filed with the Commission
on December 24, 1997)
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.3 -- Amendment No. 2 to Registration Rights Agreement between
the Registrant and Elliott, dated December 17, 1997
(incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form S-1, File No.
333-43219, originally filed with the Commission on
December 24, 1997)
10.4 -- Amendment No. 3 to Registration Rights Agreement between
the Registrant and Elliott Associates, L.P., dated
October 25, 1999. (incorporated by reference to Exhibit
10.6 of the Registrant's Registration Statement on Form
S-1, File No. 333-89863, originally filed with the
Commission on October 28, 1999).
10.5 -- Executive Employment Agreement between Solid State and
Mitchell L. Peters, dated November 24, 1997 (incorporated
by reference to Exhibit 10.7 of the Registrant's
Registration Statement on Form S-1, File No. 333-43219,
originally filed with the Commission on December 24,
1997)
10.6 -- Grant Geophysical, Inc. 1997 Equity and Performance
Incentive Plan, as amended. (incorporated by reference to
Exhibit 10.6 of the Registrant's Registration Statement
on Form S-1, File No. 333-89863, originally filed with
the Commission on October 28, 1999).
10.7 -- Consulting Agreement between the Registrant and Donald W.
Wilson, dated April 28, 1998 (incorporated by reference
to Exhibit 10.16 of Amendment No. 1 to the Registrant's
Registration Statement on Form S-4, File No. 333-48799,
filed with the Commission on May 8, 1998)
10.8 -- Letter Agreement between the Registrant and Larry E.
Lenig, Jr., dated January 27, 1999 (incorporated by
reference to Exhibit 10.16 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1998, filed with the Commission on April 8, 1999)
10.9 -- Employment Agreement between the Registrant and Richard
H. Ward, dated February 3, 1999 (incorporated by
reference to Exhibit 10.17 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1998, filed with the Commission on April 8, 1999)
10.10 -- Loan and Security Agreement dated as of May 11, 1999 by
and among the Registrant, Elliott Associates, L.P. and
Foothill Capital Corporation (incorporated by reference
to Exhibit 4.1 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, filed with
the Commission on August 13, 1999)
10.11 -- Amendment No. 1 to Loan and Security Agreement, dated as
of August 12, 1999, by and among the Registrant, Elliott
Associates, L.P. and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1, File No.
333-89863, originally filed with the Commission on
October 28, 1999).
10.12 -- Amendment No. 2 to Loan and Security Agreement, dated as
of September 23, 1999, by and among the Registrant,
Elliott Associates, L.P., and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.12
of the Registrant's Registration Statement on Form S-1,
File No. 333-89863, originally filed with the Commission
on October 28, 1999).
10.13 -- Amendment No. 3 to Loan and Security Agreement, dated as
February 14, 2000, by and among the Registrant, Elliott
Associates, L.P. and Foothill Capital Corporation*
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.14 -- Employment Agreement between the Registrant and Stephen
H. Wood, dated February 24, 1999 (incorporated by
reference to Exhibit 10.18 of the Registrant's Annual
Report on Form 10-K for fiscal year ended December 31,
1998, filed with the Commission on April 8, 1999)
10.15 -- Form of Indemnity Agreement between the Registrant and
its directors (incorporated by reference to Exhibit 10.1
of the Registrant's Current Report on Form 8-K filed with
the Commission on August 19, 1999)
10.16 -- Employment Agreement between the Registrant and Thomas L.
Easley, dated January 27, 2000.*
12.1 -- Statement of Computation of Ratio of Earnings to Fixed
Charges.
16.1 -- Letter from KPMG LLP, dated November 30, 1998, regarding
change in certifying accountant (incorporated by
reference to Exhibit 16 of the Registrant's Current
Report on Form 8-K filed with the Commission on December
1, 1998)
21.1 -- Subsidiaries of the Registrant. (incorporated by
reference to the Registrant's Registration Statement on
Form S-1, originally filed with the Commission on October
28, 1999).
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* filed herein.
<PAGE> 1
EXHIBIT 4.7
FIRST SUPPLEMENTAL INDENTURE
This FIRST SUPPLEMENTAL INDENTURE, dated as of January 19, 2000 (the
"FIRST SUPPLEMENTAL INDENTURE"), is made and entered into by and between Grant
Geophysical, Inc., a Delaware corporation (the "COMPANY"), the subsidiary
guarantors listed herein (the "SUBSIDIARY GUARANTORS") and LaSalle Bank
National Association, as trustee (the "TRUSTEE"), under an Indenture (the
"INDENTURE"), dated as of February 18, 1998, between the Company, the
Subsidiary Guarantors and the Trustee. All capitalized terms used in this First
Supplemental Indenture that are defined in the Indenture, either directly or by
reference therein, have the respective meanings assigned to them therein,
except to the extent such terms are otherwise defined in this First
Supplemental Indenture or the context clearly requires otherwise.
RECITALS
WHEREAS, Section 9.2 of the Indenture provides, among other things,
that with the consent of Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, the Company, when authorized by
a Board Resolutions, each of the Subsidiary Guarantors, when authorized by a
Board Resolutions, and the Trustee upon Company Request may amend or supplement
the Indenture for the purpose of adding any provision to or changing in any
manner or eliminating any of the provisions of the Indenture or of modifying in
any manner the rights of the Holders under the Indenture;
WHEREAS, the Company has solicited consents from Holders relating to
the matters set forth in this First Supplemental Indenture (the "PROPOSED
AMENDMENT");
WHEREAS, Holders of a majority in aggregate principal amount of the
Outstanding Securities have consented to the Proposed Amendment; and
WHEREAS, the Board of Directors of the Company has adopted Board
Resolutions authorizing and approving the Proposed Amendment, and the Company,
the Subsidiary Guarantors and the Trustee are executing and delivering this
First Supplemental Indenture in order to provide therefor.
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, it is mutually agreed, for the equal and proportionate
benefit of all Holders, as follows:
ARTICLE ONE
AMENDMENT TO INDENTURE
Section 1.01 Amended Definitions. The following definitions in
Section 1.1 of the Indenture are hereby amended as follows:
(a) The definition of "Affiliate" is hereby amended to read in
its entirety as follows:
<PAGE> 2
"AFFILIATE" means, with respect to any specified
Person, any other Person directly or indirectly controlling
or controlled by or under direct or indirect common control
with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified
Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meaning
correlative to the foregoing. For purposes of this
definition, beneficial ownership of more than 50% of the
voting common equity (on a fully diluted basis) or options or
warrants to purchase such equity (but only if exercisable at
the date of determination or within 60 days thereof) of a
Person shall be deemed to constitute control of such Person.
(b) The definition of "Consolidated EBITDA Coverage Ratio" is
hereby amended to read in its entirety as follows:
"CONSOLIDATED EBITDA COVERAGE RATIO" means, for any
period, the ratio on a pro forma basis of (a) the sum of
Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income, in
each case, for such period, of the Company and its Restricted
Subsidiaries on a consolidated basis, all determined in
accordance with GAAP, to (b) the sum of such Consolidated
Interest Expense for such period; provided, however, that (i)
the Consolidated EBITDA Coverage Ratio shall be calculated on
a pro forma basis assuming that (A) the Indebtedness to be
incurred (and all other Indebtedness incurred after the first
day of such period of four full fiscal quarters referred to
in Section 10.12(a) hereof through and including the date of
determination), and (if applicable) the application of the
net proceeds therefrom (and from any other such
Indebtedness), including to refinance other Indebtedness, had
been incurred on the first day of such four-quarter period
and, in the case of Acquired Indebtedness, on the assumption
that the related transaction (whether by means of purchase,
merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition
being included in such pro forma calculation and (B) any
acquisition or disposition by the Company or any Restricted
Subsidiary of any Properties outside the ordinary course of
business, or any repayment, redemption or extinguishment of
any principal amount of any Indebtedness of the Company or
any Restricted Subsidiary prior to the Stated Maturity
thereof, in either case since the first day of such period of
four full fiscal quarters through and including the date of
determination, had been consummated on such first day of such
four-quarter period, (ii) in making such computation, the
Consolidated Interest Expense attributable to interest on any
Indebtedness required to be computed on a pro forma basis in
accordance with Section 10.12(a) hereof and (A) bearing a
floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable
rate for the entire period and (B) which was not outstanding
during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or
floating rate of interest, shall be computed by applying, at
the option of the Company, either the fixed or
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<PAGE> 3
floating rate, (iii) in making such computation, the
Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility required to be
computed on a pro forma basis in accordance with Section
10.12(a) hereof shall be computed based upon the average
daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be
reduced by the amount of any repayment of Indebtedness under
a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility, (iv)
notwithstanding clauses (ii) and (iii) of this proviso,
interest on Indebtedness determined on a fluctuating basis,
to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to
have accrued at the rate per annum resulting after giving
effect to the operation of such agreements, and (v) if after
the first day of the period referred to in clause (a) of this
definition the Company has permanently retired any
Indebtedness out of the Net Cash Proceeds of the issuance and
sale of shares of Qualified Capital Stock of the Company,
Consolidated Interest Expense shall be calculated on a
proforma basis as if such Indebtedness had been retired on
the first day of such period.
(c) The definition of "Consolidated Interest Expense" is hereby
amended to read in its entirety as follows:
"CONSOLIDATED INTEREST EXPENSE" means, for any
period, without duplication, (i) the sum of (a) the interest
expense of the Company and its Restricted Subsidiaries for
such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (A) any
amortization of debt discount, (B) the net cost under
Interest Rate Protection Obligations (including any
amortization of discounts), (c) the interest portion of any
deferred payment obligation constituting Indebtedness, (D)
all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance
financing and (E) all accrued interest, in each case to the
extent attributable to such period, (b) to the extent any
Indebtedness of any Person (other than the Company or a
Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid
(to the extent not accrued in a prior period) or accrued by
such other Person during such period attributable to any such
Indebtedness, in each case to the extent attributable to that
period, (c) the aggregate amount of the interest component of
Capitalized Lease Obligations paid (to the extent not accrued
in a prior period), accrued or scheduled to be paid or
accrued by the Company and its Restricted Subsidiaries during
such period and (d) the aggregate amount of cash dividends
paid on Preferred Stock or on Disqualified Capital Stock of
the Company and its Restricted Subsidiaries, to the extent
such Preferred Stock or Disqualified Capital Stock is owned
by Persons other than the Company or any Restricted
Subsidiary, less (ii), to the extent included in clause (i)
above, amortization of capitalized debt issuance costs of the
Company and its Restricted Subsidiaries during such period.
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<PAGE> 4
(d) The definition of "Permitted Indebtedness" is hereby amended
to read in its entirety as follows:
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness (and any guarantee thereof) in an aggregate
principal amount at any one time outstanding not to exceed
(a) the greater of (x) $50,000,000 at any time outstanding
or (y) the sum of 85% of the amount of Eligible Receivables
of the Company and its Restricted Subsidiaries and 50% of
the amount of Eligible Inventory of the Company and its
Restricted Subsidiaries, less (b) any amounts derived from
Asset Sales, except for an Asset Sale consisting of a sale
of the multi-client seismic data owned by, or gathered for
the account of, the Company and applied to the permanent
reduction of the Indebtedness under any such credit
facilities as contemplated by Section 10.17 hereof (the
"Maximum Bank Credit Amount"), and any renewals, amendments,
extensions, supplements, modifications, deferrals,
refinancings or replacements (each, for purposes of this
clause (i), a "refinancing") thereof, including any
successive refinancing thereof, so long as the aggregate
principal amount of any such new Indebtedness, together with
the aggregate principal amount of all other Indebtedness
outstanding pursuant to this clause (i), shall not at any
one time exceed the Maximum Bank Credit Amount;
(ii) Indebtedness under the Original Securities and any
Series B Securities issued in exchange for Original
Securities of an equal principal amount;
(iii) Indebtedness outstanding or in effect on the date of this
Indenture (and not repaid or defeased with the proceeds of
the offering of the Original Securities);
(iv) Indebtedness under Interest Rate Protection Obligations,
provided that (1) such Interest Rate Protection Obligations
are related to payment obligations on Permitted Indebtedness
or Indebtedness otherwise permitted by Section 10.12(a)
hereof, and (2) the notional principal amount of such
Interest Rate Protection Obligations does not exceed the
principal amount of such Indebtedness to which such Interest
Rate Protection Obligations relate;
(v) Indebtedness under Currency Hedge Obligations, provided that
(1) such Currency Hedge Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness
otherwise permitted by Section 10.12(a) hereof, or to the
foreign currency cash flows reasonably expected to be
generated by the Company and its Restricted Subsidiaries,
and (2) the notional principal amount of such Currency Hedge
Obligations does not exceed the principal amount of such
Indebtedness and the amount of such foreign currency cash
flows to which such Currency Hedge Obligations relate;
(vi) the Subsidiary Guarantees of the Original Securities
(and any assumption of the obligations guaranteed thereby);
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<PAGE> 5
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to
the Company or a Wholly Owned Restricted Subsidiary;
provided, however, that upon any subsequent issuance or
transfer of any Capital Stock or any other event which
results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary or any
other subsequent transfer of any such Indebtedness (except
to the Company or a Wholly Owned Restricted Subsidiary),
such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes
of Section 10.12(a) hereof at the time the Wholly Owned
Restricted Subsidiary in question ceased to be a Wholly
Owned Restricted Subsidiary or the time such subsequent
transfer occurred;
(viii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including
guaranties or obligations of the Company or any Restricted
Subsidiary with respect to letters of credit supporting such
bid, performance or surety obligations (in each case other
than for an obligation for money borrowed);
(ix) Non-Recourse Indebtedness;
(x) any renewals, substitutions, refinancings or replacements
(each, for purposes of this clause (x), a "refinancing") by
the Company or a Restricted Subsidiary of any Indebtedness
incurred pursuant to clause (iii) of this definition,
including any successive refinancing by the Company or such
Restricted Subsidiary, so long as (A) any such new
Indebtedness shall be in a principal amount that does not
exceed the principal amount (or, if such new Indebtedness
being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as
of the date of determination) so refinanced plus the amount
of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably
determined by the Company or such Restricted Subsidiary as
necessary to accomplish such refinancing, plus the amount of
expenses of the Company or such Restricted Subsidiary
incurred in connection with such refinancing, (B) in the
case of any refinancing of Indebtedness that is pari passu
with or subordinated in right of payment to either the
Securities or any Subsidiary Guarantees, then such new
Indebtedness is either pari passu with or subordinated in
right of payment to the Securities or any Subsidiary
Guarantees, as the case may be, at least to the same extent
as the Indebtedness being refinanced and (c) such new
Indebtedness has an Average Life equal to or longer than the
Average Life of the Indebtedness being refinanced and a
final Stated Maturity that is at least 91 days later than
the final Stated Maturity of the Indebtedness being
refinanced; and
(xi) any additional Indebtedness in an aggregate principal
amount not in excess of $10,000,000 at any one time
outstanding and any guarantee thereof.
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<PAGE> 6
Section 1.02 Section 5.2 of the Indenture. The last paragraph of
Section 5.2 is hereby amended to read in its entirety as follows:
No such rescission shall affect any subsequent default or
impair any right consequent thereon. Notwithstanding the foregoing, if
an Event of Default specified in Section 5.1(e) hereof shall have
occurred and be continuing, such Event of Default and any
consequential acceleration of the Securities shall be automatically
rescinded if the Indebtedness that is the subject of such Event of
Default has been repaid, or if the default relating to such
Indebtedness is waived or cured and if such Indebtedness has been
accelerated, then the holders thereof have rescinded their declaration
of acceleration in respect of such Indebtedness (provided, in each
case, that such repayment, waiver, cure or rescission is effected
within a period of 30 days from the continuation of such default
beyond the applicable grace period or the occurrence of such
acceleration), and written notice of such repayment, or cure or waiver
and rescission, as the case may be, shall have been given to the
Trustee by the Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders or
other evidence satisfactory to the trustee of such events is provided
to the Trustee, within 30 days after any such acceleration in respect
of the Securities, and so long as such rescission of any such
acceleration of the Securities does not conflict with any judgment or
decree as certified to the Trustee by the Company.
Section 1.03 Section 8.1 of the Indenture. Section 8.1 of the
Indenture is hereby amended to read in its entirety as follows:
Section 8.1 Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, in any single transaction or a series
of related transactions, merge or consolidate with or into any other
Person, or sell, assign, convey, transfer, lease or otherwise dispose
of all or substantially all the Properties of the Company and its
Restricted Subsidiaries on a consolidated basis to any Person or group
of Affiliated Persons, and the Company shall not permit any of its
Restricted Subsidiaries to enter into any such transaction or series
of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer,
lease or other disposition of all or substantially all of the
Properties of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons,
unless at the time and after giving effect thereto:
(a) (i) if the transaction is a merger or consolidation, the
Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person (if other than the
Company) formed by such consolidation or into which the
Company is merged or to which the Properties of the Company
or its Restricted Subsidiaries, as the case may be, are
sold, assigned, conveyed, transferred, leased or otherwise
disposed of (any such surviving Person or transferee Person
being called the "Surviving Entity") shall expressly assume
by a supplemental indenture to this Indenture executed and
delivered to the Trustee, in form satisfactory to the
Trustee, all the
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<PAGE> 7
obligations of the Company under the Securities and this
Indenture, and, in each case, this Indenture shall remain
in full force and effect;
(b) immediately before and immediately after giving effect
to such transaction or series of transactions on a pro forma
basis (and treating any Indebtedness not previously an
obligation of the Company or any of its Restricted
Subsidiaries which becomes the obligation of the Company or
any of its Restricted Subsidiaries in connection with or as
a result of such transaction or transactions as having been
incurred at the time of such transaction or transactions),
no Default or Event of Default shall have occurred and be
continuing;
(c) if the Company is not the continuing obligor under this
Indenture, then each Subsidiary Guarantor then in existence,
unless it is the Surviving Entity, shall have by
supplemental indenture confirmed that its Subsidiary
Guarantee of the Securities shall apply to the Surviving
Entity's obligations under this Indenture and the
Securities; and
(d) the Company (or the Surviving Entity if the Company is
not the continuing obligor under this Indenture) shall have
delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, (i) an Officers' Certificate
stating that such consolidation, merger, conveyance,
transfer, lease or other disposition and, if a supplemental
indenture is required in connection with such transaction,
such supplemental indenture, comply with the requirements
under this Indenture and (ii) an Opinion of Counsel stating
that the requirements of Section 8.1(a) have been satisfied.
Section 1.04 Section 10.10 of the Indenture. Section 10.10(a)(iv)(1)
of the Indenture is hereby amended to read in its entirety as follows:
(1) 50% of the Consolidated Net Income of the Company accrued on
a cumulative basis during the period beginning on January 1,
2000 and ending on the last day of the Company's last fiscal
quarter ending prior to the date of such proposed Restricted
Payment (or, if such Consolidated Net Income shall be a loss,
minus 100% of such loss), plus
Section 1.05 Section 1012 of the Indenture. Section 10.12(b) of the
Indenture is hereby amended to read in its entirety as follows:
(b) Neither the Company nor any Subsidiary Guarantor shall
incur any Indebtedness (other than Permitted Indebtedness)
that is expressly subordinated to any other Indebtedness of
the Company or such Subsidiary Guarantor, as the case may
be, unless such Indebtedness, by its terms or the terms of
any agreement or instrument pursuant to which such
Indebtedness is issued or outstanding, is also expressly
made subordinate to the Securities or the Subsidiary
Guarantee of such
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<PAGE> 8
Subsidiary Guarantor, as the case may be, at least to the
extent it is subordinated to such other Indebtedness.
ARTICLE II
GENERAL PROVISIONS
Section 2.01. Effectiveness of Amendment. This First
Supplemental Indenture is effective as of the date first written above.
Section 2.02. Ratification of Indenture. The Indenture is in
all respects acknowledged, ratified and confirmed, and shall continue in full
force and effect in accordance with the terms thereof and as supplemented by
this First Supplemental Indenture. The Indenture and this First Supplemental
Indenture shall be read, taken and construed as one and the same instrument.
Section 2.03. Certificate and Opinion as to Conditions
Precedent. Simultaneously with and as a condition to the execution of this
First Supplemental Indenture, the Company is delivering to the Trustee:
(a) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of the signers, all conditions precedent provided for in the Indenture
relating to the amendment and supplement of the Indenture have been
complied with; and
(b) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of such counsel, all such conditions precedent have been complied
with.
Section 2.04. Effect of Headings. The Article and Section
headings in this First Supplemental Indenture are for convenience only and shall
not affect the construction of this First Supplemental Indenture.
Section 2.05. Governing Law. THIS FIRST SUPPLEMENTAL
INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 2.06. Counterparts. First Sixth Supplemental
Indenture may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
COMPANY:
GRANT GEOPHYSICAL, INC.
By:
-------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS:
ADVANCED SEISMIC TECHNOLOGY, INC.
By:
-------------------------------
Name:
Title:
GRANT GEOPHYSICAL CORP.
By:
-------------------------------
Name:
Title:
GRANT GEOPHYSICAL DO BRAZIL LTDA.
By:
-------------------------------
Name:
Title:
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<PAGE> 10
GRANT GEOPHYSICAL (INT'L), INC.
By:
-------------------------------
Name:
Title:
PT GRANT GEOPHYSICAL INDONESIA
By:
-------------------------------
Name:
Title:
RECURSOS ENERGETICOS LTDA.
By:
-------------------------------
Name:
Title:
SOLID STATE GEOPHYSICAL, INC.
By:
-------------------------------
Name:
Title:
SOLID STATE INTERNACIONAL
INGENIERIA, CA.
By:
-------------------------------
Name:
Title:
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<PAGE> 11
TRUSTEE:
LASALLE BANK NATIONAL ASSOCIATION
By:
-------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.13
AMENDMENT NUMBER THREE
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated effective as of February 14, 2000, 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 (including any and all amendments, 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 Amendment Number Two to
Loan and Security Agreement, dated to be effective as of September 23, 1999, by
and among Borrower, Foothill and FALP; and
WHEREAS, Borrower 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 revolving credit commitment of Foothill
from $6,000,000 to $10,000,000, subject to the limitations contained
in the Loan and Security Agreement, as amended;
(b) a readvance of principal under the FCC Term Loan such
that the aggregate outstanding principal balance as of the date of
this Amendment will be $11,500,000, to be evidenced by an amendment
and restatement of the FCC Term Note, including a revised amortization
schedule and the deferral of the principal payments that otherwise
would be due and payable on February 1, 2000, and March 1, 2000; and
(c) a temporary modification of the definition of "Eligible
Domestic Accounts" to allow (i) certain Designated Account Debtors to
represent up to 40% in the aggregate of all Eligible Accounts and (ii)
either of two such Designated Account Debtors to represent up to 25%
of all Eligible Accounts on an individual basis.
WHEREAS, subject to the conditions set forth in this Amendment,
Borrower, 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.
PAGE 1
<PAGE> 2
2.01 ADDITIONS TO 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 "Third Amendment to Loan and Security Agreement" to
such section in the appropriate alphabetical order, such definition to read in
its entirety as follows:
"'Third Amendment to Loan and Security Agreement' means that
certain Amendment Number Three to Loan and Security Agreement, dated
to be effective as of February 14, 2000, by and among Borrower,
Foothill and EALP."
2.02 AMENDMENT OF EXISTING DEFINITIONS CONTAINED IN SECTION 1.1
OF THE LOAN AND SECURITY AGREEMENT.
(a) Subsections (i) and (j) of the definition of "Eligible
Domestic Accounts" are hereby amended and restated to read in their
entirety as follows:
"(i) Accounts with respect to which either of the
Designated Account Debtors is the Account Debtor, to the
extent that (i) during the period commencing January 1, 2000,
and extending through March 31, 2000, the Accounts owed by
either of such Designated Account Debtors exceed twenty-five
percent (25%) of all Eligible Accounts, or (ii) from and after
April 1, 2000, the Accounts owed by either such Designated
Account Debtors exceed twenty percent (20%) of all Eligible
Accounts;
(j) Accounts with respect to which either of the
Designated Account Debtors is the Account Debtor, to the
extent that (i) during the period commencing January 1, 2000,
and continuing through March 31, 2000, the aggregate amount
of all such Accounts of the Designated Account Debtors
exceeds forty percent (40%) of all Eligible Accounts, or (ii)
from and after April 1, 2000, the aggregate amount of all such
Accounts of the Designated Account Debtors exceeds
thirty-five (35%) of all Eligible Accounts;"
(b) The definition of "Maximum Revolving Amount" is hereby
amended and restated to read in its entirety as follows:
""Maximum Revolving Amount" means Ten Million Dollars
($10,000,000.00)."
(c) The definition of "Reference Rate" is hereby amended and
restated to read in its entirety as follows:
""Reference Rate" means the variable rate of interest, per
annum, most recently announced by Wells Fargo Bank, National
Association, or any successor thereto, as its "base rate,"
irrespective of whether such announced rate is the best rate
available from such financial institution."
PAGE 2
<PAGE> 3
2.04 AMENDMENT OF SECTION 2.1(X)(1) OF THE LOAN AND SECURITY
AGREEMENT. Section 2.1(x)(1) of the Loan and Security Agreement is hereby
amended and restated in its entirety to read as follows:
"(x) the least of:
(1) Ten Million Dollars ($10,000,000.00), or"
2.05 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 Five Hundred Thousand Dollars
($11,500,000.00). The FCC Term Loan shall be repaid in twenty-six
monthly installments, and one final installment, of principal in the
following amounts:
======================================================================
Month Installment Amount
======================================================================
April 1, 2000, through May 1, 2002 $363,260.00/month
======================================================================
May 11, 2002 The outstanding principal
balance of the FCC Term Loan
======================================================================
Each such principal installment shall be due and payable on the first
day of each month commencing April 1, 2000, 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
PAGE 3
<PAGE> 4
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 Second Amended and Restated Secured
Promissory Note, dated February 14, 2000, in the original principal
amount of $11,500,000.00, executed by Borrower, payable to the order
of Foothill, the form of which is attached as Exhibit A to the Third
Amendment to Loan and Security Agreement (together with any and all
renewals, extensions and modifications thereof, the "FCC Term Note")."
2.06 REPLACEMENT OF SCHEDULE C-1 OF THE LOAN AND SECURITY AGREEMENT.
Schedule C-1 of the Loan and Security Agreement is hereby amended and restated
in its entirety to read as set forth in Schedule C-1 to this Amendment, and all
references in the Loan and Security Agreement to Schedule C-1, or any
information set forth therein, shall hereinafter be deemed to be references to
Schedule C-1 as so amended and restated.
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 Loan Documents to which it is a party, pursuant to an
instrument in form and substance satisfactory to Foothill;
(d) Borrower shall execute and deliver to Foothill the "FCC Term
Note" in the form attached hereto as Exhibit A;
(e) Foothill shall have received an Officer's Certificate, duly
executed by Borrower in form and substance satisfactory to Foothill;
(f) Borrower shall pay all fees and expenses required to be paid
by Borrower pursuant to Section 6.03 of this Amendment; and
(g) an interest payment equal to the accrued and unpaid interest
in respect of the prior FCC Term Note to February 14, 2000.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
4.01 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants to Foothill as follows:
PAGE 4
<PAGE> 5
(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 only a prior specified date;
(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; and
(f) no Default or Event of Default is continuing as of the
date hereof, nor shall any Default or Event of Default occur as a
result of the execution and delivery hereof, or the Borrower's
performance of the obligations herein or under the Loan and Security
Agreement, as amended hereby.
4.02 COVENANTS OF BORROWER. Within fifteen days of the date hereof,
Borrower shall, or shall cause each of GGBL, PTGI and SSGI to reaffirm its
obligations under each Loan Document to which it is a party. The failure of
Borrower, GGBL, PTGI or SSGI, as applicable, 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 and/or increase by this
Amendment.
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<PAGE> 6
6. MISCELLANEOUS.
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made herein and in the Loan and Security Agreement shall survive
the execution and 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 $60,000, 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 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.
PAGE 6
<PAGE> 7
6.09 FINAL AGREEMENT. THE LOAN AND SECURITY AGREMENT, 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.
6.10 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]
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<PAGE> 8
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:
------------------------------------
Richard Ward,
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
PAGE 8
<PAGE> 9
Schedule C-1
To
Loan and Security Agreement
Commitments on Closing Date
<TABLE>
<CAPTION>
Percent of Pro Rata
Lender Facility Amount Facility Share
- ------ -------- ------ -------- -----
<S> <C> <C> <C> <C>
Foothill Capital Corporation Revolving Facility $10,000,000 100% 34%
Foothill capital Corporation FCC Term Loan $11,500,000 100% 40%
Elliott Associates, L.P. EALP Term Loan $ 7,500,000 100% 26%
----------- ----
Total $29,000,000 100%
</TABLE>
Page 1
<PAGE> 10
EXHIBIT A
(FORM OF FCC TERM NOTE)
SECOND AMENDED AND RESTATED
SECURED PROMISSORY NOTE
$11,500,000.00 Boston, Massachusetts
February 14, 2000
FOR VALUE RECEIVED, GRANT GEOPHYSICAL, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), at its offices at 11111
Santa Monica Boulevard, Suite 1500, California 90025-3333, or at such other
place or places as Foothill may from time to time designate in writing, the
principal sum of Eleven Million Five Hundred Thousand and No/100 Dollars
($11,500,000.00), plus interest in the manner and upon the terms and conditions
set forth below. This Second Amended and Restated Secured Promissory Note (this
"Note") is made pursuant to that certain Loan and Security Agreement (as
amended, the "Loan Agreement"), dated as of May 11, 1999, among Borrower, the
lending entities from time to time party thereto (together with their
respective successors and assigns, the "Lenders"), and Foothill, as agent for
the Lenders (the "Agent"), the provisions of which are incorporated herein by
this reference, and evidences the FCC Term Loan, as defined and described in
the Loan Agreement. Capitalized terms herein, unless otherwise noted, shall
have the meaning set forth in the Loan Agreement.
1.0 SCHEDULE OF PAYMENTS; RATE AND PAYMENT OF INTEREST; PREPAYMENT.
1.1 Except to the extent this Note may become due and
payable earlier in accordance with the Loan Agreement, this Note shall be due
and payable as follows:
(a) twenty-six (26) equal successive monthly installments of
principal of Three Hundred Sixty-Three Thousand Two Hundred Sixty
Dollars and No/100 ($363,260.00), each on the first day of each month,
beginning April 1, 2000, and continuing through and including
May 1, 2002;
(b) accrued interest on the principal balance from time to
time remaining unpaid, payable monthly on the first day of each and
every month, beginning March 1, 2000; and
(c) a final principal installment equal to the unpaid principal
balance of this Note on May 11, 2002, together with accrued interest
on the principal balance remaining unpaid.
1.2 Prepayment may be made under this Note in whole or
in part, subject to the provisions of Section 3.6 set forth in the Loan
Agreement. Notwithstanding anything herein to the contrary, in the event that
the Loan Agreement is terminated by Borrower, by Foothill or by any other
person at any time, then the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest hereon, shall become immediately
due and payable in full on the effective date of such termination, without
presentment, notice or demand of any kind.
1.3 Interest shall be computed on the basis of a 360-day
year for the actual number of days elapsed, and shall be at the rate of one and
one-half (1-1/2) percentage points above the Reference Rate (as hereinafter
defined), computed on the basis of a 360-day year; provided, however, upon the
occurrence and during the continuance of an Event of Default (as hereinafter
defined), interest shall
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accrue on the outstanding principal balance of this Note at a default rate (the
"Default Rate") of five and one-half (5-1/2) percentage points above the
Reference Rate, and shall be payable on demand. "Reference Rate" means, for any
day, the rate of interest per annum (over a year of 360 days) announced by
Wells Fargo Bank, National Association, or any successor thereto (the "Bank"),
from time to time, as its "base rate" (or any successor thereto) in effect on
such day. The Reference Rate is not necessarily the lowest rate charged by the
Bank. The applicable rate of interest assessed hereunder will be increased or
decreased from time to time hereafter in an amount equal to any increase or
decrease hereafter made by the Bank in the Reference Rate. A change in the
Reference Rate shall be effective automatically and immediately on the
occurrence of such change.
2.0 EVENTS OF DEFAULTS; REMEDIES.
2.1 The occurrence of an Event of Default under the Loan
Agreement shall constitute a default by Borrower under this Note (hereinafter
an "Event of Default").
2.2 Upon the occurrence of any Event of Default hereunder,
the Lenders and the Agent shall have all rights and remedies as may be provided
under the Loan Agreement or applicable law.
3.0 GENERAL PROVISIONS.
3.1 Borrower warrants and represents to the Agent and
the Lenders that Borrower has used and will continue to use the loans and
advances represented by this Note solely for proper business purposes, and
consistent with all applicable laws and statutes.
3.2 This Note is secured by the Collateral described in the Loan
Agreement.
3.3 Borrower waives presentment, demand and protest,
notice of protest, notice of presentment, notice of intention to accelerate,
notice of acceleration, and all other notices and demands in connection with
the enforcement of the Lenders', Foothill's or the Agent's rights hereunder or
under the Loan Agreement, except as specifically provided and called for by
this Note or the Loan Agreement, and hereby consents to, and waives notice of,
the release, addition, or substitution, with or without consideration, of any
collateral or of any person liable for payment of this Note or any other
Obligation. Any failure of the Lenders or the Agent to exercise any right
available hereunder, under the Loan Agreement or otherwise shall not be
construed as a waiver of the right to exercise the same or as a waiver of any
other right at any other time.
3.4 If this Note is not paid when due or upon the
occurrence of an Event of Default, Borrower further promises to pay all costs
of collection, foreclosure fees, attorneys' fees and expert witness fees
incurred by the Lenders or the Agent, whether or not suit is filed hereon, and
the fees, costs and expenses as provided in the Loan Agreement.
3.5 It is the intent of the parties to comply with applicable
usury laws (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Note or such documents require the payment or permit the collection
of interest in excess of the Maximum Interest Rate, then in any such event (1)
the provisions of the paragraph shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the Maximum Interest Rate, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Borrower, at Foothill's option, and (4) the
effective rate of interest shall be automatically reduced to the Maximum
Interest Rate. It is further
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<PAGE> 12
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law, (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in the event that
the effective rate of interest on the loan should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall
be paid to Foothill from time to time, if and when the effective interest rate
on the loan otherwise falls below the Maximum Interest Rate, until the entire
amount of interest which would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. Borrower
further agrees that should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law, then to the extent
not prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
3.6 Subject to the applicable provisions of the Loan
Agreement, Foothill may at any time transfer this Note and Foothill's rights in
any or all collateral securing this Note, and Foothill thereafter shall be
relieved from all liability with respect to such collateral arising after the
date of such transfer.
3.7 This Note shall be binding upon Borrower and its
legal representatives, successors and assigns. Wherever possible, each
provision of this Note shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of the Note shall be
prohibited by or invalid under such law, such provision shall be severable, and
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provision of this Note.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY FOOTHILL IN BOSTON,
MASSACHUSETTS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE
COMMONWEALTH OF MASSACHUSETTS, AS THE SAME MAY FROM TIME TO TIME BE IN EFFECT,
INCLUDING, WITHOUT LIMITATION, THE UNIFORM COMMERCIAL CODE AS ADOPTED IN
MASSACHUSETTS. BORROWER HEREBY (i) IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED IN SUFFOLK COUNTY, MASSACHUSETTS OVER ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
THIS NOTE; (ii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT BORROWER MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
ANY SUCH ACTION OR PROCEEDING; (iii) AGREES NOT TO INSTITUTE ANY LEGAL ACTION
OR PROCEEDING AGAINST FOOTHILL OR ANY OF FOOTHILL'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING
TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN SUFFOLK COUNTY,
MASSACHUSETTS; AND (iv) IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION ARISING UNDER OR IN CONNECTION WITH THIS NOTE. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR IMPAIR FOOTHILL'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER
PERMITTED BY LAW OR FOOTHILL'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
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This Note amends, modifies, restates and replaces, but does not
extinguish the indebtedness evidenced by, that certain Amended and Restated
Secured Promissory Note, dated September 23, 1999, executed by Borrower and
payable to the order of Foothill in the original stated principal amount of
$11,637,500.00 (the "Prior Note"), which Prior Note, in turn, amended,
modified, increased, restated and replaced, but did not extinguish the
indebtedness evidenced by, that certain Secured Promissory Note, dated May 11,
1999, executed by Borrower and payable to the order of Foothill in the original
stated principal amount of $11,500,000.00. All rights, titles, liens, security
interests and agreements securing or benefiting the Prior Note are preserved,
maintained and carried forward to secure and benefit this Note.
GRANT GEOPHYSICAL, INC.,
a Delaware corporation
By:
-----------------------------------
Richard Ward,
President
"Borrower"
Federal Taxpayer Identification
Number: 76-0548468
Address:
16850 Park Row
Houston, Texas 77084
Page 4
<PAGE> 1
EXHIBIT 10.16
- -------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
Between
GRANT GEOPHYSICAL, INC.
And
THOMAS EASLEY
dated as of January 27, 2000
- -------------------------------------------------------------------------------
<PAGE> 2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of January 27, 2000, by and between Grant Geophysical, Inc., a Delaware
corporation (the "Company"), and Thomas Easley (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is desirous of employing Executive on the terms
and conditions, and for the consideration hereinafter set forth, and Executive
is desirous of being employed by the Company on such terms and conditions and
for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Executive agree as
follows:
ARTICLE 1
EMPLOYMENT AND DUTIES
Section 1.1 Employment. Subject to the terms and conditions of this
Agreement, the Company hereby employs the Executive, and Executive hereby
agrees to be so employed by the Company, beginning on February 4, 2000 (the
"Commencement Date"), for the term set forth in Article 3. From and after the
Commencement Date, the Company shall employ the Executive in the position of
Executive Vice President Finance and Administration of the Company, or in such
other position or positions as the parties mutually may agree, and Executive
shall perform such duties, consistent with the Executive's job title or titles,
as may be prescribed from time to time by the Board of Directors of the Company
(the "Board").
Section 1.2 Duties and Powers. Executive agrees to serve in the
position referred to in Section 1.1 and to perform diligently and to the best
of his abilities the duties and services of such office or offices. For so long
as Executive is employed by the Company, Executive agrees to devote his full
and exclusive business time and attention to the business of the Company and
its subsidiaries or affiliates (excluding reasonable vacations and sick leave
in accordance with the Company's policies consistent with his position), to
perform all duties in a professional and prudent manner, and to devote the best
of his skill, energy, experience and judgment to such duties. Executive shall
have the powers associated with his position, subject to all policies and
guidelines as may be established by the Board. Executive agrees to devote his
full business time to the performance of services hereunder and not to engage
in any other activity or own any interest that would conflict with the
interests of the Company or would interfere with his responsibilities to the
Company and the performance of his duties hereunder; provided, however, that
this Agreement shall not prohibit the Executive from: (a) serving as a member
of the board of directors, board of trustees or the like of any for profit or
non-profit entity, or performing services of any type for any civic or
community entity, whether or not the Executive receives compensation therefor;
(b) investing his assets in such form or manner as will require no more than
nominal services on the part of the Executive in the operation of the business
of the entity in which such investment is made; or (c) serving in various
capacities
1
<PAGE> 3
with, and attending meetings of, industry, trade or governmental groups and
associations, including without limitation the industry, trade or governmental
groups and associations with which the Executive is currently involved, as long
as the Executive's engaging in activities permitted by virtue of clauses (a),
(b) and (c) above does not interfere with the ability of the Executive to
perform the services and discharge the responsibilities required of him under
this Agreement or conflict with any of the provisions hereof.
ARTICLE 2
COMPENSATION AND BENEFITS
Section 2.1 Salary. In consideration of the full and faithful
performance by Executive of his obligations hereunder, subject to the terms and
conditions set forth herein, the Company (or, at the Company's option, any
subsidiary or affiliate of the Company for which the Executive also provides
services hereunder) shall pay to the Executive an annual base salary of
$225,000 per year. Executive's annual base salary shall be paid in equal
installments in accordance with the Company's standard policy regarding payment
of compensation to executives (but no less frequently than monthly) and will be
prorated based upon the number of days elapsed in any partial year. The
Executive's salary shall be reviewed annually by the Board and may be increased
at the sole discretion of the Board.
Section 2.2 Bonuses. Executive shall receive such bonuses, if any, as
the Board shall determine in its sole discretion.
Section 2.3 Initial Stock Grant and Stock Options. The Company shall
grant to Executive, effective as of the Commencement Date, an option to
purchase 400,000 shares of the Company's common stock, $.001 par value per
share, pursuant to the Stock Option Agreement in the form attached hereto as
Exhibit "A."
Section 2.4 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of his
employment:
(a) Subject to compliance with the Company's standard
policies and procedures with respect to expense reimbursement, the
Company shall reimburse Executive for, or pay on behalf of Executive,
reasonable and appropriate expenses incurred by Executive in
connection with the performance of his duties hereunder.
(b) Executive and, to the extent applicable, Executive's
spouse, dependents and beneficiaries, shall be allowed to participate
in all benefits, plans and programs, including improvements or
modifications, which are now, or may hereafter be, generally available
to other executive employees of the Company.
2
<PAGE> 4
ARTICLE 3
TERM AND TERMINATION OF EMPLOYMENT
Section 3.1 Term.
(a) Unless extended or sooner terminated pursuant to other
provisions hereof, the Company agrees to employ Executive for the
period (such period, prior to the conversion to an at-will
relationship as provided herein, the "Term") beginning on the
Commencement Date and ending two years thereafter. If the employment
relationship is not terminated prior to the end of the Term, either
the Company or Executive may elect, for any reason whatever, with or
without cause, to cause the employment relationship to cease as of the
expiration of the Term. This shall occur by either party giving a
written notice to the other party at least 30 days prior to the end of
the Term that the employment relationship shall cease as of the
expiration of the Term. Should Executive serve the full Term and
remain employed by the Company beyond the expiration of the Term, such
employment shall convert to a month-to-month, at-will relationship.
Such at-will relationship may be terminated at any time by either
Executive or the Company for any reason whatsoever, with or without
cause, upon 30 days' prior written notice to the other party.
(b) If a Change of Control (as defined below) occurs during
the Term, the Term shall automatically be extended, without the
necessity of any action on the part of the Company or Executive, to
end on the date three years after the Commencement Date.
(c) For purposes of this Agreement, "Change of Control" shall
mean the occurrence at any time after the Commencement Date of any of
the following events: (1) the purchase or other acquisition by any
person, entity or group (within the meaning of section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended, or any comparable
successor provisions) of persons or entities (a "Group"), other then
Elliott Associates, L.P., Westgate International, L.P., or any of
their affiliates, of (i) ownership of fifty percent (50%) or more of
the combined voting power of the Company's then outstanding voting
securities entitled to vote generally or (ii) all or substantially all
of the direct and indirect assets of the Company or (2) any merger,
consolidation, reorganization or other business combination of the
Company with or into any other entity which results in a person,
entity or Group, other than Elliott Associates, L.P., Westgate
International, L.P., or any of their affiliates, owning fifty percent
(50%) or more of the combined voting power of the surviving or
resulting corporation's then outstanding voting securities entitled to
vote generally.
Section 3.2 The Company's Right to Terminate. Notwithstanding the
provisions of Section 3.1, the Company shall have the right to terminate
Executive's employment during the Term at any time for any of the following
reasons:
(a) upon Executive's death;
(b) upon Executive's becoming incapacitated by accident,
sickness or other circumstance which renders him mentally or
physically incapable of performing, in the good
3
<PAGE> 5
faith determination of the Board, the duties and services required of
him hereunder on a full-time basis for a period of at least 60
consecutive days or for a period of 90 days in any 12 month period;
(c) for "Cause," which for purposes of this Agreement shall
mean (i) the commission of a felony or any other act or omission
involving dishonesty, disloyalty, or fraud with respect to the Company
or any of its customers or suppliers, (ii) conduct tending to bring
the Company into substantial public disgrace or disrepute, (iii)
substantial and repeated failure to perform duties as reasonably
requested by the Board or its designees, (iv) gross negligence or
willful misconduct in connection with the performance of Executive's
duties as an employee or (v) a material breach (which shall include,
without limitation, all breaches of Article 4 hereof by Executive) or
repeated violation of this Agreement; provided that in the case of a
violation of his duties as described in Article 1, the violation, if
correctable, remains uncorrected for 30 days following written notice
to Executive by the Company of such breach or violation.
(d) without Cause, in which event the Company's obligation to
Executive under this Agreement shall be limited solely to the payment,
at the time and upon the terms provided for herein, of Executive's
annual base salary payable pursuant to Section 2.1 for the remainder
of the Term. Any amounts due to Executive pursuant to this Section
3.2(d) shall be due and payable as and when they would have become due
and payable had Executive not been so terminated.
Section 3.3 Notice of Termination. If the Company desires to terminate
Executive's employment hereunder at any time prior to expiration of the Term,
it shall do so by giving written notice to Executive that it has elected to
terminate Executive's employment hereunder and stating the effective date of
such termination and the reason for such termination, provided that, except as
provided herein, no such action shall alter or amend any other provisions
hereof or rights arising hereunder, including, without limitation, the
provisions of Article 4 hereof. Any notice of termination from the Company to
Executive shall indicate the specific termination provision of this Agreement
relied upon and set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. Except as provided in Sections 3.2(d) (if applicable),
upon any such termination, the Company shall cease paying Executive the
compensation and benefits set forth in Article 2 and have no further obligation
to Executive.
ARTICLE 4
PROTECTION OF INFORMATION
Section 4.1 Disclosure to Executive. The Company shall disclose to
Executive, or place Executive in a position to have access to or develop, trade
secrets or confidential information of the Company and/or its affiliates;
and/or shall entrust Executive with business opportunities of the Company
and/or its affiliates; and/or shall place Executive in a position to develop
business good will on behalf of the Company and/or its affiliates.
4
<PAGE> 6
Section 4.2 Disclosure to and Property of the Company. Executive
agrees not to disclose or utilize, for Executive's personal benefit or for the
direct or indirect benefit of any other person or entity, or for any other
reason, whether for consideration or otherwise, during the term of his
employment or at any time thereafter, any information, ideas, concepts,
improvements, discoveries or inventions, whether patentable or not, which are
conceived, made, developed, or acquired by Executive, individually or in
conjunction with others, during Executive's employment by the Company (whether
during business hours or otherwise and whether on the Company's premises or
otherwise) which relate to the business, products, or services of the Company
(including, without limitation, all such business ideas, prospects, proposals
or other opportunities which are developed by Executive during his employment,
or originated by any third party and brought to the attention of Executive
during his employment, together with information relating thereto (including,
without limitation, data, memoranda, opinions or other written, electronic or
charted means, or any other trade secrets or other confidential or proprietary
information of or concerning the Company)) (collectively, "Business
Information"). Moreover, all documents, drawings, notes, files, data, records,
correspondence, manuals, models, specifications, computer programs, E-mail,
voice mail, electronic databases, maps, and all other writings or materials of
any type embodying any such Business Information are and shall be the sole and
exclusive property of the Company. Upon termination of Executive's employment
by the Company, for any reason, Executive promptly shall deliver all Business
Information, and all copies thereof, to the Company.
Section 4.3 No Unauthorized Use or Disclosure. Executive will not, at
any time during or after Executive' s employment by the Company, make any
unauthorized disclosure of Business Information of the Company or its
affiliates, or make any use thereof, except in the carrying out of Executive's
employment responsibilities hereunder. Affiliates of the Company shall be third
party beneficiaries of Executive's obligations under this Article 4. As a
result of knowledge of confidential Business Information of third parties, such
as customers, suppliers, partners, joint ventures, and the like, of the Company
and its affiliates, Executive also agrees to preserve and protect the
confidentiality of such third party Business Information to the same extent,
and on the same basis, as the Company's Business Information.
Section 4.4 Ownership by the Company. If during Executive's employment
by the Company, Executive creates any work of authorship fixed in any tangible
medium of expression which is the subject matter of copyright (such as written
presentations, computer programs, E-mail, voice mail, electronic databases,
drawings, maps, models, manuals, brochures, or the like) relating to the
Company's business, whether such work is created solely by Executive or jointly
with others (whether during business hours or otherwise and whether on the
Company's premises or otherwise), the Company shall be deemed the author of
such work if the work is prepared by Executive in the scope of Executive's
employment; or, if the work is not prepared by Executive within the scope of
Executive's employment but is specially ordered by the Company as a
contribution to a collective or compiled work then the work shall be considered
to be work made for hire and the Company shall be author of the work. If such
work is neither prepared by Executive within the scope of Executive's
employment nor a work specially ordered that is deemed to be a work made for
hire, then Executive hereby agrees to assign, and by these presents does
assign, to the Company all of Executive's worldwide right, title, and interest
in and to such work and all rights of copyright therein free and clear of any
liens, security interests or any other adverse claims.
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<PAGE> 7
Section 4.5 Assistance by Executive. Both during the period of
Executive's employment by the Company and thereafter, Executive shall assist
the Company and its nominee, at any time, in the protection of the Company's
worldwide right, title, and interests in and to information, ideas, concepts,
improvements, discoveries, and inventions, and copyrighted works including
without limitation, the execution of all formal assignment documents requested
by the Company or its nominee and the execution of all lawful oaths and
applications for patents and registration of copyright in the United States or
foreign countries.
Section 4.7 No Conflicts, Disclose. In keeping with Executive's duties
to the Company during the period of Executive' s employment by the Company,
Executive shall not, acting alone or in conjunction with others, directly or
indirectly, become involved in any conflict of interest, or upon discovery
thereof, allow such a conflict to continue. Executive shall promptly disclose
to the Company any facts that might involve any reasonable possibility of a
conflict of interest. It is agreed that any direct or indirect interest in,
connection with, or benefit from any outside activities, particularly
commercial activities, which interest might in any way adversely affect the
Company involves a possible conflict of interest. Circumstances in which a
conflict of interest on the part of Executive would or might arise, and which
should be reported immediately by Executive to the Company include, but are not
limited to, the following: (a) acceptance, directly or indirectly, of payments,
services or loans from a supplier, contractor, subcontractor, customer or other
entity with which the Company does business, including, but not limited to,
gifts, trips, entertainment or other favors of more than nominal value; (b)
misuse of information or facilities of the Company to which Executive has
access in a manner which is detrimental to the interests of the Company such as
utilization for Executive's own benefit of know-how or information developed
through the business or research activities of the Company; and (c) the
appropriation to Executive or the diversion to others, directly or indirectly,
of any business opportunity with respect to which it is known or could
reasonably be anticipated that the Company would be interested such as the
opportunity for the creation of a joint venture or other business relationship,
or the marketing of products, services or the like. Executive shall make full
disclosure to the Company of any and all business opportunities pertaining to
the Company's business.
Section 4.8 Statements Concerning the Company. Executive shall
refrain, both during his employment relationship with the Company and after
such employment relationship terminates, from publishing any oral or written
statements about the Company, any of its affiliates, or any of such entities'
officers, executives, agents or representatives that are slanderous, libelous,
or defamatory; or that disclose private or confidential information about the
Company, any of its affiliates, or any of such entities' business affairs,
officers, executives, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of the Company, any of its
affiliates, or any of such entities' officers, executives, agents or
representatives or that give rise to unreasonable publicity about the private
lives of the Company, any of its affiliates, or any of such entities' officers,
executives, agents, or representatives; or that place the Company, any of its
affiliates, or any of such entities' officers, executives, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of the Company, any of its affiliates,
or any of such entities' officers, employees, agents, or representatives.
6
<PAGE> 8
Section 4.9 Covenants. In consideration of the acknowledgements and
agreements by Executive in Section 4.11 hereof, and in consideration of the
compensation and benefits to be paid or provided to Executive by the Company,
Executive covenants that he will not, directly or indirectly:
(a) if Executive's employment hereunder is terminated by the
Company during the Term pursuant to Section 3.2(d), until the date on
which the Company ceases paying the Executive pursuant to Section
3.2(d), Executive shall not engage or invest in, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with,
or in any manner connected with, lend Executive's name or any similar
name to, lend Executive's credit to or render services or advice to,
any business whose products or activities compete in whole or in part
with the products or activities of the Company or any affiliate of the
Company, which restriction, because of Executive's position, duties
and responsibilities as Executive Vice President Finance and
Administration of the Company, shall have effect and be enforceable
anywhere within the geographic areas in which the Company or any such
affiliate now or hereafter conducts its business; provided, however,
that Executive may purchase or otherwise acquire up to (but not more
than) one percent of any class of securities of any enterprise (but
only as a passive investor and without otherwise participating in the
activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(b) at any time during Executive's employment hereunder and
for a period beginning on the date of termination of Executive's
employment with the Company and ending on the third anniversary of the
Executive's termination of employment, whether for Executive's own
account or for the account of any other person, solicit business of
the same or similar type being carried out by the Company or any
affiliate of the Company, from any customer of the Company or any such
affiliate during or after Executive's employment hereunder, whether or
not Executive had personal contact with such person; or
(c) at any time during Executive's employment hereunder and
for a period beginning on the date of termination of Executive's
employment with the Company and ending on the third anniversary of the
Executive's termination of employment, whether for Executive's own
account or the account of any other person, (i) solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise,
any person who is or was an employee of the Company or any affiliate
of the Company at any time during or after Executive's employment with
the Company or in any manner induce or attempt to induce any employee
of the Company or any such affiliate to terminate his employment with
the Company; or (ii) interfere with the Company's or any affiliate's
relationship with any person, including any person who at any time
during or after Executive's employment with the Company is or was an
employee, contractor, supplier, or customer of the Company or such
affiliate.
If any covenant in this Section 4.9 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic
7
<PAGE> 9
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against Executive.
Executive will, while the covenant under this Section 4.9 is in
effect, give notice to the Company, within ten days of accepting any other
employment, of the identity of Executive's new employer. The Company may notify
such new employer that Executive is bound by this Agreement.
Section 4.10 Remedies. Executive acknowledges that money damages would
not be sufficient remedy for any breach of this Article by Executive, and the
Company shall be entitled to enforce the provisions of this Article by specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach
of this Article, but shall be in addition to all remedies available at law or
in equity to the Company, including the recovery of damages from Executive and
his agents involved in such breach and remedies available to the Company
pursuant to any other agreement with Executive.
Section 4.11 Reasonableness. Executive expressly acknowledges,
recognizes and agrees that the restraints imposed by this Article 4 are (a)
reasonable as to time, geographic limitation and scope of activity; (b)
reasonably necessary to the enjoyment by the Company of the value of its assets
and to protect its legitimate interests; and (c) not oppressive. Executive
further expressly recognizes and agrees that the restraints imposed by this
Article 4 represent a reasonable and necessary restriction for the protection
of the legitimate interests of the Company, that it is and will continue to be
difficult to ascertain the harm and damages to the Company that a failure by
Executive to comply with such restrictions would cause, that the consideration
received by Executive for entering into these covenants and agreements is fair,
that the covenants and agreements and their enforcement will not deprive
Executive of his ability to earn a reasonable living in the oil and gas
industry or otherwise, and that Executive has knowledge and skills in his field
that will allow him to obtain employment without violating these covenants and
agreements. Executive further expressly acknowledges that he has been
encouraged to and has consulted independent counsel, and has reviewed and
considered this Agreement with that counsel before executing this Agreement.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Notices. For purposes of this Agreement, notices and other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company to: Grant Geophysical, Inc.
Attention: Chief Executive Officer
16850 Park Row
Houston, Texas 77084
Phone: 281-398-9503
8
<PAGE> 10
If to Executive to: Thomas Easley
16850 Park Row
Houston, Texas 77084
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
Section 5.2 Applicable Law. This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the State of Texas without
regard to its conflicts of law principles.
Section 5.3 No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require compliance
with, any condition or provision of this Agreement shall be deemed a wavier of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Section 5.4 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or unenforceable,
then the invalidity or unenforceability of that provision shall not affect the
validity or enforceability of any other provision of this Agreement, and all
other provisions shall remain in full force and effect.
Section 5.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
Section 5.6 Withholding of Taxes and Other Employee Deductions. The
Company may withhold from any benefits and payments made pursuant to this
Agreement all federal, state, city and other taxes as may be required pursuant
to any law or governmental regulation or ruling and all other normal employee
deductions made with respect to the Company's employees generally.
Section 5.7 Headings. The Section headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
Section 5.8 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
Section 5.9 Affiliate. As used in this Agreement, the term "affiliate"
shall mean any entity which owns or controls, is owned or controlled by, or is
under common ownership or control with, the entity or person in question.
Section 5.10 Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of the Company, by merger
or otherwise. Except as provided in the preceding sentence, this Agreement, and
the rights and obligations of the parties hereunder, are personal and neither
this Agreement, nor any right, benefit, or obligation of either party hereto,
shall
9
<PAGE> 11
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent
of the other party.
Section 5.11 Entire Agreement. Except as provided in any signed
written agreement contemporaneously or hereafter executed by the Company and
Executive, this Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
employment of Executive by the Company. Without limiting the scope of the
preceding sentence, all prior understandings and agreements among the parties
hereto relating to the subject matter hereof are hereby null and void and of no
further force and effect. Any modification of this Agreement will be effective
only if it is in writing and signed by the party to be charged.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
COMPANY:
GRANT GEOPHYSICAL, INC.
By:
-------------------------------------
Richard H. Ward
President and Chief Executive Officer
EXECUTIVE:
-------------------------------------
Thomas Easley
10
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